UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Freddie Mac

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

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

(State or other jurisdiction of

incorporation or organization)

(Address of principal executive offices,

including zip code)

Identification No.) including area code)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject 

to such filing requirements for the past 90 days. Yes [X] No [ ]

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

File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or 

for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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

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

amendment to this Form 10-K. [X]

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

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

Large accelerated filer [ X ] Accelerated filer [ ]

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

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

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

sold on June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1.2 billion.

As of February 2, 2017, there were 650,053,863 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None
Table of Contents

Freddie Mac 2016 Form 10-K i

TABLE OF CONTENTS

Page

INTRODUCTION

ABOUT FREDDIE MAC

OUR BUSINESS

FORWARD-LOOKING STATEMENTS

SELECTED FINANCIAL DATA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

KEY ECONOMIC INDICATORS

CONSOLIDATED RESULTS OF OPERATIONS

CONSOLIDATED BALANCE SHEETS ANALYSIS

OUR BUSINESS SEGMENTS

RISK MANAGEMENT

CREDIT RISK

OPERATIONAL RISK

MARKET RISK

LIQUIDITY AND CAPITAL RESOURCES

CONSERVATORSHIP AND RELATED MATTERS

REGULATION AND SUPERVISION

CONTRACTUAL OBLIGATIONS

OFF-BALANCE SHEET ARRANGEMENTS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

RISK FACTORS

LEGAL PROCEEDINGS

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED

STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

SECURITIES

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONTROLS AND PROCEDURES

DIRECTORS, CORPORATE GOVERNANCE, AND EXECUTIVE OFFICERS

DIRECTORS

CORPORATE GOVERNANCE

EXECUTIVE OFFICERS

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION AND RISK

2016 COMPENSATION INFORMATION FOR NEOs

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRINCIPAL ACCOUNTING FEES AND SERVICES

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

GLOSSARY

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E-1
Introduction About Freddie Mac

Freddie Mac 2016 Form 10-K 1

INTRODUCTION

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

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

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

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

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

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

of this Form 10-K.

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

ABOUT FREDDIE MAC

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

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

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

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

mortgage-related securities. We do not originate loans or lend money directly to 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, which we do primarily by providing financing for workforce housing. We have helped many 

distressed borrowers keep their homes or avoid foreclosure. We are working with FHFA, our customers 

and the industry to build a better housing finance system for the nation.

CONSERVATORSHIP AND GOVERNMENT SUPPORT FOR OUR BUSINESS

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

Conservator. The conservatorship and related matters significantly affect our management, business 

activities, financial condition, and results of operations. Our future is uncertain, and the conservatorship 

has no specified termination date. We do not know what changes may occur to our business model 

during or following conservatorship, including whether we will continue to exist.

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

constrain our business activities. However, the support provided by Treasury pursuant to the Purchase 

Agreement also enables us to have adequate liquidity to conduct our normal business activities. The 

Purchase Agreement requires our future profits to be distributed to Treasury, and we cannot retain capital 

from the earnings generated by our business operations (other than a limited amount that will decrease to 

zero in 2018) or return capital to stockholders other than Treasury. Consequently, 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. 

For more information on the conservatorship and government support for our business, see “MD&A - 

Conservatorship and Related Matters” and Note 2.

The tables and graphs below show our cumulative draws from Treasury and cumulative dividend 

payments to Treasury under the Purchase Agreement. The Treasury draw amounts shown are the total 

draws requested based on our quarterly net deficits for the periods presented. Draw requests are funded 
Introduction About Freddie Mac

Freddie Mac 2016 Form 10-K 2

in the quarter subsequent to any net deficit. Under the Purchase Agreement, the payment of dividends 

does not reduce the outstanding liquidation preference of the senior preferred stock, which remains $72.3 

billion. The amount of available funding remaining under the Purchase Agreement is $140.5 billion, and 

would be reduced by any future draws.

Draws From Treasury

(In billions) Total

Total Senior Preferred Stock Outstanding $72.3

Less: Initial Liquidation Preference 1.0

Treasury Draws $71.3

Dividend Payments to Treasury

(In billions) Total

Dividend Payments as of 12/31/16 $101.4

Scheduled Q1 2017 Dividend Obligation 4.5

Total Dividend Payments $105.9
Introduction About Freddie Mac

Freddie Mac 2016 Form 10-K 3

CONSOLIDATED FINANCIAL RESULTS

Comprehensive Income

Our comprehensive income for 2016 increased compared to 2015, primarily as a result of the following 

items:

• Lower derivative fair value losses due to an increase in longer-term interest rates during 2016 

compared to 2015 when longer-term interest rates declined slightly;

• Higher other income primarily as a result of improved pricing on K Certificates and SB Certificates, 

coupled with increased fair value gains on multifamily mortgage loans for which we have elected the 

fair value option and multifamily mortgage loan purchase commitments for which we newly elected 

the fair value option beginning in 2016, due to market spread tightening in 2016 compared to 

widening in 2015; partially offset by the following:

• Lower net interest income due primarily to continued reduction in the balance of our mortgage-related 

investments portfolio; and

• Increased losses on investment securities primarily as a result of an increase in interest rates during 

2016 compared to 2015 when longer-term interest rates declined slightly, coupled with a decrease in 

realized gains in 2016 as we sold fewer non-agency securities in an unrealized gain position. 

Our comprehensive income for 2015 declined compared to 2014, primarily as a result of the following 

items:
Introduction About Freddie Mac

Freddie Mac 2016 Form 10-K 4

• Lower other income, as we did not have any significant litigation settlements in 2015 related to our 

investments in non-agency mortgage-related securities. By comparison, we had a number of 

favorable significant litigation settlements in 2014;

• We recorded fair value losses in 2015 on certain mortgage loans and mortgage-related securities that 

are measured at fair value due to market spread widening, while in 2014 we recorded gains due to 

market spread tightening; partially offset by

• Lower derivative fair value losses in 2015 than in 2014. Longer-term interest rates declined less in 

2015 than in 2014, when the yield curve also flattened, leading to lower losses. 

Variability of Earnings

Our financial results are subject to significant earnings variability from period to period. This variability is 

primarily driven by:

• Interest-Rate Volatility — We hold assets and liabilities that expose us to interest-rate risk. Through 

our use of derivatives, we manage our exposure to interest-rate risk on an economic basis to a low 

level as measured by our models. However, the way we account for our financial assets and liabilities 

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

derivatives, creates volatility in our GAAP earnings when interest rates fluctuate. Based upon the 

composition of our financial assets and liabilities, including derivatives, at December 31, 2016, we 

generally recognize fair value losses in earnings when interest rates decline. This volatility generally 

is not indicative of the underlying economics of our business. For information about our interest-rate 

risk management activities and the sensitivity of our financial results to interest-rate volatility, see 

"MD&A - Consolidated Results of Operations - Derivative Gains (Losses) - Explanation of Key Drivers 

of Derivative Gains (Losses)", "MD&A - Consolidated Results of Operations - Other Key Drivers - 

Items Affecting Multiple Lines - Debt Funding Strategies and Interest-Rate Risk Management 

Activities," and "MD&A - Risk Management - Market Risk."

• Spread Volatility — The volatility of market spreads (i.e., credit spreads, liquidity spreads, risk 

premiums, etc.), or OAS, is the risk associated with changes in the excess of market interest rates 

over benchmark rates. We hold assets and liabilities that expose us to spread volatility, which may 

contribute to significant GAAP earnings volatility. For financial assets measured at fair value, we 

generally recognize fair value losses when market spreads widen. Conversely, for financial liabilities 

measured at fair value, we generally recognize fair value gains when market spreads widen. 

The variability of GAAP earnings and the declining capital reserve required under the terms of the 

Purchase Agreement (ultimately reaching zero in 2018) increase the risk of our having a negative net 

worth and thus being required to draw from Treasury. We could face a risk of a draw for a variety of 

reasons, including if we were to experience a large decrease in interest rates, which would result in GAAP

losses due to measurement differences, coupled with a large widening of market spreads. 

In an effort to reduce the probability of a draw due to changes in interest rates, we entered into certain 

transactions, including structured transactions, during 2016 that have resulted in additional financial 

assets being recognized and measured at fair value, which will help to reduce the measurement 

differences. In addition, in the first quarter of 2017, we began using hedge accounting for certain singlefamily mortgage loans, which is intended to partially reduce the interest-rate volatility in our GAAP

earnings by eliminating a portion of the measurement differences between our GAAP financial results and 

the underlying economics of our business.
Introduction Our Business

Freddie Mac 2016 Form 10-K 5

OUR BUSINESS

PRIMARY BUSINESS STRATEGIES

Our primary business strategies describe how we plan to pursue our Charter Mission over a timeframe of 

two to four years, or approximately through 2018 to 2020. Our core assumption is that the 

conservatorship will continue with no material changes during that period. These strategies complement 

FHFA's annual Conservatorship Scorecards.

Charter Mission

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

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

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

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

Our Twin Goals

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

• A Better Freddie Mac; and

• A Better Housing Finance System

Our Key Strategies

A Better Freddie Mac

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

• Being a very effective operating organization;

• Being a market leader through customer focus and innovation; and

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

A Better Housing Finance System

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

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

• Modernizing and improving the functioning of the mortgage markets;

• Developing greater responsible access to housing finance; and

• Reducing taxpayer exposure to mortgage risks.

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

"MD&A — Our Business Segments."
Introduction Our Business

Freddie Mac 2016 Form 10-K 6

OUR CHARTER

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

• Provide stability in the secondary market for residential loans;

• Respond appropriately to the private capital market;

• Provide ongoing assistance to the secondary market for residential loans (including activities relating 

to loans for low- and moderate-income families, involving a reasonable economic return that may be 

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

improving the distribution of investment capital available for residential mortgage financing; and

• Promote access to mortgage loan credit throughout the U.S. (including central cities, rural areas, and 

other underserved areas) by increasing the liquidity of mortgage investments and improving the 

distribution of investment capital available for residential mortgage financing.

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

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

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

mortgage insurance on the portion of the UPB of the loan that exceeds an 80% LTV ratio, a seller's 

agreement to repurchase or replace a defaulted loan, or the retention by the seller of at least a 10% 

participation interest in the loan. 

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

guarantee, insurance or other obligation by the U.S. or any of its agencies or instrumentalities (e.g., the 

FHA, the VA, or the USDA Rural Development). Additionally, as part of HARP, we purchase single-family 

loans that refinance loans we currently own or guarantee without obtaining additional credit enhancement 

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

80%.

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

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

which consists of loans originated with UPBs at or below limits determined annually based on changes in 

FHFA’s housing price index. The base conforming loan limit for a one-family residence has been set at 

$424,100 for 2017, and was set at $417,000 from 2006 to 2016. Higher limits have been established in 

certain “high-cost” areas (for 2017, up to $636,150 for a one-family residence). Higher limits also apply to 

two- to four-family residences and to loans secured by properties in Alaska, Guam, Hawaii, and the U.S. 

Virgin Islands.
Introduction Our Business

Freddie Mac 2016 Form 10-K 7

BUSINESS SEGMENTS

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

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

information on our segments, see “MD&A - Our Business Segments" and Note 11.

EMPLOYEES

At February 2, 2017, we had 5,959 full-time and 45 part-time employees. 

PROPERTIES

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

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

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

geographic locations other than the United States and its territories.

AVAILABLE INFORMATION

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

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

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

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

information typically provided in an annual proxy statement.

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

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

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

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

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

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

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

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

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

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

not incorporated into this Form 10-K.

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

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

under an off-balance sheet arrangement. The disclosure must be made in a current report on Form 8-K 

under Item 2.03 or, if the obligation is incurred in connection with certain types of securities offerings, in 

prospectuses for that offering that are filed with the SEC.

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

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

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

Freddie Mac 2016 Form 10-K 8

obligations, we report these types of obligations either in offering circulars or supplements thereto that we 

post on our website or in a current report on Form 8-K, in accordance with a “no-action” letter we received 

from the SEC staff. In cases where the information is disclosed in an offering circular, the document will 

be posted on our website within the same time period that a prospectus for a non-exempt securities 

offering would be required to be filed with the SEC.

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

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

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

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

www.freddiemac.com/creditriskofferings and www.freddiemac.com/multifamily/investors/structured-creditrisk, respectively.

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

obligations (e.g., K 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 related offering circular supplements.
Introduction Forward-Looking Statements

Freddie Mac 2016 Form 10-K 9

FORWARD-LOOKING STATEMENTS

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

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

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

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

objectives for the Single-family Guarantee, Multifamily, and Investments 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 “objective,” “expect,” “possible,” “trend,” “forecast,” “anticipate,” 

“believe,” “intend,” “could,” “future,” “may,” “will,” and similar phrases. These statements are not historical 

facts, but rather represent our expectations based on current information, plans, judgments, assumptions, 

estimates, and projections. Actual results may differ significantly from those described in or implied by 

such forward-looking statements due to various factors and uncertainties, including those described in the 

“Risk Factors” section of this Form 10-K, and:

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

to take, including to 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 obligation 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 any changes to its 

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

securities;

• 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 versus purchase, and fixed-rate versus ARM);

• The success of our efforts to mitigate our losses on our Legacy single-family book and our 

investments in non-agency mortgage-related securities;

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

Certificate and other credit risk transfer transactions;

• Our ability to maintain adequate liquidity to fund our operations;

• Our ability to maintain the security of our operating systems and infrastructure (e.g., against 

cyberattacks);

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

efficiency;

• The adequacy of our risk management framework;

• Our ability to manage mortgage credit risks, 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 
Introduction Forward-Looking Statements

Freddie Mac 2016 Form 10-K 10

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

interest-rate risk management purposes;

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

financial statements, make business decisions, and manage risks;

• Changes in investor demand for our debt or mortgage-related securities (e.g., single-family PCs and 

multifamily K Certificates);

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

mortgage market; and

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

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

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

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

Freddie Mac 2016 Form 10-K 11

SELECTED FINANCIAL DATA

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

consolidated financial statements and accompanying notes.

At or For the Year Ended December 31,

(Dollars in millions, except share-related amounts) 2016 2015 2014 2013 2012

Statements of Comprehensive Income Data

Net interest income $14,379 $14,946 $14,263 $16,468 $17,611

Benefit (provision) for credit losses 803 2,665 (58) 2,465 (1,890)

Non-interest income (loss) 500 (3,599) (113) 8,519 (4,083)

Non-interest expense (4,043) (4,738) (3,090) (2,089) (2,193)

Income tax (expense) benefit (3,824) (2,898) (3,312) 23,305 1,537

Net income 7,815 6,376 7,690 48,668 10,982

Comprehensive income 7,118 5,799 9,426 51,600 16,039

Net income (loss) attributable to common

stockholders 97 (23) (2,336) (3,531) (2,074)

Net income (loss) per common share - basic and

diluted 0.03 (0.01) (0.72) (1.09) (0.64)

Cash dividends per common share — — — — —

Weighted average common shares outstanding -

basic and diluted (in millions) 3,234 3,235 3,236 3,238 3,240

Balance Sheets Data

Loans held-for-investment, at amortized cost by

consolidated trusts (net of allowances for loan

losses) $1,690,218 $1,625,184 $1,558,094 $1,529,905 $1,495,932

Real estate owned, net 1,198 1,725 2,558 4,551 4,378

Total assets 2,023,376 1,985,892 1,945,360 1,965,831 1,989,557

Debt securities of consolidated trusts held by third

parties 1,648,683 1,556,121 1,479,473 1,433,984 1,419,524

Other Debt 353,321 414,148 449,890 506,537 547,219

All other liabilities 16,297 12,683 13,346 12,475 13,987

Total stockholders' equity 5,075 2,940 2,651 12,835 8,827

Portfolio Balances - UPB

Mortgage-related investments portfolio $298,426 $346,911 $408,414 $461,024 $557,544

Total Freddie Mac mortgage-related securities 1,832,810 1,729,493 1,637,086 1,592,511 1,562,040

Total mortgage portfolio 2,011,414 1,941,587 1,910,106 1,914,661 1,956,276

TDRs on accrual status 77,399 82,347 82,908 78,708 66,590

Non-accrual loans 16,272 22,649 33,130 43,457 63,005

Ratios

Return on average assets 0.4% 0.3% 0.4% 2.5% 0.5%

Allowance for loan losses as percentage of loans,

held-for-investment 0.7 0.9 1.3 1.4 1.8

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

Freddie Mac 2016 Form 10-K 12

MANAGEMENT’S DISCUSSION AND 

ANALYSIS OF FINANCIAL CONDITION 

AND RESULTS OF OPERATIONS

KEY ECONOMIC INDICATORS

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

significantly affect our business and financial results. 

SINGLE-FAMILY HOME PRICES

NATIONAL HOME PRICES

(December 2000 = 100)

EFFECT ON FINANCIAL RESULTS

• Changes in home prices affect the amount 

of equity that borrowers have in their homes. 

Borrowers with less equity typically have 

higher delinquency rates.

• As home prices decline, the severity of 

losses we incur on defaulted loans that we 

hold or guarantee increases because the 

amount we can recover from the property 

securing the loan decreases. Increases in 

home prices lower the losses we incur on 

defaulted loans.

• Declines in home prices typically result in 

increases in expected credit losses on the 

mortgage-related securities we hold.

• Declines in home prices may result in 

declines in the value of our non-agency 

mortgage-related securities as lower home 

values may increase default rates and affect 

the prepayment activities of the borrowers.

COMMENTARY

• Home prices continued to appreciate during 2016, increasing 6.5%, compared to an increase of 6.2% 

during 2015, based on our own non-seasonally adjusted price index of single-family homes funded by 

loans owned or guaranteed by us or Fannie Mae. 

• National home prices at the end of 2016 surpassed their pre-financial crisis peak reached in June 

2006, based on our index. 

• We expect near-term home price growth rates to moderate gradually and return to growth rates 

consistent with long-term historical averages of approximately 2% to 5% per year.
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

Freddie Mac 2016 Form 10-K 13

INTEREST RATES 

KEY MARKET INTEREST RATES 

EFFECT ON FINANCIAL RESULTS

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

consumer could expect to be offered on a first-lien, prime, home purchase mortgage with an LTV of 

80%. Increases in the PMMS rate typically result in decreases in refinance activity and originations. 

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

• Changes in interest rates affect the fair value of certain of our assets and liabilities, including 

derivatives, measured at fair value on a recurring basis on our consolidated balance sheets.

• For additional information on the effect of LIBOR swap rates on our financial results, see "Our 

Business Segments - Investments - Market Conditions."
Management's Discussion and Analysis Key Economic Indicators | Interest Rates

Freddie Mac 2016 Form 10-K 14

COMMENTARY

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

interest rates such as the 10-year Treasury rate and the 10-year LIBOR rate. When these rates 

increase, mortgage interest rates for 30-year fixed-rate loans usually also increase. When these rates 

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

• Longer-term interest rates, as indicated by the 10-year LIBOR rate and the 10-year Treasury rate, 

and mortgage interest rates, as indicated by the 30-year PMMS rate, both increased significantly 

during the fourth quarter of 2016, which caused rates to be higher at the end of 2016 than the end of 

2015. However, average interest rates were lower in 2016 compared to 2015 and lower in 2015 

compared to 2014.

• The Federal Reserve raised short-term interest rates in December 2015 and again in December 

2016. 
Management's Discussion and Analysis Key Economic Indicators | Unemployment Rate

Freddie Mac 2016 Form 10-K 15

UNEMPLOYMENT RATE

UNEMPLOYMENT RATE AND JOB 

CREATION

Source: U.S. Bureau of Labor Statistics

 

EFFECT ON FINANCIAL RESULTS

• Changes in the unemployment rate can 

affect several market factors, including the 

demand for both single-family and 

multifamily housing and the level of loan 

delinquencies.

• Decreases in the unemployment rate 

typically result in lower levels of 

delinquencies, which often result in a 

decrease in expected credit losses on our 

total mortgage portfolio. 

• Increases in the unemployment rate typically 

result in higher levels of delinquencies, 

which often result in an increase in expected 

credit losses on our total mortgage portfolio. 

COMMENTARY

• Monthly net new job growth decreased during 2016.

• The unemployment rate declined slightly in 2016.
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 16

CONSOLIDATED RESULTS OF OPERATIONS

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

consolidated financial statements and accompanying notes. 

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

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Net interest income $14,379 $14,946 $14,263 ($567) (4)% $683 5 %

Benefit (provision) for credit losses 803 2,665 (58) (1,862) (70)% 2,723 4,695 %

Net interest income after benefit (provision) for

credit losses 15,182 17,611 14,205 (2,429) (14)% 3,406 24 %

Non-interest income (loss):

Gains (losses) on extinguishment of debt (211) (240) (422) 29 12 % 182 43 %

Derivative gains (losses) (274) (2,696) (8,291) 2,422 90 % 5,595 67 %

Net impairment of available-for-sale securities

recognized in earnings (191) (292) (938) 101 35 % 646 69 %

Other gains (losses) on investment securities

recognized in earnings (78) 508 1,494 (586) (115)% (986) (66)%

Other income (loss) 1,254 (879) 8,044 2,133 243 % (8,923) (111)%

Total non-interest income (loss) 500 (3,599) (113) 4,099 114 % (3,486) (3,085)%

Non-interest expense:

Administrative expense (2,005) (1,927) (1,881) (78) (4)% (46) (2)%

REO operations expense (287) (338) (196) 51 15 % (142) (72)%

Temporary Payroll Tax Cut Continuation Act of

2011 expense (1,152) (967) (775) (185) (19)% (192) (25)%

Other expense (599) (1,506) (238) 907 60 % (1,268) (533)%

Total non-interest expense (4,043) (4,738) (3,090) 695 15 % (1,648) (53)%

Income before income tax expense 11,639 9,274 11,002 2,365 26 % (1,728) (16)%

Income tax expense (3,824) (2,898) (3,312) (926) (32)% 414 13 %

Net income 7,815 6,376 7,690 1,439 23 % (1,314) (17)%

Total other comprehensive income (loss), net of

taxes and reclassification adjustments (697) (577) 1,736 (120) (21)% (2,313) (133)%

Comprehensive income $7,118 $5,799 $9,426 $1,319 23 % ($3,627) (38)%

See “Critical Accounting Policies and Estimates” for information concerning certain significant accounting 

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

on our accounting policies and a summary of other significant accounting policies and the related notes in 

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

Freddie Mac 2016 Form 10-K 17

NET INTEREST INCOME

EXPLANATION OF KEY DRIVERS OF NET INTEREST INCOME

Net interest income consists of several primary components: 

• Contractual net interest income - consists of two primary components:

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

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

The difference between the interest income on the loans and the interest expense on the debt 

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

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

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

Temporary Payroll Tax Cut Continuation Act of 2011; and

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

loans held by consolidated trusts, and the interest expense incurred on the liabilities used to fund 

those assets. 

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

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

related interest-bearing liabilities.

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

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

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

instrument. 

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

trusts. Amortization related to investment securities, other debt, and other assets and liabilities makes 

up a smaller portion. Net amortization of loans and debt securities of consolidated trusts generally 

increases net interest income as it includes amortization of the upfront delivery fees we receive when 

we acquire a loan.

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

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

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

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

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

subsequent to the date these proceeds are received by us. 

• Expense related to derivatives - consists of deferred gains and losses on closed cash flow hedges 

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

related forecasted transaction affects net interest income.
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac 2016 Form 10-K 18

NET INTEREST YIELD ANALYSIS

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

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

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

Mortgage loans on non-accrual status, where interest income is generally recognized when collected, are 

included in the average balances.

Year Ended December 31,

2016 2015 2014

(Dollars in millions)

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

Average

Balance

Interest

Income

(Expense)

Average

Rate

Interest-earning assets:

Cash and cash

equivalents $16,932 $42 0.25% $12,482 $8 0.06% $13,889 $4 0.03%

Securities purchased

under agreements to

resell 59,639 217 0.36 51,219 58 0.11 42,905 28 0.06

Advances to lenders 484 11 2.28 161 4 2.48 — — —

Mortgage-related

securities:

Mortgage-related

securities 189,982 7,262 3.82 226,162 8,706 3.85 256,548 10,027 3.91

Extinguishment of

PCs held by Freddie

Mac (94,624) (3,509) (3.71) (107,986) (3,929) (3.64) (111,545) (4,190) (3.76)

Total mortgagerelated securities,

net 95,358 3,753 3.94 118,176 4,777 4.04 145,003 5,837 4.03

Non-mortgage-related

securities 15,734 102 0.65 10,699 17 0.16 9,983 6 0.06

Loans held by 

consolidated trusts(1) 1,649,727 55,417 3.36 1,590,768 55,867 3.51 1,540,570 57,036 3.70

Loans held by Freddie 

Mac(1) 135,882 5,623 4.14 157,261 6,359 4.04 170,017 6,569 3.86

Total interestearning assets $1,973,756 $65,165 3.30 $1,940,766 $67,090 3.46 $1,922,367 $69,480 3.61

Interest-bearing liabilities:

Debt securities of

consolidated trusts

including PCs held by

Freddie Mac $1,674,474 ($48,108) (2.87) $1,611,388 ($49,465) (3.07) $1,557,895 ($52,193) (3.35)

Extinguishment of PCs

held by Freddie Mac (94,624) 3,509 3.71 (107,986) 3,929 3.64 (111,545) 4,190 3.76

Total debt securities of

consolidated trusts

held by third parties 1,579,850 (44,599) (2.82) 1,503,402 (45,536) (3.03) 1,446,350 (48,003) (3.32)

Other debt:

Short-term debt 86,284 (350) (0.41) 108,096 (173) (0.16) 118,211 (145) (0.12)

Long-term debt 298,040 (5,646) (1.89) 313,502 (6,207) (1.98) 331,887 (6,768) (2.04)

Total other debt 384,324 (5,996) (1.56) 421,598 (6,380) (1.51) 450,098 (6,913) (1.54)

Total interestbearing liabilities 1,964,174 (50,595) (2.57) 1,925,000 (51,916) (2.70) 1,896,448 (54,916) (2.89)

Expense related to

derivatives — (191) (0.01) — (228) (0.01) — (301) (0.02)

Impact of net noninterest-bearing funding 9,582 — 0.01 15,766 — 0.02 25,919 — 0.04

Total funding of

interest-earning

assets $1,973,756 ($50,786) (2.57) $1,940,766 ($52,144) (2.69) $1,922,367 ($55,217) (2.87)

Net interest income/

yield $14,379 0.73% $14,946 0.77% $14,263 0.74%
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac 2016 Form 10-K 19

(1) Loan fees, primarily consisting of amortization of delivery fees, included in interest income were $2.6 billion, $2.0 billion, and $1.4 billion for 

loans held by consolidated trusts and $215 million, $383 million, and $373 million for loans held by Freddie Mac during 2016, 2015, and 2014, 

respectively.

NET INTEREST INCOME RATE / VOLUME ANALYSIS

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

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

mortgage loans that are on non-accrual status.

2016 vs. 2015 Variance Due to 2015 vs. 2014 Variance Due to

(Dollars in millions) Rate Volume

Total

Change Rate Volume

Total

Change

Interest-earning assets:

Cash and cash equivalents $34 $— $34 $6 ($2) $4

Securities purchased under agreements to

resell 147 12 159 24 6 30

Advances to lenders — 7 7 — 4 4

Mortgage-related securities:

Mortgage-related securities (61) (1,383) (1,444) (149) (1,172) (1,321)

Extinguishment of PCs held by Freddie

Mac (74) 494 420 129 132 261

Total mortgage-related securities, net (135) (889) (1,024) (20) (1,040) (1,060)

Non-mortgage-related securities 74 11 85 11 — 11

Loans held by consolidated 

trusts (2,479) 2,029 (450) (2,991) 1,822 (1,169)

Loans held by Freddie Mac 146 (882) (736) 297 (507) (210)

Total interest-earning assets ($2,213) $288 ($1,925) ($2,673) $283 ($2,390)

Interest-bearing liabilities:

Debt securities of consolidated trusts

including PCs held by Freddie Mac $3,246 ($1,889) $1,357 $4,476 ($1,748) $2,728

Extinguishment of PCs held by Freddie

Mac 74 (494) ($420) (129) (132) ($261)

Total debt securities of consolidated

trusts held by third parties 3,320 (2,383) $937 4,347 (1,880) 2,467

Other debt:

Short-term debt (218) 41 (177) (41) 13 (28)

Long-term debt 262 299 561 193 368 561

Total other debt 44 340 384 152 381 533

Total interest-bearing liabilities 3,364 (2,043) 1,321 4,499 (1,499) 3,000

Expense related to derivatives 37 — 37 73 — 73

Total funding of interest-earning

assets $3,401 ($2,043) $1,358 $4,572 ($1,499) $3,073

Net interest income $1,188 ($1,755) ($567) $1,899 ($1,216) $683
Management's Discussion and Analysis Consolidated Results of Operations | Net Interest Income

Freddie Mac 2016 Form 10-K 20

COMPONENTS OF NET INTEREST INCOME

The table below presents the components of net interest income.

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Contractual net interest income:

Guarantee fee income $2,997 $2,722 $2,399 $275 10 % $323 13 %

Guarantee fee income related to the

Temporary Payroll Tax Cut Continuation Act of

2011 1,142 957 759 185 19 % 198 26 %

Other contractual net interest income 6,896 8,106 9,070 (1,210) (15)% (964) (11)%

Total contractual net interest income 11,035 11,785 12,228 (750) (6)% (443) (4)%

Net amortization - loans and debt securities of

consolidated trusts 3,333 2,883 1,913 450 16 % 970 51 %

Net amortization - other assets and debt 202 506 423 (304) (60)% 83 20 %

Expense related to derivatives (191) (228) (301) 37 16 % 73 24 %

Net interest income $14,379 $14,946 $14,263 ($567) (4)% $683 5 %

Key Drivers:

• Guarantee fee income (contractual)

2016 vs. 2015 and 2015 vs. 2014 - increased during both comparative periods as a result of 

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

Core single-family book, and a larger overall single-family credit guarantee portfolio. Average 

contractual guarantee fees are generally higher on mortgage loans in our Core single-family book 

compared to those in our Legacy single-family guarantee book. See "Our Business Segments - 

Single-Family Guarantee" for additional discussion.

• Other contractual net interest income

2016 vs. 2015 and 2015 vs. 2014 - decreased during both comparative periods primarily due to 

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

continue to manage the size and composition of this portfolio pursuant to the limits established by 

the Purchase Agreement and FHFA. We expect this trend to continue in the future as we reduce 

our mortgage-related investments portfolio. See "Conservatorship and Related Matters - Limits 

on Our Mortgage-Related Investments Portfolio and Indebtedness" for additional discussion of 

the limits on the mortgage-related investments portfolio.

• Net amortization of loans and debt securities of consolidated trusts

2016 vs. 2015 and 2015 vs. 2014 - increased during both comparative periods primarily due to 

an increase in the amortization of upfront delivery fees and basis adjustments on debt securities 

of consolidated trusts. The increase in amortization was primarily driven by higher prepayment 

rates on single-family loans during 2016 compared to 2015 and 2015 compared to 2014. 

• Net amortization of other assets and debt

2016 vs. 2015 - decreased primarily due to less accretion of previously recognized other-thantemporary impairments. The decrease in accretion is due to a decline in the population of 

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

other-than-temporary impairments recognized.
Management's Discussion and Analysis Consolidated Results of Operations | Provision for Credit Losses

Freddie Mac 2016 Form 10-K 21

BENEFIT (PROVISION) FOR CREDIT LOSSES

EXPLANATION OF KEY DRIVERS OF PROVISION FOR CREDIT LOSSES

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

components for both collectively impaired loans and individually impaired loans. 

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

volume of newly delinquent loans and changes in estimated probabilities of default and estimated 

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

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

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

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

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

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

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

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

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

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

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

As we continue to perform loss mitigation activities that result in loans being considered individually 

impaired, the portion of our allowance for loan losses and provision for credit losses related to collectively 

impaired loans continues to decline.

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

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

When a loan is modified and considered individually impaired, we generally measure impairment based 

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

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

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

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

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

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

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

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

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

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

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

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

by a number of factors, such as the actual level of loan defaults; the effect of loss mitigation efforts; any 

government actions or programs that affect the ability of borrowers to refinance loans with an LTV ratio 

greater than 100% or obtain modifications; changes in property values; regional economic conditions, 

including unemployment rates; additional delays in the foreclosure process; and third-party mortgage 

insurance coverage and recoveries. Management adjustments may be necessary to take into 

consideration external factors and current economic events that have occurred but that are not yet 
Management's Discussion and Analysis Consolidated Results of Operations | Provision for Credit Losses

Freddie Mac 2016 Form 10-K 22

reflected in the factors used to derive the model outputs. Significant judgment is exercised in making 

these adjustments. 

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

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

BENEFIT (PROVISION) FOR CREDIT LOSSES

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

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in billions) 2016 2015 2014 $ % $ %

Provision for newly impaired loans ($0.8) ($0.9) ($1.7) $0.1 11 % $0.8 47 %

Amortization of interest rate concessions 0.9 1.2 1.4 (0.3) (25)% (0.2) (14)%

Reclassifications of held-for-investment loans

to held-for-sale loans 0.8 2.3 0.1 (1.5) (65)% 2.2 2,200 %

Other, including changes in estimated default

probability and loss severity (0.1) 0.1 0.1 (0.2) (200)% — —

Benefit (provision) for credit losses $0.8 $2.7 ($0.1) ($1.9) (70)% $2.8 2,800 %

Key Drivers:

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

decrease in the number of seasoned single-family loans reclassified from held-for-investment to heldfor sale in 2016. During 2016, $4.7 billion in UPB of single-family loans was reclassified to held-forsale, compared to $13.6 billion during 2015. See "Effect of Loan Reclassifications" for the effect of 

these loan reclassifications on pre-tax net income.

• 2015 vs. 2014 - changed to a benefit in 2015 from a (provision) in 2014 primarily due to:

An increase in the number of seasoned single-family loans reclassified from held-for-investment 

to held-for-sale in 2015. During 2014, $0.7 billion in UPB of seasoned single-family loans were 

reclassified to held-for-sale.

A decrease in the provision for newly impaired loans in 2015 compared to 2014 due to a decline 

in the volume of newly delinquent single-family loans.
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

Freddie Mac 2016 Form 10-K 23

DERIVATIVE GAINS (LOSSES)

EXPLANATION OF KEY DRIVERS OF DERIVATIVE GAINS (LOSSES)

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

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

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

the cost of funding our mortgage-related investments portfolio. 

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

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

We continue to align our derivative portfolio with the changing duration of our hedged assets and 

liabilities. Although our use of derivatives creates volatility in our GAAP earnings, we manage our 

exposure to interest-rate risk on an economic basis to a low level as measured by our models. Therefore, 

we believe the impact of derivatives on our GAAP financial results should be considered in the context of 

our overall interest-rate risk profile, including our PMVS and duration gap results. For more information 

about our interest-rate risk management activities and the sensitivity of reported GAAP earnings to those 

activities, see “Risk Management - Market Risk.” 

Derivative gains (losses) consist of both fair value changes and accrual of periodic cash settlements:

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

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

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

and the terms of our derivative instruments.

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

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

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

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

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

pay-fixed and receive-fixed interest-rate swaps. With a pay-fixed interest-rate swap, we pay a fixed 

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

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

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

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

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

results occur.

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

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

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

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

expectation of future changes in interest rates. Assuming all other factors are unchanged, including 
Management's Discussion and Analysis Consolidated Results of Operations | Derivative Gains (Losses)

Freddie Mac 2016 Form 10-K 24

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

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

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

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

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

will affect our derivative gains (losses). 

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

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

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

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

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

income.

COMPONENTS OF DERIVATIVE GAINS (LOSSES)

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

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Fair value change in interest-rate swaps $178 ($778) ($7,294) $956 123% $6,516 89 %

Fair value change in option-based

derivatives 421 258 1,437 163 63% (1,179) (82)%

Fair value change in other derivatives 887 22 191 865 3,932% (169) (88)%

Accrual of periodic cash settlements (1,760) (2,198) (2,625) 438 20% 427 16 %

Derivative gains (losses) ($274) ($2,696) ($8,291) $2,422 90% $5,595 67 %

Key Drivers:

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

interest rates during the fourth quarter of 2016 resulting in an improvement in the fair value of our 

pay-fixed interest-rate swaps and forward commitments to issue PC debt. This improvement in fair 

value was partially offset by losses in our receive-fixed-interest-rate swaps. The 10-year par swap 

rate increased 13 basis points during 2016, while the 10-year par swap rate declined 10 basis points 

during 2015. 

• 2015 vs. 2014 - derivative losses declined during 2015 primarily due to a smaller decline in interest 

rates in 2015 than in 2014. We recognized larger derivative losses during 2014 primarily as a result of 

the impact of a flattening yield curve as shorter-term interest rates increased and longer-term interest 

rates declined. The 10-year par swap rate declined 78 basis points during 2014.

• See "Our Business Segments - Investments - Market Conditions" for more information about par 

swap rates.
Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income

Freddie Mac 2016 Form 10-K 25

OTHER COMPREHENSIVE INCOME (LOSS)

EXPLANATION OF KEY DRIVERS OF OTHER COMPREHENSIVE INCOME (LOSS)

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

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

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

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

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

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

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

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

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

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

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

consolidated statements of comprehensive income.

Year Ended December 31, Change 2016 - 2015 Change 2015 - 2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Other comprehensive income, excluding

reclassifications ($29) $374 $2,563 ($403) (108)% ($2,189) (85)%

Reclassifications from AOCI:

Accretion due to significant increases in

expected cash flows on previouslyimpaired available-for-sale securities (299) (449) (519) 150 33 % 70 13 %

Realized gains (losses) reclassified from

AOCI (369) (502) (308) 133 26 % (194) (63)%

Total reclassifications from AOCI (668) (951) (827) 283 30 % (124) (15)%

Total other comprehensive income

(loss) ($697) ($577) $1,736 ($120) (21)% ($2,313) (133)%

Key Drivers:

• Other comprehensive income, excluding reclassifications

2016 vs. 2015 - was a loss in 2016 compared to income in 2015, primarily due to unrealized 

losses resulting from an increase in longer-term interest rates, coupled with a decrease in 

unrealized gains as our non-agency securities portfolio continues to decline consistent with the 

reduction of our mortgage-related investments portfolio pursuant to the limits established by the 

Purchase Agreement and FHFA. 

2015 vs. 2014 - decreased primarily due to less market spread tightening for our non-agency 

securities.

Reclassifications from AOCI

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

available-for-sale securities

2016 vs. 2015 and 2015 vs. 2014 - decreased during both comparative periods primarily due to a 

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

securities, coupled with a decline in new other-than-temporary impairments. 
Management's Discussion and Analysis Consolidated Results of Operations | Other Comprehensive Income

Freddie Mac 2016 Form 10-K 26

• Realized gains (losses) reclassified from AOCI

2016 vs. 2015 - decreased primarily due to a decline in sales of non-agency securities in an 

unrealized gain position. Our sales of non-agency securities will continue to vary as the portion of 

our portfolio that we are able to sell, based on a variety of criteria, has decreased.

2015 vs. 2014 - increased primarily due to greater sales of agency and non-agency securities in 

an unrealized gain position. The increase in sales was a result of improved pricing due to 

declining longer-term interest rates and stabilized collateral performance.
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 27

OTHER KEY DRIVERS

Key drivers for other line items for 2016 vs. 2015 and 2015 vs. 2014 include:

• Gains (losses) on extinguishment of debt

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

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

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

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

repurchased during the nine months ended September 30, 2016. 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.

2015 vs. 2014 - losses decreased primarily due to a significant decline in our repurchase of 

single-family PCs, coupled with a smaller decline in longer-term interest rates in 2015 compared 

to 2014. 

• Net impairments of available-for-sale securities recognized in earnings

2016 vs. 2015 - decreased primarily due to a decline in the population of non-agency securities, 

including those non-agency securities that we intend to sell. Our intent to sell population declined, 

as the portion of our non-agency securities that we are able to sell, based on a variety of criteria, 

has decreased.

2015 vs. 2014 - decreased as the unrealized losses associated with securities we intend to sell 

were lower due to improvements in forecasted home prices, a smaller decline in market interest 

rates in 2015 compared to 2014, and continued tightening of market spreads for our non-agency 

securities. Furthermore, the portion of the net impairment related to additional credit losses 

declined as a result of improved security pricing, stabilized collateral performance, and our efforts 

to sell certain of the previously impaired non-agency securities. See "Conservatorship And 

Related Matters - Limits On Our Mortgage-Related Investments Portfolio And Indebtedness" for 

additional information concerning our efforts to reduce our less liquid assets.

• Other gains (losses) on investment securities recognized in earnings

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

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

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

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

position.

2015 vs. 2014 - decreased primarily due to a decline in sales of our agency mortgage-related 

securities. 

• Other income (loss)

2016 vs. 2015 - other income (loss) improved reflecting:

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

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

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

benchmark spreads tightened during 2016 compared to these spreads widening during 2015.
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 28

2015 vs. 2014 - other income (loss) declined reflecting:

Decreased income from non-agency mortgage-related securities litigation settlements;

Increased write-downs due to lower-of-cost-or-fair-value adjustments for seasoned singlefamily loans reclassified from held-for-investment to held-for-sale; and

Decreased fair value of multifamily mortgage loans for which we have elected the fair value 

option, due to the widening of K Certificate benchmark spreads observed in the market.

• REO operations expense

2016 vs. 2015 - decreased resulting from a decline in REO inventory due to a decline in the 

number of seriously delinquent loans as the housing market and economy continued to improve. 

2015 vs. 2014 - increased due to a decrease in gains on the disposition of REO properties and 

recoveries from mortgage insurance. 

• Temporary Payroll Tax Cut Continuation Act of 2011 expense

2016 vs. 2015 and 2015 vs. 2014 - continued to increase as a result of the increase in the 

population of loans subject to this expense. As of December 31, 2016 and 2015, respectively, 

$1.3 trillion and $1.1 trillion of UPB of loans (or 72% and 63% of the single-family credit 

guarantee portfolio) were subject to these fees. We expect the amount of these fees will continue 

to increase as we add new business and the population of loans subject to these fees increases. 

• Other expense

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

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

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

loss reserves while the loans are classified as held-for-investment. See "Single-Family Loan 

Reclassifications" for more information. 

2015 vs. 2014 - increased primarily driven by property taxes and insurance costs associated with 

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

reclassified more loans in 2015 compared to 2014. These costs are considered part of the loan 

loss reserves while the loans are classified as held-for-investment. In addition, beginning January 

1, 2015, FHFA directed us to set aside funds that will be distributed to certain housing funds 

pursuant to the GSE Act. During 2015, we completed $393.8 billion of new business purchases 

subject to this requirement and accrued $165 million of related expense. See "MD&A - Regulation 

and Supervision - Affordable Housing Fund Allocations" for more information.

• Income tax expense

2016 vs. 2015 - increased in 2016 compared to 2015 primarily due to an increase in pre-tax 

income.

2015 vs. 2014 - decreased in 2015 compared to 2014 primarily due to a decrease in pre-tax 

income. 
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 29

ITEMS AFFECTING MULTIPLE LINES

The following items affected multiple lines on our consolidated results of operations. 

Single-Family Loan Reclassifications

During 2016, 2015, and 2014, we reclassified $4.7 billion, $13.6 billion, and $0.7 billion, respectively, in 

UPB of seasoned seriously delinquent as well as reperforming single-family mortgage loans from held-forinvestment to held-for-sale. The initial reclassifications of these loans affected several line items on our 

consolidated results of operations, as shown in the table below.

Year Ended December 31,

(Dollars in millions) 2016 2015 2014

Benefit for credit losses $812 $2,314 $147

Other income (loss) - lower-of-cost-or-fair-value adjustment (1,005) (2,193) (195)

Other (expense) - property taxes and insurance associated with

these loans (195) (1,178) (62)

Effect on income before income tax (expense) benefit ($388) ($1,057) ($110)

Debt Funding Strategies and Interest-Rate Risk Management Activities

We issue debt based on a variety of factors including market conditions and our liquidity requirements.

We use derivatives to economically hedge interest-rate sensitivity mismatches between our assets and 

liabilities. For example, depending on our strategic objectives and the duration of our mortgage-related 

assets, we may fund our business using longer-term debt or using a mix of derivatives and shorter- and 

medium-term debt. Through our use of derivatives, we manage our exposure to interest-rate risk on an 

economic basis to a low level as measured by our models. 

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, and it provides greater flexibility and opportunity to match the duration of our assets and 

liabilities in the future as we reduce the mortgage-related investments portfolio in accordance with the 

requirements of the Purchase Agreement and FHFA.

While our interest-rate risk management activities reduce our economic exposure to interest-rate risk to a 

low level, as measured by our models, the accounting treatment for our assets and liabilities, including 

derivatives, creates volatility in our GAAP earnings when interest rates fluctuate. Some assets and 

liabilities are measured at amortized cost and some are measured at fair value, while all derivatives are 

measured at fair value. These measurement differences create volatility in our GAAP earnings that 

generally is not indicative of the underlying economics of our business. In order to help reduce the 

measurement differences, we entered into certain transactions, including structured transactions, during 

2016 that have resulted in additional financial assets being recognized and measured at fair value. In 

addition, in the first quarter of 2017, we began using hedge accounting for certain single-family mortgage 

loans, which is intended to partially reduce the interest-rate volatility in our GAAP earnings by eliminating 

a portion of the measurement differences between our GAAP financial results and the underlying 

economics of our business. 
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 30

The table below presents the effect of derivatives used in our interest-rate risk management activities on 

our comprehensive income, after considering the accrual of periodic cash settlements (which is the 

economic equivalent of interest expense), the non-interest rate effect (e.g., market spread effect) on 

derivative fair values, and any offsetting interest rate effect related to financial instruments measured at 

fair value. The estimated net interest rate effect on comprehensive income is essentially the derivative 

gains (losses) attributable to financial instruments that are not measured at fair value on a recurring 

basis .

Year Ended December 31,

(Dollars in billions) 2016 2015 2014

Derivative gains (losses) ($0.3) ($2.7) ($8.3)

Less:

Accrual of periodic cash settlements (1.8) (2.2) (2.6)

Non-interest rate effect on derivative fair values (0.1) — (0.2)

Interest rate effect on derivative fair values 1.6 (0.5) (5.5)

Add:

Estimate of offsetting interest rate effect related to financial instruments 

measured at fair value(1) (1.2) 0.2 2.0

Income tax benefit (expense) (0.1) 0.1 1.2

Estimated Net Interest Rate Effect on Comprehensive income $0.3 ($0.2) ($2.3)

(1) Includes the interest-rate effect on our trading securities, available-for-sale securities, mortgage loans held-for-sale, and 

other assets and debt for which we elected the fair value option, which is reflected in other non-interest income (loss) and 

total other comprehensive income (loss) on our consolidated statements of comprehensive income.

As this table demonstrates, the estimated net effect of derivatives on our comprehensive income is 

volatile, and can be significant. For more information about our interest-rate risk management activities 

and the sensitivity of reported GAAP earnings to these activities, see “Risk Management - Market Risk.”

Changes in Market Spreads

Our financial results and net worth can be significantly affected by changes in market spreads, especially 

results driven by financial instruments that are measured at fair value. We have limited ability to mitigate 

exposure to such changes. These instruments include trading securities, available-for-sale securities, 

mortgage loans held-for-sale, and other assets and debt for which we elected the fair value option.

During the fourth quarter of 2016, we began purchasing certain swaptions on credit indices that provide 

protection against adverse movements in multifamily market spreads. While these swaptions mitigate a 

portion of our exposure to changes in multifamily market spreads, they do not mitigate our exposure to 

changes in other market spreads.

Comprehensive income (loss) was affected by changes in market spreads in amounts estimated to be 

$0.1 billion, $(0.3) billion, and $1.9 billion (after-tax) during 2016, 2015, and 2014, respectively. During 

2016, market spread tightening on our agency and non-agency mortgage-related securities and 

multifamily mortgage loans and commitments measured at fair value resulted in an increase in 

comprehensive income. During 2015, market spread widening on our agency mortgage-related securities 

and multifamily mortgage loans measured at fair value resulted in a decrease in comprehensive income. 

During 2014, the impact of market spread tightening on mortgage-related securities and mortgage loans 
Management's Discussion and Analysis Consolidated Results of Operations

Freddie Mac 2016 Form 10-K 31

measured at fair value resulted in an increase in comprehensive income. In the fourth quarter of 2016, we 

separated the market spread related gains (losses) on held-for-sale multifamily mortgage loans and 

commitments from the effect of improved pricing on K Certificates and SB Certificates. The effect of this 

improved pricing is now excluded from the estimated spread change effect.
Management's Discussion and Analysis Consolidated Balance Sheets Analysis

Freddie Mac 2016 Form 10-K 32

CONSOLIDATED BALANCE SHEETS ANALYSIS

The table below compares our summarized consolidated balance sheets.

December 31,

(Dollars in millions) 2016 2015 $ Change % Change

Assets:

Cash and cash equivalents $12,369 $5,595 $6,774 121 %

Restricted cash and cash equivalents 9,851 14,533 (4,682) (32)%

Securities purchased under agreements

to resell 51,548 63,644 (12,096) (19)%

Subtotal 73,768 83,772 (10,004) (12)%

Investments in securities, at fair value 111,547 114,215 (2,668) (2)%

Mortgage loans, net 1,803,003 1,754,193 48,810 3 %

Accrued interest receivable 6,135 6,074 61 1 %

Derivative assets, net 747 395 352 89 %

Deferred tax assets, net 15,818 18,205 (2,387) (13)%

Other assets 12,358 9,038 3,320 37 %

Total assets $2,023,376 $1,985,892 $37,484 2 %

Liabilities and Equity:

Liabilities:

Accrued interest payable $6,015 $6,183 ($168) (3)%

Debt, net 2,002,004 1,970,269 31,735 2 %

Derivative liabilities, net 795 1,254 (459) (37)%

Other liabilities 9,487 5,246 4,241 81 %

Total liabilities 2,018,301 1,982,952 35,349 2 %

Total equity 5,075 2,940 2,135 73 %

Total liabilities and equity $2,023,376 $1,985,892 $37,484 2 %

Key Drivers:

As of December 31, 2016 compared to December 31, 2015:

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

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

together. For example, cash and cash equivalents and restricted cash and cash equivalents can be 

invested in securities purchased under agreements to resell or other investments in securities (i.e., 

non-mortgage-related securities). The decrease in the combined balance was due to lower near-term 

cash needs for upcoming maturities and anticipated calls of other debt at the end of 2016 compared 

to the end of 2015.

• Deferred tax assets, net decreased primarily due to an increase in longer-term interest rates during 

2016, which caused the difference between the GAAP and tax basis of derivative instruments to 

decline.

• Other assets increased primarily because of higher receivables from servicers and an increase in 

current income tax receivable. Lower average mortgage interest rates during 2016 caused an 

increase in prepayments, and thus, an increase in receivables from servicers. The increase in the 

current income tax receivable is primarily due to an increase in estimated tax payments on account 

with the IRS.
Management's Discussion and Analysis Consolidated Balance Sheets Analysis

Freddie Mac 2016 Form 10-K 33

• Other liabilities increased primarily due to purchases of non-mortgage-related securities that were 

traded prior to December 31, 2016 and recognized on the consolidated balance sheets, but settled 

after December 31, 2016.

• Total equity increased as a result of higher comprehensive income in the fourth quarter of 2016 

compared to the fourth quarter of 2015 and was partially offset by dividends paid related to the $600 

million decline in the Capital Reserve Amount in 2016.
Management's Discussion and Analysis Our Business Segments | Segment Earnings

Freddie Mac 2016 Form 10-K 34

OUR BUSINESS SEGMENTS

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

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

Other category. 

Segment Description Primary Income Drivers Primary Expense Drivers

Singlefamily

Guarantee

Reflects results from our

purchase, securitization, and

guarantee of single-family loans

and the management of singlefamily credit risk

• Guarantee fee income • Credit-related expenses

• Administrative expenses

• Credit risk transfer expenses

Multifamily Reflects results from our

purchase, securitization, and

guarantee of multifamily loans

and securities, our investments in

those loans and securities, and

the management of multifamily

mortgage credit risk and

mortgage market spread risk

• Net interest income • Losses on loans

• Guarantee fee income • Investment losses

• Gains on loans • Derivative losses

• Investment gains • Administrative expenses

• Derivative gains • Credit-related expenses

Investments Reflects results from managing

the company’s mortgage-related

investments portfolio (excluding

Multifamily segment investments,

single-family seriously delinquent

loans, and the credit risk of

single-family performing loans),

treasury function, and interestrate risk

• Net interest income • Investment losses

• Investment gains • Derivative losses

• Derivative gains • Other-than-temporary 

impairments on non-agency 

mortgage-related securities

• Administrative expenses

All Other Consists of material corporate

level activities that are infrequent

in nature and based on decisions

outside the control of the

management of our reportable

segments

N/A N/A

SEGMENT EARNINGS

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

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

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

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

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

and all administrative expenses to our three reportable segments. 

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

(loss) and the sum of comprehensive income (loss) for each segment and the All Other category 

equals GAAP comprehensive income (loss).
Management's Discussion and Analysis Our Business Segments | Segment Earnings

Freddie Mac 2016 Form 10-K 35

During the first and third quarters of 2016, we changed how we calculate certain components of our 

Segment Earnings for our Single-family Guarantee, Multifamily, and Investments segments. Prior period 

results have been revised to conform to the current period presentation. See Note 11 for more information 

on these changes.

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

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

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

metrics to assess the financial performance of each segment and our company as a whole. See Note 11 

for additional details on Segment Earnings, including additional financial information for our segments.

SEGMENT COMPREHENSIVE INCOME

The table below shows our comprehensive income by segment, including the All Other category.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 36

SINGLE-FAMILY GUARANTEE

BUSINESS OVERVIEW

In our Single-family Guarantee segment, we purchase, securitize, and guarantee single-family loans 

originated by seller/servicers and we manage our single-family credit risk. The U.S. residential mortgage 

market consists of a primary mortgage market that links homebuyers and lenders and a secondary 

mortgage market that links lenders and investors. We participate only in the secondary mortgage market. 

The size of the U.S. residential mortgage market is affected by many factors, including changes in interest 

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

preferences regarding credit risk, and borrower preferences regarding mortgage debt. The amount of 

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

affected by several factors, including the volume of loans meeting the requirements of our Charter, our 

own preference for credit risk reflected in our purchase standards, and the loan purchase and 

securitization activity of other financial institutions.

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

A Better Freddie Mac:

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

diversified customer base and an evolving mortgage market; 

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

processes, and technology; and 

• Establishing effective risk management activities that are appropriate for the expected level of risk.

A Better Housing Finance System:

• Developing innovative technology platforms to provide sellers and Freddie Mac with better methods 

of assessing and managing single-family mortgage credit risk;

• Developing and implementing initiatives to reduce taxpayer exposure and offer private investors new 

and innovative ways to share in the credit risk of the Core single-family book;

• Expanding access to mortgage credit in a responsible manner to support our Charter Mission as well 

as to meet specific mandated goals;

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

platform; and

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

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

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

Products and Activities

Securitization and Guarantee Products

In a typical loan securitization, we purchase loans that lenders originate and then pool those loans into 

mortgage-related securities that can be sold in the capital markets. In order to issue the mortgage-related 

securities, we establish trusts pursuant to our Master Trust Agreements and serve as the trustee of those 

trusts. We administer the collection of borrowers' payments on their loans and the distribution of 

payments to the investors in the mortgage-related securities, net of any applicable guarantee fees. We 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 37

typically guarantee the payment of principal and interest on these mortgage-related securities and 

generally retain the guarantee fee income. 

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

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

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

our guarantee until we purchase the loan out of the trust. We have the option to purchase specified loans, 

including certain delinquent loans, from the trusts at a purchase price equal to the current UPB of the 

loan, less any outstanding advances of principal that have been previously distributed. After a loan is 

purchased, we work with the borrowers to mitigate our losses through our loan workout programs, which 

are discussed in more detail in "Risk Management." If we are unable to achieve a successful loan 

workout, we either sell the loan to a third party or pursue foreclosure of the underlying property. The 

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

The guarantee fee we charge on new acquisitions generally consists of a combination of upfront delivery 

fees and a base contractual monthly fee paid as a percentage of the UPB of the underlying loan. We may 

also make upfront payments to buy up the monthly guarantee fee rate ("buy-up fees"), or receive upfront 

payments to buy down the monthly guarantee fee rate (“buy-down fees”). These fees are paid in 

conjunction with the formation of a PC to provide for a uniform coupon rate for the mortgage pool 

underlying the PC. The payments made to buy up the guarantee fee rate are not considered 

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

amounts are allocated to the Investments segment. 

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

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

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

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

purchase volumes from individual customers can fluctuate significantly.

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

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

expenses on the underlying loans and provide a return on the capital that would be needed to support the 

related credit risk. To compensate us for higher levels of risk in some loan products, we charge upfront 

delivery fees above our contractual base fees, which are calculated based on credit risk factors such as 

the loan product type, loan purpose, LTV ratio, and credit score. While we vary our guarantee and, in 

certain cases, delivery fee pricing for different customers, loan products, and loan or borrower 

underwriting characteristics based on our assessment of credit risk, the seller may elect to retain loans 

with better credit characteristics. The sellers' decisions with respect to loan retention, or sale to us, could 

result in our purchases having a more adverse credit profile.

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

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

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

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

adequately for the credit risks we are taking. This directive allows us to continue to charge guarantee fees 

generally in line with the levels we had been charging at the time it was issued, but for many types of 

loans it prohibits reductions significantly below those levels.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 38

In 2012, at FHFA's direction, we increased guarantee fees by 10 basis points. Under the Temporary 

Payroll Tax Cut Continuation Act of 2011, the proceeds from this increase are being remitted to Treasury 

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

point increase in guarantee fees.

We issue the types of guarantee and securitization products described below. In these securitization 

products, Freddie Mac functions in its capacity as depositor, guarantor, administrator, and trustee. While 

the Single-family Guarantee segment is responsible for the guarantee of our securities, the Investments 

segment manages the securitization and resecuritization processes. 

• PCs - our primary single-family mortgage securitization and guarantee process involves our issuance 

of single-class PCs, which are pass-through securities that represent undivided beneficial interests in 

trusts that hold pools of loans. For our fixed-rate PCs, we guarantee the timely payment of principal 

and interest. For our ARM PCs, we guarantee the timely payment of the weighted average coupon 

interest rate for the underlying loans. We also guarantee the full and final payment of principal, but 

not the timely payment of principal, on ARM PCs. 

• Guarantor Swap PCs - we issue most of our PCs in guarantor swap transactions in which our 

customers provide us with loans in exchange for PCs, as shown in the diagram below:

• Cash PCs - we also issue PCs in transactions in which we purchase performing loans (which we 

sometimes refer to as a securitization pipeline) for cash and securitize them for retention in our 

mortgage-related investments portfolio or for sale to third parties, as shown in the diagram below. We 

also use this process to securitize reperforming loans. The purchase of loans and sale of PCs are 

managed by the Investments segment. 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 39

Resecuritization Products - our resecuritization products represent beneficial interests in pools of PCs 

and certain other types of mortgage assets. We create these securities primarily by using PCs or our 

previously issued resecuritization products as the underlying collateral. We believe our issuance of these 

securities expands the range of investors in our mortgage-related securities to include those seeking 

specific security attributes. Similar to our PCs, we guarantee the payment of principal and interest to the 

investors in our resecuritization products. We do not charge a guarantee fee for these securities if the 

underlying collateral is already guaranteed by us since no additional credit risk is introduced, although we 

typically receive a transaction fee as compensation for creating the security and future administrative 

responsibilities. All of the cash flows from the collateral underlying our resecuritization products are 

generally passed through to investors in these securities. We do not issue resecuritization products that 

have concentrations of credit risk beyond those embedded in the underlying assets. In many of our 

resecuritization transactions, securities dealers or investors deliver mortgage assets in exchange for the 

resecuritization product. In certain cases, we may also exchange our own mortgage assets for the 

resecuritization product. The resecuritization activities are managed by the Investments segment. The 

following diagram provides a general example of how we create resecuritization products:
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 40

We issue the following types of resecuritization products:

• Giant PCs - Giant PCs are resecuritizations of previously issued PCs or Giant PCs. Giant PCs are 

single-class securities that involve the straight pass through of all of the cash flows of the underlying 

collateral to holders of the beneficial interests.

• Stripped Giant PCs - Stripped Giant PCs are multiclass securities that are formed by resecuritizing 

previously issued PCs or Giant PCs and issuing principal-only and interest-only securities backed by 

the cash flows from the underlying collateral.

• REMICs - REMICs are resecuritizations of previously issued PCs, Giant PCs, Stripped Giant PCs, or 

REMICs. REMICs are multiclass securities that divide all of the cash flows of the underlying collateral 

into two or more classes with varying maturities, payment priorities and coupons.

• Other securitization products - From time to time, we may issue guaranteed mortgage-related 

securities collateralized by non-Freddie Mac mortgage-related securities. However, we have not 

entered into these types of transactions as part of our Single-family Guarantee business in several 

years.

Long-term standby commitments - we provide a guarantee on mortgage assets held by third parties, in 

exchange for guarantee fees, without securitizing those assets. Long-term standby commitments obligate 

us to purchase seriously delinquent loans that are covered by those commitments. From time to time, we 

have consented to the termination of our long-term standby commitments and simultaneously entered 

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

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

Freddie Mac 2016 Form 10-K 41

Common Securitization Platform and the Single (Common) Security

In accordance with FHFA’s 2014 Strategic Plan and the Conservatorship Scorecards, we continue to work 

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

implementation of the single (common) security initiative for Freddie Mac and Fannie Mae.

In December 2016, we and FHFA announced the implementation of Release 1 of the common 

securitization platform. Under Release 1, we began using the common securitization platform for data 

acceptance, issuance support, and bond administration activities related to certain Freddie Mac singlefamily fixed-rate mortgage-related securities. 

FHFA expects to announce a timeframe for implementation of Release 2 of the common securitization 

platform in the first quarter of 2017. Release 2 involves the issuance by Freddie Mac and Fannie Mae of a 

single (common) mortgage-related security, to be called the Uniform Mortgage-Backed Security 

("UMBS"). Release 2 will add to the functionality of Release 1, including commingling of Freddie Mac and 

Fannie Mae UMBS and UMBS disclosures.

Credit Risk Transfer Transactions

Most of our credit risk transfer transactions are designed to transfer a portion of the expected credit 

losses and a significant portion of credit losses in a stressed economic environment on groups of 

previously acquired loans to third-party investors. These transactions have termination dates that are 

earlier than the maturities of the related loans, and losses on the loans occurring beyond the terms of the 

transactions are not covered. The following strategic considerations were incorporated into the design of 

our credit risk transfer transactions:

• Repeatable and scalable execution with a broad appeal to diversified investors;

• Execution at a cost that is economically sensible;

• Minimal effect on the TBA market;

• Minimize changes required of, and effects on, sellers and servicers by having Freddie Mac serve as 

the credit manager for investors; and

• Avoid or seek to mitigate the risk that our losses are not reimbursed timely and in full.

The value of these transactions to us is dependent on various economic scenarios, and we will primarily 

benefit from these transactions if we experience significant loan defaults. Our credit risk transfer 

transactions include: 

• STACR debt notes - In this transaction, we create a reference pool of loans from our Core singlefamily book and an associated securitization structure with notional credit risk positions (e.g., first 

loss, mezzanine, and senior positions). In certain of our STACR debt note transactions to date, we 

transferred risk in both first loss and mezzanine notional credit risk positions while in other 

transactions we only transferred risk in the mezzanine notional credit risk positions. The notional 

amounts of the credit risk positions are reduced when certain specified credit events occur on the 

loans in the reference pool. Generally, the notional amounts of the credit risk positions will be reduced 

based on scheduled and unscheduled principal payments that occur on the loans in the reference 

pool.

In STACR debt note transactions, losses may be allocated to the notional balances based on 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 42

calculated losses using a predefined formula or based on the actual losses on the loans in the 

reference pool. For loans that are covered by credit risk transfer transactions based on calculated 

losses, we may write down STACR debt notes or receive reimbursement of losses when the loans 

experience a credit event, which predominantly includes a loan becoming 180 days delinquent. For 

loans that are covered by credit risk transfer transactions based on actual losses, we may write down 

STACR debt notes or receive reimbursement of losses once an actual loss event (e.g., third-party 

foreclosure sale, short sale or REO disposition) occurs. 

We issue STACR debt notes related to certain notional credit risk positions to third-party investors 

and retain the remaining credit risk. We make payments of principal and interest on the issued notes, 

but are not required to repay principal to the extent that the notional credit risk position is reduced as 

a result of a specified credit event. The interest rate on STACR debt notes is generally higher than on 

our other unsecured debt securities due to the potential for reductions to their principal balance. The 

amount of risk transferred in each transaction affects the interest rate we pay on the notes. The 

following diagram illustrates a typical STACR debt note transaction:

• ACIS insurance policies - In a typical ACIS transaction, we purchase insurance policies, generally 

underwritten by a group of insurers and reinsurers, that provide credit protection for certain specified 

credit events that occur and are allocated to the non-issued notional credit risk positions of a STACR 

debt note transaction (i.e., the risk positions that Freddie Mac retains). Under each insurance policy, 

we pay monthly premiums that are determined based on the outstanding balance of the reference 

pool. We may also enter into ACIS transactions that provide credit protection for certain specified 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 43

credit events on loans not included in a reference pool created for a STACR debt note transaction. 

When specific credit events occur, we receive compensation from the insurance policy up to an 

aggregate limit based on a predefined formula or based on actual losses. We require our 

counterparties to partially collateralize their exposure to reduce the risk that we will not be reimbursed 

for our claims under the policies.

• Deep mortgage insurance credit risk transfer, or Deep MI - In this transaction, we purchase a 

credit enhancement from affiliates of mortgage insurance companies that takes effect immediately 

upon the sale of the mortgage loan to Freddie Mac. Deep MI provides additional coverage beyond 

primary mortgage insurance. We require our counterparties to collateralize their exposure to reduce 

the risk that we will not be reimbursed for our claims under the policies.

• Whole loan securities - In this transaction, we issue guaranteed senior securities and unguaranteed 

subordinated securities backed by single-family loans. The unguaranteed subordinated securities will 

absorb first losses on the related loans. In these transactions, the loans are serviced in accordance 

with our Guide and we control the servicing.

• Senior subordinate securitization structures - In this structure, we issue guaranteed senior 

securities and unguaranteed subordinated securities backed by single-family loans. The collateral for 

these structures consists of seasoned performing modified and reperforming loans. The 

unguaranteed subordinated securities will absorb first losses on the related loans. In these 

transactions, the loans are not serviced in accordance with our Guide and we do not control the 

servicing.

• Seller indemnification agreement - In this transaction, we enter into an agreement upon loan 

acquisition with a seller under which the seller will absorb a portion of losses on the related singlefamily loans in exchange for a fee or a reduction in our guarantee fee. The indemnification amount 

may be fully or partially collateralized.

We also use other types of credit enhancements, such as primary mortgage insurance, to mitigate our 

credit risk exposure. See “Risk Management” for additional information on our credit risk transfer 

transactions, as well as the other types of credit enhancements we use.

Customers

Our customers in the Single-family Guarantee segment are predominantly financial institutions that 

originate, sell and perform the ongoing servicing of loans for new or existing homeowners. These 

companies include mortgage banking companies, commercial banks, community banks, credit unions, 

other non-depository financial institutions, HFAs, and savings institutions. Many of these companies are 

both sellers and servicers for us. In addition, our customers include investors and dealers in our 

guaranteed mortgage-related securities and investors and counterparties in credit risk transfer 

transactions.

We acquire a significant portion of our loans from several lenders that are among the largest originators in 

the U.S. In addition, a significant portion of our single-family loans is serviced by several large servicers. 

The graphs below present the concentration of our single-family purchase volume for 2016 and our loan 

servicing as of December 31, 2016 among our top five customers.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 44

Percentage of Single-Family Purchase 

Volume

Percentage of Single-Family Servicing 

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

Freddie Mac 2016 Form 10-K 45

For additional information about seller/servicer concentration risk and our relationships with our seller/

servicer customers, see “Risk Management - Credit Risk - Counterparty Credit Risk - Sellers and 

Servicers.”

Competition

Our principal competitors in the Single-family Guarantee segment are Fannie Mae, FHA/VA (with Ginnie 

Mae securitization), and other financial institutions that retain or securitize loans, such as commercial and 

investment banks, dealers, and savings institutions. We compete on the basis of price, products, 

securities structure, and service. Competition to acquire single-family loans can also be significantly 

affected by changes in our credit standards. The conservatorship, including direction provided to us by 

our Conservator, may affect our ability to compete. For more information, see “Risk Factors - Other Risks 

- Competition from banking and non-banking institutions (including Fannie Mae and FHA/VA with Ginnie 

Mae securitization) may harm our business. FHFA’s actions as Conservator of both companies could 

affect competition between us and Fannie Mae."

Our Segment Earnings guarantee fee income is influenced by our PC price performance because we 

adjust our fees based on the price performance of our PCs relative to comparable Fannie Mae securities 

(we refer to this as market-adjusted pricing).

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

performance of our PCs relative to comparable Fannie Mae securities. These actions may include:

• Resecuritizing PCs;

• Encouraging sellers to pool loans that they deliver to us into PC pools with a larger and more diverse 

population of loans; and

• Influencing the volume and characteristics of loans delivered to us by tailoring our loan eligibility 

guidelines and by other means.

For additional information about our efforts to support the liquidity and relative price performance of our 

PCs, see “Investments - Market Conditions” and “Risk Factors - Other Risks - A significant decline in the 

price performance of or demand for our PCs could have an adverse effect on the volume and/or 

profitability of our new single-family guarantee business.”
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 46

MARKET CONDITIONS

The graphs and related discussion below present certain single-family market indicators, for the most 

recent five years, that can significantly affect the business and financial results of our Single-family 

Guarantee segment.

U.S. Single-Family Originations

Source: Inside Mortgage Finance dated January 27, 2017. 

U.S. Single-Family Home Sales

Source: National Association of Realtors news release dated 

January 24, 2017 and U.S. Census Bureau news release 

dated January 26, 2017.

Commentary 

• Single-family loan origination volumes in the U.S. increased in 2016, driven by an increase in 

refinancing activity as a result of lower average mortgage interest rates. 

• If average mortgage interest rates continue to move higher in 2017, we would anticipate lower 

origination activity compared to 2016 as refinance activity and home sales would likely decline.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 47

Single-Family Mortgage Debt 

Outstanding as of December 31, 

Source: Federal Reserve Financial Accounts of the United 

States of America dated December 8, 2016. For 2016, the 

amount is as of September 30, 2016 (latest available 

information).

Single-Family Serious Delinquency Rates as 

of December 31,

Source: National Delinquency Survey from the Mortgage 

Bankers Association. For 2016, the rates (excluding Freddie 

Mac) are as of September 30, 2016 (latest available 

information).

Commentary 

• The U.S. single-family mortgage debt outstanding increased in 2016 compared to 2015, which 

resulted in an increase in the supply of loans available for us to purchase. 

• Single-family serious delinquency rates in the U.S. continued to decline due to macroeconomic 

factors, such as decreased unemployment rates and continued home price appreciation. We expect 

our single-family serious delinquency rate to decline below 1.00% in 2017.

• As reported by the U.S. Census Bureau, the U.S. homeownership rate was 63.7% in the fourth 

quarter of 2016, compared to a high point of 69.2% in the fourth quarter of 2004, and the average of 

66.2% since 1990.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 48

BUSINESS RESULTS

The graphs and related discussion below present the business results of our Single-family Guarantee 

segment.

New Business Activity

Single-Family Loan Purchases and 

Guarantees Number of Families Helped to Own a Home

Commentary

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

conforming loan products. We have funded approximately 14.2 million single-family homes since 

2009 and purchased approximately 1.4 million HARP loans since the initiative began in 2009, 

including over 25,000 during 2016.

• Our overall loan purchase activity increased in 2016 compared to 2015, due to higher refinance loan 

purchase volume as average mortgage interest rates were lower in 2016 compared to 2015. Our 

overall loan purchase activity increased significantly in 2015 compared to 2014, due to higher 

volumes of home sales and home price appreciation.

• We continued working to improve access to affordable mortgage credit, including through our Home 

Possible® loan initiatives. Our Home Possible® loan initiatives offer down payment options as low as 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 49

3% and are designed to help qualified borrowers with limited savings buy a home. We purchased 

nearly 34,000 loans under these initiatives in 2016. We also continue to explore the feasibility of:

Increasing our purchases of loans securitized by permanently affixed manufactured housing; 

Improving the effectiveness of pre-purchase and early delinquency counseling for borrowers; 

Utilizing alternative credit score models and credit history standards in loan eligibility 

decisions; and 

Increasing support for first-time home buyers. 

While we are responsibly expanding our programs and outreach capabilities to better serve low- and 

moderate-income borrowers and underserved markets, these loans result in increased credit risk. 

Expanding access to affordable mortgage credit will continue to be a top priority in 2017. See 

"Regulation and Supervision - Legislative and Regulatory Developments - Final Rule on Duty to 

Serve Underserved Market" for more information.

• If average mortgage interest rates continue to move higher in 2017, we would anticipate lower 

purchase volume compared to 2016 as refinance activity and home sales would likely decline.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 50

Single-family Credit Guarantee Portfolio

Single-Family Credit Guarantee Portfolio as 

of December 31, Single-Family Loans as of December 31,

Commentary

• The single-family credit guarantee portfolio grew to $1,755 billion in 2016 from $1,702 billion in 2015, 

an increase of approximately 3%.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 51

• The Core single-family book grew to 73% of the single-family credit guarantee portfolio at 

December 31, 2016. We exclude HARP and other relief refinance loans from the Core single-family 

book because such loans generally reflect credit risk attributes of the original loans (many of which 

were originated between 2005 and 2008).

• The HARP and other relief refinance book represented an additional 15% of the single-family credit 

guarantee portfolio at December 31, 2016. 

• The Legacy single-family book declined to 12% of the single-family credit guarantee portfolio at 

December 31, 2016.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 52

Guarantee Fees

The average portfolio Segment Earnings guarantee fee rate recognizes upfront delivery fee income over 

the contractual life of the related loans (usually 30 years). If the related loans prepay, the remaining 

upfront delivery fee income is recognized immediately. In addition, the average portfolio Segment 

Earnings guarantee fee rate reflects an average of our total mortgage portfolio and is not limited to 

purchases in the applicable year. 

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

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

Loans acquired prior to 2012 have lower contractual guarantee fee rates than loans we have acquired 

since that time.

Average Portfolio Segment Earnings 

Guarantee Fee Rate(1) for the Year Ended 

December 31, 

Average Guarantee Fee Rate(1) Charged on 

New Acquisitions for the Year Ended 

December 31,

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

Commentary

• Average portfolio Segment Earnings guarantee fees 

2016 vs. 2015 and 2015 vs. 2014 - increased due to higher amortization of upfront delivery fees, 

driven by higher loan liquidations resulting from a lower average interest rate environment, as 

well as the acquisition of new loans with higher guarantee fee rates.

• Guarantee fees charged on new acquisitions

2016 vs. 2015 - increased primarily due to changes in the product mix of our single-family new 

business purchases as new acquisitions have included a relatively higher proportion of 30-year 

fixed-rate mortgages, which generally have higher guarantee fee rates than most other mortgage 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 53

products, combined with decreased market-adjusted pricing costs based on the price 

performance of our PCs relative to Fannie Mae securities.

2015 vs. 2014 - decreased due to a combination of competitive pricing and increased marketadjusted pricing costs based on the price performance of our PCs relative to Fannie Mae 

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

Freddie Mac 2016 Form 10-K 54

Credit Risk Transfer Activity

Since 2013, STACR debt note and ACIS transactions have been our principal method of transferring a 

portion of the expected credit losses and a significant portion of credit losses in a stressed economic 

environment subsequent to loan acquisition in our Core single-family book. The following charts present 

amounts for the STACR and ACIS transactions that occurred in 2016 and the cumulative amount of such 

transactions at December 31, 2016.

New STACR Debt Note and ACIS 

Transactions for the Year Ended December 

31, 2016(1)  

(In billions)

Senior

Freddie Mac

$200.0

Reference 

Pool

$210.1

Mezzanine

Freddie 

Mac 

$0.4

ACIS

$2.4

STACR Debt 

Notes

$5.3

First 

Loss

Freddie Mac

$1.4

ACIS

$0.2

STACR 

Debt 

Notes

$0.2

Cumulative STACR Debt Note and ACIS

Transactions as of December 31, 2016(1)(2)

(In billions)

Senior

Freddie Mac

$565.6

Reference 

Pool

$594.8

Mezzanine

Freddie 

Mac 

$1.4

ACIS

$5.6

STACR Debt 

Notes

$17.3

First

 Loss

Freddie Mac

$3.3

ACIS

$0.6

STACR 

Debt 

Notes

$1.0

(1) The amounts represent the UPB upon issuance of STACR debt notes and execution of ACIS transactions.

(2) For the current outstanding coverage provided by our STACR debt note and ACIS transactions, see "Risk Management - SF 

Credit Risk - Offering Private Investors New and Innovative Ways to Share in the Credit Risk of the Core Single-Family Book."

Commentary

• We continued to transfer a portion of the expected credit losses and a significant portion of credit 

losses in a stressed economic environment to third-party investors, insurers, and selected sellers 

through credit risk transfer transactions. In 2016, we transferred credit losses associated with $215.2 

billion in UPB of loans in our Core single-family book through STACR debt note, ACIS, seller 

indemnification, whole loan security, senior subordinate securitization structures, and Deep MI 

transactions. Significant developments in 2016 include the following:

We developed a new ACIS transaction using collateral other than 30-year fixed-rate mortgages. 

Also, unlike prior ACIS transactions, this transaction does not involve loans in a reference pool 

created for a STACR debt note transaction.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 55

We executed our first Deep MI transaction. The pilot transaction provided additional coverage 

beyond primary mortgage insurance on 30-year fixed-rate mortgages with LTV ratios between 

80% and 95%. 

• Since 2013, we have completed 57 credit risk transfer transactions that, upon execution of the 

transaction, covered $601.9 billion in principal of loans in our Core single-family book.

• The interest and premiums we pay on our issued STACR debt note and ACIS transactions to transfer 

credit risk effectively reduce the guarantee fee income we earn on the PCs within the respective 

pools. Our expected guarantee fee income on the loans within the STACR and ACIS reference pools 

has been effectively reduced by approximately 34%, on average, for transactions executed as of 

December 31, 2016. The amount of effective reduction to our overall guarantee fee income could 

change over time as we continue our credit risk transfer activities or if there are changes in the 

economic or regulatory environment that affect the cost of executing these transactions. We expect 

that the aggregate cost of our credit risk transfer activity will continue to increase as we enter into 

additional transactions. 

• As of December 31, 2016 there has not been a significant number of loans in our STACR debt note 

reference pools that have experienced a credit event. As a result of the credit performance of these 

loans, we have only recognized small write-downs on our STACR debt notes and have begun to 

make claims for reimbursement of losses under our ACIS transactions.

• The 2017 Conservatorship Scorecard sets a goal for us to transfer a meaningful portion of credit risk 

on at least 90% of the UPB of certain categories of newly acquired single-family loans, such as nonHARP and non-high LTV refinance fixed-rate loans with terms greater than 20 years and LTV ratios 

above 60%.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 56

Loss Mitigation Activities

Number of Families Helped to Avoid 

Foreclosure Loan Workout Activity

Commentary

• We continue to help struggling families retain their homes or otherwise avoid foreclosure through loan 

workouts, helping approximately 1.2 million borrowers since 2009. Our loan workout activity has 

declined over the last several years, along with a decline in the size of our seriously delinquent singlefamily loan portfolio. 

• When a home retention solution is not practicable, we require our servicers to pursue foreclosure 

alternatives, such as short sales, before initiating foreclosure. When foreclosure is unavoidable and 

we acquire the property as REO, we have helped to stabilize communities by focusing on REO sales 

to owner-occupants, who have made up 67% of purchasers since the beginning of 2009.

• As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we sold 

seriously delinquent loans totaling $3.1 billion in UPB during 2016. Of the $2.1 billion in UPB of 

single-family loans classified as held-for-sale at December 31, 2016, $1.6 billion related to loans that 

were seriously delinquent. We believe selling these loans provides better economic returns than 

continuing to hold them. 
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 57

• HAMP ended in December 2016. The relief refinance program (including HARP) will end in 

September 2017 and is expected to be replaced by a new program. See “Risk Management” for 

additional information on our loan workout activities.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 58

FINANCIAL RESULTS

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

Single-family Guarantee segment.

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Guarantee fee income $6,091 $5,152 $4,094 $939 18 % $1,058 26 %

Provision for credit losses (517) (283) (1,129) (234) (83)% 846 75 %

Other non-interest income 447 136 952 311 229 % (816) (86)%

Administrative expense (1,323) (1,285) (1,170) (38) (3)% (115) (10)%

REO operations expense (298) (341) (213) 43 13 % (128) (60)%

Other non-interest expense (1,169) (794) (387) (375) (47)% (407) (105)%

Segment Earnings before income tax

expense 3,231 2,585 2,147 646 25 % 438 20 %

Income tax expense (1,061) (807) (600) (254) (31)% (207) (35)%

Segment Earnings, net of taxes 2,170 1,778 1,547 392 22 % 231 15 %

Total other comprehensive income (loss),

net of tax (9) 12 (10) (21) (175)% 22 220 %

Total comprehensive income $2,161 $1,790 $1,537 $371 21 % $253 16 %

Key Drivers:

• Guarantee fee income

2016 vs. 2015 and 2015 vs. 2014 - increased primarily due to higher amortization of upfront 

delivery fees resulting from increased loan liquidations. Higher average contractual guarantee fee 

rates, reflecting the growth in the Core single-family book, also contributed.

• Provision for credit losses

2016 vs. 2015 - increased primarily due to higher total interest rate concessions resulting from 

the longer expected life of certain modified loans driven by rising mortgage interest rates in the 

fourth quarter of 2016.

2015 vs. 2014 - decreased primarily due to a lower volume of newly impaired loans as the 

housing market and economy continued to improve.

• Other non-interest income

2016 vs. 2015 - increased due to fewer seasoned single-family loans reclassified from held-forinvestment to held-for-sale in 2016 compared to 2015 due to a smaller inventory of certain 

seasoned single-family loans available for reclassification, partially offset by increased fair value 

losses on STACR debt notes, as market spreads between STACR yields and LIBOR tightened 

more in 2016 than in 2015.

2015 vs. 2014 - decreased primarily due to more seasoned single-family loans reclassified from 

held-for-investment to held-for-sale in 2015 compared to 2014; as we accelerated our program to 

sell certain seasoned single-family loans, fair value losses on STACR debt notes, as market 

spreads between STACR yields and LIBOR tightened in 2015, compared to fair value gains on 

STACR debt notes in 2014 when market spreads widened, and higher expenses related to CSS.
Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Freddie Mac 2016 Form 10-K 59

• Other non-interest expense

2016 vs. 2015 and 2015 vs. 2014 - increased primarily due to higher credit risk transfer expense 

(interest expense on STACR debt notes and premiums paid to ACIS counterparties) reflecting 

higher outstanding cumulative volumes of credit risk transfer transactions in the respective 

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

Freddie Mac 2016 Form 10-K 60

MULTIFAMILY

BUSINESS OVERVIEW

The Multifamily segment provides liquidity to the multifamily market and supports a consistent supply of 

workforce housing by purchasing and securitizing loans secured by properties with five or more units. The 

Multifamily segment reflects results from our purchase, securitization, and guarantee of multifamily loans 

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

mortgage credit risk and mortgage market spread risk. The Multifamily segment supports our primary 

business strategies by creating:

A Better Freddie Mac:

• Continuing to provide financing to the multifamily mortgage market and expanding our market 

presence for workforce housing in line with our mission;

• Improving our risk-adjusted returns by leveraging private capital in our credit risk transfer 

transactions; and

• Maintaining strong credit and capital management discipline.

A Better Housing Finance System:

• Operating in a customer focused manner, in an effort to build value and support the creation of a 

strong, long-lasting rental housing system; 

• Identifying new opportunities beyond our existing K Certificate and SB Certificate transactions to 

transfer credit risk to third parties and reduce taxpayer exposure; and

• Fostering innovation of products that expand the availability of workforce housing in the marketplace.

We use a prior-approval underwriting approach for multifamily loans, in contrast to the delegated 

underwriting approach used in our Single-family Guarantee segment. Under this approach, we maintain 

credit discipline by completing our own underwriting and credit review for each new loan prior to issuance 

of a loan commitment, including review of third-party appraisals and cash flow analysis.

Multifamily loans are typically without recourse to the borrower, making repayment dependent on cash 

flows generated by the underlying property. Cash flows generated by a property are significantly 

influenced by vacancy and rental rates, as well as conditions in the local rental market, the physical 

condition of the property, the quality of property management, and the level of operating expenses. 

Multifamily property markets are affected by local and regional economic factors, such as employment 

rates, construction cycles, preferences for homeownership versus renting, and relative affordability of 

single-family home prices, all of which influence the supply and demand for multifamily properties and 

pricing for apartment rentals.

Products and Activities

Securitization, Guarantee, and Credit Risk Transfer Products

In our Multifamily segment, we issue various types of securitization, guarantee, and credit risk transfer 

products. These products, with the exception of other credit risk transfer products (i.e., SCR debt notes), 

make up our guarantee portfolio.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac 2016 Form 10-K 61

• Primary Securitization and Credit Risk Transfer Products - Our primary business model is to 

acquire loans for aggregation and then to securitize the loans through the issuance of K Certificates 

or SB Certificates, as discussed below.

K Certificates - We purchase multifamily loans for aggregation and securitization through the 

issuance of multifamily K Certificates, which allows us to transfer a large majority of expected and 

stress credit losses of the loans to third-party investors. As shown in the diagram below, in a K 

Certificate transaction, we sell multifamily loans to a non-Freddie Mac securitization trust that 

issues senior and subordinated securities, and simultaneously purchase and place the senior 

securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. In these 

transactions, we guarantee the senior securities and do not issue or guarantee the subordinated 

securities. As a result, a large majority of expected and stress credit risk is sold to the third-party 

investors in the subordinated securities, thereby reducing our credit risk exposure. We receive a 

guarantee fee in exchange for guaranteeing the K Certificates. Profitability on our K Certificates is 

evaluated in terms of guarantee fee income and gains on the sales of loans. We attempt to 

maximize our returns by optimizing the combination of gains we earn when we sell the loans for 

securitization and the guarantee fees we will earn over time. 

We may purchase or retain a portion of the K Certificates or the unguaranteed subordinated 

securities, and, from time to time, we may undertake other activities to support the liquidity of K 

Certificates. For more information, see “Risk Factors - Other Risks - The profitability of our 

multifamily business could be adversely affected by a significant decrease in demand for our K 

Certificates and SB Certificates." 

SB Certificates - We also purchase small balance multifamily loans for aggregation and 

securitization through the issuance of multifamily SB Certificates. Occasionally, we also issue SB 

Certificates backed by small balance multifamily loans which were underwritten by Freddie Mac 

after (rather than at) origination and were not purchased by Freddie Mac prior to securitization. 

Small balance loans typically are between $1.0 million and $6.0 million in size. SB Certificate 

transactions are structured in a manner generally similar to our K Certificate transactions, and this 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac 2016 Form 10-K 62

allows us to transfer a large majority of expected and stress credit losses of the small balance 

loans to third-party investors.

Similar to our K Certificates, we may purchase or retain a portion of the SB Certificates or the 

unguaranteed subordinated securities, and, from time to time, we may undertake other activities 

to support the liquidity of SB Certificates. 

• Other securitization products - We also issue other securitization products including:

PCs - We securitize multifamily loans into fixed-rate pass-through securities that are similar in 

structure to our Single-family Guarantee segment fixed-rate PCs. We guarantee the timely 

payment of the principal and interest on our multifamily fixed-rate PCs. 

K Certificates without subordination - We securitize multifamily loans and issue K Certificates 

without subordination using a transaction structure that is similar to our K Certificates. However, 

unlike K Certificates, K Certificates without subordination are fully guaranteed and no 

subordinate or mezzanine securities are issued. 

Q Certificates - We securitize multifamily loans, excluding small balance multifamily loans, and 

issue Q Certificates using a transaction structure that is similar to our K Certificates. However, 

unlike K Certificates, the multifamily loans backing the Q Certificate trusts are underwritten by 

Freddie Mac after (rather than at) origination and are not purchased by Freddie Mac prior to 

securitization. 

M Certificates - We securitize pools of tax-exempt or taxable multifamily housing revenue 

bonds and loans and issue both guaranteed senior M Certificates and unguaranteed 

subordinated M Certificates.

• Other mortgage-related guarantees - We guarantee mortgage-related assets held by third parties 

in exchange for guarantee fee income without securitizing those assets. For example, we provide 

guarantees on certain tax-exempt multifamily housing revenue bonds secured by low- and moderateincome multifamily loans. 

• Other credit risk transfer products (i.e., SCR debt notes) - We began issuing our SCR debt notes 

in 2016 in order to transfer a portion of credit risk on the loans underlying certain of our other 

mortgage-related guarantees. The interest we pay on our SCR debt notes effectively reduces the 

guarantee fee income we would otherwise earn on the other mortgage-related guarantees. SCR debt 

notes are generally similar in structure to STACR debt notes.

Investing and Risk Management Activities

• Mortgage loans - Our primary business model is to acquire loans for aggregation and then to 

securitize the loans through the issuance of K Certificates or SB Certificates. However, we also hold a 

portfolio of multifamily mortgage loans as part of a buy-and-hold investment strategy. Although we 

continue to purchase small amounts of new multifamily mortgage loans for this portfolio, the size of 

the portfolio is declining over time.

• Agency mortgage-related securities - We may purchase or retain a portion of the K Certificates or 

SB Certificates and other types of multifamily securitization products we issue, depending on market 

conditions, and we may also buy or sell these securities in the secondary market.

• Non-agency mortgage-related securities - We may purchase a portion of the unguaranteed 

subordinated securities related to our securitization transactions, depending on market conditions. To 
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Freddie Mac 2016 Form 10-K 63

date, we have not purchased any of the unguaranteed securities that are in the first loss position nor 

do we currently hold any in our portfolio.

• CMBS - We are not currently an active purchaser of CMBS. However, we continue to hold a portfolio 

of CMBS and other multifamily investment securities that we acquired under a prior buy-and-hold 

investment strategy. This portfolio is declining over time. 

• Swaptions on credit indices - We purchase swaptions on credit indices in order to obtain protection 

against adverse movements in market spreads which may affect the profitability of our K Certificate or 

SB Certificate transactions. 

Customers

Our multifamily loan volume is sourced through our approved lenders, who are primarily non-bank real 

estate finance companies and banks. We generally provide post-construction financing to apartment 

project operators with established performance records. The following graphs show the concentration of 

our 2016 multifamily new business volume by our largest sellers and loan servicing by our largest 

servicers as of December 31, 2016. Any seller or servicer with a 10% or greater share is listed separately.
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Freddie Mac 2016 Form 10-K 64

Percentage of Multifamily New Business 

Volume

Percentage of Multifamily Servicing Volume

Note: Excludes loans underlying securitizations where we 

are not in first loss position, primarily K Certificates and SB 

Certificates.

Competition

We compete on the basis of price, service, and products, including our use of certain securitization 

structures. Our principal competitors in the Multifamily segment are Fannie Mae, FHA, commercial and 

investment banks, CMBS conduits, dealers, savings institutions, and life insurance companies.
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Freddie Mac 2016 Form 10-K 65

MARKET CONDITIONS

The graphs and related discussion below present certain multifamily market indicators, for the most 

recent five years, that can significantly affect the business and financial results of our Multifamily 

segment.

Change in Effective Rents for Period Ending 

December 31,

Source: REIS, Inc.

Apartment Vacancy Rates as of December 

31, 

Source: REIS, Inc.

Commentary 

• The increase in effective rents (i.e., the average rent paid by the tenant over the term of the lease, 

adjusted for concessions by the landlord and costs borne by the tenant) declined in 2016 but remains 

strong relative to long-term averages. In 2017, we expect the increase in effective rents to remain in 

line with the 2016 increase.

• Vacancy rates decreased slightly in 2016, remaining well below long-term averages, but are expected 

to increase during 2017 at a moderate pace.

• Multifamily property prices have been especially strong, with 12% annualized growth through 

November 2016. Multifamily property price growth may slow with the expected leveling-off in the rate 

of effective rent growth, an environment of increasing vacancy rates and interest rates, as well as 

improving returns for other investment types.
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Freddie Mac 2016 Form 10-K 66

Apartment Completions and Net Absorption

Source: REIS, Inc.

K Certificate Benchmark Spreads as of 

December 31,

Source: Independent Dealers

Commentary 

• Apartment completions are an indication of the supply of rental housing. Net absorption, which is a 

measurement of the rate at which available apartments are occupied, is an indication of demand for 

rental housing.

• Completions and net absorption were roughly equal during 2016. We expect them to remain in 

balance in 2017.

• The K Certificate benchmark spread represents the market spread of a typical 10-year senior K 

Certificate over the U.S. swap curve. 

• The profitability of our K Certificate transactions (as measured by gains and losses on sales of 

mortgage loans) is affected by the change in the K Certificate benchmark spreads during the period 

between loan purchase and execution of the K Certificate transaction. These market spread impacts 

contribute to our earnings volatility, which we try to manage through the size of our securitization 

pipeline of held-for-sale mortgage loans and through our purchase of swaptions on credit indices. 

• During 2016, K Certificate benchmark spreads tightened due to a reduction in macroeconomic market 

volatility compared to 2015. This tightening had a positive effect on K Certificate profitability.
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac 2016 Form 10-K 67

Multifamily Mortgage Debt Outstanding as of 

December 31,

Source: Federal Reserve Financial Accounts of the United 

States of America. For 2016, the amount is as of September 

30, 2016 (latest available information). 

Multifamily Delinquency Rates as of 

December 31,

Source: Freddie Mac, FDIC Quarterly Banking Profile, 

Trepp, LLC. (MF CMBS market, excluding REOs), American 

Council of Life Insurers (ACLI). For 2016, the amounts for 

FDIC insured institutions and ACLI investment bulletin are as 

of September 30, 2016 (latest available information). 

Commentary 

• There was significant growth in the multifamily market during 2016, driven by increasing property 

prices, a continued elevated construction pipeline, and low interest rates. As reported by the Federal 

Reserve, total multifamily mortgage debt outstanding was approximately $1.2 trillion at September 30, 

2016 (the latest available information), representing an increase of $63.5 billion (or 6%) since 

December 31, 2015. 

• Our share of multifamily mortgage debt outstanding has remained relatively stable over the past 

several years in the 13-15% range.

• Our multifamily delinquency rates during 2016 remained among the lowest in the industry, ending the 

year at 3 bps, primarily due to our prior-approval underwriting approach discussed earlier. 

• We expect continued growth in the multifamily mortgage market due to increasing property prices and 

new completions, along with favorable investment opportunities. We also expect to maintain our 

share of multifamily mortgage debt outstanding in 2017. 

• We expect the credit losses and delinquency rates for the multifamily mortgage portfolio to remain low 

in the near term.
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Freddie Mac 2016 Form 10-K 68

BUSINESS RESULTS

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

New Business Activity

New Business Activity for the Year Ended 

December 31,

Acquisition of Units by Area Median Income 

(AMI) for the Year Ended December 31,

Commentary

• The dollar volume of capped multifamily new business activity transacted during 2016 was $36.5 

billion. The 2016 scorecard production cap was increased to $36.5 billion by FHFA during 2016 from 

an original amount of $31 billion. Business activity associated with certain targeted loan types is 

excluded and is considered uncapped for purposes of determining the dollar volume of multifamily 

new business.
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Freddie Mac 2016 Form 10-K 69

• Approximately two-thirds of our multifamily new business activity during 2016 counted towards the 

2016 scorecard production cap, and the remaining one-third was uncapped.

• Nearly 90% of the eligible units we financed during 2016 were affordable to families earning at or 

below the median income in their area (eligible units are multifamily units that qualify towards our 

affordable housing goal). We continued our support of workforce housing in the multifamily mortgage 

market during 2016 through our purchases of manufactured housing community loans and small 

balance loans. 

• Our multifamily new business activity outstanding commitments were $12.4 billion and $15.0 billion, 

as of December 31, 2016 and December 31, 2015, respectively. The December 31, 2016 amount 

includes loan purchase commitments for which we have elected the fair value option.

• The growth in our new business activity during 2016 was driven by the overall increase in multifamily 

mortgage debt outstanding.

• We expect our overall new business volume to increase in 2017; however, we expect our volume in 

the capped categories to be at or below the 2017 Conservatorship Scorecard cap, which is currently 

set at $36.5 billion. We also expect to introduce new initiatives to support liquidity and workforce 

housing in the multifamily mortgage markets.

• We expect the increased competition from other market participants, particularly banking institutions, 

to continue. 
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Freddie Mac 2016 Form 10-K 70

Multifamily Portfolio

Multifamily Portfolio as of December 31, Multifamily Investments Portfolio as of 

December 31,

Commentary

• Our multifamily portfolio grew in 2016 due to an increase in the guarantee portfolio, which was 

primarily attributable to our securitization of loans in K Certificate and SB Certificate transactions. This 

growth was driven by the overall increase in multifamily new business activity in 2016.

• The decline in less liquid assets in our multifamily investments portfolio during 2016 was primarily due 

to continued runoff of our held-for-investment mortgage loan and CMBS portfolios. 

• We expect a continued increase in the size of our guarantee portfolio as a result of ongoing K 

Certificate and SB Certificate transactions. We also expect a continued reduction in our held-forinvestment mortgage loan and CMBS portfolios due to ongoing principal repayments and maturities, 

which will serve to reduce our less liquid assets.
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Freddie Mac 2016 Form 10-K 71

Net Interest Yield Earned For the Year Ended December 31,

Commentary

• Our portfolio of interest-earning assets continued to decline in 2016 primarily as a result of reductions 

in our held-for-investment loan and CMBS portfolios, consistent with our plans to reduce our holdings 

of less liquid assets. The interest earning assets that liquidated had lower net interest yields relative 

to the average portfolio, resulting in an increase in net interest yields in 2016.
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Freddie Mac 2016 Form 10-K 72

Guarantee Fees

Average Guarantee Fee Rate Charged on 

New K Certificates, K Certificates without 

Subordination, and SB Certificates for the 

Year Ended December 31, 

Average Portfolio Guarantee Fee Rate as of 

December 31,
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Freddie Mac 2016 Form 10-K 73

Commentary

• The guarantee portfolio increased in 2016 primarily as a result of our ongoing issuance of K 

Certificates and SB Certificates.

• The average guarantee fee rate on both the overall guarantee portfolio and on newly issued K 

Certificates, K Certificates without subordination, and SB Certificates increased in 2016, primarily as 

a result of increased securitizations of products for which we charge higher fees, such as those with 

lower subordination rates. 

• The average guarantee fee rate charged on K Certificates and SB Certificates is generally lower than 

the average guarantee fee rate charged on our other multifamily securitization products and other 

mortgage-related guarantees. The lower guarantee fee rate on K Certificates and SB Certificates is 

driven by higher levels of subordination that absorb the large majority of the expected and stress 

credit losses.
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Freddie Mac 2016 Form 10-K 74

Credit Risk Transfer Activity

New K Certificate and SB Certificate 

Issuances for the Year Ended December 31, 

Cumulative K Certificate and SB Certificate 

Issuances as of December 31, 

Note: The charts above do not include certain SB Certificates where the underlying loans were underwritten by Freddie Mac after (rather than at) 

origination and were not purchased by Freddie Mac prior to securitization. 

Commentary

• The number and dollar volume of our K Certificate and SB Certificate issuances increased during 

2016 as a result of our strong new business volume during the year. We expect these issuances to 

continue at similar levels during 2017. 

• Nearly 90% of the loans we purchased in 2016 were designated for securitization.

• While we expect to use K Certificates and SB Certificates as the primary methods to transfer 

multifamily credit risk in 2017, we also expect to introduce new initiatives to transfer credit risk.
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Freddie Mac 2016 Form 10-K 75

FINANCIAL RESULTS

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

Multifamily segment.

Year Ended December 31, Change 2016 - 2015 Change 2015 - 2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Net interest income $1,022 $1,049 $948 ($27) (3)% $101 11 %

Guarantee fee income 511 339 254 172 51 % 85 33 %

Benefit (provision) for credit losses 22 26 55 (4) (15)% (29) (53)%

Gains (losses) on loans and other noninterest income 1,166 (198) 1,104 1,364 689 % (1,302) (118)%

Derivative gains (losses) 407 372 335 35 9 % 37 11 %

Administrative expense (362) (325) (274) (37) (11)% (51) (19)%

Other non-interest expense (58) (60) (14) 2 3 % (46) (329)%

Segment Earnings before income tax

expense 2,708 1,203 2,408 1,505 125 % (1,205) (50)%

Income tax expense (890) (376) (772) (514) (137)% 396 51 %

Segment Earnings, net of taxes 1,818 827 1,636 991 120 % (809) (49)%

Total other comprehensive income (loss),

net of tax (236) (261) (177) 25 10 % (84) (47)%

Total comprehensive income (loss) $1,582 $566 $1,459 $1,016 180 % ($893) (61)%

Key Drivers:

• Net interest income

2016 vs. 2015 - declined primarily due to lower balances of interest earning assets, as we reduce 

our less liquid assets, and lower net prepayment fee income in 2016.

2015 vs. 2014 - increased primarily due to changes in the composition of our multifamily portfolio, 

as lower yielding legacy loans and securities were replaced during 2015 with purchases of 

higher-yielding loans to support future securitizations.

• Guarantee fee income

2016 vs. 2015 and 2015 vs. 2014 - increased primarily due to higher average multifamily 

guarantee portfolio balances as a result of ongoing issuances of K Certificates and SB 

Certificates.

• Gains (losses) on loans and other non-interest income, derivative gains (losses), and total 

other comprehensive income (loss) are evaluated together as they are collectively driven by a 

combination of market spread-related and interest rate-related fair value changes. We use derivatives 

in the Multifamily segment to economically offset interest rate-related fair value changes of certain 

assets. The fair value changes of these economically hedged assets are included in gains (losses) 

on loans and other non-interest income and total other comprehensive income (loss). The 

interest rate-related portion of these changes and the interest rate-related derivative fair value 

changes that are included in derivative gains (losses) largely offset each other and, as a result, 

there is minimal net impact on total comprehensive income for the Multifamily segment from interest 

rate-related derivatives. We also recently began using derivatives in the Multifamily segment to 

economically offset a portion of the market spread-related fair value changes of certain assets. 

2016 vs. 2015 - gains in these items increased, in the aggregate, primarily due to improved 

pricing on K Certificates and SB Certificates, as well as improved market spread-related fair value 
Management's Discussion and Analysis Our Business Segments | Multifamily

Freddie Mac 2016 Form 10-K 76

changes. K Certificate benchmark spreads tightened during 2016, resulting in gains, compared to 

spread widening during 2015, which resulted in losses.

2015 vs. 2014 - gains in these items decreased, in the aggregate, due to market spread-related 

fair value changes. The widening of K Certificate benchmark spreads during 2015 resulted in 

losses while the spread tightening during 2014 resulted in gains. 
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 77

INVESTMENTS

BUSINESS OVERVIEW

The Investments segment reflects results from three primary activities: 

• Managing the company’s mortgage-related investments portfolio, excluding Multifamily segment 

investments, single-family seriously delinquent loans, and the credit risk of single-family performing 

loans; 

• Managing the treasury function for the company, including funding and liquidity; and

• Managing interest-rate risk for the company. 

The objectives of our Investments segment are to make appropriate risk and capital management 

decisions, effectively execute our strategy and be responsive to market conditions. The Investments 

segment supports our primary business strategies by creating:

A Better Freddie Mac:

• Engaging in economically sensible transactions to reduce our less liquid assets, including non-agency 

mortgage-related securities, and to reduce the balance of our reperforming loans and our performing 

modified loans; 

• Managing the mortgage-related investments portfolio’s risk-versus-return profile based on our internal 

economic capital framework;

• Enhancing the liquidity of our issued securities in the secondary mortgage market to support our 

business needs;

• Responding to market opportunities by efficiently funding the company's business activities; and

• Managing the company's economic interest-rate risk through the use of derivatives and other debt.

A Better Housing Finance System:

• Expanding and improving the delivery of mortgage capital markets services through our cash loan 

purchase program, in conjunction with the Single-family Guarantee segment; and

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

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

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

Although we manage our business on an economic basis, we have executed certain transactions in an 

effort to reduce the probability of a draw due to changes in interest rates. Also, we may forgo certain 

investment opportunities for a variety of reasons, including the limit on the size of our mortgage-related 

investments portfolio or the risk that a particular accounting treatment may create earnings volatility as 

well as result in a future draw from Treasury. For additional information on the limits on the mortgagerelated investments portfolio established by the Purchase Agreement and by FHFA, see "Conservatorship 

and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness." 

Products and Activities

Investing and Related Activities

In our Investments segment, we manage the following types of products:
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Freddie Mac 2016 Form 10-K 78

• Agency mortgage-related securities - We primarily invest in Freddie Mac mortgage-related 

securities, but may also invest in Fannie Mae and Ginnie Mae mortgage-related securities from time 

to time. Our activities with respect to this product may include purchases and sales, dollar roll 

transactions, and structuring activities (e.g., resecuritizing existing agency securities into REMICs and 

selling some or all of the resulting REMIC tranches).

• Non-agency mortgage-related securities - We generally no longer purchase non-agency 

mortgage-related securities that have not been guaranteed by a GSE, but continue to have a large 

portfolio of non-agency mortgage-related securities that we acquired in prior years. We are working, 

in some cases in conjunction with other investors, to mitigate or recover losses we recognized in prior 

years. In recent years, we and FHFA reached settlements with a number of institutions. Lawsuits 

against other institutions are currently pending. Our activities with respect to this product are primarily 

sales but could include other disposition strategies in the future.

• Single-family unsecuritized loans - Single-family unsecuritized loans are classified into three 

categories:

Loans acquired through our cash loan purchase program that are awaiting securitization;

Reperforming loans and performing modified loans; and 

Seriously delinquent loans that we have removed from PC pools (this loan category is managed 

by both the Investments and Single-family Guarantee segments, but is included in the Singlefamily Guarantee segment's investment portfolio and financial results). 

The strategies employed to manage each category may differ. We securitize a majority of the loans 

acquired through our cash loan purchase program into Freddie Mac mortgage-related securities, 

primarily PCs, which may be sold to investors or retained in our mortgage-related investments 

portfolio. As part of the Retained Portfolio plan, we are reducing the balance of our reperforming loans 

and performing modified loans through a variety of methods, including the following:

Securitization into Freddie Mac PCs, with all of the resulting mortgage-related securities initially 

being retained. We may resecuritize a portion of the retained mortgage-related securities, with 

some of the resulting interests being sold to third parties;

Direct loan sales; and

Sales and securitization using a senior subordinate securitization structure, in which we 

guarantee the resulting senior securities. 

In the future, we may pursue other disposition strategies. Seriously delinquent loans continue to be 

reduced through loss mitigation and foreclosure activities, as well as through sales of certain nonperforming loans. 

• Other investments and cash portfolio - This portfolio is principally used for short-term liquidity 

management and consists of: (i) the Liquidity and Contingency Operating Portfolio, (ii) cash and other 

investments held by consolidated trusts, (iii) collateral pledged by derivative and other counterparties; 

(iv) investments in unsecured agency debt, and (v) advances to lenders. In our advances to lenders 

program, we provide funds to lenders in exchange for Freddie Mac PCs that are created through the 

securitization of mortgage loans that have been pledged as collateral for the secured lending. In the 

future, we may execute certain secured financing transactions using various types of collateral.

We evaluate the liquidity of our mortgage-related assets based on three categories (in order of liquidity): 
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Freddie Mac 2016 Form 10-K 79

• Liquid: single-class and multi-class agency securities, excluding certain structured agency 

securities collateralized by non-agency mortgage-related securities. Also includes certain nonagency mortgage-related securities guaranteed by a GSE; 

• Securitization Pipeline: performing single-family loans purchased for cash and primarily held for a 

short period until securitized, with the resulting Freddie Mac issued securities being sold or retained; 

and 

• Less Liquid: assets that are less liquid than both agency securities and loans in the securitization 

pipeline (e.g., reperforming loans, performing modified loans, and non-agency mortgage-related 

securities not guaranteed by a GSE). 

As a well-established disposition path exists for our single-family loans included in the securitization 

pipeline, we consider those assets to be more liquid than non-agency securities and reperforming loans 

and performing modified loans, but less liquid than single-class and multi-class agency securities. 

As part of our Retained Portfolio plan, we are focused on reducing the balance of less liquid assets that 

we hold in the mortgage-related investments portfolio through a combination of repayments, sales and 

securitizations. 

We may undertake various activities in an effort to support our presence in the agency securities market 

or to support the liquidity of our PCs, including their price performance relative to comparable Fannie Mae 

securities. These activities may include the purchase and sale of agency securities, the purchase of 

loans, dollar roll transactions, and structuring activities, such as resecuritization of existing agency 

securities and the sale of some or all of the resulting securities. Depending upon market conditions, there 

may be substantial variability in any period in the total amount of securities we purchase or sell. In some 

cases, the purchase or sale of agency securities could adversely affect the price performance of our PCs 

relative to comparable Fannie Mae securities. 

We incur costs in connection with our efforts to support our presence in the agency securities market and 

to support the liquidity and price performance of our PCs, including by engaging in transactions that yield 

less than our target rate of return. For more information, see “Risk Factors - Other Risks - A significant 

decline in the price performance of or demand for our PCs could have an adverse effect on the volume 

and/or profitability of our new single-family guarantee business.”

Funding and Liquidity Management Activities

Our Treasury function manages the funding needs of the company, including the Investments segment, 

primarily through the issuance of unsecured other debt. The type and term of debt issued is based on a 

variety of factors and is designed to efficiently meet our ongoing cash needs and to comply with our 

Liquidity Management Framework. This Framework provides a mechanism for us to sustain significant 

periods of market illiquidity, while being able to maintain certain business activities and remain current on 

our obligations. See "Liquidity and Capital Resources - Liquidity Management Framework" for additional 

discussion of our Liquidity Management Framework. 

We primarily use the following types of products as part of our funding and liquidity management 

activities:

• Securities sold under agreements to repurchase - Collateralized short-term borrowings where we 

sell securities to a counterparty with an agreement to repurchase those securities at a future date. 
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Freddie Mac 2016 Form 10-K 80

• Discount Notes and Reference Bills - We issue short-term instruments with maturities of one year 

or less. These products are generally sold on a discounted basis, paying principal only at maturity. 

Reference Bills are auctioned to dealers on a regular schedule, while discount notes are issued in 

response to investor demand and our cash needs. 

• Medium-term Notes - We issue a variety of fixed-rate and variable-rate medium-term notes, 

including callable and non-callable securities, and zero-coupon securities, with various maturities. 

• Reference Notes Securities - Reference Notes securities are non-callable fixed-rate securities, 

which we currently issue with original maturities greater than or equal to two years.

In addition, proceeds from the issuance of STACR and SCR debt notes are used to meet the funding 

needs of the company. We consider the issuance of these debt notes when managing the treasury 

function for the company. For a description of the STACR debt notes, see “Our Business Segments - 

Single-Family Guarantee - Business Overview - Products and Activities,” and for a description of the SCR 

debt notes, see “Our Business Segments - Multifamily - Business Overview - Products and Activities.”

To maintain sufficient short-term liquidity, we may hold a combination of cash, cash-equivalent, and nonmortgage-related investments in our Liquidity and Contingency Operating Portfolio. These instruments 

are limited to those we expect to be liquid and readily convertible into cash. We also lend available cash 

on a short-term basis through transactions where we purchase securities under agreements to resell. This 

portfolio is designed to allow us to meet all of our obligations in the event that we lose access to the 

unsecured debt markets for a period of time. 

See "Liquidity and Capital Resources" for a further discussion of our funding and liquidity management 

activities. 

Interest-Rate Risk Management Activities

Our goal is to manage the economic interest-rate risk for the company within management approved 

levels, as measured by our models. See "Risk Management - Market Risk” for additional information, 

including the measurement of the interest rate sensitivity of our financial assets and liabilities. 

Typically there is an interest rate risk mismatch between our financial assets and the other debt that we 

use to fund those assets. We typically use interest-rate derivatives to reduce the economic risk exposure 

due to this mismatch. Using our risk management practices described in the "Risk Management - Market 

Risk" section, we seek to reduce this impact to low levels. 

We also could consider the expected holding periods of our financial assets and liabilities. Our debt terms 

are generally shorter than our assets' projected life. As a result, we will likely have to reissue debt to 

continue to hold the assets. Changes in market spreads on future debt issuances may affect the future 

cash flows of our portfolio. We at times attempt to manage the impact of interest rates on future debt 

issuance. Additionally, financial assets that are likely to be sold prior to their final maturity may have a 

different debt and derivative mix than financial assets that we plan to hold for a longer period. As a result, 

interest rate risk measurements for those assets may include additional assumptions (such as a view on 

expected changes in market spreads) concerning their price sensitivity rather than just a longer-term view 

of cash flows. 

To manage our interest rate risk, we primarily use interest rate swaps, options, swaptions, and futures. 

When we use derivatives to mitigate our risk exposures, we consider a number of factors, including cost, 

exposure to counterparty risk, and our overall risk management strategy. 
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 81

Securitization Activities

We manage the company's securitization and resecuritization activities related to single-family loans. See 

"Our Business Segments - Single-Family Guarantee" for a discussion of our single-family securitization 

and guarantee products. 

Customers

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

dealers and redistributed to their customers. The customers for these securities generally include state 

and local governments, insurance companies, money managers, central banks, depository institutions, 

and pension funds. Our customers under our loan cash purchase program are a variety of lenders, as 

discussed in “Our Business Segments - Single-Family Guarantee - Business Overview - Customers.”

Competition

Our competitors in the Investments segment are firms that invest in loans and mortgage-related assets, 

and issue corporate debt, including Fannie Mae, REITs, supranationals (international institutions that 

provide development financing for member countries), commercial and investment banks, dealers, 

savings institutions, insurance companies, the Federal Farm Credit Banks, and the FHLBs.
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 82

MARKET CONDITIONS

The following graph and related discussion presents the par swap rate curve for the most recent three 

years. Changes in par swap rates can significantly affect the fair value of our debt, derivatives, and 

mortgage and non-mortgage-related securities. As a result, changes in par swap rates will affect the 

business and financial results of our Investments segment.

Par Swap Rates as of December 31,

Sources: Bloomberg, ICAP

Commentary

• We primarily, but not exclusively, use LIBOR-based derivatives and fixed-rate debt to hedge our 

interest rate risk. The mortgage-related investments portfolio's exposure to interest rate risk is 

calculated by our models that project loan and security cash flows over a variety of scenarios. For 

additional information on our exposure to interest rate risk, see "Risk Management - Market Risk."
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 83

• 2016 vs. 2015

The 2-year and 10-year swap rates increased, resulting in gains for our pay-fixed interest rate 

swaps and losses for our receive-fixed interest rate swaps, certain of our option contracts, and 

the vast majority of our investments in securities.

3-month LIBOR increased during the fourth quarter of 2016, resulting in higher yields for our 

short-term interest-earning assets, higher costs for our short-term interest-bearing liabilities, and 

interest-rate related losses for certain of our shorter duration trading securities. 

• 2015 vs. 2014

The 10-year and 30-year swap rates declined during both periods, resulting in losses for our payfixed interest rate swaps and gains for our receive-fixed interest rate swaps, certain of our option 

contracts, and the vast majority of our investments in securities.

As the 10-year and 30-year swap rates declined less in 2015 than in 2014 and the yield curve did 

not flatten as much, the impact of interest rates on our financial instruments and financial results 

was less significant during 2015 as compared to 2014. 

In December 2015, the Federal Reserve raised short-term interest rates. As a result, shorter-term 

interest rates, including the 3-month LIBOR rate, increased in December 2015. The increase in 3-

month LIBOR resulted in higher yields for our short-term interest-earning assets, higher costs for 

our short-term interest-bearing liabilities, and interest-rate related losses for certain of our shorter 

duration trading securities.
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 84

BUSINESS RESULTS

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

Investing Activity

The following graphs presents the Investments segment's total investments portfolio and the composition 

of its mortgage investments portfolio by liquidity category.

Investments Portfolio Mortgage Investments Portfolio

Commentary

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

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

portfolio declined 11.5% between December 31, 2015 and December 31, 2016.

• The balance of our other investments and cash portfolio decreased 5.4% primarily due to lower nearterm cash needs for upcoming maturities and anticipated calls of other debt at the end of 2016 

compared to the end of 2015.

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

34.4% at December 31, 2016 from 38.8% at December 31, 2015, primarily due to repayments, sales 

and securitizations of our less liquid assets. 

• 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 | Investments

Freddie Mac 2016 Form 10-K 85

Reduction In Less Liquid Assets

Securitizations of Reperforming Loans and 

Performing Modified Loans into Freddie Mac 

PCs

Sales of Less Liquid Assets 

Commentary

• Since 2013, we have focused on reducing, in an economically sensible manner, our holdings of 

certain less liquid assets, including single-family reperforming loans and performing modified loans 

and non-agency mortgage-related securities. Our disposition strategies for our less liquid assets 

include securitizations and sales. 

• Our principal strategy related to the securitization of reperforming loans and performing modified 

loans is to create Freddie Mac PCs and initially retain all of the resulting mortgage-related securities. 

This strategy also includes the resecuritization of a portion of the retained mortgage-related 

securities, with some of the resulting interests being sold to third parties.

• During 2016, our sales of less liquid assets included $8.1 billion in UPB of non-agency mortgagerelated securities and $1.1 billion of reperforming loans and performing modified loans. Our sales of 

reperforming loans and performing modified loans involved securitization of the loans using a senior 

subordinate securitization structure, in which we guaranteed the resulting senior securities. As part of 

these transactions, we retained certain of the guaranteed senior securities for our mortgage-related 

investments portfolio. 
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 86

Net Interest Yield and Average Balances

Net Interest Yield & Average Investments Portfolio Balance

Commentary

• Net Interest Yield

2016 vs. 2015 - declined 37 basis points, primarily due to a reduction in the balance of our higher 

yielding mortgage-related assets due to repayments, coupled with higher hedging costs from an 

increase in amortization of upfront cash paid for swaptions. The upfront cash paid for swaptions is 

amortized on a straight-line basis and reclassified from derivative gains (losses) into net 

interest income for purposes of segment earnings. The increase in amortization is due to an 

increase in upfront cash paid for swaptions to hedge our increased exposure to mortgage 

prepayment risk due to the continued low interest rate environment in 2016.

2015 vs. 2014 - declined 5 basis points, primarily due to a decline in the average yield earned 

from the mortgage-related assets that we manage. This decline was primarily driven by the 

repayment of certain higher-yielding agency securities. Although we acquired additional agency 

securities to replace certain of those securities that were repaid, the new securities had lower 

yields due to an overall lower interest rate environment.

• Average Investments Portfolio Balance

2016 vs. 2015 and 2015 vs. 2014 - declined in each period primarily due to the repayment and 

sale of non-agency mortgage-related securities and certain reperforming loans and performing 
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 87

modified loans. This decline was partially offset by an increase in our purchase of single-family 

loans for our securitization pipeline, and in our purchase of U.S. Treasury securities, which are 

included in the other investments and cash portfolio. The overall decline in our average 

investments portfolio balance is consistent with our efforts to comply with the year-end limits on 

the mortgage-related investments portfolio established by the Purchase Agreement and FHFA.

• We expect our average investments portfolio balance to continue to decline in 2017 as we manage 

the size of our mortgage-related investments portfolio pursuant to the portfolio limit. 
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 88

FINANCIAL RESULTS

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

Investments segment.

Year Ended December 31, Change 2016 - 2015 Change 2015 - 2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Net interest income $2,464 $3,902 $4,381 ($1,438) (37)% ($479) (11)%

Net impairment of available-for-sale securities

recognized in earnings 269 420 (140) (151) (36)% 560 400 %

Derivative gains (losses) 2,499 (70) (5,158) 2,569 3,670 % 5,088 99 %

Gains (losses) on trading securities (1,077) (737) (276) (340) (46)% (461) (167)%

Other non-interest income 1,865 2,288 8,095 (423) (18)% (5,807) (72)%

Administrative expense (320) (317) (437) (3) (1)% 120 27 %

Segment Earnings before income tax

(expense) benefit 5,700 5,486 6,465 214 4 % (979) (15)%

Income tax (expense) benefit (1,873) (1,715) (1,945) (158) (9)% 230 12 %

Segment Earnings, net of taxes 3,827 3,771 4,520 56 1 % (749) (17)%

Total other comprehensive income (loss), net of

tax (452) (356) 1,951 (96) (27)% (2,307) (118)%

Total comprehensive income (loss) $3,375 $3,415 $6,471 ($40) (1)% ($3,056) (47)%

The Investments segment manages the interest-rate risk for the company. As a result, substantially all of 

the net interest rate effect of the company's interest-rate risk management activities is recognized in our 

Segment Earnings. The volatility in our Segment Earnings created by our interest-rate risk management 

activities is generally not indicative of the underlying economics of our business. See "Consolidated 

Results of Operations - Other Key Drivers - Items Affecting Multiple Lines - Debt Funding Strategies and 

Interest-Rate Risk Management Activities" for additional information on our interest-rate risk management 

activities and their impact on consolidated financial results.

Key Drivers: 

• Net interest income

2016 vs. 2015 - decreased primarily due to a reduction in the balance of our higher yielding 

mortgage-related assets due to repayments, coupled with higher hedging costs from an increase 

in amortization of upfront cash paid for swaptions used to hedge our increased exposure to 

mortgage prepayment risk due to the continued low interest rate environment in 2016.

2015 vs. 2014 - decreased primarily due to the continued reduction in the balance of our 

mortgage-related assets. The decline in our mortgage-related assets balance during 2015 was 

due to repayments, sales, and other active dispositions.

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

2016 vs. 2015 - was in a net recovery position, as accretion of previously recognized other-thantemporary impairments exceeded new other-than-temporary impairments. The decrease in net 

recovery position was primarily due to less accretion of previously recognized other-thantemporary impairments, as the population of impaired securities continued to decline. The 

decrease in the population of impaired securities is due to our active disposition of these 

securities and a decrease in new other-than-temporary impairments due to improved security 

pricing and stabilized collateral performance.
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 89

2015 vs. 2014 - was in a net recovery position during 2015 compared to a net impairment 

position in 2014, primarily due to the accretion of previously recognized other-than-temporary 

impairments exceeding new other-than-temporary impairments. New other-than-temporary 

impairments significantly declined during 2015 as a result of improved security pricing, stabilized 

collateral performance, and our efforts to sell certain of the previously impaired non-agency 

mortgage-related securities in prior periods.

• Derivative gains (losses)

2016 vs. 2015 - improved as we recognized derivative gains during 2016 due to an increase in 

long-term interest rates during the fourth quarter of 2016, compared to recognizing derivative 

losses during 2015 due to decreasing long-term interest rates. See "Consolidated Results of 

Operations - Derivative Gains (Losses)" for additional information. 

2015 vs. 2014 - improved as we recognized less derivative losses as a result of a smaller decline 

in longer-term interest rates during 2015 compared to 2014. See "Consolidated Results of 

Operations - Derivative Gains (Losses)" for additional information.

• Gains (losses) on trading securities

2016 vs. 2015 - losses increased primarily due to interest-rate related losses from an increase in 

longer-term interest rates in the fourth quarter of 2016. 

2015 vs. 2014 - losses increased primarily due to interest-rate related losses. While longer-term 

interest rates decreased, we recognized interest-rate losses due to our purchase of certain 

securities during the year when rates were lower than rates at December 31, 2015. In addition, 

we recognized losses due to an increase in short-term interest rates as our trading portfolio 

contained shorter duration investments, coupled with agency spread widening. 

• Other non-interest income

2016 vs. 2015 - decreased primarily due to a decline in sales of available-for-sale agency and 

non-agency mortgage-related securities in an unrealized gain position. 

2015 vs. 2014 - decreased primarily due to a decline in proceeds received from the settlement of 

non-agency mortgage-related securities litigation, as most of this litigation settled during prior 

periods, including 2014. In 2015, we entered into one small settlement to resolve a claim with 

respect to certain non-agency mortgage-related securities that we held, while we reached 

settlements with 10 institutions during 2014. We continue to have ongoing litigation with respect 

to certain other non-agency mortgage-related securities.

• Other comprehensive income

2016 vs. 2015 - was a loss during both periods. The increase in the loss position was primarily 

due to unrealized losses on agency securities resulting from an increase in longer-term interest 

rates, coupled with a decrease in unrealized gains as our non-agency securities portfolio 

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

These changes were partially offset by larger unrealized gains due to greater market spread 

tightening for our agency securities and a decline in sales of available-for-sale non-agency 

mortgage-related securities in an unrealized gain position, which resulted in less unrealized gains 

being reclassified from AOCI to other non-interest income.
Management's Discussion and Analysis Our Business Segments | Investments

Freddie Mac 2016 Form 10-K 90

2015 vs. 2014 - was a loss during 2015 compared to income during 2014, primarily due to less 

market spread tightening for our non-agency mortgage-related securities and less impairmentrelated reclassifications from AOCI to earnings. Other comprehensive income in both periods 

reflects the reversals of unrealized losses due to the accretion of other-than-temporary 

impairments in earnings and the reclassification of unrealized gains and losses related to 

available-for-sale securities that were sold during the respective periods.
Management's Discussion and Analysis Our Business Segments | All Other

Freddie Mac 2016 Form 10-K 91

ALL OTHER

COMPREHENSIVE INCOME

The table below shows our comprehensive income (loss) for the All Other category.

Year Ended December 31, Change 2016-2015 Change 2015-2014

(Dollars in millions) 2016 2015 2014 $ % $ %

Comprehensive income

(loss) - All Other $— $28 ($41) ($28) (100)% $69 168%
Management's Discussion and Analysis Risk Management | Overview

Freddie Mac 2016 Form 10-K 92

RISK MANAGEMENT

OVERVIEW

Risk is an inherent part of our business activities. We are exposed to four main categories of risk: credit 

risk, market risk, liquidity risk, and operational risk. We primarily discuss credit risk, market risk, and 

operational risk in this section. See "Liquidity and Capital Resources" for a discussion of liquidity risk. 

Credit risk is the risk associated with the inability or failure of a borrower, issuer or counterparty to meet its 

financial and/or contractual obligations.

Market risk is the economic risk associated with adverse changes in interest rates, volatility, and spreads. 

Liquidity risk is the risk associated with the inability to meet the liquidity needs of the company. 

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, 

people, or systems or from external events. 

For more discussion of these and other risks facing our business, see “Risk Factors.”

RISK MANAGEMENT FRAMEWORK AND GOVERNANCE STRUCTURE

We manage risk using a three-lines-of-defense risk management framework and governance structure 

that includes enterprise-wide oversight by the Board and its committees, CERO, CCO, and our corporate 

ERC. These roles and responsibilities continue to evolve.

The discussion and diagram below present the responsibilities associated with our three-lines-of-defense 

risk management framework and our governance structure.

We have made considerable enhancements to our risk management framework in recent years, 

including: 

• Revising our integrated enterprise risk management framework to enable us to place more focus on 

high risk business processes and activities; and

• Leveraging our enterprise risk management framework to implement a redesigned and enhanced 

three-lines-of-defense methodology. 

We use our three-lines-of-defense methodology to both strengthen risk ownership in our business units 

and add clarity to risk management roles and responsibilities. Our framework focuses on balancing 

ownership of risk by our business units with corporate oversight and independent assurance of the design 

and effectiveness of our risk management activities. For more information on the role of the Board and its 

committees, see "Directors, Corporate Governance, and Executive Officers - Board and Committee 

Information."
Management's Discussion and Analysis Risk Management | Overview

Freddie Mac 2016 Form 10-K 93
Management's Discussion and Analysis Risk Management | Overview

Freddie Mac 2016 Form 10-K 94

ECONOMIC CAPITAL

We use an internal economic capital framework as a component in our risk management process, which 

includes a risk-based measurement of capital adjusted for relevant interest rate and other market, credit, 

and operational risks. We assign economic capital internally to asset classes based on their respective 

risks. Economic capital is a factor we consider when we make economic decisions, establish risk limits, 

and measure profitability. We and Fannie Mae are working with FHFA to develop an overall risk 

measurement framework for evaluating Freddie Mac's and Fannie Mae's risk management and business 

decisions during conservatorship, known as the Conservator Capital Framework ("CCF"). FHFA is 

finalizing key inputs to the CCF, and we expect to begin making risk management and business decisions 

using the CCF in 2017. We currently expect this will result in limited change to our decision making.
Management's Discussion and Analysis Risk Management | Credit Risk

Freddie Mac 2016 Form 10-K 95

CREDIT RISK

OVERVIEW

We are exposed to both mortgage credit risk and counterparty credit risk. Mortgage credit risk is the risk 

that a borrower will fail to make timely payments on a loan that we own or guarantee. Counterparty credit 

risk is the risk that a counterparty (other than a mortgage borrower) that has entered into a business 

contract or arrangement with us will fail to meet its obligations. 

We are exposed to three types of mortgage credit risk:

• Single-family mortgage (SF) credit risk, through our ownership or guarantee of loans in the singlefamily credit guarantee portfolio;

• Multifamily mortgage (MF) credit risk, through our ownership or guarantee of loans in the 

multifamily mortgage portfolio; and

• Mortgage-related securities (MRS) credit risk, through our ownership of non-Freddie Mac 

mortgage-related securities in the mortgage-related investments portfolio.

We also hold investments in certain non-mortgage-related securities. As of December 31, 2016, 2015, 

and 2014, the fair value of our investments in these securities was $21.1 billion, $17.2 billion and $6.7 

billion, respectively, and primarily consisted of investments in U.S. Treasury securities. As U.S. Treasury 

securities are backed by the full faith and credit of the U.S. government, we consider these securities to 

be free of credit risk. Our investment in other non-mortgage-related securities exposes us to counterparty 

credit risk. However, we believe such risk exposure is minimal, as the issuers of these securities are 

primarily major financial institutions, including other GSEs, highly-rated supranational institutions, and 

government money market funds. 

In the sections below, we provide a general discussion of our risk management framework and current 

risk environment for each of the three types of mortgage credit risk and for counterparty credit risk.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 96

SINGLE-FAMILY MORTGAGE CREDIT RISK

We manage our exposure to single-family mortgage credit risk, which is a type of consumer credit risk, 

using the following principal strategies:

• Maintaining policies and procedures for new business activity, including prudent underwriting 

standards;

• Offering private investors new and innovative ways to share in the credit risk of the Core single-family 

book;

• Monitoring loan performance and characteristics of the single-family credit guarantee portfolio and 

individual sellers and servicers;

• Engaging in loss mitigation activities; and

• Managing foreclosure and REO activities.

Maintaining Policies and Procedures for New Business Activity, Including Prudent Underwriting 

Standards

We use a delegated underwriting process in connection with our acquisition of single-family loans 

whereby we set eligibility and underwriting standards and sellers represent and warrant to us that loans 

they sell to us meet these standards. Our eligibility and underwriting standards evaluate loans based on a 

number of characteristics.

Limits are established on the purchase of loans with certain higher risk characteristics. These limits are 

designed to balance our credit risk exposure with the facilitation of affordable housing in a responsible 

manner. Our purchase guidelines generally provide for a maximum original LTV ratio of 95%, a maximum 

LTV ratio of 80% for cash-out refinance loans, and no maximum LTV ratio for fixed-rate HARP loans. In 

March 2015, we began to purchase certain loans with LTV ratios up to 97% under an initiative designed to 

serve a targeted segment of creditworthy borrowers. We fully discontinued purchases of Alt-A loans in 

2009, interest-only loans in 2010, and option ARM loans in 2007. 

The majority of our purchase volume is evaluated using our own proprietary underwriting software (Loan 

Product Advisor (“LPA”)), the seller’s software, or Fannie Mae’s comparable software. The performance of 

non-LPA loans is monitored to ensure compliance with our risk appetite.

We employ a quality control process to review loan underwriting documentation for compliance with our 

standards using both random and targeted samples. We also perform quality control reviews of many 

delinquent loans and review all loans that have resulted in credit losses before the representations and 

warranties are relieved. Sellers may appeal ineligible loan determinations prior to repurchase of the loan. 

Our reviews of 2015 originations are largely complete, while our reviews of 2016 originations are ongoing. 

The average aggregate ineligible loan rate across all sellers for loans funded during 2015, 2014, and 

2013, excluding HARP and other relief refinance loans, was approximately 0.8%, 1.1%, and 1.4%, 

respectively. The most common underwriting defect found in our review of loans funded during 2015 

related to the delivery of insufficient income documentation.

We made changes in recent periods to standardize our quality control process and facilitate more timely 

reviews. These changes allow us to identify breaches of representations and warranties early in the life of 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 97

the loan. We also implemented new tools, such as our proprietary Quality Control Information Manager, to 

provide greater transparency into our customer quality control reviews. In January 2015, we launched 

Loan Coverage Advisor, a new tool that allows our sellers to track significant events for the loans they sell 

us, including when the seller obtains relief from its obligation to repurchase loans due to breach of certain 

representations and warranties. In July 2016, we launched our Loan Advisor Suite, which is a set of 

integrated software applications designed to give lenders a way to originate and deliver high quality 

mortgage loans to us and to actively monitor representation and warranty relief earlier in the mortgage 

loan production process. Further enhancements to this suite of tools are expected in 2017.

If we discover that the representations or warranties related to a loan were breached (i.e., that contractual 

standards were not followed), we can exercise certain contractual remedies to mitigate our actual or 

potential credit losses. These contractual remedies include the ability to require the seller/servicer to 

repurchase the loan at its current UPB, reimburse us for losses realized with respect to the loan after 

consideration of any other recoveries, and/or indemnify us. At the direction of FHFA, we implemented a 

new remedies framework for the categorization of loan origination defects for loans with settlement dates 

on or after January 1, 2016. Among other items, the framework provides that "significant defects" will 

result in a repurchase request or a repurchase alternative, such as recourse or indemnification.

At the direction of FHFA, we have made a number of changes to our selling and servicing representation 

and warranty framework for our mortgage loans. FHFA may require further changes to the framework in 

the future. Under the revised selling framework, sellers are relieved of repurchase obligations for 

breaches of certain selling representations and warranties for certain types of loans, including:

• Loans with 36 months (12 months for relief refinance loans) of consecutive, on-time payments after 

purchase, subject to certain exclusions; 

• Loans that have established an acceptable payment history; and

• Loans that have satisfactorily completed a quality control review.

As part of the revised framework, we also made changes that provide additional clarity on life-ofmortgage loan exclusions from repurchase relief for breaches of certain selling representations and 

warranties. These changes are designed to provide sellers with a higher degree of certainty regarding 

their repurchase exposure and liability on loans sold to us. 

In February 2016, at the direction of FHFA, we published guidelines for a new independent dispute 

resolution process for alleged breaches of selling or servicing representations and warranties on our 

loans. Under the new process, a neutral third party renders a decision on demands that remain 

unresolved after the existing appeal and escalation processes have been exhausted.

We recently announced that we expect to offer representation and warranty relief for certain mortgage 

loans in early 2017 through our Loan Advisor Suite technology solution. Customer adoption of our 

technology solution is critical to our ability to expand mortgage access responsibly.

The credit quality of our single-family loan purchases remained strong during the past several years. The 

tables below show the credit profile of the single-family loans we purchased or guaranteed in the last 

three years.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 98

Weighted Average Original LTV Ratio

 

Weighted Average Credit Score 

The table below contains additional information about the single-family loans we purchased or 

guaranteed in the last three years.

Year Ended December 31,

2016 2015 2014

(Dollars in millions) Amount

% of

Total Amount

% of

Total Amount

% of

Total

30-year or more amortizing fixed-rate $307,572 78% $262,209 75% $192,458 75%

20-year amortizing fixed-rate 17,011 4 16,470 5 8,677 4

15-year amortizing fixed-rate 61,223 16 58,958 17 38,200 15

Adjustable-rate 6,555 2 12,760 3 15,711 6

FHA/VA and other governmental 146 — 163 — 207 —

Total $392,507 100% $350,560 100% $255,253 100%

Percentage of purchases:

With credit enhancements 26% 23% 25%

Detached/townhome property type 92% 92% 92%

Primary residence 90% 90% 88%

Loan purpose:

Purchase 45% 44% 52%

Cash-out refinance 22% 21% 17%

Other refinance 33% 35% 31%
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 99

The table below contains additional detail on the relief refinance loans we purchased. 

Year Ended December 31,

2016 2015

(UPB in millions) UPB

Loan

Count

Average 

Loan Size UPB

Loan

Count

Average

 Loan Size

Above 125% Original LTV $271 1,799 $151,000 $569 3,766 $151,000

Above 100% to 125% Original LTV 1,107 6,220 178,000 2,043 11,784 173,000

Above 80% to 100% Original LTV 3,034 17,277 176,000 4,938 28,999 170,000

80% and below Original LTV 8,562 60,353 142,000 11,980 85,677 140,000

Total $12,974 85,649 $151,000 $19,530 130,226 $150,000

Offering Private Investors New and Innovative Ways to Share in the Credit Risk of the Core SingleFamily Book

Our Charter requires coverage by specified credit enhancements or participation interests on singlefamily loans with LTV ratios above 80% at the time of purchase. In addition to obtaining credit 

enhancements required by our Charter, we also enter into various other types of transactions in which we 

transfer mortgage credit risk to third parties. 

We use the following types of credit enhancements to transfer a portion of the credit risk on a loan or 

group of loans at the time we acquire the loan. 

• Primary mortgage insurance - Primary mortgage insurance provides loan-level protection against 

loss up to a specified amount and the premium is typically paid by the borrower. Generally, an insured 

loan must be in default and the borrower’s interest in the underlying property must have been 

extinguished, such as through a short sale or foreclosure sale, before a claim can be filed under a 

primary mortgage insurance policy. The mortgage insurer has a prescribed period of time within which 

to process a claim and make a determination as to its validity and amount. Most of our loans with LTV 

ratios above 80% are protected by primary mortgage insurance. 

• Seller indemnification agreement - Requires the seller to absorb a portion of the losses on the 

related single-family loans in exchange for a fee or a guarantee fee reduction. The indemnification 

amount may be fully or partially collateralized.

• Deep MI - Provides additional coverage beyond primary mortgage insurance. Deep MI is a credit 

enhancement we purchase from affiliates of mortgage insurance companies. Deep MI covers a pool 

of loans and takes effect immediately upon sale of the mortgage loans to us over a pre-defined loan 

aggregation period. We require our counterparties to collateralize their exposure to reduce the risk 

that we will not be reimbursed for our claims under the policies.

• Lender recourse and indemnification agreements - Require a lender to repurchase a loan upon 

default or to reimburse us for realized credit losses. Lender recourse and lender indemnification 

agreements are entered into as an alternative to requiring primary mortgage insurance or in 

exchange for a lower guarantee fee. We have not used lender recourse or lender indemnification 

agreements on a broad basis in recent years. 

• Pool insurance - Provides insurance on a group of loans up to a stated aggregate loss limit. We 

have not purchased pool insurance policies since 2008, and the majority of our pool insurance 

policies will expire in the next four years.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 100

We also enter into the following types of credit risk transfer transactions subsequent to our purchase or 

guarantee of loans.

• STACR debt notes - Unsecured debt obligations that we issue to third-party investors related to 

certain notional credit risk positions. We make payments of principal and interest on the issued notes. 

The amount of principal that we are required to pay the STACR debt note investors is linked to the 

credit performance of certain loans (referred to as a reference pool) that we have previously 

guaranteed. As a result, we are not required to repay principal to the extent that the notional credit 

risk position is reduced as a result of a specified credit event.

• ACIS insurance policies - Policies that provide credit protection on a portion of the non-issued 

notional credit risk positions we retain in a STACR debt note transaction. We also enter into ACIS 

transactions that provide credit protection for certain specified credit events on loans not included in a 

reference pool created for a STACR debt note transaction. We receive compensation from the 

insurance policy up to an aggregate limit when specified credit events occur.

• Whole loan securities - Guaranteed senior securities and unguaranteed subordinated securities that 

we issue which are backed by certain single-family loans that we purchased previously. The 

unguaranteed subordinated securities will absorb first losses on the related loans. We retain a portion 

of the subordinated securities. In these transactions, the loans are serviced in accordance with our 

servicing guide and we control the servicing.

• Senior subordinate securitization structures - Guaranteed senior securities and unguaranteed 

subordinated securities that we issue which are backed by seasoned performing modified and 

reperforming single-family loans that we purchased previously. The unguaranteed subordinated 

securities will absorb first losses on the related loans. We retain a portion of the subordinated 

securities. In these transactions, the loans are not serviced in accordance with our servicing guide 

and we do not control the servicing.

See "Our Business Segments - Single-Family Guarantee" for additional information on these credit risk 

transfer transactions.

The table below provides information on the credit-enhanced loans in our single-family credit guarantee 

portfolio. The credit enhanced categories are not mutually exclusive as a single loan may be covered by 

both primary mortgage insurance and other credit protection.

As of December 31,

2016 2015 2014

(Percentage of portfolio based on

UPB)

% of

Portfolio SDQ Rate

% of

Portfolio SDQ Rate

% of

Portfolio SDQ Rate

Non-credit-enhanced 64% 1.02% 70% 1.30% 77% 1.74%

Credit-enhanced:

Primary mortgage insurance 17% 1.46% 15% 2.06% 14% 3.10%

Other 27% 0.43% 20% 0.58% 12% 1.21%

Total N/A 1.00% N/A 1.32% N/A 1.88%
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 101

The table below provides information on the credit enhanced loans in our single-family credit guarantee 

portfolio as of December 31, 2016 and 2015, respectively. The table includes all types of single-family 

credit enhancements.

As of December 31,

2016 2015

(Dollars in millions)

Total

Current and

Protected

UPB

Coverage

Remaining

Collateralized 

Coverage 

Remaining (1)

Total

Current and

Protected

UPB

Coverage

Remaining

Collateralized 

Coverage 

Remaining (1)

Credit enhancements at

the time we acquire the

loan:

Primary mortgage

insurance $291,217 $74,345 $— $257,063 $65,760 $—

Seller indemnification(2) 1,030 10 10 1,095 11 7

Deep MI(2) 3,067 81 — — — —

Lender recourse and

indemnification 5,247 4,911 — 5,902 5,385 —

Pool insurance 1,719 618 — 2,140 753 —

Other

HFA Indemnifications 1,747 1,747 — 2,599 2,599 —

Subordination 1,874 230 — 2,127 278 —

Other credit

enhancements 17 6 — 23 10 —

Credit enhancements

subsequent to our

purchase or guarantee of

the loan:

STACR debt note(2) 427,978 14,507 14,507 328,872 11,551 11,551

ACIS transactions(2) 453,670 5,355 877 328,872 3,365 311

Whole loan security and 

senior subordinate 

securitization structures(2) 2,494 375 375 893 58 58

Less: UPB with more than

one type of credit

enhancement (559,400) — — (417,393) — —

Single-family book with

credit enhancement 630,660 102,185 15,769 512,193 89,770 11,927

Single-family book without

credit enhancement 1,124,066 — — 1,189,694 — —

Total $1,754,726 $102,185 $15,769 $1,701,887 $89,770 $11,927

(1) Collateralized coverage includes cash received by Freddie Mac upon issuance of STACR debt notes and unguaranteed 

whole loan securities, as well as cash and securities pledged for our benefit primarily related to ACIS transactions. 

(2) Credit risk transfer transactions. The substantial majority of single-family loans covered by these transactions were acquired 

after 2012. 

We had coverage remaining of $102.2 billion and $89.8 billion on our single-family credit guarantee 

portfolio as of December 31, 2016 and 2015, respectively. Credit risk transfer transactions provided 

19.9% and 16.7% of the coverage remaining at those dates.

The table below provides information on estimated recoveries we could receive from our most significant 

credit risk transfer transactions (i.e., STACR debt notes and ACIS insurance policies) under various home 

price scenarios. The timing of our recognition of the recoveries in our statements of comprehensive 

income will depend on the type of credit risk transfer transaction and whether we are reimbursed based 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 102

on calculated losses or actual losses, which may result in timing differences between the recognition of 

recoveries and the related credit event. We recognize losses on the loans in the reference pool when 

losses are incurred. Recoveries from credit risk transfer transactions based on actual losses are 

recognized when the loss confirming event occurs (i.e., foreclosure, deed in lieu of foreclosure, short sale, 

etc.), which may be several years after the related losses are incurred. Credit risk transfer transactions 

based on calculated losses are measured at fair value through earnings, so the change in fair value may 

be recognized prior to the incurrence of the loss.

We estimate the potential recoveries from our STACR debt note and ACIS transactions using a sensitivity 

analysis that utilizes our historical loss and prepayment experience related to loans originated during 

periods that experienced above average home price appreciation, moderate home price appreciation, and 

severe home price depreciation. We match these loans to similar groups within the reference pools 

(related to our STACR debt note and ACIS transactions) using LTV ratios and FICO scores. Our 

recoveries were estimated based on loan losses, net of mortgage insurance claim amounts. These are 

estimated projections. Our actual losses under the chosen scenarios could differ materially from these 

estimates. In addition, these estimates do not include interest expense and transaction costs we incur to 

issue our STACR debt notes, and premiums we pay on ACIS transactions.

(Dollars in millions) As of December 31, 2016

UPB of loans covered by STACR debt

notes and ACIS insurance policies $427,978

Performance Under Home Price Scenarios at December 31, 2016

Above Average Home 

Price Appreciation (47%)(1)

Moderate Home Price 

Appreciation (7%)(1)

Severe Home Price 

Depreciation (-24%)(1)

Amount bps Amount bps Amount bps

Estimated credit losses $273 6 $1,845 43 $11,003 257

Estimated recoveries from STACR debt

notes and ACIS insurance policies $77 2 $609 14 $7,423 173

Loss coverage ratio 28% N/A 33% N/A 68% N/A

(1) Home price change is over a four-year period.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 103

Monitoring Loan Performance and Characteristics of the Single-Family Credit Guarantee Portfolio 

and Individual Sellers and Servicers

We review loan performance, including delinquency statistics and related loan characteristics in 

conjunction with housing market and economic conditions, to determine if our pricing and eligibility 

standards reflect the risk associated with the loans we purchase and guarantee. We review the payment 

performance of our loans to facilitate early identification of potential problem loans, which could inform our 

loss mitigation strategies. We also review performance metrics for additional loan characteristics that may 

expose us to concentrations of credit risk, including: 

• Higher risk loan attributes and attribute combinations;

• Higher risk loan product types; and

• Geographic concentrations. 

We actively monitor seller and servicer performance, including compliance with our standards, and 

periodically review their operational processes. We also periodically change seller/servicer guidelines 

based on the results of our mortgage portfolio monitoring, if warranted. 

Single-Family Credit Guarantee Portfolio 

Serious delinquency rates continued to decline across our total single-family credit guarantee portfolio in 

2016 as economic conditions in many parts of the U.S. continued to improve. Improvement in home 

prices in many areas of the U.S. during 2016 generally led to improved current LTV ratios of the loans in 

our single-family credit guarantee portfolio as of December 31, 2016, which contributed to lower credit 

losses.

The improvement in our serious delinquency rate in 2016 is primarily due to the better performance of 

newly acquired loans in the Core single-family book, continued loss mitigation and foreclosure activities 

for loans in the Legacy single-family book as well as sales of certain seriously delinquent loans. The 

performance of our Core single-family book has benefited from significant home price increases since 

2009. As these home price increases moderate and return to long-term historical averages, we expect the 

performance of our Core single-family book will also moderate. The gradual reduction of our Legacy 

single-family book also contributed to the improvement in the serious delinquency rate. 

Our loss mitigation activities may create fluctuations in our delinquency statistics. For example, loans in 

modification trial periods, loans subject to forbearance agreements, and loans in repayment plans 

continue to be reported as seriously delinquent. There may also be temporary lags in the reporting of 

payment status and modification completion due to differing practices of our servicers that can affect our 

delinquency statistics.

The charts below show the credit losses and serious delinquency rates for each of our single-family 

books. Our Core single-family book and our HARP and other relief refinance book continue to perform 

well and account for a small percentage of our credit losses, as shown below. Our Legacy single-family 

book continues to decline as a percentage of our overall portfolio, but continues to account for the 

majority of our credit losses.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 104

Portfolio Composition and Credit Losses Serious Delinquency Rates as of December 

31,
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 105

The tables below provide credit quality information about our single-family books.

December 31, 2016

(Dollars in billions) UPB

Average

Credit

Score

Original

LTV Ratio

Current

LTV

Ratio

Current

LTV Ratio

>100%

Foreclosure

and Short

Sale Rate(1) Alt-A %

Core single-family book $1,275 752 72% 60% —% 0.15% —%

HARP and other relief refinance

book 265 729 88% 65% 7% 1.14% —%

Legacy single-family book 215 700 75% 62% 8% 4.26% 15%

Total $1,755 743 75% 61% 2% N/A 2%

December 31, 2015

(Dollars in billions) UPB

Average

Credit

Score

Original

LTV Ratio

Current

LTV

Ratio

Current

LTV Ratio

>100%

Foreclosure

and Short

Sale Rate(1) Alt-A %

Core single-family book $1,129 754 72% 61% —% 0.15% —%

HARP and other relief refinance

book 303 731 89% 70% 10% 0.95% —%

Legacy single-family book 270 702 75% 66% 12% 4.09% 15%

Total $1,702 741 75% 63% 4% N/A 2%

(1) The foreclosure and short sale rate presented for the Legacy single-family book represents the rate associated with loans 

originated in 2000 through 2008.

The table below contains a description of some of the loan characteristics we monitor in our single-family 

credit guarantee portfolio.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 106

Characteristic Description Impact on Credit Quality

LTV Ratio Ratio of the UPB of the loan to the

value of the underlying property

collateralizing the loan. Original LTV

ratio is measured at loan origination;

while current LTV (CLTV) ratio is

defined as the ratio of the current loan

UPB to the estimated current property

value.

• Measures ability of the underlying 

property to cover our exposure on the 

loan

• Higher LTV ratios indicate higher risk, as

proceeds from sale of the property may

not cover our exposure on the loan

Credit Score Statistically-derived number used by

lenders to assess a borrower’s

likelihood to repay debt. We primarily

use FICO scores, which are currently

the most commonly used credit scores.

• Borrowers with higher credit scores are

generally more likely to repay or have the

ability to refinance their loans than those

with lower scores

• Credit scores presented in this Form 10-K

are at the time of origination and may not

be indicative of the borrowers’ current

creditworthiness

Loan Purpose Indicates how the borrower intends to

use the proceeds from a loan (i.e.,

purchase, cash-out refinance, or other

refinance)

• Cash-out refinancings generally have had

a higher risk of default than loans

originated in purchase or other refinance

transactions

Property Type Indicates whether the property is a

detached single-family house,

townhouse, condominium, or co-op

• Detached single-family houses and

townhouses are the predominant type of

single-family property

• Condominiums historically have

experienced greater volatility in home

prices than detached single-family

houses, which may expose us to more

risk

Occupancy Type Indicates whether the borrower intends

to use the property as a primary

residence, second home, or investment

property

• Loans on primary residence properties

tend to have lower credit risk than loans

on second homes or investment

properties

Product Type Indicates the type of loan based on key

loan terms, such as the contractual

maturity, type of interest rate, and

payment characteristics of the loan

• Loan products that contain terms which

result in scheduled changes in monthly

payments may result in higher risk

• Shorter loan terms result in faster

repayment of principal and may indicate

lower risk

Second Liens Indicates whether the underlying

property is covered by more than one

loan

• Second liens can increase the risk of

default

• Borrowers are free to obtain second-lien

financing after origination, and we are not

entitled to receive notification when a

borrower does so
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 107

The table below contains details on characteristics of the loans in our single-family credit guarantee 

portfolio as of December 31, 2016, 2015, and 2014.

December 31,

(Percentage of portfolio based on UPB) 2016 2015 2014

Original LTV Ratio Range

60% and below 20% 20% 21%

Above 60% to 80% 53% 53% 52%

Above 80% to 100% 23% 22% 21%

Above 100% 4% 5% 6%

Portfolio weighted average original LTV ratio 75% 75% 75%

Current LTV Ratio Range

60% and below 45% 43% 39%

Above 60% to 80% 38% 37% 37%

Above 80% to 100% 15% 16% 18%

Above 100% 2% 4% 6%

Portfolio weighted average current LTV ratio 61% 63% 66%

Credit Score

740 and above 60% 59% 58%

700 to 739 21% 21% 20%

660 to 699 12% 13% 13%

620 to 659 5% 5% 6%

Less than 620 2% 2% 3%

Portfolio weighted average credit score 743 741 740

Loan Purpose

Purchase 35% 32% 30%

Cash-out refinance 21% 21% 21%

Other refinance 44% 47% 49%

In addition, at December 31, 2016, 2015, and 2014:

• More than 90% of our loans were secured by detached homes or townhomes; 

• Approximately 90% of our loans were secured by properties used as the borrower’s primary 

residence at origination; and

• More than 90% of our loans were fixed-rate.

At December 31, 2016, approximately 11% of our loans had second-lien financing by the originator or 

other third party at origination, and these loans comprised approximately 17% of our seriously delinquent 

loan population. It is likely that additional borrowers have post-origination second-lien financing.

Higher Risk Loan Attributes and Attribute Combinations

Certain of the loan attributes shown above may indicate a higher risk of default. In particular, loans with 

original LTV ratios over 90% and/or credit scores below 620 at origination may be higher risk. The table 

below provides information on loans in our portfolio with these characteristics. The table includes a 

presentation of each higher risk category in isolation. A single loan may fall within more than one 

category. 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 108

December 31, 2016

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Original LTV ratio greater than 90%, HARP loans $115.1 83% 1.8% 1.07%

Original LTV ratio greater than 90%, all other loans $169.4 82% 7.2% 1.92%

Loans with credit scores below 620 at origination $37.5 69% 21.7% 5.73%

December 31, 2015

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Original LTV ratio greater than 90%, HARP loans $134.2 89% 1.3% 1.16%

Original LTV ratio greater than 90%, all other loans $144.8 84% 8.4% 2.72%

Loans with credit scores below 620 at origination $41.3 74% 20.7% 6.67%

In addition, certain combinations of loan attributes can indicate an even higher degree of credit risk, such 

as loans with both higher LTV ratios and lower credit scores. The following tables show the combination 

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

December 31, 2016

CLTV > 80 to 100 CLTV > 100 All Loans

(Credit score)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

% 

Modified(1)

Core single-family book:

< 620 0.2% 2.18% —% NM —% NM 0.2% 2.45% 3.0%

620 to 659 1.6 1.02% 0.3 1.30% — NM 1.9 1.07% 1.3%

60.9 0.15% 9.7 0.22% 0.1 1.88% 70.7 0.16% 0.2%

Not available — NM — NM — NM — NM NM

Total 62.7% 0.18% 10.0% 0.27% 0.1% 3.29% 72.8% 0.20% 0.2%

Relief refinance book:

< 620 0.5% 1.72% 0.2% 3.44% 0.1% 4.50% 0.8% 2.30% 4.5%

620 to 659 0.8 1.11% 0.3 2.25% 0.1 3.54% 1.2 1.55% 2.6%

10.1 0.32% 2.2 1.08% 0.8 1.92% 13.1 0.52% 0.8%

Not available — NM — NM — NM — NM NM

Total 11.4% 0.44% 2.7% 1.37% 1.0% 2.31% 15.1% 0.69% 1.1%

Legacy single-family

book:

< 620 0.8% 6.23% 0.2% 12.70% 0.1% 20.28% 1.1% 8.05% 33.7%

620 to 659 1.3 4.41% 0.3 9.75% 0.3 16.40% 1.9 5.83% 27.8%

7.0 1.92% 1.4 6.65% 0.6 11.79% 9.0 2.63% 13.3%

Not available 0.1 4.90% — NM — NM 0.1 5.58% 15.8%

Total 9.2% 2.65% 1.9% 8.04% 1.0% 14.14% 12.1% 3.59% 17.1%
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 109

December 31, 2015

CLTV > 80 to 100 CLTV > 100 All Loans

(Credit score)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

%

Portfolio

SDQ 

Rate(1)

% 

Modified(1)

Core single-family book:

< 620 0.2% 2.32% —% NM —% NM 0.2% 2.74% 2.9%

620 to 659 1.3 1.05% 0.2 1.49% — NM 1.5 1.13% 1.2%

55.8 0.15% 8.7 0.28% 0.1 1.85% 64.6 0.17% 0.2%

Not available — NM 0.1 4.41% — NM 0.1 3.41% 3.1%

Total 57.3% 0.18% 9.0% 0.34% 0.1% 3.49% 66.4% 0.21% 0.2%

Relief refinance book:

< 620 0.6% 1.65% 0.2% 3.06% 0.1% 4.65% 0.9% 2.38% 3.4%

620 to 659 0.7 1.03% 0.4 2.12% 0.2 3.31% 1.3 1.60% 2.0%

10.7 0.29% 3.4 1.02% 1.5 1.85% 15.6 0.56% 0.6%

Not available — NM — NM — NM — NM NM

Total 12.0% 0.40% 4.0% 1.25% 1.8% 2.20% 17.8% 0.72% 0.8%

Legacy single-family

book:

< 620 0.8% 6.57% 0.3% 13.74% 0.2% 21.39% 1.3% 9.09% 30.7%

620 to 659 1.5 4.73% 0.5 10.85% 0.4 17.73% 2.4 6.82% 25.0%

8.5 1.99% 2.2 7.26% 1.2 12.84% 11.9 3.08% 11.6%

Not available 0.2 5.12% — NM — NM 0.2 5.95% 13.5%

Total 11.0% 2.74% 3.0% 8.66% 1.8% 15.03% 15.8% 4.12% 14.9%

(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.

Higher Risk Loan Product Types

There are several types of loan products that contain terms which result in scheduled changes in the 

borrower’s monthly payments after specified initial periods, such as interest-only and option ARM loans. 

These products may result in higher credit risk because the payment changes may increase the 

borrower’s monthly payment, resulting in a higher risk of default. The majority of these loans are in our 

Legacy single-family book. Only a small percentage of our Core single-family book consists of ARM loans.

The balance of interest-only and option ARM loans declined significantly in recent years as many of these 

borrowers have repaid or refinanced their loans, received loan modifications, or completed foreclosure 

alternatives or foreclosure transfers. 

While we have not categorized option ARM loans as either subprime or Alt-A for presentation in this Form 

10-K and elsewhere in our reporting, they could exhibit similar credit performance to collateral sometimes 

referred to as subprime or Alt-A by market participants. For reporting purposes, loans within the option 

ARM category continue to be presented in that category following a modification of the loan, even though 

the modified loan no longer provides for optional payment provisions.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 110

The table below provides credit characteristic information on higher risk loan product types.

December 31, 2016

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Amortizing ARM and option ARM(1) $60.5 53% 1.7% 1.20%

Interest-only $16.6 73% 0.1% 4.34%

Step-rate modified $32.0 78% 100% 6.37%

December 31, 2015

(Dollars in billions) UPB CLTV % Modified SDQ Rate

Amortizing ARM and option ARM(1) $71.5 56% 1.6% 1.61%

Interest-only $22.0 80% 0.1% 6.02%

Step-rate modified $38.3 85% 100% 7.34%

(1) Includes $4.1 billion and $5.0 billion in UPB of option ARM loans as of December 31, 2016 and 2015, respectively. As of 

December 31, 2016 and 2015, the option ARM loans had: (a) current LTV ratios of 64% and 71%, (b) loan modification 

percentages of 14.6% and 14.0%; and (c) serious delinquency rates of 5.24% and 8.01%, respectively. 

The table below shows the timing of scheduled payment changes for certain types of loans within our 

single-family credit guarantee portfolio. The amounts in the table below are aggregated by product type 

and categorized by the year in which the loan will experience a payment change. The timing of the actual 

payment change may differ from that presented in the table due to a number of factors, including if the 

borrower refinances the loan. Loans where the year of first payment change is 2016 or prior have already 

had one or more payment changes as of December 31, 2016; loans where the year of first payment 

change is 2017 or later have not had a payment change as of December 31, 2016 and will not experience 

a payment change until a future period. Step-rate modified loans are shown in each year that the 

borrower will experience a scheduled interest-rate increase; therefore, a single loan may be included in 

multiple periods. However, the total of step-rate loans in the table reflects the ending UPB of such loans 

as of December 31, 2016.

December 31, 2016

(Dollars in

millions)

2016 and 

Prior 2017 2018 2019 2020 2021 Thereafter Total(1)

ARM/amortizing $15,024 $2,652 $3,443 $6,282 $7,704 $7,122 $13,861 $56,088

ARM/interest-only 9,013 3,888 1,572 89 200 — — 14,762

Fixed/interest-only 270 1,201 269 4 2 17 72 1,835

Step-rate modified 20,071 21,347 14,855 5,517 4,124 2,937 435 32,035

Total $44,378 $29,088 $20,139 $11,892 $12,030 $10,076 $14,368 $104,720

(1) Excludes loans underlying certain other securitization products, since the payment change information is not available to us 

for these loans.

We believe that the performance of these types of loans has been more affected by macroeconomic 

conditions, such as unemployment rates and cumulative home price declines in many geographic areas 

since 2006, than by the increase in the borrower’s monthly payment. However, we continue to monitor the 

performance of these loans as many have experienced a payment change or are scheduled to have a 

payment change in 2017 or 2018, which is likely to subject the borrowers to higher monthly payments. 

Since a substantial portion of these loans were originated in 2005 through 2008 and are located in 

geographic areas that were most affected by declines in home prices that began in 2006, we believe that 

the serious delinquency rate for these types of loans will remain high in 2017.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 111

Other Higher Risk Loans - Alt-A and Subprime Loans

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

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

classification of such loans may differ from company to company. For example, some financial institutions 

may use credit scores to delineate certain residential loans as subprime. 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 may characterize single-family loans based upon their overall credit 

quality at the time of origination, generally considering them to be prime or subprime. While we have not 

historically characterized the loans in our single-family credit guarantee portfolio as either prime or 

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

degree of credit risk. In addition, we estimate that approximately $1.3 billion and $1.5 billion of security 

collateral underlying our other securitization products at December 31, 2016 and 2015, respectively, were 

identified as subprime based on information provided to us when we entered into these transactions.

Many mortgage market participants classify single-family loans with credit characteristics that range 

between their prime and subprime categories as Alt-A because these loans have a combination of 

characteristics of each category, may be underwritten with lower or alternative income or asset 

documentation requirements compared to a full documentation loan, or both. Although we have 

discontinued new purchases of loans with lower documentation standards, we continued to purchase 

certain amounts of such loans in cases where the loan was either purchased pursuant to a previously 

issued guarantee, part of our relief refinance initiative, or part of another refinance loan initiative and the 

pre-existing loan was originated under less than full documentation standards. In the event we purchase 

a refinance loan and the original loan had been previously identified as Alt-A, such refinance loan may no 

longer be categorized or reported as an Alt-A loan in this Form 10-K and our other financial reports 

because the new refinance loan replacing the original loan would not be identified by the seller/servicer 

as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case 

had such refinancing not occurred. From the time the relief refinance initiative began in 2009 to 

December 31, 2016, we have purchased approximately $34.4 billion of relief refinance loans that were 

previously categorized as Alt-A loans in our portfolio, including $1.6 billion in 2016. 

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

December 31, 2016 December 31, 2015

(Dollars in billions) UPB CLTV

%

Modified SDQ Rate UPB CLTV

%

Modified SDQ Rate

Alt-A $32.6 72% 25.9% 5.21% $40.2 77% 23.1% 6.32%

The UPB of Alt-A loans in our single-family credit guarantee portfolio declined during 2016 primarily due 

to borrowers refinancing into other mortgage products, foreclosure transfers, 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 Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 112

Geographic Concentrations

We purchase mortgage loans from across the U.S. and maintain a geographically diverse portfolio. 

However, local economic conditions can affect borrowers’ ability to repay and the value of the underlying 

collateral, leading to concentrations of credit risk in certain geographic areas. 

The following table presents certain geographic concentrations in our single-family credit guarantee 

portfolio. The states presented below had the largest number of seriously delinquent loans as of 

December 31, 2016. See Note 12 for additional information on the concentration of credit risk in our 

single-family credit guarantee portfolio. 

As of December 31, 2016

Full Year

2016

Credit

Losses

As of December 31, 2015

Full Year

2015

Credit

Losses

As of December 31, 2014

Full Year

2014

Credit

Losses

(Dollars in

millions)

SDQ

Loan 

Count

% of SDQ

Loans

SDQ

Rate

SDQ

Loan

Count

% of SDQ

Loans

SDQ

Rate

SDQ

Loan

Count

% of SDQ

Loans

SDQ

Rate

New York 9,574 9% 2.05% $163 13,981 10% 2.94% $557 19,462 10% 4.06% $167

Florida 9,355 9 1.42% 157 14,070 10 2.16% 850 25,656 13 3.92% 1,057

Illinois 7,291 7 1.34% 170 8,841 6 1.62% 381 11,902 6 2.17% 395

New Jersey 6,913 7 2.26% 204 11,978 9 3.90% 689 16,960 8 5.49% 239

California 5,992 6 0.46% 83 7,669 5 0.60% 215 11,386 6 0.92% 197

All Others 66,809 62 0.90% 951 83,182 60 1.12% 1,996 112,700 57 1.52% 1,784

Total 105,934 100% 1.00% $1,728 139,721 100% 1.32% $4,688 198,066 100% 1.88% $3,839

The following table presents our single-family charge-offs and recoveries in each geographic region. See 

"Single-Family Credit Guarantee Portfolio" in Note 12 for a description of these regions.

Year Ended December 31,

2016 2015 2014

(Dollars in

millions)

Chargeoffs,

gross (1) Recoveries

Chargeoffs,

net

Chargeoffs,

gross(1) Recoveries

Chargeoffs,

net

Chargeoffs,

gross(1) Recoveries

Chargeoffs,

net

Northeast $752 ($188) $564 $2,056 ($207) $1,849 $1,120 ($238) $882

North Central 425 (94) 331 854 (149) 705 1,001 (259) 742

Southeast 401 (121) 280 1,270 (204) 1,066 1,676 (393) 1,283

West 247 (58) 189 688 (105) 583 861 (284) 577

Southwest 113 (36) 77 203 (52) 151 234 (84) 150

Total $1,938 ($497) $1,441 $5,071 ($717) $4,354 $4,892 ($1,258) $3,634

(1) Does not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance 

recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion, $3.4 billion, and $0.3 

billion during 2016, 2015, and 2014, respectively.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 113

The tables below present the concentration of loans in each geographic region by CLTV ratio.

December 31, 2016

CLTV <= 80% CLTV > 80% to 100% CLTV > 100% All Loans

% of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate

North

Central 13% 0.67% 3% 1.53% —% 6.36% 16% 0.93%

Northeast 20 1.04% 4 2.35% 1 10.92% 25 1.45%

Southeast 12 0.92% 3 1.95% 1 6.35% 16 1.19%

Southwest 11 0.71% 2 1.13% — 6.75% 13 0.78%

West 27 0.43% 3 1.38% — 5.00% 30 0.57%

Total 83% 0.74% 15% 1.75% 2% 7.43% 100% 1.00%

December 31, 2015

CLTV <= 80% CLTV > 80% to 100% CLTV > 100% All Loans

% of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate % of Portfolio SDQ Rate

North

Central 13% 0.73% 3% 1.91% 1% 6.23% 17% 1.13%

Northeast 20 1.28% 5 3.55% 1 13.35% 26 2.04%

Southeast 12 1.08% 3 2.54% 1 7.15% 16 1.57%

Southwest 10 0.76% 2 1.45% — 6.47% 12 0.88%

West 25 0.52% 3 1.96% 1 5.34% 29 0.79%

Total 80% 0.87% 16% 2.41% 4% 8.08% 100% 1.32%

Credit Losses and Recoveries

Charge-offs were higher in 2015 than in 2016 primarily due to our adoption on January 1, 2015 of an 

FHFA advisory bulletin that changed when we deem a loan to be uncollectible. We expect the level of 

charge-offs in 2017 to be lower than in 2016 as we continue our loss mitigation activities and our efforts to 

sell certain seriously delinquent single-family loans. See "Change in Estimate" in Note 1 for information 

about our adoption of the FHFA advisory bulletin and its effect on charge-offs and credit losses.
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Freddie Mac 2016 Form 10-K 114

The tables below contain certain credit performance metrics of our single-family credit guarantee portfolio.

Year Ended December 31,

(Dollars in millions) 2016 2015 2014

Charge-offs, gross(1)(2) $1,938 $5,071 $4,892

Recoveries (497) (717) (1,258)

Charge-offs, net 1,441 4,354 3,634

REO operations expense 287 334 205

Total credit losses $1,728 $4,688 $3,839

Total credit losses (in bps) 9.9 27.6 22.9

Ratio of total loan loss reserves (excluding reserves for TDR concessions) to net chargeoffs for single-family loans(3) 3.9 3.0 2.5

Ratio of total loan loss reserves to net charge-offs for single-family loans(3) 10.5 9.2 5.2

As of December 31,

2016 2015 2014

Payment Status:

One month past due 1.37% 1.37% 1.52%

Two months past due 0.40% 0.42% 0.49%

Seriously delinquent 1.00% 1.32% 1.88%

(1) For 2015, includes $1.9 billion due to the adoption of Advisory Bulletin 2012-02 ("AB 2012-02") Framework for Adversely 

Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention.

(2) Does not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance 

recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion, $3.4 billion, and $0.3 

billion during 2016, 2015, and 2014, respectively.

(3) Calculated using annualized net charge-offs from the fourth quarter of each respective year.

Credit loss recoveries during 2016, 2015, and 2014 included $14 million, $17 million, and $349 million, 

respectively, related to settlement agreements with certain sellers that released specified loans from 

certain repurchase obligations in exchange for one-time cash payments. We recognized recoveries from 

primary mortgage insurance (excluding recoveries that represent reimbursements for our expenses, such 

as REO operations expenses) of $0.3 billion, $0.5 billion, and $0.7 billion that reduced our charge-offs of 

single-family loans during 2016, 2015, and 2014, respectively. We also recognized recoveries from 

primary mortgage insurance of $47 million, $76 million, and $180 million during 2016, 2015, and 2014, 

respectively, as part of REO operations (expense) income.

Our credit losses and seriously delinquent loan population are concentrated in the Legacy single-family 

book. In addition, our credit losses and seriously delinquent loan population are also concentrated within 

loans having certain characteristics, as shown in the table below. These categories are not mutually 

exclusive; for example, an Alt-A loan can be associated with a property located in a judicial foreclosure 

state and/or have a CLTV ratio of greater than 100%. Additional detail on loans in judicial foreclosure 

states is presented in the “Managing Foreclosure and REO Activities” section. 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 115

December 31, 2016

Year Ended

December

31, 2016 December 31, 2015

Year Ended

December

31, 2015

% of

Portfolio SDQ Rate

% of Credit

Losses

% of

Portfolio SDQ Rate

% of Credit

Losses

CLTV > 100% 2% 7.43% 34% 4% 8.08% 49%

Alt-A loans 2% 5.21% 15% 2% 6.32% 23%

Judicial foreclosure states 38% 1.36% 62% 39% 1.84% 70%

Loan Loss Reserves 

Our loan loss reserves continued to decline in recent years, consistent with the decline in our serious 

delinquency rate. Although the housing market continued to improve in many geographic areas in 2016, 

we expect that our loan loss reserves may remain elevated for an extended period because a significant 

portion of our reserves is associated with interest rate concessions related to performing TDRs. 

Additionally, the resolution of certain seriously delinquent loans takes considerable time, often several 

years in the case of foreclosure. 

The table below summarizes our single-family loan loss reserves activity. 

 Year Ended December 31,

(Dollars in millions) 2016 2015 2014 2013 2012

Beginning balance $15,348 $21,793 $24,578 $30,508 $38,916

Provision (benefit) for credit losses (781) (2,639) 113 (2,247) 2,013

Charge-offs, gross(1) (1,938) (5,071) (4,892) (8,995) (13,520)

Recoveries 497 717 1,258 4,313 2,262

Transfers, net 337 548 736 999 837

Ending balance $13,463 $15,348 $21,793 $24,578 $30,508

As a percentage of our single-family credit

guarantee portfolio 0.77% 0.90% 1.31% 1.49% 1.86%

(1) Does not include lower-of-cost-or-fair value adjustments and other expenses related to property taxes and insurance 

recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion, $3.4 billion, $0.3 

billion, $0 billion, and $0 billion during 2016, 2015, 2014, 2013, and 2012, respectively.

TDRs and Individually Impaired Loans

Single-family loans that have been individually evaluated for impairment, such as modified loans, 

generally have a higher associated loan loss reserve than loans that have been collectively evaluated for 

impairment. Due to the large number of loan modifications completed in recent years, a significant portion 

of our loan loss reserves is attributable to individually impaired single-family loans. The reserves 

associated with individually impaired loans, which comprised approximately 63% of the loan loss reserves 

for single-family loans as of December 31, 2016, largely reflect interest rate concessions for the borrower. 

Most of our modified single-family loans, including TDRs, were current and performing at December 31, 

2016. We expect our loan loss reserve associated with existing single-family TDRs to decline over time as 

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

are amortized into earnings.

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

consolidated balance sheets for which we have recorded a specific reserve.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 116

2016 2015

(Dollars in millions) Loan Count Amount Loan Count Amount

TDRs, at January 1 512,253 $85,960 539,590 $94,401

New additions 43,153 5,956 59,887 8,227

Repayments and reclassifications to held-for-sale (58,153) (11,405) (69,720) (13,975)

Foreclosure transfers and foreclosure alternatives (11,544) (1,642) (17,871) (2,789)

TDRs, at December 31, 485,709 78,869 511,886 85,864

Loans impaired upon purchase 7,977 542 9,535 678

Total impaired loans with specific reserve 493,686 79,411 521,421 86,542

Allowance for loan losses (11,980) (14,019)

Net investment, at December 31, $67,431 $72,523

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

consolidated balance sheets. 

December 31,

(Dollars in millions) 2016 2015 2014 2013 2012

TDRs on accrual status $77,122 $82,026 $82,373 $78,033 $65,784

Non-accrual loans 16,164 22,460 32,745 42,829 61,517

Total TDRs and non-accrual loans $93,286 $104,486 $115,118 $120,862 $127,301

Loan loss reserves associated with:

 TDRs on accrual status $10,295 $12,105 $13,728 $14,239 $12,430

 Non-accrual loans 2,290 2,677 6,935 8,805 14,602

Total $12,585 $14,782 $20,663 $23,044 $27,032

Year Ended December 31,

(Dollars in millions) 2016 2015 2014 2013 2012

Foregone interest income on TDRs 

and non-accrual loans(1) $2,109 $2,690 $3,235 $3,552 $4,126

(1) Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, 

had the loans performed according to their original contractual terms.
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 117

Engaging in Loss Mitigation Activities 

Servicers perform loss mitigation activities as well as foreclosures on loans that they service for us. Our 

loss mitigation strategy emphasizes early intervention by servicers in delinquent loans and offers 

alternatives to foreclosure by providing servicers with default management programs designed to manage 

non-performing loans more effectively and to assist borrowers in maintaining home ownership or to 

facilitate foreclosure alternatives. 

We offer a variety of borrower assistance programs, including refinance programs for certain eligible 

loans and loan workout activities for struggling borrowers. Our loan workouts include both home retention 

options and foreclosure alternatives. We also engage in transfers of servicing for and sales of certain 

seriously delinquent loans.

Relief Refinance Program 

As part of our loss mitigation activities, servicers contact borrowers that are eligible for the relief refinance 

initiative. In recent years, our relief refinance program has been one of our more significant borrower 

assistance programs. Our relief refinance initiative allows eligible homeowners whose loans we already 

own or guarantee to refinance with more favorable terms (such as reduction in payment, reduction in 

interest rate, extension of amortization term, or movement to a more stable loan) and without the need to 

obtain additional mortgage insurance. Our relief refinance program includes HARP, the portion of our 

relief refinance initiative for loans with LTV ratios above 80%.

The relief refinance program (including HARP) will end in September 2017. In August 2016, FHFA

announced that we and Fannie Mae, at FHFA's direction, will implement a new high LTV streamlined 

refinance offering. This offering will not be available to borrowers until October 2017. 

The following table includes information about the performance of our relief refinance mortgage portfolio. 

As of December 31,

2016 2015

(Dollars in millions) UPB Loan Count SDQ Rate UPB Loan Count SDQ Rate

Above 125% Original LTV $25,027 144,719 1.24% $28,241 157,035 1.38%

Above 100% to 125% Original LTV 50,618 288,697 1.10% 59,305 323,795 1.20%

Above 80% to 100% Original LTV 82,987 506,932 0.84% 97,375 567,201 0.86%

80% and below Original LTV 106,350 892,471 0.38% 117,677 942,183 0.36%

Total $264,982 1,832,819 0.69% $302,598 1,990,214 0.72%

These loans have continued to perform well relative to loans with similar characteristics in the Legacy 

single-family book.

Loan Workout Activities

When refinancing is not practicable, we require our servicers first to evaluate the loan for a forbearance 

agreement, repayment plan or loan modification, because our level of recovery on a loan that reperforms 

is often much higher than for a loan that proceeds to a foreclosure alternative or foreclosure. We offer the 

following types of home retention options:

• Forbearance agreements - Arrangements that require reduced or no payments during a defined 

period, generally less than one year, to allow borrowers to return to compliance with the original 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 118

mortgage terms or to implement another loan workout. For agreements completed in 2016, the 

average time period for reduced payments was between two and three months.

• Repayment plans - Contractual plans designed to repay past due amounts to allow borrowers to 

return to compliance with the original mortgage terms. For plans completed in 2016, the average time 

period to repay past due amounts was approximately three months.

• Loan modifications - Contractual plans that may involve changing the terms of the loan, adding 

outstanding indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of 

both, including principal forbearance. Our modification programs generally require completion of a 

trial period of at least three months prior to receiving the modification. If a borrower fails to complete 

the trial period, the loan is considered for our other workout activities. These modification programs 

offer eligible borrowers extension of the loan’s term up to 480 months and a fixed interest rate. 

Servicers are paid incentive fees for each completed modification, and there are limits on the number 

of times a loan may be modified. 

The volume of these activities declined during 2016 compared to 2015, primarily due to lower volumes of 

seriously delinquent loans. 

When a seriously delinquent single-family loan cannot be resolved through an economically sensible 

home retention option, we typically seek to pursue a foreclosure alternative or sale of the seriously 

delinquent loan. We offer the following types of foreclosure alternatives:

• Short sale - The borrower sells the property for less than the total amount owed under the terms of 

the loan. A short sale is preferable to a borrower because we provide limited relief to the borrower 

from repaying the entire amount owed on the loan and, in some cases, we also provide cash 

relocation assistance, while allowing the borrower to exit the home in an orderly manner. A short sale 

allows Freddie Mac to avoid the costs we would otherwise incur to complete the foreclosure and 

subsequently sell the property. 

• Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer title of the property to us 

without going through formal foreclosure proceedings.

We discuss sales of seriously delinquent loans below in "Servicing Transfers and Sales of Certain 

Seriously Delinquent Loans."

The volume of foreclosures has moderated in recent periods, primarily due to declining volumes of 

seriously delinquent loans, the success of our loan workout programs, and our sales of certain seriously 

delinquent loans. The volume of our short sale transactions declined in 2016 compared to 2015, 

continuing the trend in recent periods. Similarly, the volume of short sales in the overall market also 

declined in recent periods as home prices have continued to increase. 

The following graphs provide detail about our single-family loan workout activities and foreclosures. 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 119

Home Retention Actions Foreclosure Alternatives and Foreclosures

The table below contains credit characteristic data on our single-family modified loans. 

December 31, 2016

(Dollars in billions) UPB

% of

Portfolio CLTV Ratio SDQ Rate

HAMP $33.8 2% 78% 6.49%

Non-HAMP 43.1 2 82% 11.76%

Total $76.9 4% 80% 9.64%

December 31, 2015

(Dollars in billions) UPB

% of

Portfolio CLTV Ratio SDQ Rate

HAMP $40.5 2% 85% 7.54%

Non-HAMP 43.0 3 88% 12.90%

Total $83.5 5% 86% 10.54%

The table below contains information about the payment performance of modified loans in our singlefamily credit guarantee portfolio, based on the number of loans that were current or paid off one year and, 

if applicable, two years after modification. 

Quarter of Loan Modification Completion

4Q 2015 3Q 2015 2Q 2015 1Q 2015 4Q 2014 3Q 2014 2Q 2014 1Q 2014

Current or paid off

one year after modification: 64% 66% 66% 69% 67% 69% 70% 74%

Current or paid off

two years after modification: N/A N/A N/A N/A 65% 66% 69% 71%
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 120

Servicing Transfers and Sales of Certain Seriously Delinquent Loans

From time to time, we facilitate the transfer of servicing for certain groups of loans that are delinquent or 

are deemed at risk of default to servicers that we believe have capabilities and resources necessary to 

improve the loss mitigation associated with the loans. See "Sellers and Servicers" in Counterparty Credit 

Risk below for additional information on these activities.

During 2016 and 2015, we completed sales of $3.1 billion and $2.9 billion, respectively, in UPB of 

seriously delinquent single-family loans. Of the $2.1 billion in UPB of single-family loans classified as 

held-for-sale at December 31, 2016, $1.6 billion related to loans that were seriously delinquent. We 

believe the sale of these loans provides better economic returns than continuing to hold them. The FHFA

requirements guiding these transactions, including bidder qualifications, loan modifications, and 

performance reporting, are designed to improve borrower outcomes.

Managing Foreclosure and REO Activities

In a foreclosure, we may acquire the underlying property and later sell it, using the proceeds of the sale to 

reduce our losses.

We typically acquire properties as a result of borrower defaults and subsequent foreclosures on loans that 

we own or guarantee. We evaluate the condition of, and market for, newly acquired REO properties to 

determine if repairs are needed, determine occupancy status and whether there are legal or other issues 

to be addressed, and determine our sale or disposition strategy. When we sell an REO property, we 

typically provide an initial period where we consider offers by owner occupants and others before offers 

by investors. We also consider alternative disposition processes, such as REO auctions, bulk sales 

channels, and partnering with locally-based entities to facilitate dispositions.

In recent years, the volume of REO acquisitions has been significantly affected by the length of the 

foreclosure process, which extends the time it takes for loans to be foreclosed upon and the underlying 

properties to transition to REO. As of December 31, 2016 and 2015, the percentage of seriously 

delinquent loans that have been delinquent for more than six months was 57% and 64%, respectively.

Delays in Foreclosure Process and Average Foreclosure Completion Timelines 

Our serious delinquency rates and credit losses continue to be adversely affected by delays in the 

foreclosure process in states where a judicial foreclosure is required. Foreclosures generally take longer 

to complete in such states, resulting in concentrations of delinquent loans in those states, as shown in the 

table below. At December 31, 2016, loans in states with a judicial foreclosure process comprised 38% of 

our single-family credit guarantee portfolio. 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 121

The table below presents the length of time our loans have been seriously delinquent, by jurisdiction type.

As of December 31,

2016 2015 2014

Loan Count Percent Loan Count Percent Loan Count Percent

Aging, by locality:

Judicial states:

<= 1 year 35,599 34% 40,265 29% 50,138 25%

> 1 year and <= 2 years 12,257 11 16,199 12 21,919 11

> 2 years 14,318 14 28,265 20 48,984 25

Non-judicial states:

<= 1 year 32,949 31 38,010 27 49,657 25

> 1 year and <= 2 years 6,075 6 8,660 6 12,989 7

> 2 years 4,736 4 8,322 6 14,379 7

Combined:

<= 1 year 68,548 65 78,275 56 99,795 50

> 1 year and <= 2 years 18,332 17 24,859 18 34,908 18

> 2 years 19,054 18 36,587 26 63,363 32

Total 105,934 100% 139,721 100% 198,066 100%

The longer a loan remains delinquent, the greater the associated costs we incur. Loans that remain 

delinquent for more than one year are more challenging to resolve as many of these borrowers may not 

be in contact with the servicer, may not be eligible for loan modifications, or may determine that it is not 

economically beneficial for them to enter into a loan modification due to the amount of costs incurred on 

their behalf while the loan was delinquent. We expect the portion of our credit losses related to loans in 

states with judicial foreclosure processes will remain high as loans awaiting court proceedings in those 

states transition to REO or other loss events. The number of our single-family loans delinquent for more 

than one year declined 39% during 2016. 

Our servicing guidelines do not allow initiation of the foreclosure process on a primary residence until a 

loan is at least 121 days delinquent, regardless of where the property is located. However, we evaluate 

the timeliness of foreclosure completion by our servicers based on the state where the property is 

located. Our servicing guide provides for instances of allowable foreclosure delays in excess of the 

expected timelines for specific situations involving delinquent loans, such as when the borrower files for 

bankruptcy or appeals a denial of a loan modification. 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 122

The table presents average completion times for foreclosures of our single-family loans.

Year Ended December 31,

(Average days) 2016 2015 2014

Judicial states:

Florida 1,205 1,332 1,311

New Jersey 1,767 1,602 1,372

New York 1,599 1,553 1,325

All other judicial states 742 828 796

Judicial states, in aggregate 1,030 1,076 1,031

Non-judicial states, in aggregate 562 637 636

Total 827 892 867

We believe that our average foreclosure timeline is likely to remain elevated in the near term due to the 

backlog of loans that have been delinquent for more than one year, particularly in the judicial states of 

Florida, New Jersey, and New York.

Our REO inventory declined in 2016 primarily due to REO dispositions exceeding our acquisitions. REO 

acquisitions continue to decline due to a declining number of seriously delinquent loans and a large 

proportion of property sales to third parties at foreclosure. Third-party sales at foreclosure auction allow 

us to avoid the REO property expenses that we would have otherwise incurred if we held the property in 

our REO inventory until disposition.

We expect the rate of decline in our REO inventory will slow as a large portion of newly acquired REO 

properties are older, low value, and rural properties which are more challenging to market and sell. In 

addition, legal-related delays (i.e., redemption periods and eviction procedures) and a business strategy 

to repair more homes affect significant portions of our REO inventory, resulting in extended holding 

periods. As our REO inventory declines, we would expect REO dispositions to decline as well. 

The table below shows our single-family REO activity.

Year Ended December 31,

2016 2015 2014

(Dollars in millions)

Number of

Properties Amount

Number of

Properties Amount

Number of

Properties Amount

Beginning balance - REO 17,004 $1,774 25,768 $2,684 47,307 $4,592

Acquisitions 16,161 1,562 23,171 2,235 42,265 4,094

Dispositions (21,747) (2,121) (31,935) (3,145) (63,804) (6,002)

Ending balance - REO 11,418 1,215 17,004 1,774 25,768 2,684

Beginning balance, valuation allowance (52) (126) (51)

Change in valuation allowance 35 73 (75)

Ending balance, valuation allowance (17) (53) (126)

Ending balance - REO $1,198 $1,721 $2,558

Severity Ratios

Severity ratios are the percentages of our realized losses when loans are resolved by the completion of 

foreclosures (and subsequent third-party sales or REO dispositions) or foreclosure alternatives (e.g., 

short sales). Severity ratios are calculated as the amount of our recognized losses divided by the 
Management's Discussion and Analysis Risk Management | SF Credit Risk

Freddie Mac 2016 Form 10-K 123

aggregate UPB of the related loans. The amount of recognized losses is equal to the amount by which 

the UPB of the loans exceeds the amount of sales proceeds from disposition of the properties, net of 

capitalized repair and selling expenses, if applicable. 

The table below presents single-family severity ratios.

Year Ended December 31,

2016 2015 2014

REO dispositions and third-party foreclosure sales 32.8% 34.3% 34.2%

Short sales 29.0% 30.1% 31.6%

Our severity ratios remained relatively stable during 2016 compared to 2015. These severity ratios are 

influenced by several factors, including the geographic location of the property and the related selling 

expenses for REO dispositions and short sales. 

REO Property Status

A significant portion of our REO properties are unable to be marketed at any given time because the 

properties are occupied, under repair, or subject to a redemption period, which is a post-foreclosure 

period during which borrowers may reclaim a foreclosed property. Redemption periods can increase the 

average holding period of our inventory, and have done so in recent years. As of December 31, 2016, 

approximately 51% of our REO properties were unable to be marketed because the properties were 

occupied, under repair, or located in states with a redemption period, and 14% of the properties were 

being evaluated for listing and determination of our sales or disposition strategy. As of December 31, 

2016, approximately 23% of our REO properties were listed and available for sale, and 12% of our 

inventory was pending the settlement of sales. Though it varied significantly in different states, the 

average holding period of our single-family REO properties, excluding any redemption period, was 275

days and 255 days for our REO dispositions during 2016 and 2015, respectively.
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 124

MULTIFAMILY MORTGAGE CREDIT RISK

We manage our exposure to multifamily mortgage credit risk, which is a type of commercial real estate 

credit risk, using the following principal strategies:

• Maintaining policies and procedures for new business activity, including prudent underwriting 

standards;

• Transferring a large majority of expected and stress credit losses to third parties through K 

Certificates, SB Certificates, and other transactions; and

• Managing our portfolio, including loss mitigation activities.

Maintaining Policies and Procedures for New Business Activity, Including Prudent Underwriting 

Standards

We use a prior approval underwriting approach for multifamily loans, in contrast to the delegated 

underwriting approach used for single-family loans. Under this approach, we maintain credit discipline by 

completing our own underwriting and credit review for each new loan prior to issuance of a loan 

commitment, including review of third-party appraisals and cash flow analysis. Our underwriting standards 

focus on the LTV ratio and DSCR, which estimates ability to repay using the secured property’s cash flow, 

after expenses. A higher DSCR indicates lower credit risk. Our standards require maximum LTV ratios 

and minimum DSCRs that vary based on the characteristics and features of the loan. Loans are generally 

underwritten with a maximum original LTV ratio of 80% and a DSCR of greater than 1.25, assuming 

monthly payments that reflect amortization of principal. However, certain loans may have a higher LTV 

ratio and/or a lower DSCR, typically where this will serve our mission and contribute to achieving our 

affordable housing goals. For more detail on LTV ratios of our portfolio, see "Managing Our Portfolio, 

Including Loss Mitigation Activities" in this section. Consideration is also given to other qualitative factors, 

such as borrower experience and the strength of the local market. Sellers provide certain representations 

and warranties to us regarding the loans they sell to us, and are required to repurchase loans for which 

there has been a breach of representation or warranty. However, repurchases of multifamily loans have 

been extremely rare due to our underwriting approach prior to purchase.

Multifamily loans may be amortizing or interest-only (for the full term or a portion thereof) and have a fixed 

or variable rate of interest. Multifamily loans generally have shorter terms than single-family loans and 

typically have maturities ranging from five to ten years. Most multifamily loans require a balloon payment 

at maturity, making ability to refinance or pay off the loan at maturity a key attribute. Some borrowers may 

be unable to refinance during periods of rising interest rates or adverse market conditions.

The table below presents our multifamily loan purchases and other guarantee issuances, by product term.

December 31,

2016 2015 2014

(Dollars in millions) Amount

% of

Total Amount

% of

Total Amount

% of

Total

10-year loans, fixed or adjustable $24,378 43% $20,603 43% $11,069 39%

7-year loans, fixed or adjustable 19,367 34 16,875 36 11,773 42

Other 13,085 23 9,786 21 5,494 19

Total $56,830 100% $47,264 100% $28,336 100%
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 125

Transferring a Large Majority of Expected and Stress Credit Losses to Third Parties Through K 

Certificates, SB Certificates, and Other Transactions

We seek to transfer multifamily mortgage credit risk primarily through K Certificate and SB Certificate 

transactions in which we transfer a first loss position associated with the underlying multifamily loans to 

third-party investors. The amount of subordination to the guaranteed certificates in our K Certificate and 

SB Certificate transactions is set at a level that we believe is sufficient to cover a large majority of the 

expected and stress credit losses on the loans. We continue to develop other strategies to reduce our 

credit exposure to multifamily loans and securities by transferring credit risk to third parties.

We securitized $178.4 billion in UPB of multifamily loans in K Certificate and SB Certificate transactions 

between 2009 and 2016. Excluding transactions without subordination, the average level of subordination 

on all outstanding K Certificates and SB Certificates was 14% and 15% as of December 31, 2016 and 

2015, respectively. Since we began issuing K Certificates and SB Certificates, we have experienced no 

credit losses associated with our guarantees on these securities. See “Our Business Segments - 

Multifamily” for more information on K Certificates and SB Certificates.

The table below shows the delinquency rates for both credit-enhanced and non-credit-enhanced loans in 

our multifamily mortgage portfolio.

December 31,

2016 2015 2014

% of Portfolio

Delinquency

Rate % of Portfolio

Delinquency

Rate % of Portfolio

Delinquency

Rate

Non-credit-enhanced 24% 0.04% 32% 0.03% 40% 0.02%

Credit-enhanced:

K Certificates and SB

Certificates 70 0.02% 61 0.02% 53 0.01%

Other 6 0.02% 7 —% 7 0.35%

Total 100% 0.03% 100% 0.02% 100% 0.04%

Managing Our Portfolio, Including Loss Mitigation Activities

To help mitigate our potential losses, we generally require sellers to act as the primary servicer for loans 

they have sold to us, including property monitoring tasks beyond those typically performed by singlefamily servicers. For securitized loans, we typically transfer the master servicing role to the trustees on 

behalf of the bondholders in accordance with the securitization and trust documents. Servicers for 

unsecuritized loans over $1 million must generally submit an annual assessment of the mortgaged 

property to us based on the servicer’s analysis of the property as well as the borrower’s financial 

statements. In situations where a borrower or property is in distress, the frequency of communications 

with the borrower may be increased. We rate servicing performance on a regular basis, and we may 

conduct on-site reviews to confirm compliance with our standards.

We primarily use credit enhancements, such as the subordination provided by K Certificates and SB 

Certificates, to mitigate our credit losses. For unsecuritized loans, we may offer a workout option to give 

the borrower an opportunity to bring the loan current and retain ownership of the property, such as 

providing a short-term extension of up to 12 months. These arrangements are entered into with the 

expectation that we will recover our initial investment or minimize our losses. We do not enter into these 

arrangements in situations where we believe we would experience a loss in the future that is greater than 
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 126

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

Our multifamily loan modification and other workout activities have been minimal in the last three years. 

In addition, after the loans have been securitized and the large majority of the expected and stress credit 

losses has been transferred to third-party investors, we monitor the performance of our K Certificates, SB 

Certificates, and other similar types of transactions to assess our potential exposure to losses. Due to the 

subordination protection associated with our K Certificates, SB Certificates, and most of our other 

securitization products, our primary credit risk exposure in our multifamily mortgage portfolio results from 

our unsecuritized loans. By their nature, loans awaiting securitization that we hold for sale remain on our 

balance sheet for a shorter period of time than loans we hold for investment.

We report multifamily delinquency rates based on UPB of loans in our multifamily mortgage portfolio that 

are two monthly payments or more past due or in the process of foreclosure, as reported by our servicers. 

Loans that have been modified are not counted as delinquent as long as the borrower is less than two 

monthly payments past due under the modified terms. 
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 127

The table below presents information about the composition and delinquency rates of the multifamily 

mortgage portfolio.

December 31,

2016 2015

(Dollars in billions) UPB

Delinquency

Rate UPB

Delinquency

Rate

Unsecuritized loans $42.4 0.04% $49.1 0.04%

K Certificates and SB Certificates 139.4 0.02% 103.1 0.02%

Other securitization products 8.2 0.03% 6.7 —%

Other mortgage-related guarantees 9.7 —% 9.5 —%

Total $199.7 0.03% $168.4 0.02%

Unsecuritized loans, excluding HFS loans:

Original LTV ratio:

Below 75% $16.8 —% $21.2 —%

75% to 80% 7.0 —% 7.1 —%

Above 80% 2.1 —% 1.2 —%

Total $25.9 —% $29.5 —%

Weighted average LTV ratio at origination 68% 68%

Maturity dates:

2016 N/A N/A $1.9 —%

2017 $1.9 —% 4.6 —%

2018 6.7 —% 7.8 —%

2019 6.1 —% 6.9 —%

2020 2.2 —% 1.9 —%

Thereafter 9.0 —% 6.4 —%

Total $25.9 —% $29.5 —%

Year of acquisition:

2010 and prior $14.5 —% $23.1 —%

2011 and after 11.4 —% 6.4 —%

Total $25.9 —% $29.5 —%

K Certificates, SB Certificates and other

securitization products:

Year of issuance:

2011 and prior $20.9 0.16% $21.2 0.10%

2012 14.6 —% 15.8 —%

2013 21.6 —% 22.9 —%

2014 15.4 —% 17.5 —%

2015 30.0 —% 32.4 —%

2016 45.1 0.01% N/A N/A

Total $147.6 0.03% $109.8 0.02%

Subordination level at issuance:

No subordination $3.3 —% $2.0 0.01%

Less than 10% 4.5 0.71% 5.1 —%

10% to 15% 75.6 0.01% 44.0 0.05%

Greater than 15% 64.2 —% 58.7 —%

Total $147.6 0.03% $109.8 0.02%

Our REO activity has remained low in the past several years as a result of the strong property 

performance of our multifamily mortgage portfolio. As of December 31, 2016, we had no REO properties.
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 128

Credit Losses and Recoveries

Our multifamily credit losses remain low as a result of the strong property performance of our multifamily 

mortgage portfolio. The table below contains details on our multifamily credit losses and delinquencies. 

Year Ended December 31,

(Dollars in millions) 2016 2015 2014

Charge-offs, gross(1) $2 $9 $3

Recoveries — — (1)

Charge-offs, net 2 9 2

REO operations expense (income) — 4 (9)

Credit losses (gains) $2 $13 ($7)

Credit losses (gains) (in bps) 0.1 0.8 (0.5)

Number of delinquent loans 6 4 8

(1) Includes cumulative fair value losses recognized through the date of foreclosure for multifamily loans we elected to carry at 

fair value at the time of our purchase.

Loan Loss Reserves 

The table below summarizes our multifamily loan loss reserves activity. 

Year Ended December 31,

(Dollars in millions) 2016 2015 2014 2013 2012

Beginning balance $59 $94 $151 $382 $545

Provision (benefit) for credit losses (22) (26) (55) (218) (123)

Charge-offs, gross (2) (9) (3) (7) (36)

Recoveries — — 1 1 2

Transfers, net — — — (7) (6)

Ending balance $35 $59 $94 $151 $382

As a percentage of non-credit-enhanced

multifamily mortgage portfolio 0.07% 0.11% 0.16% 0.24% 0.48%

TDRs and Non-accrual Loans

The table below provides information about the UPB of multifamily TDRs and non-accrual loans on our 

consolidated balance sheets. 
Management's Discussion and Analysis Risk Management | MF Credit Risk

Freddie Mac 2016 Form 10-K 129

December 31,

(In millions) 2016 2015 2014 2013 2012

TDRs on accrual status $277 $321 $535 $675 $806

Non-accrual loans 108 189 385 628 1,488

Total TDRs and non-accrual loans $385 $510 $920 $1,303 $2,294

Loan loss reserves associated with:

 TDRs on accrual status $3 $9 $21 $15 $48

 Non-accrual loans 7 12 31 65 157

Total $10 $21 $52 $80 $205

Year Ended December 31,

(In millions) 2016 2015 2014 2013 2012

Foregone interest income on TDRs and non-accrual 

loans (1) $3 $3 $4 $8 $11

(1) Represents the amount of interest income that we would have recognized for loans outstanding at the end of each period, 

had the loans performed according to their original contractual terms.

The balance of our multifamily TDR and non-accrual loans has declined for the last four years, which 

reflects continued strong portfolio performance and positive market fundamentals.
Management's Discussion and Analysis Risk Management | MRS Credit Risk

Freddie Mac 2016 Form 10-K 130

MORTGAGE-RELATED SECURITIES CREDIT RISK

Our mortgage-related securities portfolio consists of investments in agency and non-agency securities. 

Agency securities have historically presented minimal credit risk as a result of the guarantee provided by, 

and the U.S. government’s support of, the institutions that issue agency securities. Because non-agency 

securities generally do not include a guarantee from a GSE or governmental agency, we have credit risk 

exposure to the underlying collateral of these securities. This credit risk exposure, which principally arises 

from securities purchased prior to conservatorship, has declined in recent years as we have reduced our 

positions in non-agency securities and substantially all of our recent mortgage-related securities 

purchases have consisted of agency securities. 

See Note 5 for information concerning our investments in mortgage-related securities, including the 

amortized cost and fair value balances of these investments by major security type.

Risk Management Activities - Non-Agency Mortgage-Related Securities

As the non-agency mortgage-related securities pay down, our credit risk exposure is reduced. In addition, 

we further reduce our credit risk exposure by selling or securitizing certain assets and pursuing litigation 

and other loss recovery efforts. For information on our remaining litigation related to certain of our nonagency mortgage-related securities, see Note 12.

While we continue to have a significant portfolio of non-agency mortgage-related securities, our 

investments in these securities have declined in recent years, as we continue our efforts to dispose of 

certain of these securities in an economically sensible manner. See "Reducing Our Mortgage-Related 

Investments Portfolio Over Time" for information concerning our disposition of these securities. 
Management's Discussion and Analysis Risk Management | MRS Credit Risk

Freddie Mac 2016 Form 10-K 131

Our Investments in Non-Agency Mortgage-Related Securities 

Our investments in non-agency mortgage-related securities are classified according to the nature of the 

underlying collateral, as either non-agency CMBS or non-agency RMBS. 

Non-Agency CMBS 

Our non-agency CMBS are backed by multifamily real estate loans. While we have credit risk exposure to 

the underlying collateral of these securities and therefore exposure to the stresses of the multifamily real 

estate market, we believe such exposure is mitigated by the presence of structural subordination, as we 

principally invest in the most senior tranches of the CMBS deals. As of December 31, 2016, 

approximately 76% of our non-agency CMBS (by UPB) were investment grade or above. As a result, 

while we monitor these securities for credit losses, we believe our exposure to credit risk is limited.

Non-Agency RMBS

Our non-agency RMBS are backed by single-family real estate loans, including subprime, option ARM, 

Alt-A and other loans. We categorize our non-agency RMBS as subprime, option ARM, or Alt-A if the 

securities were identified as such based on information provided to us when we acquired these securities. 

Since the beginning of 2007, most of the actual principal shortfalls on our non-agency mortgage-related 

securities resulted from non-agency RMBS backed by subprime, option ARM, and Alt-A loans. 

Furthermore, as of December 31, 2016, approximately 95% of our non-agency RMBS backed by 

subprime, option ARM, and Alt-A loans were below investment grade. As a result, compared to our other 

mortgage-related securities, we believe these securities represent our greatest credit risk exposure. 

However, we expect this exposure to decline over time as we reduce the less liquid assets, including nonagency RMBS, held in our investments portfolio.
Management's Discussion and Analysis Risk Management | MRS Credit Risk

Freddie Mac 2016 Form 10-K 132

Higher Risk Components of Our Investments in Non-Agency RMBS 

The following table presents certain credit-related statistics concerning our investments in non-agency 

RMBS backed by subprime, option ARM, and Alt-A loans.

As of

(Dollars in millions) 12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015

UPB $14,343 $15,330 $19,248 $23,760 $25,300

Gross unrealized losses, pre-tax 78 157 352 469 425

Present value of expected future credit

losses 2,552 2,330 2,641 3,018 3,576

Principal repayments 595 658 1,005 731 920

Principal cash shortfalls(1) 14 17 (82) 20 26

Collateral delinquency rate 23 % 23% 24% 25% 25%

Average credit enhancements(2) (1)% 1% 4% 3% 4%

Cumulative collateral loss 32 % 32% 31% 31% 30%

(1) Negative value reflects the recovery of previous principal cash shortfalls through the settlement of non-agency RMBS 

representation and warranty claims. See Note 12 for more information concerning our litigation related to non-agency 

mortgage-related securities.

(2) Positive value reflects the amount of subordination and other financial support (excluding credit enhancement provided by 

bond insurance) that will incur losses in the securitization structure before any losses are allocated to securities that we own. 

Percentage generally calculated based on the total UPB of securities subordinate to the securities we own, divided by the 

total UPB of all of the securities issued by the trust (excluding notional balances). Negative value is shown when unallocated 

collateral losses will be allocated to the securities that we own in excess of current remaining credit enhancement, if any. The 

unallocated collateral losses have been considered in our assessment of other-than-temporary impairment.

While the credit performance of the loans underlying our non-agency RMBS has improved in recent 

periods, it remains weak and is susceptible to changes in macroeconomic conditions, such as home 

prices, mortgage interest rates, and unemployment rates. See "Key Economic Indicators" for a discussion 

of how these conditions influence the performance of our securities and Note 5 for information concerning 

our evaluation of our non-agency mortgage-related securities portfolio for credit-related impairment.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 133

COUNTERPARTY CREDIT RISK

We are exposed to counterparty credit risk as a result of our contracts with seller/servicers, mortgage 

insurers, bond insurers, credit insurers, derivative counterparties, including clearing members and 

clearinghouses, cash and other investments counterparties, mortgage-related security issuers, and 

document custodians. We manage our exposure to counterparty credit risk using the following principal 

strategies:

• Maintaining eligibility standards;

• Evaluating counterparty financial strength and performance and monitoring our exposure; and

• Working with underperforming counterparties and limiting our losses from their nonperformance of 

obligations, when possible.

In the sections below, we discuss our management of counterparty credit risk for each type of 

counterparty to which we have significant exposure.

Sellers and Servicers

Overview

In our single-family guarantee business, we do not originate loans or have our own loan servicing 

operation. Instead, our sellers and servicers perform the primary loan origination and loan servicing 

functions on our behalf. We establish standards for our sellers and servicers to follow and have 

contractual arrangements with them under which they represent and warrant that the loans they sell to us 

meet our standards and that they will service loans in accordance with our standards. If we discover that 

the representations or warranties related to a loan were breached (i.e., that contractual standards were 

not followed), we can exercise certain contractual remedies to mitigate our actual or potential credit 

losses. If our sellers or servicers lack appropriate controls, experience a failure in their controls, or 

experience an operating disruption, including as a result of financial pressure, legal or regulatory actions 

or ratings downgrades, we could experience a decline in mortgage servicing quality and/or be less likely 

to recover losses through lender repurchases, recourse agreements, or other credit enhancements, 

where applicable. 

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under 

financial pressure, which could potentially cause degradation in the quality of the servicing they provide 

us, including their monitoring of each property’s financial performance and physical condition. This could 

also, in certain cases, reduce the likelihood that we could recover losses through lender repurchases, 

recourse agreements or other credit enhancements, where applicable. This risk primarily relates to 

multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit 

risk.

Maintaining Eligibility Standards

Our eligibility standards for sellers and servicers require the following: a demonstrated operating history in 

residential mortgage origination and servicing, or an eligible agent acceptable to us; adequate insurance 

coverage; a quality control program that meets our standards; and sufficient net worth, liquidity, and 

funding sources.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 134

In 2015, at the direction of FHFA, we and Fannie Mae implemented changes to our single-family seller 

and servicer eligibility requirements. These changes included revisions to net worth requirements, 

adoption of new capital and liquidity requirements and enhancements to certain servicer operational 

requirements. 

Evaluating Counterparty Financial Strength and Performance and Monitoring our Exposure

We perform ongoing monitoring and review of our exposure to individual sellers or servicers in 

accordance with our counterparty risk management framework, including requiring our counterparties to 

provide regular financial reporting to us. We also monitor and rate our sellers and servicers' compliance 

with our standards and periodically review their operational processes. We may disqualify or suspend a 

seller or servicer with or without cause at any time. Once a seller/servicer is disqualified or suspended, we 

no longer purchase loans originated by that counterparty and no longer allow that counterparty to service 

loans for us, while seeking to transfer servicing of existing portfolios.

As discussed in more detail in “Our Business Segments," we acquire a significant portion of both our 

single-family and multifamily loan purchase volume from several large lenders, and a large percentage of 

our loans are also serviced by several large servicers. 

We have significant exposure to non-depository and smaller depository financial institutions in our singlefamily business. These institutions may not have the same financial strength or operational capacity, or be 

subject to the same level of regulatory oversight, as our largest mortgage seller or servicer counterparties, 

which are mostly depository institutions.

Although our business with our single-family loan sellers is concentrated, a number of our largest singlefamily loan seller counterparties reduced or eliminated their purchases of loans from mortgage brokers 

and correspondent lenders in recent years. As a result, we acquire a greater portion of our single-family 

business volume directly from non-depository and smaller depository financial institutions. 

Also in recent years, there has been a shift in our single-family servicing from depository institutions to 

non-depository institutions. Some of these non-depository institutions have grown rapidly in recent years 

and now service a large share of our loans. We estimate that as of December 31, 2016, the percentage of 

our single-family credit guarantee portfolio that was serviced by non-depository servicers was 33%. Of 

that amount, approximately 31% was serviced by our three largest non-depository servicers, on a 

combined basis. Certain of our non-depository servicers have been the subject of scrutiny from 

regulators. 

Working with Underperforming Counterparties and Limiting our Losses from their 

Nonperformance of Obligations, when Possible

We require certain of our larger single-family sellers to maintain ineligible loan rates below a stated 

threshold, with financial consequences for non-compliance. In addition, we actively manage the current 

quality of loan originations of our largest single-family sellers by performing loan quality control sampling 

reviews and communicating loan defect rates and the causes of those defects to such sellers on a 

monthly basis. If necessary, we work with these sellers to develop an appropriate plan of corrective 

action.

We use a variety of tools and techniques to engage our single-family sellers and servicers and limit our 

losses, including the following:
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 135

• Repurchases and other remedies - For certain violations of our single-family selling or servicing 

policies, we can require the counterparty to repurchase loans or provide alternative remedies, such 

as reimbursement of realized losses or indemnification. We typically first issue a notice of defect and 

allow a period of time to correct the problem prior to issuing a repurchase request. 

In January 2016, at the direction of FHFA, we implemented a new remedies framework for the 

categorization of loan origination defects. Among other items, the framework provides that "significant 

defects" will result in a repurchase request or a repurchase alternative, such as recourse or 

indemnification. We may require the seller to pay us additional fees or provide us with additional data 

on the loan.

The UPB of loans subject to repurchase obligations from single-family loan sellers was $0.2 billion at 

both December 31, 2016 and 2015. See Note 12 for additional information about loans subject to 

repurchase obligations.

• Incentives and compensatory fees - We pay various incentives to single-family servicers for 

completing workouts of problem loans. We also assess compensatory fees if single-family servicers 

do not achieve certain benchmarks with respect to servicing delinquent loans. 

• Servicing transfers - From time to time, we may facilitate the transfer of servicing as a result of poor 

servicer performance, or for certain groups of single-family loans that are delinquent or are deemed at 

risk of default to servicers that we believe have the capabilities and resources necessary to improve 

the loss mitigation associated with the loans. We may also facilitate the transfer of servicing on loans 

at the request of the servicer.

Mortgage, Bond, and Credit Insurers 

Overview

We have exposure to mortgage and bond insurers through credit enhancements we obtain on singlefamily loans and certain investments in non-agency mortgage-related securities. We also have exposure 

to insurers and reinsurers through our ACIS and Deep MI transactions (we sometimes refer to these 

insurers as credit insurers). If any of our mortgage or bond insurers fail to fulfill their obligations, we may 

not receive reimbursement for credit losses to which we are contractually entitled pursuant to our credit 

enhancement arrangements.

With respect to primary mortgage insurers, we currently cannot differentiate pricing based on counterparty 

strength or revoke a primary mortgage insurer's status as an eligible insurer without FHFA approval. 

Further, we do not select the insurance provider on a specific loan, because the selection is made by the 

lender at the time the loan is originated. Accordingly, we are unable to manage our concentration risk with 

respect to primary mortgage insurers. In recent years, new entrants emerged that have helped diversify 

our concentrated primary mortgage insurer exposure among more market participants. However, 

mortgage insurers have recently become attractive candidates for acquisition as legacy risks abate and 

profitability increases, which could lead to increased concentration among mortgage insurers.

As part of our ACIS credit risk transfer transactions, we regularly obtain insurance coverage from global 

insurers and reinsurers. These transactions incorporate several features designed to increase the 

likelihood that we will recover on the claims we file with the insurers, including the following:
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 136

• In each ACIS transaction, we require the individual ACIS insurers and reinsurers to post collateral to 

cover portions of their exposure, which helps to promote certainty of coverage and timely claim 

payment; and

• While private mortgage insurance companies are required to be monoline (i.e., to participate solely in 

the mortgage insurance business, although the holding company may be a diversified insurer), our 

ACIS insurers and reinsurers generally participate in multiple types of insurance businesses, which 

helps to diversify their risk exposure.

We acquired our bond insurance coverage when purchasing non-agency mortgage-related securities in 

prior years and have not obtained any new bond insurance coverage in many years.

Maintaining Eligibility Standards

We maintain eligibility standards for mortgage insurers. In 2015, at the direction of FHFA, we and Fannie 

Mae implemented revised eligibility requirements for all Freddie Mac- and Fannie Mae-approved 

mortgage insurers. These revised eligibility requirements include financial requirements determined using 

a risk-based framework, and were designed to promote the ability of mortgage insurers to fulfill their 

intended role of providing consistent liquidity throughout the mortgage cycle. Our mortgage insurers are 

required to submit audited financial information and certify compliance with these requirements on an 

annual basis. 

In 2014, we issued and implemented revised master policies for mortgage insurers that are designed to 

provide greater certainty of coverage and facilitate timely claims processing. 

Evaluating Counterparty Financial Strength and Performance and Monitoring our Exposure

We monitor our exposure to individual insurers by performing periodic analysis of the financial capacity of 

each insurer under various adverse economic conditions. 

The table below summarizes our exposure to single-family primary mortgage insurers as of December 31, 

2016. In the event a mortgage insurer fails to perform, the coverage amounts represent our maximum 

exposure to credit losses resulting from such a failure.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 137

December 31, 2016

UPB Coverage

(In millions)

Credit 

Rating(1)

Credit 

Rating

Outlook(1)

Primary

MI

Pool

Insurance

Primary

MI

Pool

Insurance

Arch Mortgage Insurance Company(2) BBB+ Stable $70,618 $14 $18,131 $9

Radian Guaranty Inc. (Radian) BBB- Stable 60,634 1,470 15,510 523

Mortgage Guaranty Insurance

Corporation (MGIC) BBB- Stable 59,339 113 15,227 1

Genworth Mortgage Insurance

Corporation BB+ Watch Dev 43,323 15 11,106 17

Essent Guaranty, Inc. BBB Stable 29,225 — 7,459 —

PMI Mortgage Insurance Co. (PMI) Not Rated N/A 7,355 65 1,840 44

Republic Mortgage Insurance Company

(RMIC) Not Rated N/A 5,591 32 1,397 20

Triad Guaranty Insurance Corporation

(Triad) Not Rated N/A 2,871 10 723 4

Others N/A N/A 12,261 — 2,952 —

Total $291,217 $1,719 $74,345 $618

(1) Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include 

coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 

2016. Represents the lower of S&P and Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.

(2) On January 3, 2017, Arch Capital Group Ltd. announced that it had completed its purchase of United Guaranty Corporation 

at the end of 2016. The table reflects this transaction.

The majority of our mortgage insurance exposure is concentrated with five mortgage insurers. Although 

the financial condition of our mortgage insurers has improved in recent years, there is still a risk that some 

of these counterparties may fail to fully meet their obligations under a stress economic scenario since 

they are monoline entities primarily exposed to mortgage credit risk.

On October 23, 2016, Genworth Financial, Inc. announced that it had entered into an agreement to be 

acquired by China Oceanwide Holdings Group Co., Ltd. Because Genworth Mortgage Insurance 

Corporation, a subsidiary of Genworth Financial, Inc., is an approved mortgage insurer, Freddie Mac will 

evaluate the financial strength of China Oceanwide Holdings Group Co., Ltd. when considering whether 

to approve the planned acquisition. The transaction is also subject to other required approvals. For more 

information about counterparty risk associated with mortgage insurers, see Note 12.

PMI and Triad are both under the control of their state regulators and no longer issue new insurance. 

Both of these insurers pay a substantial portion of their claims as deferred payment obligations. RMIC is 

under regulatory supervision and is no longer issuing new insurance; however, it continues to pay its 

claims in cash.

If, as we currently expect, PMI and Triad do not pay the full amount of their deferred payment obligations 

in cash, we would lose a portion of the coverage from these insurers shown in the table above. As of 

December 31, 2016, we had cumulative unpaid deferred payment obligations of $0.5 billion from these 

insurers. We have fully reserved for all of these unpaid amounts as collectability is uncertain. 

Except for those insurers under regulatory supervision, which no longer issue new coverage, we continue 

to acquire new loans with mortgage insurance from the mortgage insurers shown in the table above, 

some of which have credit ratings below investment grade.
Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

Freddie Mac 2016 Form 10-K 138

The table below summarizes our exposure to bond insurers as of December 31, 2016. In the event a 

bond insurer fails to perform, the coverage outstanding represents our maximum principal exposure to 

credit losses related to such a failure.

December 31, 2016

UPB

(Dollars in millions)

Credit 

Rating(1)

Credit 

Rating

Outlook(1)

Gross

Unrealized

Losses

Coverage

Outstanding

% of Total 

Coverage

Outstanding

Ambac Assurance Corporation (Ambac) Not Rated N/A $14 $2,713 52%

National Public Finance Guarantee Corp. A- Negative 7 1,035 20%

MBIA Insurance Corp. CCC Negative — 601 12%

Financial Guaranty Insurance Company

(FGIC) Not Rated N/A — 559 10%

Assured Guaranty Municipal Corp. A Stable — 253 5%

Syncora Guarantee Inc. Not Rated N/A — 22 —%

CIFG Assurance North America, Inc. Not Rated N/A — 29 1%

Total $21 $5,212 100%

(1) Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include 

coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 

2016. Represents the lower of S&P and Moody’s credit ratings and outlooks stated in terms of the S&P equivalent.

We expect to receive substantially less than full payment of our claims from Ambac and FGIC as these 

companies are either insolvent or under the control of their state regulators. We believe that we will also 

likely receive substantially less than full payment of our claims from some of our other bond insurers 

because we believe they also lack sufficient ability to fully meet all of their expected lifetime claims-paying 

obligations to us as such claims emerge. Some of our bond insurers are in runoff mode and not writing 

new business. 

Bond insurance is included as a feature at issuance of some of our non-agency mortgage-backed 

securities. The expected benefits from bond insurers, or the inability of bond insurers to perform on their 

obligations, is captured in the fair value of these securities.

Derivative Counterparties

Overview

We use cleared derivatives, exchange-traded derivatives, and OTC derivatives, and are exposed to the 

non-performance of each of our derivative counterparties. The Investments segment manages this risk for 

the company. Our derivative counterparty credit exposure relates principally to interest-rate derivative 

contracts. We maintain internal standards for approving new derivative counterparties, clearinghouses, 

and clearing members. 

• Cleared derivatives - We are required to post initial and variation margin with our clearing members 

in connection with interest-rate swaps that are subject to the central clearing requirement of the 

Dodd-Frank Act. Our exposure to the clearinghouses we use to clear such interest-rate derivatives, 

and to the clearing members that administer our transactions once accepted for clearing, has 

increased and may become more concentrated over time. This concentration exposes us to the risk 

of a failure of a clearinghouse. However, the use of cleared derivatives mitigates our counterparty 

credit risk exposure to individual counterparties because a central counterparty is substituted for 
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Freddie Mac 2016 Form 10-K 139

individual counterparties. The amount of initial margin we must post for cleared and exchange-traded 

derivatives may be based, in part, on S&P or Moody’s credit rating of our long-term senior unsecured 

debt securities. The lowering or withdrawal of our credit rating by S&P or Moody’s may increase our 

obligation to post margin, depending on the amount of the counterparty’s exposure to Freddie Mac 

with respect to the derivative transactions.

• Exchange-traded derivatives - We are required to post initial and variation margin with our clearing 

members in connection with exchange-traded derivatives. The posting of this margin exposes us to 

counterparty credit risk in the event that our clearing members or the exchanges' clearinghouses fail 

to meet their obligations. However, the use of exchange-traded derivatives mitigates our counterparty 

credit risk exposure to individual counterparties because a central counterparty is substituted for 

individual counterparties, and changes in the value of open exchange-traded contracts are settled 

daily via payments made through the financial clearinghouse established by each exchange.

• OTC derivatives - OTC derivatives expose us to counterparty credit risk to individual counterparties, 

because these transactions are executed and settled directly between us and each counterparty, 

exposing us to potential losses if a counterparty fails to meet its contractual obligations. When a 

counterparty in OTC derivatives that is subject to a master netting agreement has a net obligation to 

us with a market value above an agreed upon threshold, the counterparty is obligated to deliver 

collateral in the form of cash, securities, or a combination of both to satisfy its obligation to us under 

the master netting agreement. Our OTC derivatives also require us to post collateral to counterparties 

in accordance with agreed upon thresholds when we are in a derivative liability position. The 

collateral posting thresholds we assign to our OTC counterparties, as well as the ones they assign to 

us, are generally based on S&P or Moody’s credit rating. The lowering or withdrawal of our credit 

rating by S&P or Moody’s may increase our obligation to post collateral, depending on the amount of 

the counterparty’s exposure to Freddie Mac with respect to the derivative transactions. Regulations 

that take effect March 1, 2017 will 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 will no longer be used in determining the amount of collateral to be 

posted in connection with these transactions. 

In the event a counterparty defaults, our economic loss may be higher than the uncollateralized exposure 

of our derivatives if we are not able to replace the defaulted derivatives in a timely and cost-effective 

fashion (e.g., due to a significant interest rate movement during the period or other factors). We could 

also incur economic losses if non-cash collateral posted to us by the defaulting counterparty and held by 

the custodian cannot be liquidated at prices that are sufficient to recover the amount of such exposure. 

Evaluating Counterparty Financial Strength and Performance and Monitoring Our Exposure

Over time, our exposure to derivative counterparties varies depending on changes in fair values, which 

are affected by changes in interest rates and other factors. Due to risk limits with certain counterparties, 

we may be forced to execute transactions with lower returns with our counterparties when managing our 

interest-rate risk. We manage our exposure through master netting and collateral agreements and stresstesting to evaluate potential exposure under possible adverse market scenarios. Collateral is typically 

transferred within one business day based on the values of the related derivatives. We regularly review 

the market values of the securities pledged to us as non-cash collateral to manage our exposure to loss. 

We conduct additional reviews of our exposure when market conditions dictate or certain events affecting 

an individual counterparty occur. When non-cash collateral is posted to us, we require collateral in excess 
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Freddie Mac 2016 Form 10-K 140

of our exposure to satisfy the net obligation to us in accordance with the counterparty agreement. 

The table below compares the gross fair value of our derivative asset positions after counterparty netting 

with our net exposure to these positions after considering cash and non-cash collateral held.

As of December 31, 2016

(Dollars in millions)

Number of 

CounterpartiesFair Value -

Gain positions

Fair Value - Gain

positions, net of

collateral

OTC interest-rate swap and swaption counterparties (by rating):

AA- or above 5 $266 $14

A+, A, or A- 11 1,856 31

BBB+, BBB, or BBB- 3 42 6

Total OTC 19 2,164 51

Cleared and exchange-traded derivatives 2 215 21

Total 21 $2,379 $72

Approximately 98% of our exposure at fair value for OTC interest-rate swap and option-based derivatives, 

excluding amounts related to our posting of cash collateral in excess of our derivative liability determined 

at the counterparty level, was collateralized at December 31, 2016. The remaining exposure was primarily 

due to market movements between the measurement of a derivative at fair value and our receipt of the 

related collateral, as well as exposure amounts below the then applicable counterparty collateral posting 

threshold. The concentration of our derivative exposure among our primary OTC derivative counterparties 

remains high and could further increase. 

We also execute forward purchase and sale commitments of mortgage-related securities, including dollar 

roll transactions, that are treated as derivatives for accounting purposes and utilize the Mortgage Backed 

Securities Division of the Fixed Income Clearing Corporation (“MBSD/FICC”) as a clearinghouse. As a 

clearing member of the clearinghouse, we post margin to the MBSD/FICC and are exposed to the 

counterparty credit risk of the organization. In the event a clearing member fails and causes losses to the 

MBSD/FICC clearing system, we could be subject to the loss of the margin that we have posted to the 

MBSD/FICC. Moreover, our exposure could exceed the amount of margin we have posted to the MBSD/

FICC, as clearing members are generally required to cover losses caused by defaulting members on a 

pro rata basis. It is difficult to estimate our maximum exposure, as this would require an assessment of 

transactions that we and other members of the MBSD/FICC may execute in the future. We believe that it 

is unlikely we will have to make any material payments under these arrangements and the risk of loss is 

expected to be remote because of the MBSD/FICC’s financial safeguards and our ability to terminate our 

membership in the clearinghouse (which would limit our loss). As of December 31, 2016, the gross fair 

value of such forward purchase and sale commitments that were in derivative asset positions was $270 

million.

Other Counterparties

We have exposure to other types of counterparties to transactions that we enter into in the ordinary 

course of business, including the following:

• 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 equivalent) transactions, including those entered into on behalf of our securitization trusts. Our 

policies require that the counterparty be evaluated using our internal counterparty rating model prior 
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Freddie Mac 2016 Form 10-K 141

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, Treasury, and 

the Federal Reserve Bank of New York. Our investments in non-mortgage-related securities at 

December 31, 2016 and 2015 were primarily in U.S. Treasury securities.

• Mortgage related-security issuers and servicers - We are exposed to the non-performance of 

servicers and issuers of our investments in non-Freddie Mac mortgage-related securities, which can 

result in credit losses, impairments, and declines in the fair value of these securities. See the 

“Mortgage-Related Securities Credit Risk” section for more information on how we manage risk 

associated with non-agency mortgage-related securities. A significant portion of the single-family 

loans underlying our investments in non-agency mortgage-related securities is serviced by nondepository servicers. These servicers may not have the same financial strength, internal controls, or 

operational capacity as depository servicers. As of December 31, 2016 and 2015, approximately $8.4 

billion and $13.0 billion, respectively, of our investments in single-family non-agency mortgage-related 

securities, based on UPB, were serviced by subsidiaries and/or affiliates of Ocwen Financial Corp.

• Document custodians - We use third-party document custodians to provide loan document 

certification and custody services for the loans that we purchase and securitize. In many cases, our 

seller/servicers or their affiliates also serve as document custodians for us. Our ownership rights to 

the loans that we own or that back our securitization products could be challenged if a seller/servicer 

intentionally or negligently pledges, sells, or fails to obtain a release of prior liens on the loans that we 

purchased, which could result in financial losses to us. When a seller/servicer or one of its affiliates 

acts as a document custodian for us, the risk that our ownership interest in the loans may be 

adversely affected is increased, particularly in the event the seller/servicer were to become insolvent. 

To manage these risks, we maintain legal and contractual arrangements that identify our ownership 

interest in the loans and establish qualifying standards for our document custodians. We also monitor 

the financial strength of our document custodians on an ongoing basis in accordance with our 

counterparty risk management framework, and we require transfer of documents to our possession or 

to a different third-party document custodian if we have concerns about the solvency or competency 

of the document custodian.

• The MERS® System - The MERS System is an electronic registry that is widely used by seller/

servicers, Freddie Mac, and other participants in the mortgage industry to maintain records of 

beneficial ownership of loans. The MERS System is owned and operated by MERSCORP Holdings, 

Inc. In 2016, Intercontinental Exchange, Inc. acquired a majority equity position in MERSCORP

Holdings, Inc. Freddie Mac and Fannie Mae also have equity positions in MERSCORP Holdings. A

significant portion of the loans we own or guarantee are registered in the MERS System. Our 

business could be adversely affected if we were prevented from using the MERS System, or if our 

use of the MERS System adversely affects our ability to enforce our rights with respect to our loans 

registered in the MERS System.
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Freddie Mac 2016 Form 10-K 142

OPERATIONAL RISK

We define operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal 

processes, people or systems, or from external events. Operational risk is inherent in all of our activities. 

Operational risk events include accounting or operational errors, business interruptions, non-compliance 

with legal or regulatory requirements, fraudulent acts, inappropriate acts by employees, information 

security incidents, or vendors who do not perform in accordance with their contracts. These events could 

result in financial loss, legal actions, regulatory fines, and reputational harm.

OPERATIONAL RISK MANAGEMENT AND RISK PROFILE

Our operational risk management framework includes risk identification, assessment, measurement, 

mitigation and reporting. When operational risk events are identified, our policies require that the events 

be documented and analyzed to determine whether changes are required in our systems and/or 

processes to further mitigate the risk of future events. 

During 2016, we continued to enhance and refine our three-lines-of-defense framework to both 

strengthen risk ownership in our business units and add clarity to risk management roles and 

responsibilities. Our framework focuses on balancing ownership of risk by our business units with 

corporate oversight and independent assurance of the design and effectiveness of our risk management 

activities.

In order to evaluate and monitor operational risk, each business unit completes an assessment using the 

Risk and Control Self-Assessment ("RCSA") framework. The framework is designed to identify and 

assess the business unit's exposure to operational risk and determine if additional action is required to 

manage the risk to an acceptable level.

In addition to the RCSA process, we employ several tools to identify and measure operational risks, 

including loss event data, key risk indicators, root cause analysis, and testing. While our operational risk 

framework includes tools to support effective management of operational risk, the primary responsibility 

for managing both the day-to-day risk and longer-term or emerging risks lies with the business units.

We continue to face heightened operational risk and expect the risk to remain elevated for the near term. 

This elevated risk profile is due to the layering impact of several factors including: legacy systems 

requiring upgrade for operational resiliency; reliance on manual processes; volume and complexity of new 

business initiatives, including those we are pursuing under the Conservatorship Scorecards; and issues 

requiring remediation. Other factors contributing to our heightened operational risk are discussed in “Risk 

Factors - Operational Risks.”

While our operational risk profile remains elevated, we are continuing to strengthen our operational 

control environment.

We continued to invest in technology risk management activities, including the enhancement of our outof-region disaster recovery capabilities. Our out-of-region data center, which became operational in 2014, 

improved our ability to recover our business systems in the event of a catastrophic regional business 

event, such as a disaster that affects our Northern Virginia production data centers.

We continue to make various multi-year investments to build the infrastructure for a better housing 

finance system, including the development of the common securitization platform by CSS (jointly owned 
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Freddie Mac 2016 Form 10-K 143

by Freddie Mac and Fannie Mae) and a single (common) security. With regard to the common 

securitization platform, while we exercise influence over CSS through our representation on the CSS 

Board of Managers, we do not control its day-to-day operations. CSS' day-to-day operations are 

managed by CSS management, which is overseen by the CSS Board of Managers. The Board of 

Managers consists of two Freddie Mac and two Fannie Mae representatives. We may not realize the 

benefits of our investments if the common securitization platform and single (common) security do not 

operate successfully, or if the market does not accept the single (common) security. In addition, the 

transition to the common securitization platform, which began in late 2016, presents significant 

operational and technological challenges. Freddie Mac began its transition to the common securitization 

platform in late 2016 through Release 1. We are employing various processes and procedures to mitigate 

the operational risks related to Release 1, including leveraging redundant operational processes and the 

ability to execute specific failback procedures. We will continue working with FHFA, CSS and Fannie Mae 

to develop processes and procedures related to the risks associated with Release 2. 

We continue to invest in the information risk and security area to strengthen our capabilities to prevent, 

detect, respond to and mitigate risk, and protect our critical assets. In 2014, we launched a multi-year 

information protection initiative designed to mitigate information risk. In 2016, we updated our information 

security roadmap and launched an end-to-end information risk program.

Model Risk

Model Risk is defined as the potential for adverse consequences from decisions based on incorrect or 

misused model outputs. Our business activities significantly rely on the use of models. We use a variety 

of models to inform management decisions related to our businesses. These include models that forecast 

significant factors such as interest rates, mortgage rates, and house prices, as well as models that project 

future cash flows related to borrower prepayment and default behavior. Risks emerge when unexpected 

changes cause future outcomes to be different from the outcomes projected by our models.

Model development, changes to existing models, and model risks are managed in each line of business 

according to our three-lines-of-defense framework. New model development and changes to existing 

models undergo a review process. Each business periodically reviews model performance, embedded 

assumptions and limitations, and modeling techniques, and updates its models as it deems appropriate. 

The ERM Division, the second line of defense, develops corporate model risk policies and standards and 

independently validates the work done by the first line of defense (i.e., the business units). The Internal 

Audit Division, the third line of defense, provides additional periodic independent assessment that model 

governance, policies, and procedures are followed appropriately.

Given the importance and complexity of models in our business, model development may take several 

months to complete. Delays in our model development process could affect our ability to make sound 

business and risk management decisions, and increase our exposure to risk. We have procedures 

designed to mitigate this risk.

In 2016, we improved our model governance processes by strengthening model policies, standards and 

procedures. We face heightened exposure to risk in our model governance processes as we 

operationalize these enhancements. We will continue to refine these processes to increase effectiveness 

and efficiency. 
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Freddie Mac 2016 Form 10-K 144

A corporate Model Risk Committee serves as a coordination forum for any issues arising from models that 

are used across divisions. Issues that remain unresolved at the Model Risk Committee are escalated to 

the ERC as necessary. We face significant risks associated with our use of models, as discussed in "Risk 

Factors - Operational Risks - We face risks and uncertainties associated with the models that we use to 

inform business and risk management decisions and for financial accounting and reporting purposes."

OPERATIONAL RISK UPDATE RELATING TO MASTER TRUST AGREEMENTS

The company identified that some of its operational procedures were not sufficiently detailed to comply 

with certain obligations under its Master Trust Agreements, as they are amended from time to time. 

During 2016, we made significant progress to correct the deficiencies in these operational procedures, 

and we are continuing our efforts to improve our procedures. Past practices led to a build-up in the 

custodial account of funds that were due to the company. We withdrew $22.6 billion of company funds 

from the custodial account during 2016 and established processes to withdraw company funds on a 

regular basis.

The funds that were withdrawn were reclassified from restricted cash and cash equivalents to cash and 

cash equivalents on our consolidated balance sheets. However, cash and cash equivalents, restricted 

cash and cash equivalents, and securities purchased under agreements to resell are managed together. 

Therefore, the reclassification did not affect how we manage these funds.

EFFECTIVENESS OF OUR DISCLOSURE CONTROLS AND PROCEDURES

Management, including the company’s CEO and CFO, conducted an evaluation of the effectiveness of 

our disclosure controls and procedures as of December 31, 2016. As of December 31, 2016, we had one 

material weakness related to conservatorship, which remained unremediated, causing us to conclude that 

our disclosure controls and procedures were not effective at a reasonable level of assurance. For 

additional information, see “Controls and Procedures.”
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Freddie Mac 2016 Form 10-K 145

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 Investments segment, while spread risk is 

owned and managed by each individual business segment. Market risk can adversely affect future cash 

flows, or economic value, as well as earnings and net worth.

The majority of our interest-rate risk comes from our investments in mortgage-related assets (securities 

and loans) and the debt we issue to fund them. Typically, an existing loan or bond investment is worth 

less to an investor when interest rates (yields) rise and worth more when they decline. In addition, for a 

majority of our mortgage-related assets, the borrower has the option to make unscheduled principal 

payments at any time before maturity without incurring a prepayment penalty. Thus, our mortgage-related 

asset portfolio is also exposed to the uncertainty as to when borrowers will exercise their option and pay 

the outstanding principal balance of their loans. We face similar (and in most cases directionally opposite) 

exposure related to unsecured debt. Unsecured debt is typically worth less to an investor when interest 

rates (yields) rise and more when they decline. In addition, we issue debt with embedded options, such 

as an option to call, which provides us flexibility concerning the timing of our debt maturities. We actively 

manage our economic exposure to interest rate fluctuations.

Our primary goal in managing interest-rate risk is to reduce the amount of change in the value of our 

future cash flows due to future changes in interest rates. We use models to analyze possible future 

interest-rate scenarios, along with the cash flows of our assets and liabilities over those scenarios.

Although the mortgage-related investments portfolio is the main contributor of interest-rate risk to the 

company, other core businesses also contribute to our interest-rate risk and may be managed 

differently. We have certain assets that have a much shorter holding period. As a result, we may manage 

the risk of these assets based on their disposition, while our risk measures use long-term cash 

flows. Hedging these businesses at times requires additional assumptions concerning risk metrics to 

accommodate changes in pricing that may not be related to the future cash flow of the assets. This could 

create a perceived risk exposure as the hedged risk may differ from the model risk.

The choice of the benchmark rate used to model and hedge our positions is a significant assumption. The 

effectiveness of our hedges ultimately depends on how closely the different instruments (assets, liabilities, 

and derivatives) react to the underlying chosen benchmark. In the simplest example, all instruments 

would have interest-rate risk based on the same underlying benchmark, in our case, the swap rate. In 

practice, however, different instruments react differently versus the benchmark rate, which creates a 

market spread between the benchmark rate and the instrument. As the market spreads of these 

instruments move differently, our ability to predict the behavior of each instrument relative to the others is 

reduced, potentially affecting the effectiveness of our hedges.

We employ risk management practices that seek to maintain certain interest rate characteristics of our 

assets and liabilities within our risk limits through a number of different strategies, including:

• Asset selection and structuring, such as acquiring or structuring mortgage-related securities with 

certain expected prepayment and other characteristics;

• Issuance of both callable and non-callable unsecured debt; and

• Use of interest rate derivatives, including swaptions and swaps.

To maintain our interest-rate risk exposure within our risk limits across a range of interest-rate scenarios, 
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Freddie Mac 2016 Form 10-K 146

we analyze the interest-rate sensitivity of financial assets and liabilities at the instrument level on a daily 

basis across a variety of interest-rate scenarios. For risk management purposes, the interest-rate risk 

characteristics are determined daily based on models and market information, which may be updated 

daily, weekly, or monthly. The fair values of our assets and liabilities, including derivatives, are primarily 

based on either third-party prices or observable market-based inputs. See "Valuation Risk and Controls 

Over Fair Value Measurements" in Note 13 for discussion on valuation risk. 

The Risk Committee of our Board of Directors establishes Board limits for certain interest-rate and spread 

risk measures, and if we exceed these limits, we are required to notify the Risk Committee and address 

the limit breach. These limits encompass a range of interest-rate risks that include duration risk, convexity 

risk, volatility risk, and yield curve risk associated with our use of various financial instruments, including 

derivatives. The Board limits also include a spread volatility limit on certain Multifamily assets. The 

management limits are set at values below those set at the Board level, which is intended to allow us to 

follow a series of predetermined actions in the event of a breach of the management limits and helps 

ensure proper oversight to reduce the possibility of exceeding the Board limits. Our ERC is responsible 

for reviewing performance as compared to the Board and management limits. 

We generally do not hedge the interest-rate exposure of our credit guarantees except for the interest-rate 

exposure related to buy-ups, float, and STACR debt notes. Float, which arises from timing differences 

between the borrower's principal payments on the loan and the reduction of the PC balance, can lead to 

significant interest expense if the interest rate paid to a PC investor is higher than the reinvestment rate 

earned by the securitization trusts on payments received from borrowers and paid to us as trust 

management income. 

Changes in prepayments, defaults, or market spreads can adversely affect our economic cash flows, 

earnings, and net worth. 

We use derivatives as an important part of our strategy to manage interest-rate risk. When deciding to 

use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to 

counterparty risks, and our overall risk management strategy. See “Credit Risk - Counterparty Credit Risk” 

and “Risk Factors” for more discussion of our market risk exposures, including those related to 

derivatives, institutional counterparties, and other market risks.
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Freddie Mac 2016 Form 10-K 147

MEASUREMENT OF MARKET RISK

The principal types of market risks to which we are exposed are described below.

Risk Description Risk Exposure

Interest-rate

Risk

Interest-rate risk is the risk that changes in the

level and shape of the yield curve, such as a

level change, or a flattening or steepening, will

adversely affect our economic value. 

• A change in the level of interest rates

(represented by a parallel shift of the yield

curve, all else constant) exposes our assets and

liabilities to risk, potentially affecting expected

future cash flows and their present values. This

is reflected in our PMVS-L and Duration Gap

disclosures.

• Similarly, changes in the shape or slope of the

yield curve (often reflecting changes in the

market’s expectation of future interest rates)

exposes our assets and liabilities to risk,

potentially affecting expected future cash flows

and their present values. This is reflected in our

PMVS-YC disclosure.

• Volatility risk is the risk that changes in the

market's expectation of the magnitude of future

variations in interest rates will adversely affect

our economic value.

• We are exposed to volatility risk in both our

mortgage-related assets and liabilities,

especially in instruments with embedded

options.

Spread Risk Spread risk is the risk that yields in different

asset classes may not move together and may

adversely affect our economic value.

• This risk arises principally because interest

rates on our mortgage-related investments may

not move in tandem with interest rates on our

financial liabilities and derivatives, potentially

affecting the effectiveness of our hedges.

• We are continually exposed to significant market

spread risk, also referred to as mortgage-todebt OAS risk, arising from funding mortgagerelated investments with debt securities.

• We also incur market spread risk when we use

LIBOR- or Treasury-based instruments in our

risk management activities.

• We are exposed to market spread risk arising

from the difference in time between when we

commit to purchase a multifamily mortgage loan

and when we securitize the loan. During this

time, market spreads can widen, causing losses

due to changes in fair value. We also have

market spread risk on the K Certificates and SB

Certificates we hold in our mortgage-related

investments portfolio.

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. For 

example, assets with a six month duration and liabilities with a five month duration would result in a 

positive duration gap of one month. A duration gap of zero implies that the duration of our assets 

equals the duration of our liabilities. As a result, the change in the value of assets from an 

instantaneous move in interest rates, either up or down, would be expected to be accompanied by an 

equal and offsetting change in the value of liabilities, thus leaving the economic value unchanged. A

positive duration gap indicates that the duration of our assets exceeds the duration of our liabilities 
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which, from a net perspective, implies that the economic value will increase in value when interest 

rates fall and decrease in value when interest rates rise. A negative duration gap indicates that the 

duration of our liabilities exceeds the duration of our assets which, from a net perspective, implies that 

the economic value will increase in value when interest rates rise and decrease in value when interest 

rates fall. 

We actively measure and manage our duration gap exposure on a daily basis. In addition to duration 

gap management, we also measure and manage the price sensitivity of our portfolio to a number of 

different specific interest rate changes along the yield curve. The price sensitivity of an instrument to 

specific changes in interest rates is known as the instrument’s key rate duration risk. By managing 

our duration exposure both in aggregate through duration gap and to specific changes in interest 

rates through key rate duration, we expect to limit our fair value exposure to interest rate changes for 

a wide range of interest rate yield curve scenarios. However, hedging our overall duration gap 

exposure could result in increased volatility in our financial results, as our derivatives and several 

types of our financial assets are measured at fair value, while our financial liabilities are generally not 

measured at fair value.

• PMVS - An estimate of the change in the market value of our financial assets and liabilities with 

spreads held constant from an instantaneous shock to interest rates, assuming no rebalancing 

actions are undertaken and assuming the mortgage rate-to-LIBOR basis does not change. 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-Level or PMVS-L) and the other to a 

nonparallel movement (PMVS-Yield Curve or PMVS-YC), resulting from a 25 basis point change in 

slope of the LIBOR yield curve. The 50 basis point shift and 25 basis point change in slope of the 

LIBOR yield curve used for our PMVS measures reflect reasonably possible near-term changes that 

we believe provide a meaningful measure of our interest-rate risk sensitivity.

• We calculate our exposure to changes in interest rates using effective duration and effective 

convexity based on our models. Effective duration measures the percentage change in the price 

of financial instruments from a 100 basis point change in interest rates. Financial instruments with 

positive duration increase in value as interest rates decline. Conversely, financial instruments with 

negative duration increase in value as interest rates rise. The net effective duration of our 

portfolio is expressed in months as our duration gap.

• Effective convexity measures the change in effective duration for a 100 basis point change in 

interest rates. Effective duration is not constant over the entire yield curve and effective convexity 

measures how effective duration changes over large changes in interest rates.

• Together, duration and convexity provide a measure of an instrument’s overall price sensitivity to 

changes in interest rates. We utilize the aggregate duration and convexity risk of all interest-rate 

sensitive instruments on a daily basis to estimate the two PMVS metrics. The duration and 

convexity measures are used to estimate PMVS using the following formula:

PMVS = -[Duration] multiplied by [rate shock] plus [0.5 multiplied by Convexity] multiplied by [rate 

shock]2

In the equation, [rate shock] represents the interest-rate change expressed in fair value terms. 

Assuming an adverse 50 basis point change, the result of this formula is the fair value sensitivity 

to the change in rate, which is expressed as: PMVS = (0.5 absolute value of duration) + (0.125 
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Freddie Mac 2016 Form 10-K 149

convexity), assuming convexity is negative.

• To estimate PMVS-L, an instantaneous parallel 50 basis point shock is applied to the yield curve, 

as represented by the swap curve, holding all spreads to the swap curve constant. This shock is 

applied to the duration and convexity of all interest-rate sensitive financial instruments. The 

resulting change in market value for the aggregate portfolio is computed for both the up rate and 

down rate shock and the change in market value in the more adverse scenario of the up and 

down rate shocks is the PMVS. In cases where both the up rate and down rate shocks result in a 

positive effect, the PMVS is zero. Because this process uses a parallel, or level, shock to interest 

rates, we refer to this measure as PMVS-L.

• To estimate sensitivity related to the shape of the yield curve, a yield curve steepening and 

flattening of 25 basis points is applied using the duration of all interest-rate sensitive instruments. 

The resulting change in market value for the aggregate portfolio is computed for both the 

steepening and flattening yield curve scenarios. The more adverse yield curve scenario is then 

used to determine the PMVS. Because this process uses a non-parallel shock to interest rates, 

we refer to this measure as PMVS-YC.

We estimate the sensitivity to changes in interest rates of the fair value of all financial assets and 

liabilities, including derivatives, on a pre-tax basis. In making these calculations, we do not consider the 

sensitivity to interest-rate changes of the following assets and liabilities:

• Credit guarantee activities - We do not consider the sensitivity of the fair value of credit guarantee 

activities to changes in interest rates except for the guarantee-related items mentioned above 

because we do not actively manage the change in the fair value of our guarantee business that is 

attributable to changes in interest rates. We do not believe that periodic changes in fair value due to 

movements in interest rates are the best indication of the long-term value of our guarantee business 

because these changes do not take into account the potential for future guarantee business activity.

• Other assets with minimal interest-rate sensitivity - We do not include other assets, primarily nonfinancial instruments such as fixed assets and REO, because we estimate their impact on PMVS and 

duration gap to be minimal.

LIMITATIONS OF MARKET RISK MEASURES

Our PMVS and duration gap estimates are determined using models that involve our judgment of interestrate and prepayment assumptions. While we believe that PMVS and duration gap are useful risk 

management tools, they should be understood as estimates rather than as precise measurements. There 

could be times when we hedge differently than our model estimates during the period, such as when we 

are making changes or market updates to these models. While PMVS and duration gap estimate our 

exposure to changes in interest rates, they do not capture the potential effect of certain other market 

risks, such as changes in volatility and market spread risk. The effect of these other market risks can be 

significant.

There are inherent limitations in any methodology used to estimate exposure to changes in market 

interest rates. Our sensitivity analyses for PMVS and duration gap contemplate only certain movements 

in interest rates and are performed at a particular point in time based on the estimated fair value of our 

existing portfolio. These sensitivity analyses do not consider other factors that may have a significant 

effect on our financial instruments, most notably business activities and strategic actions that 
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac 2016 Form 10-K 150

management may take in the future to manage interest-rate risk. These analyses are not intended to 

provide precise forecasts of the effect a change in market interest rates would have on the estimated fair 

value of our net assets.

In addition, it has been more difficult in recent years to measure and manage the interest-rate risk related 

to mortgage assets as risk for prepayment model error remains high due to the low interest rate 

environment and uncertainty regarding default rates, unemployment, government policy changes and 

programs, loan modifications, and the volatility and impact of home price movements on mortgage 

durations. Mis-estimation of prepayments, resulting in over or under hedging of interest-rate risk, could 

result in significant economic losses and have an adverse impact on earnings. In addition, this misestimation could result in realized losses upon the sale of assets.

Our PMVS and duration gap measures do not fully reflect the potential effect of negative index values 

across all of our floating rate assets and liabilities. See “Risk Factors - Market Risk - Negative values for 

certain interest rate indices could have an adverse effect on our operational and interest-rate risk 

management processes.” We incorporated the effect of negative interest rate index values for the majority 

of our floating rate assets and liabilities in 2016. For the small population of these assets and liabilities for 

which we have not incorporated the effect of negative interest rate index values, we do not believe the 

impacts to the duration gap and PMVS levels would be material to the company's financial condition or 

results of operations.

The table below provides duration gap, estimated point-in-time and minimum and maximum PMVS-L and 

PMVS-YC results, and an average of the daily values and standard deviation for the years ended 

December 31, 2016 and 2015. The table below also provides 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. We are providing certain of the disclosures below pursuant to a 

disclosure commitment with FHFA.

PMVS-YC PMVS-L

(In millions) 25 bps 50 bps 100 bps

Assuming shifts of the LIBOR yield curve:

December 31, 2016 $7 $— $—

December 31, 2015 $12 $50 $186

Year Ended December 31,

2016 2015

(Duration gap in

months, dollars in

millions)

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Duration

Gap

PMVS-YC

25 bps

PMVS-L

50 bps

Average 0.1 $6 $20 0.2 $17 $90

Minimum (0.4) $— $— (0.4) $— $23

Maximum 0.7 $31 $92 1.0 $47 $249

Standard deviation 0.2 $5 $21 0.3 $12 $40

Derivatives enable us to reduce our interest-rate risk exposure. The table below shows that the PMVS-L

risk levels assuming a 50 basis point shift in the LIBOR yield curve for the periods presented would have 

been higher if we had not used derivatives. 
Management's Discussion and Analysis Risk Management | Market Risk

Freddie Mac 2016 Form 10-K 151

PMVS-L (50 bps)

(In millions)

Before

Derivatives

After

Derivatives

Effect of

Derivatives

December 31, 2016 $3,651 $— ($3,651)

December 31, 2015 $3,373 $50 ($3,323)

While we manage our interest-rate risk exposure on an economic basis to a low level as measured by our 

models, the accounting treatment for our financial assets and liabilities (i.e., some are measured at 

amortized cost, while others are measured at fair value), including derivatives, creates volatility in our 

GAAP earnings when interest rates fluctuate. Based upon the composition of our financial assets and 

liabilities, including derivatives, at December 31, 2016, we generally recognize fair value losses in GAAP

earnings when interest rates decline. The table below presents the estimated adverse net effect on pretax earnings of certain immediate shifts in interest rates. These estimates represent the derivative gains 

(losses) attributable to financial instruments that are not measured at fair value on a recurring basis. The 

methodology used to calculate these figures is consistent with the methodology used to calculate our 

PMVS-YC and PMVS-L metrics above.

GAAP FV-YC GAAP FV-L

(In millions) 25 bps 50 bps 100 bps

December 31, 2016 $526 $1,328 $2,615

December 31, 2015 $635 $1,630 $3,573

Our adverse exposures under these interest-rate scenarios as of December 31, 2016 declined compared 

to December 31, 2015 as we entered into certain transactions, including structured transactions, during 

2016 that have resulted in additional financial assets being recognized and measured at fair value which 

helped to offset the fair value changes of our derivatives. 

In the first quarter of 2017, we began using hedge accounting for certain single-family mortgage 

loans, which is intended to partially reduce the interest-rate volatility in our GAAP earnings by 

eliminating a portion of the measurement differences between our GAAP financial results and the 

underlying economics of our business. 

The disclosure in our Monthly Volume Summary reports, which are available on our web site 

www.freddiemac.com/investors/volsum, reflects the average of the daily PMVS-L, PMVS-YC, and 

duration gap estimates for a given reporting period (a month, a quarter, or year).
Management's Discussion and Analysis Liquidity and Capital Resources | Overview

Freddie Mac 2016 Form 10-K 152

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our business activities require that we maintain adequate liquidity to fund our operations, which primarily 

include the following:

• Principal payments due to the maturity, redemption or repurchase of our other debt;

• Interest payments on our other debt;

• Dividend obligations on our senior preferred stock;

• Cash purchases of single-family and multifamily loans;

• Purchases of mortgage-related securities and non-mortgage investments;

• Removal of modified or seriously delinquent mortgage loans from PC trusts;

• Any shortfall related to the payments of principal and interest on our debt securities issued by 

consolidated trusts and any other payments related to our guarantees of mortgage assets;

• Payments to affordable housing funds under the GSE Act;

• Payments to Treasury associated with the legislated 10 basis point increase under the Temporary 

Payroll Tax Cut Continuation Act; 

• Any costs related to the disposition of our REO properties;

• Payments related to derivative contracts;

• Posting or pledging collateral to third parties in connection with secured financing and daily trade 

activities; and

• Administrative expenses.

We fund our cash needs primarily by issuing other debt. Other sources of cash primarily include:

• Interest and principal payments on and sales of securities or loans that we hold in our mortgagerelated investments portfolio or our Liquidity and Contingency Operating Portfolio;

• Repurchase transactions with counterparties;

• Guarantee fees we receive in connection with our guarantee activities, excluding those fees 

associated with the legislated 10 basis point increase we remit to Treasury; and

• Quarterly draws from Treasury under the Purchase Agreement, which are made if we have a 

quarterly deficit in our net worth.

In addition to the uses and sources of cash described above, we are involved in various legal 

proceedings, including those discussed in “Legal Proceedings,” which may result in a need to use cash to 

settle claims or pay certain costs or receipt of cash from settlements.

Our securities and other obligations are not guaranteed by the U.S. government and do not constitute a 

debt or obligation of the U.S. government or any agency or instrumentality thereof, other than Freddie 

Mac. We continue to manage our debt issuances to remain in compliance with the aggregate 

indebtedness limits set forth in the Purchase Agreement. For a description of our debt products, see “Our 

Business Segments - Investments.”
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Management Framework

Freddie Mac 2016 Form 10-K 153

LIQUIDITY MANAGEMENT FRAMEWORK

The support provided by Treasury pursuant to the Purchase Agreement enables us to have adequate 

liquidity to conduct our normal business activities. However, the costs and availability of our debt funding 

could vary for a number of reasons, including the uncertainty about the future of the GSEs and any future 

downgrades in our credit ratings or the credit ratings of the U.S. government. 

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal 

Reserve requires that we fully fund our accounts at the Federal Reserve Bank of New York to the extent 

necessary to cover cash payments on our debt and mortgage-related securities each day, before the 

Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we 

seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment 

system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash 

may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.

Maintaining sufficient liquidity is of primary importance to, and a cost of, our business. Under our liquidity 

management practices and policies, we:

• Manage intraday cash needs and provide for the contingency of an unexpected cash demand;

• Maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a 

limited period of time, assuming no access to unsecured debt markets;

• Maintain unencumbered securities with a value greater than or equal to the largest projected daily 

cash shortfall for an extended period of time, assuming no access to unsecured debt markets; and

• Manage the maturity of our unsecured debt based on our asset profile.

To facilitate cash management, we forecast cash outflows and inflows using assumptions and models. 

These forecasts help us to manage our liabilities with respect to the timing of our cash flows. Differences 

between actual and forecasted cash flows have resulted in higher costs from issuing a higher amount of 

debt than needed or unexpectedly needing to issue debt, and may do so in the future. Differences 

between actual and forecasted cash flows also could result in our account at the Federal Reserve Bank of 

New York being overdrawn. We maintain daily cash reserves to manage this risk.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 154

LIQUIDITY PROFILE

During 2016, the majority of the funds in our Liquidity and Contingency Operating Portfolio were 

deposited with the Federal Reserve Bank of New York, invested in U.S. Treasury securities, or invested in 

securities purchased under agreements to resell. In the event of a downgrade of a position or 

counterparty, as applicable, below minimum rating requirements, we make an assessment whether to exit 

the existing position or continue to do business with the counterparty.

During 2016, we had sufficient access to the debt markets due largely to support from the U.S. 

government. We rely significantly on our ability to issue debt on an on-going basis to refinance our 

effective short-term debt. Our effective short-term debt percentage, which represents the percentage of 

our total other debt that is expected to mature within one year, increased to 46.1% as of December 31, 

2016 compared to 41.3% as of December 31, 2015 as a larger percentage of our callable debt and noncallable debt is expected to mature during 2017 compared to 2016.

Our debt cap under the Purchase Agreement was $479.0 billion in 2016 and declined to $407.2 billion on 

January 1, 2017. As of December 31, 2016, our aggregate indebtedness, calculated as the par value of 

other debt, was $356.7 billion. We disclose the amount of our indebtedness on this basis monthly under 

the caption “Other Debt Activities - Total Debt Outstanding” in our Monthly Volume Summary reports, 

which are available on our web site at www.freddiemac.com/investors/volsum/.

Our ability to maintain sufficient liquidity, including by pledging mortgage-related and other securities as 

collateral to other institutions, could cease or change rapidly and the cost of the available funding could 

increase significantly due to changes in market interest rates, market confidence, operational risks, and 

other factors. 

To fund our business activities, we depend on the continuing willingness of investors to purchase our debt 

securities. The reduction in our mortgage-related investments portfolio has reduced our funding needs. 

We expect that this trend will continue over time as the mortgage-related investments portfolio shrinks. 

Changes or perceived changes in the government's support of us could have a severe negative effect on 

our access to the debt markets and on our debt funding costs. 

In addition, any change in applicable legislative or regulatory exemptions, including those described in 

“Regulation and Supervision,” could adversely affect our access to some debt investors, thereby 

potentially increasing our debt funding costs. For more information on our short- and long-term liquidity 

needs, see “Contractual Obligations.”

OTHER DEBT ACTIVITIES

Debt securities that we issue are classified either as debt securities of consolidated trusts held by third 

parties or other debt. We issue other debt to fund our operations. Competition for funding can vary with 

economic, financial market, and regulatory environments. 

The tables below summarize the par value and the average rate of other debt securities we issued or paid 

off, including regularly scheduled principal payments, payments resulting from calls, and payments for 

repurchases. We repurchase, call, or exchange 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.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 155

Year Ended December 31, 2016

(Dollars in millions) Short-term Average Rate Long-term Average Rate

Discount notes and Reference Bills:

Beginning balance $104,088 0.28% $— —

Issuances 424,256 0.30% — —

Maturities (467,302) 0.27% — —

Ending Balance 61,042 0.47% — —

Securities sold under agreements to repurchase:

Beginning balance — — — —

Issuances 61,284 0.07% — —

Maturities (58,244) 0.05% — —

Ending Balance 3,040 0.42% — —

Callable debt:

Beginning balance — — 107,675 1.61%

Issuances — — 115,930 1.47%

Calls — — (123,475) 1.46%

Maturities — — (1,710) 0.65%

Ending Balance — — 98,420 1.44%

Non-callable debt:(1)

Beginning balance 9,545 0.20% 196,713 2.34%

Issuances 7,435 0.41% 49,383 1.17%

Repurchases — — (53) 11.78%

Maturities (9,545) 0.20% (59,237) 2.26%

Ending Balance 7,435 0.41% 186,806 2.10%

Total other debt $71,517 0.47% $285,226 1.87%

Year Ended December 31, 2015

(Dollars in millions) Short-term Average Rate Long-term Average Rate

Discount notes and Reference Bills:

Beginning balance $134,670 0.12% $— —

Issuances 427,964 0.11% — —

Maturities (458,546) 0.07% — —

Ending Balance 104,088 0.28% — —

Securities sold under agreements to repurchase:

Beginning balance — — — —

Issuances 2,987 0.23% — —

Maturities (2,987) 0.23% — —

Ending Balance — — — —

Callable debt:

Beginning balance — — 107,070 1.44%

Issuances — — 128,612 1.53%

Calls — — (124,435) 1.34%

Maturities — — (3,572) 1.17%

Ending Balance — — 107,675 1.61%

Non-callable debt:(1)

Beginning balance — — 212,289 2.40%

Issuances 9,545 0.20% 39,969 1.10%

Repurchases — — (397) 3.97%

Maturities — — (55,148) 1.68%

Ending Balance 9,545 0.20% 196,713 2.34%

Total other debt $113,633 0.28% $304,388 2.08%

(1) Includes STACR debt notes and certain multifamily other debt.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 156

Our outstanding other debt balance continues to decline as we reduce our indebtedness along with the 

decline in our mortgage-related investments portfolio. As a result, our total issuances of other debt, 

excluding securities sold under agreements to repurchase, decreased while total payoffs and maturities 

increased in 2016 compared to 2015. We continued to utilize overnight discount notes as a more cost 

effective tool to manage intra-day liquidity needs. 

Our short term debt issuances provide us with overall lower funding costs relative to medium and longer 

term debt. In October 2016, amendments to the SEC's rules that govern money market mutual funds 

became effective. These amendments make certain structural and operational reforms to address the 

risks of investor withdrawals from money market funds. These amendments do not apply to mutual funds 

that invest solely in debt issued or guaranteed by the U.S. government or its agencies and 

instrumentalities, including GSEs. As a result, the demand for short-term government and agency debt 

has increased, which contributed to the improvement in our short-term and non-callable debt spreads 

during 2016. 

We replaced a portion of called and matured medium-term and longer-term debt with a combination of 

new callable and non-callable debt. Issuing a combination of callable and non-callable debt assists in 

managing our liquidity metrics. Our callable debt provides us with the option to repay the outstanding 

principal balance of the debt prior to its contractual maturity date. As of December 31, 2016, $76 billion of 

the outstanding $98 billion of callable debt may be called within one year.

The following graphs present our other debt by contractual maturity date and earliest redemption date. 

For the purposes of this presentation, the earliest redemption date is the earliest call date for callable debt 

and the contractual maturity date for all other debt.

Contractual Maturity Date as of December 

31, 2016 

Earliest Redemption Date as of December 31, 

2016
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 157

DEBT SECURITIES OF CONSOLIDATED TRUSTS

The table below shows the issuance and extinguishment activity for the debt securities of our 

consolidated trusts.

Year Ended December 31,

(In millions) 2016 2015

Beginning balance $1,513,089 $1,440,325

Issuances:

New issuances to third parties 309,021 259,890

Additional issuances of securities 162,386 137,676

Total issuances 471,407 397,566

Extinguishments:

Purchases of debt securities from third parties (42,716) (43,341)

Debt securities received in settlement of advances to lenders (29,292) (11,225)

Repayments of debt securities (310,326) (270,236)

Total extinguishments (382,334) (324,802)

Ending balance 1,602,162 1,513,089

Unamortized premiums and discounts 46,521 43,032

Debt securities of consolidated trusts held by third parties $1,648,683 $1,556,121

Debt securities of our consolidated trusts represent our liability to third parties that hold beneficial 

interests in our consolidated securitization trusts. Our exposure on debt securities of consolidated trusts is 

limited to the guarantee we provide on the payment of principal and interest on these securities, as the 

primary source of repayment of these debt securities comes from the cash flows of the mortgage loans 

held by the trusts which back the securities. At December 31, 2016, our estimated exposure (including the 

amounts that are due to Freddie Mac for debt securities of consolidated trusts that we purchased) to 

these debt securities is recognized as the allowance for credit losses on mortgage loans held by 

consolidated trusts. See Note 4 for details on our allowance for loan losses.

The table below provides information on the debt securities issued by our consolidated trusts.
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 158

December 31,

(In millions) 2016 2015

Single-family

PCs:

30-year or more amortizing fixed-rate $1,235,862 $1,156,220

20-year amortizing fixed-rate 82,118 81,255

15-year amortizing fixed-rate 282,520 281,165

Adjustable-rate 57,038 66,807

Interest-only 15,043 19,573

FHA/VA and other governmental 2,421 2,745

Total single-family PCs 1,675,002 1,607,765

Other single-family 4,531 5,824

Total single-family 1,679,533 1,613,589

Multifamily

Other securitization products 3,048 1,711

Total Freddie Mac mortgage-related securities 1,682,581 1,615,300

Repurchased or retained at issuance Freddie Mac mortgagerelated securities (80,419) (102,211)

Debt securities of consolidated trusts held by third parties $1,602,162 $1,513,089

CREDIT RATINGS

Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is 

highly dependent upon our credit ratings. The table below indicates our credit ratings as of February 2, 

2017.

Nationally Recognized Statistical Rating

Organization

S&P Moody's Fitch

Senior long-term debt AA+ Aaa AAA

Short-term debt A-1+ P-1 F1+

Subordinated debt AA- Aa2 AAPreferred stock(1) D Ca C/RR6

Outlook Stable Stable Stable

(1) Does not include senior preferred stock issued to Treasury.

Our credit ratings and outlooks are primarily based on the support we receive from Treasury, and 

therefore, are affected by changes in the credit ratings and outlooks of the U.S. government.

A security rating is not a recommendation to buy, sell or hold securities. It may be subject to revision or 

withdrawal at any time by the assigning rating organization. Each rating should be evaluated 

independently of any other rating.

OTHER INVESTMENTS AND CASH PORTFOLIO

The investments in our other investments and cash portfolio are important to our cash flow, collateral 

management, asset and liability management, and our ability to provide liquidity and stability to the 

mortgage market. The table below summarizes the balances in our other investments and cash portfolio, 
Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Profile

Freddie Mac 2016 Form 10-K 159

which includes the Liquidity and Contingency Operating Portfolio.

December 31, 2016 December 31, 2015

(In billions)

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other(1)

Total Other

Investments

and Cash

Portfolio

Liquidity and

Contingency

Operating

Portfolio

Custodial

Account Other(1)

Total Other

Investments

and Cash

Portfolio

Cash and cash

equivalents $12.4 $— $— $12.4 $5.4 $— $0.2 $5.6

Restricted cash and

cash equivalents — 9.5 0.4 9.9 — 14.5 — 14.5

Securities

purchased under

agreements to resell 37.5 13.6 0.4 51.5 48.4 14.8 0.4 63.6

Non-mortgage

related securities 19.6 — 1.5 21.1 16.2 — 1.0 17.2

Other assets(2) — — 1.3 1.3 — — 0.9 0.9

Total $69.5 $23.1 $3.6 $96.2 $70.0 $29.3 $2.5 $101.8

(1) Consists of amounts related to collateral held by us from OTC derivative counterparties, investments in unsecured agency 

debt that we may not otherwise invest in, other than to pledge as collateral to our counterparties when our derivatives are in 

a liability position, and advances to lenders.

(2) Consists of advances to lenders.

Our non-mortgage-related securities in the Liquidity and Contingency Operating Portfolio consist of U.S. 

Treasury securities and other investments that we could sell to provide us with an additional source of 

liquidity to fund our business operations. We also maintain non-interest-bearing deposits at the Federal 

Reserve Bank of New York.

MORTGAGE LOANS AND MORTGAGE-RELATED SECURITIES

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are 

largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our 

holdings of single-class and multiclass agency securities, excluding certain structured agency securities 

collateralized by non-agency mortgage-related securities.

In addition, we hold unsecuritized single-family loans and multifamily held-for-sale loans that could be 

securitized and would then be available for sale or use as collateral for repurchase agreements. Due to 

the large size of our portfolio of liquid assets, the amount of mortgage-related assets that we may 

successfully sell or borrow against in the event of a liquidity crisis or significant market disruption may be 

substantially less than the amount of mortgage-related assets we hold. There would likely be insufficient 

market demand for large amounts of these assets over a prolonged period of time, which would limit our 

ability to sell or borrow against these assets.

We hold other mortgage assets, but given their characteristics, they may not be available for immediate 

sale or for use as collateral for repurchase agreements. These assets consist of certain structured agency 

securities collateralized by non-agency mortgage-related securities, non-agency CMBS, non-agency 

RMBS backed by subprime, option ARM, and Alt-A and other loans, and unsecuritized seriously 

delinquent and modified single-family loans.

We are subject to limits on the amount of mortgage assets we can sell in any calendar month without 

review and approval by FHFA and, if FHFA so determines, Treasury. 
Management's Discussion and Analysis Liquidity and Capital Resources I Cash Flows

Freddie Mac 2016 Form 10-K 160

CASH FLOWS

We evaluate our cash flow performance by comparing the net cash flows from operating and investing 

activities to the net cash flows required to finance those activities. The following graphs present the 

results of these activities for the years ended December 31, 2016, 2015 and 2014. 

 Operating Cash Flows Investing Cash Flows Financing Cash Flows

 2014 2015 2016 2014 2015 2016 2014 2015 2016 

Commentary

2016 vs. 2015

Cash provided by operating activities increased $5.8 billion primarily due to the following:

• Increase in net sales of mortgage loans acquired as held-for-sale, primarily due to an increase in 

the volume of our multifamily securitizations; partially offset by

• Decrease in our net interest income.

Cash provided by investing activities decreased $9.7 billion primarily due to the following:

• Increase in advances to lenders;

• Increase in net purchases of investment securities, primarily due to more investment securities 

being retained from our agency resecuritizations; partially offset by

• Decrease in securities purchased under agreements to resell due to lower near-term cash needs 

for upcoming maturities and anticipated calls of other debt at the end of 2016 compared to the 

end of 2015; and

• Decrease in restricted cash due to the withdrawal of company funds from the custodial account.

Cash used in financing activities decreased $16.0 billion primarily due to the following:

• Decrease in net repayments and redemptions of debt securities of consolidated trusts held by 

third parties due to an increase in the volume of our single-family PC issuances for cash; partially 

offset by

• Increase in net repayments of other debt, as we reduced our indebtedness along with the decline 

in our mortgage-related investments portfolio.
Management's Discussion and Analysis Liquidity and Capital Resources I Cash Flows

Freddie Mac 2016 Form 10-K 161

2015 vs. 2014

Cash used by operating activities increased $9.8 billion primarily due to the following:

• Increase in net purchases of multifamily held-for-sale mortgage loans, as we increased our support of 

workforce housing in the multifamily mortgage market; and 

• Decrease in cash proceeds received from settlements of our non-agency mortgage-related securities 

litigation.

Cash provided by investing activities decreased $26.4 billion primarily due to the following:

• Increase in our securities purchased under agreements to resell as a result of higher near-term cash 

needs for upcoming maturities and anticipated calls of other debt; and 

• Increase in advances to lenders.

Cash used in financing activities decreased $31.2 billion primarily due to the following:

• Decrease in net repayments of other debt, as we increased our use of medium-term other debt to 

fund our business operation; and

• Decrease in cash dividend payments on the senior preferred stock, as a result of lower 

comprehensive income.
Management's Discussion and Analysis Liquidity and Capital Resources I Capital Resources

Freddie Mac 2016 Form 10-K 162

CAPITAL RESOURCES

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy 

and our management of capital. Since our entry into conservatorship, Treasury and FHFA have taken a 

number of actions that affect our cash requirements and our ability to fund those requirements. Under the 

Purchase Agreement, Treasury made a commitment to provide us with funding, under certain conditions, 

to eliminate deficits in our net worth. Obtaining funding from Treasury pursuant to its commitment under 

the Purchase Agreement enables us to avoid being placed into receivership by FHFA. The amount of 

available funding remaining under the Purchase Agreement is $140.5 billion. This amount will be reduced 

by any future draws. We may need to make additional draws in future periods due to a variety of factors 

that could adversely affect our net worth.

At December 31, 2016, 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 at 

December 31, 2016 and the 2017 Capital Reserve Amount of $600 million, our scheduled dividend 

obligation to Treasury in March 2017 will be $4.5 billion. Under the Purchase Agreement, the payment of 

dividends does not reduce the outstanding liquidation preference of the senior preferred stock. As a result 

of the net worth sweep dividend on the senior preferred stock, our future profits will be distributed to 

Treasury, and we cannot retain capital from the earnings generated by our business operations (other 

than a limited capital reserve amount that will decrease to zero in 2018) or return capital to stockholders 

other than Treasury. See “Conservatorship and Related Matters” and “Regulation and Supervision” for 

more information.

In June 2016, FASB issued a new Accounting Standards Update (ASU 2016-13, Financial Instruments—

Credit Losses) related to the measurement of credit losses on financial instruments that will be effective 

as of January 1, 2020, with early adoption permitted as of January 1, 2019. This Update replaces the 

incurred loss impairment methodology in current GAAP with a methodology that reflects lifetime expected 

credit losses. While we are still evaluating the effect that the adoption of this Update will have on our 

financial results, it will increase (perhaps substantially) our provision for credit losses in the period of 

adoption. As our capital reserve will decline to zero in 2018, this Update increases the risk that we will 

need to request a draw from Treasury for the period of adoption.

The table below presents activity related to our net worth.

Year Ended December 31,

(In millions) 2016 2015 2014

Beginning balance $2,940 $2,651 $12,835

Comprehensive income 7,118 5,799 9,426

Capital draw from Treasury — — —

Senior preferred stock dividends declared (4,983) (5,510) (19,610)

Total equity / net worth $5,075 $2,940 $2,651

Aggregate draws under Purchase Agreement $71,336 $71,336 $71,336

Aggregate cash dividends paid to Treasury $101,448 $96,465 $90,955
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 163

CONSERVATORSHIP AND RELATED MATTERS

SUPERVISION OF OUR COMPANY DURING 

CONSERVATORSHIP

FHFA has broad powers when acting as our Conservator. Upon its appointment, the Conservator 

immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder, 

officer or director of Freddie Mac with respect to Freddie Mac and its assets. The Conservator also 

succeeded to the title to all books, records and assets of Freddie Mac held by any other legal custodian 

or third party. 

Under the GSE Act, the Conservator may take any actions it determines are necessary to put us in a safe 

and solvent condition and appropriate to carry on our business and preserve and conserve our assets 

and property. The Conservator’s powers include the ability to transfer or sell any of our assets or 

liabilities, subject to certain limitations and post-transfer notice provisions, without any approval, 

assignment of rights or consent of any party. However, the GSE Act provides that loans and mortgagerelated assets that have been transferred to a Freddie Mac securitization trust must be held by the 

Conservator for the beneficial owners of the trust and cannot be used to satisfy our general creditors.

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

delegated certain authority to the Board of Directors to oversee, and to management to conduct, business 

operations so we can operate in the ordinary course. The directors serve on behalf of, and exercise 

authority as directed by, the Conservator. The Conservator retains the authority to withdraw or revise its 

delegations of authority at any time. The Conservator also retains certain significant authorities for itself, 

and has not delegated them to the Board. The Conservator continues to provide strategic direction for the 

company and directs the efforts of the Board and management to implement its strategy. Despite the 

delegations of authority to management, many management decisions are subject to review and/or 

approval by FHFA and management frequently receives direction from FHFA on various matters involving 

day-to-day operations. 

Our current business objectives reflect direction we received from the Conservator including the 

Conservatorship Scorecards. At the direction of the Conservator, we have made changes to certain 

business practices that are designed to provide support for the mortgage market in a manner that serves 

our public mission and other non-financial objectives. Given our public mission and the important role the 

Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage 

market conditions, we sometimes take actions that could have a negative impact on our business, 

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

Purchase Agreement. Certain of these actions are intended to help homeowners and the mortgage 

market. 

PURCHASE AGREEMENT, WARRANT AND SENIOR 

PREFERRED STOCK

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

Under the Purchase Agreement, we issued to Treasury both senior preferred stock and a warrant to 

purchase common stock. The Purchase Agreement, the warrant and the senior preferred stock do not 
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 164

contain any provisions causing them to terminate or cease to exist upon the termination of 

conservatorship. The conservatorship, the Purchase Agreement, the warrant and the senior preferred 

stock materially limit the rights of our common and preferred stockholders (other than Treasury). 

Pursuant to the Purchase Agreement, which we entered into through FHFA, in its capacity as 

Conservator, on September 7, 2008, we issued to Treasury one million shares of Variable Liquidation 

Preference Senior Preferred Stock with an initial liquidation preference of $1 billion and a warrant to 

purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares 

outstanding. The senior preferred stock and warrant were issued to Treasury as an initial commitment fee 

in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. We 

did not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or the 

warrant. However, deficits in our net worth have made it necessary for us to make substantial draws on 

Treasury’s funding commitment under the Purchase Agreement. Under the Purchase Agreement, our 

ability to repay the liquidation preference of the senior preferred stock is limited and we will not be able to 

do so for the foreseeable future, if at all. 

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the 

amount, if any, by which our total liabilities exceed our total assets, as reflected on our GAAP

consolidated balance sheet for the applicable fiscal quarter, provided that the aggregate amount funded 

under the Purchase Agreement may not exceed Treasury's commitment. As of December 31, 2016, the 

aggregate liquidation preference of the senior preferred stock was $72.3 billion, and the amount of 

available funding remaining under the Purchase Agreement was $140.5 billion. To the extent we draw 

additional funds in the future, the aggregate liquidation preference will increase and the amount of 

available funding remaining will decrease.

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

dividends, when, as and if declared by our Board of Directors. The dividends we have paid to Treasury on 

the senior preferred stock have been declared by, and paid at the direction of, the Conservator, acting as 

successor to the rights, titles, powers and privileges of the Board. Under the August 2012 amendment to 

the Purchase Agreement, our dividend obligation each quarter is the amount, if any, by which our Net 

Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve 

Amount, exceeds zero. As a result of the net worth sweep dividend, our future profits will be distributed to 

Treasury, and the holders of our common stock and non-senior preferred stock will not receive benefits 

that could otherwise flow from any such future profits. If for any reason we were not to pay the amount of 

our dividend obligation on the senior preferred stock in full, the unpaid amount would be added to the 

liquidation preference, but this would not affect our ability to draw funds from Treasury under the 

Purchase Agreement.

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred 

stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. 

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding 

commitment under the Purchase Agreement. 

The Purchase Agreement and warrant contain covenants that significantly restrict our business and 

capital activities. For example, the Purchase Agreement provides that, until the senior preferred stock is 

repaid or redeemed in full, we may not, without the prior written consent of Treasury:

• Pay dividends on our equity securities, other than the senior preferred stock or warrant, or repurchase 
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 165

our equity securities;

• Issue any additional equity securities, except in limited instances;

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

the ordinary course of business, consistent with past practices, and in other limited circumstances; 

and

• Issue any subordinated debt.

LIMITS ON OUR MORTGAGE-RELATED INVESTMENTS 

PORTFOLIO AND INDEBTEDNESS

Our ability to acquire and sell mortgage assets is significantly constrained by limitations under the 

Purchase Agreement and other limitations imposed by FHFA:

• Under the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related investments 

portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion. 

• Under the Purchase Agreement, we may not incur indebtedness that would result in the par value of 

our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are permitted to 

own on December 31 of the immediately preceding calendar year. 

• Our Retained Portfolio Plan, which we adopted in 2014, provides for us to manage the mortgagerelated investments portfolio so that it does not exceed 90% of the annual cap established by the 

Purchase Agreement, subject to certain exceptions. Under the plan, we may seek permission from 

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

Purchase Agreement annual cap. 

• FHFA indicated that any portfolio sales should be commercially reasonable transactions that consider 

impacts to the market, borrowers and neighborhood stability. 

Our decisions with respect to managing the decline of the mortgage-related investments portfolio affect all 

three business segments. In order to achieve all of our portfolio reduction goals, it is possible that we may 

forgo economic opportunities in one business segment in order to pursue opportunities in another 

business segment. The reduction in the mortgage-related investments portfolio will result in a decline in 

income from this portfolio over time.

Our results against the limits imposed on our mortgage-related investments portfolio and aggregate 

indebtedness are shown below.
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 166

Mortgage Assets Indebtedness

REDUCING OUR MORTGAGE-RELATED INVESTMENTS PORTFOLIO OVER TIME

Our mortgage-related investments portfolio includes assets held by all three business segments and 

consists of: 

• Agency securities, which include both single-family and multifamily Freddie Mac mortgage-related 

securities and non-Freddie Mac agency mortgage-related securities; 

• Non-agency mortgage-related securities, which include single-family non-agency mortgage-related 

securities, CMBS, housing revenue bonds, and other multifamily securities; and 

• Single-family and multifamily unsecuritized loans. 

We evaluate the liquidity of the assets in our mortgage-related investments portfolio based on three 

categories (in order of liquidity): 

• Liquid: single-class and multi-class agency securities, excluding certain structured agency securities 

collateralized by non-agency mortgage-related securities. Also includes certain non-agency 

mortgage-related securities guaranteed by a GSE; 
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 167

• Securitization Pipeline: performing multifamily and single-family loans purchased for cash and 

primarily held for a short period until securitized, with the resulting Freddie Mac issued securities 

being sold or retained; and 

• Less Liquid: assets that are less liquid than both agency securities and loans in the securitization 

pipeline (e.g., reperforming loans and performing modified loans, single-family seriously delinquent 

loans, and non-agency mortgage-related securities not guaranteed by a GSE). 

The table below presents the UPB of our mortgage-related investments portfolio, for purposes of the limit 

imposed by the Purchase Agreement and FHFA regulation. The cap for this portfolio will decrease to 

approximately $288 billion at December 31, 2017.

December 31, 2016 December 31, 2015

(Dollars in millions) Liquid

Securitization

Pipeline

Less

Liquid Total Liquid

Securitization

Pipeline

Less

Liquid Total

Investments segment - Mortgage

investments portfolio:

Single-family unsecuritized loans

Performing loans $— $13,113 $— $13,113 $— $10,041 $— $10,041

Reperforming loans and

performing modified loans — — 58,326 58,326 — — 67,036 67,036

Total single-family unsecuritized

loans — 13,113 58,326 71,439 — 10,041 67,036 77,077

Freddie Mac mortgage-related

securities 125,652 — 4,776 130,428 135,869 — 6,076 141,945

Non-agency mortgage-related

securities 113 — 16,059 16,172 — — 27,754 27,754

Non-Freddie Mac agency

mortgage-related securities 11,759 — — 11,759 12,958 — — 12,958

Total Investment segment -

Mortgage investments portfolio 137,524 13,113 79,161 229,798 148,827 10,041 100,866 259,734

Single-family Guarantee segment

- Single-family unsecuritized

seriously delinquent loans — — 13,692 13,692 — — 19,501 19,501

Multifamily segment -

unsecuritized loans and mortgagerelated securities 7,447 16,372 31,117 54,936 7,304 19,563 40,809 67,676

Total mortgage-related investments

portfolio $144,971 $29,485 $123,970 $298,426 $156,131 $29,604 $161,176 $346,911

Percentage of total mortgagerelated investments portfolio 49% 10% 41% 100% 45% 9% 46% 100%

Mortgage-related investments

portfolio cap at December 31, 2016

and 2015, respectively $339,304 $399,181

90% of mortgage-related 

investments portfolio cap at 

December 31, 2016 and 2015, 

respectively(1) $305,374 $359,263

(1) Represents the amount that we manage to under our Retained Portfolio Plan, subject to certain exceptions.

We are particularly focused on reducing, in an economically sensible manner, the balance of the less 

liquid assets that we hold in our mortgage-related investments portfolio. Our efforts to reduce our holdings 

of these assets help satisfy several objectives, including to improve the overall liquidity of our mortgagerelated investments portfolio and comply with the mortgage-related investments portfolio limits. The 

decline in our holdings of less liquid assets, which included repayments and active dispositions, 

accounted for the majority of the decline in our mortgage-related investments portfolio during 2016. Our 

active dispositions of less liquid assets included the following:
Management's Discussion and Analysis Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 168

• Sales of $12.4 billion of less liquid assets, including $8.1 billion in UPB of non-agency mortgagerelated securities, $3.1 billion in UPB of seriously delinquent unsecuritized single-family loans, and 

$1.1 billion in UPB of single-family reperforming loans and performing modified loans. Our sales of 

reperforming loans and performing modified loans involved securitization of the loans using a senior 

subordinate securitization structure, in which we guaranteed the resulting senior securities. As part of 

these transactions, we retained certain of the guaranteed senior securities for our mortgage-related 

investments portfolio;

• Securitizations of $1.5 billion in UPB of less liquid multifamily loans; and

• Securitizations of $5.7 billion in UPB of single-family reperforming loans and performing modified 

loans into Freddie Mac PCs, thereby enhancing their liquidity. Our strategy related to these 

securitizations is to initially retain all of the resulting mortgage-related securities and then resecuritize 

a portion of these securities with some of the resulting interests being sold to third parties.

FHFA’S STRATEGIC PLAN FOR FREDDIE MAC AND FANNIE 

MAE CONSERVATORSHIPS

In May 2014, FHFA issued its 2014 Strategic Plan. FHFA issued the 2016 and 2017 Conservatorship 

Scorecards in December 2015 and December 2016, respectively. The 2014 Strategic Plan updated 

FHFA's vision for implementing its obligations as Conservator of Freddie Mac and Fannie Mae. The 

Conservatorship Scorecards established annual objectives and performance targets and measures for 

Freddie Mac and Fannie Mae related to the strategic goals set forth in the 2014 Strategic Plan. 

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of 

Freddie Mac and Fannie Mae:

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

and refinanced loans to foster liquid, efficient, competitive, and resilient national housing finance 

markets.

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

• Build a new single-family securitization infrastructure for use by Freddie Mac and Fannie Mae and 

adaptable for use by other participants in the secondary market in the future.

We continue to align our resources and internal business plans to meet the goals and objectives provided 

by FHFA.

For information about the 2016 Conservatorship Scorecard, and our performance with respect to it, see 

“Executive Compensation - Compensation Discussion and Analysis.” For information about the 2017 

Conservatorship Scorecard, see our current report on Form 8-K filed on December 15, 2016.

For more information on the conservatorship and related matters, see "Regulation and Supervision," “Risk 

Factors - Conservatorship and Related Matters,” Note 2, Note 9, and “Directors, Corporate Governance, 

and Executive Officers - Authority of the Board and Board Committees.”
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 169

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 origination or servicing of mortgages can affect us.

FEDERAL HOUSING FINANCE AGENCY

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

Freddie Mac, Fannie Mae, and the FHLBs.

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

respects broader than, that of the federal banking agencies. FHFA is responsible for implementing the 

various provisions of the GSE Act that were added by the Reform Act.

RECEIVERSHIP

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

are less than our obligations for a period of 60 days. FHFA notified us that the measurement period for 

any mandatory receivership determination with respect to our assets and obligations would commence no 

earlier than the SEC public filing deadline for our quarterly or annual financial statements and would 

continue for 60 calendar days after that date. FHFA also advised us that, if, during that 60-day period, we 

receive funds from Treasury in an amount at least equal to the deficiency amount under the Purchase 

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

could be put into receivership at the discretion of the Director of FHFA at any time for other reasons set 

forth in the GSE Act.

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

FHLBs are addressed in an FHFA rule. Among other provisions, the rule indicates that FHFA generally will 

not permit payment of securities litigation claims during conservatorship and that claims by current or 

former shareholders arising as a result of their status as shareholders would receive the lowest priority of 

claim in receivership. In addition, the rule indicates that administrative expenses of the conservatorship 

will also be deemed to be administrative expenses of receivership and that capital distributions may not 

be made during conservatorship, except as specified in the rule.

CAPITAL STANDARDS

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

The existing statutory and FHFA-directed regulatory capital requirements are not binding during the 

conservatorship. These capital standards are described in Note 15. Under the GSE Act, FHFA has the 

authority to increase our minimum capital levels temporarily or to establish additional capital and reserve 

requirements for particular purposes.

Pursuant to an FHFA rule, FHFA-regulated entities are required to conduct annual stress tests to 

determine whether such companies have sufficient capital to absorb losses as a result of adverse 
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 170

economic conditions. Under the rule, Freddie Mac is required to conduct annual stress tests using 

scenarios specified by FHFA that reflect a minimum of three sets of economic and financial conditions 

and publicly disclose the results of the stress test under the “severely adverse” scenario. In August 2016, 

we disclosed the results of our most recent "severely adverse" scenario stress test which projected an 

improvement in the amount of available funding remaining under the Purchase Agreement compared to 

the test results disclosed in April 2015.

NEW PRODUCTS

The GSE Act requires Freddie Mac and Fannie Mae to obtain the approval of FHFA before initially offering 

any product (as defined in the statute), subject to certain exceptions. The GSE Act also requires us to 

provide FHFA with written notice of any new activity that we consider not to be a product. While FHFA

published an interim final rule on prior approval of new products, it stated that permitting us to engage in 

new products is inconsistent with the goals of conservatorship and instructed us not to submit such 

requests under the interim final rule. 

AFFORDABLE HOUSING GOALS

We are subject to annual affordable housing goals. We view the purchase of loans that are eligible to 

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

committed to facilitating the financing of affordable housing for very low-, low-, and moderate-income 

families. In light of these goals, we may make adjustments to our strategies for purchasing loans, which 

could potentially increase our credit losses. These strategies could include entering into purchase and 

securitization transactions with lower expected economic returns than our typical transactions. In 

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

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

withdrawing our support from these market segments.

If the Director of FHFA finds that we failed (or there is a substantial probability that we will fail) to meet a 

housing goal and that achievement of the housing goal was or is feasible, the Director may require the 

submission of a housing plan that describes the actions we will take to achieve the unmet goal. FHFA has 

the authority to take actions against us if we fail to submit a required housing plan, submit an 

unacceptable plan, fail to comply with a plan approved by FHFA, or fail to submit certain mortgage 

purchase data, information or reports as required by law. We are currently operating under an FHFArequired housing plan. See “Risk Factors - Legal And Regulatory Risks - We may make certain changes 

to our business in an attempt to meet our housing goals and subgoals, which may cause us to forgo other 

more profitable opportunities.”

Current FHFA housing goals applicable to our purchases consist of four goals and one subgoal for singlefamily owner-occupied housing, one multifamily affordable housing goal, and two multifamily affordable 

housing subgoals. Single-family goals are expressed as a percentage of the total number of eligible loans 

underlying our total single-family loan purchases, while the multifamily goals are expressed in terms of 

minimum numbers of units financed.

Three of the single-family housing goals and the subgoal target purchase money loans for low-income 

families, very low-income families, and/or families that reside in low-income areas. The single-family 

housing goals also include one goal that targets refinancing loans for low-income families. The multifamily 
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 171

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

multifamily affordable housing subgoals target multifamily rental housing affordable to very low-income 

families and small (5- to 50-unit) multifamily properties affordable to low-income families. 

The single-family goals are measured by comparing our performance with the actual share of the market 

that meets the criteria for each goal and a benchmark level established by FHFA. If our performance on a 

single-family goal falls short of the benchmark, we still could achieve the goal if our performance meets or 

exceeds the actual share of the market that meets the criteria for the goal for that year.

Our goals for 2016 and 2017 are set forth below.

2016 2017

Single-family purchase money goals (Benchmark levels):

Low-income 24% 24%

Very low-income 6% 6%

Low-income areas 17% TBD

Low-income areas subgoal 14% 14%

Single-family refinance low-income goal (Benchmark level) 21% 21%

Multifamily low-income goal (In units) 300,000 300,000

Multifamily very low-income subgoal (In units) 60,000 60,000

Multifamily small property low-income subgoal (In units) 8,000 10,000

We expect to report our performance with respect to the 2016 affordable housing goals in March 2017. At 

this time, based on preliminary information, we believe we met three of our single-family goals and our 

three multifamily goals for 2016, but believe we failed to meet the FHFA benchmark level for the other 

single-family goals. FHFA will not be able to make a final determination on our performance until market 

data is released in October 2017.

AFFORDABLE HOUSING FUND ALLOCATIONS

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

dollar of total new business purchases, and pay such amount to certain housing funds. FHFA suspended 

this requirement when we were placed into conservatorship. However, in December 2014, FHFA

terminated the suspension and directed us to begin setting aside amounts, in accordance with the 

following terms and conditions:

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

our total new business purchases during such fiscal year; and

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

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

year or if such transfer will cause us to have to make a draw, then we will not make a transfer and the 

amount set aside for that fiscal year will be reversed.

We are prohibited from passing through the costs of these allocations to the originators of the loans that 

we purchase. During 2016, we completed $445.7 billion of new business purchases subject to this 

requirement and accrued $187 million of related expense. We expect to pay this amount in February 2017 

through the following payments: $91.2 million to the Housing Trust Fund administered by HUD; $49.1 
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 172

million to the Capital Magnet Fund administered by Treasury; and $46.8 million to the HOPE Reserve 

Account administered by Treasury.

PORTFOLIO ACTIVITIES

The GSE Act provides FHFA with the power to regulate the size and content of our mortgage-related 

investments portfolio. The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio 

holdings to ensure the holdings are backed by sufficient capital and consistent with our mission and safe 

and sound operations. FHFA adopted the portfolio holdings criteria established in the Purchase 

Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase 

Agreement. See "Conservatorship And Related Matters - Limits On Our Mortgage-Related Investments 

Portfolio And Indebtedness" for more information.

SUBORDINATED DEBT

FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if 

we fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that 

provide for us to defer payments of interest under certain circumstances, including our failure to maintain 

specified capital levels, are no longer applicable. 

Under the Purchase Agreement, we may not issue subordinated debt without Treasury's consent. During 

2016 and 2015, we did not call, repurchase or issue any Freddie SUBS® securities.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

HUD has regulatory authority over Freddie Mac with respect to fair lending. Our loan purchase activities 

are subject to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices 

in our loan purchase activities, requires us to submit data to HUD to assist in its fair lending investigations 

of primary market lenders with which we do business, and requires us to undertake remedial actions 

against such lenders found to have engaged in discriminatory lending practices. HUD periodically reviews 

and comments on our underwriting and appraisal guidelines for consistency with the Fair Housing Act and 

the anti-discrimination provisions of the GSE Act.

DEPARTMENT OF THE TREASURY

Treasury has significant rights and powers as a result of the Purchase Agreement. In addition, under our 

Charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures 

and substantially identical types of unsecured debt obligations (including the interest rates and maturities 

of these securities), as well as new types of mortgage-related securities issued subsequent to the 

enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The Secretary of 

the Treasury has performed this debt securities approval function by coordinating GSE debt offerings with 

Treasury funding activities. Our Charter also authorizes Treasury to purchase Freddie Mac debt 

obligations not exceeding $2.25 billion in aggregate principal amount at any time.

CONSUMER FINANCIAL PROTECTION BUREAU

The CFPB regulates consumer financial products and services. The CFPB adopted a number of final 
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 173

rules relating to loan origination, finance, and servicing practices that generally went into effect in January 

2014. The rules include an ability-to-repay rule, which requires loan originators to make a reasonable and 

good faith determination that a borrower has a reasonable ability to repay the loan according to its terms. 

This rule provides certain protection from liability for originators making loans that satisfy the definition of 

a qualified mortgage. The ability-to-repay rule applies to most loans acquired by Freddie Mac, and for 

loans covered by the rule, FHFA has directed us to limit our single-family acquisitions to loans that 

generally would constitute qualified mortgages under applicable CFPB regulations. The directive 

generally restricts us from acquiring loans that are not fully amortizing, have a term greater than 30 years, 

or have points and fees in excess of 3% of the total loan amount.

SECURITIES AND EXCHANGE COMMISSION

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

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

current reports on Form 8-K. Although our common stock is required to be registered under the Exchange 

Act, we continue to be exempt from certain federal securities law requirements, including the following:

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

under the Securities Act of 1933;

• We are excluded from the definitions of “government securities broker” and “government securities 

dealer” under the Exchange Act;

• The Trust Indenture Act of 1939 does not apply to securities issued by us; and

• We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, 

as we are an “agency, authority or instrumentality” of the U.S. for purposes of such Acts.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

LEGISLATION RELATED TO FREDDIE MAC AND ITS FUTURE STATUS

Our future structure and role will be determined by the Administration and Congress, and it is possible, 

and perhaps likely, that there will be significant changes beyond the near-term.

Several bills were introduced in the 114th Congress, which adjourned in January 2017, concerning the 

future status of Freddie Mac, Fannie Mae, and the mortgage finance system, including bills which 

provided for the wind down of Freddie Mac and Fannie Mae, modification of the terms of the Purchase 

Agreement or an increase in credit risk transfer transactions. None of these bills was enacted. It is likely 

that similar or new bills will be introduced and considered in the 115th Congress that began in January 

2017. We cannot predict whether any of such bills will be enacted. 

2015 AFFORDABLE HOUSING GOALS AND HOUSING PLAN

In December 2016, FHFA determined that we achieved three of our five single-family affordable housing 

goals and all three of our multifamily goals for 2015. Due to our failure to meet two single-family housing 

goals for 2014, we have been operating under an FHFA-required housing plan that addresses how we 

intend to achieve the missed goals in 2016 and 2017. Due to our failure to meet two single-family housing 
Management's Discussion and Analysis Regulation and Supervision

Freddie Mac 2016 Form 10-K 174

goals for 2015, FHFA has extended our housing plan through 2018. Our performance compared to our 

goals, as determined by FHFA for 2015 and 2014, is set forth below.

Goals for

2015

Market

Level for

2015

Results

for 2015

Goals for

2014

Market

Level for

2014

Results

for 2014

Single-family purchase money goals

(Benchmark levels):

Low-income 24% 23.6% 22.3% 23% 22.8% 21.0%

Very low-income 6% 5.8% 5.4% 7% 5.7% 4.9%

Low-income areas 19% 19.8% 19.0% 18% 22.1% 20.1%

Low-income areas subgoal 14% 15.2% 14.5% 11% 15.0% 13.6%

Single-family refinance low-income goal

(Benchmark level) 21% 22.5% 22.8% 20% 25.0% 26.4%

Multifamily low-income goal (In units) 300,000 N/A 379,042 200,000 N/A 273,434

Multifamily very low-income subgoal (In units) 60,000 N/A 76,935 40,000 N/A 48,689

Multifamily small property low-income subgoal

(In units) 6,000 N/A 12,801 N/A N/A N/A

FINAL RULE ON DUTY TO SERVE UNDERSERVED MARKETS

The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three underserved markets 

(manufactured housing, affordable housing preservation and rural areas) by developing loan products and 

flexible underwriting guidelines to facilitate a secondary market for mortgages for very low-, low- and 

moderate-income families in those markets. 

In December 2016, FHFA published a final rule regarding the duty of Freddie Mac and Fannie Mae to 

serve these underserved markets. Under the rule, Freddie Mac and Fannie Mae are each required to 

submit to FHFA an underserved markets plan covering a three-year period that describes the activities 

and objectives it will undertake to meet its duty to serve. We anticipate that the plans will become 

effective in January 2018, after FHFA provides notice of non-objection with respect to our plan for each 

underserved market. The rule provides duty to serve credit for eligible activities that facilitate a secondary 

market for mortgages on residential properties in the specified underserved markets. It also establishes a 

method for evaluating and rating Freddie Mac’s and Fannie Mae’s performance each year, on which 

FHFA will report annually to Congress.

We cannot predict the impact that the rule will have on our business, operations, profitability or credit risk. 

It is possible that the rule could have an adverse effect on us.
Management's Discussion and Analysis Contractual Obligations

Freddie Mac 2016 Form 10-K 175

CONTRACTUAL OBLIGATIONS

Our contractual obligations affect our short- and long-term liquidity and capital resource needs. The table 

below provides aggregated information about the listed categories of our contractual obligations as of 

December 31, 2016. The table includes information about undiscounted future cash payments due under 

these contractual obligations, aggregated by type of contractual obligation, including the contractual 

maturity profile of our debt securities (other than debt securities of consolidated trusts held by third 

parties). The timing of actual future payments may differ from those presented due to a number of factors, 

including discretionary debt repurchases.

The amounts of future interest payments on debt securities outstanding at December 31, 2016 are based 

on the contractual terms of our debt securities at that date. These amounts were determined using certain 

assumptions, including that variable-rate debt continues to accrue interest at the contractual rates in 

effect at December 31, 2016 until maturity and callable debt continues to accrue interest until its 

contractual maturity. The amounts of future interest payments on debt securities do not reflect certain 

factors that will change the amounts of interest payments on our debt securities after December 31, 2016, 

such as changes in interest rates, the call or retirement of any debt securities, and the issuance of new 

debt securities. Accordingly, the amounts presented in the table do not represent a forecast of our future 

cash interest payments or interest expense.

Our contractual obligations include purchase obligations that are enforceable and legally binding, and 

exclude contracts that we may cancel without penalty. We include our purchase obligations through the 

termination date specified in the respective agreement, even if the contract is renewable.

The table excludes certain obligations that could significantly affect our short- and long-term liquidity and 

capital resource needs. These items, which are listed below, have generally been excluded because the 

amount and timing of the related future cash payments are uncertain:

• Future payments of principal and interest related to debt securities of consolidated trusts held by third 

parties because the amount and timing of such payments are generally contingent upon the 

occurrence of future events and are therefore uncertain. These payments generally include payments 

of principal and interest we make to the holders of our guaranteed mortgage-related securities in the 

event a loan underlying a security becomes delinquent. We remove loans from pools underlying our 

PCs in certain circumstances, including when loans are 120 days or more delinquent, and retire the 

associated PC debt;

• Future cash payments associated with the liquidation preference of the senior preferred stock, the 

quarterly commitment fee (which has been suspended), and dividends on the senior preferred stock;

• Future cash settlements on derivative agreements not yet accrued, because the amount and timing of 

such payments are dependent upon items such as changes in interest rates;

• Future dividends on outstanding preferred stock (other than the senior preferred stock), because 

dividends on these securities are non-cumulative and because we are currently prohibited from 

paying dividends on these securities;

• Future cash payments related to the 4.2 basis points of each dollar of total new business purchases 

that we are required by the GSE Act to set aside and pay to certain housing funds, because the 

amount of such payments is dependent on the volume of our new business purchases and the timing 

of such payments is dependent, in part, on whether we have made, or could be required to make, a 

draw under the Purchase Agreement; and
Management's Discussion and Analysis Contractual Obligations

Freddie Mac 2016 Form 10-K 176

• The guarantee payments and commitments to advance funds pertaining to off-balance sheet 

arrangements.

(In millions) Total 2017 2018 2019 2020 2021 Thereafter

Other long-term debt(1) $285,226 $92,831 $71,392 $46,436 $13,274 $20,372 $40,921

Other short-term debt(1) 71,517 71,517 — — — — —

Interest payable(2) 30,328 11,115 3,274 2,525 1,996 1,864 9,554

Other contractual liabilities 

reflected on our 

consolidated balance 

sheets(3) 6,747 5,961 7 6 8 7 758

Purchase obligations:

Purchase 

commitments(4) 27,727 27,727 — — — — —

Other purchase 

obligations(5) 2,624 299 217 216 209 207 1,476

Lease obligations 39 11 9 9 6 3 1

Total specified contractual

obligations $424,208 $209,461 $74,899 $49,192 $15,493 $22,453 $52,710

(1) Represents par value. Callable debt is included in this table at its contractual maturity. For additional information about our 

debt, see Note 6.

(2) Includes estimated future interest payments on our short-term and long-term debt securities as well as the accrual of periodic 

cash settlements of derivatives, netted by counterparty. Also includes accrued interest payable recorded on our consolidated 

balance sheet.

(3) Includes (i) obligations related to our qualified and non-qualified defined contribution plans, retiree medical plan and other 

benefit plans; (ii) future cash payments due under our contractual obligations to make delayed equity contributions to LIHTC 

partnerships; and (iii) payables to the consolidated trusts established for the administration of cash remittances received 

related to the underlying assets of Freddie Mac mortgage-related securities.

(4) Purchase commitments represent our obligations to purchase loans and mortgage-related securities from third parties, most 

of which are accounted for as derivatives in accordance with the accounting guidance for derivatives and hedging.

(5) Primarily includes unconditional purchase obligations that are legally binding and that are subject to a cancellation penalty.
Management's Discussion and Analysis Off-Balance Sheet Arrangements

Freddie Mac 2016 Form 10-K 177

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain business arrangements that are not recorded on our consolidated balance sheets or 

that may be recorded in amounts that differ from the full contract or notional amount of the transaction 

and that may expose us to potential losses in excess of the amounts recorded on our consolidated 

balance sheets. See Note 3 for more information on our off-balance sheet securitization activities and 

other guarantees.

SECURITIZATION ACTIVITIES AND OTHER GUARANTEES

We have certain off-balance sheet arrangements related to our securitization activities involving 

guaranteed loans and mortgage-related securities, though most of our securitization activities are onbalance sheet. Our off-balance sheet arrangements related to these securitization activities primarily 

consist of K Certificates and SB Certificates. We also have off-balance sheet arrangements related to 

certain other securitization products and other mortgage-related guarantees.

Our maximum potential off-balance sheet exposure to credit losses relating to these securitization 

activities and guarantees is primarily represented by the UPB of the underlying loans and securities, 

which was $166.7 billion and $127.3 billion at December 31, 2016 and 2015, respectively.

As part of the guarantee arrangements pertaining to certain multifamily housing revenue bonds and 

securities backed by multifamily housing revenue bonds, we provided commitments to advance funds, 

commonly referred to as “liquidity guarantees,” which were $8.5 billion and $8.9 billion at December 31, 

2016 and 2015, respectively. These guarantees require us to advance funds to third parties that enable 

them to repurchase tendered bonds or securities that are unable to be remarketed. At both December 31, 

2016 and 2015, there were no liquidity guarantee advances outstanding.

Our exposure to losses on the transactions described above would be partially mitigated by the recovery 

we would receive through exercising our rights to the collateral backing the underlying loans and the 

available credit enhancements, which may include recourse and primary mortgage insurance with third 

parties. In addition, we provide for incurred losses each period on these guarantees within our provision 

for credit losses.

OTHER AGREEMENTS

We own interests in numerous entities that are considered to be VIEs for which we are not the primary 

beneficiary and which we do not consolidate in accordance with the accounting guidance for the 

consolidation of VIEs. These VIEs relate primarily to our investment activity in mortgage-related assets. 

Our consolidated balance sheets reflect only our investment in the VIEs, rather than the full amount of the 

VIEs’ assets and liabilities. 

As part of our credit guarantee business, we routinely enter into forward purchase and sale commitments 

for loans and mortgage-related securities. Some of these commitments are accounted for as derivatives. 

Their fair values are reported as either derivative assets, net or derivative liabilities, net on our 

consolidated balance sheets. For more information, see “Risk Management - Credit Risk - Counterparty 

Credit Risk - Derivative Counterparties” and Note 7. We also enter into purchase commitments primarily 

related to future guarantor swap transactions for single-family loans, and, to a lesser extent, commitments 

to purchase or guarantee multifamily loans. These non-derivative commitments totaled $267.4 billion and 
Management's Discussion and Analysis Off-Balance Sheet Arrangements

Freddie Mac 2016 Form 10-K 178

$258.4 billion in notional value at December 31, 2016 and 2015, respectively.

In connection with the execution of the Purchase Agreement, we, through FHFA, in its capacity as 

Conservator, issued a warrant to Treasury to purchase 79.9% of our common stock outstanding on a fully 

diluted basis on the date of exercise. See Note 9 for further information.
Management's Discussion and Analysis Critical Accounting Policies and Estimates

Freddie Mac 2016 Form 10-K 179

CRITICAL ACCOUNTING POLICIES AND 

ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make a number of 

judgments, estimates, and assumptions that affect the reported amounts within our consolidated financial 

statements. Certain of our accounting policies, as well as estimates we make, are critical, as they are 

both important to the presentation of our financial condition and results of operations and require 

management to make difficult, complex, or subjective judgments and estimates, often regarding matters 

that are inherently uncertain. Actual results could differ from our estimates, and the use of different 

judgments and assumptions related to these policies and estimates could have a material impact on our 

consolidated financial statements.

Our critical accounting policies and estimates relate to the single-family allowance for loan losses and fair 

value measurements. For additional information about our critical accounting policies and estimates and 

other significant accounting policies, as well as recently issued accounting guidance, see Note 1.

SINGLE-FAMILY ALLOWANCE FOR LOAN LOSSES

The single-family allowance for loan losses represents an estimate of probable incurred credit losses. The 

single-family allowance for loan losses pertains to all single-family loans classified as held-for-investment 

on our consolidated balance sheets.

Determining the appropriateness of the single-family allowance for loan losses is a complex process that 

is subject to numerous estimates and assumptions requiring significant management judgment about 

matters that involve a high degree of subjectivity. This process involves the use of models that require us 

to make judgments about matters that are difficult to predict, the most significant of which are the 

probability of default, prepayment, and loss severity. We regularly evaluate the underlying estimates and 

models we use when determining the single-family allowance for loan losses and update our assumptions 

to reflect our historical experience and current view of economic factors. See “Risk Factors - Operational 

Risks - We face risks and uncertainties associated with the models that we use to inform business and 

risk management decisions and for financial accounting and reporting purposes.”

We believe the level of our single-family allowance for loan losses is appropriate based on internal 

reviews of the factors and methodologies used. No single statistic or measurement determines the 

appropriateness of the allowance for loan losses. Changes in one or more of the estimates or 

assumptions used to calculate the single-family allowance for loan losses could have a material impact on 

the loan loss reserves and provision for credit losses.

Most single-family loans are aggregated into pools based on similar risk characteristics and measured 

collectively using a statistically based model that evaluates a variety of factors affecting collectability, 

including but not limited to current LTV ratios, trends in home prices, loan product type, delinquency/

default status and history, and geographic location. Inputs used by the model are regularly updated for 

changes in the underlying data, assumptions, and market conditions. We review the output of this model 

by considering qualitative factors such as macroeconomic and other factors to see whether the model 

outputs are consistent with our expectations. Management adjustments may be necessary to take into 

consideration external factors and current economic events that have occurred but that are not yet 

reflected in the factors used to derive the model outputs. Significant judgment is exercised in making 
Management's Discussion and Analysis Critical Accounting Policies and Estimates

Freddie Mac 2016 Form 10-K 180

these adjustments. 

Some examples of the qualitative factors considered include: 

• Regional housing trends; 

• Applicable home price indices; 

• Unemployment and employment dislocation trends; 

• The effects of changes in government policies and programs; 

• Industry trends; 

• Consumer credit statistics; and

• Third-party credit enhancements.

The inability to realize the benefits of our loss mitigation activities, a lower realized rate of seller/servicer 

repurchases, declines in home prices, deterioration in the financial condition of our mortgage insurers, or 

increases in delinquency rates would cause our losses to be significantly higher than those currently 

estimated.

Individually impaired single-family loans include loans that have undergone a TDR and are measured for 

impairment as the excess of our recorded investment in the loan over the present value of the expected 

future cash flows. Our expectation of future cash flows incorporates many of the judgments indicated 

above.

FAIR VALUE MEASUREMENTS

We use fair value measurements for the initial recording of certain assets and liabilities and periodic 

remeasurement of certain assets and liabilities on a recurring or non-recurring basis. Assets and liabilities 

within our consolidated financial statements measured at fair value include: 

• Mortgage-related and non-mortgage related securities; 

• Certain loans held-for-sale; 

• Derivative instruments; 

• Certain debt securities of consolidated trusts held by third parties and certain other debt; and 

• Certain REO assets. 

The accounting guidance for fair value measurements establishes a framework for measuring fair value, 

and also establishes a three-level fair value hierarchy that prioritizes the inputs to valuation techniques 

used to measure fair value based on the assumptions a market participant would use at the measurement 

date. Fair value measurements under this hierarchy are distinguished among quoted market prices, 

observable inputs, and unobservable inputs. The measurement of fair value requires management to 

make judgments and assumptions. The process for determining fair value using unobservable inputs is 

generally more subjective and involves a higher degree of management judgment and assumptions than 

the measurement of fair value using observable inputs. These judgments and assumptions may have a 

significant effect on our measurements of fair value, and the use of different judgments and assumptions, 

as well as changes in market conditions, could have a material effect on our consolidated statements of 

comprehensive income and consolidated balance sheets. See Note 13 for additional information 

regarding fair value hierarchy and measurements, valuation risk and controls over fair value 

measurement.
Risk Factors Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 181

RISK FACTORS

The following section discusses material risks and uncertainties that could adversely affect our business, 

financial condition, results of operations, cash flows, reputation, strategies and/or prospects.

CONSERVATORSHIP AND RELATED MATTERS

Freddie Mac’s future is uncertain.

It is possible and perhaps likely that future legislative or regulatory action will materially affect our role, 

business model, structure, and results of operations. Some or all of our functions could be transferred to 

other institutions, and we could cease to exist as a stockholder-owned company, or at all. If any of these 

events occur, our shares could further diminish in value, or cease to have any value. Our stockholders 

may not receive any compensation for such loss in value.

Several bills were introduced in the 114th Congress, which adjourned in January 2017, concerning the 

future status of Freddie Mac, Fannie Mae, and the mortgage finance system, including bills which 

provided for the wind down of Freddie Mac and Fannie Mae, modification of the terms of the Purchase 

Agreement, or an increase in credit risk transfer transactions. None of these bills was enacted. It is likely 

that similar or new bills will be introduced and considered in the 115th Congress that began in January 

2017. 

The conservatorship is indefinite in duration. The timing, likelihood, and circumstances under which we 

might emerge from conservatorship are uncertain. Under the Purchase Agreement, Treasury would be 

required to consent to the termination of the conservatorship, other than in connection with receivership, 

and there can be no assurance it would do so. Even if the conservatorship is terminated, we would 

remain subject to the Purchase Agreement and the terms of the senior preferred stock. It is possible that 

the conservatorship could end with our being placed into receivership.

Because Treasury holds a warrant to acquire nearly 80% of our common stock for nominal consideration, 

we could effectively remain under the control of the U.S. government even if the conservatorship is ended 

and the voting rights of common stockholders are restored. If Treasury exercises the warrant, the 

ownership interest in the company of our existing common stockholders will be substantially diluted. 

In the past several years, a number of lawsuits were filed against the U.S. government, Freddie Mac and 

Fannie Mae challenging certain government actions related to the conservatorship and the Purchase 

Agreement. This may add to the uncertainty surrounding our future.

For more information, see “MD&A - Regulation and Supervision - Legislative and Regulatory 

Developments,” “Legal Proceedings,” and Note 14.

We cannot retain capital from the earnings generated by our business operations (other than a 

limited amount that will decrease from $600 million in 2017 to zero in 2018 and thereafter), which 

increases the likelihood that we may request additional draws from Treasury under the Purchase 

Agreement in future periods.

We cannot retain capital from the earnings generated by our business operations, as a result of the net 

worth sweep dividend. This increases the likelihood that we will require draws in future periods, 
Risk Factors Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 182

particularly as the required Capital Reserve Amount declines from $600 million in 2017 to zero in 2018. A

variety of factors could influence whether we could require a draw, including the following:

• Deterioration of economic conditions, including increased levels of unemployment and declines in 

home prices or family incomes;

• Adverse changes in interest rates, yield curves, implied volatility or market spreads, which could 

affect our financial assets and liabilities, including derivatives, and increase realized and unrealized 

losses recorded in earnings or AOCI;

• The required reductions in the size of our mortgage-related investments portfolio, reductions of higher 

yielding assets, or other limitations on our investment activities that reduce our earnings capacity;

• The success of any transactions or other steps we may take intended to help reduce earnings 

volatility and address some of the measurement differences between our GAAP financial results and 

the underlying economics of our business, including the adoption of hedge accounting;

• Restrictions on our single-family guarantee activities that could reduce our income from these 

activities;

• Restrictions on the volume of multifamily business we may conduct or other limits on multifamily 

business activities that could reduce our income from these activities;

• Adverse changes in our liquidity or funding costs, or limitations on our access to public debt markets;

• A failure of one or more of our major counterparties to meet their obligations to us;

• Changes in accounting policies, practices, or guidance (for example, FASB’s new accounting 

standards update related to the measurement of credit losses on financial instruments will increase 

(perhaps substantially) our provision for credit losses in the period of adoption);

• The effects of our foreclosure prevention and loss mitigation efforts;

• Changes in housing or economic conditions, legislation, or other factors that affect our assessment of 

our ability to realize our net deferred tax asset. If a valuation allowance on our net deferred tax asset 

were established, it could significantly increase our tax provision for that period;

• A reduction in corporate tax rates would require us to measure our net deferred tax asset using the 

new rate in the period in which the rate change is enacted. This would result in a one-time charge 

through the tax provision; or

• Changes in business practices resulting from legislative and regulatory developments or direction 

from our Conservator.

Additional draws, which will increase the already substantial liquidation preference of our senior preferred 

stock and decrease the amount of Treasury's remaining commitment under the Purchase Agreement, 

may add to the uncertainty regarding our long-term financial sustainability.

FHFA controls our business activities. The terms of the Purchase Agreement and the senior 

preferred stock significantly limit our business activities. We may be required to take actions that 

reduce our profitability, are difficult to implement, or expose us to additional risk.

We are under the control of FHFA, as our Conservator, and are not managed to maximize stockholder 

returns. FHFA determines our strategic direction. We face a variety of different, and sometimes 

competing, business objectives and FHFA-mandated activities (e.g., the initiatives we are pursuing under 

the Conservatorship Scorecards). It may be difficult for us to devote sufficient resources and management 

attention to these multiple priorities. Some of the activities FHFA has required us to undertake are costly 

and difficult to implement, such as building the common securitization platform.

FHFA has required us to make changes to our business that have adversely affected our financial results. 
Risk Factors Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 183

FHFA could require us to make additional changes at any time. For example, FHFA may require us to 

undertake activities that:

• Reduce our profitability;

• Expose us to additional credit, market, funding, operational, and other risks; or

• Provide additional support for the mortgage market to serve our public mission, but adversely affect 

our financial results.

From time to time, FHFA and Treasury have prevented us from engaging in business activities or 

transactions that we believe would be profitable, and they may do so again in the future. For example, 

FHFA could limit the amount of securities we could sell or further limit the size of our mortgage-related 

investments portfolio or the amount of new multifamily business we may obtain.

The Purchase Agreement and the terms of the senior preferred stock also place significant restrictions on 

our ability to manage our business, including limiting:

• The amount of indebtedness we may incur;

• The size of our mortgage-related investments portfolio; and

• Our ability to pay dividends, transfer certain assets, raise capital, and pay down the liquidation 

preference of the senior preferred stock. 

The Purchase Agreement prohibits us from taking a variety of actions without Treasury's consent. 

Treasury has the right to withhold its consent for any reason. The warrant held by Treasury, the 

restrictions on our business under the Purchase Agreement, and the senior status and net worth dividend 

provisions of the senior preferred stock could adversely affect our ability to attract capital from the private 

sector in the future, should we be in a position to do so.

If FHFA placed us into receivership, our assets would be liquidated. The liquidation proceeds 

might not be sufficient to pay claims outstanding against Freddie Mac, repay the liquidation 

preference of our preferred stock, or make any distribution to our common stockholders.

We can be put into receivership at the discretion of the Director of FHFA at any time for a number of 

reasons set forth in the GSE Act. Several bills considered by Congress in the past several years provided 

for Freddie Mac to be placed into receivership. In addition, FHFA could be required to place us into 

receivership if Treasury were unable to provide us with funding requested under the Purchase Agreement 

to address a deficit in our net worth. Treasury might not be able to provide the requested funding if, for 

example, the U.S. government were not fully operational because Congress had failed to approve funding 

or the government had reached its borrowing limit. For more information, see "MD&A - Regulation and 

Supervision - Federal Housing Finance Agency - Receivership."

Being placed into receivership would terminate the conservatorship. The purpose of receivership is to 

liquidate our assets and resolve claims against us. The appointment of FHFA as our receiver would 

terminate all rights and claims that our stockholders and creditors might have against our assets or under 

our Charter arising as a result of their status as stockholders or creditors, other than the potential ability to 

be paid upon our liquidation. 

If our assets were liquidated, the liquidation proceeds might not be sufficient to pay the secured and 

unsecured claims against us (including claims on our guarantees), repay the liquidation preference on 

any series of our preferred stock, or make any distribution to our common stockholders. The GSE Act 
Risk Factors Conservatorship and Related Matters

Freddie Mac 2016 Form 10-K 184

provides that, if we were placed into receivership, the receiver would hold the mortgages underlying our 

mortgage-related securities (and the payments thereon) for the benefit of the holders of those securities. 

However, payments on the mortgages underlying our mortgage-related securities might not be sufficient 

to make full payments of principal and interest on the securities. In that event, if we were unable to fulfill 

our guarantee, the holders of our mortgage-related securities would experience delays in receiving 

payments on the securities because the relevant systems are not designed to make partial payments.

Proceeds would be available to repay the liquidation preference of other series of preferred stock only 

after paying the secured and unsecured claims of the company, the administrative expenses of the 

receiver and the liquidation preference of the senior preferred stock. Only after the liquidation preference 

of all series of preferred stock is repaid would any proceeds be available for distribution to the holders of 

our common stock.
Risk Factors Credit Risks

Freddie Mac 2016 Form 10-K 185

CREDIT RISKS

We are subject to mortgage credit risks, including mortgage credit risk relating to off-balance 

sheet arrangements; credit costs related to these risks could adversely affect our financial 

results.

Mortgage credit risk is the risk that a borrower will fail to make timely payments on a loan we own or 

guarantee. This exposes us to the risk of credit losses and credit-related expenses, which could adversely 

affect our financial results. We are primarily exposed to mortgage credit risk with respect to the singlefamily and multifamily loans and securities reflected as assets on our consolidated balance sheets that 

we own or guarantee. We are also exposed to mortgage credit risk with respect to guaranteed securities 

and guarantee arrangements that are not reflected as assets on our consolidated balance sheets. This 

exposure primarily relates to K Certificates and SB Certificates. We also have off-balance sheet 

arrangements related to certain other securitization products and other mortgage-related guarantees.

We continue to have a number of loans in our single-family credit guarantee portfolio with certain 

characteristics, such as Alt-A loans, interest-only loans, option ARM loans, loans with original LTV ratios 

greater than 90%, and loans to borrowers with credit scores less than 620 at the time of origination, that 

expose us to greater credit risk than other types of loans. See “MD&A - Risk Management - Credit Risk - 

Single-Family Mortgage Credit Risk - Monitoring Loan Performance and Characteristics of the Singlefamily Credit Guarantee Portfolio and Individual Sellers and Servicers."

Our efforts to increase access to single-family mortgage credit, including our expanded affordable 

housing program and our duty to serve underserved markets, expose us to increased mortgage credit 

risk. 

Our credit risk transfer transactions may not be available to us in adverse economic conditions. 

These transactions also lower our profitability.

We are increasingly using credit risk transfer transactions to mitigate some of our potential credit losses. 

Our ability to transfer credit risk (and the cost to us of doing so) could change rapidly, depending on 

market conditions. In particular, it is possible that there will not be sufficient investor demand for credit risk 

transfer transactions during a housing downturn. Some of our credit risk transfer transactions are new, 

and it is uncertain if there will be adequate demand for them over the long term. Some of these 

transactions use novel structures that have not yet been tested in adverse market conditions; it is 

possible that, under such conditions, they will provide less protection than we expect. These transactions 

may not prevent us from incurring substantial losses in adverse market conditions. These transactions 

have termination dates that are earlier than the maturities of the related loans, and losses on the loans 

occurring beyond the terms of the transactions are not covered. The costs associated with these 

transactions are significant and are expected to increase. There could be a significant difference in time 

between when we recognize a credit loss in earnings and when we recognize the related recovery in 

earnings, and this lag could adversely affect our financial results in the earlier period. For more 

information regarding these transactions, see Note 4. Some of these transactions are complex, which 

may increase our exposure to operational risk.
Risk Factors Credit Risks

Freddie Mac 2016 Form 10-K 186

We face significant risks related to our delegated underwriting process for single-family loans, 

including risks related to data accuracy and mortgage fraud. Recent changes to the process could 

increase our risks.

We delegate to our sellers the underwriting for the single-family loans we purchase or securitize. Our 

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

and warrant to us that the loans they deliver to us meet these standards. We do not independently verify 

most of the information provided to us before we purchase or securitize a loan. This exposes us to the 

risk that one or more of the parties involved in a transaction (such as the borrower, seller, broker, 

appraiser, title agent, loan officer, or lender) misrepresented the facts about the underlying property, 

borrower, or loan, or engaged in fraud. 

We review a sample of these loans after we purchase them to determine if they are in compliance with 

our contractual standards. However, our review may not detect any misrepresentations by the parties 

involved in the transaction, deter loan fraud, or reduce our exposure to these risks. 

We can exercise certain contractual remedies, including requiring repurchase of the loan, for loans that 

do not meet our standards. However, in recent years, at the direction of FHFA, we have significantly 

revised our representation and warranty framework (including changes to remedies for certain defects) to 

relieve sellers of certain repurchase obligations in specific cases with respect to single-family loans. As a 

result, we may face greater exposure to credit and other losses because our ability to seek recovery or 

repurchase from sellers under this revised framework is more limited. Under the revised framework, it is 

critical that we identify breaches of representations and warranties early in the life of the loan. We recently 

announced that we expect to offer representation and warranty relief for certain mortgage loans in early 

2017 through our Loan Advisor Suite technology solution. We are enhancing our tools and processes 

designed to do this. This change in practice may present operational and systems challenges. Once fully 

implemented, there is a risk that the enhanced tools and processes will not enable us to identify all 

breaches in a timely manner. For more information, see “MD&A - Risk Management - Credit Risk - SingleFamily Mortgage Credit Risk - Maintaining Policies and Procedures for New Business Activity, Including 

Prudent Underwriting Standards.”

We are exposed to significant credit risk related to loans with lower credit quality that back the 

non-agency mortgage-related securities we hold in our mortgage-related investments portfolio.

Our investments in non-agency mortgage-related securities include securities that are backed by 

subprime, Alt-A, option ARM, and manufactured housing loans, and home equity lines of credit. The credit 

performance of these loans remains weak. Over time, we will likely add additional securities to the 

population of non-agency mortgage-related securities that we intend to sell. As we do so, we will be 

required to immediately recognize any unrealized losses on such securities in earnings. Our net worth 

has at times been adversely affected by declines in the fair value of these securities. We may experience 

additional fair value declines in the future due to a number of factors, such as increased default rates and 

loss severities on the loans underlying these securities. The quality of the servicing performed on the 

underlying loans can significantly affect the timing and amount of losses we recognize on these securities. 

For more information regarding these risks, see “MD&A - Risk Management - Credit Risk - MortgageRelated Securities Credit Risk,” "Single-Family Mortgage Credit Risk," and "Counterparty Credit Risk - 

Other Counterparties - Mortgage related-security issuers and servicers."
Risk Factors Credit Risks

Freddie Mac 2016 Form 10-K 187

Declines in national or regional home prices or other adverse changes in the housing market 

could negatively affect our business and financial results.

Our financial results and business volumes can be negatively affected by declines in home prices and 

other adverse changes in the housing market. This could: 

• Reduce our actual return or result in losses on new single-family guarantee business, as actual 

default rates could be higher than we expected when we issued the guarantee;

• Cause us to hedge prepayment risk incorrectly;

• Result in declines in net worth due to fair value declines on our investments in non-agency mortgagerelated securities;

• Negatively affect loan pricing, which could cause us to change our disposition strategies for our 

single-family unsecuritized loans; or

• Increase our losses on dispositions of REO properties.

For more information regarding these risks, see “MD&A - Risk Management - Credit Risk - MortgageRelated Securities Credit Risk.”

Our loan purchases and guarantee issuances are closely tied to the rate of growth in total outstanding 

U.S. residential mortgage loan debt, the size of the U.S. residential mortgage market, and the amount of 

new mortgage loan originations. Total residential mortgage loan debt increased approximately 1.7% in the 

first nine months of 2016 (the most recent data available) and approximately 1.0% in 2015.

The proportion of our refinance loan purchases to total loan purchases could decrease if mortgage 

interest rates increase. This could increase our exposure to mortgage credit risk, as refinance loans 

(particularly those that do not involve "cash-out") generally present less credit risk than purchase loans. 

Some of our seller/servicer counterparties are highly dependent on refinance loan volumes. A decrease in 

refinance loan volumes could adversely affect these counterparties, which could increase our exposure to 

counterparty credit risk.

While the multifamily market has experienced strong rent growth and occupancy trends in the past 

several years, these trends are not likely to continue at their current pace. New supply of multifamily 

housing has been increasing in recent periods and could potentially outpace demand, which could result 

in excess supply and rising vacancy rates. Any softening of multifamily markets could cause 

delinquencies and credit losses relating to our multifamily activities to increase beyond our current 

expectations.

We are exposed to counterparty credit risk with respect to our business counterparties. Our 

financial results may be adversely affected if one or more of our counterparties fail to meet their 

obligations to us. 

We depend on our institutional counterparties to provide services that are critical to our business. We face 

the risk that one or more of our counterparties may fail to meet their contractual obligations to us. Our 

important counterparties include seller/servicers, mortgage, bond, and credit insurers, and counterparties 

to derivatives and short-term lending and other funding transactions (i.e., cash and other investments 

transactions).

Many of our major counterparties provide several types of services to us. The concentration of our 
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Freddie Mac 2016 Form 10-K 188

exposure to our counterparties remains high, and we continue to face challenges in reducing our risk 

concentrations with counterparties. Efforts we take to reduce exposure to financially weak counterparties 

could concentrate our exposure to other counterparties, and increase our costs and reduce our revenue. 

In recent years, challenging market conditions have, at times, adversely affected the liquidity and financial 

condition of our counterparties, and some of our major counterparties have failed. Similar events may 

occur in future periods. Many of our counterparties are subject to increasingly complex regulatory 

requirements and oversight, which place additional stress on their resources and may affect their ability or 

willingness to do business with us.

Credit risk related to seller/servicers 

We are exposed to credit risks from the seller/servicers of our single-family loans, as described below. 

• A decline in servicing performance - A decline in a servicer’s performance, such as delayed 

foreclosures or missed opportunities for loan modifications, could significantly affect our ability to 

mitigate credit losses and could affect the overall credit performance of our single-family credit 

guarantee portfolio. A large volume of seriously delinquent loans and the complexity of the servicing 

function are significant factors contributing to the risk of a decline in performance by servicers. We 

could be adversely affected if our servicers lack appropriate controls, experience a failure in their 

controls, or experience a disruption in their ability to service loans, including as a result of legal or 

regulatory actions or ratings downgrades. We are also exposed to fraud by third parties in the loan 

servicing function, particularly with respect to short sales and other dispositions of non-performing 

assets.

We could attempt to mitigate our exposure to a poorly performing servicer by terminating its right to 

service our loans; however, we may not be able to find successor servicers who have the capacity to 

service the affected loans and who are also willing to assume the representations and warranties of 

the terminated servicer. Terminating a large servicer may not be feasible because of the operational 

and capacity challenges related to transfers of large servicing portfolios. If we replace a servicer, we 

would likely incur costs and potential increases in servicing fees.

• A failure by seller/servicers to fulfill their obligations to repurchase loans or indemnify us as a 

result of breaches of representations and warranties - While we may have the contractual right to 

require a seller or servicer to repurchase loans from us, it may be difficult, expensive, and timeconsuming to enforce such repurchase obligations. We could enter into settlements to resolve 

repurchase obligations; however, the amounts we receive under any such settlements may be less 

than the losses we ultimately incur on the underlying loans.

Under our revised representation and warranty framework, as directed by FHFA, we are required in 

some cases to utilize an alternative remedy, such as indemnification, in lieu of repurchase. The 

amount we recover under an alternative remedy may be less than the amount we could have 

recovered in a repurchase.

• Increased exposure to non-depository and smaller financial institutions - Over the last several 

years, we have acquired a greater portion of our single-family business volume from non-depository 

and smaller financial institutions. In addition, a large and increasing volume of our single-family loans 

are serviced by non-depository financial institutions. These non-depository and smaller financial 

institutions may not have the same financial strength or operational capacity, or be subject to the 

same level of regulatory oversight, as our large single-family loan seller and servicer counterparties 
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Freddie Mac 2016 Form 10-K 189

(which are mostly depository institutions). As a result, we face increased risk that these counterparties 

could fail to perform their obligations to us. In particular, non-depository servicers rapidly grew their 

servicing portfolios in the last several years. This appears to have resulted in operational strains that 

have subjected these servicers to regulatory scrutiny. This rapid growth could expose us to increased 

risks if any operational strain adversely affects these servicers’ servicing performance or their 

financial strength. In addition, if these servicers reduce their servicing portfolios, there may be a 

constraint in overall servicing capacity. 

Our seller/servicers also have a significant role in servicing loans in our multifamily mortgage portfolio. We 

are exposed to the risk that multifamily seller/servicers could come under financial pressure, which could 

potentially cause a decline in their servicing performance.

For more information, see “MD&A - Risk Management - Credit Risk - Counterparty Credit Risk - Sellers 

and Servicers.” 

Credit risk related to counterparties to derivatives, short-term lending and other transactions 

We have significant exposure to institutions in the financial services industry relating to derivatives, 

funding, short-term lending, securities and other transactions (e.g., cash and other investments 

transactions). These transactions are critical to our business, including our ability to: 

• Manage interest rate risk and other risks related to our investments in mortgage-related assets;

• Fund our business operations; and

• Service our customers. 

We face the risk of operational failure of the clearing members, exchanges, clearinghouses, or other 

financial intermediaries we use to facilitate derivatives, short-term lending and other transactions. If a 

clearing member or clearinghouse were to fail, we could lose some or all of the collateral or margin 

posted with the clearing member or clearinghouse. 

We are a clearing member of the clearinghouse through which we execute mortgage-related securities 

transactions. As a result, we could be subject to losses because we are required to participate in the 

coverage of losses incurred by other clearing members if they fail to meet their obligations to the 

clearinghouse.

If our counterparties to short-term lending transactions fail, we are exposed to losses to the extent the 

transaction is unsecured or the collateral posted to us is insufficient. 

For more information, see “MD&A - Risk Management - Credit Risk - Counterparty Credit Risk - Other 

Counterparties - Cash and Other Investments Counterparties” and “- Derivative Counterparties.”

Credit risk related to mortgage, bond, and credit insurers

It is unlikely that we will receive full payment of our claims from several of the mortgage insurers of our 

single-family loans and bond insurers of certain of our non-agency mortgage-related securities that we 

purchased prior to 2009, as these insurers are insolvent or are paying only a portion of our claims under 

our mortgage and bond insurance policies. For more information, see Note 12.

If a mortgage insurer fails to meet its obligations to reimburse us for claims, our credit losses could 

increase. In addition, if a regulator determines that a mortgage insurer lacks sufficient capital to pay all 
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Freddie Mac 2016 Form 10-K 190

claims when due, the regulator could take action that might affect the timing and amount of claim 

payments made to us. We face similar risks with respect to our counterparties in our ACIS and Deep MI 

credit risk transfer transactions. 

We cannot differentiate pricing based on the strength of a mortgage insurer or revoke a mortgage 

insurer's status as an eligible insurer without FHFA approval. Further, we do not select the mortgage 

insurance provider on a specific loan, because the selection is made by the lender at the time the loan is 

originated. We continue to acquire new loans with mortgage insurance from mortgage insurers that have 

credit ratings below investment grade.

If a bond insurer were to become insolvent, it is likely that we would not fully collect our claims from the 

insurer and that any such claims payments could be delayed significantly. This would affect our ability to 

recover certain unrealized losses on our investments in non-agency mortgage-related securities. We 

evaluate the expected recovery from bond insurance policies as part of our impairment analysis for our 

investments in securities. If a bond insurer is not expected to meet its obligations, we could recognize 

additional impairment of those securities.

For more information, see “MD&A - Risk Management - Credit Risk - Counterparty Credit Risk - 

Mortgage, Bond, and Credit Insurers.”

Our loss mitigation activities may be costly and may adversely affect our financial results.

Our loss mitigation strategies may not be successful. The costs we incur related to loan modifications and 

other loss mitigation activities have been, and could continue to be, significant. For example, we bear the 

full cost of the monthly payment reductions related to modifications of loans we own or guarantee, as well 

as all applicable servicer incentive fees for our mortgage modifications.

We could be required or elect to make changes to our loss mitigation activities that could make these 

activities more costly to us. For example, we could be required to use principal forgiveness on a broad 

basis to reduce payments for borrowers and to bear some or all of the costs of such reductions.

Loan modification initiatives, particularly any future focus on principal forgiveness on a broad basis, could 

have the potential to change borrower behavior and loan underwriting. Principal reductions may create an 

incentive for borrowers who are current on their loans to become delinquent in order to receive a principal 

reduction. 

We have loans on trial period plans as required under certain loan modification programs. Some of these 

loans will fail to complete the trial period or fail to qualify for our other borrower assistance programs. For 

these loans, the trial period will have effectively delayed the foreclosure process and could increase our 

losses.

Many of our HAMP loans, which initially were set at a below-market interest rate, have provisions for the 

interest rates to increase gradually until they reach the market rate that was in effect at the time of the 

modification. The resulting increase in the borrowers' payments may increase the risk that these 

borrowers will default.

The type of loss mitigation activities we pursue could affect prepayments on our PCs and REMICs, which 

could affect the value of these securities or the earnings from mortgage-related assets in our Investments 

segment mortgage investments portfolio. In addition, loss mitigation activities may adversely affect our 

ability to securitize, resecuritize and sell the loans subject to those activities (e.g., investors may become 
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Freddie Mac 2016 Form 10-K 191

unwilling to purchase securities backed by modified single-family loans).

The effect of HARP and other refinance initiatives of the GSEs on prepayment expectations is difficult to 

estimate, and we could experience declines in the fair values of certain agency security investments and 

lower net interest yields over time on other mortgage-related investments. The difficulty in estimating the 

effect of prepayments could also adversely affect our ability to hedge our mortgage-related investments.

We devote significant resources to our borrower assistance initiatives. The size and scope of these efforts 

may also limit our ability to pursue other business opportunities or corporate initiatives.

For more information on our loss mitigation activities, see “MD&A - Our Business Segments - SingleFamily Guarantee - Loss Mitigation Activities” and “MD&A - Risk Management - Credit Risk - SingleFamily Mortgage Credit Risk - Engaging in Loss Mitigation Activities.”

We have been, and will continue to be, adversely affected by delays and deficiencies in the singlefamily foreclosure process.

The average length of time for foreclosure of a Freddie Mac loan has significantly increased since 2008, 

particularly in states that require a judicial foreclosure process, and may further increase. Delays in the 

foreclosure process could:

• Cause our expenses to increase. For example, properties awaiting foreclosure could deteriorate until 

we acquire them, resulting in increased expenses to repair and maintain the properties; 

• Adversely affect the values of, and our losses on, the non-agency mortgage-related securities we 

hold; and

• Adversely affect trends in home prices regionally or nationally, which could adversely affect our 

financial results.

We may experience further losses relating to our assets that could materially adversely affect our 

financial results, liquidity and net worth.

We may experience additional losses relating to our assets, including those that are currently AAA-rated, 

and the fair values of our assets may decline in the future. This could adversely affect our financial 

results, liquidity, and net worth. We may decide to pursue certain mortgage-related investments portfolio 

strategies that could result in the immediate recognition of losses, such as paying a premium to 

repurchase debt, increasing the amount of non-agency mortgage-related securities we intend to sell, or 

engaging in certain asset structuring activities that result in the write-off of premiums.
Risk Factors Market Risk

Freddie Mac 2016 Form 10-K 192

MARKET RISK

Changes in interest rates could negatively affect the fair value of financial assets and liabilities, 

our results of operations and our net worth.

Our investment and credit guarantee activities in single-family and multifamily mortgage assets expose us 

to market risk, including prepayment risk. 

Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary policies 

of the federal government and its agencies. Federal Reserve policies directly and indirectly influence the 

yield on our interest-earning assets and the cost of our interest-bearing liabilities. Interest rates can also 

fluctuate as a result of geopolitical events or changes in general economic conditions, including events or 

conditions that alter investor demand for Treasury or other fixed-income securities. 

Changes in interest rates could adversely affect the cash flows and prepayment rates on assets that we 

own and related debt and derivatives. We incur costs in connection with our efforts to manage these risks. 

In addition, changes in interest-rates could adversely affect the prepayment rate on the loans that we 

guarantee. For example,

• When interest rates decrease, borrowers are more likely to prepay their loans by refinancing them at 

a lower rate. An increased likelihood of prepayment on the loans underlying our mortgage-related 

securities may adversely affect the value of these securities.

• When interest rates increase:

• Borrowers with higher risk adjustable-rate loans may have fewer opportunities to refinance into 

fixed-rate loans;

• A borrower's payment on additional debt obligations (such as home equity lines of credit and 

second liens) that have adjustable payment terms may increase, which in turn increases the risk 

that the borrower may default on a loan we own or guarantee;

• Our credit losses from loans with adjustable payment terms may increase as borrower payments 

increase at their reset dates, which increases the borrower’s risk of default; and

• Other-than-temporary impairments on our investments in non-agency mortgage-related securities 

could increase due to a reduction in the benefit expected from structural credit enhancements on 

these securities.

Our financial results can be significantly affected by changes in interest rates and changes in yield curves, 

as certain of our assets and liabilities are recorded at fair value. Our interest rate risk management 

activities are designed to reduce our economic exposure to changes in interest rates to a low level as 

measured by our models. However, the accounting treatment for those assets and liabilities, including 

derivatives, creates volatility in our earnings when interest rates fluctuate as some assets and liabilities 

are measured at amortized cost and some are measured at fair value, while all derivatives are measured 

at fair value. This volatility generally is not indicative of the underlying economics of our business.

In the first quarter of 2017, we began using hedge accounting for certain single-family mortgage loans, 

which is intended to partially reduce the interest-rate volatility in our GAAP earnings by eliminating a 

portion of the measurement differences between our GAAP financial results and the underlying 

economics of our business. Our hedge accounting program is complex and unique in the industry. We 
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Freddie Mac 2016 Form 10-K 193

may fail to properly implement this program and related changes to systems and processes. Our hedges 

may fail in any given future period, which could leave us exposed to significant earnings volatility in that 

period and increase the risk that we will need a draw from Treasury.

Changes in market spreads could materially affect our results of operations and net worth.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default 

expectations, and the level of uncertainty in the market for a particular asset class, may cause 

fluctuations in market spreads (also referred to as OAS). Our financial results and net worth can be 

significantly affected by changes in market spreads, especially results driven by financial instruments that 

are measured at fair value. These instruments include trading securities, available-for-sale securities, 

loans held-for-sale, and loans and debt with the fair value option elected. 

A widening of the market spreads on a given asset is typically associated with a decline in the fair value of 

that asset, which may adversely affect our near-term financial results and net worth. While wider market 

spreads may create favorable investment opportunities, our ability to take advantage of any such 

opportunities is limited due to various restrictions on our mortgage-related investments portfolio activities. 

See “MD&A - Conservatorship and Related Matters - Limits on Our Mortgage-Related Investments 

Portfolio and Indebtedness.”

A narrowing or tightening of the market spreads on a given asset is typically associated with an increase 

in the fair value of that asset. Narrowing market spreads may reduce the number of attractive investment 

opportunities in loans and mortgage-related securities, and could increase the cost of our activities to 

support the liquidity and price performance of our PCs. Consequently, a tightening of the market spreads 

on our assets may adversely affect our future financial results and net worth.

Changes in market spreads also affect the fair value of our debt with the fair value option elected. A

narrowing or tightening of the market spreads on a given liability is typically associated with an increase in 

the fair value of that liability, which is recognized as a loss by us. 

Negative values for certain interest rate indices could have an adverse effect on our operational 

and interest-rate risk management processes.

Freddie Mac purchases and securitizes various types of ARMs, and issues, invests in, and hedges with 

various types of adjustable rate financial instruments. Interest rates have been at historically low levels for 

a considerable period of time, and in certain countries have been negative. If the interest rate indices 

used to adjust our ARMs and other financial instruments (primarily LIBOR and Constant Maturity Treasury 

indices of various durations) were to become negative, our operational and interest-rate risk management 

processes could be adversely affected. We are evaluating the capability of our existing systems, and 

those of our customers and counterparties, to process negative interest rates. If these systems cannot 

process such rates appropriately, we may experience disruptions of our business operations, which could 

result in adverse effects on our relationships with customers, counterparties, and investors, damage to 

our reputation, and legal or regulatory actions. In addition, in the event the relevant index has a negative 

value, the terms of the adjustable-rate loans (originated prior to our October 2016 implementation of a 

new uniform ARM note) underlying certain of our outstanding ARM securities products may result in our 

having to pay a greater amount of interest to securities investors than we are entitled to receive on the 

underlying mortgages. See “MD&A - Risk Management - Market Risk” for a discussion of the implications 

of this issue for our measurement and management of interest-rate risk.
Risk Factors Operational Risks

Freddie Mac 2016 Form 10-K 194

OPERATIONAL RISKS

A failure in our operational systems or infrastructure, or those of third parties, could impair our 

liquidity, disrupt our business, damage our reputation, and cause losses.

We face significant levels of operational risk due to a variety of factors, including the complexity of our 

business operations and the amount of change to our core systems required to keep pace with regulatory 

and other requirements and business initiatives. 

Shortcomings or failures in our internal processes, people or systems, or those of third parties with which 

we interact, could lead to impairment of our liquidity, financial and economic loss, errors in our financial 

statements, disruption of our business (e.g., issuing mortgage and/or debt securities), liability to 

customers, further legislative or regulatory intervention, or reputational damage. We have certain systems 

that require manual support and intervention, which may lead to heightened risk of system failures. Our 

business is highly dependent on our ability to process a large number of transactions on a daily basis and 

manage and analyze significant amounts of information, much of which is provided by third parties. The 

transactions we process are complex and are subject to various legal, accounting, and regulatory 

standards. The types of transactions we process and the standards relating to those transactions can 

change rapidly in response to external events, such as the implementation of government-mandated 

programs and changes in market conditions. Our financial, accounting, data processing, or other 

operating systems and facilities may fail to operate properly or become disabled, adversely affecting our 

ability to process these transactions. Our systems may contain design flaws. The information provided by 

third parties may be incorrect, or we may fail to properly manage or analyze it. The inability of our 

systems to accommodate an increasing volume of transactions or new types of transactions or products 

could constrain our ability to pursue new business initiatives or improve existing business activities. Our 

connectivity with our customers and counterparties continues to increase, which increases our risk 

exposure with respect to an operational failure of our customers' or counterparties' systems.

We have developed, and expect to continue to develop, software tools for use by our customers in the 

customers’ loan production and other processes. These tools may fail to operate properly, which could 

disrupt our or our customers’ business and adversely affect our relationships with our customers.

We also face increased operational risk due to the magnitude and complexity of the new initiatives we are 

undertaking, including our efforts to help build a better housing finance system. Some of these initiatives 

require significant changes to our operational systems. In some cases, the changes must be implemented 

within a short period of time. Our legacy systems may also create increased operational risk for these 

new initiatives. Internal corporate reorganizations may also increase our operational risk, particularly 

during the period of implementation. 

We also face significant risks related to the FHFA-directed development of the single (common) security 

with Fannie Mae and CSS and the development and operation of the common securitization platform. The 

transition to the common securitization platform, which began in November 2016, presents significant 

operational and technological challenges. In addition, we will increasingly rely on CSS and the common 

securitization platform (which is owned and operated by CSS) for the operation of our single-family 

securitization activities, particularly after Release 2 is implemented, as described below. We currently use 

the common securitization platform to perform certain data acceptance, issuance support and bond 

administration activities for us (i.e., Release 1). In the first quarter of 2017, FHFA is expected to announce 

a timeframe for when we will begin to use the common securitization platform to issue and administer our 
Risk Factors Operational Risks

Freddie Mac 2016 Form 10-K 195

single (common) securities (i.e., Release 2). Our business activities could be adversely affected and the 

market for Freddie Mac securities could be disrupted if the common securitization platform were to fail or 

otherwise become unavailable to us, or if CSS were unable to perform its obligations to us. Any measures 

we could take to mitigate these risks might not be sufficient to prevent our business from being harmed.

Our employees could act improperly for their own or third-party gain and cause unexpected losses or 

reputational damage. While we have processes and systems in place designed to prevent and detect 

fraud, there can be no assurance that such processes and systems will be successful.

Most of our key business activities are conducted in our offices in Virginia and represent a concentrated 

risk of people, technology, and facilities. As a result, an infrastructure disruption in the area near our 

offices or affecting the power grid could significantly adversely affect our ability to conduct normal 

business operations. A terrorist event or natural disaster in the area near our offices or affecting the power 

grid could have a similar impact. Any measures we take to mitigate this risk may not be sufficient to 

respond to the full range of events that may occur.

For information on an operational risk issue relating to our Master Trust Agreements, see "MD&A - Risk 

Management - Operational Risk."

Potential cyber security threats are changing rapidly and growing in sophistication. We may not 

be able to protect our systems or the confidentiality of our information from cyberattack and other 

unauthorized access, disclosure, and disruption.

Our operations rely on the secure, accurate and timely receipt, processing, storage, and transmission of 

confidential and other information in our computer systems and networks and with customers, 

counterparties, service providers, and financial institutions. 

Information security risks for companies like ours have significantly increased in recent years, in part 

because of the proliferation of new technologies, the use of the internet and telecommunications 

technologies to conduct financial transactions, and the increased sophistication and activities of 

organized crime, hackers, terrorists and other external parties, including foreign state-sponsored actors. 

Like many companies and government entities, from time to time we have been, and likely will continue to 

be, the target of attempted cyberattacks, including malware and denial-of-service, as part of an effort to 

disrupt operations, potentially test cybersecurity capabilities, or obtain confidential, proprietary or other 

information. We could also be adversely affected by cyberattacks that target the infrastructure of the 

internet, as such attacks could cause widespread unavailability of websites and degrade website 

performance. Our risk and exposure to these matters remain heightened because of, among other things, 

the evolving nature of these threats, our role in the financial services industry, the outsourcing of some of 

our business operations, and the current global economic and political environment. 

Although we devote significant resources to protecting our critical assets, there is no assurance that these 

measures will provide effective security. Our computer systems, software, end point devices, and 

networks may be vulnerable to cyberattack, unauthorized access, supply chain disruptions, computer 

viruses or other malicious code, or other attempts to harm them or misuse or steal information. Breaches 

of our security measures may result from employee error or misconduct. Outside parties may attempt to 

induce employees, customers, counterparties, service providers or other users of our systems to disclose 

sensitive information in order to gain access to our systems and the information they contain. We may not 

be able to anticipate, detect or recognize threats to our systems and assets, or implement effective 

preventative measures against security breaches, especially because the techniques used change 
Risk Factors Operational Risks

Freddie Mac 2016 Form 10-K 196

frequently or are not recognized until launched. 

The occurrence of one or more of such events could result in thefts of important assets (such as cash or 

source code), or the unauthorized disclosure, misuse or corruption of confidential and other information 

(including information about our borrowers, our customers or our counterparties), or could otherwise 

cause interruptions or malfunctions in our operations or the operations of our customers or 

counterparties. This could result in significant losses or reputational damage, adversely affect our 

relationships with our customers and counterparties, negatively affect our competitive position, and 

otherwise harm our business. We could also face regulatory and other legal action. We might be required 

to expend significant additional resources to modify our protective measures or to investigate and 

remediate vulnerabilities or other exposures, and we might be subject to litigation and financial losses that 

are not fully insured. In addition, there can be no assurance that customers, counterparties, financial 

intermediaries, and governmental organizations are adequately protecting the information that we share 

with them. As a result, a cyberattack on their systems and networks, or breach of their security measures, 

may result in harm to our business and business relationships.

We rely on third parties for certain important functions. Any failures by those vendors and service 

providers could disrupt our business operations or expose us to loss of confidential information 

or intellectual property.

We are increasing our use of vendors and service providers, which increases our risk exposure to 

possible failures in their risk and control environments. We outsource certain key functions to external 

parties, including some that are critical to financial reporting (including our adoption of hedge accounting), 

valuations, our mortgage-related investment activity, loan underwriting, loan servicing, and PC issuance 

(i.e., CSS). We may enter into other key outsourcing relationships in the future. If one or more of these 

key external parties were not able to perform their functions for a period of time, perform them at an 

acceptable service level, or handle increased volumes, or if one of them experiences a disruption in its 

own business or technology from any cause, including an internet security breach, our business 

operations could be constrained, disrupted, or otherwise negatively affected. Our use of vendors also 

exposes us to the risk of losing intellectual property or confidential information and to other harm, 

including to our reputation. Our ability to monitor the activities or performance of vendors may be 

constrained, which may make it difficult for us to assess and manage the risks associated with these 

relationships.

We face risks and uncertainties associated with the models that we use to inform business and 

risk management decisions and for financial accounting and reporting purposes.

Models are inherently imperfect predictors of actual results. We use models to project significant factors in 

our businesses including, but not limited to, interest rates, house prices, and mortgage rates under a 

variety of scenarios. We also use models to project borrower prepayment, default behavior, and loss 

severity over long periods of time. There is inherent uncertainty associated with model projections of 

economic variables and the downstream projections of prepayment and default behavior dependent on 

these variables. 

Uncertainty and risks related to models may arise from a number of sources, including the following:

• We could fail to implement, operate, adjust, or use our models as intended. We may fail to code a 

model correctly, we could use incorrect or insufficient data inputs or fail to fully understand the data 

inputs, or model implementation software could malfunction. The complexity and interconnectivity of 
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Freddie Mac 2016 Form 10-K 197

our models create additional risk regarding the accuracy of model output. We may not be able to 

deploy or update models in a timely manner. 

• The data we use as inputs into our models, much of which we receive from third-party data providers, 

may be inaccurate.

• When market conditions change in unforeseen ways, our model projections may not accurately reflect 

these conditions or we may not fully understand the model outputs. For example, models may not 

fully reflect the effect of certain government policy changes or new industry trends. In such cases, it is 

often necessary to make assumptions and judgments to accommodate the effect of scenarios that 

are not sufficiently well represented in the historical data. While we may adjust our models in 

response to new events, considerable residual uncertainty remains. 

• We also use select third-party vendor models. While the use of such models may reduce our risk 

where no internal model is available, it exposes us to additional risk, as third parties typically do not 

provide us with proprietary information regarding their models. We have little control over the process 

by which vendor models are adjusted or changed. As a result, we may be unable to fully evaluate the 

risks associated with the use of such models.

We risk making poor business decisions in situations where we rely on models to provide key information. 

Our use of models could affect decisions concerning the purchase, sale and securitization of loans, the 

purchase and sale of securities, funding, the setting of guarantee fee prices, and the management of 

interest-rate, market, or credit risk. Our use of models also affects our quality-control sampling strategies 

for loans in our single-family credit guarantee portfolio and potential settlements with our counterparties. 

Our adoption of hedge accounting will increase our reliance on models for financial reporting. See “MD&A

- Risk Management - Market Risk” and “Critical Accounting Policies and Estimates” for more information 

on our use of models.
Risk Factors Liquidity Risks

Freddie Mac 2016 Form 10-K 198

LIQUIDITY RISKS

Our activities may be adversely affected by limited availability of financing and increased funding 

costs.

The amount, type, and cost of our unsecured funding, including financing from other financial institutions 

and the capital markets, directly affects our interest expense and results of operations. A number of 

factors could make such financing more difficult to obtain, more expensive or unavailable on any terms, 

both domestically and internationally, including:

• Market and other factors;

• Changes in U.S. government support for us;

• Reduced demand for our debt securities; and

• Competition for debt funding from other debt issuers

Market and Other Factors

Our ability to obtain funding in the public unsecured debt markets or by selling or pledging mortgagerelated and other securities as collateral to other institutions could cease or change rapidly. The cost of 

available funding could increase significantly due to changes in market interest rates, market confidence, 

operational risks, regulatory requirements and other factors. We may incur higher funding costs due to 

our liquidity management practices and procedures. There can be no assurance that such practices and 

procedures would provide us with sufficient liquidity to meet our ongoing cash obligations under all 

circumstances. In particular, we believe that our liquidity contingency plans may be difficult or impossible 

to execute during a liquidity crisis or period of significant market turmoil. If we cannot access the 

unsecured debt markets, our ability to repay maturing indebtedness and fund our operations could be 

eliminated or significantly impaired, as our alternative sources of liquidity (e.g., cash and other 

investments) may not be sufficient to meet our liquidity needs.

We make extensive use of the Federal Reserve's payment system in our business activities. The Federal 

Reserve requires that we fully fund accounts at the Federal Reserve Bank of New York to the extent 

necessary to cover cash payments on our debt and mortgage-related securities each day, before the 

Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we 

seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment 

system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash 

may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.

Prolonged wide market spreads on long-term debt could cause us to reduce our long-term debt issuances 

and further increase our reliance on short-term and callable debt issuances. This increased reliance could 

increase the risk that we may be unable to refinance our debt when it becomes due and result in a 

greater use of derivatives. This greater use of derivatives could increase the volatility of our 

comprehensive income or increase our credit exposure to our counterparties.

Our mortgage-related investments portfolio has contracted significantly since we entered into 

conservatorship, but continues to contain assets that are less liquid than agency securities. Our ability to 

use these less liquid assets as a significant source of liquidity (for example, through sales or use as 

collateral in secured lending transactions) is limited.
Risk Factors Liquidity Risks

Freddie Mac 2016 Form 10-K 199

We pay net worth sweep dividends to Treasury on the senior preferred stock on a quarterly basis. The 

amount of the net worth sweep dividend could vary substantially from quarter to quarter for a number of 

reasons, including as a result of non-cash changes in net worth. It is possible that, due to non-cash 

increases in net worth, such as increases in the fair value of our securities or a reduction in our loan loss 

reserves, the amount of our dividend for a quarter could exceed the amount of available cash, which 

could have an adverse effect on our financial results.

Changes in U.S. Government Support

Treasury supports us through the Purchase Agreement and Treasury’s ability to purchase up to 

$2.25 billion of our obligations under its permanent statutory authority. Unlike certain of our competitors, 

we do not have access to the Federal Reserve's discount window or emergency credit facilities. Changes 

or perceived changes in the U.S. government’s support for us could have a severe negative effect on our 

access to the unsecured debt markets and our debt funding costs. Our access to the unsecured debt 

markets and the costs of our debt funding could be adversely affected by a number of factors relating to 

U.S. government support, including:

• Uncertainty about the future of the GSEs;

• If debt investors become concerned that the risk of us being placed in receivership is increasing; and

• Future draws that significantly reduce the amount of available funding remaining under the Purchase 

Agreement. 

For more information, see “MD&A - Liquidity and Capital Resources - Capital Resources.”

Reduced Demand for Debt Securities

If investor demand for our debt securities were to decrease, our liquidity, business, and results of 

operations could be materially adversely affected. The willingness of domestic and foreign investors to 

purchase and hold our debt securities can be influenced by many factors, including changes in the world 

economy, changes in foreign-currency exchange rates, regulatory and political factors, as well as the 

availability of and investor preferences for other investments. If investors were to divest their holdings or 

reduce their purchases of our debt securities, our funding costs could increase and our business activities 

could be curtailed. 

The market for our debt securities may become less liquid as the size of our mortgage-related 

investments portfolio declines, as we will be issuing fewer debt securities. This could lead to a decrease 

in demand for our debt securities and an increase in our funding costs.

Competition for Debt Funding

We compete for debt funding with Fannie Mae, the FHLBs, and other institutions. Competition for debt 

funding from these entities can vary with changes in economic, financial market, and regulatory 

environments. Increased competition for debt funding may result in a higher cost to finance our business, 

which could negatively affect our financial results. See “MD&A - Our Business Segments - Investments” 

for a description of our debt issuance programs. Our funding costs and liquidity contingency plans may 

also be affected by changes in the amount of, and demand for, debt issued by Treasury.
Risk Factors Liquidity Risks

Freddie Mac 2016 Form 10-K 200

Any downgrade in the credit ratings of the U.S. government would likely be followed by a 

downgrade in our credit ratings. A downgrade in the credit ratings of our debt could adversely 

affect our liquidity and other aspects of our business.

Our credit ratings are important to our liquidity. We currently receive ratings for our unsecured debt from 

three nationally recognized statistical rating organizations (S&P, Moody’s, and Fitch). These ratings are 

primarily based on the support we receive from Treasury, and therefore are affected by changes in the 

credit ratings of the U.S. government. Any downgrade in the credit ratings of the U.S. government would 

be expected to be followed or accompanied by a downgrade in our credit ratings. In addition to a 

downgrade in the credit ratings of or outlook on the U.S. government, a number of other events could 

adversely affect our debt credit ratings, including actions by governmental entities, changes in 

government support for us, future GAAP losses, and additional draws under the Purchase Agreement. 

Any such downgrades could lead to major disruptions in the mortgage and financial markets and to our 

business due to lower liquidity, higher borrowing costs, lower asset values, and higher credit losses, and 

could cause us to experience net losses and net worth deficits. A downgrade in our credit ratings could 

require us to post additional collateral to certain of our derivative and other counterparties.

For more information, see “MD&A - Liquidity and Capital Resources - Liquidity Profile - Credit Ratings.”
Risk Factors Legal and Regulatory Risks

Freddie Mac 2016 Form 10-K 201

LEGAL AND REGULATORY RISKS

Legislative or regulatory actions could adversely affect our business activities and financial 

results.

We operate in a highly regulated industry and are subject to heightened supervision from FHFA, as our 

Conservator. Our compliance systems and programs may not be adequate to ensure that we are in 

compliance with all legal and other requirements. We could incur fines or other negative consequences 

for inadvertent violations. 

Our business may be directly adversely affected by future legislative and regulatory actions at the federal, 

state, and local levels, including actions by FHFA as Conservator. Judicial actions at the federal, state, or 

local level could also adversely affect us. Legislative, regulatory or judicial actions could affect us in a 

number of ways, including by imposing significant additional legal, compliance and other costs on us, 

limiting our business activities and diverting management attention or other resources. 

For example, our ability to recruit and retain executives and other employees with the necessary skills to 

conduct our business may be adversely affected by legislative or regulatory actions (e.g., significant 

restrictions on compensation). We could also be negatively affected by legislative, regulatory or judicial 

action that:

• Changes the foreclosure process of any individual state;

• Limits or otherwise adversely affects the rights of a holder of a first lien on a mortgage (such as 

through granting priority rights in foreclosure proceedings for homeowner associations or through 

initiatives that provide a lien priority in connection with loans to finance energy efficiency or similar 

improvements);

• Expands the responsibilities of (and costs to) servicers for maintaining vacant properties prior to 

foreclosure;

• Permits or requires principal reductions, such as allowing local governments to use eminent domain 

to seize mortgage loans and forgive principal on the loans; or

• Prevents us from using the MERS System or disrupts foreclosures of loans registered in the MERS 

System. 

Our business could also be adversely affected by any modification, reduction, or repeal of the federal 

income tax deductibility of mortgage loan interest payments or changes to other mortgage-related tax 

benefits.

We are subject to complex and evolving laws and regulations governing privacy and the protection of 

personal information of individuals. Our business could be adversely affected if we fail to protect the 

confidentiality of such information or if it is mishandled or misused.

The Dodd-Frank Act significantly changed the regulation of loans and the financial services industry and 

could continue to affect us in substantial ways. For example, the Dodd-Frank Act and related regulatory 

changes could cause or require us to make further changes to our business practices, such as practices 

related to mortgage underwriting and servicing.

Legislation or regulatory actions could indirectly adversely affect us to the extent they affect the activities 

of banks, savings institutions, insurance companies, derivative counterparties, clearinghouses, securities 
Risk Factors Legal and Regulatory Risks

Freddie Mac 2016 Form 10-K 202

dealers, and other regulated entities that constitute a significant portion of our customers or 

counterparties, or to the extent that they modify industry practices. Legislative or regulatory actions that 

remove incentives for these entities to purchase our securities or enter into derivatives or other 

transactions with us could have a material adverse effect on our business and financial results. For 

example, changes in business practices resulting from the Dodd-Frank Act and related regulatory 

changes could have a negative effect on the volume of loan originations or could modify or remove 

incentives for financial institutions to sell loans to us, either of which could adversely affect the number of 

loans available for us to purchase or guarantee.

The Basel III standards could affect demand for our debt and mortgage-related securities. 

U.S. banking regulators have substantially revised the capital and liquidity requirements applicable to 

banking organizations, based on the Basel III standards developed by the Basel Committee on Banking 

Supervision. Phase-in of the new bank capital and liquidity requirements will take several years. The new 

requirements do not directly apply to us, and there is significant uncertainty about the extent to which 

implementation of the new requirements by banking organizations may affect us. For example, the 

emerging regulatory framework could decrease demand for our debt and mortgage-related securities and/

or affect competition in the market for loan originations and servicing, with possible adverse 

consequences for our business and financial results. In addition, the phase-in of enhanced capital and 

liquidity requirements for banking organizations may reduce the level of participation of such 

organizations in (and thus the liquidity of) trading markets for various types of financial instruments, 

including asset-backed securities. In turn, this could decrease the liquidity of the markets for our debt and 

mortgage-related securities, which could increase our funding and other costs and adversely affect our 

business.

In January 2016, the Basel Committee on Banking Supervision issued revised standards for minimum 

capital requirements for market risk. These standards are also applicable to banking organizations. In 

addition, the Basel Committee is considering further revisions to the Basel III standards.

There is significant uncertainty as to when, and the extent to which, U.S. banking regulators will adopt 

any new standards, and the effect any such standards may have on us.

We may make certain changes to our business in an attempt to meet our housing goals and 

subgoals, which may cause us to forgo other more profitable opportunities.

We may make adjustments to our loan sourcing and purchase strategies in an effort to meet our housing 

goals and subgoals, including relaxing some of our underwriting standards and the expanded use of 

targeted initiatives to reach underserved populations. For example, we may purchase loans that offer 

lower expected returns on our investment and potentially increase our exposure to credit losses. Doing so 

could cause us to forgo other purchase opportunities that we would expect to be more profitable. 

It is possible that we could also make changes to our business in the future in response to our duty to 

serve underserved markets that could adversely affect our profitability. If we do not meet our housing 

goals or duty to serve requirements, and FHFA finds that we could have met the goals or satisfied the 

requirements, we may become subject to a housing plan that could require us to take additional steps 

that could potentially adversely affect our profitability. Due to our failure to meet two single-family housing 

goals for 2014, we are operating under an FHFA-required housing plan that addresses how we intend to 

achieve the missed goals in 2016 and 2017. Due to our failure to meet two single-family housing goals for 

2015, FHFA has extended our housing plan through 2018. If we fail to comply with the plan, FHFA could 
Risk Factors Legal and Regulatory Risks

Freddie Mac 2016 Form 10-K 203

take additional action against us.

We are involved in legal proceedings that could result in the payment of substantial damages or 

otherwise harm our business.

We are a party to various claims and other legal proceedings. We also have been, and in the future may 

be, involved in governmental investigations and regulatory proceedings and IRS examinations. In 

addition, certain of our former officers are involved in legal proceedings for which they may be entitled to 

reimbursement by us for costs and expenses of the proceedings. We may be required to establish 

reserves and to make substantial payments in the event of adverse judgments or settlements of any such 

claims, proceedings, investigations or examinations. Any legal proceeding, governmental investigation, or 

IRS examination issue, even if resolved in our favor, could result in negative publicity or cause us to incur 

significant legal and other expenses. Furthermore, the costs (including settlement costs) related to these 

legal proceedings and governmental investigations and examinations may differ from our expectations 

and exceed any amounts for which we have reserved or require adjustments to such reserves. These 

various matters could divert management’s attention and other resources from the needs of the business. 

In addition, a number of lawsuits have been filed against the U.S. government relating to conservatorship 

and the Purchase Agreement that could adversely affect us. See “Legal Proceedings” and Note 14 for 

information about these various pending legal proceedings.
Risk Factors Other Risks

Freddie Mac 2016 Form 10-K 204

OTHER RISKS

Our investment activity is significantly limited under the Purchase Agreement and by FHFA, which 

will reduce our earnings from investment activities over time and result in greater reliance on our 

guarantee activities to generate revenue.

Declines in the size of our mortgage-related investments portfolio, as required by the Purchase 

Agreement and FHFA, will reduce our earnings over the long term. We are also subject to other 

limitations on our investment activity, including significant constraints on our ability to purchase or sell 

mortgage assets. These limitations will reduce the earnings capacity of our mortgage-related investments 

portfolio. We can provide no assurance that the cap on our mortgage-related investments portfolio will 

not, over time, force us to sell mortgage assets at unattractive prices or that our current strategies will not 

have an adverse impact on our business or financial results. For more information, see “MD&A - 

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

Indebtedness.”

Due to the reduced earnings capacity of our mortgage-related investments portfolio, we will have to place 

greater emphasis on our guarantee activities to generate revenue. However, our ability to generate 

revenue through guarantee activities may be limited for a number of reasons. We may be required to 

adopt business practices that help serve our public mission and other non-financial objectives, but that 

may negatively affect our future financial results. We must obtain FHFA’s approval to implement acrossthe-board increases in our guarantee fees, and there can be no assurance FHFA will approve any such 

increase requests in the future. Congress or FHFA may require us to set aside or otherwise pay monies to 

fund third party initiatives, such as the existing requirement under the GSE Act that we allocate amounts 

for certain housing funds. The combination of the restrictions on our business activities and our potential 

inability to generate sufficient revenue through our guarantee activities to offset the effects of those 

restrictions may have an adverse effect on our results of operations and financial condition.

The loss of business from a key customer or a decrease in the availability of mortgage insurance 

could result in a decline in our market share and revenues.

Our business depends on our ability to acquire a steady flow of loans. We purchase a significant 

percentage of our single-family loans from several large loan originators. Similarly, we acquire a 

significant portion of our multifamily loans from several large lenders. For more information, see Note 12.

We enter into loan purchase commitments with many of our single-family customers that are typically less 

than one year in duration. Lenders may fail to deliver loans to us in accordance with their commitments. 

The loss of business from any of our major lenders could adversely affect our market share and our 

revenues.

Our Charter requires that single-family loans with LTV ratios above 80% at the time of purchase be 

covered by mortgage insurance or other credit enhancements. If the availability of mortgage insurance for 

loans with LTV ratios above 80% is reduced, we may be restricted in our ability to purchase or securitize 

such loans. This could reduce our overall volume of new business.
Risk Factors Other Risks

Freddie Mac 2016 Form 10-K 205

Competition from banking and non-banking institutions (including Fannie Mae and FHA/VA with 

Ginnie Mae securitization) may harm our business. FHFA’s actions as Conservator of both 

companies could affect competition between us and Fannie Mae. 

Competition in the secondary mortgage market may make it more difficult for us to purchase mortgage 

loans. Furthermore, competitive pricing pressures may make our products less attractive in the market 

and negatively affect our financial results. Increased competition from Fannie Mae and FHA/VA (with 

Ginnie Mae securitization), and new entrants may alter our product mix, lower our volumes, and reduce 

our revenues on new business.

We also compete with other financial institutions that retain or securitize loans, such as commercial and 

investment banks, dealers, savings institutions, and insurance companies. In recent years, FHFA took a 

number of actions designed to encourage these other financial institutions to increase their activities in 

the mortgage market (e.g., increasing our guarantee fees in 2012), and could take additional actions in 

the future. There is a risk that financial institutions may retain loans with better credit characteristics rather 

than sell them to us, or otherwise seek to structure financial transactions that result in our loan purchases 

having a higher proportion of loans with lower credit scores and higher LTV ratios. While we compensate 

ourselves for higher levels of credit risk through charging upfront delivery fees, sellers' retention of loans 

with better credit characteristics could result in us having lower overall purchase volumes, revenues, and 

returns (as a result of us having loans with a more adverse credit risk profile).

FHFA is also Conservator of Fannie Mae, our primary competitor. FHFA’s actions as Conservator of both 

companies could affect competition between us and Fannie Mae. It is possible that FHFA could require us 

and Fannie Mae to take a uniform approach that, because of differences in our respective businesses, 

could place Freddie Mac at a competitive disadvantage to Fannie Mae. FHFA may also prevent us from 

taking actions that could give us a competitive advantage.

We have faced increased competition in the multifamily market in recent years from life insurers, banks, 

CMBS conduits, and other market participants as multifamily market fundamentals have improved. FHFA

may take actions that could encourage further competition.

A significant decline in the price performance of or demand for our PCs could have an adverse 

effect on the volume and/or profitability of our new single-family guarantee business. 

The price performance of our PCs relative to comparable Fannie Mae securities is one of Freddie Mac’s 

more significant risks and competitive issues, with both short- and long-term implications. Our PCs are an 

integral part of our loan purchase program. Our competitiveness in purchasing single-family loans from 

our sellers and the volume and/or profitability of our new single-family guarantee business are directly 

affected by the price performance of our PCs relative to comparable Fannie Mae securities.

Freddie Mac fixed-rate PCs provide for faster scheduled monthly remittance of loan principal and interest 

payments to investors than Fannie Mae fixed-rate securities. Despite the faster remittance cycle of our 

PCs, our PCs have typically traded at a discount relative to comparable Fannie Mae securities. This 

difference in relative pricing creates an economic incentive for sellers to conduct a disproportionate share 

of their single-family business with Fannie Mae. 

There may not be a liquid market for our PCs, which could adversely affect the price performance of PCs 

and our single-family market share. A significant reduction in our market share, and thus in the volume of 

loans that we securitize, or a reduction in the trading volume of our PCs, could further reduce the liquidity 
Risk Factors Other Risks

Freddie Mac 2016 Form 10-K 206

of our PCs. While we may employ various strategies to support the liquidity and price performance of our 

PCs, and may consider additional strategies, those strategies may fail or adversely affect our business. 

We may cease such activities at any time, or FHFA could require us to do so, which could adversely affect 

the liquidity and price performance of our PCs. 

The liquidity-related price differences between our PCs and comparable Fannie Mae securities could be 

influenced by factors that are largely outside of our control. For example, the level of the Federal 

Reserve’s purchases of agency mortgage-related securities could affect the demand for and values of our 

PCs. Therefore, any strategies we employ to reduce the liquidity-related price differences may not reduce 

or eliminate these price differences over the long-term. 

In certain circumstances, we compensate sellers for the difference in price between our PCs and 

comparable Fannie Mae securities by reducing our guarantee fees, which adversely affects the 

profitability of our single-family guarantee business. We also incur costs in connection with our efforts to 

support the liquidity and price performance of our PCs, including by engaging in transactions that yield 

less than our target rate of return. For more information, see “MD&A - Our Business Segments - SingleFamily Guarantee - Business Overview - Products and Activities” and “- Investments Segment - Business 

Overview - Products and Activities.”

In accordance with FHFA’s 2014 Strategic Plan and the Conservatorship Scorecards, we are developing 

a single (common) security, which is designed to reduce the price performance disparities between the 

mortgage-related securities of Freddie Mac and Fannie Mae. This initiative is complex and costly, and 

may require us to align our business processes more closely with those of Fannie Mae. It is possible that 

we could experience a disruption in the liquidity of Freddie Mac securities during the period in which we 

transition to the single (common) security. Further, there can be no assurance that a single (common) 

security will reduce the pricing disparities discussed above.

The single (common) security initiative will also cause us to have counterparty credit exposure to Fannie 

Mae. Once the initiative is implemented, investors will be able to commingle Freddie Mac and Fannie Mae 

securities in resecuritizations. When we resecuritize Fannie Mae securities, our guarantee of principal 

and interest would extend to the underlying Fannie Mae securities. In the event Fannie Mae were to fail to 

make a payment on a Fannie Mae security that we resecuritized, Freddie Mac would be responsible for 

making the payment. We will not control or limit the amount of resecuritized Fannie Mae securities that we 

could be required to guarantee. We will be dependent on FHFA, Fannie Mae and Fannie Mae’s and our 

Purchase Agreements with Treasury to avoid a liquidity event or default. We are not planning to modify 

our liquidity strategies to address the possibility of non-timely payment by Fannie Mae.

The profitability of our multifamily business could be adversely affected by a significant decrease 

in demand for our K Certificates and SB Certificates.

Our current Multifamily business model is highly dependent on our ability to finance purchased multifamily 

loans through securitization into K Certificates and SB Certificates. A significant decrease in demand for K 

Certificates and SB Certificates could have an adverse impact on the profitability of the Multifamily 

business to the extent that our holding period for the loans increases and we are exposed to credit, 

spread and other market risks for a longer period of time. We employ various strategies to support the 

liquidity of our K Certificates and SB Certificates, and may consider additional strategies. From time to 

time, we purchase and sell guaranteed K Certificates and SB Certificates and related unguaranteed 

securities associated with K Certificates and SB Certificates as well as our other securitization products 
Risk Factors Other Risks

Freddie Mac 2016 Form 10-K 207

through our mortgage-related investments portfolio.

There may not be an active, liquid trading market for our equity securities.

Our common stock and the publicly traded classes of our preferred stock trade exclusively on the OTCQB 

Marketplace. Trading volumes on the OTCQB Marketplace can fluctuate significantly, which could make it 

difficult for investors to execute transactions in our securities and could cause declines or volatility in the 

prices of our equity securities.
Legal Proceedings

Freddie Mac 2016 Form 10-K 208

LEGAL PROCEEDINGS

We are involved as a party to a variety of legal proceedings arising from time to time in the ordinary 

course of business. See Note 14 for more information regarding our involvement as a party to various 

legal proceedings. We discuss below certain litigation against the U.S. government concerning 

conservatorship and the Purchase Agreement.

Over the last several years, a number of lawsuits have been filed against the U.S. government and, in 

some cases, the Secretary of the Treasury and the Director of FHFA. These lawsuits challenge certain 

government actions related to the conservatorship (including actions taken in connection with the 

imposition of conservatorship) and the Purchase Agreement. Several of the lawsuits seek to invalidate the 

net worth sweep dividend provisions of the senior preferred stock, which were implemented pursuant to 

the August 2012 amendment to the Purchase Agreement. A number of cases have been dismissed. 

Cases are currently pending in the U.S. Court of Federal Claims, the U.S. District Court for the Northern 

District of Iowa, the U.S. District Court for the Northern District of Illinois, and the U.S. District Court for 

the Southern District of Texas. In addition, plaintiffs are appealing a September 2014 order by the U.S. 

District Court for the District of Columbia to dismiss such parties’ cases in that Court and a September 

2016 order by the U.S. District Court for the Eastern District of Kentucky to dismiss the case in that Court. 

It is possible that additional similar lawsuits will be filed in the future.

Freddie Mac is not a party to any of these lawsuits. However, a number of other lawsuits have been filed 

against Freddie Mac concerning the August 2012 amendment to the Purchase Agreement. See Note 14 

for information on the lawsuits filed against Freddie Mac. Pershing Square Capital Management, L.P. 

(“Pershing”) is a plaintiff in one of the lawsuits filed against Freddie Mac. Pershing has filed reports with 

the SEC, most recently in March 2014, indicating that it beneficially owned more than 5% of our common 

stock. We do not know Pershing's current beneficial ownership of our common stock. For more 

information, see “Security Ownership of Certain Beneficial Owners and Management and Related 

Stockholder Matters."

It is not possible for us to predict the outcome of these lawsuits (including the outcome of any appeal), or 

the actions the U.S. government (including Treasury and FHFA) might take in response to any ruling or 

finding in any of these lawsuits or any future lawsuits. However, it is possible that we could be adversely 

affected by these events, including, for example, by changes to the Purchase Agreement, or any resulting 

actual or perceived changes in the level of U.S. government support for our business.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Freddie Mac 2016 Form 10-K 209

MARKET FOR REGISTRANT’S COMMON 

EQUITY, RELATED STOCKHOLDER 

MATTERS AND ISSUER PURCHASES OF 

EQUITY SECURITIES

MARKET INFORMATION

Our common stock, par value $0.00 per share, trades on the OTCQB Marketplace, operated by the OTC 

Markets Group Inc., under the ticker symbol “FMCC.” As of February 2, 2017, there were 

650,053,863 shares of our common stock outstanding.

The table below sets forth the high and low bid information for our common stock on the OTCQB 

Marketplace for the indicated periods and reflects inter-dealer prices, without retail mark-up, mark-down, 

or commission, and may not necessarily represent actual transactions.

High Low

2016 Quarter Ended

December 31 $4.84 $1.52

September 30 1.90 1.46

June 30 2.20 1.21

March 31 1.75 0.97

2015 Quarter Ended

December 31 $2.67 $1.57

September 30 2.61 1.90

June 30 2.84 2.18

March 31 3.32 2.04

HOLDERS

As of February 2, 2017, we had 1,740 common stockholders of record.

DIVIDENDS AND DIVIDEND RESTRICTIONS

We did not pay any cash dividends on our common stock during 2016 or 2015. Our payment of dividends 

is subject to the following restrictions:

• Restrictions Relating to the Conservatorship - The Conservator has prohibited us from paying any 

dividends on our common stock or on any series of our preferred stock (other than the senior 

preferred stock). FHFA has instructed our Board of Directors that it should consult with and obtain the 

approval of FHFA before taking actions involving dividends. In addition, FHFA has adopted a 

regulation prohibiting us from making capital distributions during conservatorship, except as 

authorized by the Director of FHFA.

• Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of 

our subsidiaries from declaring or paying any dividends on Freddie Mac equity securities (other than 

with respect to the senior preferred stock or warrant) without the prior written consent of Treasury.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Freddie Mac 2016 Form 10-K 210

• Restrictions Under the GSE Act - Under the GSE Act, FHFA has authority to prohibit capital 

distributions, including payment of dividends, if we fail to meet applicable capital requirements. 

However, our capital requirements have been suspended during conservatorship.

• Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior 

written approval of FHFA to make any capital distribution that would decrease total capital to an 

amount less than the risk-based capital level or that would decrease core capital to an amount less 

than the minimum capital level. As noted above, our capital requirements have been suspended 

during conservatorship.

• Restrictions Relating to Subordinated Debt - During any period in which we defer payment of 

interest on qualifying subordinated debt, we may not declare or pay dividends on, or redeem, 

purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt provides 

for the deferral of the payment of interest for up to five years if either our core capital is below 125% 

of our critical capital requirement or our core capital is below our statutory minimum capital 

requirement, and the Secretary of the Treasury, acting on our request, exercises his or her 

discretionary authority pursuant to Section 306(c) of our Charter to purchase our debt obligations. 

FHFA has directed us to make interest and principal payments on our subordinated debt, even if we 

fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that 

provide for us to defer payments of interest under certain circumstances, including our failure to 

maintain specified capital levels, are no longer applicable.

• Restrictions Relating to Preferred Stock - Payment of dividends on our common stock is also 

subject to the prior payment of dividends on our 24 series of preferred stock and one series of senior 

preferred stock, representing an aggregate of 464,170,000 shares and 1,000,000 shares, 

respectively, outstanding as of December 31, 2016. Payment of dividends on all outstanding 

preferred stock, other than the senior preferred stock, is subject to the prior payment of dividends on 

the senior preferred stock. We paid dividends on the senior preferred stock during 2016 at the 

direction of the Conservator, as discussed in “MD&A - Liquidity and Capital Resources” and Note 9. 

We did not declare or pay dividends on any other series of preferred stock outstanding in 2016.

RECENT SALES OF UNREGISTERED SECURITIES

The securities we issue are “exempted securities” under the Securities Act of 1933. As a result, we do not 

file registration statements with the SEC with respect to offerings of our securities.

Following our entry into conservatorship, we suspended the operation of, and ceased making grants 

under, equity compensation plans. Previously, we had provided equity compensation under these plans to 

employees and members of our Board of Directors. Under the Purchase Agreement, we cannot issue any 

new options, rights to purchase, participations, or other equity interests without Treasury’s prior approval. 

However, grants outstanding as of the date of the Purchase Agreement remain in effect in accordance 

with their terms. No stock options were exercised during the three months ended December 31, 2016. 

See Note 9 for more information.

ISSUER PURCHASES OF EQUITY SECURITIES

We did not repurchase any of our common or preferred stock during 2016. Additionally, we do not 

currently have any outstanding authorizations to repurchase common or preferred stock. Under the 

Purchase Agreement, we cannot repurchase our common or preferred stock without Treasury’s prior 
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Freddie Mac 2016 Form 10-K 211

consent, and we may only purchase or redeem the senior preferred stock in certain limited circumstances 

set forth in the certificate of designation of the senior preferred stock.

TRANSFER AGENT AND REGISTRAR

Computershare Trust Company, N.A.

P.O. Box 30170

College Station, TX 77842

Telephone: 877-373-6374

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Financial Statements

Freddie Mac 2016 Form 10-K 212

FINANCIAL STATEMENTS AND 

SUPPLEMENTARY DATA
Financial Statements Report of Independent Registered Public Accounting Firm

Freddie Mac 2016 Form 10-K 213

REPORT OF INDEPENDENT REGISTERED PUBLIC 

ACCOUNTING FIRM

To the Board of Directors and Stockholders of Freddie Mac

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of 

comprehensive income, of equity, and of cash flows present fairly, in all material respects, the financial 

position of Freddie Mac, a stockholder-owned government sponsored enterprise, and its subsidiaries (the 

"Company") at December 31, 2016 and 2015, and the results of their operations and their cash flows for 

each of the three years in the period ended December 31, 2016 in conformity with accounting principles 

generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in 

all material respects, effective internal control over financial reporting as of December 31, 2016, based on 

criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of 

Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal 

control over financial reporting related to disclosure controls and procedures that do not provide adequate 

mechanisms for information known to the Federal Housing Finance Agency (“FHFA”) that may have 

financial statement disclosure ramifications to be communicated to management of Freddie Mac existed 

as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control 

over financial reporting, such that there is a reasonable possibility that a material misstatement of the 

annual or interim financial statements will not be prevented or detected on a timely basis. The material 

weakness referred to above is described in Management’s Report on Internal Control Over Financial 

Reporting, appearing under "Controls and Procedures." We considered this material weakness in 

determining the nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated 

financial statements, and our opinion regarding the effectiveness of the Company’s internal control over 

financial reporting does not affect our opinion on those consolidated financial statements. The Company’s 

management is responsible for these financial statements, for maintaining effective internal control over 

financial reporting and for its assessment of the effectiveness of internal control over financial reporting 

included in management’s report referred to above. Our responsibility is to express opinions on these 

financial statements and on the Company’s internal control over financial reporting based on our 

integrated audits. We conducted our audits in accordance with the standards of the Public Company 

Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 

to obtain reasonable assurance about whether the financial statements are free of material misstatement 

and whether effective internal control over financial reporting was maintained in all material respects. Our 

audits of the financial statements included examining, on a test basis, evidence supporting the amounts 

and disclosures in the financial statements, assessing the accounting principles used and significant 

estimates made by management, and evaluating the overall financial statement presentation. Our audit of 

internal control over financial reporting included obtaining an understanding of internal control over 

financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the 

design and operating effectiveness of internal control based on the assessed risk. Our audits also 

included performing such other procedures as we considered necessary in the circumstances. We believe 

that our audits provide a reasonable basis for our opinions.

As discussed in “Note 2: Conservatorship and Related Matters,” in September 2008, the Company was 

placed into conservatorship by FHFA. The U.S. Department of the Treasury (“Treasury”) has committed 

financial support to the Company and management continues to conduct business operations pursuant to 
Financial Statements Report of Independent Registered Public Accounting Firm

Freddie Mac 2016 Form 10-K 214

the delegated authorities from FHFA during conservatorship. The Company is dependent upon the 

continued support of Treasury and FHFA.

A company’s internal control over financial reporting is a process designed to provide reasonable 

assurance regarding the reliability of financial reporting and the preparation of financial statements for 

external purposes in accordance with generally accepted accounting principles. A company’s internal 

control over financial reporting includes those policies and procedures that (i) pertain to the maintenance 

of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 

assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to 

permit preparation of financial statements in accordance with generally accepted accounting principles, 

and that receipts and expenditures of the company are being made only in accordance with 

authorizations of management and directors of the company; and (iii) provide reasonable assurance 

regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s 

assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect 

misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk 

that controls may become inadequate because of changes in conditions, or that the degree of compliance 

with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

February 16, 2017
Financial Statements Consolidated Statements of Comprehensive Income

Freddie Mac 2016 Form 10-K 215

FREDDIE MAC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE 

INCOME

Year Ended December 31,

(In millions, except share-related amounts) 2016 2015 2014

Interest income

Mortgage loans $61,040 $62,226 $63,605

Investments in securities 3,855 4,794 5,843

Other 270 70 32

Total interest income 65,165 67,090 69,480

Interest expense (50,595) (51,916) (54,916)

Expense related to derivatives (191) (228) (301)

Net interest income 14,379 14,946 14,263

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

Net interest income after benefit (provision) for credit losses 15,182 17,611 14,205

Non-interest income (loss)

Gains (losses) on extinguishment of debt (211) (240) (422)

Derivative gains (losses) (274) (2,696) (8,291)

Net impairment of available-for-sale securities recognized in earnings (191) (292) (938)

Other gains (losses) on investment securities recognized in earnings (78) 508 1,494

Other income (loss) 1,254 (879) 8,044

Non-interest income (loss) 500 (3,599) (113)

Non-interest expense

Salaries and employee benefits (989) (975) (914)

Professional services (489) (497) (527)

Occupancy expense (66) (56) (58)

Other administrative expense (461) (399) (382)

Total administrative expense (2,005) (1,927) (1,881)

Real estate owned operations expense (287) (338) (196)

Temporary Payroll Tax Cut Continuation Act of 2011 expense (1,152) (967) (775)

Other expense (599) (1,506) (238)

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

Income before income tax expense 11,639 9,274 11,002

Income tax expense (3,824) (2,898) (3,312)

Net income 7,815 6,376 7,690

Other comprehensive income (loss), net of taxes and reclassification adjustments:

Changes in unrealized gains (losses) related to available-for-sale securities (825) (806) 1,584

Changes in unrealized gains (losses) related to cash flow hedge relationships 141 182 197

Changes in defined benefit plans (13) 47 (45)

Total other comprehensive income (loss), net of taxes and reclassification

adjustments (697) (577) 1,736

Comprehensive income $7,118 $5,799 $9,426

Net income $7,815 $6,376 $7,690

Undistributed net worth sweep and senior preferred stock dividends (7,718) (6,399) (10,026)

Net income (loss) attributable to common stockholders $97 ($23) ($2,336)

Net income (loss) per common share — basic and diluted $0.03 ($0.01) ($0.72)

Weighted average common shares outstanding (in millions) — basic and diluted 3,234 3,235 3,236

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Balance Sheets

Freddie Mac 2016 Form 10-K 216

FREDDIE MAC

CONSOLIDATED BALANCE SHEETS

At December 31,

(In millions, except share-related amounts) 2016 2015

Assets

Cash and cash equivalents (Notes 3, 12) $12,369 $5,595

Restricted cash and cash equivalents (Notes 3, 12) 9,851 14,533

Securities purchased under agreements to resell (Notes 3, 8) 51,548 63,644

Investments in securities, at fair value (Note 5) 111,547 114,215

Mortgage loans held-for-sale (Notes 3, 4) (includes $16,255 and $17,660 at fair value) 18,088 24,992

Mortgage loans held-for-investment (Notes 3, 4) (net of allowance for loan losses of

$13,431 and $15,331) 1,784,915 1,729,201

Accrued interest receivable (Note 3) 6,135 6,074

Derivative assets, net (Notes 7, 8) 747 395

Deferred tax assets, net (Note 10) 15,818 18,205

Other assets (Notes 3, 16) (includes $2,408 and $1,753 at fair value) 12,358 9,038

Total assets $2,023,376 $1,985,892

Liabilities and equity

Liabilities

Accrued interest payable (Note 3) $6,015 $6,183

Debt, net (Notes 3, 6) (includes $6,010 and $7,184 at fair value) 2,002,004 1,970,269

Derivative liabilities, net (Notes 7, 8) 795 1,254

Other liabilities (Notes 3, 16) 9,487 5,246

Total liabilities 2,018,301 1,982,952

Commitments and contingencies (Notes 3, 7, and 14)

Equity (Note 9)

Senior preferred stock, at redemption value 72,336 72,336

Preferred stock, at redemption value 14,109 14,109

Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886

shares issued and 650,046,828 shares and 650,045,962 shares outstanding — —

Additional paid-in capital — —

Retained earnings (accumulated deficit) (77,941) (80,773)

AOCI, net of taxes, related to:

Available-for-sale securities (includes $782 and $778, related to net unrealized gains

on securities for which other-than-temporary impairment has been recognized in

earnings) 915 1,740

Cash flow hedge relationships (480) (621)

Defined benefit plans 21 34

Total AOCI, net of taxes 456 1,153

Treasury stock, at cost, 75,817,058 shares and 75,817,924 shares (3,885) (3,885)

Total equity (See Note 9 for information on our dividend obligation to Treasury) 5,075 2,940

Total liabilities and equity $2,023,376 $1,985,892

The table below represents the carrying value and classification of the assets and liabilities of consolidated VIEs on 

our consolidated balance sheets.

At December 31,

(in millions) 2016 2015

Consolidated Balance Sheet Line Item

Assets: (Note 3)

Mortgage loans held-for-sale $— $1,403

Mortgage loans held-for-investment 1,690,218 1,625,184

All other assets 32,262 37,305

Total assets of consolidated VIEs $1,722,480 $1,663,892

Liabilities: (Note 3)

Debt, net $1,648,683 $1,556,121

All other liabilities 4,846 4,769

Total liabilities of consolidated VIEs $1,653,529 $1,560,890

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Statements of Equity

Freddie Mac 2016 Form 10-K 217

FREDDIE MAC

CONSOLIDATED STATEMENTS OF EQUITY

Shares Outstanding

Senior

Preferred

Stock, at

Redemption

Value

Preferred

Stock, at

Redemption

Value

Common

Stock, at

Par Value

Additional

Paid-In

Capital

Retained

Earnings

(Accumulated

Deficit)

AOCI,

Net of

Tax

Treasury

Stock, at

Cost

Total

(In millions) Equity 

Senior

Preferred

Stock

Preferred

Stock

Common

Stock

Balance at

December 31,

2013 1 464 650 $72,336 $14,109 $— $— ($69,719) ($6) ($3,885) $12,835

Comprehensive

income:

Net income — — — — — — — 7,690 — — 7,690

Other

comprehensive

income, net of

taxes — — — — — — — — 1,736 — 1,736

Comprehensive

income — — — — — — — 7,690 1,736 — 9,426

Senior preferred

stock dividends

declared — — — — — — — (19,610) — — (19,610)

Ending balance at

December 31,

2014 1 464 650 $72,336 $14,109 $— $— ($81,639) $1,730 ($3,885) $2,651

Balance at

December 31,

2014 1 464 650 $72,336 $14,109 $— $— ($81,639) $1,730 ($3,885) $2,651

Comprehensive

income:

Net income — — — — — — — 6,376 — — 6,376

Other

comprehensive

income, net of

taxes — — — — — — — — (577) — (577)

Comprehensive

income — — — — — — — 6,376 (577) — 5,799

Senior preferred

stock dividends

declared — — — — — — — (5,510) — — (5,510)

Ending balance at

December 31,

2015 1 464 650 $72,336 $14,109 $— $— ($80,773) $1,153 ($3,885) $2,940

Balance at

December 31,

2015 1 464 650 $72,336 $14,109 $— $— ($80,773) $1,153 ($3,885) $2,940

Comprehensive

income:

Net income — — — — — — — 7,815 — — 7,815

Other

comprehensive

income, net of

taxes — — — — — — — — (697) — (697)

Comprehensive

income — — — — — — — 7,815 (697) — 7,118

Senior preferred

stock dividends

declared — — — — — — — (4,983) — — (4,983)

Ending balance at

December 31,

2016 1 464 650 $72,336 $14,109 $— $— ($77,941) $456 ($3,885) $5,075

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Consolidated Statements of Cash Flows

Freddie Mac 2016 Form 10-K 218

FREDDIE MAC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

(In millions) 2016 2015 2014

Cash flows from operating activities

Net income $7,815 $6,376 $7,690

Adjustments to reconcile net income to net cash (used in) provided by operating

activities:

Derivative (gains) losses (1,516) 456 5,652

Asset related amortization — premiums, discounts, and basis adjustments 7,089 5,321 3,518

Debt related amortization — premiums and discounts on certain debt securities (10,151) (8,295) (5,368)

Losses on extinguishment of debt 211 240 422

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

Losses (gains) on investment activity 69 1,878 (1,287)

Deferred income tax expense 2,787 1,655 2,284

Purchases of mortgage loans acquired as held-for-sale (48,379) (41,728) (24,593)

Sales of mortgage loans acquired as held-for-sale 49,350 36,034 21,995

Repayments of mortgage loans acquired as held-for-sale 1,259 150 67

Payments to servicers for pre-foreclosure expense and servicer incentive fees (585) (867) (932)

Change in:

Accrued interest receivable (61) (40) 116

Accrued interest payable (52) (43) (440)

Income taxes receivable (1,230) 1,022 268

Other, net (944) (428) (565)

Net cash provided by (used in) operating activities 4,859 (934) 8,885

Cash flows from investing activities

Purchases of trading securities (104,045) (40,614) (42,477)

Proceeds from sales of trading securities 79,095 14,847 18,513

Proceeds from maturities of trading securities 22,244 16,377 17,118

Purchases of available-for-sale securities (28,306) (6,818) (25,290)

Proceeds from sales of available-for-sale securities 20,699 18,900 32,062

Proceeds from maturities of available-for-sale securities 15,869 20,807 20,734

Purchases of held-for-investment mortgage loans (169,948) (122,082) (75,298)

Proceeds from sales of mortgage loans held-for-investment 4,507 2,727 454

Repayments of mortgage loans held-for-investment 340,348 302,364 241,552

(Increase) decrease in restricted cash 4,682 (5,998) 3,730

Advances to lenders (30,730) (12,527) (90)

Net proceeds from dispositions of real estate owned and other recoveries 2,519 3,650 7,712

Net (increase) decrease in securities purchased under agreements to resell 12,096 (11,741) 10,480

Derivative premiums and terminations and swap collateral, net 555 (749) (3,888)

Changes in other assets (357) (197) (44)

Net cash provided by investing activities 169,228 178,946 205,268

Cash flows from financing activities

Proceeds from issuance of debt securities of consolidated trusts held by third parties 254,236 174,561 124,887

Repayments and redemptions of debt securities of consolidated trusts held by third (355,020) (316,306) (262,920)

Proceeds from issuance of other debt 659,108 610,091 451,854

Repayments of other debt (720,648) (646,176) (508,710)

Payment of cash dividends on senior preferred stock (4,983) (5,510) (19,610)

Changes in other liabilities (6) (5) (7)

Net cash used in financing activities (167,313) (183,345) (214,506)

Net increase (decrease) in cash and cash equivalents 6,774 (5,333) (353)

Cash and cash equivalents at beginning of year 5,595 10,928 11,281

Cash and cash equivalents at end of year $12,369 $5,595 $10,928

Supplemental cash flow information

Cash paid for:

Debt interest $60,862 $61,120 $62,257

Income taxes 2,324 1,095 760

Non-cash investing and financing activities (Notes 4 and 5)

The accompanying notes are an integral part of these consolidated financial statements.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 219

NOTES TO CONSOLIDATED FINANCIAL

STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING 

POLICIES

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

and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, and Treasury, 

and are currently operating under the conservatorship of FHFA. For more information on the roles of 

FHFA and Treasury, see Note 2. Throughout our consolidated financial statements and related notes, we 

use certain acronyms and terms which are defined in the “Glossary.”

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with GAAP and 

include our accounts as well as the accounts of other entities in which we have a controlling financial 

interest. All intercompany balances and transactions have been eliminated.

We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of 

business as a going concern and in accordance with the delegation of authority from FHFA to our Board 

of Directors and management. Certain amounts in prior periods’ consolidated financial statements have 

been reclassified to conform to the current presentation.

We evaluate the materiality of identified errors in the financial statements using both an income 

statement, or “rollover,” and a balance sheet, or “iron curtain,” approach, based on relevant quantitative 

and qualitative factors. Net income includes certain adjustments to correct immaterial errors related to 

previously reported periods.

USE OF ESTIMATES

The preparation of financial statements requires us to make estimates and assumptions that affect the 

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of 

the financial statements and the reported amounts of revenues and expenses and gains and losses 

during the reporting period. Management has made significant estimates in preparing the financial 

statements for establishing the allowance for loan losses and reserve for guarantee losses, valuing 

financial instruments and other assets and liabilities, and assessing impairments on investments. Actual 

results could be different from these estimates.

CHANGE IN ESTIMATE

Adoption of Regulatory Guidance on Determining when a Loan is Uncollectible 

On January 1, 2015, we adopted regulatory guidance issued by FHFA that establishes guidelines for 

adverse classification and identification of specified single-family and multifamily assets, including 
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 220

guidelines for recognizing charge-offs on certain single-family loans. We analyze loans for collectability 

based on several factors, including, but not limited to:

• Servicing actions that indicate the potential for near-term loss mitigation, such as whether we have 

achieved quality borrower contact;

• Credit risk factors, such as whether the loan is in a state with foreclosure practices that prevent timely 

resolution of delinquencies; and

• Loan characteristics that indicate whether repayment is likely to occur, such as the borrower's 

payment history, loan status, and historical performance of loans with similar characteristics. 

Upon adoption, we changed the timing of when we deem certain single-family loans to be uncollectible, 

and we began to charge-off the amount of recorded investment in excess of the fair value of the 

underlying collateral for loans that have been deemed uncollectible prior to foreclosure, based on the 

factors identified above. 

This adoption resulted in a reduction to both the recorded investment of loans, held-for-investment, and 

our allowance for loan losses of $1.9 billion on January 1, 2015. However, these additional charge-offs did 

not have a material impact on our comprehensive income for 2015, as we had already reserved for these 

losses in our allowance for loan losses in prior periods. 

CONSOLIDATION AND EQUITY METHOD ACCOUNTING

For each entity with which we are involved, we determine whether the entity should be consolidated in our 

financial statements. We generally consolidate entities in which we have a controlling financial interest. 

The method for determining whether a controlling financial interest exists varies depending on whether 

the entity is a VIE. For entities that are not VIEs, we hold a controlling financial interest in entities where 

we hold a majority of the voting rights or where we are able to exercise control through substantive 

participating rights or as a general partner. We do not currently consolidate any entities which are not 

VIEs. We use the equity method to account for our interests in entities in which we do not have a 

controlling financial interest, but over which we have significant influence.

CASH AND CASH EQUIVALENTS

Highly liquid investment securities that have an original maturity of three months or less are accounted for 

as cash equivalents.

RESTRICTED CASH AND CASH EQUIVALENTS

Cash collateral accepted from counterparties that we do not have the right to use for general corporate 

purposes is recorded as restricted cash in our consolidated balance sheets. Restricted cash includes 

cash remittances received from servicers of the underlying assets of our consolidated trusts, as well as 

cash remittances received on mortgage loans we own, which are deposited into a separate custodial 

account. We invest the cash held in the custodial account in short-term investments and are entitled to 

the interest income earned on these short-term investments, which is recorded as interest income, other 

on our consolidated statements of comprehensive income.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 221

COMPREHENSIVE INCOME

Comprehensive income includes all changes in equity during a period, except those resulting from 

investments by stockholders. We define comprehensive income as consisting of net income (loss) plus 

after-tax changes in:

• The unrealized gains and losses on available-for-sale securities;

• The effective portion of derivatives accounted for as cash flow hedge relationships; and

• Defined benefit plans.

OTHER SIGNIFICANT ACCOUNTING POLICIES

The table below identifies our other significant accounting policies and the related note in which 

information about them can be found. 

Accounting Policy Note

Variable Interest Entities Note 3

Financial Guarantees Note 3

Loans and Allowance for Loan Losses Note 4

Investments in Securities Note 5

Debt Note 6

Derivatives Note 7

Collateralized Agreements and Offsetting Arrangements Note 8

Repurchase and Resale Agreements and Dollar Roll Transactions Note 8

Earnings Per Share Note 9

Stockholders’ Equity Note 9

Income Taxes Note 10

Segment Reporting Note 11

Fair Value Measurements Note 13
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 222

RECENTLY ISSUED ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance

Standard Description Date of

Adoption

Effect on Consolidated

Financial Statements

ASU 2015-02,

Amendments to the

Consolidation Analysis

(Topic 810)

The amendment affects reporting entities that

are required to evaluate whether they should

consolidate certain legal entities.

January 1,

2016

The adoption of this

amendment did not have

a material effect on our

consolidated financial

statements.

ASU 2015-03, Simplifying

the Presentation of Debt

Issuance Costs (Subtopic

835-30)

The amendment requires that debt issuance

costs related to a recognized debt liability be

presented in the balance sheet as a direct

deduction from the carrying amount of that

debt liability, consistent with debt discounts.

January 1,

2016

Previously reported

amounts have been

conformed to the current

presentation (see Notes

6 and 16). The effect of

adoption as of January

1, 2016 was a reduction

to Other Assets and

Debt, net of $158 million.

There were no effects on

earnings resulting from

this change.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 223

Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial 

Statements

Standard Description Date of

Adoption

Effect on Consolidated

Financial Statements

ASU 2016-06, Derivatives

and Hedging (Topic 815)

The amendment clarifies the requirements for

assessing whether contingent call (put) options

that can accelerate the payment of principal on

debt instruments are clearly and closely related

to their debt hosts. An entity performing the

assessment under the amendment is required

to assess the embedded call (put) options

solely in accordance with the four-step decision

sequence.

January 1,

2017

The adoption of this

amendment will not have

a material effect on our

consolidated financial

statements.

ASU 2016-17 -

Consolidation (Topic

810): Interests Held

through Related Parties

That Are under Common

Control

The Board is issuing this Update to amend the 

consolidation guidance on how a reporting 

entity that is the single decision maker of a VIE 

should treat indirect interests in the entity held 

through related parties that are under common 

control with the reporting entity when 

determining whether it is the primary 

beneficiary of that VIE.

January 1,

2017

The adoption of this

amendment will not have

a material effect on our

consolidated financial

statements.

ASU 2014-09, Revenue

from Contracts with

Customers (Topic 606)

and ASU 2015-14

The amendment requires entities to recognize

revenue to depict the transfer of promised

goods or services to customers in amounts that

reflect the consideration to which the entity

expects to be entitled in exchange for those

goods or services. ASU 2015-14 defers the

effective date of ASU 2014-09 for all entities by

one year.

January 1,

2018

We do not expect that 

the adoption of this 

amendment will have a 

material effect on our 

consolidated financial 

statements.

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

We do not expect that

the adoption of this

amendment will have a

material effect on our

consolidated financial

statements.

ASU 2016-08 - Revenue

from Contracts with

Customers (Topic 606):

Principal versus Agent

Considerations

(Reporting Revenue

Gross versus Net)

The amendments in this Update do not change

the core principle of the guidance. The

amendments clarify the implementation

guidance on principal versus agent

considerations.

January 1,

2018

We do not expect that

the adoption of this

amendment will have a

material effect on our

consolidated financial

statements.

ASU 2016-10, Revenue

from Contracts with

Customers (Topic 606)

The amendments in this Update do not change

the core principle of the guidance in Topic 606,

but clarify two issues: i) identifying

performance obligations; and ii) licensing.

These clarifications are intended to reduce

diversity in practice and to reduce the cost and

complexity of Topic 606 at transition and on an

ongoing basis.

January 1,

2018

We do not expect that 

the adoption of this 

amendment will have a 

material effect on our 

consolidated financial 

statements.

ASU 2016-12, Revenue

from Contracts with

Customers (Topic 606)

The amendments in this Update do not change

the core principle of the guidance in Topic 606,

but affect aspects of the guidance and

technical corrections.

January 1,

2018

We do not expect that

the adoption of this

amendment will have a

material effect on our

consolidated financial

statements.
Financial Statements Notes to the Consolidated Financial Statements | Note 1

Freddie Mac 2016 Form 10-K 224

Standard Description Date of

Adoption

Effect on 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

We are evaluating the

effect that the adoption

of this amendment will

have on our

consolidated financial

statements.

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

We are evaluating the

effect that the adoption

of this amendment will

have on our

consolidated financial

statements.

ASU 2016-20, Technical

Corrections and

Improvements to Topic

606, Revenue from

Contracts with Customers

The amendments in this Update are of a

similar nature to the items typically addressed

in the Technical Corrections and Improvements

project. However, the Board decided to issue a

separate Update for technical corrections and

improvements to Topic 606 and other Topics

amended by Update 2014-09 to increase

stakeholders’ awareness of the proposals and

to expedite improvements to Update 2014-09.

January 1,

2018

We do not expect that 

the adoption of this 

amendment will have a 

material effect on our 

consolidated financial 

statements.

ASU 2016-02, Leases

(Topic 842)

The amendment addresses the accounting for

lease arrangements.

January 1,

2019

We do not expect that

the adoption of this

amendment will have a

material effect on our

consolidated financial

statements.

ASU 2016-13, Financial

Instruments—Credit

Losses (Topic 326):

Measurement of Credit

Losses on Financial

Instruments

The amendments in this Update replace the

incurred loss impairment methodology in

current GAAP with a methodology that reflects

lifetime expected credit losses and requires

consideration of a broader range of reasonable

and supportable information to inform credit

loss estimates.

January 1,

2020

While we are evaluating

the effect that the

adoption of this

amendment will have on

our consolidated

financial statements, it

will increase (perhaps

substantially) our

provision for credit

losses in the period of

adoption.
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 225

NOTE 2: CONSERVATORSHIP AND RELATED MATTERS

BUSINESS OBJECTIVES

We operate under the conservatorship that commenced on September 6, 2008, conducting our business 

under the direction of FHFA, as our Conservator. The conservatorship and related matters significantly 

affect our management, business activities, financial condition and results of operations. Upon its 

appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers and privileges of 

Freddie Mac, and of any stockholder, officer or director thereof, with respect to the company and its 

assets. The Conservator also succeeded to the title to all books, records, and assets of Freddie Mac held 

by any other legal custodian or third party. The Conservator delegated certain authority to the Board of 

Directors to oversee, and management to conduct, business operations so that the company can 

continue to operate in the ordinary course. The directors serve on behalf of, and exercise authority as 

directed by, the Conservator.

We are subject to certain constraints on our business activities under the Purchase Agreement. However, 

the support provided by Treasury pursuant to the Purchase Agreement also enables us to have adequate 

liquidity to conduct our normal business activities. Our ability to access funds from Treasury under the 

Purchase Agreement is critical to keeping us solvent.

Our current business objectives reflect direction we have received from the Conservator (including the 

Conservatorship Scorecards). At the direction of the Conservator, we have made changes to certain 

business practices that are designed to provide support for the mortgage market in a manner that serves 

our public mission and other non-financial objectives but may not contribute to our profitability. Certain of 

these objectives are intended to help homeowners and the mortgage market and may help to mitigate 

future credit losses. Some of these initiatives affect our near- and long-term financial results. Given our 

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

Mac in addressing housing and mortgage market conditions, we may be required to take actions that 

could have a negative impact on our business, operating results or financial condition, and thus contribute 

to a need for additional draws under the Purchase Agreement.

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

obligations as Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic 

goals. FHFA also issued annual Conservatorship Scorecards for 2014, 2015, 2016, and 2017. The annual 

Conservatorship Scorecards establish objectives and performance targets and measures for Freddie Mac 

and Fannie Mae (the “Enterprises”) related to the strategic goals set forth in the Strategic Plan.

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of 

Freddie Mac and Fannie Mae:

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

and refinanced loans to foster liquid, efficient, competitive and resilient national housing finance 

markets.

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

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

use by other participants in the secondary market in the future.

As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 226

mortgage credit for credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to 

continue to play an ongoing role in supporting multifamily housing needs, particularly for low-income 

households. The plan states that FHFA will continue to impose a production cap on Freddie Mac’s and 

Fannie Mae’s multifamily businesses. However, in 2015 FHFA allowed loans in certain affordable and 

underserved market segments to be excluded from the production cap. This allowance was maintained in 

the 2016 and 2017 Conservatorship Scorecards with slight modification.

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

Enterprises in a responsible way that does not reduce liquidity or adversely affect the availability of 

mortgage credit. The second goal provides for us to increase the use of single-family credit risk transfer 

transactions, continue using credit risk transfer transactions in the multifamily business and continue 

shrinking our mortgage-related investments portfolio consistent with the requirements in the Purchase 

Agreement, with a focus on selling less liquid assets.

The third goal includes the continued development of the common securitization platform. FHFA refined 

the scope of this project to focus on making the new shared system operational for Freddie Mac’s and 

Fannie Mae’s existing single-family securitization activities. The third goal also provides for the 

Enterprises to work towards the development of a single (common) security.

We continue to align our resources and internal business plans to meet the goals and objectives provided 

to us by FHFA.

As a result of the net worth sweep dividend provisions of the senior preferred stock, we cannot retain 

capital from the earnings generated by our business operations (other than a limited amount that will 

decrease to zero in 2018) or return capital to stockholders other than Treasury, the holder of our senior 

preferred stock. Our future is uncertain, and the conservatorship has no specified termination date. We do 

not know what changes may occur to our business model during or following conservatorship, including 

whether we will continue to exist. We are not aware of any current plans of our Conservator to 

significantly change our business model or capital structure in the near term. Our future structure and role 

will be determined by the Administration and Congress, and it is possible and perhaps likely that there will 

be significant changes beyond the near term. We have no ability to predict the outcome of these 

deliberations.

PURCHASE AGREEMENT AND WARRANT

Overview

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

Agreement with Treasury. The Purchase Agreement was subsequently amended and restated on 

September 26, 2008, and further amended on May 6, 2009, December 24, 2009, and August 17, 2012. 

The amount of available funding remaining under the Purchase Agreement was $140.5 billion as of 

December 31, 2016. This amount will be reduced by any future draws. 

The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us 

after any quarter in which we have a negative net worth (that is, our total liabilities exceed our total 

assets, as reflected on our GAAP balance sheet). In addition, the Purchase Agreement requires Treasury, 

upon the request of the Conservator, to provide funds to us if the Conservator determines, at any time, 

that it will be mandated by law to appoint a receiver for us unless we receive these funds from Treasury. 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 227

In exchange for Treasury’s funding commitment, we issued to Treasury, as an aggregate initial 

commitment fee, one million shares of Variable Liquidation Preference Senior Preferred Stock (with an 

initial liquidation preference of $1 billion), which we refer to as the senior preferred stock, and a warrant to 

purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares 

of our common stock outstanding on a fully diluted basis at the time the warrant is exercised, which we 

refer to as the warrant. We received no other consideration from Treasury for issuing the senior preferred 

stock or the warrant.

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

as and if declared by our Board of Directors. The dividends we have paid to Treasury on the senior 

preferred stock have been declared by, and paid at the direction of, the Conservator, acting as successor 

to the rights, titles, powers and privileges of the Board. Through December 31, 2012, the senior preferred 

stock accrued quarterly cumulative dividends at a rate of 10% per year. However, under the August 2012 

amendment to the Purchase Agreement, the fixed dividend rate was replaced with a net worth sweep 

dividend beginning in the first quarter of 2013. 

For each quarter from January 1, 2013 through and including December 31, 2017, the dividend payment 

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

quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is 

defined as the total assets of Freddie Mac (excluding Treasury’s commitment and any unfunded amounts 

thereof), less our total liabilities (excluding any obligation in respect of capital stock), in each case as 

reflected on our consolidated balance sheets prepared in accordance with GAAP. If the calculation of the 

dividend payment for a quarter does not exceed zero, then no dividend will accrue or be payable for that 

quarter. The applicable Capital Reserve Amount was $1.2 billion for 2016, will be $0.6 billion for 2017, 

and will decline to zero on January 1, 2018. For each quarter beginning January 1, 2018, the dividend 

payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately 

preceding fiscal quarter exceeds zero. The amounts payable for dividends on the senior preferred stock 

could be substantial and will have an adverse impact on our financial position and net worth. The senior 

preferred stock is senior in liquidation preference to our common stock and all other series of preferred 

stock.

In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase 

Agreement to pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to 

be determined in an amount mutually agreed to by us and Treasury with reference to the market value of 

Treasury’s funding commitment as then in effect. However, pursuant to the August 2012 amendment to 

the Purchase Agreement, for each quarter commencing January 1, 2013, and for as long as the net worth 

sweep dividend provisions remain in form and content substantially the same, no periodic commitment 

fee under the Purchase Agreement will be set, accrue or be payable. 

Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred 

stock is limited, and we will not be able to do so for the foreseeable future, if at all. The aggregate 

liquidation preference of the senior preferred stock will increase further if we receive additional draws 

under the Purchase Agreement or if any dividends or quarterly commitment fees payable under the 

Purchase Agreement are not paid in cash. 

The Purchase Agreement includes significant restrictions on our ability to manage our business, including 

limiting the amount of indebtedness we can incur and capping the size of our mortgage-related 

investments portfolio. 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 228

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which 

do not include the end of the conservatorship. The Purchase Agreement therefore could continue after the 

conservatorship ends. However, Treasury's consent is required for a termination of conservatorship other 

than in connection with receivership. Treasury has the right to exercise the warrant, in whole or in part, at 

any time on or before September 7, 2028.

Purchase Agreement Covenants

The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we 

may not, without the prior written consent of Treasury:

• Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to 

any Freddie Mac equity securities (other than with respect to the senior preferred stock or warrant);

• Redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the 

senior preferred stock or warrant);

• Sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and 

the common stock issuable upon exercise of the warrant and other than as required by the terms of 

any binding agreement in effect on the date of the Purchase Agreement);

• Terminate the conservatorship (other than in connection with a receivership);

• Sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value:

To a limited life regulated entity (in the context of a receivership);

Of assets and properties in the ordinary course of business, consistent with past practice;

Of assets and properties having fair market value individually or in aggregate less than $250 

million in one transaction or a series of related transactions;

In connection with our liquidation by a receiver; 

Of cash or cash equivalents for cash or cash equivalents; or

To the extent necessary to comply with the covenant described below relating to the 

reduction of our mortgage-related investments portfolio;

• Issue any subordinated debt;

• Enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or

• Engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase 

Agreement, the senior preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction 

undertaken in the ordinary course or pursuant to a contractual obligation or customary employment 

arrangement in existence on the date of the Purchase Agreement.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The 

Purchase Agreement, as revised in the August 2012 amendment, provides that we could not own 

mortgage assets with UPB in excess of $650 billion on December 31, 2012, and on December 31 of each 

year thereafter may not own mortgage assets with UPB in excess of 85% of the aggregate amount of 

mortgage assets we are permitted to own as of December 31 of the immediately preceding calendar year, 

provided that we are not required to own less than $250 billion in mortgage assets. Under the Purchase 

Agreement, we also may not, without the prior written consent of Treasury, incur indebtedness that would 

result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets 

we are permitted to own on December 31 of the immediately preceding calendar year. The mortgage 

asset and indebtedness limitations are determined without giving effect to the changes to the accounting 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 229

guidance for transfers of financial assets and consolidation of VIEs, under which we consolidated our 

single-family PC trusts and certain other VIEs in our financial statements as of January 1, 2010.

In addition, the Purchase Agreement provides that we may not enter into any new compensation 

arrangements or increase amounts or benefits payable under existing compensation arrangements of any 

named executive officer or other executive officer (as such terms are defined by SEC rules) without the 

consent of the Director of FHFA, in consultation with the Secretary of the Treasury.

The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk 

management plan to Treasury setting out our strategy for reducing our enterprise-wide risk profile and the 

actions we will take to reduce the financial and operational risk associated with each of our reportable 

business segments.

Warrant Covenants

The warrant we issued to Treasury includes, among others, the following covenants: 

• Our SEC filings under the Exchange Act will comply in all material respects as to form with the 

Exchange Act and the rules and regulations thereunder; 

• Without the prior written consent of Treasury, we may not permit any of our significant subsidiaries to 

issue capital stock or equity securities, or securities convertible into or exchangeable for such 

securities, or any stock appreciation rights or other profit participation rights to any person other than 

Freddie Mac or its wholly-owned subsidiaries; 

• We may not take any action that will result in an increase in the par value of our common stock; 

• Unless waived or consented to in writing by Treasury, we may not take any action to avoid the 

observance or performance of the terms of the warrant and we must take all actions necessary or 

appropriate to protect Treasury’s rights against impairment or dilution; and 

• We must provide Treasury with prior notice of specified actions relating to our common stock, such as 

setting a record date for a dividend payment, granting subscription or purchase rights, authorizing a 

recapitalization, reclassification, merger or similar transaction, commencing a liquidation of the 

company or any other action that would trigger an adjustment in the exercise price or number or 

amount of shares subject to the warrant.

Termination Provisions

The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of the 

following circumstances:

• The completion of our liquidation and fulfillment of Treasury’s obligations under its funding 

commitment at that time;

• The payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, 

including mortgage guarantee obligations); and 

• The funding by Treasury of the maximum amount of the commitment under the Purchase Agreement. 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 230

In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null 

and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the 

appointment of the Conservator or otherwise curtails the Conservator’s powers. Treasury may not 

terminate its funding commitment under the Purchase Agreement solely by reason of our being in 

conservatorship, receivership or other insolvency proceeding, or due to our financial condition or any 

adverse change in our financial condition.

Waivers and Amendments

The Purchase Agreement provides that most provisions of the agreement may be waived or amended by 

mutual written agreement of the parties; however, no waiver or amendment of the agreement is permitted 

that would decrease Treasury’s aggregate funding commitment or add conditions to Treasury’s funding 

commitment if the waiver or amendment would adversely affect in any material respect the holders of our 

debt securities or mortgage guarantee obligations.

Third-party Enforcement Rights

In the event of our default on payments with respect to our debt securities or mortgage guarantee 

obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the 

Conservator are not diligently pursuing remedies in respect of that failure, the holders of these debt 

securities or mortgage guarantee obligations may file a claim in the United States Court of Federal Claims 

for relief requiring Treasury to fund to us the lesser of:

• The amount necessary to cure the payment defaults on our debt and mortgage guarantee obligations; 

and

• The lesser of:

The deficiency amount; and

The maximum amount of the commitment less the aggregate amount of funding previously 

provided under the commitment. 

Any payment that Treasury makes under those circumstances will be treated for all purposes as a draw 

under the Purchase Agreement that will increase the liquidation preference of the senior preferred stock.

IMPACT OF CONSERVATORSHIP AND RELATED DEVELOPMENTS ON THE 

MORTGAGE-RELATED INVESTMENTS PORTFOLIO

For purposes of the limit imposed by the Purchase Agreement and FHFA regulation, the UPB of our 

mortgage-related investments portfolio could not exceed $339.3 billion at December 31, 2016 and was 

$298.4 billion at that date. Our Retained Portfolio Plan, which we adopted in 2014, provides for us to 

manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90% of the 

annual cap established by the Purchase Agreement (subject to certain exceptions). Our mortgage-related 

investments portfolio cap is reduced by 15% annually until it reaches $250 billion. This amount is 

calculated based on the maximum allowable size of the mortgage-related investments portfolio, rather 

than the actual UPB of the mortgage-related investments portfolio, as of December 31 of the preceding 

year. Our ability to acquire and sell mortgage assets is significantly constrained by limitations of the 

Purchase Agreement and those imposed by FHFA. 
Financial Statements Notes to the Consolidated Financial Statements | Note 2

Freddie Mac 2016 Form 10-K 231

GOVERNMENT SUPPORT FOR OUR BUSINESS

We receive substantial support from Treasury and are dependent upon its continued support in order to 

continue operating our business. Our ability to access funds from Treasury under the Purchase 

Agreement is critical to:

• Keeping us solvent;

• Allowing us to focus on our primary business objectives under conservatorship; and

• Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. 

At September 30, 2016, our assets exceeded our liabilities under GAAP; therefore, FHFA did not request 

a draw on our behalf and, as a result, we did not receive any funding from Treasury under the Purchase 

Agreement during the three months ended December 31, 2016. Since conservatorship began through 

December 31, 2016, we have paid cash dividends of $101.4 billion to Treasury at the direction of the 

Conservator.

Additionally, in recent years, the Federal Reserve purchased significant amounts of mortgage-related 

securities issued by us, Fannie Mae, and Ginnie Mae.

See Note 6 and Note 9 for more information on the conservatorship and the Purchase Agreement.

RELATED PARTIES AS A RESULT OF CONSERVATORSHIP

As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 

79.9% of the total number of shares of our common stock outstanding, on a fully diluted basis, we are 

deemed a related party to the U.S. government. During the years ended December 31, 2016, 2015, and 

2014, no transactions outside of normal business activities have occurred between us and the U.S. 

government (or any of its related parties), except for the following:

• The transactions with Treasury discussed above in “Purchase Agreement and Warrant” and 

“Government Support for our Business;” 

• The transactions entered into whereby we and Fannie Mae, in conjunction with Treasury, provided 

assistance to state and local HFAs. Treasury will reimburse Freddie Mac for initial guarantee losses 

on these transactions;

• The transactions discussed in Note 4, Note 6, and Note 9; and

• The allocation or transfer of 4.2 basis points of each dollar of new business purchases to certain 

housing funds as required under the GSE Act.

In addition, we are deemed related parties with Fannie Mae as both we and Fannie Mae have the same 

relationships with FHFA and Treasury. All transactions between us and Fannie Mae have occurred in the 

normal course of business in conservatorship. In October 2013, FHFA announced the formation of CSS. 

CSS is equally-owned by Freddie Mac and Fannie Mae. In connection with the formation of CSS, we 

entered into a limited liability company agreement with Fannie Mae. In November 2014, we and Fannie 

Mae announced that a chief executive officer had been named for CSS. Additionally, we and Fannie Mae 

each appointed two executives to the CSS Board of Managers and signed governance and operating 

agreements for CSS. Therefore, CSS is also deemed a related party. During the year ended 

December 31, 2016, we contributed $118 million of capital to CSS. 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 232

NOTE 3: SECURITIZATION AND GUARANTEE ACTIVITIES

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.

CONSOLIDATION OF VIEs AND ACCOUNTING FOR GUARANTEES

We consolidate VIEs when we have a controlling financial interest in the VIE and are therefore considered 

the primary beneficiary of the VIE. We are the primary beneficiary of a VIE when we have both the power 

to direct the activities of the VIE that most significantly impact its economic performance and exposure to 

losses or benefits of the VIE that could potentially be significant to the VIE. We evaluate whether we are 

the primary beneficiary of VIEs in which we have interests on an ongoing basis, and our primary 

beneficiary determination may change over time as our interest in the VIE changes. 

When we consolidate a VIE, we recognize the assets and liabilities of the VIE on our consolidated 

balance sheets and account for those assets and liabilities based on the applicable GAAP for each 

specific type of asset or liability. Assets and liabilities that we transfer to a VIE at, after, or shortly before 

the date we become the primary beneficiary of the VIE are initially measured at the same amounts that 

they would have been measured if they had not been transferred, and no gain or loss is recognized on 

these transfers. For all other VIEs that we consolidate, we recognize the assets and liabilities of the VIE 

at fair value, and we recognize a gain or loss for the difference between:

• The sum of the fair value of the consideration paid, the fair value of any noncontrolling interests, and 

the reported amount of any previously held interests; and

• The net fair value of the assets and liabilities recognized. Guarantees to consolidated VIEs are 

eliminated in consolidation and are therefore not separately recognized on our consolidated balance 

sheets.

When we provide, either to an unconsolidated VIE or to another third party, a guarantee that exposes us 

to incremental credit risk, we recognize both a guarantee obligation at fair value and the consideration we 

receive for providing the guarantee, which typically consists of a guarantee asset that represents the fair 

value of future guarantee fees. As a practical expedient, the measurement of the fair value of the 

guarantee obligation is set equal to the consideration we receive to provide the guarantee, and no gain or 

loss is recognized upon issuance of the guarantee. Subsequently, we recognize changes in the fair value 

of the guarantee asset in current period earnings and amortize the guarantee obligation into earnings as 

we are released from risk under the guarantee. We also recognize a reserve for guarantee losses when it 

is probable that a loss has been incurred under the guarantee. 

The table below presents the carrying value and classification of the assets and liabilities of consolidated 

VIEs on our consolidated balance sheets.
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 233

(In millions) December 31, 2016 December 31, 2015

Consolidated Balance Sheet Line Item

Assets:

Cash and cash equivalents $— $—

Restricted cash and cash equivalents 9,431 14,529

Securities purchased under agreements to resell 13,550 14,840

Mortgage loans held-for-sale — 1,403

Mortgage loans held-for-investment 1,690,218 1,625,184

Accrued interest receivable 5,454 5,305

Other assets 3,827 2,631

Total assets of consolidated VIEs $1,722,480 $1,663,892

Liabilities:

Accrued interest payable $4,846 $4,763

Debt, net 1,648,683 1,556,121

Other liabilities — 6

Total liabilities of consolidated VIEs $1,653,529 $1,560,890

SECURITIZATION ACTIVITIES

PCs

Single-family PCs are pass-through debt securities that represent undivided beneficial interests in a pool 

of loans held by a securitization trust. We serve as both administrator and guarantor for our single-family 

PC trusts. As administrator, we have the right to establish servicing terms and direct loss mitigation 

activities for the loans held by the PC trusts. As guarantor, we guarantee the payment of principal and 

interest on our single-family PCs in exchange for a guarantee fee, and we have the right to purchase 

delinquent loans from the PC trust to help improve the economic performance of the trust. We absorb all 

credit losses of the PC trusts through our guarantee of the principal and interest payments. 

The economic performance of our single-family PC trusts is most significantly affected by the 

performance of the underlying loans. Our rights as administrator and guarantor provide us with the power 

to direct the activities that most significantly affect the performance of the underlying loans. We also have 

the obligation to absorb losses of our single-family PC trusts that could potentially be significant through 

our guarantee of principal and interest payments. Accordingly, we concluded that we are the primary 

beneficiary of our single-family PC trusts and, therefore, consolidate those trusts.

Loans held by our single-family PC trusts are recognized on our consolidated balance sheets as 

mortgage loans held-for-investment. The corresponding single-family PCs held by third parties are 

recognized on our consolidated balance sheets as debt, net. We extinguish the outstanding debt 

securities of the related consolidated trust and recognize gains or losses on debt extinguishment for the 

difference between the consideration paid and the debt carrying value when we purchase single-family 

PCs as investments in our mortgage-related investments portfolio. Sales of single-family PCs previously 

held as investments in our mortgage-related investments portfolio are accounted for as debt issuances. 

See Note 4 and Note 6 for additional information on loans and debt securities of consolidated trusts.
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 234

At December 31, 2016 and 2015, we were the primary beneficiary of, and therefore consolidated, singlefamily PC trusts with assets totaling $1.7 trillion and $1.6 trillion, respectively. During the years ended 

December 31, 2016 and 2015, we issued approximately $391.0 billion and $352.6 billion, respectively, of 

guaranteed single-family PCs. Our exposure for guarantees to consolidated securitization trusts is 

generally equal to the UPB of the loans recorded on our consolidated balance sheets. 

Resecuritization Products

We create resecuritization products primarily by using PCs or our previously issued resecuritization 

products as the underlying collateral. In a typical resecuritization transaction, previously issued PCs or 

resecuritization products are transferred to a resecuritization trust that issues beneficial interests in the 

underlying collateral. We establish parameters that define eligibility standards for assets that may be used 

as collateral for each of our resecuritization programs. Resecuritization products can then be created 

based on the parameters that we have established. Similar to our PCs, we guarantee the payment of 

principal and interest to the investors in our resecuritization products. However, because we have already 

guaranteed the underlying assets, we do not assume any incremental credit risk by issuing these 

securities. The main types of resecuritization products we create are Giant PCs, REMICs, and Stripped 

Giant PCs. 

Giant PCs

Giant PCs are direct pass-throughs of the cash flows of the underlying collateral, which may be previously 

issued PCs or Giant PCs. We do not consolidate Giant PCs as their resecuritization does not result in any 

new or incremental risk to the holders of the securities issued by the resecuritization trust and because 

we are not exposed to any incremental rights to receive benefits or obligations to absorb losses that could 

be significant to the resecuritization trust.

Purchases of Giant PCs as investments in our mortgage-related investments portfolio are accounted for 

as debt extinguishments of a pro-rata portion of the underlying single-family PCs because Giant PCs are 

considered substantially the same as the underlying single-family PCs. Similarly, sales of Giant PCs 

previously held as investments in our mortgage-related investments portfolio are accounted for as debt 

issuances of a pro-rata portion of the underlying single-family PCs. 

REMICs and Stripped Giant PCs

REMICs and Stripped Giant PCs are multiclass resecuritizations of the cash flows of the underlying 

collateral, which may be previously issued PCs, Giant PCs, or other REMICs and Stripped Giant PCs. 

The activity that most significantly impacts the economic performance of our resecuritization trusts is 

typically the initial design and structuring of the trust. Substantially all resecuritization trusts are created 

as part of customer-driven transactions in which an investor or dealer participates in the decisions made 

during the design and establishment of the trust. As a result, we do not have the unilateral ability to direct 

the activities of our resecuritization trusts that most significantly impact the economic performance of 

those trusts. In addition, we do not have the right to receive benefits or the obligation to absorb losses 

that could potentially be significant to the trusts because we have already provided a guarantee on the 

underlying assets. As a result, we have concluded that we are not the primary beneficiary of our 

resecuritization trusts and, therefore, do not consolidate those trusts. 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 235

Because we have already guaranteed the underlying assets, we do not receive any incremental 

guarantee fees in exchange for our guarantee, and, accordingly, we do not recognize any additional 

guarantee assets, guarantee obligations, or reserves for guarantee losses related to resecuritization 

trusts. Instead, we receive a one-time transaction fee which represents compensation for both the 

structuring and creation of the securities and for our ongoing administrative responsibilities to service the 

securities. We recognize the portion of the transaction fee related to creation of the securities immediately 

in earnings. We defer the portion of the fee related to ongoing administrative responsibilities and 

amortize it over the life of the associated trust. 

When we purchase a REMIC or Stripped Giant PC as an investment in our mortgage-related investments 

portfolio, we record the security as an investment in debt securities rather than extinguishment of debt 

since we are investing in the debt securities of a non-consolidated entity. We do not consolidate REMIC 

or Stripped Giant PC trusts that we hold as we are not deemed to be the primary beneficiary of the trusts, 

unless we have the unilateral ability to collapse the trust. Similarly, sales of REMICs or Stripped Giant 

PCs previously held as investments in our mortgage-related investments portfolio are accounted for as 

sales of investments in debt securities. See Note 6 for additional information on accounting for 

investments in debt securities.

K Certificates

In a K Certificate transaction, we sell multifamily loans to a non-Freddie Mac securitization trust that 

issues senior and subordinated securities, and simultaneously purchase and place the senior securities 

into a Freddie Mac securitization trust that issues guaranteed K Certificates. In these transactions, we 

guarantee the senior securities issued by the Freddie Mac securitization trust and do not issue or 

guarantee the subordinated securities issued by the non-Freddie Mac securitization trust. We receive a 

guarantee fee in exchange for our guarantee. We serve as guarantor of our K Certificate trusts and, from 

time to time, as master servicer. However, in contrast to single-family PC trusts, the rights to direct loss 

mitigation activities of the underlying loans and to purchase delinquent loans from the securitization trust 

are held by the investor in the most subordinate remaining securities issued by the trust, and we do not 

have any power to direct those activities unless we are the investor in the most subordinate remaining 

securities. 

The economic performance of our K Certificate trusts is most significantly affected by the performance of 

the underlying loans. Because our rights in a K Certificate transaction do not provide us with the power to 

direct the activities that most significantly affect the performance of the underlying loans, we are not the 

primary beneficiary of our K Certificate trusts and, therefore, do not consolidate those trusts. 

When we sell loans to a K Certificate trust, we derecognize the transferred loans and account for our 

guarantee to the non-consolidated K Certificate trust. We account for our investments in the beneficial 

interests issued by non-consolidated K Certificate trusts as investments in debt securities.

During 2016 and 2015, we issued approximately $40.6 billion and $29.4 billion, respectively, of K 

Certificates for which a guarantee asset and guarantee obligation were recognized.

SB Certificates

In SB Certificate transactions, we securitize small balance multifamily loans in transactions which are 

structured in a manner generally similar to our K Certificate transactions. We are not the primary 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 236

beneficiary and we do not consolidate SB Certificate trusts as our rights do not provide us with the power 

to direct the activities that most significantly affect the performance of the underlying loans.

In a typical SB Certificate transaction, we sell loans to a SB Certificate trust, derecognize the transferred 

loans, and account for our guarantee to the non-consolidated SB Certificate trust. We account for our 

investments in the beneficial interests issued by non-consolidated SB Certificate trusts as investments in 

debt securities.

During 2016 and 2015, we issued approximately $3.5 billion and $1.6 billion, respectively, of SB 

Certificates for which a guarantee asset and guarantee obligation were recognized.

Whole Loan Securities

We consolidate our whole loan securities because we have the ability to direct the loss mitigation 

activities of the underlying loans and we have the obligation to absorb credit losses through our 

guarantee of the issued securities. 

Senior Subordinate Securitization Structures

We do not consolidate our senior subordinate securitization structures as we do not have the ability to 

direct the activities that most significantly affect the performance of the underlying loans. For these 

products, we account for our guarantee to the unconsolidated VIE.

Other Securitization Products

We consolidate certain of our other securitization trusts because we have the ability to direct the loss 

mitigation activities of the underlying loans and we have the obligation to absorb credit losses through our 

guarantee of the issued securities. As a result, we are the primary beneficiary of single-family and 

multifamily other securitization trusts with underlying assets totaling $7.5 billion at both December 31, 

2016 and 2015. We do not consolidate the other securitization trusts that do not meet these conditions. 

For those products, we account for our guarantee to the unconsolidated VIE.

OTHER GUARANTEE ACTIVITIES

Other Mortgage-related Guarantees

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

exchange for a guarantee fee, without securitizing those assets. These guarantees consist of the 

following:

• Long-term standby commitments of single-family loans which obligate us to purchase the covered 

loans when they become seriously delinquent. Periodically, certain of our customers seek to 

terminate long-term standby commitments and simultaneously enter into guarantor swap transactions 

to obtain our PCs backed by many of the same loans. During 2016 and 2015, we guaranteed $3.6 

billion and $4.0 billion, respectively, of loans under new long-term standby commitments; and

• Guarantees of multifamily housing revenue bonds that were issued by HFAs, including guarantees 

that require us to advance funds to enable others to repurchase any tendered tax-exempt and related 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 237

taxable bonds that are unable to be marketed. No advances under these guarantees were 

outstanding at December 31, 2016 and 2015.

Under these arrangements, we account for our guarantee to the counterparty to the transaction but do not 

recognize the underlying assets on our consolidated balance sheets.

Derivative Instruments

Derivative instruments include written options and written swaptions, and other instruments accounted for 

as credit derivatives. 

We also issued certain REMICs with stated final maturities that are shorter than the stated maturity of the 

underlying loans. If the underlying loans to these securities have not been purchased by a third party or 

fully matured as of the stated final maturity date of such securities, we will sponsor an auction of the 

underlying assets. To the extent that purchase or auction proceeds are insufficient to cover unpaid 

principal amounts due to investors, we are obligated to fund such principal. Our maximum exposure on 

these derivative guarantees represents the outstanding UPB of the issued securities.

Other Indemnifications

In connection with certain business transactions, we may provide indemnification to counterparties for 

claims arising out of breaches of certain obligations (e.g., those arising from representations and 

warranties) in contracts entered into in the normal course of business. Our assessment is that the risk of 

any material loss from such a claim for indemnification is remote and there are no significant probable 

and estimable losses associated with these contracts. In addition, we provided indemnification for 

litigation defense costs to certain former officers who are subject to ongoing litigation. See Note 14 for 

information on ongoing litigation. The recognized liabilities on our consolidated balance sheets related to 

indemnifications were not significant at December 31, 2016 and 2015.

VIEs FOR WHICH WE ARE NOT THE PRIMARY BENEFICIARY

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. Our maximum 

exposure to loss for those VIEs in which we have purchased an investment is calculated as the maximum 

potential charge that we would recognize in earnings if that investment were to become worthless. Our 

maximum exposure to loss for those VIEs for which we have provided a guarantee represents the 

contractual amounts that could be lost under the guarantees if counterparties or borrowers defaulted, 

without consideration of possible recoveries under credit enhancement arrangements. We do not believe 

the maximum exposure to loss disclosed in the table below is representative of the actual loss we are 

likely to incur, based on our historical loss experience and after consideration of proceeds from related 

collateral liquidation, including possible recoveries under credit enhancement arrangements.

The following table presents the carrying amounts and classification of the assets and liabilities recorded 

on our consolidated balance sheets related to our variable interests in unconsolidated 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. 
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 238

(In millions) December 31, 2016 December 31, 2015

Assets and Liabilities Recorded on our Consolidated 

Balance Sheets(1)

Assets:

Investments in securities $58,995 $49,040

Accrued interest receivable 254 200

Other assets 1,708 1,232

 Liabilities:

Other liabilities (1,604) (1,230)

Maximum Exposure to Loss $150,227 $114,193

Total Assets of Non-Consolidated VIEs $175,713 $134,900

(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. Our maximum exposure to loss 

includes the guaranteed UPB of assets held by the non-consolidated VIEs related to K Certificates, SB Certificates, senior 

subordinate securitization structures, and other securitization products. Our maximum exposure to loss excludes investments 

in REMICs and Stripped Giant PCs, because we already consolidate the collateral of these trusts on our consolidated 

balance sheets.

We also obtain interests in various other VIEs created by third parties through the normal course of 

business, such as through our investments in non-Freddie Mac mortgage-related securities, purchases of 

multifamily loans, guarantees of multifamily housing revenue bonds, as a derivative counterparty, or 

through other activities. We were not involved in the design or creation of these entities and our 

continuing involvement is typically passive in nature and does not provide us with the power to direct the 

activities that most significantly impact the economic performance of these entities. As a result, we do not 

consolidate these VIEs and we account for our interests in the VIEs in the same manner that we account 

for our interests in other third-party transactions. See Note 5 for additional information regarding our 

investments in non-Freddie Mac mortgage-related securities. See Note 4 for more information regarding 

multifamily loans.

FINANCIAL GUARANTEES

The table below shows our maximum potential exposure, recognized liability, and maximum remaining 

term of our recognized financial guarantees to unconsolidated VIEs and other third parties. This table 

does not include our unrecognized financial 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.

December 31, 2016 December 31, 2015

(Dollars in millions, terms in years)

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

Maximum

Exposure(1)

Recognized

Liability(2)

Maximum

Remaining

Term

K Certificates, SB Certificates, senior

subordinate securitization structures, and other

securitization products

$150,227 $1,532 40 $114,193 $1,136 40

Other mortgage-related guarantees 16,445 679 34 13,067 596 38

Derivative instruments 6,396 127 29 17,894 151 30

(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, thirdparty insurance contracts, or from collateral held or pledged. For derivative instruments, this amount represents the notional 

value.
Financial Statements Notes to the Consolidated Financial Statements | Note 3

Freddie Mac 2016 Form 10-K 239

(2) For K Certificates, SB Certificates, senior subordinate securitization structures, other securitization products, and other 

mortgage-related guarantees, this amount represents the guarantee obligation on our consolidated balance sheets. This 

amount excludes our reserve for guarantee losses, which totaled $67 million and $76 million as of December 31, 2016 and 

2015, respectively, and is included within other liabilities on our consolidated balance sheets.

CREDIT ENHANCEMENTS

For many of the loans underlying our single-family PCs, other securitization products, and other mortgage 

related guarantees, we obtained credit enhancements from third parties covering a portion of our credit 

risk exposure. See Note 4 for information about credit enhancements on loans.

In connection with the securitization activities of the Multifamily segment, we have various forms of credit 

protection. The most prevalent type is subordination, primarily through our K Certificates and SB 

Certificates. Through subordination, we mitigate our credit risk exposure by structuring our securities to 

transfer a large majority of expected and stress credit losses to private investors who purchase the 

subordinate tranches, as shown in the table below. 

UPB at Maximum Coverage(1) at

(In millions) December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015

K Certificates and SB

Certificates $139,416 $103,061 $23,864 $18,571

Other securitization products 5,545 5,438 1,359 1,359

Total $144,961 $108,499 $25,223 $19,930

(1) For K Certificates and SB Certificates, this represents the UPB of the securities that are subordinate to our guarantee. For 

other securitization products, this represents the remaining amount of loss recovery that is available subject to the terms of 

the counterparty agreement or the UPB of the securities that are subordinate to our guarantee.

In addition to subordination, the Multifamily segment also has various other credit enhancements, 

primarily related to our mortgage loans and other mortgage-related guarantees, in the form of collateral 

posting requirements, loss sharing agreements, and other similar arrangements. These credit 

enhancements will enable us to recover all or a portion of our losses or the amounts paid under our 

guarantee. Our historical losses and related recoveries pursuant to these agreements have not been 

significant.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 240

NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES

The table below provides details of the loans on our consolidated balance sheets as of December 31, 

2016 and 2015.

December 31, 2016 December 31, 2015

(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 $2,092 $— $2,092 $6,045 $1,702 $7,747

Multifamily 16,544 — 16,544 19,582 — 19,582

Total UPB 18,636 — 18,636 25,627 1,702 27,329

Cost basis and fair value

adjustments, net (548) — (548) (2,038) (299) (2,337)

Total held-for-sale loans 18,088 — 18,088 23,589 1,403 24,992

Held-for-investment:

Single-family 83,040 1,659,591 1,742,631 90,532 1,597,590 1,688,122

Multifamily 25,873 3,048 28,921 29,505 1,711 31,216

Total UPB 108,913 1,662,639 1,771,552 120,037 1,599,301 1,719,338

Cost basis adjustments (3,755) 30,549 26,794 (3,465) 28,659 25,194

Allowance for loan losses (10,461) (2,970) (13,431) (12,555) (2,776) (15,331)

Total held-for-investment loans 94,697 1,690,218 1,784,915 104,017 1,625,184 1,729,201

Total loans, net $112,785 $1,690,218 $1,803,003 $127,606 $1,626,587 $1,754,193

We own both single-family loans, which are secured by one to four unit residential properties, and 

multifamily loans, which are secured by properties with five or more residential rental units. Our singlefamily loans are predominantly first lien, fixed-rate loans secured by the borrower’s primary residence. 

Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Loans that we have the 

ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans that we 

intend to securitize using an entity we will consolidate are classified as held-for-investment both prior to 

and subsequent to their securitization. Otherwise, they will be classified as held-for-sale. Held-forinvestment loans are reported in our consolidated balance sheets at their outstanding UPB, net of 

deferred fees and other cost basis adjustments (including unamortized premiums and discounts, delivery 

fees and other pricing adjustments). 

Loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are 

reported at lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-for-sale 

loan’s cost over its fair value is recognized as a valuation allowance in other income on our consolidated 

statements of comprehensive income, with changes in this valuation allowance also being recorded in 

other income. Premiums, discounts, and other cost basis adjustments (including lower-of-cost-or-fair 

value adjustments) on single-family loans classified as held-for-sale are deferred and not amortized. We 

elected the fair value option for certain multifamily loans that we intend to securitize and sell to investors. 

Therefore, these multifamily loans are measured at fair value on a recurring basis, with subsequent gains 

or losses related to changes in fair value reported in other income in our consolidated statements of 

comprehensive income.

Cash flows related to loans originally classified as held-for-investment are classified as either investing 

activities (e.g., principal repayments) or operating activities (e.g., interest payments received from 

borrowers included within net income (loss)). Cash flows related to loans originally classified as held-forsale are classified as operating activities.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 241

During 2016 and 2015, we purchased $388.9 billion and $346.5 billion, respectively, in UPB of singlefamily loans, and $6.1 billion and $4.4 billion, respectively, in UPB of multifamily loans that were classified 

as held-for-investment. 

Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates and SB 

Certificates. During 2016 and 2015, we sold $49.9 billion and $36.1 billion, respectively, of held-for-sale 

multifamily loans. See Note 3 for more information on our issuances of K Certificates and SB Certificates. 

As part of our strategy to mitigate losses and reduce our holdings of less liquid assets, we completed 

sales of $3.1 billion and $2.9 billion in UPB of seriously delinquent single-family loans during 2016 and 

2015, respectively.

In connection with our efforts to sell certain of our single-family loans, we reclassified $4.7 billion and 

$13.6 billion in UPB of seasoned single-family loans from held-for-investment to held-for-sale in 2016 and 

2015, respectively. We also reclassified $2.1 billion of multifamily loans from held-for-investment to heldfor-sale in 2015. We did not have this multifamily loan reclassification activity in 2016. For additional 

information regarding the fair value of our loans classified as held-for-sale, see Note 13.

INTEREST INCOME

We recognize interest income on an accrual basis except when we believe the collection of principal and 

interest in full is not reasonably assured, which generally occurs when a loan is three monthly payments 

past due, unless the loan is well secured and in the process of collection based upon an individual loan 

assessment. A loan is considered past due if a full payment of principal and interest is not received within 

one month of its due date. 

Cost basis adjustments on held-for-investment loans are amortized into interest income over the 

contractual lives of the loans using the effective interest method.

A non-accrual loan may be returned to accrual status when the collectability of principal and interest in full 

is reasonably assured. For single-family loans, we determine that collectability is reasonably assured 

when we have received payment of principal and interest such that the loan becomes less than three 

monthly payments past due. For multifamily loans, the collectability of principal and interest is considered 

reasonably assured based on an analysis of the factors specific to the loan being assessed. Upon a 

loan’s return to accrual status, all previously reversed interest income is recognized and amortization of 

any basis adjustments into interest income is resumed.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 242

CREDIT QUALITY

The current LTV ratio is one key factor we consider when estimating our loan loss reserves for singlefamily loans. As current LTV ratios increase, the borrower’s equity in the home decreases, which 

negatively affects the borrower’s ability to refinance (outside of HARP) or to sell the property for an 

amount at or above the balance of the outstanding loan. A second-lien loan also reduces the borrower’s 

equity in the home, and has a similar negative effect on the borrower’s ability to refinance or sell the 

property for an amount at or above the combined balances of the first and second loans. As of 

December 31, 2016 and 2015, based on data collected by us at loan delivery, approximately 11% and 

13%, 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 12.

We discontinued our purchases of Alt-A, interest-only, and option ARM loans a number of years ago. For 

reporting purposes:

• Loans within the Alt-A category continue to be presented in that category following modification, even 

though the borrower may have provided full documentation of assets and income to complete the 

modification; and

• Loans within the option ARM category continue to be presented in that category following 

modification, even though the modified loan no longer provides for optional payment provisions.

The table below presents the recorded investment of single-family held-for-investment loans by current 

LTV ratios. Our current LTV ratios are estimates based on available data through the end of each 

respective period presented. 

As of December 31, 2016 As of December 31, 2015

Current LTV Ratio Current LTV Ratio

(In millions) > 80 to 100 > 100(1) Total > 80 to 100 > 100(1) Total

20 and 30-year or more, 

amortizing fixed-rate(2) $1,120,722 $236,111 $30,063 $1,386,896 $1,020,227 $242,948 $50,893 $1,314,068

15-year amortizing fixed-rate(2) 274,967 11,016 887 286,870 271,456 12,400 1,754 285,610

Adjustable-rate 52,319 2,955 85 55,359 59,724 5,055 249 65,028

Alt-A, interest-only, and option

ARM 26,293 9,392 4,634 40,319 27,014 13,124 8,485 48,623

Total single-family loans $1,474,301 $259,474 $35,669 $1,769,444 $1,378,421 $273,527 $61,381 $1,713,329

(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 6.80% and 6.03% as of December 31, 2016 and 2015, respectively.

(2) The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of 

December 31, 2016 and 2015, we have categorized UPB of approximately $32.0 billion and $38.3 billion, respectively, of 

modified loans as fixed-rate loans (instead of as adjustable rate loans), even though the modified loans have rate adjustment 

provisions. In these cases, while the terms of the modified loans provide for the interest rate to adjust in the future, such 

future rates are determined at the time of modification rather than at a subsequent date.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 243

The following table presents the recorded investment in our multifamily held-for-investment loans, by 

credit quality indicator as of December 31, 2016 and 2015. The multifamily credit quality indicator is 

based on available data through the end of each period presented. These indicators involve significant 

management judgment.

(In millions) December 31, 2016 December 31, 2015

Credit risk profile by internally assigned grade:(1)

Pass $27,830 $29,660

Special mention 502 1,135

Substandard 570 408

Doubtful — —

Total $28,902 $31,203

(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 signs of potential financial weakness; "Substandard" has a well-defined weakness 

that jeopardizes the timely full repayment; and "Doubtful" has a weakness that makes collection or liquidation in full highly 

questionable and improbable based on existing conditions.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 244

MORTGAGE LOAN PERFORMANCE

The following table presents the recorded investment of our single-family and multifamily loans, held-forinvestment, by payment status.

December 31, 2016

(In millions) Current

One

Month

Past Due

Two

Months

Past Due

Three 

Months or

More Past 

Due,

or in

 Foreclosure(1) Total Non-accrual

Single-family:

20 and 30-year or more, amortizing

fixed-rate $1,354,511 $16,645 $4,865 $10,875 $1,386,896 $10,868

15-year amortizing fixed-rate 285,373 1,010 178 309 286,870 309

Adjustable-rate 54,738 354 77 190 55,359 190

Alt-A, interest-only, and option

ARM 35,994 1,748 650 1,927 40,319 1,927

Total single-family 1,730,616 19,757 5,770 13,301 1,769,444 13,294

Total multifamily 28,902 — — — 28,902 89

Total single-family and multifamily $1,759,518 $19,757 $5,770 $13,301 $1,798,346 $13,383

December 31, 2015

(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 $1,280,247 $16,178 $5,037 $12,606 $1,314,068 $12,603

15-year amortizing fixed-rate 284,137 935 183 355 285,610 355

Adjustable-rate 64,326 359 88 255 65,028 255

Alt-A, interest-only, and option

ARM 43,543 1,962 714 2,404 48,623 2,403

Total single-family 1,672,253 19,434 6,022 15,620 1,713,329 15,616

Total multifamily 31,203 — — — 31,203 170

Total single-family and multifamily $1,703,456 $19,434 $6,022 $15,620 $1,744,532 $15,786

(1) Includes $5.3 billion and $7.0 billion of loans that were in the process of foreclosure as of December 31, 2016 and 2015, 

respectively.

We have the option under our PC master trust agreement to remove loans that underlie our PCs under 

certain circumstances to resolve an existing or impending delinquency or default. Our practice generally 

has been to remove loans from PC trusts when the loans have been delinquent for 120 days or more. 

When we remove loans from PC trusts, we record an extinguishment of the corresponding portion of the 

debt securities of the consolidated trusts and we reclassify the loans from mortgage loans held-forinvestment by consolidated trusts to mortgage loans held-for-investment by Freddie Mac. We removed 

$6.8 billion and $8.4 billion in UPB of loans from PC trusts (or purchased delinquent loans associated with 

other mortgage-related guarantees) during the years ended December 31, 2016 and 2015, respectively. 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 245

The table below summarizes the delinquency rates of loans within our single-family credit guarantee and 

multifamily mortgage portfolios.

(Dollars in millions) December 31, 2016 December 31, 2015

Single-family:(1)

Non-credit-enhanced portfolio

Serious delinquency rate 1.02% 1.30%

Total number of seriously delinquent loans 77,662 105,071

Credit-enhanced portfolio:(2)

Primary mortgage insurance:

 Serious delinquency rate 1.46% 2.06%

 Total number of seriously delinquent loans 21,460 27,813

Other credit protection:(3)

 Serious delinquency rate 0.43% 0.58%

 Total number of seriously delinquent loans 9,455 9,422

Total single-family:

Serious delinquency rate 1.00% 1.32%

Total number of seriously delinquent loans 107,170 141,255

Multifamily:(4)

Non-credit-enhanced portfolio:

Delinquency rate 0.04% 0.03%

UPB of delinquent loans $19 $19

Credit-enhanced portfolio:

Delinquency rate 0.02% 0.02%

UPB of delinquent loans $37 $20

Total Multifamily:

Delinquency rate 0.03% 0.02%

UPB of delinquent loans $56 $39

(1) Serious delinquencies on single-family loans underlying certain REMICs, other securitization products, and other mortgagerelated guarantees may be reported on a different schedule due to variances in industry practice.

(2) The credit enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage 

insurance and other credit protection.

(3) Consists of single-family loans covered by financial arrangements (other than primary mortgage insurance) that are designed 

to reduce our credit risk exposure. See "Credit Protection and Other Forms of Credit Enhancement" for more information.

(4) 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. 

We continue to implement a number of initiatives to refinance and modify single-family loans. As part of 

these initiatives, we pay various incentives to servicers and borrowers. HAMP ended in December 2016. 

The relief refinance program (including HARP) will end in September 2017 and is expected to be replaced 

by a new program.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 246

LOAN LOSS RESERVES

The loan loss reserves represent estimates of probable incurred credit losses. We recognize probable 

incurred losses by recording a charge to the provision for credit losses in our consolidated statements of 

comprehensive income. The loan loss reserves include:

• Our allowance for loan losses, which pertains to all single-family and multifamily loans classified as 

held-for-investment on our consolidated balance sheets; and

• Our reserve for guarantee losses, which pertains to single-family and multifamily loans underlying our 

K Certificates and SB Certificates, other securitization products, and other mortgage-related 

guarantees. 

A significant portion of the unsecuritized single-family loans on our consolidated balance sheets are 

seriously delinquent and/or TDR loans that we previously removed from our PC pools. These seriously 

delinquent and TDR loans typically have a higher associated allowance for loan loss than loans that 

remain in consolidated trusts.

The table below presents our loan loss reserves activity.

Year Ended December 31,

2016 2015

Allowance for Loan Losses

 Reserve 

for

Guarantee

Losses

Allowance for Loan Losses

 Reserve 

for

Guarantee

 (In millions) Losses

Held by

Freddie Mac

Held By

Consolidated

Trusts Total

Held by

Freddie Mac

Held By

Consolidated

Trusts Total

Single-family:

Beginning balance $12,517 $2,775 $56 $15,348 $18,800 $2,884 $109 $21,793

Provision (benefit) for credit

losses (1,384) 599 4 (781) (2,763) 169 (45) (2,639)

Charge-offs(1)(2) (1,757) (173) (8) (1,938) (4,696) (367) (8) (5,071)

Recoveries 487 10 — 497 703 14 — 717

Transfers, net(3) 580 (243) — 337 473 75 — 548

Ending balance $10,443 $2,968 $52 $13,463 $12,517 $2,775 $56 $15,348

Multifamily:

Beginning balance $38 $1 $20 $59 $77 $— $17 $94

Provision (benefit) for credit

losses (17) — (5) (22) (29) — 3 (26)

Charge-offs(2) (2) — — (2) (9) — — (9)

Recoveries — — — — — — — —

Transfers, net(3) (1) 1 — — (1) 1 — —

Ending balance $18 $2 $15 $35 $38 $1 $20 $59

Total:

Beginning balance $12,555 $2,776 $76 $15,407 $18,877 $2,884 $126 $21,887

Provision (benefit) for credit

losses (1,401) 599 (1) (803) (2,792) 169 (42) (2,665)

Charge-offs(2) (1,759) (173) (8) (1,940) (4,705) (367) (8) (5,080)

Recoveries 487 10 — 497 703 14 — 717

Transfers, net(3) 579 (242) — 337 472 76 — 548

Ending balance $10,461 $2,970 $67 $13,498 $12,555 $2,776 $76 $15,407

(1) Includes charge-offs of $1.9 billion associated with our initial adoption of FHFA Advisory Bulletin 2012-02 on January 1, 2015.

(2) Total charge-offs do not include lower-of-cost-or-fair-value adjustments and other expenses related to property taxes and 

insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $1.2 billion and $3.4 

billion during 2016 and 2015 respectively.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 247

(3) For the years ended December 31, 2016 and 2015, consists of approximately $0.3 billion and $0.5 billion, respectively, 

attributable to capitalization of past due interest on modified loans. Also includes amounts associated with reclassified singlefamily reserves related to our removal of loans previously held by consolidated trusts, net of reclassifications for single-family 

loans subsequently resecuritized after such removal.

Loan Loss Reserves Determined on a Collective Basis

Single-Family Loans

We estimate loan loss reserves on homogeneous pools of single-family loans using a model that 

evaluates a variety of factors affecting collectability. We review the outputs of this model by considering 

qualitative factors such as macroeconomic and other factors to see whether the model outputs are 

consistent with our expectations. Management adjustments may be necessary to take into consideration 

external factors and current economic events that have occurred but that are not yet reflected in the 

factors used to derive the model outputs. Significant judgment is exercised in making these adjustments. 

The homogeneous pools of single-family loans are determined based on common underlying 

characteristics, including current LTV ratios, trends in home prices, loan product type, and geographic 

region.

We rely upon third-parties to service our loans. At loan delivery, the seller provides us with loan data, 

which includes characteristics and underwriting information. Each subsequent month, the servicers 

provide us with monthly loan level servicing data, including delinquency and loss information. 

Our single-family loan loss reserve default models produce estimates based on 12 months of loan level 

performance data, which includes a history of delinquency, foreclosures, foreclosure alternatives and 

modifications. Our loan loss reserve estimate includes projections of:

• Loss mitigation activities, including loan modifications for troubled borrowers and the incidence of 

redefault we have experienced on similar loans that have completed a loan modification; and

• Defaults we believe are likely to occur as a result of loss events that have occurred through the 

respective balance sheet date.

These projections are based on our recent historical experience and current business practices and 

require significant management judgment. We monitor our projections of recoveries through seller/

servicer repurchases to ensure that these projections are reasonable and consistent with our assessment 

of the credit capacity of our seller/servicer counterparties. We validate and update our models and factors 

to capture changes in actual loss experience, as well as the effects of changes in underwriting practices 

and in our loss mitigation strategies. In determining our loan loss reserves, we also consider 

macroeconomic and other factors that affect the quality of the loans underlying our portfolio, including 

regional housing trends, applicable home price indices, unemployment and employment dislocation 

trends, the effects of changes in government policies and programs, consumer credit statistics, and the 

extent of third-party insurance.

Our single-family loan loss reserve severity is based on the repeat housing sales index and actual REO 

dispositions, short sales and third-party sales that incorporate the most recent:

• Six months of sales experience realized on our distressed property dispositions; and

• Twelve months of pre-foreclosure expenses on our distressed properties, including REO, short sales, 

and third-party sales. 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 248

Our single-family loan loss severity estimate also captures expectations about recoveries from primary 

mortgage insurance or from seller/servicers due to repurchases. We use historical trends in home prices 

in our single-family loan loss reserve process, primarily through the use of current LTV ratios in our 

default models and through the use of recent home price sales experience in our severity estimate. 

However, we do not use a forecast of trends in home prices in our single-family loan loss reserve process. 

For loans where foreclosure is probable, we measure impairment based upon an estimate of the fair 

value of the underlying collateral less estimated disposition costs. Our estimate also considers the effect 

of historical home price changes on borrower behavior.

We apply proceeds from primary mortgage insurance and from other credit enhancements, including 

repurchase recoveries, entered into contemporaneously with, and in contemplation of, a guarantee or 

loan purchase transaction as a recovery of our recorded investment in a charged-off loan, up to the 

amount of loss recognized as a charge-off. Proceeds received in excess of our recorded investment in 

charged-off loans are recorded as a decrease to REO operations expense in our consolidated statements 

of comprehensive income. We record benefits related to most of our credit enhancements (e.g., primary 

mortgage insurance and certain ACIS insurance policies) when realization of our claims is deemed 

probable. We record benefits for certain of our other credit enhancements (e.g., certain STACR debt 

notes and whole loan securities) when the realized loss event occurs. We generally record repurchase 

recoveries on a cash basis due to the uncertainty of the timing and amount of collections of such 

recoveries.

Multifamily Loans

Multifamily loans evaluated collectively for impairment are aggregated into book year vintage portfolios. 

Potential impairment related to these portfolios is measured by benchmarking published historical 

commercial loan performance data to those vintages based upon available economic data related to 

multifamily real estate, including apartment vacancy and rental rates.

Loan Loss Reserves Determined on an Individual Basis

We consider a loan to be impaired when, based on current information, it is probable that we will not 

receive all amounts due (including both principal and interest) in accordance with the contractual terms of 

the original loan agreement. 

Single-family loans individually evaluated for impairment include TDRs, as well as loans acquired under 

our financial guarantees with deteriorated credit quality prior to 2010. Multifamily loans individually 

evaluated for impairment include TDRs, loans three monthly payments or more past due, and loans that 

are impaired based on management judgment.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower 

experiencing financial difficulties is considered a TDR. A concession is deemed granted when, as a result 

of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the original 

contractual interest rate. As appropriate, we also consider other qualitative factors in determining whether 

a concession is deemed granted, including whether the borrower’s modified interest rate is consistent 

with that of a non-troubled borrower. We do not consider restructurings that result in an insignificant delay 

in payment to be a concession. We generally consider a delay in monthly amortizing payments of three 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 249

months or less to be insignificant. A concession typically includes one or more of the following being 

granted to the borrower: 

• A trial period where the expected permanent modification will change our expectation of collecting all 

amounts due at the original contract rate;

• A delay in payment that is more than insignificant; 

• A reduction in the contractual interest rate; 

• Interest forbearance for a period of time that is more than insignificant or forgiveness of accrued but 

uncollected interest amounts; 

• Principal forbearance that is more than insignificant; and

• Discharge of the borrower’s obligation in Chapter 7 bankruptcy.

The table below presents the volume of single-family and multifamily loans that were newly classified as 

TDRs during the years ended December 31, 2016 and 2015, based on the original category of the loan 

before the loan was classified as a TDR. Loans classified as a TDR in one period may be subject to 

further action (such as a modification or remodification) in a subsequent period. In such cases, the 

subsequent action would not be reflected in the table below since the loan would already have been 

classified as a TDR.

Year Ended December 31,

2016 2015

(Dollars in millions) Number of Loans

Post-TDR

Recorded

Investment Number of Loans

Post-TDR

Recorded

Investment

Single-family:(1)

20 and 30-year or more, amortizing

fixed-rate 35,503 $5,092 46,641 $6,627

15-year amortizing fixed-rate 4,623 338 5,806 419

Adjustable-rate 969 140 1,335 195

Alt-A, interest-only, and option ARM 3,115 548 7,143 1,146

Total single-family 44,210 6,118 60,925 8,387

Multifamily 2 8 1 30

Total 44,212 $6,126 60,926 $8,417

(1) The pre-TDR recorded investment for single-family loans initially classified as TDR during the years ended December 31, 

2016 and 2015 was $6.2 billion and $8.4 billion, respectively.

The table below presents the volume of our TDR modifications that experienced payment defaults (i.e., 

loans that became two months delinquent or completed a loss event) during the applicable periods and 

had completed a modification during the year preceding the payment default. The table presents loans 

based on their original product category before modification.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 250

Year Ended December 31,

2016 2015

(Dollars in millions) Number of Loans

Post-TDR

Recorded

Investment(1) Number of Loans

Post-TDR

Recorded

Investment(1)

Single-family:

20 and 30-year or more, amortizing fixed-rate 16,139 $2,520 18,478 $3,036

15-year amortizing fixed-rate 813 66 900 72

Adjustable-rate 277 41 335 55

Alt-A, interest-only, and option ARM 1,535 305 1,955 435

Total single-family 18,764 $2,932 21,668 $3,598

Multifamily — $— — $—

(1) Represents the recorded investment at the end of the period in which the loan was modified and does not represent the 

recorded investment as of December 31.

In addition to modifications, loans may be initially classified as TDRs as a result of other loss mitigation 

activities (i.e., repayment plans, forbearance agreements, or trial period modifications). During the years 

ended December 31, 2016 and 2015, 8,083 and 9,492, respectively, of such loans (with a post-TDR 

recorded investment of $1.0 billion and $1.2 billion, respectively) experienced a payment default within a 

year after the loss mitigation activity occurred.

Loans may also be initially classified as TDRs because the borrowers’ debts were discharged in Chapter 

7 bankruptcy (and the loan was not already classified as a TDR for other reasons). During the years 

ended December 31, 2016 and 2015, 1,154 and 2,196, respectively, of such loans (with a post-TDR 

recorded investment of $0.1 billion and $0.3 billion, respectively) experienced a payment default within a 

year after the borrowers' Chapter 7 bankruptcy.

Single-Family Loans

Impairment of a single-family loan having undergone a TDR is generally measured as the excess of our 

recorded investment in the loan over the present value of the expected future cash flows, discounted at 

the loan’s original effective interest rate for fixed-rate loans, or at the loan’s effective interest rate prior to 

the restructuring for ARM loans. Our expectation of future cash flows incorporates, among other items, an 

estimated probability of default which is based on a number of market factors as well as the 

characteristics of the loan, such as past due status. Subsequent to the restructuring date, interest income 

is recognized at the modified interest rate, subject to our non-accrual policy as discussed in “Interest 

Income” above, with all other changes in the present value of expected future cash flows being 

recognized as a component of the provision for credit losses in our consolidated statements of 

comprehensive income. If we determine that foreclosure on the underlying collateral is probable, we 

measure impairment based upon the fair value of the collateral, as reduced by estimated disposition costs 

and adjusted for estimated proceeds from insurance and similar sources.

During 2016, approximately 43% of completed single-family loan modifications that were classified as 

TDRs involved interest rate reductions and, in certain cases, term extensions and approximately 16%

involved principal forbearance in addition to interest rate reductions and, in certain cases, term 

extensions. During 2016, the average term extension was 177 months, and the average interest rate 

reduction was 0.8% on completed single-family loan modifications classified as TDRs.

Substantially all of our completed single-family loan modifications classified as a TDR during 2016

resulted in a modified loan with a fixed interest rate. However, many of these fixed-rate loans include 
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 251

provisions for the reduced interest rates to remain fixed for the first five years of the modification and then 

increase at a rate of up to one percent per year until the interest rate has been adjusted to the market rate 

that was in effect at the time of the modification. 

Multifamily Loans

Multifamily impaired loans include TDRs, loans three monthly payments or more past due, and loans that 

are deemed impaired based on management judgment. Factors considered by management in 

determining whether a loan is impaired include the underlying property’s operating performance as 

represented by its current DSCR, available credit enhancements, current LTV ratio, management of the 

underlying property, and the property’s geographic location.

Multifamily loans are generally measured individually for impairment based on the fair value of the 

underlying collateral, as reduced by estimated disposition costs, as the repayment of these loans is 

generally provided from the cash flows of the underlying collateral and any associated credit 

enhancement. Except for cases of fraud and certain other types of borrower defaults, most multifamily 

loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including 

any associated credit enhancements) serve as the source of funds for repayment of the loan. Interest 

income recognition on multifamily impaired loans is subject to our non-accrual policy as discussed in 

“Interest Income” above.

The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the 

unique facts and circumstances of each loan. This assessment considers qualitative factors such as 

whether the borrower’s modified interest rate is consistent with that of a borrower having a similar credit 

profile at the time of modification. In certain cases, for maturing loans we may provide short-term loan 

extensions of up to one year with no changes to the effective borrowing rate. In other cases, we may 

make more significant modifications of terms for borrowers experiencing financial difficulty, such as 

reducing the interest rate, extending the maturity for longer than one year, providing principal 

forbearance, or some combination of these terms.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 252

Impaired Loans

The tables below present our recorded investment in individually impaired loans and the related 

allowance for loan losses.

Balance at December 31, 2016 For the Year Ended December 31, 2016

(In millions) UPB

Recorded

Investment

Associated

Allowance

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized

On Cash Basis(1)

Single-family —

With no specific allowance 

recorded:(2)

20 and 30-year or more,

amortizing fixed-rate $4,963 $3,746 N/A $4,033 $447 $14

15-year amortizing fixedrate 31 26 N/A 33 5 —

Adjustable-rate 292 289 N/A 259 9 —

Alt-A, interest-only, and

option ARM 1,935 1,561 N/A 1,417 117 3

Total with no specific

allowance recorded 7,221 5,622 N/A 5,742 578 17

With specific allowance 

recorded:(3)

20 and 30-year or more,

amortizing fixed-rate 67,853 66,143 ($9,678) 68,402 2,668 251

15-year amortizing fixedrate 847 851 (25) 884 39 7

Adjustable-rate 319 312 (19) 384 14 3

Alt-A, interest-only, and

option ARM 12,699 12,105 (2,258) 12,916 437 34

Total with specific allowance

recorded 81,718 79,411 (11,980) 82,586 3,158 295

Combined single-family:

20 and 30-year or more,

amortizing fixed-rate 72,816 69,889 (9,678) 72,435 3,115 265

15-year amortizing fixedrate 878 877 (25) 917 44 7

Adjustable-rate 611 601 (19) 643 23 3

Alt-A, interest-only, and

option ARM 14,634 13,666 (2,258) 14,333 554 37

Total single-family $88,939 $85,033 ($11,980) $88,328 $3,736 $312

Multifamily —

With no specific allowance 

recorded(2) $321 $308 N/A $356 $15 $4

With specific allowance

recorded 44 42 (9) 63 3 2

Total multifamily $365 $350 ($9) $419 $18 $6

Total single-family and

multifamily $89,304 $85,383 ($11,989) $88,747 $3,754 $318
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 253

Balance at December 31, 2015 For the Year Ended December 31, 2015

(In millions) UPB

Recorded

Investment

Associated

Allowance

Average

Recorded

Investment

Interest

Income

Recognized

Interest Income

Recognized

On Cash Basis(1)

Single-family —

With no specific allowance 

recorded:(2)

20 and 30-year or more,

amortizing fixed-rate $4,957 $3,724 N/A $3,381 $387 $11

15-year amortizing fixedrate 45 38 N/A 41 8 —

Adjustable rate 194 191 N/A 112 4 —

Alt-A, interest-only, and

option ARM 1,370 1,033 N/A 844 83 2

Total with no specific

allowance recorded 6,566 4,986 N/A 4,378 482 13

With specific allowance 

recorded:(3)

20 and 30-year or more,

amortizing fixed-rate 72,886 71,215 ($11,245) 73,530 2,558 308

15-year amortizing fixedrate 975 978 (21) 1,033 47 11

Adjustable rate 518 510 (28) 632 19 4

Alt-A, interest-only, and

option ARM 14,409 13,839 (2,725) 14,958 422 55

Total with specific allowance

recorded 88,788 86,542 (14,019) 90,153 3,046 378

Combined single-family:

20 and 30-year or more,

amortizing fixed-rate 77,843 74,939 (11,245) 76,911 2,945 319

15-year amortizing fixedrate 1,020 1,016 (21) 1,074 55 11

Adjustable rate 712 701 (28) 744 23 4

Alt-A, interest-only, and

option ARM 15,779 14,872 (2,725) 15,802 505 57

Total single-family $95,354 $91,528 ($14,019) $94,531 $3,528 $391

Multifamily —

With no specific allowance 

recorded(2) $341 $333 N/A $660 $25 $9

With specific allowance

recorded 149 142 ($21) 235 8 5

Total multifamily $490 $475 ($21) $895 $33 $14

Total single-family and

multifamily $95,844 $92,003 ($14,040) $95,426 $3,561 $405

(1) Consists of income recognized during the period related to loans on non-accrual status.

(2) Individually impaired loans with no specific related valuation allowance primarily represent those loans for which the collateral 

value is sufficiently in excess of the loan balance to result in recovery of the entire recorded investment if the property were 

foreclosed upon or otherwise subject to disposition.

(3) Consists primarily of loans classified as TDRs.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 254

The table below presents our allowance for loan losses and our recorded investment in loans, held-forinvestment, by impairment evaluation methodology.

December 31, 2016 December 31, 2015

(In millions) Singlefamily Multifamily Total Singlefamily Multifamily Total

Recorded investment:

Collectively evaluated $1,684,411 $28,552 $1,712,963 $1,621,801 $30,728 $1,652,529

Individually evaluated 85,033 350 85,383 91,528 475 92,003

Total recorded investment 1,769,444 28,902 1,798,346 1,713,329 31,203 1,744,532

Ending balance of the

allowance for loan losses:

Collectively evaluated (1,431) (11) (1,442) (1,273) (18) (1,291)

Individually evaluated (11,980) (9) (11,989) (14,019) (21) (14,040)

Total ending balance of the

allowance (13,411) (20) (13,431) (15,292) (39) (15,331)

Net investment in loans $1,756,033 $28,882 $1,784,915 $1,698,037 $31,164 $1,729,201

A significant number of unsecuritized single-family loans on our consolidated balance sheets are 

individually evaluated for impairment while substantially all single-family loans held by our consolidated 

trusts are collectively evaluated for impairment. The ending balance of the allowance for loan losses 

associated with our held-for-investment unsecuritized loans represented approximately 9.9% and 10.8%

of the recorded investment in such loans at December 31, 2016 and 2015, respectively, and a substantial 

portion of the allowance associated with these loans represented interest rate concessions provided to 

borrowers as part of loan modifications. The ending balance of the allowance for loan losses associated 

with loans held by our consolidated trusts represented approximately 0.2% of the recorded investment in 

such loans as of both December 31, 2016 and 2015.

CREDIT PROTECTION AND OTHER FORMS OF CREDIT ENHANCEMENT

In connection with many of our single-family loans and other mortgage-related guarantees, we have 

various forms of credit protection. 

The table below presents the UPB of single-family loans on our consolidated balance sheets or 

underlying certain of our financial guarantees with credit protection and the maximum amounts of 

potential loss recovery by type of credit protection.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 255

UPB(1) at Maximum Coverage(1)(2) at

(In millions) December 31,

2016

December 31,

2015

December 31,

2016

December 31,

2015

Credit enhancements at the time we

acquire the loan:

Primary mortgage insurance $291,217 $257,063 $74,345 $65,760

Seller indemnification 1,030 1,095 10 11

Deep MI(3) 3,067 — 81 —

Lender recourse and indemnification 

agreements(4) 5,247 5,902 4,911 5,385

Pool insurance(4) 1,719 2,140 618 753

Other:

HFA indemnification 1,747 2,599 1,747 2,599

Subordination 1,874 2,127 230 278

Other credit enhancements(4) 17 22 6 10

Credit enhancements subsequent to our

purchase or guarantee of the loan:

STACR debt note(5)

427,978 328,872 14,507 11,551

ACIS transactions(6) 453,670 328,872 5,355 3,365

Whole loan securities and senior

subordinate securitization structures 2,494 894 375 58

Less: UPB with more than one type of

credit enhancement (559,400) (417,393) — —

Total $630,660 $512,193 $102,185 $89,770

(1) Except for the majority of our single-family credit risk transfer transactions, our credit enhancements generally provide 

protection for the first, or initial, credit losses associated with the related loans. Excludes: (a) FHA/VA and other governmental 

loans; (b) credit protection associated with $6.7 billion and $8.3 billion in UPB of single-family loans underlying other 

structured transactions where data was not available as of December 31, 2016 and 2015, respectively; and (c) repurchase 

rights (subject to certain conditions and limitations) we have under representations and warranties provided by our 

agreements with seller/servicers to underwrite loans and service them in accordance with our standards. The UPB of singlefamily loans covered by insurance or partial guarantees issued by federal agencies (such as FHA, VA and USDA) was $2.8 

billion and $3.2 billion as of December 31, 2016, and 2015, respectively.

(2) Except for subordination and whole loan security, this represents the remaining amount of loss recovery that is available 

subject to terms of counterparty agreements. For subordination and whole loan security, this represents the UPB of the 

securities that are subordinate to our guarantee, which could provide protection by absorbing first losses.

(3) Includes approximately $3.1 billion in UPB at December 31, 2016, where the related loans are also covered by primary 

mortgage insurance. Deep MI credit risk transfer, or Deep MI, began in the third quarter of 2016.

(4) In aggregate, includes approximately $1.0 billion and $1.1 billion in UPB at December 31, 2016 and 2015, respectively, 

where the related loans are also covered by primary mortgage insurance.

(5) Includes approximately $123.5 billion and $87.4 billion in UPB at December 31, 2016 and 2015, respectively, where the 

related loans are also covered by primary mortgage insurance. Maximum coverage amounts presented represent the 

outstanding balance of STACR debt notes held by third parties. 

(6) Includes $127.4 billion and $87.4 billion in UPB at December 31, 2016 and 2015, respectively, where the related loans are 

also covered by primary mortgage insurance. Maximum coverage amounts presented represent the remaining aggregate 

limit of insurance purchased from third parties in ACIS transactions. 

Primary mortgage insurance and credit risk transfer transactions are the most prevalent types of credit 

enhancement protecting our single-family credit guarantee portfolio. Pool insurance contracts provide 

insurance on a group of mortgage loans up to a stated aggregate loss limit. We have not purchased pool 

insurance on single-family mortgage loans since March 2008. For information about counterparty risk 

associated with mortgage insurers, see Note 12. 

Our credit risk transfer transactions provide credit enhancement by transferring a portion of credit losses 

on single-family mortgage loans to third-party investors and insurers. The value of these transactions to 

us is dependent on various economic scenarios, and we will primarily benefit from these transactions if 

we experience significant mortgage loan defaults.
Financial Statements Notes to the Consolidated Financial Statements | Note 4

Freddie Mac 2016 Form 10-K 256

NON-CASH INVESTING AND FINANCING ACTIVITIES

During the years ended December 31, 2016, 2015, and 2014, we acquired $234.6 billion, $237.5 billion, 

and $187.1 billion, respectively, of loans held-for-investment in exchange for the issuance of debt 

securities of consolidated trusts in guarantor swap transactions. These guarantor swap transactions 

during the years ended December 31, 2016 and 2015 included approximately $30.3 billion and $11.6 

billion, respectively, of loans received from sellers to satisfy advances that were recorded in other assets 

on our consolidated balance sheets. 

We acquire REO properties as a result of the derecognition of loans held on our consolidated balance 

sheets upon foreclosure of the underlying collateral or deed in lieu of foreclosure. These acquisitions 

represent non-cash transfers. During the years ended December 31, 2016, 2015, and 2014, we had 

transfers of $1.5 billion, $2.0 billion, and $3.8 billion, respectively, from loans to REO.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 257

NOTE 5: INVESTMENTS IN SECURITIES

The table below summarizes the fair values of our investments in securities by classification as of 

December 31, 2016 and 2015. 

(In millions) December 31, 2016 December 31, 2015

Trading securities $44,790 $39,278

Available-for-sale securities 66,757 74,937

Total $111,547 $114,215

We currently classify and account for our securities as either available-for-sale or trading. As of 

December 31, 2016 and 2015, we did not classify any securities as held-to-maturity, although we may 

elect to do so in the future. Securities classified as available-for-sale and trading are reported at fair value 

with changes in fair value included in AOCI, net of income taxes and other gains (losses) on investment 

securities recognized in earnings, respectively. See Note 13 for more information on how we determine 

the fair value of securities.

We record purchases and sales of securities on the trade date when the related forward commitments are 

exempt from the accounting guidance for derivatives and hedge accounting. Alternatively, we record 

purchases and sales of securities on the expected settlement date, with a corresponding derivative 

recorded on the trade date, when the related forward commitments are not exempt from the accounting 

guidance for derivatives and hedge accounting.

We include interest on securities in our consolidated statements of comprehensive income. For most of 

our securities, interest income is recognized using the effective interest method, which considers the 

contractual terms of the security. Deferred items, including premiums, discounts, and other basis 

adjustments, are amortized into interest income over the contractual lives of the securities.

For certain securities, interest income is recognized using the prospective effective interest method. We 

apply this method to securities that: 

• Can contractually be prepaid or otherwise settled in such a way that we may not recover substantially 

all of our recorded investment;

• Are not of high credit quality at acquisition; or 

• Have been determined to be other-than-temporarily impaired.

Under this method, we recognize as interest income, over the life of the securities, the excess of the cash 

flows expected to be collected over the securities' carrying value. We update our estimates of expected 

cash flows periodically and recognize changes in the calculated effective interest rate on a prospective 

basis.

For securities classified as trading or available-for-sale, we classify the cash flows as investing activities 

because we hold these securities for investment purposes. In cases where the transfer of a security 

represents a secured borrowing, we classify the related cash flows as financing activities.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 258

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) December 31, 2016 December 31, 2015

Mortgage-related securities:

Freddie Mac $15,343 $15,513

Other agency 8,161 6,468

All other 149 146

Total mortgage-related securities 23,653 22,127

Non-mortgage-related securities 21,137 17,151

Total fair value of trading securities $44,790 $39,278

For the years ended December 31, 2016, 2015, and 2014, we recorded net unrealized gains (losses) on 

trading securities held at those dates of ($791) million, ($856) million, and ($88) million, respectively. 
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 259

AVAILABLE-FOR-SALE SECURITIES

At December 31, 2016 and 2015, all available-for-sale securities were mortgage-related securities.

The table below presents the amortized cost, gross unrealized gains and losses, and fair value by major 

security type for our securities classified as available-for-sale.

December 31, 2016

Gross Unrealized Losses

(In millions)

Amortized

Cost

Gross

Unrealized

Gains

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Fair

Value

Available-for-sale securities:

Freddie Mac $43,671 $563 $— ($582) $43,652

Other agency 4,127 119 — (25) 4,221

Non-agency RMBS 10,606 1,271 (62) (18) 11,797

Non-agency CMBS 6,288 160 (3) (23) 6,422

Obligations of states and political

subdivisions 657 8 — — 665

Total available-for-sale securities $65,349 $2,121 ($65) ($648) $66,757

December 31, 2015

Gross Unrealized Losses

(In millions)

Amortized

Cost

Gross

Unrealized

Gains

Other-ThanTemporary 

Impairment(1)

Temporary 

Impairment(2)

Fair

Value

Available-for-sale securities:

Freddie Mac $32,684 $942 $— ($99) $33,527

Other agency 7,183 277 — (36) 7,424

Non-agency RMBS 19,198 1,563 (362) (66) 20,333

Non-agency CMBS 12,009 450 (2) (9) 12,448

Obligations of states and political

subdivisions 1,187 19 — (1) 1,205

Total available-for-sale securities $72,261 $3,251 ($364) ($211) $74,937

(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.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 260

Available-For-Sale Securities in a Gross Unrealized Loss Position

The table below presents available-for-sale securities in a gross unrealized loss position, and whether 

such securities have been in an unrealized loss position for less than 12 months, or 12 months or greater.

December 31, 2016

Less than 12 Months 12 Months or Greater

(In millions)

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Available-for-sale securities:

Freddie Mac $19,786 ($559) $1,732 ($23)

Other agency 542 (6) 2,040 (19)

Non-agency RMBS 309 (1) 2,188 (79)

Non-agency CMBS 383 (2) 204 (24)

Obligations of states and political subdivisions 83 — — —

Total available-for-sale securities in a gross

unrealized loss position $21,103 ($568) $6,164 ($145)

December 31, 2015

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 $8,171 ($64) $1,224 ($35)

Other agency 2,402 (24) 1,392 (12)

Non-agency RMBS 1,176 (30) 4,781 (398)

Non-agency CMBS 396 (9) 160 (2)

Obligations of states and political subdivisions 18 — 8 (1)

Total available-for-sale securities in a gross

unrealized loss position $12,163 ($127) $7,565 ($448)

At December 31, 2016, total gross unrealized losses on available-for-sale securities were $0.7 billion. The 

gross unrealized losses relate to 436 separate securities. We purchase multiple lots of individual 

securities at different times and at different costs. We determine gross unrealized gains and gross 

unrealized losses by specifically evaluating investment positions at the lot level; therefore, some of the 

lots we hold for an individual security may be in an unrealized gain position, while other lots for that 

security may be in an unrealized loss position.

Impairment Recognition on Investments in Securities

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter to 

determine whether the decline in value is other-than-temporary. An unrealized loss exists when the fair 

value of an individual lot is less than its amortized cost basis. As discussed further below, certain otherthan-temporary impairment losses are recognized in earnings.

Other-than-temporary impairment is considered to have occurred if the fair value of the security lot is less 

than its amortized cost basis and we either intend to sell the security or more likely than not will be 

required to sell the security lot prior to recovery of its amortized cost basis. Under these circumstances, 

the security’s entire decline in fair value is deemed to be other-than-temporary and is recorded within our 

consolidated statements of comprehensive income as net impairment of available-for-sale securities 
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 261

recognized in earnings. 

If we do not intend to sell the security and we believe it is not more likely than not that we will be required 

to sell prior to recovery of the security’s amortized cost basis, we recognize only the credit component of 

other-than-temporary impairment in earnings and the amounts attributable to all other factors are 

recorded in AOCI. The credit component represents the amount by which the present value of cash flows 

expected to be collected from the security is less than its amortized cost basis. The present value of cash 

flows expected to be collected represents our estimate of future contractual cash flows that we expect to 

collect, discounted at the security’s original effective interest rate or, if applicable, the effective interest 

rate determined based on significantly improved cash flows subsequent to a prior other-than-temporary 

impairment.

The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary 

requires significant management judgments, assumptions, and consideration of numerous factors. We 

perform an evaluation on a security lot basis considering all available information. The relative importance 

of this information varies based on the facts and circumstances surrounding each security, as well as the 

economic environment at the time of assessment. 

Our net impairment on available-for-sale securities during 2016 includes certain securities that we have 

the intent to sell prior to the recovery of the security's amortized cost basis. For the remaining availablefor-sale securities in an unrealized loss position at December 31, 2016, we have asserted that we have 

no intent to sell and that we believe it is not more likely than not that we will be required to sell the 

security before recovery of its amortized cost basis.

Freddie Mac and Other Agency Securities

We generally hold these securities that are in an unrealized loss position at least to recovery and typically 

to maturity. As the principal and interest on these securities are guaranteed, we generally do not intend to 

sell these securities, and it is not more likely than not that we will be required to sell such securities before 

a recovery of the securities' amortized cost basis. As a result, unless we intend to sell the security, we 

consider unrealized losses on these securities to be temporary.

Non-Agency Commercial Mortgage-Backed Securities

Non-agency CMBS are exposed to stresses in the commercial real estate market. We use an external 

model that utilizes underlying collateral performance, current and expected credit enhancements, and 

assumptions about the underlying collateral cash flows to identify securities that may have an increased 

risk of failing to make their contractual payments. While it is possible that, under certain conditions, 

collateral losses on our non-agency CMBS for which we have not recorded an impairment charge could 

exceed our credit enhancement levels and a principal or interest loss could occur, we do not believe that 

those conditions were likely as of December 31, 2016.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 262

Non-Agency Residential Mortgage-Backed Securities Backed by Subprime, Option ARM, Alt-A and 

Other Loans

We believe the unrealized losses on the non-agency RMBS we hold are mainly attributable to poor 

underlying collateral performance, limited liquidity, and risk premiums. In evaluating securities for 

impairment, we use an internal model that considers the credit performance of the underlying collateral, 

including current LTV ratio, delinquency status, servicer performance, loan modification terms and status, 

borrower credit information, and the collectability of amounts from bond insurers. The model also 

incorporates assumptions about the economic environment, including future home prices and interest 

rates to project underlying collateral prepayment speeds, delinquency and default rates, and loss 

severities. Circumstances in which it is expected that a principal and interest shortfall will occur and there 

is substantial uncertainty surrounding a bond insurer’s ability to pay all future claims can give rise to 

recognition of other-than-temporary impairment in earnings. For additional information regarding bond 

insurers, see Note 12.

The table below presents the modeled attributes for the related collateral that are used to determine 

whether our interests in certain available-for-sale non-agency RMBS backed by subprime, option ARM, 

and Alt-A loans will experience a cash shortfall.

(Dollars in millions) December 31, 2016

UPB $14,343

Weighted average collateral cumulative loss 23 %

Weighted average voluntary prepayment rates 6 %

Average security credit enhancements(1) (1)%

(1) Positive value reflects the amount of subordination and other financial support (excluding credit enhancement provided by 

bond insurance) that will incur losses in the securitization structure before any losses are allocated to securities that we own. 

Percentage generally calculated based on the total UPB of securities subordinate to the securities we own, divided by the 

total UPB of all of the securities issued by the trust (excluding notional balances). Negative value is shown when unallocated 

collateral losses will be allocated to the securities that we own in excess of current remaining credit enhancement, if any. The 

unallocated collateral losses have been considered in our assessment of other-than-temporary impairment.

In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and 

other loans for other-than-temporary impairment, we noted that the percentage of securities that were 

AAA-rated and the percentage that were investment grade declined significantly since acquisition. While 

these ratings have declined, the ratings themselves are not determinative that a loss is more or less likely. 

While we may consider credit ratings in our analysis, we believe that our detailed security-by-security 

analysis provides a more comprehensive view of the ultimate collectability of contractual amounts due to 

us.

Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, 

prepayments, and other factors becomes available. While it is possible that, under certain conditions, 

collateral losses on our remaining available-for-sale securities for which we have not recorded an 

impairment charge could exceed our credit enhancement levels and a principal or interest loss could 

occur, we do not believe that those conditions were likely as of December 31, 2016.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 263

Obligations of States and Political Subdivisions

These investments consist of housing revenue bonds. We believe the unrealized losses on obligations of 

states and political subdivisions are primarily a result of movements in interest rates and liquidity and risk 

premiums. We believe that any credit risk related to these securities is minimal because of the issuer 

guarantees provided on these securities.

Other-Than-Temporary Impairment on Available-For-Sale Securities

The table below summarizes other-than-temporary impairment on available-for-sale securities recognized 

in earnings.

Year Ended December 31,

(In millions) 2016 2015 2014

Impairment of available-for-sale securities:

Total other-than-temporary impairment of available-for-sale securities $72 $241 $860

Portion of other-than-temporary impairment recognized in AOCI 119 51 78

Net impairment of available-for-sale securities recognized in earnings(1) $191 $292 $938

(1) Includes $70 million, $240 million, and $817 million during 2016, 2015, and 2014, respectively, of impairment recognized in 

earnings due to change in status from intent to hold to intent to sell.

The table below is a rollforward of the amount of credit-related other-than-temporary impairment that has 

been recognized in earnings for available-for-sale securities that we continue to hold.

Year Ended December 31,

(In millions) 2016 2015

Credit-related other-than-temporary impairment on available-for-sale securities recognized in

earnings:

Beginning balance — remaining credit losses on available-for-sale securities where other-thantemporary impairment was recognized in earnings $5,306 $6,798

Additions:

Amounts related to credit losses on securities for which an other-than-temporary impairment

was previously recognized 121 52

Reductions:

Amounts related to securities which were sold, written off, or matured (167) (107)

Amounts related to securities which we intend to sell or it is more likely than not that we will be

required to sell before recovery of amortized cost basis (856) (1,116)

Amounts related to amortization resulting from significant increases in cash flows expected to

be collected and/or due to the passage of time that are recognized over the remaining life of

the security (268) (321)

Ending balance — remaining credit losses on available-for-sale securities where other-thantemporary impairments were recognized in earnings $4,136 $5,306

Realized Gains and Losses on Sales of Available-For-Sale Securities

Gains and losses on the sale of securities are included in other gains (losses) on investment securities 

recognized in earnings, including those gains (losses) reclassified into earnings from AOCI. We use the 

specific identification method for determining the cost basis of a security in computing the gain or loss.

The table below summarizes the gross realized gains and gross realized losses from the sale of 

available-for-sale securities.
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 264

Year Ended December 31,

(In millions) 2016 2015 2014

Gross realized gains $1,062 $1,371 $1,897

Gross realized losses (91) (33) (185)

Net realized gains (losses) $971 $1,338 $1,712

Maturities of Available-For-Sale Securities

The table below presents the remaining contractual maturities of available-for-sale securities by security 

type.

As of December 31, 2016

After One Year Through

Five Years

After Five Years

Through Ten Years

Total

Amortized

Cost

Total Fair

Value

One Year or Less After Ten Years

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

(Dollars in

millions)

Available-for-sale

securities:

Freddie Mac $43,671 $43,652 $— $— $68 $67 $3,079 $3,069 $40,524 $40,516

Other agency 4,127 4,221 1 1 5 7 76 85 4,045 4,128

Non-agency

RMBS 10,606 11,797 — — 7 7 23 29 10,576 11,761

Non-agency

CMBS 6,288 6,422 98 98 — — — — 6,190 6,324

Obligations of

states and

political

subdivisions 657 665 6 6 13 13 63 65 575 581

Total available-forsale securities $65,349 $66,757 $105 $105 $93 $94 $3,241 $3,248 $61,910 $63,310

Weighted Average 

Yield(1) 2.70% 5.61% 2.67% 1.80% 2.71%

(1) The weighted average yield is calculated based on a yield for each individual lot held at December 31, 2016 excluding any 

fully taxable-equivalent adjustments related to tax exempt sources of interest income. The numerator for the individual lot 

yield consists of the sum of: (a) the year-end interest rate multiplied by the year-end UPB; and (b) the annualized 

amortization income or expense calculated for December 2016 (excluding the accretion of non-credit-related other-thantemporary impairments and any adjustments recorded for changes in the effective rate). The denominator for the individual 

lot yield consists of the year-end amortized cost of the lot excluding effects of other-than-temporary impairments on the UPB 

of impaired lots.

NON-CASH INVESTING AND FINANCING ACTIVITIES

From time to time, we contribute PCs and Giant PCs held in our mortgage-related investments portfolio to 

non-consolidated REMIC trusts in exchange for beneficial interests in those same REMIC trusts. We 

account for this type of transaction as the acquisition of investment securities and the issuance of debt 

securities of consolidated trusts. During the years ended December 31, 2015 and 2014, we received 

investment securities as consideration for the issuance of debt securities of consolidated trusts of $0.3 

billion and $1.8 billion, respectively, as a result of these transactions. We did not have such activity during 

the year ended December 31, 2016.

 In addition, from time to time, we may recombine all of the outstanding beneficial interests in a REMIC 

trust to effectively recreate the original Giant PC trust. In certain cases, we may receive only beneficial 

interests in the Giant PC trust as proceeds for our contribution of the collateral. Because the beneficial 

interest issued by the Giant PC is substantially the same as the PCs that ultimately collateralized the 
Financial Statements Notes to the Consolidated Financial Statements | Note 5

Freddie Mac 2016 Form 10-K 265

trust, we account for our interest in the Giant PC as an extinguishment of the outstanding debt securities 

of the underlying PC trusts. As a result, we account for this type of transaction as the transfer of 

investment securities in exchange for the extinguishment of debt securities of consolidated trusts. During 

the year ended December 31, 2015, we extinguished debt securities of consolidated trusts as 

consideration for the transfer of investment securities of $0.5 billion as a result of these transactions. We 

did not have such activity during the years ended December 31, 2016 and 2014.

Furthermore, during the fourth quarter of 2016, we purchased $4.5 billion of non-mortgage-related 

securities that were traded, but not settled. We settled our purchase obligation during the first quarter of 

2017.
Financial Statements Notes to the Consolidated Financial Statements | Note 6

Freddie Mac 2016 Form 10-K 266

NOTE 6: DEBT SECURITIES AND SUBORDINATED 

BORROWINGS

On January 1, 2016, we adopted the accounting guidance that requires debt issuance costs related to a 

recognized debt liability to be presented in the consolidated balance sheets as a direct deduction (or 

basis adjustment) from the debt liability rather than as a separate asset. Previously reported amounts 

have been revised to conform to the current presentation.

The table below summarizes the interest expense per our consolidated statements of comprehensive 

income and the balances of total debt, net per our consolidated balance sheets.

Interest Expense for the

Balance, Net Year Ended December 31,

(In millions) 2016 2015 2016 2015 2014

Debt securities of consolidated trusts held by

third parties $1,648,683 $1,556,121 $44,599 $45,536 $48,003

Other debt:

Short-term debt 71,451 113,569 350 173 145

Long-term debt 281,870 300,579 5,646 6,207 6,768

Total other debt 353,321 414,148 5,996 6,380 6,913

Total debt, net $2,002,004 $1,970,269 $50,595 $51,916 $54,916

Debt securities that we issue are classified as either debt securities of consolidated trusts held by third 

parties or other debt. We issue other debt to fund our operations. 

With the exception of certain debt for which we elected the fair value option, our debt is reported at 

amortized cost. Deferred items, including premiums, discounts, issuance costs, and hedging-related basis 

adjustments, are reported as a component of total debt, net. These items are amortized and reported 

through interest expense using the effective interest method over the contractual life of the related 

indebtedness. Amortization of premiums, discounts, and issuance costs begins at the time of debt 

issuance. Amortization of hedging-related basis adjustments begins upon the discontinuation of the 

related hedge relationship.

We elected the fair value option on debt that contains embedded derivatives, including certain STACR 

debt notes. Changes in the fair value of these debt obligations are recorded in other income, with any 

upfront costs and fees incurred or received in exchange for the issuance of the debt being recognized in 

earnings as incurred and not deferred. Related interest expense continues to be reported as interest 

expense based on the stated terms of the debt securities. For additional information on our election of the 

fair value option, see Note 13.

When we repurchase or call outstanding debt securities, we recognize the difference between the amount 

paid to redeem the debt security and the carrying value in earnings as a component of gains (losses) on 

extinguishment of debt. Contemporaneous transfers of cash between us and a creditor in connection with 

the issuance of a new debt security and satisfaction of an existing debt security are accounted for as 

either an extinguishment or a modification of an existing debt security. If the debt securities have 

substantially different terms, the transaction is accounted for as an extinguishment of the existing debt 

security. The issuance of a new debt security is recorded at fair value, fees paid to the creditor are 
Financial Statements Notes to the Consolidated Financial Statements | Note 6

Freddie Mac 2016 Form 10-K 267

expensed as incurred and fees paid to third parties are deferred and amortized into interest expense over 

the life of the new debt security using the effective interest method. If the terms of the existing debt 

security and the new debt security are not substantially different, the transaction is accounted for as a 

modification of the existing debt. Fees paid to the creditor are deferred and amortized into interest 

expense over the life of the modified debt security using the effective interest method and fees paid to 

third parties are expensed as incurred.

We also engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently 

repurchase (or purchase and subsequently resell) agency securities. When these transactions involve 

securities issued by consolidated entities, they are treated as issuances and extinguishments of debt.

Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur 

indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the 

amount of mortgage assets we are allowed to own on December 31 of the immediately preceding 

calendar year. Because of this debt limit, we may be restricted in the amount of debt we are allowed to 

issue to fund our operations. Under the Purchase Agreement, the amount of our “indebtedness” is 

determined without giving effect to the January 1, 2010 change in the accounting guidance related to 

transfers of financial assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt 

securities of consolidated trusts held by third parties. We also cannot become liable for any subordinated 

indebtedness without the prior consent of Treasury. See Note 2 for information regarding restrictions on 

the amount of mortgage-related securities that we may own.

Our debt cap under the Purchase Agreement was $479.0 billion in 2016 and declined to $407.2 billion on 

January 1, 2017. As of December 31, 2016, our aggregate indebtedness for purposes of the debt cap 

was $356.7 billion. Our aggregate indebtedness is calculated as the par value of other short- and longterm debt.

DEBT SECURITIES OF CONSOLIDATED TRUSTS HELD BY THIRD PARTIES

Debt securities of consolidated trusts held by third parties represents our liability to third parties that hold 

beneficial interests in our consolidated securitization trusts. Debt securities of consolidated trusts held by 

third parties are generally prepayable as the loans that collateralize the debt may prepay without penalty 

at any time.
Financial Statements Notes to the Consolidated Financial Statements | Note 6

Freddie Mac 2016 Form 10-K 268

The table below summarizes the debt securities of consolidated trusts held by third parties based on 

underlying loan product type.

December 31, 2016 December 31, 2015

(Dollars in millions)

Contractual

Maturity UPB

Carrying

Amount

Weighted

Average

Coupon(1)

Contractual

Maturity UPB

Carrying

Amount

Weighted

Average

Coupon(1)

Single-family:

30-year or more, fixed-rate(2) 2017 - 2055 $1,193,329 $1,229,849 3.71% 2016 - 2053 $1,090,584 $1,123,290 3.88%

20-year fixed-rate 2017 - 2037 74,033 76,331 3.49% 2016 - 2036 73,018 75,221 3.61%

15-year fixed-rate 2017 - 2032 267,739 273,978 2.90% 2016 - 2031 270,036 276,531 3.01%

Adjustable-rate 2017 - 2047 52,991 54,205 2.69% 2016 - 2047 62,496 63,899 2.61%

Interest-only 2026 - 2041 10,007 10,057 3.47% 2026 - 2041 14,252 14,317 3.16%

FHA/VA 2017 - 2046 1,015 1,038 4.92% 2016 - 2044 986 1,005 5.37%

Total single-family 1,599,114 1,645,458 1,511,372 1,554,263

Multifamily(2) 2019 - 2033 3,048 3,225 4.63% 2017 - 2028 1,717 1,858 4.90%

Total debt securities of

consolidated trusts held by

third parties $1,602,162 $1,648,683 $1,513,089 $1,556,121

(1) The effective rate for debt securities of consolidated trusts held by third parties was 2.63% and 3.06% as of December 31, 

2016 and 2015, respectively.

(2) Carrying amount includes securities recorded at fair value.

OTHER SHORT-TERM DEBT

As indicated in the table below, a majority of other short-term debt consisted of discount notes and 

Reference Bills® securities, paying only principal at maturity. Discount notes, Reference Bills® securities, 

and medium-term notes are unsecured general corporate obligations. Securities sold under agreements 

to repurchase are effectively collateralized borrowings where we sell securities with an agreement to 

repurchase such securities at a future date. Certain medium-term notes that have original maturities of 

one year or less are classified as other short-term debt for purposes of this presentation.

The table below summarizes the balances and effective interest rates for other short-term debt. 

December 31, 2016 December 31, 2015

(Dollars in millions) Par Value

Carrying

Amount

Weighted

Average

Effective Rate Par Value

Carrying

Amount

Weighted

Average

Effective Rate

Other short-term debt:

Discount notes and 

Reference Bills®$61,042 $60,976 0.47% $104,088 $104,024 0.28%

Medium-term notes 7,435 7,435 0.41% 9,545 9,545 0.20%

Securities sold under

agreements to repurchase 3,040 3,040 0.42% — — —

Total other short-term debt $71,517 $71,451 0.47% $113,633 $113,569 0.28%
Financial Statements Notes to the Consolidated Financial Statements | Note 6

Freddie Mac 2016 Form 10-K 269

OTHER LONG-TERM DEBT

The table below summarizes our other long-term debt.

December 31, 2016 December 31, 2015

(Dollars in millions)

Contractual

Maturity Par Value

Carrying

Amount

Weighted 

Average

Effective 

Rate Par Value

Carrying

Amount

Weighted

Average

Effective 

Rate

Other long-term debt:

Other senior debt:

Fixed-rate:

Medium-term notes — callable 2017 - 2037 $76,412 $76,383 1.24% $90,744 $90,690 1.47%

Medium-term notes — non-callable 2017 - 2028 13,742 13,987 1.08% 16,033 16,348 0.92%

Reference Notes securities — noncallable 2017 - 2032 118,702 118,727 2.17% 137,201 137,215 2.60%

Variable-rate:

Medium-term notes — callable 2017 - 2031 21,008 20,972 1.94% 15,931 15,904 2.11%

Medium-term notes — non-callable 2017 - 2026 33,077 33,076 0.48% 23,697 23,694 0.21%

STACR 2023 - 2029 14,507 14,745 4.34% 11,551 11,503 3.60%

Zero-coupon:

Medium-term notes — callable 2037 1,000 296 6.17% 1,000 279 6.17%

Medium-term notes — non-callable 2017 - 2039 5,792 2,925 5.01% 7,343 4,288 3.57%

Other 2031 - 2055 533 376 7.72% 335 198 5.93%

Hedging-related basis adjustments N/A 15 N/A 17

Total other senior debt 284,773 281,502 303,835 300,136

Other subordinated debt:

Fixed-rate 2018 121 120 7.84% 221 219 6.61%

Zero-coupon 2019 332 248 10.51% 332 224 10.51%

Total other subordinated debt 453 368 553 443

Total other long-term debt $285,226 $281,870 1.81% $304,388 $300,579 2.02%

A portion of our other long-term debt is callable. Callable debt gives us the option to redeem the debt 

security at par on one or more specified call dates or at any time on or after a specified call date.

The table below summarizes the contractual maturities of other long-term debt securities at December 31, 

2016.

(In millions) Par Value

Annual Maturities

Other long-term debt:

2017 $92,831

2018 71,392

2019 46,436

2020 13,274

2021 20,372

Thereafter 40,921

Debt securities of consolidated trusts held by third parties(1) 1,602,162

Total 1,887,388

Net discounts, premiums, debt issuance costs, hedge-related and other basis adjustments(2) 43,165

Total debt securities of consolidated trusts held by third parties and other long-term debt $1,930,553

(1) Contractual maturities of debt securities of consolidated trusts held by third parties are not presented because they are 

prepayable at any time without penalty.

(2) Other basis adjustments primarily represent changes in fair value attributable to instrument-specific credit risk.
Financial Statements Notes to the Consolidated Financial Statements | Note 6

Freddie Mac 2016 Form 10-K 270

SUBORDINATED DEBT INTEREST AND PRINCIPAL PAYMENTS

The terms of certain of our subordinated debt securities provide for us to defer payments of interest in the 

event we fail to maintain specified capital levels. However, in a September 23, 2008 statement concerning 

the conservatorship, the Director of FHFA stated that we would continue to make interest and principal 

payments on our subordinated debt, even if we fail to maintain required capital levels. 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

Freddie Mac 2016 Form 10-K 271

NOTE 7: DERIVATIVES

Derivatives are reported at their fair value on our consolidated balance sheets. Derivatives in a net asset 

position, including net derivative interest receivable or payable, are reported as derivative assets, net. 

Similarly, derivatives in a net liability position, including net derivative interest receivable or payable, are 

reported as derivative liabilities, net. We offset fair value amounts recognized for the right to reclaim cash 

collateral or the obligation to return cash collateral against fair value amounts recognized for derivative 

instruments executed with the same counterparty under a master netting agreement. Changes in fair 

value and interest accruals on derivatives are recorded as derivative gains (losses) in our consolidated 

statements of comprehensive income. Non-cash collateral held is not recognized on our consolidated 

balance sheets as we do not obtain effective control over the collateral, and non-cash collateral posted is 

not de-recognized from our consolidated balance sheets as we do not relinquish effective control over the 

collateral. Therefore, non-cash collateral held or posted is not presented as an offset against derivative 

assets or derivative liabilities on our consolidated balance sheets.

We evaluate whether financial instruments that we purchase or issue contain embedded derivatives. We 

generally elect to measure newly acquired or issued financial instruments that contain embedded 

derivatives at fair value, with changes in fair value recorded in earnings.

At December 31, 2016 and 2015, we did not have any derivatives in hedge accounting relationships; 

however, there are amounts recorded in AOCI related to discontinued cash flow hedges which are 

recognized in earnings when the originally forecasted transactions affect earnings. If it becomes probable 

the originally forecasted transaction will not occur, the associated deferred gain or loss in AOCI would be 

reclassified to earnings immediately. Amounts reclassified from AOCI linked to interest payments on other 

debt are recorded in other debt interest expense and amounts not linked to interest payments on other 

debt are recorded in expense related to derivatives. In the years ended December 31, 2016 and 2015, we 

reclassified from AOCI into earnings, losses of $192 million and $230 million, respectively, related to 

closed cash flow hedges. See Note 9 for information about future reclassifications of deferred net losses 

related to closed cash flow hedges to net income.

In addition, in the first quarter of 2017, we began using hedge accounting for certain single-family 

mortgage loans.

In the consolidated statements of cash flows, cash flows related to the acquisition and termination of 

derivatives, other than forward commitments, are generally classified in investing activities. Cash flows 

related to forward commitments are classified within the section of the consolidated statements of cash 

flows in accordance with the cash flows of the financial instruments to which they relate.

USE OF DERIVATIVES

We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets 

and liabilities. We analyze the interest-rate sensitivity of financial assets and liabilities on a daily basis 

across a variety of interest-rate scenarios based on market prices, models and economics. When we use 

derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to 

counterparty risk, and our overall risk management strategy.

We classify derivatives into three categories: 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

Freddie Mac 2016 Form 10-K 272

• Exchange-traded derivatives; 

• Cleared derivatives; and 

• OTC derivatives.

Exchange-traded derivatives include standardized interest-rate futures contracts and options on futures 

contracts. Cleared derivatives include interest-rate swaps that the U.S. Commodity Futures Trading 

Commission has determined are subject to the central clearing requirement of the Dodd-Frank Act. OTC 

derivatives refer to those derivatives that are neither exchange-traded derivatives nor cleared derivatives.

TYPES OF DERIVATIVES

We principally use the following types of derivatives:

• LIBOR-based interest-rate swaps;

• LIBOR- and Treasury-based options (including swaptions); and

• LIBOR- and Treasury-based exchange-traded futures.

We also purchase swaptions on credit indices in order to obtain protection against adverse movements in 

multifamily spreads which may affect the profitability of our K Certificate or SB Certificate transactions. 

In addition to swaps, futures, and purchased options, our derivative positions include written options and 

swaptions, commitments, and credit derivatives.

Written Options and Swaptions

Written call and put swaptions are sold to counterparties allowing them the option to enter into receivefixed and pay-fixed interest rate swaps, respectively. Written call and put options on mortgage-related 

securities give the counterparty the right to execute a contract under specified terms, which generally 

occurs when we are in a liability position. We may, from time to time, write other derivative contracts such 

as interest-rate futures.

Commitments

We routinely enter into commitments that include commitments to:

• Purchase and sell investments in securities; 

• Purchase and sell loans; and 

• Purchase and extinguish or issue debt securities of our consolidated trusts. 

Most of these commitments are considered derivatives and therefore are subject to the accounting 

guidance for derivatives and hedging.

Credit Derivatives 

We have purchased loans containing debt cancellation contracts, which provide for mortgage debt or 

payment cancellation for borrowers who experience unanticipated losses of income dependent on a 

covered event. The rights and obligations under these agreements have been assigned to the servicers. 

However, in the event the servicer does not perform as required by contract, we would be obligated under 

our guarantee to make the required contractual payments. 
Financial Statements Notes to the Consolidated Financial Statements | Note 7

Freddie Mac 2016 Form 10-K 273

DERIVATIVE ASSETS AND LIABILITIES AT FAIR VALUE

The table below presents the notional value and fair value of derivatives reported on our consolidated 

balance sheets.

December 31, 2016 December 31, 2015

Notional or

Contractual

Amount

Derivatives at Fair Value Notional or

Contractual

Amount

Derivatives at Fair Value

(In millions) Assets Liabilities Assets Liabilities

Total derivative portfolio

Interest-rate swaps:

Receive-fixed $313,106 $4,337 ($2,703) $209,988 $4,591 ($486)

Pay-fixed 271,477 2,586 (9,684) 218,599 319 (11,736)

Basis (floating to floating) 1,450 1 — 1,125 1 —

Total interest-rate swaps 586,033 6,924 (12,387) 429,712 4,911 (12,222)

Option-based:

Call swaptions

Purchased 60,730 2,817 — 57,925 3,450 —

Written 1,350 — (78) 4,375 — (100)

Put swaptions

Purchased(1) 48,080 1,442 — 24,050 580 —

Written 3,200 — (28) 11,025 — (28)

Other option-based derivatives(2) 11,032 795 — 12,088 791 —

Total option-based 124,392 5,054 (106) 109,463 4,821 (128)

Futures 138,294 — — 56,332 — —

Commitments 45,353 289 (151) 29,114 34 (28)

Credit derivatives 2,951 1 (27) 3,899 25 (10)

Other 2,879 — (21) 3,033 — (23)

Total derivatives not designated

as hedging instruments 899,902 12,268 (12,692) 631,553 9,791 (12,411)

Derivative interest receivable

(payable) 1,442 (1,770) 814 (1,393)

Netting adjustments(3) (12,963) 13,667 (10,210) 12,550

Total derivative portfolio, net $899,902 $747 ($795) $631,553 $395 ($1,254)

(1) Includes multifamily swaptions on credit indices with a notional or contractual amount of $10.9 billion and a fair value of $5 

million at December 31, 2016.

(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 8 for information related to our derivative counterparties and collateral held and posted.
Financial Statements Notes to the Consolidated Financial Statements | Note 7

Freddie Mac 2016 Form 10-K 274

GAINS AND LOSSES ON DERIVATIVES

The table below presents the gains and losses on derivatives, including the accrual of periodic cash 

settlements, reported in our consolidated statements of comprehensive income as derivative gains 

(losses).

Year Ended December 31,

(In millions) 2016 2015 2014

Interest-rate swaps:

Receive-fixed ($3,539) $35 $4,073

Pay-fixed 3,717 (811) (11,366)

Basis (floating to floating) — (2) (1)

Total interest-rate swaps 178 (778) (7,294)

Option based:

Call swaptions

Purchased 234 371 2,355

Written (45) (9) (168)

Put swaptions

Purchased 210 (249) (1,006)

Written 35 77 8

Other option-based derivatives(1) (13) 68 248

Total option-based 421 258 1,437

Other:

Futures 334 (5) (54)

Commitments 631 63 239

Credit derivatives (75) (37) 8

Other (3) 1 (2)

Total other 887 22 191

Accrual of periodic cash settlements:

Receive-fixed interest-rate swaps 2,316 2,568 3,033

Pay-fixed interest-rate swaps (4,077) (4,768) (5,660)

Other 1 2 2

Total accrual of periodic cash settlements (1,760) (2,198) (2,625)

Total ($274) ($2,696) ($8,291)

(1) Primarily consists of purchased interest-rate caps and floors and options on Treasury futures.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 275

NOTE 8: COLLATERALIZED AGREEMENTS AND 

OFFSETTING ARRANGEMENTS

DERIVATIVE PORTFOLIO

Derivative Counterparties

Our use of cleared derivatives, exchange-traded derivatives, and OTC derivatives exposes us to 

counterparty credit risk. We are required to post margin in connection with our derivatives transactions. 

This requirement exposes us to counterparty credit risk in the event that our counterparties fail to meet 

their obligations. However, the use of cleared and exchange-traded derivatives decreases our credit risk 

exposure to individual counterparties because a central counterparty is substituted for individual 

counterparties. OTC derivatives, however, expose us to the credit risk of individual counterparties 

because transactions are executed and settled between us and each counterparty, exposing us to 

potential losses if a counterparty fails to meet its obligations. 

Our use of interest-rate swaps and option-based derivatives is subject to internal credit and legal reviews. 

On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties, 

clearinghouses, and clearing members to confirm that they continue to meet our internal risk 

management standards.

Over the Counter Derivatives

We use master netting and collateral agreements to reduce our credit risk exposure to our OTC derivative 

counterparties for interest-rate swap and option-based derivatives. Master netting agreements provide for 

the netting of amounts receivable and payable from an individual counterparty, as well as posting of 

collateral in the form of cash, Treasury securities or agency mortgage-related or debt securities, or a 

combination of both when the counterparty's net obligation to us is above an agreed upon threshold. 

Conversely, we are also required to post collateral to our counterparties when our obligation to them is 

above a specified threshold. Although it is our practice not to repledge assets held as collateral, these 

agreements may allow us or our counterparties to repledge all or a portion of the collateral.

We have master netting agreements in place with all of our OTC derivative counterparties. On a daily 

basis, the market value of each counterparty’s derivatives outstanding is calculated to determine the 

amount of our net credit exposure, which is equal to the market value of derivatives in a net gain position 

by counterparty after giving consideration to collateral posted. As a result, our use of master netting and 

collateral agreements reduces our exposure to our counterparties in the event of default.

In the event a counterparty defaults on its obligations under the derivatives agreement and the default is 

not remedied in the manner prescribed in the agreement, we have the right under the agreement to direct 

the custodian bank to transfer the collateral to us or to sell the collateral and transfer the proceeds to us. 

In the event that all of our counterparties for OTC interest-rate swaps and option-based derivatives were 

to have defaulted simultaneously on December 31, 2016, our maximum loss for accounting purposes 

after applying netting agreements and collateral on an individual counterparty basis would have been 

approximately $51 million. A significant majority of our net uncollateralized exposure to OTC derivative 

counterparties is concentrated among four counterparties, all of which were investment grade as of 
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 276

December 31, 2016. We regularly review the market value of securities pledged as collateral and 

derivative counterparty collateral posting thresholds, where applicable, in an effort to manage our 

exposure to losses.

The amount of collateral we pledge to counterparties related to our derivative instruments is determined 

after giving consideration to our credit rating. The aggregate fair value of our OTC derivative instruments 

containing credit-risk related contingent features, netted by counterparty, that were in a liability position on 

December 31, 2016 was $0.9 billion for which we posted cash and non-cash collateral of $0.8 billion in 

the normal course of business. A reduction in our credit ratings may trigger additional collateral 

requirements related to our OTC derivative instruments. If a reduction in our credit ratings had triggered 

additional collateral requirements related to our OTC derivative instruments on December 31, 2016, we 

would have been required to post an additional $188 million of collateral to our counterparties. 

Regulations that take effect March 1, 2017 will 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 will no longer be 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. Changes in the 

value of open exchange-traded contracts and cleared derivatives are settled or collateralized daily via 

payments made through the clearinghouse. We net our exposure to cleared derivatives by clearinghouse 

and clearing member. Exchange-traded derivatives are settled on a daily basis through the payment of 

variation margin. A reduction in our credit ratings could cause the clearinghouses or clearing members we 

use for our cleared and exchange-traded derivatives to demand additional collateral. 

During 2016, the Chicago Mercantile Exchange made certain amendments to its rule books, which 

resulted in the legal characterization of variation margin payments for cleared swaps being altered to 

constitute a settlement rather than a posting of margin collateral. These rule amendments, which are 

effective January 2017, will require that cleared trades be settled on a daily basis through the payment of 

variation margin. While we do not expect the Chicago Mercantile Exchange’s rule amendments to 

materially affect our 2017 financial statements and accompanying notes, such amendments will result in 

certain presentation and disclosure changes, including the reclassification of the portion of the variation 

margin held as Restricted Cash and Cash Equivalents to Cash and Cash Equivalents in our consolidated 

balance sheets. As of December 31, 2016, we held approximately $62 million and posted approximately 

$1.2 billion of variation margin related to trades cleared through the Chicago Mercantile Exchange.

While other clearinghouses have made or plan to make similar amendments to their rule books, the 

amendments that have been implemented to date have not resulted in a change in the legal 

characterization of variation margin payments for Freddie Mac. 

Other Derivatives

We also execute forward purchase and sale commitments of loans and mortgage-related securities, 

including dollar roll transactions, that are treated as derivatives for accounting purposes. The total 

exposure on our forward purchase and sale commitments was $289 million and $34 million at 

December 31, 2016 and 2015, respectively. 
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 277

Many of our transactions involving forward purchase and sale commitments of mortgage-related 

securities utilize the Mortgage Backed Securities Division of the Fixed Income Clearing Corporation 

(“MBSD/FICC”) as a clearinghouse. As a clearing member of the clearinghouse, we post margin to the 

MBSD/FICC and are exposed to the counterparty credit risk of the organization (including its clearing 

members). In the event a clearing member fails and causes losses to the MBSD/FICC clearing system, 

we could be subject to the loss of any or the entire margin that we have posted to the MBSD/FICC. 

Moreover, our exposure could exceed that amount, as members are generally required to cover losses 

caused by defaulting members on a pro rata basis. It is difficult to estimate our maximum exposure under 

these transactions, as this would require an assessment of transactions that we and other members of 

the MBSD/FICC may execute in the future.

SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

As an investor, we enter into arrangements to purchase securities under agreements to subsequently 

resell the identical or substantially the same securities to our counterparty. Our counterparties to these 

transactions are required to pledge the purchased securities as collateral for their obligation to 

repurchase those securities at a later date. While such transactions involve the legal transfer of securities, 

they are accounted for as secured financings because the transferor does not relinquish effective control 

over the securities transferred. Although it is our practice not to repledge assets held as collateral, these 

agreements may allow us to repledge all or a portion of the collateral.

We consider the types of securities being pledged to us as collateral when determining how much we 

lend in transactions involving securities purchased under agreements to resell. Additionally, we regularly 

review the market values of these securities compared to amounts loaned in an effort to manage our 

exposure to losses. 

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.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 278

OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

When we receive cash collateral, we recognize the amount received along with a corresponding 

obligation to return the collateral. When we post cash collateral, we derecognize the amount posted along 

with a corresponding asset for our right to receive the return of the collateral. We generally do not 

recognize or derecognize collateral received or pledged in the form of securities as the transferor in such 

arrangements does not relinquish effective control over the securities transferred. See Note 7 for 

additional information on our consolidated balance sheets presentation of collateral related to derivatives 

transactions. At December 31, 2016 and 2015, all amounts of cash collateral related to derivatives with 

master netting and collateral agreements were offset against derivative assets, net or derivative liabilities, 

net, as applicable.

The table below displays offsetting and collateral information related to derivatives, securities purchased 

under agreements to resell, and securities sold under agreements to repurchase. Securities sold under 

agreements to repurchase are included in debt, net on our consolidated balance sheets.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 279

December 31, 2016

Gross

Amount

Recognized

Amount 

Offset in the 

Consolidated

Balance Sheets

Net Amount

Presented in

the 

Consolidated

Balance 

Sheets

Gross 

Amount

Not Offset in

the 

Consolidated

Balance 

Sheets(2)

Net

(In millions) Amount

Counterparty

Netting

Cash 

Collateral 

Netting(1)

Assets:

Derivatives:

OTC interest-rate swaps and

option-based derivatives $8,531 ($6,367) ($1,760) $404 ($353) $51

Cleared and exchange-traded

derivatives 4,889 (4,674) (162) 53 — 53

Other 290 — — 290 — 290

Total derivatives 13,710 (11,041) (1,922) 747 (353) 394

Securities purchased under 

agreements to resell(3) 51,548 — — 51,548 (51,548) —

Total $65,258 ($11,041) ($1,922) $52,295 ($51,901) $394

Liabilities:

Derivatives:

OTC interest-rate swaps and

option-based derivatives ($7,298) $6,367 $469 ($462) $274 ($188)

Cleared and exchange-traded

derivatives (6,965) 4,705 2,126 (134) — (134)

Other (199) — — (199) — (199)

Total derivatives (14,462) 11,072 2,595 (795) 274 (521)

Securities sold under

agreements to repurchase (3,040) — — (3,040) 3,040 —

Total ($17,502) $11,072 $2,595 ($3,835) $3,314 ($521)

December 31, 2015

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 interest-rate swaps and

option-based derivatives $8,763 ($6,924) ($1,509) $330 ($269) $61

Cleared and exchange-traded

derivatives 1,783 (1,776) (1) 6 — 6

Other 59 — — 59 — 59

Total derivatives 10,605 (8,700) (1,510) 395 (269) 126

Securities purchased under 

agreements to resell(3) 63,644 — — 63,644 (63,644) —

Total $74,249 ($8,700) ($1,510) $64,039 ($63,913) $126

Liabilities:

Derivatives:

OTC interest-rate swaps and

option-based derivatives ($8,886) $6,925 $876 ($1,085) $948 ($137)

Cleared and exchange-traded

derivatives (4,857) 1,776 2,973 (108) — (108)

Other (61) — — (61) — (61)

Total ($13,804) $8,701 $3,849 ($1,254) $948 ($306)

(1) Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a 

derivative asset.
Financial Statements Notes to the Consolidated Financial Statements | Note 8

Freddie Mac 2016 Form 10-K 280

(2) Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, 

netted by counterparty, presented on the consolidated balance sheets. For cleared and exchange-traded derivatives, does 

not include non-cash collateral posted by us as initial margin with an aggregate fair value of $3.4 billion and $2.8 billion as of 

December 31, 2016 and 2015, respectively.

(3) At December 31, 2016 and 2015, we had $4.0 billion and $0.7 billion, respectively, of securities pledged to us for 

transactions involving securities purchased under agreements to resell that we had the right to repledge. 

COLLATERAL

Collateral Pledged to Freddie Mac

We have cash pledged to us as collateral related to OTC derivative transactions. The table below shows 

the line item presentation of the collateral recognized on our consolidated balance sheets. A portion of the 

cash collateral recognized has been re-invested by us in securities purchased under agreements to resell 

and non-mortgage-related securities.

(In millions) December 31, 2016 December 31, 2015

Restricted cash and cash equivalents $399 $175

Securities purchased under agreements to resell 426 905

Investments in securities - Trading securities 1,000 447

Total(1) $1,825 $1,527

(1) Includes cash collateral held in excess of exposure.

Collateral Pledged by Freddie Mac

The table below summarizes the fair value of the securities pledged as collateral by us for derivatives and 

collateralized borrowing transactions where the secured party may repledge.

December 31, 2016

(In millions) Derivatives

Securities sold

under agreements

to repurchase

Other

collateralized

borrowing Total

Debt securities of consolidated trusts held 

by third parties(1) $686 $— $— $686

Available-for-sale securities — — 260 260

Trading securities 3,014 3,070 — 6,084

Total securities pledged that may be

repledged by the secured party $3,700 $3,070 $260 $7,030

(1) Represents PCs held by us in our Investments segment mortgage investments portfolio and pledged as collateral which are 

recorded as a reduction to debt securities of consolidated trusts held by third parties on our consolidated balance sheets.

The table below summarizes the underlying collateral pledged and the remaining contractual maturity of 

our gross obligations under securities sold under agreements to repurchase.

December 31, 2016

(In millions)

Overnight and

continuous 30 days or less

After 30 days

through 90 days

Greater than 90

days Total

U.S. Treasury securities $— $2,072 $998 $— $3,070
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 281

NOTE 9: STOCKHOLDERS’ EQUITY AND EARNINGS PER 

SHARE

ACCUMULATED OTHER COMPREHENSIVE INCOME

The table below presents changes in AOCI after the effects of our 35% federal statutory tax rate related to 

available-for-sale securities, closed cash flow hedges, and our defined benefit plans.

Year Ended December 31, 2016

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $1,740 ($621) $34 $1,153

Other comprehensive income before 

reclassifications(1) (318) — (10) (328)

Amounts reclassified from accumulated

other comprehensive income (507) 141 (3) (369)

Changes in AOCI by component (825) 141 (13) (697)

Ending balance $915 ($480) $21 $456

Year Ended December 31, 2015

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $2,546 ($803) ($13) $1,730

Other comprehensive income before 

reclassifications(1) (123) — 48 (75)

Amounts reclassified from accumulated

other comprehensive income (683) 182 (1) (502)

Changes in AOCI by component (806) 182 47 (577)

Ending balance $1,740 ($621) $34 $1,153

Year Ended December 31, 2014

(In millions)

AOCI Related

to AvailableFor-Sale

Securities

AOCI Related

to Cash Flow

Hedge

Relationships

AOCI Related

to Defined

Benefit Plans Total

Beginning balance $962 ($1,000) $32 ($6)

Other comprehensive income before 

reclassifications(1) 2,087 — (43) 2,044

Amounts reclassified from accumulated

other comprehensive income (503) 197 (2) (308)

Changes in AOCI by component 1,584 197 (45) 1,736

Ending balance $2,546 ($803) ($13) $1,730

(1) For the years ended December 31, 2016, 2015, and 2014, net of tax expense of ($0.2) billion, $0.1 billion, and $1.1 billion, 

respectively, for AOCI related to available-for-sale securities.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 282

Reclassifications from AOCI to Net Income

The table below presents reclassifications from AOCI to net income, including the affected line item in our 

consolidated statements of comprehensive income.

Details about Accumulated Other

Comprehensive Income 

Components Year Ended December 31,

Affected Line Item in the 

Consolidated

Statements of Comprehensive 

Income

(In millions) 2016 2015 2014

AOCI related to 

available-for-sale securities

$971 $1,343 $1,712 Other gains (losses) on investment

securities recognized in earnings

(191) (292) (938)

Net impairment of available-for-sale

securities recognized in earnings

780 1,051 774 Total before tax

(273) (368) (271) Income tax (expense) or benefit

507 683 503 Net of tax

AOCI related to cash flow hedge

relationships

(1) (2) (2) Interest expense

(191) (228) (301) Expense related to derivatives

(192) (230) (303) Total before tax

51 48 106 Income tax (expense) or benefit

(141) (182) (197) Net of tax

AOCI related to defined benefit plans

4 1 4 Salaries and employee benefits

(1) — (2) Income tax (expense) or benefit

3 1 2 Net of tax

Total reclassifications in the period $369 $502 $308 Net of tax

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 $0.5 billion and $0.6 

billion at December 31, 2016 and 2015, 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 $124 million, net of taxes, of the $0.5 billion of cash flow 

hedge losses in AOCI at December 31, 2016 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 17 years. 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 283

SENIOR PREFERRED STOCK

Pursuant to the Purchase Agreement described in Note 2, we issued one million shares of senior 

preferred stock to Treasury on September 8, 2008, in partial consideration of Treasury’s commitment to 

provide funds to us.

Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation 

preference equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject 

to adjustment. Dividends that are not paid in cash for any dividend period will accrue and be added to the 

liquidation preference of the senior preferred stock. In addition, any amounts Treasury pays to us 

pursuant to its funding commitment under the Purchase Agreement and any quarterly commitment fees 

that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation preference of 

the senior preferred stock. As described below, we may make payments to reduce the liquidation 

preference of the senior preferred stock in limited circumstances. As discussed in Note 2, the quarterly 

commitment fee has been suspended.

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

as and if declared by our Board of Directors. The dividends we have paid to Treasury on the senior 

preferred stock have been declared by, and paid at the direction of, the Conservator, acting as successor 

to the rights, titles, powers and privileges of the Board. The dividend is presented in the period in which it 

is determinable for the senior preferred stock, as a reduction to net income (loss) available to common 

stockholders and net income (loss) per common share. The dividend is declared and paid in the following 

period and recorded as a reduction to equity in the period declared. Total dividends paid in cash during 

2016, 2015, and 2014 at the direction of the Conservator were $5.0 billion, $5.5 billion, and $19.6 billion, 

respectively. See Note 2 for a discussion of our net worth sweep dividend.

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred 

stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. 

The senior preferred stock provides that we may not, at any time, declare or pay dividends on, make 

distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect 

to, any common stock or other securities ranking junior to the senior preferred stock unless: 

• Full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends 

added to the liquidation preference) have been declared and paid in cash; and 

• All amounts required to be paid with the net proceeds of any issuance of capital stock for cash (as 

described below) have been paid in cash. 

Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no 

general or special voting rights, other than those set forth in the certificate of designation for the senior 

preferred stock or otherwise required by law. The consent of holders of at least two-thirds of all 

outstanding shares of senior preferred stock is generally required to amend the terms of the senior 

preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior 

preferred stock.

We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding 

commitment set forth in the Purchase Agreement; however, we are permitted to pay down the liquidation 

preference of the outstanding shares of senior preferred stock to the extent of accrued and unpaid 

dividends previously added to the liquidation preference and not previously paid down and quarterly 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 284

commitment fees previously added to the liquidation preference and not previously paid down. In addition, 

if we issue any shares of capital stock for cash while the senior preferred stock is outstanding, the net 

proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred 

stock; however, the liquidation preference of each share of senior preferred stock may not be paid down 

below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the 

termination of Treasury’s funding commitment, we may pay down the liquidation preference of all 

outstanding shares of senior preferred stock at any time, in whole or in part. If, after termination of 

Treasury’s funding commitment, we pay down the liquidation preference of each outstanding share of 

senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date. 

The table below provides a summary of our senior preferred stock outstanding at December 31, 2016.

(In millions, except initial

liquidation preference price

per share)

Shares

Authorized

Shares

Outstanding

Total

Par Value

Initial

Liquidation

Preference

Price per Share

Total

Liquidation

Preference

Draw Date:

September 8, 2008 1.00 1.00 $1.00 $1,000 $1,000

November 24, 2008 — — — N/A 13,800

March 31, 2009 — — — N/A 30,800

June 30, 2009 — — — N/A 6,100

June 30, 2010 — — — N/A 10,600

September 30, 2010 — — — N/A 1,800

December 30, 2010 — — — N/A 100

March 31, 2011 — — — N/A 500

September 30, 2011 — — — N/A 1,479

December 30, 2011 — — — N/A 5,992

March 30, 2012 — — — N/A 146

June 29, 2012 — — — N/A 19

Total, senior preferred

stock 1.00 1.00 $1.00 $72,336

No cash was received from Treasury under the Purchase Agreement in 2016, because we had positive 

net worth at December 31, 2015, March 31, 2016, June 30, 2016, and September 30, 2016 and, 

consequently, FHFA did not request a draw on our behalf. At December 31, 2016, our assets exceeded 

our liabilities under GAAP; therefore no draw is being requested from Treasury under the Purchase 

Agreement. Our quarterly senior preferred stock dividend is the amount, if any, by which our Net Worth 

Amount at the end of the immediately preceding fiscal quarter exceeds the applicable Capital Reserve 

Amount, which was established at $3 billion for 2013 and declines to zero in 2018. Based on our Net 

Worth Amount at December 31, 2016 and the Capital Reserve Amount of $0.6 billion in 2017, our 

dividend obligation to Treasury in March 2017 will be $4.5 billion. See Note 2 for additional information. 

The aggregate liquidation preference on the senior preferred stock owned by Treasury was $72.3 billion

as of both December 31, 2016 and 2015. See Note 15 for additional information.

COMMON STOCK WARRANT

Pursuant to the Purchase Agreement described in Note 2, on September 7, 2008, we issued a warrant to 

purchase common stock to Treasury, in partial consideration of Treasury’s commitment to provide funds 

to us.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 285

The warrant may be exercised in whole or in part at any time on or before September 7, 2028, by delivery 

to us of a notice of exercise, payment of the exercise price of $0.00001 per share, and the warrant. If the 

market price of one share of our common stock is greater than the exercise price, then, instead of paying 

the exercise price, Treasury may elect to receive shares equal to the value of the warrant (or portion 

thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the warrant, 

Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other 

person.

We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the 

warrant at fair value, and we do not recognize subsequent changes in fair value while the warrant 

remains classified in equity. We recorded an aggregate fair value of $2.3 billion for the warrant as a 

component of additional paid-in-capital. We derived the fair value of the warrant using a modified BlackScholes model. If the warrant is exercised, the stated value of the common stock issued will be 

reclassified to common stock in our consolidated balance sheets. The warrant was determined to be insubstance non-voting common stock, because the warrant’s exercise price of $0.00001 per share is 

considered non-substantive (compared to the market price of our common stock). As a result, the shares 

associated with the warrant are included in the computation of basic and diluted earnings (loss) per 

share. The weighted average shares of common stock outstanding for the years ended December 31, 

2016, 2015, and 2014 included shares of common stock that would be issuable upon full exercise of the 

warrant issued to Treasury.

PREFERRED STOCK

We have the option to redeem our preferred stock on specified dates, at their redemption price plus 

dividends accrued through the redemption date. However, without the consent of Treasury, we are 

restricted from making payments to purchase or redeem preferred stock as well as paying any preferred 

dividends, other than dividends on the senior preferred stock. All 24 classes of preferred stock are 

perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional 

Freddie Mac stock or securities. Costs incurred in connection with the issuance of preferred stock are 

charged to additional paid-in capital.
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 286

The table below provides a summary of our preferred stock outstanding at their redemption values at 

December 31, 2016.

(In millions, except

redemption price per

share) Issue Date

Shares

Authorized

Shares

Outstanding

Total

Par Value

Redemption

Price per

Share

Total

Outstanding

Balance

Redeemable

On or After

OTCQB

Symbol

Preferred stock:

1996 Variable-rate(1) April 26, 1996 5.00 5.00 $5.00 $50.00 $250 June 30, 2001 FMCCI

5.81% October 27, 1997 3.00 3.00 3.00 50.00 150 October 27, 1998 (2)

5% March 23, 1998 8.00 8.00 8.00 50.00 400 March 31, 2003 FMCKK

1998 Variable-rate(3)

September 23 

and 29, 1998 4.40 4.40 4.40 50.00 220 September 30, 2003 FMCCG

5.10% September 23, 1998 8.00 8.00 8.00 50.00 400 September 30, 2003 FMCCH

5.30% October 28, 1998 4.00 4.00 4.00 50.00 200 October 30, 2000 (2)

5.10% March 19, 1999 3.00 3.00 3.00 50.00 150 March 31, 2004 (2)

5.79% July 21, 1999 5.00 5.00 5.00 50.00 250 June 30, 2009 FMCCK

1999 Variable-rate(4) November 5, 1999 5.75 5.75 5.75 50.00 287 December 31, 2004 FMCCL

2001 Variable-rate(5) January 26, 2001 6.50 6.50 6.50 50.00 325 March 31, 2003 FMCCM

2001 Variable-rate(6) March 23, 2001 4.60 4.60 4.60 50.00 230 March 31, 2003 FMCCN

5.81% March 23, 2001 3.45 3.45 3.45 50.00 173 March 31, 2011 FMCCO

6% May 30, 2001 3.45 3.45 3.45 50.00 173 June 30, 2006 FMCCP

2001 Variable-rate(7) May 30, 2001 4.02 4.02 4.02 50.00 201 June 30, 2003 FMCCJ

5.70% October 30, 2001 6.00 6.00 6.00 50.00 300 December 31, 2006 FMCKP

5.81% January 29, 2002 6.00 6.00 6.00 50.00 300 March 31, 2007 (2)

2006 Variable-rate(8) July 17, 2006 15.00 15.00 15.00 50.00 750 June 30, 2011 FMCCS

6.42% July 17, 2006 5.00 5.00 5.00 50.00 250 June 30, 2011 FMCCT

5.90% October 16, 2006 20.00 20.00 20.00 25.00 500 September 30, 2011 FMCKO

5.57% January 16, 2007 44.00 44.00 44.00 25.00 1,100 December 31, 2011 FMCKM

5.66% April 16, 2007 20.00 20.00 20.00 25.00 500 March 31, 2012 FMCKN

6.02% July 24, 2007 20.00 20.00 20.00 25.00 500 June 30, 2012 FMCKL

6.55% September 28, 2007 20.00 20.00 20.00 25.00 500 September 30, 2017 FMCKI

2007 Fixed-tofloating rate(9) December 4, 2007 240.00 240.00 240.00 25.00 6,000 December 31, 2012 FMCKJ

Total, preferred

stock 464.17 464.17 $464.17 $14,109

(1) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 

9.00%.

(2) Issued through private placement.

(3) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 

7.50%.

(4) Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury 

rate, and is capped at 11.00%. Optional redemption on December 31, 2004 and on December 31 every five years thereafter. 

(5) Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 

0.10%, and is capped at 11.00%. Optional redemption on March 31, 2003 and on March 31 every two years thereafter. 

(6) Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional 

redemption on March 31, 2003 and on March 31 every year thereafter.

(7) Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 

0.20%, and is capped at 11.00%. Optional redemption on June 30, 2003 and on June 30 every two years thereafter. 

(8) Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%. 

(9) Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period 

beginning on or after January 1, 2013, dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month 

LIBOR plus 4.16% per annum; or (b) 7.875% per annum. Optional redemption on December 31, 2012, and on December 31 

every five years thereafter. 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 287

STOCK-BASED COMPENSATION

Following the implementation of the conservatorship in September 2008, we suspended the operation of 

and/or ceased making grants under our stock-based compensation plans. Under the Purchase 

Agreement, we cannot issue any new options, rights to purchase, participations or other equity interests 

without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase Agreement 

remain in effect in accordance with their terms.

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2016 

and 2015, except for issuances of treasury stock as reported on our consolidated statements of equity 

relating to stock-based compensation granted prior to conservatorship. Common stock delivered under 

these stock-based compensation plans consists of treasury stock or shares acquired in market 

transactions on behalf of the participants. During 2016, the deferral period lapsed on 1,240 RSUs. At 

December 31, 2016, 9,510 RSUs remained outstanding. There are no remaining restrictions on 

outstanding RSUs. In addition, there were 41,160 shares of restricted stock outstanding at both 

December 31, 2016 and 2015. No stock options were exercised and 46,416 stock options were forfeited 

or expired during 2016. At December 31, 2016, no stock options were outstanding. 

EARNINGS PER SHARE

Under our prior stock-based compensation plans we issued participating securities related to options and 

RSUs with dividend equivalent rights that receive dividends as declared on an equal basis with common 

shares but are not obligated to participate in undistributed net losses. These participating securities 

consist of: 

• Vested options to purchase common stock; and 

• Vested RSUs that earn dividend equivalents at the same rate when and as declared on common 

stock. 

Consequently, in accordance with accounting guidance, we use the “two-class” method of computing 

earnings per common share. The “two-class” method is an earnings allocation formula that determines 

earnings per share for common stock and participating securities based on dividends declared and 

participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding for the period. The weighted average 

common shares outstanding for the period includes the weighted average number of shares that are 

associated with the warrant for our common stock issued to Treasury pursuant to the Purchase 

Agreement. These shares are included since the warrant is unconditionally exercisable by the holder at a 

minimal cost. 

Diluted earnings per common share is computed as net income attributable to common stockholders 

divided by the weighted average common shares outstanding during the period adjusted for the dilutive 

effect of common equivalent shares outstanding. For periods with net income attributable to common 

stockholders, the calculation includes the effect of the following common stock equivalent shares 

outstanding: 

• Weighted average shares related to stock options if the average market price during the period 
Financial Statements Notes to the Consolidated Financial Statements | Note 9

Freddie Mac 2016 Form 10-K 288

exceeds the exercise price; and

• The weighted-average of RSUs. 

During periods in which a net loss attributable to common stockholders has been incurred, potential 

common equivalent shares outstanding are not included in the calculation because it would have an 

antidilutive effect. 

For purposes of the earnings-per-share calculation, antidilutive potential common shares excluded from 

the computation of dilutive potential common shares were 22,684, 146,474, and 494,227 at 

December 31, 2016, 2015, and 2014, respectively.

DIVIDENDS DECLARED

No common dividends were declared in 2016. During the three months ended March 31, 2016, June 30, 

2016, September 30, 2016, and December 31, 2016, we paid dividends of $1.7 billion, $0 billion, $0.9 

billion, and $2.3 billion, respectively, in cash on the senior preferred stock at the direction of our 

Conservator. We did not declare or pay dividends on any other series of Freddie Mac preferred stock 

outstanding during 2016.

DELISTING OF COMMON STOCK AND PREFERRED STOCK FROM NYSE

On July 8, 2010, we delisted our common and 20 previously listed classes of preferred stock from the 

NYSE pursuant to a directive by our Conservator.

Our common stock and the classes of preferred stock that were previously listed on the NYSE are traded 

exclusively in the OTCQB Marketplace. Shares of our common stock now trade under the ticker symbol 

FMCC. We expect that our common stock and the previously listed classes of preferred stock will 

continue to trade in the OTCQB Marketplace so long as market makers demonstrate an interest in trading 

the common and preferred stock.
Financial Statements Notes to the Consolidated Financial Statements | Note 10

Freddie Mac 2016 Form 10-K 289

NOTE 10: INCOME TAXES

INCOME TAX (EXPENSE) BENEFIT

The total income tax (expense) benefit includes: 

• Deferred tax (expense) benefit, which represents the net change in the deferred tax asset or liability 

balance during the year and any change in the valuation allowance, if any; and

• Current tax (expense) benefit, which represents the amount of tax currently payable to or receivable 

from a tax authority, including related interest and penalties, and amounts accrued for unrecognized 

tax benefits, if any. 

Income tax (expense) benefit excludes the tax effects related to adjustments recorded to other 

comprehensive income, such as unrealized gains and losses on available-for-sale securities. 

The table below presents the components of our federal income tax expense for 2016, 2015, and 2014. 

We are exempt from state and local income taxes. 

Year Ended December 31,

(In millions) 2016 2015 2014

Current income tax expense ($1,037) ($1,243) ($1,028)

Deferred income tax expense (2,787) (1,655) (2,284)

Total income tax expense ($3,824) ($2,898) ($3,312)

The increase in income tax expense from 2015 to 2016 is primarily due to an increase in pre-tax income. 

The decrease in income tax expense from 2014 to 2015 is primarily due to a decrease in pre-tax income.

The table below presents reconciliation between our federal statutory income tax rate and our effective 

tax rate for 2016, 2015 and 2014.

Year Ended December 31,

2016 2015 2014

(Dollars in millions) Amount Percent Amount Percent Amount Percent

Statutory corporate tax rate ($4,074) 35.0% ($3,246) 35.0% ($3,851) 35.0%

Tax-exempt interest 36 (0.3) 52 (0.6) 73 (0.7)

Tax credits 243 (2.1) 346 (3.7) 438 (4.0)

Other (29) 0.3 (50) 0.5 28 (0.2)

Effective tax rate ($3,824) 32.9% ($2,898) 31.2% ($3,312) 30.1%

DEFERRED TAX ASSETS, NET

We use the asset and liability method of accounting for income taxes for financial reporting purposes. 

Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax 

consequences of existing temporary differences between the financial reporting and the tax reporting 

basis of assets and liabilities using enacted statutory tax rates as well as tax net operating loss and tax 

credit carryforwards. To the extent tax laws change, deferred tax assets and liabilities are adjusted in the 

period that the tax change is enacted. The realization of these net deferred tax assets is dependent upon 

the generation of sufficient taxable income.
Financial Statements Notes to the Consolidated Financial Statements | Note 10

Freddie Mac 2016 Form 10-K 290

The table below presents the balance of significant deferred tax assets and liabilities at December 31, 

2016 and 2015.

(In millions) 2016 2015

Deferred tax assets:

Deferred fees $6,662 $7,008

Basis differences related to derivative instruments 4,006 5,912

Credit related items and allowance for loan losses 1,045 170

Basis differences related to assets held for investment 2,310 3,303

LIHTC partnerships and AMT credit carryforward 2,156 2,764

Basis differences related to debt 48 —

Other items, net 83 81

Total deferred tax assets 16,310 19,238

Deferred tax liabilities:

Unrealized gains related to available-for-sale securities (492) (937)

Basis differences related to debt — (96)

Total deferred tax liabilities (492) (1,033)

Deferred tax assets, net $15,818 $18,205

As of December 31, 2016, we had a LIHTC partnership carryforward of $1.7 billion that will expire over 

multiple years beginning in 2032. Our AMT credit carryforward of $433 million will not expire.

Valuation Allowance

A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not that 

all or part of our tax benefits will not be realized. On a quarterly basis, we determine whether a valuation 

allowance is necessary. In doing so, we consider all evidence available, both positive and negative, in 

determining whether, based on the weight of the evidence, it is more likely than not that the net deferred 

tax asset will be realized.

We are not permitted to consider in our analysis the impacts proposed legislation may have on our 

business because the timing and certainty of those actions are unknown and beyond our control.

At December 31, 2016, we determined that the positive evidence, particularly the evidence that was 

objectively verifiable, outweighed the negative evidence. 

The positive evidence included the following:

• Our three-year cumulative income position and taxable income for the past four years;

• Our current loss carryback capacity and the length of the carryforward period available to utilize our 

tax credit carryforward under current tax law;

• Our access to capital under the agreements associated with conservatorship; and

• Our expected 2016 taxable income and forecasts of future book income.

Accordingly, we concluded that it is more likely than not that our net deferred tax asset will be realized 

and that a valuation allowance against our net deferred tax asset was not necessary at December 31, 

2016.
Financial Statements Notes to the Consolidated Financial Statements | Note 10

Freddie Mac 2016 Form 10-K 291

UNRECOGNIZED TAX BENEFITS AND IRS EXAMINATIONS

We recognize a tax position taken or expected to be taken (and any associated interest and penalties) if it 

is more likely than not that it will be sustained upon examination, including resolution of any related 

appeals or litigation processes, based on the technical merits of the position. We measure the tax position 

at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. 

We evaluated all income tax positions and determined that there were no uncertain tax positions that 

required reserves as of December 31, 2016.

We have accrued gross interest receivable of $32 million and $65 million as of December 31, 2016 and 

2015, respectively, related to payments on account with the IRS. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 292

NOTE 11: SEGMENT REPORTING

We have three reportable segments, which are based on the type of business activities each performs - 

Single-family Guarantee, Multifamily, and Investments. The chart below provides a summary of our three 

reportable segments and the All Other category. 

Segment Description Activities/Items Financial

Performance

Measurement

Basis

Single-family

Guarantee

The Single-family Guarantee segment 

reflects results from our purchase, 

securitization, and guarantee of singlefamily loans and the management of 

single-family credit risk. In most 

instances, we securitize the loan and 

guarantee the payment of principal and 

interest on the mortgage-related 

securities in exchange for guarantee 

fees. 

Segment Earnings for this segment 

consist primarily of guarantee fee 

income, less credit-related expenses, 

credit risk transfer expenses, 

administrative expenses, allocated 

funding costs, and amounts related to 

net float income or expenses.

Guarantee fees on PCs, including those retained 

by us, and certain single-family loans in the 

mortgage-related investments portfolio, inclusive of 

upfront credit delivery and buy-down fees

Adjustments to guarantee fees for the price 

performance of our PCs relative to comparable 

Fannie Mae securities

Costs and recoveries of credit risk transfer 

transactions

Credit losses on all single-family assets

Net float income or expense on the single-family 

credit guarantee portfolio

Settlements, including legal settlements related to 

representation and warranty claims

Gains (losses) on sale of non-performing loans

Tax expense/benefit and changes in the deferred 

tax asset valuation allowance (if any)

Allocated debt costs and administrative expenses

Contribution to

GAAP net income

(loss)

Multifamily The Multifamily segment reflects results 

from our purchase, securitization, and 

guarantee of multifamily loans and 

securities, our investments in those 

loans and securities, and the 

management of multifamily mortgage 

credit risk and mortgage market spread 

risk. Our primary business model is to 

purchase multifamily loans for 

aggregation and then securitization 

through issuance of multifamily K 

Certificates and SB Certificates. We 

also issue and guarantee other 

securitization products, issue other 

credit risk transfer products, and provide 

other mortgage-related guarantees.

Segment Earnings for this segment 

consist primarily of returns on assets 

related to multifamily investment 

activities and guarantee fee income, 

less credit-related expenses, 

administrative expenses, and allocated 

funding costs.

Multifamily loans held-for-sale and associated 

securitization activities (i.e., K Certificates and SB 

Certificates)

Investments in CMBS and multifamily loans heldfor-investment

Other mortgage-related guarantees

Other securitization products

Other credit risk transfer products

Tax expense/benefit and changes in the deferred 

tax asset valuation allowance (if any)

Allocated debt costs and administrative expenses

Contribution to

GAAP

comprehensive

income (loss)
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 293

Investments The Investments segment reflects 

results from managing the company’s 

mortgage-related investments portfolio 

(excluding Multifamily segment 

investments, single-family seriously 

delinquent loans, and the credit risk of 

single-family performing loans), treasury 

function, and interest-rate risk.

Segment Earnings for this segment 

consist primarily of the returns on these 

investments, less the related funding, 

hedging, and administrative expenses.

Investments in single-family mortgage-related 

securities and single-family performing loans

All other traded non-mortgage related instruments 

and securities

Debt issuances

Interest rate risk management

Guarantee buy-ups, net of execution gains / losses

Cash and liquidity management

Settlements, including legal settlements, relating to 

non-agency mortgage-related securities 

Tax expense/benefit and changes in the deferred 

tax asset valuation allowance (if any)

Allocated administrative expenses

Contribution to

GAAP

comprehensive

income (loss)

All Other The All Other category consists of

material corporate-level activities that are

infrequent in nature and based on

decisions outside the control of the

management of our reportable

segments.

Tax settlements, as applicable

Legal settlements, as applicable

Tax expense/benefit and changes in the deferred 

tax asset valuation allowance (if any)

FHFA-mandated termination of our pension plan

N/A

Segment Earnings

We present Segment Earnings by reclassifying certain credit-related activities, investment-related 

activities, and mortgage-loan reclassification activities between various line items on our GAAP

consolidated statements of comprehensive income and allocating certain revenues and expenses, 

including certain returns on assets and funding costs, and all administrative expenses to our three 

reportable segments. 

We do not consider our assets by segment when evaluating segment performance or allocating 

resources. We operate our business in the United States and its territories, and accordingly, we generate 

no revenue from and have no long-lived assets, other than financial instruments, in geographic locations 

other than the United States and its territories.

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

subject to the conduct of our business under the direction of the Conservator. See Note 2 for information 

about the conservatorship. 

During the first quarter of 2016, we changed how we calculate certain components of our Segment 

Earnings for our Single-family Guarantee and Investments segments. The purpose of these changes is to 

simplify Segment Earnings results relative to GAAP results. Prior period results have been revised to 

conform to the current period presentation. Changes include:

• The discontinuation of adjustments to net interest income and guarantee fee income which reflected 

the amortization of cash premiums and discounts on the consolidated Freddie Mac mortgage-related 

securities we purchased as investments, as well as the amortization of certain guarantee buy-up and 

buy-down fees and credit delivery fees on mortgage loans we purchased. The discontinuation of the 

adjustments resulted in an increase to net interest income for the Investments segment of $781 

million and $635 million and a decrease to guarantee fee income for the Single-family Guarantee 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 294

segment of $254 million and $303 million for the years ended December 31, 2015 and 2014, 

respectively, to align with the current presentation.

• Adjustments to record amortization of premiums and discounts on loans that were securitized in other 

non-interest income. Previously when we securitized loans into PCs, the premiums and discounts on 

the loans were amortized in net interest income. We reclassified $1.4 billion and $780 million of 

expense from net interest income into other non-interest income (loss) for the Investments segment 

for the years ended December 31, 2015 and 2014, respectively, to align with the current presentation.

• Adjustments to reflect the impacts from the reclassification of mortgage loans from held-forinvestment to held-for-sale as other non-interest income. We reclassified $2.3 billion and $147 million

of benefit from (provision) benefit for credit losses and $1.1 billion and $62 million of expense from 

other non-interest expense into other non-interest income (loss) for the Single-family Guarantee 

segment for the years ended December 31, 2015 and 2014, respectively, to align with the current 

presentation.

In addition, during the third quarter of 2016, we changed how we calculate certain components of our 

Segment Earnings for our Single-family Guarantee and Multifamily segments. The purpose of these 

changes is to better reflect how management evaluates the Single-family Guarantee and Multifamily 

segments. Prior period results have been revised to conform to the current period presentation. Changes 

include:

• Adjustments to record amortization of non-cash premiums and discounts on single-family loans in 

trusts and on the associated consolidated PCs and amortization of discounts on loans purchased with 

deteriorated credit quality that are on accrual status into other non-interest income (loss). Previously 

this activity was included in net interest income. We reclassified $338 million and $156 million of 

income from net interest income into other non-interest income (loss) for the Single-family Guarantee 

segment for the years ended December 31, 2015 and 2014, respectively, to align with the current 

presentation.

• Adjustments to record STACR debt note expense and net float income or expense into other noninterest expense. Previously this activity was included in net interest income. We reclassified $443 

million and $258 million of expense from net interest income into other non-interest expense for the 

Single-family Guarantee segment for the years ended December 31, 2015 and 2014, respectively, to 

align with the current presentation.

• Multifamily segment net interest income previously reflected the internally allocated costs associated 

with the refinancing of debt related to held-for-investment loans which we securitized. These costs 

are now reflected in other non-interest income (loss). We reclassified $122 million and $0 million of 

expense from net interest income into other non-interest income (loss) for the Multifamily segment for 

the years ended December 31, 2015 and 2014, respectively, to align with the current presentation.

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

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

equals GAAP comprehensive income (loss). However, the accounting principles we apply to present 

certain financial statement line items in Segment Earnings for our reportable segments differ significantly 

from those applied in preparing the comparable line items in our consolidated financial statements 

prepared in accordance with GAAP in order to reflect the business activities each segment performs. The 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 295

significant reclassifications are discussed below. Many of the reclassifications and allocations described 

below relate to the amendments to the accounting guidance for transfers of financial assets and 

consolidation of VIEs, which we adopted effective January 1, 2010. These amendments require us to 

consolidate our single-family PC trusts and certain other VIEs. Due to the adoption of this guidance, the 

results of our operating segments from a GAAP perspective do not reflect how the Segments are 

managed. 

Credit Activity-Related Reclassifications

Certain credit activity-related income and costs are included in Segment Earnings guarantee fee income 

or provision for credit losses.

• Net guarantee fees are reclassified in Segment Earnings from net interest income to guarantee fee 

income.

• Implied guarantee fee income related to unsecuritized loans held in the mortgage investments 

portfolio is reclassified in Segment Earnings from net interest income to guarantee fee income.

• A portion of the amount reversed for accrued but uncollected interest upon placing loans on a nonaccrual status is reclassified in Segment Earnings from net interest income to provision for credit 

losses.

• The revenue and expense related to the 10 basis point increase which was legislated in the 

Temporary Payroll Tax Cut Continuation Act of 2011 are netted within guarantee fee income.

Investment Activity-Related Reclassifications

We move certain items into or out of net interest income so that, on a Segment Earnings basis, net 

interest income reflects how we measure the effective yield earned on securities held in our mortgage 

investments portfolio and our other investments and cash portfolio.

We use derivatives extensively in our investment activity. The reclassifications described below allow us 

to reflect, in Segment Earnings net interest income, the costs associated with this use of derivatives.

• The accrual of periodic cash settlements of all derivatives is reclassified in Segment Earnings from 

derivative gains (losses) into net interest income to fully reflect the periodic cost associated with the 

protection provided by these contracts.

• Up-front cash paid or received upon the purchase or writing of swaptions and other option contracts is 

reclassified in Segment Earnings prospectively on a straight-line basis from derivative gains (losses) 

into net interest income over the contractual life of the instrument to fully reflect the periodic cost 

associated with the protection provided by these contracts.

Amortization related to certain items is not relevant to how we measure the effective yield earned on the 

securities held in our investments portfolios. Therefore, as described below, we reclassify the following 

items in Segment Earnings from net interest income to non-interest income:

• Amortization related to derivative commitment basis adjustments associated with mortgage-related 

and non-mortgage-related securities.

• Amortization related to accretion of other-than-temporary impairments on available-for-sale securities.

• Amortization related to premiums and discounts, including non-cash premiums and discounts, on 

single-family loans in trusts and on the associated consolidated PCs. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 296

• Amortization of discounts on loans purchased with deteriorated credit quality that are on accrual 

status.

• Amortization related to premiums and discounts associated with PCs issued by our consolidated 

trusts that we previously held and subsequently transferred to third parties. The amortization is 

related to deferred gains (losses) on transfers of these securities.

Certain debt-related costs are not relevant to how we measure the effective yield earned on the securities 

held in our investments portfolio. Therefore, as described below, we reclassify the following items in 

Segment Earnings from net interest income to non-interest income:

• Costs associated with STACR debt note expense.

• Internally allocated costs associated with the refinancing of debt related to Multifamily segment heldfor-investment loans which we securitized.

Mortgage Loan Classification-Related Reclassifications

The GAAP impacts of our reclassification of mortgage loans from held-for-investment to held-for-sale 

affect various financial statement line items. In order to better reflect how we manage our Single-family 

Guarantee segment, we reclassify the impacts of these mortgage loan reclassifications from benefit 

(provision) for credit losses and other non-interest expense into other non-interest income (loss).

Segment Allocations

The results of each reportable segment include directly attributable revenues and expenses. 

Administrative expenses that are not directly attributable to a segment are allocated to our segments 

using various methodologies, depending on the nature of the expense. Net interest income for each 

segment includes allocated debt funding and hedging costs related to certain assets of each segment. 

Funding and interest rate risk is consolidated and primarily managed by the Investments segment for all 

other business segments. In connection with this activity, the Investments segment transfers a cost to the 

other segments. The actual costs may vary relative to these intra-company transfers. In addition, the 

financial statement volatility associated with the use of derivatives to hedge certain assets outside the 

Investments segment is not fully allocated to other segments. These allocations do not include the effects 

of dividends paid on our senior preferred stock. 
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 297

The table below presents Segment Earnings by segment.

Year Ended December 31,

(In millions) 2016 2015 2014

Segment Earnings (loss), net of taxes:

Single-family Guarantee $2,170 $1,778 $1,547

Multifamily 1,818 827 1,636

Investments 3,827 3,771 4,520

All Other — — (13)

Total Segment Earnings, net of taxes 7,815 6,376 7,690

Net income $7,815 $6,376 $7,690

Comprehensive income (loss) of segments:

Single-family Guarantee $2,161 $1,790 $1,537

Multifamily 1,582 566 1,459

Investments 3,375 3,415 6,471

All Other — 28 (41)

Comprehensive income of segments 7,118 5,799 9,426

Comprehensive income $7,118 $5,799 $9,426

The table below presents detailed reconciliations between our GAAP financial statements and Segment 

Earnings for our reportable segments and All Other.

Year Ended December 31, 2016

Total 

Segment

Earnings 

(Loss)

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Singlefamily

Guarantee Multifamily Investments

All

Other Reclassifications

Net interest income $— $1,022 $2,464 $— $3,486 $10,893 $14,379

Guarantee fee income(1) 6,091 511 — — 6,602 (6,089) 513

Benefit (Provision) for credit losses (517) 22 — — (495) 1,298 803

Net impairment of available-for-sale

securities recognized in earnings — — 269 — 269 (460) (191)

Derivative gains (losses) (69) 407 2,499 — 2,837 (3,111) (274)

Gains (losses) on trading securities — 28 (1,077) — (1,049) — (1,049)

Gains (losses) on loans — 309 — — 309 (772) (463)

Other non-interest income 516 829 1,846 — 3,191 (1,227) 1,964

Administrative expense (1,323) (362) (320) — (2,005) — (2,005)

REO operations (expense) income (298) — — — (298) 11 (287)

Other non-interest (expense) income (1,169) (58) 19 — (1,208) (543) (1,751)

Income tax expense (1,061) (890) (1,873) — (3,824) — (3,824)

Net income (loss) 2,170 1,818 3,827 — 7,815 — 7,815

Changes in unrealized gains (losses)

related to available-for-sale securities — (234) (591) — (825) — (825)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 141 — 141 — 141

Changes in defined benefit plans (9) (2) (2) — (13) — (13)

Total other comprehensive income (loss),

net of taxes (9) (236) (452) — (697) — (697)

Comprehensive income (loss) $2,161 $1,582 $3,375 $— $7,118 $— $7,118
Financial Statements Notes to the Consolidated Financial Statements | Note 11

Freddie Mac 2016 Form 10-K 298

Year Ended December 31, 2015

Total 

Segment

Earnings 

(Loss)

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Singlefamily

Guarantee Multifamily Investments

All

Other Reclassifications

Net interest income $— $1,049 $3,902 $— $4,951 $9,995 $14,946

Guarantee fee income(1) 5,152 339 — — 5,491 (5,122) 369

Benefit (Provision) for credit losses (283) 26 — — (257) 2,922 2,665

Net impairment of available-for-sale

securities recognized in earnings — (22) 420 — 398 (690) (292)

Derivative gains (losses) (37) 372 (70) — 265 (2,961) (2,696)

Gains (losses) on trading securities — (98) (737) — (835) — (835)

Gains (losses) on loans — (93) — — (93) (2,001) (2,094)

Other non-interest income 173 15 2,292 — 2,480 (531) 1,949

Administrative expense (1,285) (325) (317) — (1,927) — (1,927)

REO operations (expense) income (341) (4) — — (345) 7 (338)

Other non-interest (expense) income (794) (56) (4) — (854) (1,619) (2,473)

Income tax expense (807) (376) (1,715) — (2,898) — (2,898)

Net income (loss) 1,778 827 3,771 — 6,376 — 6,376

Changes in unrealized gains (losses)

related to available-for-sale securities — (264) (542) — (806) — (806)

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 182 — 182 — 182

Changes in defined benefit plans 12 3 4 28 47 — 47

Total other comprehensive income (loss),

net of taxes 12 (261) (356) 28 (577) — (577)

Comprehensive income (loss) $1,790 $566 $3,415 $28 $5,799 $— $5,799

Year Ended December 31, 2014

Total 

Segment

Earnings 

(Loss)

Total per

Consolidated

Statements of

Comprehensive

(In millions) Income

Singlefamily

Guarantee Multifamily Investments

All

Other Reclassifications

Net interest income $— $948 $4,381 $— $5,329 $8,934 $14,263

Guarantee fee income(1) 4,094 254 — — 4,348 (4,019) 329

Benefit (Provision) for credit losses (1,129) 55 — — (1,074) 1,016 (58)

Net impairment of available-for-sale

securities recognized in earnings — — (140) — (140) (798) (938)

Derivative gains (losses) 7 335 (5,158) — (4,816) (3,475) (8,291)

Gains (losses) on trading securities — 58 (276) — (218) — (218)

Gains (losses) on loans — 870 — — 870 (139) 731

Other non-interest income 945 176 8,101 — 9,222 (948) 8,274

Administrative expense (1,170) (274) (437) — (1,881) — (1,881)

REO operations (expense) income (213) 9 — — (204) 8 (196)

Other non-interest (expense) income (387) (23) (6) (18) (434) (579) (1,013)

Income tax (expense) benefit (600) (772) (1,945) 5 (3,312) — (3,312)

Net income (loss) 1,547 1,636 4,520 (13) 7,690 — 7,690

Changes in unrealized gains (losses)

related to available-for-sale securities — (175) 1,759 — 1,584 — 1,584

Changes in unrealized gains (losses)

related to cash flow hedge relationships — — 197 — 197 — 197

Changes in defined benefit plans (10) (2) (5) (28) (45) — (45)

Total other comprehensive income (loss),

net of taxes (10) (177) 1,951 (28) 1,736 — 1,736

Comprehensive income (loss) $1,537 $1,459 $6,471 ($41) $9,426 $— $9,426

(1) Guarantee fee income is included in other income (loss) on our GAAP consolidated statements of comprehensive income.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 299

NOTE 12: CONCENTRATION OF CREDIT AND OTHER RISKS

Concentrations of credit risk may arise when we do business with a number of customers or 

counterparties that engage in similar activities or have similar economic characteristics that make them 

vulnerable in similar ways to changes in industry conditions, which could affect their ability to meet their 

contractual obligations. Concentrations of credit risk may also arise when there are a limited number of 

counterparties in a certain industry. Based on our assessment of business conditions that could affect our 

financial results, we have determined that concentrations of credit risk exist among certain borrowers 

(including geographic concentrations and loans with certain higher risk characteristics), loan sellers and 

servicers, mortgage insurers, bond insurers, cash, derivative and other investment counterparties, and 

non-agency mortgage-related security issuers. In the sections below, we discuss our concentration of 

credit risk for each of the groups to which we are exposed. For a discussion of our derivative 

counterparties as well as related master netting and collateral agreements, see Note 8.

SINGLE-FAMILY CREDIT GUARANTEE PORTFOLIO

Regional economic conditions may affect a borrower’s ability to repay his or her loan and the property 

value underlying the loan. Geographic concentrations increase the exposure of our portfolio to changes in 

credit risk. Single-family borrowers are primarily affected by home prices, unemployment rates and 

interest rates.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 300

The table below summarizes the concentration by book and geographic area of approximately $1.8 trillion

and $1.7 trillion UPB of our single-family credit guarantee portfolio at December 31, 2016 and 2015, 

respectively. See Note 4 and Note 5 for more information about credit risk associated with loans and 

mortgage-related securities that we hold or guarantee.

December 31, 2016 December 31, 2015 Percent of Credit Losses

Percentage 

of

Portfolio

Serious

Delinquency

Rate

Percentage 

of

Portfolio

Serious

Delinquency

Rate YTD 2016 YTD 2015

Core single-family book 73% 0.20% 66% 0.21% 6% 3%

HARP and other relief

refinance book 15 0.69% 18 0.72% 16 8

Legacy single-family book 12 3.59% 16 4.12% 78 89

Total 100% 1.00% 100% 1.32% 100% 100%

Region(1)

West 30% 0.57% 29% 0.79% 11% 13%

Northeast 25 1.45% 26 2.04% 41 41

North Central 16 0.93% 17 1.13% 24 17

Southeast 16 1.19% 16 1.57% 19 25

Southwest 13 0.78% 12 0.88% 5 4

Total 100% 1.00% 100% 1.32% 100% 100%

State(2)

New Jersey 3% 2.26% 4% 3.90% 12% 15%

Illinois 5 1.34% 5 1.62% 10 8

New York 5 2.05% 5 2.94% 9 12

Florida 6 1.42% 5 2.16% 9 18

Maryland 3 1.29% 3 1.64% 6 4

All other 78 0.82% 78 1.03% 54 43

Total 100% 1.00% 100% 1.32% 100% 100%

(1) Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, 

PA, RI, VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, 

VI); Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).

(2) States presented based on those with the highest percentage of credit losses during the year ended December 31, 2016.

The REO balance, net at December 31, 2016 and 2015 associated with single-family properties was $1.2 

billion and $1.7 billion, respectively, and the balance associated with multifamily properties was $0 million

and $4 million, respectively. Our single-family REO inventory consisted of 11,418 properties and 17,004

properties at December 31, 2016 and 2015, respectively. In recent years, the foreclosure process has 

been slowed in many geographic areas, particularly in states that require a judicial foreclosure process, 

which extends the time it takes for loans to be foreclosed upon and the underlying property to transition to 

REO.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 301

CREDIT PERFORMANCE OF CERTAIN HIGHER-RISK SINGLE-FAMILY LOAN 

CATEGORIES

Participants in the mortgage market often characterize single-family loans based upon their overall credit 

quality at the time of origination, generally considering them to be prime or subprime. Many mortgage 

market participants classify single-family loans with credit characteristics that range between their prime 

and subprime categories as Alt-A. 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 single-family loans in our single-family credit guarantee 

portfolio based on UPB. The table includes a presentation of each higher-risk category in isolation. A

single loan may fall within more than one category (for example, an interest-only loan may also have an 

original LTV ratio greater than 90%). Loans with a combination of these attributes will have an even 

higher risk of delinquency than those with an individual attribute.

Percentage of Portfolio(1) Serious Delinquency Rate(1)

December 31,

2016

December 31,

2015

December 31,

2016

December 31,

2015

Interest-only 1% 1% 4.34% 6.02%

Alt-A 2% 2% 5.21% 6.32%

Original LTV ratio greater than 90%(2) 16% 16% 1.58% 2.01%

Lower credit scores at origination (less than 620) 2% 2% 5.73% 6.67%

(1) Excludes loans underlying certain other securitization products for which data was not available. 

(2) Includes HARP loans, which we purchase as part of our participation in the MHA Program.

We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or 

Alt-A if the securities were identified as such based on information provided to us when we entered into 
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 302

these transactions. We have not identified option ARM, CMBS, obligations of states and political 

subdivisions, and manufactured housing securities as either subprime or Alt-A securities. See Note 5 for 

further information on these categories and other concentrations in our investments in securities.

MULTIFAMILY MORTGAGE PORTFOLIO

Numerous factors affect a multifamily borrower’s ability to repay the loan and the value of the property 

underlying the loan. The most significant factors affecting credit risk are rental rates and capitalization 

rates for the mortgaged property. Rental rates vary among geographic regions of the United States. The 

average UPB for multifamily loans is significantly larger than for single-family loans and, therefore, 

individual defaults for multifamily borrowers can result in more significant losses.

The table below summarizes the concentration of multifamily loans in our multifamily mortgage portfolio 

classified by legal structure, based on UPB.

December 31, 2016 December 31, 2015

(Dollars in billions) UPB

Delinquency

Rate(1) UPB

Delinquency

Rate(1)

Unsecuritized loans $42.4 0.04% $49.1 0.04%

K Certificates and SB Certificates 139.4 0.02% 103.1 0.02%

Other securitization products 8.2 0.03% 6.7 —%

Other mortgage-related guarantees 9.7 —% 9.5 —%

Total $199.7 0.03% $168.4 0.02%

(1) Based on loans two monthly payments or more delinquent or in foreclosure.

In the multifamily mortgage portfolio, the primary concentration of credit risk is based on the legal 

structure of the investments we hold. Our exposure to credit risk in K Certificates and SB Certificates is 

minimal, as the expected credit risk is absorbed by the subordinate tranches, which are generally sold to 

private investors. As a result, our multifamily credit risk is primarily related to loans that have not been 

securitized. 

SELLERS AND SERVICERS

We acquire a significant portion of our single-family and multifamily loan purchase volume from several 

large sellers. The table below summarizes the concentration of single-family and multifamily sellers who 

provided 10% or more of our purchase volume.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 303

2016 2015

Single-family Sellers

Wells Fargo Bank, N.A. 15% 12%

Bank of America, N.A. 4 11

Other top 10 sellers 30 27

Top 10 single-family sellers 49% 50%

Multifamily Sellers

CBRE Capital Markets, Inc. 19% 15%

Berkadia Commercial Mortgage LLC 17 13

Walker & Dunlop, LLC 10 11

Holliday Fenoglio Fowler, L.P. 8 11

Other top 10 sellers 25 28

Top 10 multifamily sellers 79% 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 three 

non-depository sellers provided approximately 12% of our single-family purchase volume during 2016.

We are exposed to counterparty credit risk arising from the potential insolvency or non-performance by 

our sellers and servicers of their obligations to repurchase loans or (at our option) indemnify us in the 

event of breaches of the representations and warranties they made when they sold the loans to us or 

failure to comply with our servicing requirements. Our contracts require that a seller/servicer repurchase a 

loan after we issue a repurchase request, unless the seller/servicer avails itself of an appeals process 

provided for in our contracts, in which case the deadline for repurchase is extended until we decide on the 

appeal. As of December 31, 2016 and 2015, the UPB of loans subject to our repurchase requests issued 

to our single-family sellers and servicers was approximately $0.3 billion and $0.4 billion, respectively 

(these figures include repurchase requests for which appeals were pending). During 2016 and 2015, we 

recovered amounts that covered losses with respect to $0.6 billion and $0.8 billion, respectively, in UPB of 

loans subject to our repurchase requests.

At the direction of FHFA, Freddie Mac and Fannie Mae have revised their representation and warranty 

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

the revised framework is to clarify lenders’ repurchase exposures and liability on future sales of loans to 

Freddie Mac and Fannie Mae. This framework does not affect seller/servicers’ obligations under their 

contracts with us with respect to loans sold to us prior to January 1, 2013. This framework also does not 

affect their obligation to service these loans in accordance with our servicing standards. Under this 

framework, sellers are relieved of certain repurchase obligations for loans that meet specific payment 

requirements. This includes, subject to certain exclusions, loans with 36 months (12 months for relief 

refinance loans) of consecutive, on-time payments after we purchase them. 

In May 2014, we announced changes to our representation and warranty framework for loans acquired on 

and after July 1, 2014. These changes relieve sellers of additional representations and warranties for 

these loans and provide relief for loans we have fully reviewed in our quality control process and 

determined to be acceptable. As of December 31, 2016, approximately 61% in UPB of loans in our single-
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 304

family credit guarantee portfolio were purchased since January 1, 2013 and are subject to our revised 

representation and warranty framework.

At the direction of FHFA, we implemented a new remedies framework for the categorization of loan 

origination defects for loans with settlement dates on or after January 1, 2016. Among other items, the 

framework provides that "significant defects" will result in a repurchase request or a repurchase 

alternative, such as recourse or indemnification. We may require the seller to pay us additional fees or 

provide us with additional data on the loan.

The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase 

obligations may be significantly less than the amount of our estimates of potential exposure to losses. Our 

estimate of probable incurred losses for exposure to seller/servicers for their repurchase obligations is 

considered in our allowance for loan losses. See Note 4 for further information. 

We are also exposed to the risk that servicers might fail to service loans in accordance with our 

contractual requirements, resulting in increased credit losses. For example, our servicers have an active 

role in our loss mitigation efforts and therefore we have exposure to them to the extent a decline in their 

performance results in a failure to realize the anticipated benefits of our loss mitigation plans. Since we do 

not have our own servicing operation, if our servicers lack appropriate controls, experience a failure in 

their controls, or experience an operating disruption in their ability to service loans, our business and 

financial results could be adversely affected.

Significant portions of our single-family and multifamily loans are serviced by several large servicers. The 

table below summarizes the concentration of single-family and multifamily servicers who serviced 10% or 

more of our single-family credit guarantee portfolio and our multifamily mortgage portfolio, excluding loans 

underlying multifamily securitizations where we are not in first loss position, primarily K Certificates and 

SB Certificates.

December 31, 2016 December 31, 2015

Single-family Servicers

Wells Fargo Bank, N.A. 19% 20%

JPMorgan Chase Bank, N.A. 9 10

Other top 10 sellers 32 35

Top 10 single-family servicers 60% 65%

Multifamily Servicers

Wells Fargo Bank, N.A. 15% 16%

CBRE Capital Markets, Inc. 14 13

Berkadia Commercial Mortgage LLC 11 15

Other top 10 servicers 39 35

Top 10 multifamily servicers 79% 79%

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 both December 31, 2016 and 2015, approximately 10% of our 

single-family credit guarantee portfolio was serviced by our three largest non-depository servicers, on a 

combined basis. One of our non-depository servicers also services a large share of the loans underlying 
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 305

our investments in non-agency mortgage-related securities. We routinely monitor the performance of our 

largest non-depository servicers.

In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under 

financial pressure, which could potentially cause degradation in the quality of the servicing they provide 

us, including their monitoring of each property’s financial performance and physical condition. This could 

also, in certain cases, reduce the likelihood that we could recover losses through lender repurchases, 

recourse agreements, or other credit enhancements, where applicable. This risk primarily relates to 

multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit 

risk. We monitor the status of all our multifamily seller/servicers in accordance with our counterparty credit 

risk management framework.

MORTGAGE INSURERS

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage 

insurers that insure single-family loans we purchase or guarantee. We evaluate the recovery and 

collectability from mortgage insurers as part of the estimate of our loan loss reserves. See Note 4 for 

additional information. As of December 31, 2016, mortgage insurers provided coverage with maximum 

loss limits of $75.0 billion, for $292.9 billion of UPB, in connection with our single-family credit guarantee 

portfolio. These amounts are based on gross coverage without regard to netting of coverage that may 

exist to the extent an affected loan is covered under both primary and pool insurance. 

The table below summarizes the concentration of mortgage insurer counterparties who provided 10% or 

more of our overall mortgage insurance coverage. On January 3, 2017, Arch Capital Group Ltd. 

announced that it had completed its purchase of United Guaranty Corporation at the end of 2016. The 

table below reflects this transaction. On October 23, 2016, Genworth Financial, Inc. announced that it had 

entered into an agreement to be acquired by China Oceanwide Holdings Group Co., Ltd. Genworth 

Mortgage Insurance Corporation is a subsidiary of Genworth Financial, Inc.

Mortgage Insurance Coverage

Credit Rating(1) December 31, 2016 December 31, 2015

Arch Mortgage Insurance Company BBB+ 25% 23%

Radian Guaranty Inc. BBB- 21 22

Mortgage Guaranty Insurance Corporation BBB- 20 21

Genworth Mortgage Insurance Corporation BB+ 15 14

Essent Guaranty, Inc. BBB 10 9

Total 91% 89%

(1) Ratings are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage 

provided by affiliates and subsidiaries of the counterparty. Latest rating available as of December 31, 2016. Represents the 

lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.

We received proceeds of $0.5 billion and $0.7 billion during 2016 and 2015, 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 and $0.3 billion (excluding deferred 

payment obligations associated with unpaid claim amounts) as of December 31, 2016 and 2015, 

respectively. The balance of these receivables, net of associated reserves, was approximately $0.1 billion

and $0.2 billion at December 31, 2016 and 2015, respectively.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 306

PMI Mortgage Insurance Co. and Triad Guaranty Insurance Corp. are both under the control of their state 

regulators and are in run-off. A substantial portion of their claims is recorded by us as deferred payment 

obligations. These insurers no longer issue new insurance but continue to pay a portion of their respective 

claims in cash. In 2014, PMI began paying valid claims 67% in cash and 33% in deferred payment 

obligations and made a one-time cash payment to us for claims that were previously settled for 55% in 

cash. In 2015, PMI began paying valid claims 70% in cash and 30% in deferred payment obligations and 

made a one-time cash payment to us for claims that were previously settled for 67% in cash. In 2013, 

Triad began paying valid claims 75% in cash and 25% in deferred payment obligations and made a onetime cash payment to us for claims that were previously settled for 60% in cash. If, as we currently 

expect, these insurers do not pay the full amount of their deferred payment obligations in cash, we would 

lose a portion of the coverage from these insurers. As of both December 31, 2016 and 2015, we had 

cumulative unpaid deferred payment obligations of $0.5 billion from these insurers. We reserved for all of 

these unpaid amounts as collectability is uncertain. It is not clear how the regulators of these companies 

will administer their respective deferred payment plans in the future, nor when or if those obligations will 

be paid.

RMIC is under regulatory supervision and is no longer issuing new insurance. In 2014, RMIC resumed 

paying valid claims at 100% of the claim amount. Previously, RMIC had been paying all valid claims 60%

in cash and 40% in deferred payment obligations. 

BOND INSURERS

Bond insurance is a credit enhancement covering certain of the non-agency mortgage-related securities 

we hold. Some policies were acquired by the securitization trust that issued the securities we purchased, 

while others were acquired by us. At December 31, 2016, the maximum principal exposure to credit 

losses related to such policies was $5.2 billion. At December 31, 2016, our top four bond insurers, Ambac 

Assurance Corporation (Ambac), National Public Finance Guarantee Corp., Financial Guaranty Insurance 

Company (FGIC), and MBIA Insurance Corp., each accounted for more than 10% of our overall bond 

insurance coverage and collectively represented approximately 94% of our coverage. 

In 2012, a rehabilitation order was signed granting the Superintendent of Financial Services of the State 

of New York the authority to take possession and/or control of FGIC’s property and assets and to conduct 

FGIC’s business. In 2013, FGIC’s plan of rehabilitation was approved, under which permitted claims are 

paid 17% in cash and the remainder in deferred payment obligations. 

In 2010, Ambac established a segregated account for certain Ambac-insured securities, including some of 

those held by Freddie Mac. Upon the request of the Wisconsin Office of the Commissioner of Insurance, 

the Wisconsin circuit court put the segregated account into rehabilitation (i.e., a state insolvency 

proceeding). The Office of the Commissioner of Insurance subsequently filed a plan of rehabilitation with 

the court. In 2012, Ambac began making partial cash payments of 25% of the permitted amount of each 

policy claim. In 2013, Ambac began making supplemental payments, equal to all or a portion of the 

permitted policy claim, with respect to certain specified securities. In 2014, an amended plan was 

approved by the court. The amended plan provided for Ambac to increase the amount of cash payments 

to 45% of the permitted amount of each policy claim, with the remainder to be paid in deferred payment 

obligations. Ambac made a one-time cash payment to us for claims that were previously settled for 25% 

in cash.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 307

We expect to receive substantially less than full payment of our claims from Ambac and FGIC as these 

companies are either insolvent or in rehabilitation. We believe that we will also likely receive substantially 

less than full payment of our claims from some of our other bond insurers, because we believe they also 

lack sufficient ability to fully meet all of their expected lifetime claims-paying obligations to us as such 

claims emerge. We evaluate the expected recovery from bond insurance policies as part of our 

impairment analysis for our investments in securities. Bond insurance is included as a feature at issuance 

of some of our non-agency mortgage-backed securities. The expected benefits from bond insurers, or the 

inability of bond insurers to perform on their obligations, is captured in the fair value of these securities. 

See Note 5 for further information on our investments in securities covered by bond insurance.

CASH AND OTHER INVESTMENT COUNTERPARTIES

We are exposed to counterparty credit risk relating to the potential insolvency of, or the non-performance 

by, counterparties relating to cash and other investments (including non-mortgage-related securities and 

cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our 

policies require that the issuer be rated as investment grade at the time the financial instrument is 

purchased. We base the permitted term and dollar limits for each of these transactions on the 

counterparty's financial strength in order to further mitigate our risk.

Our cash and other investments (including non-mortgage-related securities and cash equivalents) 

counterparties are primarily major financial institutions, including other GSEs, Treasury, the Federal 

Reserve Bank of New York, highly-rated supranational institutions, and government money market funds. 

As of December 31, 2016 and 2015, including amounts related to our consolidated VIEs, there were 

$73.8 billion and $83.8 billion, respectively, of cash and securities purchased under agreements to resell 

invested with counterparties, U.S.Treasury securities classified as cash equivalents, or cash deposited 

with the Federal Reserve Bank of New York. As of December 31, 2016, all of our securities purchased 

under agreements to resell were fully collateralized.

NON-AGENCY MORTGAGE-RELATED SECURITY ISSUERS

We are engaged in various loss mitigation efforts concerning certain investments in non-agency 

mortgage-related securities, including the matters described below.

In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against a number of 

corporate families of financial institutions and related defendants alleging securities laws violations and, in 

some cases, fraud. The lawsuits against Nomura Holding America, Inc. (or Nomura) and The Royal Bank 

of Scotland Group PLC remain outstanding. In March 2015, FHFA’s case against Nomura went to trial in 

the U.S. District Court for the Southern District of New York. In May 2015, the judge ruled against the 

defendants and ordered them to pay an aggregate of $806 million, of which $779 million will be paid to 

Freddie Mac. The order also provides for Freddie Mac to transfer the mortgage-related securities at issue 

in this trial to the defendants. The defendants have agreed to pay for certain costs, legal fees and 

expenses if FHFA prevails in the litigation. This expense reimbursement payment is subject to various 

conditions, and is capped at $33 million (half of any such payment would be made to Freddie Mac). The 

defendants have filed a notice of appeal and the Court has stayed enforcement of the judgment during 

the pendency of the appeal.
Financial Statements Notes to the Consolidated Financial Statements | Note 12

Freddie Mac 2016 Form 10-K 308

We worked with three investor consortia to enforce certain claims with Countrywide, Citigroup and J.P. 

Morgan Chase & Co., respectively, relating to a number of non-agency mortgage-related securities. 

Settlement agreements were entered into with respect to these claims. Our benefit from the related 

settlements, which totaled approximately $418 million, will be recognized in earnings over the expected 

remaining life of the securities, unless the securities are sold, at which time the benefit would be 

considered in the sales price of the securities.

The majority of the single-family loans underlying our investments in non-agency mortgage-related 

securities is serviced by non-depository servicers. As of December 31, 2016 and 2015, approximately 

$8.4 billion and $13.0 billion, respectively, in UPB of loans underlying our investments in single-family 

non-agency mortgage-related securities were serviced by subsidiaries and/or affiliates of Ocwen Financial 

Corp.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 309

NOTE 13: 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.

VALUATION RISK AND CONTROLS OVER FAIR VALUE MEASUREMENTS

Valuation risk is the risk that fair values used for financial disclosures, risk metrics and performance 

measures do not reasonably reflect market conditions and prices.

We designed our control processes so that our fair value measurements are appropriate and reliable, that 

they are based on observable inputs where possible, and that our valuation approaches are consistently 

applied and the assumptions and inputs are reasonable. Our control processes provide a framework for 

segregation of duties and oversight of our fair value methodologies, techniques, validation procedures, 

and results.

Groups within our Finance Division, independent of our business functions, execute and validate the 

valuation processes and are responsible for determining the fair values of the majority of our financial 

assets and liabilities. In determining fair value, we consider the credit risk of our counterparties in 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 310

estimating the fair values of our assets and our own credit risk in estimating the fair values of our 

liabilities. The fair values determined by our Finance Division are further verified by an independent group 

within our ERM Division.

The independent validation procedures performed by ERM Division are intended to ensure that the prices 

we receive from third parties are consistent with our observations of market activity, and that fair value 

measurements developed using internal data reflect the assumptions that a market participant would use 

in pricing our assets and liabilities. These validation procedures include performing a daily price review 

and a monthly independent verification of fair value measurements through independent modeling, 

analytics, and comparisons to other market source data, if available. Where applicable, prices are backtested by comparing actual transaction prices to our fair value measurements. Analytical procedures 

include automated checks consisting of prior-period variance analysis, comparisons of actual prices to 

internally calculated expected prices based on observable market changes, analysis of changes in pricing 

ranges, relative value comparisons, and comparisons using modeled yields. Thresholds are set for each 

product category by ERM Division to identify exceptions that require further analysis. If a price is outside 

of our established thresholds, we perform additional verification procedures, including supplemental 

analytics and/or follow up discussions with the third-party provider. If we are unable to validate the 

reasonableness of a given price, we ultimately do not use that price for fair value measurements in our 

consolidated financial statements. These procedures are risk-based and are executed before we finalize 

the prices used in preparing our fair value measurements for our financial statements.

In addition to performing the validation procedures noted above, ERM Division provides independent risk 

governance over all valuation processes by establishing and maintaining a corporate-wide valuation 

framework and control policy. ERM Division also independently reviews significant judgments, 

methodologies, and valuation techniques to ensure compliance with established policies.

Our Valuation & Finance Model Committee (“Valuation Committee”), which includes representation from 

our business areas, ERM Division, and Finance Division, provides senior management’s governance over 

valuation processes, methodologies, controls and fair value measurements. Identified exceptions are 

reviewed and resolved through the verification process and reviewed at the Valuation Committee.

Where models are employed to assist in the measurement and verification of fair values, changes made 

to those models during the period are reviewed and approved according to the corporate model change 

governance process, with all material changes reviewed at the Valuation Committee. Inputs used by 

models are regularly updated for changes in the underlying data, assumptions, valuation inputs, and 

market conditions, and are subject to the valuation controls noted above.

Use of Third-Party Pricing Data in Fair Value Measurement

Many of our valuation techniques use, either directly or indirectly, data provided by third-party pricing 

services or dealers. The techniques used by these pricing services and dealers to develop the prices 

generally are either: 

• A comparison to transactions involving instruments with similar collateral and risk profiles, adjusted as 

necessary based on specific characteristics of the asset or liability being valued; or

• Industry-standard modeling, such as a discounted cash flow model. 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 311

The prices provided by the pricing services and dealers reflect their observations and assumptions 

related to market activity, including risk premiums and liquidity adjustments. The models and related 

assumptions used by the pricing services and dealers are owned and managed by them and, in many 

cases, the significant inputs used in the valuation techniques are not reasonably available to us. However, 

we have an understanding of the processes and assumptions used to develop the prices based on our 

ongoing due diligence, which includes discussions with our vendors at least annually and often more 

frequently. We believe that the procedures executed by the pricing services and dealers, combined with 

our internal verification and analytical procedures, provide assurance that the prices used in our financial 

statements comply with the accounting guidance for fair value measurements and disclosures and reflect 

the assumptions that a market participant would use in pricing our assets and liabilities. The price quotes 

we receive are non-binding both to us and to our counterparties.

In many cases, we receive quotes from third-party pricing services or dealers and use those prices 

without adjustment. For a large majority of the assets and liabilities we value using pricing services and 

dealers, we obtain quotes from multiple external sources and use the median of the prices to measure fair 

value. This technique is referred to below as “median of external sources.” The significant inputs used in 

the fair value measurement of assets and liabilities that are valued using the median of external sources 

pricing technique are the third-party quotes. Significant increases (decreases) in any of the third-party 

quotes in isolation may result in a significantly higher (lower) fair value measurement. In limited 

circumstances, we may be able to receive pricing information from only a single external source. This 

technique is referred to below as “single external source.”

VALUATION TECHNIQUES 

The following table contains a description of the valuation techniques we use for fair value measurement 

and disclosure; the significant inputs used in those techniques (if applicable); the classification within the 

fair value hierarchy; and, for those measurements that we report on our consolidated balance sheets and 

are classified as Level 3 of the hierarchy, a narrative description of the sensitivity of the fair value 

measurement to changes in significant unobservable inputs. Although the sensitivities of the 

unobservable inputs are discussed below in isolation, interrelationships exist among the inputs such that 

a change in one unobservable input can result in a change to one or more of the other inputs. For 

example, the most common interrelationship that affects the majority of our fair value measurements is 

between future interest rates, prepayment speeds, and probabilities of default. Generally, a change in the 

assumption used for future interest rates results in a directionally opposite change in the assumption used 

for prepayment speeds and a directionally similar change in the assumption used for probabilities of 

default.

Each technique discussed below may not be used in a given reporting period, depending on the 

composition of our assets and liabilities measured at fair value and relevant market activity during that 

period.

Instrument Valuation Technique

Classification in

the Fair Value

Hierarchy

Securities

U.S. Treasury

Securities

Valuations are based on quoted prices in active markets. Level 1
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 312

Instrument Valuation Technique

Classification in

the Fair Value

Hierarchy

Agency mortgagerelated securitiesValuations are based on:

Fixed-rate single-class: Observable prices for similar TBA securities

adjusted for specific collateral characteristics

Level 2

Adjustable-rate single-class and majority of multi-class securities:

Median of external sources

Predominantly

Level 2

Certain multi-class securities: Single external source Levels 2 and 3

Certain multi-class securities with limited market activity: Discounted

cash flows or risk metric pricing. Under risk metric pricing, securities

are valued by starting with a prior period price and adjusting that price

for market changes in certain key risk metrics such as key rate

durations. Significant inputs used in the discounted cash flow

technique include OAS. Significant inputs used in the risk metric pricing

technique include key risk metrics, such as key rate durations.

Significant increases (decreases) in the OAS in isolation would result in

a significantly lower (higher) fair value. Significant increases

(decreases) in key rate durations in isolation would result in a

significant increase (decrease) in the magnitude of change of fair value

measurement in response to key rate movements

Level 3

Commercial

mortgage-related

securities

Valuations are based on the median of external sources or, in limited

circumstances, a single external source.

Predominantly

Level 2

Other non-agency

mortgage-related

securities

Valuations are based on the median of external sources. Level 3

Mortgage Loans

Single-family loans Valuations are based on:

GSE Securitization Market: Benchmark security pricing for actively

traded mortgage-related securities with similar characteristics,

adjusting for the value of our guarantee fee and our credit obligation

related to performing our guarantee (see Guarantee Obligation). The

credit obligation is based on: delivery and guarantee fees we charge

under current market pricing for loans that qualify under our current

underwriting standards (Level 2) and internal credit models for loans

that do not qualify under our current underwriting standards (Level 3).

Level 2 or 3

Whole Loan Market: Median of external sources, referencing market

activity for deeply delinquent and modified loans, where available

Level 3

Impaired held-for-investment: Internal models that estimate the fair

value of the underlying collateral for impaired loans. Significant inputs

used by our internal models include REO disposition, short sale and

third-party sale values, combined with mortgage loan level

characteristics using the repeat housing sales index to estimate the

current fair value of the mortgage loan. Significant increases

(decreases) in the historical average sales proceeds per mortgage loan

in isolation would result in significantly higher (lower) fair value

measurements.

Level 3
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 313

Instrument Valuation Technique

Classification in

the Fair Value

Hierarchy

Multifamily loans Valuations are based on:

Held-for-sale: Market prices from a third-party pricing service, using

discounted cash flows based on K Certificate and SB Certificates

Level 2

Held-for-investment: Market prices from a third-party pricing service

using discounted cash flows incorporating credit spreads for similar

loans based on the loan's LTV and DSCR

Level 3

Derivative Assets, Net and Derivative Liabilities, Net

Derivatives Valuations are based on:

Exchange-traded futures: Quoted prices in active markets Level 1

Interest-rate swaps: Discounted cash flows. Significant inputs include

market-based interest rates.

Level 2

Option-based derivatives: Option-pricing models. Significant inputs

include Interest-rate volatility matrices.

Level 2

Purchase and Sale Commitments: see Agency Mortgage-Related

Securities

Level 2

Other Assets and Other Liabilities

Guarantee asset Valuations are based on:

Single-family: Median of external sources with adjustments for specific

loan characteristics

Level 3

Multifamily: Discounted cash flows. Significant inputs include current

OAS-to-benchmark interest rates for new guarantees. Significant

increases (decreases) in the OAS in isolation would result in a

significantly lower (higher) fair value measurement.

Level 3

Mortgage servicing

rights

Valuations are based on market prices from a third party using discounted

cash flows. Significant inputs include:

Level 3

Estimated prepayment rates,

Estimated costs to service both performing and non-accrual loans, and

Estimated servicing income per loan (including ancillary income).

Significant increases (decreases) in cost to service per loan and

prepayment rate in isolation would result in a significantly lower

(higher) fair value measurement. Significant increases (decreases) in

servicing income per loan in isolation would result in a significantly

higher (lower) fair value measurement.

Single-family REO Valuations are based on an internal model, which uses REO

disposition prices combined with loan level characteristics, using the

repeat housing sales index. Significant inputs include the historical

sales proceeds per property and the repeat housing sales index.

Significant increases (decreases) in the historical sales proceeds per

property in isolation would result in significantly higher (lower) fair value

measurement.

Level 3
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 314

Instrument Valuation Technique

Classification in

the Fair Value

Hierarchy

Guarantee obligation Valuations are based on:

Single-family

The delivery and guarantee fees that we charge under our current

market pricing

Level 2

Internal credit models. Significant inputs include loan

characteristics, loan performance, and status information. Level 3

Multifamily: Discounted cash flows. Significant inputs are similar to

those used in the valuation technique for the Multifamily Guarantee

Asset.

Level 3

Debt

Debt securities of

consolidated trusts

held by third parties

Valuations are based on the valuation techniques we use to value our

investments in agency securities.

Level 2 or 3

Other debt Valuations are based on: Predominantly

Level 2

Median of external sources

Single external source

Published yield matrices

HARP Loans

For loans that have been refinanced under HARP, we value our guarantee obligation using the guarantee 

fees currently charged by us under that initiative. HARP loans valued using this technique are classified 

as Level 2, as the fees charged by us are observable. The majority of our HARP loans are classified as 

Level 2. If, subsequent to delivery, the refinanced loan no longer qualifies for purchase based on current 

underwriting standards (such as becoming past due or being modified), the fair value of the guarantee 

obligation is then measured using our internal credit models or the median of external sources, if the 

loan’s principal market has changed to the whole loan market. HARP loans valued using either of these 

techniques are classified as Level 3 as significant inputs are unobservable. 

The total compensation that we receive for the delivery of a HARP loan reflects the pricing that we are 

willing to offer because HARP is a part of a broader government program intended to provide assistance 

to homeowners and prevent foreclosures. When HARP ends in September 2017, 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 $5.3 billion and $12.9 billion as of December 31, 2016 and 2015, respectively. The total fair value of 

the loans in our portfolio that reflect the pricing afforded to HARP loans as of December 31, 2016 and 

2015 was $52.8 billion and $82.8 billion, respectively.

ASSETS AND LIABILITIES ON OUR CONSOLIDATED BALANCE SHEETS 

MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following tables present our assets and liabilities measured on our consolidated balance sheets at 

fair value on a recurring basis subsequent to initial recognition, including instruments where we have 

elected the fair value option.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 315

December 31, 2016

(In millions) Level 1 Level 2 Level 3 Netting Adjustment(1) Total

Assets:

Investments in securities:

Available-for-sale, at fair value:

Mortgage-related securities:

Freddie Mac $— $33,805 $9,847 $— $43,652

Other agency — 4,155 66 — 4,221

Non-agency RMBS — — 11,797 — 11,797

Non-agency CMBS — 3,056 3,366 — 6,422

Obligations of states and political subdivisions — — 665 — 665

Total available-for-sale securities, at fair value — 41,016 25,741 — 66,757

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 14,248 1,095 — 15,343

Other agency — 8,149 12 — 8,161

All other — 36 113 — 149

Total mortgage-related securities — 22,433 1,220 — 23,653

Non-mortgage-related securities 19,402 1,735 — — 21,137

Total trading securities, at fair value 19,402 24,168 1,220 — 44,790

Total investments in securities 19,402 65,184 26,961 — 111,547

Mortgage loans:

Held-for-sale, at fair value — 16,255 — — 16,255

Derivative assets, net:

Interest-rate swaps — 6,924 — — 6,924

Option-based derivatives — 5,054 — — 5,054

Other — 287 3 — 290

Subtotal, before netting adjustments — 12,265 3 — 12,268

Netting adjustments(1) — — — (11,521) (11,521)

Total derivative assets, net — 12,265 3 (11,521) 747

Other assets:

Guarantee asset, at fair value — — 2,298 — 2,298

Non-derivative held-for-sale purchase commitments, at fair

value — 108 — — 108

All other, at fair value — — 2 — 2

Total other assets — 108 2,300 — 2,408

Total assets carried at fair value on a recurring basis $19,402 $93,812 $29,264 ($11,521) $130,957

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $144 $— $— $144

Other debt, at fair value — 5,771 95 — 5,866

Derivative liabilities, net:

Interest-rate swaps — 12,387 — — 12,387

Option-based derivatives — 106 — — 106

Other — 147 52 — 199

Subtotal, before netting adjustments — 12,640 52 — 12,692

Netting adjustments(1) — — — (11,897) (11,897)

Total derivative liabilities, net — 12,640 52 (11,897) 795

Other liabilities:

Non-derivative held-for-sale purchase commitments, at fair

value — 37 — — 37

Total liabilities carried at fair value on a recurring basis $— $18,592 $147 ($11,897) $6,842
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 316

December 31, 2015

(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 $— $30,919 $2,608 $— $33,527

Other agency — 7,333 91 — 7,424

Non-agency RMBS — — 20,333 — 20,333

Non-agency CMBS — 8,918 3,530 — 12,448

Obligations of states and political subdivisions — — 1,205 — 1,205

Total available-for-sale securities, at fair value — 47,170 27,767 — 74,937

Trading, at fair value:

Mortgage-related securities:

Freddie Mac — 15,182 331 — 15,513

Other agency — 6,427 41 — 6,468

All other — 144 2 — 146

Total mortgage-related securities — 21,753 374 — 22,127

Non-mortgage-related securities 17,151 — — — 17,151

Total trading securities, at fair value 17,151 21,753 374 — 39,278

Total investments in securities 17,151 68,923 28,141 — 114,215

Mortgage loans:

Held-for-sale, at fair value — 17,660 — — 17,660

Derivative assets, net:

Interest-rate swaps — 4,911 — — 4,911

Option-based derivatives — 4,821 — — 4,821

Other — 34 25 — 59

Subtotal, before netting adjustments — 9,766 25 — 9,791

Netting adjustments(1) — — — (9,396) (9,396)

Total derivative assets, net — 9,766 25 (9,396) 395

Other assets:

Guarantee asset, at fair value — — 1,753 — 1,753

Total assets carried at fair value on a recurring basis $17,151 $96,349 $29,919 ($9,396) $134,023

Liabilities:

Debt securities of consolidated trusts held by third parties, at fair

value $— $139 $— $— $139

Other debt, at fair value — 7,045 — — 7,045

Derivative liabilities, net:

Interest-rate swaps — 12,222 — — 12,222

Option-based derivatives — 128 — — 128

Other — 28 33 — 61

Subtotal, before netting adjustments — 12,378 33 — 12,411

Netting adjustments(1) — — — (11,157) (11,157)

Total derivative liabilities, net — 12,378 33 (11,157) 1,254

Other liabilities:

All other, at fair value — — 10 — 10

Total liabilities carried at fair value on a recurring basis $— $19,562 $43 ($11,157) $8,448

(1) Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 317

ASSETS ON OUR CONSOLIDATED BALANCE SHEETS MEASURED AT FAIR 

VALUE ON A NON-RECURRING BASIS

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis 

after our initial recognition. These adjustments usually result from the application of lower-of-cost-or-fairvalue accounting or measurement of impairment based on the fair value of the underlying collateral. 

The table below presents assets measured on our consolidated balance sheets at fair value on a nonrecurring basis. 

December 31,

2016 2015

(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) $— $199 $2,483 $2,682 $— $1,130 $5,851 $6,981

(1) Includes loans that are classified as held-for-investment and have been measured for impairment based on the fair value of 

the underlying collateral and held-for-sale loans where the fair value is below cost.

LEVEL 3 FAIR VALUE MEASUREMENTS

The table below presents a reconciliation of all assets and liabilities measured on our consolidated 

balance sheets at fair value on a recurring basis using significant unobservable inputs (Level 3), including 

transfers into and out of Level 3 assets and liabilities. The table also presents gains and losses due to 

changes in fair value, including both realized and unrealized gains and losses, recognized in our 

consolidated statements of comprehensive income for Level 3 assets and liabilities. When assets and 

liabilities are transferred between levels, we recognize the transfer as of the beginning of the period.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 318

Year Ended December 31, 2016

Realized and unrealized gains (losses)

Balance,

January 1,

2016

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December 

31,

2016

Unrealized

gains 

(losses)

still held

(In millions)

Assets

Investments in

securities:

Available-for-sale,

at fair value:

Mortgagerelated

securities:

Freddie Mac $2,608 $10 ($71) ($61) $8,894 $— ($605) ($703) $29 ($315) $9,847 ($9)

Other agency 91 — (2) (2) — — — (17) — (6) 66 —

Non-agency

RMBS 20,333 877 55 932 — — (6,286) (3,182) — — 11,797 236

Non-agency

CMBS 3,530 2 (132) (130) — — — (34) — — 3,366 2

Obligations of

states and

political

subdivisions 1,205 1 (10) (9) — — — (531) — — 665 —

Total

availablefor-sale

mortgagerelated

securities 27,767 890 (160) 730 8,894 — (6,891) (4,467) 29 (321) 25,741 229

Trading, at fair

value:

Mortgagerelated

securities:

Freddie Mac 331 (21) — (21) 869 — (142) (3) 190 (129) 1,095 (20)

Other agency 41 — — — — — (22) (7) — — 12 (1)

All other 2 — — — 114 — — (3) — — 113 —

Total

trading

mortgagerelated

securities 374 (21) — (21) 983 — (164) (13) 190 (129) 1,220 (21)

Other assets:

Guarantee asset(3) 1,753 53 — 53 — 850 — (358) — — 2,298 54

All other, at fair

value — (2) — (2) 14 — — — (10) — 2 (2)

Total other

assets 1,753 51 — 51 14 850 — (358) (10) — 2,300 52

Realized and unrealized (gains) losses

Balance,

January 1,

2016

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December

31,

2016

Unrealized

(gains)

losses

still held

(In millions)

Liabilities

Other debt, at fair

value $— $— $— $— $— $95 $— $— $— $— $95 $—

Net derivatives(4) 8 68 — 68 — 2 — (26) — — 52 40

Other liabilities:

All other, at fair

value 10 — — — — — — — — (10) — —
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 319

Year Ended December 31, 2015

Realized and unrealized gains (losses)

Balance,

January 1,

2015

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December 31,

2015

Unrealized

gains 

(losses)

still held

(In millions)

Assets

Investments in

securities:

Available-for-sale,

at fair value:

Mortgagerelated

securities:

Freddie Mac $4,231 $28 $3 $31 $671 $— ($665) $93 $— ($1,753) $2,608 ($3)

Other agency 89 — 3 3 — — — (29) 37 (9) 91 —

Non-agency

RMBS 31,903 1,313 (54) 1,259 — — (8,840) (4,003) 14 — 20,333 417

Non-agency

CMBS 3,474 (20) 109 89 — — — (33) — — 3,530 (20)

Obligations of

states and

political

subdivisions 2,198 2 (15) (13) — — — (981) 1 — 1,205 —

Total

availablefor-sale

mortgagerelated

securities 41,895 1,323 46 1,369 671 — (9,505) (4,953) 52 (1,762) 27,767 394

Trading, at fair

value:

Mortgagerelated

securities:

Freddie Mac 927 (42) — (42) 36 — (10) (11) 91 (660) 331 (41)

Other agency 233 3 — 3 — — (95) (2) — (98) 41 (12)

All other 4 3 — 3 — — (4) (1) — — 2 —

Total

trading

mortgagerelated

securities 1,164 (36) — (36) 36 — (109) (14) 91 (758) 374 (53)

Other assets:

Guarantee asset(3) 1,626 (47) — (47) — 688 — (514) — — 1,753 (33)

All other, at fair

value 5 (5) — (5) — — — — — — — —

Total other

assets 1,631 (52) — (52) — 688 — (514) — — 1,753 (33)

Realized and unrealized (gains) losses

Balance,

January 1,

2015

Included in

earnings(1)

Included in

other

comprehensive

income(1) Total Purchases Issues Sales

Settlements,

net

Transfers

into

Level 3(2)

Transfers

out of

Level 3(2)

Balance,

December 31,

2015

Unrealized

(gains)

losses

still held

(In millions)

Liabilities

Net derivatives(4) $10 ($5) $— ($5) $— $— $— $3 $— $— $8 $2

Other liabilities:

All other, at fair

value — 10 — 10 — — — — — — $10 15

(1) Changes in fair value for available-for-sale securities are recorded in AOCI, while gains and losses from sales are recorded in other gains (losses) on 

investment securities recognized in earnings on our consolidated statements of comprehensive income. For mortgage-related securities classified as 

trading, the realized and unrealized gains (losses) are recorded in other gains (losses) on investment securities recognized in earnings on our 

consolidated statements of comprehensive income.

(2) Transfers out of Level 3 during the year ended December 31, 2016 consisted primarily of certain mortgage-related securities due to an increased volume 

and level of activity in the market and availability of price quotes from dealers and third-party pricing services. Certain Freddie Mac securities are 

classified as Level 3 at issuance and generally are classified as Level 2 when they begin trading. Transfers into Level 3 during the year ended 

December 31, 2016 consisted primarily of certain mortgage-related securities due to a lack of market activity and relevant price quotes from dealers and 

third-party pricing services.

(3) Changes in fair value of the guarantee asset are recorded in other income on our consolidated statements of comprehensive income.

(4) Amounts are prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable and net derivative interest receivable or payable.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 320

The table below provides valuation techniques, the range, and the weighted average of significant 

unobservable inputs for assets and liabilities measured on our consolidated balance sheets at fair value 

on a recurring basis using unobservable inputs (Level 3).

December 31, 2016

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except for certain unobservable 

inputs as shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $7,619 Discounted cash flows OAS (146) - 500 bps 91 bps

129 Median of external sources External pricing sources $100.8 - $103.3 $101.8

66 Single external source

60 Risk Metrics

1,973 Other

Total Freddie Mac 9,847

Other agency 32 Median of external sources

23 Single external source

11 Other

Total other agency 66

Non-agency RMBS 9,974 Median of external sources External pricing sources $74.0 - $78.8 $76.0

1,823 Other

Total non-agency RMBS 11,797

Non-agency CMBS 3,365 Risk Metrics Effective duration 2.15 - 10.02 years 8.57 years

1 Other

Total non-agency CMBS 3,366

Obligations of states and political subdivisions 619 Median of external sources External pricing sources $100.9 - $101.5 $101.2

46 Other

Total obligations of states and political

subdivisions 665

Total available-for-sale mortgage-related

securities 25,741

Trading, at fair value

Mortgage-related securities

Freddie Mac 452 Risk metrics Effective duration (5.07) - 46.37 years 6.94 years

311 Discounted cash flows OAS (3,346) - 2,460 bps (224) bps

5 Single external source

4 Median of external sources

323 Other

Total Freddie Mac 1,095

Other agency 12 Discounted cash flows

All other 113 Risk metrics Effective duration 0.14 - 4.08 years 2.52 years

Total trading mortgage-related securities 1,220

Total investments in securities $26,961

Other assets:

Guarantee asset, at fair value $2,091 Discounted cash flows OAS 17 - 198 bps 50 bps

207 Other

Total guarantee asset, at fair value 2,298

All other at fair value 2 Other

Total other assets 2,300

Liabilities

Other debt, at fair value 95 Other

Net derivatives 49 Other
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 321

December 31, 2015

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except for certain unobservable

inputs as shown) Type Range

Weighted

Average

Recurring fair value measurements

Assets

Investments in securities

Available-for-sale, at fair value

Mortgage-related securities

Freddie Mac $2,145 Discounted cash flows OAS (46) - 503 bps 86 bps

463 Other

Total Freddie Mac 2,608

Other agency 37 Median of external sources

36 Single external source

18 Other

Total other agency 91

Non-agency RMBS 17,948 Median of external sources External pricing sources $74.1 - $78.3 $76.0

2,385 Other

Total non-agency RMBS 20,333

Non-agency CMBS 3,530 Risk Metrics Effective duration 3.15 - 11.02 years 9.57 years

Obligations of states and political subdivisions 1,099 Median of external sources External pricing sources $101.4 - $101.8 $101.6

106 Other

Total obligations of states and political

subdivisions 1,205

Total available-for-sale mortgage-related

securities 27,767

Trading, at fair value

Mortgage-related securities

Freddie Mac 249 Discounted cash flows OAS (1,315) - 1,959 bps 129 bps

19 Risk Metrics

63 Other

Total Freddie Mac 331

Other agency 41 Discounted cash flows

All other 1 Discounted cash flows

1 Median of external sources

Total all other 2

Total trading mortgage-related securities 374

Total investments in securities $28,141

Other assets:

Guarantee asset, at fair value $1,623 Discounted cash flows OAS 17 - 198 bps 57 bps

130 Other

Total guarantee asset, at fair value 1,753

Liabilities

Net derivatives 8 Other

Other liabilities:

All other, at fair value 10 Other
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 322

The table below provides valuation techniques, the range, and the weighted average of significant 

unobservable inputs for assets and liabilities measured on our consolidated balance sheets at fair value 

on a non-recurring basis using unobservable inputs (Level 3). Certain of the fair values in the table below 

were not obtained as of the period end, but were obtained during the period.

December 31, 2016

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except

for certain unobservable

inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $2,483

Internal model Historical sales

proceeds

$3,000 - 

$770,000 $167,137

Internal model Housing sales index 42 - 374 bps 96 bps

Income capitalization(1) Capitalization rates 7% - 10% 7%

Median of external sources External pricing sources $37.0 - $94.3 $75.0

December 31, 2015

Level 3

Fair

Value

Predominant

Valuation

Technique(s)

Unobservable Inputs

(Dollars in millions, except

for certain unobservable

inputs as shown) Type Range

Weighted

Average

Non-recurring fair value

measurements

Mortgage loans $5,851

Internal model Historical sales

proceeds

$3,000 -

$788,699 $191,957

Internal model Housing sales index 44 - 428 bps 90 bps

Third-party appraisal Property value $1 million -

$30 million $28 million

Income capitalization(1) Capitalization rates 6% - 9% 7%

Median of external sources External pricing sources $39.0 - $94.6 $70.0

(1) The predominant valuation technique used for multifamily loans. Certain loans in this population are valued using other 

techniques, and the capitalization rate for those is not represented in the “Range” or “Weighted Average” above.
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 323

FAIR VALUE OF FINANCIAL INSTRUMENTS

The table below presents the carrying value and estimated fair value of our financial instruments. For 

certain types of financial instruments, such as cash and cash equivalents, restricted cash and cash 

equivalents, securities purchased under agreements to resell, advances to lenders and certain other debt, 

the carrying value on our GAAP balance sheets approximates fair value, as these assets are short-term in 

nature and have limited market value volatility.

December 31, 2016

Fair Value

(In millions)

GAAP Carrying 

Amount Level 1 Level 2 Level 3

Netting 

Adjustments(1) Total

Financial Assets

Cash and cash 

equivalents $12,369 $12,369 $— $— $— $12,369

Restricted cash and cash

equivalents 9,851 9,851 — — — 9,851

Securities purchased under

agreements to resell 51,548 — 51,548 — — 51,548

Investments in securities:

Available-for-sale, at fair

value 66,757 — 41,016 25,741 — 66,757

Trading, at fair value 44,790 19,402 24,168 1,220 — 44,790

Total investments in

securities 111,547 19,402 65,184 26,961 — 111,547

Mortgage loans:

Loans held by

consolidated trusts 1,690,218 — 1,554,143 142,121 — 1,696,264

Loans held by Freddie

Mac 112,785 — 31,004 84,227 — 115,231

Total mortgage loans 1,803,003 — 1,585,147 226,348 — 1,811,495

Derivative assets, net 747 — 12,265 3 (11,521) 747

Guarantee asset 2,298 — — 2,490 — 2,490

Non-derivative purchase

commitments, at fair value 108 — 108 18 — 126

Advances to lenders 1,278 — — 1,278 — 1,278

Total financial assets $1,992,749 $41,622 $1,714,252 $257,098 ($11,521) $2,001,451

Financial Liabilities

Debt, net:

Debt securities of

consolidated trusts held

by third parties $1,648,683 $— $1,651,313 $605 $— $1,651,918

Other debt 353,321 — 352,837 4,809 — 357,646

Total debt, net 2,002,004 — 2,004,150 5,414 — 2,009,564

Derivative liabilities, net 795 — 12,640 52 (11,897) 795

Guarantee obligation 2,208 — — 3,399 — 3,399

Non-derivative purchase

commitments, at fair value 37 — 37 45 — 82

Total financial liabilities $2,005,044 $— $2,016,827 $8,910 ($11,897) $2,013,840
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 324

December 31, 2015

Fair Value

(In millions)

GAAP Carrying

Amount Level 1 Level 2 Level 3

Netting 

Adjustments(1) Total

Financial Assets

Cash and cash

equivalents $5,595 $5,595 $— $— $— $5,595

Restricted cash and cash

equivalents 14,533 14,533 — — — 14,533

Securities purchased under

agreements to resell 63,644 — 63,644 — — 63,644

Investments in securities:

Available-for-sale, at fair

value 74,937 — 47,170 27,767 — 74,937

Trading, at fair value 39,278 17,151 21,753 374 — 39,278

Total investments in

securities 114,215 17,151 68,923 28,141 — 114,215

Mortgage loans:

Loans held by

consolidated trusts 1,625,184 — 1,477,251 162,947 — 1,640,198

Loans held by Freddie

Mac 129,009 — 31,831 97,133 — 128,964

Total mortgage loans 1,754,193 — 1,509,082 260,080 — 1,769,162

Derivative assets, net 395 — 9,766 25 (9,396) 395

Guarantee asset 1,753 — — 1,958 — 1,958

Advances to lenders 910 — 910 — — 910

Total financial assets $1,955,238 $37,279 $1,652,325 $290,204 ($9,396) $1,970,412

Financial Liabilities

Debt, net:

Debt securities of

consolidated trusts held

by third parties $1,556,121 $— $1,624,019 $805 $— $1,624,824

Other debt 414,306 — 412,752 6,586 — 419,338

Total debt, net 1,970,427 — 2,036,771 7,391 — 2,044,162

Derivative liabilities, net 1,254 — 12,378 33 (11,157) 1,254

Guarantee obligation 1,729 — — 3,129 — 3,129

Total financial liabilities $1,973,410 $— $2,049,149 $10,553 ($11,157) $2,048,545

(1) Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.

FAIR VALUE OPTION

We elected the fair value option for certain types of investments in securities, multifamily held-for-sale 

loans, certain multifamily held-for-sale loan purchase commitments, and certain debt.

Investments in Securities

We elected the fair value option for certain mortgage-related securities that contained embedded 

derivatives, including investments in securities that can contractually be prepaid or otherwise settled in 

such a way that we may not recover substantially all of our initial recorded investment, or are not of high 

credit quality at the acquisition date and are identified as within the scope of the accounting guidance for 
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 325

investments in beneficial interests in securitized financial assets. These securities are classified as trading 

securities. By electing the fair value option for these instruments, we reflect valuation changes through 

our consolidated statements of comprehensive income in the period they occur. In addition, upon 

adoption of the accounting guidance for the fair value option, we elected this option for securities within 

the scope of the accounting guidance for investments in beneficial interests in securitized financial assets 

to better reflect any valuation changes that would occur subsequent to impairment write-downs previously 

recorded on these instruments. 

Interest income is recognized using the prospective effective interest method. We recognize as interest 

income (over the life of these securities) the excess of all estimated cash flows attributable to these 

interests over their book value using the effective interest method. We update our estimates of expected 

cash flows periodically and recognize changes in the calculated effective interest rate on a prospective 

basis. For information regarding the net unrealized gains (losses) on trading securities, which include 

gains (losses) for other items that are not selected for the fair value option, see Gains (losses) on trading 

securities within the reconciliation of Segment Earnings to GAAP results in Note 11.

Multifamily Held-For-Sale Loans

We elected the fair value option for multifamily loans that were purchased for securitization. These loans 

are classified as held-for-sale loans on our consolidated balance sheets to reflect our intent to sell in the 

future and are measured at fair value on a recurring basis, with subsequent gains or losses related to 

changes in fair value (net of accrued interest income) reported in other income in our consolidated 

statements of comprehensive income. We elected to report separately the portion of the changes in fair 

value of the loans related to accrued interest from the remaining changes in fair value. Related interest 

income continues to be reported, based on the stated terms of the loans, as interest income in our 

consolidated statements of comprehensive income. 

Debt Securities of Consolidated Trusts Held by Third Parties and Other Debt

We elected the fair value option on debt that contains embedded derivatives, primarily certain STACR 

debt notes. Fair value changes are recorded in other income in our consolidated statements of 

comprehensive income. For debt where we have elected the fair value option, upfront costs and fees are 

recognized in earnings as incurred and not deferred. Related interest expense continues to be reported 

as interest expense based on the stated terms of the debt securities. 

The table below presents the fair value and UPB related to certain items for which we have elected the 

fair value option.

December 31,

2016 2015

(In millions)

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Multifamily

Held-For-Sale

 Loans

Other Debt -

Long Term

Fair value $16,255 $5,866 $17,660 $7,045

Unpaid principal balance 16,231 5,584 17,673 7,093

Difference $24 $282 ($13) ($48)
Financial Statements Notes to the Consolidated Financial Statements | Note 13

Freddie Mac 2016 Form 10-K 326

Changes in Fair Value under the Fair Value Option Election

We recorded gains (losses) of $250 million, ($38) million, and $0.9 billion for the years ended 

December 31, 2016, 2015, and 2014, respectively, from the change in fair value on multifamily held-forsale loans recorded at fair value in other income in our consolidated statements of comprehensive 

income.

We recorded gains of $663 million for the year ended December 31, 2016 from the change in fair value of 

multifamily held-for-sale loan purchase commitments recorded at fair value in other income in our 

consolidated statements of comprehensive income. We elected the fair value option for these 

commitments in 2016.

Gains (losses) on debt securities with the fair value option elected were $63 million, ($9) million, and $144 

million for the years ended December 31, 2016, 2015, and 2014, respectively, and were recorded in other 

income in our consolidated statements of comprehensive income.

Changes in fair value attributable to instrument-specific credit risk were not material for the years ended 

December 31, 2016, 2015, or 2014 for any assets or liabilities for which we elected the fair value option.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

Freddie Mac 2016 Form 10-K 327

NOTE 14: LEGAL CONTINGENCIES

We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the 

ordinary course of business including, among other things, contractual disputes, personal injury claims, 

employment-related litigation and other legal proceedings incidental to our business. We are frequently 

involved, directly or indirectly, in litigation involving mortgage foreclosures. From time to time, we are also 

involved in proceedings arising from our termination of a seller/servicer’s eligibility to sell loans to, and/or 

service loans for, us. In these cases, the former seller/servicer sometimes seeks damages against us for 

wrongful termination under a variety of legal theories. In addition, we are sometimes sued in connection 

with the origination or servicing of loans. These suits typically involve claims alleging wrongful actions of 

seller/servicers. Our contracts with our seller/servicers generally provide for indemnification of Freddie 

Mac against liability arising from seller/servicers' wrongful actions with respect to loans sold to or serviced 

for Freddie Mac.

Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate 

prediction. In accordance with the accounting guidance for contingencies, we reserve for litigation claims 

and assessments asserted or threatened against us when a loss is probable (as defined in such 

guidance) and the amount of the loss can be reasonably estimated.

PUTATIVE SECURITIES CLASS ACTION LAWSUIT: OHIO PUBLIC EMPLOYEES 

RETIREMENT SYSTEM VS. FREDDIE MAC, SYRON, ET AL.

This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on 

January 18, 2008 in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a 

class of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007. FHFA later 

intervened as Conservator, and the plaintiff amended its complaint on several occasions. The plaintiff 

alleged, among other things, that the defendants violated federal securities laws by making false and 

misleading statements concerning our business, risk management, and the procedures we put into place 

to protect the company from problems in the mortgage industry. The plaintiff seeks unspecified damages 

and interest, and reasonable costs and expenses, including attorney and expert fees.

In October 2013, defendants filed motions to dismiss the complaint. In October 2014, the District Court 

granted defendants’ motions and dismissed the case in its entirety against all defendants, with prejudice. 

In November 2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit. On 

July 20, 2016, the Court of Appeals reversed the District Court's dismissal and remanded the case to the 

District Court for further proceedings.

At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect 

on our business, financial condition, liquidity, or results of operations. In addition, we are unable to 

reasonably estimate the possible loss or range of possible loss in the event of an adverse judgment in the 

foregoing matter due to the following factors, among others: the inherent uncertainty of pre-trial litigation 

and the fact that the District Court has not yet ruled upon motions for class certification or summary 

judgment. In particular, absent the certification of a class, the identification of a class period, 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.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

Freddie Mac 2016 Form 10-K 328

LITIGATION RELATED TO THE TAYLOR, BEAN & WHITAKER (TBW) 

BANKRUPTCY

In August 2009, TBW, which had been one of our single-family seller/servicers, filed for bankruptcy in 

Florida. We entered into a settlement with TBW and the TBW creditors' committee regarding the TBW 

bankruptcy in 2011. However, we continue to be involved in litigation with other parties relating to the 

TBW bankruptcy, as described below.

On or about May 14, 2010, certain underwriters at Lloyds, London and London Market Insurance 

Companies brought an adversary proceeding in the U.S. Bankruptcy Court for the Middle District of 

Florida against TBW, Freddie Mac and other parties seeking a declaration rescinding $90 million of 

mortgage bankers bonds providing fidelity and errors and omissions insurance coverage. Several excess 

insurers on the bonds thereafter filed similar claims in that action. Freddie Mac filed a proof of loss under 

the bonds. In March 2016, a settlement agreement among the parties was submitted to the Bankruptcy 

Court for approval. On April 25, 2016, the Bankruptcy Court approved the settlement. On May 6, 2016, 

Sovereign Bank, which was not a party to the settlement agreement, appealed the order approving the 

settlement agreement and various other prior Bankruptcy Court orders to the U.S. District Court for the 

Middle District of Florida. Sovereign's appeal and related motions are pending.

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. Freddie Mac and other plaintiffs requested clarification of the District Court's 

ruling to determine whether it intended to dismiss defendants located in the United States for lack of 

personal jurisdiction, which request the District Court denied on February 2, 2017. Freddie Mac also filed 

a motion for reconsideration of the District Court's opinion dismissing Freddie Mac's (and other plaintiffs') 

antitrust claims on personal jurisdiction grounds.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

Freddie Mac 2016 Form 10-K 329

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, Cacciapalle and Miller vs. Treasury and FHFA. This case was 

filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a “nominal” defendant, 

on July 30, 2014. The complaint alleged that, through the August 2012 amendment to the Purchase 

Agreement, Treasury and FHFA breached their respective fiduciary duties to Freddie Mac, causing 

Freddie Mac to suffer damages. The plaintiffs asked that Freddie Mac be awarded compensatory 

damages and disgorgement, as well as attorneys’ fees, costs and other expenses. 
Financial Statements Notes to the Consolidated Financial Statements | Note 14

Freddie Mac 2016 Form 10-K 330

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. In October 2014, plaintiffs in the In re Fannie 

Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations case filed a notice 

of appeal of the District Court’s decision. The scope of this appeal includes the American European 

Insurance Company shareholder derivative lawsuit. In October 2014, Arrowood filed a notice of appeal of 

the District Court’s decision. Defendants have opposed the appeals.

Litigation in the U.S. Court of Federal Claims

Reid and Fisher vs. the United States of America and Federal Home Loan Mortgage Corporation. This 

case was filed as a derivative lawsuit, purportedly on behalf of Freddie Mac as a “nominal” defendant, on 

February 26, 2014. The complaint alleges, among other items, that the net worth sweep dividend 

provisions of the senior preferred stock constitute an unlawful taking of private property for public use 

without just compensation. The plaintiffs ask that Freddie Mac be awarded just compensation for the U.S. 

government’s alleged taking of its property, attorneys’ fees, costs and other expenses.

Rafter, Rattien and Pershing Square Capital Management vs. the United States of America et al. This 

case was filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a “nominal” 

defendant, on August 14, 2014. The complaint alleges that the net worth sweep dividend provisions of the 

senior preferred stock constitute an unlawful taking of private property for public use without just 

compensation, and the U.S government breached an implied-in-fact contract with Freddie Mac. In 

September 2015, plaintiffs filed an amended complaint, which contains one claim involving Freddie Mac. 

The amended complaint alleges that Freddie Mac’s charter is a contract with its common stockholders, 

and that, through the August 2012 amendment to the Purchase Agreement, the U.S. government 

breached the implied covenant of good faith and fair dealing inherent in such contract. Plaintiffs ask that 

they be awarded damages or other appropriate relief for the alleged breach of contract as well as 

attorneys’ fees, costs and expenses.

Litigation in the U.S. District Court for the District of Delaware

Jacobs and Hindes vs. FHFA and Treasury. This case was filed on August 17, 2015 as a putative class 

action lawsuit purportedly on behalf of a class of holders of preferred stock or common stock issued by 

Freddie Mac or Fannie Mae. The case was also filed as a shareholder derivative lawsuit, purportedly on 

behalf of Freddie Mac and Fannie Mae as “nominal” defendants. The complaint alleges, among other 

items, that the August 2012 amendment to the Purchase Agreement violated applicable state law and 

constituted a breach of contract, as well as a breach of covenants of good faith and fair dealing. Plaintiffs 

seek equitable and injunctive relief (including restitution of the monies paid by Freddie Mac and Fannie 

Mae to Treasury under the net worth sweep dividend), compensatory damages, attorneys’ fees, costs and 

expenses. The case was stayed pending resolution of FHFA's motion to the U.S. Judicial Panel on 

Multidistrict Litigation to transfer this case to the U.S. District Court for the District of Columbia. This 

motion was denied on June 2, 2016, and the stay was lifted on July 13, 2016. Plaintiffs filed an application 

for certification of a question to the Delaware and Virginia Supreme Courts, which was denied on 

September 12, 2016. On September 7, 2016, plaintiffs filed a motion to amend the complaint, which 

Treasury opposed in part.
Financial Statements Notes to the Consolidated Financial Statements | Note 14

Freddie Mac 2016 Form 10-K 331

Litigation in the U.S. District Court for the Eastern District of Virginia

Pagliara vs. Federal Home Loan Mortgage Corporation. This case was filed on March 14, 2016 in the 

Circuit Court of Fairfax County, Virginia, and subsequently removed to the U.S. District Court for the 

Eastern District of Virginia. The plaintiff seeks an order to permit inspection and copying of corporate 

records under Virginia law, primarily for the purpose of investigating potential claims arising from the net 

worth sweep. The case was stayed pending resolution of FHFA's request to the U.S. Judicial Panel on 

Multidistrict Litigation to transfer this case to the U.S. District Court for the District of Columbia, which was 

denied on June 2, 2016. On June 17, 2016, Freddie Mac and FHFA filed a motion to dismiss or, in the 

alternative, substitute FHFA as plaintiff in the case. On August 23, 2016, the U.S. District Court for the 

Eastern District of Virginia dismissed the case. The plaintiff filed a notice of appeal on September 21, 

2016, which was dismissed at plaintiff's request on January 30, 2017.

At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in the 

U.S. District Courts and the U.S. Court of Federal Claims (including the outcome of any appeal) or any 

potential effect on our business, financial condition, liquidity, or results of operations. In addition, we are 

unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse 

judgment in the foregoing matters due to a number of factors, including the inherent uncertainty of pretrial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac Senior Preferred Stock 

Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of 

damages they believe are due, and the Court has not certified a class.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

Freddie Mac 2016 Form 10-K 332

NOTE 15: 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-directed regulatory capital requirements are not binding during 

conservatorship. We continue to provide quarterly submissions to FHFA on minimum capital.

REGULATORY CAPITAL STANDARDS

The GSE Act established minimum, critical, and risk-based capital standards for us. However, per 

guidance received from FHFA, we no longer are required to submit risk-based capital reports to FHFA.

Prior to our entry into conservatorship, those standards determined the amounts of core capital that we 

were to maintain to meet regulatory capital requirements. Core capital consisted of the par value of 

outstanding common stock (common stock issued less common stock held in treasury), the par value of 

outstanding non-cumulative, perpetual preferred stock, additional paid-in capital and retained earnings 

(accumulated deficit), as determined in accordance with GAAP.

Minimum Capital

The minimum capital standard required us to hold an amount of core capital that was generally equal to 

the sum of 2.50% of aggregate on-balance sheet assets and approximately 0.45% of the sum of our PCs 

held by third parties and other aggregate off-balance sheet obligations.

Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not affected by 

adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of 

VIEs effective January 1, 2010. Specifically, upon adoption of these amendments, FHFA directed us, for 

purposes of minimum capital, to continue reporting single-family PCs and certain other securitization 

products held by third parties using a 0.45% capital requirement. FHFA reserves the authority under the 

GSE Act to raise the minimum capital requirement for any of our assets or activities.

Critical Capital 

The critical capital standard required us to hold an amount of core capital that was generally equal to the 

sum of 1.25% of aggregate on-balance sheet assets and approximately 0.25% of the sum of our PCs 

held by third parties and other aggregate off-balance sheet obligations.

PERFORMANCE AGAINST REGULATORY CAPITAL STANDARDS

The table below summarizes our minimum capital requirements and deficits and net worth.

(In millions) December 31, 2016 December 31, 2015

GAAP net worth $5,075 $2,940

Core capital (deficit)(1)(2) ($67,717) ($70,549)

Less: Minimum capital requirement(1) 18,933 19,687

Minimum capital surplus (deficit)(1) ($86,650) ($90,236)

(1) Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative 

source for our regulatory capital.
Financial Statements Notes to the Consolidated Financial Statements | Note 15

Freddie Mac 2016 Form 10-K 333

(2) Core capital excludes certain components of GAAP total equity (i.e., AOCI and the liquidation preference of the senior 

preferred stock) as these items do not meet the statutory definition of core capital.

The Purchase Agreement provides that, if FHFA determines as of quarter end that our liabilities have 

exceeded our assets under GAAP, Treasury will contribute funds to us in an amount at least equal to the 

difference between such liabilities and assets.

Under the GSE Act, FHFA must place us into receivership if FHFA determines that our assets are and 

have been less than our obligations for a period of 60 days. FHFA has notified us that the measurement 

period for any mandatory receivership determination with respect to our assets and obligations would 

commence no earlier than the SEC public filing deadline for our quarterly or annual financial statements 

and would continue for 60 calendar days after that date. FHFA has advised us that, if, during that 60-day 

period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the 

Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. If 

funding has been requested under the Purchase Agreement to address a deficit in our net worth, and 

Treasury is unable to provide us with such funding within the 60-day period specified by FHFA, FHFA

would be required to place us into receivership if our assets remain less than our obligations during that 

60-day period.

At December 31, 2016, our assets exceeded our liabilities under GAAP; therefore, no draw is being 

requested from Treasury under the Purchase Agreement. As of December 31, 2016, our aggregate 

funding received from Treasury under the Purchase Agreement was $71.3 billion. This aggregate funding 

amount does not include the initial $1 billion liquidation preference of senior preferred stock that we 

issued to Treasury in September 2008 as an initial commitment fee and for which no cash was received.

SUBORDINATED DEBT COMMITMENT

In October 2000, we announced our adoption of a series of commitments designed to enhance market 

discipline, liquidity, and capital. In September 2005, we entered into a written agreement with FHFA that 

updated those commitments and set forth a process for implementing them. FHFA, as Conservator of 

Freddie Mac, has suspended the requirements in the September 2005 agreement with respect to 

issuance, maintenance, and reporting and disclosure of Freddie Mac subordinated debt during the term of 

conservatorship and thereafter until directed otherwise.
Financial Statements Notes to the Consolidated Financial Statements | Note 16

Freddie Mac 2016 Form 10-K 334

NOTE 16: SELECTED FINANCIAL STATEMENT LINE ITEMS

The table below presents the significant components of other income (loss) and other expense on our 

consolidated statements of comprehensive income.

Year Ended December 31,

(In millions) 2016 2015 2014

Other income (loss):

Non-agency mortgage-related securities settlements(1) $— $65 $6,084

Gains (losses) on loans (463) (2,094) 731

All other 1,717 1,150 1,229

Total other income (loss) $1,254 ($879) $8,044

Other expense:

Property tax and insurance expense on held-for-sale loans ($90) ($1,094) ($62)

All other (509) (412) (176)

Total other expense ($599) ($1,506) ($238)

(1) Settlement agreements primarily related to lawsuits regarding our investments in certain non-agency mortgage-related 

securities and were a significant component of other income in 2014. 

The table below presents the significant components of other assets and other liabilities on our 

consolidated balance sheets.

(In millions) December 31, 2016 December 31, 2015

Other assets:

Real estate owned, net $1,198 $1,725

Accounts and other receivables(1) 5,083 3,625

Guarantee asset 2,298 1,753

Advances to lenders 1,278 910

All other 2,501 1,025

Total other assets $12,358 $9,038

Other liabilities:

Servicer liabilities $730 $1,191

Guarantee obligation 2,208 1,729

Accounts payable and accrued expenses 957 1,286

Payables related to securities 4,510 72

All other 1,082 968

Total other liabilities $9,487 $5,246

(1) Primarily consists of servicer receivables and other non-interest receivables.

END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
Quarterly Selected Financial Data

Freddie Mac 2016 Form 10-K 335

QUARTERLY SELECTED FINANCIAL DATA

(UNAUDITED)

2016

(In millions, except share-related amounts) 1Q 2Q 3Q 4Q Full-Year

Net interest income $3,405 $3,443 $3,646 $3,885 $14,379

Benefit (provision) for credit losses 467 775 (113) (326) 803

Non-interest income (loss):

Derivative gains (losses) (4,561) (2,058) (36) 6,381 (274)

Net impairments of available-for-sale

securities recognized in earnings (57) (72) (9) (53) (191)

Other non-interest income (loss) 1,195 306 822 (1,358) 965

Non-interest income (loss) (3,423) (1,824) 777 4,970 500

Non-interest expense:

Administrative expense (448) (475) (498) (584) (2,005)

REO operations income (expense) (84) (29) (56) (118) (287)

Temporary Payroll Tax Cut Continuation Act

of 2011 expense (272) (280) (293) (307) (1,152)

Other non-interest expense (153) (151) (138) (157) (599)

Non-interest expense (957) (935) (985) (1,166) (4,043)

Income tax (expense) benefit 154 (466) (996) (2,516) (3,824)

Net income (loss) ($354) $993 $2,329 $4,847 $7,815

Total other comprehensive income (loss), net

of taxes $154 $140 ($19) ($972) ($697)

Comprehensive income (loss) ($200) $1,133 $2,310 $3,875 $7,118

Income (loss) attributable to common

stockholders ($354) $60 $19 $372 $97

Income (loss) per common share – basic and 

diluted(1) ($0.11) $0.02 $0.01 $0.11 $0.03
Quarterly Selected Financial Data

Freddie Mac 2016 Form 10-K 336

2015

 (In millions, except share-related amounts) 1Q 2Q 3Q 4Q Full-Year

Net interest income $3,647 $3,969 $3,743 $3,587 $14,946

Benefit (provision) for credit losses 499 857 528 781 2,665

Non-interest income (loss):

Derivative gains (losses) (2,403) 3,135 (4,172) 744 (2,696)

Net impairments of available-for-sale

securities recognized in earnings (93) (98) (54) (47) (292)

Other non-interest income (loss) 349 (496) 385 (849) (611)

Non-interest income (loss) (2,147) 2,541 (3,841) (152) (3,599)

Non-interest expense:

Administrative expenses (451) (501) (465) (510) (1,927)

REO operations income (expense) (75) (52) (116) (95) (338)

Temporary Payroll Tax Cut Continuation Act

of 2011 expense (222) (235) (248) (262) (967)

Other non-interest expense (463) (501) (270) (272) (1,506)

Non-interest expense (1,211) (1,289) (1,099) (1,139) (4,738)

Income tax (expense) benefit (264) (1,909) 194 (919) (2,898)

Net income (loss) $524 $4,169 ($475) $2,158 $6,376

Total other comprehensive income (loss), net

of taxes $222 ($256) ($26) ($517) ($577)

Comprehensive income (loss) $746 $3,913 ($501) $1,641 $5,799

Income (loss) attributable to common

stockholders ($222) $256 ($475) $418 ($23)

Income (loss) per common share – basic and 

diluted(1) ($0.07) $0.08 ($0.15) $0.13 ($0.01)

(1) Earnings (loss) per common share is computed independently for each of the quarters presented. Due to the use of weighted 

average common shares outstanding when calculating earnings (loss) per share, the sum of the four quarters may not equal 

the full-year amount. Earnings (loss) per common share amounts may not recalculate using the amounts shown in this table 

due to rounding.
Controls and Procedures

Freddie Mac 2016 Form 10-K 337

CONTROLS AND PROCEDURES

MANAGEMENT'S REPORT ON INTERNAL

CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial 

reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting 

is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial 

Officer and effected by the Board of Directors, management and other personnel to provide reasonable 

assurance regarding the reliability of our financial reporting and the preparation of financial statements for 

external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect 

misstatements. It is a process that involves human diligence and compliance and is, therefore, subject to 

lapses in judgment and breakdowns resulting from human error. It also can be circumvented by collusion 

or improper management override. Because of its limitations, there is a risk that internal control over 

financial reporting may not prevent or detect, on a timely basis, errors that could cause a material 

misstatement of the financial statements.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In 

making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of 

the Treadway Commission, or COSO, in Internal Control — Integrated Framework (2013 Framework). A

material weakness is a deficiency, or a combination of deficiencies, in internal control over financial 

reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual 

or interim financial statements will not be prevented or detected on a timely basis by a company’s internal 

controls. Based on our assessment, we identified a material weakness related to our inability to update 

our disclosure controls and procedures in a manner that adequately ensures the accumulation and 

communication to management of information known to FHFA that is needed to meet our disclosure 

obligations under the federal securities laws, including disclosures affecting our consolidated financial 

statements.

We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency 

that currently functions as both our Conservator and our regulator with respect to our safety, soundness 

and mission. Because we are in conservatorship, some of the information that we may need to meet our 

disclosure obligations may be solely within the knowledge of FHFA. As our Conservator, FHFA has the 

power to take actions without our knowledge that could be material to investors and could significantly 

affect our financial performance. Although we and FHFA have attempted to design and implement 

disclosure policies and procedures to account for the conservatorship and accomplish the same 

objectives as disclosure controls and procedures for a typical reporting company, there are inherent 

structural limitations on our ability to design, implement, test or operate effective disclosure controls and 

procedures under the circumstances of conservatorship. As our Conservator and regulator, FHFA is 

limited in its ability to design and implement a complete set of disclosure controls and procedures relating 

to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated entity, 

we are limited in our ability to design, implement, operate and test the controls and procedures for which 

FHFA is responsible. For example, FHFA may formulate certain intentions with respect to the conduct of 
Controls and Procedures

Freddie Mac 2016 Form 10-K 338

our business that, if known to management, would require consideration for disclosure or reflection in our 

financial statements, but that FHFA, for regulatory reasons, may be constrained from communicating to 

management. As a result of these considerations, we have concluded that this control deficiency 

constitutes a material weakness in our internal control over financial reporting.

Because of this material weakness, we have concluded that our internal control over financial reporting 

was not effective as of December 31, 2016 based on the COSO criteria (2013 Framework). 

PricewaterhouseCoopers LLP, an independent registered public accounting firm, audited the 

effectiveness of our internal control over financial reporting as of December 31, 2016 and also determined 

that our internal control over financial reporting was not effective. PricewaterhouseCoopers LLP’s report 

appears in “Financial Statements and Supplementary Data — Report of Independent Registered Public 

Accounting Firm.”

EVALUATION OF DISCLOSURE CONTROLS AND 

PROCEDURES 

Disclosure controls and procedures include, without limitation, controls and procedures designed to 

ensure that the information we are required to disclose in reports that we file or submit under the 

Exchange Act is recorded, processed, summarized and reported within the time periods specified by the 

SEC’s rules and forms and that such information is accumulated and communicated to management of 

the company, including the company’s Chief Executive Officer and Chief Financial Officer, as appropriate, 

to allow timely decisions regarding required disclosure. In designing our disclosure controls and 

procedures, we recognize that any controls and procedures, no matter how well designed and operated, 

can provide only reasonable assurance of achieving the desired control objectives, and we must apply 

judgment in implementing possible controls and procedures.

Management, including the company’s Chief Executive Officer and Chief Financial Officer, conducted an 

evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2016. As a 

result of management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that 

our disclosure controls and procedures were not effective as of December 31, 2016, at a reasonable level 

of assurance, because we have not been able to update our disclosure controls and procedures to 

provide reasonable assurance that information known by FHFA on an ongoing basis is communicated 

from FHFA to Freddie Mac’s management in a manner that allows for timely decisions regarding our 

required disclosure under the federal securities laws. As discussed above, we consider this situation to be 

a material weakness in our internal control over financial reporting. Based on discussions with FHFA and 

the structural nature of this continuing weakness, we believe it is likely that we will not remediate this 

material weakness while we are under conservatorship.
Controls and Procedures

Freddie Mac 2016 Form 10-K 339

MITIGATING ACTIONS RELATED TO THE 

MATERIAL WEAKNESS IN INTERNAL CONTROL

OVER FINANCIAL REPORTING 

As described above under "Management's Report on Internal Control Over Financial Reporting,” we have 

one material weakness in internal control over financial reporting as of December 31, 2016 that we have 

not remediated.

Given the structural nature of this material weakness, we believe it is likely that we will not remediate it 

while we are under conservatorship. However, both we and FHFA have continued to engage in activities 

and employ procedures and practices intended to permit accumulation and communication to 

management of information needed to meet our disclosure obligations under the federal securities laws. 

These include the following:

• FHFA has established the Division of Conservatorship, which is intended to facilitate operation of the 

company with the oversight of the Conservator.

• We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. 

We also provide drafts of external press releases, statements and speeches to FHFA personnel for 

their review and comment prior to release.

• FHFA personnel, including senior officials, review our SEC filings prior to filing, including this 

Form 10-K, and engage in discussions with us regarding issues associated with the information 

contained in those filings. Prior to filing this Form 10-K, FHFA provided us with a written 

acknowledgment that it had reviewed the Form 10-K, was not aware of any material misstatements or 

omissions in the Form 10-K, and had no objection to our filing the Form 10-K.

• The Director of FHFA is in frequent communication with our Chief Executive Officer, typically meeting 

(in person or by phone) on at least a bi-weekly basis.

• FHFA representatives attend meetings frequently with various groups within the company to enhance 

the flow of information and to provide oversight on a variety of matters, including accounting, credit 

and capital markets management, external communications, and legal matters.

• Senior officials within FHFA’s accounting group meet frequently with our senior financial executives 

regarding our accounting policies, practices, and procedures.

In view of our mitigating actions related to this material weakness, we believe that our consolidated 

financial statements for the year ended December 31, 2016 have been prepared in conformity with GAAP.
Controls and Procedures

Freddie Mac 2016 Form 10-K 340

CHANGES IN INTERNAL CONTROL OVER 

FINANCIAL REPORTING DURING THE QUARTER 

ENDED DECEMBER 31, 2016

We evaluated the changes in our internal control over financial reporting that occurred during the quarter 

ended December 31, 2016 and concluded that there were no changes that materially affected, or are 

reasonably likely to materially affect, our internal control over financial reporting.
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 341

DIRECTORS, CORPORATE 

GOVERNANCE, AND EXECUTIVE 

OFFICERS

DIRECTORS

ELECTION OF DIRECTORS

As Conservator, FHFA determines the size of the company’s Board and the scope of its authority. At the 

start of Conservatorship, FHFA determined that the Board is to have a Non-Executive Chairman, and is to 

consist of a minimum of 9 and not more than 13 directors, with the CEO being the only corporate officer 

serving as a member of the Board. The company currently has 13 Board members and expects to 

maintain the current Board size. 

In addition, because FHFA as Conservator has succeeded to the rights of all stockholders of the 

company, the Conservator elects the directors. Accordingly, we will not solicit proxies, distribute a proxy 

statement to stockholders, or hold an annual meeting of stockholders in 2017. Instead, the Conservator 

has elected directors by written consent in lieu of an annual meeting. Annually, the Board identifies 

director nominees for the Conservator to consider for election by written consent. When there is a 

vacancy on the Board, the Board may exercise the authority delegated to it by the Conservator to fill such 

vacancy, subject to review by the Conservator.

On February 13, 2017, the Conservator executed a written consent, effective as of that date, re-electing 

each of the 13 then-current directors as a member of our Board. The individuals elected as directors by 

the Conservator are listed below.

Raphael W. Bostic Christopher S. Lynch

Carolyn H. Byrd Sara Mathew

Lance F. Drummond Saiyid T. Naqvi

Thomas M. Goldstein Nicolas P. Retsinas

Richard C. Hartnack Eugene B. Shanks, Jr.

Steven W. Kohlhagen Anthony A. Williams

Donald H. Layton

See “Director Biographical Information” for information about each of our re-elected directors. The terms 

of those directors will end on the date of the next annual meeting of our stockholders or when the 

Conservator next elects directors by written consent, whichever occurs first.
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 342

DIRECTOR CRITERIA, DIVERSITY, QUALIFICATIONS, 

EXPERIENCE, AND TENURE

Our Board seeks candidates for director who have achieved a high level of stature, success, and respect 

in their principal occupations. 

Each of our current directors was selected as a candidate because of his or her character, judgment, 

experience, and expertise. Consistent with our Charter and FHFA’s rule regarding the Responsibilities of 

Boards of Directors, Corporate Practices and Corporate Governance Matters (the “Corporate Governance 

Rule”), the factors considered include the knowledge directors would have, as a group, in the areas of 

business, finance, accounting, risk management, public policy, mortgage lending, real estate, low-income 

housing, homebuilding, regulation of financial institutions, and any other areas that may be relevant to our 

safe and sound operation. We also considered whether a candidate’s other commitments, including the 

number of other board memberships held by the candidate, would permit the candidate to devote 

sufficient time to the candidate’s duties and responsibilities as a director. Our Charter provides that our 

Board must at all times have at least one person from each of the homebuilding, mortgage lending, and 

real estate industries and at least one person from an organization representing community or consumer 

interests or one person who has demonstrated a career commitment to the provision of housing for lowincome households. 

In addition, the Board has adopted a policy (articulated in our Corporate Governance Guidelines, or the 

“Guidelines”) with regard to the consideration of diversity in identifying director nominees and candidates. 

As articulated in the Guidelines, the Board seeks to have a diversity of talent, perspectives, expertise, 

experience, and cultures among its members, including minorities, women, and individuals with 

disabilities, and considers such diversity in the candidate identification and nomination processes. The 

Guidelines explain that when identifying director nominees, the Nominating and Governance Committee 

considers, among other factors, our needs, the talents and skills then available on the Board, and, with 

respect to incumbent directors, their continued involvement in business and professional activities 

relevant to us, the skills and experience that should be represented on the Board, the availability of other 

individuals with desirable skills to join the Board, and the desire to maintain a diverse Board.

FHFA has promulgated a rule regarding minority and women inclusion. This rule implements section 1116 

of the Reform Act and generally requires us to encourage the consideration of diversity and the inclusion 

of women, minorities, and individuals with disabilities in all activities, including considering diversity in the 

process of nominating directors.

DIRECTOR BIOGRAPHICAL INFORMATION

The following summarizes each director’s Board service, experience, qualifications, attributes, and/or 

skills that led to his or her selection as a director, and provides other biographical information, as of 

February 16, 2017:
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 343

Raphael W. Bostic Freddie Mac Committees: Public Directorships:

Age: 50 Compensation None

Director Since: January 2015 Risk

Mr. Bostic is a leading real estate economist with extensive public policy, academic, and research 

expertise.

Experience and Qualifications 

• Chair, Department on Governance, Management, and the Policy Process at the Sol Price School of 

Public Policy at the University of Southern California (2015-present); Bedrosian Chair in Governance 

and Public Enterprise at the Sol Price School of Public Policy at the University of Southern California 

(2012-2015)

• Assistant Secretary for Policy Development and Research at HUD (2009-2012)

• Various positions at the University of Southern California, including Professor at the School of Policy, 

Planning and Development (2001-2009)

• Trustee of Enterprise Community Partners (2012-present) 

• Member of the Board of the Lincoln Institute of Land Policy (2013-present) 

• Advisory Board member of the National Community Stabilization Trust (2012-2015)

Carolyn H. Byrd Freddie Mac Committees: Public Directorships:

Age: 68 Audit, Chair Popeyes Louisiana 

Director Since: December 2008 Compensation Kitchen, Inc.

 Executive Regions Financial

 Corporation

Ms. Byrd is an experienced finance executive who has held a variety of leadership positions. She also 

has significant public company audit committee experience. Ms. Byrd’s internal audit and public company 

audit committee experience enables her to support the Board’s oversight of our internal control over 

financial reporting and compliance matters.

Experience and Qualifications

• Founder, Chairman, and Chief Executive Officer of GlobalTech Financial, LLC (2000-present)

• President of Coca-Cola Financial Corporation (1997-2000)

• Various domestic and international positions with The Coca-Cola Company, including Chief of Internal 

Audits and Director of the Corporate Auditing Department (1977-1997)

• Member of the Board, Audit Committee and Executive Committee and Chair of the Corporate 

Governance and Nominating Committee of Popeyes Louisiana Kitchen, Inc. (2001-present)

• Member of the Board and Chair of the Audit Committee and former member of the Risk Committee of 

Regions Financial Corporation (2010-present)

• Member of the Board and Audit Committee of Circuit City Stores, Inc. (2000-2009) 

• Member of the Board and Audit Committee of RARE Hospitality International, Inc. (2000-2007)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 344

Lance F. Drummond Freddie Mac Committees: Public Directorships:

Age: 62 Audit None

Director Since: July 2015 Nominating & Governance

Mr. Drummond is a senior business leader with extensive experience specializing in business 

transforming strategy development and execution, operations, technology, and process re-engineering.

Experience and Qualifications

• Executive Vice President of Operations and Technology of TD Canada Trust (2011-2014)

• Executive Vice President of Human Resources and Shared Services of Fiserv Inc. (2009-2011)

• Senior Vice President and Supply Chain Executive, Service and Fulfillment Executive for Global 

Technology and Operations, and eCommerce and ATM Executive of Bank of America (2002-2008)

• Various positions with Eastman Kodak Company, including Chief Operating Officer and Corporate 

Vice President of Kodak Professional Division (1976-2002)

Thomas M. Goldstein Freddie Mac Committees: Public Directorships:

Age: 57 Audit Kemper Corporation

Director Since: October 2014 Nominating & Governance

Mr. Goldstein is an executive with extensive financial services, insurance, mortgage banking, and risk 

management experience.

Experience and Qualifications

• Founder of Jamlerpartners LLC (2014-present)

• Senior Vice President and Chief Financial Officer of the Protection Division of Allstate Insurance 

Company (2011-2014)

• Consultant to the financial services industry, pursuing community bank acquisitions with The GRG 

Group LLC (2009-2011)

• Managing Director and Chief Financial Officer of Madison Dearborn Partners (2007-2009)

• Various executive and finance positions for LaSalle Bank Corporation, including Chairman, Chief 

Executive Officer, and President of ABN AMRO Mortgage Group and Chief Financial Officer of 

LaSalle Bank Corporation (1998-2007)

• Various positions with Morgan Stanley Dean Witter, including Senior Vice President and Head of Risk 

Management and Financial Planning and Analysis of Novus Financial as well as Vice President and 

Head of Finance, Risk Management, Model Development, and Investor Relations of SPS Transaction 

Services (1988-1998)

• Member of the Board, Audit, Compensation and Investment Committees of Kemper Corporation 

(2016-present)

• Member of the Board of Trustees, Chair of the Audit Committee, and member of the Performance and 

Compliance Committees of Columbia Acorn Trust and Wanger Advisors Trust (2014-present)

• Member of the Board of the FHLB of Chicago (2009-2014)

• Member of the Board of various Allstate subsidiaries (2011-2014)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 345

Richard C. Hartnack Freddie Mac Committees: Public Directorships:

Age: 71 Executive Synchrony Financial

Director Since: May 2013 Nominating & Governance,

 Chair

 Risk

Mr. Hartnack is a seasoned industry executive with proven leadership experience and a deep 

understanding of our industry. He has detailed knowledge of underwriting, servicing, and technology.

Experience and Qualifications

• Vice Chairman and Head of Consumer and Small Business Banking of U.S. Bancorp (2005-2013)

• Vice Chairman, Director, and Head of the Community Banking Group of Union Bank of California 

(1991-2005)

• Various positions with First Chicago Corporation, including Executive Vice President and Head of 

Community Banking (1982-1991)

• Various positions with First Interstate Bank of Oregon, including Head of Corporate Banking 

(1971-1982)

• Non-Executive Chairman of the Board, Chair of the Management Development and Compensation 

Committee, and Former Chair of the Audit Committee of Synchrony Financial (2014-present)

• Non-Executive Chairman of the Board of Synchrony Bank, a wholly owned subsidiary of Synchrony 

Financial (2014-present)

• Member of the Board of U.S. Bank, a wholly owned subsidiary of U.S. Bancorp (2005-2013)

• Member of the Board of the Federal Reserve Bank of San Francisco (2001-2005)

• Member of the Board of MasterCard International (U.S. Region) (1994-2005)

• Member of the Board of UnionBanCal Corporation (1991-2005)

• Chairman of the California Bankers Association (2002-2003)

• Chairman of the Bank Administration Institute (1998-1999)

Steven W. Kohlhagen Freddie Mac Committees: Public Directorships:

Age: 69 Compensation AMETEK, Inc.

Director Since: February 2013 Risk GulfMark Offshore, Inc.

Mr. Kohlhagen is nationally recognized as a leading financial expert with extensive knowledge of 

mortgage finance and the capital markets. He brings to the Board a unique combination of senior 

executive leadership skills and a deep understanding of economics, modeling, and complex financial 

instruments.

Experience and Qualifications

• Various positions with First Union National Bank (predecessor to Wachovia National Bank and Wells 

Fargo), last serving as Managing Director of the Fixed Income Division (1992-2003)

• Various positions with AIG Financial Products (1990-1992); Stamford Capital Group (1987-1990); 

Bankers Trust Corporation (1985-1987); and Lehman Brothers, Inc. (1983-1985)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 346

• Consulting work for the Organization for Economic Cooperation and Development (1980-1981), 

Treasury (1976-1977), and the Federal Reserve Board (1976)

• Senior Staff Economist for the Council of Economic Advisors, White House Staff (1978-1979)

• Professor of International Economics and Finance at the University of California, Berkeley 

(1973-1983)

• Member of the Board and Audit Committee of AMETEK, Inc. (2006-present)

• Member of the Board, Audit Committee, and Compensation Committee of GulfMark Offshore, Inc. 

(2013-present)

• Member of the Board and Compensation Committee and Chair of the Governance and Nominating 

Committee of Reval, Inc. (2007-2016)

• Member of the Board and Audit Committee of Abtech Holdings, Inc. (2013-2014)

• Advisory Board member of the Stanford Institute for Economic Policy Research (2001-present)

• Advisory Board member of the Roper St. Francis Cancer Center (2011-present)

• Member of the Board of IQ Mutual Funds, a family of Merrill Lynch registered, closed-end investment 

companies (2005-2010)

Donald H. Layton Freddie Mac Committees: Public Directorships:

Age: 66 Executive None

Director Since: May 2012

Mr. Layton is an experienced financial institution executive and leader of finance and investment 

organizations. Mr. Layton provides valuable insight to the Board as a result of his leadership of Freddie 

Mac and his knowledge of our business and industry, as well as his extensive financial services industry 

experience.

Experience and Qualifications

• Chief Executive Officer of Freddie Mac (2012-present)

• Chairman of E*TRADE Financial (2007-2009); Chief Executive Officer (2008-2009)

• Senior Advisor to the Securities Industry and Financial Markets Association (2006-2008)

• Various positions with JPMorgan Chase and its predecessors, beginning as a trainee and rising to 

Vice Chairman and a member of the company’s three-person Office of the Chairman (1975-2004); 

positions included Head of Chase Financial Services (2002-2004); Co-Chief Executive Officer of J.P. 

Morgan, the investment bank of the company (2000-2002); Head of Treasury and Securities Services 

(1999-2004); and Head of Chase Manhattan’s worldwide capital markets and trading activities, 

including foreign exchange, risk management products, emerging markets, fixed income, and the 

bank’s investment portfolio and funding department (1996 to 2000; prior to Chase’s merger with J.P. 

Morgan)

• Chairman Emeritus of the Partnership for the Homeless (2015-present); Chairman of the Board 

(2005-2015)

• Member of the Board of Assured Guaranty Ltd. (2006-2012)

• Member of the Board of American International Group (2010-2012)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 347

Christopher S. Lynch Freddie Mac Committees: Public Directorships:

Age: 59 Executive, Chair American International

Director Since: December 2008 Group Inc.

Mr. Lynch is an experienced senior accounting executive who was responsible for one of the Big Four’s 

Financial Services practice and served as the lead audit signing partner and account executive for 

several large financial institutions with mortgage lending businesses. He also has significant public 

company audit committee and risk management experience. Mr. Lynch’s extensive experience in finance, 

accounting, and risk management enables him to provide valuable guidance to the Board on complex 

accounting and risk management issues.

Experience and Qualifications

• Independent consultant providing a variety of services to financial intermediaries, including corporate 

restructuring, risk management, strategy, governance, financial and regulatory reporting, and 

troubled-asset management (2007-present)

• Various positions with KPMG LLP, including National Partner in Charge - Financial Services, the U.S. 

firm’s largest industry division; Chairman of KPMG’s Americas Financial Services Leadership team; 

Member of the Global Financial Services Leadership and the U.S. Industries Leadership teams; Head 

of the Banking & Finance practice; and Department of Professional Practice partner (1979-2007)

• Practice Fellow at the FASB (1987-1989)

• Non-Executive Chairman of the Board of Freddie Mac (2011-present)

• Member of the Board and Risk and Capital, Nominating and Corporate Governance, and Technology 

Committees and former Chair of the Audit Committee of American International Group (2009-present)

• Advisory Board member of the Stanford Institute for Economic Policy Research (2014-present)

• Member of the National Audit Committee Chair Advisory Council of the National Association of 

Corporate Directors (2014-present)

Sara Mathew Freddie Mac Committees: Public Directorships:

Age: 61 Audit Campbell Soup Company

Director Since: December 2013 Nominating & Governance Shire plc

Ms. Mathew is an executive with global financial and general management experience. Ms. Mathew’s 

extensive business, financial, and management experience, and her public company board and audit 

committee experience, enable her to contribute to the Board’s oversight of the management and 

operation of the company and of its financial reporting.

Experience and Qualifications

• Various positions with Dun & Bradstreet Corporation (2001-2013), including Chairman and Chief 

Executive Officer (2010-2013); President and Chief Operating Officer (2007-2010); and Senior Vice 

President and CFO (2002-2006)

• Various finance and management positions with The Procter & Gamble Company, including Vice 

President of Finance for Australia, Asia, and India (1983-2001)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 348

• Member of the Board and Finance and Corporate Development Committee and Chair of the Audit 

Committee of Campbell Soup Company (2005-present)

• Member of the Board and Audit, Compliance and Risk, and Remuneration Committees of Shire plc 

(2015-present)

• Member of the Board and Finance and Nominating and Corporate Governance Committees of Avon 

Products, Inc. (2014-2016)

• Member of the Board and Audit Committee of Dun & Bradstreet Corporation (2008-2013)

• Member of the International Advisory Council of Zurich Financial Services Group (2012-present)

Saiyid T. Naqvi Freddie Mac Committees: Public Directorships:

Age: 67 Compensation None

Director Since: August 2013 Executive

 Risk, Chair

Mr. Naqvi is a seasoned financial executive with proven leadership experience and detailed knowledge of 

mortgage and consumer financial operations, as well as a deep background in risk and operational 

management.

Experience and Qualifications

• President and Chief Executive Officer of PNC Mortgage, a division of PNC Bank, National 

Association, which is a subsidiary of PNC Financial Services Group (2009-2013)

• President of Harley-Davidson Financial Services, Inc. (2007-2009)

• Chief Executive Officer of DeepGreen Financial, Inc. (2005-2006)

• President and Chief Financial Officer of Setara Corporation (2002-2005)

• President and Chief Executive Officer of PNC Mortgage Corporation of America (1995-2001)

• Member of the Board of Genworth Financial (2005-2009)

• Member of the Board of Hanover Mortgage Capital Holdings, Inc. (1998-2006)

Nicolas P. Retsinas Freddie Mac Committees: Public Directorships:

Age: 70 Audit None

Director Since: June 2007 Compensation, Chair

 Executive

Mr. Retsinas is an experienced leader in the governmental and educational sectors, with in-depth 

knowledge of the mortgage lending, real estate, and homebuilding industries. He also has represented 

consumer and community interests and has demonstrated a career commitment to the provision of 

housing for low-income households. Mr. Retsinas’ public, private, and academic experience, including his 

service on the boards of several not-for-profit organizations, enables him to bring to the Board broad 

knowledge and understanding of housing and consumer and community issues.

Experience and Qualifications

• Senior Lecturer in Real Estate at the Harvard Business School (2006-2015)

• Lecturer in Housing Studies at the Harvard Graduate School of Design (1998-2015)

• Assistant Secretary for Housing - Federal Housing Commissioner at HUD (1993-1998)

• Director of the Office of Thrift Supervision (1996-1997)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 349

• Member of the Board of the Center for Responsible Lending (2006-present)

• Chair of Community Development Trust (2014-present); Member of the Board (1999-present)

• Director Emeritus of Harvard University’s Joint Center for Housing Studies (2010-present); Director 

(1998-2010)

• Chair of Providence Housing Authority (2013-present)

• Trustee of Enterprise Community Partners (1999-2013)

• Member of the Board of the Federal Deposit Insurance Corporation (1996-1997)

• Member of the Board of the Federal Housing Finance Board (1993-1998)

• Trustee of the National Housing Endowment (1998-2012)

• Member of the Board of the Neighborhood Reinvestment Corporation (1993-1998)

• Chair of Rhode Island Housing and Mortgage Finance Corporation (2015-present)

Eugene B. Shanks, Jr. Freddie Mac Committees: Public Directorships:

Age: 69 Audit Chubb (formerly ACE 

Director Since: December 2008 Compensation Limited)

Mr. Shanks is an experienced finance executive with leadership and risk management expertise. Mr. 

Shanks’ leadership and risk management experience enables him to provide the Board with valuable 

guidance on risk management issues and our strategic direction.

Experience and Qualifications

• Founder, President, and Chief Executive Officer of NetRisk, Inc. (1997-2002)

• Various positions with Bankers Trust New York Corporation, including Head of Global Markets and 

President and Director (1973-1978 and 1980-1995)

• Treasurer of Commerce Union Bank in Nashville, Tennessee (1978-1980)

• Member of the Board and Risk and Finance Committee of Chubb (2011-present)

• Advisory Board member of the Stanford Institute for Economic Policy Research (2010-present)

• Senior Advisor of Bain and Company (2008-2011)

• Founding Director of The Posse Foundation (1992-present)

• Trustee Emeritus of Vanderbilt University (2015-present), Trustee (1992-2015)
Directors, Corporate Governance, and Executive Officers Directors

Freddie Mac 2016 Form 10-K 350

Anthony A. Williams Freddie Mac Committees: Public Directorships:

Age: 65 Nominating & Governance None

Director Since: December 2008 Risk

Mr. Williams is an experienced leader in national, state, and local governments, with extensive 

knowledge concerning real estate and housing for low-income individuals. He also has significant 

experience in financial matters and is an experienced academic focusing on public management issues. 

Mr. Williams’ leadership and operating experience in the public sector allows him to provide a unique 

perspective on state and local housing issues.

Experience and Qualifications

• Chief Executive Officer and Executive Director of Federal City Council (2012-present)

• Senior Advisor at King & Spalding (2016-present)

• Senior Advisor at Dentons (2015-2016)

• Senior Advisor at McKenna, Long & Aldridge, LLP (2013-2015)

• Senior Fellow (2012) and Executive Director of Global Government Practice (2010-2012) of the 

Corporate Executive Board Company

• Bloomberg Lecturer in Public Management at Harvard’s Kennedy School of Government (2009-2012)

• Senior Advisor, Intergovernmental Practice at Arent Fox LLP (2009-2010)

• CEO of Primum Public Realty Trust (2007-2008)

• Mayor of Washington, DC (1999-2007)

• Chief Financial Officer of Washington, DC (1995-1998)

• President of the National League of Cities (2005)

• Vice-Chair of the Metropolitan Washington Council of Governments (2005-2006)

• Chief Financial Officer for the U.S. Department of Agriculture (1993-1995)

• Deputy State Comptroller of Connecticut (1991-1993)

• Executive Director of the Community Development Agency of St. Louis, Missouri (1989-1991)

• Assistant Director of the Boston Redevelopment Agency and Head of the Department of 

Neighborhood Housing and Development (1988-1989)

• Member of the Board of the Bank of Georgetown (2012-present)

• Member of the Board and Audit Committee of Calvert Sage Fund (2010-present)

• Member of the Board and Audit Committee of Weston Solutions (2008-2015)

• Member of the Board and Audit Committee of Meruelo Maddox Properties, Inc. (2007-2009)
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 351

CORPORATE GOVERNANCE

OUR CORPORATE GOVERNANCE PRACTICES

The company is committed to best practices in corporate governance. The Board regularly reviews our 

governance practices, assesses the regulatory and legislative environment, and adopts governance 

practices that are in the best interests of the company.

Our Board has adopted the company’s Corporate Governance Guidelines. The Guidelines are available 

on our website at www.freddiemac.com/governance/pdf/gov_guidelines.pdf. The Guidelines are reviewed 

annually by our Board and were last updated in June 2016. The Guidelines establish corporate 

governance practices, and include: qualifications for directors, a limitation on the number of boards on 

which a director may serve, term limits, director orientation and continuing education, and a requirement 

that the Board and each of its committees perform an annual self-evaluation.

We regularly review our practices to ensure effective collaboration of management and the Board. We 

have instituted the following specific corporate governance practices:

Our Board has an independent Non-Executive Chairman, whose responsibilities include

presiding over meetings of the Board and executive sessions of the non-employee or

independent directors. Mr. Lynch has served as Non-Executive Chairman since December 2011.

Of the Board’s 13 directors, 12 are independent, including the Non-Executive Chairman.

Our directors are elected annually.

Each of the Audit, Compensation, Nominating and Governance, and Risk Committees consists

entirely of independent directors.

Each committee operates pursuant to a written charter that has been approved by the Board

(these charters are available at www.freddiemac.com/governance/bd_committees.html).

Independent directors meet regularly without management.

The Board and each of the Audit, Compensation, Nominating and Governance, and Risk

Committees conduct an annual self-evaluation.

New directors receive a full orientation regarding the company and issues specific to the

committees to which they have been appointed.

All directors are provided with access to, and are encouraged to utilize, third party continuing

education.

Management provides the Board and committees with in-depth technical briefings on substantive

issues affecting the company.

The Board reviews management talent and succession planning at least annually.

DIRECTOR INDEPENDENCE AND RELEVANT 

CONSIDERATIONS

Our non-employee Board members evaluated the independence, as defined in Sections 4 and 5 of the 

Guidelines and in Section 303A.02 of the NYSE Listed Company Manual, of each of our current nonemployee Board members, all of whom also served on our Board in 2016. Our non-employee Board 
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 352

members determined that all current members of our Board (other than Mr. Layton, our CEO) are 

independent. Mr. Layton is not considered an independent director because he is our CEO.

Our non-employee Board members concluded that all current members of our Audit Committee, 

Compensation Committee, and Nominating and Governance Committee are independent within the 

meaning of Sections 4 and 5 of the Guidelines and Section 303A.02 of the NYSE Listed Company 

Manual. Our Board also determined that: (i) all current members of our Audit Committee are independent 

within the meaning of Exchange Act Rule 10A-3 and Section 303A.06 of the NYSE Listed Company 

Manual; and (ii) all current members of our Compensation Committee are independent within the 

meaning of Exchange Act Rule 10C-1 and Section 303A.02(a)(ii) of the NYSE Listed Company Manual.

In determining the independence of each Board member, our non-employee Board members reviewed 

the following categories or types of relationships, in addition to those specifically addressed by the 

standards contained in Section 5 of the Guidelines, to determine whether those relationships, either 

individually or in aggregate, would constitute a material relationship between the director and us that 

would impair a director’s judgment as a member of the Board or create the perception or appearance of 

such an impairment:

• Employment Affiliations with Business Partners - During 2016 and currently, Mr. Williams has 

served as an employee of a firm that engages or has engaged in business with us resulting in 

payments between us and the firm. Under the Guidelines, no specific independence determination is 

required with respect to these payments because they do not exceed the greater of $1 million or 2% 

of the firm’s consolidated gross revenues for each of the last three fiscal years. After considering the 

nature and extent of the specific relationship between the firm and us, our non-employee Board 

members concluded that the business relationship does not constitute a material relationship 

between Mr. Williams and us that would impair his independence as our director.

• Board Memberships with Business Partners - During 2016 and currently, Ms. Byrd and 

Messrs. Bostic, Lynch, Retsinas, Shanks, and Williams have served as directors of other companies 

that engage or have engaged in business with us resulting in payments between us and such 

companies during the past three fiscal years. After considering the nature and extent of the specific 

relationship between each of those companies and us, and the fact that these Board members are 

directors of these other companies rather than employees, our non-employee Board members 

concluded that those business relationships do not constitute material relationships between any of 

the directors and us that would impair their independence as our directors.

• Board Memberships with Charitable Organizations to Which We Have Made Payments - During 

2016 and currently, Mr. Bostic has served as a board member of a charitable organization that 

received payments from us. Under the Guidelines, no specific independence determination is 

required with respect to these payments because they do not exceed the greater of $1 million or 2% 

of the organization’s consolidated gross revenues for each of the last three fiscal years. During 2016 

and currently, Mr. Retsinas has served as Director Emeritus of a charitable organization that received 

payments from us. Because the total annual amount paid to the charitable organization did not 

exceed the greater of $1 million or 2% of the organization’s consolidated gross revenues for each of 

the last three fiscal years, no specific independence determination with respect to these payments is 

required under the Guidelines; moreover, since Mr. Retsinas is neither a board member nor a trustee 

of the charitable organization, the payments would not require an independence determination in any 

event. The non-employee members of the Board considered the payments and the nature of the 
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 353

organizations and concluded that the relationships with the charitable organizations do not constitute 

a material relationship between Mr. Bostic or Mr. Retsinas and us that would impair their 

independence as our directors.

• Financial Relationships with For-Profit Business Partners - Mr. Hartnack owns stock of US 

Bancorp. In the aggregate, this stock represents a material portion of his net worth. US Bancorp 

conducts significant business with Freddie Mac, including as a single-family seller/servicer and as 

trustee of some of Freddie Mac’s securitization transactions. In order to eliminate any potential 

conflict of interest that might arise as a result of this stock ownership, Mr. Hartnack has agreed to 

recuse himself from discussing and acting upon any matters that are to be considered by the full 

Board or any of the committees of which he is a member, and that relate directly to US Bancorp. The 

Audit Committee Chair, in consultation with the Non-Executive Chairman, will address any questions 

that may arise regarding whether recusal from a particular discussion or action is appropriate.

In evaluating Mr. Hartnack’s independence in light of his ownership of US Bancorp stock, our nonemployee Board members considered the nature and extent of Freddie Mac’s business relationship 

with US Bancorp and any potential impact that his stock ownership might have on his independent 

judgment as a Freddie Mac director, taking into account the recusal arrangement. Our non-employee 

Board members concluded that Mr. Hartnack’s recusal arrangement concerning US Bancorp would 

address any actual or potential conflicts of interest that might arise with respect to his ownership of 

US Bancorp stock. Accordingly, our non-employee Board members concluded that Mr. Hartnack’s 

ownership of US Bancorp stock does not constitute a material relationship between him and Freddie 

Mac that would impair his independence as a Freddie Mac director.

Mr. Naqvi owns stock of PNC Financial Services Group, Inc. (“PNC”). In the aggregate, this stock 

represents a material portion of his net worth. PNC conducts significant business with Freddie Mac, 

including as a single-family seller/servicer and as trustee of some of Freddie Mac’s securitization 

transactions. In order to eliminate any potential conflict of interest that might arise as a result of this 

stock ownership, Mr. Naqvi has agreed to recuse himself from discussing and acting upon any 

matters that are to be considered by the full Board or any of the committees of which he is a member, 

and that relate directly to PNC. The Audit Committee Chair, in consultation with the Non-Executive 

Chairman, will address any questions that may arise regarding whether recusal from a particular 

discussion or action is appropriate.

In evaluating Mr. Naqvi’s independence in light of his ownership of PNC stock, our non-employee 

Board members considered the nature and extent of Freddie Mac’s business relationship with PNC 

and any potential impact that his stock ownership might have on his independent judgment as a 

Freddie Mac director, taking into account the recusal arrangement. Our non-employee Board 

members concluded that Mr. Naqvi’s recusal arrangement concerning PNC would address any actual 

or potential conflicts of interest that might arise with respect to his ownership of PNC stock. 

Accordingly, our non-employee Board members concluded that Mr. Naqvi’s ownership of PNC stock 

does not constitute a material relationship between him and Freddie Mac that would impair his 

independence as a Freddie Mac director.
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 354

BOARD AND COMMITTEE INFORMATION

AUTHORITY OF THE BOARD AND BOARD COMMITTEES

The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator 

has delegated to the Board and its committees authority to function in accordance with the duties and 

authorities set forth in applicable statutes, regulations, guidance, orders and directives, and our Bylaws 

and committee charters, while reserving certain powers of approval to itself. The Conservator has 

instructed the Board that it should oversee that management consults with, and obtains approval of, the 

Conservator before taking action in the following areas:

• Matters requiring the approval of or consultation with Treasury under the covenants of the Purchase 

Agreement (see “MD&A — Conservatorship and Related Matters — Purchase Agreement, Warrant 

and Senior Preferred Stock” and Note 2);

• Redemptions or repurchases of subordinated debt, except as necessary to comply with the debt limit 

in the Purchase Agreement;

• Increases in Board risk limits, material changes in accounting policy, and reasonably foreseeable 

material increases in operational risk;

• Matters that relate to the Conservator’s powers, the status of Freddie Mac in conservatorship, or the 

legal effect of the conservatorship on contracts, such as, but not limited to, the initiation of material 

actions in connection with litigation addressing the actions or authority of the Conservator, repudiation 

of contracts, qualified financial contracts in dispute due to conservatorship status, and counterparties 

attempting to nullify or amend contracts due to conservatorship status;

• Retention and termination of external auditors and law firms serving as consultants to the Board;

• Agreements relating to litigation, claims, regulatory proceedings, or tax-related matters where the 

value of the claim is in excess of $50 million, including related matters that aggregate to more than 

$50 million (but excluding loan workouts);

• Alterations or changes to the terms of any master agreement between us and any of our top five 

single-family sellers or servicers that are not otherwise mandated by FHFA and that will alter, in a 

material way, the business relationship between the parties;

• Termination of a contract (other than by expiration pursuant to its terms) between us and any of our 

top five single-family sellers or servicers;

• Actions that, in the reasonable business judgment of management at the time that the action is to be 

taken, are likely to cause significant reputational risk to us or result in substantial negative publicity;

• Creation of any subsidiary or affiliate, or entering into a substantial transaction with a subsidiary or 

affiliate, except for the creation of, or a transaction with, a subsidiary or affiliate undertaken in the 

ordinary course of business (e.g., creation of a securitization trust or REMIC);

• Servicing transfers involving:

100,000 or more loans to a non-bank transferee; or

25,000 or more loans to any transferee if the transfer would increase the number of the 

transferee's Freddie Mac- and Fannie Mae-owned seriously delinquent loans by at least 25 

percent and the servicing transfer has a minimum of 500 seriously delinquent loans;

• Setting or increasing the compensation or benefits payable to directors;

• Entering into new compensation arrangements or increasing amounts or benefits payable under 

existing compensation arrangements for senior vice presidents and above and other officers as FHFA

may deem necessary to successfully execute its role as Conservator;
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 355

• Any establishment or modification by us of performance management processes for such officers, 

including the establishment or modification of a Conservatorship Scorecard; and

• Establishing the annual operating budget.

Other than for large servicing transfers, FHFA requires prior Board approval for anything requiring 

Conservator approval. In addition, FHFA requires us to provide FHFA with timely notice of any significant 

changes in business processes or operations, including changes to single-family or multifamily credit 

policies and loss mitigation strategies, other than changes made at the direction or request of FHFA. 

FHFA will then determine whether any such items require Conservator and/or Board review or approval.

BOARD COMMITTEES

The Board has five standing committees: Audit, Compensation, Executive, Nominating and Governance, 

and Risk. All standing committees, other than the Executive Committee, meet regularly and are chaired 

by, and consist entirely of, independent directors. The Committees perform essential functions on behalf 

of the Board. The Committee Chairs review and approve agendas for all meetings of their respective 

Committees. Charters for the standing committees have been adopted by the Board and approved by the 

Conservator, and describe each committee’s responsibilities. These charters are available on our website 

at www.freddiemac.com/governance/bd_committees.html. The membership of each committee as of 

February 16, 2017 is set forth below, together with a description of the primary responsibilities of each 

committee. 

Audit Committee Chair: Members:

 Carolyn H. Byrd Lance F. Drummond

 Thomas M. Goldstein

 Sara Mathew

 Nicolas P. Retsinas

 Eugene B. Shanks, Jr.

The Audit Committee provides oversight of the company’s accounting and financial reporting and 

disclosure processes, the adequacy of the systems of disclosure and internal control established by 

management, and the audit of the company’s financial statements. Among other things, the Audit 

Committee: (i) appoints the independent auditor and evaluates its independence and performance; (ii) 

reviews the audit plans for and results of the independent audit and internal audits; and (iii) reviews 

reports related to processes established by management to provide compliance with legal and regulatory 

requirements. The Audit Committee’s activities during 2016 with respect to the oversight of the 

independent auditor are described in more detail in “Principal Accounting Fees and Services — Approval 

of Independent Auditor Services and Fees.” The Audit Committee also periodically reviews the company’s 

guidelines and policies governing the processes for assessing and managing the company’s risks and 

generally reviews the company’s major financial risk exposures and the steps taken to monitor and 

control such exposures. The Audit Committee also approves all decisions regarding the appointment, 

removal, and compensation of the General Auditor and the appointment or removal of the CCO. The 

General Auditor and the CCO report independently to the Audit Committee, in addition to the CEO. 

Our Audit Committee satisfies the definition of “audit committee” in Exchange Act Section 3(a)(58)(A) and 

the requirements of Exchange Act Rule 10A-3. Although our stock has been delisted from the NYSE, 

certain of the corporate governance requirements of the NYSE Listed Company Manual, including those 
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 356

relating to audit committees, continue to apply to us because they are incorporated by reference in the 

Corporate Governance Rule. Our Audit Committee satisfies the “audit committee” requirements in 

Sections 303A.06 and 303A.07 of the NYSE Listed Company Manual. The Board has determined that all 

members of our Audit Committee are independent and that Ms. Byrd, a member of the Audit Committee 

since December 2008 and its current chair, and Ms. Mathew, a member of the Audit Committee since 

December 2013 and its chair effective March 1, 2017, meet the definition of an “audit committee financial 

expert” under SEC regulations. 

In 2016, the Audit Committee met separately nine times and jointly with the Risk Committee four times.

Executive Committee Chair: Members:

 Christopher S. Lynch Carolyn H. Byrd

 Richard C. Hartnack

 Donald H. Layton

 Saiyid T. Naqvi

 Nicolas P. Retsinas

The Executive Committee, which, with the exception of our CEO, Mr. Layton, consists of independent 

directors, is authorized to exercise the corporate powers of the Board between meetings of the Board, 

except for those powers reserved to the Board by our Bylaws or otherwise. 

The Executive Committee did not meet in 2016.

Compensation

Committee

Chair: Members:

 Nicolas P. Retsinas Raphael W. Bostic

 Carolyn H. Byrd

 Steven W. Kohlhagen

 Saiyid T. Naqvi

 Eugene B. Shanks, Jr.

The Compensation Committee oversees the company’s compensation and benefits policies and 

programs. The company’s processes for consideration and determination of executive compensation, and 

the role of the Compensation Committee in those processes, are further described in “Executive 

Compensation — CD&A.” The Compensation Committee Report is included in “Executive Compensation 

— CD&A — Compensation Committee Report.” 

The Compensation Committee consists entirely of independent directors. None of the members of the 

Compensation Committee during fiscal year 2016 were officers or employees of Freddie Mac or had any 

relationship with us that would be required to be disclosed by us under Item 407(e)(4) of Regulation S-K. 

The Compensation Committee met eight times in 2016.
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 357

Nominating and

Governance Committee

Chair: Members:

 Richard C. Hartnack Lance F. Drummond

 Thomas M. Goldstein

 Sara Mathew

 Anthony A. Williams

The Nominating and Governance Committee, which consists entirely of independent directors, oversees 

the company’s corporate governance, including reviewing the company’s Bylaws and the Guidelines. It 

also assists the Board and its committees in conducting annual self-evaluations and identifying qualified 

individuals to become members of the Board. The Nominating and Governance Committee also reviews 

Board member independence and qualifications and recommends membership of the Board committees.

The Nominating and Governance Committee met six times in 2016.

Risk Committee Chair: Members:

 Saiyid T. Naqvi Raphael W. Bostic

 Richard C. Hartnack

 Steven W. Kohlhagen

 Anthony A. Williams

The Risk Committee, which consists entirely of independent directors, oversees on an enterprise-wide 

basis the company’s risk management framework, including credit risk, market risk, liquidity risk, 

operational risk, and enterprise-wide strategic risk. The Risk Committee reviews and approves the 

company’s Enterprise Risk Policy and Board-level risk limits and metrics, and reviews significant: (i) 

enterprise risk exposures; (ii) risk management strategies; (iii) results of risk management reviews and 

assessments; and (iv) emerging risks, among other responsibilities. The Risk Committee also approves 

all decisions regarding the appointment or removal of the CERO, and the CERO reports independently to 

the Risk Committee, in addition to the CEO. 

In 2016, the Risk Committee met separately five times, and jointly with the Audit Committee four times.

BOARD LEADERSHIP STRUCTURE

The positions of CEO and Non-Executive Chairman of the Board are held by different individuals. This 

leadership structure was established by the Conservator. FHFA’s Corporate Governance Rule requires 

that the position of chairperson of the Board be filled by an independent director as defined under the 

rules of the NYSE. See “MD&A — Risk Management — Overview” for more information on the Board’s 

role in risk oversight.

For a discussion of the Compensation Committee’s conclusion that our compensation policies and 

practices do not create risks that are reasonably likely to have a material adverse effect on us, see 

“Executive Compensation — Compensation and Risk.”
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 358

COMMUNICATIONS WITH DIRECTORS

Interested parties wishing to communicate any concerns or questions about Freddie Mac to the Board or 

its directors may do so by U.S. mail, addressed to the Corporate Secretary, Freddie Mac, 8200 Jones 

Branch Drive, McLean, VA 22102-3110. Communications may be directed to the Non-Executive 

Chairman, to any other director or directors, or to groups of directors, such as the independent or nonemployee directors.

DIRECTOR COMPENSATION

Non-employee Board members receive compensation in the form of cash retainers only, paid on a 

quarterly basis. Non-employee directors are also reimbursed for reasonable out-of-pocket costs for 

attending meetings of the Board or a Board committee of which they are a member and for other 

reasonable expenses associated with carrying out their responsibilities as directors.

Our directors are compensated entirely in cash because the Purchase Agreement prohibits us from 

issuing any shares of our equity securities without the prior written consent of Treasury. See “Executive 

Compensation — CD&A — Overview of Executive Management Compensation Program.” Unlike 

compensation for our executives, there is no provision in the director compensation program for pay that 

varies depending on business results. Although such incentive compensation is deemed appropriate to 

give management strong incentives to devise and execute business plans and achieve positive financial 

results, it is viewed as inconsistent with the oversight role of directors.

2016 NON-EMPLOYEE DIRECTOR COMPENSATION LEVELS

Board compensation levels during conservatorship are shown in the table below.

Board Service (Cash)

Annual Retainer for Non-Executive Chairman $290,000

Annual Retainer for Directors (other than the Non-Executive Chairman) 160,000

Committee Service (Cash)

Annual Retainer for Audit Committee Chair $25,000

Annual Retainer for Risk Committee Chair 15,000

Annual Retainer for Committee Chairs (other than Audit or Risk) 10,000

Annual Retainer for Audit Committee Members 10,000
Directors, Corporate Governance, and Executive Officers Corporate Governance

Freddie Mac 2016 Form 10-K 359

2016 DIRECTOR COMPENSATION

The following table summarizes the 2016 compensation earned by all persons who served as nonemployee directors during 2016.

Name

Fees Earned or

Paid in Cash(1) Total

C. Lynch $290,000 $290,000

R. Bostic 160,000 160,000

C. Byrd 185,000 185,000

L. Drummond 170,000 170,000

T. Goldstein 170,000 170,000

R. Hartnack(2) 170,000 170,000

S. Kohlhagen(2) 166,593 166,593

S. Mathew 170,000 170,000

S. Naqvi(2) 168,407 168,407

N. Retsinas(2) 177,418 177,418

E. Shanks, Jr.

(2) 171,291 171,291

A. Williams(2) 161,291 161,291

(1) Because we do not have pension or retirement plans for our non-employee directors and all compensation is paid in cash, 

“Change in Pension Value and Non-qualified Deferred Compensation Earnings” and “All Other Compensation” columns have 

been omitted.

(2) In addition to the annual Board service and appropriate Committee Chair retainers, the amount represents partial annual 

compensation for service as a member of the Audit Committee or as a Committee Chair during 2016. In February 2016, Mr. 

Hartnack left, and Mr. Retsinas joined, the Audit Committee, the Chair of the Nominating and Governance Committee 

transitioned from Mr. Shanks to Mr. Hartnack, and the Chair of the Compensation Committee transitioned from Mr. Williams to 

Mr. Retsinas. In June 2016, the Chair of the Risk Committee transitioned from Mr. Kohlhagen to Mr. Naqvi.

Indemnification. We have made arrangements to indemnify our directors against certain liabilities which 

are similar to the terms on which our executive officers are indemnified. For a description of such terms, 

see “Executive Compensation — CD&A — Written Agreements Relating to NEO Employment —

Indemnification Agreements.”
Directors, Corporate Governance, and Executive Officers Executive Officers

Freddie Mac 2016 Form 10-K 360

EXECUTIVE OFFICERS

As of February 16, 2017, our executive officers are as follows:

Donald H. Layton Position:

Age: 66 Chief Executive Officer

Year of Affiliation: 2012

Mr. Layton has served as our CEO and a member of our Board since May 2012. See “Director 

Biographical Information” for a brief biographical description for Mr. Layton.

James G. Mackey Position:

Age: 49 Executive Vice President - Chief Financial Officer

Year of Affiliation: 2013

Mr. Mackey has served as our EVP - Chief Financial Officer since November 2013. He joined us from Ally 

Financial Inc., an auto finance and direct banking financial services company, where he served as 

Executive Vice President and Chief Financial Officer beginning in June 2011, after serving as Interim 

Chief Financial Officer from April 2010. Mr. Mackey joined Ally Financial in March 2009 as Group Vice 

President and Senior Finance Executive. Previously, he served as Chief Financial Officer for the 

Corporate Investments, Corporate Treasury, and Private Equity divisions at Bank of America Corporation, 

a financial services firm, from 2007 to 2009.

David M. Brickman Position:

Age: 51 Executive Vice President - Multifamily

Year of Affiliation: 1999

Mr. Brickman has served as our EVP - Multifamily since February 2014 and prior to that served as our 

SVP - Multifamily since July 2011. In these roles, he has been responsible for overall management of our 

Multifamily business line. From June 2011 until July 2011, he served as SVP - Multifamily Capital Markets, 

and from March 2004 to June 2011, he served as Vice President in charge of various units responsible for 

Multifamily Capital Markets. In his previous roles at Freddie Mac, Mr. Brickman led the multifamily 

securitization, pricing, costing, portfolio management, and research teams; was responsible for the 

development and implementation of new quantitative pricing models and financial risk analysis 

frameworks for all multifamily programs; and designed several of our multifamily loan and securitization 

products, including the Capital Markets Execution and the K-Deal Securitization Program. Prior to joining 

Freddie Mac in 1999, Mr. Brickman co-led the Mortgage Finance and Credit Analysis group in the 

consulting practice at PricewaterhouseCoopers LLP.

Anil D. Hinduja Position:

Age: 53 Executive Vice President - Chief Enterprise Risk

Year of Affiliation: 2015 Officer

Mr. Hinduja has served as our EVP - Chief Enterprise Risk Officer since July 2015. In this role, he 

provides overall direction and leadership for the Risk function and is responsible for leading an integrated 

risk management framework for all aspects of risk across the entire company. He joined Freddie Mac 

from Barclays PLC, where he served in increasingly broader risk management roles beginning in 2009, 
Directors, Corporate Governance, and Executive Officers Executive Officers

Freddie Mac 2016 Form 10-K 361

including Chief Risk Officer for Barclays Africa Group Limited, Group Credit Director for Retail Credit Risk, 

and Chief Risk Officer for Barclays’ retail bank in the U.K. Prior to joining Barclays, Mr. Hinduja spent 19 

years at Citigroup in diverse roles with increasing responsibility across finance, operations, sales and 

distribution, business, and risk management in global consumer businesses. In risk, he was Director for 

Global Consumer Credit Risk and then Chief Risk Officer for the Consumer Lending Group, where he was 

responsible for managing risk in the mortgage, auto, and student loan businesses. His tenure at Citigroup 

culminated in his term as President and CEO of Citi Home Equity.

Michael T. Hutchins Position:

Age: 61 Executive Vice President - Investments and

Year of Affiliation: 2013 Capital Markets

Mr. Hutchins has served as our EVP - Investments and Capital Markets since January 2015 and prior to 

that served as SVP - Investments and Capital Markets from July 2013. Previously, Mr. Hutchins was CoFounder and Chief Executive Officer of PrinceRidge, a financial services firm. Prior to PrinceRidge, he 

was with UBS from 1996 to 2007, holding a variety of positions, including the Global Head of the Fixed 

Income Rates & Currencies Group. Prior to UBS, Mr. Hutchins worked at Salomon Brothers from 1986 to 

1996, where he held a number of management positions, including Co-Head of Fixed Income Capital 

Markets.

David B. Lowman Position:

Age: 59 Executive Vice President - Single-Family Business

Year of Affiliation: 2013

Mr. Lowman has served as our EVP - Single-Family Business since May 2013. In addition, since 

November 2014 he has served as a member of the Board of Managers of CSS. Previously, Mr. Lowman 

served as a Senior Advisor to The Boston Consulting Group. Prior to that, he was the Chief Executive 

Officer of Chase Home Lending from 2006 to 2011. Before Chase Home Lending, he spent a decade in 

senior leadership roles in various lending businesses of Citigroup, including head of CitiMortgage and 

Citicorp Trust Bank, FSB. Before joining Citigroup, Mr. Lowman spent 11 years at The Prudential Home 

Mortgage Company, Inc. in progressively senior leadership roles. He started his career at KPMG where 

his clients included banks, thrifts, and mortgage bankers.

Robert Lux Position:

Age: 53 Executive Vice President - Chief Information Officer

Year of Affiliation: 2010

Mr. Lux has served as our EVP - Chief Information Officer since January 2015 and prior to that served as 

SVP - Chief Information Officer from October 2010. Prior to joining Freddie Mac, from 2008 to 2010, 

Mr. Lux served as a Principal at Towers Watson, a leading global professional services company, where 

he was responsible for leading teams on three continents in the delivery of commercial risk modeling 

applications for the insurance industry. From 2003 to 2008, Mr. Lux held a series of positions with 

increasing responsibilities, including service as the Chief Architect for GMAC Financial Services and Chief 

Technology Officer for GMAC Residential Capital. Prior to that, he held information technology leadership 

positions at Electronic Data Systems and Reuters Group PLC.
Directors, Corporate Governance, and Executive Officers Executive Officers

Freddie Mac 2016 Form 10-K 362

William H. McDavid Position:

Age: 70 Executive Vice President - General Counsel &

Year of Affiliation: 2012 Corporate Secretary

Mr. McDavid has served as our EVP - General Counsel & Corporate Secretary since July 2012. 

Previously, he was Co-General Counsel of JPMorgan Chase from 2004 until his retirement in 2006 and 

was General Counsel of JPMorgan Chase from 2000 to 2004. Prior to that, he was General Counsel of 

various predecessors to JPMorgan Chase, including The Chase Manhattan Corporation from 1996 to 

2000 and Chemical Banking Corporation from 1988 to 1996. From 1981 to 1988, he was an Associate 

General Counsel at Bankers Trust Company, and from 1972 to 1981, he was an attorney with the law firm 

of Debevoise & Plimpton.

Jerry Weiss Position:

Age: 58 Executive Vice President - Chief Administrative

Year of Affiliation: 2003 Officer

Mr. Weiss has served as our EVP - Chief Administrative Officer since August 2010. In this role, he 

manages the services and operations of Freddie Mac’s External Relations, including Government and 

Industry Relations and Public Policy; Public Relations and Corporate Marketing; Internal 

Communications; Conservatorship and Corporate Strategic Initiatives; Enterprise Program Management; 

Making Home Affordable - Compliance; Economic and Housing Research; Corporate Services; and 

Strategic Sourcing and Procurement organizations. In addition, since November 2014 he has served as a 

member of the Board of Managers of CSS. He also served as our CCO from August 2010 until June 

2011. Prior to August 2010, Mr. Weiss served as our SVP and CCO and in various other senior 

management capacities since joining us in October 2003. Prior to joining us, Mr. Weiss worked from 1990 

at Merrill Lynch Investment Managers, most recently as First Vice President and Global Head of 

Compliance. From 1982 to 1990, Mr. Weiss was with a national law practice in Washington, D.C., where 

he specialized in securities regulation and corporate finance matters.

CODES OF CONDUCT

We have separate codes of conduct for our employees and Board members. The employee code also 

serves as the code of ethics for senior executives and financial officers required by the Sarbanes-Oxley 

Act of 2002 and SEC regulations. All employees, including senior executives and financial officers, are 

required to sign an annual acknowledgment that they have read the employee code and agree to abide 

by it and will report suspected deviations from the employee code. When joining our Board, our directors 

acknowledge that they have reviewed and understand the director code and agree to be bound by its 

provisions, and each director executes a related confirmation annually.

Copies of our employee and director codes of conduct are available, and any amendments or waivers 

that would be required to be disclosed are posted, on our website at www.freddiemac.com.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 363

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This section contains information regarding our compensation programs and policies (all of which have 

been approved by FHFA) and the compensation of the following individuals who we determined to be our 

Named Executive Officers, or NEOs, for the year ended December 31, 2016.

Named Executive Officers

Donald H. Layton Chief Executive Officer

James G. Mackey Executive Vice President - Chief Financial Officer

Anil D. Hinduja Executive Vice President - Chief Enterprise Risk Officer

David B. Lowman Executive Vice President - Single-Family Business

William H. McDavid Executive Vice President - General Counsel & Corporate Secretary

For information on our primary business objectives and the progress we made during 2016 toward 

accomplishing those objectives, see “Introduction — About Freddie Mac.”

OVERVIEW OF EXECUTIVE MANAGEMENT COMPENSATION 

PROGRAM

Compensation in 2016 for each NEO, other than Mr. Layton, whose compensation is discussed below, 

was governed by the Executive Management Compensation Program, or EMCP. The EMCP balances our 

need to retain and attract executive talent with promoting the conservatorship objectives included in 

FHFA’s Conservatorship Scorecard, as well as goals separately established by management related to 

the commercial aspects of our business, which are included in our Corporate Scorecard. All 

compensation under the EMCP is delivered in cash because the Purchase Agreement does not permit us 

to provide equity-based compensation to our employees unless approved by Treasury. 

Additional information about the EMCP is provided below and in our Quarterly Report on Form 10-Q for 

the fiscal quarter ended June 30, 2015 filed on August 4, 2015. 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 364

ELEMENTS OF TARGET TOTAL DIRECT COMPENSATION

Compensation under the EMCP in 2016 consisted of the following elements: 

Base Salary

Deferred Salary

Fixed Deferred

Salary

At-Risk Deferred Salary

Conservatorship

Scorecard

Corporate Scorecard/

Individual

Cannot exceed $500,000

without FHFA approval

To encourage executive

retention

To encourage achievement of conservatorship, corporate,

and individual performance goals

Earned and paid bi-weekly Equal to total Deferred

Salary less the At-Risk

portion

Subject to reduction based

on Conservatorship

Scorecard performance

Subject to reduction based

on performance against both

the Corporate Scorecard

and individual objectives

The amount earned in each quarter is paid on the last pay date of the corresponding quarter in

the following year, referred to as the Approved Payment Schedule

Interest accrues on Deferred Salary at one-half of the one-year Treasury Bill rate in effect on

the last business day immediately preceding the year in which the Deferred Salary is earned

and is paid at the same time as the Deferred Salary to which it relates.

The objectives against which 2016 corporate performance was measured, together with the assessment 

of actual performance against those objectives, are described in “Determination of 2016 At-Risk Deferred 

Salary — At-Risk Deferred Salary Based on Conservatorship Scorecard Performance” and 

“Determination of 2016 At-Risk Deferred Salary — At-Risk Deferred Salary Based on Corporate 

Scorecard Goals and Individual Performance.” These performance measures were chosen because they 

reflected our 2016 priorities during conservatorship.

See “Other Executive Compensation Considerations — Effect of Termination of Employment” for 

information on the effect of a termination of employment, including the timing and payment of any unpaid 

portion of Deferred Salary and related interest. 

EXECUTIVE COMPENSATION BEST PRACTICES

What We Do What We Don't Do

Clawback provisions with a significant portion of

compensation subject to recapture and/or

forfeiture

No agreements that guarantee a specific

amount of compensation for a specified term of

employment

Use of an independent compensation consultant

by the Board’s Compensation Committee

No golden parachute payments or other similar

change in control provisions

Annual compensation risk review No tax “gross-ups”

Single executive perquisite, reimbursement of

tax, estate, and/or personal financial planning

expenses (up to $4,500 annually, with an

additional $2,500 in the first year of eligibility)

No hedging or pledging of company securities

permitted

Evaluation of company performance against

multiple measures, including non-financial

measures
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 365

CEO COMPENSATION

Mr. Layton’s compensation in 2016 consisted solely of an annual Base Salary of $600,000, a level 

established by FHFA pursuant to the Equity in Government Compensation Act of 2015. In 2016, he did 

not, and currently does not, participate in the EMCP and therefore has no compensation subject to either 

corporate or individual performance. Mr. Layton's compensation in 2017 is unchanged from 2016.

Mr. Layton is eligible to participate in all employee benefit plans offered to Freddie Mac’s other senior 

executives under the terms of those plans.

DETERMINATION OF 2016 TARGET TDC FOR NEOs

ROLE OF COMPENSATION CONSULTANT

As part of the annual process to determine the Target TDC for each of the NEOs, the Compensation 

Committee receives guidance from Meridian Compensation Partners, LLC (“Meridian”), its independent 

compensation consultant. In addition to the annual process to determine Target TDC, Meridian provides 

guidance to the Compensation Committee throughout the year on other executive compensation matters.

Meridian has not provided the Compensation Committee with any non-executive compensation services, 

nor has the firm provided any consulting services to our management. During 2016, the Compensation 

Committee reviewed Meridian’s independence based on the factors outlined in Exchange Act Rule 10C-1

(b)(4) and determined that Meridian continues to be independent.

2016 COMPARATOR GROUP COMPANIES

The Compensation Committee annually evaluates each eligible NEO’s Target TDC in relation to the 

compensation of executives in comparable positions at companies that are either in a similar line of 

business or are otherwise comparable for purposes of recruiting and retaining individuals with the 

necessary skills and capabilities. We refer to this group of companies as the Comparator Group.

When there is either no reasonable match or insufficient data from the Comparator Group for a position, 

or if Meridian believes that additional data sources would strengthen the analysis of competitive market 

compensation levels, the Compensation Committee may use alternative survey sources.

At FHFA’s recommendation, Freddie Mac and Fannie Mae have aligned their Comparator Groups so that 

consistent compensation data is used by both companies for the same or similar senior officer positions.

The Comparator Group used to determine compensation for 2016 consisted of the following companies, 

which include no changes from the 2015 Comparator Group:

Allstate Citigroup* PNC

Ally Financial Fannie Mae Prudential

AIG Fifth Third Bancorp Regions Financial

Bank of America* The Hartford State Street

Bank of New York Mellon JPMorgan Chase* SunTrust

BB&T MetLife U.S. Bancorp

Capital One Northern Trust Wells Fargo*

* Only mortgage or real estate division-level compensation data from these diversified banking firms 

may be utilized where available and appropriate for the position being benchmarked.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 366

The Compensation Committee has determined that these same companies will comprise the 2017 

Comparator Group.

ESTABLISHING TARGET TDC

The Compensation Committee developed its 2016 Target TDC recommendations for the eligible NEOs by 

reviewing data from the Comparator Group. The Compensation Committee’s 2016 Target TDC 

recommendation for each of the eligible NEOs was reviewed and approved by FHFA. 

2016 TARGET TDC

The following table sets forth the components of 2016 Target TDC for each of our eligible NEOs. 

2016 Target TDC

Named Executive Officer(1)

Base

Salary

Fixed

Deferred

Salary

At-Risk

Deferred

Salary Target TDC

James G. Mackey 500,000 1,600,000 900,000 3,000,000

Anil D. Hinduja 500,000 1,075,000 675,000 2,250,000

David B. Lowman 500,000 1,600,000 900,000 3,000,000

William H. McDavid 500,000 1,320,000 780,000 2,600,000

(1) Mr. Layton did not participate in the EMCP in 2016 and therefore is not included in this table. For a discussion of Mr. Layton’s 

compensation, see “CEO Compensation” above.

The 2016 Target TDC amounts shown above for eligible NEOs were the same as in 2015. 

2017 TARGET TDC

The following table sets forth the components of 2017 Target TDC for each of our eligible NEOs. 

2017 Target TDC

Named Executive Officer(1)

Base

Salary

Fixed

Deferred

Salary

At-Risk

Deferred

Salary Target TDC

James G. Mackey 500,000 1,775,000 975,000 3,250,000

Anil D. Hinduja 500,000 1,180,000 720,000 2,400,000

David B. Lowman 500,000 1,775,000 975,000 3,250,000

William H. McDavid 500,000 1,460,000 840,000 2,800,000

(1) Mr. Layton will not participate in the EMCP in 2017 and therefore is not included in this table. For a discussion of Mr. Layton’s 

compensation, see “CEO Compensation” above.

The Compensation Committee developed its 2017 Target TDC recommendations for the eligible NEOs by 

reviewing data from the Comparator Group, their current compensation positioning relative to the 

competitive market data, and their individual performance. The Compensation Committee recommended 

increases to 2017 Target TDCs for each of the NEOs after taking into account their individual 

performance and to move their compensation closer to the 50th percentile of the Comparator Group. The 

Compensation Committee's 2017 Target TDC recommendation for each of the eligible NEOs was 

reviewed and approved by FHFA.

DETERMINATION OF 2016 AT-RISK DEFERRED SALARY
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 367

The Compensation Committee and FHFA considered our achievements in pursuing our primary business 

objectives, as well as other factors, in determining the funding level for At-Risk Deferred Salary in 2016. 

FHFA determined the funding level for the portion of At-Risk Deferred Salary based on Conservatorship 

Scorecard performance, and the Compensation Committee determined, with FHFA’s review and approval, 

the amounts payable to each eligible NEO for the portion of At-Risk Deferred Salary based on Corporate 

Scorecard goals and individual performance.

AT-RISK DEFERRED SALARY BASED ON CONSERVATORSHIP SCORECARD 

PERFORMANCE

Half of each eligible NEO’s 2016 At-Risk Deferred Salary, or 15% of Target TDC, was subject to reduction 

based on FHFA’s assessment of the company’s performance against the objectives in the 2016 

Conservatorship Scorecard. FHFA independently assessed the company’s performance and determined 

that a 98% funding level was justified for the portion of the eligible NEOs’ At-Risk Deferred Salary based 

on the 2016 Conservatorship Scorecard. FHFA noted the following considerations in assessing our 

performance against the 2016 Conservatorship Scorecard:

• Our contribution to maintaining the national housing finance markets through rolling out a program 

which provides lenders an alternative for resolving loan-level disputes on repurchase demands for 

selling and servicing breaches as well as our diligence and collaboration on the Neighborhood 

Stabilization Initiative;

• Our continuing efforts to reduce taxpayer risk by pursuing new and innovative approaches to singlefamily and multifamily risk transfer transactions and advancing the Risk Management framework; and

• Our collaboration with CSS to complete Release 1 of the common securitization platform. 

In making its assessment, FHFA also took into consideration the following:

• The extent to which the company conducts initiatives in a safe and sound manner consistent with 

FHFA’s expectations for all activities; 

• The extent to which the outcomes of the company’s activities support a competitive and resilient 

secondary mortgage market to support homeowners and renters; 

• The extent to which the company conducts initiatives with the consideration for diversity and inclusion 

consistent with FHFA’s expectations for all activities; 

• Cooperation and collaboration with FHFA, Fannie Mae, CSS, the industry, and other stakeholders; 

and

• The quality, thoroughness, creativity, effectiveness, and timeliness of the company’s work products.

The table below presents the Conservatorship Scorecard objectives and FHFA’s assessment of our 

achievement against those objectives.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 368

Performance Goals FHFA’s Summary of Performance

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

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

markets (40%)

Work to increase access to single-family mortgage credit for

creditworthy borrowers, consistent with the full extent of

applicable credit requirements and risk management practices:

All goals were achieved with important progress made

with the rollout of the Independent Resolution program

which provides lenders an alternative for resolving

loan-level disputes on repurchase demands for selling

and servicing breaches. Significant progress has also

been made with updating the mortgage insurer master

policy rescission relief principles which is expected to

be completed in 2017.

• Continue to assess impediments to credit access and develop 

recommendations to address barriers, including work to:

• Continue to evaluate practices, including underwriting criteria, to

improve access to single-family credit in a manner consistent with

safety and soundness and implement improvements as

appropriate.

• Consider options to use automated underwriting systems for

loans that are currently manually underwritten.

• Evaluate options that would enable greater liquidity for Freddie

Mac financing of energy or water efficiency investments in singlefamily and multifamily properties.

• Complete work to enhance the Representation and Warranty

Framework and continue work on related efforts to:

• Complete the independent dispute resolution process in support 

of the Representation and Warranty Framework. 

• Work with lenders to improve the quality and efficiency of the loan

origination process, including providing lenders with feedback

soon after delivery.

• Continue to assess policies and tools to review collateral 

valuations in the Representation and Warranty Framework 

context.

• Update mortgage insurer master policy rescission relief principles to 

address early rescission relief offerings. 

• Assess improvements identified in 2015 to increase the

effectiveness of pre-purchase and early delinquency counseling as

well as homeownership education and begin implementation of

initiatives as appropriate.

• Informed by the analysis conducted in 2015, conclude assessment

of leveraging alternate or updated credit scores for underwriting,

pricing, and investor disclosures and, as appropriate, plan for

implementation.

Develop Post-Crisis Loss Mitigation Activities and Prepare for the

Expiration of HAMP and HARP:

All goals were achieved.

• Complete assessment and, as appropriate, begin development of a 

high loan-to-value ratio refinance program to ensure a January 2017 

implementation. 

• Develop and implement final strategy to promote HARP prior to 

expiration. 

• Finalize post-crisis loss mitigation options for borrowers, including

loan modifications, and develop an implementation plan and

timeline.

• Enhance the Uniform Borrower Assistance Form.

• Update and enhance Freddie Mac’s servicer scorecard methodology.

Continue to Responsibly Reduce the Number of Severely-Aged

Delinquent Loans and Real Estate Owned Properties:

All goals were achieved with the company

demonstrating diligence and collaboration in the

Neighborhood Stabilization initiative program resulting

in responsible disposition of Real Estate Owned

properties in hardest-hit communities.

• Provide a plan for continuing non-performing loan (NPL) sales to 

FHFA for approval. The plan should address: 1) Freddie Mac’s broad 

NPL sales strategy; 2) potential expansion to multi-servicer pools; 3) 

efforts to continue offering small pools and strengthening nonprofit 

access and purchase opportunities; 4) consideration for improving 

borrower outcomes and, where appropriate, impacts on 

neighborhood stabilization; and 5) public reporting of loan 

performance post sale. 

• Continue to responsibly reduce the number of severely-aged

delinquent loans held by Freddie Mac at the national and local level.

• Continue to responsibly reduce the number of real estate owned

properties held by Freddie Mac, including through the Neighborhood

Stabilization Initiative.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 369

Maintain the dollar volume of new multifamily business at $36.5

billion or below:

Goal was achieved.

• Loans in affordable and underserved market segments, as defined 

by FHFA, are to be excluded from the $36.5 billion cap.

2 Reduce taxpayer risk through increasing the role of private capital in the mortgage market (30%)

Single-Family Credit Risk Transfers All goals were achieved through the company's

innovative approaches to transfer risk on single-family

mortgages. Because Freddie Mac’s single-family credit risk transfers have evolved 

into a core business practice, it is FHFA’s current expectation that 

single-family credit risk transfers will continue to be an ongoing 

conservatorship requirement. FHFA will adjust targets as necessary to 

reflect market conditions and economic considerations. 

• Meet the following credit risk transfer objectives: 

• Transfer credit risk on at least 90 percent of the unpaid principal 

balance of newly acquired single-family mortgages in loan 

categories targeted for risk transfer. 

• For 2016, target single-family loan categories include: nonHARP, fixed-rate terms greater than 20 years, and loan-tovalue ratios above 60%. 

• Transfer a substantial portion of the credit risk on the targeted 

loan categories covering most of the credit losses projected to 

occur during stressful economic scenarios.

• Continue efforts to evaluate, and implement if economically 

feasible, ways to transfer credit risk on other types of newly 

acquired single-family mortgages that are not included in the 

targeted loan categories. 

• Continue to evaluate obstacles to expanding the investor base, 

propose ways to overcome these challenges, and work with 

FHFA to address them where possible. 

• Work with FHFA to conduct an analysis and assessment of front-end 

credit risk transfer transactions, including work to support a 

forthcoming FHFA Request for Input. 

• Work with FHFA to engage key stakeholders and solicit their 

feedback. 

• After conducting the necessary analysis and assessment, work 

with FHFA to take appropriate steps to continue front-end credit 

risk transfer transactions. 

Multifamily Credit Risk Transfers Goal was achieved through expediting new multifamily transactions to transfer credit risk to third-party

investors for loans not efficient for K-Deal execution. • Continue current multifamily credit risk transfer initiatives and 

explore additional risk transfer opportunities. 

Retained Portfolio Goal was achieved.

• Execute FHFA-approved retained portfolio plans to meet, even 

under adverse conditions, the annual PSPA requirements and the 

$250 billion PSPA cap by December 31, 2018: 

• Any sales should be commercially reasonable transactions that

consider impacts to the market, borrowers, and neighborhood

stability.

Risk Measurement Framework Goal was achieved with demonstrated leadership.

• Support FHFA’s development of its risk measurement framework for 

evaluating Freddie Mac business decisions during conservatorship. 

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

participants in the secondary market in the future (30%)
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 370

Common Securitization Platform and Single Security All goals were achieved, except for the publication of

timeline for the Single Security implementation.

Although the publication of the timeline was not met,

significant work was done and many objectives were

achieved.

The Common Securitization Platform (CSP) and Single Security are 

significant, multiyear initiatives, and FHFA expects these inter-related 

projects to remain ongoing conservatorship priorities. FHFA expects the 

Enterprises and Common Securitization Solutions, LLC (CSS) to 

implement these initiatives on the following timeline: 

i. Release 1: In 2016, implement the CSP for Freddie Mac’s existing 

single-class securities; and 

ii. Release 2: In 2018, implement the Single Security on the CSP for 

both Fannie Mae and Freddie Mac. 

• Continue working with FHFA, Fannie Mae, and CSS to meet the 

Release 1 and Release 2 timelines, which includes work to: 1) build 

and test the CSP; 2) implement the changes necessary to integrate 

the Enterprises’ related systems and operations with the CSP; and 

3) implement the Single Security on the CSP for both Enterprises. 

• Incorporate the following design principles in developing the CSP: 

• Focus on the functions necessary for current Enterprise singlefamily securitization activities. 

• Include the development of operational and system capabilities 

necessary for CSP to facilitate the issuance and administration of 

a Single Security for the Enterprises. 

• Allow for the integration of additional market participants in the

future.

• In 2016, publish an aligned timeline for implementing the Single

Security on the CSP for both Enterprises in 2018. The timeline must

provide stakeholders with at least 12 months notice prior to

implementing the Single Security.

• Work with FHFA to develop and implement a process at each

Enterprise to:

• Assess new or revised Enterprise programs, policies, and 

practices for their effects on the cash flows of TBA mortgagebacked securities (e.g., prepayments and loan buy-outs). 

• Provide on-going monitoring of purchases, security issuances, 

and prepayments.

• Provide all relevant information on a timely basis to support 

FHFA’s review process.

• Continue to work with CSS to obtain and utilize input from the Single

Security/CSP Industry Advisory Group.

Provide active support for mortgage data standardization

initiatives.

All goals were achieved.

• Continue the development and implementation of the Uniform 

Closing Disclosure Dataset. 

• Continue the development and implementation of the Uniform Loan 

Application Dataset. 

• Assess and, as appropriate, implement strategies to improve the 

lending industry’s ability to originate and deliver e-mortgages to the 

Enterprises. 

AT-RISK DEFERRED SALARY BASED ON CORPORATE SCORECARD GOALS 

AND INDIVIDUAL PERFORMANCE

The other half of each eligible NEO’s At-Risk Deferred Salary, also equal to 15% of Target TDC, was 

subject to reduction based on a combination of the company’s performance against the Corporate 

Scorecard goals and the NEO’s individual performance. The five Corporate Scorecard goals drive how we 

manage and improve the commercial aspects of our business and are intended to complement the FHFA

Strategic Plan and Conservatorship Scorecard. Certain of the individual performance objectives for the 

eligible NEOs were either Conservatorship Scorecard objectives or Corporate Scorecard goals, or directly 

supported their achievement. 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 371

No weightings were assigned to the Corporate Scorecard goals. As a result, it was necessary for the 

Compensation Committee to use its judgment in determining the overall level of performance. In making 

its determination, the Committee primarily considered the fact that the vast majority of the Corporate 

Scorecard goals were achieved or exceeded. The Compensation Committee determined that, based on 

the company’s performance against the Corporate Scorecard, a 100% funding level was justified for this 

portion of At-Risk Deferred Salary.

The Board has adopted Corporate Scorecard goals for 2017 that are substantially similar to the 2016 

goals.

The table below presents the Corporate Scorecard goals and the Compensation Committee’s 

assessment of our achievement against those goals.

Corporate Scorecard Goal Assessment of Performance

Our Customers The company achieved or exceeded almost all elements of this goal.

Significant improvements were made in the quality of customer service with

a strong increase in customer satisfaction survey scores for the multifamily

business. In addition, the single-family customer satisfaction survey results

remained in line with top performing financial institutions.

Compete for business by being a customercentric organization

People and Culture Most elements of this goal were achieved or exceeded. Focused efforts to

build the company's desired culture have yielded positive results, including

improved scores on the company's People Survey. The company also

increased the retention of high-performing employees and continued to

improve leadership diversity. Although the company improved its practice of

filling management roles with internal candidates, it did not do so to the full

extent desired.

Hire and retain talented people in a winning

culture

Operating Performance All elements of this goal were achieved or exceeded. Single-family core new

book earnings and multifamily comprehensive income were above plan, and

the company had lower core G&A expenses. Multifamily new business

volume was also above plan, and the company achieved its single-family

GSE market share target.

Operate as well as the best-run financial

institutions

Risk and Capital Management All elements of this goal were achieved or exceeded. The company continued 

to mitigate the its risk through the transfer of credit risk on single-family new 

business, developed additional types of multifamily risk transfer transactions, 

and pro-actively and efficiently reduced legacy assets. 

Manage risk and capital as well as the largest

financial institutions

Community Mission Based on preliminary information, the company believes it met three of the 

single-family affordable housing goals, but believes that it fell short of meeting 

the FHFA benchmark level for the other two single-family goals. The company 

believes it achieved all three multifamily affordable housing goals and 

exceeded the target for new multifamily affordable lending. The company 

continued to close the gap on its single-family affordable housing goals, 

which were missed by the smallest margin in the past three years. The 

single-family business continued to broaden access to credit with outreach 

and training and with the Home Possible Advantage and Housing Finance 

Agency Advantage mortgage products. The multifamily business continued its 

focus on workforce and affordable housing by rolling out the company's 

Green Advantage suite of offerings and investing in the Targeted Affordable 

business and the moderate rehabilitation lending program.

Responsibly increase access to housing finance

The Compensation Committee also assessed the individual performance of each eligible NEO. In making 

its assessments, the Committee took into consideration input from Mr. Layton as well as the company’s 

Corporate Scorecard performance. In each case, the Compensation Committee’s determination was 

consistent with Mr. Layton’s recommendation. FHFA reviewed and approved the compensation 

associated with these determinations.

Each NEO’s individual performance is discussed below. 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 372

James G. Mackey Executive Vice President — Chief Financial Officer

Performance Highlights:

Near-complete development and implementation of hedge accounting with full safety and soundness.

Improved budgeting process, with more timely budget development, greater transparency, and improved internal cost 

allocation capabilities.

Further financial planning and analysis improvement, including training, tools, and productivity metrics.

Continued operation efficiency improvements, which included streamlining records management, SEC reporting and 

disclosures, redefined segment earnings and press release design, and Dodd-Frank Stress Testing (“DFAST”) process 

submissions.

Continued strengthening of legacy controls, including the successful remediation of the Master Trust Agreement cash process.

Strong leadership in the development of management in the Finance Division, including ongoing job rotation programs for key 

personnel.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision:

The Compensation Committee determined that Mr. Mackey should receive 100% of his At-Risk Deferred Salary that was subject 

to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

Anil D. Hinduja Executive Vice President — Chief Enterprise Risk Officer

Performance Highlights:

Significantly upgraded the company’s Enterprise Risk Framework, Policies, and Standards, addressing accountabilities, risk

types, and governance.

Successfully aided development of the FHFA Conservator Capital Framework and prepared for 2017 implementation.

Defined the strategy and roadmap for a major strengthening of operational risk management in the company, including

personal leadership across the entire enterprise.

Developed risk appetite methodology for Credit, Market and Liquidity Risks.

Increased the capabilities of the Enterprise Risk Management Division by hiring experienced officers in several key areas.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision:

The Compensation Committee determined that Mr. Hinduja should receive 100% of his At-Risk Deferred Salary that was subject 

to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

David B. Lowman Executive Vice President — Single-Family Business

Performance Highlights:

Achieved higher Single-Family earnings (excluding the legacy portfolio) in 2016 over the prior year.

Led the successful launch of the Loan Advisor Suite.

Expanded credit risk transfer offerings, including STACR Collateral, ACIS Stand Alone and Deep MI.

Improved the performance of meeting all of the company’s single-family affordable housing goals.

Continued ongoing improvement in customer service; 2016 results were consistent with customer satisfaction at the best

financial institutions.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision:

The Compensation Committee determined that Mr. Lowman should receive 100% of his At-Risk Deferred Salary that was subject 

to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.

William H. McDavid Executive Vice President — General Counsel & Corporate Secretary

Performance Highlights:

Supervised the successful resolution of a variety of lawsuits resulting in favorable settlements and helped effectively navigate

a number of new regulatory initiatives.

Provided sound legal advice to the Board and senior management on a wide variety of significant issues.

Successfully supported the increased volume and complexity of Single-Family transactions and securitizations.

Successfully supported the substantially increased volume of Multifamily transactions.

Continued to maintain a high level of internal client satisfaction.

At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision:

The Compensation Committee determined that Mr. McDavid should receive 95% of his At-Risk Deferred Salary that was subject 

to reduction based on the company’s performance against the Corporate Scorecard and his individual performance.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 373

2016 DEFERRED SALARY

The following chart reports the actual amounts of 2016 Deferred Salary for each eligible NEO. The actual 

amount earned in each calendar quarter is scheduled to be paid on the last pay date of the corresponding 

calendar quarter in 2017.

 2016 Actual Deferred Salary

At-Risk

Total Actual 

Deferred

Salary

% of

Target

Named 

Executive 

Officer(1) Fixed

Conservatorship

Scorecard

% of

Target

Corporate

Scorecard/

Individual

% of

Target

Mr. Mackey 1,600,000 441,000 98% 450,000 100% 2,491,000 99.6%

Mr. Hinduja 1,075,000 330,750 98% 337,500 100% 1,743,250 99.6%

Mr. Lowman 1,600,000 441,000 98% 450,000 100% 2,491,000 99.6%

Mr. McDavid 1,320,000 382,200 98% 370,500 95% 2,072,700 98.7%

(1) Mr. Layton was not eligible for deferred salary in 2016 and therefore is not included in this table.

WRITTEN AGREEMENTS RELATING TO NEO EMPLOYMENT

We entered into letter agreements with each of our NEOs in connection with their hiring. Although the 

letter agreements set forth specific initial levels of Base Salary and, where applicable, Target TDC, the 

compensation of each NEO is subject to change by FHFA and to the terms of the EMCP.

We also entered into restrictive covenant and confidentiality agreements with each of our NEOs in 

connection with their hiring. The non-competition and non-solicitation provisions included in the restrictive 

covenant and confidentiality agreements are described in “Restrictive Covenant and Confidentiality 

Agreements.”

The NEOs are not currently entitled to a guaranteed level of severance benefits upon any type of 

termination event. For additional information on compensation and benefits payable in the event of a 

termination of employment, see “Potential Payments Upon Termination of Employment.” 

MR. LAYTON

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with 

Mr. Layton in connection with his employment as our CEO. The terms of Mr. Layton’s letter agreement 

provide him with an annual Base Salary of $600,000 and the opportunity to participate in all employee 

benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans. Copies of 

Mr. Layton’s letter agreement and restrictive covenant and confidentiality agreement were filed as Exhibits 

10.1 and 10.2, respectively, to our Current Report on Form 8-K filed on May 10, 2012. 

MR. MACKEY

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Mackey in connection with his employment as our CFO. The terms of Mr. Mackey’s letter agreement 

provide him with an annual Target TDC opportunity of $3,000,000, consisting of Base Salary of $500,000 

and Deferred Salary of $2,500,000, and the opportunity to participate in all employee benefit plans offered 

to Freddie Mac’s executive officers pursuant to the terms of these plans. 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 374

Mr. Mackey’s letter agreement also provided for a cash sign-on award of $960,000 in recognition of the 

forfeited compensation at his prior employer and commuting expenses during the first several months of 

his employment. This award was paid in installments during Mr. Mackey’s first year of employment with 

us, as follows: (i) first installment: $510,000 on the same date on which Mr. Mackey received his first 

payment of Base Salary; (ii) second installment: $225,000 on the six-month anniversary of his hire date; 

and (iii) third installment: $225,000 on the one-year anniversary of his hire date. Copies of Mr. Mackey’s 

letter agreement and restrictive covenant and confidentiality agreement were filed as Exhibits 10.1 and 

10.2, respectively, to our Current Report on Form 8-K filed on September 30, 2013. 

MR. HINDUJA

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Hinduja in connection with his employment as our EVP - Chief Enterprise Risk Officer. The terms of Mr. 

Hinduja’s letter agreement provide him with an annual Target TDC opportunity of $2,250,000, consisting 

of Base Salary of $500,000 and Deferred Salary of $1,750,000, and the opportunity to participate in all 

employee benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans.

Mr. Hinduja’s letter agreement also provided for a cash sign-on award of $1,200,000 in recognition of the 

forfeited compensation at his prior employer. This award is paid in installments as follows: (i) first 

installment: $350,000 on the same date on which Mr. Hinduja received his first payment of Base Salary; 

(ii) second installment: $400,000 in March 2016; (iii) third installment: $300,000 in March 2017; and (iv) 

fourth installment: $150,000 in March 2018. As required by the terms of Mr. Hinduja’s letter agreement 

and as a result of the imposition of a waiting period by his prior employer during which he was not 

permitted to begin his employment with us, the amount of the second installment was increased by 

$262,500. Each installment is subject to repayment in the event that, prior to the first anniversary of an 

installment payment date, Mr. Hinduja terminates his employment with Freddie Mac for any reason or 

Freddie Mac terminates his employment due to the occurrence of any of the Forfeiture Events described 

in his Recapture and Forfeiture Agreement. Copies of Mr. Hinduja’s letter agreement and restrictive 

covenant and confidentiality agreement are filed as Exhibits 10.28 and 10.29, respectively, to this Form 

10-K. 

MR. LOWMAN

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

Lowman in connection with his employment as our EVP - Single-Family Business. The terms of Mr. 

Lowman’s letter agreement provide him with an annual Target TDC opportunity of $3,000,000, consisting 

of Base Salary of $500,000 and Deferred Salary of $2,500,000, and the opportunity to participate in all 

employee benefit plans offered to Freddie Mac’s executive officers pursuant to the terms of these plans. 

Copies of Mr. Lowman’s letter agreement and restrictive covenant and confidentiality agreement are filed 

as Exhibits 10.48 and 10.49, respectively, to our Form 10-K for the fiscal year ended December 31, 2013 

filed on February 27, 2014.

MR. MCDAVID

We entered into a letter agreement and a restrictive covenant and confidentiality agreement with Mr. 

McDavid in connection with his employment as our EVP - General Counsel and Corporate Secretary. The 

terms of Mr. McDavid’s letter agreement provide him with an annual Target TDC opportunity of 

$2,600,000, which consists of Base Salary of $500,000 and Deferred Salary of $2,100,000, and the 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 375

opportunity to participate in all employee benefit plans offered to Freddie Mac’s executive officers 

pursuant to the terms of these plans. Copies of Mr. McDavid’s letter agreement and restrictive covenant 

and confidentiality agreement were filed as Exhibits 10.1 and 10.2, respectively, to our Current Report on 

Form 8-K filed on July 9, 2012. 

RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENTS

Each of our NEOs is subject to a restrictive covenant and confidentiality agreement with us. Each 

agreement provides that the NEO will not seek employment with designated competitors that involves 

performing similar duties for a specified period immediately following termination of employment, 

regardless of whether the executive’s employment is terminated by the executive, by us, or by mutual 

agreement. The specified period is twenty-four months for Mr. Layton and twelve months for the other 

NEOs. During the twelve-month period immediately following termination, each NEO agrees not to solicit 

or recruit any of our managerial employees. The agreements also provide for the confidentiality of 

information that constitutes trade secrets or proprietary or other confidential information.

RECAPTURE AND FORFEITURE AGREEMENT

Freddie Mac has adopted, with the approval of FHFA, the Recapture and Forfeiture Agreement (the 

“Recapture Agreement”). In order to participate in the EMCP, each of our NEOs has entered into a 

Recapture Agreement. Mr. Layton’s Recapture Agreement applies only to the Deferred Salary he earned 

from July 1, 2015 through November 24, 2015. 

The Recapture Agreement provides for the recapture and/or forfeiture of Deferred Salary (including 

related interest) earned, paid, or to be paid pursuant to the terms of the EMCP if, after providing the 

required notice, our Board of Directors, in the good faith exercise of its sole discretion, determines that a 

Forfeiture Event has occurred. The Forfeiture Events and the Deferred Salary subject to recapture and/or 

forfeiture are described below.

• Materially Inaccurate Information

Forfeiture Event: The NEO has earned or obtained the legally binding right to a payment of 

Deferred Salary based on materially inaccurate financial statements or any other materially 

inaccurate performance measure.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary in excess of the 

amount that the Board determines would likely have been otherwise earned using accurate 

measures during the two years prior to the Forfeiture Event.

• Termination for Felony Conviction or Willful Misconduct

Forfeiture Event: The NEO’s employment is terminated in any of the following circumstances:

Termination of employment because the NEO is convicted of, or pleads guilty or nolo 

contendere to, a felony;

Subsequent to termination of employment, the NEO is convicted of, or pleads guilty or nolo 

contendere to, a felony, based on conduct occurring prior to termination, and within one year 

of such conviction or plea, the Board determines that such conduct is materially harmful to 

Freddie Mac.

Termination of employment because, or within two years of termination, the Board determines 

that, the NEO engaged in willful misconduct in the performance of his or her duties that was 

materially harmful to Freddie Mac.
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 376

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary earned during the two 

years prior to the date that the NEO is terminated, any Deferred Salary scheduled to be paid 

within two years after termination, and any cash payment made or to be made as consideration 

for any release of claims agreement.

• Gross Neglect or Gross Misconduct

Forfeiture Event: The NEO’s employment is terminated because, in carrying out his or her duties, 

the NEO engages in conduct that constitutes gross neglect or gross misconduct that is materially 

harmful to Freddie Mac, or within two years after the NEO’s termination of employment, the Board 

determines that the NEO, prior to his or her termination, engaged in such conduct.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred Salary paid at the time of 

termination or subsequent to the date of termination, including any cash payment made as 

consideration for any release of claims agreement.

• Violation of a Post-Termination Non-Competition Covenant 

Forfeiture Event: The NEO violates a post-termination non-competition covenant set forth in the 

restrictive covenant and confidentiality agreement in effect when a payment of Deferred Salary is 

scheduled to be made.

Compensation Subject to Recapture and/or Forfeiture: 50% of the Deferred Salary paid during 

the twelve months immediately preceding the violation and 100% of any unpaid Deferred Salary.

Under the Recapture Agreement, the Board has discretion to determine the appropriate dollar amount, if 

any, to be recaptured from and/or forfeited by the NEO, which is intended to be the gross amount of 

compensation in excess of what Freddie Mac would have paid the NEO had Freddie Mac taken the 

Forfeiture Event into consideration at the time such compensation decision was made.

A copy of the form of the Recapture Agreement is filed as Exhibit 10.18 to this Form 10-K.

The following additional event is applicable only to the CEO and CFO, to the extent they have 

compensation subject to reimbursement in accordance with Section 304 of the Sarbanes-Oxley Act.

• Accounting Restatement Resulting from Misconduct - If, as a result of misconduct, we are required to 

prepare an accounting restatement due to material non-compliance with financial reporting 

requirements, the CEO and CFO are required to reimburse us for amounts determined in accordance 

with Section 304.

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with each of our current executive officers (including 

each of our NEOs) and directors, each an indemnitee. For indemnification agreements entered into with 

executive officers in or after August 2011, the form of agreement has been revised to provide that 

indemnification rights under the agreement would terminate if and when the executive officer remained 

with Freddie Mac after ceasing to report directly to the CEO with respect to any claims arising from 

matters occurring after the officer no longer reported directly to the CEO. Similar indemnification rights 

would continue to be available to such executive officers under the Bylaws going forward. The 

indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted 

by our Bylaws and Virginia law. This obligation includes, subject to certain terms and conditions, 

indemnification against all liabilities and expenses (including attorneys’ fees) actually and reasonably 

incurred by the indemnitee in connection with any threatened or pending action, suit, or proceeding, 

except such liabilities and expenses as are incurred because of the indemnitee’s willful misconduct or 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 377

knowing violation of criminal law. The indemnification agreements provide that if requested by the 

indemnitee, we will advance expenses, subject to repayment by the indemnitee of any funds advanced if 

it is ultimately determined that the indemnitee is not entitled to indemnification. The rights to 

indemnification under the indemnification agreements are not exclusive of any other right the indemnitee 

may have under any statute, agreement, or otherwise. Our obligations under the indemnification 

agreements will continue after the indemnitee is no longer a director or officer of the company with 

respect to any possible claims based on the fact that the indemnitee was a director or officer, and the 

indemnification agreements will remain in effect in the event the conservatorship is terminated. The 

indemnification agreements also provide that indemnification for actions instituted by FHFA will be 

governed by the standards set forth in FHFA’s Notice of Proposed Rulemaking, published in the Federal 

Register on November 14, 2008, implementing 12 U.S.C. 4518. That proposed rulemaking has not yet 

been finalized, and FHFA published a revised Proposed Rule on Indemnification Payments in the Federal 

Register on September 20, 2016. The revised Proposed Rule specifies restrictions on indemnification for 

actions instituted by FHFA, but indicates that the rule would not apply to regulated entities that are 

operating in conservatorship.

OTHER EXECUTIVE COMPENSATION CONSIDERATIONS

EFFECT OF TERMINATION OF EMPLOYMENT

The timing and payment of any unpaid portion of Deferred Salary and related interest is based upon the 

reason for termination, as discussed in “Potential Payments Upon Termination of Employment.”

PERQUISITES

We believe that perquisites should be a minimal part of the compensation package for our NEOs. Total 

annual perquisites for any NEO cannot exceed $25,000 without FHFA approval, and we do not provide a 

gross-up to cover any taxes due on the perquisite itself. The only perquisite provided to our NEOs during 

2016 was reimbursement for assistance with personal financial planning, tax planning, and/or estate 

planning, up to an annual maximum benefit of $4,500, with an additional $2,500 allowance provided in the 

first year in which an NEO becomes eligible for the benefit.

SERP

Our NEOs are eligible to participate in our SERP. The SERP is designed to provide participants with the 

full amount of benefits to which they would have been entitled under our Thrift/401(k) Plan if that plan was 

not subject to certain dollar limits under the Internal Revenue Code. This is referred to as the “SERP

Benefit.” For participants in the EMCP (or prior executive compensation programs), benefits under the 

SERP Benefit are limited in any calendar year to two times a participant’s Base Salary. 

For additional information regarding these benefits, see “2016 Compensation Information for NEOs” and 

“Nonqualified Deferred Compensation.”

STOCK OWNERSHIP, HEDGING, AND PLEDGING POLICIES

Our stock ownership guidelines were suspended when conservatorship began because we ceased 

paying our executives stock-based compensation. The Purchase Agreement prohibits us from issuing any 

shares of our equity securities without the prior written consent of Treasury. The suspension of stock 
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 378

ownership requirements is expected to continue through the conservatorship and until such time that we 

resume granting stock-based compensation.

Pursuant to our company policy, all employees, including our NEOs, are prohibited from: 

• Engaging in all transactions (including purchasing and selling equity and non-equity securities) 

involving our securities (except selling company securities owned prior to the implementation of the 

policy and then only with pre-clearance);

• Purchasing or selling derivative securities related to our equity securities or dealing in any derivative 

securities related to our equity securities;

• Transacting in options (other than options granted by us, and then only with pre-clearance) or other 

hedging instruments related to our securities; and

• Holding our securities in a margin account or pledging our securities as collateral for a loan.

FHFA’S ROLE IN SETTING COMPENSATION

Although the Compensation Committee plays a significant role in considering and recommending 

executive compensation, FHFA is actively involved in determining such compensation. During 

conservatorship, the Compensation Committee’s authority and flexibility have been subject to the 

following limitations:

• The powers of FHFA as our Conservator include the authority to set executive compensation. Under 

the terms of the Purchase Agreement, FHFA is required to consult with Treasury on any increases in 

compensation or new compensation arrangements for our executive officers.

• Our directors serve on behalf of FHFA and exercise their authority as directed by FHFA. More 

information about the role of our directors is provided above in “Directors, Corporate Governance, 

and Executive Officers — Board and Committee Information — Authority of the Board and Board 

Committees.”

• FHFA has directed us to obtain its approval before we: (i) enter into new compensation arrangements 

or increase amounts or benefits payable under existing compensation arrangements for officers at the 

SVP level and above and for other officers as FHFA may deem necessary to successfully carry out its 

role as Conservator; or (ii) establish or modify performance management processes for such officers.

• FHFA retains the authority not only to approve both the terms and amount of any compensation prior 

to payment to any of our executive officers, but also to modify any existing compensation 

arrangements.

SECTION 162(m) LIMITS ON THE TAX DEDUCTIBILITY OF COMPENSATION 

EXPENSES

Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that a company 

may annually deduct for compensation to its CEO and certain other NEOs, unless, among other things, 

the compensation is “performance-based,” as defined in section 162(m). Given the conservatorship and 

the desire to maintain flexibility to promote our corporate goals, At-Risk Deferred Salary is not structured 

to qualify as performance-based compensation under section 162(m).
Executive Compensation Compensation Discussion and Analysis

Freddie Mac 2016 Form 10-K 379

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis 

with management and, based on such review and discussion, has recommended to the Board that the 

Compensation Discussion and Analysis be included in this Form 10-K.

This report is respectfully submitted by the members of the Compensation Committee.

Nicolas P. Retsinas, Chair

Raphael W. Bostic

Carolyn H. Byrd

Steven W. Kohlhagen

Saiyid T. Naqvi

Eugene B. Shanks, Jr.
Executive Compensation Compensation and Risk

Freddie Mac 2016 Form 10-K 380

COMPENSATION AND RISK

Our management conducted an assessment of our compensation policies and practices that were in 

place during 2016 and that were applicable to employees at all levels, including those participating in the 

EMCP. The purpose of the assessment was to determine whether any elements of the overall 

compensation program encourage unnecessary or excessive risk taking by employees in the 

achievement of stated corporate objectives or pursuit of individual compensation targets. The assessment 

was conducted by members of our ERM and human resources teams.

The review included an evaluation of:

• The types of compensation offered (including fixed, variable, and deferred);

• Eligibility for participation in compensation programs;

• Compensation program design and governance;

• The process for establishing performance objectives; and

• Processes and program approvals for our compensation programs.

The assessment was discussed with the Compensation Committee in January 2017. Management’s 

conclusion, with which the Compensation Committee concurred, is that the company’s compensation 

programs and practices do not encourage unnecessary or excessive risk behaviors in pursuit of 

Corporate or Conservatorship Scorecard objectives or otherwise, and the programs and practices would 

not be reasonably likely to have a material adverse effect on Freddie Mac.
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 381

2016 COMPENSATION INFORMATION FOR NEOs

The following sections set forth compensation information for our NEOs: our CEO, CFO, and the three 

other most highly compensated executive officers who were serving as executive officers as of 

December 31, 2016.

SUMMARY COMPENSATION TABLE

 Salary

Non-Equity 

Incentive Plan 

Compensation(4)

All Other 

Compensation(5) Year

Earned 

During Year(1) Deferred(2) Bonus(3) Total

Donald H. Layton 2016 $600,000 $— $— $— $101,609 $701,609

Chief Executive

Officer

 2015(6) 660,345 818,886 — 472,748 56,958 2,008,937

2014 600,000 — — 60,586 660,586

James G. Mackey 2016 500,000 1,600,000 — 893,896 89,874 3,083,770

EVP — Chief

Financial Officer

2015 500,000 1,600,000 — 887,608 86,674 3,074,282

2014 500,000 1,600,000 450,000 900,585 21,099 3,471,684

Anil D. Hinduja 2016 500,000 1,075,000 662,500 670,422 39,318 2,947,240

EVP — Chief

Enterprise Risk

Officer

David B. Lowman 2016 500,000 1,600,000 — 893,896 89,874 3,083,770

EVP — SingleFamily Business

2015 500,000 1,600,000 — 887,608 86,674 3,074,282

2014 500,000 1,600,000 — 900,585 65,045 3,065,630

William H. McDavid 2016 500,000 1,320,000 — 755,146 88,964 2,664,110

EVP — General

Counsel & Corporate

Secretary

2015 500,000 1,320,000 — 769,260 86,324 2,675,584

2014 500,000 1,320,000 — 780,507 110,168 2,710,675

(1) Amounts shown reflect Base Salary earned during the year. 

(2) Amounts shown reflect Fixed Deferred Salary earned during the year. The interest rate for Fixed Deferred Salary earned during 

2016, 2015, and 2014 was 0.325%, 0.125%, and 0.065%, respectively, which is equal to 50% of the one-year Treasury Bill rate 

as of December 31 of the applicable prior year. Fixed Deferred Salary earned during each quarter is paid in cash on the last 

pay date of the corresponding quarter in the following year, along with accrued interest. The remaining portion of Deferred 

Salary is reported in “Non-Equity Incentive Plan Compensation” and is referred to as “At-Risk” because it is subject to reduction 

based on corporate and individual performance. Interest on Fixed Deferred Salary earned during 2016, 2015, and 2014 is 

included in All Other Compensation. 

(3) Amounts shown reflect cash sign-on payments made to Messrs. Mackey and Hinduja in connection with their hiring. See 

“Written Agreements Relating to NEO Employment” for additional information.

(4) Amounts shown reflect At-Risk Deferred Salary earned during each year as well as interest on that At-Risk Deferred Salary. 

The interest rate for At-Risk Deferred Salary earned during 2016, 2015, and 2014 was 0.325%, 0.125%, and 0.065%, 

respectively, which is equal to 50% of the one-year Treasury Bill rate as of December 31 of the applicable prior year. At-Risk 

Deferred Salary earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following 

year. See “Determination of 2016 At-Risk Deferred Salary.”

(5) Amounts for 2016 reflect (i) employer contributions earned under our tax-qualified Thrift/401(k) Plan for the year; (ii) accruals 

earned pursuant to the SERP Benefit for the year; (iii) interest (as described in footnote 2) on Fixed Deferred Salary earned 

during the year; and (vi) perquisites. These amounts for 2016 are as follows:
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 382

 

Thrift/401(k)

Plan

Contributions

SERP Benefit

Accruals

Interest on

Fixed Deferred

Salary Perquisites

Mr. Layton $22,525 $79,084 $— $—

Mr. Mackey 22,525 62,149 5,200 —

Mr. Hinduja 6,625 29,199 3,494 —

Mr. Lowman 22,525 62,149 5,200 —

Mr. McDavid 22,525 62,149 4,290 —

Employer contributions to the Thrift/401(k) Plan are generally available on the same terms to all of our employees. After the first 

year of employment, we match up to 6% of eligible compensation at 100% of the employee’s contributions. Employee 

contributions and our matching contributions are invested in accordance with the employee’s investment elections and are 

immediately vested. After their first year of employment, employees receive an additional employer contribution to our 

Thrift/401(k) Plan equal to 2.5% of compensation earned in the prior year and are automatically vested in that contribution. For 

additional information regarding the SERP Benefit, see “Nonqualified Deferred Compensation.”

Perquisites are valued at their aggregate incremental cost to us. During the years reported, the aggregate value of perquisites 

received by all NEOs was less than $10,000. In accordance with SEC rules, amounts shown under “All Other Compensation” 

do not include perquisites for an NEO that, in the aggregate, amount to less than $10,000.

(6) On June 29, 2015, FHFA approved Mr. Layton’s participation in the EMCP, effective July 1, 2015. On December 1, 2015, FHFA

subsequently directed Freddie Mac to suspend, pursuant to the Equity in Government Compensation Act of 2015, his 

participation as of November 24, 2015. The components of Mr. Layton’s Target TDC under the EMCP are described in the 

company’s Annual Report on Form 10-K for the year ended December 31, 2015 in “Executive Compensation — Compensation 

Discussion and Analysis — Determination of 2015 Target TDC for NEOs — 2015 Target TDC.” 

GRANTS OF PLAN-BASED AWARDS

The following table contains information concerning grants of plan-based awards to each of the NEOs 

during 2016. The Purchase Agreement prohibits us from issuing equity securities without Treasury’s 

consent. No stock awards were granted during 2016. For a description of the performance and other 

measures used to determine payouts, see “Elements of Target Total Direct Compensation,” 

“Determination of 2016 Target TDC for NEOs,” “Determination of At-Risk Deferred Salary,” and “2016 

Deferred Salary.”

 

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards(2)

Name(1) At-Risk Deferred Salary Award Threshold Target/Maximum

Mr. Mackey Conservatorship Scorecard — 450,000

Corporate Scorecard/Individual — 450,000

Total — 900,000

Mr. Hinduja Conservatorship Scorecard — 337,500

Corporate Scorecard/Individual — 337,500

Total — 675,000

Mr. Lowman Conservatorship Scorecard — 450,000

Corporate Scorecard/Individual — 450,000

Total — 900,000

Mr. McDavid Conservatorship Scorecard — 390,000

Corporate Scorecard/Individual — 390,000

Total — 780,000

(1) Mr. Layton was not eligible to receive Deferred Salary in 2016 and therefore is not included in this table.
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 383

(2) The amounts reported reflect At-Risk Deferred Salary granted in 2016 which is subject to reduction based on: (i) corporate 

performance against the Conservatorship Scorecard; and (ii) an officer’s individual performance and the company’s 

performance against the Corporate Scorecard goals. The amount of At-Risk Deferred Salary actually earned can range from 

0% of target (reported in the Threshold column) to a maximum of 100% of target (reported in the Target/Maximum column). 

Actual At-Risk Deferred Salary amounts earned during 2016 are reported in the “Non-Equity Incentive Plan Compensation” 

column of the “Summary Compensation Table.”

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

None of the NEOs had unexercised options or unvested RSUs as of December 31, 2016.

OPTION EXERCISES AND STOCK VESTED

None of the NEOs exercised options or had RSUs vest during 2016.

PENSION BENEFITS

Freddie Mac previously offered a Pension Plan, which was a tax-qualified, defined benefit pension plan, 

covering substantially all employees hired before 2012 who had attained age 21 and completed one year 

of service with us. In October 2013, FHFA directed us to cease accruals under the Pension Plan effective 

December 31, 2013 and to commence terminating the Pension Plan. None of the NEOs was pensioneligible prior to the termination of the Pension Plan. Accordingly, a Pension Benefits table is not 

presented.

NONQUALIFIED DEFERRED COMPENSATION

Non-qualified deferred compensation for the NEOs consists of the SERP Benefit. The SERP is an 

unfunded, non-qualified defined contribution plan designed to provide participants with the full amount of 

benefits to which they would have been entitled under the Thrift/401(k) Plan if that plan was not subject to 

certain dollar limits under the Internal Revenue Code. The SERP Benefit equals the amount of the 

employer matching and 2.5% contributions for each NEO that would have been made to the Thrift/401(k) 

Plan during the year, based upon the participant’s eligible compensation, without application of those 

limits, less the amount of the matching contributions and 2.5% contributions annually made to the 

Thrift/401(k) Plan during the year, but not to exceed two times the NEO’s Base Salary. We believe the 

SERP Benefit is an appropriate benefit because offering such a benefit helps us remain competitive with 

the companies in our Comparator Group. Participants are credited with earnings or losses in their SERP

Benefit accounts based upon each participant’s individual direction of the investment of such notional 

amounts among the virtual investment funds available under the SERP, which are the same as the 

investment options available under the Thrift/401(k) Plan.

To be eligible for the SERP Benefit, the NEO must be eligible for matching contributions and the 2.5% 

contribution under the Thrift/401(k) Plan for part of the year, as discussed in Footnote 5 to the Summary 

Compensation Table. In addition, to be eligible for the portion of the SERP Benefit attributable to employer 

matching contributions, the NEO must contribute the maximum amount permitted under the terms of the 

Thrift/401(k) Plan on a pre- or post-tax basis.

SERP Benefits are generally distributed in a lump sum 90 days after the end of the calendar year in which 

a separation from service occurs. A six-month delay in the commencement of distributions on account of 

a separation from service applies to key employees, in accordance with Internal Revenue Code 
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 384

Section 409A. If the NEO dies, the vested SERP Benefit is paid in the form of a lump sum within 90 days 

of death.

The following table shows the contributions, earnings, withdrawals and distributions, and accumulated 

balances under the SERP Benefit for each NEO. 

SERP BENEFIT

Name

Executive

Contribution in

Last FY ($)(1)

Freddie Mac

Accruals in

Last FY ($)(2)

Aggregate

Earnings in

Last FY ($)(3)

Aggregate

Withdrawals/

Distrib. ($)

Balance at

Last FYE ($)(4)

Mr. Layton $— $79,084 $13,178 $— $182,863

Mr. Mackey — 62,149 579 — 138,489

Mr. Hinduja — 29,199 960 — 30,159

Mr. Lowman — 62,149 6,979 — 173,266

Mr. McDavid — 62,149 1,102 — 235,846

(1) The SERP does not allow for employee contributions.

(2) Amounts reported reflect accruals under the SERP Benefit during 2016, including accruals for the plan year 2016 2.5% 

contribution which will be allocated to NEO accounts in 2017. These amounts are also reported in the “All Other 

Compensation” column in the Summary Compensation Table.

(3) Amounts reported represent the total interest and other earnings credited to each NEO under the SERP Benefit.

(4) Amounts reported reflect the accumulated balances under the SERP Benefit for each NEO and include the plan year 2016 

2.5% contribution which will be allocated to NEO accounts in 2017. All NEOs are fully vested in their SERP Benefit account 

balances. 

The following 2015 SERP Benefit accrual amounts were reported in the “All Other Compensation” column in the 2015 

Summary Compensation Table as compensation for each NEO for whom accruals were made and reported during 2015: Mr. 

Layton: $33,409, Mr. Mackey: $62,149, Mr. Lowman: $62,149, and Mr. McDavid: $62,149. See our Form 10-K for the fiscal 

year ended December 31, 2015 filed on February 18, 2016. The following 2014 SERP Benefit accrual amounts were reported 

in the “All Other Compensation” column in the 2014 Summary Compensation Table as compensation for each NEO for whom 

accruals were made and reported during 2014: Mr. Layton: $32,111, Mr. Mackey: $13,559, Mr. Lowman: $52,275, and Mr. 

McDavid: $80,835. See our Form 10-K for the fiscal year ended December 31, 2014 filed on February 19, 2015. 

POTENTIAL PAYMENTS UPON TERMINATION OF 

EMPLOYMENT

We have entered into various agreements in connection with the employment of the NEOs that call for us 

to pay compensation to our NEOs in the event of a termination of employment. The actual payment of any 

level of termination benefits is subject to FHFA review and approval. For more information, see “Written 

Agreements Relating to NEO Employment.”

In addition, the EMCP addresses the treatment of Base Salary and Deferred Salary upon various 

termination events. Base Salary ceases upon an NEO’s termination of employment, regardless of the 

termination reason. An NEO generally does not need to be employed by us on the payment date to 

receive payments of Deferred Salary (including related interest) that are unpaid at the time of termination 

of employment. The following table describes the effect of various termination events upon unpaid 

Deferred Salary.
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 385

• Forfeiture Event — All earned but unpaid Fixed and At-Risk Deferred Salary (including related 

interest) is subject to forfeiture upon the occurrence of a Forfeiture Event, as described above under 

“Written Agreements Relating to NEO Employment — Recapture and Forfeiture Agreement.”

• Death — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid 

in full as soon as administratively possible, but not later than 90 calendar days after the date of death. 

Any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on corporate and 

individual performance if the reduction has not been determined as of the date of death.

• Long-Term Disability — All earned but unpaid Fixed and At-Risk Deferred Salary (including related 

interest) is paid in full in accordance with the Approved Payment Schedule. Any earned but unpaid AtRisk Deferred Salary is not subject to reduction based on corporate and individual performance if the 

reduction has not been determined as of the termination date.

• Any Other Reason (including, but not limited to, voluntary termination, retirement, and 

involuntary termination for any reason other than a Forfeiture Event) — All earned but unpaid 

Deferred Salary (including related interest) is paid in accordance with the Approved Payment 

Schedule, and earned but unpaid At-Risk Deferred Salary remains subject to the performance 

assessment and reduction process. Except in the case of retirement, the amount of earned but 

unpaid Fixed Deferred Salary will be reduced by 2% for each full or partial month by which the NEO’s 

termination precedes January 31 of the second calendar year following the calendar year in which the 

Fixed Deferred Salary is earned. No such reduction is applicable if an NEO retires, which is deemed 

to have occurred upon a voluntary termination of employment after attaining or exceeding 62 years of 

age, without regard to length of service, or attaining or exceeding 55 years of age with 10 or more 

years of service.

The table below describes the compensation and benefits that would have been payable to each NEO 

had the officer terminated his employment under various circumstances as of December 31, 2016. Mr. 

Layton is excluded from this table because he is not entitled to receive any payments in connection with a 

termination of employment. 

The table below does not address changes in control, as we are not obligated to provide any additional 

compensation to our NEOs in connection with a change in control. The table also does not address 

potential payments upon a termination for cause, which is a termination resulting from the occurrence of 

an event or conduct described in the Recapture Agreement. All earned but unpaid Deferred Salary is 

subject to forfeiture upon the occurrence of such a termination. However, the amount of compensation, if 

any, to be recaptured and/or forfeited is determined by the Board of Directors, which can only occur 

following the occurrence of a for cause termination. See “Written Agreements Relating to NEO 

Employment — Recapture and Forfeiture Agreement.”

The table below also does not include vested balances in the SERP. All NEOs are fully vested in their 

account balances. Amounts shown in the table also do not include certain items available to all 

employees generally upon a termination event.

The table below also does not include stock options or RSUs, as there were no outstanding stock options 

or RSUs held by NEOs as of December 31, 2016.
Executive Compensation 2016 Compensation Information for NEOs

Freddie Mac 2016 Form 10-K 386

Death Disability Retirement(1)

All Other Not

For Cause

Terminations(2)

James G. Mackey

Deferred Salary:

Fixed $1,600,000 $1,600,000 $ $1,184,000

At Risk-Conservatorship Scorecard(3) 450,000 450,000 - 441,000

At Risk-Corporate Scorecard/Individual(4) 450,000 450,000 - 450,000

Interest on Deferred Salary(5) 5,070 8,125 - 6,744

Total $2,505,070 $2,508,125 $— $2,081,744

Anil D. Hinduja

Deferred Salary:

Fixed $1,075,000 $1,075,000 $— $795,500

At Risk-Conservatorship Scorecard(3) 337,500 337,500 — 330,750

At Risk-Corporate Scorecard/Individual(4) 337,500 337,500 — 337,500

Interest on Deferred Salary(5) 3,549 5,688 — 4,757

Total $1,753,549 $1,755,688 $— $1,468,507

David B. Lowman

Deferred Salary:

Fixed $1,600,000 $1,600,000 $ $1,184,000

At Risk-Conservatorship Scorecard(3) 450,000 450,000 - 441,000

At Risk-Corporate Scorecard/Individual(4) 450,000 450,000 - 450,000

Interest on Deferred Salary(5) 5,070 8,125 - 6,744

Total $2,505,070 $2,508,125 $— $2,081,744

William H. McDavid

Deferred Salary:

Fixed $1,320,000 $1,320,000 $1,320,000 $—

At Risk-Conservatorship Scorecard(3) 390,000 390,000 382,200 —

At Risk-Corporate Scorecard/Individual(4) 390,000 390,000 370,500 —

Interest on Deferred Salary(5) 4,259 6,825 6,736 —

Total $2,104,259 $2,106,825 $2,079,436 $—

(1) Mr. McDavid is the only retirement-eligible NEO under the EMCP. 

(2) All Other Not For Cause Terminations refer to voluntary terminations other than for retirement and involuntary terminations 

other than for cause. No amounts are shown for Mr. McDavid because he is retirement eligible. In accordance with early 

termination provisions in the EMCP, the amounts disclosed for Deferred Salary: Fixed for all other NEOs have been reduced by 

26% to reflect a December 31, 2016 termination event.

(3) The amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard in the Retirement and All Other Not For Cause 

Terminations columns reflect the funding level determined by FHFA with respect to performance against the 2016 

Conservatorship Scorecard. In cases of death or disability, the process for determining the funding level is waived if the funding 

level has not been determined at the date of termination. The funding level had not been determined as of December 31, 2016 

and, as a result, no reduction has been applied to these amounts.

(4) The amounts reported for Deferred Salary: At Risk-Corporate Scorecard/Individual in the Retirement and All Other Not For 

Cause Terminations columns reflect the assessment of 2016 performance approved by the Compensation Committee and 

FHFA. For death or disability, the provisions are the same as for the amounts reported for Deferred Salary: At RiskConservatorship Scorecard.

(5) Interest on Deferred Salary is accrued and paid in accordance with the terms of the EMCP. The amount of interest in the Death 

column assumes that payment occurs on the 90th day following the date of death, which is assumed to be December 31, 2016.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Freddie Mac 2016 Form 10-K 387

SECURITY OWNERSHIP OF CERTAIN 

BENEFICIAL OWNERS AND 

MANAGEMENT AND RELATED 

STOCKHOLDER MATTERS

SECURITY OWNERSHIP

Our only class of voting stock is our common stock. Upon its appointment as Conservator, FHFA

immediately succeeded to the voting rights of holders of our common stock. The following table shows the 

beneficial ownership of our common stock as of February 14, 2017 by our current directors, our NEOs, all 

of our directors and executive officers as a group, and holders of more than 5% of our common stock. 

Beneficial ownership is determined in accordance with SEC rules for computing the number of shares of 

common stock beneficially owned by a person and the percentage ownership of that person. As of 

February 14, 2017, each director and NEO, and all of our directors and executive officers as a group, 

owned less than 1% of our outstanding common stock. Unless otherwise noted, the information 

presented below is based on information provided to us by the individuals or entities specified in the table.

STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE 

OFFICERS

Name Position

Common Stock

Beneficially Owned

Excluding

Stock Options(1)

Stock Options

Exercisable

Within 60 Days of

Feb. 14, 2017

Total Common 

Stock

Beneficially Owned

Raphael W. Bostic Director — — —

Carolyn H. Byrd Director — — —

Lance F. Drummond Director — — —

Thomas M. Goldstein Director — — —

Richard C. Hartnack Director — — —

Steven W. Kohlhagen Director — — —

Christopher S. Lynch Director — — —

Sara Mathew Director — — —

Saiyid T. Naqvi Director — — —

Nicolas P. Retsinas Director 10,824 — 10,824

Eugene B. Shanks, Jr. Director — — —

Anthony A. Williams Director — — —

Donald H. Layton Chief Executive Officer — — —

James G. Mackey EVP - Chief Financial Officer — — —

Anil D. Hinduja EVP - Chief Enterprise Risk Officer — — —

David B. Lowman EVP - Single-Family Business — — —

William H. McDavid EVP - General Counsel & Corp. Sec. — — —

All directors and executive officers as a group (22 persons) 38,292 — 38,292

(1) Includes shares of stock beneficially owned as of February 14, 2017.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Freddie Mac 2016 Form 10-K 388

STOCK OWNERSHIP BY GREATER-THAN 5% HOLDERS

5% Holder(1) Common Stock 

Beneficially Owned Percent of Class

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, D.C. 20220 Variable(2) 79.9%

(1) Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackerman (“Pershing”) have filed certain 

reports on Schedule 13D, the latest of which was filed on March 31, 2014. In that report, Pershing reported a beneficial 

ownership percentage calculation of 9.78%, based solely on the 650,039,533 shares of our common stock outstanding as 

reported in our Form 10-K for the fiscal year ended December 31, 2013, and excluding the shares issuable to Treasury 

pursuant to the warrant. The Schedule 13D indicated that Pershing also had additional economic exposure to approximately 

8,434,958 notional shares of common stock, bringing the total aggregate economic exposure on the date of that filing to 

72,010,523 shares of common stock (approximately 11.08% of the outstanding common stock). In that filing, Pershing 

indicated that because it believes our common stock is not a voting security, it had determined not to file future reports on 

Schedule 13D. We do not know Pershing’s current beneficial ownership of our common stock.

(2) In September 2008, we issued to Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, 

shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted 

basis at the time the warrant is exercised. The warrant may be exercised in whole or in part at any time until September 7, 

2028. As of the date of this filing, Treasury has not exercised the warrant. The information above assumes Treasury beneficially 

owns no other shares of our common stock.

SECTION 16(a) BENEFICIAL OWNERSHIP

REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the directors and executive officers of a reporting company 

and persons who own more than 10% of a registered class of such company’s equity securities to file 

reports of ownership and changes in ownership with the SEC. Based solely on a review of such reports, 

we believe that during 2016 all of our directors and executive officers complied with such reporting 

obligations.

SECURITIES AUTHORIZED FOR ISSUANCE 

UNDER EQUITY COMPENSATION PLANS

The following table provides information about our common stock that may be issued upon the exercise 

of options, warrants, and rights under our existing equity compensation plans at December 31, 2016. 

Prior to conservatorship, stockholders approved the Employee Stock Purchase Plan, the 2004 Stock 

Compensation Plan, and the 1995 Stock Compensation Plan (together, the “Employee Plans”), and the 

1995 Directors’ Stock Compensation Plan (the “Directors’ Plan”). We suspended the operation of these 

plans following our entry into conservatorship and are no longer granting awards under such plans.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Freddie Mac 2016 Form 10-K 389

EQUITY COMPENSATION PLAN INFORMATION

Plan Category

Number of securities to be 

issued upon exercise of 

outstanding options,

warrants and rights 

Weighted average exercise 

price of outstanding options,

warrants and rights 

Number of securities remaining

available for future issuance

under equity compensation

plans (excluding securities

reflected in column (a))

Equity compensation plans

approved by stockholders 50,670 N/A 35,871,004(1)

Equity compensation plans

not approved by

stockholders None N/A None

(1) Includes 28,352,108 shares, 5,845,739 shares, and 1,673,157 shares available for issuance under the 2004 Stock 

Compensation Plan, the Employee Stock Purchase Plan, and the Directors’ Plan, respectively. No shares are available for 

issuance under the 1995 Stock Compensation Plan.
Certain Relationships and Related Transactions

Freddie Mac 2016 Form 10-K 390

CERTAIN RELATIONSHIPS AND 

RELATED TRANSACTIONS

POLICY GOVERNING RELATED PERSON 

TRANSACTIONS

The Board has adopted a written policy governing the approval of related person transactions. This policy 

sets forth procedures for the review and approval or ratification of transactions involving related persons. 

Under the policy, “related person” means any person who is, or was at any time since the beginning of our 

last completed fiscal year, a director, a director nominee, an executive officer, or an immediate family 

member of any of the foregoing persons.

Under authority delegated by the Board, our General Counsel and the Nominating and Governance 

Committee (or its Chair under certain circumstances), each an Authorized Approver, are responsible for 

applying the Related Person Transactions Policy. Transactions covered by the Related Person 

Transactions Policy consist of any transaction, arrangement, or relationship or series of similar 

transactions, arrangements, or relationships, in which: 

• The aggregate amount involved exceeded or is expected to exceed $120,000; 

• We were or are expected to be a participant; and 

• Any related person had or will have a direct or indirect material interest. 

The Related Person Transactions Policy includes a list of categories of transactions identified by the 

Board as having no significant potential for an actual conflict of interest or the appearance of a conflict or 

improper benefit to a related person, and thus such transactions are not considered potential related 

person transactions subject to review.

Our Legal Division assesses whether any proposed transaction involving a related person is covered by 

the Related Person Transactions Policy. If so, the transaction is reviewed by the appropriate Authorized 

Approver. In consultation with the Chair of the Nominating and Governance Committee, the General 

Counsel may refer any proposed transaction to the Nominating and Governance Committee for review 

and approval.

If possible, approval of a related person transaction is obtained prior to the effectiveness or 

consummation of the transaction. If advance approval of a related person transaction by the appropriate 

Authorized Approver is not feasible or otherwise not obtained, then the transaction is considered promptly 

by the appropriate Authorized Approver to determine whether ratification is warranted.

In determining whether to approve or ratify a related person transaction covered by the Related Person 

Transactions Policy, the appropriate Authorized Approver reviews and considers all relevant information, 

which may include: 

• The nature of the related person’s interest in the transaction; 

• The approximate total dollar value of, and extent of the related person’s interest in, the transaction;

• Whether the transaction was or would be undertaken in the ordinary course of our business; 
Certain Relationships and Related Transactions

Freddie Mac 2016 Form 10-K 391

• Whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than 

terms that could have been reached with an unrelated third party; and 

• The purpose, and potential benefits to us, of the transaction.

TRANSACTIONS WITH 5% SHAREHOLDERS

In connection with our entry into conservatorship, we issued a warrant to Treasury to purchase shares of 

our common stock equal to 79.9% of the total number of shares of our common stock outstanding, on a 

fully diluted basis. There were a number of transactions between us and Treasury since the beginning of 

2016, as discussed in “MD&A — Consolidated Results of Operations,” “MD&A — Risk Management — 

Credit Risk — Single-Family Mortgage Credit Risk,” “MD&A — Conservatorship and Related Matters,” 

“MD&A — Regulation and Supervision,” Note 2, Note 4, Note 6, Note 9, Note 10, and Note 11.

FHFA, as conservator, approved the Purchase Agreement and our role as compliance agent in the MHA

Program and the Memorandum of Understanding with Treasury, FHFA, and Fannie Mae under the HFA

Initiative. FHFA also instructed us to implement a $5,000 principal reduction incentive under HAMP in 

which Treasury will pay the incentive for borrowers with certain of our HAMP modified loans. The 

remaining transactions described in the sections referenced above did not require review and approval 

under any of our policies and procedures relating to transactions with related persons.

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP. 

Among other duties, as the program compliance agent, we conduct examinations and review servicer 

compliance with the published requirements for the program.

TRANSACTIONS WITH INSTITUTIONS RELATED 

TO DIRECTORS

In the ordinary course of business, we were a party during 2016, and expect to continue to be a party 

during 2017, to certain business transactions with institutions affiliated with members of our Board. 

Management believes that the terms and conditions of the transactions were no more and no less 

favorable to us than the terms of similar transactions with unaffiliated institutions to which we are, or 

expect to be, a party. None of these transactions were required to be disclosed under SEC rules.

TRANSACTIONS WITH INSTITUTIONS RELATED 

TO EXECUTIVE OFFICERS

Mr. Layton joined us in May 2012 as CEO and as a member of the Board. Mr. Layton previously served 

as a senior executive officer of JPMorgan Chase, ending his service in 2004.

Freddie Mac has an extensive business relationship with JPMorgan Chase (through its subsidiaries). As 

of December 31, 2016, JPMorgan Chase was one of Freddie Mac’s largest servicers, and serviced 

approximately 1 million loans for Freddie Mac. JPMorgan Chase had an aggregate UPB of loans of 

approximately $150.7 billion as of December 31, 2016 and continues to have a substantial aggregate 

UPB of loans with the company. JPMorgan Chase sold approximately $19 billion in single-family loans to 

Freddie Mac in 2016.
Certain Relationships and Related Transactions

Freddie Mac 2016 Form 10-K 392

JPMorgan Chase also is a significant capital markets, derivatives, and multifamily counterparty and is an 

underwriter of our debt and mortgage securities. As of January 31, 2017, JPMorgan Chase and its 

subsidiaries had an aggregate notional balance of $19.9 billion of derivatives and $11.5 billion of reverse 

repurchase agreements with Freddie Mac. From January 1, 2016 through January 31, 2017, JPMorgan 

Chase served as underwriter for $82.5 billion of Freddie Mac’s debt securities and $20.6 billion of Freddie 

Mac’s mortgage-related securities.

Mr. Layton receives a pension from JPMorgan Chase in connection with his retirement in 2004. In 

addition, Mr. Layton has a deferred compensation balance under JPMorgan Chase’s Deferred 

Compensation Plan which earns a return based upon a defined list of mutual funds that Mr. Layton 

designates. Payments on the deferred compensation balance began in January 2016 with thirteen annual 

installments remaining. Mr. Layton also had deferred compensation (less than 10% of the total deferred 

compensation balance) in the form of “private equity balance,” which was paid in full in 2016. Mr. Layton’s 

deferred compensation balance is less than 10% of his total net worth on an after-tax basis. Mr. Layton 

also has brokerage and deposit accounts with JPMorgan Chase.

The amounts of Mr. Layton’s pension and deferred compensation do not depend in any way on JPMorgan 

Chase’s results as long as JPMorgan Chase is able to meet its obligations. In addition, in order to 

eliminate any potential conflicts of interest, Mr. Layton agreed to recuse himself from acting upon matters 

directly relating to JPMorgan Chase that may be considered by the Board, or presented to him in his 

capacity as CEO and a member of the Board, if such matter has the potential to affect JPMorgan Chase’s 

ability to satisfy its obligations to him. For the reasons described above, the Board has determined that 

Mr. Layton does not have a material interest in our relationship with JPMorgan Chase. The relationships 

described above were not required to be reviewed, approved, or ratified under our Related Person 

Transactions Policy.

CONSERVATORSHIP AGREEMENTS

Treasury, FHFA, and the Federal Reserve have taken a number of actions to support us during 

conservatorship, including entering into the Purchase Agreement, described in this Form 10-K. See 

“MD&A — Conservatorship and Related Matters” and Note 2.
Principal Accounting Fees and Services

Freddie Mac 2016 Form 10-K 393

PRINCIPAL ACCOUNTING FEES AND 

SERVICES

DESCRIPTION OF FEES

PricewaterhouseCoopers LLP has served as our independent public accountants since 2002. The 

following is a description of fees billed to us by PricewaterhouseCoopers LLP during 2016 and 2015.

AUDITOR FEES(1)

2016 2015

(In thousands)

Audit Fees(2) $23,175 $23,321

Audit-Related Fees(3) 5,122 3,888

Tax Fees(4) 55 64

All Other Fees(5) 218 264

Total $28,570 $27,537

(1) These fees represent amounts billed (including reimbursable expenses within the designated year).

(2) Audit fees include fees in connection with quarterly reviews of our interim financial information and the audit of our annual 

consolidated financial statements.

(3) Audit-related fees include: (i) fees for the performance of certain agreed-upon procedures regarding aspects of compliance 

with the Purchase Agreement covenants; (ii) compliance evaluation of the minimum servicing standards as set forth in the 

Uniform Single Attestation Program for Mortgage Bankers; (iii) transaction validation and attestation related to certain of 

Freddie Mac’s risk transfer and structured transactions; (iv) fees for pre-implementation assistance for hedge accounting; and 

(v) fees related to accounting policy consultations. 

(4) The tax fees billed relate to non-audit tax consulting services to provide advice and recommendations related to tax planning or 

reporting matters, as well as non-audit tax services to provide assistance with the IRS tax audit matters and ongoing 

examinations, including information requests and associated responses.

(5) All other fees include: (i) our subscription to a web-based suite of human resources benchmark data; (ii) advice and 

recommendations related to retention strategies; (iii) our subscription to accounting research software; and (iv) non-audit 

advice and recommendations related to technology implementation in the governance process.

APPROVAL OF INDEPENDENT AUDITOR 

SERVICES AND FEES

Under its charter, the Audit Committee is responsible for the following: 

• Appointing our independent public accounting firm (subject to FHFA approval as required); 

• Approving all audit and non-audit services permitted under applicable law to be performed by the 

independent public accounting firm (subject to FHFA approval as required); and 

• Approving the scope of the annual audit.

The Sarbanes-Oxley Act of 2002 and related SEC rules require that all services provided to companies 

subject to the reporting requirements of the Exchange Act by their independent auditors be pre-approved 

by their audit committee or by authorized members of the committee, with certain exceptions. The Audit 

Committee’s charter requires that the Audit Committee pre-approve any audit services, and any non-audit 
Principal Accounting Fees and Services

Freddie Mac 2016 Form 10-K 394

services permitted under applicable law, to be performed by our independent auditors (or to designate 

one or more members of the Audit Committee to pre-approve such services and report such pre-approval 

to the Audit Committee). 

Audit services that are within the scope of an auditor’s engagement approved by the Audit Committee 

prior to the performance of those services are deemed pre-approved and do not require separate preapproval. Audit services not within the scope of an Audit Committee-approved engagement, as well as 

permissible non-audit services, must be separately pre-approved by the Audit Committee.

When the Audit Committee pre-approves a service, it typically sets a dollar limit for such service. 

Management endeavors to obtain pre-approval of the Audit Committee, or of the Chair of the Audit 

Committee (when the Chair of the Audit Committee has been delegated such authority), before it incurs 

fees exceeding the dollar limit. If the Chair of the Audit Committee approves the increase, the Chair will 

report such approval at the Audit Committee’s next scheduled meeting. The Audit Committee has 

delegated to the Chair the authority to address requests to pre-approve certain additional audit and nonaudit services to be performed by the company’s independent auditor with fees totaling up to a maximum 

of $250,000 per quarter, with reporting of any such approval decisions to the Audit Committee at its next 

scheduled meeting.

The pre-approval procedure is administered by our senior financial management, which reports 

throughout the year to the Audit Committee. The Audit Committee pre-approved all audit, audit-related, 

tax, and other services performed by our independent public accounting firm in 2016 and 2015.

The Audit Committee appoints the independent public accounting firm on an annual basis. In evaluating 

the performance of the independent public accounting firm, the Audit Committee considers a number of 

factors, including the following:

• The firm’s status as a registered public accounting firm with the Public Company Accounting 

Oversight Board (United States) (“PCAOB”) as required by the Sarbanes-Oxley Act of 2002 and the 

Rules of the PCAOB; 

• Its independence and processes for maintaining its independence;

• Its approach to resolving significant accounting and auditing matters;

• Its capability and expertise in handling the complexity of the company’s business, including the 

expertise and capability of the lead audit partner and of the key members of the engagement team;

• Historical and recent performance, including the extent and quality of the independent public 

accounting firm’s communications with the Audit Committee, and the results of a management survey 

of the independent public accounting firm’s overall performance;

• Data related to audit quality and performance, including recent PCAOB inspection reports on the firm; 

and

• The appropriateness of its fees, both on an absolute basis and as compared with peers.

The Audit Committee has determined that the non-audit services rendered by PricewaterhouseCoopers 

during its most recent fiscal year are compatible with maintaining PricewaterhouseCoopers’

independence.
Exhibits and Financial Statement Schedules

Freddie Mac 2016 Form 10-K 395

EXHIBITS AND FINANCIAL STATEMENT 

SCHEDULES

(a) Documents filed as part of this report:

(1) Consolidated Financial Statements

The consolidated financial statements required to be filed in this Form 10-K are included 

in "Financial Statements and Supplementary Data."

(2) Financial Statement Schedules

None.

(3) Exhibits

An Exhibit Index has been filed as part of this Form 10-K beginning on page E-1 and is 

incorporated herein by reference.
Signatures

Freddie Mac 2016 Form 10-K 396

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant 

has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federal Home Loan Mortgage Corporation

By: /s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer

Date: February 16, 2017
Signatures

Freddie Mac 2016 Form 10-K 397

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed 

below by the following persons on behalf of the registrant and in the capacities and on the dates 

indicated.

Signature Capacity Date

 

/s/ Christopher S. Lynch* Non-Executive Chairman of the Board February 16, 2017

Christopher S. Lynch 

 

/s/ Donald H. Layton Chief Executive Officer and Director February 16, 2017

Donald H. Layton (Principal Executive Officer) 

 

/s/ James G. Mackey 

Executive Vice President — Chief Financial

Officer February 16, 2017

James G. Mackey (Principal Financial Officer) 

 

/s/ Robert D. Mailloux Senior Vice President — Corporate Controller and February 16, 2017

Robert D. Mailloux

 

Principal Accounting Officer (Principal Accounting

Officer) 

/s/ Raphael W. Bostic* Director February 16, 2017

Raphael W. Bostic 

 

/s/ Carolyn H. Byrd* Director February 16, 2017

Carolyn H. Byrd 

/s/ Lance F. Drummond* Director February 16, 2017

Lance F. Drummond

/s/ Thomas M. Goldstein* Director February 16, 2017

Thomas M. Goldstein 

 

/s/ Richard C. Hartnack* Director February 16, 2017

Richard C. Hartnack

/s/ Steven W. Kohlhagen* Director February 16, 2017

Steven W. Kohlhagen

/s/ Sara Mathew* Director February 16, 2017

Sara Mathew

/s/ Saiyid T. Naqvi* Director February 16, 2017

Saiyid T. Naqvi

/s/ Nicolas P. Retsinas* Director February 16, 2017

Nicolas P. Retsinas 

 

/s/ Eugene B. Shanks, Jr.* Director February 16, 2017

Eugene B. Shanks, Jr. 

 
Signatures

Freddie Mac 2016 Form 10-K 398

/s/ Anthony A. Williams* Director February 16, 2017

Anthony A. Williams 

 

*By: /s/ Alicia S. Myara 

Alicia S. Myara 

Attorney-in-Fact 
Glossary

Freddie Mac 2016 Form 10-K 399

GLOSSARY

This Glossary includes acronyms and defined terms that are used throughout this report.

ACIS - Agency Credit Insurance Structure - In a typical ACIS credit risk transfer transaction, we purchase 

insurance policies (typically underwritten by a group of insurers and reinsurers) that obligate the 

counterparties to reimburse us for specified credit events (based on either actual losses or losses 

calculated using a predefined formula) up to an aggregate limit that occur on our first loss and/or 

mezzanine loss positions associated with STACR debt note transactions in exchange for our payment of 

periodic premiums. We also enter into ACIS transactions that provide credit protection for certain 

specified credit events on loans not included in a reference pool created for a STACR debt note 

transaction. 

Administration - Executive branch of the U.S. government.

Agency securities - Generally refers to mortgage-related securities issued by the GSEs or government 

agencies.

Alt-A loan - Although there is no universally accepted definition of Alt-A, many mortgage market 

participants classify single-family loans with credit characteristics that range between their prime and 

subprime categories as Alt-A because these loans have a combination of characteristics of each category, 

may be underwritten with lower or alternative income or asset documentation requirements compared to 

a full documentation loan, or both. We categorize loans in our single-family credit guarantee portfolio as 

Alt-A if the lender that delivers them to us classified the loans as Alt-A, or if the loans had reduced 

documentation requirements as well as a combination of certain credit characteristics and expected 

performance characteristics at acquisition which, when compared to full documentation loans in our 

portfolio, indicate that the loan should be classified as Alt-A. In the event we purchase a refinance loan 

and the original loan had been previously identified as Alt-A, such refinance loan may no longer be 

categorized as an Alt-A loan because the refinance loan is not identified by the servicer as an Alt-A loan. 

We categorize our investments in non-agency mortgage-related securities as Alt-A if the securities were 

identified as such based on information provided to us when we entered into these transactions.

AMT - Alternative Minimum Tax

AOCI - Accumulated other comprehensive income (loss), net of taxes

ARM - Adjustable-rate mortgage - A mortgage loan with an interest rate that adjusts periodically over the 

life of the loan based on changes in a benchmark index.

Board - Board of Directors

Bps - Basis points - One one-hundredth of 1%. This term is commonly used to quote the yields of debt 

instruments or movements in interest rates.

CCO - Chief Compliance Officer

CD&A - Compensation Discussion and Analysis 

CEO - Chief Executive Officer

CERO - Chief Enterprise Risk Officer
Glossary

Freddie Mac 2016 Form 10-K 400

CFO - Chief Financial Officer

CFPB - Consumer Financial Protection Bureau

Charge-offs, gross - Represent the amount of a loan that has been discharged in order to remove the 

loan from our consolidated balance sheets when the loan is deemed uncollectible, regardless of when the 

impact of the credit loss was recorded on our consolidated statements of comprehensive income. 

Generally the amount of a charge-off is the recorded investment in excess of the fair value of the loan's 

collateral.

Charter - The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.

CMBS - Commercial mortgage-backed security - A security backed by loans on commercial property 

(often including multifamily rental properties) as opposed to one-to-four family residential real estate. 

Although the loan pools underlying CMBS can include loans financing multifamily properties and 

commercial properties, such as office buildings and hotels, the classes of CMBS that we hold receive 

distributions of scheduled cash flows only from multifamily properties. 

Comprehensive income (loss) - Consists of net income (loss) plus other comprehensive income (loss).

Conforming loan/Conforming jumbo loan/Conforming loan limit - A conventional single-family loan 

with an original principal balance that is equal to or less than the applicable statutory conforming loan 

limit, which is a dollar amount cap on the original principal balance of single-family loans we are permitted 

by law to purchase or securitize. The conforming loan limit is determined annually based on changes in 

FHFA’s housing price index. The base conforming loan limit for a one-family residence has been set at 

$424,100 for 2017, and was set at $417,000 from 2006 to 2016. Higher limits have been established in 

certain “high-cost” areas (for 2017, up to $636,150 for a one-family residence). Higher limits also apply to 

two- to four-family residences, and for loans secured by properties in Alaska, Guam, Hawaii and the U.S. 

Virgin Islands.

Actual high-cost area loan limits are set by FHFA for each county (or equivalent), and the loan limit for 

specific high-cost areas may be lower than the maximum amounts. We refer to loans that we have 

purchased with a UPB exceeding the base conforming loan limit (i.e., $424,000 for 2017) as conforming 

jumbo loans.

Conservator - The Federal Housing Finance Agency, acting in its capacity as Conservator of Freddie 

Mac.

Convexity - A measure of how much a financial instrument’s duration changes as interest rates change.

Core single-family book - Consists of loans in our single-family credit guarantee portfolio that were 

originated since 2008. We do not include relief refinance loans, including HARP loans, in this book as 

underwriting procedures for relief refinance loans are limited, and, in many cases, do not include all of the 

changes in underwriting standards we have implemented since 2008.

Credit enhancement - A financial arrangement that is designed to reduce credit risk by partially or fully 

compensating an investor in a mortgage or security (e.g., Freddie Mac) in the event of specified losses. 

Examples of credit enhancements include insurance, credit risk transfer transactions, 

overcollateralization, indemnification agreements, and government guarantees.
Glossary

Freddie Mac 2016 Form 10-K 401

Credit losses - Consists of charge-offs, net and REO operations (income) expense.

Credit-related (benefit) expenses (or credit-related expenses) - Consists of our provision (benefit) for 

credit losses and REO operations (income) expense.

Credit score - Credit score data is based on FICO scores, a credit scoring system developed by Fair, 

Isaac and Co. FICO scores are currently the most commonly used credit scores. FICO scores are ranked 

on a scale of approximately 300 to 850 points with a higher value indicating a lower likelihood of credit 

default. Although we obtain updated credit information on certain borrowers after the origination of a loan, 

such as those borrowers seeking a modification, the scores presented in our reports represent the credit 

score of the borrower at either the time of loan origination or our purchase and may not be indicative of 

the current credit worthiness of the borrower.

CSS - Common Securitization Solutions, LLCSM

Current LTV Ratio or CLTV - The current LTV ratios are management estimates, which are updated on a 

monthly basis. Current market values are estimated by adjusting the value of the property at origination 

based on changes in the market value of homes in the same geographic area since that time. Changes in 

market value are derived from our internal index, which measures price changes for repeat sales and 

refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family loan 

acquisitions, including foreclosure sales. Estimates of the current LTV ratio exclude any secondary 

financing by third parties.

Deed in lieu of foreclosure - An alternative to foreclosure in which the borrower voluntarily conveys title 

to the property to the lender and the lender accepts such title (sometimes together with an additional 

payment by the borrower) in full satisfaction of the mortgage indebtedness.

Delinquency - A failure to make timely payments of principal and/or interest on a loan. For single-family 

loans, we generally report delinquency rate information based on the number of loans that are seriously 

delinquent. For multifamily loans, we report delinquency rate information based on the UPB of loans that 

are two monthly payments or more past due or in the process of foreclosure. Loans that have been 

modified are not counted as delinquent as long as the borrower is not delinquent under the modified 

terms.

Delivery fee - An upfront fee charged to sellers above base contractual guarantee fees to compensate us 

for higher levels of risk in some loan products.

Derivative - A financial instrument whose value depends upon the characteristics and value of an 

underlying such as a financial asset or index. Examples of an underlying include a security or commodity 

price, interest or currency rates, and other financial indices.

Dodd-Frank Act - Dodd-Frank Wall Street Reform and Consumer Protection Act

Dollar roll transactions - Transactions whereby we enter into an agreement to sell and subsequently 

repurchase (or purchase and subsequently resell) agency securities.

DSCR - Debt Service Coverage Ratio - An indicator of future credit performance for multifamily loans. The 

DSCR estimates a multifamily borrower’s ability to service its mortgage obligation using the secured 

property’s cash flow, after deducting non-mortgage expenses from income. The higher the DSCR, the 

more likely a multifamily borrower will be able to continue servicing its loan obligation.
Glossary

Freddie Mac 2016 Form 10-K 402

Duration - Duration is a measure of a financial instrument’s price sensitivity to changes in interest rates.

Duration gap - One of our primary interest rate risk measures. Duration gap is a measure of the 

difference between the estimated durations of our interest rate sensitive assets and liabilities. We present 

the duration gap of our financial instruments in units expressed as months. A duration gap of zero implies 

that the change in value of our interest rate sensitive assets from an instantaneous change in interest 

rates would be expected to be accompanied by an equal and offsetting change in the value of our interest 

rate sensitive liabilities, thus leaving economic value unchanged.

EMCP - Executive Management Compensation Program

ERC - Enterprise Risk Committee

ERM - Enterprise Risk Management

EVP - Executive Vice President

Exchange Act - Securities Exchange Act of 1934, as amended

Fannie Mae - Federal National Mortgage Association

FASB - Financial Accounting Standards Board

Federal Reserve - Board of Governors of the Federal Reserve System

FHA - Federal Housing Administration

FHFA - Federal Housing Finance Agency - An independent agency of the U.S. government with 

responsibility for regulating Freddie Mac, Fannie Mae, and the FHLBs.

FHLB - Federal Home Loan Bank

Fixed-rate loan - Refers to a loan originated at a specific rate of interest that remains constant over the 

life of the loan. For purposes of presentation in this report, we have categorized a number of modified 

loans as fixed-rate loans, even though the modified loans have rate adjustment provisions. In these 

cases, while the terms of the modified loans provide for the interest rate to adjust in the future, such future 

rates are determined at the time of the modification rather than at a subsequent date.

Foreclosure alternative - A workout option pursued when a home retention action is not successful or 

not possible. A foreclosure alternative is either a short sale or deed in lieu of foreclosure.

Foreclosure or foreclosure transfer - Refers to our completion of a transaction provided for by the 

foreclosure laws of the applicable state, in which a delinquent borrower’s ownership interest in a 

mortgaged property is terminated and title to the property is transferred to us or to a third party. When we, 

as loan holder, acquire a property in this manner, we pay for it by extinguishing some or all of the 

mortgage debt.

Freddie Mac mortgage-related securities - Securities we issue and guarantee that are backed by 

mortgages.

GAAP - Generally accepted accounting principles in the United States of America.

Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class 
Glossary

Freddie Mac 2016 Form 10-K 403

securities that involve the straight pass through of all of the cash flows of the underlying collateral to 

holders of the beneficial interests.

Ginnie Mae - Government National Mortgage Association, which guarantees the timely payment of 

principal and interest on mortgage-related securities backed by federally insured or guaranteed loans, 

primarily those insured by FHA or guaranteed by the VA.

GSE Act - The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended 

by the Reform Act.

GSEs - Government sponsored enterprises - Refers to certain legal entities created by the 

U.S. government, including Freddie Mac, Fannie Mae, and the FHLBs.

Guarantee fee - The fee that we receive for guaranteeing the payment of principal and interest to 

mortgage security investors, which consists primarily of a combination of base contractual guarantee fees 

paid on a monthly basis, as a percentage of the UPB of the underlying loans, and initial upfront payments, 

such as delivery fees.

Guidelines - Corporate Governance Guidelines, as revised

HAMP - Home Affordable Modification Program - Refers to the effort under the MHA Program whereby 

the U.S. government, Freddie Mac and Fannie Mae committed funds to help eligible homeowners avoid 

foreclosure and keep their homes through loan modifications. HAMP ended in December 2016.

HARP - Home Affordable Refinance Program - Refers to the effort under the MHA Program that seeks to 

help eligible borrowers with existing loans that are guaranteed by us or Fannie Mae to refinance into 

loans with more affordable monthly payments and/or fixed-rate terms without obtaining new mortgage 

insurance in excess of the insurance coverage, if any, that was already in place. HARP is targeted at 

borrowers with current LTV ratios above 80%. The relief refinance program, under which we also allow 

borrowers with LTV ratios of 80% and below to participate, is our implementation of HARP for our loans. 

The relief refinance program (including HARP) will end in September 2017 and will be replaced by a new 

program.

HFA - State or local Housing Finance Agency

HFA Initiative - Refers to the effort whereby we and Fannie Mae, in conjunction with Treasury, provided 

assistance to state and local HFAs so that the HFAs could continue to meet their mission of providing 

affordable financing for both single-family and multifamily housing. The HFA initiative included the New 

Issue Bond Program (NIBP) and the Temporary Credit and Liquidity Facility Program (TCLFP). Pursuant 

to the NIBP, we and Fannie Mae issued partially-guaranteed pass-through securities to Treasury that are 

backed by bonds issued by various state and local HFAs. The NIBP provided financing for HFAs to issue 

new housing bonds. Treasury is obligated to absorb losses under the NIBP up to a certain level before we 

are exposed to any losses. Pursuant to the TCLFP, we and Fannie Mae issued credit and liquidity 

guarantees to holders of variable-rate demand obligations issued by various state and local HFAs. 

Treasury is obligated to absorb losses under the TCLFP up to a certain level before we are exposed to 

any losses. The TCLFP was scheduled to expire on December 31, 2012. However, Treasury gave 

participants the option to extend their individual TCLFP facilities to December 31, 2015. No outstanding 

guarantees existed as of December 31, 2015.

HUD - U.S. Department of Housing and Urban Development - HUD has authority over Freddie Mac with 
Glossary

Freddie Mac 2016 Form 10-K 404

respect to fair lending.

Implied volatility - A measurement of how the value of a financial instrument changes due to changes in 

the market’s expectation of potential changes in future interest rates. A decrease in implied volatility 

generally increases the estimated fair value of our mortgage-related assets and decreases the estimated 

fair value of our callable debt and option-based derivatives, while an increase in implied volatility 

generally has the opposite effect.

Initial margin - The collateral that we post with a derivatives clearinghouse in order to do business with 

such clearinghouse. The amount of initial margin varies over time.

Interest-only loan - A loan that allows the borrower to pay only interest (either fixed-rate or adjustablerate) for a fixed period of time before payments of principal begin. After the interest-only period, the 

borrower may choose to refinance the loan, pay the principal balance in total, or begin paying the 

scheduled principal payment due on the loan.

IRS - Internal Revenue Service

K Certificates - Structured pass-through certificates backed primarily by recently originated multifamily 

loans purchased by Freddie Mac. 

Legacy single-family book - Consists of loans in our single-family credit guarantee portfolio that were 

originated in 2008 and prior.

LIBOR - London Interbank Offered Rate

LIHTC partnerships - Low-income housing tax credit partnerships - Prior to 2008, we invested in LIHTC 

partnerships as a limited partner. These LIHTC partnerships invest directly in limited partnerships that 

own and operate affordable multifamily rental properties that generate federal income tax credits and 

deductible operating losses.

Liquidation preference - Generally refers to an amount that holders of preferred securities are entitled to 

receive out of available assets upon liquidation of a company. The initial liquidation preference of our 

senior preferred stock was $1.0 billion. The aggregate liquidation preference of our senior preferred stock 

includes the initial liquidation preference plus amounts funded by Treasury under the Purchase 

Agreement. In addition, dividends not paid in cash are added to the liquidation preference of the senior 

preferred stock. We may make payments to reduce the liquidation preference of the senior preferred 

stock only in limited circumstances.

Liquidity and Contingency Operating Portfolio - Subset of our other investments and cash portfolio. 

Consists of cash and cash equivalents, certain securities purchased under agreements to resell, and 

certain non-mortgage-related securities.

Long-term debt - Other debt due after one year based on the original contractual maturity of the debt 

instrument. Our long-term debt issuances include medium-term notes, Reference Notes® securities, and 

STACR debt notes. 

LTV ratio - Loan-to-value ratio - The ratio of the unpaid principal amount of a loan to the value of the 

property that serves as collateral for the loan, expressed as a percentage. We report LTV ratios based 

solely on the amount of the loan purchased or guaranteed by us, generally excluding any second-lien 
Glossary

Freddie Mac 2016 Form 10-K 405

loans (unless we own or guarantee the second lien). 

Market spread - The difference between the yields of two debt securities, or the difference between the 

yield of a debt security and a benchmark yield, such as LIBOR. We measure market spreads primarily 

using our models. 

MD&A - Management’s Discussion and Analysis of Financial Condition and Results of Operations

MHA Program - Making Home Affordable Program - Formerly known as the Housing Affordability and 

Stability Plan, the MHA Program was announced by the Administration in February 2009. The MHA

Program is designed to help in the housing recovery, promote liquidity and housing affordability, expand 

foreclosure prevention efforts, and set market standards. The MHA Program includes HARP and HAMP.

Mortgage assets - Refers to both loans and the mortgage-related securities we hold in our mortgagerelated investments portfolio.

Mortgage-related investments portfolio - Our investment portfolio, which consists of mortgage-related 

securities and unsecuritized single-family and multifamily loans. The size of our mortgage-related 

investments portfolio under the Purchase Agreement is determined without giving effect to the January 1, 

2010 change in accounting guidance related to transfers of financial assets and consolidation of VIEs.

Mortgage-to-debt OAS - The net OAS between the mortgage asset and agency debt sectors. This is an 

important factor in determining the expected level of net interest yield on a new mortgage asset. Higher 

mortgage-to-debt OAS means that a newly purchased mortgage asset is expected to provide a greater 

return relative to the cost of the debt issued to fund the purchase of the asset and, therefore, a higher net 

interest yield. Mortgage-to-debt OAS tends to be higher when there is weak demand for mortgage assets 

and lower when there is strong demand for mortgage assets.

Multifamily loan - A loan secured by a property with five or more residential rental units or by a 

manufactured housing community.

Multifamily mortgage portfolio - Consists of multifamily mortgage loans held by us on our consolidated 

balance sheets as well as our guarantee of K Certificates, SB Certificates, other securitization products, 

and other mortgage-related guarantees, but excluding those underlying our guarantees of HFA bonds.

Multifamily new business activity - Represents loan purchases, issuances of other mortgage-related 

guarantees, and issuances of other securitization products for which we have not previously purchased 

the underlying loans.

Net worth (deficit) - The amount by which our total assets exceed (or are less than) our total liabilities as 

reflected on our consolidated balance sheets prepared in conformity with GAAP.

Net worth sweep dividend, Net Worth Amount, and Capital Reserve Amount - For each quarter from 

January 1, 2013 through and including December 31, 2017, the dividend payment on the senior preferred 

stock will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding 

fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is 

defined as the total assets of Freddie Mac (excluding Treasury’s commitment and any unfunded amounts 

thereof), less our total liabilities (excluding any obligation in respect of capital stock), in each case as 

reflected on our consolidated balance sheets prepared in conformity with GAAP. If the calculation of the 

dividend payment for a quarter does not exceed zero, then no dividend shall accrue or be payable for that 
Glossary

Freddie Mac 2016 Form 10-K 406

quarter. The applicable Capital Reserve Amount was $1.2 billion for 2016, is $600 million for 2017, and 

declines to zero on January 1, 2018. For each quarter beginning January 1, 2018, the dividend payment 

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

quarter exceeds zero.

Non-accrual loan - A loan for which we are not accruing interest income. We place loans on non-accrual 

status when we believe collectability of principal and interest in full is not reasonably assured, which 

generally occurs when a loan is three monthly payments past due, unless the loan is well secured and in 

the process of collection based upon an individual loan assessment.

NYSE - New York Stock Exchange

OAS - Option-adjusted spread - An estimate of the incremental yield spread between a particular financial 

instrument (e.g., a security, loan or derivative contract) and a benchmark yield curve (e.g., LIBOR or 

agency or U.S. Treasury securities). This includes consideration of potential variability in the instrument’s 

cash flows resulting from any options embedded in the instrument, such as prepayment options. When 

the OAS on a given asset widens, the fair value of that asset will typically decline, all other market factors 

being equal. The opposite is true when the OAS on a given asset tightens.

Option ARM loan - Loans that permit a variety of repayment options, including minimum, interest-only, 

fully amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for 

option ARM loans allows the borrower to make monthly payments that may be less than the interest 

accrued for the period. The unpaid interest is added to the principal balance of the loan, known as 

negative amortization. For our non-agency mortgage-related securities that are backed by option ARM 

loans, we categorize securities as option ARM if the securities were identified as such based on 

information provided to us when we entered into these transactions. We have not identified option ARM 

securities as either subprime or Alt-A securities.

Original LTV Ratio - A credit measure for loans, calculated as the UPB of the loan divided by the lesser 

of the appraised value of the property at the time of loan origination or the borrower’s purchase price. 

Second liens not owned or guaranteed by us are excluded from the LTV ratio calculation. The existence 

of a second-lien loan reduces the borrower’s equity in the home and, therefore, can increase the risk of 

default and the amount of the gross loss if a default occurs.

OTC - Over-the-counter

OTCQB - A marketplace, operated by the OTC Markets Group Inc., for OTC-traded U.S. companies that 

are registered and current in their reporting with the SEC or a U.S. banking or insurance regulator.

Other Investments and Cash Portfolio - Consists of: (i) the Liquidity and Contingency Operating 

Portfolio; (ii) cash and other investments held by consolidated trusts; (iii) collateral pledged by derivative 

and other counterparties; (iv) investments in unsecured agency debt; and (v) advances to lenders.

PCs - Participation Certificates - Single-class pass-through securities that we issue and guarantee as part 

of a securitization transaction. Typically we purchase loans from sellers, place a pool of loans into a PC 

trust and issue PCs from that trust. The PCs are generally transferred to the seller of the loans in 

consideration of the loans or are sold to third-party investors or retained by us if we purchased the loans 

for cash.

Pension Plan - The Federal Home Loan Mortgage Corporation Employees’ Pension Plan
Glossary

Freddie Mac 2016 Form 10-K 407

Performing loan - A loan where the borrower is less than three monthly payments past due, and not in 

the process of foreclosure. Conversely, a non-performing loan is one where the borrower is three months 

or more past due or is in the process of foreclosure. A reperforming loan is a loan that was previously 

classified as non-performing, but the borrower subsequently made payments such that the loan returns to 

less than three months past due.

PMVS - Portfolio Market Value Sensitivity - One of our primary interest-rate risk measures. PMVS 

measures are estimates of the amount of average potential pre-tax loss in the market value of our net 

assets due to parallel (PMVS-L) and non-parallel (PMVS-YC) changes in LIBOR.

Primary mortgage market - The market where lenders originate loans by lending funds to borrowers. 

We do not lend money directly to homeowners and do not participate in this market.

Purchase Agreement / Senior Preferred Stock Purchase Agreement - An agreement the Conservator, 

acting on our behalf, entered into with Treasury on September 7, 2008, relating to Treasury's purchase of 

senior preferred stock, which was subsequently amended and restated on September 26, 2008 and 

further amended on May 6, 2009, December 24, 2009, and August 17, 2012.

Recorded investment - The dollar amount of a loan recorded on our consolidated balance sheets, 

excluding any allowance, such as the allowance for loan losses, but including direct write-downs of the 

investment. Recorded investment excludes accrued interest income.

Recoveries of charge-offs - Recoveries of charge-offs primarily result from foreclosure alternatives and 

REO acquisitions on loans where a share of default risk has been assumed by mortgage insurers, 

servicers, or third parties through certain credit enhancements, or we received a reimbursement of our 

losses from a seller/servicer associated with a repurchase request on a loan that experienced a 

foreclosure transfer or a foreclosure alternative.

Reform Act - The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, 

amended the GSE Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae, and the 

FHLBs.

REIT - Real estate investment trust

Relief refinance loan - A single-family loan delivered to us for purchase or guarantee that meets the 

criteria of the Freddie Mac Relief Refinance Mortgage sm initiative. Part of this initiative is our 

implementation of HARP for our loans, and relief refinance options are also available for certain nonHARP loans. Although HARP is targeted at borrowers with current LTV ratios above 80%, our initiative 

also allows borrowers with LTV ratios of 80% and below to participate.

REMIC - Real Estate Mortgage Investment Conduit - A type of multiclass mortgage-related security that 

divides the cash flows (principal and interest) of the underlying mortgage-related assets into two or more 

classes that meet the investment criteria and portfolio needs of different investors.

REO - Real estate owned - Real estate which we have acquired through foreclosure or through a deed in 

lieu of foreclosure.

RMBS - Residential mortgage-backed security - A security backed by loans on one-to-four family 

residential real estate. 
Glossary

Freddie Mac 2016 Form 10-K 408

RSU - Restricted stock unit

S&P - Standard & Poor’s

SB Certificates - Structured pass-through certificates backed primarily by recently originated small 

balance multifamily loans purchased by Freddie Mac. 

SCR debt note - Structured Credit Risk debt notes - A debt security where the principal balance is subject 

to the performance of a reference pool of multifamily loans guaranteed by Freddie Mac.

SEC - U.S. Securities and Exchange Commission

Secondary mortgage market - A market consisting of institutions engaged in buying and selling loans in 

the form of whole loans (i.e., loans that have not been securitized) and mortgage-related securities. We 

participate in the secondary mortgage market by issuing guaranteed mortgage-related securities, 

principally PCs, and by purchasing loans and mortgage-related securities for investment.

Senior preferred stock - The shares of Variable Liquidation Preference Senior Preferred Stock issued to 

Treasury under the Purchase Agreement.

Seriously delinquent or SDQ - Single-family loans that are three monthly payments or more past due or 

in the process of foreclosure as reported to us by our servicers.

SERP - The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan

Short sale - An alternative to foreclosure consisting of a sale of a mortgaged property in which the 

homeowner sells the home at market value and the lender accepts proceeds (sometimes together with an 

additional payment or promissory note from the borrower) that are less than the outstanding loan 

indebtedness in full satisfaction of the loan.

Short-term debt - Other debt due within one year based on the original contractual maturity of the debt 

instrument. Our short-term debt issuances include discount notes and Reference Bills® securities.

Single-family credit guarantee portfolio - Consists of unsecuritized single-family loans, single-family 

loans held by consolidated trusts, single-family loans underlying non-consolidated resecuritization 

products, single-family loans covered by long-term standby commitments, and certain mortgage-related 

securities not issued by us that we guarantee that are collateralized by single-family loans. Excludes our 

resecuritizations of Ginnie Mae Certificates because these guarantees do not expose us to meaningful 

amounts of credit risk due to the credit enhancement provided on them by the U.S. government.

Single-family loan - A loan secured by a property containing four or fewer residential dwelling units.

STACR debt note - Structured Agency Credit Risk debt note - A debt security where the principal balance 

is subject to the performance of a reference pool of single-family loans owned or guaranteed by Freddie 

Mac.

Step-rate modified loan - A term that we generally use to refer to our HAMP loans that have provisions 

for reduced interest rates that remain fixed for the first five years and then increase over a period of time 

to a market rate.

Stripped Giant PCs - Multiclass securities that are formed by resecuritizing previously issued PCs or 
Glossary

Freddie Mac 2016 Form 10-K 409

Giant PCs and issuing principal-only and interest-only securities backed by the cash flows from the 

underlying collateral.

Subprime - Participants in the mortgage market may characterize single-family loans, based upon their 

overall credit quality at the time of origination, generally considering them to be prime or subprime. 

Subprime generally refers to the credit risk classification of a loan. There is no universally accepted 

definition of subprime. The subprime segment of the mortgage market primarily serves borrowers with 

poorer credit payment histories and such loans typically have a mix of credit characteristics that indicate a 

higher likelihood of default and higher loss severities than prime loans. Such characteristics might 

include, among other factors, a combination of high LTV ratios, low credit scores or originations using 

lower underwriting standards, such as limited or no documentation of a borrower’s income. While we 

have not historically characterized the loans in our single-family credit guarantee portfolio as either prime 

or subprime, we monitor the amount of loans we have guaranteed with characteristics that indicate a 

higher degree of credit risk. Certain security collateral underlying our other securitization products has 

been identified as subprime based on information provided to Freddie Mac when the transactions were 

entered into. We also categorize our investments in non-agency mortgage-related securities as subprime 

if they were identified as such based on information provided to us when we entered into these 

transactions.

SVP - Senior Vice President

Swaption - An option contract to enter into an interest-rate swap. In exchange for an option premium, a 

buyer obtains the right but not the obligation to enter into a specified swap agreement with the issuer on a 

specified future date.

Target TDC - Target total direct compensation

TBA - To be announced

TDR - Troubled debt restructuring - A restructuring of a debt constitutes a TDR if the creditor for economic 

or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would 

not otherwise consider.

Thrift/401(k) Plan - The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan

Total mortgage portfolio - Includes loans and mortgage-related securities held on our consolidated 

balance sheets as well as our non-consolidated issued and guaranteed single-class and multiclass 

securities, and other mortgage-related guarantees issued to third parties.

Total other comprehensive income (loss) (or other comprehensive income (loss)) - Consists of the 

after-tax changes in the unrealized gains and losses on available-for-sale securities, the effective portion 

of derivatives accounted for as cash flow hedge relationships, and defined benefit plans.

Treasury - U.S. Department of the Treasury

UPB - Unpaid principal balance - Loan UPB amounts in this report have not been reduced by charge-offs 

recognized prior to the loan being subject to a foreclosure transfer, deed in lieu of foreclosure, or short 

sale transaction.

USDA - U.S. Department of Agriculture
Glossary

Freddie Mac 2016 Form 10-K 410

VA - U.S. Department of Veterans Affairs

Variation margin - Payments we make to or receive from a derivatives clearinghouse based on the 

change in fair value of a derivative instrument. Variation margin is typically transferred within one 

business day.

VIE - Variable Interest Entity - A VIE is an entity that has a total equity investment at risk that is not 

sufficient to finance its activities without additional subordinated financial support provided by another 

party, or where the group of equity holders does not have: (i) the ability to make significant decisions 

about the entity’s activities; (ii) the obligation to absorb the entity’s expected losses; or (iii) the right to 

receive the entity’s expected residual returns.

Warrant - Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the Purchase 

Agreement. The warrant provides Treasury the ability to purchase, for a nominal price, shares of our 

common stock equal to 79.9% of the total number of shares of Freddie Mac common stock outstanding 

on a fully diluted basis on the date of exercise.

Workforce housing - Multifamily housing that is affordable to the majority of low to middle income 

households.

Workout, or loan workout - A workout is either a home retention action, which is either a loan 

modification, repayment plan, or forbearance agreement, or a foreclosure alternative, which is either a 

short sale or a deed in lieu of foreclosure.

XBRL - eXtensible Business Reporting Language

Yield curve - A graphical display of the relationship between yields and maturity dates for bonds of the 

same credit quality. The slope of the yield curve is an important factor in determining the level of net 

interest yield on a new mortgage asset, both initially and over time. For example, if a mortgage asset is 

purchased when the yield curve is inverted (i.e., short-term interest rates higher than long-term interest 

rates), our net interest yield on the asset will tend to be lower initially and then increase over time. 

Likewise, if a mortgage asset is purchased when the yield curve is steep (i.e., short-term interest rates 

lower than long-term interest rates), our net interest yield on the asset will tend to be higher initially and 

then decrease over time.
Index

Freddie Mac 2016 Form 10-K 411

FORM 10-K INDEX 

Item Number Page(s)

PART I

Item 1. Business 1, 5-8, 34-45,

58-64, 75-81,

88-91, 163-174

Item 1A. Risk Factors 181-207

Item 1B. Unresolved Staff Comments Not Applicable

Item 2. Properties 7

Item 3. Legal Proceedings 208

Item 4. Mine Safety Disclosures Not Applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder

Matters and Issuer Purchases of Equity Securities

209-211

Item 6. Selected Financial Data 11

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

Results of Operations

1-4, 9, 10, 12-33,

35, 46-59, 65-76,

82-144, 152-162,

175-180

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 145-151

Item 8. Financial Statements and Supplementary Data 212-336

Item 9. Changes in and Disagreements With Accountants on Accounting

and Financial Disclosure

Not Applicable

Item 9A. Controls and Procedures 213, 214, 337-340

Item 9B. Other Information 341

PART III

Item 10. Directors, Executive Officers and Corporate Governance 92-93, 341-362, 

391

Item 11. Executive Compensation 356, 358-359,

363-386

Item 12. Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

387-389

Item 13. Certain Relationships and Related Transactions, and Director

Independence

351-353, 390-392

Item 14. Principal Accounting Fees and Services 393-394

PART IV

Item 15. Exhibits and Financial Statement Schedules 395

Item 16. Form 10-K Summary Not Applicable

Signatures 396-398
Exhibit Index

Freddie Mac 2016 Form 10-K E-1

EXHIBIT INDEX

Exhibit No. Description*

3.1 Federal Home Loan Mortgage Corporation Act (12 U.S.C. §1451 et seq.), as amended through July 21, 2010

(incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 2010, as filed on August 9, 2010)

 

3.2 Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated July 7, 2016 (incorporated by

reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K as filed on July 8, 2016)

 

4.1 Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights, Privileges, Qualifications,

Limitations, Restrictions, Terms and Conditions of Voting Common Stock (no par value per share) dated

September 10, 2008 (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as

filed on September 11, 2008)

 

4.2 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share),

dated April 23, 1996 (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form

10 as filed on July 18, 2008)

 

4.3 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

October 27, 1997 (incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)

 

4.4 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

March 23, 1998 (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)

 

4.5 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

September 23, 1998 (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form

10 as filed on July 18, 2008)

 

4.6 Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges,

Qualifications, Limitations, Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock

(par value $1.00 per share), dated September 29, 1998 (incorporated by reference to Exhibit 4.6 to the

Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)

 

4.7 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.3% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

October 28, 1998 (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)

 

4.8 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

March 19, 1999 (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)

 

4.9 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.79% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

July 21, 1999 (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form 10 as

filed on July 18, 2008)

 
Exhibit Index

Freddie Mac 2016 Form 10-K E-2

Exhibit No. Description*

4.10 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share),

dated November 5, 1999 (incorporated by reference to Exhibit 4.10 to the Registrant’s Registration Statement on

Form 10 as filed on July 18, 2008)

 

4.11 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share),

dated January 26, 2001 (incorporated by reference to Exhibit 4.11 to the Registrant’s Registration Statement on

Form 10 as filed on July 18, 2008)

4.12 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share),

dated March 23, 2001 (incorporated by reference to Exhibit 4.12 to the Registrant’s Registration Statement on

Form 10 as filed on July 18, 2008)

4.13 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

March 23, 2001 (incorporated by reference to Exhibit 4.13 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)

4.14 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share),

dated May 30, 2001 (incorporated by reference to Exhibit 4.14 to the Registrant’s Registration Statement on Form

10 as filed on July 18, 2008)

4.15 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 6% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

May 30, 2001 (incorporated by reference to Exhibit 4.15 to the Registrant’s Registration Statement on Form 10 as

filed on July 18, 2008)

4.16 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.7% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

October 30, 2001 (incorporated by reference to Exhibit 4.16 to the Registrant’s Registration Statement on Form

10 as filed on July 18, 2008)

 

4.17 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated

January 29, 2002 (incorporated by reference to Exhibit 4.17 to the Registrant’s Registration Statement on Form

10 as filed on July 18, 2008)

 

4.18 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Perpetual Preferred Stock (par value $1.00

per share), dated July 17, 2006 (incorporated by reference to Exhibit 4.18 to the Registrant’s Registration

Statement on Form 10 as filed on July 18, 2008)

 

4.19 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 6.42% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated July 17, 2006 (incorporated by reference to Exhibit 4.19 to the Registrant’s Registration Statement

on Form 10 as filed on July 18, 2008)

 

4.20 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.9% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated October 16, 2006 (incorporated by reference to Exhibit 4.20 to the Registrant’s Registration

Statement on Form 10 as filed on July 18, 2008)

 
Exhibit Index

Freddie Mac 2016 Form 10-K E-3

Exhibit No. Description*

4.21 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.57% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated January 16, 2007 (incorporated by reference to Exhibit 4.21 to the Registrant’s Registration

Statement on Form 10 as filed on July 18, 2008)

 

4.22 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 5.66% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated April 16, 2007 (incorporated by reference to Exhibit 4.22 to the Registrant’s Registration Statement

on Form 10 as filed on July 18, 2008)

 

4.23 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 6.02% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated July 24, 2007 (incorporated by reference to Exhibit 4.23 to the Registrant’s Registration Statement

on Form 10 as filed on July 18, 2008)

 

4.24 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of 6.55% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per

share), dated September 28, 2007 (incorporated by reference to Exhibit 4.24 to the Registrant’s Registration

Statement on Form 10 as filed on July 18, 2008)

4.25 Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,

Restrictions, Terms and Conditions of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock (par

value $1.00 per share), dated December 4, 2007 (incorporated by reference to Exhibit 4.25 to the Registrant’s

Registration Statement on Form 10 as filed on July 18, 2008)

 

4.26 Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges,

Qualifications, Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred

Stock (par value $1.00 per share), dated September 27, 2012 (incorporated by reference to Exhibit 4.26 to the

Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed on February 28, 2013)

 

4.27 Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated February 18, 2016

(incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly

period ended March 31, 2016, as filed on May 3, 2016)

 

10.1 Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as amended and restated

April 3, 1998) (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form 10

as filed on July 18, 2008)†

10.2 First Amendment to the Federal Home Loan Mortgage Corporation Directors’ Deferred Compensation Plan (as

amended and restated April 3, 1998) (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report

on Form 10-K for the year ended December 31, 2008, as filed on March 11, 2009)†

 

10.3 Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated

effective January 1, 2008) (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement

on Form 10 as filed on July 18, 2008)†

 

10.4 First Amendment to the Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as

amended and restated effective January 1, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s

Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, as filed on November 14,

2008)†

10.5 Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated

effective January 1, 2008) (incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement

on Form 10 as filed on July 18, 2008)†
Exhibit Index

Freddie Mac 2016 Form 10-K E-4

Exhibit No. Description*

10.6 First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (As

Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual

Report on Form 10-K for the year ended December 31, 2009, as filed on February 24, 2010)†

 

10.7 Second Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan

(as Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current

Report on Form 8-K as filed on June 28, 2011)†

 

10.8 Third Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as

Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly

Report on Form 10-Q for the quarterly period ended September 30, 2012, as filed on November 6, 2012)†

 

10.9 Fourth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan

(As Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s

Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013, as filed on August 7, 2013)†

 

10.10 Fifth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as

Amended and Restated January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current

Report on Form 8-K, as filed on October 25, 2013) †

10.11 Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective January 1, 2014)

(incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended

December 31, 2014, as filed on February 19, 2015) †

10.12 First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II 

(effective January 1, 2014) (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 

10-Q for the quarterly period ended June 30, 2015, as filed on August 4, 2015) †

10.13 Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.34

to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.14 First Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by

reference to Exhibit 10.35 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

 

10.15 Second Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by

reference to Exhibit 10.36 to the Registrant’s Registration Statement on Form 10 as filed on July 18, 2008)†

10.16 Third Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by

reference to Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2015,

as filed on February 18, 2016)†

10.17 Fourth Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan†

10.18 Executive Management Compensation Program Recapture and Forfeiture Agreement †

10.19 2015 Executive Management Compensation Program (incorporated by reference to Exhibit 10.2 to the 

Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, as filed on August 4, 

2015)†
Exhibit Index

Freddie Mac 2016 Form 10-K E-5

Exhibit No. Description*

10.20 Memorandum Agreement, dated May 7, 2012, between Freddie Mac and Donald H. Layton (incorporated by

reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed on May 10, 2012)†

10.21 Restrictive Covenant and Confidentiality Agreement, dated May 7, 2012, between Freddie Mac and Donald H.

Layton (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed on May

10, 2012)†

 

10.22 Memorandum Agreement, dated September 24, 2013, between Freddie Mac and James Mackey (incorporated by

reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on September 30, 2013)†

 

10.23 Restrictive Covenant and Confidentiality Agreement, dated September 25, 2013, between Freddie Mac and

James Mackey (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed

on September 30, 2013)†

10.24 Memorandum Agreement, dated July 3, 2012, between Freddie Mac and William H. McDavid (incorporated by

reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on July 9, 2012)†

10.25 Restrictive Covenant and Confidentiality Agreement, dated July 6, 2012, between Freddie Mac and William H.

McDavid (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, as filed on

July 9, 2012)†

10.26 Memorandum Agreement, dated April 7, 2013, between Freddie Mac and David B. Lowman (incorporated by

reference to Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013,

as filed on February 27, 2014)†

10.27 Restrictive Covenant and Confidentiality Agreement, dated April 9, 2013, between Freddie Mac and David B.

Lowman (incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K for the year

ended December 31, 2013, as filed on February 27, 2014)†

10.28 Memorandum Agreement, dated April 6, 2015, between Freddie Mac and Anil Hinduja†

10.29 Restrictive Covenant and Confidentiality Agreement, dated April 7, 2015, between Freddie Mac and Anil Hinduja†

10.30 Description of non-employee director compensation (incorporated by reference to Exhibit 10.1 to the Registrant’s

Current Report on Form 8-K as filed on December 23, 2008)†

 

10.31 PC Master Trust Agreement dated February 2, 2017

10.32 Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers

(for agreements with officers entered into prior to August 2011) and outside Directors (incorporated by reference to

Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed on December 23, 2008)†

10.33 Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and executive officers

(for agreements with officers entered into beginning in August 2011) (incorporated by reference to Exhibit 10.54 to

the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed on March 9, 2012)†

10.34 Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between

the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the

Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to

the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, as filed on

November 14, 2008)
Exhibit Index

Freddie Mac 2016 Form 10-K E-6

Exhibit No. Description*

10.35 Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009,

between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting

through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to

Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, as

filed on May 12, 2009)

10.36 Second Amendment dated as of December 24, 2009, to the Amended and Restated Senior Preferred Stock

Purchase Agreement dated as of September 26, 2008, between the United States Department of the Treasury

and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its duly

appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K,

as filed on December 29, 2009)

 

10.37 Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase

Agreement dated as of September 26, 2008, between the United States Department of the Treasury and Federal

Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its duly appointed

Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, as filed on

August 17, 2012)

 

10.38 Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the

Registrant’s Current Report on Form 8-K as filed on September 11, 2008)

12.1 Statement re: computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined

fixed charges and preferred stock dividends

24.1 Powers of Attorney

31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)

 

31.2 Certification of Executive Vice President —Chief Financial Officer pursuant to Securities Exchange Act Rule

13a-14(a)

 

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

 

32.2 Certification of Executive Vice President —Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS XBRL Instance Document

 

101.SCH XBRL Taxonomy Extension Schema

 

101.CAL XBRL Taxonomy Extension Calculation

 

101.LAB XBRL Taxonomy Extension Labels

 

101.PRE XBRL Taxonomy Extension Presentation

 

101.DEF XBRL Taxonomy Extension Definition

* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly

Reports on Form 10-Q and Current Reports on Form 8-K are 000-53330 and 001-34139.

† This exhibit is a management contract or compensatory plan or arrangement.
Exhibit 10.17

FOURTH AMENDMENT

TO THE

FEDERAL HOME LOAN MORTGAGE CORPORATION

LONG TERM DISABILITY PLAN

(As Restated and Amended January 1, 1997)

FOURTH AMENDMENT to the FEDERAL HOME LOAN MORTGAGE CORPORATION 

LONG TERM DISABILITY PLAN (the “Plan”) by the FEDERAL HOME LOAN 

MORTGAGE CORPORATION (the “Corporation”), a corporation organized and existing under 

the laws of the United States of America.

W I T N E S S E T H:

WHEREAS, the Plan was restated effective January 1, 1997; 

WHEREAS, the Corporation desires to amend the Plan;

WHEREAS, Section 3.6 of the Plan permits the Corporation to amend the Plan; and

WHEREAS, the appropriate officer of the Corporation has been duly authorized to amend this 

plan and execute this document.

NOW THEREFORE, the Plan is amended as set forth below effective January 1, 2017.

1. The first Whereas paragraph of the Plan is amended to replace “(the Prudential Insurance 

Company of America (“Prudential”) or any successor thereto)” with “(Liberty Life Assurance 

Company of Boston (“Liberty”) or any successor thereto)”.

2. Section 1.1 (Purpose) is amended to replace the first sentence thereof with the following:

This document, together with those portions of Corporate Policy No. 3-235 as 

concerns long-term disability and the group insurance contract issued by Liberty 

to the Corporation for long-term disability coverage (“Policy”), as the same from 

time to time may be amended, renewed or substituted, incorporated herein by 

reference, constitutes the Federal Home Loan Mortgage Corporation Long-Term 

Disability Plan (“Plan”).

3. Section 2.1 (Plan Administration) is amended to replace “Prudential” in the first sentence 

of the second paragraph with “Liberty”.

4. Section 3.1 (Nonassignability) is amended in its entirety to read as follows:
3.1. Nonassignability. The right of any Participant or Beneficiary to any benefit or to 

any payment hereunder, to the fullest extent permitted by law, shall not be subject 

to alienation, anticipation, assignment, garnishment, attachment, execution or levy 

of any kind. Any such attempted assignment or transfer shall be disregarded, and 

shall not operate in any way to assign or confer upon any third party any rights 

under the Plan or Employee Retirement Income Security Act of 1974, as 

amended.

IN WITNESS WHEREOF, the Federal Home Loan Mortgage Corporation has caused this 

FOURTH AMENDMENT to the FEDERAL HOME LOAN MORTGAGE 

CORPORATION LONG TERM DISABILITY PLAN to be executed by its duly authorized 

officer this 27 day of December, 2016.

FEDERAL HOME LOAN MORTGAGE 

CORPORATION

By: /s/ Daniel Scheinkman_______________

Daniel Scheinkman

Vice President - Compensation and Benefits

ATTEST

/s/ Mark Schoenfelder____

Assistant Secretary

2
Page 1 of 4

Exhibit 10.18

EXECUTIVE MANAGEMENT COMPENSATION PROGRAM

Recapture and Forfeiture Agreement

Purpose A Covered Officer’s agreement to this Recapture and Forfeiture Agreement 

(“Recapture Agreement” or “Agreement”) is a condition of their participation in 

the Executive Management Compensation and any successor compensation 

programs for Covered Officers (collectively, the “EMCP”).

This Agreement sets forth terms and conditions pursuant to which the Covered 

Officer’s compensation under the EMCP and any successors thereto may be 

recaptured and/or forfeited.

Effective Date This Agreement applies to Deferred Salary (as defined in the EMCP) earned, 

paid or to be paid pursuant to the terms of the EMCP and any determination of 

a Forfeiture Event (as defined herein) that occurs on or after the date of your 

promotion or hire into a Covered Officer position.

 

Forfeiture Events 

and Compensation 

Subject to

Recapture or

Forfeiture

After providing the requisite Notice, the Freddie Mac Board of Directors, in the 

good faith exercise of its sole discretion, determines that any of the following 

events (each a “Forfeiture Event”) have occurred:

1. Forfeiture Event: The Covered Officer has earned or obtained the 

legally binding right to a payment of Deferred Salary based on 

materially inaccurate financial statements (including without limitation, 

statements of earnings, revenues, or gains) or any other materially 

inaccurate performance measure.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred 

Salary in excess of the amounts that the Board determines would 

likely have been otherwise earned by the Covered Officer using 

accurate measures during the two years prior to the Forfeiture Event.

2. Forfeiture Events:

(i) The Covered Officer’s employment with Freddie Mac is terminated 

because the Covered Officer is either convicted of, or pleads guilty or 

nolo contendere to, a felony;

(ii) Subsequent to termination of employment:

a. the Covered Officer is convicted of, or pleads guilty or nolo 

contendere to, a felony, based on conduct occurring prior to 

termination; and,

b. within one year of such conviction or plea, the Board 

determines in good faith that such conduct is materially 

harmful to the business or reputation of Freddie Mac.

(iii) The Covered Officer‘s employment is terminated because, or within 

two years of the Covered Officer’s termination of employment, the 

Board determines in good faith that, the Covered Officer engaged in 

any willful misconduct in the performance of his or her duties with 

Freddie Mac that is materially harmful to the business or reputation of 

Freddie Mac (for such purposes, “willful” shall mean any act or 

omission by the Covered Officer that was done in bad faith or in the 

absence of a reasonable belief that the same was in the best interests

of Freddie Mac).
Page 2 of 4

EXECUTIVE MANAGEMENT COMPENSATION PROGRAM

Recapture and Forfeiture Agreement

Compensation Subject to Recapture and/of Forfeiture: Any Deferred 

Salary earned by the Covered Officer during the two years prior to the 

date that the Covered Officer is terminated, any Deferred Salary that 

is scheduled to be paid to the Covered Officer within two years after 

termination of employment and any other cash payment made or to 

be made to the Covered Officer as consideration for any release of 

claims agreement between the Covered Officer and Freddie Mac.

3. Forfeiture Event: The Covered Officer’s employment with Freddie Mac 

is terminated because, in carrying out his or her duties, the Covered 

Officer engages in conduct that constitutes gross neglect or gross 

misconduct that is materially harmful to Freddie Mac, or within two 

years after the Covered Officer’s termination of employment the Board 

determines in good faith that the Covered Officer, prior to his or her 

termination of employment, engaged in conduct that constitutes gross 

neglect or gross misconduct and that such actions resulted in 

material harm to Freddie Mac.

Compensation Subject to Recapture and/or Forfeiture: Any Deferred 

Salary paid to the Covered Officer at the time of termination or 

subsequent to the date of termination, including any cash payment 

made to the Covered Officer as consideration for any release of 

claims agreement between the Covered Officer and Freddie Mac.

4. Forfeiture Event: The Covered Officer has violated a post-termination 

non-competition covenant set forth in the Restrictive Covenant and 

Confidentiality Agreement between the Covered Officer and Freddie 

Mac in effect when a payment of Deferred Salary is scheduled to be 

made.

Compensation Subject to Recapture and/or Forfeiture: 50% of the 

Deferred Salary paid to the Covered Officer during the twelve months 

immediately preceding the violation and 100% of all Deferred Salary 

unpaid at the time of such violation.

The recapture of compensation constitutes a forfeiture of such compensation 

and the Covered Officer’s immediate repayment of the same to Freddie Mac 

shall occur notwithstanding the terms of any applicable plan, agreement or 

award to the contrary.

Dollar Amount to

be Recaptured

and/or Forfeited

After providing the requisite Notice, the Board of Directors in the good faith 

exercise of its sole discretion shall determine the appropriate dollar amount of 

compensation to be recaptured from and/or forfeited by the Covered Officer, if 

any, which is intended to be the gross amount of compensation in excess of 

what Freddie Mac would have paid the Covered Officer had Freddie Mac taken 

the Forfeiture Event into consideration at the time such compensation decision 

was made.

Neither the Covered Officer’s Base Salary nor the Covered Officer’s assets 

acquired either prior to employment by Freddie Mac or directly from sources 

other than Freddie Mac shall be subject to recapture or forfeiture pursuant to 

the terms of this Agreement.
Page 3 of 4

EXECUTIVE MANAGEMENT COMPENSATION PROGRAM

Recapture and Forfeiture Agreement

Notice

Requirements

 

A determination as to the occurrence of a Forfeiture Event and the dollar 

amount of compensation, if any, to be recaptured and/or forfeited pursuant to 

this Agreement shall be made only after first providing to the Covered Officer:

(i) reasonable advance notice setting forth Freddie Mac’s intention to 

make such a determination;

(ii) where remedial action is appropriate and feasible, a reasonable 

opportunity for the Covered Officer to take such action;

(iii) an opportunity for the Covered Officer, together with his or her 

counsel, to be heard before the Board; and

(iv) a copy of a resolution duly adopted by a majority of the entire Board 

at a meeting of the Board called and held for such purpose, making 

the requisite determination.

Reservation of

Rights

Nothing in this Recapture Agreement is intended or shall be construed to 

abrogate the “at will” employment relationship between the Covered Officer and 

Freddie Mac, and both the Covered Officer and Freddie Mac retain the right to 

terminate the employment relationship at any time for any lawful reason with or 

without notice.

Any dispute between the Covered Officer and Freddie Mac concerning the 

occurrence of a Forfeiture Event or the dollar amount of compensation subject 

to recapture and/or forfeiture shall be determined exclusively in accordance with 

the substantive law of the state in which the Covered Officer’s primary place of 

employment with Freddie Mac is located, excluding the provisions of the laws of 

such state concerning choice-of-law that would result in the application of the 

laws of any state other than such state being applied. The Covered Officer 

agrees that the federal courts with jurisdiction for the state in which his or her 

primary place of employment is located shall be the venue for and have 

exclusive jurisdiction over any such dispute.

The terms and conditions of this Recapture Agreement and any 

successors thereto are not intended to negate and do not supersede the 

provisions of any applicable law, regulation or regulatory guidance, 

including the authority of the Federal Housing Finance Agency (or any 

federal agency acting as Freddie Mac’s regulator or Conservator), 

pertaining to the payment or non-payment of any form of compensation 

paid or to be paid to the Covered Officer. The Federal Housing Finance 

Agency retains its authority to modify or terminate any of Freddie Mac’s 

compensation plans or programs (including the EMCP and any 

successors thereto), and with respect to any compensation paid or to be 

paid to you during or after your employment pursuant to the EMCP and 

any successors thereto, to withhold, escrow or prohibit such 

compensation, without giving rise to liability on the part of Freddie Mac.
Page 4 of 4

EXECUTIVE MANAGEMENT COMPENSATION PROGRAM

Recapture and Forfeiture Agreement

Your Review of

This Agreement

During your review of and prior to your agreement to this Recapture Agreement, 

Freddie Mac expects that you have had the opportunity to consult and receive 

assistance from appropriate advisors, including legal, tax, and financial

advisors.

By signing below, I acknowledge that I understand and voluntarily agree to the terms of this Recapture

Agreement.

_______________________________________________ __________________________________

Signature Date

_______________________________________________

Printed Name

_______________________________________________

Officer Title
Exhibit 10.28

Date To

April 6, 2015 Anil Hinduja

From

Donald H. Layton

Subject

Your Compensation as Executive Vice President and Chief Enterprise Risk Officer

On behalf of Freddie Mac’s Board of Directors (the “Board”), this memorandum sets forth 

Freddie Mac’s agreement to employ you as its Executive Vice President and Chief Enterprise 

Risk Officer, effective no later than 180 days from the day you resign your current position, 

pursuant to the terms and conditions set forth herein. The terms and conditions set forth herein 

have been approved by the Board and the Federal Housing Finance Agency (“FHFA”) and 

supersede any previous communications you may have had with Freddie Mac or FHFA. 

As Freddie Mac’s Executive Vice President and Chief Enterprise Risk Officer, you shall report to 

me, Freddie Mac’s Chief Executive Officer. During your employment, you agree to devote 

substantially all of your time, attention, and energies to Freddie Mac’s business, and to not be 

engaged in any other business activity unless permitted under our Outside Activities and Family 

Member Activities policy. This restriction shall not prevent you from devoting a reasonable 

amount of time to charitable or public interest activities or from making passive investments of 

your assets in such form or manner as you desire, consistent with Freddie Mac’s Personal 

Securities Investment policy. 

The following outlines the terms of your employment with us, including your compensation and 

benefits. Congratulations and we look forward to you joining the Freddie Mac team!

I. Compensation

Your compensation is governed by the Executive Management Compensation Program 

(“EMCP”), which was designed by FHFA to reflect the principles established for companies 

receiving federal assistance. To participate in the EMCP, you must agree to the terms of the 

EMCP Program Document and a Recapture and Forfeiture Agreement, both of which are 

enclosed. The EMCP Program Document outlines the terms and conditions of our 

compensation program for senior executives, while the Recapture and Forfeiture Agreement 

describes the circumstances under which certain compensation is subject to forfeiture and 

repayment. In the event that you do not agree to the terms of either or both documents, you will 

be paid only Base Salary.
Compensation Terms - Anil Hinduja - April 6, 2015

Page 2 of 5

Your target total direct compensation (“Target TDC”) will be $2,250,000, which will be pro-rated 

in the first calendar year of employment based on your agreed upon hire date. 

Your Target TDC will consist of two components - Base Salary and Deferred Salary - which 

are summarized below.

Base Salary - Base Salary is paid in cash. The annualized amount of your Base Salary is 

$500,000. 

Deferred Salary - Deferred Salary earned in each quarter is paid in cash in the last pay period 

of the corresponding quarter of the following calendar year. The annualized amount of your 

Deferred Salary is $1,750,000 and is comprised of the following two components:

• At-Risk Deferred Salary - This portion of your Deferred Salary is equal to thirty percent 

(30%) of your Target TDC, or $675,000, up to half of which may be reduced based on the 

company’s performance against objectives established by FHFA and up to half of which 

may be reduced based on performance against objectives established by Freddie Mac and 

your individual performance.

• Fixed Deferred Salary - This portion of your Deferred Salary is equal to your Target TDC 

less your Base Salary and At-Risk Deferred Salary, and is equal to $1,075,000.

Cash Award - In consideration of your accepting this offer and beginning employment with 

Freddie Mac, you will receive a cash award in the amount of $1,200,000. The cash award is not 

considered “compensation” for purposes of our tax qualified Thrift/401(k) Savings Plan and our 

non-qualified Supplemental Executive Retirement Plan and will be earned and paid as follows:

• First Installment: $350,000 on the same date on which you receive your first 

payment of Base Salary

• Second Installment: $400,000 in the first pay period of March 2016 

• Third Installment: $300,000 in the first pay period of March 2017

• Fourth Installment: $150,000 in the first pay period of March 2018

The amount of the Second Installment will be increased if your current employer imposes a 

period of “garden leave.” The amount of the increase will be based on the duration of the 

garden leave, as follows.

• 90 Days of Garden Leave: $150,000

• 120 Days of Garden Leave: $262,500

• 150 Days of Garden Leave: $375,000

• 180 Days of Garden Leave: $450,000

In the event your employment terminates, any unpaid installments of the Cash Award will be 

paid unless your employment terminates due to a “Termination Event,” which shall mean:

• You voluntarily resign employment; or,

• We terminate your employment due to the occurrence of any of the Forfeiture Events 

described in the Recapture and Forfeiture Agreement.
Compensation Terms - Anil Hinduja - April 6, 2015

Page 3 of 5

If your employment terminates due to a Termination event, unpaid installments will be forfeited 

and any installment paid within one year of the Termination Event shall be subject to 

repayment. 

II. Benefits

You will be eligible to participate in all employee benefit plans offered to Freddie Mac’s senior 

executive officers (as may be modified or terminated from time to time by Freddie Mac in its 

sole discretion) pursuant to the terms set forth in the applicable plan. In summary, our current 

benefit plans consist of the following:

• Healthcare Coverage - We offer a competitive healthcare program that provides medical, 

dental and vision coverage for you and your eligible dependents with several options from 

which to choose. 

• Income Protection - We provide short- and long-term disability income protection, life 

insurance, accidental death and personal loss insurance, and business travel accident 

insurance.

• Vacation - As an officer, you will accrue 20 days of vacation annually. You begin accruing 

vacation starting with your first full pay period. Beginning in your second calendar year of 

employment you have the option to purchase up to five (5) additional days of vacation.

• Thrift/401(k) Savings Plan - You will be able to contribute to our Thrift/401(k) Savings Plan 

on a pre-tax and/or after-tax basis. Freddie Mac will begin matching a portion of your 

contributions after one year of service at up to six percent of pay. This plan also includes 

an annual company contribution. This contribution is in addition to the matching 

contribution.

• Supplemental Executive Retirement Plan (SERP) - The SERP is an unfunded nonqualified 

plan for officers intended to make up for employer-provided contributions under the 

Thrift/401(k) Savings Plan that are capped due to Internal Revenue Code limitations. 

Under separate cover, we are sending details of our employee benefit plans. As a new 

employee, you may select the benefit plans that best meet your needs by logging on to 

Fidelity’s NetBenefits website at http://netbenefits.fidelity.com. Shortly after your start date, you 

will receive an email from the Freddie Mac Benefits Center instructing you to log on to 

NetBenefits to make your elections. 

Note that you will not receive any information at your home address. Your enrollment window is 

open for 30 days following your hire date. During orientation, our benefit plans and information 

about enrollment will be explained in greater detail. Please visit our new employee website, 

http://www.freddiemac.com/careers/newemployee/, for information about working at Freddie 

Mac.
Compensation Terms - Anil Hinduja - April 6, 2015

Page 4 of 5

III. Restrictive Covenant and Confidentiality Agreement

The terms of your compensation provided in this letter are also contingent upon your agreement 

to be bound by the terms of the enclosed Restrictive Covenant and Confidentiality Agreement, 

which you must sign and return together with a signed copy of this letter.

IV. FHFA’s Review and Approval Authority

The terms and conditions of your compensation have been reviewed and approved by FHFA in 

consultation with Treasury, as required under the terms of the company’s Preferred Stock 

Agreement. Notwithstanding such approval and any provision of this letter, you acknowledge 

and understand that any compensation paid or to be paid during or after your employment 

remains subject to any withholding, escrow or prohibition consistent with FHFA’s authority 

pursuant to the Federal Home Loan Corporation Act, as amended, or the Federal Housing 

Enterprises Financial Safety and Soundness Act of 1992, as amended.

V. Reservations of Rights:

This letter is not intended, nor shall it be interpreted, to constitute a contract of employment for 

a specified duration. Your employment is at-will and both you and Freddie Mac retain the 

discretion to terminate the employment relationship at any time for any lawful reason with or 

without notice.

This offer of employment is contingent upon Freddie Mac’s satisfaction in its sole discretion with 

your references and the results of your background checks and drug test.

=====================

During the course of your review of this memorandum, Freddie Mac expects that you have had 

the opportunity to consult and receive assistance from appropriate advisors, including legal, tax, 

and financial advisors.

This memorandum shall be construed, and the rights and obligations herein determined, 

exclusively in accordance with the substantive law of the Commonwealth of Virginia, excluding 

provisions of Virginia law concerning choice-of-law that would result in the law of any state other 

than Virginia being applied.
Compensation Terms - Anil Hinduja - April 6, 2015

Page 5 of 5

VI. Return of Signed Documents:

Please confirm that the terms and conditions in this letter conform to your understanding by 

returning a signed copy of this letter as well as signed copies of the EMCP, the Recapture and 

Forfeiture Agreement and the Restrictive Covenant and Confidentiality Agreement.

/s/ Donald H. Layton__________________ April 6, 2015____

Donald H. Layton Date

Chief Executive Officer

I agree to the terms of this Agreement. 

/s/ Anil Hinduja______________________ April 7, 2015____

Anil Hinduja Date
Exhibit 10.29

RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENT

In exchange for the mutual promises and consideration set forth below, this Restrictive Covenant and 

Confidentiality Agreement (“Agreement”) is entered into by and between the Federal Home Loan 

Mortgage Corporation (“Freddie Mac” or “Company”) and Anil Hinduja (“Executive” or “you”), effective 

on the date the Executive assigns a personal signature to page 5 of this Agreement.

I. Definitions

The following terms shall have the meanings indicated when used in this Agreement.

A. Competitor: The following entities, and their respective parents, successors, subsidiaries, and 

affiliates are competitors: (i) Fannie Mae (ii) all Federal Home Loan Banks (including the Office of 

Finance); and (iii) such other entities to which Executive and the Company may agree in writing from 

time-to-time.

B. Confidential Information: Information or materials in written, oral, magnetic, digital, computer, 

photographic, optical, electronic, or other form, whether now existing or developed or created during the 

period of Executive’s employment with Freddie Mac, that constitutes trade secrets and/or proprietary or 

confidential information. This information includes, but is not limited to: (i) all information marked 

Proprietary or Confidential; (ii) information concerning the components, capabilities, and attributes of 

Freddie Mac’s business plans, methods, and strategies; (iii) information relating to tactics, plans, or 

strategies concerning shareholders, investors, pricing, investment, marketing, sales, trading, funding, 

hedging, modeling, sales and risk management; (iv) financial or tax information and analyses, including 

but not limited to, information concerning Freddie Mac’s capital structure and tax or financial planning; 

(v) confidential information about Freddie Mac’s customers, borrowers, employees, or others; (vi) 

pricing and quoting information, policies, procedures, and practices; (vii) confidential customer lists; 

(viii) proprietary algorithms; (ix) confidential contract terms; (x) confidential information concerning 

Freddie Mac’s policies, procedures, and practices or the way in which Freddie Mac does business; (xi) 

proprietary or confidential data bases, including their structure and content; (xii) proprietary Freddie Mac 

business software, including its design, specifications and documentation; (xiii) information about 

Freddie Mac products, programs, and services which has not yet been made public; (xiv) confidential 

information about Freddie Mac’s dealings with third parties, including dealers, customers, vendors, and 

regulators; and/or (xv) confidential information belonging to third parties to which Executive received 

access in connection with Executive’s employment with Freddie Mac. Confidential Information does not 

include general skills, experience, or knowledge acquired in connection with Executive’s employment 

with Freddie Mac that otherwise are generally known to the public or within the industry or trade in 

which Freddie Mac operates.

II. Non-Competition

Executive recognizes that as a result of Executive’s employment with Freddie Mac, Executive has access 

to and knowledge of critically sensitive Confidential Information, the improper disclosure or use of 

which would result in grave competitive harm to Freddie Mac. Therefore, Executive agrees that neither 

during Executive’s employment with Freddie Mac, nor for the twelve (12) months immediately following 

termination of Executive’s employment for any reason, will Executive consider offers of employment 

from, seek or accept employment with, or otherwise directly or indirectly provide professional services to 

any Competitor, if the Executive will be rendering duties, responsibilities or services for the Competitor 
2

that are of the type and nature rendered or performed by you during the past two years of your 

employment with Freddie Mac. Executive acknowledges and agrees that this covenant has unique, 

substantial and immeasurable value to Freddie Mac, that Executive has sufficient skills to provide a 

livelihood for Executive while this covenant remains in force, and that this covenant will not interfere 

with Executive’s ability to work consistent with Executive’s experience, training and education. This 

non-competition covenant applies regardless of whether Executive’s employment is terminated by 

Executive, by Freddie Mac, or by a joint decision. 

If Executive is a licensed lawyer, this non-competition covenant shall be interpreted in a manner 

consistent with any rule applicable to a licensed legal professional in the jurisdiction(s) of the 

Executive’s licensure or registration that concerns the Executive’s employment as counsel with, or 

provision of legal services to, a Competitor.

III. Non-Solicitation and Non-Recruitment

During Executive’s employment with Freddie Mac and for a period of twelve (12) months after 

Executive’s termination date, Executive will not solicit or recruit, attempt to solicit or recruit or assist 

another in soliciting or recruiting any Freddie Mac managerial employee (including manager-level, 

Executive-level, or officer-level employee) with whom Executive worked, or any employee whom 

Executive directly or indirectly supervised at Freddie Mac, to leave the employee’s employment with 

Freddie Mac for purposes of employment or for the rendering of professional services. This prohibition 

against solicitation does not apply if Freddie Mac has notified the employee being solicited or recruited 

that his/her employment with the Company will be terminated pursuant to a corporate reorganization or 

reduction-in-force.

If Employee is a licensed lawyer, this non-solicitation covenant shall be interpreted in a manner 

consistent with any rule applicable to a licensed legal professional in the jurisdiction(s) of Employee’s 

licensure or registration.

IV. Treatment of Confidential Information

A. Non-Disclosure. Executive recognizes that Freddie Mac is engaged in an extremely competitive 

business and that, in the course of performing Executive’s job duties, Executive will have access to and 

gain knowledge about Confidential Information. Executive further recognizes the importance of 

carefully protecting this Confidential Information in order for Freddie Mac to compete successfully. 

Therefore, Executive agrees that Executive will neither divulge Confidential Information to any persons, 

including to other Freddie Mac employees who do not have a Freddie Mac business-related need to 

know, nor make use of the Confidential Information for the Executive’s own benefit or for the benefit of 

anyone else other than Freddie Mac. Executive further agrees to take all reasonable precautions to 

prevent the disclosure of Confidential Information to unauthorized persons or entities, and to comply 

with all Company policies, procedures, and instructions regarding the treatment of such information.

B. Return of Materials. Executive agrees that upon termination of Executive’s employment with 

Freddie Mac for any reason whatsoever, Executive will deliver to Executive’s immediate supervisor all 

tangible materials embodying Confidential Information, including, but not limited to, any documentation, 

records, listings, notes, files, data, sketches, memoranda, models, accounts, reference materials, samples, 

machine-readable media, computer disks, tapes, and equipment which in any way relate to Confidential 

Information, whether developed by Executive or not. Executive further agrees not to retain any copies of 

any materials embodying Confidential Information. 

C. Post-Termination Obligations. Executive agrees that after the termination of Executive’s 

employment for any reason, Executive will not use in any way whatsoever, nor disclose any Confidential 
3

Information learned or obtained in connection with Executive’s employment with Freddie Mac without 

first obtaining the written permission of the Senior Vice President of Human Resources of Freddie Mac. 

Executive further agrees that, in order to assure the continued confidentiality of the Confidential 

Information, Freddie Mac may correspond with Executive’s future employers to advise them generally of 

Executive’s exposure to and knowledge of Confidential Information, and Executive’s obligations and 

responsibilities regarding the Confidential Information. Executive understands and agrees that any such 

contact may include a request for assurance and confirmation from such employer(s) that Executive will 

not disclose Confidential Information to such employer(s), nor will such employer(s) permit any use 

whatsoever of the Confidential Information. To enable Freddie Mac to monitor compliance with the 

obligations imposed by this Agreement, Executive further agrees to inform in writing Freddie Mac’s 

Senior Vice President of Human Resources of the identity of Executive’s subsequent employer(s) and 

Executive’s prospective job title and responsibilities prior to beginning employment. Executive agrees 

that this notice requirement shall remain in effect for twelve (12) months following the termination of 

Executive’s Freddie Mac employment.

D. Ability to Enforce Agreement and Assist Government Investigations. Nothing in this Agreement 

prohibits or otherwise restricts you from: (1) making any disclosure of information required by law; (2) 

assisting any regulatory or law enforcement agency or legislative body to the extent you maintain a legal 

right to do so notwithstanding this Agreement; (3) filing, testifying, participating in or otherwise assisting 

in a proceeding relating to the alleged violation of any federal, state, or local law, regulation, or rule, to 

the extent you maintain a legal right to do so notwithstanding this Agreement; or (4) filing, testifying, 

participating in or otherwise assisting the Securities and Exchange Commission or any other proper 

authority in a proceeding relating to allegations of fraud.

V. Consideration Given to Executive

In exchange for agreeing to be bound by the terms, conditions, and restrictions stated in this Agreement, 

Freddie Mac will provide the Executive with employment as Executive Vice President and Chief 

Enterprise Risk Officer, which itself is adequate consideration for Executive’s agreement to be bound by 

the provisions of this Agreement.

VI. Reservation of Rights

Executive agrees that nothing in this Agreement constitutes a contract or commitment by Freddie Mac to 

continue Executive’s employment in any job position for any period of time, nor does anything in this 

Agreement limit in any way Freddie Mac’s right to terminate Executive’s employment at any time for 

any reason.

VII. Compliance with the Code of Conduct and Corporate Policies & Procedures, Including Personal 

Securities Investments Policy

As a Freddie Mac employee, Executive will be subject to Freddie Mac’s Code of Conduct (“Code”) and 

to Corporate Policy 3-206, Personal Securities Investments Policy (“Policy”) that, among other things, 

limit the investment activities of Freddie Mac employees. Executive agrees to fully comply with the 

Code and the Policy, copies of which are enclosed for Executive’s review. 

Executive agrees to consult with Freddie Mac’s Chief Compliance Officer as soon as practical prior to 

beginning employment about any investments that Executive or a “covered household member,” as that 

term is defined in the Policy, may have that may be prohibited by the Policy. Executive also agrees to 
4

disclose prior to beginning employment any other matter or situation that may create a conflict of interest 

as such term is defined in the Code. 

In addition, prior to beginning employment, Executive agrees to disclose to Freddie Mac's Human 

Resources Division the terms of any employment, confidentiality or stock grant agreements to which 

Executive may currently be subject that may affect Executive’s future employment or recruiting activities 

so that Freddie Mac may ensure that Executive’s employment by Freddie Mac and conduct as a Freddie 

Mac employee are not inconsistent with any of their terms. 

VIII. Absence of Any Conflict of Interest

Executive represents that Executive does not have any confidential information, trade secrets or other 

proprietary information that Executive obtained as the result of Executive’s employment with another 

employer that Executive will be using in Executive’s position at Freddie Mac. Executive also represents 

that Executive is not subject to any employment, confidentiality or stock grant agreements, or any other 

restrictions or limitations imposed by a prior employer, which would affect Executive’s ability to 

perform the duties and responsibilities for Freddie Mac in the job position offered, and further represents 

that Executive has provided Freddie Mac with copies of any non-competition, non-solicitation or similar 

agreements or limitations that have not expired, so that Freddie Mac can make an independent judgment 

that Executive’s employment with Freddie Mac is not inconsistent with any of its terms.

IX. Enforcement

A. Executive acknowledges that Executive may be subject to discipline, up to and including 

termination of employment, for Executive’s breach or threat of breach of any provision of this 

Agreement.

B. Executive agrees that irreparable injury will result to Freddie Mac’s business interests in the event 

of breach or threatened breach of this Agreement, the full extent of Freddie Mac’s damages will be 

impossible to ascertain, and monetary damages will not be an adequate remedy for Freddie Mac. Therefore, 

Executive agrees that in the event of a breach or threat of breach of any provision(s) of this Agreement, 

Freddie Mac, in addition to any other relief available, shall be entitled to temporary, preliminary, and 

permanent equitable relief to restrain any such breach or threat of breach by Executive and all persons 

acting for and/or in concert with Executive, without the necessity of posting bond or security, which 

Executive expressly waives.

C. Executive agrees that each of Executive’s obligations specified in this Agreement is a separate and 

independent covenant, and that all of Executive’s obligations set forth herein shall survive any termination, 

for any reason, of Executive’s Freddie Mac employment. To the extent that any provision of this 

Agreement is determined by a court of competent jurisdiction to be unenforceable because it is overbroad, 

that provision shall be limited and enforced to the extent permitted by applicable law. Should any provision 

of this Agreement be declared or determined by any court of competent jurisdiction to be unenforceable or 

invalid under applicable law, the validity of the remaining obligations will not be affected thereby and only 

the unenforceable or invalid obligation will be deemed not to be a part of this Agreement. 

D. This Agreement is governed by, and will be construed in accordance with, the laws of the 

Commonwealth of Virginia, without regard to its or any other jurisdiction’s conflict-of-law provisions. 

Executive agrees that any action related to or arising out of this Agreement shall be brought exclusively in 

the United States District Court for the Eastern District of Virginia, and Executive hereby irrevocably 
5

consents to personal jurisdiction and venue in such court and to service of process by United States Mail or 

express courier service in any such action.

E. If any dispute(s) arise(s) between Freddie Mac and Executive with respect to any matter which is 

the subject of this Agreement, the prevailing party in such dispute(s) shall be entitled to recover from the 

other party all of its costs and expenses, including its reasonable attorneys’ fees.

Executive has been advised to discuss all aspects of this Agreement with Executive’s private attorney. 

Executive acknowledges that Executive has carefully read and understands the terms and provisions 

of this Agreement and that they are reasonable. Executive signs this Agreement voluntarily and 

accepts all obligations contained in this Agreement in exchange for the consideration to be given to 

Executive as outlined above, which Executive acknowledges is adequate and satisfactory, and which 

Executive further acknowledges Freddie Mac is not otherwise obligated to provide to Executive. 

Neither Freddie Mac nor its agents, representatives, directors, officers or employees have made any 

representations to Executive concerning the terms or effects of this Agreement, other than those 

contained in this Agreement.

By: _/s/ Anil Hinduja_______________________ Date: April 7, 2015

Anil Hinduja 
Exhibit 10.31

Freddie Mac

PC MASTER TRUST AGREEMENT

THIS PC MASTER TRUST AGREEMENT is entered into as of February 2, 2017, by and among 

Freddie Mac in its corporate capacity as Depositor, Administrator and Guarantor, Freddie Mac in its 

capacity as Trustee, and the Holders of the PCs offered from time to time pursuant to Freddie Mac’s 

Offering Circular referred to herein.

WHEREAS:

(a) Freddie Mac is a corporation duly organized and existing under and by virtue of the Freddie Mac 

Act and has full corporate power and authority to enter into this Agreement and to undertake the 

obligations undertaken by it herein; and

(b) Freddie Mac may from time to time (i) purchase Mortgages, in accordance with the applicable 

provisions of the Freddie Mac Act, (ii) as Depositor, transfer and deposit such Mortgages into various trust 

funds that are established pursuant to this Agreement and that are referred to herein as “PC Pools,” (iii) as 

Administrator, on behalf of the Trustee, create and issue hereunder, on behalf of the related PC Pool, PCs 

representing undivided beneficial ownership interests in the assets of that PC Pool, (iv) as Trustee, act as 

trustee for each such PC Pool, (v) as Guarantor, guarantee the payment of interest and principal for the 

benefit of the Holders of such PCs and (vi) as Administrator, administer the affairs of each such PC Pool.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this 

Agreement, the parties to this Agreement, do hereby declare and establish this Agreement and do hereby 

undertake and otherwise agree as follows with respect to the transfer of the Mortgages to various PC Pools, 

the issuance of the PCs and the establishment of the rights and obligations of the parties.

Definitions

The following terms used in this Agreement have the respective meanings set forth below.

Accrual Period: As to any PC and any Payment Date, (i) the calendar month preceding the month of 

the Payment Date for Gold PCs or (ii) the second calendar month preceding the month of the Payment Date 

for ARM PCs.

Administrator: Freddie Mac, in its corporate capacity, as administrator of the PC Pools created under 

this Agreement.

Agreement: This PC Master Trust Agreement, dated as of February 2, 2017, by and among Freddie 

Mac in its corporate capacity as Depositor, Administrator and Guarantor, Freddie Mac in its capacity as 

Trustee, and the Holders of the various PCs, as originally executed, or as modified, amended or 

supplemented in accordance with the provisions set forth herein. Unless the context requires otherwise, the 

term “Agreement” shall be deemed to include any applicable Pool Supplement entered into pursuant to 

Section 1.01 of this Agreement.

ARM: An adjustable rate Mortgage. 
ARM PC: A PC with a Payment Delay of 75 days and which is backed by ARMs. ARM PCs include 

Deferred Interest PCs.

Book-Entry Rules: The provisions from time to time in effect, currently contained in Title 12, Part 

1249 of the Code of Federal Regulations, setting forth the terms and conditions under which Freddie Mac 

may issue securities on the book-entry system of the Federal Reserve Banks and authorizing a Federal 

Reserve Bank to act as its agent in connection with such securities.

Business Day: A day other than (i) a Saturday or Sunday and (ii) a day when the Federal Reserve 

Bank of New York (or other agent acting as Freddie Mac’s fiscal agent) is closed or, as to any Holder, a 

day when the Federal Reserve Bank that maintains the Holder’s account is closed.

Conventional Mortgage: A Mortgage that is not guaranteed or insured by the United States or any 

agency or instrumentality of the United States.

Custodial Account: As defined in Section 3.05(e) of this Agreement.

Deferred Interest: The amount by which the interest due on a Mortgage exceeds the borrower’s 

monthly payment, which amount is added to the unpaid principal balance of the Mortgage.

Deferred Interest PC: A PC representing an undivided beneficial ownership interest in a PC Pool that 

includes Mortgages providing for negative amortization.

Depositor: Freddie Mac, in its corporate capacity, as depositor of Mortgages into the PC Pools 

created under this Agreement.

Eligible Investments: Any one or more of the following obligations, securities or holdings maturing 

on or before the Payment Date applicable to the funds so invested:

(i) obligations of, or obligations guaranteed as to the full and timely payment of principal and 

interest by, the United States; 

(ii) obligations of any agency or instrumentality of the United States (other than Freddie Mac, 

except as provided in subsection (ix) below) or taxable debt obligations of any state or local 

government (or political subdivision thereof) that have a long-term rating or a short-term rating, as 

applicable, from S&P, Moody’s or Fitch in any case in one of its two highest rating categories for 

long-term securities or in its highest ratings category for short-term securities; 

(iii) time deposits of any depository institution or trust company domiciled in the Cayman Islands 

or Nassau and affiliated with a financial institution that is a member of the Federal Reserve System, 

provided that the short-term securities of the depository institution or trust company are rated by S&P, 

Moody’s or Fitch in the highest applicable ratings category for short-term securities;

(iv) federal funds, certificates of deposit, time deposits and bankers’ acceptances with a fixed 

maturity of no more than 365 days of any depository institution or trust company, provided that the 

short-term securities of the depository institution or trust company are rated by S&P, Moody’s or Fitch 

in the highest applicable ratings category for short-term securities; 

(v) commercial paper with a fixed maturity of no more than 270 days, of any corporation that is 

rated by S&P, Moody’s or Fitch in its highest short-term ratings category; 
(vi) debt securities that have a long-term rating or a short-term rating, as applicable, from S&P, 

Moody’s or Fitch, in any case in one of its two highest ratings categories for long-term securities or in 

its highest ratings category for short-term securities; 

(vii) money market funds that are registered under the Investment Company Act of 1940, as 

amended, are entitled, pursuant to Rule 2a-7 of the Securities and Exchange Commission, or any 

successor to that rule, to hold themselves out to investors as money market funds, and are rated by 

S&P, Moody’s or Fitch in one of its two highest ratings categories for money market funds; 

(viii) asset-backed commercial paper that is rated by S&P, Moody’s or Fitch in its highest shortterm ratings category;

(ix) in the case of funds with respect to PCs issued on or after March 1, 2017, discount notes and 

other short-term debt obligations (in each case, with a stated final maturity, as of the related issue date, 

of one year or less) issued by Freddie Mac;

(x) repurchase agreements on obligations that are either specified in any of clauses (i), (ii), (iv), 

(v), (vi), (viii) or (ix) above or are mortgage-backed securities insured or guaranteed by an entity that is 

an agency or instrumentality of the United States; provided that the counterparty to the repurchase 

agreement is an entity whose short-term debt securities are rated by S&P, Moody’s or Fitch in its 

highest ratings category for short-term securities; and

(xi) any other investment without options that is approved by Freddie Mac and is within the two 

highest ratings categories of the applicable rating agency for long-term securities or the highest ratings 

category of the applicable rating agency for short-term securities.

The rating requirement will be satisfied if the relevant security, issue or fund at the time of purchase 

receives at least the minimum stated rating from at least one of S&P, Moody’s or Fitch. The rating 

requirement will not be satisfied by a rating that is the minimum rating followed by a minus sign or by 

a rating lower than Aa2 from Moody’s. 

Event of Default: As defined in Section 5.01 of this Agreement.

FHA/VA Mortgage: A Mortgage insured by the Federal Housing Administration or by the 

Department of Agriculture Rural Development (formerly the Rural Housing Service) or guaranteed by the 

Department of Veterans Affairs or the Department of Housing and Urban Development.

Final Payment Date: As to any PC, the first day of the latest month in which the related Pool Factor 

will be reduced to zero. The Administrator publishes the Final Payment Date upon formation of the related 

PC Pool.

Fitch: Fitch, Inc., also known as Fitch Ratings, or any successor thereto.

Freddie Mac: The Federal Home Loan Mortgage Corporation, a corporation created pursuant to the 

Freddie Mac Act for the purpose of establishing and supporting a secondary market in residential 

mortgages. Unless the context requires otherwise, the term “Freddie Mac” shall be deemed to refer to 

Freddie Mac acting in one or more of its corporate capacities, as specified or as provided in context, and 

not in its capacity as Trustee.

Freddie Mac Act: Title III of the Emergency Home Finance Act of 1970, as amended, 12 U.S.C. 

§§1451-1459.

Gold PC: A PC with a Payment Delay of 45 days and which is backed by fixed-rate Mortgages.
Guarantor: Freddie Mac, in its corporate capacity, as guarantor of the PCs issued by each PC Pool.

Guide: Freddie Mac’s Single-Family Seller/Servicer Guide, as supplemented and amended from time 

to time, in which Freddie Mac sets forth its mortgage purchase standards, credit, appraisal and underwriting 

guidelines and servicing policies.

Holder: With respect to any PC Pool, any entity that appears on the records of a Federal Reserve 

Bank as a holder of the related PCs.

Monthly Reporting Period: The period, which period the Administrator has the right to change as 

provided in Section 3.05(d) of this Agreement, during which servicers report Mortgage payments to the 

Administrator, generally consisting of:

(i) in the case of all payments other than full prepayments on the Mortgages, the one-month period 

(A) ending on the 15th of the month preceding the related Payment Date for Gold PCs and (B) ending on 

the 15th of the second month preceding the related Payment Date for ARM PCs; and 

(ii) in the case of full prepayments on the Mortgages (including repurchases of the Mortgages 

pursuant to Section 1.02(c) of this Agreement), the calendar month preceding the related Payment Date for 

Gold PCs and the second calendar month preceding the related Payment Date for ARM PCs; provided, 

however, that with respect to full prepayments on PCs issued before September 1, 1995, the Monthly 

Reporting Period generally is from the 16th of a month through the 15th of the next month.

Moody’s: Moody’s Investors Service, Inc., or any successor thereto.

Mortgage: A mortgage loan or a participation interest in a mortgage loan that is secured by a first or 

second lien on a one-to-four family dwelling and that has been purchased by the Depositor and transferred 

by the Depositor to the Trustee for inclusion in the related PC Pool. With respect to each PC Pool, the 

Mortgages to be included therein shall be identified on the books and records of the Depositor and the 

Administrator.

Mortgage Coupon: The per annum fixed or adjustable interest rate of a Mortgage.

MultiLender Swap Program: A program under which Freddie Mac purchases Mortgages from one or 

more sellers in exchange for PCs representing undivided beneficial ownership interests in a PC Pool 

consisting of Mortgages that may or may not be those delivered by the seller(s).

Negative Amortization Factor: With respect to PCs backed by Mortgages providing for negative 

amortization, a rounded (or, prior to the Negative Amortization Factors for the month of August 2016, 

truncated rather than rounded) eight-digit decimal number that reflects the amount of Deferred Interest 

added to the principal balances of the related Mortgages in the preceding month.

Offering Circular: Freddie Mac’s Mortgage Participation Certificates Offering Circular dated July 

19, 2016, as amended and supplemented by any Supplements issued from time to time, or any successor 

thereto, as it may be amended and supplemented from time to time.

Payment Date: The 15th of each month or, if the 15th is not a Business Day, the next Business Day.

Payment Delay: The delay between the first day of the Accrual Period for a PC and the related 

Payment Date.
PC: With respect to each PC Pool, a Mortgage Participation Certificate issued pursuant to this 

Agreement, representing a beneficial ownership interest in such PC Pool. The term “PC’’ includes a Gold 

PC or an ARM PC unless the context requires otherwise.

PC Coupon: The per annum fixed or adjustable rate of a PC calculated as described in the Offering 

Circular or the applicable Pool Supplement, computed on the basis of a 360-day year of twelve 30-day 

months.

PC Issue Date: With respect to each PC Pool, the date specified in the related Pool Supplement or, if 

not specified therein, the date on which Freddie Mac issues a PC in exchange for the Mortgages delivered 

by a dealer or other customer.

PC Pool: With respect to each PC, the corpus of the related trust fund created by this Agreement, 

consisting of (i) the related Mortgages and all proceeds thereof, (ii) amounts on deposit in the Custodial 

Account, to the extent allocable to such PC Pool, (iii) the right to receive payments under the related 

guarantee and (iv) any other assets specified in the related Pool Supplement, excluding any investment 

earnings on any of the assets of that PC Pool. With respect to each PC Pool, and unless expressly stated 

otherwise, the provisions of this Agreement will be interpreted as referring only to the Mortgages included 

in that PC Pool, the PCs issued by that PC Pool and the Holders of those PCs.

Person: Any legal person, including any individual, corporation, partnership, limited liability 

company, financial institution, joint venture, association, joint stock company, trust, unincorporated 

organization or governmental unit or political subdivision of any governmental unit. 

Pool Factor: With respect to each PC Pool, a rounded (or, prior to the Pool Factors for the month of 

August 2016, truncated rather than rounded) eight-digit decimal calculated for each month by the 

Administrator which, when multiplied by the original principal balance of the related PCs, will equal their 

remaining principal amount. The Pool Factor for any month reflects the remaining principal amount after 

the payment to be made on the Payment Date in the same month for Gold PCs or in the following month 

for ARM PCs.

Pool Supplement: Any physical or electronic document or record (which may be a supplement to the 

Offering Circular or any other supplemental document prepared by Freddie Mac for the related PCs), 

which, together herewith, evidences the establishment of a PC Pool and modifies, amends or supplements 

the provisions hereof in any respect whatsoever. The Pool Supplement for a particular PC Pool shall be 

binding and effective upon formation of the related PC Pool and issuance of the related PCs, whether or not 

such Pool Supplement is executed, delivered or published by Freddie Mac.

Purchase Documents: The mortgage purchase agreements between Freddie Mac and its Mortgage 

sellers and servicers, which are the contracts that govern the purchase and servicing of Mortgages and 

which include, among other things, the Guide and any negotiated modifications, amendments or 

supplements to the Guide. 

Record Date: As to any Payment Date, the close of business on the last day of (i) the preceding 

month for Gold PCs or (ii) the second preceding month for ARM PCs.

S&P: S&P Global Ratings, or any successor thereto. 

Trustee: Freddie Mac, in its capacity as trustee of each PC Pool formed under this Agreement, and its 

successors and assigns, which will have the trustee responsibilities specified in this Agreement, as amended 

or supplemented from time to time. 

Trustee Event of Default: As defined in Section 6.06 of this Agreement. 
ARTICLE I

Conveyance of Mortgages; Creation of PC Pools

Section 1.01. Declaration of Trust; Transfer of Mortgages. The Depositor, by delivering any 

Mortgages pursuant to this Agreement, unconditionally, absolutely and irrevocably hereby transfers, 

assigns, sets over and otherwise conveys to the Trustee, on behalf of the related Holders, all of the 

Depositor’s right, title and interest in and to such Mortgages, including all payments of principal and 

interest thereon received after the month in which the PC Issue Date occurs. Once Mortgages have been 

identified as being part of a related PC Pool for which at least one PC has been issued, they shall remain in 

that PC Pool unless removed in a manner consistent with this Agreement. Concurrently with the 

Depositor’s transferring, assigning, setting over and otherwise conveying the Mortgages to the Trustee for a 

PC Pool, the Trustee hereby accepts the Mortgages so conveyed and acknowledges that it holds the entire 

corpus of each PC Pool in trust for the exclusive benefit of the related Holders and shall deliver to, or on 

the order of, the Depositor, the PCs issued by such PC Pool. The Administrator agrees to administer the 

related PC Pool and such PCs in accordance with the terms of this Agreement. On the related PC Issue 

Date and upon payment to the Depositor for any such PC by a Holder, such Holder shall, by virtue thereof, 

acknowledge, accept and agree to be bound by all of the terms and conditions of this Agreement.

A Pool Supplement shall evidence the establishment of a particular PC Pool and shall relate to 

specific PCs representing the entire beneficial ownership interests in such PC Pool. If for any reason the 

creation of a Pool Supplement is delayed, Freddie Mac shall create one as soon as practicable, and such 

delay shall not affect the validity and existence of the PC Pool or the related PCs. With respect to each PC 

Pool, the collective terms hereof and of the related Pool Supplement shall govern the issuance and 

administration of the PCs related to such PC Pool, and all matters related thereto, and shall have no 

applicability to any other PC Pool or PCs. As applied to each PC Pool, the collective terms hereof and of 

the related Pool Supplement shall constitute an agreement as if the collective terms of those instruments 

were set forth in a single instrument. In the event of a conflict between the terms hereof and the terms of a 

Pool Supplement for a PC Pool, the terms of the Pool Supplement shall control with respect to that PC 

Pool. A Pool Supplement is not considered an amendment to this Agreement requiring approval pursuant 

to Section 7.05.

Section 1.02. Identity of the Mortgages; Substitution and Repurchase. 

(a) In consideration for the transfer of the related Mortgages by the Depositor to a PC Pool, the 

Depositor (i) shall receive the PCs issued by such PC Pool and (ii) may retain such PCs or transfer them to 

the related Mortgage seller or otherwise, as the Depositor deems appropriate.

(b) After the PC Issue Date but prior to the first Payment Date, the Depositor may, in accordance with 

its customary mortgage purchase and pooling procedures, adjust the amount and identity of the Mortgages 

to be transferred to a PC Pool, the PC Coupon and/or the original unpaid principal balance of the PCs and 

the Mortgages in the PC Pool, provided that any changes to the characteristics of the PCs shall be 

evidenced by an amendment or supplement to the related Pool Supplement.

(c) Except as provided in this Section 1.02 or in Section 1.03, once the Depositor has transferred a 

Mortgage to a particular PC Pool, such Mortgage may not be transferred out of such PC Pool, except (x) if 

a mortgage insurer exercises an option under an insurance contract to purchase such Mortgage or (y) in the 

case of repurchase by the Guarantor, the Administrator or the related Mortgage seller or servicer, under the 

following circumstances:
(i) The Guarantor may repurchase from the related PC Pool a Mortgage in connection with a 

guarantee payment under Section 3.09(a)(ii).

(ii) The Administrator may repurchase from the related PC Pool, or require or permit a 

Mortgage seller or servicer to repurchase, any Mortgage if a repurchase is necessary or advisable (A) 

to maintain servicing of the Mortgage in accordance with the provisions of the Guide, or (B) to 

maintain the status of the PC Pool as a grantor trust for federal income tax purposes.

(iii) The Guarantor may repurchase from the related PC Pool, or require or permit a Mortgage 

seller or servicer to repurchase, any Mortgage if (A) such Mortgage is 120 or more days delinquent, 

or (B) the Guarantor determines, on the basis of information from the related borrower or servicer, 

that loss of ownership of the property securing a Mortgage is likely or default is imminent due to 

borrower incapacity, death or hardship or other extraordinary circumstances that make future 

payments on such Mortgage unlikely or impossible.

(iv) The Guarantor may repurchase from the related PC Pool a Mortgage if a bankruptcy court 

approves a plan that materially affects the terms of the Mortgage or authorizes a transfer or 

substitution of the underlying property.

(v) The Administrator may require or permit a Mortgage seller or servicer to repurchase from 

the related PC Pool any Mortgage or (within six months of the issuance of the related PCs) substitute 

for any Mortgage a Mortgage of comparable type, unpaid principal balance, remaining term and 

yield, if there is (A) a material breach of warranty by the Mortgage seller or servicer, (B) a material 

defect in documentation as to such Mortgage or (C) a failure by a seller or servicer to comply with 

any requirements or terms set forth in the Guide and, if applicable, other Purchase Documents.

(vi) The Administrator shall repurchase from the related PC Pool any Mortgage or (within two 

years of the issuance of the related PCs) substitute for any Mortgage a Mortgage of comparable type, 

unpaid principal balance, remaining term and yield, if (A) a court of competent jurisdiction or a 

federal government agency duly authorized to oversee or regulate Freddie Mac’s mortgage purchase 

business determines that Freddie Mac’s purchase of such Mortgage was unauthorized and Freddie 

Mac determines that a cure is not practicable without unreasonable effort or expense or (B) such court 

or government agency requires repurchase of such Mortgage.

(vii) To the extent a PC Pool includes convertible ARMs or Balloon/Reset Mortgages (each, as 

defined in the Offering Circular), the Administrator shall repurchase from the related PC Pool or 

require or allow the Mortgage seller or servicer to repurchase such Mortgages (a) when the borrower 

exercises its option to convert the related interest rate from an adjustable rate to a fixed rate, in the 

case of a convertible ARM; and (b) shortly before such Mortgage reaches its scheduled balloon 

repayment date, in the case of a Balloon/Reset Mortgage.

(d) The purchase price of a Mortgage repurchased by a Mortgage seller or servicer shall be equal to 

the then unpaid principal balance of such Mortgage, less any principal on such Mortgage that the Mortgage 

seller or servicer advanced to the Depositor or the Administrator. The purchase price of a Mortgage 

repurchased by the Administrator or the Guarantor under this Agreement shall be equal to the then unpaid 

principal balance of such Mortgage, less any outstanding advances of principal on such Mortgage that the 

Administrator, on behalf of the Trustee, distributed to Holders. The Administrator, on behalf of the 

Trustee, agrees to release any Mortgage from the PC Pool upon payment of the applicable purchase price.

(e) In determining whether a Mortgage shall be repurchased from the related PC Pool as described in 

this Section 1.02, the Guarantor and the Administrator may consider such factors as they deem appropriate, 

including the reduction of administrative costs (in the case of the Administrator) or possible exposure as 

Guarantor under its guarantee (in the case of the Guarantor).
Section 1.03. Post-Settlement Purchase Adjustments

(a) The Administrator shall make any post-settlement purchase adjustments necessary to reflect the 

actual aggregate unpaid principal balance of the related Mortgages or other Mortgage characteristics as of 

the date of their purchase by the Depositor or their delivery to the Administrator, on behalf of the Trustee, 

in exchange for PCs, as the case may be.

(b) Post-settlement adjustments may be made in such manner as the Administrator deems appropriate, 

but shall not adversely affect any Holder’s rights to monthly payments of interest at the PC Coupon, any 

Holder’s pro rata share of principal or any Holder’s rights under the Guarantor’s guarantees. Any reduction 

in the principal balance of the Mortgages held by a PC Pool shall be reflected by the Administrator as a 

corresponding reduction in the principal balance of the related PCs with a corresponding principal payment 

to the related Holders, on a pro rata basis.

Section 1.04. Custody of Mortgage Documents. With respect to each PC Pool, the Administrator, a 

custodian acting as its agent (which may be a third party or a trust or custody department of the related 

seller or servicer), or the originator or seller of the Mortgage may hold the related Mortgage documents, 

including Mortgage notes and participation certificates evidencing the Trustee’s legal ownership interest in 

the Mortgages. The Administrator may adopt and modify its policies and procedures for the custody of 

Mortgage documents at any time, provided such modifications are prudent and do not materially and 

adversely affect the Holders’ interests.

Section 1.05. Interests Held or Acquired by Freddie Mac. Freddie Mac shall have the right to 

purchase and hold for its own account any PCs. Subject to Section 7.06, PCs held or acquired by Freddie 

Mac from time to time and PCs held by other Holders shall have equal and proportionate benefits, without 

preference, priority or distinction. In the event that Freddie Mac retains any interest in a Mortgage, the 

remaining interest in which is part of a PC Pool, Freddie Mac’s interest in such Mortgage shall rank equally 

with that of the related PC Pool, without preference, priority or distinction. No Holder shall have any 

priority over any other Holder.

Section 1.06. Intended Characterization. It is intended that the conveyance, transfer, assignment 

and setting over of the Mortgages by the Depositor to the Trustee pursuant to this Agreement be a true, 

absolute and unconditional sale of the related Mortgages by the Depositor to the Trustee, and not a pledge 

of the Mortgages to secure a debt or other obligation of the Depositor, and that the Holders of the related 

PCs shall be the beneficial owners of such Mortgages. Notwithstanding this express intention, however, if 

the Mortgages are determined by a court of competent jurisdiction or other competent authority to be the 

property of the Depositor, then it is intended that: (a) this Agreement be deemed to be a security agreement 

within the meaning of Articles 8 and 9 of the Uniform Commercial Code; (b) the conveyances provided for 

in Section 1.01 shall be deemed to be (1) a grant by the Depositor to the Trustee on behalf of the related 

Holders of a security interest in all of the Depositor’s right (including the power to convey title thereto), 

title and interest, whether now owned or hereafter acquired, in and to the related Mortgages, any and all 

general intangibles consisting of, arising from or relating to any of the foregoing, and all proceeds of the 

conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, 

including without limitation all amounts from time to time held or invested in the Custodial Account and 

allocable to such Mortgages, whether in the form of cash, instruments, securities or other property and (2) 

an assignment by the Depositor to the Trustee on behalf of the related Holders of any security interest in 

any and all of the Depositor’s right (including the power to convey title thereto), title and interest, whether 

now owned or hereafter acquired, in and to the property described in the foregoing clause (1); and (c) 

notifications to Persons holding such property, and acknowledgments, receipts or confirmations from 

Persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or 

confirmations from, financial intermediaries, bailees or agents (as applicable) of the Administrator, on 
behalf of the Trustee of the related Holders, for the purpose of perfecting such security interest under 

applicable law.

Section 1.07. Encumbrances. Except as may otherwise be provided expressly in this Agreement, 

neither Freddie Mac nor the Trustee, shall directly or indirectly, assign, sell, dispose of or transfer all or any 

portion of or interest in any PC Pool, or permit all or any portion of any PC Pool to be subject to any lien, 

claim, mortgage, security interest, pledge or other encumbrance of any other Person. This Section shall not 

be construed as a limitation on Freddie Mac’s rights with respect to PCs held by it in its corporate capacity.

ARTICLE II

Administration and Servicing of the Mortgages

Section 2.01. The Administrator as Primary Servicer. With respect to each PC Pool, the 

Administrator shall service or supervise servicing of the related Mortgages and administer, on behalf of the 

Trustee, in accordance with the provisions of the Guide and this Agreement, including management of any 

property acquired through foreclosure or otherwise, all for the benefit of the related Holders. The 

Administrator shall have full power and authority to do or cause to be done any and all things in connection 

with such servicing and administration that the Administrator deems necessary or desirable. The 

Administrator shall seek from the Trustee, as representative of the related Holders any consents or 

approvals relating to the control, management and servicing of the Mortgages included in any PC Pool and 

that are required hereunder.

Section 2.02. Servicing Responsibilities. With respect to each PC Pool, the Administrator shall 

service or supervise servicing of the related Mortgages in a manner consistent with prudent servicing 

standards and in substantially the same manner as the Administrator services or supervises the servicing of 

unsold mortgages of the same type in its portfolio. In performing its servicing responsibilities hereunder, 

the Administrator may engage servicers, subservicers and other independent contractors or agents. The 

Administrator may discharge its responsibility to supervise servicing of the Mortgages by monitoring 

servicers’ performance on a reporting and exception basis. Except as provided in Articles V and VI and 

Sections 7.05 and 7.06 of this Agreement, Freddie Mac, as Administrator shall not be subject to the control 

of the Holders in the discharge of its responsibilities pursuant to this Article. Except with regard to its 

guarantee obligations pursuant to Section 3.09 with respect to a PC Pool, the Administrator shall have no 

liability to any related Holder for the Administrator’s actions or omissions in discharging its responsibilities 

under this Article II other than for any direct damage resulting from its failure to exercise that degree of 

ordinary care it exercises in the conduct and management of its own affairs. In no event shall the 

Administrator have any liability for consequential damages.

Section 2.03. Realization Upon Defaulted Mortgages. With respect to each PC Pool, unless the 

Administrator deems that another course of action (e.g., charge-off) would be in the best economic interest 

of the Holders, the Administrator (or its authorized designee or representative) shall, as soon as practicable, 

foreclose upon (or otherwise comparably convert the ownership of) any real property securing a Mortgage 

which comes into and continues in default and as to which no satisfactory arrangements can be made for 

collection of delinquent payments. In connection with such foreclosure or conversion, the Administrator 

(or its authorized designee or representative) shall follow such practices or procedures as it deems 

necessary or advisable and consistent with general mortgage servicing standards.

Section 2.04. Automatic Acceleration and Assumptions.

(a) With respect to each PC Pool, to the extent provided in the Guide, the Administrator shall enforce 

the terms of each applicable Mortgage that gives the mortgagee the right to demand full payment of the 

unpaid principal balance of the Mortgage upon sale or transfer of the property securing the Mortgage 
regardless of the creditworthiness of the transferee (a right of “automatic acceleration’’), subject to 

applicable state and federal law and the Administrator’s then-current servicing policies.

(b) With respect to each PC Pool, the Administrator shall permit the assumption by a new mortgagor 

of an FHA/VA Mortgage upon the sale or transfer of the underlying property, as required by applicable 

regulations. Any such assumption shall be in accordance with applicable regulations, policies, procedures 

and credit requirements and shall not result in loss or impairment of any insurance or guaranty.

Section 2.05. Prepayment Penalties. Unless otherwise provided in the Pool Supplement for a PC 

Pool, the related Holders shall not be entitled to receive any prepayment penalties, assumption fees or other 

fees charged on the Mortgages included in such PC Pool, and either the related servicer or the 

Administrator shall retain such amounts.

Section 2.06. Mortgage Insurance and Guarantees.

(a) With respect to each PC Pool, if a Conventional Mortgage is insured by a mortgage insurer and 

the mortgage insurance policy is an asset of such PC Pool, the related Holders acknowledge that the insurer 

shall have no obligation to recognize or deal with any Person other than the Administrator, the Trustee, or 

their respective authorized designees or representatives regarding the mortgagee’s rights, benefits and 

obligations under the related insurance contract.

(b) With respect to each PC Pool, each FHA/VA Mortgage shall have in full force and effect a 

certificate or other satisfactory evidence of insurance or guaranty, as the case may be, as may be issued by 

the applicable government agency from time to time. None of these agencies has any obligation to 

recognize or deal with any Person other than the Administrator, the Trustee, or their respective authorized 

designees or representatives with regard to the rights, benefits and obligations of the mortgagee under the 

contract of insurance or guaranty relating to each FHA/VA Mortgage included in such PC Pool.

ARTICLE III

Distributions to Holders; Guarantees

Section 3.01. Monthly Reporting Period. For purposes of this Agreement with respect to any PC 

Pool, any payment or any event with respect to any Mortgage included in such PC Pool that is reported to 

the Administrator by the related servicer as having been made or having occurred within a Monthly 

Reporting Period shall be deemed to have been received by the Administrator or to have in fact occurred 

within such Monthly Reporting Period used by the Administrator for such purposes. Payments reported by 

servicers include all principal and interest payments made by a borrower, insurance proceeds, liquidation 

proceeds and repurchase proceeds. Events reported by servicers include foreclosure sales, payments of 

insurance claims and payments of guarantee claims.

Section 3.02. Holder’s Undivided Beneficial Ownership Interest. With respect to each PC Pool, 

the Holder of a PC on the Record Date shall be the owner of record of a pro rata undivided beneficial 

ownership interest in the remaining principal balance of the Mortgages in the related PC Pool as of such 

date and shall be entitled to interest at the PC Coupon on such pro rata undivided beneficial ownership 

interest, in each case on the related Payment Date. Such pro rata undivided beneficial ownership interest 

shall change accordingly if any Mortgage is added to or removed from such PC Pool in accordance with 

this Agreement. A Holder’s pro rata undivided beneficial ownership interest in the Mortgages included in a 

PC Pool is calculated by dividing the original unpaid principal balance of the Holder’s PC by the original 

unpaid principal balance of all the Mortgages in the related PC Pool.
Section 3.03. Distributions of Principal. With respect to each PC Pool, the Administrator, on 

behalf of the Trustee, shall withdraw from the Custodial Account and shall distribute to each related Holder 

its pro rata share of principal collections with respect to the Mortgages in such PC Pool, including, if 

applicable, each Holder’s pro rata share of the aggregate amount of any Deferred Interest that has been 

added to the principal balance of the related Mortgages; provided, however, that with respect to guarantee 

payments, the Guarantor’s obligations herein shall be subject to its subrogation rights pursuant to Section 

3.10. The Administrator may retain from any prepayment or delinquent principal payment on any 

Mortgage, for reimbursement to the Guarantor, any amount not previously received with respect to such 

Mortgage but paid by the Guarantor to the related Holders under its guarantee. For Mortgages purchased 

by the Depositor in exchange for PCs under its MultiLender Swap Program, the Depositor shall retain 

principal payments made on such Mortgages in the amount of any difference between the aggregate unpaid 

principal balance of the Mortgages as of delivery by the seller and the aggregate unpaid principal balance 

as of the PC Issue Date, and the Depositor shall purchase additional Mortgages with such principal 

payments; such additional Mortgages may or may not be included in the related PC Pool represented by the 

PCs received by the seller.

Section 3.04. Distributions of Interest. With respect to each PC Pool, the Administrator, on behalf 

of the Trustee, shall withdraw from the Custodial Account and shall distribute to each related Holder its pro 

rata share of interest collections with respect to the Mortgages included in such PC Pool, at a rate equal to 

the PC Coupon (excluding, if applicable, each Holder’s pro rata share of any Deferred Interest that has been 

added to the principal balance of the related Mortgages). Interest shall accrue during the applicable 

Accrual Periods. The Administrator may retain from any delinquent interest payment on any Mortgage, for 

reimbursement to the Guarantor, any amount not previously received with respect to such Mortgage but 

paid by the Guarantor to the related Holders under its guarantee. With respect to each PC Pool, a partial 

month’s interest retained by Freddie Mac or remitted to the related Holders with respect to prepayments 

shall constitute an adjustment to the fee payable to the Administrator and the Guarantor pursuant to Section 

3.08(a) for such PC Pool.

Section 3.05. Payments.

(a) With respect to each PC Pool, distributions of principal and interest on the related PCs shall begin 

in the month after issuance for Gold PCs and in the second month after issuance for ARM PCs. The 

Administrator, on behalf of the Trustee, shall calculate, or cause to be calculated, for each PC the 

distribution amount for the current calendar month.

(b) On or before each Payment Date, the Administrator, on behalf of the Trustee, shall instruct the 

Federal Reserve Banks to credit payments on PCs from the Custodial Account to the appropriate Holders’

accounts. The related PC Pool’s payment obligations shall be met upon transmittal of the Administrator’s 

payment order to the Federal Reserve Banks provided sufficient funds are then on deposit in the Custodial 

Account. A Holder shall receive the payment of principal, if applicable, and interest on each Payment Date 

on each PC held by such Holder as of the related Record Date.

(c) The Administrator relies on servicers’ reports of mortgage activity to prepare the Pool Factors. 

There may be delays or errors in processing mortgage information, such as a servicer’s failure to file an 

accurate or timely report of its collections of principal or its having filed a report that cannot be processed. 

In these situations the Administrator’s calculation of scheduled principal to be made on Gold PCs may not 

reflect actual payments on the related Mortgages. The Administrator shall account for and reconcile any 

differences as soon as practicable.

(d) The Administrator reserves the right to change the period during which a servicer may hold funds 

prior to payment to the Administrator, as well as the period for which servicers report payments to the 

Administrator, including adjustments to the Monthly Reporting Period. Either change may change the time 
at which prepayments are distributed to Holders. Any such change, however, shall not impair Holders’

rights to payments as otherwise provided in this Section.

(e) The Administrator shall maintain one or more accounts (together, the “Custodial Account”), 

segregated from the general funds of Freddie Mac, in its corporate capacity, for the deposit of collections of 

principal (including full and partial principal prepayments) and interest received from or advanced by the 

servicers in respect of the Mortgages. Mortgage collections in respect of the PC Pools established by 

Freddie Mac under this Agreement or trust funds established by Freddie Mac pursuant to any other trust 

agreements may be commingled in the Custodial Account, provided that the Administrator keeps, or causes 

to be kept, separate records of funds with respect to each such PC Pool and other trust fund. Collections due 

to Freddie Mac, in its corporate capacity as owner of mortgages held in its portfolio, may also be 

commingled in the Custodial Account, provided that the Administrator may withdraw such amounts for 

remittance to Freddie Mac from time to time. Funds on deposit in the Custodial Account may be invested 

by the Administrator in Eligible Investments. Investment earnings on deposits in the Custodial Account 

shall be for the benefit of the Administrator, and any losses on such investments shall be paid by the 

Administrator. On each Payment Date, amounts on deposit in the Custodial Account shall be withdrawn 

upon the order of the Administrator, on behalf of the Trustee, for the purpose of making distributions to the 

related Holders, in accordance with this Agreement.

Section 3.06. Pool Factors.

(a) The Administrator, on behalf of the Trustee, shall calculate and make payments to Holders on 

each Payment Date based on the monthly Pool Factors (including Negative Amortization Factors) until 

such time as the Administrator determines that a more accurate and practicable method for calculating such 

payments is available and implements that method. Pursuant to Section 7.05(e), the Administrator may 

modify the Pool Factor methodology from time to time, without the consent of Holders. With respect to 

each PC Pool, the Administrator, on behalf of the Trustee, shall do the following:

(i) The Administrator shall publish or cause to be published for each month a Pool Factor with 

respect to each PC Pool. Beginning in the month after formation of a PC Pool, Pool Factors shall be 

published on or about the fifth Business Day of the month, which Pool Factors may reflect 

prepayments reported to the Administrator after the end of the related Monthly Reporting Period and 

before the publication of the applicable Pool Factors. However, the Administrator may, in its own 

discretion, publish Pool Factors on any other Business Day. The Pool Factor for the month in which 

the PC Pool is established is 1.00000000 and need not be published.

(ii) The Administrator shall distribute principal each month to a Holder of a Gold PC in an 

amount equal to such Holder’s pro rata share of such principal, calculated by multiplying the original 

principal balance of the Gold PC by the difference between its Pool Factors for the preceding and 

current months.

(iii) The Administrator shall distribute principal each month to a Holder of an ARM PC in an 

amount equal to such Holder’s pro rata share of such principal, calculated by multiplying the original 

principal balance of the ARM PC by the difference between its Pool Factors for the two preceding 

months.

(iv) The Administrator shall distribute interest each month in arrears to a Holder (assuming no 

Deferred Interest) in an amount equal to 1/12th of the applicable PC Coupon multiplied by such 

Holder’s pro rata share of principal, calculated by multiplying the original principal balance of such 

Holder’s PC by the preceding month’s Pool Factor for Gold PCs or by the second preceding month’s 

Pool Factor for ARM PCs.
(v) For any month that Deferred Interest has accrued on a Deferred Interest PC, the 

Administrator shall distribute principal (if any is due) to a Holder in an amount equal to such Holder’s 

pro rata share of principal, calculated by (A) subtracting the preceding month’s Pool Factor from the 

second preceding month’s Pool Factor, (B) adding to the difference the Negative Amortization Factor 

for the preceding month and (C) multiplying the resulting sum by the original PC principal balance. 

The interest payment on the Deferred Interest PC in that month shall be (i) 1/12th of the PC Coupon 

multiplied by (ii) the original principal balance of the Holder’s PC multiplied by (iii) the preceding 

month’s Pool Factor minus the preceding month’s Negative Amortization Factor.

(b) With respect to each PC Pool, a Pool Factor shall reflect prepayments reported for the applicable 

Monthly Reporting Period. The Administrator, on behalf of the Trustee, may also, in its discretion, reflect 

in a Pool Factor any prepayments reported after the end of the applicable Monthly Reporting Period. To the 

extent a given Pool Factor (adjusted as necessary for payments made pursuant to the Guarantor’s guarantee 

of timely payment of scheduled principal on Gold PCs) does not reflect the actual unpaid principal balance 

of the related Mortgages, the Administrator shall account for any difference by adjusting subsequent Pool 

Factors as soon as practicable.

(c) In the case of a PC Pool that is comprised of ARMs, a Pool Factor shall be based upon the unpaid 

principal balance of the related Mortgages that servicers report to the Administrator for the Monthly 

Reporting Period that ended in the second month preceding the month in which the Pool Factor is 

published. The Administrator, on behalf of the Trustee, may also, in its discretion, include as part of the 

aggregate principal payment in any month any prepayments received after the Monthly Reporting Period 

that ended in the second month preceding the month in which the Pool Factor is published. To the extent a 

given Pool Factor does not reflect the actual aggregate unpaid principal balance of the Mortgages, the 

Administrator shall account for any difference by adjusting subsequent Pool Factors as soon as practicable.

(d) The Pool Factor method for a PC Pool may affect the timing of receipt of payments by related 

Holders but shall not affect the Guarantor’s guarantee with respect to such PC Pool, as set forth in Section 

3.09. The Guarantor’s guarantee shall not be affected by the implementation of any different method for 

calculating and paying principal and interest for any PC Pool, as permitted by this Section 3.06.

Section 3.07. Servicing Fees; Retained Interest.

(a) To the extent provided by contractual arrangement with the Administrator, with respect to each PC 

Pool, the related servicer of each Mortgage included in such PC Pool shall be entitled to retain each month, 

as a servicing fee, any interest payable by the borrower on a Mortgage that exceeds the servicer’s required 

remittance with respect to such Mortgage. Each servicer is required to pay all expenses incurred by it in 

connection with its servicing activities and shall not be entitled to reimbursement for those expenses, 

except as provided in Section 3.08(c). If a servicer advances any principal and/or interest on a Mortgage to 

the Administrator prior to the receipt of such funds from the borrower, the servicer may retain (i) from 

prepayments or collections of delinquent principal on such Mortgage any payments of principal so 

advanced, or (ii) from collections of delinquent interest on such Mortgage any payments of interest so 

advanced. To the extent permitted by its servicing agreement, the servicer is entitled to retain as additional 

compensation certain incidental fees related to Mortgages it services.

(b) With respect to a PC Pool, pursuant to the related Purchase Documents, a seller may retain each 

month as extra compensation a fixed amount of interest on a Mortgage included in such PC Pool. In such 

event, the related servicer shall retain each month as a servicing fee the excess of any interest payable by 

the borrower on such Mortgage (less the seller’s retained interest amount) over the servicer’s required 

remittance with respect to such Mortgage.

Section 3.08. Administration Fee; Guarantee Fee.
(a) Subject to any adjustments required by Section 3.04, with respect to any PC Pool, the 

Administrator and the Guarantor shall be entitled to receive from monthly interest payments on each related 

Mortgage a fee (to be allocated between the Administrator and the Guarantor as they may agree) equal to 

the excess of any interest received by the Administrator from the servicer over the amount of interest 

payable to the related Holders; provided, however, that the aggregate fee amount shall be automatically 

adjusted with respect to each PC Pool to the extent a Pool Factor does not reflect the unpaid principal 

balance of the Mortgages. Any such adjustment shall equal the difference between (i) interest at the 

applicable PC Coupon computed on the aggregate unpaid principal balance of the Mortgages for such 

month based on monthly principal payments actually received by the Administrator and (ii) interest at the 

applicable PC Coupon computed on the remaining balance of the Mortgages included in the PC Pool 

derived from the Pool Factor. The Administrator shall (i) withdraw the aggregate fee amount from the 

Custodial Account prior to distributions to the related Holders, (ii) retain its portion of the fee for the 

Administrator’s own account and (iii) remit the remaining portion of the fee to the Guarantor as the 

guarantee fee. In addition, the Administrator is entitled to retain as additional compensation certain 

incidental fees on the Mortgages as provided in Section 2.05 and certain investment earnings as provided in 

Section 3.05(e).

(b) The Depositor shall pay all expenses incurred in connection with the transfer of the Mortgages, 

the establishment and administration of each PC Pool and the issuance of the PCs. Any amounts (including 

attorney’s fees) expended by the Trustee or the Administrator (or the servicers on the Administrator’s 

behalf) for the protection, preservation or maintenance of the Mortgages, or of the real property securing 

the Mortgages, or of property received in liquidation of or realization upon the Mortgages, shall be 

expenses to be borne pro rata by the Administrator and the Holders in accordance with their interests in 

each Mortgage. The Administrator, on behalf of the Trustee, may retain an amount sufficient to pay the 

portion of such expenses borne pro rata by the Depositor and the Holders from payments otherwise due to 

Holders, which may affect the timing of receipt of payments by Holders but shall not affect the Guarantor’s 

obligations under Section 3.09.

(c) The Administrator shall reimburse a servicer for any amount (including attorney’s fees) it expends 

(on the Administrator’s behalf and with its approval) for the protection, preservation or maintenance of the 

Mortgages, or of the real property securing the Mortgages, or of property received in liquidation of or 

realization upon the Mortgages. Such expenses shall be reimbursable to the servicer from the assets of the 

related PC Pool, to the extent provided in the Guide.

(d) Any fees and expenses described above shall not affect the Guarantor’s guarantee with respect to 

any PC Pool, as set forth in Section 3.09.

Section 3.09. Guarantees.

(a) With respect to each PC Pool, the Guarantor guarantees to the Trustee and to each Holder of a PC:

(i) the timely payment of interest at the applicable PC Coupon;

(ii) the full and final payment of principal on the underlying Mortgages on or before the 

Payment Date that falls (A) in the month of its Final Payment Date, for Gold PCs, or (B) in the month 

after its Final Payment Date, for ARM PCs; and

(iii) for Gold PCs only, the timely payment of scheduled principal on the underlying Mortgages.

In the case of Deferred Interest PCs, the Guarantor’s guarantee of principal includes, and its guarantee of 

interest excludes, any Deferred Interest added to the principal balances of the related Mortgages. The 

Guarantor shall make payments of any guaranteed amounts by transfer to the Custodial Account for 

distribution to the related Holders, in accordance with Sections 3.03 and 3.04. The guarantees pursuant to 
this Section will inure to the benefit of each PC Pool and its related Holders, and shall be enforceable by 

the Trustee of that PC Pool and by such Holders, as provided in Article V of this Agreement.

(b) The Guarantor shall compute guaranteed scheduled monthly principal payments on any Gold PC, 

subject to any applicable adjustments, in accordance with procedures adopted by the Guarantor from time 

to time. With respect to each PC Pool, any payment the Guarantor makes to the Administrator, on behalf 

of the Trustee, on account of the Guarantor’s guarantee of scheduled principal payments shall be 

considered to be a payment of principal for purposes of calculating the Pool Factor for such PC Pool and 

the Holder’s pro rata share of the remaining unpaid principal balance of the related Mortgages.

(c) The Guarantor’s guarantees shall continue to be effective or shall be reinstated (i) in the event that 

any principal or interest payment made to a Holder is for any reason returned by the Holder pursuant to an 

order, decree or judgment of any court of competent jurisdiction that the Holder was not entitled to retain 

such payment pursuant to this Agreement and (ii) notwithstanding any provision hereof permitting fees, 

expenses, indemnities or other amounts to be paid from the assets of any PC Pool.

Section 3.10. Subrogation. With respect to each PC Pool, the Guarantor shall be subrogated to all 

the rights, interests, remedies, powers and privileges of each related Holder in respect of any Mortgage 

included in such PC Pool on which it has made guarantee payments of principal and/or interest to the extent 

of such payments. Nothing in this Section shall impair the Guarantor’s right to receive distributions in its 

capacity as Holder, if it is a Holder of any PCs.

Section 3.11. Termination Upon Final Payment. Each PC Pool is irrevocable and will terminate 

only in accordance with the terms of this Agreement. Except as provided in Sections 3.05(e), 6.06 and 

7.01, with respect to each PC Pool, Freddie Mac’s and the Trustee’s obligations and responsibilities under 

this Agreement shall terminate as to a PC Pool and its Holders upon (i) the full payment to such Holders of 

all principal and interest due to the Holders based on the Pool Factors or by reason of the Guarantor’s 

guarantees or (ii) the payment to the Holder of all amounts held by Freddie Mac and the Trustee, 

respectively, and required to be paid hereunder; provided, however, that in no event shall any PC Pool 

created hereby continue beyond the expiration of 21 years from the death of the survivor of the descendants 

of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James’s, living on the 

date hereof.

Section 3.12. Effect of Final Payment Date. The actual final payment on a PC may occur prior to 

the Payment Date specified in Section 3.09(a)(ii) due to prepayments of principal, including prepayments 

made in connection with the repurchase of any Mortgage from the related PC Pool.

Section 3.13. Payment Error Corrections. In the event of a principal or interest payment error, the 

Administrator, in its sole discretion, may effect corrections by the adjustment of payments to be made on 

future Payment Dates or in such other manner as it deems appropriate.

ARTICLE IV

PCs

Section 4.01. Form and Denominations. With respect to each PC Pool, the principal balances, PC 

Coupons and other characteristics of the PCs to be issued shall be specified in the related Pool Supplement. 

Delivery of the PCs of a PC Pool shall constitute the issuance of the PCs for that PC Pool. PCs shall be 

issued, held and transferable only on the book-entry system of the Federal Reserve Banks in minimum 

original principal amounts of $1,000 and additional increments of $1. PCs shall at all times remain on 
deposit with a Federal Reserve Bank in accordance with the provisions of the Book-Entry Rules. A Federal 

Reserve Bank will maintain a book-entry recordkeeping system for all transactions in PCs with respect to 

Holders.

Section 4.02. Transfer of PCs. PCs may be transferred only in minimum original principal amounts 

of $1,000 and additional increments of $1. PCs may not be transferred if, as a result of the transfer, the 

transferor or the new Holder would have on deposit in its account PCs of the same issue with an original 

principal amount of less than $1,000. The transfer, exchange or pledge of PCs shall be governed by the 

fiscal agency agreement between Freddie Mac and a Federal Reserve Bank, the Book-Entry Rules and such 

other procedures as shall be agreed upon from time to time by Freddie Mac and a Federal Reserve Bank. A

Federal Reserve Bank shall act only upon the instructions of the Holder in recording transfers of a PC. A

charge may be made for any transfer of a PC and shall be made for any tax or other governmental charge 

imposed in connection with a transfer of a PC. Freddie Mac hereby assigns to the Administrator, on behalf 

of the Trustee, Freddie Mac’s rights under each fiscal agency agreement with respect to PCs issued by any 

PC Pool.

Section 4.03. Record Date. The Record Date for each Payment Date shall be the close of business 

on the last day of the preceding month for Gold PCs and the second preceding month for ARM PCs. A

Holder of a PC on the books and records of a Federal Reserve Bank on the Record Date shall be entitled to 

payment of principal and interest on the related Payment Date. A transfer of a PC made on or before the 

Record Date in a month shall be recognized as effective as of the first day of such month.

ARTICLE V

Remedies

Section 5.01. Events of Default. With respect to each PC Pool, an “Event of Default’’ means any 

one of the following events:

(a) Default by the Guarantor or the Administrator in the payment of interest or principal to the related 

Holders as and when the same shall become due and payable as provided in this Agreement, and the 

continuance of such default for a period of 30 days.

(b) Failure by the Guarantor or the Administrator to observe or perform any other covenants of this 

Agreement relating to their respective obligations, and the continuance of such failure for a period of 60 

days after the date of receipt by such party of written notice of such failure and a demand for remedy by the 

affected Holders representing not less than 65 percent of the remaining principal balance of any affected 

PC Pool.

(c) The entry by any court having jurisdiction over the Guarantor or the Administrator of a decree or 

order for relief in an involuntary case under any applicable bankruptcy, insolvency or other similar law now 

or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian or sequestrator (or 

other similar official) of the Guarantor or the Administrator or for any substantial part of its property, or for 

the winding up or liquidation of its affairs, if such decree or order remains unstayed and in effect for a 

period of 60 consecutive days.

(d) Commencement by the Guarantor or the Administrator of a voluntary case under any applicable 

bankruptcy, insolvency or other similar law now or hereafter in effect, or consent by the Guarantor or the 

Administrator to the entry of an order for relief in an involuntary case under any such law, or its consent to 

the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or 

sequestrator (or other similar official) of the Guarantor or the Administrator or for any substantial part of 

their respective properties, or any general assignment made by the Guarantor or the Administrator for the 
benefit of creditors, or failure by the Guarantor or the Administrator generally to pay their debts as they 

become due.

The appointment of a conservator (or other similar official) by a regulator having jurisdiction over the 

Guarantor or the Administrator, whether or not such party consents to such appointment, shall not 

constitute an Event of Default.

Section 5.02. Remedies.

(a) If an Event of Default occurs and is continuing with respect to a PC Pool, the Holders of PCs 

representing a majority of the remaining principal balance of such PC Pool may, by written notice to 

Freddie Mac, remove Freddie Mac as Administrator and nominate its successor under this Agreement with 

respect to such PC Pool. The nominee shall be deemed appointed as Freddie Mac’s successor as 

Administrator unless Freddie Mac objects within 10 days after such nomination. Upon such objection:

(i) The Administrator may petition any court of competent jurisdiction for the appointment of its 

successor; or

(ii) Any bona fide Holder that has been a Holder for at least six months may, on behalf of such 

Holder and all others similarly situated, petition any such court for appointment of the 

Administrator’s successor.

(b) If a successor Administrator is appointed, the Administrator shall submit to its successor a 

complete written report and accounting of the Mortgages in the affected PC Pool and shall take all other 

steps necessary or desirable to transfer its interest in and administration of such PC Pool to its successor.

(c) Subject to the Freddie Mac Act, a successor may take any action with respect to the Mortgages as 

may be reasonable and appropriate in the circumstances. Prior to the designation of a successor, the 

Holders of PCs representing a majority of the remaining principal balance of any affected PC Pool may 

waive any past or current Event of Default.

(d) Appointment of a successor shall not relieve Freddie Mac, in its capacity as Guarantor, of its 

guarantee obligations as set forth in this Agreement.

Section 5.03. Limitation on Suits by Holders.

(a) With respect to any PC Pool, except as provided in Section 5.02, no Holder shall have any right to 

institute any action or proceeding at law or in equity or in bankruptcy or otherwise or seek any other 

remedy whatsoever against Freddie Mac or the Trustee with respect to this Agreement or the related PCs or 

Mortgages, unless:

(i) Such Holder previously has given the Trustee written notice of an Event of Default and the 

continuance thereof;

(ii) The Holders of PCs representing a majority of the remaining principal balance of any 

affected PC Pool have made a written request to the Trustee to institute an action or proceeding in its 

own name and have offered the Trustee reasonable indemnity against the costs, expenses and 

liabilities to be incurred;

(iii) The Trustee has failed to institute any such action or proceeding for 60 days after its receipt 

of the written notice, request and offer of indemnity described above; and
(iv) The Trustee has not received from such Holders any direction inconsistent with the written 

request described above during the 60-day period.

(b) No Holder shall have any right under this Agreement to prejudice the rights of any other Holder, 

to obtain or seek preference or priority over any other Holder or to enforce any right under this Agreement, 

except for the ratable and common benefit of all Holders of PCs representing interests in any affected PC 

Pool.

(c) For the protection and enforcement of the provisions of this Section, Freddie Mac, the Trustee and 

each and every Holder shall be entitled to such relief as can be given either at law or in equity. 

Notwithstanding the foregoing, no Holder’s right to receive payment (or to institute suit to enforce 

payment) of principal and interest as provided herein on or after the due date of such payment shall be 

impaired or affected without the consent of the Holder.

ARTICLE VI

Trustee

Section 6.01. Duties of Trustee. 

(a) If an Event of Default has occurred and is continuing with respect to a PC Pool, the Trustee 

shall exercise the rights and powers vested in it by this Agreement and use the same degree of care and skill 

in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such 

person’s own affairs.

(b) Except during the continuance of an Event of Default, the Trustee undertakes to perform such 

duties and only such duties as are specifically set forth in this Agreement and shall not be liable except for 

the performance of such duties and obligations as are specifically set forth in this Agreement and no 

implied covenants or obligations shall be read into this Agreement against the Trustee.

(c) The Trustee and its directors, officers, employees and agents may not be protected from 

liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence 

in the performance of their respective duties or by reason of reckless disregard of obligations and duties 

under this Agreement, except that:

(i) this paragraph does not limit the effect of paragraph (b) of this Section;

(ii) the Trustee shall not be liable for any action taken, or not taken, by the Trustee in good 

faith pursuant to this Agreement or for errors in judgment; and

(iii) the Trustee shall not be required to take notice or be deemed to have notice or knowledge 

of any default or Event of Default, unless the Trustee obtains actual knowledge or written notice 

of such default or Event of Default. In the absence of such actual knowledge or notice, the Trustee 

may conclusively assume that there is no default or Event of Default.

(d) Every provision of this Agreement shall be subject to the provisions of this Section and 

Section 6.02.

(e) The Trustee shall not be liable for indebtedness evidenced by or arising under this Agreement, 

including principal of or interest on the PCs, or interest on any money received by it except as the Trustee 

may agree in writing.
(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent 

required by law or the terms of this Agreement.

(g) No provision of this Agreement shall require the Trustee to expend, advance or risk its own 

funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the 

exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such 

funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(h) The Trustee, or the Administrator on its behalf, may, but shall not be obligated to, undertake 

any legal action that it deems necessary or desirable in the interest of Holders. The Trustee, or the 

Administrator on its behalf, may be reimbursed for the legal expenses and costs of such action from the 

assets of the related PC Pool.

Section 6.02. Certain Matters Affecting the Trustee.

(a) The Trustee, and any director, officer, employee or agent of the Trustee may rely in good faith 

on any certificate, opinion or other document of any kind which, prima facie, is properly executed and 

submitted by any appropriate Person respecting any matters arising hereunder. The Trustee may rely on 

any such documents believed by it to be genuine and to have been signed or presented by the proper Person 

and on their face conforming to the requirements of this Agreement. The Trustee need not investigate any 

fact or matter stated in such documents.

(b) Before the Trustee acts or refrains from acting, it may require an officer’s certificate or an 

opinion of counsel, which shall not be at the expense of the Trustee. The Trustee shall not be liable for any 

action it takes or omits to take in good faith in reliance on an officer’s certificate or opinion of counsel. 

The right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be 

construed as a duty and the Trustee shall not be answerable for other than its willful misfeasance, bad faith 

or gross negligence in the performance of such act.

(c) The Trustee may execute any of the trusts or powers hereunder or perform any duties 

hereunder either directly or by or through agents or attorneys or a custodian or nominee.

(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it 

believes to be authorized or within its rights or powers; provided, that the Trustee’s conduct does not 

constitute willful misfeasance, bad faith or gross negligence. In no event shall the Trustee have any 

liability for consequential damages.

(e) The Trustee may consult with and rely on the advice of counsel, accountants and other advisors 

and shall not be liable for errors in judgment or for anything it does or does not do in good faith if it so 

relies. Any opinion of counsel with respect to legal matters relating to this Agreement and the PCs shall be 

full and complete authorization and protection from liability in respect to any action taken, omitted or 

suffered by it hereunder in good faith and in accordance with any opinion of such counsel.

(f) Any fees, expenses and indemnities payable from the assets of any PC Pool to Freddie Mac, in 

its capacity as Trustee, in the performance of its duties and obligations hereunder shall not affect Freddie 

Mac’s guarantee with respect to that PC Pool, as set forth in Section 3.09.

Section 6.03. Trustee’s Disclaimer. The Trustee shall not be responsible for and makes no 

representation as to the validity or adequacy of this Agreement, the assets of the PC Pool or the PCs.
Section 6.04. Trustee May Own PCs. Subject to Section 7.06, the Trustee in its individual or any 

other capacity may become the owner or pledgee of PCs with the same rights as it would have if it were not 

the Trustee.

Section 6.05. Indemnity. Each PC Pool shall indemnify the Trustee and the Trustee’s employees, 

directors, officers and agents, as provided in this Agreement, against any and all claims, losses, liabilities or 

expenses (including attorneys’ fees) incurred by it in connection with the administration of this trust and 

the performance of its duties under this Agreement (to the extent not previously reimbursed above), 

including, without limitation, the execution and filing of any federal or state tax returns and information 

returns and being the mortgagee of record with respect to the related Mortgages. The Trustee shall notify 

the Administrator promptly of any claim for which it may seek indemnity. Failure by the Trustee to so 

notify the Administrator shall not relieve the related PC Pool of its obligations hereunder. A PC Pool shall 

not be required to reimburse any expense or indemnify against any loss, liability or expense incurred by the 

Trustee through the Trustee’s own willful misfeasance, bad faith or gross negligence.

The Trustee’s rights pursuant to this Section shall survive the discharge of this Agreement.

Section 6.06. Replacement of Trustee. The Trustee may resign at any time. Any successor Trustee 

shall resign if it ceases to be eligible in accordance with the provisions of Section 6.09. In either case, the 

resignation of the Trustee shall become effective, and the resigning Trustee shall be discharged from its 

obligations with respect to the PC Pools created under this Agreement by giving 90 days’ written notice of 

the resignation to the Depositor, the Guarantor and the Administrator and upon the effectiveness of an 

appointment of a successor Trustee, which may be as of a date prior to the end of the 90-day period. Upon 

receiving such notice of resignation, the Depositor shall promptly appoint one or more successor Trustees 

by written instrument, one copy of which is delivered to the resigning Trustee and one copy of which is 

delivered to the successor Trustee. The successor Trustee need not be the same Person for all PC Pools. If 

no successor Trustee has been appointed for a PC Pool, or one that has been appointed has not accepted the 

appointment within 90 days after giving such notice of resignation, the resigning Trustee may petition any 

court of competent jurisdiction for the appointment of a successor Trustee.

Prior to an Event of Default, or if an Event of Default has occurred and has been cured with 

respect to a PC Pool, Freddie Mac cannot be removed as Trustee with respect to that PC Pool. If an Event 

of Default has occurred and is continuing while Freddie Mac is the Trustee, at the direction of Holders of 

PCs representing a majority of the remaining principal balance of such PC Pool, Freddie Mac shall resign 

or be removed as Trustee, and to the extent permitted by law, all of the rights and obligations of the Trustee 

with respect to the related PC Pool only, will be terminated by notifying the Trustee in writing. Holders of 

PCs representing a majority of the remaining principal balance of the PC Pool will then be authorized to 

name and appoint one or more successor Trustees. Notwithstanding the termination of the Trustee, its 

liability under this Agreement and arising prior to such termination shall survive such termination.

If a successor Trustee is serving as the Trustee, the following events are “Trustee Events of 

Default” with respect to a PC Pool:

(i) the Trustee fails to comply with Section 6.09;

(ii) the Trustee is adjudged bankrupt or insolvent;

(iii) a receiver or other public officer takes charge of the Trustee or its property; or

(iv) the Trustee otherwise becomes incapable of acting.
If at any time a Trustee Event of Default has occurred and is continuing, the Guarantor (or if an 

Event of Default has occurred and is continuing, the Depositor) may, and if directed by Holders of PCs 

representing a majority of the remaining principal balance of such PC Pool, shall, remove the Trustee as to 

such PC pool and appoint a successor Trustee by written instrument, one copy of which shall be delivered 

to the Trustee so removed and one copy of which shall be delivered to the successor Trustee, and the 

Guarantor (or if an Event of Default has occurred and is continuing, the Depositor) shall give written notice 

of the successor Trustee to the Holders affected by the succession. Notwithstanding the termination of the 

Trustee, its liability under this Agreement arising prior to such termination will survive such termination.

If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any 

reason (the Trustee in such event being referred to herein as the retiring Trustee), the Depositor shall 

promptly appoint a successor Trustee that satisfies the eligibility requirements of Section 6.09.

The retiring Trustee agrees to cooperate with the Depositor and any successor Trustee in effecting 

the termination of the retiring Trustee’s responsibilities and rights hereunder and shall promptly provide 

such successor Trustee all documents and records reasonably requested by it to enable it to assume the 

Trustee’s functions hereunder.

A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee 

and to the Depositor, the Guarantor and the Administrator. Thereupon the resignation or removal of the 

retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and 

duties of the Trustee under this Agreement with respect to such PC Pool. The successor Trustee shall mail 

a notice of its succession to the related Holders. The retiring Trustee shall promptly transfer all property 

held by it as Trustee to the successor Trustee.

If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is 

removed, the retiring Trustee or the Depositor may petition any court of competent jurisdiction for the 

appointment of a successor Trustee.

Section 6.07. Successor Trustee By Merger. If a successor Trustee consolidates with, merges or 

converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation 

or banking association, the resulting, surviving or transferee corporation without any further act shall be the 

successor Trustee; provided, that such corporation or banking association shall be otherwise qualified and 

eligible under Section 6.09.

Section 6.08. Appointment of Co-Trustee or Separate Trustee.

(a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of 

meeting any legal requirement of any jurisdiction in which any part of a PC Pool may at the time be 

located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or 

more Persons to act as a or or separate trustee or separate trustees, of all or any part 

of such PC Pool and to vest in such Person or Persons, in such capacity and for the benefit of the related 

Holders, such title to such PC Pool, or any part thereof, and, subject to the other provisions of this Section, 

such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No 

or separate trustee hereunder shall be required to meet the terms of eligibility as a successor 

trustee under Section 6.09 and no notice to the related Holders of the appointment of any or 

separate trustee shall be required under Section 6.06 hereof.

(b) With respect to each PC Pool, every separate trustee and shall, to the extent 

permitted by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be 

conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or 

jointly (it being understood that such separate trustee or is not authorized to 

act separately without the Trustee joining in such act), except to the extent that under any law of 

any jurisdiction in which any particular act or acts are to be performed the Trustee shall be 

incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties 

and obligations (including the holding of title to the related PC Pool or any portion thereof in any 

such jurisdiction) shall be exercised and performed singly by such separate trustee or 

but solely at the direction of the Trustee;

(ii) no trustee hereunder shall be personally liable by reason of any act or omission of any 

other trustee hereunder; and

(iii) the Trustee may at any time accept the resignation of or remove any separate trustee or 

(c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to 

each of the then separate trustees and as effectively as if given to each of them. Every 

instrument appointing any separate trustee or shall refer to this Agreement and the conditions of 

this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be 

vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee 

or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically 

including every provision of this Agreement relating to the conduct of, affecting the liability of, or 

affording protection to, the Trustee. Every such instrument shall be filed with the Trustee.

(d) Any separate trustee or may at any time constitute the Trustee, its agent or 

with full power and authority, to the extent not prohibited by law, to do any lawful act 

under or in respect of this Agreement on its behalf and in its name. If any separate trustee or 

shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies 

and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the 

appointment of a new or successor trustee.

Section 6.09. Eligibility; Disqualification. Freddie Mac is eligible to act as the Trustee and is 

initially the Trustee for the PC Pools created under this Agreement. Any successor to Freddie Mac (i) at 

the time of its appointment as Trustee, must be reasonably acceptable to Freddie Mac and (ii) must be 

organized as a corporation or association doing business under the laws of the United States or any State 

thereof, be authorized under such laws to exercise corporate trust powers, have combined capital and 

surplus of at least $50,000,000 and be subject to supervision or examination by federal or state financial 

regulatory authorities. If any successor Trustee shall cease to satisfy the eligibility requirements set forth in 

(ii) above, that successor Trustee shall resign immediately in the manner and with the effect specified in 

Section 6.06.

ARTICLE VII

Miscellaneous Provisions

Section 7.01. Annual Statements. Within a reasonable time after the end of each calendar year, the 

Administrator (or its agent) shall furnish to each Holder on any Record Date during such year information 

that the Administrator deems necessary or desirable to enable Holders and beneficial owners of PCs to 

prepare their United States federal income tax returns, if applicable.
Section 7.02. Limitations on Liability. Neither Freddie Mac, in its corporate capacity, nor any of its 

directors, officers, employees, authorized designees, representatives or agents (“related persons’’) shall be 

liable to Holders for any action taken, or not taken, by them or by a servicer in good faith pursuant to this 

Agreement or for errors in judgment. This provision shall not protect Freddie Mac or any related person 

against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross 

negligence in the performance of duties or by reason of reckless disregard of obligations and duties under 

this Agreement. In no event shall Freddie Mac or any related person be liable for any consequential 

damages. Freddie Mac and any related person may rely in good faith on any document or other 

communication of any kind properly executed and submitted by any Person with respect to any matter 

arising under this Agreement. Freddie Mac has no obligation to appear in, prosecute or defend any legal 

action which is not incidental to its duties to service or supervise the servicing of the Mortgages in 

accordance with this Agreement and which in its opinion may involve any expense or liability for Freddie 

Mac. Freddie Mac may, in its discretion, undertake or participate in any action it deems necessary or 

desirable with respect to any Mortgage, this Agreement, the PCs or the rights and duties of the parties 

hereto and the interests of the Holders hereunder. In such event, the legal expenses and costs of such action 

and any resulting liability shall be expenses for the protection, preservation and maintenance of the 

Mortgages borne pro rata by Freddie Mac and Holders as provided in Section 3.08(b).

Section 7.03. Limitation on Rights of Holders. The death or incapacity of any Person having an 

interest in a PC shall not terminate this Agreement or any PC Pool. Such death or incapacity shall not 

entitle the legal representatives or heirs of such Person, or any Holder for such Person, to claim an 

accounting, take any action or bring any proceeding in any court for a partition or winding up of the related 

PC Pool, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.

Section 7.04. Control by Holders. With respect to any PC Pool, except as otherwise provided in 

Articles V and VI and Sections 7.05 and 7.06, no Holder shall have any right to vote or to otherwise control 

in any manner the operation and management of the Mortgages included in such PC Pool, or the 

obligations of the parties hereto. This Agreement shall not be construed so as to make the Holders from 

time to time partners or members of an association. Holders shall not be liable to any third person by reason 

of any action taken by the parties to this Agreement pursuant to any provision hereof.

Section 7.05. Amendment.

(a) Freddie Mac and the Trustee may amend this Agreement (including any related Pool Supplement) 

from time to time without the consent of any Holders to (i) cure any ambiguity or correct or supplement 

any provision in this Agreement, provided, however, that any such amendment shall not have a material 

adverse effect on any Holder; (ii) maintain the classification of any PC Pool as a grantor trust for federal 

income tax purposes; or (iii) avoid the imposition of any state or federal tax on a PC Pool; it being 

understood that any amendment permitting the repurchase of a Mortgage by Freddie Mac due to a 

delinquency of less than 120 days, other than in the circumstances described in Section 1.02(c)(iii), may not 

be adopted under this clause (a).

(b) Except as provided in Section 7.05(c), Freddie Mac and the Trustee may amend this Agreement as 

to any PC Pool, with the consent of Holders representing not less than a majority of the remaining principal 

balance of the affected PC Pool. 

(c) Freddie Mac and the Trustee may not amend this Agreement, without the consent of a Holder, if 

such amendment would impair or affect the right of such Holder to receive payment of principal and 

interest on or after the due date of such payment or to institute suit for the enforcement of any such 

payment on or after such date.

(d) To the extent that any provisions of this Agreement differ from the provisions of any Freddie Mac 

Mortgage Participation Certificates Agreement or PC Master Trust Agreement dated prior to the date of 
this Agreement, this Agreement shall be deemed to amend such provisions of the prior agreement, but only 

to the extent that Freddie Mac, under the terms of such prior agreement, could have effected such change as 

an amendment of such prior agreement without the consent of Holders of PCs thereunder; provided, 

however, that the trust declarations and related provisions set forth in Section 7.05(d) of the PC Master 

Trust Agreement dated as of December 31, 2007 are hereby reaffirmed with respect to each PC Pool 

created before December 31, 2007.

(e) Notwithstanding any other provision of this Section, (i) the Administrator (in its own discretion 

and in its own interest) and the Trustee (at the Administrator’s direction) may amend this Agreement to 

reflect any modification in the Administrator’s methodology of calculating payments to Holders, including 

any modifications described in Section 3.05(d) and Section 3.06(a) and the manner in which it distributes 

prepayments to Holders, (ii) the Administrator (in its own discretion and in its own interest) and the Trustee 

(at the Administrator’s direction) may amend this Agreement to cure any inconsistency between this 

Agreement and the provisions of the Guide and (iii) the Depositor (in its own discretion and in its own 

interest) and the Trustee (at the Administrator’s direction) may amend any Pool Supplement to make the 

adjustments described in Section 1.02(b) to the characteristics of the Mortgages to be transferred to a PC 

Pool or to the related PCs.

Section 7.06. Voting Rights. 

If Freddie Mac is acting as Administrator or Trustee and an Event of Default has occurred and is 

continuing, any PCs held by Freddie Mac for its own account shall be disregarded and deemed not to be 

outstanding for purposes of exercising the remedies set forth in Section 5.02 and the second paragraph of 

Section 6.06. 

Section 7.07. Persons Deemed Owners. With respect to each PC Pool, Freddie Mac, the Trustee, 

the Administrator and a Federal Reserve Bank (or any agent of any of them) may deem and treat the related 

Holder(s) as the absolute owner(s) of a PC and the undivided beneficial ownership interests in the 

Mortgages included in the related PC Pool for the purpose of receiving payments and for all other purposes, 

and none of Freddie Mac, the Trustee, the Administrator or a Federal Reserve Bank (nor any agent of any 

of them) shall be affected by any notice to the contrary. All payments made to a Holder, or upon such 

Holder’s order, shall be valid, and, to the extent of the payment, shall satisfy and discharge the related PC 

Pool’s payment obligations with respect to the Holder’s PC. None of Freddie Mac, the Trustee, the 

Administrator or any Federal Reserve Bank shall have any direct obligation to any beneficial owner unless 

it is also the Holder of a PC.

Section 7.08. Governing Law. THIS AGREEMENT AND THE PARTIES' RIGHTS AND 

OBLIGATIONS WITH RESPECT TO PCs, SHALL BE GOVERNED BY THE LAWS OF THE UNITED 

STATES. INSOFAR AS THERE MAY BE NO APPLICABLE PRECEDENT, AND INSOFAR AS TO 

DO SO WOULD NOT FRUSTRATE THE PURPOSES OF THE FREDDIE MAC ACT OR ANY

PROVISION OF THIS AGREEMENT OR THE TRANSACTIONS GOVERNED HEREBY, THE 

LOCAL LAWS OF THE STATE OF NEW YORK SHALL BE DEEMED REFLECTIVE OF THE LAWS 

OF THE UNITED STATES.

Section 7.09. Grantor Trust Status. No provision in this Agreement shall be construed to grant 

Freddie Mac, the Trustee or any other Person authority to act in any manner which would cause a PC Pool 

not to be treated as a grantor trust for federal income tax purposes.

Section 7.10. Payments Due on Non-Business Days. If the date fixed for any payment on any PC is 

a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day, 

with the same force and effect as though made on the date fixed for such payment, and no interest shall 

accrue for the period after such date.
Section 7.11. Successors. This Agreement shall be binding upon and inure to the benefit of the 

parties and their respective successors, including any successor by operation of law, and permitted assigns.

Section 7.12. Headings. The headings in this Agreement are for convenience only and shall not 

affect the construction of this Agreement.

Section 7.13. Notice and Demand.

(a) Any notice, demand or other communication required or permitted under this Agreement to be 

given to or served upon any Holder may be given or served (i) in writing by deposit in the United States 

mail, postage prepaid, and addressed to such Holder as such Holder’s name and address may appear on the 

books and records of a Federal Reserve Bank or (ii) by transmission to such Holder through the 

communication system of the Federal Reserve Banks. Any notice, demand or other communication to or 

upon a Holder shall be deemed to have been sufficiently given or made, for all purposes, upon mailing or 

transmission.

(b) Any notice, demand or other communication which is required or permitted to be given to or 

served under this Agreement may be given in writing addressed as follows (i) in the case of Freddie Mac in 

its corporate capacity, to Freddie Mac, 8200 Jones Branch Drive, McLean, Virginia 22102, Attention: 

Executive Vice President - General Counsel and Secretary and (ii) in the case of the Trustee, to: Freddie 

Mac (as Trustee), 8200 Jones Branch Drive, McLean, Virginia 22102, Attention: Executive Vice President 

- General Counsel and Secretary.

 (c) Any notice, demand or other communication to or upon Freddie Mac or the Trustee shall be 

deemed to have been sufficiently given or made only upon its actual receipt of the writing.
THE SALE OF A PC AND RECEIPT AND ACCEPTANCE OF A PC BY OR ON BEHALF OF A

HOLDER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL

CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER AND ALL OTHERS 

HAVING A BENEFICIAL INTEREST IN SUCH PC OF ALL THE TERMS AND PROVISIONS OF 

THIS AGREEMENT(INCLUDING THE RELATED POOLSUPPLEMENT) AND THE AGREEMENT

OF FREDDIE MAC, SUCH HOLDER AND SUCH OTHERS THAT THOSE TERMS AND 

PROVISIONS SHALL BE BINDING, OPERATIVE AND EFFECTIVE.

FEDERAL HOME LOAN MORTGAGE CORPORATION, 

as Trustee

/s/ Carol Wambeke 

Authorized Signatory

FEDERAL HOME LOAN MORTGAGE CORPORATION, 

in its corporate capacity as Depositor, Administrator

 and Guarantor 

/s/ Mark Hanson 

Authorized Signatory
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,

 2016 2015 2014 2013 2012

(Dollars in millions)

Net income before income tax expense and cumulative effect of changes in

accounting principles $ 11,639 $ 9,274 $ 11,002 $ 25,363 $ 9,445

Add:

Total interest expense 50,595 51,916 54,916 55,779 66,502

Interest factor in rental expenses 3 2 5 4 4

Earnings, as adjusted $ 62,237 $ 61,192 $ 65,923 $ 81,146 $ 75,951

Fixed charges:

Total interest expense $ 50,595 $ 51,916 $ 54,916 $ 55,779 $ 66,502

Interest factor in rental expenses 3 2 5 4 4

Total fixed charges $ 50,598 $ 51,918 $ 54,921 $ 55,783 $ 66,506

Senior preferred stock and preferred stock dividends(1) 7,437 5,510 19,610 47,591 7,229

Total fixed charges including preferred stock dividends $ 58,035 $ 57,428 $ 74,531 $103,374 $ 73,735

Ratio of earnings to fixed charges(2) 1.23 1.18 1.20 1.45 1.14

Ratio of earnings to combined fixed charges and preferred stock dividends(3) 1.07 1.07 — — 1.03

(1) Senior preferred stock and preferred stock dividends represent pre-tax earnings required to cover any senior preferred stock and 

preferred stock dividend requirements computed using our effective tax rate.

(2) Ratio of earnings to fixed charges is computed by dividing earnings, as adjusted by total fixed charges. 

(3) 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 $8.6 billion, $22.2 billion 

for the years ended December 31, 2014, and 2013, respectively.
 Exhibit 24.1

Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Raphael W. Bostic 

Raphael W. Bostic
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Carolyn H. Byrd 

Carolyn H. Byrd
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Lance F. Drummond 

Lance F. Drummond
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

8, 2016.

 /s/ Thomas M. Goldstein 

Thomas M. Goldstein
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Richard C. Hartnack 

Richard C. Hartnack
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Steven W. Kohlhagen 

Steven W. Kohlhagen
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Christopher S. Lynch 

Christopher S. Lynch
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Sara Mathew 

Sara Mathew
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Saiyid T. Naqvi 

Saiyid T. Naqvi
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Nicolas P. Retsinas 

Nicolas P. Retsinas
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Eugene B. Shanks, Jr. 

Eugene B. Shanks, Jr.
Power of Attorney

Annual Report on Form 10-K 

Freddie Mac

KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a 

director of Freddie Mac (formally known as the Federal Home Loan Mortgage 

Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. 

Layton, James G. Mackey, William H. McDavid, Alicia S. Myara and Kevin I. 

MacKenzie, and each of them severally, my true and lawful attorney-in-fact with power 

of substitution and resubstitution to sign in my name, place and stead, in any and all 

capacities, to do any and all things and execute any and all instruments that such attorney 

may deem necessary or advisable under the Securities Exchange Act of 1934 and any 

rules, regulations and requirements of the U.S. Securities and Exchange Commission in 

connection with the Annual Report on Form 10-K for the year ended December 31, 2016 

and any and all amendments thereto, as fully for all intents and purposes as I might or 

could do in person, and hereby ratify and confirm all said attorneys-in-fact, each acting 

alone, and his or her substitute or substitutes, may lawfully do or cause to be done by 

virtue hereof.

IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 

1, 2016.

 /s/ Anthony A. Williams 

Anthony A. Williams
Exhibit 31.1

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Donald H. Layton, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of the Federal Home Loan

Mortgage Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the

periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which

this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance with generally accepted accounting

principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by

this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control

over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or

persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and

report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant’s internal control over financial reporting.

Date: February 16, 2017

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 31.2

CERTIFICATION

PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, James G. Mackey, certify that:

1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2016 of the Federal Home Loan

Mortgage Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the

periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which

this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be

designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and

the preparation of financial statements for external purposes in accordance with generally accepted accounting

principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by

this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control

over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or

persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and

report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the

registrant’s internal control over financial reporting.

Date: February 16, 2017

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer
Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2016 of the Federal Home 

Loan Mortgage Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date 

hereof (the “Report”), I, Donald H. Layton, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of

1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

Date: February 16, 2017

/s/ Donald H. Layton

Donald H. Layton

Chief Executive Officer
Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2016 of the Federal Home 

Loan Mortgage Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date 

hereof (the “Report”), I, James G. Mackey, Executive Vice President – Chief Financial Officer of the Company, 

certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 

that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of

1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company.

Date: February 16, 2017

/s/ James G. Mackey

James G. Mackey

Executive Vice President — Chief Financial Officer