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.
We have two primary sources of revenue:
n   Net interest income - primarily consists of the guarantee fees from our

single-family credit guarantee portfolio and the net interest income from our

investments portfolio.

n Guarantee fee income - primarily consists of the guarantee fees from our

multifamily guarantee portfolio.




We also earn revenue from (a) realized and unrealized gains (losses) on mortgage
loans and investment securities and the debt and derivatives we use to fund and
hedge them, which are primarily recognized in investment gains (losses), net,
and may fluctuate significantly from period-to-period based on the volume and
nature of our investment, funding, and hedging activities and changes in market
conditions, such as interest rates and market spreads; and (b) fees that we
charge to our single-family and multifamily sellers and servicers, which are
recognized in other income.
Our primary expense items consist of credit-related expenses and operating
expenses. Credit-related expenses consist of (a) provision for credit losses,
which primarily represents probable incurred losses on our mortgage loans
held-for-investment; (b) REO operations expense, which represents expenses
related to foreclosed properties; and (c) credit enhancement expense, which
represents the costs we incur to transfer credit risk to third-party investors
under freestanding credit enhancements. Operating expenses consist of
administrative expenses, the 10 basis point fee related to the Temporary Payroll
Tax Cut Continuation Act of 2011, and other expenses we incur to run the
business.
The table below compares our consolidated results of operations for the past
three years. Certain amounts in prior periods have been reclassified to conform
to the current presentation. See Note 1 for additional information about the
prior period reclassifications.
Table 2 - Summary of Consolidated Statements of Comprehensive Income (Loss)
                                                                            

Year Over Year Change


                                    Year Ended December 31,            2019 vs. 2018          2018 vs. 2017
(Dollars in millions)            2019        2018        2017           $         %            $          %
  Net interest income           $11,848     $12,021     $14,164       ($173 )     (1 )%     ($2,143 )    (15 )%
Guarantee fee income              1,089         866         749         223       26            117       16
Investment gains (losses),                                           (1,103 )    (57 )          761       66
net                                 818       1,921       1,160
  Other income (loss)               323         762       4,984        (439 )    (58 )       (4,222 )    (85 )
Net revenues                     14,078      15,570      21,057      (1,492 

) (10 ) (5,487 ) (26 )


  Benefit (provision) for           746         736          84          10        1            652      776
credit losses
Credit enhancement expense         (708 )      (417 )      (280 )      (291 )    (70 )         (137 )    (49 )
REO operations expense             (229 )      (169 )      (189 )       (60 )    (36 )           20       11
Credit-related expense             (191 )       150        (385 )      (341 )   (227 )          535      139
Administrative expense           (2,564 )    (2,293 )    (2,106 )      (271 )    (12 )         (187 )     (9 )
Temporary Payroll Tax Cut
Continuation Act of 2011         (1,617 )    (1,484 )    (1,340 )      (133 )     (9 )         (144 )    (11 )
expense
Other expense                      (657 )      (469 )      (392 )      (188 )    (40 )          (77 )    (20 )
Operating expense                (4,838 )    (4,246 )    (3,838 )      (592 )    (14 )         (408 )    (11 )
Income before income tax          9,049      11,474      16,834      (2,425 )    (21 )       (5,360 )    (32 )
(expense) benefit
Income tax (expense)             (1,835 )    (2,239 )   (11,209 )       404       18          8,970       80
benefit
Net income (loss)                 7,214       9,235       5,625      (2,021 )    (22 )        3,610       64
Total other comprehensive
income (loss),
net of taxes and                    573        (613 )       (67 )     1,186      193           (546 )   (815 )
reclassification
adjustments
Comprehensive income (loss)      $7,787      $8,622      $5,558       ($835 )    (10 )%      $3,064       55  %


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.


FREDDIE MAC | 2019 Form 10-K 17

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Management's Discussion and Analysis Consolidated Results of Operations





Net Revenues
Net Interest Income
--------------------------------------------------------------------------------
Net interest income consists of guarantee portfolio net interest income,
investments portfolio net interest income, and income (expense) from hedge
accounting.
n Guarantee portfolio net interest income - consists of two components:


l Guarantee fees we receive for managing the credit risk associated with the

mortgage loans held by consolidated trusts, which primarily consist of the

loans in our single-family credit guarantee portfolio. We record interest

income on loans held by consolidated trusts and interest expense on the

debt securities issued by the trusts. The difference between these amounts


       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.

l Amortization of cost basis adjustments, such as premiums and discounts on


       securitized mortgage loans, including upfront fees we receive when we
       acquire a loan, and debt securities of consolidated trusts. These cost

basis adjustments are amortized into interest income or interest expense

based on the effective yield over the contractual life of the associated


       financial instrument. The amortization of loans and debt securities of
       consolidated trusts may vary significantly from period to period and is

primarily driven by actual prepayments on the underlying loans. Increases

in actual prepayments result in a higher rate of amortization, while

decreases in actual prepayments result in a lower rate of 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.

n Investments portfolio net interest income - consists of two components:

l The difference between the interest income earned on the assets in our

investments portfolio and the interest expense incurred on the liabilities


       used to fund those assets, including interest expense related to CRT debt
       (STACR debt notes and SCR debt notes).

l Amortization of cost basis adjustments, such as premiums and discounts on

unsecuritized mortgage loans, investments securities, other assets, and

other debt, which are amortized into interest income or interest expense

based on the effective yield over the contractual life of the associated

financial instrument.

n Income (expense) from hedge accounting - consists of two components:

l Upon adoption of amended hedge accounting guidance in 4Q 2017, fair value

changes for the hedging instrument, including the accrual of periodic cash


       settlements, fair value changes for the hedged item attributable to the
       risk being hedged for qualifying fair value hedge relationships, and
       amortization of hedge accounting related basis adjustments. See Note 9 for
       additional detail on hedge accounting.

l 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.















FREDDIE MAC | 2019 Form 10-K 18

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Management's Discussion and Analysis Consolidated Results of Operations

The table below presents the components of net interest income. Table 3 - Components of Net Interest Income

Year Over Year Change


                                    Year Ended December 31,            2019 vs. 2018           2018 vs. 2017
(Dollars in millions)            2019        2018        2017           $          %            $          %
Guarantee portfolio net
interest income:
Contractual net interest
income                           $3,767      $3,457      $3,270         $310        9 %         $187         6 %
Net interest income related
to the Temporary Payroll
Tax Cut Continuation Act of
2011                              1,590       1,438       1,314          152       11            124         9
Amortization                      2,436       2,900       3,258         (464 )    (16 )         (358 )     (11 )
Total guarantee portfolio
net interest income               7,793       7,795       7,842           (2 )      -            (47 )      (1 )
Investments portfolio net
interest income:
Contractual net interest
income                            6,004       6,556       7,227         (552 )     (8 )         (671 )      (9 )
Amortization                       (593 )      (305 )       (78 )       (288 )    (94 )         (227 )    (291 )
Interest expense related to
CRT debt                         (1,104 )    (1,094 )      (834 )        (10 )     (1 )         (260 )     (31 )
Total investments portfolio
net interest income               4,307       5,157       6,315         (850 )    (16 )       (1,158 )     (18 )
Income (expense) from hedge
accounting                         (252 )      (931 )         7          679       73           (938 ) (13,400 )
Net interest income             $11,848     $12,021     $14,164        ($173 )     (1 %)     ($2,143 )     (15 %)


Key Drivers:
n Guarantee portfolio contractual net interest income


l 2019 vs. 2018 and 2018 vs. 2017 - Increased primarily due to the continued

growth of the core single-family loan portfolio.

n Guarantee portfolio amortization

l 2019 vs. 2018 and 2018 vs. 2017 - Decreased primarily due to the timing

differences in amortization related to prepayments between debt of

consolidated trusts and the underlying mortgage loans, partially offset by

increases in amortization of upfront fees.

n Investments portfolio contractual net interest income

l 2019 vs. 2018 - Decreased primarily due to the lower and flatter interest

rate environment, coupled with a change in our investment mix as the other


       investments portfolio represented a larger percentage of our total
       investments portfolio.

l 2018 vs. 2017 - Decreased primarily due to the continued reduction in the


       balance of our mortgage-related investments portfolio, pursuant to the
       portfolio limits established by the Purchase Agreement and FHFA. See
       Conservatorship and Related Matters - Limits on Our Mortgage-Related
       Investments Portfolio and Indebtedness for additional discussion of the
       limits on the mortgage-related investments portfolio.

n Investments portfolio amortization




l      2019 vs. 2018 and 2018 vs. 2017 - Decreased primarily due to lower
       amortization related to unsecuritized mortgage loans, as certain of those
       loans were reclassified from held-for-investment to held-for-sale and
       ceased amortizing, and lower accretion of previously recognized
       other-than-temporary impairments, due to a decline in the population of
       impaired securities.

n Interest expense related to CRT debt

l 2019 vs. 2018 - Remained relatively flat as higher short-term interest


       rates were offset by a decline in volume as we no longer issue STACR debt
       notes on a regular basis.


l      2018 vs. 2017 - Increased primarily due to higher STACR debt yield as
       short-term interest rates increased combined with a higher average
       balance.

n Income (expense) from hedge accounting

l 2019 vs. 2018 - Increased primarily due to a positive earnings mismatch

and lower expense related to accruals of periodic cash settlements on

derivatives in hedging relationships, partially offset by amortization of

hedge accounting-related basis adjustments. The earnings mismatch is the

amount by which the gain or loss on the designated derivative instrument

does not exactly offset the gain or loss on the hedged item attributable

to the hedged risk.

l 2018 vs. 2017 - Affected primarily by the inclusion of fair value hedge

accounting results within net interest income beginning in 4Q 2017, due to


       the adoption of amended hedge accounting guidance. In prior periods, this
       activity was included in other income and derivative gains (losses).



FREDDIE MAC | 2019 Form 10-K   19


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Management's Discussion and Analysis Consolidated Results of Operations





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.
Table 4 - Analysis of Net Interest Yield
                                                                            Year Ended December 31,
                                             2019                                    2018                                    2017
                                              Interest                                Interest                                Interest
                                Average        Income     Average      

Average Income Average Average Income Average (Dollars in millions)

           Balance      (Expense)     Rate         

Balance (Expense) Rate Balance (Expense) Rate Interest-earning assets: Cash and cash equivalents $8,925 $187 2.10 % $7,189 $67 0.93 % $10,965 $48 0.44 % Securities purchased under 56,465 1,284 2.27

            45,360          880     1.94            57,883          588     1.02
agreements to resell
Secured lending                     2,933          104     3.55             1,350           35     2.58               859           21     2.42
Mortgage-related
securities:
Mortgage-related                  132,735        5,761     4.34           143,424        6,026     4.20           164,663        6,402     3.89
securities
Extinguishment of debt
securities of consolidated        (85,407 )     (3,524 )  (4.13 )         (88,757 )     (3,437 )  (3.87 )         (87,665 )     (3,264 )  (3.72 )
trusts held by Freddie Mac
Total mortgage-related             47,328        2,237     4.73            54,667        2,589     4.74            76,998        3,138     4.08
securities, net
Non-mortgage-related               22,776          500     2.19            18,955          446     2.35            17,558          277     1.58
securities
Loans held by consolidated      1,882,802       64,927     3.45         1,799,122       61,883     3.44         1,730,000       58,746     3.40
trusts(1)
Loans held by Freddie              86,973        3,656     4.20            98,005        4,154     4.24           117,043        4,989     4.26
Mac(1)
Total interest-earning          2,108,202       72,895     3.46         2,024,648       70,054     3.46         2,011,306       67,807     3.37
assets
Interest-bearing
liabilities:
Debt securities of
consolidated trusts             1,907,818      (57,504 )  (3.01 )       1,826,429      (54,966 )  (3.01 )       1,753,983      (50,920 )  (2.90 )
including those held by
Freddie Mac
Extinguishment of debt
securities of consolidated        (85,407 )      3,524     4.13           (88,757 )      3,437     3.87           (87,665 )      3,264     3.72
trusts held by Freddie Mac
Total debt securities of
consolidated trusts held        1,822,411      (53,980 )  (2.96 )       1,737,672      (51,529 )  (2.97 )       1,666,318      (47,656 )  (2.86 )
by third parties
Other debt:
Short-term debt                    85,492       (1,910 )  (2.23 )         

62,893 (1,193 ) (1.90 ) 72,071 (615 ) (0.85 ) Long-term debt

                    192,100       (5,157 )  (2.68 )         

216,484 (5,311 ) (2.45 ) 264,354 (5,372 ) (2.03 ) Total other debt

                  277,592       (7,067 )  (2.55 )         279,377       (6,504 )  (2.33 )         336,425       (5,987 )  (1.78 )
Total interest-bearing          2,100,003      (61,047 )  (2.91 )       2,017,049      (58,033 )  (2.88 )       2,002,743      (53,643 )  (2.68 )
liabilities
Impact of net
non-interest-bearing                8,199            -     0.01             7,599            -     0.01             8,563            -     0.01
funding
Total funding of               $2,108,202     ($61,047 )  (2.90 )%     $2,024,648     ($58,033 )  (2.87 )%     $2,011,306     ($53,643 )  (2.67 )%
interest-earning assets
Net interest income/yield                      $11,848     0.56  %                     $12,021     0.59  %                     $14,164     0.70  %


(1) Loan fees, primarily consisting of amortization of upfront fees, included in

interest income were $3.2 billion, $2.6 billion, and $2.4 billion for loans

held by consolidated trusts and $112 million, $104 million, and $162 million

for loans held by Freddie Mac during 2019, 2018, and 2017, respectively.

FREDDIE MAC | 2019 Form 10-K   20


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Management's Discussion and Analysis Consolidated Results of Operations





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.
Table 5 - Net Interest Income Rate / Volume Analysis
                                                                   Variance Analysis
                                                 2019 vs. 2018                          2018 vs. 2017
(Dollars in millions)                   Rate      Volume     Total Change       Rate      Volume    Total Change
Interest-earning assets:
Cash and cash equivalents                $101         $19           $120           $45      ($26 )          $19
Securities purchased under
agreements to resell                      170         234            404           443      (151 )          292
Secured lending                            17          52             69             1        13             14
Mortgage-related securities               194        (459 )         (265 )         491      (867 )         (376 )
Extinguishment of debt securities
of consolidated trusts held by
Freddie Mac                              (220 )       133            (87 )        (132 )     (41 )         (173 )
Total mortgage-related securities,
net                                       (26 )      (326 )         (352 )         359      (908 )         (549 )
Non-mortgage-related securities           (31 )        85             54           146        23            169

Loans held by consolidated trusts 159 2,885 3,044

        767     2,370          3,137
Loans held by Freddie Mac                 (34 )      (464 )         (498 )         (28 )    (807 )         (835 )
Total interest-earning assets             356       2,485          2,841         1,733       514          2,247
Interest-bearing liabilities:
Debt securities of consolidated
trusts including those held by            (85 )    (2,453 )       (2,538 )      (1,902 )  (2,144 )       (4,046 )
Freddie Mac
Extinguishment of debt securities
of consolidated trusts held by
Freddie Mac                               220        (133 )           87           132        41            173
Total debt securities of
consolidated trusts held by third         135      (2,586 )       (2,451 )      (1,770 )  (2,103 )       (3,873 )
parties
Other debt:
Short-term debt                          (237 )      (480 )         (717 )        (665 )      87           (578 )
Long-term debt                           (476 )       630            154        (1,005 )   1,066             61
Total other debt                         (713 )       150           (563 )      (1,670 )   1,153           (517 )

Total interest-bearing liabilities (578 ) (2,436 ) (3,014 )


    (3,440 )    (950 )       (4,390 )
Net interest income                     ($222 )       $49          ($173 )     ($1,707 )   ($436 )      ($2,143 )


Guarantee Fee Income

--------------------------------------------------------------------------------
Guarantee fee income relates primarily to multifamily securitizations. For
additional details on our multifamily securitizations, see Our Business Segments
- Multifamily - Products and Activities - Securitization and Guarantee Products.
Guarantee fee income consists of the following:
n   Contractual guarantee fee - consists of the fees earned from guarantees

issued to third parties and securitization trusts that we do not consolidate.




n   Guarantee obligation amortization - represents the amortization of our
    obligation to perform over the term of the guarantee.

n Guarantee asset fair value changes - represents the change in fair value of

our right to receive contractual guarantee fees. Because our multifamily

loans contain prepayment protection, decreasing interest rates generally


    result in a higher guarantee asset fair value, with the opposite effect
    occurring when interest rates increase.




FREDDIE MAC | 2019 Form 10-K   21


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Management's Discussion and Analysis Consolidated Results of Operations

The table below presents the components of guarantee fee income. Table 6 - Components of Guarantee Fee Income

Year Over Year Change


                                    Year Ended December 31,             2019 vs. 2018            2018 vs. 2017
(Dollars in millions)              2019         2018      2017            $          %            $          %
Contractual guarantee fee              $910      $810      $661            $100       12 %        $149       23  %
Guarantee obligation
amortization                            813       711       601             102       14           110       18
Guarantee asset fair value
changes                                (634 )    (655 )    (513 )            21        3          (142 )    (28 )
Guarantee fee income                 $1,089      $866      $749

$223 26 % $117 16 %

Key Drivers:
n   2019 vs. 2018 - Increased primarily due to the continued growth in our

multifamily guarantee portfolio, coupled with lower fair value losses on our

guarantee asset due to declining interest rates.

n 2018 vs. 2017 - Increased primarily due to the continued growth in our

multifamily guarantee portfolio, partially offset by increased fair value

losses on our guarantee asset due to rising interest rates.

Investment Gains (Losses), Net -------------------------------------------------------------------------------- The table below presents the components of investment gains (losses), net. Table 7 - Components of Investment Gains (Losses), Net

Year Over Year Change


                                   Year Ended December 31,            2019 vs. 2018           2018 vs. 2017
(Dollars in millions)            2019        2018       2017           $          %            $          %
Mortgage loans gains
(losses)                         $4,744       $746     $2,062        $3,998      536 %      ($1,316 )    (64 %)
Investment securities gains
(losses)                            389       (815 )      935         1,204      148         (1,750 )   (187 )
Debt gains (losses)                 201        720        151          (519 )    (72 )          569      377
Derivative gains (losses)        (4,516 )    1,270     (1,988 )      (5,786 )   (456 )        3,258      164
Investment gains (losses),
net                                $818     $1,921     $1,160       ($1,103

) (57 %) $761 66 %

Mortgage Loans Gains (Losses) -------------------------------------------------------------------------------- Mortgage loans gains (losses) consists of the following: n Gains (losses) on certain mortgage loan purchase commitments - represents the

change in fair value between the commitment date and settlement date for

multifamily loan purchase commitments for which we have elected the fair


    value option.


n   Gains (losses) on mortgage loans - includes changes in fair value on

held-for-sale loans, including loans for which we have elected the fair value

option, as well as any gains and losses on the sales of these loans.

Mortgage loans gains (losses) are affected by a number of factors, including: n Volume of held-for-sale single-family seasoned mortgage loans;

n Volume of multifamily loan purchase commitments and mortgage loans for which

we have elected the fair value option; and

n Changes in interest rates and market spreads.

FREDDIE MAC | 2019 Form 10-K   22

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Management's Discussion and Analysis Consolidated Results of Operations

The table below presents the components of mortgage loans gains (losses). Table 8 - Components of Mortgage Loans Gains (Losses)

Year Over Year Change


                                    Year Ended December 31,             2019 vs. 2018          2018 vs. 2017
(Dollars in millions)              2019         2018       2017          $         %            $          %
Gains (losses) on certain
loan purchase commitments            $1,913      $777     $1,098       $1,136      146 %       ($321 )    (29 )%
Gains (losses) on mortgage
loans                                 2,831       (31 )      964        2,862    9,232          (995 )   (103 )
Mortgage loans gains
(losses)                             $4,744      $746     $2,062       $3,998      536 %     ($1,316 )    (64 )%


Key Drivers:
n 2019 vs. 2018 - Increased due to fair value gains on multifamily held-for-sale
mortgage loans and commitments driven by a decrease in long-term interest rates
and targeted price increases related to changing market conditions, coupled with
a higher volume of sales of single-family seasoned loans.
n 2018 vs. 2017 - Decreased due to fair value losses on multifamily mortgage
loans and commitments as a result of spread widening and an increase in interest
rates, coupled with higher fair value losses on single-family seasoned loans.
Investment Securities Gains (Losses)
--------------------------------------------------------------------------------
Investment securities gains (losses) primarily consists of fair value gains and
losses recognized on trading securities and realized gains and losses on the
sale of available-for-sale securities.
Investment securities gains (losses) are affected by a number of factors,
including changes in interest rates and market spreads and volume of sales of
available-for-sale securities.
Key Drivers:
n 2019 vs. 2018 - Shifted to gains during 2019 primarily driven by higher gains
on trading securities due to decreasing interest rates, partially offset by
lower volume of sales at gains of non-agency mortgage-related securities.
n 2018 vs. 2017 - Shifted to losses during 2018 primarily driven by higher
losses on trading securities due to increasing interest rates and spread
widening, combined with lower volume of sales at gains of non-agency
mortgage-related securities.
Debt Gains (Losses)
--------------------------------------------------------------------------------
Debt gains (losses) consists of the following:
n   Fair value changes - includes the gains and losses on debt for which we have

elected the fair value option, primarily certain STACR debt notes.

n Gains (losses) on extinguishment of debt - represents the difference between

the consideration paid and the debt carrying value when we purchase debt

securities of consolidated trusts as investments in our mortgage-related

investments portfolio and when we repurchase or call other debt.

Debt gains (losses) are affected by a number of factors, including: n Changes in the market spreads between debt yields and benchmark interest

rates and

n Amount and type of debt selected for repurchase based on our investment and

funding strategies, including our efforts to support the liquidity and price

performance of our mortgage-related securities.

FREDDIE MAC | 2019 Form 10-K   23

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Management's Discussion and Analysis Consolidated Results of Operations

The table below presents the components of debt gains (losses). Table 9 - Components of Debt Gains (Losses)

Year Over Year Change


                                 Year Ended December 31,         2019 vs. 2018          2018 vs. 2017
(Dollars in millions)           2019      2018      2017          $         %            $          %

Fair value changes:


  CRT-related debt               $105      $140     ($212 )      ($35 )    

(25 )% $352 166 %


  Non-CRT-related debt             27         2        22          25    1,250            (20 )    (91 )
Total fair value changes          132       142      (190 )       (10 )     (7 )          332      175
Gains (losses) on
extinguishment of debt             69       578       341        (509 )    (88 )          237       70
Debt gains (losses)              $201      $720      $151       ($519 )    (72 )%        $569      377  %


Key Drivers:
n 2019 vs. 2018 - Decreased primarily due to losses from the extinguishment of
fixed-rate debt securities of consolidated trusts, as market interest rates
declined between the time of issuance and repurchase, partially offset by an
increase in gains on callable debt due to an increase in call volume.
n 2018 vs. 2017 - Improved primarily due to higher gains from the extinguishment
of fixed-rate debt securities of consolidated trusts, as market interest rates
increased between the time of issuance and repurchase, coupled with fair value
gains on STACR debt notes as a result of spread widening during 2018.
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, futures, and option-based
derivatives, such as swaptions, to manage our exposure to changes in
interest-rates. We consider the cost of derivatives used in interest-rate risk
management to be an inherent part of the cost of funding our mortgage-related
investments portfolio.
In addition, we routinely enter into commitments to purchase and sell loans and
mortgage-related securities. The majority of these commitments are accounted for
as derivative instruments.
We continue to align our derivative portfolio with the changing duration of our
assets and liabilities so as to economically hedge them. We manage our exposure
to interest-rate risk on an economic basis to a low level as measured by our
models. We believe the impact of derivatives on our GAAP financial results
should be considered in the context of our overall interest-rate risk profile,
including our PVS 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) consists of the following:
n   Fair value changes - represents changes in the fair value of our derivatives

while not designated in hedging relationships 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.

n 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

for derivatives while not designated in hedging relationships. This accrual

represents the ongoing cost of our hedging activities, and is economically

equivalent to interest expense.




We apply fair value hedge accounting to certain single-family mortgage loans and
long-term debt to reduce our GAAP earnings volatility. For the first three
quarters of 2017, we included gains and losses on derivatives designated in
qualifying hedge relationships in other income and the accrual of periodic cash
settlements on derivatives in qualifying hedge relationships in derivatives
gains (losses). Beginning in 4Q 2017, due to the adoption of amended hedge
accounting guidance, we include gains and losses and the accrual of periodic
cash settlements on derivatives designated in qualifying hedge relationships in
the same line used to present the earnings effect of the hedged item. See Note 9
for more information on hedge accounting and the adoption of amended hedge
accounting guidance during 2017.
Derivative gains (losses) are affected by a number of factors, including:
n   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

FREDDIE MAC | 2019 Form 10-K   24

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Management's Discussion and Analysis Consolidated Results of Operations





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.
n   Implied volatility - Many of our assets and liabilities have embedded

prepayment options. We use option-based derivatives, including swaptions, to

economically hedge the prepayment options embedded in our mortgage assets and

callable debt. Fair value gains and losses on swaptions are sensitive to

changes in both interest rates and implied volatility, which reflects the

market's expectation of future changes in interest rates. Assuming all other

factors are unchanged, including interest rates, purchased swaptions

generally become more valuable as implied volatility increases and less

valuable as implied volatility decreases, with the opposite being true for

written swaptions.

n 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).

n 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.

The table below presents the components of derivative gains (losses). Table 10 - Components of Derivative Gains (Losses)

Year Over Year Change


                                   Year Ended December 31,             2019 vs. 2018          2018 vs. 2017
(Dollars in millions)            2019        2018       2017            $          %           $          %
Fair value changes:
Interest-rate swaps             ($3,085 )   $1,422        $626       ($4,507 )   (317 )%       $796      127  %
Option-based derivatives            188       (630 )    (1,041 )         818      130           411       39
Futures                            (946 )       57         144        (1,003 ) (1,760 )         (87 )    (60 )
Commitments                        (452 )      606         (91 )      (1,058 )   (175 )         697      766
CRT-related derivatives              (1 )      (38 )       (30 )          37       97            (8 )    (27 )
Other                                52         (6 )        (6 )          58      967             -        -
Total fair value changes         (4,244 )    1,411        (398 )      (5,655 )   (401 )       1,809      455
Accrual of periodic cash
settlements                        (272 )     (141 )    (1,590 )        

(131 ) (93 ) 1,449 91 Derivative gains (losses) ($4,516 ) $1,270 ($1,988 ) ($5,786 ) (456 )% $3,258 164 %

Key Drivers:
n   2019 vs. 2018 - Decreases in long-term rates during 2019 resulted in

derivative fair value losses compared to derivative fair value gains during

2018. The interest rate decreases during 2019 resulted in fair value losses

on our pay-fixed interest rate swaps, forward commitments to issue

mortgage-related securities, and futures, partially offset by fair value

gains on our receive-fixed swaps and certain of our option-based derivatives.

n 2018 vs. 2017 - Increases in long-term rates during 2018 resulted in

derivative fair value gains compared to derivative fair value losses during

2017. The interest rate increases during 2018 resulted in fair value gains on

our pay-fixed interest rate swaps, forward commitments to issue

mortgage-related securities, and futures, partially offset by fair value

losses on our receive-fixed swaps and certain of our option-based

derivatives. As a result of the adoption of amended hedge accounting guidance

in 4Q 2017, fair value changes on derivatives in qualifying hedge

relationships have been recorded within net interest income.




Other Income
--------------------------------------------------------------------------------
Key Drivers:
n   2019 vs. 2018 and 2018 vs. 2017 - Primarily reflected the recognition of a

$0.3 billion gain during 2018 from a judgment in litigation against Nomura

Holding America, Inc. (Nomura) and $4.5 billion in proceeds received during

2017 from a litigation settlement with the Royal Bank of Scotland Group plc

(RBS) related to certain of our non-agency mortgage related securities. See

Note 14 for additional information on the Nomura judgment and RBS settlement.

FREDDIE MAC | 2019 Form 10-K   25


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Management's Discussion and Analysis Consolidated Results of Operations





Credit-Related Expense
Benefit (Provision) for Credit Losses
--------------------------------------------------------------------------------
Key Drivers:
n   2019 vs. 2018 - Remained relatively flat due to the strong credit performance

of both our single-family and multifamily portfolios.

n 2018 vs. 2017 - Increased benefit for credit losses during 2018, primarily

driven by estimated hurricane-related losses recognized in 2017.




Credit Enhancement Expense
--------------------------------------------------------------------------------
Credit enhancement expense includes the premiums paid to transfer credit risk to
third parties under freestanding credit enhancements and transaction and other
costs incurred to enter into freestanding credit enhancements. Credit
enhancement expense does not include costs associated with CRT-related debt,
which are primarily recognized in interest expense, or the costs associated with
CRT-related derivatives, which are recognized in investment gains (losses), net.
Key Drivers:
n   2019 vs. 2018 and 2018 vs. 2017 - Increased primarily due to higher volumes

of CRT transactions.




See MD&A - Our Business Segments - Single-Family Guarantee - Products and
Activities and MD&A - Our Business Segments - Multifamily - Products and
Activities for additional information on our credit enhancements.
Operating Expense
Key Drivers:
n   2019 vs. 2018 - Increased primarily due to higher salaries and employee

benefits driven by the VERP and higher technology costs.

n 2018 vs. 2017 - Increased primarily due to higher administrative expense.




Income Tax Expense
Key Drivers:
n 2019 vs. 2018 - Decreased primarily due to lower pre-tax income.


n 2018 vs. 2017 - Decreased due to the impact of the Tax Cuts and Jobs Act

enacted in December 2017, which lowered the statutory corporate income tax

rate from 35% in 2017 to 21% in 2018 and required us to measure our net

deferred tax asset using the reduced rate and recognize a charge to income

tax expense of $5.4 billion in 2017.




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.
Key Drivers:
n 2019 vs. 2018 - Increased primarily due to fair value gains as long-term

interest rates declined, partially offset by fair value losses due to spread

widening on our agency mortgage-related securities.

n 2018 vs. 2017 - Decreased primarily due to higher fair value losses due to

increasing long-term interest rates, coupled with smaller spread-related fair

value gains driven by lower balances of non-agency mortgage-related securities.

FREDDIE MAC | 2019 Form 10-K 26

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Management's Discussion and Analysis Consolidated Balance Sheets Analysis

CONSOLIDATED BALANCE SHEETS ANALYSIS The table below compares our summarized consolidated balance sheets. Table 11 - Summarized Consolidated Balance Sheets


                                    As of December 31,               Year Over Year Change
(Dollars in millions)              2019            2018                $               %
Assets:
Cash and cash equivalents            $5,189          $7,273           ($2,084 )          (29 )%
Securities purchased under
agreements to resell                 66,114          34,771            31,343             90
Subtotal                             71,303          42,044            29,259             70
Investments in securities,
at fair value                        75,711          69,111             6,600             10
Mortgage loans, net               2,020,200       1,926,978            93,222              5
Accrued interest receivable           6,848           6,728               120              2
Derivative assets, net                  844             335               509            152
Deferred tax assets, net              5,918           6,888              (970 )          (14 )
Other assets                         22,799          10,976            11,823            108
Total assets                     $2,203,623      $2,063,060          $140,563              7  %

Liabilities and Equity:
Liabilities:
Accrued interest payable             $6,559          $6,652              ($93 )           (1 )%
Debt, net                         2,179,528       2,044,950           134,578              7
Derivative liabilities, net             372             583              (211 )          (36 )
Other liabilities                     8,042           6,398             1,644             26
Total liabilities                 2,194,501       2,058,583           135,918              7
Total equity                          9,122           4,477             4,645            104
Total liabilities and
equity                           $2,203,623      $2,063,060          $140,563              7  %

Key Drivers: As of December 31, 2019 compared to December 31, 2018: n Cash and cash equivalents and securities purchased under agreements to resell

increased on a combined basis primarily due to higher loan prepayments,

coupled with higher near-term cash needs for upcoming debt maturities and

anticipated calls of other debt and a higher expected loan purchase forecast.

n Other assets increased primarily due to higher servicer receivables driven by

an increase in mortgage loan payoffs reported but not yet remitted at the end

of 4Q 2019 and a change in our servicing cycle in 2Q 2019 related to the

implementation of Release 2 of the CSP and the Single Security Initiative.

n Total equity increased primarily as a result of our ability to retain

earnings as a result of an increase in the applicable Capital Reserve Amount

from $3.0 billion to $20.0 billion pursuant to the September 2019 Letter


    Agreement.



FREDDIE MAC | 2019 Form 10-K   27


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Management's Discussion and Analysis Our Business Segments | Segment Earnings





OUR BUSINESS SEGMENTS
As shown in the table below, we have three reportable segments, which are based
on the way we manage our business. Certain activities that are not part of a
reportable segment are included in the All Other category.

Segment/Category Description


                          Reflects results from our purchase, 

securitization, and


  Single-family Guarantee guarantee of single-family loans and the management of
                          single-family mortgage credit risk
                          Reflects results from our purchase, sale, securitization,
                          and guarantee of multifamily loans and securities, our
  Multifamily             investments in those loans and securities, and the
                          management of multifamily mortgage credit risk and market
                          risk


                          Reflects results from managing our mortgage-related
                          investments portfolio (excluding Multifamily segment
                          investments, single-family seriously delinquent loans, and
  Capital Markets         the credit risk of single-family performing and
                          reperforming loans), single-family securitization
                          activities, and treasury function, which includes
                          interest-rate risk management for the company

                          Consists of material corporate-level activities that are
  All Other               infrequent in nature and based on decisions outside the
                          control of the management of our reportable segments


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

n We allocate certain revenues and expenses, including certain returns on

assets, funding and hedging costs, and all administrative expenses to our


    three reportable segments.


n   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).




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 1  3 for additional details on Segment Earnings, including additional
financial information for our segments.

FREDDIE MAC | 2019 Form 10-K 28

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Management's Discussion and Analysis Our Business Segments | Segment Earnings

Segment Comprehensive Income -------------------------------------------------------------------------------- The graph below shows our comprehensive income by segment.


              [[Image Removed: chart-47f7eed8af135732987a01.jpg]]

FREDDIE MAC | 2019 Form 10-K 29

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





Single-Family Guarantee
Business Overview
--------------------------------------------------------------------------------
Our Single-family Guarantee segment supports our strategic goals to exit
conservatorship, create a world-class operating platform, and become the leader
in housing by:
n   Maintaining strong financial and capital management and identifying growth

opportunities;

n Positioning our business model to produce attractive, sustainable returns


    while preserving strong risk management discipline;


n   Utilizing efficient and resilient operations to run our business, serve
    our clients, and fulfill our mission;


n   Continuing to create innovative structures to cost-effectively transfer
    credit risk to third-party investors;


n   Leveraging technology, processes, policies, and data to ensure we have a
    stable, flexible ecosystem that can evolve as we evolve;

n Identifying and implementing new and creative ways to support fair access to

credit in a safe, sound, and responsible manner; and

n Maintaining a high performing, inclusive, and diverse workforce striving to

achieve our mission and realize our vision of becoming the leader in housing.




The U.S. residential mortgage market consists of a primary mortgage market that
links homebuyers and lenders, and a secondary mortgage market that links lenders
and investors. The size of the U.S. residential mortgage market is affected by
many factors, including changes in interest rates, unemployment rates,
homeownership rates, housing prices, the supply of housing, lender preferences
regarding credit risk, and borrower preferences regarding mortgage debt.
In accordance with our Charter, we participate in the secondary mortgage market.
The Single-family Guarantee segment provides liquidity and support to the
single-family market through a variety of activities that include the purchase,
securitization, and guarantee of single-family loans originated by sellers and
servicers. The mix of loan products available for us to purchase is affected by
several factors, including the volume of loans meeting the requirements of our
Charter, our own preference for credit risk reflected in our purchase standards,
and the loan purchase and securitization activity of other financial
institutions.
Our primary business model is to acquire loans that lenders originate and then
pool those loans into mortgage-related securities that transfer interest rate,
prepayment, and liquidity risk to investors and can be sold in the capital
markets. To reduce our exposure under our guarantees, we transfer credit risk on
a portion of our single-family credit guarantee portfolio to the private market
when it is cost-effective to do so. The returns we generate from these
activities are primarily derived from the ongoing guarantee fee we receive in
exchange for providing our guarantee of the principal and interest payments of
the issued mortgage-related securities.
In order to issue mortgage-related securities, we establish trusts pursuant to
our Master Trust Agreements and serve as the trustee of those trusts. The lender
or servicer administers the collection of borrowers' payments on their loans and
remits the collected funds to us. We administer the distribution of payments to
the investors in the mortgage-related securities, net of any applicable
guarantee fees.
The diagram below illustrates our primary business
model.[[Image Removed: sfprimarybusinessmodeljan02.jpg]]
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 consolidated

FREDDIE MAC | 2019 Form 10-K 30

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





trust. We have the option to purchase specified loans, including certain
delinquent loans, from consolidated trusts at a purchase price equal to the
current UPB of the loan, less any outstanding advances of principal that have
been previously distributed. However, in order to maintain alignment with Fannie
Mae under the Single Security Initiative, FHFA requires us to purchase loans out
of consolidated trusts if they are delinquent for 120 days, and we have the
option to purchase sooner under certain circumstances (e.g., imminent default
and seller breaches of representations and warranties). If borrowers become
delinquent, we work with the borrowers through our servicers to mitigate our
losses through our loan workout programs, which are discussed in more detail in
Risk Management. If we are unable to achieve a successful loan workout, we will
pursue foreclosure of the underlying property, which will result in a
third-party sale or our acquisition of the property as REO. The purchase and
sale of delinquent loans are done in conjunction with the Capital Markets
segment.
Guarantee Fees
--------------------------------------------------------------------------------
We enter into loan purchase agreements with many of our single-family customers
that outline the terms under which we agree to purchase loans from them over a
period of time. For most of the loans we purchase, the guarantee fees are not
specified contractually. Instead, we bid for some or all of the lender's loan
volume on a monthly basis at a guarantee fee that we specify. As a result, our
loan purchase volumes from individual customers can fluctuate significantly.
We seek to issue guarantees with fee terms that are commensurate with the
aggregate risks assumed and that will, over the long-term, provide guarantee fee
income that exceeds the credit-related and administrative expenses on the
underlying loans and also provide a return on the capital that would be needed
to support the related credit risk. The guarantee fees charged on new
acquisitions generally consist of:
n   A contractual monthly fee paid as a percentage of the UPB of the underlying

loan;

n Upfront fees, which primarily include delivery fees that are calculated based

on credit risk factors such as the loan product type, loan purpose, LTV

ratio, and credit score. These delivery fees are charged to compensate us for

higher levels of risk in some loan products;

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

monthly contractual guarantee fee ("buy-up fees" or "buy-down fees"). These

fees are paid in conjunction with the formation of a security to provide for

a uniform coupon rate for the mortgage pool underlying the security. The

payments made to buy-up the monthly contractual guarantee fee are allocated

to the Capital Markets segment;

n Market adjusted pricing costs based on the market pricing of our securities

relative to the market pricing of comparable Fannie Mae securities primarily

for loans acquired prior to implementation of the Single Security Initiative

in June 2019. We have not employed market adjusted pricing for new

acquisitions following implementation, as the Single Security Initiative is

designed to enhance the overall liquidity of Freddie Mac and Fannie Mae

securities in the TBA market by supporting their fungibility without regard

to which company is the issuer; and

n The legislated 10 basis point increase in guarantee fees under the Temporary

Payroll Tax Cut Continuation Act of 2011.




We operate in a competitive market by varying our pricing for different
customers, loan products, and underwriting characteristics. We seek to maintain
a broad-ranging mix of loan quality for the loans we purchase. However, sellers
may elect to retain loans with better credit characteristics. A seller's
decision to retain these loans could result in our purchases having a more
adverse credit profile.
We must obtain FHFA's approval to implement across-the-board changes to our
guarantee fees. In addition, from time to time, FHFA issues directives or
guidance to us affecting the levels of guarantee fees that we may charge.
Common Securitization Platform and the UMBS
--------------------------------------------------------------------------------
We continue to work with FHFA, Fannie Mae, and CSS to support the CSP and the
UMBS market. We have been using the CSP for data acceptance, issuance support,
and bond administration activities related to Freddie Mac single-class
fixed-rate mortgage-related securities since 2016. In June 2019, Freddie Mac,
Fannie Mae, and FHFA announced the implementation of Release 2 of the CSP and
the Single Security Initiative for Freddie Mac and Fannie Mae, under which we
and Fannie Mae began issuing UMBS. Upon implementation of Release 2, we
transitioned additional securities administration activities to the CSP. Release
2 also added to the functionality of the CSP by, among other things, enabling
commingling of Freddie Mac and Fannie Mae UMBS and other TBA-eligible mortgage
securities in resecuritization transactions. As a result, implementation of
Release 2 of the CSP and the Single Security Initiative increased our
counterparty risk exposure to Fannie Mae and our operational risk exposure to
CSS. For additional information, see Risk Management - Counterparty Credit Risk
and Risk Management - Operational Risk.
In connection with these developments, we extended the payment delay for newly
issued fixed-rate mortgage securities from 45 days to 55 days, and in June 2019,
we ceased issuing Gold PCs (which have a 45-day payment delay). We also updated
our servicer reporting cycle to align with an industry standard monthly calendar
cycle and adopted a single common remittance due date for principal and interest
payments, excluding payoffs.

FREDDIE MAC | 2019 Form 10-K   31

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





We are offering an optional exchange program for security holders to exchange
certain existing 45-day payment delay fixed-rate Gold PCs and Giant PCs for the
corresponding new UMBS and other applicable 55-day payment delay Freddie Mac
mortgage securities. As part of this program, we make a one-time payment to
exchanging security holders for the value of the 10 additional days of payment
delay, based on "float compensation" rates we calculate. We do not expect the
return from this additional float to fully offset our payments to the security
holders. During 2019, we exchanged $282.6 billion in UPB of 45-day payment delay
securities, including securities owned by Freddie Mac, for 55-day payment delay
securities, and paid $0.1 billion in float compensation in connection with these
exchanges.
Products and Activities
--------------------------------------------------------------------------------
Securitization and Guarantee Products
We offer various types of guarantee and securitization products, primarily Level
1 Securitization Products and Resecuritization Products. In these securitization
products, Freddie Mac functions in its capacity as depositor, guarantor,
administrator, and trustee. We retain the credit risk and transfer the
interest-rate, prepayment, and liquidity risks to the investors. While the
Single-family Guarantee segment is responsible for the guarantee of our
securities, the Capital Markets segment manages the securitization and
resecuritization processes.
Level 1 Securitization Products
We offer a variety of Level 1 Securitization Products to our customers. Our
Level 1 Securitization Products are pass-through securities that represent
undivided beneficial interests in trusts that hold pools of loans. For our
fixed-rate Level 1 Securitization Products, 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. In exchange for our guarantee, we receive fees as
described in the Guarantee Fees section above.
We issue the following types of Level 1 Securitization Products:
n   UMBS - Single-class pass-through securities with a 55-day payment delay for
    TBA-eligible fixed-rate mortgage loans. We began issuing UMBS for all
    TBA-eligible fixed-rate mortgage loans on June 3, 2019.

n 55-day MBS - Single-class pass-through securities with a 55-day payment delay

for non-TBA-eligible fixed-rate mortgage loans. We began issuing 55-day MBS

for all non-TBA-eligible fixed-rate mortgage loans on June 3, 2019.




n PCs

l Gold PCs - Single-class pass-through securities with a 45-day payment

delay that we issued for fixed-rate mortgage loans prior to June 3, 2019.

With the implementation of Release 2 of the CSP and the Single Security

Initiative, we no longer issue Gold PCs. Existing Gold PCs that are not

entirely resecuritized are eligible for exchange into UMBS (for

TBA-eligible securities) or 55-day MBS (for non-TBA-eligible securities).

l ARM PCs - Single-class pass-through securities with a 75-day payment delay

for ARM products. Implementation of Release 2 of the CSP and the Single

Security Initiative did not affect our ARM PC offerings.




All Level 1 Securitization Products are backed only by mortgage loans that we
have acquired. We offer (or previously offered) all of the above products
through both guarantor swap and cash loan purchase programs.
In a guarantor swap execution, we offer transactions in which our customers,
primarily large mortgage banking companies and commercial banks, provide us with
loans in exchange for a security backed by those same loans, as shown in the
diagram below:

FREDDIE MAC | 2019 Form 10-K   32

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





[[Image Removed: guarantorswapa06.jpg]]
In a cash loan purchase execution, we offer to pay cash to our customers,
primarily community and regional banks. In these transactions, we purchase loans
for cash and securitize them for retention in our mortgage-related investments
portfolio or for sale to third parties. For the period of time between loan
purchase and securitization, we refer to the loan as being in our securitization
pipeline. The purchase of loans and sale of securities are managed by the
Capital Markets segment. The diagram below illustrates a cash loan purchase
execution.
[[Image Removed: cashpurchaseprocess01.jpg]]




FREDDIE MAC | 2019 Form 10-K   33

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





Resecuritization Products
We offer resecuritization products to our customers. Our resecuritization
products represent beneficial interests in pools of Level 1 Securitization
Products and certain other types of mortgage assets. We create these securities
by using Level 1 Securitization Products or our previously issued
resecuritization products as the underlying collateral. We leverage the issuance
of these securities to expand the range of investors in our mortgage-related
securities to include those seeking specific security attributes. Similar to our
Level 1 Securitization Products, 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.
Upon implementation of Release 2 of the CSP and the Single Security Initiative,
we have the ability to commingle TBA-eligible Fannie Mae collateral in certain
of our resecuritization products. When we resecuritize Fannie Mae securities,
which are separately guaranteed by Fannie Mae, in our commingled
resecuritization products, our guarantee covers timely payment of principal and
interest on such products from underlying Fannie Mae securities. If Fannie Mae
were to fail to make a payment on a Fannie Mae security that we resecuritized,
we would be responsible for making the payment. We do not charge an incremental
guarantee fee to commingle Fannie Mae collateral in resecuritization
transactions.
All the cash flows from the collateral underlying our resecuritization products
are generally passed through to investors in these securities. We do not issue
resecuritization products that have concentrations of credit risk beyond those
embedded in the underlying assets. In many of our resecuritization transactions,
securities dealers or investors deliver mortgage assets in exchange for the
resecuritization product. In certain cases, we may also transfer our own
mortgage assets in exchange for the resecuritization product. The
resecuritization activities are managed by the Capital Markets segment. The
following diagram provides a general example of how we create resecuritization
products:
[[Image Removed: resecuritizationproductsa02.jpg]]
We offer the following types of resecuritization products:
n   Single-class resecuritization products - Involve the direct pass-through of
    all cash flows of the underlying collateral to the beneficial interest
    holders and include:

l Supers - Resecuritizations of UMBS and certain other mortgage securities.

This structure allows commingling of Freddie Mac and Fannie Mae

collateral, where newly issued or exchanged UMBS and Supers issued by us

or Fannie Mae may be commingled to back Supers issued by us or Fannie

Mae. Supers can be backed by:

- UMBS and/or other Supers issued by us or Fannie Mae;

- Existing TBA-eligible Fannie Mae "MBS" and/or "Megas"; and/or




-         UMBS and Supers that we have issued in exchange for TBA-eligible PCs
          and Giant PCs that have been delivered to us in response to our
          exchange offer.



FREDDIE MAC | 2019 Form 10-K   34


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

l Giant MBS - Resecuritizations of:

- Newly issued 55-day MBS and/or Giant MBS; and/or




-         55-day MBS and/or Giant MBS that we have issued in exchange for
          non-TBA-eligible PCs and non-TBA-eligible Giant PCs that have been
          delivered to us in response to our exchange offer.


l      Giant PCs - Resecuritizations of previously issued PCs or Giant PCs.
       Although we no longer issue Gold PCs, existing Gold PCs may continue to be
       resecuritized into Giant PCs. In addition, ARM PCs may continue to be
       resecuritized into ARM Giant PCs. Fixed-rate Giant PCs are eligible for
       exchange into Supers (for TBA-eligible securities) or Giant MBS (for
       non-TBA-eligible securities).

n Multiclass resecuritization products




l      REMICs - Resecuritizations of previously issued mortgage securities that
       divide all cash flows of the underlying collateral into two or more
       classes of varying maturities, payment priorities, and coupons. This
       structure allows commingling of TBA-eligible Freddie Mac and Fannie Mae
       collateral.

l Strips - Resecuritizations of previously issued Level 1 Securitization

Products or single-class resecuritization products and issuance of

stripped securities, including principal-only and interest-only securities

or floating rate and inverse floating rate securities, backed by the cash

flows from the underlying collateral. This structure allows commingling of

TBA-eligible Freddie Mac and Fannie Mae collateral.




Other Securitization Products
n Senior subordinate securitization structures backed by recently originated
loans (consolidated) - In prior years, we created senior subordinate
securitization structures in which we issued guaranteed senior securities and
unguaranteed subordinated securities backed by recently originated single-family
loans. The unguaranteed subordinated securities absorb first losses on the
related loans and the loans are serviced in accordance with our Guide. We
discontinued regular offerings of these transactions in 2019.
n Other securitization products - 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 also offer a guarantee on mortgage assets held by third parties, in exchange
for guarantee fees, without securitizing those assets. These long-term standby
commitments obligate us to purchase seriously delinquent loans that are covered
by those commitments. From time to time, we have consented to the termination of
our long-term standby commitments and simultaneously entered into guarantor swap
transactions with the same counterparty, issuing securities backed by many of
the same loans.
The primary impacts of the aforementioned products and transactions to Segment
Earnings are:

• Guarantee fee income earned on our guarantee of principal and interest

payments on our mortgage-related securities and

• Benefit (provision) for credit losses, which is affected by changes in

estimated probabilities of default and estimated loss severities, the actual

level of loan defaults, the effect of loss mitigation efforts, and payment

performance of our individually impaired mortgage portfolio.




CRT Transactions
To reduce our credit risk exposure, we engage in various types of credit
enhancements, including CRT transactions and other credit enhancements. We
define CRT transactions as those arrangements where we actively transfer the
credit risk exposure on mortgages that we own or guarantee. We define other
credit enhancements as those arrangements, such as traditional primary mortgage
insurance, where we do not actively take part in the transfer of the credit risk
exposure. Our CRT transactions are designed to reduce the amount of
conservatorship capital needed under the CCF, to transfer portions of credit
losses on groups of previously acquired loans to third-party investors, and to
reduce the risk of future losses to us and taxpayers if borrowers go into
default. The payments we make in exchange for this credit protection effectively
reduce our guarantee fee income from the associated mortgages. The following
strategic considerations were incorporated into the design of our CRT
transactions:
n  Offer repeatable and scalable execution with a broad appeal to diversified
investors;
n  Execute at a cost that is economically sensible;
n  Result in no or minimal effect on the TBA market;
n   Minimize changes required of, and effects on, sellers and servicers by having

Freddie Mac serve as the credit manager for investors; and

n Avoid or very substantially mitigate the risk that our losses are not reimbursed timely and in full.

FREDDIE MAC | 2019 Form 10-K 35

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





Each CRT transaction is designed to transfer a certain portion of the credit
risk that we assume for loans with certain targeted characteristics. Risk
positions may be transferred to third-party investors through one or more CRT
transactions where economically sensible. The risk transfer could occur prior
to, or simultaneously with, our purchase of the loan (i.e., front-end coverage)
or after the purchase of the loan (i.e., back-end coverage). As CRT has become
part of our normal business activities, we have established the following
programs to regularly transfer portions of credit risk to diversified investors:
STACR and ACIS Offerings
Our two primary CRT programs are STACR and ACIS.
n STACR - Our primary single-family securities-based credit risk sharing
vehicle. STACR Trust note transactions transfer risk to the private capital
markets through the issuance of unguaranteed notes using a third-party trust. In
a STACR transaction, we create a reference pool of loans from our single-family
loan portfolio and an associated securitization-like structure with notional
credit risk positions (e.g., first loss, mezzanine, and senior positions). The
trust issues notes linked to certain of the notional credit risk positions to
third-party investors and makes periodic payments of principal and interest on
the notes, but is not required to repay principal to the extent that the
notional credit risk position is reduced as a result of specified credit events.
We make payments to the trust to support payment of the interest due on the
notes. The amount of risk transferred in each transaction affects the amounts we
are required to pay. We receive payments from the trust that otherwise would
have been made to the noteholders to the extent there are certain defined credit
events on the mortgages in the related reference pool. The note balances are
reduced by the amount of the payments to us, thereby transferring the related
credit risk of the loans in the reference pool to the note investors. Generally,
the notional amounts of the credit risk positions are also reduced based on
principal payments that occur on the loans in the reference pool. We enhanced
the STACR Trust note structure in 4Q 2019 to qualify the notes issued as
interests in a REMIC that allow favorable tax treatment for certain types of
investors. The following diagram illustrates a typical STACR transaction:
[[Image Removed: stacrtrustnotetransactionsfe.jpg]]
n ACIS - Our primary insurance-based credit risk sharing vehicle. ACIS
transactions are insurance policies we enter into with global insurance and
reinsurance companies to cover a portion of credit risk on the STACR or
standalone reference pools. We pay monthly premiums to the insurers or
reinsurers in exchange for claim coverage on their portion of the reference
pool. We require our ACIS counterparties to partially collateralize their
exposure to reduce the risk that we will not be reimbursed for our claims under
the policies.
We have established programmatic offerings of STACR and ACIS transactions to
regularly transfer credit risk on a targeted population of recently acquired
mortgage loans ("on-the-run transactions"). STACR and ACIS are complementary
programs issued from the same reference pool for on-the-run transactions. The
targeted loan population for on-the-run transactions is recently acquired
30-year fixed-rate mortgage loans with LTV ratios between 60% and 97%, excluding
loans acquired under our relief refinance programs, government guaranteed loans,
and loans that do not meet certain eligibility criteria. Our typical on-the-run
transactions are issued on a quarterly basis and provide back-end coverage for
loans that we guaranteed 2 to 3 quarters prior to issuance (e.g., a transaction
in 4Q 2019 would typically cover loans acquired in 1Q or 2Q 2019). Starting with
our issuances in 3Q 2018, in a typical on-the-run transaction, we transfer to
third-party investors a portion of the credit risk between an initial first loss
position and a specified detachment point which may vary based on numerous
factors, such as the type of collateral and market conditions. We retain the
initial first loss position and at least 5% of the credit risk of all the
positions sold to align our interests with those of the investors. We also
retain all of the senior credit risk position. On-the-run STACR transactions
typically have a 30-year maturity and on-the-run ACIS transactions typically
have a 12.5-year maturity. The diagram below illustrates a typical on-the-run
STACR and ACIS structure:

FREDDIE MAC | 2019 Form 10-K   36

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





[[Image Removed: stacrandacisstructurejan2020.jpg]]
In addition to our regularly issued on-the-run transactions, we also
periodically execute "off-the-run" STACR and ACIS transactions that provide
back-end coverage on certain loans that are not in the on-the-run transaction
targeted loan population. For example, we offer STACR and ACIS transactions that
provide coverage on HARP and other relief refinance loans, STACR and ACIS
transactions that provide coverage on unissued portions of the reference pools
related to previous STACR and ACIS transactions, and ACIS transactions that
provide coverage on loans with 15-year maturities not related to any STACR
offering.
Prior to 2018, the majority of our STACR transactions were structured as
unsecured debt issued directly by us (STACR debt notes) rather than as debt
issued by a trust. These transactions operate similarly to STACR Trust notes,
except that we make payments of principal and interest on the issued STACR debt
notes and 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 on a
loan in the reference pool. In certain of these transactions, we transferred
risk in both first loss and mezzanine notional credit risk positions, while in
other transactions we only transferred risk in the mezzanine notional credit
risk position. For certain STACR debt notes issued in prior years (generally
STACR debt notes issued prior to 2015), losses are allocated to the notional
amounts of the credit risk positions based on calculated losses using a
predefined formula when the loans experience a credit event, which predominantly
occurs when a loan becomes 180 days delinquent. As a result, in these
transactions, we receive reimbursement of losses based on these calculated loss
amounts rather than based on actual losses. While we may issue STACR debt notes
in the future, we expect to predominantly issue STACR Trust notes.
Additional Offerings
In addition to our primary offerings, we also offer the following CRT products:
n ACIS Forward Risk Mitigation (AFRM) - An additional offering in the ACIS
program that provides front-end credit risk transfer as loans come into the
portfolio. Under each of these insurance policies, we pay monthly premiums that
are determined based on the outstanding balance of the reference pool. When
specific credit events occur, we generally receive compensation from the
insurance policy up to an aggregate limit based on actual losses.
n Integrated Mortgage Insurance (IMAGINSM) - An insurance-based offering that
provides loan-level front-end protection for loans with 80% and higher LTV
ratios. IMAGIN is designed to expand and diversify sources of private capital
supporting low down payment lending, while enabling better management of
taxpayer exposure to our mortgage and counterparty risks. Mortgage insurance
provided to each loan is generally underwritten by a group of insurers and
reinsurers. IMAGIN is offered to a broad range of Freddie Mac sellers, who can
choose IMAGIN or traditional primary mortgage insurance at their discretion.
n Lender risk-sharing - We offer a variety of transactions in which lenders may
retain a portion of the credit risk on loans they originate and/or service.
These transactions are generally collateralized so that our exposure to
counterparty credit risk is not increased.

FREDDIE MAC | 2019 Form 10-K 37

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





For additional information on single-family mortgage loan credit enhancements,
see Risk Management - Single-Family Mortgage Credit Risk - Transferring Credit
Risk to Third-Party Investors.
The primary impacts of our credit risk transfer transactions to Segment Earnings
are:

• Interest expense on our STACR debt notes, net of reinvestment income;

• Fair value gains and losses recognized on certain CRT transactions;

• Expenses to transfer credit risk for certain CRT transactions; and

• Benefits recognized from recoveries under certain CRT transactions.





Securitization and Sales of Seasoned Loans
We continually manage the balance of our less liquid single-family mortgage
loans, many of which we acquired by purchasing delinquent or modified loans from
guaranteed securities. We offer to sell select seasoned single-family mortgage
loans through a variety of methods. In these transactions, we reduce or
eliminate our credit risk, in addition to our interest-rate and prepayment risk,
associated with the underlying mortgage loans. The sales of these mortgage loans
are managed by the Capital Markets segment. Our seasoned loan transactions
include the following:
n   Senior subordinate securitization structures backed by seasoned loans

(non-consolidated) - Transactions where we issue guaranteed senior securities

and unguaranteed subordinated securities. The collateral for these structures


    primarily consists of reperforming loans. The unguaranteed subordinated
    securities absorb first losses on the related loans. Unlike senior
    subordinate securitization transactions backed by recently originated
    mortgage loans, in these transactions the loans are not serviced in
    accordance with our Guide and we do not control the servicing.

n Level 1 Securitization Products - We securitize reperforming loans using

Level 1 Securitization Products through a similar process to that discussed

above. We may subsequently resecuritize a portion of the guaranteed

securities, with some of the resulting interests being sold to third parties.

Our use of this strategy has declined over time, with our primary strategy

now utilizing our senior subordinate securitization structures.

n Whole loan sales - Sales of seriously delinquent loans for cash.

The primary impacts of the aforementioned products and transactions to Segment Earnings are:

• Gains and losses recognized on the reclassification of loans

held-for-investment to held-for-sale and subsequent sale of these loans.

Customers

--------------------------------------------------------------------------------


Our customers in the Single-family Guarantee segment are predominantly financial
institutions that originate, sell, and perform the ongoing servicing of loans
for new or existing homeowners. These companies include mortgage banking
companies, commercial banks, regional banks, community banks, credit unions,
HFAs, savings institutions, and non-depository financial institutions. Many of
these companies are both sellers and servicers for us. In addition, we maintain
relationships with investors and dealers in our guaranteed mortgage-related
securities.
We acquire a significant portion of our loans from several lenders that are
among the largest originators in the U.S. In addition, a significant portion of
our single-family loans is serviced by several large servicers. The following
charts show the concentration of our 2019 single-family purchase volume by our
largest sellers and our loan servicing by our largest servicers as of
December 31, 2019. Any seller or servicer with a 10% or greater share is listed
separately.

FREDDIE MAC | 2019 Form 10-K 38

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



                  Percentage of Single-Family Purchase Volume
              [[Image Removed: chart-2c59681247a95f8b98aa01.jpg]]

               Percentage of Single-Family Servicing Volume(1)
               [[Image Removed: chart-ed2c501fef8c5eeeb2ca01.jpg]]
(1) Percentage of servicing volume is based on the total single-family credit
guarantee portfolio, which includes loans where we do not exercise servicing
control. However, loans where we do not exercise servicing control are not
included for purposes of determining the concentration of servicers who serviced
more than 10% of our single-family credit guarantee portfolio because we do not
know which entity serves as the primary servicer for such loans.

For additional information about seller and servicer concentration risk and our
relationships with our seller and servicer customers, see Risk Management -
Counterparty Credit Risk - Sellers and Servicers and Note 14.
Competition
--------------------------------------------------------------------------------
Our principal competitors in the Single-family Guarantee segment are Fannie Mae,
FHA/VA (with Ginnie Mae securitization), and other financial institutions that
retain or securitize loans, such as commercial and investment banks, dealers,
and savings institutions. We compete on the basis of price, products, securities
structure, and service. Competition to acquire single-family loans can also be
significantly affected by changes in our credit standards. The conservatorship,
including direction provided to us by our Conservator, may affect our ability to
compete. The areas in which we and Fannie Mae compete have been limited by the
Single Security Initiative as we have been required by FHFA to align certain of
our single-family mortgage purchase offerings, servicing, and securitization
practices with Fannie Mae to achieve market acceptance of the UMBS. In February
2019, FHFA issued a final rule that limits our and Fannie Mae's ability to
compete with each other in areas that affect prepayment speeds of single-family
mortgage-related securities. 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.

FREDDIE MAC | 2019 Form 10-K   39

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





Business Results
--------------------------------------------------------------------------------
The following graphs and related discussion present the business results of our
Single-family Guarantee segment.
New Business Activity
--------------------------------------------------------------------------------

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


               Guarantee Fee Rate(1) Charged on New Acquisitions
                [[Image Removed: chart-8a063aaa75828e5ce96.jpg]]

(1) Guarantee fee excludes legislated 10 basis point increase.



                    Number of Families Helped to Own a Home

                [[Image Removed: chart-93243d2b77f40b15195.jpg]]

n We maintain a consistent market presence by providing lenders with a constant

source of liquidity for conforming loan products. We have funded

approximately 18.8 million single-family homes since January 1, 2009 and

purchased approximately 1.4 million HARP loans since the initiative began in

2009. HARP was replaced by the Enhanced Relief Refinance program in 2019. Our


    loan purchase and guarantee activity increased in 2019 compared to 2018
    primarily due to an increase in refinance activity as a result of lower
    average mortgage interest rates.

n The average guarantee fee rate charged on new acquisitions recognizes upfront

fee income, including the expected gains (losses) from buy-up fees, over the

estimated life of the related loans using our expectations of prepayments and

other liquidations. See Single-Family Guarantee - Business Overview -

Guarantee Fees for more information on our guarantee fees. The average

guarantee fee rate charged on new acquisitions increased in 2019 compared to

2018 primarily due to an enhancement in our estimation methodology related to


    recognition of buy-up fees in 2Q 2019.


n   We continued working to improve access to affordable housing, including
    through our Home Possible® loan initiatives. Our Home Possible loan

initiatives offer down payment options as low as 3% and are designed to help

qualified borrowers with limited savings buy a home. We purchased over

157,000 loans under these initiatives in 2019. We also continue to implement

programs that support responsibly broadening access to affordable housing by:




l      Improving the effectiveness of pre-purchase and early delinquency
       counseling for borrowers;

l Expanding our ability to support borrowers who do not have a credit score;

l Implementing the Duty to Serve Underserved Markets plan; and




l      Increasing support for first-time home buyers and mortgage industry
       professionals.


While we are responsibly expanding our programs and outreach capabilities to
better serve low- and moderate-income borrowers and underserved markets, these
loans result in increased credit risk. Expanding access to affordable housing

FREDDIE MAC | 2019 Form 10-K   40

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





will continue to be a top priority in 2020. See Regulation and Supervision -
Federal Housing Finance Agency - Duty to Serve Underserved Markets Plan for more
information.
Single-Family Credit Guarantee Portfolio
--------------------------------------------------------------------------------

            Single-Family Credit Guarantee Portfolio as of December
             31,[[Image Removed: chart-e3f6561bc034509bbeda01.jpg]]

                       Single-Family Loans as of December
             31,[[Image Removed: chart-401cddba230a5f8fbaaa01.jpg]]
n   The single-family credit guarantee portfolio increased during 2019 by

approximately 5%, driven by an increase in U.S. single-family mortgage debt

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

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

continued to run off.

n The core single-family loan portfolio grew to 85% of the single-family credit

guarantee portfolio at December 31, 2019 compared to 82% at December 31,

2018.

n The legacy and relief refinance single-family loan portfolio declined to 15%

of the single-family credit guarantee portfolio at December 31, 2019 compared

to 18% at December 31, 2018.

n The average portfolio Segment Earnings guarantee fee rate recognizes upfront

fee income over the contractual life of the related loans (usually 30 years).

If the related loans prepay, the remaining upfront fee is recognized

immediately. The effect of prepayments may be offset by our upfront fee

hedging activities. See Single-Family Guarantee - Business Overview -

Guarantee Fees for more information on our guarantee fees and Note 13 for

more information on the effect of our upfront fee hedging activities on

Segment Earnings.

n The average portfolio Segment Earnings guarantee fee rate was 40 bps, 35 bps,

and 36 bps at December 31, 2019, December 31, 2018, and December 31, 2017,

respectively, excluding the legislated 10 basis point increase in guarantee

fees. The rate increased in 2019 compared to 2018 due to an increase in the

recognition of upfront fees, net of hedging, driven by a higher prepayment

rate and an increase in contractual guarantee fees as older vintages were

replaced by acquisitions of new loans with higher contractual guarantee fees.

FREDDIE MAC | 2019 Form 10-K   41


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





CRT Activities
--------------------------------------------------------------------------------
The table below provides the issuance amounts during 2019 on the protected UPB
and maximum coverage by loss position associated with CRT transactions for loans
in our single-family credit guarantee portfolio.
Table 12 - Single-Family Credit Guarantee Portfolio CRT Issuance
                                  Issuance for the Year Ended                        Issuance for the Year Ended
                                       December 31, 2019                                  December 31, 2018
                         Protected                                          Protected
                           UPB(1)            Maximum Coverage(2)              UPB(1)            Maximum Coverage(2)
                                       First                                              First
(In millions)              Total      Loss(3)    Mezzanine      Total         Total      Loss(3)    Mezzanine      Total
STACR                     $203,239     $2,106       $4,565      $6,671       $243,007     $1,893       $5,042      $6,935
Insurance/reinsurance      210,650        864        1,823       2,687        270,084        834        2,306       3,140
Subordination               11,197        719          947       1,666         30,911        746        1,238       1,984
Lender risk-sharing         19,328        911          580       1,491         10,940          -          345         345
Less: UPB with more
than one type of CRT
activity                  (181,738 )        -            -           -       (219,072 )        -            -           -
Total CRT Activities      $262,676     $4,600       $7,915     $12,515       $335,870     $3,473       $8,931     $12,404

(1) For STACR and certain insurance/reinsurance transactions (e.g., ACIS),

represents the UPB of the assets included in the reference pool. For other

insurance/reinsurance transactions, represents the UPB of the assets covered

by the insurance policy. For subordination, represents the UPB of the

guaranteed securities, which represents the UPB of the assets included in

the trust net of the protection provided by the subordinated securities.

(2) For STACR transactions, represents the balance held by third parties at

issuance. For insurance/reinsurance transactions, represents the aggregate

limit of insurance purchased from third parties at issuance. For

subordination, represents the UPB of the securities that are subordinate to

Freddie Mac guaranteed securities and held by third parties.


(3)  First loss includes the most subordinate securities (i.e., B tranches) in
     our STACR Trust notes and their equivalent in ACIS and other CRT
     transactions.


We obtained maximum coverage of $12.5 billion on protected UPB of $262.7 billion
through CRT transactions during 2019.
We are continually evaluating our CRT strategy and make changes depending on
market conditions and our business strategy. The aggregate cost of our CRT
activity, as well as the amount of risk transferred, will continue to increase
as we continue to do new transactions. See Risk Management - Single-Family
Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors for
more information on CRT transactions and credit enhancements on our
single-family guarantee portfolio.
Loss Mitigation Activities
--------------------------------------------------------------------------------
                 Number of Families Helped to Avoid Foreclosure

[[Image Removed: chart-becd8f83f756599dbaca01.jpg]]


                             Loan Workout Activity

[[Image Removed: chart-78de365583ae5979b21.jpg]] n We continue to help struggling families retain their homes or otherwise avoid

foreclosure through loan workouts. The reduced level of loan workout activity

in 2019 compared to 2018 was primarily driven by elevated loan workout

activity in 2018 as a result of the hurricanes that occurred in late 2017.

FREDDIE MAC | 2019 Form 10-K   42


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

n As part of our strategy to mitigate losses and reduce our holdings of less

liquid assets, we pursue sales of seriously delinquent and reperforming loans

when we believe the sale of these loans provides better economic returns than

continuing to hold them. See Risk Management - Single-Family Mortgage Credit

Risk - Engaging in Loss Mitigation Activities for more information on our


    loss mitigation activities.


n   The relief refinance program has been replaced with the Enhanced Relief
    Refinance program, which became available in January 2019 for loans

originated on or after October 1, 2017. This program provides liquidity for

borrowers who are current on their mortgages but are unable to refinance

because their LTV ratios exceed our standard refinance limits. While the HARP

program ended in December 2018, we continued to purchase HARP loans with

application received dates on or prior to December 31, 2018 through September

30, 2019.




See Risk Management for additional information on our loan workout activities.
Financial Results
--------------------------------------------------------------------------------
The table below presents the components of the Segment Earnings and
comprehensive income for our Single-family Guarantee segment.
Table 13 - Single-Family Guarantee Segment Financial Results
                                                                            

Year Over Year Change


                                   Year Ended December 31,           2019 vs. 2018          2018 vs. 2017
(Dollars in millions)            2019        2018       2017          $          %           $          %
 Guarantee fee income            $7,773     $6,581     $6,363       $1,192

18 % $218 3 %


 Investment gains (losses),
net                                 964        307        116          657      214           191      165
 Other income (loss)                391        841        896         (450 )    (54 )         (55 )     (6 )
Net revenues                      9,128      7,729      7,375        1,399       18           354        5
 Benefit (provision) for
credit losses                       418        448       (177 )        (30 )     (7 )         625      353

Credit enhancement expense (1,393 ) (1,077 ) (891 ) (316 ) (29 ) (186 ) (21 )


 REO operations expense            (245 )     (189 )     (203 )        (56 )    (30 )          14        7
Credit-related expense           (1,220 )     (818 )   (1,271 )       (402 

) (49 ) 453 36

Administrative expense (1,647 ) (1,491 ) (1,381 ) (156 ) (10 ) (110 ) (8 )


 Other expense                     (786 )     (568 )     (516 )       (218 )    (38 )         (52 )    (10 )
Operating expense                (2,433 )   (2,059 )   (1,897 )       (374 )    (18 )        (162 )     (9 )
Segment Earnings before
income tax expense                5,475      4,852      4,207          623       13           645       15
Income tax expense               (1,110 )     (944 )   (1,448 )       (166 )    (18 )         504       35
Segment Earnings, net of
taxes                             4,365      3,908      2,759          457       12         1,149       42
Total other comprehensive
income (loss), net of tax           (22 )       (3 )       40          (19 )   (633 )         (43 )   (108 )
Total comprehensive income
(loss)                           $4,343     $3,905     $2,799         $438       11  %     $1,106       40  %


Key Drivers:
n 2019 vs. 2018

l Higher guarantee fee income primarily due to increased upfront fee

amortization income driven by higher prepayments and continued growth in

our single-family credit guarantee portfolio.

l Higher investment gains primarily due to higher realized gains on a higher


       volume of sales of, and lower unrealized lower-of-cost-or-fair-value
       losses related to, single-family held-for-sale loans.


l      Lower other income primarily due to higher non-cash premium/discount

amortization expense driven by timing differences between liquidations of

the loans and liquidations of the securities backed by these loans.

l Higher credit enhancement expense primarily due to higher outstanding

cumulative volumes of CRT transactions.

n 2018 vs. 2017

l Higher guarantee fee income due to continued growth in our single-family

credit guarantee portfolio and increased credit fee/buy-down short-term

returns.

l Higher investment gains primarily driven by fair value gains on STACR debt

notes as a result of spread widening.

l Increased benefit for credit losses primarily driven by estimated losses

from the hurricanes in 2017.

l Higher credit enhancement expense primarily due to higher outstanding


       cumulative volumes of CRT transactions.




FREDDIE MAC | 2019 Form 10-K   43


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Management's Discussion and Analysis Our Business Segments | Multifamily

Multifamily


Business Overview
--------------------------------------------------------------------------------
The Multifamily segment supports our strategic goals to exit conservatorship,
create a world-class operating platform, and become the leader in housing by:
n   Improving our risk-adjusted returns by leveraging private capital in our risk
    transfer transactions;


n   Identifying new opportunities beyond our existing K Certificate and SB

Certificate transactions to cost-effectively transfer risk to third parties

and reduce taxpayer exposure;

n Maintaining strong credit and capital management discipline;

n Operating in a customer focused manner to build business value and support

the creation of a strong, long-lasting rental housing system;

n Leveraging technology to make the multifamily loan process more efficient

industry-wide;

n Fostering innovation through the development of products that expand the


    availability of workforce housing in the marketplace; and


n   Continuing to provide financing to the multifamily mortgage market and

expanding our market presence for workforce housing in line with our mission.




The Multifamily segment provides liquidity and support to the multifamily
mortgage market through a variety of activities that include the purchase,
guarantee, sale, and/or securitization of multifamily loans and mortgage-related
securities. The overall market demand for multifamily loans is generally
affected by local and regional economic factors, such as unemployment rates,
construction cycles, property prices, preferences for homeownership versus
renting, and the relative affordability of single-family homes, as well as
certain macroeconomic factors, such as interest rates.
Our primary business model is to acquire multifamily loans for aggregation and
then securitization. The returns we generate from these activities are primarily
derived from (i) the net interest income we earn on the loans prior to their
securitization, (ii) the price received upon securitization of the loans versus
the price we paid to acquire the loans, and (iii) the ongoing guarantee fee we
receive in exchange for providing our guarantee primarily on the issued senior
securities. We evaluate these factors collectively to assess the profitability
of any given transaction and to maximize our returns.
Our securitization activities generally (i) provide us with a mechanism to
finance our loan product offerings, (ii) reduce our credit risk, interest-rate
risk, and liquidity risk exposure on the loans that we purchase, and (iii)
reduce our conservatorship capital required under CCF. For multifamily loans
that we do not intend to securitize, we may pursue other strategies, including
the execution of other CRT products designed to transfer to third parties all or
a portion of the loans' credit risk, thereby reducing taxpayer exposure.
Our support of the multifamily market generally begins with our underwriting of
the loans that we commit to purchase from our Optigo® network of approved
lenders and typically ends with the disposition of those loans, generally
through a borrower payoff. Through our support of the multifamily mortgage
market, borrowers can obtain lower financing costs, which can benefit renters
through lower rental rates and/or improved services or amenities.
Products and Activities
--------------------------------------------------------------------------------
Loan Products
Through our Optigo network of approved lenders, we offer borrowers a variety of
loan products for the acquisition, refinance, and/or rehabilitation of
multifamily properties. While our Optigo lenders originate the loans that we
purchase, we use a prior-approval underwriting approach, in contrast to the
delegated underwriting approach used in our Single-family Guarantee segment and
Fannie Mae's Delegated Underwriting and Servicing (DUS) program. Under this
approach, we maintain credit discipline by completing our own underwriting,
credit review, and legal review for each loan prior to issuing a loan purchase
commitment, including reviewing third-party appraisals and performing cash flow
analysis. We also price every loan or transaction based on the specific terms,
structure, and type of execution.
Multifamily loans are typically originated by our Optigo lenders without
recourse to the borrower, making repayment dependent on the cash flows generated
by the underlying property. Cash flows generated by a property are significantly
influenced by vacancy and rental rates, as well as conditions in the local
rental market, the physical condition of the property, the quality of property
management, and the level of operating expenses.


FREDDIE MAC | 2019 Form 10-K 44

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Management's Discussion and Analysis Our Business Segments | Multifamily

Our primary multifamily loan products include the following: n Conventional loans - Financing that includes fixed-rate and floating-rate

loans, loans in lease-up and with moderate property upgrades, manufactured

housing community loans, senior housing loans, student housing loans,

supplemental loans, and certain Green Advantage loans.

n Small balance loans - Financing provided to small rental property borrowers for

the acquisition or refinance of multifamily properties. Financing ranges from

$1 million to $7.5 million and is focused on affordable or workforce housing

properties from 5 to 50 units.

n Targeted affordable housing - Financing provided to borrowers in underserved

areas that have restricted units affordable to households with low income

(earning up to 80% of AMI) and very-low income (earning up to 50% of AMI) and

that typically receive government subsidies.




The amount and type of multifamily loans that we purchase is significantly
influenced by the multifamily loan purchase cap that is established by FHFA. In
3Q 2019, FHFA announced a revised multifamily loan purchase cap of $100.0
billion for the five-quarter period from 4Q 2019 through 4Q 2020. This cap
applies to all multifamily business activity, with no exclusions. To ensure a
strong focus on affordable housing and traditionally underserved markets, at
least 37.5% of the multifamily business must be mission-driven, affordable
housing over the same five-quarter period. Examples of multifamily loans that
qualify as mission-driven, affordable housing include certain senior housing
loans, small balance loans, manufactured housing loans, and targeted affordable
housing loans.
In addition, the amount and type of multifamily loans that we purchase is
influenced by our current business strategy and overall market demand for
multifamily loan products.
Index Lock Commitments
We offer borrowers an option to lock the Treasury index component of their fixed
interest-rate loans at any time after the loan is under application with an
Optigo lender. This option enables borrowers to lock the most volatile part of
their coupon, thereby providing an enhanced level of risk mitigation against
interest-rate volatility. The index lock commitment period for most loans is 45
days and is generally followed by a loan purchase commitment. We economically
hedge our interest-rate exposure from these commitments primarily by entering
into pay-fixed, receive-float interest rate swaps. These commitments do not
qualify for accounting recognition and therefore temporarily introduce
volatility through our hedges in our financial results until they proceed to a
loan purchase commitment.
The primary impact to Segment Earnings is:

• Fair value gains or losses recognized on interest-rate derivatives. These

gains or losses are generally offset once an index lock commitment becomes a

loan purchase commitment and is accounted for at fair value.





Loan Purchase Commitments
Prior to issuing an unconditional commitment to purchase a multifamily loan, we
negotiate with the lender and borrower the specific economic terms and
conditions of our commitment, including the loan's purchase price, index, and
mortgage spread. Targeted pricing decisions related to the commitment price
and/or mortgage spread may affect our profitability and are generally influenced
by our current business strategy, the type of loan that we acquire (i.e.,
whether it qualifies as mission-driven, affordable housing), the amount
available under the loan purchase cap, and changing market conditions.
At the time we commit to purchase a multifamily loan, we preliminarily determine
our intent with respect to that loan. For commitments to purchase loans that we
intend to sell or securitize (i.e., held-for-sale commitments), we may elect the
fair value option and therefore recognize and measure these commitments at fair
value on our consolidated financial statements. No such election is made for
commitments to purchase loans that we intend to hold for the foreseeable future
(i.e., held-for-investment commitments), and therefore these commitments are not
recognized on our consolidated financial statements.
Our multifamily held-for-sale commitments and held-for-sale loans that are
measured at fair value are subject to changes in fair value due to two main
risks: (i) interest-rate risk and (ii) spread risk. While we use derivatives to
hedge the interest rate-related fair value changes of these assets measured at
fair value, we continue to be exposed to spread-related fair value changes. We
partially reduce our spread-related fair value exposure by purchasing or
entering into certain spread-related derivatives, thereby obtaining some
protection against significant adverse movements in market spreads. We refer to
the fair value adjustments resulting from changes in these risks, net of any
offsetting fair value adjustments from our derivatives, as our holding period
fair value gains and losses.

FREDDIE MAC | 2019 Form 10-K   45

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Management's Discussion and Analysis Our Business Segments | Multifamily

The primary impacts to Segment Earnings are:

• At the commitment date, we recognize the estimated fair value of the

held-for-sale commitments where we elected the fair value option;

• After the commitment date, but prior to purchase, we recognize changes in the

fair value of commitments where we elected the fair value option. These fair

value adjustments result from changes in the expected pricing of our

securitizations due to changes in interest rates and securitization market

spreads;

• Fair value gains or losses recognized on interest-rate derivatives. These

changes generally offset interest-rate related fair value changes on the loan

purchase commitments; and

• Fair value gains or losses recognized on spread-related derivatives. These


  changes may offset spread-related fair value changes on the loan purchase
  commitments.



Loan Purchases
When we purchase a loan, we finalize our intent with respect to that loan.
Multifamily loans that we intend to hold for the foreseeable future are
classified as held-for-investment and measured at amortized cost, while
multifamily loans that we intend to sell or securitize are classified as
held-for-sale and typically measured at fair value through a separate fair value
option election.
The vast majority of all new multifamily loan purchases are initially classified
as held-for-sale and included in our securitization pipeline. The holding period
for loans in our securitization pipeline generally ranges between two and five
months, as we aggregate sufficient loans with similar terms and risk
characteristics to securitize. For example, loans purchased during the first
quarter will generally be used as collateral for securitizations that settle in
the second and third quarters of that same year.
The primary impacts to Segment Earnings are:

• During the holding period, we generally recognize changes in the fair value of

loans classified as held-for-sale. These fair value adjustments result from

changes in the expected pricing of our securitizations due to changes in

interest rates and securitization market spreads;

• Fair value gains or losses recognized on interest-rate derivatives. These

changes generally offset interest-rate related fair value changes on the

loans;

• Fair value gains or losses recognized on spread-related derivatives. These

changes may offset spread-related fair value changes on the loans; and

• Interest income on loans while held in our mortgage-related investments

portfolio.





Securitization and Guarantee Products
We enter into various types of securitizations that generally result in the
transfer of all or a portion of the underlying collateral's interest-rate risk,
liquidity risk, and/or credit risk to third parties. These products make up
substantially all of our guarantee portfolio.
The collateral used in our securitization activities can vary and generally
includes loans underwritten and purchased by us at loan origination. In our
typical securitizations, we guarantee the issued senior securities. In exchange
for providing this guarantee, we receive an ongoing guarantee fee that is
commensurate with the risks assumed and that will, over the long-term, provide
us with guarantee fee income that is expected to exceed the credit-related and
administrative expenses of the underlying loans. Structural deal features, such
as term, type of underlying loan product, and subordination levels, generally
influence the deal's risk profile, which ultimately affects the guarantee fee
rate we set at the time of securitization.
Our typical securitization structure and level of subordination are designed to
maximize the return we earn when we sell loans for securitization. Depending on
the securitization product and subordination levels selected, we may realize a
higher (lower) gain on sale, but recognize lower (higher) ongoing guarantee fee
income.
We continue to seek new and innovative risk transfer opportunities beyond our
current product offerings so that we can provide further liquidity to the
multifamily market and reduce taxpayer exposure.
Primary Securitization Products
Our primary securitization products are K Certificates and SB Certificates,
which transfer substantially all of the interest-rate risk, liquidity risk, and
credit risk of the underlying collateral. The structures of these transactions
typically involve the issuance of senior, mezzanine, and subordinated securities
that represent undivided beneficial interests in trusts that hold pools of
multifamily loans that we previously purchased. The volume of our primary
securitizations is generally influenced by the product mix and size of our
securitization pipeline, along with market demand for multifamily securities. As
shown in the diagram below, in a typical K Certificate transaction, we sell
multifamily loans to a non-Freddie Mac securitization trust that issues senior,
mezzanine, and subordinated securities, and simultaneously purchase and place
the senior securities into a Freddie Mac securitization trust that issues
guaranteed K Certificates. In these transactions, we guarantee the senior
securities, but do not

FREDDIE MAC | 2019 Form 10-K 46

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Management's Discussion and Analysis Our Business Segments | Multifamily





issue or guarantee the mezzanine or subordinated securities. As a result, the
interest-rate risk, liquidity risk, and a large majority of expected and stress
credit risk is sold to third-party investors through securitization, thereby
reducing our risk exposure.
[[Image Removed: a10kdiagrams2018kcertificate.jpg]]
n   K Certificates - Regularly issued structured pass-through securities backed

by recently originated multifamily loans. This product offers investors a

wide range of structural and collateral options that provide for stable cash

flows and a structured credit enhancement. While the amount of guarantee fee

we receive may vary by collateral type, it is generally fixed for those K

Certificate series that we issue with regular frequency (e.g., 5, 7, and

10-year fixed-rate K Certificates and our Floating Rate K Certificates). The

guarantee fee received on these standard K Certificates currently ranges

between 20 basis points and 45 basis points.




The guarantee fee on K Certificates that we do not issue on a regular basis,
such as our single-sponsor K Certificates, is determined based on the specific
risks associated with the underlying collateral and the structure of the
securitization, including tranche sizes and risk distribution.
n   SB Certificates - Regularly issued securities typically backed by multifamily

small balance loans that we underwrite at loan origination and purchase prior

to securitization. Similar to our K Certificate transactions, a non-Freddie

Mac trust will issue the senior classes of securities, which we guarantee, as

well as the unguaranteed subordinated securities. However, unlike our K

Certificate transactions, while we may purchase a portion of the senior

securities, we generally do not place those securities into a Freddie Mac

trust. The guarantee fee we receive in these transactions is generally 35

basis points.




From time to time, we may undertake certain activities to support the liquidity
of K Certificates and SB Certificates. For more information, see Risk Factors -
Other Risks - The profitability of our multifamily business could be adversely
affected by a significant decrease in demand for our K Certificates and SB
Certificates.
Other Securitization Products
Our other securitization products involve the issuance of pass-through
securities that represent beneficial interests in trusts that hold pools of
multifamily loans. The collateral for these securitizations may include loans
underwritten and purchased by us at loan origination and loans we do not own
prior to securitization and that we underwrite after (rather than at)
origination.





FREDDIE MAC | 2019 Form 10-K   47

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Management's Discussion and Analysis Our Business Segments | Multifamily





Summary of Our Primary Business Model and Its Impacts to Segment Earnings
The following diagram summarizes the activities included in our primary business
model and the corresponding impacts to our Segment Earnings.
[[Image Removed: mfprimarybusinessmodeljan202.jpg]]
Other Guarantee Products
n   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 moderate-income
    multifamily loans.


Other CRT Products
For the multifamily assets for which we have not transferred credit risk through
securitization, we may pursue other strategies to reduce our risk exposure. Our
other CRT products include the following:
n   MCIP - We purchase insurance coverage underwritten by a group of insurers

and/or reinsurers that generally provide first loss and/or mezzanine loss

credit protection. These transactions are similar in structure to the ACIS

contracts purchased by the Single-family Guarantee segment, except the

reference pool, in addition to loans, may include bonds underlying our other

mortgage-related guarantees. When specific credit events occur, we receive

compensation from the insurance policy up to an aggregate limit based on

actual losses. We require our counterparties to partially collateralize their

exposure to reduce the risk that we will not be reimbursed for our claims

under the policies.

n SCR notes - Through the issuance of our SCR notes, which are unsecured and

unguaranteed corporate debt obligations, we transfer to third parties a

portion of the credit risk of the loans underlying certain of our

consolidated other securitizations and certain of our other mortgage-related

guarantees. The interest we pay on our SCR notes effectively reduces the

guarantee fee income we would otherwise earn on the other mortgage-related

guarantees. SCR notes are generally similar in structure to our Single-family

Guarantee segment's STACR debt notes.




In addition to our other CRT products, we engage in whole loan sales, including
sales of loans to funds to which we may also provide secured financing, to
eliminate our interest-rate risk, liquidity risk, and credit risk exposure to
certain loans.
For additional information on multifamily credit enhancements, see Risk
Management - Multifamily Mortgage Credit Risk - Transferring Credit Risk to
Third-Party Investors.
Investing Activities
n   Mortgage loans - We hold a portfolio of multifamily loans as part of a

buy-and-hold investment strategy. However, this strategy is not part of our

primary business model.

n Mortgage-related securities - Depending on market conditions and our business


    strategy, we may purchase or sell guaranteed K Certificates or SB
    Certificates at issuance or in the secondary market.

n Other investments - We invest in certain non-mortgage investments, including

LIHTC partnerships and other secured lending activities. 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.

FREDDIE MAC | 2019 Form 10-K   48

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Management's Discussion and Analysis Our Business Segments | Multifamily

Customers

--------------------------------------------------------------------------------


Our multifamily loan activity is generally sourced through our Optigo network of
approved lenders, who are primarily non-bank real estate finance companies and
banks. We generally provide post-construction financing to apartment project
operators with established performance records. The following charts show the
concentration of our 2019 multifamily new business activity by our largest
sellers and loan servicing by our largest servicers as of December 31, 2019. Any
seller or servicer with a 10% or greater share is listed separately.
                           Percentage of New Business

Activity(1) [[Image Removed: chart-a8dd3c8a87be5b35920a01.jpg]] (1) Excludes LIHTC new business activity.


                       Percentage of Servicing Volume(2)
[[Image Removed: chart-30ad16e275915f56ac0a01.jpg]]
(2) Percentage of servicing volume is based on the total multifamily mortgage
portfolio, which includes loans where we do not exercise servicing control.
Competition
--------------------------------------------------------------------------------
We compete on the basis of price, service and products, including our use of
certain securitization structures. Our principal competitors in the multifamily
market are Fannie Mae, FHA, commercial and investment banks, CMBS conduits,
savings institutions, and life insurance companies.

FREDDIE MAC | 2019 Form 10-K 49

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Management's Discussion and Analysis Our Business Segments | Multifamily





Business Results
--------------------------------------------------------------------------------
The graphs, tables, and related discussion below present the business results of
our Multifamily segment.
New Business Activity
--------------------------------------------------------------------------------
             New Business Activity for the Year Ended December 31,

[[Image Removed: chart-ca85cdcc9c05d0cdfc1.jpg]]

Acquisition of Units by AMI for the Year Ended December 31, [[Image Removed: chart-1d7b3970352548dfee4.jpg]]

n In 3Q 2019, FHFA announced a revised loan purchase cap structure for the

multifamily business. The loan purchase cap will be $100.0 billion for the

five-quarter period from 4Q 2019 through 4Q 2020 and applies to all

multifamily business activity, with no exclusions. To ensure a strong focus

on affordable housing and traditionally underserved markets, at least 37.5%

of the new multifamily business must be mission-driven, affordable housing

over the same five-quarter period.

n During 4Q 2019, our total new business activity subject to the new cap was

$17.5 billion. Approximately 36% of this activity was mission-driven,

affordable housing. Furthermore, during 2019, we continued our support of

workforce housing through our continued purchases of manufactured housing

community loans and small balance loans.

n Outstanding commitments, including index lock commitments and commitments to


    purchase or guarantee multifamily assets, were $14.6 billion and $18.7
    billion as of December 31, 2019 and December 31, 2018, respectively.


n   Our new business activity was slightly higher for 2019 than 2018 due to

continued strong demand for multifamily financing and healthy multifamily

market fundamentals driving continued growth in overall multifamily mortgage

debt outstanding.

n The portion of our new mortgage loan purchase activity that was classified as

held-for-sale and intended for our securitization pipeline decreased to 87%

in 2019 from 93% in 2018 due to an increase in the issuance of fully

guaranteed and consolidated other securitizations as we continued to refine

the disposition path for certain loan products. The purchase activity that

remained in our securitization pipeline as of December 31, 2019, combined


    with market demand for our securities, will be a driver for our primary
    securitizations in the first two quarters of 2020.




FREDDIE MAC | 2019 Form 10-K   50


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Management's Discussion and Analysis Our Business Segments | Multifamily

Securitization, Guarantee, and Risk Transfer Activity --------------------------------------------------------------------------------


    Securitization and Guarantee Activities for the Year Ended December 31,
                [[Image Removed: chart-12a408a15b742b0f636.jpg]]

n Total securitization UPB increased during 2019 compared to 2018, primarily

due to a higher volume of fully guaranteed other securitizations.

n Approximately 90% and 91% of total securitization UPB related to our primary

securitizations during 2019 and 2018, respectively.

n The average guarantee fee rate on new guarantee contracts increased slightly

during 2019 compared to 2018, primarily driven by a higher volume of fully

guaranteed other securitizations that have higher negotiated guarantee fee

rates due to the lack of structural subordination.

n In addition to the credit risk we transferred to third parties through our

securitizations, we obtained credit protection up to $0.2 billion and $0.1

billion on $3.0 billion and $1.8 billion of UPB through our other CRT

products and loss sharing arrangements during 2019 and 2018, respectively.

n We further reduced our risk exposure through loan sales to whole loan funds

of $2.6 billion and $1.3 billion in UPB during 2019 and 2018, respectively.

FREDDIE MAC | 2019 Form 10-K   51


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Management's Discussion and Analysis Our Business Segments | Multifamily





Multifamily Portfolio and Market Support
--------------------------------------------------------------------------------
The following table summarizes our multifamily portfolio and our support of the
multifamily market.
Table 14 - Multifamily Portfolio and Market Support
(In millions)                                            December 31, 2019       December 31, 2018
Guarantee portfolio:
Primary securitizations                                            $240,134                $210,419
Other securitizations                                                20,205                  16,499
Other mortgage-related guarantees                                    10,514                  10,405
Total guarantee portfolio                                           270,853                 237,323
Mortgage-related investments portfolio:
Unsecuritized mortgage loans held-for-sale                           18,954                  23,959
Unsecuritized mortgage loans held-for-investment                     10,831                  10,828
Mortgage-related securities(1)                                        5,889                   7,385
Total mortgage-related investments portfolio                         35,674                  42,172
Other investments(2)                                                  2,945                     708
Total multifamily portfolio                                         309,472                 280,203
Add: Unguaranteed securities(3)                                      40,666                  35,835
Less: Acquired mortgage-related securities(4)                        (5,709 )                (7,160 )
Total multifamily market support                                   $344,429                $308,878


(1)  Includes mortgage-related securities acquired by us from our
     securitizations.

(2) Includes the carrying value of LIHTC investments and the UPB of non-mortgage

loans, including financing provided to whole loan funds.

(3) Reflects the UPB of unguaranteed securities issued as part of our

securitizations and amounts related to loans sold to whole loan funds that

were not financed by Freddie Mac.

(4) Reflects the UPB of mortgage-related securities that were both issued as

part of our securitizations and acquired by us. This UPB must be removed

from the mortgage-related securities balance to avoid double-counting the


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


n Our total multifamily portfolio increased during 2019, primarily due to our

strong loan purchase and securitization activity. We expect continued growth

in our total portfolio in 2020 as purchase and securitization activities


    should outpace run off.


n   At December 31, 2019, approximately 75% of our held-for-sale loans were
    fixed-rate, while the remaining 25% were floating-rate.

n As of December 31, 2019, we had cumulatively transferred the large majority

of expected and stress credit risk on the multifamily guarantee portfolio

primarily through subordination in our securitizations. In addition, nearly

all of our securitization activities shifted substantially all of the

interest-rate and liquidity risk associated with the underlying collateral

away from Freddie Mac to third-party investors.

n We earn guarantee fees in exchange for providing our guarantee of some or all

of the securities we issue as part of our securitizations. The average

guarantee fee rate that we earn on our guarantee portfolio was 37 bps, and

the average remaining guarantee term was eight years, as of both December 31,

2019 and December 31, 2018. While we expect to earn future guarantee fees at

the average guarantee fee rate over the average remaining guarantee term, the


    actual amount earned will depend on the performance of the underlying
    collateral subject to our financial guarantee.



FREDDIE MAC | 2019 Form 10-K 52

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Management's Discussion and Analysis Our Business Segments | Multifamily





Net Interest Yield
--------------------------------------------------------------------------------
           Net Interest Yield & Average Investment Portfolio Balance
              [[Image Removed: chart-4b82b3232e595f99a7ea01.jpg]]

n 2019 vs. 2018

l Net interest yield increased primarily due to a higher yield and higher

prepayment income received from mortgage-related securities, coupled with

lower funding costs on our held-for-sale mortgage loans driven by lower

interest rates.

l The weighted average investment portfolio balance of interest-earning

assets decreased due to a reduction of our unsecuritized

held-for-investment loans as we securitized more of these loans into fully

guaranteed and consolidated other securitizations.

n 2018 vs. 2017

l Net interest yield increased primarily due to higher prepayment income

received from mortgage-related securities, coupled with an increase in our

interest-only security holdings which generally have higher yields

relative to our non-interest-only securities and loans, partially offset

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

by higher interest rates.

FREDDIE MAC | 2019 Form 10-K   53

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Management's Discussion and Analysis Our Business Segments | Multifamily





K Certificate Benchmark Spreads
--------------------------------------------------------------------------------
               K Certificate Benchmark Spreads as of December 31,
              [[Image Removed: chart-8a5a1838686555f3934a01.jpg]]

Source: Independent Dealers n The valuation of our securitization pipeline and held-for-sale commitments

for which we have elected the fair value option, along with the profitability

of our primary securitization product, the K Certificate, are affected by

both changes in K Certificate benchmark spreads and deal-specific attributes,

such as tranche size, risk distribution, and collateral characteristics (loan

term, coupon type, prepayment restrictions, and underlying property type).

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

earnings volatility, which we manage by controlling the size of our

securitization pipeline and by entering into certain spread-related

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

spread widening generally results in fair value losses.

n K Certificate benchmark spreads generally tightened during 2019, primarily

resulting in spread-related fair value gains on our held-for-sale mortgage


    loans and commitments.



FREDDIE MAC | 2019 Form 10-K   54


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Management's Discussion and Analysis Our Business Segments | Multifamily





Financial Results
--------------------------------------------------------------------------------
The table below presents the components of the Segment Earnings and
comprehensive income for our Multifamily segment.
Table 15 - Multifamily Segment Financial Results
                                                                            

Year Over Year Change


                                   Year Ended December 31,           2019 vs. 2018         2018 vs. 2017
(Dollars in millions)            2019        2018       2017          $         %           $          %
 Net interest income             $1,069     $1,096     $1,206        ($27 )     (2 )%      ($110 )     (9 )%
 Guarantee fee income             1,101        861        750         240       28           111       15
 Investment gains (losses),
net                                 576         16      1,516         560   

3,500 (1,500 ) (99 )


 Other income (loss)                108        129         75         (21 )    (16 )          54       72
Net revenues                      2,854      2,102      3,547         752       36        (1,445 )    (41 )
Credit-related expense              (18 )        9        (30 )       (27 ) 

(300 ) 39 130


 Administrative expense            (503 )     (437 )     (395 )       (66 ) 

(15 ) (42 ) (11 )


 Other expense                      (41 )      (36 )      (48 )        (5 )    (14 )          12       25
Operating expense                  (544 )     (473 )     (443 )       (71 )    (15 )         (30 )     (7 )
Segment Earnings before
income tax expense                2,292      1,638      3,074         654       40        (1,436 )    (47 )
Income tax expense                 (465 )     (319 )   (1,060 )      (146 )    (46 )         741       70
Segment Earnings, net of
taxes                             1,827      1,319      2,014         508       39          (695 )    (35 )
Total other comprehensive
income (loss), net of tax           101        (83 )      (77 )       184      222            (6 )     (8 )
Total comprehensive income
(loss)                           $1,928     $1,236     $1,937        $692       56  %      ($701 )    (36 )%


Key Drivers:
n 2019 vs. 2018

l Net interest income remained relatively flat.

l Increase in guarantee fee income primarily driven by continued growth in

our multifamily guarantee portfolio, coupled with lower fair value losses

on our guarantee asset due to declining interest rates.

l Higher investment gains (net of other comprehensive income) primarily

driven by higher fair value gains on held-for-sale commitments due to

targeted price increases related to changing market conditions and spread


       tightening.


n 2018 vs. 2017


l Lower net interest income due to a decline in our weighted average

portfolio balance of interest-earning assets, partially offset by higher

net interest yields on an increased balance of interest-only securities.

l Higher guarantee fee income due to continued growth in our multifamily


       guarantee portfolio, partially offset by lower average guarantee fee rates
       on new guarantee business volume and increased fair value losses on our
       guarantee asset due to rising interest rates.


l      Shift to investment losses (net of other comprehensive income) due to

spread widening on mortgage loans and commitments and mortgage-related


       securities, coupled with lower fair value gains on held-for-sale
       commitments due to targeted price decreases related to our business
       strategy.




FREDDIE MAC | 2019 Form 10-K   55


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Management's Discussion and Analysis Our Business Segments | Capital Markets





Capital Markets
Business Overview
--------------------------------------------------------------------------------
The Capital Markets segment supports our strategic goals to exit
conservatorship, create a world-class operating platform, and become the leader
in housing by:
n   Managing the mortgage-related investments portfolio's risk-versus-return

profile using our internal economic framework;

n Distributing a portion of securitized loans from our cash purchase program

through the investment portfolio;

n Engaging in economically sensible transactions to reduce our less liquid

assets;

n Responding to market opportunities in funding our business activities;

n Managing our economic interest-rate risk through the use of derivatives and

various debt instruments;

n Attempting to align prepayment profiles for Freddie Mac TBA programs with


    Fannie Mae's TBA characteristics; and


n   Delivering mortgage capital markets services, including our cash loan

purchase program, in conjunction with the Single-family Guarantee segment.

The Capital Markets segment is responsible for managing the majority of our
mortgage-related investments portfolio, and providing company-wide treasury and
interest-rate risk management functions. In addition, we are responsible for
managing our securitization and resecuritization activities related to
single-family loans, and supporting multifamily securitizations.
Our mortgage portfolio management activities primarily include single-family
unsecuritized loans and purchases and sales of agency mortgage-related
securities. In addition, we actively engage in the structuring of our agency
mortgage-related securities. Our portfolio management activities also include
responsibility for maintaining the other investments portfolio, which is
primarily used for short-term liquidity management. However, certain portions of
the mortgage-related investments portfolio are not managed by us, including the
portions of the portfolio related to multifamily assets, single-family seriously
delinquent loans, and the credit risk on single-family performing and
reperforming loans.
We provide a company-wide treasury function, primarily managing our funding and
liquidity needs on both a short- and long-term basis. The primary activities of
the treasury function include issuing, calling and repurchasing other debt and
maintaining a portfolio of non-mortgage investments.
Our interest-rate risk management function consolidates and manages the overall
interest-rate risk of the company. We actively monitor and economically hedge
this risk, primarily through the use of derivative instruments. In addition, we
further reduce these interest-rate exposures through active management of our
debt funding mix and through the structuring of our investments in
mortgage-related securities. We use fair value hedge accounting to reduce the
variability in our GAAP earnings due to changes in interest rates.
Finally, the Capital Markets segment is responsible for management of our
securitization and resecuritization activities related to single-family loans,
which are discussed in more detail in Our Business Segments - Single-Family
Guarantee.
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 an accounting treatment may create earnings variability. For
additional information on the limits on the mortgage-related investments
portfolio established by the Purchase Agreement and by FHFA, see Conservatorship
and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and
Indebtedness.
Products and Activities
--------------------------------------------------------------------------------
Investing, Liquidity Management, and Related Activities
In our Capital Markets segment, our objectives are to make appropriate risk and
capital management decisions, effectively execute our strategy and be responsive
to market conditions. We manage the following types of products:
n   Agency mortgage-related securities - We primarily invest in Freddie Mac

mortgage-related securities and may also invest in Fannie Mae and Ginnie Mae

mortgage-related securities from time to time. Our activities with respect to

these products 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).

n Single-family unsecuritized loans - We acquire single-family unsecuritized

loans in two primary ways:

l Loans acquired through our cash loan purchase program that are awaiting

securitization - We securitize most of the loans acquired through our cash

loan purchase program into Freddie Mac mortgage-related securities, which

may be sold to investors or retained in our mortgage-related investments


       portfolio; and


l      Seriously delinquent or modified loans that we have removed from our
       consolidated trusts - Certain of these loans may reperform, either on
       their own or through modification. Reperforming loans are managed by both

the Capital Markets and Single-family Guarantee segments, but are included

in the Capital Markets segment's financial

FREDDIE MAC | 2019 Form 10-K 56

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Management's Discussion and Analysis Our Business Segments | Capital Markets





results. Loans that remain seriously delinquent are also managed by both the
Capital Markets and Single-family Guarantee segments, but are included in the
Single-family Guarantee segment's financial results. We continue to reduce the
balance of our seriously delinquent and reperforming loans through a variety of
methods, including loss mitigation and foreclosure activities and
securitizations and sales. For more information on securitization and sales of
seasoned loans, see Our Business Segments - Single-Family Guarantee - Business
Overview - Products and Activities - Securitization and Sales of Seasoned Loans.
n   Other investments portfolio - We invest in other investments, including: (i)

the Liquidity and Contingency Operating Portfolio, primarily used for

short-term liquidity management, (ii) cash and other investments held by

consolidated trusts, (iii) investments used to pledge as collateral, and (iv)

secured lending activities.




In our secured lending activities: (i) we provide funds to lenders for mortgage
loans that they will subsequently either sell through our cash purchase program
or securitize into securities that they will deliver to us, (ii) we enter into
securities purchased under agreements to resell as a mechanism to provide
financing to investors in Freddie Mac securities to increase liquidity and
expand the investor base for those securities, and (iii) we provide secured term
financing through revolving lines of credit collateralized by the value of
contractual mortgage servicing rights on certain mortgages that we own. However,
we no longer extend such lines of credit to new customers.
n   Non-agency mortgage-related securities - We generally no longer purchase

non-agency mortgage-related securities, and have minimal investments in such

securities from our acquisitions in prior years. Our activities with respect

to this product are primarily sales. However, we may acquire such securities

in connection with our senior subordinate securitization structures backed by

seasoned loans. In recent years, we and FHFA reached settlements with a

number of institutions to mitigate or recover losses we recognized in prior

years.

The primary impacts to Segment Earnings are:

• Interest income on agency and non-agency mortgage-related securities,

unsecuritized loans, and our other investments portfolio;

• Fair value gains and losses due to changes in interest rate and market spreads

on our agency and non-agency mortgage-related securities and on certain

securities held within our other investments portfolio that are accounted for

as investment securities. These amounts are recognized in Segment Earnings or

total other comprehensive income(loss) depending upon their classification

(trading or available-for-sale, respectively);

• Amortization of cost basis adjustments, such as net amortization of loans from

our cash purchase program and related debt securities in consolidated trusts

and hedge accounting related basis adjustments; and

• Gains and losses on the sale of unsecuritized loans.

We evaluate the liquidity of our mortgage-related assets based on three categories (in order of liquidity): n Liquid - single-class and multi-class agency securities, excluding certain

structured agency securities collateralized by non-agency mortgage-related

securities;

n 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

n Less liquid - assets that are less liquid than both agency securities and

loans in the securitization pipeline (e.g., reperforming loans and non-agency

mortgage-related securities).




We may undertake various activities to support our presence in the agency
securities market or to support the liquidity of our securities, including their
price performance relative to comparable Fannie Mae securities. These activities
may include the purchase and sale of agency securities, dollar roll
transactions, and structuring activities, such as resecuritization of existing
agency securities and the sale of some or all of the resulting securities.
Depending upon market conditions, there may be substantial variability in any
period in the total amount of securities we purchase or sell. The purchase or
sale of agency securities could, at times, adversely affect the price
performance of our securities relative to comparable Fannie Mae securities.
We may incur costs to support our presence in the agency securities market and
to support the liquidity and price performance of our securities. For more
information, see Risk Factors - Other Risks - A significant decline in the price
performance of or demand for our UMBS could have an adverse effect on the volume
and/or profitability of our new single-family guarantee business.

FREDDIE MAC | 2019 Form 10-K 57

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Management's Discussion and Analysis Our Business Segments | Capital Markets





Funding and Liquidity Management Activities
Our treasury function manages the funding needs of the company, including the
Capital Markets segment, primarily through the issuance of unsecured other debt.
The type and term of debt issued is based on a variety of factors and is
designed to meet our ongoing cash needs and to comply with our Liquidity
Management Framework. This Framework provides a mechanism for us to sustain
periods of market illiquidity, while being able to maintain certain business
activities and remain current on our obligations. See Liquidity and Capital
Resources - Liquidity Management Framework for additional discussion of our
Liquidity Management Framework.
We primarily use the following types of products as part of our funding and
liquidity management activities:
n 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.

n 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.

n Reference Notes® securities - Reference Notes securities are non-callable

fixed-rate securities, which we generally issue with original maturities

greater than or equal to two years.

n 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.




In addition, proceeds from STACR debt notes, SCR debt notes, upfront fees and
net worth are used to meet the funding needs of the company. We expect the
volume of our STACR debt issuance to continue to decline as STACR debt note
transactions will be replaced with STACR Trust note transactions. We consider
the issuance of these debt notes when managing the treasury function for the
company. For a description of STACR debt notes, see Our Business Segments -
Single-Family Guarantee - Business Overview - Products and Activities, and for a
description of SCR notes, see Our Business Segments - Multifamily - Business
Overview - Products and Activities.
The average life of our assets is longer than the average life of our
liabilities, which creates liquidity risk. To manage short-term liquidity risk,
we may hold a combination of cash, cash-equivalent, and non-mortgage-related
investments in our Liquidity and Contingency Operating Portfolio. These
instruments are limited to those we expect to be liquid or mature in the short
term. We also lend available cash on a short-term basis through transactions
where we purchase securities under agreements to resell. This portfolio is
designed to allow us to meet all of our obligations in the event that we lose
access to the unsecured debt markets for a period of time.
See Liquidity and Capital Resources for a further discussion of our funding and
liquidity management activities.
The primary impacts to Segment Earnings are:

• Interest expense on our various funding products and

• Gains and losses on the early termination (call or repurchase) of our funding


  products.



Interest-Rate Risk Management Activities
We manage the economic interest-rate risk for the company and have
management-approved limits for interest-rate risk, as measured by our models.
See Risk Management - Market Risk for additional information, including the
measurement of the interest-rate sensitivity of our financial assets and
liabilities.
There is a cash flow mismatch between the company's assets and liabilities that
we use to fund those assets. This mismatch in cash flows not only leads to
liquidity risk, but also results in interest-rate risk. We typically use
interest-rate derivatives to reduce the economic risk exposure due to this
mismatch. Using our risk management practices described in the Risk Management -
Market Risk section, we seek to reduce this impact to low levels. Additionally,
assets that are likely to be sold prior to their final maturity may have a
different debt and derivative mix than assets that we plan to hold for a longer
period. As a result, interest-rate risk measurements for those assets may
include additional assumptions (such as a view on expected changes in market
spreads) concerning their price sensitivity rather than just a longer-term view
of cash flows.
To manage our interest-rate risk, we primarily use interest rate swaps, options,
swaptions, and futures. When we use derivatives to mitigate our risk exposures,
we consider a number of factors, including cost, exposure to counterparty credit
risk, and our overall risk management strategy.
While our interest-rate risk management activities are primarily focused on
reducing our economic interest-rate risk, we also use hedge accounting
strategies to reduce our GAAP earnings variability. We use hedge accounting to
better align our earnings with the economics of our business, but hedge
accounting is not intended to change the investment and portfolio management

FREDDIE MAC | 2019 Form 10-K 58

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Management's Discussion and Analysis Our Business Segments | Capital Markets





decisions that our segment would otherwise make. For more information on our use
of hedge accounting see Risk Management - Market Risk - GAAP Earnings
Variability and Note 9.
We have participated in transactions that support the development of the Secured
Overnight Financing Rate (SOFR) as an alternative rate to LIBOR and expect to
continue to do so for the foreseeable future. These transactions include
investment in and issuance of SOFR indexed floating-rate debt securities and
execution of SOFR indexed derivatives. For additional details on SOFR see Risk
Factors - Market Risk - The discontinuance of LIBOR after 2021 could negatively
affect the fair value of our financial assets and liabilities, results of
operations, and net worth. A transition to an alternative reference interest
rate could present operational problems and result in market disruption,
including inconsistent approaches for different financial products, as well as
disagreements with counterparties.
The primary impacts to Segment Earnings are:

• Fair value gains and losses on derivatives not designated in qualifying hedge

relationships;

• Interest income/expense on derivatives; and

• Differences between changes in the fair value of the hedged item attributable


  to the risk being hedged and changes in the fair value of the hedging
  instrument for derivatives designated in qualifying fair value hedge
  accounting relationships.



Summary of our Primary Business Model and Its Impacts to Segment Earnings
[[Image Removed: cmbusinessmodelfeb2020.jpg]]
Securitization Activities
We manage the company's securitization and resecuritization activities related
to single-family loans. See Our Business Segments - Single-Family Guarantee for
a discussion of our single-family securitization and guarantee products.
Customers
--------------------------------------------------------------------------------
Our customers include banks and other depository institutions, insurance
companies, money managers, central banks, pension funds, state and local
governments, REITs, brokers and dealers, and a variety of lenders as discussed
in Our Business Segments - Single-Family Guarantee - Business Overview -
Customers. Our unsecured other debt securities and structured mortgage-related
securities are initially purchased by dealers and redistributed to their
customers.


FREDDIE MAC | 2019 Form 10-K   59

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Management's Discussion and Analysis Our Business Segments | Capital Markets

Competition

--------------------------------------------------------------------------------


Our competitors in the Capital Markets segment are firms that invest in loans
and mortgage-related assets and issue corporate debt, including Fannie Mae,
REITs, supranationals (international institutions that provide development
financing for member countries), commercial and investment banks, dealers,
savings institutions, insurance companies, the Federal Farm Credit Banks, the
FHLBs, and non-bank loan aggregators, who are both our customers and
competitors.
Business Results
--------------------------------------------------------------------------------
The graphs and related discussion below present the business results of our
Capital Markets segment.
Investing Activity
--------------------------------------------------------------------------------
The following graphs present the Capital Markets segment's total investments
portfolio and the composition of its mortgage investments portfolio by liquidity
category.
                    Investments Portfolio as of December 31,

[[Image Removed: chart-2b805e56f6f25115be5a01.jpg]]


               Mortgage Investments Portfolio as of December 31,

[[Image Removed: chart-26a234c04f655c35be3a01.jpg]] n The balance of our mortgage investments portfolio remained relatively flat

from December 31, 2018 to December 31, 2019. See Conservatorship and Related

Matters - Managing Our Mortgage-Related Investments Portfolio Over Time for

additional details.

n The balance of our other investments portfolio increased 61.5% primarily due

to a higher consolidated trusts account balance driven by higher loan

prepayments, coupled with higher near-term cash needs for upcoming maturities

and anticipated calls of other debt, and a higher expected loan purchase


    forecast.


n   The overall liquidity of our mortgage investments portfolio continued to
    improve as our less liquid assets decreased during 2019. The percentage of
    less liquid assets relative to our total mortgage investments portfolio
    declined from 26.6% at December 31, 2018 to 17.9% at December 31, 2019,
    primarily due to repayments, securitizations, and sales.


n   We continue to participate in transactions that support the development of

SOFR as an alternate rate to LIBOR. These transactions include investment in


    and issuance of SOFR indexed floating-rate debt securities and execution of
    SOFR indexed derivatives.



FREDDIE MAC | 2019 Form 10-K   60

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Management's Discussion and Analysis Our Business Segments | Capital Markets





Reduction in Less Liquid Assets
--------------------------------------------------------------------------------

                       Less Liquid Assets as of December
             31,[[Image Removed: chart-13b06089bbfe52a99a7a01.jpg]]

          Sales of Less Liquid Assets for the Year Ended December 31,
              [[Image Removed: chart-d42ef5115cf756cf9caa01.jpg]]

n Since 2013, we have focused on reducing, in an economically sensible manner,

our holdings of certain less liquid assets, including single-family

reperforming loans and non-agency mortgage-related securities. Our

disposition strategies for our less liquid assets include securitizations and

sales.

n During 2019, our sales of less liquid assets included $12.9 billion in UPB of

reperforming loans using our senior subordinate securitization structures. As

part of these transactions, we retained certain of the guaranteed senior

securities for our mortgage-related investments portfolio. We also sold $0.5

billion of non-agency mortgage-related securities.

n In 2018 and 2017, we securitized $1.6 billion and $1.2 billion, respectively,

of reperforming loans into Level 1 Securitization Products. We did not

execute any such transactions in 2019, as our use of this strategy has

declined over time with our primary strategy now utilizing senior subordinate


    securitization structures.





FREDDIE MAC | 2019 Form 10-K   61

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Management's Discussion and Analysis Our Business Segments | Capital Markets





Net Interest Yield and Average Balances
--------------------------------------------------------------------------------
          Net Interest Yield & Average Investments Portfolio Balances
                     (Weighted average balance in billions)
              [[Image Removed: chart-75051cea3ae65f00b8ba01.jpg]]

n 2019 vs. 2018 - Net interest yield decreased by 28 basis points primarily due

to the lower and flatter interest rate environment, coupled with a change in

our investment mix, as the other investments portfolio represented a larger


    percentage of our total investments portfolio, and an increase in
    amortization expense resulting from higher loan liquidation rates.

n 2018 vs. 2017 - Net interest yield increased by 15 basis points primarily due

to higher yields on our newly acquired mortgage-related assets and other

investments as a result of increases in interest rates, coupled with a change

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

the percentage of our other investments portfolio relative to our total

investments portfolio and larger benefit provided by non-interest bearing

funding due to increases in both short-term interest rates and the percentage

of non-interest bearing funding relative to our total liabilities.

n Net interest yield for the Capital Markets segment is not affected by our

hedge accounting programs due to reclassifications made for Segment Earnings.

See Note 13 for more information.

FREDDIE MAC | 2019 Form 10-K   62

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Management's Discussion and Analysis Our Business Segments | Capital Markets

Financial Results -------------------------------------------------------------------------------- The table below presents the components of the Segment Earnings and comprehensive income for our Capital Markets segment. Table 16 - Capital Markets Segment Financial Results

Year Over Year Change


                                   Year Ended December 31,            2019 vs. 2018           2018 vs. 2017
(Dollars in millions)            2019        2018       2017           $          %            $          %
 Net interest income             $2,486     $3,217     $3,279         ($731

) (23 )% ($62 ) (2 )%


 Investment gains (losses),
net                                 (36 )    1,803      1,772        (1,839 )   (102 )           31        2
 Other income (loss)               (700 )      340      4,913        (1,040 )   (306 )       (4,573 )    (93 )
Net revenues                      1,750      5,360      9,964        (3,610 

) (67 ) (4,604 ) (46 )


 Administrative expense            (414 )     (365 )     (330 )         (49 )    (13 )          (35 )    (11 )
 Other expense                      (54 )      (11 )      (81 )         (43 )   (391 )           70       86
Operating expense                  (468 )     (376 )     (411 )         (92 )    (24 )           35        9
Segment Earnings before
income tax expense                1,282      4,984      9,553        (3,702 )    (74 )       (4,569 )    (48 )
Income tax expense                 (260 )     (976 )   (3,296 )         716       73          2,320       70
Segment Earnings, net of
taxes                             1,022      4,008      6,257        (2,986 )    (75 )       (2,249 )    (36 )
Total other comprehensive
income (loss), net of tax           494       (527 )      (30 )       1,021      194           (497 ) (1,657 )
Total comprehensive income
(loss)                           $1,516     $3,481     $6,227       ($1,965 )    (56 )%     ($2,746 )    (44 )%


The portion of total comprehensive income (loss) driven by interest rate-related
and market spread-related fair value changes, after-tax, is presented in the
table below. These amounts affect various line items in the table above,
including investment gains (losses), net, income tax expense, and total other
comprehensive income (loss), net of tax.
Table 17 - Capital Markets Segment Interest Rate-Related and Market
Spread-Related Fair Value Changes, Net of Tax
                                                                  Year Over Year Change
                            Year Ended December 31,         2019 vs. 2018       2018 vs. 2017
(Dollars in millions)       2019        2018     2017         $        %          $        %
Interest rate-related         ($0.4 )  ($0.3 )  ($0.3 )      ($0.1 ) (33 )%         $-     -  %
Market spread-related           0.2      0.4      0.8         (0.2 ) (50 )        (0.4 ) (50 )


Key Drivers:
n 2019 vs. 2018

l Net interest income decreased primarily due to the lower and flatter

interest rate environment, which also resulted in an increase in

amortization expense due to higher loan liquidation rates and a change in


       our investment mix, as the other investments portfolio represented a
       larger percentage of our total investments portfolio.

l Decrease in investment gains (losses), net of $1.8 billion, partially


       offset by an increase of $1.0 billion in other comprehensive income.  The
       remaining decline in investment gains (losses) was primarily due to a
       decline of approximately $0.5 billion in gains from debt repurchase

activity and the $0.3 billion increase in interest rate-related and market

spread-related fair value losses shown in the table above. Both of these

declines were primarily attributable to the decrease in long-term interest

rates. Our derivative volume increased beginning in 2Q 2019 as we updated

our interest-rate risk measures to include upfront fees (including

buy-downs) related to single-family credit guarantee activity recorded in

the single-family segment. This increase in derivative volume introduced

additional volatility in our financial results that primarily drove our

interest rate-related fair value losses. See Risk Management - Market Risk


       for additional information on the effect of market-related items on our
       comprehensive income.

l Decrease in other income primarily due to lower net amortization income

driven by the timing differences in amortization related to prepayment

between debt of consolidated trusts and the underlying loans from our cash

purchase program. For further discussion on timing differences in

amortization, see MD&A - Consolidated Results of Operations.

n 2018 vs. 2017

l Net interest income decreased primarily due to the continued reduction in

the balance of our mortgage-related investments portfolio. This decrease

was partially offset by higher yields on our newly acquired

mortgage-related assets and other investments as interest rates increased,

coupled with changes in our investment mix due to

FREDDIE MAC | 2019 Form 10-K   63

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Management's Discussion and Analysis Our Business Segments | Capital Markets





reductions in both our less liquid assets and the percentage of our other
investments portfolio relative to our total investments portfolio, and larger
benefit provided by non-interest bearing funding due to increases in both
short-term interest rates and the percentage of non-interest bearing funding
relative to our total liabilities.
l      Decrease in investment gains (losses), net (net of other comprehensive

income (loss)) primarily due to lower spread-related gains driven by lower

non-agency mortgage-related securities balances and relatively flat

interest rate-related fair value losses. These interest rate-related fair

value losses were mostly offset by the change in fair value of the hedged

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

See Risk Management - Market Risk for additional information on the effect

of market-related items on our comprehensive income.

l Decrease in other income primarily due to recognition of $4.5 billion in

proceeds received during 2017 from the RBS settlement compared to a $0.3

billion gain recognized from the Nomura judgment during 2018 related to

certain of our non-agency mortgage related securities, coupled with lower

amortization of debt securities of consolidated trusts during 2018 driven


       by a decrease in prepayments as a result of higher interest rates. For
       more information on these settlements, see Note 14.



FREDDIE MAC | 2019 Form 10-K   64


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Management's Discussion and Analysis Our Business Segments | All Other






All Other
Comprehensive Income

--------------------------------------------------------------------------------
The table below shows our comprehensive income (loss) for the All Other
category.
Table 18 - All Other Category Comprehensive Income
                                                                         

Year Over Year Change


                              Year Ended December 31,            2019 vs. 2018          2018 vs. 2017
(Dollars in millions)      2019        2018        2017           $         %            $          %
Comprehensive income
(loss) - All Other             $-          $-     ($5,405 )         $-      -%          $5,405     100%


Key Drivers:
n 2018 vs. 2017 - Changes in comprehensive income (loss) driven by:


l Higher income tax expense in 2017 due to the revaluation of our net

deferred tax asset driven by the Tax Cuts and Jobs Act, which reduced the

statutory corporate income tax rate from 35% to 21% for tax years after

2017. For more information on the statutory tax rate change, see Note 12.

FREDDIE MAC | 2019 Form 10-K   65


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Management's Discussion and Analysis Risk Management | Overview





RISK MANAGEMENT
Overview
To achieve our mission of providing liquidity, stability, and affordability to
the U.S. housing market, we take risks as an integral part of our business
activities. Risk is the possibility that events will adversely affect the
achievement of our mission, strategy, and business objectives. Risk can manifest
itself in many ways and the responsibility for risk management resides at all
levels of the company. We seek to take risks in a safe and sound,
well-controlled manner to earn acceptable risk-adjusted returns on both a
corporate-wide and, where applicable, transaction basis. Our goal is to maintain
a strong risk culture where employees are risk aware, collaborative, and
transparent, individually accountable for their decisions, and conduct business
in an effective, legal, and ethical manner.
We utilize a risk taxonomy to define and classify risks that we face in
operating our business. These risks have the potential to adversely affect our
current or projected financial and operational resilience. The risk taxonomy is
also the basis for aligning corporate risk policies and standards. The key types
of risks are:
n Credit Risk;


n Operational Risk;


n Market Risk;


n Liquidity Risk;


n Strategic Risk; and


n Reputation Risk.


Strategic and reputation risks are factored into business decisions and are a
shared responsibility of senior management. For more discussion of these and
other risks facing our business, see Risk Factors. See Liquidity and Capital
Resources for a discussion of liquidity risk.
Enterprise Risk Framework
--------------------------------------------------------------------------------
The enterprise risk framework establishes the foundation for how we manage risk
to achieve our objectives and strategies. The enterprise risk framework:
n   Serves as the basis for managing risk in a consistent manner and across a

range of stressful conditions;

n Defines risk roles and responsibilities across the three lines of defense;

n Provides for independent risk assessment and oversight; and

n Promotes accountability and transparency in risk management decisions and

execution.

The framework includes the following components: n Three Lines of Defense - The business lines, with support from the enterprise

divisions, ERM, and internal audit, make up the three lines of defense.

n Risk Culture - The Board and all levels of management support an effective

risk culture by establishing and exercising accountability, promoting risk

awareness, and by encouraging proactive risk discussions. A strong risk

culture reinforces the importance of our risk management strategy, and

promotes collaboration and transparency among the three lines of defense.

n Risk Governance - Risk governance comprises the risk responsibilities of the

three lines of defense, the risk committee structure at the division,

enterprise, and Board levels, and reporting and escalation requirements.

n Risk Appetite - The risk appetite is the aggregate level and types of risk

that the Board and management are willing to assume to achieve the company's

strategic objectives. The risk appetite is integrated and aligned with the

strategic plans for the company and each business segment.

n Risk Authority - The Board delegates authority to the CEO. The CEO delegates

authority to members of executive management. Authority delegated from the


    CEO is subject to limitations set forth in corporate risk policies or
    standards approved by the CRO or his/her delegate.


n   Corporate Risk Policies and Standards - Corporate risk policies provide

clarity on roles and responsibilities, establish approval requirements for

risk decisions, and define escalation and reporting requirements. Corporate

risk standards provide the minimum requirements to implement corporate risk

policies and may also establish approval requirements for risk decisions.

n Capital Framework - We use both FHFA's CCF and internal capital methodologies

to measure risk for making economically effective decisions. See Liquidity


    and Capital Resources - Capital Resources - Conservatorship Capital
    Framework.



FREDDIE MAC | 2019 Form 10-K   66


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Management's Discussion and Analysis Risk Management | Overview





n   Risk-Adjusted Return - We use risk-adjusted return, based on the CCF, to
    measure ROCC of business lines, transactions, and initiatives. We seek to

achieve acceptable risk-adjusted returns consistent with pre-set targets.

n Risk Profile - The risk profile is a point-in-time assessment and measurement

of inherent and/or residual risk for a specific risk type, measured at a

divisional or enterprise level for the relevant risk types. The risk profile

considers risk trends, the impact of emerging, escalated, and top risks,

control performance, and risk indicators. The risk profile also incorporates

results from stress testing or scenario analysis, judgmental evaluation of

external and internal factors, or any development that may affect performance

relative to the strategy and business objectives.




Enterprise Risk Governance Structure
--------------------------------------------------------------------------------
We manage risk using a three-lines-of-defense risk management model and
governance structure that includes enterprise-wide oversight by the Board and
its committees, the CRO, the CCO, and our corporate ERC.
The information and diagram below present the responsibilities associated with
our three-lines-of-defense risk management model and our risk governance
structure. The risk governance structure also includes division risk committees
to actively discuss and monitor business-specific risk profiles, risk decisions,
and risk appetite metrics, limits and thresholds, and risk type committees to
oversee specific risk types that are present in and span across business lines.
For more information on the role of the Board and its committees, see Directors,
Corporate Governance, and Executive Officers - Corporate Governance - Board and
Committee Information.

FREDDIE MAC | 2019 Form 10-K   67

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Management's Discussion and Analysis Risk Management | Overview

[[Image Removed: riskmanagementdiagramjan2020.jpg]]

FREDDIE MAC | 2019 Form 10-K 68

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Management's Discussion and Analysis Risk Management | Credit Risk





Credit Risk
Overview
--------------------------------------------------------------------------------
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. We
are exposed to both mortgage credit risk and counterparty credit risk.
Mortgage credit risk is the risk associated with the inability or failure of a
borrower to meet its financial and/or contractual obligations. We are exposed to
two types of mortgage credit risk:
n   Single-family mortgage credit risk, through our ownership or guarantee of

loans in the single-family credit guarantee portfolio and

n Multifamily mortgage credit risk, through our ownership or guarantee of loans

in the multifamily mortgage portfolio.




Counterparty credit risk is the risk associated with the inability or failure of
a counterparty to meet its contractual obligations.
In the sections below, we provide a general discussion of our enterprise risk
framework and current risk environment for mortgage credit risk and for
counterparty credit risk.
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:
n   Maintaining prudent underwriting standards and quality control practices and

managing seller/servicer performance;

n Transferring credit risk to third-party investors;

n Monitoring loan performance and characteristics;

n Engaging in loss mitigation activities; and

n Managing foreclosure and REO activities.




Maintaining Prudent Underwriting Standards and Quality Control Practices and
Managing Seller/Servicer Performance
--------------------------------------------------------------------------------
We employ multiple strategies to maintain loan quality and data transparency:
n   Underwriting standards, as published in our Guide and incorporated in Freddie
    Mac Loan AdvisorSM, establish the requirements for eligibility,
    documentation, and representations and warranties;

n Loan quality control practices, including post-close credit review and the

underwriting defects repurchase process, help to ensure that the loan

origination process is in compliance with our Guide and that loans perform at

or above expected levels; and

n Robust seller/servicer management, including in-house quality control and

performance monitoring, provides that quality control is maintained for loans

sold and/or serviced by third-parties.




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 are used to assess 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
while supporting affordable housing in a responsible manner. Our purchase
guidelines generally provide for a maximum original LTV ratio of 97% for
creditworthy first-time homebuyers and for a targeted segment of creditworthy
borrowers meeting certain AMI requirements under our affordable housing
initiatives, a maximum original LTV ratio of 95% for all other home purchase and
no cash out refinance loans, a maximum original LTV ratio of 80% for cash-out
refinance loans, and no maximum LTV ratio for fixed-rate HARP loans and
fixed-rate Enhanced Relief Refinance program loans. In July 2019, we lowered the
AMI requirements under our Home Possible loan initiative which will reduce the
amount of 97% LTV loans we buy under the initiative.
Loan Advisor is our main tool for assessing loan eligibility and documentation.
Loan Advisor is a set of integrated software applications and services designed
to give lenders access to our view of risk, loan quality, and eligibility during
the origination process, which promotes efficient commerce between lenders and
Freddie Mac. As a key component of Loan Advisor, Loan Product Advisor® takes
advantage of proprietary data models and intelligent automation to ensure all
loans meet our

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





underwriting standards. Loan Product Advisor features innovative tools and
offerings leveraging algorithms to enhance the origination process and generates
an assessment of a loan's credit risk and overall quality.
Historically, the majority of our purchase volume was assessed using either Loan
Product Advisor, Fannie Mae's comparable software Desktop Underwriter (DU), or
the seller's proprietary automated underwriting system. During 2019, we
initiated steps to require the loans we purchase to be assessed by one of
Freddie Mac's proprietary underwriting software tools, Loan Product Advisor or
Loan Quality Advisor®, prior to purchase. We have made significant progress in
this initiative such that by the end of 2019, the majority of loans we purchase
are now assessed by Freddie Mac proprietary software ensuring their
compatibility with our risk appetite and reducing the volume of loans we acquire
with layered risk.
With Loan Advisor, lenders can actively monitor representation and warranty
relief earlier in the mortgage loan production process. Loan Advisor offers
limited representation and warranty relief for certain loan components that
satisfy automated data analytics related to appraisal quality, valuation,
borrower assets, and borrower income. In general, limited representation and
warranty relief is only offered when information provided by lenders is
validated through the use of independent data sources.
If we discover that the representations or warranties related to a loan were
breached (i.e., that contractual standards were not followed), we can exercise
certain contractual remedies to mitigate our actual or potential credit losses.
These contractual remedies include the ability to require the seller or servicer
to repurchase the loan at its current UPB, reimburse us for losses realized with
respect to the loan after consideration of any other recoveries, and/or
indemnify us. Our current remedies framework provides 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.
Under our current selling and servicing representation and warranty framework
for our mortgage loans, we relieve sellers of repurchase obligations for
breaches of certain selling representations and warranties for certain types of
loans, including:
n   Loans that have established an acceptable payment history for 36 months (12

months for relief refinance loans) of consecutive, on-time payments after

purchase, subject to certain exclusions and

n Loans that have satisfactorily completed a quality control review.




An independent dispute resolution process for alleged breaches of selling or
servicing representations and warranties on our loans allows for a neutral third
party to render a decision on demands that remain unresolved after the existing
appeal and escalation processes have been exhausted.
Quality Control Practices
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 our ineligible loan determinations
prior to repurchase of the loan.
We use a standard quality control process that facilitates more timely reviews
and is designed to identify breaches of representations and warranties early in
the life of the loan. Proprietary tools, such as Quality Control Advisor®,
provide greater transparency into our customer quality control reviews.
Managing Seller/Servicer Performance
We actively monitor seller and servicer performance, including compliance with
our standards. We maintain approval standards for our seller/servicers, which
include requiring our sellers to maintain an in-house quality control program
with written procedures that operates independently of the seller's underwriting
and origination functions. We monitor servicer performance using our Servicer
Success Scorecard and periodically review our seller/servicers' operational
processes. We also periodically change seller/servicer guidelines based on the
results of our mortgage portfolio monitoring, if warranted.
Loan Purchase Credit Characteristics
The credit quality of our single-family loan purchases remains strong by
historical standards. Risk decreased during 2019 as our refinance volume
increased due to declining interest rates and the reduction in the volume of
higher risk loans we acquire, including loans with layered risk. The graphs
below show the credit profile of the single-family loans we purchased or
guaranteed in each of the last three years.

FREDDIE MAC | 2019 Form 10-K 70

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





                      Weighted Average Original LTV Ratio
              [[Image Removed: chart-5e92b650d0c454699d3a01.jpg]]

                  Weighted Average Original Credit Score (1)

[[Image Removed: chart-c52da2a957635f83b2aa01.jpg]] (1) Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion).



The table below contains additional information about the single-family loans we
purchased or guaranteed in the last three years.
Table 19 - Single-Family New Business Activity
                                                        Year Ended December 31,
                                     2019                        2018                        2017
(Dollars in millions)         Amount     % of Total       Amount     % of Total       Amount     % of Total
30-year or more
amortizing fixed-rate        $389,515         86 %       $266,995         87 %       $275,677         80 %
20-year amortizing
fixed-rate                     15,381          3            8,373          3           12,338          4
15-year amortizing
fixed-rate                     43,164         10           28,878          9           45,597         13
Adjustable-rate                 5,257          1            3,848          1            9,841          3
FHA/VA and other
governmental                      164          -              103          -              113          -
Total                        $453,481        100 %       $308,197        100 %       $343,566        100 %

Percentage of purchases
  DTI ratio > 45%                             14 %                        18 %                        13 %
Detached/townhome
property type                                 92                          92                          91
Primary residence                             90                          90                          89
Loan purpose
Purchase                                      55                          69                          58
Cash-out refinance                            18                          19                          22
Other refinance                               27                          12                          20



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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





Transferring Credit Risk to Third-Party Investors
--------------------------------------------------------------------------------
Types of Credit Enhancements
Our Charter requires coverage by specified credit enhancements or participation
interests on single-family loans with LTV ratios above 80% at the time of
purchase. Most of our loans with LTV ratios above 80% are protected by primary
mortgage insurance, which provides loan-level protection against loss up to a
specified amount, the premium for which 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.
In addition to obtaining credit enhancements required by our Charter, we also
enter into various CRT transactions in which we transfer mortgage credit risk to
third parties. The table below contains a summary of the types of credit
enhancements we use to transfer credit risk on our single-family loans. See
Single-Family Guarantee - Business Overview - Products and Activities for more
information on our CRT transactions.
Category                   Products                                         

Accounting


                                                         CRT  Coverage type 

treatment

Primary mortgage insurance Primary mortgage insurance No Front-end


  Attached
STACR                      STACR Trust notes             Yes    Back-end    Freestanding
                           STACR debt notes              Yes    Back-end        Debt
                           ACIS                          Yes    Back-end    Freestanding
Insurance/reinsurance      AFRM                          Yes    Front-end   Freestanding
                           IMAGIN                        Yes    Front-End   Freestanding
                           Senior subordinate
                           securitization structures     Yes    Back-end      Attached
                           backed by seasoned loans
                           (non-consolidated)
Subordination              Senior subordinate
                           securitization structures
                           backed by recently            Yes    Back-end        Debt
                           originated loans
                           (consolidated)
Lender risk-sharing        Lender risk sharing           Yes    Front-end   Freestanding


Credit Enhancement Coverage for Single-Family Credit Guarantee Portfolio
The tables below provide information on the total protected UPB and maximum
coverage associated with credit enhanced loans in our single-family credit
guarantee portfolio as of December 31, 2019 and December 31, 2018, respectively.
Table 20 - Details of Credit Enhanced Loans in Our Single-Family Credit
Guarantee Portfolio
                                                    Outstanding as of December 31, 2019
                                                   Percentage of
                                                   Single-Family
                                                 Credit Guarantee
                               Protected UPB(1)      Portfolio                 Maximum Coverage(2)
(Dollars in millions)               Total              Total        First Loss(3)     Mezzanine      Total
Primary mortgage insurance
                                      $421,870             21 %          $107,690            $-     $107,690
STACR                                  824,359             41               5,874        19,238       25,112
Insurance/reinsurance                  863,149             43               2,483         7,674       10,157
Subordination                           44,941              2               2,608         2,791        5,399
Lender risk-sharing                     24,078              1               5,077           580        5,657
Other                                    1,056              -               1,051             -        1,051
Less: UPB with multiple CRT
and/or other credit
enhancements                        (1,058,402 )          (52 )                 -             -            -
Single-family credit
guarantee portfolio with
credit enhancement                   1,121,051             56             124,783        30,283      155,066
Single-family credit
guarantee portfolio without
credit enhancement                     873,398             44                   -             -            -
Total                               $1,994,449            100 %          $124,783       $30,283     $155,066



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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk



                                                    Outstanding as of December 31, 2018
                                                   Percentage of
                                                   Single-Family
                                                 Credit Guarantee
                               Protected UPB(1)      Portfolio                 Maximum Coverage(2)
(Dollars in millions)               Total              Total        First Loss(3)     Mezzanine      Total
Primary mortgage insurance
                                      $378,594             20 %           $96,996            $-      $96,996
STACR                                  766,415             40               3,777        18,845       22,622
Insurance/reinsurance                  808,484             43               1,706         7,572        9,278
Subordination                           41,277              2               1,923         2,046        3,969
Lender risk-sharing                     17,458              1               4,830           340        5,170
Other                                    1,305              -               1,290             -        1,290
Less: UPB with multiple CRT
and/or other credit
enhancements                          (991,109 )          (52 )                 -             -            -
Single-family credit
guarantee portfolio with
credit enhancement                   1,022,424             54             110,522        28,803      139,325
Single-family credit
guarantee portfolio without
credit enhancement                     873,762             46                   -             -            -
Total                               $1,896,186            100 %          $110,522       $28,803     $139,325

(1) For STACR and certain insurance/reinsurance transactions (e.g., ACIS),

represents the UPB of the assets included in the reference pool. For other

insurance/reinsurance transactions, represents the UPB of the assets covered

by the insurance policy. For subordination, represents the UPB of the

guaranteed securities, which represents the UPB of the assets included in

the trust net of the protection provided by the subordinated securities.

(2) For STACR transactions, represents the outstanding balance held by third

parties. For insurance/reinsurance transactions, represents the remaining

aggregate limit of insurance purchased from third parties. For

subordination, represents the outstanding UPB of the securities that are

subordinate to Freddie Mac guaranteed securities and held by third parties.




(3)  First loss includes the most subordinate securities (i.e., B tranches) in
     our STACR transactions and their equivalent in ACIS and other CRT
     transactions.


We had coverage remaining of $155.1 billion and $139.3 billion on our
single-family credit guarantee portfolio as of December 31, 2019 and December
31, 2018, respectively. CRT transactions provided 29.8% and 29.4% of the
coverage remaining at those dates.
The table below provides information on the credit-enhanced and
non-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.
Table 21 - Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family
Credit Guarantee Portfolio
                                                         As of December 31,
                                  2019                          2018                          2017
(Percentage of
portfolio based on
UPB)                    % of Portfolio   SDQ Rate     % of Portfolio   SDQ Rate     % of Portfolio   SDQ Rate
Credit-enhanced
  Primary mortgage
insurance                       21 %        0.79 %            20 %        0.86 %            18 %        1.43 %
  Other                         55          0.40              48          0.31              37          0.53
Non-credit-enhanced             45          0.70              47          0.83              56          1.16
Total                          N/A          0.63 %           N/A          0.69 %           N/A          1.08 %


Credit Enhancement Expenses and Recoveries
The recognition of expenses and estimated probable recoveries associated with
credit enhancements in our consolidated financial statements depends on the type
of credit enhancement as follows:
n   Attached credit enhancements - Attached credit enhancements are obtained

contemporaneously with, and in contemplation of, the origination of a

financial instrument, and effectively travel with the financial instrument

upon sale. Attached credit enhancements are accounted for on a net basis with

the associated financial instrument. As a result, we do not explicitly

recognize a separate expense in our consolidated statements of comprehensive

income for attached credit enhancements. Rather, the cost of attached credit

enhancements is reflected as lower revenue. For example, we charge a lower

guarantee fee for a loan with primary mortgage insurance than we otherwise

would for the same loan without primary mortgage insurance. Similarly, credit

losses on loans with attached credit enhancements are accounted for on a net

basis. We do not recognize a provision for credit losses on loans with

attached credit enhancements unless the estimated incurred loss exceeds the

amount of credit protection provided by the attached credit enhancement and

do not separately recognize a recovery asset. For additional information on

the effect of attached credit enhancements on our credit losses, see the


    Monitoring Loan Performance and Characteristics - Credit Losses and
    Recoveries section below.



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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

n Freestanding credit enhancements - Freestanding credit enhancements are

contracts that are entered into separately and apart from any other financial

instruments or entered into in conjunction with some other transaction and


    are legally detachable and separately exercisable. Freestanding credit
    enhancements are accounted for on a gross basis separately from the
    associated financial instrument. We recognize the payments we make to
    transfer credit risk under freestanding credit enhancements as credit
    enhancement expense. We recognize expected recoveries from freestanding

credit enhancements as separate assets when the claim for recovery is deemed

probable, which typically occurs at the same time we recognize a provision


    for credit losses on the associated loan.


n   Debt with embedded credit enhancements - Credit enhancements that are

structured as debt issuances are accounted for on a gross basis separately

from the associated mortgage loan. We primarily recognize expenses associated

with debt with embedded credit enhancements as interest expense. We recognize

recoveries from debt with embedded credit enhancements as debt extinguishment

gains within investment gains (losses) when the loss confirming event occurs

and we are legally released from our debt obligation, which typically occurs

after we recognize a provision for credit losses on the associated loan. Such

recoveries have not been significant. We no longer issue debt with embedded

credit enhancements as part of our primary CRT strategy and therefore expect

the effect of these transactions on our financial results to become less

significant over time.




Certain of our credit enhancements are accounted for at fair value, with changes
in fair value recognized in earnings as a component of investment gains
(losses), net. See Note 6 for additional information on our credit enhancements.
The table below contains details on the costs associated with our single-family
credit enhancements.
Table 22 - Details of Single-Family Credit Enhancement Expense
                                                        Year Ended December 31,
(In millions)                                      2019           2018           2017
Credit enhancement costs: (1)
Credit enhancement expense                           ($693 )        ($402 )        ($263 )
Interest expense related to CRT debt                (1,060 )       (1,047 ) 

(808 )


 Total costs                                        (1,753 )       (1,449 ) 

(1,071 )



Estimated reinvestment income from proceeds
of CRT debt issuance                                   360            372   

180


Single-family credit enhancement expense           ($1,393 )      ($1,077 )        ($891 )


(1)  Excludes fair value gains and losses on CRT derivatives and CRT debt
     recorded at fair value. See MD&A - Consolidated Results of Operations for
     additional information on these items.


Impact of CRT Transactions on Conservatorship Capital
We use FHFA's risk-based CCF guidelines to determine the amount of total
conservatorship capital needed for our single-family credit guarantee portfolio.
We reduce the amount of conservatorship capital needed for credit risk by
shifting the risk of credit losses from Freddie Mac to third-party investors
through our CRT transactions, primarily our STACR and ACIS transactions. The
table below presents information on the impact of certain CRT transactions on
the amount of capital needed for credit risk (conservatorship credit capital)
pursuant to the CCF. For more information on the CCF, see Liquidity and Capital
Resources - Capital Resources - Conservatorship Capital Framework.
Table 23 - Reduction in Conservatorship Credit Capital (1) as a Result of
Certain CRT Transactions
                                                   As of December 31, 2019                                    As of December 31, 2018
                                                         Single-Family                                              Single-Family
                                                        Credit Guarantee                                           Credit Guarantee
                                      Single-Family       Portfolio -       Single-Family        Single-Family       Portfolio -       Single-Family
                                    Credit Guarantee   covered by certain

Credit Guarantee Credit Guarantee covered by certain Credit Guarantee (Dollars in billions)

                   Portfolio       CRT transactions  Portfolio - Other        Portfolio       CRT transactions  Portfolio - Other
Conservatorship credit capital
prior to CRT (2)                            $31.9                 $16.1             $15.8              $29.8                 $14.6             $15.2
Conservatorship credit capital
reduced by CRT (3)                          (11.8 )               (11.8 )               -               (9.3 )                (9.3 )               -
Conservatorship credit capital
needed after CRT                            $20.1                  $4.3             $15.8              $20.5                  $5.3             $15.2
Reduction in conservatorship
credit capital (%) (4)                       37.0 %                73.3 %               - %             31.2 %                63.7 %               - %
UPB                                        $1,994                  $945            $1,049             $1,896                  $875            $1,021
% of portfolio                                100 %                  47 %              53 %              100 %                  46 %              54 %

(1) Conservatorship credit capital figures for each period are based on the CCF

in effect during the period. The CCF in effect as of December 31, 2019 was

largely unchanged from the CCF as of December 31, 2018. The conservatorship

credit capital figures for 2019 are preliminary and subject to change until

official submission to FHFA.

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





(2)  Represents the total conservatorship credit capital prior to CRT on the
     outstanding balance of our single-family credit guarantee portfolio as of

December 31, 2019 and December 31, 2018 based on prescribed CCF guidelines.

(3) Represents the amount of conservatorship credit capital released from

certain CRT transactions, including STACR, ACIS/AFRM, certain senior

subordination securitization structures, and certain lender risk-sharing


     transactions, based on prescribed CCF guidelines.


(4)  Calculated as conservatorship credit capital reduced by CRT divided by
     conservatorship credit capital prior to CRT.


Monitoring Loan Performance and Characteristics
--------------------------------------------------------------------------------
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:
n Higher risk loan attributes and attribute combinations;


n Higher risk loan product types; and




n Geographic concentrations.


Delinquency Rates
Our single-family serious delinquency rate declined in 2019 compared to 2018 due
to the continued shift in the single-family credit guarantee portfolio mix, as
the legacy and relief refinance loan portfolio runs off and we add higher credit
quality loans to our core single-family loan portfolio. This decline is also
attributable to our continued loss mitigation efforts and sales of certain
seriously delinquent loans, as well as home price appreciation and a low
unemployment rate.
The charts below show the credit losses and serious delinquency rates for each
of our single-family loan portfolios. Our core single-family loan portfolio
continues to perform well and account for a small percentage of our credit
losses, as shown below. Our legacy and relief refinance single-family loan
portfolio continues to decline as a percentage of our overall portfolio, but
continues to account for the majority of our credit losses.
                  Portfolio Composition and Credit Losses

[[Image Removed: chart-76ed90fa24d95a068a6a01.jpg]]


                  Serious Delinquency Rates as of December 31,

[[Image Removed: chart-1039b40455745780930a01.jpg]]

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





Loan Characteristics
The table below contains a description of some of the loan characteristics we
monitor in our single-family credit guarantee portfolio.
  Characteristic Description                     Impact on Credit Quality
                                                 • Measures ability of the
                 Ratio of the UPB of the loan to   underlying property to cover our
                 the value of the underlying       exposure on the loan
                 property collateralizing the
                 loan. Original LTV ratio is     • Higher LTV ratios

indicate higher


  LTV ratio      measured at loan origination,     risk, as proceeds from sale of
                 while current LTV (CLTV) ratio    the property may not cover our
                 is defined as the ratio of the    exposure on the loan
                 current loan UPB to the         • Lower LTV ratios indicate
                 estimated current property        borrowers are more likely to
                 value                             repay

                 Statistically-derived number    • Borrowers with higher credit
                 used by lenders to assess a       scores are generally more likely
                 borrower's likelihood to repay    to repay or have the ability to
                 debt. We use FICO scores, which   refinance their loans than those
                 are currently the most commonly   with lower scores
                 used credit scores for
                 mortgages. Original credit
                 score represents each
  Credit score   borrower's FICO score at the
                 time of origination or our
                 purchase, while current credit
                 score represents each
                 borrower's most recent FICO
                 score, which is obtained by
                 Freddie Mac as of the first
                 month of the most recent
                 quarter

                 Indicates how the borrower      • Cash-out refinancings, which
                 intends to use the proceeds       increase the LTV ratios,

Loan purpose from a loan (i.e., purchase, generally have a higher risk of


                 cash-out refinance, or other      default than loans originated in
                 refinance)                        purchase or other refinance
                                                   transactions
                                                 • Detached single-family houses and
                                                   townhouses are the predominant
                 Indicates whether the property    type of single-family property

Property type is a detached single-family • Condominiums historically have


                 house, townhouse, condominium,    experienced greater volatility in
                 or co-op                          home prices than detached
                                                   single-family houses, which may
                                                   expose us to more risk
                 Indicates whether the borrower  • Loans on primary residence
  Occupancy type intends to use the property as    properties tend to have lower
                 a primary residence, second       credit risk than loans on second
                 home, or investment property      homes or investment properties
                 Indicates the type of loan      • Loan products that contain terms
                 based on key loan terms, such     which result in

scheduled changes


                 as the contractual maturity,      in monthly payments may result in
  Product type   type of interest rate, and        higher risk
                 payment characteristics of the  • Shorter loan terms result in
                 loan                              faster repayment of principal and
                                                   may indicate lower risk
                                                 • Second liens can increase the
                 Indicates whether the             risk of default
                 underlying property is covered  • Borrowers are free to obtain
  Second liens   by more than one loan at the      second-lien financing after
                 time of origination               origination, and we are not
                                                   entitled to receive notification
                                                   when a borrower does so
                 Ratio of the borrower's total   • Borrowers with lower DTI ratios
                 monthly debt payments to gross    are generally more likely to
                 monthly income. One indicator     repay their loans than those with
                 of the creditworthiness of        higher DTI ratios, holding all
  DTI ratio      borrowers, as it measures         other factors equal
                 borrowers' ability to manage    • DTI ratios are at the time of
                 monthly payments and repay        origination and may not be
                 debts                             indicative of the borrowers'
                                                   current credit worthiness



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The tables below contain details on characteristics of the loans in our
single-family credit guarantee portfolio.
Table 24 - Credit Quality Characteristics of Our Single-Family Credit Guarantee
Portfolio
                                                           As of December 31, 2019
                                           Original    Current              Current     Current
                                            Credit     Credit    Original     LTV      LTV Ratio
(Dollars in billions)             UPB      Score (1)  Score (1) LTV Ratio    Ratio       >100%       Alt-A %
Core single-family loan
portfolio                        $1,701         750       752       75 %       60 %        - %          - %
Legacy and relief refinance
single-family loan portfolio        293         712       692       83         52          2            7
Total                            $1,994         745       749       76 %       59 %        - %          1 %

                                                           As of December 31, 2018
                                           Original    Current              Current     Current
                                            Credit     Credit    Original     LTV      LTV Ratio
(Dollars in billions)             UPB      Score (1)  Score (1) LTV Ratio    Ratio       >100%       Alt-A %
Core single-family loan
portfolio                        $1,550         750       753       74 %       59 %        - %          - %
Legacy and relief refinance
single-family loan portfolio        346         705       690       78         45          2            7
Total                            $1,896         743       748       76 %       58 %        1 %          1 %

(1) Original credit score is based on three credit bureaus (Equifax, Experian,

and TransUnion). Current credit score is based on Experian only.

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk

Table 25 - Characteristics of the Loans in Our Single-Family Credit Guarantee Portfolio


                                                     As of December 31,
(Percentage of portfolio based on UPB)               2019     2018   2017

Original LTV ratio range
60% and below                                         18 %     19 %   20 %
Above 60% to 80%                                      52 %     52 %   52 %
Above 80% to 100%                                     28 %     26 %   24 %
Above 100%                                             2 %      3 %    4 %

Portfolio weighted average original LTV ratio 76 % 76 % 75 %



Current LTV ratio range
60% and below                                         51 %     51 %   49 %
Above 60% to 80%                                      35 %     36 %   37 %
Above 80% to 100%                                     14 %     12 %   13 %
Above 100%                                             - %      1 %    1 %

Portfolio weighted average current LTV ratio 59 % 58 % 59 %



Original credit score (1)
740 and above                                         61 %     60 %   60 %
700 to 739                                            21 %     22 %   21 %
660 to 699                                            12 %     12 %   12 %
620 to 659                                             4 %      4 %    5 %
Less than 620                                          2 %      2 %    2 %

Portfolio weighted average original credit score 745 743 743



Current credit score (1)
740 and above                                         66 %     66 %   65 %
700 to 739                                            16 %     16 %   16 %
660 to 699                                             9 %      9 %   10 %
620 to 659                                             4 %      4 %    4 %
Less than 620                                          5 %      5 %    5 %

Portfolio weighted average current credit score 749 748 747



Loan purpose
Purchase                                              46 %     45 %   39 %
Cash-out refinance                                    20 %     20 %   21 %
Other refinance                                       34 %     35 %   40 %

(1) Original credit score is based on three credit bureaus (Equifax, Experian,

and TransUnion). Current credit score is based on Experian only.

In addition, at December 31, 2019, December 31, 2018, and December 31, 2017: n More than 90% of our loans were secured by detached homes or townhomes;




n   Approximately 90% of our loans were secured by properties used as the
    borrower's primary residence at origination; and

n More than 90% of our loans were fixed-rate.




At December 31, 2019, approximately 7% of our loans had second-lien financing by
the originator or other third party at origination, and these loans comprised
approximately 13% of our seriously delinquent loan population. It is likely that
additional borrowers have post-origination second-lien financing.
Higher Risk Loan Attributes and Attribute Combinations
Certain of the loan attributes shown above may indicate a higher risk of
default. For example, loans with original LTV ratios over 90% and/or credit
scores below 620 at origination may be higher risk. The tables below provide
information on loans in our portfolio with these characteristics. The tables
include a presentation of each higher risk category in isolation. A single loan
may fall within more than one category.

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Table 26 - Single-Family Credit Guarantee Portfolio Higher Risk Loan Data


                                                                  As of December 31, 2019
(Dollars in billions)                                       UPB         CLTV    % Modified  SDQ Rate
Original LTV ratio greater than 90%, HARP loans               $71.5        65 %      2.7 %     0.89 %
Original LTV ratio greater than 90%, all other loans          286.0        79        3.2       0.98
Loans with credit scores below 620 at origination              33.1        60       15.4       4.52

                                                                  As of December 31, 2018
(Dollars in billions)                                       UPB         CLTV    % Modified  SDQ Rate
Original LTV ratio greater than 90%, HARP loans               $85.1        70 %      2.9 %     0.90 %
Original LTV ratio greater than 90%, all other loans          248.3        79        4.4       1.10
Loans with credit scores below 620 at origination              33.6        

62 20.0 4.59




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.
Table 27 - Single-Family Credit Guarantee Portfolio Attribute Combinations for
Higher Risk Loans
                                                                          As of December 31, 2019
                                  CLTV ? 80              CLTV > 80 to 100                CLTV > 100                        All Loans
(Original Credit score)     % Portfolio  SDQ Rate    % Portfolio  SDQ Rate(1)     % Portfolio  SDQ Rate(1)     % Portfolio  SDQ Rate  % Modified
Core single-family loan
portfolio:
< 620                            0.3 %      2.68 %           - %          NM             - %           NM           0.3 %      2.87 %      3.5 %
620 to 659                       2.1        1.26           0.4          1.59 %           -             NM           2.5        1.30        1.9
? 660                           69.8        0.20          12.6          0.26             -             NM          82.4        0.20        0.3
Not available                    0.1        1.23             -            NM             -             NM           0.1        1.96        3.6
Total                           72.3 %      0.24 %        13.0 %        0.33 %           - %           NM          85.3 %      0.26 %      0.4 %

Legacy and relief
refinance single-family
loan portfolio:
< 620                            1.1 %      4.16 %         0.2 %        9.33 %         0.1 %        15.03 %         1.4 %      4.83 %     17.7 %
620 to 659                       1.5        3.01           0.2          7.91           0.1          12.84           1.8        3.52       16.3
? 660                           10.5        1.06           0.7          3.91           0.2           6.32          11.4        1.23        5.9
Not available                    0.1        4.39             -            NM             -             NM           0.1        4.68       19.6
Total                           13.2 %      1.58 %         1.1 %        5.39 %         0.4 %         8.96 %        14.7 %      1.84 %      8.3 %



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                                                                      As of December 31, 2018
                              CLTV ? 80              CLTV > 80 to 100                CLTV > 100                        All Loans
(Original Credit
score)                  % Portfolio  SDQ Rate    % Portfolio  SDQ Rate(1)     % Portfolio  SDQ Rate(1)     % Portfolio  SDQ Rate  % Modified
Core single-family
loan portfolio:
< 620                        0.3 %      2.18 %           - %          NM             - %           NM           0.3 %      2.34 %      3.7 %
620 to 659                   2.0        1.13           0.3          1.27             -             NM           2.3        1.15        1.9
? 660                       69.0        0.17          10.0          0.25             -             NM          79.0        0.18        0.3
Not available                0.1        1.52             -            NM             -             NM           0.1        2.60        3.6
Total                       71.4 %      0.21 %        10.3 %        0.30 %           - %           NM          81.7 %      0.22 %      0.4 %

Legacy and relief
refinance
single-family loan
portfolio:
< 620                        1.2 %      4.16 %         0.2 %        8.76 %         0.1 %        14.34 %         1.5 %      4.94 %     22.6 %
620 to 659                   1.7        3.13           0.3          6.78           0.1          11.69           2.1        3.68       19.8
? 660                       13.0        1.12           1.2          3.60           0.4           5.81          14.6        1.33        7.1
Not available                0.1        4.62             -            NM             -             NM           0.1        4.98       19.5
Total                       16.0 %      1.62 %         1.7 %        4.78 %         0.6 %         8.18 %        18.3 %      1.93 %     10.0 %


(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.




Higher Risk Loan Product Types
There are several types of loan products that contain terms which result in
scheduled changes in the borrower's monthly payments after specified initial
periods, such as interest-only and option ARM loans. These products may result
in higher credit risk because the payment changes may increase the borrower's
monthly payment, resulting in a higher risk of default. The majority of these
loans are in our legacy and relief refinance single-family loan portfolio. Only
a small percentage of our core single-family loan portfolio consists of ARM
loans. We fully discontinued purchases of option ARM loans in 2007, Alt-A loans
in 2009, and interest-only loans in 2010.
The balance of our interest-only and option ARM loans has continued to decline
in recent years as many of these borrowers have repaid or refinanced their
loans, received loan modifications, or completed foreclosure alternatives or
foreclosure sales.
While we have not categorized option ARM loans as either subprime or Alt-A for
presentation in this Form 10-K and elsewhere in our reporting, they could
exhibit similar credit performance to collateral sometimes referred to as
subprime or Alt-A by market participants. For reporting purposes, loans within
the option ARM category continue to be presented in that category following a
modification of the loan, even though the modified loan no longer provides for
optional payment provisions.
The tables below provide credit characteristic information on higher risk loan
product types.
Table 28 - Higher Risk Single-Family Loan Credit Characteristics
                                             As of December 31, 2019
(Dollars in billions)                    UPB      CLTV   % Modified  SDQ 

Rate


Amortizing ARM and option ARM (1)          $40.1   49 %      2.2 %      0.84 %
Interest-only                               10.9   64          -        2.72
Step-rate modified                           8.7   59        100        6.27

                                             As of December 31, 2018
(Dollars in billions)                    UPB      CLTV   % Modified  SDQ Rate
Amortizing ARM and option ARM (1)          $47.7   50 %      1.9 %      0.88 %
Interest-only                               11.0   64        0.1        3.43
Step-rate modified                          14.5   64        100        6.12

(1) Includes $2.5 billion and $3.0 billion in UPB of option ARM loans as of

December 31, 2019 and December 31, 2018, respectively. As of December 31,

2019 and December 31, 2018, the option ARM loans had: (a) current LTV ratios

of 51% and 54%, (b) loan modification percentages of 20.4% and 17.9%, and

(c) serious delinquency rates of 2.94% and 3.40%, 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 2019

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or prior have already had one or more payment changes as of December 31, 2019;
loans where the year of first payment change is 2020 or later have not had a
payment change as of December 31, 2019 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, 2019.
Table 29 - Timing of Scheduled Payment Changes for Certain Single-Family Loan
Types
                                                     As of December 31, 2019
(In millions)          2019  and Prior    2020     2021     2022     2023     2024    Thereafter   Total(1)
ARM/amortizing                  $9,097   $3,860   $3,647   $4,967   $3,930   $4,552       $7,281    $37,334
ARM/interest-only                4,692       80        -        -        -        -            -      4,772
Fixed/interest-only                513        1       10       28        2        -            -        554
Step-rate modified               8,179    1,225      900      201       52       26            -      8,657
Total                          $22,481   $5,166   $4,557   $5,196   $3,984   $4,578       $7,281    $51,317

(1) Excludes loans underlying certain other securitization products since the

payment change information is not available to us for these loans.




We believe that the performance of these types of loans has been affected by
prior adverse macroeconomic conditions, such as unemployment rates and home
price declines in many geographic areas, in addition to the increase in the
borrower's monthly payment. However, we continue to monitor the performance of
these loans as many have experienced a payment change or are scheduled to have a
payment change in 2020 or thereafter, which is likely to subject the borrowers
to higher monthly payments. Since a substantial portion of these loans were
originated in 2005 through 2008 and are located in geographic areas that were
most affected by declines in home prices that began in 2006, we believe that the
serious delinquency rate for these types of loans will remain high in 2020.
Other Higher Risk Loans - Alt-A and Subprime Loans
While we have referred to certain loans as subprime or Alt-A for purposes of the
discussion below and elsewhere in this Form 10-K, there is no universally
accepted definition of subprime or Alt-A, and the classification of such loans
may differ from company to company. We do not rely on these loan classifications
to evaluate the credit risk exposure relating to such loans in our single-family
credit guarantee portfolio.
Participants in the mortgage market have characterized single-family loans based
upon their overall credit quality at the time of origination, including as prime
or subprime. While we have not historically characterized the loans in our
single-family credit guarantee portfolio as either prime or subprime, we monitor
the amount of loans we have guaranteed with characteristics that indicate a
higher degree of credit risk. In addition, we estimate that approximately $0.8
billion and $0.9 billion of security collateral underlying our other
securitization products at December 31, 2019 and December 31, 2018,
respectively, were identified as subprime based on information provided to us
when we entered into these transactions.
Mortgage market participants have classified single-family loans as Alt-A if
these loans have credit characteristics that range between their prime and
subprime categories, if they are underwritten with lower or alternative income
or asset documentation requirements compared to a full documentation loan, or
both. Although we have discontinued new purchases of loans with lower
documentation standards, we continue to purchase certain amounts of such loans
in cases where the loan was either purchased pursuant to a previously issued
guarantee, part of our relief refinance initiative or part of another refinance
loan initiative and the pre-existing loan was originated under less than full
documentation standards. In the event we purchase a refinance loan and the
original loan had been previously identified as Alt-A, such refinance loan may
no longer be categorized or reported as an Alt-A loan in this Form 10-K and our
other financial reports because the new refinance loan replacing the original
loan would not be identified by the seller or servicer as an Alt-A loan. As a
result, our reported Alt-A balances may be lower than would otherwise be the
case had such refinancing not occurred. From the time the relief refinance
initiative began in 2009 to December 31, 2019, we have purchased approximately
$36.4 billion of relief refinance loans that were previously categorized as
Alt-A loans in our portfolio.
The table below contains information on Alt-A loans in our single-family credit
guarantee portfolio.
Table 30 - Alt-A Loans in Our Single-Family Credit Guarantee Portfolio
                                   As of December 31, 2019                         As of December 31, 2018
(Dollars in billions)        UPB        CLTV    % Modified  SDQ Rate         UPB         CLTV   % Modified  SDQ Rate
Alt-A                         $21.1        61 %     18.4 %     3.75 %       

$23.9 63 % 23.2 % 4.13 %

The UPB of Alt-A loans in our single-family credit guarantee portfolio is continuing to decline due to borrowers refinancing into other mortgage products, foreclosure sales, and other liquidation events.

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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, 2019. See Note
14 for additional information on the concentration of credit risk in our
single-family credit guarantee portfolio.
Table 31 - Geographic Concentration in Our Single-Family Credit Guarantee
Portfolio

                 As of December 31, 2019      Full Year        As of December 31, 2018      Full Year         As of December 31, 2017      Full Year
(Dollars                                         2019                                          2018                                           2017
in               SDQ      % of SDQ              Credit         SDQ      % of SDQ              Credit          SDQ      % of SDQ              Credit

millions) Loan Count Loans SDQ Rate Losses Loan Count Loans SDQ Rate Losses Loan Count Loans SDQ Rate Losses New York 5,741 8 % 1.21 % $109 6,312

        8 %     1.37 %     $289           8,117        7 %     1.74 %     $415
Florida           5,430        8       0.77        208          6,888       

9 1.01 263 22,253 19 3.33 614 Illinois 4,747 7 0.85 151 4,750

        6       0.86        244           6,228        5       1.13        445

California 4,584 7 0.34 116 4,610

  6       0.35        275           5,514        5       0.41        884
Texas             3,950        6       0.54         49          4,081        5       0.59         55           8,908        8       1.36         44
All Others       45,269       64       0.61        881         48,499       66       0.67      1,454          64,669       56       0.90      2,413
Total            69,721      100 %     0.63 %   $1,514         75,140      100 %     0.69 %   $2,580         115,689      100 %     1.08 %   $4,815


The following table presents our single-family charge-offs and recoveries in
each geographic region. See Single-Family Credit Guarantee Portfolio in Note 14
for a description of these regions.
Table 32 - Single-Family Charge-Offs and Recoveries by Region
                                                                                        Year Ended December 31,
                                                 2019                                             2018                                             2017
                             Charge-offs,     Recoveries    Charge-offs,      Charge-offs,     Recoveries    Charge-offs,      Charge-offs,     Recoveries    Charge-offs,
(In millions)                  gross (1)                         net            gross (1)                         net            gross (1)                         net
Northeast                            $619          ($157 )          $462            $1,105          ($175 )          $930            $1,690          ($155 )        $1,535
Southeast                             414           (105 )           309               515            (98 )           417             1,001            (95 )           906
North Central                         307            (76 )           231               544            (88 )           456               774            (81 )           693
West                                  252            (73 )           179               522            (72 )           450             1,382            (62 )         1,320
Southwest                             145            (41 )           104               199            (42 )           157               204            (32 )           172
Total                              $1,737          ($452 )        $1,285            $2,885          ($475 )        $2,410            $5,051          ($425 )        $4,626


(1)  2019, 2018, and 2017 include charge-offs of $1.3 billion, $2.1 billion and
     $3.8 billion, respectively, related to the transfer of loans from
     held-for-investment to held-for-sale.



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The tables below present the concentration of loans in each geographic region by
CLTV ratio.
Table 33 - Concentration of Single-Family Loans in Each Region by CLTV Ratio
                                                                  As of December 31, 2019
                          CLTV <= 80%                CLTV > 80% to 100%                CLTV > 100%                    All Loans
                    % of Portfolio  SDQ Rate     % of Portfolio   SDQ Rate     % of Portfolio  SDQ Rate(1)     % of Portfolio  SDQ Rate
North Central             13 %         0.55 %           3 %           0.80 %         - %               NM              16 %       0.61 %
Northeast                 20           0.75             4             1.28           -                 NM              24         0.87
Southeast                 14           0.68             2             0.91           -                 NM              16         0.73
Southwest                 12           0.54             2             0.46           -                 NM              14         0.54
West                      27           0.34             3             0.54           -                 NM              30         0.36
Total                     86 %         0.57 %          14 %           0.83 %         - %               NM             100 %       0.63 %

                                                                  As of December 31, 2018
                          CLTV <= 80%                CLTV > 80% to 100%                CLTV > 100%                    All Loans
                    % of Portfolio  SDQ Rate     % of Portfolio   SDQ Rate     % of Portfolio  SDQ Rate(1)     % of Portfolio  SDQ Rate
North Central             14 %         0.55 %           2 %           0.93 %         - %               NM              16 %       0.63 %
Northeast                 21           0.79             3             1.62           -                 NM              24         0.96
Southeast                 14           0.79             2             1.37           -                 NM              16         0.90
Southwest                 12           0.56             2             0.58           -                 NM              14         0.57
West                      27           0.35             2             0.76           1               3.81              30         0.38
Total                     88 %         0.60 %          11 %           1.09 %         1 %             7.98 %           100 %       0.69 %

(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.




Credit Losses and Recoveries
The table below contains certain credit performance metrics of our single-family
credit guarantee portfolio.
Table 34 - Single-Family Credit Guarantee Portfolio Credit Performance Metrics
                                      Year Ended December 31,
(Dollars in millions)                2019       2018      2017
Charge-offs, gross(1)                $1,737    $2,885    $5,051
Recoveries                             (452 )    (475 )    (425 )
Charge-offs, net                      1,285     2,410     4,626
REO operations expense                  229       170       189
Total credit losses                  $1,514    $2,580    $4,815

Total credit losses(1) (in bps) 7.7 13.7 27.0

(1) 2019, 2018, and 2017 include charge-offs of $1.3 billion, $2.1 billion, and

$3.8 billion, respectively, related to the transfer of loans from

held-for-investment to held-for-sale.




We recognized recoveries from primary mortgage insurance (excluding recoveries
that represent reimbursements for our expenses, such as REO operations expenses)
of $117 million, $151 million, and $263 million that reduced our charge-offs of
single-family loans during 2019, 2018, and 2017, respectively. We also
recognized recoveries from primary mortgage insurance of $52 million, $47
million, and $50 million during 2019, 2018, and 2017, respectively, as part of
REO operations (expense) income.
Our credit losses and seriously delinquent loan population are concentrated in
the legacy and relief refinance single-family loan portfolio. In addition, our
credit losses and seriously delinquent loan population are also concentrated
within loans having certain characteristics, as shown in the table below. These
categories are not mutually exclusive; for example, an Alt-A loan can be
associated with a property located in a judicial foreclosure state and/or have a
CLTV ratio of greater than 100%. Additional detail on loans in judicial
foreclosure states is presented in the Managing Foreclosure and REO Activities
section below.

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Table 35 - Credit Characteristics of Certain Single-Family Loan Categories


                                                    2019                                               2018
                                    As of December 31           Year Ended            As of December 31            Year Ended
                                                                December 31                                        December 31
                                                 SDQ Rate       % of Credit                        SDQ Rate        % of Credit
                                % of Portfolio                    Losses          % of Portfolio                     Losses
CLTV > 100%                            0.4 %        8.22 %         16 %                  1 %           7.98 %         16 %
Alt-A loans                              1          3.75           12                    1             4.13           16
Judicial foreclosure states             38          0.81           61                   38             0.92           59


Allowance for Credit Losses
Our allowance for credit losses continued to decline in 2019, primarily driven
by charge-offs as a result of our transfer of loans from held-for-investment to
held-for-sale.
On January 1, 2017, we elected a new accounting policy for loan
reclassifications from held-for-investment to held-for-sale. Under the new
policy, when we reclassify (transfer) a loan from held-for-investment to
held-for-sale, we charge off the entire difference between the loan's recorded
investment and its fair value if the loan has a history of credit-related
issues. See Note 4 for further information about this change.
The table below summarizes our single-family allowance for credit losses
activity.
Table 36 - Single-Family Allowance for Credit Losses Activity
                                                           Year Ended December 31,
(Dollars in millions)                        2019       2018       2017        2016        2015
Beginning balance                           $6,176     $8,979     $13,463     $15,348     $21,793
Provision (benefit) for credit losses         (749 )     (712 )       (97 )      (781 )    (2,639 )
Charge-offs, gross(1)                       (1,737 )   (2,885 )    (5,051 )    (1,938 )    (5,071 )
Recoveries                                     452        475         425         497         717
Other(2)                                       126        319         239         337         548
Ending balance                              $4,268     $6,176      $8,979     $13,463     $15,348

As a percentage of our single-family
credit guarantee portfolio                    0.21 %     0.33 %      0.49 %      0.77 %      0.90 %



(1)  2016 and 2015 do not include lower-of-cost-or-fair-value adjustments

recognized when we transfer loans from held-for-investment to held-for-sale,

which totaled $1.2 billion and $3.4 billion, respectively. 2019, 2018, and

2017 include charge-offs of $1.3 billion, $2.1 billion, and $3.8 billion,

respectively, related to the transfer of loans from held-for-investment to

held-for-sale.

(2) Primarily includes capitalization of past due interest on modified loans.




TDRs and Individually Impaired Loans
Single-family loans that have been individually evaluated for impairment, such
as modified loans, generally have a higher associated allowance for loan losses
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 allowance for loan losses is attributable to individually
impaired single-family loans. As of December 31, 2019, 43% of the allowance for
loan losses for single-family loans related to interest rate concessions
provided to borrowers as part of loan modifications. Most of our modified
single-family loans, including TDRs, were current and performing at December 31,
2019. We expect our allowance for loan losses associated with existing
single-family TDRs to decline over time as we continue to sell reperforming
loans. In addition, these allowances for loan losses will decline as borrowers
continue to make monthly payments under the modified terms and interest rate
concessions are amortized into earnings.

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The table below summarizes the carrying value on our consolidated balance sheets
for individually impaired single-family loans for which we have recorded an
allowance determined on an individual basis.
Table 37 - Single-Family Individually Impaired Loans with an Allowance Recorded
                                                 2019                       2018
(Dollars in millions)                  Loan Count     Amount      Loan Count     Amount
TDRs, at January 1                       290,255      $42,254       364,704      $54,415
New additions                             30,568        4,871        52,300        8,115
Repayments and reclassifications to      (85,181 )    (14,016 )    (119,366 )    (19,285 )
held-for-sale
Foreclosure sales and foreclosure         (4,502 )       (605 )      (7,383 )       (991 )
alternatives
TDRs, at December 31                     231,140       32,504       290,255       42,254
Loans impaired upon purchase               1,600          102         2,555          170
Total impaired loans with an             232,740       32,606       292,810       42,424
allowance recorded
Allowance for loan losses                              (2,872 )                   (4,369 )
Net investment, at December 31                        $29,734               

$38,055

The tables below present information about the UPB of single-family TDRs and non-accrual loans on our consolidated balance sheets. Table 38 - Single-Family TDR and Non-Accrual Loans


                                                        As of December 31,
(In millions)                        2019         2018         2017         2016         2015
TDRs on accrual status              $32,188      $41,839      $51,644      $77,122      $82,026
Non-accrual loans                    11,183       11,197       17,748       16,164       22,460
Total TDRs and non-accrual          $43,371      $53,036      $69,392      $93,286     $104,486
loans

Allowance for loan losses
associated with:
 TDRs on accrual status              $2,452       $3,612       $5,257      $10,295      $12,105
 Non-accrual loans                      597        1,003        1,883        2,290        2,677
Total                                $3,049       $4,615       $7,140      $12,585      $14,782

                                                     Year Ended December 31,
(In millions)                        2019         2018         2017         2016         2015
Foregone interest income on            $790       $1,122       $1,604       $2,109       $2,690
TDRs and non-accrual loans(1)


(1) Represents the amount of interest income that we did not recognize but would

have recognized during the period for loans outstanding at the end of each

period, had the loans performed according to their original contractual

terms.




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 and reperforming loans.
Relief Refinance Program
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 or movement to a more stable
loan product) and without the need to obtain additional mortgage insurance.
Prior to January 2019, our relief refinance program included HARP, the portion
of our relief refinance initiative for loans with LTV ratios above 80%. The HARP
program ended on December 31, 2018, although we continued to purchase HARP loans
with application received dates on or prior to December 31, 2018 through
September 30, 2019.

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





The relief refinance program has been replaced with the Enhanced Relief
Refinance program, which became available in January 2019 for loans originated
on or after October 1, 2017. This program provides liquidity for borrowers who
are current on their mortgages but are unable to refinance because their LTV
ratios exceed our standard refinance limits.
The following table includes information about the performance of our relief
refinance mortgage portfolio.
Table 39 - Single-Family Relief Refinance Loans
                                                             As of December 31,
                                                 2019                                  2018
(Dollars in millions)                 UPB       Loan Count  SDQ Rate        UPB       Loan Count  SDQ Rate
Above 125% Original LTV              $15,906      103,401      0.93 %      $18,847      117,410      0.97 %
Above 100% to 125% Original LTV       31,072      200,227      0.96         37,084      228,419      0.93
Above 80% to 100% Original LTV        52,020      362,647      0.76         61,843      410,027      0.77
80% and below Original LTV            70,752      681,232      0.43         83,647      762,477      0.42
Total                               $169,750    1,347,507      0.64 %     $201,421    1,518,333      0.64 %


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:
n   Forbearance agreements - Arrangements that require reduced or no payments

during a defined period, generally less than one year, to allow borrowers to

return to compliance with the original mortgage terms or to implement another

loan workout. For agreements completed in 2019, the average time period for

reduced or suspended payments was between four and five months.

n 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 2019, the average time period to repay past due amounts

was approximately four months. Servicers are paid incentive fees for

repayment plans that are paid in full and loans brought to current status.

n 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 reduced level of loan workout activity in 2019 compared to 2018 was
primarily driven by elevated loan workout activity in 2018 as a result of the
hurricanes that occurred in late 2017.
When a seriously delinquent single-family loan cannot be resolved through an
economically sensible home retention option, we typically seek to pursue a
foreclosure alternative or sale of the seriously delinquent loan. We pay
servicers incentive fees for each completed foreclosure alternative. In some
cases, we provide cash relocation assistance to the borrower, while allowing the
borrower to exit the home in an orderly manner. We offer the following types of
foreclosure alternatives:
n   Short sale - The borrower sells the property for less than the total amount

owed under the terms of the loan. A short sale is preferable to a borrower

because we provide limited relief to the borrower from repaying the entire

amount owed on the loan. A short sale allows Freddie Mac to avoid the costs

we would otherwise incur to complete the foreclosure and subsequently sell

the property.

n Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer

title of the property to us without going through formal foreclosure

proceedings.




The volume of foreclosures moderated in recent periods, primarily due to
generally declining volumes of seriously delinquent loans, the success of our
loan workout programs, and our sales of certain seriously delinquent loans. The
volume of our short sale transactions declined in 2019 compared to 2018,
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 details about our single-family loan workout
activities and foreclosure sales.

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





   Home Retention Actions [[Image Removed: chart-46991572ba8a54778f1a01.jpg]]

                    Foreclosure Alternatives and Foreclosure
             Sales[[Image Removed: chart-4a368737b8165097a49.jpg]]

The tables below contain credit characteristic data on our single-family modified loans. Table 40 - Credit Characteristics of Single-Family Modified Loans


                                       As of December 31, 2019
(Dollars in billions)        UPB       % of Portfolio   CLTV Ratio  SDQ Rate
Loan Modifications              $40.8        2 %            64 %      10.59 %

                                       As of December 31, 2018
(Dollars in billions)        UPB       % of Portfolio   CLTV Ratio  SDQ Rate
Loan Modifications              $55.4        3 %            68 %       9.16 %


The table below contains information about the payment performance of modified
loans in our single-family credit guarantee portfolio, based on the number of
loans that were current or paid off one year and, if applicable, two years after
modification.
Table 41 - Payment Performance of Single-Family Modified Loans
                                             Quarter of Loan Modification Completion
                         4Q 2018   3Q 2018   2Q 2018  1Q 2018   4Q 2017    3Q 2017    2Q 2017    1Q 2017
Current or paid off
one year after              68 %      76 %      75 %      66 %     63 %       60 %       62 %       62 %
modification:

Current or paid off
two years after            N/A       N/A       N/A       N/A       68         67         64         64
modification:


Servicing Transfers and Sales and Securitization of Certain Seasoned Loans
From time to time, we facilitate the transfer of servicing for certain groups of
loans that are delinquent or are deemed at risk of default to servicers that we
believe have capabilities and resources necessary to improve the loss mitigation
associated with the loans. See Sellers and Servicers in Counterparty Credit Risk
for additional information on these activities.

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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





We pursue sales of seriously delinquent loans when we believe the sale of these
loans provides better economic returns than continuing to hold them. During 2019
and 2018, we completed sales of $0.2 billion and $0.7 billion, respectively, in
UPB of seriously delinquent single-family loans. Of the $18.5 billion in UPB of
single-family loans classified as held-for-sale at December 31, 2019, $4.1
billion related to loans that were seriously delinquent. The FHFA requirements
guiding these transactions, including bidder qualifications, loan modifications,
and performance reporting, are designed to improve borrower outcomes.
Certain seriously delinquent loans may reperform, either on their own or through
modification. In addition to sales of seriously delinquent loans, we sell
certain reperforming loans. Our sales of reperforming loans typically involve
securitization of the loans using our senior subordinate securitization
structures. During 2019 and 2018, we sold $12.9 billion and $9.5 billion,
respectively, in UPB of reperforming loans through these structures. In prior
years, we have securitized reperforming loans using Level 1 Securitization
Products, which may be resecuritized and sold to third parties subsequently.
During 2018, we securitized $1.6 billion in UPB of reperforming loans using this
strategy. We did not execute any such transactions in 2019. Our use of this
strategy has declined over time with our primary strategy now utilizing senior
subordinate securitization structures.
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, determine if repairs will be
performed, determine occupancy status and whether there are legal or other
issues to be addressed, and determine our sale or disposition strategy. When we
sell REO properties, we typically provide an initial period where we consider
offers by owner occupants and entities engaged in community stabilization
activities before offers by investors. We also consider disposition strategies,
such as auctions, as appropriate to improve collateral recoveries and/or when
traditional sales strategies (i.e., marketing via Multiple Listing Service and a
real estate agent) may not be as effective.
The pace and volume of REO acquisitions are 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.
Delays in Foreclosure Process and Average Length of Foreclosure Process
Our serious delinquency rates and credit losses may 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, 2019, loans in states with a judicial foreclosure
process comprised 38% of our single-family credit guarantee portfolio.
The table below presents the length of time our loans have been seriously
delinquent, by jurisdiction type.
Table 42 - Seriously Delinquent Single-Family Loans by Jurisdiction
                                                  As of December 31,
                                  2019                   2018                   2017
Aging, by locality        Loan Count  Percent    Loan Count  Percent    Loan Count  Percent

Judicial states
<= 1 year                     26,063      37 %       27,811      37 %       50,554      44 %
> 1 year and <= 2 years        7,416      11          8,268      11         10,649       9
> 2 years                      5,336       8          6,871       9         10,863       9

Non-judicial states
<= 1 year                     24,997      36         25,675      34         34,850      30
> 1 year and <= 2 years        3,928       5          4,133       6          5,406       5
> 2 years                      1,981       3          2,382       3          3,367       3

Combined
<= 1 year                     51,060      73         53,486      71         85,404      74
> 1 year and <= 2 years       11,344      16         12,401      17         16,055      14
> 2 years                      7,317      11          9,253      12         14,230      12
Total                         69,721     100 %       75,140     100 %      115,689     100 %



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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





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 14% during 2019.
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.
The table below presents average completion times for foreclosures of our
single-family loans.
Table 43 - Average Length of Foreclosure Process for Single-Family Loans
                                       Year Ended December 31,
(Average days)                           2019         2018   2017
Judicial states
Florida                               1,143          1,173  1,069
New Jersey                            1,089          1,343  1,497
New York                              1,765          1,790  1,658
All other judicial states               692            710    704
Judicial states, in aggregate           872            926    907
Non-judicial states, in aggregate       520            530    545
Total                                   730            766    751


As indicated in the table above, the average length of the foreclosure process
for our single-family loans has been trending downward in recent years for some
jurisdictions, particularly in states with a non-judicial foreclosure process,
but it has remained elevated in others, particularly in states with a judicial
foreclosure process, such as Florida and New York.
Our REO inventory continued to decline in 2019 primarily due to a decrease
in REO acquisitions driven by the improved credit quality of our portfolio,
effective loss mitigation strategies, effective and innovative REO disposition
strategies, 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 may slow as a large portion
of newly acquired REO properties are older, lower value, and more geographically
disbursed, thus creating additional challenges in marketing and selling them. In
addition, legal-related delays (i.e., redemption periods, litigations, and
eviction procedures) continue to result in extended holding periods.
The table below shows our single-family REO activity.
Table 44 - Single-Family REO Activity
                                                                   Year Ended December 31,
                                                  2019                      2018                       2017
                                           Number of                 Number of                 Number of
(Dollars in millions)                     Properties    Amount      Properties    Amount      Properties     Amount
Beginning balance - REO                      7,100        $780         8,299        $900        11,418       $1,215
Additions                                    7,910         786        10,442       1,012        12,240        1,191
Dispositions                               (10,021 )    (1,001 )     (11,641 )    (1,132 )     (15,359 )     (1,506 )
Ending balance - REO                         4,989         565         7,100         780         8,299          900
Beginning balance, valuation allowance                     (11 )                     (14 )                      (17 )
Change in valuation allowance                                1                         3                          3
Ending balance, valuation allowance                        (10 )                     (11 )                      (14 )
Ending balance - REO, net                                 $555                      $769                       $886



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Management's Discussion and Analysis Risk Management | Single-Family Mortgage Credit Risk





Severity Ratios
Severity ratios are the percentages of our realized losses when loans are
resolved by the completion of REO dispositions and third-party foreclosure sales
or short sales. Severity ratios are calculated as the amount of our recognized
losses divided by the aggregate UPB of the related loans. The amount of
recognized losses is equal to the amount by which the UPB of the loans exceeds
the amount of sales proceeds from disposition of the properties, net of
capitalized repair and selling expenses, if applicable. Loss severity excludes
the cost of funding the loans after they are repurchased from the associated
security pool.
The table below presents single-family severity ratios.
Table 45 - Single-Family Severity Ratios
                                                       Year Ended December 

31,


                                                        2019       2018     

2017

REO dispositions and third-party foreclosure sales 21.7 % 24.2 % 27.2 % Short sales

                                             24.5       26.6    27.7


Our severity ratios declined during 2019 compared to 2018, primarily driven by
home price appreciation as well as effective cost control and disposition
strategies.
REO Property Status
A significant portion of our REO portfolio is unable to be marketed at any given
time because the properties are occupied, involved in legal matters (e.g.,
bankruptcy, litigation, etc.), or subject to a redemption period, which is a
post-foreclosure period during which borrowers may reclaim a foreclosed
property. Redemption periods increase the average holding period of our
inventory by as much as 10% or more. As of December 31, 2019, approximately 27%
of our REO properties were unable to be marketed because the properties were
occupied, located in states with a redemption period or subject to other legal
matters. Another 23% of the properties were being prepared for sale (i.e.,
valued, marketing strategies determined, and repaired). As of December 31, 2019,
approximately 30% of our REO properties were listed and available for sale, and
20% 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 234 days and
244 days for our REO dispositions during 2019 and 2018, respectively.

FREDDIE MAC | 2019 Form 10-K 90

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                                                   Risk Management | 

Multifamily


Management's Discussion and Analysis                        Mortgage Credit Risk




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:
n   Maintaining policies and procedures for new business activity, including

prudent underwriting standards;

n Transferring credit risk to third-party investors; and

n 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 and Fannie
Mae's DUS program. Under this approach, we maintain credit discipline by
completing our own underwriting and credit review for each new loan prior to
issuing a loan purchase commitment, including reviewing third-party appraisals
and performing cash flow analysis. Our underwriting standards focus on the LTV
ratio and DSCR, which estimates a borrower's ability to repay the loan using the
secured property's cash flows, 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.
Consideration is also given to other qualitative factors, such as borrower
experience, the type of loan, location of the property, and the strength of the
local market. Sellers provide certain representations and warranties 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 rare due to our underwriting approach, which is
completed prior to issuance of a loan purchase commitment.
Multifamily loans may be amortizing or interest-only (for the full term or a
portion thereof) and have a fixed or variable rate of interest. Multifamily
loans generally amortize over a thirty-year period, but have shorter contractual
maturity terms than single-family loans, typically ranging from five to ten
years. As a result, most multifamily loans require a balloon payment at
maturity, making a borrower's ability to refinance or pay off the loan at
maturity a key attribute. Some borrowers may be unable to refinance during
periods of rising interest rates or adverse market conditions, increasing the
likelihood of borrower default.
Occasionally, we may take on additional credit risk through the issuance of
certain other securitizations when the loans or bonds underlying the issued
securities are contributed by third parties and are underwritten by us after
(rather than at) origination. Prior to securitization, we are not exposed to the
credit risk of these underlying loans or bonds. However, as we may guarantee
some or all of the securities issued by the trusts used in these transactions,
we effectively assume credit risk equal to the guaranteed UPB. Similar to our
primary securitizations, these other securitizations generally provide for
structural credit enhancements (e.g., subordination or other loss sharing
arrangements) that allocate first loss exposure to third parties.
The table below presents the key risk characteristics of our multifamily new
business activity.
Table 46 - Multifamily New Business Activity Key Risk Characteristics
                                                 Year Ended December 31,
                                                 2019       2018      2017
Weighted average original LTV ratio               68 %       67 %       68 %
Original LTV ratio greater than 80%(1)             2          1          2

Original DSCR less than or equal to 1.10(1) 1 1 1

(1) Shown as a percentage of multifamily new business activity.

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                                                   Risk Management | 

Multifamily


Management's Discussion and Analysis                        Mortgage Credit Risk




Transferring Credit Risk to Third-Party Investors
--------------------------------------------------------------------------------
Types of Credit Enhancements
In connection with the acquisition or securitization of a loan or group of
loans, we may obtain various forms of credit protection that reduce our credit
risk exposure to the underlying mortgage borrower and reduce our required
conservatorship capital. For example, at the time of loan acquisition, we may
obtain recourse and/or indemnification protection from our lenders or sellers.
After acquisition, we primarily reduce our credit risk exposure to the
underlying borrower by using one or more of our securitization products.
The following table summarizes our principal types of credit enhancements. See
Our Business Segments - Multifamily - Business Overview - Products and
Activities for additional information on our securitization and credit risk
transfer products.
Category              Products                                     CRT    

Coverage Type Accounting


                                                                                          Treatment
                      Primary securitization products              Yes      Back-end      Attached
                      Other securitization products:

Subordination • Securitizations of purchased collateral Yes


  Back-end    Attached/Debt
                      • Securitizations of collateral               No      Front-end     Attached
                      contributed by third parties
                      Securitizations in which we issue fully      Yes      Front-end   Freestanding
Lender risk-sharing   guaranteed securities and simultaneously
                      enter into a separate loss sharing
                      agreement.
Insurance/reinsurance MCIP                                         Yes      Back-end    Freestanding
SCR                   SCR notes                                    Yes      Back-end        Debt


Credit Enhancement Coverage for Multifamily Mortgage Portfolio
We report multifamily delinquency rates based on the UPB of loans in our
multifamily mortgage portfolio that are two monthly payments or more past due or
in the process of foreclosure, as reported by our servicers. Loans that have
been modified (or are subject to forbearance agreements) are not counted as
delinquent as long as the borrower is less than two monthly payments past due
under the modified (or forbearance) terms.
The table below shows the delinquency rates for both credit-enhanced and
non-credit-enhanced loans in our multifamily mortgage portfolio.
Table 47 - Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our
Multifamily Mortgage Portfolio
                                                                                             As of December 31,
                                             2019                                             2018                                              2017
(Dollars in billions)      UPB      % of Portfolio   Delinquency Rate        UPB      % of Portfolio   Delinquency Rate        UPB      % of Portfolio   Delinquency Rate
Credit-enhanced           $267.0            89 %             0.09 %         $234.9            87 %             0.01 %         $198.1            82 %             0.01 %
Non-credit-enhanced         33.1            11                  -             36.6            13                  -             42.6            18               0.06
Total                     $300.1           100 %             0.08 %         $271.5           100 %             0.01 %         $240.7           100 %             0.02 %


Our securitizations remain our principal risk transfer mechanism. Through
securitizations, we have transferred a large majority of the expected and stress
credit risk on the multifamily guarantee portfolio, thereby reducing our overall
credit risk exposure and required conservatorship capital. Since 2009, we have
transferred a portion of the credit risk related to $389.6 billion in UPB of
multifamily loans through our securitizations, primarily K Certificates and SB
Certificates, and other credit risk transfer products.
The following table provides information on the level of subordination on our
securitizations.
Table 48 - Level of Subordination on Our Securitizations
                                                     As of December 31,
                                             2019                          2018
(Dollars in billions)               UPB     Delinquency Rate      UPB     Delinquency Rate
Subordination level at issuance
No subordination                     $9.3              - %         $7.7              - %
Less than 10%                         1.2              -            3.1              -
Greater than 10%                    249.8           0.09          216.1           0.01
Total                              $260.3           0.09 %       $226.9           0.01 %



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                                                   Risk Management | 

Multifamily


Management's Discussion and Analysis                        Mortgage Credit Risk




The average remaining level of subordination on our outstanding primary
securitizations was 14% at both December 31, 2019 and December 31, 2018,
respectively. Since we began issuing our primary securitizations, we have not
experienced credit losses associated with our guarantees on these securities.
In addition to the credit enhancements listed above, we have various other
credit enhancements related to our multifamily unsecuritized loans,
securitizations, and other mortgage-related guarantees, in the form of
collateral posting requirements, pool insurance, bond insurance, loss sharing
agreements, and other similar arrangements, that along with the proceeds
received from the sale of the underlying mortgage collateral, are designed to
enable us to recover all or a portion of our losses on our mortgage loans or the
amounts paid under our financial guarantee contracts. Our historical losses paid
under our guarantee contracts and related recoveries pursuant to these
agreements have not been significant. See Note 6 for more information on the
total current and protected UPB of our multifamily mortgage portfolio that is
credit-enhanced and the associated maximum coverage.
We continue to develop other strategies to reduce our credit risk exposure to
multifamily loans and securities. See Our Business Segments - Multifamily -
Business Overview - Products and Activities - Securitization and Guarantee
Products for additional information.
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 single-family servicers. We
typically transfer the role of master servicer in our K Certificate transactions
to third parties, while retaining that role in our SB Certificate transactions.
Servicers for unsecuritized loans over $1 million must generally provide us with
an assessment of the mortgaged property at least annually based on the
servicer's analysis of the property as well as the borrower's financial
statements. In situations where a borrower or property is in distress, the
frequency of communications with the borrower may be increased. We rate
servicing performance on a regular basis, and we may conduct on-site reviews to
confirm compliance with our standards.
Our primary credit risk exposure 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 than loans we hold for investment and are
generally covered by general seller representations and warranties. For
unsecuritized loans, we may offer a workout option to give the borrower an
opportunity to bring the loan current and retain ownership of the property, such
as providing a short-term extension of up to 12 months. These arrangements are
entered into with the expectation that we will recover our initial investment or
minimize our losses. We do not enter into these arrangements in situations where
we believe we would experience a loss in the future that is greater than or
equal to the loss we would experience if we foreclosed on the property at the
time of the agreement. Our multifamily loan modification and other workout
activities have been minimal in the last three years.

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                                                   Risk Management | 

Multifamily


Management's Discussion and Analysis                        Mortgage Credit Risk




The table below presents information about the composition and delinquency rates
of the multifamily mortgage portfolio.
Table 49 - Multifamily Mortgage Portfolio Attributes
                                                            As of December 31,
                                                  2019                               2018
(Dollars in billions)                    UPB       Delinquency Rate         UPB       Delinquency Rate
Unsecuritized loans                       $29.8            0.01 %            $34.8            0.01 %
Securitization-related products           260.3            0.09              226.9            0.01
Other mortgage-related guarantees          10.0            0.09                9.8               -
Total                                    $300.1            0.08 %           $271.5            0.01 %

Unsecuritized HFI loans
Original LTV ratio
Below 75%                                  $7.7               - %             $7.1               - %
75% to 80%                                  2.5               -                3.0               -
Above 80%                                   0.6               -                0.7               -
Total                                     $10.8               - %            $10.8               - %
Weighted average LTV ratio at                68 %                               69 %
origination
Maturity dates
2019                                        N/A             N/A               $1.7               - %
2020                                       $1.2               - %              1.5               -
2021                                        1.1               -                1.8               -
2022                                        1.0               -                1.4               -
2023                                        0.8               -                1.1               -
Thereafter                                  6.7               -                3.3               -
Total                                     $10.8               - %            $10.8               - %


REO Activity
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, 2019, we had no REO properties.
Credit Losses and Allowance for Credit Losses
Our multifamily credit losses remain low due to the strong property performance
of our multifamily mortgage portfolio. See Note 4 for additional information
regarding multifamily credit losses and allowance for credit losses.

FREDDIE MAC | 2019 Form 10-K 94

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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk





Counterparty Credit Risk
--------------------------------------------------------------------------------
We are exposed to counterparty credit risk, which is a type of institutional
credit risk, as a result of our contracts with sellers and servicers, credit
enhancement providers (mortgage insurers, investors, etc.), financial
intermediaries, clearinghouses, and other counterparties. We manage our exposure
to counterparty credit risk using the following principal strategies:
n Maintaining eligibility standards;


n Evaluating creditworthiness and monitoring performance; and

n 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 underwriting and servicing standards for our sellers and servicers to
follow and have contractual arrangements with them under which they represent
and warrant that the loans they sell to us meet our standards and that they will
service loans in accordance with our standards. If we discover that the
representations or warranties related to a loan were breached (i.e., that
contractual standards were not followed), we can exercise certain contractual
remedies to mitigate our actual or potential credit losses. If our sellers or
servicers lack appropriate controls, experience a failure in their controls, or
experience an operating disruption, including as a result of financial pressure,
legal or regulatory actions or ratings downgrades, we could experience a decline
in mortgage servicing quality and/or be less likely to recover losses through
lender repurchases, recourse agreements, or other credit enhancements, where
applicable.
In our multifamily business, we are exposed to the risk that multifamily sellers
and servicers could come under financial pressure, which could potentially cause
degradation in the quality of the servicing they provide us, including their
monitoring of each property's financial performance and physical condition. This
could also, in certain cases, reduce the likelihood that we could recover losses
through lender repurchases, recourse agreements, or other credit enhancements,
where applicable. This risk primarily relates to multifamily loans that we hold
on our consolidated balance sheets where we retain all of the related credit
risk.
In addition, our single-family guarantee and multifamily businesses are exposed
to settlement risk on the non-performance of sellers and servicers as a result
of our forward settlement loan purchase programs. For additional details, see
the Financial Intermediaries, Clearinghouses, and Other Counterparties - Other
Counterparties - Forward Settlement Counterparties section below.
Maintaining Eligibility Standards
Our eligibility standards for sellers and servicers require the following: a
demonstrated operating history in residential mortgage origination and
servicing, or an eligible agent acceptable to us; adequate insurance coverage; a
quality control program that meets our standards; and sufficient net worth,
capital, liquidity, and funding sources.
Evaluating Counterparty Creditworthiness and Monitoring Performance
We perform ongoing monitoring and review of our exposure to individual sellers
or servicers in accordance with our institutional credit risk management
framework, including requiring our counterparties to provide regular financial
reporting to us. We also monitor and rate our sellers and servicers' compliance
with our standards and periodically review their operational processes. We may
disqualify or suspend a seller or servicer with or without cause at any time.
Once a seller or servicer is disqualified or suspended, we no longer purchase
loans originated by that counterparty and generally no longer allow that
counterparty to service loans for us, while seeking to transfer servicing of
existing portfolios.
As discussed in more detail in Our Business Segments, we acquire a significant
portion of both our single-family and multifamily loan purchase volume from
several large lenders, and a large percentage of our loans are also serviced by
several large servicers.
We have significant exposure to non-depository and smaller depository financial
institutions in our single-family business. These institutions may not have the
same financial strength or operational capacity, or be subject to the same level
of regulatory oversight, as large depository institutions.
Although our business with our single-family loan sellers is concentrated, a
number of our largest single-family loan seller counterparties reduced or
eliminated their purchases of loans from mortgage brokers and correspondent
lenders in recent

FREDDIE MAC | 2019 Form 10-K 95

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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk





years. As a result, we acquire a greater portion of our single-family business
volume directly from non-depository and smaller depository financial
institutions.
Since the financial crisis, there has been a shift in our single-family
servicing from depository institutions to non-depository institutions. Some of
these non-depository institutions have grown rapidly in recent years and now
service a large share of our loans. The table below summarizes the concentration
of non-depository servicers of our single-family credit guarantee portfolio.
Table 50 - Single-Family Credit Guarantee Portfolio Non-Depository Servicers
                                                           As of December 31,
                                             2019                                       2018
                                                    % of Serious                              % of Serious
                                                     Delinquent                                Delinquent
                                                   Single-Family                             Single-Family
                             % of Portfolio(1)         Loans            % of Portfolio(1)        Loans
Top five non-depository
servicers                             18 %                 13 %                  16 %                17 %
Other non-depository
servicers                             20                   55                    20                  40
Total                                 38 %                 68 %                  36 %                57 %


(1)  Excludes loans where we do not exercise control over the associated
     servicing.


Working with Underperforming Counterparties and Limiting Our Losses from Their
Nonperformance of Obligations, When Possible
We actively manage the current quality of loan originations of our largest
single-family sellers by performing loan quality control sampling reviews and
communicating loan defect rates and the causes of those defects to such sellers
on a monthly basis. If necessary, we work with these sellers to develop an
appropriate plan of corrective action.
We use a variety of tools and techniques to engage our single-family sellers and
servicers and limit our losses, including the following:
n   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, and/or suspend or terminate the selling and

servicing relationship. We typically first issue a notice of defect and allow


    a period of time to correct the problem prior to issuing a repurchase
    request. The UPB of loans subject to repurchase requests issued to our
    single-family sellers and servicers was $0.3 billion and $0.4 billion at
    December 31, 2019 and December 31, 2018, respectively. See Note 14 for
    additional information about loans subject to repurchase requests.

n 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.


n   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.




Credit Enhancement Providers
--------------------------------------------------------------------------------
Overview
We have exposure to credit enhancement providers through credit enhancements we
obtain on single-family loans. If any of our credit enhancement providers fail
to fulfill their obligations, we may not receive reimbursement for credit losses
to which we are contractually entitled pursuant to our credit enhancements.
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 generally 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.
As part of our insurance/reinsurance CRT 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 and reinsurers, including the
following:
n   In each transaction, we require the individual insurers and reinsurers to

post collateral to cover portions of their exposure, which helps to promote

certainty and timeliness of claim payment and

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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk

n 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 insurers and reinsurers

generally participate in multiple types of insurance businesses, which helps

to diversify their risk exposure.




Maintaining Eligibility Standards
We maintain eligibility standards for mortgage insurers and other insurers and
reinsurers. Our eligibility requirements include financial requirements
determined using a risk-based framework and were designed to promote the ability
of mortgage insurers to fulfill their intended role of providing consistent
liquidity throughout the mortgage cycle. Our mortgage insurers are required to
submit audited financial information and certify compliance with the Private
Mortgage Insurer Eligibility Requirements on an annual basis.
Evaluating Counterparty Creditworthiness 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. Monitoring performance and potentially identifying underperformance
allows us to plan for loss mitigation.
The table below summarizes our exposure to single-family mortgage insurers as of
December 31, 2019. In the event a mortgage insurer fails to perform, the
coverage amounts represent our maximum exposure to credit losses resulting from
such a failure.
Table 51 - Single-Family Mortgage Insurers
                                                                       As of December 31, 2019
                                                     Credit Rating
(In millions)                       Credit Rating(1)  Outlook(1)          UPB        Coverage
Arch Mortgage Insurance Company     A-               Stable              $93,440       $23,956
Radian Guaranty Inc. (Radian)       BBB+             Stable               84,434        21,397
Mortgage Guaranty Insurance
Corporation (MGIC)                  BBB+             Stable               73,371        18,845
Genworth Mortgage Insurance
Corporation                         BB+              Watch Dev            63,071        16,139
Essent Guaranty, Inc.               BBB+             Stable               63,865        16,260
National Mortgage Insurance (NMI)   BBB              Stable               37,147         9,476
PMI Mortgage Insurance Co. (PMI)    Not Rated        N/A                   2,889           723
Republic Mortgage Insurance
Company (RMIC)                      Not Rated        N/A                   2,156           536
Triad Guaranty Insurance
Corporation (Triad)                 Not Rated        N/A                   1,241           312
Others                              N/A              N/A                     256            46
Total                                                                   $421,870      $107,690

(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, 2019. Represents the lower of S&P and Moody's

credit ratings and outlooks stated in terms of the S&P equivalent.




The majority of our mortgage insurance exposure is concentrated with five
mortgage insurers. Although the financial condition of our mortgage insurers
improved in recent years, there is still a risk that some of these
counterparties may fail to fully meet their obligations under a stress economic
scenario since they are monoline entities primarily exposed to mortgage credit
risk.
On October 23, 2016, Genworth Financial, Inc. announced that it had entered into
an agreement to be acquired by China Oceanwide Holdings Group Co., Ltd. Because
Genworth Mortgage Insurance Corporation, a subsidiary of Genworth Financial,
Inc., is an approved mortgage insurer, Freddie Mac evaluated the planned
acquisition and approved China Oceanwide Holdings Group's control of Genworth
Mortgage Insurance Corporation. In January 2020, Freddie Mac reapproved the
acquisition. Regulatory and other approvals of the acquisition are still
pending. For more information about counterparty credit risk associated with
mortgage insurers, see Note 14.
PMI and Triad are both under the control of their state regulators and no longer
issue new insurance. Both of these insurers pay a substantial portion of their
claims as deferred payment obligations. RMIC is under regulatory supervision and
is no longer issuing new insurance; however, it continues to pay its claims in
cash.
If, as we currently expect, PMI and Triad do not pay the full amount of their
deferred payment obligations in cash, we would lose a portion of the coverage
from these insurers shown in the table above. As of December 31, 2019, we had
cumulative unpaid deferred payment obligations of $0.5 billion from these
insurers. We have reserved substantially 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.

FREDDIE MAC | 2019 Form 10-K   97

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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk





Single Security Initiative
--------------------------------------------------------------------------------
The Single Security Initiative has increased our counterparty credit risk
exposure to Fannie Mae. With the implementation of the Single Security
Initiative, we now have the ability to commingle TBA-eligible Fannie Mae
collateral in certain of our resecuritization products. When we resecuritize
Fannie Mae securities in our commingled resecuritization products, our guarantee
covers timely payments of principal and interest on such securities. If Fannie
Mae were to fail to make a payment on a Fannie Mae security that we
resecuritized, we would be responsible for making the payment to the securities
holders. Our pricing does not currently reflect any incremental credit,
liquidity, or operational risk associated with our guarantee of resecuritized
Fannie Mae securities. We will be dependent on FHFA, Fannie Mae, and Treasury
(pursuant to Fannie Mae's and our respective 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.
For additional information on the Single Security Initiative and the associated
risks, see MD&A - Our Business Segments - Single-Family Guarantee and Risk
Factors.
Financial Intermediaries, Clearinghouses, and Other Counterparties
--------------------------------------------------------------------------------
Derivative Counterparties
We use cleared derivatives, exchange-traded derivatives, OTC derivatives, and
forward sales and purchase commitments to mitigate risk, and are exposed to the
non-performance of each of the related financial intermediaries and
clearinghouses. The Capital Markets segment manages this risk for the company.
Our financial intermediaries and clearinghouse credit exposure relates
principally to interest-rate derivative contracts. We maintain internal
standards for approving new derivative counterparties, clearinghouses, and
clearing members.
n   Cleared derivatives - Cleared derivatives expose us to counterparty credit

risk of central clearinghouses and our clearing members. Our exposure to the

clearinghouses we use to clear interest-rate derivatives has increased and

may become more concentrated over time. The use of cleared derivatives

mitigates our counterparty credit risk exposure to individual counterparties

because a central counterparty is substituted for individual counterparties,

and changes in the value of open contracts are settled daily via payments

made through the clearinghouse. We are required to post initial and variation

margin to the clearinghouses. 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. Our


    obligation to post margin may increase as a result of the lowering or
    withdrawal of our credit rating by S&P or Moody's or by changes in the
    potential future exposure generated by the derivative transactions.


n   Exchange-traded derivatives - Exchange-traded derivatives expose us to
    counterparty credit risk of the central clearinghouses and our clearing
    members. We are required to post initial and variation margin with our

clearing members in connection with exchange-traded derivatives. The use of

exchange-traded derivatives mitigates our counterparty credit risk exposure

to individual counterparties because a central counterparty is substituted

for individual counterparties, and changes in the value of open

exchange-traded derivatives are settled daily via payments made through the

financial clearinghouse.

n OTC derivatives - OTC derivatives expose us to counterparty credit risk of

individual counterparties, because these transactions are executed and

settled directly between us and each counterparty, exposing us to potential

losses if a counterparty fails to meet its contractual obligations. When a

counterparty in OTC derivatives that is subject to a master netting agreement

has a net obligation to us with a market value above an agreed upon

threshold, if any, the counterparty is obligated to deliver collateral in the

form of cash, securities, or a combination of both to satisfy its obligation

to us under the master netting agreement. Our OTC derivatives also require us

to post collateral to counterparties in accordance with agreed upon

thresholds, if any, when we are in a derivative liability position. 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 or our counterparty's credit rating

by S&P or Moody's may increase our or our counterparty's obligation to post

collateral, depending on the amount of the counterparty's exposure to Freddie

Mac with respect to the derivative transactions. Only OTC derivatives

transactions executed prior to March 1, 2017 are subject to collateral

posting thresholds. Based upon regulations that took effect March 1, 2017,

OTC derivative transactions executed or materially amended after that date


    require posting of variation margin without the application of any
    thresholds. Our OTC derivative transactions will become subject to new
    initial margin requirements on September 1, 2020.



FREDDIE MAC | 2019 Form 10-K   98


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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk





Evaluating Counterparty Creditworthiness and Monitoring Performance
Over time, our exposure to derivative counterparties varies depending on changes
in fair values, which are affected by changes in interest rates and other
factors. Due to risk limits with certain counterparties, we may be forced to
execute transactions with lower returns with other counterparties when managing
our interest-rate risk. We manage our exposure through master netting and
collateral agreements and stress-testing to evaluate potential exposure under
possible adverse market scenarios. Collateral is typically transferred within
one business day based on the values of the related derivatives. We regularly
review the market values of the securities pledged to us as non-cash collateral,
primarily agency and U.S. Treasury securities, to manage our exposure to loss.
We conduct additional reviews of our exposure when market conditions dictate or
certain events affecting an individual counterparty occur. When non-cash
collateral is posted to us, we require collateral in excess of our exposure to
satisfy the net obligation to us in accordance with the counterparty agreement.
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 cannot be liquidated at prices that are sufficient to recover the
amount of such exposure.
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.
Table 52 - Derivative Counterparty Credit Exposure
                                                             As of December 31, 2019
                                                                                    Fair Value - Gain
                                              Number of          Fair Value -       positions, net of
(Dollars in millions)                       Counterparties      Gain positions          collateral
OTC interest-rate swap and swaption
counterparties (by rating)
AA- or above                                            2                    $17                   $9
A+, A, or A-                                           12                  2,563                   11
BBB+, BBB, or BBB-                                      -                      -                    -
Total OTC                                              14                  2,580                   20
Cleared and exchange-traded derivatives                 2                    139                  262
Total                                                  16                 $2,719                 $282



Approximately 99% 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, 2019. The remaining exposure was
primarily due to market movements between the measurement of a derivative at
fair value and our receipt of the related collateral, as well as exposure
amounts below the then applicable counterparty collateral posting threshold, if
any. The concentration of our derivative exposure among our primary OTC
derivative counterparties remains high and could further increase.
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:
n   Other investments - We are exposed to the non-performance of institutions

relating to other investments (including non-mortgage-related securities and


    cash and cash equivalents) transactions, including those entered into on
    behalf of our securitization trusts. Our policies require that the
    institution be evaluated using our internal rating model prior to our

entering into such transactions. We monitor the financial strength of these

institutions and may use collateral maintenance requirements to manage our

exposure to individual counterparties.




The major financial institutions with which we transact regarding our other
investments (including non-mortgage-related securities and cash and cash
equivalents) include other GSEs, Treasury, the Federal Reserve Bank of New York,
GSD/FICC, highly-rated supranational institutions, depository and non-depository
institutions, brokers and dealers, and government money market funds. For more
information on our other investments portfolio, see Liquidity and Capital
Resources.
We utilize the GSD/FICC as a clearinghouse to transact many of our trades
involving securities purchased under agreements to resell, securities sold under
agreements to repurchase, and other non-mortgage related securities. As a
clearing member of GSD/FICC, we are required to post initial and variation
margin payments and are exposed to the counterparty credit risk of GSD/FICC
(including its clearing members). In the event a clearing member fails and
causes losses to the GSD/FICC clearing system, we could be subject to the loss
of the margin that we have posted to the GSD/FICC. Moreover, our exposure could
exceed that amount, as members are generally required to cover losses caused by
defaulting members on a pro rata basis. It is difficult to estimate our maximum
exposure under these transactions, as this

FREDDIE MAC | 2019 Form 10-K 99

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Management's Discussion and Analysis Risk Management | Counterparty Credit Risk





would require an assessment of transactions that we and other members of the
GSD/FICC may execute in the future. We believe that it is unlikely we will have
to make any material payments under these arrangements and the risk of loss is
expected to be remote because of the GSD/FICC's financial safeguards and our
ability to terminate our membership in the clearinghouse (which would limit our
loss).
n   Forward settlement counterparties - We are exposed to the non-performance
    (settlement risk) of counterparties relating to the forward settlement of
    loans and securities (including agency debt, agency RMBS, and cash loan
    purchase program loans). Our policies require that the counterparty be

evaluated using our internal counterparty rating model prior to our entering

into such transactions. We monitor the financial strength of these

counterparties and may use collateral maintenance requirements to manage our

exposure to individual counterparties.




We also execute forward purchase and sale commitments of mortgage-related
securities, including dollar roll transactions, that are treated as derivatives
for accounting purposes and utilize the Mortgage Backed Securities Division of
the Fixed Income Clearing Corporation (MBSD/FICC) as a clearinghouse. As a
clearing member of the clearinghouse, we post margin to the MBSD/FICC and are
exposed to the counterparty credit risk of the organization. In the event a
clearing member fails and causes losses to the MBSD/FICC clearing system, we
could be subject to the loss of the margin that we have posted to the MBSD/FICC.
Moreover, our exposure could exceed the amount of margin we have posted to the
MBSD/FICC, as clearing members are generally required to cover losses caused by
defaulting members on a pro rata basis. It is difficult to estimate our maximum
exposure, as this would require an assessment of transactions that we and other
members of the MBSD/FICC may execute in the future. We believe that it is
unlikely we will have to make any material payments 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, 2019, the gross fair value of
such forward purchase and sale commitments that were in derivative asset
positions was $50 million.
n   Secured lending activities - As part of our other investments portfolio, we

enter into secured lending arrangements to provide financing for certain

Freddie Mac securities and other assets related to our guarantee businesses

in an attempt to improve the market for these assets. These transactions

differ from those we use for liquidity purposes, as the borrowers may not be

major financial institutions, potentially exposing us to the institutional

credit risk of these institutions. We also provide advances to lenders for

mortgage loans that they will subsequently either sell through our cash

purchase program or securitize into securities that they will deliver to us.

In addition, we may invest in other secured lending activities. For

additional information, see Note 14.




Other Market Participants
--------------------------------------------------------------------------------
We have exposure to other market participant counterparties for transactions
that we enter into in the ordinary course of business, including the following:
n   Document custodians - We use third-party document custodians to provide loan

document certification and custody services for the loans that we purchase

and securitize. In many cases, our sellers and servicers or their affiliates

also serve as document custodians for us. Our ownership rights to the loans

that we own or that back our securitization products could be challenged if a

seller or servicer intentionally or negligently pledges, sells, or fails to

obtain a release of prior liens on the loans that we purchased, which could

result in financial losses to us. When a seller or servicer, or one of its

affiliates, acts as a document custodian for us, the risk that our ownership

interest in the loans may be adversely affected is increased, particularly in

the event the seller or servicer were to become insolvent. To manage these

risks, we establish qualifying standards for our document custodians and

maintain legal and contractual arrangements that identify our ownership

interest in the loans. We also monitor the financial strength of our document

custodians on an ongoing basis in accordance with our counterparty credit


    risk management framework, and we require transfer of documents to a
    different third-party document custodian if we have concerns about the
    solvency or competency of the document custodian.

n The MERS® System - The MERS System is an electronic registry that is widely

used by sellers and servicers, Freddie Mac, and other participants in the

mortgage industry to maintain records of beneficial ownership of mortgage

loans. 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.

FREDDIE MAC | 2019 Form 10-K   100

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Management's Discussion and Analysis Risk Management | Operational Risk





Operational Risk
Operational risk is 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 our activities. Operational risk
events include accounting, financial reporting, or operational errors,
technology failures, business interruptions, non-compliance with legal or
regulatory requirements, fraudulent acts, inappropriate acts by employees,
information security incidents, or third parties who do not perform in
accordance with their contracts. These operational risk events could result in
financial loss, legal actions, regulatory fines, and reputational harm.
Operational Risk Management and Risk Profile
--------------------------------------------------------------------------------
Our operational risk management methodology includes risk identification,
measurement, monitoring, controlling, and reporting. When operational risk
events are identified, our policies require that the events be documented and
analyzed to determine whether changes are required in our systems, people,
and/or processes to mitigate the risk of future events.
In order to evaluate and monitor the risks associated with business processes,
each business line periodically completes an assessment using the RCSA
methodology. The methodology is designed to identify and assess the business
line's exposure to operational risk and determine if action is required to
manage the risk to an acceptable level.
In addition to the RCSA process, we employ several tools to identify, measure,
and monitor operational risks, including loss event data, key risk indicators,
root cause analysis, and testing. Our operational risk methodology requires that
the primary responsibility for managing both the day-to-day risk and longer-term
or emerging risks lies with the business lines, with independent oversight
performed by the second line of defense.
We continue to face heightened operational risk and expect the risk to remain
elevated for the near term. This elevated risk profile is due to the layering
impact of several factors including: legacy systems requiring upgrade for
operational resiliency; reliance on manual processes and models; volume and
complexity of business initiatives, including the UMBS and new initiatives we
are pursuing as required by the Conservatorship Scorecards; external events such
as cybersecurity threats and third-party failures; and issues requiring
remediation. Other factors contributing to our heightened operational risk are
discussed in Risk Factors - Operational Risks. We also continue to manage other
operational risks, such as compliance risk.
While our operational risk profile remains elevated, we are continuing to
strengthen our operational control environment by building out our operational
risk resources within the first line of defense and ERM.
Business Resiliency Risk
--------------------------------------------------------------------------------
We continue to enhance our business resiliency capabilities for mission critical
systems and processes. Freddie Mac has established business resiliency policies
and standards to strengthen enterprise-wide risk reduction activities, program
execution, and program maturity. Program enhancements include geographical
redundancies, expanded use of a third-party cloud platform for our business
applications, as well as continuous technological transformation to achieve
recovery of critical business functions and supporting assets in the event of a
business disruption.
Internal Processes and New Initiatives
--------------------------------------------------------------------------------
We periodically make improvements to the design of our processes for business
lines with increased business volumes and complexity of transactions to achieve
effectiveness and efficiency in our operations. New initiatives that pose
significant risks to the company are subject to additional evaluation,
documentation, reporting, review, and approvals (including by the second line),
prior to execution.
Common Securitization Platform
--------------------------------------------------------------------------------
We continue to make various multi-year investments to build and support the
infrastructure for a better housing finance system, including the development of
the CSP by CSS (jointly owned by Freddie Mac and Fannie Mae) and the UMBS.
Regarding the CSP, 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.
In January 2020, FHFA directed Freddie Mac and Fannie Mae to amend the CSS LLC
agreement to change the structure of the CSS Board. These changes reduce Freddie
Mac's and Fannie Mae's ability to control CSS Board decisions, even after
conservatorship, including decisions about strategy, business operations, and
funding. During conservatorship, FHFA will designate a CSS Board Chair that must
affirmatively vote for all decisions of the CSS Board in order for the decisions
to become effective, and FHFA also may appoint up to three additional
independent members to the CSS Board, who along with

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the Board Chair and the Chief Executive Officer of CSS may continue to serve on
the CSS Board after conservatorship. FHFA appointed a new CSS Board member to
serve as Chair in January 2020. If FHFA appoints three additional CSS Board
members, the four members appointed by Freddie Mac and Fannie Mae will
constitute a minority of the CSS Board. During conservatorship, the CSS Board
members we and Fannie Mae appoint could be outvoted by non-GSE designated Board
members on any matter, and if either we or Fannie Mae exits conservatorship, the
GSE-appointed members could be outvoted on a number of significant actions,
including approval of the annual budget and strategic plan for CSS, so long as
it does not involve material decisions, such as a material change in CSS's
functionality or capital contributions beyond those necessary to support CSS's
ordinary business operations. For additional information on the changes in the
structure of CSS and CSS-related risks, see Introduction - About Freddie Mac -
Common Securitization Platform and UMBS and Risk Factors - Conservatorship and
Related Matters - FHFA, as our Conservator, controls our business activities. We
may be required to take actions that reduce our profitability, are difficult to
implement, or expose us to additional risk.
Following the implementation of CSP Release 2 in June 2019, Freddie Mac, Fannie
Mae, FHFA, and CSS continue to work together to monitor the operational
effectiveness of the platform.
For additional information, see Risk Factors - Operational Risks - A failure in
our operational systems or infrastructure, or those of third parties, could
impair our liquidity, disrupt our business, damage our reputation, and cause
losses.
Cybersecurity Risk
--------------------------------------------------------------------------------
Our operations rely on the secure, accurate and timely receipt, processing,
storage, and transmission of confidential and other information in our systems
and networks and with customers, counterparties, service providers, and
financial institutions. Information risks for companies like ours have increased
significantly in recent years. Like many companies and government entities, from
time to time we have been, and likely will continue to be, the target of
attempted cyberattacks and other information security threats.
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 systems, networks, and other technology assets against unauthorized attempts
to access confidential information or to disrupt or degrade our business
operations. We have obtained insurance coverage relating to cybersecurity risks.
However, this insurance may not be sufficient to provide adequate loss
coverage. Although to date we have not experienced any cyberattacks resulting in
significant impact to the company, there is no assurance that our cybersecurity
risk management program will prevent cyberattacks from having significant
impacts in the future.
For additional information, see Risk Factors - Operational Risks - Potential
cybersecurity threats are changing rapidly and growing in sophistication. We may
not be able to protect our systems or the confidentiality of our information
from cyberattack and other unauthorized access, disclosure, and disruption.

Third-Party Risk
--------------------------------------------------------------------------------
We continue to enhance our third-party risk management program in order to
effectively manage risks that could manifest with the use of third parties to
support business processes. Third parties overseen within the program include
suppliers, seller/servicers, and other counterparties. The third-party risk
management program provides oversight and governance throughout the third party
life cycle including risk assessment, due diligence, contract negotiations,
on-going monitoring, and termination of third parties.
Model Risk
--------------------------------------------------------------------------------
Model risk is the potential for adverse consequences from model errors or
decisions based on incorrect or misused model outputs. Our business activities
significantly rely on the use of models. We use a variety of models to inform
management decisions related to our businesses. These include models that
forecast significant factors such as interest rates, mortgage rates, and house
prices, as well as models that project future cash flows related to borrower
prepayment and default behavior.
Model development, changes to existing models, and model risks are managed in
each business line 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. ERM independently validates the work done by the business lines
(e.g., conducting independent assessments of ongoing monitoring results, model
risk ratings, performance monitoring, and reporting against thresholds and
alerts).
Given the importance and complexity of models in our business, model development
may take significant time to complete. Delays in our model development process
could affect our ability to make sound business and risk management decisions,
and increase our exposure to risk. We have procedures designed to mitigate this
risk.
In 2019, we concluded work on the following items:

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n New Model Risk Standard with enhanced governance protocols;

n Formalized model key risk indicators with an associated model risk appetite;

and

n Design completion of a peer review process serving as a secondary control

within the model risk function.




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.
Compliance Risk
--------------------------------------------------------------------------------
We have established and continue to enhance our legal and compliance risk
management program in order to effectively manage the risk of non-compliance
with legal and regulatory requirements. This program leverages the three lines
of defense enterprise risk framework for managing operational risks. It entails,
among other things, identifying applicable legal and regulatory requirements as
well as any changes to these requirements, educating employees on new and
existing legal and regulatory requirements applicable to their areas of
responsibility, and evaluating business processes and controls in light of
applicable legal obligations and related compliance risks.
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, 2019.
As of December 31, 2019, 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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Management's Discussion and Analysis Risk Management | Market Risk





Market Risk
Overview
--------------------------------------------------------------------------------
Our business segments have embedded exposure to market risk, which is the
economic risk associated with adverse changes in interest rates, volatility, and
spreads. Interest-rate risk is consolidated and primarily managed by the Capital
Markets segment, while spread risk is owned and managed by each individual
business segment. Market risk can adversely affect future cash flows, or
economic value, as well as earnings and net worth.
The majority of our interest-rate risk comes from our investments in
mortgage-related assets (securities and loans), the debt we issue to fund our
assets, and upfront fees (including buy-downs) related to our single-family
credit guarantee activity. Typically, an existing loan or bond investment is
worth less to an investor when interest rates (yields) rise and worth more when
they decline. In addition, for a majority of our single-family mortgage-related
assets, the borrower has the option to make unscheduled principal payments at
any time before maturity without incurring a prepayment penalty. Thus, our
mortgage-related asset portfolio is also exposed to uncertainty as to when
borrowers will exercise their option and pay the outstanding principal balance
of their loans. We face similar (and in most cases directionally opposite)
exposure related to unsecured debt. Unsecured debt is typically worth less to an
investor when interest rates (yields) rise and worth more when they decline. In
addition, we issue debt with embedded options, such as an option to call, which
provides us flexibility concerning the timing of our debt maturities.
Another source of interest-rate risk comes from upfront fees (including
buy-downs) related to our single-family credit guarantee activity. These fees
are cash we receive at loan acquisition as compensation for our guarantee, which
also typically includes a contractual monthly fee paid as a percentage of the
UPB of the underlying loan. Determining the amount of the upfront fees we charge
requires us to estimate loan prepayment activity, which varies based on
estimates of future interest rates. From an interest-rate risk standpoint,
receiving upfront fees increases risk as the actual prepayment rate of the loans
we purchase may be different than our original estimates and may vary based on
changes in interest rates. As interest rates decrease, loans typically prepay
more quickly, resulting in accelerated recognition of upfront fees in earnings
and a higher annualized rate of income. The opposite occurs as interest rates
increase, resulting in slower recognition of upfront fees in earnings and a
lower annualized rate of income. We incorporate upfront fees in our
interest-rate risk metrics by assuming upfront fees are equivalent to the sale
of an interest-only security, allowing for modeling and aggregation of the
interest-rate exposure of upfront fees with the rest of our interest-rate
exposures.
We actively manage our economic exposure to interest rate fluctuations. Our
primary goal in managing interest-rate risk is to reduce the amount of change in
the value of our future cash flows due to future changes in interest rates. We
use models to analyze possible future interest-rate scenarios, along with the
cash flows of our assets and liabilities over those scenarios.
Management of Market Risk
--------------------------------------------------------------------------------
We employ risk management practices that seek to maintain certain interest-rate
characteristics of our assets and liabilities within our risk limits through a
number of different strategies, including:
n   Asset selection and structuring, such as acquiring or structuring
    mortgage-related securities with certain expected prepayment and other
    characteristics;

n Issuance of both callable and non-callable unsecured debt; and

n Use of interest-rate derivatives, including swaps, swaptions, and futures.




Our use of derivatives is an important part of our strategy to manage
interest-rate risk. When deciding to use derivatives to mitigate our exposures,
we consider a number of factors, including cost, exposure to counterparty credit
risks, and our overall risk management strategy. See Risk Management -
Counterparty Credit Risk and Risk Factors for more discussion of our market risk
exposures, including those related to derivatives, institutional counterparties,
and other market risks.
Although we have limited ability to manage spread risk, we employ the following
strategies:
n Limiting the size of our assets that are exposed to spread risk;


n Using short-TBA positions to hedge certain assets, primarily loans acquired

through our cash loan purchase program that are awaiting securitization and


    portions of our agency mortgage-related securities portfolio; and


n   Entering into certain spread-related derivatives to offset our spread
    exposures.


Interest-Rate Risk
--------------------------------------------------------------------------------
Interest-rate risk is the economic risk related to adverse changes in the level
or volatility of interest rates. A change in the level of interest rates
(represented by a parallel shift of the yield curve, all else constant) exposes
our assets and liabilities to risk,

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Management's Discussion and Analysis Risk Management | Market Risk





potentially affecting expected future cash flows and their present values. This
is reflected in our PVS-L and duration gap disclosures. Similarly, changes in
the shape or slope of the yield curve (often reflecting changes in the market's
expectation of future interest rates) expose our assets and liabilities to risk,
potentially affecting expected future cash flows and their present values. This
is reflected in our PVS-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.
In 1Q 2019, we changed the name of the Portfolio Market Value Sensitivity (PMVS)
metrics to Portfolio Value Sensitivity (PVS). We removed "market" from these
metrics as we economically hedge the present value of cash flows, which may not
necessarily be the fair value of an instrument. In the case of upfront fees, we
assume upfront fees are equivalent to the sale of an interest-only security,
allowing for modeling and aggregation of the interest-rate exposure of upfront
fees with the rest of our interest-rate exposures.
Measurement of Interest-Rate Risk
We calculate our exposure to changes in interest rates for our interest rate
sensitive assets and liabilities using effective duration and effective
convexity, based on our models.
n   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.

n Effective convexity measures the change in effective duration for a 100 basis

point change in interest rates. Effective duration is not constant over the

entire yield curve and effective convexity measures how effective duration

changes over large changes in interest rates.




Together, effective duration and effective convexity provide a measure of an
instrument's overall price sensitivity to changes in interest rates. We utilize
the concepts of effective duration and effective convexity in calculating our
primary interest-rate risk measures: duration gap and PVS.
n   Duration gap - The net effective duration of our overall portfolio of

interest-rate sensitive assets and liabilities is expressed in months as our

duration gap. Duration gap measures the difference in price sensitivity to

interest rate changes between our financial assets and liabilities and is

expressed in months relative to the value of assets. For example, assets with

a six-month duration and liabilities with a five-month duration would result

in a positive duration gap of one month.

The table below shows various duration gap measurements and the effects that changes in interest rates would generally have on portfolio value.

Negative Duration Gap Zero Duration Gap Positive Duration Gap Asset Duration < Liability Asset Duration = Liability Asset Duration > Liability


         Duration                    Duration                   Duration


Net portfolio will increase Net portfolio economic     Net portfolio will
in value when interest      value will be unchanged.   increase in value when
rates rise and decrease in  The change in the value of interest rates fall and
value when interest rates   assets from an             decrease in value when
fall.                       instantaneous move in      interest rates rise.
                            interest rates, either up
                            or down, would be expected
                            to be accompanied by an
                            equal and offsetting
                            change in the value of
                            liabilities.


We actively measure and manage our duration gap exposure on a daily basis. In
addition to duration gap management, we also measure and manage the price
sensitivity of our portfolio to a number of different specific interest rate
changes along the yield curve. The price sensitivity of an instrument to
specific changes in interest rates is known as the instrument's key rate
duration risk. By managing our duration exposure both in aggregate through
duration gap and to specific changes in interest rates through key rate
duration, we expect to limit our exposure to interest rate changes for a wide
range of interest rate yield curve scenarios.
n   PVS - PVS is our estimate of the change in the value of our financial assets

and liabilities from an instantaneous shock to interest rates, assuming

spreads are held constant and no rebalancing actions are undertaken. PVS is

measured in two ways, one measuring the estimated sensitivity of our

portfolio's value to a 50 basis point parallel movement in interest rates

(PVS-L) and the other to a nonparallel movement (PVS-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 PVS measures reflect reasonably possible near-term changes that we

believe provide a meaningful measure of our interest-rate risk sensitivity.




To calculate PVS, the interest rate shock is applied to the duration (and
convexity for PVS-L) of all interest-rate sensitive financial instruments. The
resulting change in value for the aggregate portfolio is computed for both the
up rate and down

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rate shock, and whichever produces the more adverse outcome is the PVS. In cases
where both the up rate and down rate shocks result in a positive effect, the PVS
is zero. PVS results are shown on a pre-tax basis.
Interest-Rate Risk Results
The following tables provide our duration gap, estimated point-in-time and
minimum and maximum PVS-L and PVS-YC results, and an average of the daily values
and standard deviation. The tables below also provide PVS-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 began to include upfront fees (including buy-downs) in our interest-rate
metrics in 2Q 2019 as described above. Including upfront fees and related
derivative activities significantly increased the Derivatives PVS-L and PVS-YC
results for December 31, 2019 in the table below, with an offsetting impact in
the Guarantees PVS-L and PVS-YC results. As of December 31, 2019, the inclusion
of upfront fees interest rate risk added a PVS-L (50 basis points), PVS-L (100
basis points) and PVS-YC (25 basis points) equivalent of $1.4 billion, $2.7
billion and $0.4 billion, respectively.
Table 53 - PVS-YC and PVS-L Results Assuming Shifts of the LIBOR Yield Curve
                                    December 31, 2019                       December 31, 2018
                            PVS-YC               PVS-L              PVS-YC               PVS-L
(In millions)               25 bps        50 bps      100 bps       25 bps 

      50 bps      100 bps
Assuming shifts of the
LIBOR yield curve,
(gains) losses on:(1)
Assets:
Investments                   ($307 )      $4,840     $10,011         ($536 )      $5,792     $11,761
Guarantees(2)                  (224 )         351         706            89          (425 )      (773 )
Total Assets                   (531 )       5,191      10,717          (447 )       5,367      10,988
Liabilities                      20        (1,563 )    (3,413 )        (109 )      (1,889 )    (3,948 )
Derivatives                     513        (3,646 )    (7,409 )         560        (3,446 )    (6,917 )
Total                            $2          ($18 )     ($105 )          $4           $32        $123
PVS                              $2            $-          $-            $4           $32        $123


(1)  The categorization of the PVS impact between assets, liabilities, and
     derivatives on this table is based upon the economic characteristics of
     those assets and liabilities, not their accounting classification. For
     example, purchase and sale commitments of mortgage-related securities and
     debt securities of consolidated trusts held by the mortgage-related
     investments portfolio are both categorized as assets on this table.


(2)  Represents the interest-rate risk from our single-family guarantee

portfolio, which includes buy-ups, float, and, beginning in 2Q 2019, upfront

fees (including buy-downs).

Table 54 - Duration Gap and PVS Results


                                                        Year Ended December 31,
                                             2019                                     2018
(Duration gap in months,     Duration     PVS-YC         PVS-L        Duration     PVS-YC         PVS-L
dollars in millions)           Gap        25 bps        50 bps          Gap        25 bps        50 bps
Average                          0.8           $34           $96            -           $11           $15
Minimum                         (0.8 )           -             -         (0.4 )           -             -
Maximum                          8.6           345           950          0.3            31            77
Standard deviation               1.6            72           189          0.1             6            16


The disclosure in our Monthly Volume Summary reports, which are available on our
website www.freddiemac.com/investors/financials/monthly-volume-summaries.html,
reflects the average of the daily PVS-L, PVS-YC, and duration gap estimates for
a given reporting period (a month, a quarter, or a year).
Derivatives enable us to reduce our economic interest-rate risk exposure as we
continue to align our derivative portfolio with the changing duration of our
economically hedged assets and liabilities. The table below shows that the PVS-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.


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Management's Discussion and Analysis Risk Management | Market Risk

Table 55 - PVS-L Results Before Derivatives and After Derivatives


                           PVS-L (50 bps)
                        Before         After         Effect of
(In millions)        Derivatives    Derivatives     Derivatives
December 31, 2019          $3,628            $-        ($3,628 )
December 31, 2018           3,478            32         (3,446 )


In April 2019, we updated our interest-rate risk measures and began
incorporating upfront fees (including buy-downs) related to single-family credit
guarantee activity into our asset and liability interest-rate risk management
strategy and definition. As a result, the PVS-L before derivatives is
significantly higher as of December 31, 2019 than it would have been if we had
not updated our interest-rate risk management strategy and definition to include
upfront fees.
The inclusion of upfront fees increased the volume of derivatives we used to
hedge interest-rate risk, and this higher volume of derivatives, coupled with
the volatility of market interest rates during the period, created variability
in our PVS-L during 2019. The table below shows the average, minimum, and
maximum PVS-L before derivatives and after derivatives during 2019.
Table 56 - PVS-L Average, Minimum, and Maximum
                         Year Ended December 31, 2019
                                 PVS-L (50bps)
(In millions)       Before Derivatives       After Derivatives
Average                             $3,739                 $96
Minimum                              3,155                   -
Maximum                              4,384                 950


Limitations of Interest-Rate Risk Measures
--------------------------------------------------------------------------------
While we believe that PVS and duration gap are useful risk management tools,
they should be understood as estimates rather than as precise measurements.
Mis-estimation of economic market risk could result in over or under hedging of
interest-rate risk, significant economic losses, and an adverse impact on
earnings. The limitations of our economic market risk measures include the
following:
n   Our PVS and duration gap estimates are determined using models that involve
    our judgment of interest-rate and prepayment assumptions.


n   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.

n PVS and duration gap do not capture the potential effect of certain other


    market risks, such as changes in volatility and market spread risk. The
    effect of these other market risks can be significant.

n Our sensitivity analyses for PVS 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.

n Although the mortgage-related investments portfolio is the main contributor

of interest-rate risk to the company, other core businesses also contribute

to our interest-rate risk and may be managed differently. We have certain

assets that have a relatively short holding period. As a result, we may

manage the risk of these assets based on their disposition, while our risk

measures use long-term cash flows. Hedging these businesses at times requires

additional assumptions concerning risk metrics to accommodate changes in

pricing that may not be related to the future cash flow of the assets. This

could create a perceived risk exposure as the hedged risk may differ from the

modeled risk.

n 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.

n Our reported measurements do not include the sensitivity to interest-rate

changes of net worth and the following assets and liabilities:

l Credit guarantee activities - We currently do not hedge the interest-rate

exposure of our credit guarantees except for the interest-rate exposure


       related to upfront fees (including buy-downs), 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



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Management's Discussion and Analysis Risk Management | Market Risk





security balance, can lead to significant interest expense if the interest rate
paid to a security 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.
l      Other assets and other liabilities - We do not include other miscellaneous

assets and liabilities, primarily deferred tax assets, accounts payable

and receivable, and non-cash basis adjustments.




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 exposed to the
following types of market spread risk:
n   Market spread risk arising from mortgage-related investments, including loans
    and securities, and certain non-mortgage investments;


n   Market spread risk arising from our use of SOFR- or Treasury-based
    instruments in our risk management activities;

n Market spread risk arising from the difference in time between when we commit

to purchase a mortgage loan through our pipeline path and when we either

securitize the loan or hedge it by using forward TBA securities or

derivatives. During this time, market spreads can widen, causing losses due


    to changes in fair value.


GAAP Earnings Variability
--------------------------------------------------------------------------------
The GAAP accounting treatment for our financial assets and liabilities (i.e.,
some are measured at amortized cost, while others are measured at fair value)
creates variability in our GAAP earnings when interest rates and spreads change.
We manage this variability of GAAP earnings, which may not reflect the economics
of our business, using fair value hedge accounting.
Interest-Rate Volatility
--------------------------------------------------------------------------------
While we manage our interest-rate risk exposure on an economic basis to a low
level as measured by our models, our GAAP financial results are subject to
significant earnings variability from period to period based on changes in
market conditions. Based upon the composition of our financial assets and
liabilities, including derivatives, at December 31, 2019, we generally recognize
fair value losses in GAAP earnings when interest rates decline.
In an effort to reduce our GAAP earnings variability and better align our GAAP
results with the economics of our business, we elect hedge accounting for
certain single-family mortgage loans and certain debt instruments. Beginning in
September 2019, we implemented a new fair value hedge accounting strategy using
single-family mortgage loans that applies certain hedge accounting elections
allowable under amended hedge accounting guidance we adopted during 4Q 2017. See
Note 9 for additional information on hedge accounting.
GAAP Adverse Scenario
We evaluate the potential benefits of fair value hedge accounting by evaluating
a range of interest-rate scenarios and identifying which of those scenarios
produces the most adverse GAAP earnings outcome. The interest-rate scenarios
evaluated include parallel shifts in the yield curve of plus and minus 100 basis
points, non-parallel yield curve shifts in which long-term interest rates
increase or decrease by 100 basis points, and non-parallel yield curve shifts in
which short-term and medium-term interest rates increase or decrease by 100
basis points.
n At December 31, 2019, the GAAP adverse scenario (for both before and after
fair value hedge accounting) was a parallel shift in which rates decrease by 100
basis points.
n At December 31, 2018, the GAAP adverse scenario before fair value hedge
accounting was a non-parallel shift in which long-term rates decrease by 100
basis points, while the adverse scenario after fair value hedge accounting was a
non-parallel shift in which short and medium-term rates decrease by 100 basis
points.
The results of this evaluation are shown in the table below.
Table 57 - GAAP Adverse Scenario Before and After Hedge Accounting
                                      GAAP Adverse Scenario (Before-Tax)
(Dollars in billions)     Before Hedge Accounting    After Hedge Accounting   % Change
December 31, 2019                           ($4.3 )                  ($0.1 )     98 %
December 31, 2018                            (2.7 )                   (0.2 )     93



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The additional volume of derivatives from updating our interest-rate risk
measures to include upfront fees (including buy-downs) related to single-family
credit guarantee activity, and the volatility in market interest rates during
2019 created variability in our GAAP adverse scenarios. While the December 31,
2019 GAAP adverse scenario shows a 98% reduction after hedge accounting, this
result includes the effect of the new hedge accounting strategy implemented in
September 2019, which was not in effect for the entire year. As a result, the
average GAAP adverse scenario after hedge accounting was higher during 2019 than
it was as of December 31, 2019. With the implementation of the new hedge
accounting strategy in September 2019, we expect the GAAP adverse scenario after
hedge accounting in future periods to be similar to the result as of December
31, 2019.
The table below shows the average, minimum, and maximum GAAP adverse scenario
before hedge accounting and after hedge accounting during 2019.
Table 58 - GAAP Adverse Scenario Average, Minimum, and Maximum
                             Year Ended December 31, 2019
                          GAAP Adverse Scenario (Before-Tax)
(In billions)      Before Hedge Accounting      After Hedge Accounting
Average                                ($3.6 )                  ($0.4 )
Minimum                                 (2.1 )                      -
Maximum                                 (5.2 )                   (1.8 )


Hedge accounting is designed to reduce the impact to GAAP earnings in the
adverse scenario described above. However, the after hedge accounting impact may
not always result in an improvement over the before hedge accounting impact. For
example, there are certain interest-rate scenarios in which the after hedge
accounting impact would result in a lower gain or a larger loss than the before
hedge accounting impact.
For further discussion of financial results related to interest-rate risk, see
Our Business Segments - Capital Markets.
Net Interest Rate Effect on Comprehensive Income (Loss)
The table below presents the effect of derivatives used in our interest-rate
risk management activities on our comprehensive income (loss), net of tax, after
considering any offsetting interest rate effects related to financial
instruments measured at fair value and the effects of fair value hedge
accounting.
Table 59 - Estimated Net Interest Rate Effect on Comprehensive Income (Loss)
                                                               Year Ended December 31,
(In billions)                                                     2019         2018
Interest rate effect on derivative fair values                     ($7.3 )  

$2.5

Estimate of offsetting interest rate effect related to financial instruments measured at fair value(1)

                      3.6    

(1.9 ) Gains (losses) on mortgage loans and debt in fair value hedge relationships

                                                  3.6         (1.6 )
Amortization of deferred hedge accounting gains and losses          (0.3 )  

0.3


Income tax (expense) benefit                                         0.1    

0.1

Estimated net interest rate effect on comprehensive income (loss)

                                                             ($0.3 )  

($0.6 )

(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.




The effect from the change in interest rates on derivative fair values is mostly
offset by the effect from the change in interest rates related to financial
instruments measured at fair value and gains and losses on mortgage loans and
debt in fair value hedging relationships. However, the estimated net interest
rate effect on comprehensive income (loss) in 2019 was higher than it otherwise
would have been as a result of the additional volume of derivatives and
volatility in market interest rates during 2019. The remaining net interest-rate
effect on comprehensive income is largely attributable to the following:
n The reversal of previously recognized derivative gains and losses;
n The implied net cost on instruments such as swaptions, futures, and forward
purchase and sale commitments from our hedging and interest-rate risk management
activities, which are recognized in GAAP earnings over time as a component of
derivative gains and losses as the instruments approach maturity; and
n The amortization of previously deferred hedge accounting gains and losses,
which we recognize in interest income over the contractual life of the hedged
item.

FREDDIE MAC | 2019 Form 10-K   109

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Management's Discussion and Analysis Risk Management | Market Risk





Spread Volatility
--------------------------------------------------------------------------------
We have limited ability to manage our spread risk exposure and therefore the
volatility of market spreads may contribute to significant GAAP earnings
variability. For financial assets measured at fair value, we generally recognize
fair value losses when market spreads widen. Conversely, for financial
liabilities measured at fair value, we generally recognize fair value gains when
market spreads widen. Certain accounting elections we make, such as election of
the fair value option, may affect the amount of spread volatility recognized in
our results of operations.
The table below shows the estimated effect of spreads on our comprehensive
income (loss), after tax, by segment.
Table 60 - Estimated Spread Effect on Comprehensive Income (Loss)
                                                 Year Ended December 31,
(In billions)                                          2019          2018
Capital Markets                                              $0.2    $0.4
Multifamily(1)                                               (0.3 )  (0.4 )
Single-family Guarantee                                         -     0.1
Spread effect on comprehensive income (loss)                ($0.1 )  $0.1


(1) Represents the net spread-related fair value impacts due to changes in

spreads on loans and commitments where we have elected the fair value

option, mortgage-related securities, and spread-related derivatives.




For further discussion of significant financial results related to spread risk,
see Our Business Segments - Multifamily and Our Business Segments - Capital
Markets.
Transition from LIBOR
--------------------------------------------------------------------------------
In 2017, the Chief Executive of the United Kingdom's Financial Conduct Authority
(FCA) announced that the FCA will no longer persuade or compel member panel
banks to make LIBOR submissions after 2021. He has also indicated that market
participants should expect LIBOR to be subsequently discontinued, or at least to
no longer be deemed representative of market interest rates, and should proceed
expeditiously with preparations for transitioning to an alternative reference
interest rate. U.S. regulators have made similar statements. As a result, it is
likely that LIBOR will be discontinued as a benchmark interest rate after 2021.
Freddie Mac has exposure to LIBOR, including in financial instruments that
mature after 2021. Our exposure arises from floating rate securities we issue,
loans and securities we acquire (including loans we subsequently resecuritize),
and derivatives we enter into that reference LIBOR.
Senior management is actively evaluating and managing risks related to the LIBOR
transition. To help prepare for an orderly transition from LIBOR, we established
a LIBOR Working Group in 2018 that consists of members from the different
business areas as well as the Legal and ERM divisions. We also have formed LIBOR
transition committees across our businesses, functions, and products. Senior
management and the LIBOR Working Group provide periodic updates to the Board and
are working with FHFA on our transition implementation.
The Federal Reserve Board and the Federal Reserve Bank of New York convened the
Alternative Reference Rates Committee (ARRC) to recommend a set of alternative
reference interest rates for possible use as market-accepted benchmarks. Based
on the ARRC's recommendation, the Federal Reserve Bank of New York began
publishing SOFR in April 2018. Since then, certain derivative products and debt
securities tied to SOFR have been introduced, and various industry groups have
continued working to develop plans and documentation to facilitate a transition
to SOFR as the new market-accepted benchmark. We have been a member of the ARRC
since 2017 and have participated in many of its working groups.
We support the ARRC's recommendation to replace LIBOR with SOFR. We have issued
SOFR-based unsecured debt, and we have executed SOFR-based interest-rate swaps
and futures transactions. In December 2019, we conducted an offering of
multifamily K certificates that included a class of floating rate certificates
indexed to SOFR. The transition from LIBOR will affect our new purchases of
single-family hybrid ARMs. For example, in July 2019, we announced that we will
work with our customers, investors, and servicers to transition existing
LIBOR-based ARM products to SOFR-based ARM products by the end of 2021. In
November 2019, we announced that, in coordination with FHFA and Fannie Mae, we
intend to offer our lenders the opportunity to deliver a suite of SOFR-based ARM
products that will be based on eligibility, underwriting, pricing, and delivery
requirements which we intend to announce in an update to our Seller/Servicer
Guide in 2020.
On February 5, 2020, we announced that we will no longer purchase single-family
ARMs and multifamily floating-rate loans tied to LIBOR with an application date
on or after October 1, 2020. In addition, we will no longer purchase
single-family ARMs and multifamily floating-rate loans tied to LIBOR after
December 31, 2020, regardless of the application date or mortgage date. We

FREDDIE MAC | 2019 Form 10-K 110

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Management's Discussion and Analysis Risk Management | Market Risk





will begin purchasing multifamily floating-rate loans tied to SOFR by November
1, 2020. We also announced our plans to purchase single-family ARMs tied to SOFR
in the second half of 2020. Finally, we announced our intention to develop plans
to cease purchasing single-family ARMs tied to constant maturity Treasury
indices, which we anticipate will be implemented in 2021 upon guidance from
FHFA. Our purchases of single-family ARMs and multifamily floating-rate loans
may decrease after these changes are implemented as affected market participants
may need more time to develop the systems and processes necessary to originate
and sell ARMs and floating-rate loans tied to SOFR or any other new indices that
may be developed.
For a discussion of the risks related to the LIBOR transition, see Risk Factors
- Market Risk - The discontinuance of LIBOR after 2021, or before the end of
2021 if LIBOR is deemed unreliable, could negatively affect the fair value of
our financial assets and liabilities, results of operations, and net worth. A
transition to an alternative reference interest rate could present operational
problems, subject us to increased litigation risk, and result in market
disruption. We may be unable to take a consistent approach across our financial
products.

FREDDIE MAC | 2019 Form 10-K   111

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Management's Discussion and Analysis Liquidity and Capital Resources





LIQUIDITY AND CAPITAL RESOURCES
Overview
Our business activities require that we maintain adequate liquidity to meet our
financial obligations as they come due and meet the needs of customers in a
timely and cost-efficient manner. We also must maintain adequate capital
resources to avoid being placed into receivership by FHFA.
Sources and Uses of Funds
--------------------------------------------------------------------------------
Our primary source of funding for the assets on our balance sheet is the
issuance of debt. In addition to the funding provided by issuing debt, our other
sources of funds include:
n Principal payments on and sales of securities and loans that we own;


n Repurchase transactions;

n Interest income on securities and loans that we own;

n Guarantee fees (inclusive of initial upfront fees);

n Net worth, which represents funding available to us prior to our dividend

requirement on our senior preferred stock; and

n Draws from Treasury under the Purchase Agreement, which are only made if we

have a quarterly deficit in our net worth.




We use these sources to fund the assets on our balance sheet. Our primary uses
of funds include:
n   Principal payments upon the maturity, redemption, or repurchase of our other

debt;

n Payments of interest on our other debt and other expenses;

n Purchases of mortgage loans, including purchases of seriously delinquent or

modified loans underlying our securities, mortgage-related securities, and


    other investments;


n   Payments related to derivative contracts and posting or pledging of

collateral to third parties in connection with secured financing and daily

trade activities; and

n Dividend requirements on our senior preferred stock.




In addition to the uses and sources of cash described above, we are involved in
various legal proceedings, including those discussed in Legal Proceedings, which
may result in a need to use cash to settle claims or pay certain costs or
receipt of cash from settlements.
Our securities and other obligations are not guaranteed by the U.S. government
and do not constitute a debt or obligation of the U.S. government or any agency
or instrumentality thereof, other than Freddie Mac. We continue to manage our
debt issuances to remain in compliance with the aggregate indebtedness limits
set forth in the Purchase Agreement. For a description of our debt products, see
Our Business Segments - Capital Markets.
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:
n   Manage intraday cash needs and provide for the contingency of an unexpected

cash demand;

n 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;

n 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



FREDDIE MAC | 2019 Form 10-K   112


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Management's Discussion and Analysis Liquidity and Capital Resources

n 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.
Liquidity Profile
Primary Sources of Liquidity
--------------------------------------------------------------------------------
The following table lists the sources of our liquidity, the balances as of
December 31, 2019 and a brief description of their importance to Freddie Mac.
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.
Table 61 - Sources of Liquidity
        Source              Balance(1)                        Description
                           (In billions)
Liquidity
   • Other Investments              $68.0   • The Liquidity and Contingency Operating
     Portfolio -                              Portfolio, included within our other
     Liquidity and                            investments portfolio, is primarily used for
     Contingency                              short-term liquidity management.
     Operating
     Portfolio
   • Liquid Portion of             $124.4   • The liquid portion of our mortgage-related
     the                                      investments portfolio can be pledged or sold
     Mortgage-Related                         for liquidity purposes. The amount of cash
     Investments                              we may be able to successfully raise may be
     Portfolio                                substantially less than the balance.

(1) Represents carrying value for the Liquidity and Contingency Operating

Portfolio, included within our other investments portfolio, and UPB for the

liquid portion of the mortgage-related investments portfolio.




Other Investments Portfolio
--------------------------------------------------------------------------------
The table below summarizes the balances in our other investments portfolio,
which includes the Liquidity and Contingency Operating Portfolio. The
investments in our other investments portfolio are important to our cash flow,
collateral management, asset and liability management, and ability to provide
liquidity and stability to the mortgage market. The other investments portfolio
is primarily used for short-term liquidity management, cash and other
investments held by consolidated trusts, and other investments, which include
investments in debt securities used to pledge as collateral, LIHTC partnerships,
and secured lending activities.
Table 62 - Other Investments Portfolio
                                         As of December 31, 2019                                    As of December 31, 2018
                          Liquidity and                                              Liquidity and
                           Contingency                             Total Other        Contingency                             Total Other
                            Operating      Custodial               Investments         Operating      Custodial               Investments
(In billions)               Portfolio       Account      Other     Portfolio(1)        Portfolio       Account     Other     Portfolio(1)
Cash and cash
equivalents                        $4.2         $0.9      $0.1             $5.2               $6.7         $0.6       $-              $7.3
Securities purchased
under agreements to                40.6         23.1       2.4             66.1               20.2         12.1      2.5              34.8
resell
Non-mortgage related
securities                         23.2            -       3.9             27.1               16.8            -      2.4              19.2
Secured lending and
other                                 -            -       5.2              5.2                  -            -      1.8               1.8
Total                             $68.0        $24.0     $11.6           $103.6              $43.7        $12.7     $6.7             $63.1

(1) Represents carrying value.




Our non-mortgage-related investments in the Liquidity and Contingency Operating
Portfolio consist of U.S. Treasury securities and other investments that we
could sell to provide us with an additional source of liquidity to fund our
business operations. We also maintain non-interest-bearing deposits at the
Federal Reserve Bank of New York and interest-bearing deposits at commercial
banks. Our interest-bearing deposits at commercial banks totaled $3.7 billion
and $1.5 billion as of December 31, 2019 and December 31, 2018, respectively.

FREDDIE MAC | 2019 Form 10-K   113

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Management's Discussion and Analysis Liquidity and Capital Resources





The Liquidity and Contingency Operating Portfolio also included collateral
posted to us in the form of cash primarily by derivatives counterparties of $2.6
billion and $3.0 billion as of December 31, 2019 and December 31, 2018,
respectively. We have invested this collateral in securities purchased under
agreements to resell and non-mortgage-related securities as part of our
Liquidity and Contingency Operating Portfolio, although the collateral may be
subject to return to our counterparties based on the terms of our master netting
and collateral agreements.
Mortgage 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 for 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, 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.
Primary Sources of Funding
--------------------------------------------------------------------------------
Debt securities that we issue are classified either as debt securities of
consolidated trusts held by third parties or other debt. The following table
lists the sources and balances of our funding as of December 31, 2019 and a
brief description of their importance to Freddie Mac.
Table 63 - Funding Sources
        Source             Balance(1)                        Description
                          (In billions)
Funding
   • Other Debt                  $281.2    • Other debt is used to fund our business
                                             activities, including single-family
                                             guarantee activities not funded by debt
                                             securities of consolidated trusts.
   • Debt Securities of        $1,898.4    • Debt securities of consolidated trusts are
     Consolidated                            used primarily to fund our single-family
     Trusts                                  guarantee activities. This type of debt is
                                             principally repaid by the cash flows of the
                                             associated mortgage loans. As a result, our
                                             repayment obligation is limited to amounts
                                             paid pursuant to our guarantee of principal
                                             and interest and to purchase modified or
                                             seriously delinquent loans from the trusts.

(1) Represents carrying value of debt balances.




Other Debt Activities
--------------------------------------------------------------------------------
We issue other debt to fund our operations. Competition for funding can vary
with economic, financial market, and regulatory environments.
During 2019, we had sufficient access to the debt markets due largely to support
from the U.S. government. We rely significantly on our ability to issue debt on
an on-going basis to refinance our effective short-term debt. Our effective
short-term debt percentage, which represents the percentage of our total other
debt that is expected to mature within one year, was 55.2% and 42.7% as of
December 31, 2019 and December 31, 2018, respectively.
Beginning January 1, 2019, our debt cap under the Purchase Agreement is $300.0
billion. As of December 31, 2019, our aggregate indebtedness, calculated as the
par value of other debt, was $283.2 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 website at
www.freddiemac.com/investors/financials/monthly-volume-summaries.html.

FREDDIE MAC | 2019 Form 10-K 114

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Management's Discussion and Analysis Liquidity and Capital Resources





To fund our business activities, we depend on the continuing willingness of
investors to purchase our debt securities. 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.
The tables below summarize the par value and the average rate of other debt
securities we issued or paid off, including regularly scheduled principal
payments, payments resulting from calls, and payments for repurchases. We call,
exchange, or repurchase our outstanding debt securities from time to time for a
variety of reasons, including managing our funding composition and supporting
the liquidity of our debt securities.
Table 64 - Other Debt Activity
                                                       Year Ended December 31, 2019
(Dollars in millions)                    Short-term  Average Rate(1)   

Long-term Average Rate(1)



Discount notes and Reference Bills
Beginning balance                          $28,787           2.36 %           $-              - %
Issuances                                  369,992           2.05              -              -
Repurchases                                      -              -              -              -
Maturities                                (337,949 )         2.20              -              -
Ending Balance                              60,830           1.67              -              -

Securities sold under agreements to
repurchase
Beginning balance                            6,019           2.40              -              -
Additions                                  325,512           2.04              -              -
Repayments                                (321,689 )         2.07              -              -
Ending Balance                               9,842           1.46              -              -

Callable debt
Beginning balance                            2,000           2.53        105,206           2.09
Issuances                                   13,590           2.48        107,544           2.38
Repurchases                                      -              -              -              -
Calls                                      (14,590 )         2.52        (95,172 )         2.65
Maturities                                       -              -        (23,426 )         1.35
Ending Balance                               1,000           2.36         94,152           2.03

Non-callable debt
Beginning balance                           14,440           2.04         80,789           2.56
Issuances                                   48,984           2.34         15,774           2.43
Repurchases                                   (345 )         1.87           (869 )         1.87
Maturities                                 (23,671 )         2.19        (33,465 )         1.68
Ending Balance                              39,408           2.31         62,229           2.86

STACR Debt and SCR Debt Notes(2)
Beginning balance                                -              -         17,729           6.02
Issuances                                        -              -            723           2.09
Repurchases                                      -              -              -              -
Maturities                                       -              -         (2,956 )         4.49
Ending Balance                                   -              -         15,496           5.55

Total other debt                          $111,080           1.89 %     $171,877           2.65 %

Referenced footnotes are included after the next table.

FREDDIE MAC | 2019 Form 10-K 115

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Management's Discussion and Analysis Liquidity and Capital Resources





                                                        Year Ended December 31, 2018
(Dollars in millions)                    Short-term   Average Rate(1)   Long-term   Average Rate(1)

Discount notes and Reference Bills
Beginning balance                           $45,717           1.19 %           $-              - %
Issuances                                   356,129           1.40              -              -
Repurchases                                       -              -              -              -
Maturities                                 (373,059 )         1.29              -              -
Ending Balance                               28,787           2.36              -              -

Securities sold under agreements to
repurchase
Beginning balance                             9,681           1.06              -              -
Additions                                   162,524           1.82              -              -
Repayments                                 (166,186 )         1.75              -              -
Ending Balance                                6,019           2.40              -              -

Callable debt
Beginning balance                                 -              -        113,822           1.58
Issuances                                     2,000           2.28         26,191           3.13
Repurchases                                       -              -         (1,396 )         2.64
Calls                                             -              -         (3,580 )         2.23
Maturities                                        -              -        (29,831 )         1.06
Ending Balance                                2,000           2.53        105,206           2.09

Non-callable debt
Beginning balance                            17,792           1.03        111,169           2.11
Issuances                                    14,965           2.02         11,514           2.21
Repurchases                                       -              -         (1,340 )         2.11
Maturities                                  (18,317 )         1.06        (40,554 )         1.35
Ending Balance                               14,440           2.04         80,789           2.56

STACR Debt and SCR Debt(2)
Beginning balance                                 -              -         17,925           5.04
Issuances                                         -              -          1,885           3.67
Repurchases                                       -              -              -              -
Maturities                                        -              -         (2,081 )         4.14
Ending Balance                                    -              -         17,729           6.02

Total other debt                            $51,246           2.28 %     $203,724           2.62 %

(1) Average rate is weighted based on par value.

(2) STACR debt notes and SCR debt notes are subject to prepayment risk as their

payments are based upon the performance of a reference pool of mortgage

assets that may be prepaid by the related mortgage borrower at any time

generally without penalty and are therefore included as a separate category


     in the table.



FREDDIE MAC | 2019 Form 10-K   116


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Management's Discussion and Analysis Liquidity and Capital Resources





Our outstanding other debt balance increased during 2019, driven by an increase
in the issuance of short-term SOFR debt primarily due to a higher mortgage loan
pipeline forecast, coupled with near-term cash needs for upcoming debt
maturities and anticipated calls. Our STACR debt balances should continue to
decline as run off will primarily be replaced with STACR Trust note
transactions.
During 2019, we replaced a portion of called or matured medium-term and
long-term debt with callable debt. Our callable debt provides us with the option
to repay the outstanding principal balance of the debt prior to its contractual
maturity date. As of December 31, 2019, $72 billion of the outstanding $95
billion of callable debt may be called within one year, not including callable
debt due to contractually mature within one year.
Other Short-Term Debt
The tables below contain details on the characteristics of our other short-term
debt.
Table 65 - Other Short-Term Debt
                                                            As of December 31, 2019
                                      Ending Balance                  Yearly Average
                                                   Weighted                        Weighted
                                                   Average                         Average     Maximum Carrying
                                                  Effective                       Effective    Value Outstanding
(Dollars in millions)            Carrying Value    Rate(1)       Carrying Value    Rate(1)     at Any Month End
Discount notes and Reference
Bills                                   $60,629       1.67 %            $44,675       2.16 %           $60,629
Medium-term notes                        40,405       2.31               29,781       2.36              43,096
Securities sold under
agreements to repurchase                  9,843       1.46                9,928       2.16              14,114
Total                                  $110,877       1.89 %

                                                            As of December 31, 2018
                                      Ending Balance                  Yearly Average
                                                   Weighted                        Weighted
                                                   Average                         Average     Maximum Carrying
                                                  Effective                       Effective    Value Outstanding
(Dollars in millions)            Carrying Value    Rate(1)       Carrying Value    Rate(1)     at Any Month End
Discount notes and Reference
Bills                                   $28,621       2.36 %            $35,126       1.79 %           $46,892
Medium-term notes                        16,440       2.10               15,403       1.37              18,200
Securities sold under
agreements to repurchase                  6,019       2.40                9,411       1.79              11,719
Total                                   $51,080       2.28 %

                                                            As of December 31, 2017
                                      Ending Balance                  Yearly Average
                                                   Weighted                        Weighted
                                                   Average                         Average     Maximum Carrying
                                                  Effective                       Effective    Value Outstanding
(Dollars in millions)            Carrying Value    Rate(1)       Carrying Value    Rate(1)     at Any Month End
Discount notes and Reference
Bills                                   $45,596       1.19 %            $50,867       0.85 %           $60,967
Medium-term notes                        17,792       1.03               12,172       0.78              17,967
Securities sold under
agreements to repurchase                  9,681       1.06                8,092       0.65              11,491
Total                                   $73,069       1.14 %

(1) Average rate is weighted based on carrying value.





FREDDIE MAC | 2019 Form 10-K   117

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Management's Discussion and Analysis Liquidity and Capital Resources





Maturity and Redemption Dates
The following graphs present our other debt by contractual maturity date and
earliest redemption date. The earliest redemption date refers to the earliest
call date for callable debt and the contractual maturity date for all other
debt.

Contractual Maturity Date as of December 31,
2019(1) [[Image Removed: chart-530129b075ea5b5c9fba01.jpg]]


Earliest Redemption Date as of December 31, 2019(1) [[Image Removed: chart-a2789de7374a5f5dbe8a01.jpg]] (1) STACR Debt Notes and SCR Debt Notes are subject to prepayment risk as their

payments are based upon the performance of a reference pool of mortgage

assets that may be prepaid by the related mortgage borrower at any time

generally without penalty and are therefore included as a separate category

in the graphs.




Debt Securities of Consolidated Trusts
--------------------------------------------------------------------------------
The largest component of debt on our consolidated balance sheets is debt
securities of consolidated trusts, which relates to securitization transactions
that we consolidated for accounting purposes. We issue this type of debt by
securitizing mortgage loans primarily to fund the majority of our single-family
guarantee activities. When we consolidate securitization trusts, we recognize
the following on our consolidated balance sheets:
n   The assets held by the securitization trusts, the majority of which are

mortgage loans. We recognized $1,940.5 billion and $1,842.9 billion of

mortgage loans, which represented 88.1% and 89.3% of our total assets, as of

December 31, 2019 and December 31, 2018, respectively.

n The debt securities issued by the securitization trusts, the majority of

which are pass-through securities, where the cash flows of the mortgage loans

held by the securitization trust are passed through to the holders of the

securities. We recognized $1,898.4 billion and $1,792.7 billion of debt

securities of consolidated trusts, which represented 87.1% and 87.7% of our

total debt, as of December 31, 2019 and December 31, 2018, respectively.




Debt securities of our consolidated trusts represent our liability to third
parties that hold beneficial interests in our consolidated securitization
trusts. Debt securities of consolidated trusts are principally repaid from the
cash flows of the mortgage loans held by the securitization trusts that issued
the debt securities. In circumstances when the cash flows of the mortgage loans
are not sufficient to repay the debt, we make up the shortfall because we have
guaranteed the payment of principal and interest on the debt. In certain
circumstances, we have the right and/or obligation to purchase the loan from the
trust prior to its contractual maturity. At December 31, 2019, 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 loan losses on mortgage loans held by consolidated trusts.
See Note 4 for details on our allowance for loan losses.

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Management's Discussion and Analysis Liquidity and Capital Resources





The table below shows the issuance and extinguishment activity for the debt
securities of our consolidated trusts.
Table 66 - Activity for Debt Securities of Consolidated Trusts Held by Third
Parties
                                                                  Year Ended December 31,
(In millions)                                                       2019           2018
Beginning balance                                                $1,748,738     $1,672,605
Issuances:
New issuances to third parties                                      323,860 

185,877


Additional issuances of securities                                  178,971 

190,207


Total issuances                                                     502,831 

376,084

Extinguishments:


Purchases of debt securities from third parties                     (30,306 )      (41,453 )
Debt securities received in settlement of secured lending           (46,670 )      (25,220 )
Repayments of debt securities                                      (319,791 )     (233,278 )
Total extinguishments                                              (396,767 )     (299,951 )
Ending balance                                                    1,854,802      1,748,738
Unamortized premiums and discounts                                   43,553 

43,939

Debt securities of consolidated trusts held by third parties $1,898,355

$1,792,677





The table below provides information on the UPB of debt securities issued by our
consolidated trusts.
Table 67 - Debt Securities of Consolidated Trusts Held by Third Parties
                                                                  As of December 31,
(In millions)                                                     2019           2018
Single-family
Level 1 Securitization Products:
30-year or more amortizing fixed-rate                          $1,563,211     $1,434,879
20-year amortizing fixed-rate                                      80,340         79,079
15-year amortizing fixed-rate                                     241,835        253,245
Adjustable-rate                                                    38,271         45,051
Interest-only                                                       4,828          6,697
FHA/VA and other governmental                                       1,718          1,939
Total single-family Level 1 Securitization Products             1,930,203      1,820,890
Other single-family                                                 2,397          2,961
Total single-family                                             1,932,600      1,823,851
Total multifamily                                                   8,642          7,220
Total Freddie Mac mortgage-related securities                   1,941,242   

1,831,071

Freddie Mac mortgage-related securities repurchased or retained at issuance

                                              (86,440 )      (82,333 )
Debt securities of consolidated trusts held by third
parties                                                        $1,854,802     $1,748,738



FREDDIE MAC | 2019 Form 10-K   119

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Management's Discussion and Analysis Liquidity and Capital Resources





Credit Ratings
--------------------------------------------------------------------------------
Our ability to access the capital markets and other sources of funding, as well
as our cost of funds, may be affected by our credit ratings. The table below
indicates our credit ratings as of January 31, 2020.
Table 68 - Freddie Mac Credit Ratings
                         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            AA-
Preferred stock(1)            D             Ca              C
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.
Cash Flows
--------------------------------------------------------------------------------
n 2019 vs. 2018 - Cash and cash equivalents (including restricted cash and cash
equivalents) decreased by $2.1 billion from $7.3 billion as of December 31, 2018
to $5.2 billion as of December 31, 2019, as we invested the proceeds from
issuances of other debt in securities purchased under agreements to resell due
to higher near-term cash needs for upcoming debt maturities and anticipated
calls of other debt and a higher expected loan purchase forecast.
n 2018 vs. 2017 - Cash and cash equivalents (including restricted cash and cash
equivalents) decreased by $2.5 billion from $9.8 billion as of December 31, 2017
to $7.3 billion as of December 31, 2018, primarily driven by fewer proceeds from
debt issuances as we continued to reduce our indebtedness along with the decline
in our mortgage-related investments portfolio. The decrease in cash and cash
equivalents (including restricted cash and cash equivalents) was partially
offset by a decrease in securities purchased under agreements to resell due to
lower near-term cash needs for fewer upcoming maturities and anticipated calls
of other debt.
Capital Resources
Primary Sources of Capital
--------------------------------------------------------------------------------
Our entry into conservatorship resulted in significant changes to the assessment
of our capital adequacy and our management of capital. Under the Purchase
Agreement, Treasury made a commitment to provide us with equity funding, under
certain conditions, to eliminate deficits in our net worth. Obtaining equity
funding from Treasury pursuant to its commitment under the Purchase Agreement
enables us to avoid being placed into receivership by FHFA and to maintain the
confidence of the debt markets as a very high-quality credit, upon which our
business model is dependent.
At December 31, 2019, our assets exceeded our liabilities under GAAP; therefore,
no draw is being requested from Treasury under the Purchase Agreement. Based on
our Net Worth Amount of $9.1 billion as of December 31, 2019 and the applicable
Capital Reserve Amount of $20.0 billion, we will not have a dividend requirement
to Treasury for the quarter ending December 31, 2019. Under the Purchase
Agreement, the payment of dividends does not reduce the outstanding liquidation
preference on the senior preferred stock. See Introduction - About Freddie Mac -
Conservatorship and Government Support for Our Business for more information.
If for any reason we were not to pay our dividend requirement on the senior
preferred stock in full in any future period, the unpaid amount would be added
to the liquidation preference and our applicable Capital Reserve Amount would
thereafter be zero, but this would not affect our ability to draw funds from
Treasury under the Purchase Agreement. Our cumulative senior preferred stock
dividend payments totaled $119.7 billion as of December 31, 2019.
The aggregate liquidation preference of the senior preferred stock owned by
Treasury was $79.3 billion and the amount of available funding remaining under
the Purchase Agreement was $140.2 billion as of December 31, 2019. To the extent
we draw

FREDDIE MAC | 2019 Form 10-K   120

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Management's Discussion and Analysis Liquidity and Capital Resources





additional funds in the future, the aggregate liquidation preference will
increase and the amount of available funding will decrease by the amount of
those draws. See Conservatorship and Related Matters and Regulation and
Supervision for more information.
The CECL accounting standard relating to the measurement of credit losses on
financial instruments became effective as of January 1, 2020. CECL replaces the
incurred loss impairment methodology with a methodology that reflects lifetime
expected credit losses. We expect to recognize a decrease to retained earnings
of $0.2 billion from our adoption of CECL on January 1, 2020. See Note 1 for
additional information about our adoption of CECL.
The table below presents activity related to our net worth.
Table 69 - Net Worth Activity
                                                Year Ended December 31,
(In millions)                                  2019       2018       2017
Beginning balance                             $4,477      ($312 )   $5,075
Comprehensive income (loss)                    7,787      8,622      5,558
Capital draws from Treasury                        -        312          -

Senior preferred stock dividends declared (3,142 ) (4,145 ) (10,945 ) Total equity / net worth

                      $9,122     $4,477      ($312 )

Aggregate draws under Purchase Agreement $71,648 $71,648 $71,336 Aggregate cash dividends paid to Treasury 119,680 116,538 112,393




Conservatorship Capital Framework
--------------------------------------------------------------------------------
In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage
our financial risk and to make economic business decisions, while in
conservatorship, utilizing a newly-developed risk-based CCF, a capital system
with detailed formulae provided by FHFA. The CCF also provides the foundation
for the risk-based component of the proposed Enterprise Capital Rule published
by FHFA in the Federal Register in July 2018.
We use the CCF to evaluate business decisions and ensure the company makes such
decisions prudently when pricing transactions and managing its businesses. This
framework focuses on return on conservatorship capital versus an estimated cost
of equity capital needed to support the risk assumed to generate those returns.
The CCF has been and may be further revised by FHFA from time to time, including
in connection with FHFA's consideration and adoption of a final Enterprise
Capital Rule, which could possibly result in material changes in our
conservatorship capital, and, thus, our returns on conservatorship capital. In
November 2019, FHFA announced that it plans to re-propose the Enterprise Capital
Rule in 2020.
The existing regulatory capital requirements have been suspended by FHFA during
conservatorship. Consequently, we refer to the capital needed under the CCF for
analysis of transactions and businesses as "conservatorship capital."
Under the Purchase Agreement and the September 2019 Letter Agreement, we are not
able to retain equity, as calculated under GAAP, in excess of the $20.0 billion
Capital Reserve Amount. As a result, we do not have capital sufficient to
support our aggregate risk-taking activities.
Return on Conservatorship Capital
--------------------------------------------------------------------------------
The table below provides the ROCC, calculated as (1) annualized comprehensive
income for the period divided by (2) average conservatorship capital during the
period. Each quarter, we consider whether certain "significant items" occurred
that should be excluded from comprehensive income and our calculation of
ROCC. If we have identified significant items in any of the periods presented,
we also include comprehensive income excluding significant items as well as an
adjusted ROCC based on comprehensive income excluding significant items, both
non-GAAP measures. We believe that these non-GAAP financial measures are useful
to investors as they better reflect our on-going financial results.
The ROCC shown in the table below is not based on our total equity and does not
reflect actual returns on total equity. We do not believe that returns on total
equity are meaningful because of the net worth limit imposed since 2012 under
the Purchase Agreement.

FREDDIE MAC | 2019 Form 10-K 121

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Management's Discussion and Analysis Liquidity and Capital Resources

Table 70 - Returns on Conservatorship Capital(1)


                                                               Year Ended December 31,
(Dollars in billions)                                             2019         2018
GAAP comprehensive income                                           $7.8         $8.6
Significant items:
Non-agency mortgage-related securities judgment(2)                     -         (0.3 )
Tax effect related to judgment(2)                                      -    

0.1


  Total significant items(3)                                           -         (0.2 )
Comprehensive income, excluding significant items(3)                $7.8    

$8.4


Conservatorship capital (average during the period)(4)             $51.8    

$56.6


ROCC, based on GAAP comprehensive income(4)                         15.0 %       15.2 %
Adjusted ROCC, based on comprehensive income excluding              15.0 %       14.8 %
significant items(3)(4)


(1)  Average conservatorship capital and ROCC for 2019 are preliminary and
     subject to change until official submission to FHFA.

(2) 2018 GAAP comprehensive income included a benefit of $334 million (pre-tax)

from a final judgment against Nomura Holding America, Inc. in litigation


     involving certain of our non-agency mortgage-related securities. The tax
     effect related to this judgment was ($70) million.

(3) No significant items were identified for 2019. Numbers for 2019 are included

for comparison purposes only.

(4) Average conservatorship capital for each period is based on the CCF in

effect during the period. The CCF in effect as of December 31, 2019, was

largely unchanged from the CCF as of December 31, 2018.




ROCC and Adjusted ROCC for 2019 were relatively flat compared to the returns for
2018, primarily driven by the decrease in comprehensive income, partially offset
by the lower level of conservatorship capital needed, resulting from an increase
in CRT activity in both the Single-family Guarantee and Multifamily segments,
home price appreciation, the efficient disposition of legacy assets, and a
decrease in our deferred tax assets.
We find the returns calculated above, as well as the returns calculated on
specific transactions and individual business lines, to be a reasonable measure
of return-versus-risk to support our decision-making while we remain in
conservatorship. These returns may not be indicative of the returns that would
be generated if we were to exit conservatorship, especially as the terms and
timing of any such exit are not currently known and will depend upon future
actions by the U.S. government. Our belief, should we leave conservatorship, is
that returns at that time would most likely be below the levels calculated
above, assuming the same portfolio of risk assets, as we expect that we would
hold capital post-conservatorship above the minimum required regulatory capital.
It is also likely that we would be required to pay fees for federal government
support, thereby reducing our total comprehensive income.

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Management's Discussion and Analysis Conservatorship and Related Matters





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 mortgage-related assets that have
been transferred to a Freddie Mac securitization trust must be held by the
Conservator for the beneficial owners of the trust and cannot be used to satisfy
our general creditors.
We conduct our business subject to the direction of FHFA as our Conservator. The
Conservator has provided authority to the Board of Directors to oversee
management's conduct of our business operations so we can operate in the
ordinary course. The directors serve on behalf of, exercise authority as
provided by, and owe their fiduciary duties of care and loyalty to the
Conservator. The Conservator retains the authority to withdraw or revise the
authority it has provided at any time. The Conservator also retains certain
significant authorities for itself, and has not provided 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. Many
management decisions are subject to review and/or approval by FHFA and
management frequently receives direction from FHFA on various matters involving
day-to-day operations.
Our current business objectives reflect direction we have received from the
Conservator including the Conservatorship Scorecards. At the direction of the
Conservator, we have made changes to certain business practices that are
designed to provide support for the mortgage market in a manner that serves our
public mission and other non-financial objectives. Given our public mission and
the important role our Conservator has placed on Freddie Mac in addressing
housing and mortgage market conditions, we sometimes take actions that could
have a negative impact on our business, operating results or financial
condition, and could thus contribute to a need for additional draws under the
Purchase Agreement. Certain of these actions are intended to help homeowners and
the mortgage market.
Purchase Agreement, Warrant, and Senior Preferred Stock
In connection with our entry into conservatorship, we entered into the Purchase
Agreement with Treasury. Under the Purchase Agreement, we issued to Treasury
both senior preferred stock and a warrant to purchase common stock. The Purchase
Agreement, the warrant, and the senior preferred stock do not contain any
provisions causing them to terminate or cease to exist upon the termination of
conservatorship. The conservatorship, the Purchase Agreement, the warrant, and
the senior preferred stock materially limit the rights of our common and
preferred stockholders (other than Treasury).
Pursuant to the Purchase Agreement, which we entered into through FHFA, in its
capacity as Conservator, on September 7, 2008, we issued to Treasury one million
shares of Variable Liquidation Preference Senior Preferred Stock with an initial
liquidation preference of $1 billion and a warrant to purchase, for a nominal
price, shares of our common stock equal to 79.9% of the total number of shares
outstanding. The senior preferred stock and warrant were issued to Treasury as
an initial commitment fee in consideration of Treasury's commitment to provide
funding to us under the Purchase Agreement. We did not receive any cash proceeds
from Treasury as a result of issuing the senior preferred stock or the warrant.
Under the Purchase Agreement, our ability to repay the liquidation preference of
the senior preferred stock is limited and we will not be able to do so for the
foreseeable future, if at all.
The Purchase Agreement provides that, on a quarterly basis, we generally may
draw funds up to the amount, if any, by which our total liabilities exceed our
total assets, as reflected on our GAAP consolidated balance sheet for the
applicable fiscal quarter, provided that the aggregate amount funded under the
Purchase Agreement may not exceed Treasury's commitment. The amount of any draw
will be added to the aggregate liquidation preference of the senior preferred
stock and will reduce the amount of available funding remaining. Deficits in our
net worth have made it necessary for us to make substantial draws on Treasury's
funding commitment under the Purchase Agreement. The 2017 Letter Agreement
increased the aggregate liquidation preference of the senior preferred stock by
$3.0 billion on December 31, 2017. In addition, pursuant to the September 2019
Letter Agreement, the liquidation preference of the senior preferred stock will
be increased, at the end of each fiscal quarter, beginning September 30, 2019,
by an amount equal to the increase in the Net Worth Amount, if any, during the
immediately prior fiscal quarter, until the liquidation preference has increased
by $17.0 billion. As of December 31, 2019, the aggregate liquidation preference
of the senior preferred stock was $79.3 billion, and the amount of available
funding remaining under the Purchase Agreement was $140.2 billion.

FREDDIE MAC | 2019 Form 10-K 123

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Management's Discussion and Analysis Conservatorship and Related Matters





Treasury, as the holder of the senior preferred stock, is entitled to receive
cumulative quarterly cash dividends, when, as, and if declared by our Board of
Directors. The dividends we have paid to Treasury on the senior preferred stock
have been declared by, and paid at the direction of, the Conservator, acting as
successor to the rights, titles, powers, and privileges of the Board. Under the
August 2012 amendment to the Purchase Agreement, our cash dividend requirement
each quarter is the amount, if any, by which our Net Worth Amount at the end of
the immediately preceding fiscal quarter, less the applicable Capital Reserve
Amount, exceeds zero. Under the 2017 Letter Agreement, the dividend for the
dividend period from October 1, 2017 through and including December 31, 2017 was
reduced to $2.25 billion, and the applicable Capital Reserve Amount from January
1, 2018 through June 30, 2019 was $3.0 billion. Pursuant to the September 2019
Letter Agreement, from July 1, 2019 and thereafter, the applicable Capital
Reserve Amount is $20.0 billion. As a result of the net worth sweep dividend,
our future profits in excess of the applicable Capital Reserve Amount will be
distributed to Treasury, and the holders of our common stock and non-senior
preferred stock will not receive benefits that could otherwise flow from such
future profits. If for any reason we were not to pay the amount of our dividend
requirement on the senior preferred stock in full, the unpaid amount would be
added to the liquidation preference and our applicable Capital Reserve Amount
would thereafter be zero, but this would not affect our ability to draw funds
from Treasury under the Purchase Agreement.
The senior preferred stock is senior to our common stock and all other
outstanding series of our preferred stock, as well as any capital stock we issue
in the future, as to both dividends and rights upon 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:
n   Pay dividends on our equity securities, other than the senior preferred stock

or warrant, or repurchase our equity securities;

n Issue any additional equity securities, except in limited instances;




n   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

n 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:
n   Since 2014, we have been managing the mortgage-related investments portfolio

so that it does not exceed 90% of the cap, which reached $250 billion as of

December 31, 2018. In February 2019, FHFA directed us to maintain the

mortgage-related investments portfolio at or below $225 billion at all times.

n 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 debt cap under the Purchase Agreement was $346.1

billion in 2018 and declined to $300.0 billion on January 1, 2019. As of

December 31, 2019, our aggregate indebtedness for purposes of the debt cap

was $283.2 billion.

n FHFA has 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 mortgage-related investments
portfolio affect all three business segments. In order to achieve all of our
portfolio goals, it is possible that we may forgo economic opportunities in one
business segment in order to pursue opportunities in another business segment.
Our results against the limits imposed on our mortgage-related investments
portfolio and aggregate indebtedness for the year ended December 31, 2019 are
shown below.

FREDDIE MAC | 2019 Form 10-K   124

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Management's Discussion and Analysis Conservatorship and Related Matters


                       Mortgage Assets as of December 31,

[[Image Removed: chart-ef7f34e1fab351519b2a01.jpg]]


                        Indebtedness as of December 31,
[[Image Removed: chart-7581e8a6cb945502933a01.jpg]]
Managing Our Mortgage-Related Investments Portfolio Over Time
--------------------------------------------------------------------------------
Our mortgage-related investments portfolio includes assets held by all three
business segments and consists of:
n   Agency securities, which include both single-family and multifamily Freddie

Mac mortgage-related securities and non-Freddie Mac agency mortgage-related


    securities;


n   Non-agency mortgage-related securities, which include single-family

non-agency mortgage-related securities, CMBS, housing revenue bonds, and

other multifamily securities; and

n 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): n Liquid - single-class and multi-class agency securities, excluding certain

structured agency securities collateralized by non-agency mortgage-related


    securities;


n   Securitization Pipeline - primarily includes performing multifamily and

single-family loans purchased for cash and primarily held for a short period

until securitized, with the resulting Freddie Mac issued securities being

sold or retained; and

n Less Liquid - assets that are less liquid than both agency securities and

loans in the securitization pipeline (e.g., reperforming loans, single-family

seriously delinquent loans, and non-agency mortgage-related securities).





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Management's Discussion and Analysis Conservatorship and Related Matters





Freddie Mac mortgage-related securities include mortgage-related securities
issued or guaranteed by Freddie Mac. In prior periods, certain of these
securities that were issued by third-party trusts but guaranteed by Freddie Mac
were classified as non-agency mortgage-related securities. Prior periods have
been revised to conform to the current period presentation.
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.
In February 2019, FHFA directed us to maintain this portfolio at or below $225
billion at all times. In November 2019, FHFA directed us, by January 31, 2020,
to include 10% of the notional value of certain interest-only securities owned
by Freddie Mac in the calculation of this portfolio, while continuing to
maintain the portfolio below the limit imposed by FHFA.
Table 71 - Mortgage-Related Investments Portfolio Details
                                              As of December 31, 2019                                     As of December 31, 2018
                                           Securitiz-ation                                             Securitiz-ation
(Dollars in millions)           Liquid        Pipeline       Less Liquid     Total          Liquid        Pipeline       Less Liquid     Total
Capital Markets segment -
Mortgage investments
portfolio
Single-family
unsecuritized loans
Performing loans                     $-           $19,144            $-      $19,144             $-            $8,955            $-       $8,955
Reperforming loans                    -                 -        26,134       26,134              -                 -        39,402       39,402
Total single-family
unsecuritized loans                   -            19,144        26,134       45,278              -             8,955        39,402       48,357
Agency securities               119,156                 -         2,518      121,674        113,848                 -         3,108      116,956
Non-agency
mortgage-related                      -                 -         1,458        1,458              -                 -         2,122        2,122
securities
Total Capital Markets
segment - Mortgage              119,156            19,144        30,110      168,410        113,848             8,955        44,632      167,435
investments portfolio
Single-family Guarantee
segment - Single-family
unsecuritized seriously
delinquent loans                      -                 -         8,589        8,589              -                 -         8,473        8,473
Multifamily segment
Unsecuritized mortgage
loans                                 -            18,531        11,254       29,785              -            23,203        11,584       34,787
Mortgage-related
securities                        5,209                 -           680        5,889          6,570                 -           815        7,385
Total Multifamily segment         5,209            18,531        11,934       35,674          6,570            23,203        12,399       42,172
Total mortgage-related         $124,365           $37,675       $50,633     $212,673       $120,418           $32,158       $65,504     $218,080
investments portfolio
Percentage of total
mortgage-related                     58 %              18 %          24 %        100 %           55 %              15 %          30 %        100 %
investments portfolio


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
mortgage-related investments portfolio and comply with the mortgage-related
investments portfolio limits. The decline in our holdings of less liquid assets,
which included repayments and active dispositions, accounted for the majority of
the decline in our mortgage-related investments portfolio during 2019. Our
active dispositions of less liquid assets included the following:
n   Sales of $13.6 billion of less liquid assets, including $0.5 billion in UPB

of single-family non-agency mortgage-related securities, $0.2 billion in UPB

of seriously delinquent unsecuritized single-family loans, and $12.9 billion

in UPB of single-family reperforming loans, which use our senior subordinate

securitization structures;

n Securitizations of $3.9 billion in UPB of less liquid multifamily loans; and

n Transfers of $1.9 billion in UPB of less liquid multifamily loans to the

securitization pipeline.




FHFA's Strategic Plan and Scorecards for Freddie Mac and Fannie Mae
Conservatorships
In October 2019, FHFA issued its 2019 Strategic Plan. The 2019 Strategic Plan
described FHFA's new direction to reform the housing finance system and Freddie
Mac and Fannie Mae.
The 2019 Strategic Plan established three reformulated strategic goals for the
conservatorships of Freddie Mac and Fannie Mae:
n   Focus on their core mission responsibilities to foster competitive liquid,
    efficient, and resilient (CLEAR) national housing finance markets that
    support sustainable homeownership and affordable rental housing;



FREDDIE MAC | 2019 Form 10-K   126


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Management's Discussion and Analysis Conservatorship and Related Matters





n   Operate in a safe and sound manner appropriate for entities in
    conservatorship; and

n Prepare for their eventual exits from the conservatorship.




FHFA has also published annual Conservatorship Scorecards for Freddie Mac and
Fannie Mae, which establish annual objectives as well as performance targets and
measures since 2014. FHFA issued the 2019 Conservatorship Scorecard in December
2018. FHFA issued the 2020 Conservatorship Scorecard in October 2019, which
aligns with the reformulated strategic goals of the 2019 Strategic Plan. We
continue to align our resources and internal business plans to meet the goals
and objectives provided by FHFA.
For information about how the Conservatorship Scorecard affects executive
compensation, see Executive Compensation - Compensation Discussion and Analysis.
For information about the 2019 Conservatorship Scorecard, see our Current Report
on Form 8-K filed on December 20, 2018. For information about the 2020
Conservatorship Scorecard, see our Current Report on Form 8-K filed on October
29, 2019.
For more information on the conservatorship and related matters, see Regulation
and Supervision, Risk Factors - Conservatorship and Related Matters, Note 2,
Note 11, and Directors, Corporate Governance, and Executive Officers - Board and
Committee Information - Authority of the Board and Board Committees.

FREDDIE MAC | 2019 Form 10-K 127

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Management's Discussion and Analysis Regulation and Supervision





REGULATION AND SUPERVISION
In addition to our oversight by FHFA as our Conservator, we are subject to
regulation and oversight by FHFA under our Charter and the GSE Act and to
certain regulation by other government agencies. Furthermore, regulatory
activities by other government agencies can affect us indirectly, even if we are
not directly subject to such agencies' regulation or oversight. For example,
regulations that modify requirements applicable to the purchase or servicing of
mortgages can affect us.
Federal Housing Finance Agency
FHFA is an independent agency of the federal government responsible for
oversight of the operations of Freddie Mac, Fannie Mae, and the FHLBs.
Under the GSE Act, FHFA has safety and soundness authority that is comparable
to, and in some respects broader than, that of the federal banking agencies.
FHFA is responsible for implementing the various provisions of the GSE Act that
were added by the Reform Act.
Receivership
--------------------------------------------------------------------------------
Under the GSE Act, FHFA must place us into receivership if FHFA determines in
writing that our assets are less than our obligations for a period of 60 days.
FHFA notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no
earlier than the SEC public filing deadline for our quarterly or annual
financial statements and would continue for 60 calendar days after that date.
FHFA also advised us that, if, during that 60-day period, we receive funds from
Treasury in an amount at least equal to the deficiency amount under the Purchase
Agreement, the Director of FHFA will not make a mandatory receivership
determination. In addition, we could be put into receivership at the discretion
of the Director of FHFA at any time for other reasons set forth in the GSE Act.
Certain aspects of conservatorship and receivership operations of Freddie Mac,
Fannie Mae, and the FHLBs are addressed in an FHFA rule. Among other provisions,
the rule indicates that FHFA generally will not permit payment of securities
litigation claims during conservatorship and that claims by current or former
shareholders arising as a result of their status as shareholders would receive
the lowest priority of claim in receivership. In addition, the rule indicates
that administrative expenses of the conservatorship will also be deemed to be
administrative expenses of receivership and that capital distributions may not
be made during conservatorship, except as specified in the rule.
Capital Standards
--------------------------------------------------------------------------------
FHFA suspended capital classification of us during conservatorship in light of
the Purchase Agreement. The existing statutory and FHFA regulatory capital
requirements are not binding during the conservatorship. These capital standards
are described in Note 17. Under the GSE Act, FHFA has the authority to increase
our minimum capital levels temporarily or to establish additional capital and
reserve requirements for particular purposes.
Pursuant to an FHFA rule, FHFA-regulated entities are required to conduct annual
stress tests to determine whether such companies have sufficient capital to
absorb losses as a result of adverse economic conditions. Under the rule,
Freddie Mac is required to conduct annual stress tests using scenarios specified
by FHFA that reflect certain economic and financial conditions and publicly
disclose the results of the stress test under the "severely adverse" scenario.
In August 2019, we disclosed the results of our most recent "severely adverse"
scenario stress test which projected an improvement in the amount of available
funding remaining under the Purchase Agreement compared to the test results
disclosed in August 2018.
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 the affordable housing goals, we may make

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Management's Discussion and Analysis Regulation and Supervision





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.
Current FHFA housing goals applicable to our purchases consist of four goals and
one subgoal for single-family owner-occupied housing, one multifamily affordable
housing goal, and two multifamily affordable housing subgoals. Single-family
goals are expressed as a percentage of the total number of eligible loans
underlying our total single-family loan purchases, while the multifamily goals
are expressed in terms of minimum numbers of units financed.
Three of the single-family housing goals and the subgoal target purchase
mortgage 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 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.
We may achieve a single-family or multifamily housing goal by meeting or
exceeding the FHFA benchmark for that goal (Goal). We also may achieve a
single-family goal by meeting or exceeding the actual share of the market that
meets the criteria for that goal (Market Level).
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. See Risk Factors - Legal And Regulatory Risks -
We may make certain changes to our business in an attempt to meet our housing
goals and duty to serve requirements, which may adversely affect our
profitability.
2018 Affordable Housing Goal Results and Housing Plan
--------------------------------------------------------------------------------
In December 2019, FHFA informed us that, for 2018, we achieved all five of our
single-family affordable housing goals and all three of our multifamily goals.
Our performance compared to our goals, as determined by FHFA for 2018 and 2017,
is set forth below.
Table 72 - 2018 and 2017 Affordable Housing Goals Results
                                                     2018                                 2017
Affordable Housing Goals                Goals    Market Level   Results      Goals    Market Level   Results
Single-family purchase money goals
Low-income                                 24 %       25.5 %      25.8 %        24 %       24.3 %      23.2 %
Very low-income                             6 %        6.5 %       6.3 %         6 %        5.9 %       5.7 %
Low-income areas                           18 %       22.6 %      22.6 %        18 %       21.5 %      20.9 %
Low-income areas subgoal                   14 %       18.0 %      17.3 %        14 %       17.1 %      16.4 %
Single-family refinance low-income
goal                                       21 %       30.7 %      27.3 %        21 %       25.4 %      24.8 %
Multifamily low-income goal (In
units)                                315,000          N/A     474,062     300,000          N/A     408,096
Multifamily very low-income subgoal
(In units)                             60,000          N/A     105,612      60,000          N/A      92,274
Multifamily small property
low-income subgoal (In units)          10,000          N/A      39,353      10,000          N/A      39,473


Due to our failure to meet two of the five single-family housing goals for 2014
and 2015, we operated under an FHFA-required housing plan through 2018. FHFA has
not required us to extend our housing plan beyond 2018. Although FHFA has
determined that we met our affordable housing goals in 2018, FHFA will continue
to closely monitor and evaluate our 2019 housing goals performance.

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Management's Discussion and Analysis Regulation and Supervision

2019-2020 Affordable Housing Goals -------------------------------------------------------------------------------- Our affordable housing goals for 2019 and 2020 are set forth below. Table 73 - 2019-2020 Affordable Housing Goals


                                                              2019      

2020


Single-family purchase money goals (Benchmark levels):
Low-income                                                       24 %      24 %
Very low-income                                                   6 %       6 %
Low-income areas                                                 19 %     TBD
Low-income areas subgoal                                         14 %      14 %
Single-family refinance low-income goal (Benchmark level)        21 %      21 %
Multifamily low-income goal (In units)                      315,000   

315,000


Multifamily very low-income subgoal (In units)               60,000    

60,000

Multifamily small property low-income subgoal (In units) 10,000 10,000




We expect to report our performance with respect to the 2019 affordable housing
goals in March 2020. At this time, based on preliminary information, we believe
we met all five of our single-family goals and our three multifamily goals for
2019. We expect that FHFA will make a final determination on our 2019
performance following the release of market data in 2020.
Duty to Serve Underserved Markets Plan
--------------------------------------------------------------------------------
The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three
underserved markets (manufactured housing, affordable housing preservation, and
rural areas) by providing leadership in 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 2017, FHFA released Freddie Mac's underserved markets plan for
2018-2020. The plan became effective January 1, 2018. On December 20, 2019, FHFA
published Freddie Mac's modified underserved markets plan for 2018-2020. FHFA
evaluated Freddie Mac's performance under the plan for 2018 and determined it
was satisfactory.
Affordable Housing Fund Allocations
--------------------------------------------------------------------------------
The GSE Act requires us to set aside in each fiscal year an amount equal to
4.2 basis points of each dollar of total new business purchases, and pay such
amount to certain housing funds. FHFA suspended this requirement when we were
placed into conservatorship. However, in December 2014, FHFA terminated the
suspension and instructed us to begin setting aside and paying amounts into
those funds, subject to any subsequent guidance or instruction from FHFA.
During 2019, we completed $529.1 billion of new business purchases subject to
this requirement and accrued $222.2 million of related expense, of which $144.4
million is related to the Housing Trust Fund administered by HUD and $77.8
million is related to the Capital Magnet Fund administered by Treasury. We are
prohibited from passing through the costs of these allocations to the
originators of the loans that we purchase.
Portfolio Activities
--------------------------------------------------------------------------------
The GSE Act provides FHFA with the power to regulate the size and content of our
mortgage-related investments portfolio. The GSE Act requires FHFA to establish,
by regulation, criteria governing portfolio holdings to ensure the holdings are
backed by sufficient capital and consistent with our mission and safe and sound
operations. FHFA adopted the portfolio holdings criteria established in the
Purchase Agreement, as it may be amended from time to time, for so long as we
remain subject to the Purchase Agreement. See Conservatorship and Related
Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness
for more information.

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Management's Discussion and Analysis Regulation and Supervision





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 2019 and 2018, we did not call, repurchase, or issue
any Freddie SUBS® securities. The last outstanding issue of Freddie SUBS
securities matured in December 2018.
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. In October 2019, Treasury released its
2019 Strategic Plan, which includes a goal of reforming the housing finance
system and ending the conservatorships of Freddie Mac and Fannie Mae.
Consumer Financial Protection Bureau
The CFPB regulates consumer financial products and services. The CFPB adopted a
number of final rules relating to loan origination, finance, and servicing
practices that generally went into effect in January 2014. The rules include an
ability-to-repay rule, which requires loan originators to make a reasonable and
good faith determination that a borrower has a reasonable ability to repay the
loan according to its terms. This rule provides certain protection from
liability for originators making loans that satisfy the definition of a
qualified mortgage. The ability-to-repay rule applies to most loans acquired by
Freddie Mac, and for loans covered by the rule, FHFA has directed us to limit
our single-family acquisitions to loans that generally would constitute
qualified mortgages under applicable CFPB regulations. The directive generally
restricts us from acquiring loans that are not fully amortizing, have a term
greater than 30 years, or have points and fees in excess of 3% of the total loan
amount. Under CFPB rules, one category of qualified mortgages consists of loans
that are eligible for purchase or guarantee by either Freddie Mac or Fannie
Mae. This category of qualified mortgages is scheduled to expire in January
2021, although the CFPB has indicated that it may permit an extension of this
category of qualified mortgages. The CFPB also has indicated that it intends to
amend the ability-to-repay rule, including by making revisions to the definition
of qualified mortgage.
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:
n   Securities we issue or guarantee are "exempted securities" and may be sold

without registration under the Securities Act of 1933;

n We are excluded from the definitions of "government securities broker" and

"government securities dealer" under the Exchange Act;

n The Trust Indenture Act of 1939 does not apply to securities issued by us; and

n 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.





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Management's Discussion and Analysis Regulation and Supervision





Legislative and Regulatory Developments
Legislation Related to Freddie Mac and Its Future Status
--------------------------------------------------------------------------------
Our future structure and role will be determined by the Administration,
Congress, and FHFA, and it is possible, and perhaps likely, that there will be
significant changes beyond the near-term.
Several bills have been introduced in past sessions of Congress concerning the
future status of Freddie Mac, Fannie Mae, and the mortgage finance system,
including bills that provided for the wind down of Freddie Mac and Fannie Mae,
modification of the terms of the Purchase Agreement, or an increase in CRT
transactions. None of these bills have been enacted. It is likely that similar
or new bills will be introduced and considered in the future. We cannot predict
whether any of such bills will be enacted.
Treasury Housing Reform Plan
--------------------------------------------------------------------------------
On September 5, 2019, Treasury released its plan to reform the housing finance
system pursuant to the goals specified in the presidential memorandum issued on
March 27, 2019. The Treasury Housing Reform Plan (the Plan) includes 49
recommended legislative and administrative reforms that would advance the reform
goals outlined in the presidential memorandum: ending the conservatorships of
the GSEs, facilitating competition in the housing finance system, establishing
regulation of the GSEs that safeguards their safety and soundness and minimizes
the risks they pose to the financial stability of the United States, and
providing that the federal government is properly compensated for any explicit
or implicit support it provides to the GSEs or the secondary housing finance
market.
Among other things, Treasury states that its preference and recommendation is
for Congress to enact comprehensive housing finance reform legislation.
Specifically, the Plan indicates that legislative reforms should replace the
existing Purchase Agreements with an explicit, paid-for guarantee backed by the
full faith and credit of the federal government that is limited to the timely
payment of principal and interest on qualifying MBS. The explicit government
guarantee should be available to re-chartered GSEs and to any other
FHFA-approved guarantors of MBS collateralized by eligible conventional mortgage
loans or eligible multifamily mortgage loans. Further, the government's
guarantee would stand behind significant first-loss private capital and would be
triggered only in exigent circumstances.
To ensure stability in the housing finance system pending comprehensive housing
finance reform legislation, the Plan indicates that it will be necessary to
maintain limited and tailored government support for the GSEs by leaving the
Purchase Agreement commitments in place after the GSE conservatorships. The Plan
notes that the government should be compensated for its continued support
through a periodic commitment fee.
The Plan also indicates that FHFA should begin the process of ending the GSE
conservatorships. It recommends that the Purchase Agreements be amended to
enhance Treasury's ability to mitigate the risk of a draw on the commitments
after the conservatorships have ended. It also indicates that other Purchase
Agreement amendments should ensure that each GSE continues to be subject to
appropriate mission and safety and soundness regulation after conservatorship
and that future GSE activities are limited to those that have a close nexus to
the underlying rationale for government support.
Treasury has indicated that it will continue to support FHFA's administrative
actions to enhance regulation of the GSEs, promote private sector competition,
and satisfy preconditions for ending the GSEs' conservatorships. We cannot
predict whether Congress will enact legislation or FHFA will take administrative
action that is consistent with these recommendations.

FREDDIE MAC | 2019 Form 10-K 132

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Management's Discussion and Analysis Contractual Obligations





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, 2019.
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, STACR
transactions, and SCR notes). The timing of actual future payments may differ
from those presented due to a number of factors, including discretionary debt
repurchases.
The amounts of future interest payments on debt securities outstanding at
December 31, 2019 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, 2019 until maturity and callable debt continues to accrue
interest until its contractual maturity. Accordingly, the amounts presented in
the table do not represent a forecast of our future cash interest payments or
interest expense.
Our contractual obligations include purchase obligations that are enforceable
and legally binding, and exclude contracts that we may cancel without penalty.
We include our purchase obligations through the termination date specified in
the respective agreement, even if the contract is renewable.
The table excludes certain obligations that could significantly affect our
short- and long-term liquidity and capital resource needs. These items, which
are listed below, have generally been excluded because the amount and timing of
the related future cash payments are uncertain:
n   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 securities in certain

circumstances, including when loans are 120 days or more delinquent, and

retire the associated debt securities of consolidated trusts;

n Future payments of principal and interest related to STACR transactions and

SCR notes, as well as payment of premiums related to ACIS transactions and

payments to support the interest due on STACR Trust notes, because the amount

and timing of such payments are contingent upon the occurrence of future

events on the reference pool of mortgage loans and are therefore uncertain;

n 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;

n 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;


n   Future dividends on outstanding preferred stock (other than the senior

preferred stock), because dividends on these securities are non-cumulative


    and because we are currently prohibited from paying dividends on these
    securities; and


n   The guarantee payments and commitments to advance funds pertaining to
    off-balance sheet arrangements.


Table 74 - Contractual Obligations
(In millions)                Total         2020        2021        2022        2023        2024      Thereafter
Other long-term debt(1)     $156,381      $45,133     $30,069     $23,185     $13,413     $26,966       $17,615
Other short-term
debt(1)                      111,080      111,080           -           -           -           -             -
Interest payable(2)           20,933       10,066       2,345       1,828       1,461       1,159         4,074
Other contractual
liabilities reflected
on our consolidated
balance sheets(3)              3,243        2,550         386          94           8           9           196
Purchase obligations:
Purchase commitments(4)       47,381       44,559       1,128       1,315         379           -             -
Other purchase
obligations(5)                   380          170          96          56          29          20             9
Lease obligations                 93           17          13          10           8           8            37
Total specified
contractual obligations     $339,491     $213,575     $34,037     $26,488     $15,298     $28,162       $21,931

(1) Represents par value. Callable debt is included in this table at its

contractual maturity. For additional information about our debt, see Note 8.

(2) Includes estimated future interest payments on our short-term and long-term

debt securities as well as the accrual of periodic cash settlements of

derivatives, netted by counterparty. Also includes accrued interest payable

recorded on our consolidated balance sheet.

(3) Includes (i) obligations related to our qualified and non-qualified defined

contribution plans, retiree medical plan, and other benefit plans; (ii)

future cash payments due under our contractual obligations to make delayed

equity contributions to LIHTC partnerships; and (iii) payables to the

consolidated trusts established for the administration of cash remittances

received related to the underlying assets of Freddie Mac 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. Future cash payments for certain purchase
     commitments are based on the contractual maturity date.


(5)  Primarily includes unconditional purchase obligations that are legally
     binding and that are subject to a cancellation penalty.



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Management's Discussion and Analysis Off-Balance Sheet Arrangements





OFF-BALANCE SHEET ARRANGEMENTS
We enter into certain business arrangements that are not recorded on our
consolidated balance sheets or that may be recorded in amounts that differ from
the full contract or notional amount of the transaction and that may expose us
to potential losses in excess of the amounts recorded on our consolidated
balance sheets. See Note 3 and Note 5 for more information on our off-balance
sheet securitization and guarantee activities.
Securitization Activities and Other Guarantees
We have certain off-balance sheet arrangements related to our securitization
activities involving guaranteed loans and mortgage-related securities, though
most of our securitization activities are on-balance 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 $296.5 billion and $254.9
billion at December 31, 2019 and December 31, 2018, respectively. The amount as
of December 31, 2019 excludes Fannie Mae securities backing Freddie Mac
resecuritization products discussed below.
With the implementation of the Single Security Initiative, we now have the
ability to commingle TBA-eligible Fannie Mae collateral in certain of our
resecuritization products. When we resecuritize Fannie Mae securities in our
commingled resecuritization products, our guarantee covers timely payments of
principal and interest on such securities. Accordingly, commingling Fannie Mae
collateral in our resecuritization transactions increases our off-balance sheet
exposure as we do not have control over the Fannie Mae collateral.
As of December 31, 2019, the total amount of our off-balance sheet exposure
related to Fannie Mae securities backing Freddie Mac resecuritization products
was approximately $27.4 billion. We expect this exposure to increase over time.
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 $5.5 billion and $6.7 billion at December 31, 2019 and
December 31, 2018, 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, 2019 and December 31, 2018,
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.
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 -
Counterparty Credit Risk - Financial Intermediaries, Clearinghouses, and Other
Counterparties -Derivative Counterparties and Note 9. We also enter into
purchase commitments primarily related to future guarantor swap transactions for
single-family loans, and, to a lesser extent, index lock commitments and
commitments to purchase or guarantee multifamily loans. These non-derivative
commitments totaled $450.1 billion and $382.1 billion in notional value at
December 31, 2019 and December 31, 2018, respectively.
In connection with the execution of the Purchase Agreement, we, through FHFA, in
its capacity as Conservator, issued a warrant to Treasury to purchase 79.9% of
our common stock outstanding on a fully diluted basis on the date of exercise.
See Note 11 for further information.

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Management's Discussion and Analysis Critical Accounting Policies and Estimates






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 allowance for loan losses 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 these
adjustments.
Some examples of the qualitative factors considered include:
n Regional housing trends;


n Applicable home price indices;

n Unemployment and employment dislocation trends;

n The effects of changes in government policies and programs;




n Industry trends;


n Consumer credit statistics;

n Third-party credit enhancements; and

n Natural disasters (such as hurricanes and wildfires).




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.

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Management's Discussion and Analysis Critical Accounting Policies and Estimates






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:
n Mortgage-related and non-mortgage related securities;


n Certain loans held-for-sale;

n Derivative instruments; and

n Certain debt securities of consolidated trusts held by third parties and

certain other debt.




The accounting guidance for fair value measurements establishes a framework for
measuring fair value, and also establishes a three-level fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure fair value
based on the assumptions a market participant would use at the measurement date.
Fair value measurements under this hierarchy are distinguished among quoted
market prices, observable inputs, and unobservable inputs. The measurement of
fair value requires management to make judgments and assumptions. The process
for determining fair value using unobservable inputs is generally more
subjective and involves a higher degree of management judgment and assumptions
than the measurement of fair value using observable inputs. These judgments and
assumptions may have a significant effect on our measurements of fair value, and
the use of different judgments and assumptions, as well as changes in market
conditions, could have a material effect on our consolidated statements of
comprehensive income and consolidated balance sheets. See Note 15 for additional
information regarding fair value hierarchy and measurements, valuation risk, and
controls over fair value measurement.


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Risk Factors Conservatorship and Related Matters





Risk Factors
The following section discusses material risks and uncertainties that could
adversely affect our business, financial condition, results of operations, cash
flows, reputation, strategies, and/or prospects.
CONSERVATORSHIP AND RELATED MATTERS
Freddie Mac's future is uncertain.
It is possible and perhaps likely that future legislative or regulatory action
will materially affect our role in the mortgage industry, business model,
structure, and results of operations. Some or all of our functions could be
transferred to other institutions, and we could cease to exist as a
stockholder-owned company, or at all. If any of these events occur, our shares
could further diminish in value, or cease to have any value. Our stockholders
may not receive any compensation for such loss in value.
Several bills have been introduced in past sessions of Congress concerning the
future status of Freddie Mac, Fannie Mae, and the mortgage finance system,
including bills which provided for the wind down of Freddie Mac and Fannie Mae,
modification of the terms of the Purchase Agreement, or an increase in CRT
transactions. While none of these bills has been enacted, it is likely that
similar or new bills will be introduced and considered in the future. In
addition, in September 2019, Treasury released a plan to reform the housing
finance system, which includes recommended legislative and administrative
reforms that would advance the reform goals outlined in the presidential
memorandum issued in March 2019, including ending the conservatorships of
Freddie Mac and Fannie Mae, facilitating competition in the housing finance
system, establishing regulation of the GSEs that safeguards their safety and
soundness and minimizes the risks they pose to financial stability, and
providing that the federal government is properly compensated for any explicit
or implicit support it provides to the GSEs or the secondary housing finance
market. It is possible that the Administration could take steps, even in the
absence of legislative action, to implement certain aspects of such a plan.
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, except in connection with receivership, and
there can be no assurance it would do so. Even if the conservatorship is
terminated, we would remain subject to the Purchase Agreement and the terms of
the senior preferred stock. It is possible that the conservatorship could end
with our being placed into receivership.
Because Treasury holds a warrant to acquire nearly 80% of our common stock for
nominal consideration, we could effectively remain under the control of the U.S.
government even if the conservatorship ends and the voting rights of common
stockholders are restored. If Treasury exercises the warrant, the ownership
interest of our existing common stockholders will be substantially diluted.
In the past several years, numerous lawsuits have been filed against the U.S.
government, Freddie Mac, and Fannie Mae challenging certain government actions
related to the conservatorship and the Purchase Agreement. These lawsuits may
add to the uncertainty surrounding our future.
For more information, see MD&A - Regulation and Supervision - Legislative and
Regulatory Developments, Legal Proceedings and Note 16.
FHFA and the Administration have announced that ending the conservatorships of
Freddie Mac and Fannie Mae is one of their goals for housing finance reform. It
remains uncertain whether or when, and the terms under which, we may exit from
conservatorship.
We continue to take steps to help prepare Freddie Mac for a potential exit from
conservatorship. We continue to increase our capital level as a result of the
increase in the applicable Capital Reserve Amount under the Purchase Agreement
to $20.0 billion. However, the increases in our capital level since September
30, 2019 pursuant to the September 2019 Letter Agreement have been or will be
added to the aggregate liquidation preference of the senior preferred stock. In
addition, in order to raise a sufficient level of capital, the applicable
Capital Reserve Amount will need to be further increased or the terms of the
senior preferred stock will need to be otherwise amended to allow us to retain
and/or raise capital through equity offerings. It is uncertain whether or when
we will be able to retain or raise sufficient capital for FHFA to end our
conservatorship, and this may not happen for several years or at all. It is also
uncertain whether our level of capital will be the only factor FHFA considers in
deciding whether or when to end our conservatorship.
If we were to exit from conservatorship, our post-conservatorship capital,
legal, and governance structure and the terms of our exit are unclear. In order
to build sufficient capital, we may need to raise private capital through the
issuance of new equity securities. The terms of any new securities offered, such
as any new classes of preferred stock, could be onerous and could adversely
affect long-term profitability. It may not be possible for us to raise private
capital on acceptable terms, if at all, and may be particularly challenging so
long as the senior preferred stock and warrant held by Treasury remain
outstanding. In addition, actions taken by Treasury with respect to the senior
preferred stock or exercise of the warrant could adversely affect

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Risk Factors Conservatorship and Related Matters





our ability to raise capital. Treasury's imposition of a commitment fee for its
ongoing support of our business could adversely affect our profitability and
ability to raise private capital.
Further, actions taken by FHFA, the Administration, or Congress, pursuant to the
Treasury Housing Reform Plan or otherwise, could change or limit our business
activities, operations, or competitive landscape, which could adversely affect
our business or financial results and render us a less attractive investment
opportunity.
We cannot retain capital from the earnings generated by our business operations
in excess of the applicable Capital Reserve Amount under the Purchase Agreement,
which could result in our having to request additional draws from Treasury in
future periods.
As a result of the net worth sweep dividend requirement, we cannot retain
capital from the earnings generated by our business operations in excess of the
applicable Capital Reserve Amount, which is currently $20.0 billion. If for any
reason we were not to pay our dividend requirement on the senior preferred stock
in full in any future period, the applicable Capital Reserve Amount would
thereafter be zero, and we would not be able to retain any capital from the
earnings generated by our business. While in conservatorship, dividends we pay
to Treasury are declared by, and paid at the direction of, the Conservator,
acting as successor to the rights, titles, powers, and privileges of the Board.
Our inability to build and retain capital in excess of the applicable Capital
Reserve Amount could cause us to require draws in future periods. A variety of
factors could influence whether we could require a draw, including the
following:
n   Deterioration of economic conditions, including increased levels of
    unemployment and declines in home prices or family incomes;


n   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;

n The success of any transactions or other steps we may take intended to help

reduce earnings variability and address some of the measurement differences


    between our GAAP financial results and the underlying economics of our
    business, including the adoption of hedge accounting;


n   Limitations on 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;

n Restrictions on our single-family guarantee activities that could reduce our

income from these activities;

n 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;

n Adverse changes in our liquidity, funding, or hedging costs or limitations on


    our access to public debt markets;


n   A failure of one or more of our major counterparties to meet their
    obligations to us;

n The effects of our loss mitigation efforts and foreclosure and REO activities;

n Changes in accounting policies, practices, or guidance (e.g., our adoption of

CECL);

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

offices or significant portions of our total mortgage portfolio are located;


    or


n   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, as our Conservator, controls 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, such as the initiatives we are pursuing under the
Conservatorship Scorecards. Some of the activities FHFA has required us to
undertake have been costly and difficult to implement, such as our support of
the CSP.
FHFA has required us to make changes to our business that have adversely
affected our financial results and could require us to make additional changes
at any time. For example, FHFA may require us to undertake activities that:
n Reduce our profitability;


n   Expose us to additional credit, market, funding, operational, and other
    risks; or

n Provide additional support for the mortgage market that serves our public


    mission, but adversely affects our financial results.





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Risk Factors Conservatorship and Related Matters





FHFA also has required us to take other actions that may adversely affect our
business or financial results, such as directing us to amend the CSS LLC
agreement in January 2020. These amendments, which expanded the size of the CSS
Board and removed the requirement that any CSS Board decision must be approved
by at least one of the CSS Board members appointed by Freddie Mac, reduce our
ability to control CSS Board decisions, even after conservatorship, including
decisions about strategy, business operations, and funding. Under the revised
CSS LLC agreement, the CSS Board will continue to include two Freddie Mac
representatives and two Fannie Mae representatives, and it will also include two
new members: the Chief Executive Officer of CSS and an independent,
non-Executive Chair. During conservatorship, the CSS Board Chair will be
designated by FHFA, and all CSS Board decisions will require the affirmative
vote of the Board Chair. During conservatorship, FHFA also may appoint up to
three additional independent members to the CSS Board, who along with the Board
Chair and the Chief Executive Officer of CSS may continue to serve on the CSS
Board after conservatorship. If FHFA appoints three additional CSS Board
members, the CSS Board members we and Fannie Mae appoint could be outvoted by
non-GSE designated Board members on any matter during conservatorship and on a
number of significant matters, including approval of the annual budget and
strategic plan for CSS (so long as they do not involve a material business
change or involve capital contributions beyond those necessary to support CSS's
ordinary business operations), if either we or Fannie Mae exits from
conservatorship. It is possible that FHFA may require us to make additional
changes to the CSS LLC agreement, or may otherwise impose restrictions or
provisions relating to CSS or the UMBS, that may adversely affect us.
From time to time, FHFA has prevented us from engaging in business activities or
transactions that we believe would be profitable, and it may do so again in the
future. For example, FHFA could further limit the size of our mortgage-related
investments portfolio or the amount of new multifamily business we may obtain,
or it could establish limits on our single-family business.
Due to the reduced earnings capacity of our mortgage-related investments
portfolio, we are placing greater emphasis on our guarantee activities to
generate revenue. However, our ability to do so may be limited for several
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. 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 Purchase Agreement and the terms of the senior preferred stock significantly
limit our business activities.
The Purchase Agreement and the terms of the senior preferred stock place
significant restrictions on our ability to manage our business, including
limiting:
n The amount of indebtedness we may incur;


n The size of our mortgage-related investments portfolio; and

n Our ability to pay dividends, transfer certain assets, raise capital, and pay

down the liquidation preference of the senior preferred stock.




The limitation on the size of our mortgage-related investments portfolio, as
required by the Purchase Agreement and FHFA, and other limitations on our
investment activity, including significant constraints on our ability to
purchase or sell mortgage assets, will reduce the earnings capacity of our
mortgage-related investments portfolio. The cap on our mortgage-related
investments portfolio may, at times, force us to sell mortgage assets at
unattractive prices. There can be no assurance 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.
The Purchase Agreement prohibits us from taking a variety of actions without
Treasury's consent. Treasury has the right to withhold its consent for any
reason. The warrant held by Treasury, the restrictions on our business under the
Purchase Agreement, and the senior status and net worth sweep dividend
provisions of the senior preferred stock could adversely affect our ability to
attract capital from the private sector in the future, should we be in a
position to do so.
If FHFA placed us into receivership, our assets would be liquidated. The
liquidation proceeds might not be sufficient to pay claims outstanding against
Freddie Mac, repay the liquidation preference of our preferred stock, or make
any distribution to our common stockholders.
We can be put into receivership at the discretion of the Director of FHFA at any
time for a number of reasons set forth in the GSE Act. Several bills considered
by Congress in the past several years provided for Freddie Mac to be placed into
receivership. In addition, FHFA could be required to place us 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

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Risk Factors Conservatorship and Related Matters





and creditors might have against our assets or under our Charter as a result of
their status as stockholders or creditors, other than possible payment upon our
liquidation.
The GSE Act provides that, if we were placed into receivership, the receiver
would hold the mortgages underlying our mortgage-related securities (and the
payments thereon) for the benefit of the holders of those securities. However,
payments on the mortgages underlying our mortgage-related securities might not
be sufficient to make full payments of principal and interest on the
securities. In that event, if we were unable to fulfill our guarantee, the
holders of our mortgage-related securities would experience delays in receiving
payments on the securities because the relevant systems are not designed to make
partial payments.
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. Proceeds would first
be applied to the secured and unsecured claims against the company, the
administrative expenses of the receiver, and the liquidation preference of the
senior preferred stock. Any remaining proceeds would then be available to repay
the liquidation preference of other series of 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.
Our business and results of operations may be materially adversely affected if
we are unable to attract and retain well-qualified, talented employees across
the company. The conservatorship, the uncertainty of our future, and limitations
on our compensation structure may put us at a disadvantage compared to other
companies in attracting and retaining employees.
Our business is highly dependent on the talents and efforts of our employees. We
face competition, particularly from the financial services and technology
industries, for qualified talent. If we are unable to attract and retain talent,
we increase our risk of operational failures.
Restrictions on employee compensation have been and may be imposed on us, while
we remain in conservatorship, by Congress, FHFA, or Treasury. For example, FHFA
as Conservator has the authority to approve the terms and amount of our
executive compensation and may require us to make changes to our executive
compensation program. In August 2019, FHFA directed us to limit base salaries
for all of our employees to $600,000, and in September 2019, FHFA directed us to
obtain conservator approval for any compensation arrangements for newly hired
employees where the proposed target total direct compensation is $600,000 or
above, or any increase in target total direct compensation for existing
employees where the proposed target total direct compensation is $600,000 or
above. These limitations on our employee compensation structure, as well as the
ongoing conservatorship and uncertainty about our future, could have an adverse
effect on our ability to attract and retain talent.
High-level departures, or a combination of such departures at approximately the
same time, could materially adversely affect our business, results of
operations, and financial condition. For example, turnover in key management
positions and challenges in integrating new management could harm our ability to
manage our business effectively and successfully implement our and FHFA's
current strategic initiatives and could adversely affect our financial
performance.


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Risk Factors Credit Risk



CREDIT RISK
We are subject to mortgage credit risk. Credit losses and costs related to this
risk could adversely affect our financial results.
Mortgage credit risk is the risk that a borrower will fail to make timely
payments on a loan we own or guarantee. This exposes us to the risk of credit
losses and credit-related expenses, which could adversely affect our financial
results. We are primarily exposed to mortgage credit risk with respect to the
single-family and multifamily loans and securities reflected as assets on our
consolidated balance sheets. 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, including K
Certificates, SB Certificates, and certain senior subordinate securitization
structures.
We continue to have 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 -
Single-Family Mortgage Credit Risk - Monitoring Loan Performance and
Characteristics. We also expect to continue acquiring loans with higher LTV
ratios through our Home Possible initiatives, as well as loans with higher DTI
ratios, generally up to 50%, which will increase our exposure to credit risk.
Our efforts to increase eligible borrowers' access to single-family mortgage
credit, including our affordable housing program and our plan for fulfilling our
duty to serve underserved markets, expose us to increased mortgage credit risk.
We face significant risks related to our delegated underwriting process for
single-family loans, including risks related to data accuracy and mortgage
fraud. Changes to the process could increase our risks.
We delegate to our sellers the underwriting for the single-family loans we
purchase or securitize. Our contracts with sellers describe mortgage eligibility
and underwriting standards, and the sellers represent and warrant to us that the
loans they deliver to us meet these standards. We do not independently verify
most of the information provided to us before we purchase or securitize a loan.
This exposes us to the risk that one or more of the parties involved in a
transaction (such as the borrower, property seller, broker, appraiser, title
agent, loan officer, or lender) misrepresented facts about the borrower,
underlying property, or loan, or otherwise engaged in fraud.
We review a sample of loans after we purchase them to determine if they comply
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, 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
under this revised framework, because our ability to seek recovery or repurchase
from sellers is more limited and we must identify breaches of representations
and warranties early in the life of the loan.
Our suite of tools, collectively referred to as Loan Advisor, offers limited
representation and warranty relief for certain loan components that satisfy
automated data analytics related to appraisal quality, collateral valuation,
borrower assets, and borrower income. In general, limited representation and
warranty relief is offered when information provided by the lender is validated
against independent data sources. However, there is a risk that the enhanced
tools and processes provided by Loan Advisor will not enable us to identify all
breaches in a timely manner. For more information, see MD&A - Risk Management -
Single-Family Mortgage Credit Risk - Maintaining Prudent Underwriting Standards
and Quality Control Practices and Managing Seller/Servicer Performance.
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:
n   Reduce our return or result in losses on our single-family guarantee

business, as default rates could be higher than we expected when we issued


    the guarantees;


n   Negatively affect loan pricing, which could cause us to change our
    disposition strategies for our single-family seasoned loans; or


n   Increase our losses on foreclosure alternatives, third-party sales, and
    dispositions of REO properties.


For more information regarding these risks, see MD&A - Risk Management - Credit
Risk.
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

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Risk Factors Credit Risk





refinance loan volumes. A decrease in such volumes could adversely affect these
counterparties, which could increase our exposure to counterparty credit risk.
We are exposed to counterparty credit risk with respect to our business
counterparties. Our financial results may be adversely affected if one or more
of our counterparties fail to meet their contractual obligations to us.
We depend on our institutional counterparties to provide services that are
critical to our business. We face the risk that one or more of our
counterparties may fail to meet their contractual obligations to us. Our major
counterparties include seller/servicers, credit enhancement providers, and
counterparties to derivatives, short-term lending, and other funding
transactions (e.g., cash and other investments transactions).
Many of our major counterparties provide several types of services to us. The
concentration of our exposure to our counterparties remains high. Efforts we
take to reduce exposure to financially weak counterparties could concentrate our
exposure to other counterparties, increase our costs, and reduce our revenue. It
is possible that our counterparties could experience challenging market
conditions that could adversely affect their liquidity and financial condition
and cause some of them to fail. 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 single-family seller/servicers
We are exposed to credit risk from the seller/servicers of our single-family
loans, as described below.
n   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, the complexity of

the servicing function, and heightened liquidity requirements are significant

factors contributing to the risk of a decline in performance by servicers. We

could be adversely affected if our servicers lack appropriate controls,

experience a failure in their controls, or experience a disruption in their

ability to service loans, including as a result of legal or regulatory

actions or ratings downgrades. We also are exposed to fraud by third parties

in the loan servicing function, particularly with respect to short sales and

other dispositions of non-performing assets.




We could attempt to mitigate our exposure to a poorly performing servicer by
terminating its right to service our loans; however, in a highly adverse
economic environment, there could be a scarce capacity in the marketplace and we
may not be able to find successor servicers who have the capacity to service the
affected loans and who are also willing to assume the representations and
warranties of the terminated servicer. In addition, terminating a large servicer
may not be feasible because of the operational and capacity challenges related
to transferring large servicing portfolios. There is also a possibility that the
performance of some loans may degrade during the transition to new servicers.
During a period of heightened delinquencies, we may incur costs and potential
increases in servicing fees if we replace a servicer with a high concentration
of loans in default which are more costly to service. We may also be exposed to
concentrations of credit risk among certain servicers.
n   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

time-consuming 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 representation and warranty framework, revised 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.
n   Increased exposure to non-depository and smaller financial institutions - A

large and increasing volume of our single-family loans is acquired from and

serviced by non-depository and smaller financial institutions. Some of these

institutions may not have the same financial strength or operational

capacity, or be subject to the same level of regulatory oversight, as large

depository institutions. As a result, we face increased risk that these

counterparties could fail to perform their obligations to us. In particular,

non-depository servicers rapidly grew their servicing portfolios in the last

several years. This appears to have resulted in operational strains that have

subjected some of these servicers to regulatory scrutiny. This rapid growth

could expose us to increased risks if any operational strain adversely

affects these servicers' servicing performance or their financial strength.

These institutions also service portfolios for other investors and guarantors

and operational issues related to those portfolios could affect the

performance of our portfolio. In addition, these servicers may not always


    have ready access to appropriate sources of liquidity to finance their
    operations, particularly during periods when the mortgage market is
    experiencing a downturn. If these servicers reduce their servicing
    portfolios, overall servicing capacity may be constrained.


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.
We are also exposed to settlement risk on the non-performance of sellers and
servicers as a result of our forward settlement

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Risk Factors Credit Risk





loan purchase programs in our single-family and multifamily businesses.
For more information, see MD&A - Risk Management - Counterparty Credit Risk -
Sellers and Servicers.
Credit risk related to counterparties to derivatives, funding, short-term
lending, securities, 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:
n   Manage interest-rate risk and other risks related to our investments in

mortgage-related assets;

n Fund our business operations; and

n 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, securities, and other transactions. If a
clearing member or clearinghouse were to fail, we could lose the collateral or
margin posted with the clearing member or clearinghouse.
We are a clearing member of the clearinghouses through which we execute
mortgage-related and Treasury 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.
Certain of our derivatives counterparties and a major derivatives clearinghouse
are based in the United Kingdom. If these entities are adversely affected by
Brexit, this could affect their ability to do business with us, potentially
resulting in further concentration of our exposure to other derivative
counterparties, as well as reduced liquidity and increased costs in the
derivatives market.
For more information, see MD&A - Risk Management - Counterparty Credit Risk -
Financial Intermediaries, Clearinghouses, and Other Counterparties - Other
Counterparties.
Credit risk related to credit enhancement providers
It is unlikely that we will receive full payment of our claims from a few of the
mortgage insurers of single-family loans that we purchased prior to 2009, as
these insurers are insolvent or are paying only a portion of our claims under
our mortgage insurance policies. For more information, see Note 14.
If a mortgage insurer fails to meet its obligations to reimburse us for claims,
our credit losses could increase. In addition, if a regulator determines that a
mortgage insurer lacks sufficient capital to pay all claims when due, the
regulator could take action that might affect the timing and amount of claim
payments made to us. We face similar risks with respect to our counterparties on
ACIS transactions.
We cannot differentiate pricing based on the strength of a mortgage insurer or
revoke a mortgage insurer's status as an eligible insurer without FHFA approval.
In addition, we generally do not select the mortgage insurance provider on a
specific loan because the selection is usually made by the lender at the time
the loan is originated. As a result, we could acquire a concentration of risk to
certain insurance providers. We continue to acquire new loans with mortgage
insurance from mortgage insurers that have credit ratings below investment
grade.
For more information, see MD&A - Risk Management - Counterparty Credit Risk -
Credit Enhancement Providers.
Our loss mitigation activities may be unsuccessful or costly and may adversely
affect our financial results.
Our loss mitigation activities may not be successful. The costs we incur related
to loan modifications and other loss mitigation activities have been, and could
continue to be, significant. For example, we generally 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 to make changes to our loss mitigation activities that
could make these activities more costly to us. FHFA, as Conservator, may
continue to issue directives and Advisory Bulletins to assist borrowers and
align servicing practices for the GSEs. These directives could make these
activities more costly to us, especially with regard to loan modification
initiatives. FHFA may continue to issue these directives for a variety of
reasons, including consumer relief and alignment of the prepayment behavior of
our and Fannie Mae's respective UMBS.
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 costs.
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

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Risk Factors Credit Risk





borrowers' payments may increase the risk that these borrowers will default.
The type of loss mitigation activities we pursue could affect prepayments on our
UMBS, 55-day MBS, PCs, and REMICs, which could affect the value of these
securities or the earnings from mortgage-related assets in our Capital Markets
segment mortgage investments portfolio. In addition, loss mitigation activities
may adversely affect our ability to securitize, resecuritize, and sell the loans
subject to those activities.
We devote significant resources to our borrower assistance initiatives. The size
and scope of these efforts may compete with other business opportunities or
corporate initiatives.
For more information on our loss mitigation activities, see MD&A - Our Business
Segments - Single-Family Guarantee - - Business Results - Loss Mitigation
Activities and MD&A - Risk Management - Single-Family Mortgage Credit Risk -
Engaging in Loss Mitigation Activities.
We have been, and will continue to be, adversely affected by delays and
deficiencies in the single-family foreclosure process.
The average length of time for foreclosure of a Freddie Mac loan has
significantly increased since 2008, particularly in states that require a
judicial foreclosure process, and may further increase. Delays in the
foreclosure process could:
n   Cause our expenses to increase. For example, properties awaiting foreclosure

could deteriorate until we acquire them, resulting in increased expenses to

repair and maintain the properties and

n Adversely affect trends in home prices regionally or nationally, which could

adversely affect our financial results.




We are exposed to increased credit losses and credit related expenses in the
event of a major natural disaster, other catastrophic event, or significant
climate change effects.
The occurrence of a major natural or environmental disaster or similar
catastrophic event, as well as significant climate change effects such as rising
sea levels or wildfires, in an area where we own or guarantee mortgage loans or
REO properties, especially in densely populated geographic areas, could increase
our credit losses and credit related expenses. A natural disaster or
catastrophic event or other significant climate change effect that either
damages or destroys residential or multifamily real estate underlying mortgage
loans or REO properties we own or guarantee, or negatively affects the ability
of borrowers to continue to make payments on mortgage loans we own or guarantee,
could increase our serious delinquency rates and average loan loss severity in
the affected areas. Such events could have a material adverse effect on our
business and financial results. We may not have adequate insurance coverage for
some of these natural, catastrophic, or climate change-related events.
Our CRT transactions may not be available to us in adverse economic conditions.
These transactions also lower our profitability.
We are increasingly using CRT 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 CRT transactions
at acceptable prices during a housing downturn. Some of our CRT transactions are
new, and it is uncertain if there will be adequate demand for them over the long
term. Some of these transactions use 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, and they may not prevent us from
incurring substantial losses. Most of these transactions have termination dates
that are earlier than the maturities of the related loans, and losses on the
loans occurring beyond the terms of the transactions are not covered. The costs
associated with these transactions are significant and may increase. For many of
these transactions, 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.


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Risk Factors Market Risk




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 financial results can be significantly affected by changes in interest
rates.
Interest rates can fluctuate for many reasons, including changes in the fiscal
and monetary policies of the federal government and its agencies as well as
geopolitical events or changes in general economic conditions.
Changes in interest rates could adversely affect the cash flows and prepayment
rates on assets that we own and related debt and derivatives. In addition,
changes in interest rates could adversely affect the prepayment rate or default
rate on the loans that we guarantee. For example:
n   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.

n When interest rates increase:




l      Borrowers with higher risk adjustable-rate loans may have fewer
       opportunities to refinance into fixed-rate loans and

l A borrower's payments on loans with adjustable payment terms, including


       any additional debt obligations (such as home equity lines of credit and
       second liens) with such terms, may increase, which in turn increases the
       risk that the borrower may default on a loan we own or guarantee.


Additionally, we issue callable debt instruments to manage the duration and
prepayment risk of expected cash flows of the mortgage assets we own. We may
exercise the option to repay the outstanding principal balance when interest
rates decrease. However, we may replace the called debt at a higher spread rate
due to the market conditions at that time. In the event we decide not to call
our debt, we may incur higher hedging costs.
We incur costs to manage these risks, which may not be successful. 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 certain of our assets and liabilities,
including derivatives, creates variability in our earnings when interest rates
fluctuate, as some assets and liabilities are measured at amortized cost and
some are measured at fair value, while all derivatives are measured at fair
value. This variability generally is not indicative of the underlying economics
of our business.
We use hedge accounting for certain single-family mortgage loans and long-term
debt, which is intended to reduce the interest-rate volatility in our GAAP
earnings. Our single-family mortgage hedge accounting program is complex and
unique in the industry. We may fail to properly implement this program and
related changes to systems and processes. Even if implemented properly, our
hedge accounting programs may not be effective in reducing earnings volatility,
and our hedges may fail in any given future period, which could expose us to
significant earnings variability in that period. In addition, changes in fair
value of the hedged item related to discontinued fair value hedges that we have
recognized on our consolidated balance sheet are amortized into earnings over
the contractual life of the associated asset or liability and may adversely
affect our earnings in future periods.
Changes in market spreads could negatively affect the fair value of financial
assets and liabilities, 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, derivatives, 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 and could
increase the cost of our activities to support the liquidity and price
performance of our UMBS and other securities. Consequently, a tightening of the
market spreads on our assets may adversely affect our future financial results
and net worth.
Changes in market spreads also affect the fair value of our debt with the fair
value option elected. A narrowing or tightening of the market spreads on a given
liability is typically associated with an increase in the fair value of that
liability, which is recognized as a loss by us.

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Risk Factors Market Risk




The discontinuance of LIBOR after 2021, or before the end of 2021 if LIBOR is
deemed unreliable, could negatively affect the fair value of our financial
assets and liabilities, results of operations, and net worth. A transition to an
alternative reference interest rate could present operational problems, subject
us to increased litigation risk, and result in market disruption. We may be
unable to take a consistent approach across our financial products.
We are not able to predict whether LIBOR will actually cease to exist after
2021, whether SOFR will become the market-accepted benchmark in its place, or
what impact such a transition may have on our business, results of operations,
and financial condition. The transition from LIBOR could affect the financial
performance of instruments we hold, require changes to hedging strategies, and
adversely affect our financial performance. We have various financial products,
including mortgage loans, mortgage-related securities, other debt securities,
and derivatives, that are tied to LIBOR, and we continue to enter into
transactions involving many of these products that will mature after 2021. While
the documentation for certain of these products provides us with discretion to
select an alternative reference rate if LIBOR is discontinued, there is a
possibility of disputes arising with investors and counterparties concerning our
exercise of this discretion. In certain cases, the documentation may not provide
us with discretion to select an alternative reference rate if LIBOR is
discontinued or our discretion may be limited, creating uncertainty and the risk
of legal disputes. These potential challenges in implementing alternative
reference rates could result in investors and counterparties acquiring fewer
products and entering into fewer transactions, which could adversely affect our
business. The large volume of products and transactions that may require changes
to documentation or remediation could present substantial operational and legal
challenges and result in significant costs. We may be unable to have a
consistent approach to a LIBOR transition, including within a particular class
of products, which could disrupt the market for that product. It is possible
that actions we take in connection with the discontinuance of LIBOR, including
the adoption of an alternative reference rate for certain products, could
subject us to basis risk, monetary losses, and possible litigation.
The use of SOFR as the alternative reference rate for LIBOR-based products
currently presents certain market concerns. Among the concerns, a term structure
for SOFR has not yet been developed and there is not yet a generally accepted
methodology for adjusting SOFR so that it will be substantially comparable to
LIBOR. SOFR represents an overnight, risk-free rate, whereas LIBOR has various
tenors and reflects a credit risk component. There is no guarantee that a
market-accepted term structure for SOFR will exist prior to any discontinuance
of LIBOR. In addition, recent volatility in the SOFR index has raised concerns
among certain market participants about the transition to SOFR as an alternative
reference rate. It is uncertain what other rates might be appropriate to use and
how soon widespread market adoption of SOFR will occur. Although the majority of
the single-family ARMs and multifamily floating-rate loans that we currently
purchase is tied to LIBOR, we also currently purchase single-family ARMs tied to
constant maturity Treasury indices published by the Federal Reserve Board. On
February 5, 2020, we announced that we will cease purchasing single-family ARMs
and multifamily floating-rate loans tied to LIBOR in 4Q 2020, and we announced
our intention to develop a plan to cease purchasing single-family ARMs tied to
constant maturity Treasury indices, which we anticipate will be implemented in
2021 upon guidance from FHFA. It is uncertain how long it will take affected
market participants to develop the systems and processes necessary to originate
and sell ARMs and floating-rate loans tied to SOFR or any other new indices that
may be developed, which may cause a reduction in our purchase of single-family
ARMs and multifamily floating-rate loans after these changes are implemented.
Inconsistent approaches to a transition from LIBOR to an alternative rate among
different market participants and for different financial products may cause
market disruption and operational problems, which could adversely affect us,
including by exposing us to increased basis risk and resulting in increased
costs in connection with our hedging and other business activities.
As described above, we have identified material exposures to LIBOR but cannot
reasonably estimate the expected impact of such exposure. For additional
information regarding the actions we have taken to prepare for an orderly
transition from LIBOR, see MD&A - Risk Management - Market Risk - Transition
from LIBOR.


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Risk Factors Operational Risks






OPERATIONAL RISKS
A failure in our operational systems or infrastructure, or those of third
parties, could impair our liquidity, disrupt our business, damage our
reputation, and cause losses.
We face significant levels of operational risk due to a variety of factors,
including the size and complexity of our business operations, the amount of
change to our core systems required to keep pace with regulatory and other
requirements and business initiatives, and the ever-changing cybersecurity
landscape. 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, disruption of our business (e.g., issuing mortgage
and/or debt securities), incorrect payments to investors in our securities,
errors in our financial statements, liability to customers or investors, further
legislative or regulatory intervention, reputational damage, and financial and
economic loss.
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. This information may be
incorrect, or we may fail to properly manage or analyze it.
The transactions we process are complex and are subject to various legal,
accounting, and regulatory standards, which 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 contain design flaws or may fail to
operate properly, adversely affecting our ability to process these transactions,
including our ability to compile and process legally required information. We
have certain systems that require manual support and intervention, which may
lead to heightened risk of system failures. 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 technological connections with our customers, counterparties, service
providers, and other financial institutions continue to increase, which
increases our risk exposure with respect to an operational failure of their
infrastructure systems. We have developed, and expect to continue to develop,
software tools for use by our customers in the customers' loan production and
other processes. These tools may fail to operate properly, which could disrupt
our or our customers' business and adversely affect our relationships with our
customers.
We are in the process of migrating a number of our core information technology
and other systems and customer-facing applications to a third-party cloud
infrastructure platform. If we do not execute the transition to these new
environments in a well-managed, secure, and effective manner, we may experience
unplanned service disruption or unforeseen costs which may harm our business and
operating results. In addition, our cloud infrastructure providers, or other
service providers, could experience system breakdowns or failures, outages,
downtime, cyber-attacks, adverse changes to financial condition, bankruptcy, or
other adverse conditions, which could have a material adverse effect on our
business and reputation. Thus, our plans to increase the amount of our
infrastructure that we outsource to the cloud or to other third parties may
increase our risk exposure.
We 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 create increased operational risk
for these new initiatives. Internal corporate reorganizations, such as the VERP,
may also increase our operational risk, particularly during the period of
implementation.
We also face significant risks related to CSS and the operation and continued
development of the CSP. We rely on CSS and the CSP (which is owned and operated
by CSS) for the operation of our single-family securitization activities. Our
business activities would be adversely affected and the market for Freddie Mac
securities would be disrupted if the CSP were to fail or otherwise become
unavailable to us or if CSS were unable to perform its obligations to us,
including as a result of an operational failure by Fannie Mae. In the event of a
CSS operational failure, we may be unable to issue certain new single-family
mortgage-related securities, and investors in mortgage-related securities hosted
on the CSS platform may experience payment delays. Any measures we could take to
mitigate these risks might not be sufficient to prevent our business from being
harmed. We update our internal systems and processes on a regular basis,
including to improve existing processes and respond to market and regulatory
developments. We could be adversely affected if CSS and/or the CSP are unable to
make any necessary corresponding changes to their systems and processes in a
timely manner.
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, these processes may not 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 or around our offices or affecting the
power grid, such as from a terrorist event, active shooter, or natural disaster,
could significantly adversely affect our ability to conduct normal business
operations. Any measures we take to mitigate this risk may not be sufficient to
respond to the full range of events that may occur or allow us to resume normal
business operations in a timely manner.

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Risk Factors Operational Risks






Potential cybersecurity threats are changing rapidly and growing in
sophistication. We may not be able to protect our systems or the confidentiality
of our information from cyberattack and other unauthorized access, disclosure,
and disruption.
Our operations rely on the secure, accurate, and timely receipt, processing,
storage, and transmission of confidential and other information in our computer
systems and networks and with customers, counterparties, service providers, and
financial institutions.
Information risks for companies like ours have significantly increased in recent
years, in part because of the proliferation of new technologies, the use of the
internet and telecommunications technologies to conduct financial transactions,
and the increased sophistication and activities of organized crime, hackers,
terrorists, and other external parties, including foreign state-sponsored
actors. There have been several highly publicized cases involving financial
services companies, consumer-based companies, and other organizations reporting
the unauthorized disclosure of client, customer, or other confidential
information, as well as cyberattacks involving the dissemination, theft, or
destruction of corporate information, intellectual property, cash, or other
valuable assets. There have also been several highly publicized cases where
hackers have requested "ransom" payments in exchange for not disclosing customer
information or for not making the targets' computer systems unavailable. In
addition, there have been cases where hackers have misled company personnel into
making unauthorized transfers of funds to the hackers' accounts.
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, denial-of-service, and phishing, 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.
Because we are interconnected with and dependent on third-party vendors,
exchanges, clearinghouses, fiscal and paying agents, and other financial
institutions, we could be adversely affected if any of them is subject to a
successful cyberattack or other information security event. Third parties with
which we do business may also be sources of cybersecurity or other technology
risks. We routinely transmit and receive personal, confidential, and proprietary
information by electronic means. This information could be subject to
interception, misuse, or mishandling. Our exposure to these risks could increase
as a result of our migration of core systems and applications to a third-party
cloud environment.
Although we devote significant resources to protecting our critical assets and
provide employee awareness training about phishing, malware, and other cyber
risks, these measures may not provide effective security. Our computer systems,
software, end point devices, and networks may be vulnerable to cyberattack,
unauthorized access, supply chain disruptions, computer viruses or other
malicious code, or other attempts to harm them or misuse or steal information.
We routinely identify cyber threats as well as vulnerabilities in our systems
and work to address them, but these efforts may be insufficient. Breaches of our
security measures may result from employee error or misconduct. Outside parties
may attempt to induce employees, customers, counterparties, service providers,
financial institutions, or other users of our systems to disclose sensitive
information in order to gain access to our systems and the information they
contain. We may not be able to anticipate, detect, or recognize threats to our
systems and assets, or implement effective preventative measures against
security breaches, especially because the techniques used change frequently or
are not recognized until launched.
A cyberattack could occur and persist for an extended period of time without
detection. We expect that any investigation of a cyberattack would take time,
during which we would not necessarily know the extent of the harm or how best to
remediate it. Although to date we have not experienced any cyberattacks
resulting in significant impacts to the company, our cybersecurity risk
management program may not prevent cyberattacks from having significant impacts
in the future. We have obtained insurance coverage relating to cybersecurity
risks, but this insurance may not be sufficient to provide adequate loss
coverage.
The occurrence of one or more cyberattacks could result in thefts of important
assets (such as cash or source code) or the unauthorized disclosure, misuse, or
corruption of confidential and other information (including information about
our borrowers, our customers, or our counterparties) or could otherwise cause
interruptions or malfunctions in our operations or the operations of our
customers or counterparties. This could result in significant losses or
reputational damage, adversely affect our relationships with our customers and
counterparties, negatively affect our competitive position, or otherwise harm
our business. We could also face regulatory and other legal action, including
for any failure to provide timely disclosure concerning, or appropriately to
limit trading in our securities following, an attack. We might be required to
expend significant additional resources to modify our internal controls and
other 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, customers, counterparties, financial
intermediaries, and governmental organizations may not be adequately protecting
the information that we share with them. As a result, a cyberattack on their
systems and networks, or a breach of their security measures, may result in harm
to our business and business relationships.

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Risk Factors Operational Risks






We rely on third parties for certain important functions. Any failures by those
vendors and service providers (or other third parties that work for the
vendors/service providers) could disrupt our business operations or expose us to
loss of confidential information or intellectual property.
Our use of third-party service providers exposes us to the risk of failures in
their risk and control environments. We outsource certain key functions to
external parties, including some that are critical to financial reporting
(including our use of hedge accounting), valuations, our mortgage-related
investment activity, loan underwriting, loan servicing, and UMBS issuance and
administration (i.e., CSS). We may enter into other key outsourcing
relationships in the future and continue to expand our existing reliance on
public cloud services. 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, our
business operations could be constrained, disrupted, or otherwise negatively
affected. Our use of third-party service providers 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 third-party service providers 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.
We use models to project significant factors in our businesses, including, but
not limited to, interest rates and house prices under a variety of scenarios. We
also use models to project borrower prepayment and default behavior and loss
severity over long periods of time. Models are inherently imperfect predictors
of actual results. 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:
n   We could fail to design, implement, operate, adjust, or use our models as
    intended. We may fail to code a model correctly, we could use incorrect or
    insufficient data inputs or fail to fully understand the data inputs, or
    model implementation software could malfunction. The complexity and

interconnectivity of our models create additional risk regarding the accuracy

of model output. We may not be able to deploy or update models in a timely

manner.

n 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.

n We also use selected third-party 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 processes by which these 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, securitization, and credit risk transfer of loans; the purchase
and sale of securities; funding; the setting of guarantee fee prices; and the
management of interest-rate, market, and 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 use of hedge accounting increases our reliance on models for financial
reporting. See MD&A - Risk Management - Market Risk and Critical Accounting
Policies and Estimates for more information on our use of models.

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Risk Factors Liquidity Risks




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 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,
including:
n Market and other factors;

n Changes in U.S. government support for us; and

n Reduced demand for our debt securities.




Market and Other Factors
Our ability to obtain funding in the public unsecured debt markets or by selling
or pledging mortgage-related and other securities as collateral to other
institutions could change rapidly or cease. The cost of available funding could
increase significantly due to changes in market interest rates, market
confidence, operational risks, regulatory requirements, and other factors.
Prolonged wide market spreads on long-term debt could cause us to reduce our
long-term debt issuances and increase our reliance on short-term and callable
debt issuances. Such increased reliance on short-term and callable debt 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. Greater derivatives use could
increase the variability of our comprehensive income or increase our credit
exposure to our counterparties. Additionally, we may incur higher hedging costs
in the event we decide not to call our debt.
We may incur higher funding costs due to our liquidity management practices and
procedures. Our practices and procedures may not provide us with sufficient
liquidity to meet our ongoing cash obligations under all circumstances. In
particular, we believe that our liquidity contingency plans may be inadequate or
difficult to execute during a liquidity crisis or period of significant market
turmoil. If we cannot access the unsecured debt markets, our ability to repay
maturing indebtedness and fund our operations could be significantly impaired or
eliminated, as our alternative sources of liquidity (e.g., cash and other
investments) may not be sufficient to meet our liquidity needs. We have limited
ability to use the less liquid assets in our mortgage-related investments
portfolio as a significant source of liquidity (e.g., through sales or as
collateral in secured borrowing transactions).
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. Unlike certain of our competitors, we do not have access to
the Federal Reserve's discount window.
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. 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 several factors
relating to U.S. government support, including:
n Uncertainty about the future of the GSEs;


n Any concerns by debt investors that we face increasing risk of being placed

in receivership; and

n Future draws that significantly reduce the amount of available funding

remaining under the Purchase Agreement.




At such time as our Net Worth Amount exceeds the applicable Capital Reserve
Amount of $20.0 billion, the amount of the net worth sweep dividends we pay to
Treasury 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.
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 investors to purchase and hold our debt securities can be
influenced by many factors, including changes in the world economy, changes in
exchange rates, and regulatory and political factors, as well as the
availability of and investor preferences for other investments. We compete for
debt funding with Fannie Mae, the FHLBs, and other institutions. Our funding
costs and liquidity contingency plans may also be affected by changes in the
amount of, and

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Risk Factors Liquidity Risks




demand for, debt issued by Treasury.
If investors were to reduce their purchases of our debt securities or divest
their holdings, our funding costs could increase and our business activities
could be curtailed. The market for our debt securities may become less liquid as
a result of our having reached the Purchase Agreement limits on the size of our
mortgage-related investments portfolio and the amount of our unsecured debt.
This could lead to a decrease in demand for our debt securities and an increase
in our funding costs.
See MD&A - Our Business Segments - Capital Markets for a description of our debt
issuance programs.
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, several other events could adversely affect our debt credit
ratings, including actions by governmental entities, changes in government
support for us, future GAAP losses, and additional draws under the Purchase
Agreement. Any such downgrades could lead to major disruptions in the mortgage
and financial markets and to our business due to lower liquidity, higher
borrowing costs, lower asset values, and higher credit losses, and could cause
us to experience net losses and net worth deficits.
For more information, see MD&A - Liquidity and Capital Resources - Liquidity
Profile - Primary Sources of Funding - Credit Ratings.

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Risk Factors Legal and Regulatory Risks






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,
regulatory, or judicial actions at the federal, state, and local levels. Such
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.
In particular, changes to our capital requirements could adversely affect our
business and risk management strategies, including our risk appetite, our
risk-adjusted returns such as ROCC, and the impact of our CRT transactions on
our capital needs. Changes to our capital requirements could also negatively
affect our ability to build capital to a level which FHFA would deem sufficient
to end our conservatorship, such as by extending the time it will take for us to
retain or raise such level of capital. Our existing regulatory capital
requirements have been suspended by FHFA during conservatorship, but we have
adopted FHFA's risk-based CCF guidelines to evaluate and manage our financial
risk and to make economic business decisions while in conservatorship. The CCF
has been and may be further revised by FHFA from time to time, including in
connection with FHFA's consideration and adoption of a final Enterprise Capital
Rule, which could result in material changes in the capital needed under the CCF
during conservatorship as well as the capital requirements which will be
applicable to us after conservatorship. In November 2019, FHFA announced that it
plans to re-propose the Enterprise Capital Rule in 2020. We do not know what
changes to the Enterprise Capital Rule FHFA may propose or eventually adopt.
We could also be negatively affected by legislative, regulatory, or judicial
action that:
n Changes the foreclosure process;


n Limits or otherwise adversely affects the rights of a holder of a first lien

on a mortgage (such as by granting priority rights in foreclosure proceedings

for homeowner associations or providing a lien priority in connection with

loans to finance energy efficiency or similar improvements);

n Expands the responsibilities of and costs to servicers for maintaining vacant

properties prior to foreclosure; or

n Prevents us from using the MERS System or disrupts foreclosures of loans

registered in the MERS System.




We are subject to complex and evolving laws and regulations governing privacy
and the protection of personal information of individuals as well as the
protection of material, non-public information. Our business could be adversely
affected if we fail to protect the confidentiality of such information or if it
is mishandled or misused.
Regulatory changes related to the Dodd-Frank Act, including expiration or
modification of the temporary exemption for GSE-eligible mortgages included in
the CFPB's Qualified Mortgage Rule, could cause or require us to make changes to
our business practices, such as practices related to mortgage underwriting and
servicing.
Legislation or regulatory actions could indirectly adversely affect us to the
extent they affect the activities of banks, savings institutions, insurance
companies, derivative counterparties, clearinghouses, securities dealers, and
other regulated entities that constitute a significant portion of our customers
or counterparties, or to the extent that they modify industry practices.
Legislative or regulatory actions that remove incentives for these entities to
purchase our securities or enter into derivatives or other transactions with us
could have a material adverse effect on our business and financial results.
Changes in business practices resulting from new laws and regulations could have
a negative effect on the volume of loan originations or could modify or remove
incentives for financial institutions to sell loans to us, either of which could
adversely affect the number of loans available for us to purchase or guarantee.
In addition, the regulatory framework based on the Basel III standards developed
by the Basel Committee on Banking Supervision 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. Enhanced capital and liquidity requirements for banking
organizations may also 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.
We may make certain changes to our business in an attempt to meet our housing
goals and duty to serve requirements, which may adversely affect our
profitability.
We may make adjustments to our loan sourcing and purchase strategies in an
effort to meet our housing goals and subgoals, including modifying some of our
underwriting standards and expanding the use of targeted initiatives to reach
underserved populations. For example, we may purchase loans that offer lower
expected returns on our investment and potentially increase our exposure to
credit losses. We may also make changes to our business in response to our duty
to serve underserved markets that could adversely affect our profitability.

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Risk Factors Legal and Regulatory Risks






If we do not meet our housing goals or duty to serve requirements, and FHFA
finds that the goals or requirements were feasible, we may become subject to a
housing plan that could require us to take additional steps that could
potentially adversely affect our profitability. Due to our failure to meet two
single-family housing goals for 2014 and 2015, we operated under an
FHFA-approved housing plan that addressed achievement of the missed goals
through 2018. FHFA has determined that we met our affordable housing goals in
2018. However, FHFA will continue to closely monitor and evaluate our 2019
housing goal performance and could require us to take additional steps or
operate under a housing plan again in the future.
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 related costs and expenses. 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 related 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 our reserves 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, numerous lawsuits have been filed
against the U.S. government relating to conservatorship and the Purchase
Agreement that could adversely affect us. See Legal Proceedings and Note 16 for
information about these various pending legal proceedings.




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Risk Factors Other Risks




OTHER RISKS
The loss of business from a key customer or a decrease in the availability of
mortgage insurance could result in a decline in our market share and revenues.
Our business depends on our ability to acquire a steady flow of loans. We
purchase a significant percentage of our single-family loans from several large
loan originators. Similarly, we acquire a significant portion of our multifamily
loans from several large lenders. For more information, see Note 14.
We enter into loan purchase commitments with many of our single-family customers
that are typically less than one year in duration. Lenders may fail to deliver
loans to us in accordance with their commitments. The loss of business from any
of our major lenders could adversely affect our market share and 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.
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. Increased competition from Fannie Mae, FHA/VA (with
Ginnie Mae securitization), and new entrants may alter our product mix, lower
our volumes, and reduce our revenues on new business.
We also compete with other financial institutions that retain or securitize
loans, such as commercial and investment banks, dealers, savings institutions,
and insurance companies. 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 charge upfront fees for higher levels of credit
risk, sellers' retention of loans with better credit characteristics could
result in us having lower overall purchase volumes and a more adverse credit
risk profile, reducing our revenues and returns.
FHFA is also Conservator of Fannie Mae, our primary competitor. FHFA's actions,
as Conservator of both companies, could affect competition between us and Fannie
Mae. It is possible that FHFA could require us and Fannie Mae to take a uniform
approach that, because of differences in our respective businesses, could place
Freddie Mac at a competitive disadvantage to Fannie Mae. FHFA also may prevent
us from taking actions that could give us a competitive advantage.
We have faced increased competition in the multifamily market in recent years
from life insurers, banks, CMBS conduits, and other market participants as
multifamily market fundamentals have improved. FHFA may take actions that could
encourage further competition or limit our ability to meet such competition.
A significant decline in the price performance of or demand for our UMBS could
have an adverse effect on the volume and/or profitability of our new
single-family guarantee business.
Historically, the price performance of our Gold PCs (the predecessor to the
UMBS) relative to comparable Fannie Mae-issued securities was one of Freddie
Mac's more significant risks and competitive issues. On June 3, 2019, in
connection with the implementation of the Single Security Initiative, we ceased
issuing Gold PCs and commenced issuing UMBS and non-TBA-eligible 55-day MBS.
While the Single Security Initiative and the UMBS (which may be issued by
Freddie Mac or Fannie Mae) are intended to reduce the pricing disparity between
our securities and Fannie Mae's securities, we cannot ensure they will do so.
For example, in certain cases, pricing disparities can exist due to differences
in pool composition.
Our UMBS are an integral part of our loan purchase program. Our competitiveness
in purchasing single-family loans from our sellers and the volume and
profitability of our new single-family guarantee business are directly affected
by the price performance of UMBS issued by us relative to comparable Fannie
Mae-issued UMBS. If our UMBS were to trade at a discount relative to comparable
Fannie Mae securities, such a difference in relative pricing could create an
economic incentive for sellers to conduct a disproportionate share of their
single-family business with Fannie Mae.
It is possible that a liquid market for our UMBS may not be sustained over the
short- or long-term, which could adversely affect their price performance 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 UMBS could reduce the liquidity of our UMBS. While we may decide
to employ various strategies to support the liquidity and price performance of
our UMBS, any such strategies may fail or adversely affect our business and
financial results. We may cease any such activities at any time, or FHFA could
require us to do so, which could adversely affect the liquidity and price
performance of our UMBS. We may incur costs to support our presence in the
agency securities market and to support the liquidity and price performance of
our securities.
Liquidity-related price differences could occur between UMBS issued by us and
comparable Fannie Mae-issued UMBS due to factors that are largely outside of our
control. For example, the level of the Federal Reserve's purchases and sales of
agency

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Risk Factors Other Risks




mortgage-related securities, including the balance sheet normalization program
to reduce the Federal Reserve's holdings of mortgage-related securities, could
affect the demand for and values of our UMBS. Therefore, any strategies we
employ to reduce any liquidity-related price differences may not reduce or
eliminate any such price differences over the long term.
We may experience price differences with Fannie Mae on individual new production
pools of TBA-eligible mortgages, particularly with respect to specified pools
and our multilender securities. From time to time, we may need to adjust our
pricing for a particular new production pool category to maintain
competitiveness with Fannie Mae with respect to the acquisition of such
pools. Depending on the amount of pricing adjustments in any period, it is
possible they could adversely affect the profitability of our single-family
guarantee business for that period. For more information, see MD&A - Our
Business Segments - Capital Markets Segment - Business Overview - Products and
Activities.
Implementation of the Single Security Initiative presents increased operational
and counterparty risk. If the UMBS does not continue to receive widespread
market acceptance, the liquidity and price performance of our single-family
mortgage-related securities and our market share and profitability could be
adversely affected.
As part of the new combined UMBS market, we have been required by FHFA to align
certain of our single-family mortgage purchase offerings, servicing, and
securitization programs, policies and practices with Fannie Mae to achieve
market acceptance of the UMBS and other aspects of the Single Security
Initiative, but we cannot provide any assurance that these efforts will reduce
the pricing disparities discussed above over the long-term. These alignment
activities may adversely affect our business and our ability to compete with
Fannie Mae. We may be required to further align our business processes with
those of Fannie Mae. Uncertainty concerning the extent of the alignment between
Freddie Mac's and Fannie Mae's mortgage purchase, servicing, and securitization
programs, policies, and practices may affect the degree to which the UMBS and
other aspects of the Single Security Initiative receive widespread market
acceptance.
If investors do not continue to accept the fungibility of Freddie Mac and Fannie
Mae UMBS and instead prefer Fannie Mae UMBS over Freddie Mac UMBS, it could have
a significant adverse impact on our business, liquidity, financial condition,
net worth, and results of operations, and could adversely affect the liquidity
or market value of our single-family mortgage-related securities.
We are offering an optional exchange program for security holders to exchange
certain existing 45-day payment delay fixed-rate Gold PCs and Giant PCs for new
55-day payment delay Freddie Mac securities. As part of this program, we make a
one-time payment to exchanging security holders for the value of the 10
additional days of payment delay, based on float compensation rates we
calculate. We do not expect the return from this additional float to fully
offset our payments to the security holders.
The Single Security Initiative has caused us to have counterparty credit
exposure to Fannie Mae due to investors' ability to commingle certain Freddie
Mac and Fannie Mae securities in resecuritizations. When we resecuritize Fannie
Mae securities, our guarantee of timely principal and interest extends 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 do not control or limit the amount of
resecuritized Fannie Mae securities that we could be required to guarantee. We
are dependent on FHFA, Fannie Mae, and Treasury (pursuant to Fannie Mae's and
our respective Purchase Agreements with Treasury) to avoid a liquidity event or
default. We have not modified our liquidity strategies to address the
possibility of non-timely payment by Fannie Mae.
We and Fannie Mae both rely on the Federal Reserve Banks to make payments on our
respective mortgage-backed securities. As noted above, 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 providing the Federal Reserve Banks with
the funds to make the payment. If we failed to provide the Federal Reserve Banks
with all funds to make such payment on such resecuritized Fannie Mae securities,
the Federal Reserve Banks would not make any payment on any of our outstanding
Freddie Mac-issued UMBS, Supers, REMICs, or other securities to be paid on that
payment date, regardless of whether such Freddie Mac-issued securities were
backed by Fannie Mae-issued securities.
The profitability of our multifamily business could be adversely affected by a
significant decrease in demand for our K Certificates and SB Certificates.
Our current multifamily business model is highly dependent on our ability to
finance purchased multifamily loans through securitization into K Certificates
and SB Certificates. A significant decrease in demand for K Certificates and SB
Certificates could have an adverse impact on the profitability of the
multifamily business to the extent that our holding period for the loans
increases and we are exposed to credit, spread, and other market risks for a
longer period of time or receive reduced proceeds from securitization. We employ
various strategies to support the liquidity of our K Certificates and SB
Certificates, but 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 K Certificates
and SB Certificates.

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Risk Factors Other Risks




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.


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