Freddie Mac 2014 Annual Report Download

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
Commission File Number: 001-34139
Federal Home Loan Mortgage Corporation
(Exact name of registrant as specified in its charter)
Freddie Mac
Federally chartered 8200 Jones Branch Drive 52-0904874 (703) 903-2000
corporation McLean, Virginia 22102-3110 (I.R.S. Employer (Registrant’s telephone number,
(State or other jurisdiction of
incorporation or organization) (Address of principal executive offices,
including zip code) Identification No.) including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, no par value per share (OTCQB: FMCC)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCI)
5% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCG)
5.1% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCH)
5.79% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCL)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCM)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCN)
5.81% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCO)
6% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCP)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCJ)
5.7% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKP)
Variable Rate, Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCS)
6.42% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCT)
5.9% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKO)
5.57% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKM)
5.66% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKN)
6.02% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKL)
6.55% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKI)
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKJ)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ X ] Accelerated filer [ ]
Non-accelerated filer (Do not check if a smaller reporting company) [ ] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the common stock held by non-affiliates computed by reference to the price at which the common equity was last sold on
June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was $2.5 billion.
As of February 5, 2015, there were 650,043,899 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
Table of Contents

Table of contents

  • Page 1
    ...FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 Commission File Number: 001-34139 Federal Home Loan Mortgage Corporation (Exact name of registrant as specified in its charter) Freddie Mac Federally chartered...

  • Page 2
    ... INDEX Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 243...

  • Page 3
    ...Value and UPB to Total Debt, Net 36 Other Short-Term Debt 37 Freddie Mac Mortgage-Related Securities 38 Issuances and Extinguishments of Debt Securities of Consolidated Trusts 39 Changes in Total Equity 40 Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio 41 Risk Transfer...

  • Page 4
    ...or Change-in-Control as of December 31, 2014 75 Board Compensation - 2014 Non-Employee Director Compensation Levels 76 2014 Director Compensation 77 Stock Ownership by Directors, Executive Officers, and Greater-Than-5% Holders 78 Equity Compensation Plan Information 79 Auditor Fees iii Freddie Mac

  • Page 5
    ... Note 12: Income Taxes Note 13: Segment Reporting Note 14: Financial Guarantees Note 15: Concentration of Credit and Other Risks Note 16: Fair Value Disclosures Note 17: Legal Contingencies Note 18: Regulatory Capital Note 19: Selected Financial Statement Line Items Quarterly Selected Financial Data...

  • Page 6
    ..., particularly the level of loan loss provisioning, benefited from a high level of home price appreciation. In addition, declines in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase Agreement, will reduce our earnings over the long term. 1 Freddie Mac

  • Page 7
    ... state;" and • to support and improve the secondary mortgage market. Our business objectives reflect direction that we have received from the Conservator, including the 2014 and 2015 Conservatorship Scorecards. For information on the Scorecards and the related 2014 Strategic Plan, see "Regulation...

  • Page 8
    ... - Single-Family Mortgage Credit Risk Framework and Profile - Managing Problem Loans" for more information about loss mitigation activities and our efforts to keep families in their homes. We continue our efforts relating to: (a) encouraging eligible borrowers to refinance their mortgages under HARP...

  • Page 9
    ... of Contents transferring to private investors part of the credit risk of our New single-family book and our Multifamily mortgage portfolio; • improving our returns on short sales and REO sales; • protecting our contractual rights with sellers; • pursuing our rights against mortgage insurers...

  • Page 10
    ...billion in UPB of loans subject to our repurchase requests for selling and servicing violations, including $0.4 billion in UPB related to settlement agreements. Pursuing Our Rights Against Mortgage Insurers We continue to pursue claims for coverage under mortgage insurance policies, a form of credit...

  • Page 11
    ...number of these will experience payment changes in 2015. To help address this risk, we implemented a new principal reduction incentive for our HAMP loans in January 2015. • Optimizing the economics of our single-family business: We seek to achieve strong economic returns on our singlefamily credit...

  • Page 12
    ...-year effort. In November 2014, we and Fannie Mae announced that a chief executive officer had been named for CSS. Additionally, we and Fannie Mae each appointed two executives to the CSS Board of Managers and signed governance and operating agreements for CSS. • Single-Security Initiative: FHFA...

  • Page 13
    ... support mortgage market liquidity when we create PCs through mortgage securitizations. PCs can be sold to investors or held by us or our lender customers. Mortgage Securitizations For single-family loans, our securitization and guarantee process generally works as follows: (a) a lender originates...

  • Page 14
    ...We may sell these PCs in a "cash auction," as illustrated in the following diagram. Cash Purchase Process and Securitization of PCs From time to time we undertake a variety of actions in an effort to support the liquidity and price performance of our PCs relative to comparable Fannie Mae securities...

  • Page 15
    ... the principal and interest payments on those certificates. In this type of transaction, our credit risk is reduced by the structural credit protections from the related subordinated tranches, which we do not issue or guarantee. In the second type, we purchase single-class pass-through securities...

  • Page 16
    ...we purchase and guarantee single-family mortgage loans originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization process to package the mortgage loans into guaranteed mortgage-related securities. We guarantee the payment of principal and...

  • Page 17
    ... our alternatives for the transfer of mortgage credit risk to third party investors, we may resume issuing Other Guarantee Transactions in our Single-family Guarantee segment in 2015. See "Our Business - Overview of the Mortgage Securitization and Guarantee Process" for additional information about...

  • Page 18
    ... mortgage loans. Underwriting Requirements, Quality Control Standards, and the Representation and Warranty Framework We use a process of delegated underwriting for the single-family mortgage loans we purchase or securitize. In this process, our contracts with sellers describe mortgage eligibility...

  • Page 19
    ... to transfer a portion of credit losses that could occur under adverse home price scenarios (through a mezzanine credit loss position) on certain groups of loans in our New single-family book from us to third-party investors. In the STACR debt note transactions, we issue unsecured debt securities...

  • Page 20
    ... credit losses. Our loan workouts include: • Forbearance agreements, where reduced or no payments are required during a defined period, generally less than one year. These agreements provide additional time for the borrower to return to compliance with the original terms of the 15 Freddie Mac

  • Page 21
    ... receive monthly incentive payments (in the form of credits) to reduce the principal balance of their loans by up to $1,000 per year, for five years, as long as they are making timely payments under the modified loan terms. Servicers are paid incentive fees for each completed HAMP modification and...

  • Page 22
    ... high LTV ratios; and (c) the new loan will generally have limited representations and warranties compared to the original loan. However, relief refinance mortgages (including HARP loans) generally have performed better than loans with similar characteristics remaining in our single-family credit...

  • Page 23
    ...are Fannie Mae, FHA, commercial and investment banks, CMBS conduits, dealers, thrift institutions, and life insurance companies. Underwriting Requirements and Quality Control Standards Our process and standards for underwriting multifamily mortgages differ from those used for single-family mortgages...

  • Page 24
    ... information for most multifamily properties prior to purchase, repurchases have been rare. We generally require multifamily sellers to service mortgage loans they have sold to us to mitigate potential losses. This includes property monitoring tasks beyond those typically performed by single-family...

  • Page 25
    ...future credit losses. Some of these initiatives impact our near- and long-term financial results. Given our public mission and the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage market conditions, we may be required to take actions...

  • Page 26
    ... less liquid assets in 2014 (including sales related to settlements of non-agency mortgage-related securities litigation). In addition, we securitized $7.0 billion of single-family reperforming and modified loans in 2014. These amounts do not include sales of mortgage loans we purchased for cash and...

  • Page 27
    ... senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as and if declared by our Board of Directors. Under the August 2012 amendment to the Purchase Agreement, our dividend obligation each quarter is the amount, if any, by which our Net Worth Amount at the end of...

  • Page 28
    ... named executive officer or other executive officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury. For more information on the covenants in the Purchase Agreement and the warrant, see "NOTE 2: CONSERVATORSHIP...

  • Page 29
    ... certain mortgage purchase data, information or reports as required by law. See "RISK FACTORS - Legal and Regulatory Risks - We may make certain changes to our business in an attempt to meet our housing goals and subgoals." FHFA has established four goals and one subgoal for single-family owner...

  • Page 30
    ...meet the FHFA benchmark level for the other single-family goals. In such cases, FHFA regulations allow us to achieve a goal if our qualifying share matches that of the market, as measured by the Home Mortgage Disclosure Act. Because the Home Mortgage Disclosure Act data for 2014 will not be released...

  • Page 31
    ... of Freddie Mac, Fannie Mae, and the FHLBs. The standards address a number of business, controls, and risk management areas. The standards specify the possible consequences for any entity that fails to meet any of the standards or otherwise fails to comply (including submission of a corrective plan...

  • Page 32
    ...for originators making loans that satisfy the definition of a qualified mortgage. The ability-to-repay rule applies to most loans acquired by Freddie Mac, and for such loans covered by the rule, FHFA has directed us and Fannie Mae to limit our single-family acquisitions to loans that generally would...

  • Page 33
    ... new shared system operational for Freddie Mac's and Fannie Mae's existing single-family securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common) security. We continue to align our resources and internal business plans to meet...

  • Page 34
    ... required to be filed with the SEC. The website address for disclosure about our debt securities is www.freddiemac.com/debt. From this address, investors can access the offering circular and related supplements for debt securities offerings under Freddie Mac's global debt facility, including pricing...

  • Page 35
    ..., yield curves, mortgage and debt spreads, and home prices; • changes in the U.S. residential mortgage market, including changes in the supply and type of mortgage products (e.g., refinance versus purchase, and fixed-rate versus ARM); • our ability to effectively execute our business strategies...

  • Page 36
    ... business activities that could reduce our income from these activities; • adverse changes in our liquidity or funding costs, or limitations in our access to public debt markets; • changes in accounting practices or guidance; • effects of the MHA Program and other government initiatives...

  • Page 37
    ...2013 and 2014 provided for Freddie Mac to eventually be placed into receivership. If our assets were liquidated, there is no assurance that there would be sufficient proceeds to pay the secured and unsecured claims of the company, repay the liquidation preference of any series of our preferred stock...

  • Page 38
    ...loan loss provisioning, also benefited from a high level of home price appreciation. In addition, declines in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase Agreement, will reduce our earnings over the long term. We are subject to significant limitations...

  • Page 39
    ...to data accuracy and mortgage fraud. Recent changes to the process could increase our risks. We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process, our contracts with sellers describe mortgage eligibility and underwriting standards, and...

  • Page 40
    ... adverse changes in the housing market. Although the single-family housing market improved in 2014, our credit losses remained high compared to levels before 2009, in part because home prices have experienced significant cumulative declines in many geographic areas since 2006. While we currently...

  • Page 41
    ..., funding, short-term lending, securities and other transactions. These transactions are critical to our business, including our ability to: (a) manage interest rate and other risks related to our investments in mortgage-related assets; (b) fund our business operations; and (c) service our customers...

  • Page 42
    ...for claims under mortgage and bond insurance policies. Instead, a significant portion of their claims are generally recorded by us as deferred payment obligations. It is possible that these companies may never pay us in full for our claims. For more information, see "NOTE 15: CONCENTRATION OF CREDIT...

  • Page 43
    ... one year in duration. The loss of business from any one of our major lenders could adversely affect our market share and our revenues. Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by mortgage insurance or other credit enhancements...

  • Page 44
    .... 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...

  • Page 45
    ... FHFA's 2014 Strategic Plan and the 2014 and 2015 Conservatorship Scorecards, we are working towards the development of a single (common) security, which is designed to reduce the price performance disparities between Freddie Mac mortgage-related securities and Fannie Mae mortgage-related securities...

  • Page 46
    ... federal government and its agencies. Federal Reserve policies directly and indirectly influence the yield on our interest-earning assets and the cost of our interest-bearing liabilities. Interest rates can also fluctuate as a result of geopolitical events or changes in general economic conditions...

  • Page 47
    ...family mortgage loans). Due to the impact of HARP and other refinance initiatives of Freddie Mac and Fannie Mae on prepayment expectations, we could experience declines in the fair values of certain agency security investments classified as available-for-sale or trading and lower net interest yields...

  • Page 48
    ... Delays in the foreclosure process could create fluctuations in our single-family credit statistics. For example, delays could temporarily increase the number of seriously delinquent loans that remain in our single-family mortgage portfolio, which could result in higher reported serious delinquency...

  • Page 49
    ..., and future financial results. We also face the risk that we could make poor business decisions in areas where model results are an important factor, including loan purchases, securitizations and sales of loans, purchases and sales of securities, funding strategy, management 44 Freddie Mac

  • Page 50
    Table of Contents and guarantee fee pricing, interest-rate risk management, market risk management, credit risk management, quality-control sampling strategies for loans in our single-family credit guarantee portfolio, and representation and warranty and other settlements with our counterparties. ...

  • Page 51
    ... to foreclosure; or (d) permits or requires principal reductions, such as allowing local governments to use eminent domain to seize mortgage loans and forgive principal on the loans. Our business could also be adversely affected by any modification, reduction, or repeal of the federal income tax...

  • Page 52
    ... "NOTE 17: LEGAL CONTINGENCIES" for more information regarding our involvement as a party to various legal proceedings. Litigation Against the U.S. Government Concerning Conservatorship and the Purchase Agreement Between June and September 2013, and in February 2014, a number of lawsuits were filed...

  • Page 53
    ... and Fannie Mae's payments to an affordable housing trust fund managed by HUD. (In December 2014, FHFA terminated this suspension and directed Freddie Mac and Fannie Mae to begin making contributions to the fund, commencing with fiscal year 2015.) See "BUSINESS - Regulation and Supervision - Federal...

  • Page 54
    ... - Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock" and "NOTE 11: STOCKHOLDERS' EQUITY - Dividends Declared." We did not declare or pay dividends on any other series of preferred stock outstanding in 2014. Recent Sales of Unregistered Securities...

  • Page 55
    Table of Contents Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 Telephone: 781-575-2879 https://www-us.computershare.com/investor 50 Freddie Mac

  • Page 56
    ... cost by consolidated trusts (net of allowances for loan losses) Total assets Debt securities of consolidated trusts held by third parties Other debt All other liabilities Total stockholders' equity (deficit) Portfolio Balances - UPB Mortgage-related investments portfolio Total Freddie Mac mortgage...

  • Page 57
    ... mortgage refinance activity in the market in 2014 compared to 2013. Table 7 - Mortgage Market Indicators 2014 Home sale units (in thousands)(1) National home price change(2) Single-family originations (in billions)(3) ARM share(4) Refinance share(5) U.S. single-family mortgage debt outstanding...

  • Page 58
    ... the substantial number of delinquent and underwater mortgage loans in our single-family credit guarantee portfolio that will likely be resolved. For the near term, we also expect: • REO disposition and short sale severity ratios to remain high; and • The number of seriously delinquent loans and...

  • Page 59
    ... Year Ended December 31, 2014 Net interest income (Provision) benefit for credit losses Net interest income after (provision) benefit for credit losses Non-interest income (loss): Gains (losses) on extinguishment of debt securities of consolidated trusts Gains (losses) on retirement of other debt...

  • Page 60
    .../Yield, Average Balance, and Rate/Volume Analysis 2014 Interest Income (Expense) Years Ended December 31, 2013 Interest Average Average Income Balance Rate (Expense) (dollars in millions) Interest-earning assets: Cash and cash equivalents Federal funds sold and securities purchased under agreements...

  • Page 61
    ...offset by lower funding costs. In addition, the costs of funding the senior preferred stock dividend payments to Treasury that resulted from non-cash increases in net worth (e.g., release of the valuation allowance against the net deferred tax assets) had a negative impact on net interest yield. The...

  • Page 62
    ... balance(2) Provision (benefit) for credit losses Charge-offs, gross Recoveries Transfers, net(3) Ending balance Components of loan loss reserves: Single-family Multifamily Total loan loss reserve, as a percentage of the total mortgage portfolio, excluding non-Freddie Mac securities (1) (2) (3) 2013...

  • Page 63
    ... 12 - Single-Family Impaired Loans with Specific Reserve Recorded 2014 Number of Loans TDRs, at January 1, New additions Repayments and reclassifications to held-for-sale Foreclosure transfers and foreclosure alternatives TDRs, at December 31, Loans impaired upon purchase Total impaired loans with...

  • Page 64
    ... foreclosure alternatives. Single-family charge-offs, net, in 2014 and 2013 include recoveries of $0.3 billion and $2.1 billion, respectively, related to settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for one-time cash payments...

  • Page 65
    ... sellers to release specified loans from certain repurchase obligations in exchange for one-time cash payments). Excludes amounts associated with loans acquired with deteriorated credit quality (at the time of acquisition) and recoveries related to settlements. Our 2005-2008 Legacy single-family...

  • Page 66
    ...15 - Severity Ratios for Single-Family Loans Year Ended December 31, 2014 REO disposition severity ratio:(1) Florida Illinois New Jersey Maryland California Total U.S. Short sale severity ratio (1) States presented represent the five states where our credit losses were greatest during 2014. 37.4% 40...

  • Page 67
    Table of Contents Gains (Losses) on Retirement of Other Debt We refer to the debt securities we issue to fund our business operations as other debt. We repurchase or call our outstanding other debt securities from time to time when we believe it is economically beneficial and to manage the mix of ...

  • Page 68
    ... our single-family non-agency mortgage-related securities. The decision to transition to a third-party model was made to increase the level of disaggregation for certain assumptions used in projecting cash flow estimates of these securities. See "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in...

  • Page 69
    ... in the compensatory fees we charged servicers that failed to meet our loan foreclosure timelines and higher costs associated with the common securitization platform in 2014; were offset by (b) gains on STACR debt notes carried at fair value in 2014, compared to losses in 2013. In November 2014, we...

  • Page 70
    ... associated with our terminated retirement plans, partially offset by declines in professional services expense related to: (a) FHFA-led lawsuits regarding our investments in certain non-agency mortgage-related securities; and (b) quality control reviews for single-family loans we acquired prior...

  • Page 71
    ... purchase and guarantee single-family mortgage loans originated by our seller/servicers in the primary mortgage market and we manage our seriously delinquent loans. In most instances, we use the mortgage securitization process to package the mortgage loans into guaranteed mortgage-related securities...

  • Page 72
    ..., and $788 million for 2014, 2013, and 2012, respectively. Segment Earnings for the All Other category for 2013 reflects a benefit for federal income taxes that resulted from the release of our valuation allowance against our net deferred tax assets. Segment Earnings for the All Other category...

  • Page 73
    ...Credit Risk Portfolios December 31, 2014 (in millions) Segment mortgage portfolios: Single-family Guarantee - Managed loan portfolio:(1) Single-family unsecuritized seriously delinquent mortgage loans Single-family Freddie Mac mortgage-related securities held by us Single-family Freddie Mac mortgage...

  • Page 74
    ... Earnings management and guarantee income(4) Guarantee fee charged on new acquisitions(5) Credit: Serious delinquency rate, at end of period REO inventory, at end of period (number of properties) Single-family credit losses, in bps Market: Single-family mortgage debt outstanding (total U.S. market...

  • Page 75
    ...return on the capital that would be needed to support the related credit risk. Our Segment Earnings management and guarantee fee income is influenced by our PC price performance because we adjust our fees based on the relative price performance of our PCs compared to comparable Fannie Mae securities...

  • Page 76
    ... made to our seller/servicers (including amounts related to settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for onetime cash payments). See "RISK MANAGEMENT - Credit Risk Overview - Single-Family Mortgage Credit Risk Framework and...

  • Page 77
    ... - Investments Year Ended December 31, 2014 Segment Earnings: Net interest income Non-interest income (loss): Net impairment of available-for-sale securities recognized in earnings Derivative gains (losses) Gains (losses) on trading securities Non-agency mortgage-related securities settlements Other...

  • Page 78
    ... value losses recorded during 2014 compared to gains in 2013; and (b) an entire year of tax expense in 2014 compared to a partial year of tax expense following the release of the valuation allowance against our deferred tax assets in the second half of 2013. During 2014, the UPB of the Investments...

  • Page 79
    ... our single-family non-agency mortgage-related securities. The decision to transition to a third-party model was made to increase the level of disaggregation for certain assumptions used in projecting cash flow estimates of these securities. See "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in...

  • Page 80
    ... Table 24 - Segment Earnings and Key Metrics - Multifamily Year Ended December 31, 2014 Segment Earnings: Net interest income Benefit for credit losses Non-interest income: Management and guarantee income Gains (losses) on mortgage loans Derivative gains Other non-interest income Total non-interest...

  • Page 81
    ... stability to the mortgage market. We use these assets to help manage recurring cash flows and meet our other cash management needs. Securities purchased under agreements to resell principally consist of short-term contractual agreements such as reverse repurchase agreements involving Treasury and...

  • Page 82
    ... of Segment Mortgage Portfolios and Credit Risk Portfolios." Table 25 - Investments in Available-For-Sale Securities December 31, 2014 Amortized Cost Available-for-sale mortgage-related securities: Freddie Mac Fannie Mae Ginnie Mae CMBS Subprime Option ARM Alt-A and other Obligations of states and...

  • Page 83
    ...Freddie Mac mortgage-related securities. Mortgage loans underlying our issued single-family PCs and certain Other Guarantee Transactions are recognized on our consolidated balance sheets as held-for-investment mortgage loans, at amortized cost. See "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES...

  • Page 84
    ...29 - Mortgage-Related Securities Purchase Activity Year Ended December 31, 2014 Non-Freddie Mac mortgage-related securities purchased for resecuritization: Ginnie Mae Certificates Non-Freddie Mac mortgage-related securities purchased as investments in securities: Agency securities: Fannie Mae: Fixed...

  • Page 85
    ... our new single-family guarantee business. The profitability of our multifamily business could be adversely affected by a significant decrease in demand for K Certificates." Unrealized Losses on Available-For-Sale Mortgage-Related Securities At December 31, 2014, our gross unrealized losses, pre-tax...

  • Page 86
    .... Determined based on the number of loans that are two monthly payments or more past due that underlie the securities using information obtained from a third-party data provider. Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the...

  • Page 87
    ...-for-sale securities recognized in earnings. We determine the population of securities we intend to sell using management judgment based on a variety of factors, including economics and our current operational plans, models and strategies and, in the case of single-family non-agency mortgage-related...

  • Page 88
    ...and uncertainties associated with the models that we use for financial accounting and reporting purposes, to make business decisions, and to manage risks. Market conditions have raised these risks and uncertainties." Ratings of Non-Agency Mortgage-Related Securities The table below shows the ratings...

  • Page 89
    ...$111.5 billion at December 31, 2014 from $122.1 billion at December 31, 2013, primarily due to: (a) loan prepayments, foreclosure transfers, and foreclosure alternative activities; (b) securitization of reperforming and modified loans; (c) securitization of loans through our PC cash 84 Freddie Mac

  • Page 90
    ... that is associated with Freddie Mac mortgage-related securities backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee commitments for which we have incremental credit risk. Collectively, we refer to our allowance for loan losses and our reserve for...

  • Page 91
    ... for information about certain mortgage loans in our single-family credit guarantee portfolio that, we believe, have higher-risk characteristics. Derivative Assets and Liabilities, Net The composition of our derivative portfolio changes from period to period as a result of purchases and terminations...

  • Page 92
    ... Charge-offs and Recoveries by Region" for a description of these regions. See "RISK MANAGEMENT - Credit Risk Overview - Single-Family Mortgage Credit Risk Framework and Profile - Managing REO Activity" for additional information about our REO management activities. Deferred Tax Assets We had a net...

  • Page 93
    ... at any time, as the loans that collateralize the debt may be prepaid without penalty at any time. • Other debt consists of unsecured short-term and long-term debt securities we issue to third parties to fund our business activities. It is classified as either short-term or long-term based on the...

  • Page 94
    ... Average Effective Rate Carrying Value Reference Bills securities and discount notes Medium-term notes Federal funds purchased and securities sold under agreements to repurchase Other short-term debt ® Maximum Carrying Value Outstanding at Any Month End 140,082 4,000 - $ 137,712 4,000 - 0.13...

  • Page 95
    ...: Single-family Multifamily Total HFA Initiative Bonds Total Other Guarantee Transactions REMICs and Other Structured Securities backed by Ginnie Mae certificates Total Freddie Mac Mortgage-Related Securities Less: Repurchased Freddie Mac Mortgage-Related Securities(3) Total UPB of debt securities...

  • Page 96
    ...-for-sale securities Changes in unrealized gains (losses) related to cash flow hedge relationships Changes in defined benefit plans Comprehensive income Capital draw funded by Treasury Senior preferred stock dividends declared Total equity/Net worth Aggregate draws under the Purchase Agreement (as...

  • Page 97
    ... risks by our business units. The third line of defense, our Internal Audit division, provides independent assurance related to the design and effectiveness of the company's risk management, internal control and governance processes through its audit, assurance, and advisory work. The Internal Audit...

  • Page 98
    ... the seller or the servicer to repurchase the loan at its current UPB. For more information, see "BUSINESS - Our Business Segments - Single-Family Guarantee Segment - Underwriting Requirements, Quality Control Standards and the Representation and Warranty Framework" and "Institutional Credit Risk...

  • Page 99
    ...our single-family mortgage loans. Risk Profile We believe the credit quality of the single-family loans in our New single-family book reflects sound underwriting standards as evidenced by their average original LTV ratios, credit scores, and credit performance through 2014. However, in 2014 and 2013...

  • Page 100
    ... the time of purchase be covered by specified credit enhancements. Our sellers require the borrower to purchase primary mortgage insurance at the origination of the mortgage if the LTV ratio is above 80% in order to meet our requirements (subject to certain exceptions, such as HARP). 95 Freddie Mac

  • Page 101
    ... primary mortgage insurance policies. We executed ten credit risk transfer transactions during 2014. Since 2013, we have completed STACR transactions covering $205.4 billion in principal of the mortgage loans in our New single-family book. The table below provides information about: (a) the UPB of...

  • Page 102
    ...NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES" for additional information about credit protection and other forms of credit enhancements covering loans in our single-family credit guarantee portfolio. See "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in Securities - Mortgage-Related Securities...

  • Page 103
    ...current LTV ratios. Our single-family business unit reviews performance, in conjunction with housing market and economic conditions, to determine if our pricing and loan eligibility standards reflect the risk associated with the loans we purchase and guarantee. We also review the payment performance...

  • Page 104
    .... The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes in the same geographic area since that time. Credit score data was not...

  • Page 105
    ... Single-Family Credit Guarantee Portfolio" for information about current LTV ratios. Within these columns, "-" represents less than 0.5%. Calculated for each year of origination as the number of loans that have proceeded to foreclosure transfer or short sale and resulted in a credit loss, excluding...

  • Page 106
    ...-enhanced Credit-enhanced:(2) Primary mortgage insurance Other Total(4) (3) Percentage Percentage 77% 1.74% 83% 2.09% 87% 2.66% 14% 12% 3.10% 1.21% 1.88% 12% 5% 4.40% 3.66% 2.39% 12% 1% 7.08% 8.56% 3.25% # of Seriously Delinquent Loans State:(5)(6) Florida New York New Jersey Illinois...

  • Page 107
    ... Guarantee Transactions for which data was not available. See endnote (3) to "Table 42 - Characteristics of the Single-Family Credit Guarantee Portfolio" for information about current LTV ratios. When an interest-only loan is modified to require repayment of principal, the loan is removed from the...

  • Page 108
    ... date the monthly payment increases to begin reflecting repayment of principal. Interest-only loans represented approximately 2% of the UPB of our single-family credit guarantee portfolio at both December 31, 2014 and 2013. We discontinued purchasing such loans on September 1, 2010. The balance...

  • Page 109
    ...of each monthly payment, until a specified date, when the terms are recast. We have not purchased option ARM loans in our singlefamily credit guarantee portfolio since 2007. At both December 31, 2014 and 2013, option ARM loans represented less than 1% of the UPB of our single-family credit guarantee...

  • Page 110
    ...holdings of non-agency mortgage-related securities, see "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in Securities." Alt-A Loans Although there is no universally accepted definition of Alt-A, many mortgage market participants classify single-family loans with credit characteristics that range...

  • Page 111
    ...using Freddie Mac's home price index. Represents selected states in the North Central region that have experienced adverse economic conditions since 2006. Represents two states with a judicial foreclosure process in which there are a significant number of seriously delinquent loans within our single...

  • Page 112
    ...programs, the program is scheduled to end in December 2015. Relief refinance mortgages (including HARP loans) generally have performed better than loans with similar characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009 primarily because the new...

  • Page 113
    ... 31, 2014 Current LTV Ratio Percentage of Portfolio(2) New single-family book By Credit score: Credit scores < 620 Credit scores of 620 to 659 Credit scores not available Total New single-family book By Region:(3) North Central Northeast Southeast Southwest West Total New single-family book HARP and...

  • Page 114
    ...(2) (3) The current LTV ratios are our estimates. See endnote (3) to "Table 42 - Characteristics of the Single-Family Credit Guarantee Portfolio" for further information. Based on UPB. Within these columns, "-" represents less than 0.05%. See endnote (1) to "Table 16 - Single-Family Charge-offs and...

  • Page 115
    ... Single-Family Relief Refinance Loans(1) Year Ended December 31, 2014 UPB Purchases of relief refinance mortgages: HARP: Above 125% LTV ratio Above 100% to 125% LTV ratio Above 80% to 100% LTV ratio Other (80% and below LTV ratio) Total relief refinance mortgages Number of Loans Average Loan Balance...

  • Page 116
    ... term extension and principal forbearance Total loan modifications(3) Repayment plans(4) Forbearance agreements Total home retention actions Foreclosure alternatives: Short sale Deed in lieu of foreclosure transactions Total foreclosure alternatives Total single-family loan workouts(5) Single-family...

  • Page 117
    ... approximately 28% of the total number of our single-family loans in the process of foreclosure. Our servicing guide states that for loans beginning the foreclosure process since November 2014, the expected timeline to complete foreclosure, excluding allowable delays, ranges from 300 days in...

  • Page 118
    ... number of seriously delinquent loans; and (c) a larger proportion of property sales to third parties at foreclosure. We continued to experience a relatively high volume of REO dispositions during 2014, which we believe was driven by significant demand for single-family homes from both investors...

  • Page 119
    ... Business - Our Business Segments - Multifamily Segment - Underwriting Requirements and Quality Control Standards." See "NOTE 5: IMPAIRED LOANS" for information about loss mitigation activities that we have classified as TDRs and the subsequent performance of these loans. Multifamily Mortgage Credit...

  • Page 120
    ... Freddie Mac mortgage-related securities, which are primarily our K Certificates. Excludes other guarantee commitments. Based on the year that we issued our guarantee. Multifamily Product Types Most multifamily loans require a significant lump sum (i.e., balloon) payment of unpaid principal...

  • Page 121
    ... UPB of multifamily loans between 2009 and 2014 and have attracted private capital to the multifamily market from investors who purchase subordinated securities that we do not issue or guarantee. These securities are backed by loans that are sourced by our seller/servicers and directly underwritten...

  • Page 122
    ... specified loans from certain repurchase obligations in exchange for one-time cash payments. The seller or servicer resolved the request by reimbursing us for losses with respect to approximately 19% of the $2.0 billion in UPB (excluding amounts related to settlement agreements). 117 Freddie Mac

  • Page 123
    ... balance sheets where we retain all of the related credit risk. Similar to the single-family business, we maintain eligibility standards for institutions that sell or deliver us multifamily mortgage loans for purchase or securitization. We monitor the status of our multifamily seller/servicers...

  • Page 124
    ... timely claims processing. The revised standards are designed to promote the ability of mortgage insurers to fulfill their intended role of providing private capital to the mortgage market even under a stressful economic scenario. The revised master policies were implemented in October 2014...

  • Page 125
    ... payment obligations of $0.4 billion from these insurers. We reserved for all of these unpaid amounts as collectability is uncertain. RMIC is under regulatory supervision and is no longer issuing new insurance. For more information on our mortgage insurers, see "NOTE 15: CONCENTRATION OF CREDIT...

  • Page 126
    ...mortgage-related investments portfolio. However, a number of other parties (including other investors, regulators, or the mortgage servicers themselves) may also take actions that could also affect the performance of these securities. We have continued to recognize impairment charges in recent years...

  • Page 127
    ...of our investments in single-family non-agency mortgagerelated securities, based on UPB, were serviced by JPMorgan Chase Bank, N.A. Document Custodians We use third-party document custodians to provide loan document certification and custody services for the loans that we purchase and securitize. In...

  • Page 128
    ...in OTC derivatives subject to a master netting agreement has a market value above zero (i.e., it would be an asset reported as derivative assets, net on our consolidated balance sheets), the counterparty is obligated to deliver collateral in the form of cash, securities, or a combination of both, in...

  • Page 129
    ...market values of the securities pledged to us to manage our exposure to loss. When non-cash collateral is posted to us, we require collateral in excess of our exposure to satisfy the net obligation to us in accordance with the counterparty agreement. See "NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS...

  • Page 130
    ...• interest payments on our other debt securities; • dividend obligations on our senior preferred stock; • cash purchases of single-family and multifamily loans; • purchases of mortgage-related securities and non-mortgage investments; • removal of modified or seriously delinquent loans from...

  • Page 131
    ... 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...

  • Page 132
    ... mainly competed for funds in the debt issuance markets with Fannie Mae and the FHLBs. To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities. The reduction in our mortgage-related investments portfolio has reduced our funding needs. We...

  • Page 133
    ... information, see "RISK MANAGEMENT - Credit Risk Overview - Mortgage Credit Risk Overview - Single-Family Mortgage Credit Risk Framework and Profile - Transferring a Portion of Mortgage Credit Risk" and "NOTE 8: DEBT AND SUBORDINATED BORROWNGS - Table 8.2 - Other Long-Term Debt." 128 Freddie Mac

  • Page 134
    ... BALANCE SHEETS ANALYSIS - Cash and Cash Equivalents, Federal Funds Sold and Securities Purchased Under Agreements to Resell" and "- Investments in Securities - Non-Mortgage-Related Securities." Mortgage Loans and Mortgage-Related Securities We invest principally in mortgage loans and mortgage...

  • Page 135
    ...core capital, and GAAP net worth results as of December 31, 2014 and 2013. In addition, notwithstanding our failure to maintain required capital levels, FHFA directed us to continue to make interest and principal payments on our subordinated debt. For more information, see "BUSINESS - Regulation and...

  • Page 136
    ... types and characteristics of mortgage loans underlying our mortgage-related securities, see "Table 27 - Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets" and "RISK MANAGEMENT - Credit Risk Overview - Mortgage Credit Risk Overview - Single-Family Mortgage Credit Risk...

  • Page 137
    ...-family and multifamily housing revenue bonds, under which Freddie Mac generally is obligated to purchase 50% of any tendered bonds that cannot be remarketed within five business days. At both December 31, 2014 and 2013, there were no liquidity guarantee advances outstanding. Our exposure to losses...

  • Page 138
    ... stock was $72.3 billion. See "BUSINESS - Conservatorship and Related Matters - Treasury Agreements and Senior Preferred Stock" for additional information; • future cash settlements on derivative agreements not yet accrued, because the amount and timing of such payments are dependent upon changes...

  • Page 139
    ... the administration of cash remittances received related to the underlying assets of Freddie Mac mortgage-related securities. Purchase commitments represent our obligations to purchase mortgage loans and mortgage-related securities from third parties, most of which are accounted for as derivatives...

  • Page 140
    ...model, together with other information such as our expectations with respect to the following: (a) future levels of loan modifications; (b) future loan repurchases by seller/servicers; (c) the adequacy of third-party credit enhancements; (d) the effects of changes in government policies and programs...

  • Page 141
    ... in the corporate tax rate would result in a charge representing the reduction in the realizable value of our net deferred tax asset. RISK MANAGEMENT AND DISCLOSURE COMMITMENTS In October 2000, we adopted a series of commitments designed to enhance our market discipline, liquidity and capital. In...

  • Page 142
    ...are primarily based on either third-party prices, or observable market-based inputs. For more information, see "NOTE 16: FAIR VALUE DISCLOSURES - Valuation Processes and Controls over Fair Value Measurement." Annually, the Risk Committee of our Board of Directors establishes certain Board limits for...

  • Page 143
    ... development and model testing are reviewed and approved independently by our Enterprise Risk Management division. Model performance is also reported regularly through a series of internal management committees. For more information about the risks associated with our use of models, see "MD&A - RISK...

  • Page 144
    ...-rate risk related to mortgage assets as risk for prepayment model error remains high due to the low interest rate environment and uncertainty regarding default rates, unemployment, government policy changes and programs, loan modifications, and the volatility and impact of home price movements...

  • Page 145
    ... the nearest month, during the years ended December 31, 2014 and 2013 was zero months in both periods. The disclosure in our Monthly Volume Summary reports, which are available on our web site at www.freddiemac.com and in current reports on Form 8-K we file with the SEC, reflects the average of the...

  • Page 146
    Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 141 Freddie Mac

  • Page 147
    ... and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable...

  • Page 148
    Table of Contents FREDDIE MAC CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2014 2013 2012 (in millions, except share-related amounts) Interest income Mortgage loans: Held by consolidated trusts Unsecuritized Total mortgage loans Investments in securities Other Total ...

  • Page 149
    ...-for-sale securities (includes $839 and ($1,100), respectively, related to net unrealized gains (losses) on securities for which other-than-temporary impairment has been recognized in earnings) Cash flow hedge relationships Defined benefit plans Total AOCI, net of taxes Treasury stock, at cost, 75...

  • Page 150
    ... Stock-based compensation Income tax benefit from stock-based compensation Common stock issuances Transfer from retained earnings (accumulated deficit) to additional paidin capital Senior preferred stock dividends declared Dividend equivalent payments on expired stock options Ending balance...

  • Page 151
    ...(Gains) losses on investment activity Deferred income tax expense (benefit) Purchases of held-for-sale mortgage loans Sales of mortgage loans acquired as held-for-sale Repayments of mortgage loans acquired as held-for-sale Payments to servicers for pre-foreclosure expense and servicer incentive fees...

  • Page 152
    ... single-family mortgage loans originated by our seller/servicers in the primary mortgage market and we manage our seriously delinquent loans. In most instances, we use the mortgage securitization process to package the loans into guaranteed mortgage-related securities. We guarantee the payment...

  • Page 153
    ... loans that are contributed by more than one party. We issue PCs through various swap-based exchanges significantly more often than through cash-based transfers. We issue REMICs and Other Structured Securities in transactions in which securities dealers or investors sell us mortgage-related assets...

  • Page 154
    ... based on quotes from third-party vendors who perform each type of service and, where quotes are not available, based on our estimates of what those vendors would charge. The remaining portion of the transaction fee relates to compensation earned in connection with structuring-related services...

  • Page 155
    .... Purchases and Sales of Freddie Mac Mortgage-Related Securities PCs When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt securities of the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to...

  • Page 156
    ...a guarantee of mortgage-related assets held by third parties, in exchange for a guarantee fee, without securitizing those assets. For example, we provide long-term standby commitments to certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are covered...

  • Page 157
    ... mortgage loans by seller/servicers; • counterparty credit of mortgage insurers and seller/servicers; • pre-foreclosure real estate taxes and insurance; • estimated selling costs should the underlying property ultimately be sold; and • trends in the timing of foreclosures. 152 Freddie Mac

  • Page 158
    ...reported by our servicers. The loan performance data provides a loan level history of delinquency, foreclosures, foreclosure alternatives and modifications. Our single-family loan loss reserve severity is based on the repeat housing sales index and actual REO dispositions, short sale and third-party...

  • Page 159
    ...-for-sale mortgage-related securities, including investments in securities that: (a) can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of our initial recorded investment; or (b) are not of high credit quality at the acquisition date and...

  • Page 160
    ... forward purchases and sales contracts that are not exempt from the requirements of derivatives and hedge accounting are recorded on the expected settlement date with a corresponding commitment recorded on the trade date. For most of our investments in securities, interest income is recognized using...

  • Page 161
    ... accrued interest) exceeds the fair value of the foreclosed property, net of estimated costs to sell and expected recoveries through credit enhancements. Losses are charged off against the allowance for loan losses at the time of REO acquisition. REO gains arise and are recognized 156 Freddie Mac

  • Page 162
    ... upon ultimate settlement. See "NOTE 12: INCOME TAXES" for additional information. Earnings Per Common Share The August 2012 amendment to the Purchase Agreement changed the manner in which the dividend on the senior preferred stock is determined. For each quarter from January 1, 2013 through and...

  • Page 163
    .... ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (Topic 860) The amendment requires repurchase-to-maturity January 1, 2015 transactions to be accounted for as secured borrowings and requires separate accounting for a transfer of a financial asset executed...

  • Page 164
    ... new shared system operational for Freddie Mac's and Fannie Mae's existing single-family securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common) security. We continue to align our resources and internal business plans to meet...

  • Page 165
    ... outstanding, we are prohibited from paying dividends (other than on the senior preferred stock) or issuing equity securities without Treasury's consent. The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the end of the conservatorship...

  • Page 166
    ... issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect on the date of the Purchase Agreement); • terminate the conservatorship...

  • Page 167
    ..., the holders of these debt securities or Freddie Mac mortgage guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us the lesser of: (a) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage...

  • Page 168
    ... by new single-family and certain new multifamily housing bonds issued by HFAs. Treasury purchased all of the pass-through securities issued by Freddie Mac and Fannie Mae. This initiative provided financing for HFAs to issue new housing bonds. Treasury will bear the initial losses of principal up...

  • Page 169
    ... PC trusts that issue PCs backed by loans or certificates of federal agencies (such as FHA, VA, and USDA). See "NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES - Credit Protection and Other Forms of Credit Enhancement" for additional information regarding third-party credit enhancements related to our...

  • Page 170
    ... December 31, 2014 Mortgage-Related Security Trusts Freddie Mac Securities(1) Assets and Liabilities Recorded on our Consolidated Balance Sheets Assets: Restricted cash and cash equivalents Investments in securities: Available-for-sale, at fair value Trading, at fair value Mortgage loans: Held-for...

  • Page 171
    ... debt on our consolidated balance sheets. Non-Freddie Mac Securities We invest in a variety of mortgage-related securities issued by third-parties, including non-Freddie Mac agency securities, CMBS, other private-label securities backed by various mortgage-related assets, and obligations of states...

  • Page 172
    ...years ended December 31, 2014, 2013, and 2012, this activity resulted in a decrease in investment securities and a decrease in debt securities of consolidated trusts of $0.4 billion, $2.2 billion, and $4.6 billion, respectively. NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES We own both single-family...

  • Page 173
    ... that time. Changes in market value are derived from our internal index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family mortgage acquisitions, including foreclosure sales. Estimates of the current LTV ratio...

  • Page 174
    ... of Loan Loss Reserves Year Ended December 31, 2014 Allowance for Loan Losses Unsecuritized Single-family: Beginning balance Provision (benefit) for credit losses Charge-offs Recoveries Transfers, net(1) Ending balance Multifamily: Beginning balance Provision (benefit) for credit losses Charge-offs...

  • Page 175
    ...4.4 - Net Investment in Mortgage Loans December 31, 2014 Single-family Recorded investment: Collectively evaluated Individually evaluated Total recorded investment Ending balance of the allowance for loan losses: Collectively evaluated Individually evaluated Total ending balance of the allowance Net...

  • Page 176
    ...individually impaired mortgage loans, and a general reserve for other probable incurred losses. Our recorded investment in individually impaired mortgage loans and the related specific valuation allowance are summarized in the table below by product class (for single-family loans). 171 Freddie Mac

  • Page 177
    ...For the Year Ended December 31, 2014 Average Recorded Investment Interest Income Recognized Interest Income Recognized On Cash Basis(1) UPB Balance at December 31, 2013 Recorded Investment Associated Allowance Net Investment (in millions) Single-family - With no specific allowance recorded(2): 20...

  • Page 178
    ... (2) Individually impaired single-family loans with no specific related valuation allowance primarily represent mortgage loans removed from PC pools and accounted for in accordance with the accounting guidance for loans and debt securities acquired with deteriorated credit quality that have not...

  • Page 179
    ... that are designed to reduce our credit risk exposure. See "Table 4.5 - Recourse and Other Forms of Credit Protection" for more information. Multifamily delinquency performance is based on UPB of mortgage loans that are two monthly payments or more past due or those in the process of foreclosure and...

  • Page 180
    ... is scheduled to end in December 2015. The modification that borrowers receive under this initiative will have the same mortgage terms as our non-HAMP standard modification. Borrowers are not required to apply for assistance or provide income or hardship documentation for this type of modification...

  • Page 181
    ... to the market rate that was in effect at the time of the modification. Table 5.5 - Payment Defaults of Completed TDR Modifications, by Segment(1) Year Ended December 31, 2014 Post-TDR Recorded Investment(2) 2013 Post-TDR Recorded Investment(2) Number of Loans Single-family: 20 and 30-year or more...

  • Page 182
    ... in states that require a judicial foreclosure process, which extends the time it takes for loans to be foreclosed upon and the underlying property to transition to REO. See "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS" for additional information about regional concentrations in our investments...

  • Page 183
    ...31, 2014 and 2013, all available-for-sale securities are mortgage-related securities. Table 7.1 - Available-For-Sale Securities Gross Unrealized Gains Gross Unrealized Losses Other-ThanTemporary Temporary Impairment(2) Impairment(1) (in millions) Available-for-sale securities: Freddie Mac Fannie Mae...

  • Page 184
    ... losses; • the use of a third-party model for single-family non-agency mortgage-related securities that considers the credit performance of the underlying collateral, including current LTV ratio, delinquency status, servicer performance, loan modification terms and status, and borrower credit...

  • Page 185
    ...to sell the security before recovery of its amortized cost basis. Freddie Mac and Fannie Mae Securities We record the purchase of mortgage-related securities issued by Fannie Mae as investments in securities in accordance with the accounting guidance for investments in debt and equity securities. In...

  • Page 186
    .... Commercial Mortgage-Backed Securities CMBS are exposed to stresses in the commercial real estate market. We use an external model to identify securities that may have an increased risk of failing to make their contractual payments. We then perform an analysis of the underlying 181 Freddie Mac

  • Page 187
    ...required to sell previously credit-impaired available-for-sale securities. Additionally, the credit loss component is reduced by the amortization resulting from significant increases in cash flows expected to be collected that are recognized over the remaining life of the security. 182 Freddie Mac

  • Page 188
    ... Five Years Amortized Cost Fair Value After Five Years Through Ten Years Amortized Cost Fair Value After Ten Years Amortized Cost Fair Value (dollars in millions) Available-for-sale securities: Freddie Mac Fannie Mae Ginnie Mae CMBS Subprime Option ARM Alt-A and other Obligations of states and...

  • Page 189
    ... UPB) as of December 31, 2014. For the years ended December 31, 2014, 2013, and 2012, we recorded net unrealized gains (losses) on trading securities held at those dates of $(88) million, $(1.6) billion, and $(1.7) billion, respectively. Non-Cash Investing and Financing Activities From time to time...

  • Page 190
    ... 0.16 0.13 Federal Funds Purchased and Securities Sold Under Agreements to Repurchase We had no balances in federal funds purchased and securities sold under agreements to repurchase at either December 31, 2014 or 2013. Other Long-Term Debt The table below summarizes our other long-term debt. Table...

  • Page 191
    ... to make interest and principal payments on our subordinated debt, even if we fail to maintain required capital levels. NOTE 9: DERIVATIVES Use of Derivatives We use derivatives primarily to manage the interest rate risk associated with our investments in financial assets and related liabilities. We...

  • Page 192
    ... monthly fee. In addition, we have purchased mortgage loans containing debt cancellation contracts, which provide for mortgage debt or payment cancellation for borrowers who experience unanticipated losses of income dependent on a covered event. The rights and obligations under these agreements have...

  • Page 193
    ... and collateral held and posted. Gains and Losses on Derivatives The table below presents the gains and losses on derivatives, including the accrual of periodic cash settlements, reported in our consolidated statements of comprehensive income as derivate gains (losses). 188 Freddie Mac

  • Page 194
    ... not linked to interest payments on other debt are recorded in expense related to derivatives. In the years ended December 31, 2014 and 2013, we reclassified from AOCI into earnings, losses of $303 million and $460 million, respectively, related to closed cash flow hedges. See "NOTE 11: STOCKHOLDERS...

  • Page 195
    ... and Freddie Mac mortgage-related securities may also be posted. In the event a counterparty defaults on its obligations under the derivatives agreement and the default is not remedied in the manner prescribed in the agreement, we have the right under the agreement to direct the custodian bank to...

  • Page 196
    ..., Freddie Mac mortgage-related securities, and cash may be pledged. We consider the types of securities being pledged to us as collateral when determining how much we lend in transactions involving securities purchased under agreements to resell. Additionally, we regularly review the market values...

  • Page 197
    ..., take the form of cash, cash equivalents, or agency securities. We did not hold any federal funds sold at December 31, 2014 and 2013. Collateral Pledged by Freddie Mac We are required to pledge collateral for margin requirements with third-party custodians in connection with secured financings and...

  • Page 198
    ...) 503 $ Other gains (losses) on investment securities recognized in earnings Net impairment of available-for-sale (1,510) securities recognized in earnings 389 Total before tax (136) Tax (expense) or benefit 253 Net of tax 1,899 2013 (in millions) Year Ended December 31, 2014 2013 Affected Line Item...

  • Page 199
    ...in limited circumstances. As discussed in "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS - Purchase Agreement," the quarterly commitment fee has been suspended. Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if declared by our Board...

  • Page 200
    ... and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended December 31, 2014, 2013, and 2012, respectively, included shares of common stock that would be issuable upon full exercise of the warrant issued to Treasury. Preferred Stock The table...

  • Page 201
    ...However, grants outstanding as of the date of the Purchase Agreement remain in effect in accordance with their terms. We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2014 and 2013, except for issuances of treasury stock as reported on our consolidated...

  • Page 202
    ...and preferred stock. NOTE 12: INCOME TAXES Income Tax (Expense) Benefit The table below presents the components of our federal income tax (expense) benefit for 2014, 2013, and 2012. We are exempt from state and local income taxes. Table 12.1 - Federal Income Tax (Expense) Benefit Year Ended December...

  • Page 203
    ... the deferred tax asset for credit related items and the allowance for loan losses. During 2013, we released our valuation allowance previously recorded on our net deferred tax asset. As of December 31, 2014, we had a LIHTC carryforward of $3.0 billion that will expire over multiple years beginning...

  • Page 204
    ... as of December 31, 2014. The IRS has examined our income tax returns for tax years 2008 through 2011. We are currently working with the IRS to finalize the stipulation of settled issues and closing agreement for years 1998 through 2010 related to our tax accounting method for certain hedging...

  • Page 205
    ... the entire company. In our Investments segment, we invest principally in • Interest rate risk management returns mortgage-related securities and single-family performing • Guarantee buy-ups, net of execution gains / losses mortgage loans. Segment Earnings for this segment consist • Cash and...

  • Page 206
    ... related to deferred gains (losses) on transfers of these securities. Segment Adjustments In presenting Segment Earnings management and guarantee income and net interest income, we make adjustments to better reflect how management measures and assesses the performance of each segment and the company...

  • Page 207
    ...the underlying loans. • We adjust our Segment Earnings net interest income for the Investments segment to include the amortization of cash premiums and discounts, as well as buy-up fees, on the consolidated Freddie Mac mortgage-related securities we purchase as investments. As of December 31, 2014...

  • Page 208
    ... income (Provision) benefit for credit losses Non-interest income (loss): Management and guarantee income(1) Net impairment of availablefor-sale securities recognized in earnings Derivative gains (losses) Gains (losses) on trading securities Gains (losses) on mortgage loans Other non-interest income...

  • Page 209
    ...Net interest income Benefit for credit losses Non-interest income (loss): Management and guarantee income(1) Net impairment of availablefor-sale securities recognized in earnings Derivative gains (losses) Gains (losses) on trading securities Gains (losses) on mortgage loans Other non-interest income...

  • Page 210
    ... to securitization trusts that issue mortgage-related securities backed by single-family mortgage loans, which we consolidate. During the years ended December 31, 2014 and 2013, we issued approximately $257.2 billion and $425.6 billion, respectively, in UPB of Freddie Mac mortgage-related securities...

  • Page 211
    ... 4: MORTGAGE LOANS AND LOAN LOSS RESERVES" for information about credit protections on loans we guarantee. Other Guarantee Commitments We provide long-term standby commitments to certain of our customers, which obligate us to purchase seriously delinquent loans that are covered by those agreements...

  • Page 212
    ...by year of origination and geographic area of the approximately $1.7 trillion UPB of our single-family credit guarantee portfolio at both December 31, 2014 and 2013. See "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES," "NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES," and "NOTE 7: INVESTMENTS IN...

  • Page 213
    ... 2006. Represents two states with a judicial foreclosure process in which there are a significant number of seriously delinquent loans within our single-family credit guarantee portfolio. Credit Performance of Certain Higher Risk Single-Family Loan Categories Participants in the mortgage market...

  • Page 214
    .... Includes HARP loans, which we are required to purchase as part of our participation in the MHA Program. The percentage of borrowers in our single-family credit guarantee portfolio, based on UPB, with estimated current LTV ratios greater than 100% was 6% and 10% at December 31, 2014 and 2013...

  • Page 215
    ...normal course of business. Our internal estimates of property valuation are derived using techniques that include income capitalization, discounted cash flows, comparable sales, or replacement costs. Seller/Servicers We acquire a significant portion of our single-family mortgage purchase volume from...

  • Page 216
    ...seller repurchase obligations in exchange for one-time cash payments, which totaled approximately $0.4 billion in aggregate. These agreements related to loans with $27.6 billion in aggregate principal amount (as of the dates of the respective agreements) and we recognized a benefit for credit losses...

  • Page 217
    ...-performance by, mortgage insurers that insure single-family mortgages we purchase or guarantee. We evaluate the recovery and collectability from insurance policies for mortgage loans that we hold for investment as well as loans underlying our non-consolidated Freddie Mac mortgage-related securities...

  • Page 218
    ..., and the Federal Reserve Bank of New York. As of December 31, 2014 and 2013, including amounts related to our consolidated VIEs, there were $71.4 billion and $85.9 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with institutional counterparties...

  • Page 219
    ... a number of mortgage securitization trusts. In October 2014, the trustees of the securitizations filed suit in New York state court seeking approval of the settlement. • In June 2011, Bank of America Corporation, BAC Home Loans Servicing, LP, Countrywide Financial Corporation and Countrywide Home...

  • Page 220
    ... credit risk. The requirement that we post initial and variation margin in connection with exchange-traded derivatives and cleared derivatives exposes us to institutional credit risk in the event that our clearing members or the clearinghouses fail to meet their obligations. However, the use...

  • Page 221
    ...-related securities: Freddie Mac Fannie Mae Ginnie Mae Other Total mortgage-related securities U.S. Treasury securities Total trading securities, at fair value Total investments in securities Mortgage loans: Held-for-sale, at fair value Derivative assets, net: Interest-rate swaps Option-based...

  • Page 222
    ...-related securities: Freddie Mac Fannie Mae Ginnie Mae Other Total mortgage-related securities U.S. Treasury securities Total trading securities, at fair value Total investments in securities Mortgage loans: Held-for-sale, at fair value Derivative assets, net: Interest-rate swaps Option-based...

  • Page 223
    ... and losses, recognized in our consolidated statements of comprehensive income for Level 3 assets and liabilities for the years ended December 31, 2014 and 2013. When assets and liabilities are transferred between levels, we recognize the transfer as of the beginning of the period. 218 Freddie Mac

  • Page 224
    ... Inputs Year Ended December 31, 2014 Realized and unrealized gains (losses) Balance, January 1, 2014 Assets Investments in securities: Available-for-sale, at fair value: Mortgagerelated securities: Freddie Mac Fannie Mae Ginnie Mae CMBS Subprime Option ARM Alt-A and other Obligations of states and...

  • Page 225
    ... mortgage-related securities classified as trading, the realized and unrealized gains (losses) are recorded in other gains (losses) on investment securities recognized in earnings on our consolidated statements of comprehensive income. Transfers out of Level 3 during the year ended December 31, 2014...

  • Page 226
    ...) 2013 Level 3 Total $ $ $ $ $ $ $ (1) (2) Includes impaired single-family and multifamily mortgage loans that are classified as held-for-investment and have a related valuation allowance based on the fair value of the underlying collateral and held-for-sale multifamily mortgage loans where...

  • Page 227
    ... of mortgage-related securities issued and guaranteed by Freddie Mac, Fannie Mae, and Ginnie Mae. The valuation techniques for agency securities vary depending on the type of security. Fixed-rate single-class securities are valued using observable prices for similar securities in the TBA market. The...

  • Page 228
    ... are unobservable. Single-family The collateral is valued using our internal model that uses REO disposition, short sale and third-party sale values, combined with loan level characteristics using the repeat housing sales index to estimate the current fair value of the loan. The inputs used in the...

  • Page 229
    ... as Level 2. Valuation techniques for commitments to purchase or sell investment securities and to extinguish or issue debt securities of consolidated trusts are further discussed in "Investments in Securities." Valuation techniques for commitments to purchase single-family mortgage loans are...

  • Page 230
    ...of cost or fair value less costs to sell. REO, net is valued using an internal model and is classified as Level 3 as significant inputs used in the fair value measurement are unobservable. Beginning in the third quarter of 2014, our internal model uses REO disposition prices combined with loan level...

  • Page 231
    ... Investments in securities Available-for-sale, at fair value Mortgage-related securities Freddie Mac Level 3 Fair Value Predominant Valuation Technique(s) Unobservable Inputs Type Range Weighted Average (dollars in millions) $ Total Freddie Mac Fannie Mae $ 39,099 Total Fannie Mae Ginnie Mae...

  • Page 232
    ... Investments in securities Available-for-sale, at fair value Mortgage-related securities Freddie Mac Level 3 Fair Value Predominant Valuation Technique(s) Unobservable Inputs Type Range Weighted Average (dollars in millions) $ Total Freddie Mac Fannie Mae $ 40,659 Total Fannie Mae Ginnie Mae...

  • Page 233
    ... Information about Non-Recurring Level 3 Fair Value Measurements December 31, 2014 Total Fair Value Non-recurring fair value measurements Mortgage loans $ 8,962 $ 8,962 Internal model Internal model Third-party appraisal Income capitalization(1) REO, net(2) $ 1,665 $ 1,665 Internal model Internal...

  • Page 234
    ...Financial Assets Cash and cash equivalents(1) Restricted cash and cash equivalents Federal funds sold and securities purchased under agreements to resell Investments in securities: Available-for-sale, at fair value Trading, at fair value Total investments in securities Mortgage loans: Mortgage loans...

  • Page 235
    ... fair value of single-family mortgage loans, valuation outcomes can vary widely based on management judgments and decisions used in determining: (a) the principal market; (b) modeling assumptions, including default, severity, home prices, and risk premiums; and (c) inputs used to determine variables...

  • Page 236
    ...and risk premiums. Single-family mortgage loans that qualify for purchase under current underwriting standards are classified as Level 2 as the significant inputs used for the valuation of these loans, such as security pricing, our externally published credit pricing matrices, and third-party prices...

  • Page 237
    ..., see Gains (losses) on trading securities within "Table 13.2 - Segment Earnings and Reconciliation to GAAP Results." Multifamily Held-For-Sale Mortgage Loans We elected the fair value option for multifamily mortgage loans that were purchased for securitization. These multifamily mortgage loans are...

  • Page 238
    ... costs and certain costs related to document production and storage. Putative Securities Class Action Lawsuit: Ohio Public Employees Retirement System ("OPERS") vs. Freddie Mac, Syron, et al. This putative securities class action lawsuit was filed against Freddie Mac and certain former officers...

  • Page 239
    ... of possible loss. Related Third Party Litigation On December 16, 2011, the SEC announced that it had charged three former executives of Freddie Mac with securities laws violations. These executives are former Chairman of the Board and Chief Executive Officer Richard F. Syron, former Executive Vice...

  • Page 240
    ... In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. This case is the result of the consolidation of three putative class action lawsuits: Cacciapelle and Bareiss vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA...

  • Page 241
    ... Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of damages they believe are due, and the Court has not certified a class. Since October 2013, we have received a number of letters from purported holders...

  • Page 242
    ... (1) Settlement agreements primarily related to lawsuits regarding our investments in certain non-agency mortgage-related securities is a significant component of other income in 2014 and 2013. For more information, see "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS - NonAgency Mortgage-Related...

  • Page 243
    ... on Our Consolidated Balance Sheets December 31, 2014 December 31, 2013 (in millions) Other assets: Accounts and other receivables(1) Current income tax receivable Guarantee asset All other Total other assets Other liabilities: Servicer liabilities Guarantee obligation Accounts payable and accrued...

  • Page 244
    ...except share-related amounts) (479) $ (0.15) $ (528) $ (0.16) $ 2013 (705) $ (0.22) $ (624) $ (0.19) $ 1Q Net interest income Benefit (provision) for credit losses Non-interest income (loss): Derivative gains (losses) Net impairments of available-for-sale securities recognized in earnings Other...

  • Page 245
    ...the SEC's rules and forms and that such information is accumulated and communicated to management of the company, including the company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls...

  • Page 246
    ..., credit and capital markets management, external communications, and legal matters. • Senior officials within FHFA's accounting group meet frequently with our senior financial executives regarding our accounting policies, practices, and procedures. In view of our mitigating actions related to...

  • Page 247
    ...Risk committees, with the appointments effective as of March 1, 2015. For more information, see "DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE - Authority of the Board and Board Committees." 2015 Target TDC The Compensation Committee's 2015 Target TDC recommendation for each Named Executive...

  • Page 248
    ... guidance for corporate governance issued by FHFA, the factors considered include the knowledge directors would have, as a group, in the areas of business, finance, accounting, risk management, public policy, mortgage lending, real estate, low-income housing, homebuilding, regulation of financial...

  • Page 249
    ... 2014, Mr. Hartnack has been a member of the board of directors of Synchrony Financial, where he serves as a member of the Audit Committee, the Management Development and Compensation Committee and the Nominating and Corporate Governance Committee. He also is a past director of the Federal Reserve...

  • Page 250
    ..., risk management products, emerging markets, and fixed income, as well as its operating services businesses. He also supervised the bank's investment portfolio for many years. More recently, Mr. Layton served as chairman and chief executive officer of online brokerage E*TRADE Financial Corporation...

  • Page 251
    ...• Mr. Naqvi led PNC Mortgage Corporation of America as president and chief executive officer between 1995 and 2001, when PNC Financial Services Group sold its mortgage business. In 2009, Mr. Naqvi returned to supervise the bank's integration of National City Mortgage Company and to head the newly...

  • Page 252
    ... Board review or approval. The Board has five standing committees: Audit; Compensation; Executive; Nominating and Governance; and Risk. All standing committees other than the Executive Committee meet regularly. The membership of each committee as of February 19, 2015 is as follows: 247 Freddie Mac

  • Page 253
    ... - Enterprise Operational Risk Management Interim Co-Chief Enterprise Risk Officer and Senior Vice President - Enterprise Chief Risk Officer - Investments and Capital Markets Position The following is a brief biographical description of each executive officer who is not also a member of the Board...

  • Page 254
    ... in charge of various units responsible for Multifamily Capital Markets. In his previous roles at Freddie Mac, Mr. Brickman led the multifamily pricing, costing and research teams, was responsible for the development and implementation of new quantitative pricing models and financial risk analysis...

  • Page 255
    ... Compliance Section 16(a) of the Exchange Act requires the directors and executive officers of a reporting company and persons who own more than 10% of a registered class of such company's equity securities to file reports of ownership and changes in ownership with the SEC. Based solely on a review...

  • Page 256
    ... under Internal Revenue Service (IRS) rules as a result of the termination of the pension component of the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan. Additional information about the 2014 EMCP is provided below and in our Current Report on Form 8-K filed on...

  • Page 257
    ... risk assessment and best practices review; • Engagement of an independent compensation consultant by the Board's Compensation Committee; and • No hedging or pledging of company securities. Chief Executive Officer Compensation Mr. Layton's compensation consists solely of an annual Base Salary...

  • Page 258
    ... strengthen the analysis of competitive market compensation levels, the Compensation Committee may use alternative survey sources. At FHFA's recommendation, Freddie Mac and Fannie Mae have aligned their Comparator Groups so that consistent compensation data is used by both companies for the same or...

  • Page 259
    ... level was justified for this portion of At-Risk Deferred Salary. FHFA noted the following considerations in assessing our performance against the Conservatorship Scorecard: • 2014 was a year of review and reevaluation of priorities, as well as a year of transition for both FHFA and Freddie Mac...

  • Page 260
    ...insurance Master Policies and enhanced eligibility requirements. The goal was achieved a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in 3 Build the secondary market in the future (30%) Continue working with FHFA, Fannie Mae...

  • Page 261
    ...goals were achieved. The Compensation Committee determined that, based on the company's performance against the Corporate Scorecard, a 100% funding level was justified for this portion of At-Risk Deferred Salary. The Board has adopted Corporate Scorecard goals for 2015 that are substantially similar...

  • Page 262
    ... agency structuring and non-agency sales, the amount of eligible single-family mortgages subject to risk transfer, maintaining multifamily profitability and actively managing the retained portfolio. We achieved or exceeded all elements of this goal, which related primarily to making informed risk...

  • Page 263
    ... during 2014, he added key members to the Single-Family Division management team overseeing a very large number of initiatives and projects and was appointed to CSS's Board of Managers. William H. McDavid, Executive Vice President - General Counsel and Corporate Secretary. The Compensation Committee...

  • Page 264
    ... agreements are described in "Potential Payments Upon Termination of Employment or Change-in-Control." 2014 EMCP participants are not currently entitled to a guaranteed level of severance benefits upon any type of termination event. For additional information on compensation and benefits payable...

  • Page 265
    ... earned during the two years prior to the date that the NEO is terminated, any Deferred Salary scheduled to be paid within two years after termination and any cash payment made or to be made as consideration for any release of claims agreement. • Gross Neglect or Gross Misconduct Forfeiture Event...

  • Page 266
    ... the "Pension Benefits" table. Stock Ownership, Hedging and Pledging Policies FHFA approved the suspension of our previous stock ownership guidelines because we ceased paying our executives stock-based compensation. The Purchase Agreement prohibits us from issuing any shares of our equity securities...

  • Page 267
    ... Board of Directors who served on the Compensation Committee during fiscal year 2014 were officers or employees of Freddie Mac or had any relationship with us that would be required to be disclosed by us under Item 407(e)(4) of Regulation S-K. Compensation Committee Report The Compensation Committee...

  • Page 268
    ... one-year Treasury Bill rate as of December 31, 2013. At-Risk Deferred Salary earned during each calendar quarter will be paid on the last pay date of the corresponding quarter in 2015. See "Compensation Discussion and Analysis - Executive Management Compensation Program - Performance Measures for...

  • Page 269
    .../Maximum column). Actual At-Risk Deferred Salary amounts earned are reported in the "Non-Equity Incentive Plan Compensation" column of "Summary Compensation Table - 2014." Mr. Layton is not eligible to receive Deferred Salary. Outstanding Equity Awards at Fiscal Year-End - 2014 264 Freddie Mac

  • Page 270
    ... Plan and Supplemental Executive Retirement Plan II," above. Pension Plan The Pension Plan is a tax-qualified, defined benefit pension plan, covering substantially all employees hired before 2012 who have attained age 21 and completed one year of service with us. The Pension Plan was closed to new...

  • Page 271
    ...Weiss was eligible to participate in the Pension Plan. Pension Plan benefits are based on an employee's years of service and compensation paid through December 31, 2013, up to limits imposed by the Internal Revenue Code. The normal retirement benefit under the Pension Plan for service after December...

  • Page 272
    ... actual payment of any level of termination benefits is subject to FHFA review and approval. For more information, see "Compensation Discussion and Analysis - Written Agreements Relating to Our NEOs' Employment." The table below does not address changes in control, as we are not obligated to provide...

  • Page 273
    ... Payment Schedule. Any earned but unpaid At-Risk Deferred Salary is not subject to reduction based on corporate and individual performance if the reduction has not been determined as of the termination date. • Any Other Reason (including, but not limited to, voluntary termination, retirement...

  • Page 274
    ... Salary: At Risk-Conservatorship Scorecard in the Retirement and All Other Not For Cause Terminations columns reflect the funding level determined by FHFA with respect to performance against the 2014 Conservatorship Scorecard. The amounts reported for Deferred Salary: At Risk-Corporate Scorecard...

  • Page 275
    ...." Director Compensation Board members receive compensation in the form of cash retainers only, paid on a quarterly basis. Under the terms of the Purchase Agreement, we may not make stock grants to directors without Treasury's consent. We do not maintain any pension or retirement plans for directors...

  • Page 276
    ... of February 17, 2015 by our current directors, our NEOs, all of our directors and executive officers as a group, and holders of more than 5% of our common stock. Beneficial ownership is determined in accordance with SEC rules for computing the number of shares of common stock beneficially owned by...

  • Page 277
    ... was at any time since the beginning of our last completed fiscal year, a director, a director nominee, an executive officer, or an immediate family member of any of the foregoing persons. Under authority delegated by the Board, our General Counsel and the Nominating and Governance Committee (or its...

  • Page 278
    ...of US Bancorp. In the aggregate, this stock represents a material portion of his net worth. US Bancorp conducts significant business with Freddie Mac, including as a single-family seller/servicer and as trustee of some of Freddie Mac's securitization transactions. In order to eliminate any potential...

  • Page 279
    ... in such capacity reports directly to the Chief Executive Officer. The Chief Risk Officer(s) also reports to the Risk Committee of the Board of Directors on a quarterly basis and to the full Board of Directors, as appropriate. ERM's Board reports include standard quarterly risk reports and ad hoc...

  • Page 280
    ... into the Purchase Agreement, described in this Form 10-K. See "BUSINESS - Conservatorship and Related Matters" and "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS - Related Parties as a Result of Conservatorship." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Description of Fees 275 Freddie Mac

  • Page 281
    ... and compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation Program for Mortgage Bankers. The 2014 audit-related fees also included transaction validation and attestation related to certain of Freddie Mac's risk transfer and structured transactions...

  • Page 282
    Table of Contents An Exhibit Index has been filed as part of this Form 10-K beginning on page E-1 and is incorporated herein by reference. 277 Freddie Mac

  • Page 283
    ... the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Federal Home Loan Mortgage Corporation By: /s/ Donald H. Layton Donald H. Layton Chief Executive Officer Date: February 19, 2015 278 Freddie Mac

  • Page 284
    ... Attorney-in-Fact Non-Executive Chairman of the Board February 19, 2015 Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President - Chief Financial Officer (Principal Financial Officer) Senior Vice President - Corporate Controller and Principal Accounting Officer...

  • Page 285
    ... funds sold and securities purchased under agreements to resell, and investments in non-mortgage-related securities. CCO - Chief Compliance Officer CD&A - Compensation Discussion and Analysis CEB - The Corporate Executive Board Company CEO - Chief Executive Officer CERO - Chief Enterprise Risk...

  • Page 286
    ...-family mortgage loans, we generally report delinquency rate information based on the number of loans that are seriously delinquent. For multifamily loans, we report delinquency rate information based on the UPB of loans that are two monthly payments or more past due or in the process of foreclosure...

  • Page 287
    ... - Securities and Exchange Act of 1934, as amended Executive Compensation Program - Executive Management Compensation Program, as amended and restated Fannie Mae - Federal National Mortgage Association FASB - Financial Accounting Standards Board FDIC - Federal Deposit Insurance Corporation Federal...

  • Page 288
    ... stock only in limited circumstances. Liquidity and contingency operating portfolio - Highly liquid non-mortgage assets generally consisting of cash and cash equivalents, federal funds sold and securities purchased under agreements to resell, and non-mortgage-related securities. LTV ratio - Loan...

  • Page 289
    ..., by which our Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds zero. New single-family book - Consists of mortgage loans in our single-family credit guarantee portfolio that were originated from 2009 to 2014, excluding HARP and other relief refinance mortgages. We do...

  • Page 290
    ...OTC Markets Group Inc., for OTC-traded U.S. companies that are registered and current in their reporting with the SEC or a U.S. banking or insurance regulator. Other guarantee commitments - Mortgage-related assets held by third parties for which we provide our guarantee without our securitization of...

  • Page 291
    ... Preference Senior Preferred Stock issued to Treasury under the Purchase Agreement. Seriously delinquent - Single-family mortgage loans that are three monthly payments or more past due or in the process of foreclosure as reported to us by our servicers. SERP - Supplemental Executive Retirement Plan...

  • Page 292
    ... modification, repayment plan, or forbearance agreement; or (b) a foreclosure alternative, which is either a short sale or a deed in lieu of foreclosure. XBRL - eXtensible Business Reporting Language Yield curve - A graphical display of the relationship between yields and maturity dates for bonds...

  • Page 293
    ... Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated December 20, 2012 (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K as filed on December 20, 2012) Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights...

  • Page 294
    ... Corporation Global Debt Facility Agreement, dated February 27, 2014 (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, as filed on May 8, 2014) Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan...

  • Page 295
    Table of Contents Exhibit No. 10.5 Description* Form of Nonqualified Stock Option Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan for awards on and after January 1, 2006 (incorporated by reference to Exhibit 10.4 to the Registrant's ...

  • Page 296
    ... Report on Form 10-Q for the quarterly period ended September 30, 2008, as filed on November 14, 2008) Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation...

  • Page 297
    ...'s Current Report on Form 8-K, as filed on December 29, 2009) Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage...

  • Page 298
    Exhibit 10.18 FEDERAL HOME LOAN MORTGAGE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II Effective January 1, 2014

  • Page 299
    ...Page Article I Article II Article III Article IV Article V Article VI Article VII Article VIII Establishment of the Plan...1 Definitions...1 Eligibility and Participation...4 Supplemental Benefit Credit...6 Payment of Benefits...9 Administration...10 Amendment and Termination...12 Miscellaneous...13

  • Page 300
    ... all times be maintained on an unfunded basis for federal income tax purposes under the Code, and administered as a "top hat" plan exempt from the substantive requirements of ERISA. The Plan is intended to provide deferred compensation to a select group of management or highly compensated employees...

  • Page 301
    ... Thrift/401(k) Plan. 2.15 ERISA. The Employee Retirement Income Security Act of 1974, as amended. 2.16 Excess Plan. The Federal Home Loan Mortgage Corporation 2014 Excess Benefit Plan, as may be amended from time to time. 2.17 Executive. All Employees who are officers at the level of vice president...

  • Page 302
    ... and Benefits shall have the authority to terminate an Affiliate's participation as a Participating Subsidiary and Employer as of any date following the Participating Subsidiary's adoption of the Plan. 2.22 Plan. This Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II...

  • Page 303
    ... Limitation. The limitation on annual additions that are permitted to be made to an individual's account(s) under the Transitional Plan or the Thrift/401(k) Plan, as applicable, pursuant to Code section 415. 2.27 SERP. The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan...

  • Page 304
    ...be eligible to receive a Supplemental Benefit Credit related to Employer Contributions under the Thrift/401(k) Plan for a Plan Year, the Executive must contribute the maximum amount permitted under the terms of the Thrift/401(k) Plan on a pre-tax or post-tax basis throughout the entire Plan Year (or...

  • Page 305
    ... (iii) the limitation set forth in Code section 415(c) for the Plan Year. (b) No Supplemental Benefit Credit will be accrued for a Participant for a Plan Year with respect to pay in excess of 200% of a Participant's "base salary" (as defined in the 2014 Executive Management Compensation Program, or...

  • Page 306
    ... eligible to receive a Supplemental Benefit Credit related to the Transitional Employer Contributions and Fixed Employer Contributions under the Transitional Plan pursuant to Sections 4.1 and 4.2 for the Plan Year in which the Qualifying Termination occurs, at the same time and on the same schedule...

  • Page 307
    ... pre-tax or post-tax basis throughout the entire Plan Year, as required under Section 3.2(b), and any such adjustment will include a corresponding change in Deemed Earnings on the adjusted amount. 4.4 Crediting and Debiting of Earnings and Losses. (a) Each Participant's Account shall be credited or...

  • Page 308
    ... Employment), the balance of the Participant's Account shall be paid to the Participant's Beneficiary in the form of a lump sum payment within 90 days after the end of the calendar year in which the Participant's death occurs, without additional Deemed Earnings accruing after date of the Participant...

  • Page 309
    ...'s Account shall be paid to the Participant in the form of a lump sum payment within 90 days following the Participant's Total and Permanent Disability, without additional Deemed Earnings accruing after date of the Participant's Total and Permanent Disability. 5.4 Payment of Benefits - Special Rules...

  • Page 310
    ...such employees of that Division as that executive shall designate. 6.2 Cost. The Corporation shall pay the costs of administering the Plan. 6.3 Claims Procedure. The Claims Administrator shall determine Participants' and Beneficiaries' eligibility and rights to benefits under the Plan. In the event...

  • Page 311
    ...or (iv) that relates to the Plan and seeks a remedy, ruling, or judgment of any kind against the Plan, the Administrator, the Corporation, an Employer, or any employee or director thereof, may not be filed in any court until the claimant has exhausted the Plan's claim and appeal process for any and...

  • Page 312
    ...all federal, state, and local income taxes, and employment taxes imposed upon the Participant or his or her Beneficiary that are required to be paid or withheld by the Corporation or Employer. Any amounts required to be withheld will be withheld out of amounts payable under the Plan or other current...

  • Page 313
    ... 409A or any other provision of federal, state, local, or non-United States law. The Corporation, its Affiliates, and their respective directors, officers, employees, and advisers will not be liable to any person for any tax, interest, or penalties that might be owed with respect to an Account. 14

  • Page 314
    IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed by its duly authorized officers, this 18 day of February 2015. FEDERAL HOME LOAN MORTGAGE CORPORATION By: /s/ Daniel Scheinkman DANIEL SCHEINKMAN Vice President - Compensation and Benefits ATTEST: /s/ Carol Rakatansky CAROL ...

  • Page 315
    ... 12.1 RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Year Ended December 31, 2014 Net income (loss) before income tax (expense) benefit and cumulative effect of changes in $ accounting principles Add: Low-income housing tax credit...

  • Page 316
    Exhibit 24.1 Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. ...

  • Page 317
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 318
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 319
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 320
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 321
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 322
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 323
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 324
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 325
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 326
    Power of Attorney Annual Report on Form 10-K Freddie Mac KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Donald H. Layton, James G. ...

  • Page 327
    ... 31.1 CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a) I, Donald H. Layton, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of the Federal Home Loan Mortgage Corporation; Based on my knowledge, this report does not contain any...

  • Page 328
    ... 31.2 CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a) I, James G. Mackey, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of the Federal Home Loan Mortgage Corporation; Based on my knowledge, this report does not contain any...

  • Page 329
    ... OF 2002 In connection with the Annual Report on Form 10-K for the year ended December 31, 2014 of the Federal Home Loan Mortgage Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald H. Layton, Chief Executive Officer of the...

  • Page 330
    ...Annual Report on Form 10-K for the year ended December 31, 2014 of the Federal Home Loan Mortgage Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James G. Mackey, Executive Vice President - Chief Financial Officer of the Company...