Freddie Mac 2004 Annual Report Download - page 18

Business Activities
We connect Main Street Ì the residential mortgage market Ì to Wall Street Ì dealers and investors Ì
through our mortgage purchase, credit guarantee and portfolio investment activities.
Our customers are predominantly lenders in the primary mortgage market. Our activity in the secondary
mortgage market supports a continuous Öow of funds to the primary market, which leads to consumer beneÑts
in the form of a steady Öow of low-cost mortgage funding. This Öow of funds helps moderate cyclical swings in
the housing market, redistributes the Öow of mortgage funds regionally throughout the U.S. and provides for
the availability of mortgage funds at all times. In addition, the supply of cash made available to lenders
through this process lowers mortgage rates, making homeownership aÅordable for more families and
individuals.
Single-Family Mortgages. Lending institutions extend mortgage loans directly to their customers who
wish to purchase or reÑnance a home. Often, lenders look to us to purchase those mortgage loans from them,
replenishing the supply of money for lending. We purchase single-family mortgage loans, which are secured by
one- to four-family properties, mainly from mortgage bankers, dealers, insurance companies and federally
insured Ñnancial institutions.
The types of single-family mortgage loans we purchase typically include 30-year, 20-year, 15-year and
10-year Ñxed-rate mortgages, initial interest-only mortgages, ARMs and balloon/reset mortgages. The
substantial majority of the mortgage loans we purchase are conventional mortgages. However, we purchase
some mortgages that are fully insured by the FHA or the RHS, and some mortgages that are partially
guaranteed by the VA. Single-family mortgage loans generally are subject to our internal credit policies and
credit, appraisal, underwriting and other purchase policies and guidelines as set forth in our Single-Family
Seller/Servicer Guide.
A signiÑcant portion of our single-family mortgage purchase volume is generated from several large
mortgage lenders. During 2004, Wells Fargo Home Mortgage, Inc., Chase Home Finance LLC, ABN Amro
Mortgage Group, Inc. and National City Mortgage Co. accounted for approximately 63 percent of our
mortgage purchase volume. Wells Fargo was the largest source and accounted for approximately 33 percent of
our mortgage purchase volume during 2004, while Chase Home Finance LLC, our second largest source,
accounted for approximately 14 percent of our mortgage purchase volume.
As the mortgage industry has been consolidating, we and our competitors have been seeking business
from a decreasing number of key lenders. We are exposed to the risk that we will lose signiÑcant business
volume and will be unable to replace this business if one or more of our key lenders chooses to reduce
signiÑcantly the volume of mortgages it delivers to us or ceases to exist because of a merger or an acquisition.
The loss of business from any one of our key lenders could adversely aÅect our market share, our revenues, the
use of our technology by participants in the mortgage market and the performance of our mortgage-related
securities. We are actively working to diversify our customer base and thus reduce the potential impact of
losing a key customer. We believe that we would be able to recover from a signiÑcant decrease in, or loss of,
business volume from one or more of our largest customers through such means as strengthening our
relationships with other major lenders and servicers or modifying our business strategies.
Multifamily Mortgages. We purchase multifamily mortgages, which are secured by structures with Ñve
or more units designed principally for residential use, from approved mortgage lenders. These lenders include
federally insured Ñnancial institutions, mortgage bankers, investment bankers and insurance companies. These
mortgages have terms generally ranging from Ñve to thirty years. Our multifamily mortgage products, services
and initiatives are designed primarily to Ñnance rental housing aÅordable to low- and moderate-income
families.
We have established multifamily mortgage credit, appraisal and underwriting guidelines as set forth in
our internal credit policies and our Multifamily Seller/Servicer Guide. We may modify these guidelines or
grant waivers for some multifamily mortgages, including mortgages on properties that have favorable debt
coverage or loan-to-value ratios (a) that we consider to have superior management, (b) that are located where
the demand for rental housing is strong, (c) that serve our aÅordable housing mission, or (d) for which we are
seeking to match competitive bids by other lenders.
Freddie Mac
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