Freddie Mac 2004 Annual Report Download - page 4

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Freddie Mac made significant strides in recommitting ourselves to our affordable housing
mission in 2004. We financed homes for more than 3.7 million families last year — more than half
of whom were of low or moderate income. We reported to HUD that we met all of our affordable
housing goals for 2004, which effectively increased by 14 percent. We also made progress on
other measures such as our purchase of loans for minority families and first-time homebuyers.
We laid the groundwork for the successful rollout early this year of our new Home PossibleSM
suite of affordable mortgages. Broadly available through our automated underwriting service,
this initiative will bring new scale and influence to affordable housing finance. It also contains
special terms to address the urgent problem of workforce housing. All told, we expect Home
Possible to help hundreds of thousands of people — including first-time homebuyers and
immigrant families — buy a home over the next few years.
As you can see, Freddie Mac is more focused today on our affordable housing mission. Our
lender customers have recognized this change publicly. And this awareness has not only fed
our mission progress, but our business progress as well.
BUILDING SHAREHOLDER VALUE
Last year we produced GAAP net income of approximately $2.9 billion — increasing our capital
surplus and maintaining a strong balance sheet. Our strong capital position allowed us this
March to raise our common stock dividend by 17 percent. We are very conscious this is your
capital we are working with.
Risk management continues to be a distinguishing strength of Freddie Mac. Across a range of
rigorous measures — from standards of credit risk to interest-rate risk to risk-based capital —
the company remains very safe and sound. Indeed, we consistently pass tests of safety and
soundness that very few financial institutions could satisfy. For example, we measure the sen-
sitivity of our portfolio to sudden interest-rate movements every business day. We publicly
report this PMVS, as it’s called, every month. And our published monthly duration gap results
show that we have kept our assets and liabilities very well matched through a wide variety of
market conditions.
Although Freddie Mac is operating today in a challenging, lower-growth environment, I am
confident we can continue to produce long-term value for our investors. One big reason is our
greatly improved focus on the customer, under the strong leadership of President and COO
Gene McQuade. In 2003, the company lost customers, partly because of our worsening
security price performance, resulting in the loss of market share. In 2004, we turned that
around — winning customers, improving the price of our mortgage-backed securities, and
setting the stage for further gains in market share. Another plus was our introduction of more
new products last year than in the previous four years combined. By year’s end, our GSE
market share had rebounded toward historic levels — climbing six percentage points from its
2003 low. And we expect to build on our gains this year.
The substantial improvement in our mortgage security prices was a major factor in our success
last year. This turnaround didn’t happen by accident. EVP for Investments Patti Cook leads a
consolidated division whose holistic approach links the sourcing side of our business with the
investment side. We also developed an important new product that was introduced successfully
earlier this year. The Freddie Mac Reference REMICSM will provide simplicity, predictability,
transparency and liquidity.
We are streamlining the company in further ways to achieve operational efficiencies. Most notably,
we have created a unified operations and technology division, under EVP Joe Smialowski.