Freddie Mac 2006 Annual Report Download - page 4

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2006 was a challenging year in the U.S. housing and mortgage markets, and
Freddie Mac shared in those challenges. But even though housing weakened last
year, Freddie Mac gained some strength.
Housing starts tumbled by 13 percent in 2006. Home purchases fell 10 percent.
Mortgage originations dropped and home prices began to decline in a number of
local markets. And the possibility of further weakness in the sector remains a leading
concern for economic growth in 2007 — particularly if accompanied by widespread
loan defaults or a severe tightening of credit standards.
At this writing, defaults and late payments have remained relatively low on prime mort-
gages, which are made to lower-risk borrowers and account for the lion’s share of home
loans. But late payments have risen swiftly over the past year on subprime mortgages,
those made to borrowers having spottier credit histories and posing higher risks.
Yet despite last year’s many challenges — which included reduced housing affordability,
rising mission demands, tight spreads, intense competition and voluntary limits on
our retained portfolio — Freddie Mac made continued progress. We increased our
earnings, served our vital public mission and strengthened our franchise.
We did not meet all our 2006 objectives, particularly as to financial reporting and
internal controls. This was very disappointing to me and to your entire management
team. But we have implemented a sound, comprehensive plan to make the needed
improvements and are moving ahead briskly. The timing of this annual report is itself
one small sign of progress. Our plan should allow us to resume quarterly reporting
in the second half of 2007.
A Message from the Chairman