Freddie Mac 2006 Annual Report Download - page 8

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Challenges to be Addressed
While Freddie Mac reached many of our goals last year, some major challenges remained
unmet. Foremost among them was the essential task of getting current in our financials
and strengthening our internal controls. There’s no question this has taken longer than
any of us expected.
Fortunately, we have developed and are carrying out a comprehensive plan that
embodies our detailed blueprint for completing this job. We have first-rate teams and
project leaders implementing this plan and they are making good progress. Our goal
is to return to quarterly financial reporting this year. And we are working assiduously to
improve our internal controls systems and infrastructure. As I said in last year’s letter
to stockholders, Freddie Mac must become the standard of excellence not only for
managing mortgage risk, but for the accounting and internal controls associated with it.
The highly competitive, tight-spread environment we faced last year is another ongoing
challenge for us in 2007. Our improved funding costs are part of the answer, as I
mentioned. More broadly, we must continue to take other steps going forward — as with
our expanded use of structured securities, for example — to generate acceptable returns
in spite of tight margins.
Freddie Mac worked hard to hold its own in market share last year. While last year’s 43
percent share was marginally below our 2005 figure, we consciously turned away some
business that would not have served our mission or return objectives, rather than pursue
additional share for share’s sake. Looking ahead, we are focused on pricing issues as
well as strong customer relationships.
Senior management is also keenly focused on Freddie Mac’s expenses. Although
these rose modestly last year — mostly in professional services related to our financial
remediation — their rate of growth still was exceeded by the rate of growth in our business.
This was in keeping with our long-term goal of managing administrative expenses to be a
decreasing percentage of our mortgage portfolio, subject to the near-term imperative that
we complete our needed investments in financial reporting and internal controls.
Building a stronger future for this company includes building support for the GSE model.
Freddie Mac continues to strongly support an appropriate legislative solution that would
strengthen our oversight and enable us to fulfill our vital housing mission. And we are
playing a constructive role toward that end. Throughout 2006, we worked closely with our
regulators at OFHEO and HUD, with the Administration and with Congress, to achieve
balanced legislative and regulatory solutions that address the concerns of the past but
are consistent with the growing demands of the future. This will remain a focus for me,
and for this company, until the job is done.
Freddie Mac
2006
Annual Report