Freddie Mac 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 Freddie Mac annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 393

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181
  • 182
  • 183
  • 184
  • 185
  • 186
  • 187
  • 188
  • 189
  • 190
  • 191
  • 192
  • 193
  • 194
  • 195
  • 196
  • 197
  • 198
  • 199
  • 200
  • 201
  • 202
  • 203
  • 204
  • 205
  • 206
  • 207
  • 208
  • 209
  • 210
  • 211
  • 212
  • 213
  • 214
  • 215
  • 216
  • 217
  • 218
  • 219
  • 220
  • 221
  • 222
  • 223
  • 224
  • 225
  • 226
  • 227
  • 228
  • 229
  • 230
  • 231
  • 232
  • 233
  • 234
  • 235
  • 236
  • 237
  • 238
  • 239
  • 240
  • 241
  • 242
  • 243
  • 244
  • 245
  • 246
  • 247
  • 248
  • 249
  • 250
  • 251
  • 252
  • 253
  • 254
  • 255
  • 256
  • 257
  • 258
  • 259
  • 260
  • 261
  • 262
  • 263
  • 264
  • 265
  • 266
  • 267
  • 268
  • 269
  • 270
  • 271
  • 272
  • 273
  • 274
  • 275
  • 276
  • 277
  • 278
  • 279
  • 280
  • 281
  • 282
  • 283
  • 284
  • 285
  • 286
  • 287
  • 288
  • 289
  • 290
  • 291
  • 292
  • 293
  • 294
  • 295
  • 296
  • 297
  • 298
  • 299
  • 300
  • 301
  • 302
  • 303
  • 304
  • 305
  • 306
  • 307
  • 308
  • 309
  • 310
  • 311
  • 312
  • 313
  • 314
  • 315
  • 316
  • 317
  • 318
  • 319
  • 320
  • 321
  • 322
  • 323
  • 324
  • 325
  • 326
  • 327
  • 328
  • 329
  • 330
  • 331
  • 332
  • 333
  • 334
  • 335
  • 336
  • 337
  • 338
  • 339
  • 340
  • 341
  • 342
  • 343
  • 344
  • 345
  • 346
  • 347
  • 348
  • 349
  • 350
  • 351
  • 352
  • 353
  • 354
  • 355
  • 356
  • 357
  • 358
  • 359
  • 360
  • 361
  • 362
  • 363
  • 364
  • 365
  • 366
  • 367
  • 368
  • 369
  • 370
  • 371
  • 372
  • 373
  • 374
  • 375
  • 376
  • 377
  • 378
  • 379
  • 380
  • 381
  • 382
  • 383
  • 384
  • 385
  • 386
  • 387
  • 388
  • 389
  • 390
  • 391
  • 392
  • 393

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, 2011
Commission File Number: 001-34139
Federal Home Loan Mortgage Corporation
(Exact name of registrant as specified in its charter)
Freddie Mac
Federally chartered corporation
(State or other jurisdiction of
incorporation or organization)
8200 Jones Branch Drive
McLean, Virginia 22102-3110
(Address of principal executive
offices, including zip code)
52-0904874
(I.R.S. Employer
Identification No.)
(703) 903-2000
(Registrant’s telephone number,
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 (OTC: FMCC)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCI)
5% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCKK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCG)
5.1% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCH)
5.79% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCL)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCM)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCN)
5.81% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCO)
6% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCP)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCCJ)
5.7% Non-Cumulative Preferred Stock, par value $1.00 per share (OTC: FMCKP)
Variable Rate, Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCCS)
6.42% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCCT)
5.9% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKO)
5.57% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKM)
5.66% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKN)
6.02% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKL)
6.55% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKI)
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTC: FMCKJ)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes nNo
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 nNo
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 No n
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 nNo
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.
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 nAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) nSmaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes nNo
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, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter) was $227.4 million.
As of February 27, 2012, there were 649,733,472 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None

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, 2011 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
    ... Data ...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security...

  • Page 3
    ...Family Scheduled Adjustable-Rate Resets by Year at December 31, 2011 ...Serious Delinquency Rates by Year of First Rate Reset ...Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio ...Single-Family Home Affordable Modification Program Volume ...Single-Family Refinance Loan...

  • Page 4
    ... Reserve Recorded ...Single-Family Credit Loss Sensitivity ...Other Debt Security Issuances by Product, at Par Value ...Other Debt Security Repurchases, Calls, and Exchanges ...Freddie Mac Credit Ratings ...Summary of Assets and Liabilities at Fair Value on a Recurring Basis...Summary of Change...

  • Page 5
    ... in Mortgage-Related Securitizations ...Note 11: Derivatives ...Note 12: Freddie Mac Stockholders' Equity (Deficit) ...Note 13: Income Taxes ...Note 14: Segment Reporting...Note 15: Regulatory Capital ...Note 16: Concentration of Credit and Other Risks...Note 17: Fair Value Disclosures ...Note 18...

  • Page 6
    ... these changes will have on borrowers and the housing market. The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and...

  • Page 7
    ... by the ongoing weakness in the economy, including in the mortgage market, and by a significant reduction in long-term interest rates and changes in OAS levels. Our total comprehensive income (loss) was $(1.2) billion and $282 million for 2011 and 2010, respectively, consisting of: 2 Freddie Mac

  • Page 8
    ... Fannie Mae. See "Regulation and Supervision - Legislative and Regulatory Developments - FHFA's Strategic Plan for Freddie Mac and Fannie Mae Conservatorships" for further information. We believe our risks related to employee turnover are increasing. Uncertainty surrounding our future business model...

  • Page 9
    ... were paying an average of 56 basis points less on these conforming loans than on non-conforming loans. These estimates are based on data provided by HSH Associates, a third-party provider of mortgage market data. Future increases in our management and guarantee fee rates, such as those required...

  • Page 10
    ... (d) a reduction in amortization term. In November 2011, Freddie Mac and Fannie Mae issued guidance with operational details about the HARP changes to mortgage lenders and servicers after receiving information from FHFA about the fees that we may charge associated with the refinancing program. Since...

  • Page 11
    ... incurred losses. As of December 31, 2011, only six insurance companies remained as eligible insurers for Freddie Mac loans, which means that, in the future, our mortgage insurance exposure will be concentrated among a smaller number of counterparties. See "MD&A - RISK MANAGEMENT - Credit Risk...

  • Page 12
    ... two years. We believe this is due, in part, to declines in the amount of single-family mortgage debt outstanding in the market and increased competition from Ginnie Mae and FHA/VA. Although the number of seriously delinquent loans declined in both 2010 and 2011, our delinquency rates were higher...

  • Page 13
    ... enhancements, such as mortgage insurance. In discussing our credit performance, we often use the terms "credit losses" and "credit-related expenses." These terms are significantly different. Our "credit losses" consist of charge-offs and REO operations income (expense), while our "credit-related...

  • Page 14
    ... status by our servicers. See "MD&A - RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Single-family Mortgage Credit Risk - Credit Performance - Delinquencies" for further information about factors affecting our reported delinquency rates. Government Support for our Business We are dependent...

  • Page 15
    ...: • Net interest income for the year ended December 31, 2011 increased to $18.4 billion from $16.9 billion for the year ended December 31, 2010, mainly due to lower funding costs, partially offset by a decline in the average balances of mortgage-related assets. • Provision for credit losses for...

  • Page 16
    ... enhancement in excess of that already in place for any such loan, even if the LTV ratio of the new loan is above 80%. Our Business Segments Our operations consist of three reportable segments, which are based on the type of business activities each performs - Single-family Guarantee, Investments...

  • Page 17
    ... the timely payment of principal and interest on mortgage-related securities backed by federally insured or guaranteed loans, primarily those insured by FHA or guaranteed by VA. Ginnie Mae maintained a significant market share in 2011 and 2010, in large part due to favorable pricing of loans insured...

  • Page 18
    ... our servicer works with the borrower to find a solution to help them stay in the home, or sell the property and avoid foreclosure, through our many different workout options. If this is not possible, we ultimately foreclose and sell the home. The terms of single-family mortgages that we purchase or...

  • Page 19
    ... to purchase and sell PCs than unsecuritized mortgage loans, and allows more cost effective interest-rate risk management. For our fixed-rate PCs, we guarantee the timely payment of principal and interest. For our single-family ARM PCs, we guarantee the timely payment of the weighted average coupon...

  • Page 20
    ... including pension funds, insurance companies, securities dealers, money managers, commercial banks and foreign central banks, purchase our PCs. Treasury and the Federal Reserve have also purchased mortgage-related securities issued by us, Fannie Mae and Ginnie Mae under their purchase programs. The...

  • Page 21
    ...in the market share of our single-family guarantee business, lower comprehensive income, and a more rapid decline in the size of our total mortgage portfolio. See "Investments Segment - PC Support Activities " and "RISK FACTORS - Competitive and Market Risks - Any decline in the price performance of...

  • Page 22
    resecuritization, fee. This transaction fee is compensation for facilitating the transaction, as well as future administrative responsibilities. Other Guarantee Transactions We also issue mortgage-related securities to third parties in exchange for non-Freddie Mac mortgage-related securities. We ...

  • Page 23
    ...fixed-rate single-family PCs are considered to be homogeneous, and are issued in high volume and are highly liquid, they generally trade on a "generic" basis by PC coupon rate, also referred to as trading in the TBA market. A TBA trade in Freddie Mac securities represents a contract for the purchase...

  • Page 24
    ... LTV ratio, the documentation level, the number of borrowers, the type of mortgage product, and the occupancy type of the loan. We subsequently review a sample of these loans and, if we determine that any loan is not in compliance with our contractual standards, we may require the seller/servicer...

  • Page 25
    ... to HARP are available to borrowers with loans that were sold to Freddie Mac and Fannie Mae on or before May 31, 2009 and who have current LTV ratios above 80%. The program enhancements include: • eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages, and...

  • Page 26
    ...loans related to our single-family business. For our liquidity needs, we maintain a portfolio comprised primarily of cash and cash equivalents, non-mortgage-related securities, and securities purchased under agreements to resell. Debt Financing We fund our investment activities by issuing short-term...

  • Page 27
    ... in the market share of our single-family guarantee business, lower comprehensive income, and a more rapid decline in the size of our total mortgage portfolio. For more information, see "RISK FACTORS - Competitive and Market Risks - Any decline in the price performance of or demand for our PCs could...

  • Page 28
    ... evaluate each mortgage prior to purchase. This process includes review of third-party appraisals and cash flow analysis. Our underwriting standards focus on loan quality measurement based, in part, on the LTV ratio and DSCR at origination. The DSCR is one indicator of future credit performance. The...

  • Page 29
    ... the company's assets and property and to put the company in a sound and solvent condition. The goals of the conservatorship are to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to...

  • Page 30
    ... on Freddie Mac in addressing housing and mortgage market conditions and our public mission, we may be required to take additional actions that could have a negative impact on our business, operating results or financial condition. Because we expect many of these objectives and related initiatives...

  • Page 31
    ... our purchase of mortgage loans with LTV ratios greater than 125%, as we have not yet implemented a securitization process for such loans. Our mortgage-related investments portfolio includes assets that are less liquid than agency securities, including unsecuritized performing single-family mortgage...

  • Page 32
    ... Conservator is required to maintain a full accounting of the conservatorship and make its reports available upon request to stockholders and members of the public. We remain liable for all of our obligations relating to our outstanding debt and mortgage-related securities. FHFA has stated that our...

  • Page 33
    ...as the senior preferred stock; and (b) a warrant to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is exercised, which we refer to as the warrant. The terms of the...

  • Page 34
    ... result in positive net worth, draws under the Purchase Agreement effectively fund the cash payment of senior preferred dividends to Treasury. It is unlikely that, over the long-term, we will generate net income or comprehensive income in excess of our annual dividends payable to Treasury, although...

  • Page 35
    ... Directors, cumulative quarterly cash dividends at the annual rate of 10% per year on the then-current liquidation preference of the senior preferred stock. Through December 31, 2011, we have paid cash dividends of $16.5 billion at the direction of the Conservator. If at any time we fail to pay cash...

  • Page 36
    ...); • sell or 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...

  • Page 37
    ...a five-year term, removable only for cause. In the discussion below, we refer to Freddie Mac and Fannie Mae as the "enterprises." The Federal Housing Finance Oversight Board, or the Oversight Board, is responsible for advising the Director of FHFA with respect to overall strategies and policies. The...

  • Page 38
    ... our PCs held by third parties and other aggregate off-balance sheet obligations using a 0.45% capital requirement. Notwithstanding this guidance, FHFA reserves the authority under the GSE Act to raise the minimum capital requirement for any of our assets or activities. For additional information...

  • Page 39
    ...eligible mortgages underlying our total single-family mortgage purchases. The multifamily goals are expressed in terms of minimum numbers of units financed. With respect to the single-family goals, the rule includes: (a) an assessment of performance as compared to the actual share of the market that...

  • Page 40
    ...the single-family purchase-money goals and the subgoal for 2011. 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 2011 will not be released...

  • Page 41
    ...range of operations of the enterprises. These standards must address internal controls, information systems, independence and adequacy of internal audit systems, management of interest rate risk exposure, management of market risk, liquidity and reserves, management of asset and investment portfolio...

  • Page 42
    ... until directed otherwise. See "NOTE 15: REGULATORY CAPITAL - Subordinated Debt Commitment" for more information regarding subordinated debt. Department of Housing and Urban Development HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities...

  • Page 43
    ... loan limits, and winding down Freddie Mac and Fannie Mae's investment portfolios, consistent with the senior preferred stock purchase agreements. These recommendations, if implemented, would have a material impact on our business volumes, market share, results of operations and financial condition...

  • Page 44
    ... mortgage insurance. To evaluate how to accomplish the goal of contracting enterprise operations in the multifamily business, the plan states that Freddie Mac and Fannie Mae will each undertake a market analysis of the viability of its respective multifamily operations without government guarantees...

  • Page 45
    ... Trust Fund, the Capital Magnet Fund, and the HOPE Reserve Fund; require disposition of non-mission critical assets; apply the Freedom of Information Act to Freddie Mac and Fannie Mae; and set a cap on the funds received under the Purchase Agreement. In 2011, the Financial Services Committee of...

  • Page 46
    ... 1, 2011 in high-cost areas (currently, up to $625,500 for a one-family residence). A new law reinstated higher conforming loan limits for FHA-insured mortgages through 2013. However, these reinstated higher limits do not apply to Freddie Mac and Fannie Mae. Developments Concerning Single-Family...

  • Page 47
    ...2012. See "MD&A - RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Single-Family Mortgage Credit Risk - Single-Family Loan Workouts and the MHA Program." FHFA has also directed us and Fannie Mae to work on a joint initiative to consider alternatives for future mortgage servicing structures and...

  • Page 48
    ... their homes. The plan would require us to change certain existing processes and could increase our costs. To date, no legislation has been introduced in Congress with respect to this plan. The plan states that the mortgage servicing system would benefit from a single set of strong federal standards...

  • Page 49
    ... market, future business plans, liquidity, capital management, economic and market conditions and trends, market share, the effect of legislative and regulatory developments, implementation of new accounting guidance, credit losses, internal control remediation efforts, and results of operations...

  • Page 50
    ... to the disposition of REO properties, or investment standards for mortgage-related products; • investor preferences for mortgage loans and mortgage-related and debt securities compared to other investments; • borrower preferences for fixed-rate mortgages versus ARMs; • the occurrence of...

  • Page 51
    ... private capital back to the mortgage market, including increasing guarantee fees, phasing in a 10% down payment requirement, reducing conforming loan limits, and winding down Freddie Mac and Fannie Mae's investment portfolios, consistent with the senior preferred stock purchase agreements. A number...

  • Page 52
    ... Fannie Mae; • adverse changes in interest rates, the yield curve, implied volatility or mortgage-to-debt OAS, which could increase realized and unrealized mark-to-fair value losses recorded in earnings or AOCI; • required reductions in the size of our mortgage-related investments portfolio...

  • Page 53
    ...potential future costs of serious delinquencies and foreclosures due to these initiatives. On October 24, 2011, FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP in an effort to attract more eligible borrowers whose monthly payments are current and who can benefit...

  • Page 54
    ... had directed Freddie Mac and Fannie Mae to work on a joint initiative, in coordination with HUD, to consider alternatives for future mortgage servicing structures and servicing compensation; • In April 2011, FHFA announced a new set of aligned standards for servicing of non-performing loans owned...

  • Page 55
    ...our mortgage-related investments portfolio, and the circumstances in which we may pay dividends, transfer certain assets, raise capital, and pay down the liquidation preference on the senior preferred stock. In addition, the Purchase Agreement provides that we may not enter into any new compensation...

  • Page 56
    ... under the Purchase Agreement to address a deficit in our net worth, and Treasury is unable to provide us with such funding within the 60-day period specified by FHFA, FHFA would be required to place us into receivership if our assets remain less than our obligations during that 60-day period. The...

  • Page 57
    ... in housing markets and the economy." For more information on legislative developments affecting compensation, see "BUSINESS - Regulation and Supervision - Legislative and Regulatory Developments - Legislation Related to Reforming Freddie Mac and Fannie Mae." The conservatorship and investment by...

  • Page 58
    ... monthly income relative to debt payments), documentation level, the number of borrowers, the features of the mortgage loan, occupancy type, the type of property securing the mortgage, the LTV ratio of the loan, and local and regional economic conditions, including home prices and unemployment rates...

  • Page 59
    ... income from which debt service can be paid. That ability in turn is affected by rental market conditions (e.g., rental and vacancy rates), the physical condition of the property, the quality of the property's management, and the level of operating costs. For certain multifamily mortgage products...

  • Page 60
    ... cases in conjunction with other investors. For example, FHFA, as Conservator of Freddie Mac and Fannie Mae, has issued subpoenas to various entities seeking loan files and other transaction documents related to nonagency mortgage-related securities in which the two enterprises invested. FHFA stated...

  • Page 61
    ... achieve expected results, and new programs could be instituted that cause our credit losses to increase. For more information, see "MD&A - RISK MANAGEMENT - Credit Risk." Our business volumes are closely tied to the rate of growth in total outstanding U.S. residential mortgage debt and the size of...

  • Page 62
    ...- Institutional Credit Risk" for additional information regarding our credit risks to certain categories of counterparties and how we seek to manage them. The servicing of mortgage loans backing our single-family non-agency mortgage-related securities investments is concentrated in a small number of...

  • Page 63
    ... and warranties on these HARP loans. For more information, see "MD&A - RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Single-Family Loan Workouts and the MHA Program - Home Affordable Refinance Program and Relief Refinance Mortgage Initiative." We also have exposure to seller/servicers with...

  • Page 64
    ...- RISK MANAGEMENT - Credit Risk - Institutional Credit Risk - Single-family Mortgage Seller/ Servicers" and "- Multifamily Mortgage Seller/Servicers" for additional information on our institutional credit risk related to our mortgage seller/servicers. Our financial condition or results of operations...

  • Page 65
    ...overall volume of new business. Mortgage insurance standards could constrain our future ability to purchase loans with LTV ratios over 80%. Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by specified credit enhancements or participation...

  • Page 66
    ... number of large lenders originate most single-family mortgages. The loss of business from any one of our major lenders could adversely affect our market share and our revenues. Many of our seller/ servicers also have tightened their lending criteria in recent years, which has reduced their loan...

  • Page 67
    ...residential mortgage debt outstanding may make it more difficult for us to purchase mortgages. Furthermore, competitive pricing pressures may make our products less attractive in the market and negatively impact our financial results. Increased competition from Fannie Mae, Ginnie Mae, and FHA/VA may...

  • Page 68
    ... economy, changes in foreign-currency exchange rates, regulatory and political factors, as well as the availability of and preferences for other investments. If investors were to divest their holdings or reduce their purchases of our debt securities, our funding costs could increase and our business...

  • Page 69
    .... We also issue PCs backed by mortgage loans that we purchased for cash. Our competitiveness in purchasing single-family mortgages from our seller/servicers, and thus the volume and profitability of new single-family business, can be directly affected by the relative price performance of our PCs and...

  • Page 70
    ..., our credit losses from ARM and interest-only ARM loans may increase as borrower payments increase at their reset dates, which increases the borrower's risk of default. Rising interest rates may also reduce the opportunity for these borrowers to refinance into a fixed-rate loan. 65 Freddie Mac

  • Page 71
    ... uncertainty regarding default rates, unemployment, loan modifications, the impact of FHFA-directed changes to HARP (announced in October 2011), and the volatility and impact of home price movements on mortgage durations. This could make it more difficult for us to manage prepayment risk, and could...

  • Page 72
    ... net interest yields over time on other mortgage-related investments. The ultimate impact of the HARP revisions on our financial results will be driven by the level of borrower participation and the volume of loans with high LTV ratios that we acquire under the program. Over time, relief refinance...

  • Page 73
    ...relating to certain of our assets during the past several years, including significant declines in market value, impairments of our investment securities, market-based write-downs of REO properties, losses on non-performing loans removed from PC pools, and impairments on other assets. The fair value...

  • Page 74
    ... delinquent loans that remain in our single-family mortgage portfolio, which could result in higher reported serious delinquency rates and a larger number of non-performing loans than would otherwise have been the case. In the fall of 2010, several large seller/servicers announced issues relating to...

  • Page 75
    ... with legal and other requirements in the foreclosure process could pose legal and operational risks for us. We may also face significant reputational risk due to our ties to MERS, as we are a shareholder of MERSCORP, Inc., and a Freddie Mac officer serves on the board of directors of both entities...

  • Page 76
    ... to manage the risks associated with our use of models may not be effective. See "MD&A - CRITICAL ACCOUNTING POLICIES AND ESTIMATES" and "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Interest-Rate Risk and Other Market Risks" for more information on our use of models. 71 Freddie Mac

  • Page 77
    ...us and Fannie Mae to have the same independent public accounting firm. Either of these events could significantly increase our expenses and require a substantial time commitment of management. See "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" for more information. A failure in our operational...

  • Page 78
    ... performance and results of operations. A number of senior officers left the company in 2011, including our Chief Operating Officer, our Executive Vice President - Single-Family Credit Guarantee, our Executive Vice President - Investments and Capital Markets and Treasurer, our Executive Vice...

  • Page 79
    ... of operations, financial condition, liquidity, and net worth. For example, the Dodd-Frank Act and related future regulatory changes could impact the value of assets that we hold, require us to change certain of our business practices, impose significant additional costs on us, limit the products we...

  • Page 80
    ... process. Our business could also be adversely affected by any modification, reduction, or repeal of the federal income tax deductibility of mortgage interest payments. Pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, FHFA has been directed to require Freddie Mac and Fannie Mae...

  • Page 81
    ... us. For example, it is possible that any new regulations on the capital treatment of mortgage servicing rights, risk-based capital requirements for credit risk, and liquidity treatment of our debt and guarantee obligations could adversely affect our business results and financial condition. We may...

  • Page 82
    ... as a party to a variety of legal proceedings arising from time to time in the ordinary course of business. See "NOTE 18: LEGAL CONTINGENCIES" for more information regarding our involvement as a party to various legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 77 Freddie Mac

  • Page 83
    ...stock during 2011 or 2010. Our payment of dividends is subject to the following restrictions: Restrictions Relating to the Conservatorship As Conservator, FHFA announced on September 7, 2008 that we would not pay any dividends on Freddie Mac's common stock or on any series of Freddie Mac's preferred...

  • Page 84
    ...during 2011 at the direction of the Conservator, as discussed in "MD&A - LIQUIDITY AND CAPITAL RESOURCES - Liquidity - Dividend Obligation on the Senior Preferred Stock" and "NOTE 12: FREDDIE MAC STOCKHOLDERS' EQUITY (DEFICIT) - Dividends Declared During 2011." We did not declare or pay dividends on...

  • Page 85
    ..., Limitations, Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock. Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 Telephone: 781-575-2879 http://www.computershare.com/investors 80 Freddie Mac

  • Page 86
    ... average common shares outstanding (in thousands):(2) Basic ...Diluted ...Balance Sheets Data Mortgage loans held-for-investment, at amortized cost by consolidated trusts (net of allowances for loan losses) ...Total assets ...Debt securities of consolidated trusts held by third parties ...Other debt...

  • Page 87
    ...Association's Mortgage Applications Survey. Data reflect annual average of weekly figures. (6) Source: Federal Flow of Funds Accounts of the United States dated December 8, 2011. The outstanding amounts for 2011 presented above reflect balances as of September 30, 2011. Single-Family Housing Market...

  • Page 88
    ... Market Risks - The servicing alignment initiative, MHA Program and other efforts to reduce foreclosures, modify loan terms and refinance mortgages, including HARP, may fail to mitigate our credit losses and may adversely affect our results of operations or financial condition," and "RISK MANAGEMENT...

  • Page 89
    ...underwater mortgage loans in our single-family credit guarantee portfolio, as well as the substantial inventory of seriously delinquent loans. For the near term, we also expect: • loss severity of REO dispositions and short sales to remain relatively high, as market conditions, such as home prices...

  • Page 90
    ... (losses) on investment securities recognized in earnings ...Other income ...Total non-interest income (loss) ...Non-interest expense: Administrative expenses ...REO operations expense...Other expenses ...Total non-interest expense ...Loss before income tax benefit ...Income tax benefit ...Net loss...

  • Page 91
    ...(1)(2) Average Rate Interest-earning assets: Cash and cash equivalents ...Federal funds sold and securities purchased under agreements to resell ...Mortgage-related securities: Mortgage-related securities(3) ...Extinguishment of PCs held by Freddie Mac ...Total mortgage-related securities, net...

  • Page 92
    ... by Freddie Mac ...Total debt securities of consolidated trusts held by third parties ...Other debt: Short-term debt ...Long-term debt(7) ...Total other debt ...Total interest-bearing liabilities ...Expense related to derivatives(8) ...Total funding of interest-earning assets ...Net interest income...

  • Page 93
    ... funding costs from the replacement of debt at lower rates. This factor was partially offset by the reduction in the average balance of higher-yielding mortgage-related assets due to continued liquidations and limited purchase activity. Net interest income decreased by $217 million during the year...

  • Page 94
    ...return the loan to a current payment status after modification. See "RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk" for further information on our single-family credit guarantee portfolio, including credit performance, charge-offs, our loan loss reserves balance, and our non-performing assets...

  • Page 95
    ...manage interest-rate risk, they generally increase the volatility of reported net income (loss) because, while fair value changes in derivatives affect net income (loss), fair value changes in several of the types of assets and liabilities being hedged do not affect net income (loss). 90 Freddie Mac

  • Page 96
    ...option-based derivatives to adjust the interest-rate characteristics of our debt in response to changes in the expected lives of our investments in mortgage-related assets. Purchased call and put swaptions, where we make premium payments, are options for us to enter into receive- and pay-fixed swaps...

  • Page 97
    ...of net interest income. Additionally, our securities classified as trading are managed in the overall context of our interest-rate risk management strategy and framework. However, the impacts of changes in fair value of related derivatives and other debt are not recognized in other gains (losses) on...

  • Page 98
    ... realize any value for these assets either through reductions to our taxable income and related tax liabilities or through a sale to a third party. See "NOTE 3: VARIABLE INTEREST ENTITIES" for further information. Other income increased to $2.2 billion for the year ended December 31, 2011, compared...

  • Page 99
    ... recognized losses associated with purchases of delinquent loans from our PCs in conjunction with our guarantee activities. Recoveries occur when a non-performing loan is repaid in full or when at the time of foreclosure the estimated fair value of the acquired property, less costs to sell, exceeds...

  • Page 100
    ... - Operational Risks - We have incurred, and will continue to incur, expenses and we may otherwise be adversely affected by delays and deficiencies in the foreclosure process." See "RISK MANAGEMENT- Credit Risk - Mortgage Credit Risk - Non-Performing Assets" for additional information about our REO...

  • Page 101
    ...-family performing mortgage loans, which are funded by other debt issuances and hedged using derivatives. In our Investments segment, we also provide funding and hedging management services to the Single-family Guarantee and Multifamily segments. The Investments segment reflects changes in the fair...

  • Page 102
    ... total comprehensive income (loss) attributable to Freddie Mac. The All Other category consists of material corporate level expenses that are: (a) infrequent in nature; and (b) based on management decisions outside the control of the management of our reportable segments. By recording these types...

  • Page 103
    ...typically 45 or 75 days after the mortgage payment cycle of fixed-rate and ARM PCs, respectively. (4) Represents unsecuritized seriously delinquent single-family loans managed by the Single-family Guarantee segment. (5) Represents the UPB of mortgage-related assets held by third parties for which we...

  • Page 104
    ...adjustments, see "NOTE 14: SEGMENT REPORTING - Segment Earnings." (3) Excludes mortgage loans and mortgage-related securities traded, but not yet settled. (4) Excludes non-performing single-family mortgage loans. (5) We calculate average balances based on amortized cost. (6) Includes our investments...

  • Page 105
    ... of debt at lower rates. These lower funding costs were partially offset by the reduction in the average balance of higher-yielding mortgage-related assets due to continued liquidations and limited purchase activity. Segment Earnings non-interest income (loss) was $(4.6) billion in 2011, compared...

  • Page 106
    ... our Investments segment net interest income over time, see "BUSINESS - Conservatorship and Related Matters - Impact of Conservatorship and Related Actions on Our Business - Limits on Investment Activity and Our Mortgage-Related Investments Portfolio" and "Net Interest Income." 101 Freddie Mac

  • Page 107
    ... management and guarantee income...Credit: Serious delinquency rate, at end of period ...REO inventory, at end of period (number of properties) ...Single-family credit losses, in bps(6) ...Market: Single-family mortgage debt outstanding (total U.S. market, in billions)(7) 30-year fixed mortgage rate...

  • Page 108
    ...- Single-Family Guarantee Segment Year Ended December 31, 2011 Segment Earnings Management and Guarantee Income(1) Credit Expenses(2) Average Average Amount Rate(3) Amount Rate(3) (dollars in millions, rates in bps) Net Amount(4) Year of origination:(5) 2011 ...2010 ...2009 ...2008 ...2007 ...2006...

  • Page 109
    ... single-family mortgage debt outstanding in the market and increased competition from Ginnie Mae and FHA/VA. Our loan purchase and guarantee activity in 2011 was at the lowest level we have experienced in the last several years. The liquidation rate on our securitized single-family credit guarantees...

  • Page 110
    ...and "NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS" for additional information on our TDR loans, including our implementation of changes to the accounting guidance on the classification of loans as TDRs. Single-family credit losses as a percentage of the average balance of the single-family...

  • Page 111
    ... income ...Reconciliation to GAAP net income (loss): Segment Earnings (loss), net of taxes ...Credit guarantee-related adjustments(2) ...Fair value-related adjustments(3) ...Tax-related adjustments(3) ...Total reconciling items, net of taxes ...Net income (loss) attributable to Freddie ...Mac...

  • Page 112
    ... credit enhancements that we currently believe will mitigate our expected losses on those loans. We expect our multifamily delinquency rate to remain relatively stable in 2012. See "RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Multifamily Mortgage Credit Risk" for further 107 Freddie Mac

  • Page 113
    ...We use these assets to help manage recurring cash flows and meet our other cash management needs. We consider federal funds sold to be overnight unsecured trades executed with commercial banks that are members of the Federal Reserve System. Securities purchased under agreements to resell principally...

  • Page 114
    ...21 - Investments in Available-For-Sale Securities Amortized Cost Gross Gross Unrealized Unrealized Gains Losses (in millions) Fair Value December 31, 2011 Available-for-sale mortgage-related securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of...

  • Page 115
    ...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 116
    ... context of our interest-rate risk management strategy and framework. The table below summarizes our mortgage-related securities purchase activity for 2011, 2010 and 2009. The purchase activity includes single-family PCs and certain Other Guarantee Transactions issued by trusts that we consolidated...

  • Page 117
    ...information, see "RISK FACTORS - Competitive and Market Risks - Any decline in the price performance of or demand for our PCs could have an adverse effect on the volume and profitability of our new single-family guarantee business." Unrealized Losses on Available-For-Sale Mortgage-Related Securities...

  • Page 118
    ... more information on single-family loans with certain higher-risk characteristics underlying our issued securities, see "RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk." Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, and Alt-A Loans We categorize our investments in non...

  • Page 119
    ... future credit losses was primarily due to the impact of lower interest rates in 2011 resulting in a benefit from expected structural credit enhancements on the securities. The impact of lower interest rates was partially offset by the impact of declines in forecasted home prices. 114 Freddie Mac

  • Page 120
    .... For more information, see "NOTE 16: CONCENTRATION OF CREDIT AND OTHER RISKS." On September 2, 2011, FHFA announced that, as Conservator for Freddie Mac and Fannie Mae, it had filed lawsuits against 17 financial institutions and related defendants alleging: (a) violations of federal securities laws...

  • Page 121
    ... information, we have concluded that the reduction in fair value of these securities was temporary at December 31, 2011 and have recorded these fair value losses in AOCI. The credit performance of loans underlying our holdings of non-agency mortgage-related securities has declined since 2007...

  • Page 122
    ... credit enhancements on our investments in non-agency mortgage-related securities. Foreclosure processing suspensions can also affect our losses. For example, while defaulted loans remain in the trusts prior to completion of the foreclosure process, the subordinate classes of securities issued...

  • Page 123
    ...Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans, and CMBS Credit Ratings as of December 31, 2011 UPB Percentage of UPB Gross Amortized Unrealized Cost Losses (dollars in millions) Bond Insurance Coverage(1) Subprime loans: AAA-rated ...Other investment grade...

  • Page 124
    ...of single-family mortgage debt outstanding in the market and increased competition from Ginnie Mae and FHA/VA. Our single-family loan purchase and guarantee activity in 2011 was at the lowest level we have experienced in the last several years. See "NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES" for...

  • Page 125
    ... issuances: Single-family: 30-year or more amortizing fixed-rate ...20-year amortizing fixed-rate ...15-year amortizing fixed-rate ...Adjustable-rate(2) ...Interest-only(3) ...HFA bonds ...FHA/VA and other governmental ...Total single-family(4) ...Multifamily(5) ...Total mortgage loan purchases and...

  • Page 126
    ... offset by the impact of declines in interest rates. See "NOTE 11: DERIVATIVES" for the notional or contractual amounts and related fair values of our total derivative portfolio by product type at December 31, 2011 and 2010, as well as derivative collateral posted and held. 121 Freddie Mac

  • Page 127
    ... the foreclosure process in a short period of time, the resulting REO inventory could have a negative impact on the housing market. See "RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Non-Performing Assets" for additional information about our REO activity. Deferred Tax Assets, Net We...

  • Page 128
    ... discounts on zero-coupon debt. (2) Primarily represents deferrals related to debt instruments that were in hedge accounting relationships, and changes in the fair value attributable to instrument-specific interest-rate and credit risk related to foreign-currency denominated debt. 123 Freddie Mac

  • Page 129
    ...(1) Balance, Net Effective Rate(2) 2011 Average Outstanding During the Year Weighted Average (3) Balance, Net Effective Rate(4) (dollars in millions) Maximum Balance, Net Outstanding at Any Month End Reference Bills» securities and discount notes ...Medium-term notes ...Federal funds purchased and...

  • Page 130
    ... fixed-rate single-family loans underlying our consolidated trust debt securities, based on UPB, was approximately 92% at both December 31, 2011 and 2010. The majority of newly issued Freddie Mac single-family mortgage-related securities during 2011 were backed by refinance mortgages. During 2011...

  • Page 131
    ... our issued and guaranteed mortgage-related securities. Table 36 - Freddie Mac Mortgage-Related Securities by Class Type(1) 2011 December 31, 2010 (in millions) 2009 Held by Freddie Mac: Single-class ...Multiclass ...Total held by Freddie Mac(2) ...Held by third parties: Single-class ...Multiclass...

  • Page 132
    ...-for-sale securities...Changes in unrealized gains (losses) related to cash flow hedge relationships ...Changes in defined benefit plans ...Total comprehensive income (loss)...Capital draw funded by Treasury ...Senior preferred stock dividends declared ...Other ...Total equity (deficit)/Net worth...

  • Page 133
    ... mortgage credit risk on our total mortgage portfolio because we either hold the mortgage assets or have guaranteed mortgages in connection with the issuance of a Freddie Mac mortgage-related security, or other guarantee commitment. Institutional Credit Risk Since 2008, challenging market conditions...

  • Page 134
    ... by Freddie Mac and Fannie Mae as a result of their investments in certain residential non-agency mortgage-related securities issued by these financial institutions. See "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in Securities" for additional information on credit risk associated with...

  • Page 135
    .... During 2011, we expanded our reviews of defaulted loans to include certain loans that were previously excluded from our review process. In order to resolve outstanding repurchase requests on a more timely basis with our single-family seller/servicers in the future, we have begun to require certain...

  • Page 136
    ... operation or no longer approved as our seller/servicers, at December 31, 2011. Table 40 - Loans Released from Repurchase Obligations(1) Year of origination: As of December 31, 2011 Percentage of Single-family UPB Credit Guarantee Portfolio (in billions) Negotiated agreements: 2008 ...2007 ...2006...

  • Page 137
    ... TBW, Freddie Mac, and other parties. For more information on these matters, including terms of the TBW settlement, see "NOTE 18: LEGAL CONTINGENCIES - Taylor, Bean & Whitaker Bankruptcy." A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our...

  • Page 138
    ... the estimate of our loan loss reserves, we evaluate the recovery and collectability related to mortgage insurance policies for mortgage loans that we hold on our consolidated balance sheets as well as loans underlying our non-consolidated Freddie Mac mortgage-related securities or covered by other...

  • Page 139
    ... and other liquidation events. We did not purchase pool insurance on single-family loans in 2011. Our pool insurance policies generally have coverage periods that range from 10 to 12 years. In many cases, we entered into these agreements to cover higher-risk mortgage product types delivered to us...

  • Page 140
    ... securities we hold. In the event a bond insurer fails to perform, the coverage outstanding represents our maximum exposure to credit losses related to such a failure. Table 42 - Bond Insurance by Counterparty Counterparty Name Credit Rating (1) Credit Rating Outlook(1) As of December 31, 2011...

  • Page 141
    ...further information on counterparty credit ratings and concentrations within our cash and other investments. 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 many cases, our seller...

  • Page 142
    ...where we post collateral to counterparties. Pursuant to certain collateral agreements we have with derivative counterparties, the amount of collateral that we are required to post is based on the credit rating of our long-term senior unsecured debt securities from S&P or Moody's. The 137 Freddie Mac

  • Page 143
    ... execute a contract under specified terms, which generally puts us in a liability position. Over time, our exposure to individual counterparties for OTC interest-rate swaps, option-based derivatives, foreigncurrency swaps, and purchased interest rate caps varies depending on changes in fair values...

  • Page 144
    ...provided collateral that has fair value in excess of our obligation, which represents our overcollateralization exposure. Collateral is typically transferred within one business day based on the values of the related derivatives. In the event a derivative counterparty defaults, our economic loss may...

  • Page 145
    ... income relative to debt payments), documentation level, the number of borrowers, the features of the mortgage itself, the purpose of the mortgage, occupancy type, property type, the LTV ratio, and local and regional economic conditions, including home prices and unemployment rates. Multifamily...

  • Page 146
    Federal Housing Finance Agency - Affordable Housing Goals" for a discussion of factors that may cause us to purchase loans that do not meet our normal standards. We were significantly adversely affected by deteriorating conditions in the single-family housing and mortgage markets during 2008 and ...

  • Page 147
    ... the value of the property at origination based on changes in the market value of homes in the same geographical area since origination. Estimated current LTV ratio range is not applicable to purchase activity, and excludes any secondary financing by third parties. (6) Relief refinance mortgages...

  • Page 148
    ... contributed to high refinance activity in 2011, though it declined from 2010 levels. Cash-out refinancings generally have had a higher risk of default than mortgages originated in no cash-out, or rate and term, refinance transactions. Property Type Townhomes and detached single-family houses are...

  • Page 149
    ...our total mortgage portfolio. The primary mortgage products in our single-family credit guarantee portfolio are first lien, fixed-rate mortgage loans. In general, 15-year amortizing fixed-rate mortgages exhibit the lowest default rate among the types of mortgage loans we securitize and purchase, due...

  • Page 150
    ...begin requiring payments of principal in 2012 or 2013. The timing of the actual change in payment terms may differ from those presented due to a number of factors, including refinancing. Table 46 - Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2011(1) 2011...

  • Page 151
    ... purchased option ARM loans in our single-family credit guarantee portfolio since 2007. For information on our exposure to option ARM loans through our holdings of non-agency mortgage-related securities, see "CONSOLIDATED BALANCE SHEETS ANALYSIS - Investments in Securities." Adjustable-Rate Mortgage...

  • Page 152
    .... See "RISK FACTORS - Competitive and Market Risks - Changes in interest rates could negatively impact our results of operations, stockholders' equity (deficit) and fair value of net assets" for additional information. Since a substantial portion of ARM loans were originated in 2005 through 2008 and...

  • Page 153
    ... purchase any new single-family Alt-A mortgage loans in our single-family credit guarantee portfolio during 2011. Although we discontinued new purchases of mortgage loans with lower documentation standards for assets or income beginning March 1, 2009 (or later, as our customers' contracts permitted...

  • Page 154
    ...investments in non-Freddie Mac mortgage-related securities. Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by specified credit enhancements or participation interests. However, as discussed below, under HARP, we allow eligible borrowers...

  • Page 155
    ...of the credit risk associated with a mortgage to a third-party insurer. Generally, in order to file a claim under a primary mortgage insurance policy, the insured loan must be in default and the borrower's interest in the underlying property must have been extinguished, such as through a foreclosure...

  • Page 156
    ... its provisions, this new law directs FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by no less than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed securities. For more information, see "BUSINESS - Regulation and Supervision...

  • Page 157
    ...and HARP, which are discussed below. Home Affordable Modification Program HAMP commits U.S. government, Freddie Mac and Fannie Mae funds to help eligible homeowners avoid foreclosures and keep their homes through mortgage modifications, where possible. Under this program, we offer loan modifications...

  • Page 158
    ...adjusted below market levels will have their interest rate and payment gradually increased after the fifth year to a rate consistent with the market rate at the time of modification. We bear the cost associated with the borrowers' payment reductions. Although mortgage investors under the MHA Program...

  • Page 159
    ...the extent the payment reductions have not been absorbed by subordinated investors or by other credit enhancement). Servicing Alignment Initiative and Non-HAMP Modifications In February 2011, FHFA directed Freddie Mac and Fannie Mae to develop consistent requirements, policies, and processes for the...

  • Page 160
    ... refinance mortgage loans for all LTV ratios were 0.2%, 0.9%, 1.5%, and 0.6%, respectively. On October 24, 2011 FHFA, Freddie Mac, and Fannie Mae announced a series of FHFA-directed changes to HARP in an effort to attract more eligible borrowers whose monthly payments are current and who can benefit...

  • Page 161
    ...ARM to a fixed-rate mortgage); or (d) a reduction in amortization term. See "BUSINESS - Our Business Segments - Single-Family Guarantee Segment - Loss Mitigation and Loan Workout Activities " for additional information about recent changes to HARP. In November 2011, Freddie Mac and Fannie Mae issued...

  • Page 162
    ... additional initiatives in 2012 designed to help more distressed borrowers avoid foreclosure through short sale and deed in lieu of foreclosure transactions. The table below presents the reperformance rate of modified single-family loans in each of the last eight quarterly periods. 157 Freddie Mac

  • Page 163
    ... We report single-family serious delinquency rate information based on the number of loans that are three monthly payments or more past due or in the process of foreclosure, as reported by our servicers. Mortgage loans whose contractual terms have been modified under agreement with the borrower are...

  • Page 164
    ... concentrations of loans have been more adversely affected by declines in home prices since 2006. In certain states, our single-family serious delinquency rates have remained persistently high. As of December 31, 2011, single-family loans in Arizona, California, Florida, and Nevada 159 Freddie Mac

  • Page 165
    ... high serious delinquency rates on single-family loans originated between 2005 and 2008. We purchased significant amounts of loans with higher-risk characteristics in those years. In addition, those borrowers are more susceptible to the declines in home prices since 2006 than those homeowners...

  • Page 166
    ...of Delinquency Portfolio(2) Rate Current LTV Ratio All Loans(1) Percentage of Portfolio(2) Percentage Modified(3) Serious Delinquency Rate By Product Type FICO scores Ͻ 620: 20 and 30- year or more amortizing fixed-rate ...15- year amortizing fixed-rate ...ARMs/adjustable rate(4) ...Interest-only...

  • Page 167
    ...and adjustable rate loans. The percentages of interest-only loans which have been modified at period end reflect that a number of these loans have not yet been assigned to their new product category(post-modification), primarily due to delays in processing. (6) Consist of FHA/VA and other government...

  • Page 168
    ... delinquency and default rate information for loans in our single-family credit guarantee portfolio based on year of origination. Table 58 - Single-Family Credit Guarantee Portfolio by Year of Loan Origination As of December 31, 2011 Foreclosure and Percentage Short Sale of Portfolio Rate(1) As of...

  • Page 169
    ...more information about our multifamily delinquency rates. (3) Original LTV ratios are calculated as the UPB of the mortgage, divided by the lesser of the appraised value of the property at the time of mortgage origination or, except for refinance loans, the mortgage borrower's purchase price. Second...

  • Page 170
    ...our consolidated balance sheets. We use credit enhancements to mitigate risk of loss on certain multifamily mortgages and housing revenue bonds. Historically, we required credit enhancements on loans in situations where we delegated the underwriting process for the loan to the seller/servicer, which...

  • Page 171
    ..., single-family seriously delinquent loans, multifamily loans that are three or more payments past due or in the process of foreclosure, and REO assets, net. Non-performing assets also include multifamily loans that are deemed impaired based on management judgment. We place non-performing loans on...

  • Page 172
    ... of a Freddie Mac loan significantly increased in recent years due to temporary suspensions, delays, and other factors. During 2011 and 2010, the nationwide average for completion of a foreclosure (as measured from the date of the last scheduled payment made by the borrower) on our single-family...

  • Page 173
    ... input on new options for sales and rentals of single-family REO properties held by Freddie Mac, Fannie Mae and FHA. According to the announcement, the objective of the request for information was to help address current and future REO inventory. The request for information solicited alternatives...

  • Page 174
    ... high in 2012 and they may increase over 2011 levels, due to the large number of single-family non-performing loans that will likely be resolved as our servicers work through their foreclosure-related issues and because market conditions, such as home prices and the rate of home sales, continue...

  • Page 175
    ... of charge-offs primarily result from foreclosure transfers and short sales on loans where a share of default risk has been assumed by mortgage insurers, servicers, or other third parties through credit enhancements. Loan Loss Reserves We maintain mortgage-related loan loss reserves at levels we...

  • Page 176
    ... we collect amounts due from credit enhancement providers after giving effect to certain assumptions about counterparty default rates. Based on the single-family credit guarantee portfolio, excluding REMICs and Other Structured Securities backed by Ginnie Mae Certificates. Calculated as the ratio of...

  • Page 177
    ...-performing loans. On April 28, 2011, FHFA announced a new set of aligned standards for servicing by Freddie Mac and Fannie Mae. Implementing this servicing alignment initiative has become a top priority for the company, but may pose significant short-term operational challenges in data management...

  • Page 178
    ... our objectives; (b) manage credit and other risks related to our $2.1 trillion total mortgage portfolio (including interest rate and other market risks related to our $653 billion mortgage-related investment portfolio); (c) reduce the need to draw funds from Treasury; and (d) issue timely financial...

  • Page 179
    ... pay dividends on our senior preferred stock; purchase mortgage-related securities and other investments; purchase mortgage loans; and remove modified or seriously delinquent loans from PC trusts. We fund our cash requirements primarily by issuing short-term and long-term debt. Other sources of cash...

  • Page 180
    ... our purchase commitments related to our mortgage purchase flow business primarily by swap transactions, whereby our customers exchanged mortgage loans for PCs, rather than using cash. However, it is at the discretion of the seller, subject to limitations imposed by the contract governing the...

  • Page 181
    ... contractual cash obligations over the following 365 calendar days. Throughout 2011, we complied with all requirements under our liquidity management policies. Furthermore, the majority of the funds used to cover our short-term cash liquidity needs was invested in short-term assets with a rating of...

  • Page 182
    ... information on these matters, see "BUSINESS - Conservatorship and Related Matters" and "- Regulation and Supervision." Dividend Obligation on the Senior Preferred Stock Following funding of the draw request related to our net worth deficit at December 31, 2011, our annual cash dividend obligation...

  • Page 183
    ... - Total Debt Outstanding" 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. Other Debt Issuance Activities The table below summarizes the par value of other debt securities we issued, based on...

  • Page 184
    ... liquidity of our debt securities and improve their price performance, which helps to reduce our funding costs over the long-term. Our repurchase activities also help us manage the funding mismatch, or duration gap, created by changes in interest rates. For example, when interest rates decline, the...

  • Page 185
    Credit Ratings Our ability to access the capital markets and other sources of funding, as well as our cost of funds, is highly dependent upon our credit ratings. The table below indicates our credit ratings as of February 27, 2012. Table 69 - Freddie Mac Credit Ratings S&P Nationally Recognized ...

  • Page 186
    ... resulting from net proceeds received as a result of repayments of single-family held-for-investment mortgage loans. Cash flows used for financing activities during 2011 and 2010 were $392.6 billion and $424.1 billion, respectively, largely attributable to funds used to repay debt securities of...

  • Page 187
    ... notes, where quoted prices exist for the exact instrument in an active market. Our Level 2 instruments generally consist of high credit quality agency securities, CMBS, non-mortgage-related asset-backed securities, FDIC-guaranteed corporate medium-term notes, interest-rate swaps, option-based...

  • Page 188
    ... and analytical processes, help ensure that the prices used to develop our financial statements are in accordance with the accounting guidance for fair value measurements and disclosures. The prices provided to us consider the existence of credit enhancements, including bond insurance coverage, and...

  • Page 189
    ..., coupon, and interest rates. We also make adjustments for items such as credit enhancements or other types of subordination and liquidity, where applicable. In cases where internally developed models are used, we maximize the use of market-based inputs or calibrate such inputs to market data. We...

  • Page 190
    ... fair value balance sheets, we use a number of financial models. See "QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Interest-Rate Risk and Other Market Risks," "RISK FACTORS" and "RISK MANAGEMENT - Operational Risks" for information concerning the risks associated with these models...

  • Page 191
    ..., our fair value results may be affected. We hedge interest rate exposure related to net buy-ups (up front payments we make that increase the management and guarantee fee that we will receive over the life of the pool) and float (expected gains or losses resulting from our mortgage security program...

  • Page 192
    ... together with Fannie Mae, provide liquidity guarantees for certain variable-rate single-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. For more information on the...

  • Page 193
    ..., net on our consolidated balance sheets. For more information, see "RISK MANAGEMENT - Credit Risk - Institutional Credit Risk - Derivative Counterparties." We also have purchase commitments primarily related to our mortgage purchase flow business, which we principally fulfill by issuing PCs in swap...

  • Page 194
    ...policies and estimates relate to: (a) allowances for loan losses and reserve for guarantee losses; (b) fair value measurements; (c) impairment recognition on investments in securities; and (d) realizability of net deferred tax assets. For additional information about our critical accounting policies...

  • Page 195
    ...Operational Risks - We face risks and uncertainties associated with the internal 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." Individually impaired single-family loans...

  • Page 196
    ... loans are generally collateral-dependent and most multifamily loans are non-recourse to the borrower. Non-recourse means generally that the cash flows of the underlying property (including any associated credit enhancements) serve as the source of funds for repayment of the loan. Fair Value...

  • Page 197
    ... assets is dependent upon the generation of sufficient taxable income in available carryback years from current operations and unrecognized tax benefits, and upon our intent and ability to hold available-for-sale debt securities until the recovery of any temporary unrealized losses. On a quarterly...

  • Page 198
    ... Summary reports, which are available on our web site, www.freddiemac.com/investors/ volsum and in current reports on Form 8-K we file with the SEC. For disclosures concerning credit risk sensitivity, see "RISK MANAGEMENT - Credit Risk - Mortgage Credit Risk - Credit Risk Sensitivity." 193 Freddie...

  • Page 199
    ... pay the outstanding principal balance of mortgage loans and mortgage-related securities, known as prepayment risk, and the resulting potential mismatch in the timing of our receipt of cash flows related to our assets versus the timing of payment of cash flows related to our liabilities used to fund...

  • Page 200
    ... not keep pace with these market changes. As such, these analyses are not intended to provide precise forecasts of the effect a change in market interest rates would have on the estimated fair values of our net assets. We actively manage our model risk by reviewing the performance of 195 Freddie Mac

  • Page 201
    .... Model 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. See "MD&A - RISK MANAGEMENT - Operational Risks" and "RISK FACTORS - Operational...

  • Page 202
    ... management limits that do not have corresponding Board limits. Portfolio Market Value Sensitivity and Measurement of Interest-Rate Risk PMVS and Duration Gap Our primary interest-rate risk measures are PMVS and duration gap. PMVS is an estimate of the change in the market value of our net assets...

  • Page 203
    ... market interest rates would have on the estimated fair value of our net assets. In addition, it has been more difficult in recent years to measure and manage the interest-rate risk related to mortgage assets as risk for prepayment model error remains high due to uncertainty regarding default rates...

  • Page 204
    .... See "MD&A - RISK MANAGEMENT - Credit Risk - Institutional Credit Risk - Derivative Counterparties" for additional information on this requirement and our use of a central clearing platform for interest rate derivatives. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 199 Freddie Mac

  • Page 205
    ... statements 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...

  • Page 206
    ... of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP McLean, Virginia March 9, 2012 201 Freddie Mac

  • Page 207
    ... interest ...Total comprehensive income (loss) attributable to Freddie Mac ...Net loss ...Less: Net loss attributable to noncontrolling interest Net loss attributable to Freddie Mac ...Preferred stock dividends ...Net loss attributable to common stockholders ...Net loss per common share: Basic...

  • Page 208
    ...,334 and $10,740, respectively, related to net unrealized 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, 76,138,584 shares and 76,684,097...

  • Page 209
    ...Value Value Retained Additional Earnings Paid-In (Accumulated Capital Deficit) Treasury Stock, Noncontrolling at Cost Interest Total Equity (Deficit) AOCI, Net of Tax (in millions) Balance as of December 31, 2008 ...Cumulative effect of change in accounting principle ...Comprehensive income (loss...

  • Page 210
    ... senior preferred stock ...7,971 Repurchase of REIT preferred stock ...- Payment of cash dividends on senior preferred stock ...(6,495) Excess tax benefits associated with stock-based awards ...1 Payments of low-income housing tax credit partnerships notes payable ...(50) Net cash used in financing...

  • Page 211
    ... our credit guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans and mortgage-related securities. Our operations consist of three reportable segments, which are based on the type of business activities each performs - Single-family...

  • Page 212
    ... of Freddie Mac Mortgage-Related Securities Overview When we securitize single-family mortgages that we purchase, we issue mortgage-related securities called PCs that can be sold to investors or held by us. Guarantor swaps are transactions where financial institutions exchange mortgage loans for PCs...

  • Page 213
    ... average coupon interest rate for the underlying mortgage loans. We do not guarantee the timely payment of principal for ARM PCs; however, we do guarantee the full and final payment of principal. Various types of fixed income investors purchase our PCs, including pension funds, insurance companies...

  • Page 214
    ... fair value. We do not receive transaction fees, apart from our management and guarantee fee, for these transactions. 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...

  • Page 215
    ... payment dates, and are not commingled with our general operating funds. As securities administrator, we invest the cash held in the custodial account, pending distribution to our PC, REMIC, and Other Structured Securities holders, in short-term investments and are entitled to the interest income...

  • Page 216
    ... balance sheets whereas the reserve for guarantee losses relates to single-family and multifamily loans underlying our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. Total heldfor-investment mortgage loans, net are shown net of the allowance for loan losses...

  • Page 217
    ... of mortgage insurance recoveries and pre-foreclosure expenses on our distressed properties including REO, short sales, and third-party sales. We use historical trends in home prices in our single-family loan loss reserve process, primarily through the use of estimated current total LTV ratios in...

  • Page 218
    ... the effect of historical home price changes on borrower behavior and the impact of our loss mitigation actions, including our loan modification efforts. We apply estimated proceeds from primary mortgage insurance that is contractually attached to a loan and other credit enhancements entered into...

  • Page 219
    ... for cases of fraud and certain other types of borrower defaults, most multifamily loans are non-recourse to the borrower so generally the cash flows of the underlying property (including any associated credit enhancements) serve as the source of funds for repayment of the loan. Interest income...

  • Page 220
    ...Freddie Mac Mortgage-Related Securities - Purchases and Sales of Freddie Mac Mortgage-Related Securities" for additional information on accounting for purchases of PCs and beneficial interests issued by resecuritization trusts. In connection with transfers of financial assets that qualified as sales...

  • Page 221
    ... information on our election of the fair value option, see "NOTE 17: FAIR VALUE DISCLOSURES." When we purchase a PC or a REMIC and Other Structured Security that is a single-class security from a third party, we extinguish the debt of the related PC trusts and recognize a gain or loss related...

  • Page 222
    ... debt securities issued by our consolidated trusts are classified as either financing activities (e.g., repayment of principal to PC holders) or operating activities (e.g., interest payments to PC holders included within net income (loss)). Other than interest paid, cash flows related to other debt...

  • Page 223
    ... based upon the expected future tax consequences of existing temporary differences between the financial reporting and the tax reporting basis of assets and liabilities using enacted statutory tax rates as well as tax net operating loss and tax credit carryforwards. To the extent tax laws change...

  • Page 224
    ...single-family PCs and certain Other Guarantee Transactions held by third parties on our consolidated balance sheets as debt securities of consolidated trusts held by third parties. After January 1, 2010, new consolidations of trust assets and liabilities are recorded at either their: 219 Freddie Mac

  • Page 225
    ... these adjustments of $5.1 billion primarily represented the release of the valuation allowance previously recorded against the deferred tax asset that was no longer required upon adoption of this amendment. See "NOTE 7: INVESTMENTS IN SECURITIES" for further disclosures regarding our investments in...

  • Page 226
    ...several actions regarding Freddie Mac and Fannie Mae. These actions included the execution of the Purchase Agreement, pursuant to which we issued to Treasury both senior preferred stock and a warrant to purchase common stock. Business Objectives We continue to operate under the direction of FHFA, as...

  • Page 227
    ... these changes will have on borrowers and the housing market. The report states that the government is committed to ensuring that Freddie Mac and Fannie Mae have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations, and...

  • Page 228
    ... have current LTV ratios above 80%. In November 2011, Freddie Mac and Fannie Mae issued guidance with operational details about the HARP changes to mortgage lenders and servicers after receiving information from FHFA about the fees that we may charge associated with the refinancing program. Because...

  • Page 229
    ...-related investments portfolio. While the senior preferred stock is 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...

  • Page 230
    .... In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase amounts or benefits payable under existing compensation arrangements of any named executive officer or other executive officer (as such terms are defined by SEC rules) without the...

  • Page 231
    .... Our draw request represents our net worth deficit at quarter-end rounded up to the nearest $1 million. Following funding of the draw request related to our net worth deficit at December 31, 2011, our annual cash dividend obligation to Treasury on the senior preferred stock will increase from $7.22...

  • Page 232
    ... Initiative. Using existing housing bond credit enhancement products, Freddie Mac is providing a guarantee of new housing bonds issued by HFAs, which Treasury purchased from the HFAs. Treasury will not be responsible for a share of any losses incurred by us in this initiative. Related Parties as...

  • Page 233
    ... avoid credit losses (e.g., modification, foreclosure). Additionally, in our capacity as guarantor, we have the ability to remove defaulted mortgage loans out of the PC trust to help manage credit losses. See "NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS" for further information regarding...

  • Page 234
    ... cash equivalents ...Federal funds sold and securities purchased under agreements to Mortgage loans held-for-investment by consolidated trusts ...Accrued interest receivable ...Real estate owned, net ...Other assets ...Total assets of consolidated VIEs ...Accrued interest payable ...Debt securities...

  • Page 235
    ... Asset-Backed Investment Trusts(1) December 31, 2011 Mortgage-Related Security Trusts Freddie Mac Non-Freddie Mac Securities(2) Securities(1) (in millions) Unsecuritized Multifamily Loans(3) Other(1)(4) Assets and Liabilities Recorded on our Consolidated Balance Sheets Assets: Cash and cash...

  • Page 236
    ... balance sheets. See "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities" for additional information on accounting for purchases of PCs and beneficial interests issued by resecuritization trusts. Our investments...

  • Page 237
    ... any value from these investments either through reductions to our taxable income and related tax liabilities or through a sale to a third party. • Certain other mortgage-related guarantees: We have other guarantee commitments outstanding on multifamily housing revenue bonds that were issued by...

  • Page 238
    ...by non-Freddie Mac securities ...FHA/VA and other governmental ...Total single-family ...Multifamily:(1) Fixed-rate ...Adjustable-rate ...Other governmental ...Total multifamily ...Total UPB of mortgage loans ...Deferred fees, unamortized premiums, discounts and other cost basis adjustments ...Lower...

  • Page 239
    ... 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 include the credit-enhanced portion of the loan and exclude any secondary financing...

  • Page 240
    ... result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been assumed by mortgage insurers, servicers, or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a seller/servicer associated with...

  • Page 241
    ... - Net Investment in Mortgage Loans Single-family December 31, 2011 Multifamily Total Single-family (in millions) December 31, 2010 Multifamily Total Recorded investment: Collectively evaluated ...Individually evaluated ...Total recorded investment ...Ending balance of the allowance for loan losses...

  • Page 242
    ..., or pool, of mortgage loans up to a stated aggregate loss limit. We did not buy pool insurance in 2011 or 2010. In recent periods, we also reached the maximum limit of recovery on certain of these contracts. For information about counterparty risk associated with mortgage insurers, see "NOTE 16...

  • Page 243
    ...allowance recorded ...Total multifamily ...Total single-family and multifamily ... (1) Individually impaired loans with no specific related valuation allowance primarily represent mortgage loans purchased out of PC pools and accounted for in accordance with the accounting guidance for loans and debt...

  • Page 244
    ... Payment Status of Mortgage Loans(1) One Month Past Due December 31, 2011 Two Three Months or Months More Past Due, Past Due or in Foreclosure (in millions) Current Total Non-accrual Single-family - 20 and 30-year or more, amortizing fixed-rate(2) . 15-year amortizing fixed-rate(2) ...Adjustable...

  • Page 245
    ... to servicers and borrowers. We bear the full costs associated with these loan workout and foreclosure alternatives on mortgages that we own or guarantee and do not receive a reimbursement for any component from Treasury. These initiatives slowed the rate of growth in single-family REO assets on...

  • Page 246
    ... case of borrowers considered for modifications, our servicers obtain information on income, assets, and other borrower obligations to determine modified loan terms. Under HAMP, the goal of a single-family loan modification is to reduce the borrower's monthly mortgage payments to 31% of the borrower...

  • Page 247
    ... our allowance for loan losses, including how payment defaults are considered in this determination, see "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." The table above presents completed loan modification activity based on the following types of modification: • No change in terms: This...

  • Page 248
    ... completed single-family loan modifications classified as a TDR during 2011 resulted in a modified loan with a fixed interest rate or one that is fixed below market for five years and then gradually adjusts to a market rate (determined at the time of modification) and remains fixed at that new rate...

  • Page 249
    ...policies for REO. The table below provides a summary of the change in the carrying value of our combined single-family and multifamily REO balances. For the periods presented in the table below, the weighted average holding period for our disposed properties was less than one year. 244 Freddie Mac

  • Page 250
    ... process. See "NOTE 16: CONCENTRATION OF CREDIT AND OTHER RISKS - Seller/Servicers" for information about regional concentration of our portfolio as well as further details about delays in the single-family foreclosure process. Our REO operations expenses includes REO property expenses, net losses...

  • Page 251
    ... - Available-For-Sale Securities December 31, 2011 Amortized Cost Gross Gross Unrealized Unrealized Losses Gains (in millions) Fair Value Available-for-sale securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of states and political subdivisions...

  • Page 252
    ...in millions) Fair Value Total Gross Unrealized Losses Other-ThanTemporary Temporary Impairment(1) Impairment(2) December 31, 2011 Total Total Total Available-for-sale securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other...Fannie Mae ...Obligations of states and political...

  • Page 253
    ... the case of bond insurers, we also consider factors such as the availability of capital, generation of new business, pending regulatory action, credit ratings, security prices, and credit default swap levels traded on the insurers. We consider loan level information including estimated current LTV...

  • Page 254
    ...-sale non-agency mortgage-related securities will experience a cash shortfall. Our proprietary default model incorporates assumptions about future home prices, as defaults and severities are modeled at the loan level and then aggregated. The model uses projections of future home prices at the state...

  • Page 255
    ...charge could exceed our credit enhancement levels and a principal or interest loss could occur, we do not believe that those conditions were likely as of December 31, 2011. Commercial Mortgage-Backed Securities CMBS are exposed to stresses in the commercial real estate market. We use external models...

  • Page 256
    ...present value of expected future cash flows, including the estimated proceeds from bond insurance, and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents the other-than-temporary impairment credit loss component related to available-for-sale...

  • Page 257
    ...Securities Year Ended December 31, 2011 2010 2009 (in millions) Gross realized gains Mortgage-related securities: Freddie Mac ...Fannie Mae ...CMBS ...Obligations of states and political subdivisions ...Total mortgage-related securities gross realized gains ...Non-mortgage-related securities: Asset...

  • Page 258
    ...average yield is calculated based on a yield for each individual lot held at December 31, 2011 excluding any fully taxable-equivalent adjustments related to tax exempt sources of interest income. The numerator for the individual lot yield consists of the sum of: (a) the year-end interest coupon rate...

  • Page 259
    ...securities: Freddie Mac ...Fannie Mae ...Ginnie Mae ...Other ...Total mortgage-related securities ...Non-mortgage-related securities: Asset-backed securities ...Treasury bills ...Treasury notes ...FDIC-guaranteed corporate medium-term notes . Total non-mortgage-related securities ...Total fair value...

  • Page 260
    ...calendar year. Because of this debt limit, we may be restricted in the amount of debt we are allowed to issue to fund our operations. Under the Purchase Agreement, the amount of our "indebtedness" is determined without giving effect to the January 1, 2010 change in the accounting guidance related to...

  • Page 261
    ... to the transactions. Federal funds purchased are unsecuritized borrowings from commercial banks that are members of the Federal Reserve System. At both December 31, 2011 and 2010, we had no balances in federal funds purchased and securities sold under agreements to repurchase. 256 Freddie Mac

  • Page 262
    ... of discounts or premiums, issuance costs, and hedging-related basis adjustments. (4) For debt denominated in a currency other than the U.S. dollar, the outstanding balance is based on the exchange rate at December 31, 2011 and 2010, respectively. (5) Includes callable FreddieNotes» securities of...

  • Page 263
    ...dollars in millions) Weighted Average Coupon(2) Single-family: 30-year or more, fixedrate ...20-year fixed-rate ...15-year fixed-rate ...Adjustable-rate ...Interest-only(4) ...FHA/VA ...Total debt securities of consolidated trusts held by third parties(5) ...(1) (2) (3) (4) ... 2012 2012 2012 2012...

  • Page 264
    ... guarantee commitments associated with single-family mortgage loans was $11.1 billion and $8.6 billion, respectively. The remaining balances relate to multifamily mortgage loans. Non-Consolidated Freddie Mac Securities We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and...

  • Page 265
    ... swap guarantees, and short-term default guarantee commitments accounted for as credit derivatives. See "NOTE 11: DERIVATIVES" for further discussion of these derivative guarantees. We guarantee the performance of interest-rate swap contracts in two circumstances. First, we guarantee that a borrower...

  • Page 266
    ... quotes on proxy securities, we derived the assumptions from the prices we were provided. For the year ended December 31, 2009, we estimate the average internal rate of return, prepayment rates and weighted average lives used in measuring the fair value of our guarantee asset associated with single...

  • Page 267
    ... option-based derivatives to adjust the contractual terms of our debt funding in response to changes in the expected lives of our investments in mortgage-related assets. As market conditions dictate, we take rebalancing actions to keep our interest-rate risk exposure within management-set limits. In...

  • Page 268
    ...-risk sharing agreements for certain credit enhanced multifamily housing revenue bonds held by third parties in exchange for a monthly fee. In addition, we have purchased mortgage loans containing debt cancellation contracts, which provide for mortgage debt or payment cancellation for borrowers...

  • Page 269
    ... of S&P's downgrade of Freddie Mac's credit rating of our long-term senior unsecured debt from AAA to AA+ on August 8, 2011, we posted additional collateral to certain derivative counterparties in accordance with the terms of the derivative agreements. The aggregate fair value of all derivative...

  • Page 270
    ... 31, 2011 and 2010, there were no amounts of cash collateral that were not offset against derivative assets, net or derivative liabilities, net, as applicable. See "NOTE 16: CONCENTRATION OF CREDIT AND OTHER RISKS" for further information related to our derivative counterparties. Gains and Losses on...

  • Page 271
    ... and if declared by our Board of Directors, cumulative quarterly cash dividends at the annual rate of 10% per year on the then-current liquidation preference of the senior preferred stock. Total dividends paid in cash during 2011, 2010, and 2009 at the direction of the Conservator were $6.5 billion...

  • Page 272
    ..., purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant). (3) Dividends on the senior preferred stock are cumulative, and the dividend rate is 10% per year. However, if at any time we fail to pay cash dividends in a timely manner...

  • Page 273
    ... stock as well as paying any preferred dividends, other than dividends on the senior preferred stock. In addition, all 24 classes of preferred stock are perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional Freddie Mac stock or securities. Costs...

  • Page 274
    ... consent of Treasury, redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant). (3) Preferred stock trades exclusively through the OTC market unless otherwise noted. (4) Dividend rate resets quarterly and is equal to the...

  • Page 275
    ...in cash on the senior preferred stock at the direction of our Conservator. We did not declare or pay dividends on any other series of Freddie Mac preferred stock outstanding during 2011. On March 30, 2010, our REIT subsidiaries paid preferred stock dividends for one quarter, consistent with approval...

  • Page 276
    ...-for-sale securities . . LIHTC and AMT credit carryforward ...Net operating loss carryforward, net of unrecognized tax benefits Other items, net ...Total deferred tax assets ...Deferred tax liabilities: Basis differences related to assets held for investment(1) ...Basis differences related to debt...

  • Page 277
    ... limitations for federal income tax purposes is open on corporate income tax returns filed for tax years 1998 to 2010. We received Statutory Notices from the IRS assessing $3.0 billion of additional income taxes and penalties for the 1998 to 2007 tax years, principally related to questions of timing...

  • Page 278
    ... locations outside of the U.S. and its territories. Segments Our operations consist of three reportable segments, which are based on the type of business activities each performs - Investments, Single-family Guarantee, and Multifamily. The chart below provides a summary of our three reportable...

  • Page 279
    ...allocated funding costs, and amounts related to net float benefits or expenses. • Management and guarantee fees on PCs, including those retained by us, and single-family mortgage loans in the mortgage investments portfolio • Up-front credit delivery fees • Adjustments for security performance...

  • Page 280
    ... ACCOUNTING POLICIES" for further information regarding the consolidation of certain of our securitization trusts. The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss) attributable to Freddie Mac. Likewise, the sum of total comprehensive income (loss...

  • Page 281
    ... to reflect the economic yield realized on investments in consolidated Freddie Mac mortgage-related securities purchased at a premium or discount or with buy-up or buy-down fees. • We adjust our Segment Earnings management and guarantee income for the Single-family Guarantee segment to include...

  • Page 282
    ... expense (i.e., semi-direct versus indirect). Net interest income for each segment includes allocated debt funding costs related to certain assets of each segment. These allocations, however, do not include the effects of dividends paid on our senior preferred stock. The tax credits generated by the...

  • Page 283
    ...Gains (losses) on mortgage loans recorded at fair value ...Other non-interest income (loss) . . Non-interest expense: Administrative expenses ...REO operations income (expense) ...Other non-interest expense ...Segment adjustments(2) ...Income tax (expense) benefit ...Net income (loss) ...Total other...

  • Page 284
    ... ...REO operations expense ...Other non-interest expense ...Income tax (expense) benefit ...Net income (loss) ...Less: net (income) loss - noncontrolling interests ...Net income (loss) attributable to Freddie Mac ...Total other comprehensive income, net of taxes ...Total comprehensive income (loss...

  • Page 285
    ...) Related to Changes in Cash Flow Hedge Available-For-Sale Defined Relationships Securities Benefit Plans (in millions) Total Other Comprehensive Income (Loss) Net of Taxes Total Comprehensive Income (Loss) - Freddie Mac Total comprehensive income (loss) of segments: Investments...Single-family...

  • Page 286
    ... sum of our PCs held by third parties and other aggregate off-balance sheet obligations. Performance Against Regulatory Capital Standards The table below summarizes our minimum capital requirements and deficits and net worth. Table 15.1 - Net Worth and Minimum Capital December 31, 2011 December 31...

  • Page 287
    ...and disclosure of Freddie Mac subordinated debt during the term of conservatorship and thereafter until directed otherwise. NOTE 16: CONCENTRATION OF CREDIT AND OTHER RISKS Single-family Credit Guarantee Portfolio Our business activity is to participate in and support the residential mortgage market...

  • Page 288
    ... single-family mortgage loans we purchase or guarantee as prime or subprime, we recognize that there are a number of mortgage loan types with certain characteristics that indicate a higher degree of credit risk. For example, a borrower's credit score is a useful measure for assessing the credit...

  • Page 289
    ... 2011 and December 31, 2010, respectively. As estimated current LTV ratios increase, the borrower's equity in the home decreases, which negatively affects the borrower's ability to refinance or to sell the property for an amount at or above the balance of the outstanding mortgage loan. If a borrower...

  • Page 290
    ... ability to refinance or sell a property for an amount at or above the balance of the outstanding mortgage. The DSCR is another indicator of future credit performance. The DSCR estimates a multifamily borrower's ability to service its mortgage obligation using the secured property's cash flow, after...

  • Page 291
    ... its plan to wind down its operations. We had exposure to TBW with respect to its loan repurchase obligations. We also had exposure with respect to certain borrower funds that TBW held for the benefit of Freddie Mac. TBW received and processed such funds in its capacity as a servicer of loans owned...

  • Page 292
    ...27, 2011. FHFA seeks to recover losses and damages sustained by Freddie Mac and Fannie Mae as a result of their investments in certain residential non-agency mortgage-related securities issued by these financial institutions. The ultimate amounts of recovery payments we receive from seller/servicers...

  • Page 293
    ...as approved mortgage insurers for Freddie Mac loans, making loans insured by either company ineligible for sale to Freddie Mac. Both of these companies ceased writing new business during the third quarter of 2011, and have been put under state supervision. PMI instituted a partial claim payment plan...

  • Page 294
    ...deposited with the Federal Reserve Bank. As of December 31, 2011, these included: • $3.6 billion of cash equivalents invested in 16 counterparties that had short-term credit ratings of A-1 or above on the S&P or equivalent scale; • $12.0 billion of securities purchased under agreements to resell...

  • Page 295
    ...'s credit rating. Derivative exposures and collateral amounts are monitored on a daily basis using both internal pricing models and dealer price quotes. Collateral is typically transferred within one business day based on the values of the related derivatives. This time lag in posting collateral can...

  • Page 296
    ...) Netting Adjustment(1) Total Assets: Investments in securities: Available-for-sale, at fair value: Mortgage-related securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of states and political subdivisions ...Manufactured housing ...Ginnie Mae...

  • Page 297
    ...) Netting Adjustment(1) Total Assets: Investments in securities: Available-for-sale, at fair value: Mortgage-related securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of states and political subdivisions ...Manufactured housing ...Ginnie Mae...

  • Page 298
    ... on single-family non-agency mortgage-related securities. During 2011, we had a net transfer into Level 3 assets of $267 million, resulting from a change in valuation method for certain mortgage-related securities due to a lack of relevant price quotes from dealers and third-party pricing services...

  • Page 299
    ... Investments in securities: Available-for-sale, at fair value: Mortgage-related securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of states and political subdivisions ...Manufactured housing ...Ginnie Mae ...Total available-for-sale mortgage...

  • Page 300
    ... Investments in securities: Available-for-sale, at fair value: Mortgage-related securities: Freddie Mac ...Subprime ...CMBS ...Option ARM ...Alt-A and other ...Fannie Mae ...Obligations of states and political subdivisions ...Manufactured housing ...Ginnie Mae ...Total available-for-sale mortgage...

  • Page 301
    ... Inputs (Level 3) (Level 2) (in millions) Total Total Gains (Losses)(3) Assets measured at fair value on a non-recurring basis: Mortgage loans:(1) Held-for-investment ...REO, net(2) ...Total assets measured at fair value on a non-recurring basis ... $- - $- Quoted Prices in Active Markets for...

  • Page 302
    ... for the fair value option. Related interest income continues to be reported as interest income in our consolidated statements of income and comprehensive income. See "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investments in Securities" for additional information about the measurement...

  • Page 303
    ... observable. Commercial Mortgage-Backed Securities CMBS are valued based on the median prices from multiple pricing services. Some of the key valuation drivers used by the pricing services include the collateral type, collateral performance, capital structure, issuer, credit enhancement, coupon, and...

  • Page 304
    ...drivers used by the dealers and pricing services include the product type, vintage, collateral performance, capital structure, credit enhancements, and coupon, coupled with interest rates and spreads observed on trades of similar securities, where possible. The market for non-agency mortgage-related...

  • Page 305
    ...methods: income capitalization, discounted cash flow, sales comparables, and replacement cost. We consider the physical condition of the property, rent levels, and other market drivers, including input from sales brokers and the property manager. We classify impaired multifamily mortgage loans, held...

  • Page 306
    ... swaps, certain forward purchase and sale commitments, and credit derivatives. The fair value of exchange-traded futures is based on end-of-day observed closing prices obtained from third-party pricing services; therefore, they are classified as Level 1 under the fair value hierarchy. The fair value...

  • Page 307
    ... the guarantee asset as Level 3. REO, Net REO is carried at the lower of its carrying amount or fair value less costs to sell. The fair value of REO is calculated using an internal model that considers state and collateral level data to produce an estimate of fair value based on REO dispositions in...

  • Page 308
    ...are amortized in accordance with GAAP, such as deferred debt issuance costs and deferred fees. Cash receipts and payments related to these items are generally recognized in the fair value of net assets when received or paid, with no basis reflected on our fair value balance sheets. 303 Freddie Mac

  • Page 309
    ... share of the overall fair value of the guarantee obligation). For loans that do not qualify for purchase based on current underwriting standards, we use our internal credit models, which incorporate factors such as loan characteristics, loan performance status information, expected losses, and risk...

  • Page 310
    ... fair value of single-family mortgage loans, valuation outcomes can vary widely based on management judgments and decisions used in determining: (a) a principal exit market; (b) modeling assumptions; and (c) inputs used to determine variables including risk premiums, credit costs, security pricing...

  • Page 311
    ... both non-callable and callable debt, as well as short-term zero-coupon discount notes. The fair value of the short-term zero-coupon discount notes is based on a discounted cash flow model with market inputs. The valuation of other debt securities represents the proceeds that we would receive...

  • Page 312
    ... purportedly on behalf of a class of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007. The plaintiff alleges that the defendants violated federal securities laws by making false and misleading statements concerning our business, risk management and the procedures we put...

  • Page 313
    ... the PACE programs create liens superior to such mortgages and that, by affirming Freddie Mac and Fannie Mae's positions, FHFA has violated the National Environmental Policy Act, or NEPA, and the Administrative Procedure Act, or APA. The complaint seeks declaratory and injunctive relief, costs and...

  • Page 314
    ... 2007 offering of non-cumulative, non-convertible, perpetual fixed-rate preferred stock, and that such statements "grossly overstated Freddie Mac's capitalization" and "failed to disclose Freddie Mac's exposure to mortgage-related losses, poor underwriting standards and risk management procedures...

  • Page 315
    ... of 8.375% Fixed to Floating Rate Non-Cumulative Perpetual Preferred Stock. Freddie Mac is not named as a defendant in this lawsuit. In an amended complaint dated February 17, 2012, Western and Southern Life Insurance Company and others asserted claims against GS Mortgage Securities Corp., Goldman...

  • Page 316
    ... of our single-family PC trusts and certain Other Guarantee Transactions while the results of operations for the year ended December 31, 2009 reflect the accounting policies in effect at that time, i.e., these securitization entities were accounted for off-balance sheet. 311 Freddie Mac

  • Page 317
    ... mortgage loans held-for-investment and record the cash tendered as an extinguishment of the related PC debt within debt securities of consolidated trusts held by third parties. We continue to recognize losses on loans purchased related to our other guarantee commitments and losses from purchases...

  • Page 318
    ... The Year Ended December 31, 2011 2010 2009 (in millions) Adjustments to reconcile net loss to net cash from operating activities: Low-income housing tax credit partnerships ...Losses on loans purchased ...Change in: Due to PCs and REMICs and Other Structured Securities trusts . . Guarantee asset...

  • Page 319
    END OF CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES 314 Freddie Mac

  • Page 320
    ... SELECTED FINANCIAL DATA (UNAUDITED) 1Q 2011 2Q 3Q 4Q Full-Year (in millions, except share-related amounts) Net interest income ...Provision for credit losses ...Non-interest income (loss) ...Non-interest expense ...Income tax benefit (expense) ...Net income (loss) attributable to Freddie Mac...

  • Page 321
    ... December 31, 2011, we identified a material weakness related to our inability to effectively manage information technology changes and maintain adequate controls over information security monitoring, resulting from increased levels of employee turnover. Management's Report on Internal Control Over...

  • Page 322
    ... crosstraining programs within these areas to mitigate the risk to the internal control environment should we continue to experience high levels of employee turnover. • Improve automation capabilities for the identification and resolution of potential unauthorized system changes. 317 Freddie Mac

  • Page 323
    ... affect, our internal control over financial reporting. Raymond G. Romano, Executive Vice President - Chief Credit Officer and John R. Dye, Senior Vice President - Interim General Counsel & Corporate Secretary, left the company during the fourth quarter of 2011. On October 26, 2011, FHFA announced...

  • Page 324
    ...the Board of Directors effective as of 6:00 pm Eastern Standard Time on March 9, 2012. 2012 Executive Management Compensation Program On March 8, 2012, FHFA approved a new compensation structure for our Covered Officers with limited input from Freddie Mac's management and Compensation Committee. The...

  • Page 325
    ... sources. Specifically, for the positions of CEO, CFO, EVP - Single-Family Business, Operations and Technology and EVP - Chief Enterprise Risk Officer, the Compensation Committee, at the recommendation of Meridian Compensation Partners, LLC, or Meridian, reviewed competitive market compensation data...

  • Page 326
    ... charter required mortgage insurance coverage. • Propose timeline for continued growth in risk sharing through 2013. • Pricing - Single-family Guarantee Fee Pricing Increases - Set plan to price for state law effects on mortgage credit losses given default 3. Maintain foreclosure prevention...

  • Page 327
    ...examination guidance for corporate governance issued by FHFA, the factors considered also 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...

  • Page 328
    ... Committee. Mr. Lynch has served as Non-Executive Chairman of Freddie Mac since December 2011. Mr. Lynch is an independent consultant providing a variety of services to financial intermediaries, including risk management, strategy, governance, financial and regulatory reporting and troubled-asset...

  • Page 329
    ... guidance on risk management issues and our strategic direction. Mr. Shanks is a Trustee of Vanderbilt University, a member of the Advisory Board of the Stanford Institute for Economic Policy Research, a director of ACE Limited, where he serves as a member of the Risk and Finance 324 Freddie Mac

  • Page 330
    ..., compensation, and termination benefits of directors and officers at the executive vice president level and above (including, regardless of title, executive positions with the functions of chief operating officer, chief financial officer, general counsel, chief business officer, chief investment...

  • Page 331
    ... October 2008. Prior to that, Mr. Kari served as Executive Vice President and Chief Operating Officer of the Federal Home Loan Bank of San Francisco, a government sponsored enterprise and part of the Federal Home Loan Bank System, from February 2002 to June 2006. Mr. Kari is a member of the board of...

  • Page 332
    ...management of the firm's enterprise technology. He joined us as Executive Vice President - Single-Family Portfolio Management in April 2010. Prior to joining us, Mr. Renzi served as chief operating officer of GMAC Residential Capital and president of GMAC Mortgage Corporation since 2008, and managed...

  • Page 333
    ... Secretary from 2002 until 2006. Carol A. Wambeke was appointed Senior Vice President - Chief Compliance Officer in June 2011. In this position, she manages Freddie Mac's compliance with legal and regulatory requirements and related controls that govern the company's business activities. Prior to...

  • Page 334
    Mr. Rose has been a member of the Audit Committee since November 2011 and is currently its chairman. The Board determined in November 2011 and again in February 2012 that Mr. Rose meets the definition of an "audit committee financial expert" under SEC regulations. 329 Freddie Mac

  • Page 335
    ... our objectives; (b) manage credit and other risks related to our $2.1 trillion total mortgage portfolio (including interest rate and other market risks related to our $653 billion mortgage-related investment portfolio); (c) reduce the need to draw funds from Treasury; and (d) issue timely financial...

  • Page 336
    ...Executive Vice President - Chief Financial Officer • Anthony N. Renzi, Executive Vice President - Single-Family Business, Operations and Technology • Jerry Weiss, Executive Vice President - Chief Administrative Officer • Paige H. Wisdom, Executive Vice President - Chief Enterprise Risk Officer...

  • Page 337
    ..., Executive Officers, and Corporate Governance - Authority of the Board and Board Committees." • FHFA has directed that our Board consult with and obtain FHFA's approval before taking any action involving compensation or termination benefits for any officer at the level of executive vice president...

  • Page 338
    ...Potential Payments Upon Termination of Employment or Change-in-Control"), we will pay installments of TO and Deferred Base Salary awards only if the Named Executive Officer is employed by Freddie Mac on the scheduled payment date. Effective January 1, 2012, FHFA approved a new compensation structure...

  • Page 339
    ... source. Specifically, for the positions of CEO, CFO and EVP - Chief Enterprise Risk Officer, the Compensation Committee reviewed competitive market data from the Comparator Group. For the EVP - Single-Family Business, Operations and Technology, the Compensation Committee reviewed competitive market...

  • Page 340
    ...Portion of 2011 Deferred Base Salary Over the course of 2011, the Compensation Committee received updates from management on our achievement against the performance objectives used to determine the funding level for the performance-based portion of Deferred Base Salary. In the fourth quarter of 2011...

  • Page 341
    ... quality on new purchases: - Single-Family: Performance against this objective is measured using the cumulative default rate for the worst quintile of new purchases, which was 1.45%, easily achieving the target of 5% or less. - Multifamily: The weighted average amortizing debt coverage ratio on the...

  • Page 342
    ...Single-Family customers were not available in time to be considered by the Compensation Committee); • Unfavorable impact on the Investments Segment's internal return on economic capital of purchases made during 2011 to support the performance of Freddie Mac PCs; • Delay in developing a corporate...

  • Page 343
    ... than 95% of customers from legacy mortgage delivery and servicing systems; and, • Achieve the 2011 goals associated with remediation of the identified deficiencies in the company's information technology infrastructure. Financial Execution Conserve capital by limiting the 2011 draw from Treasury...

  • Page 344
    ...the single-family affordable purchase-money goals or subgoals for 2011. FHFA informed the Compensation Committee of the maximum funding level that it would approve. In accordance with FHFA's instruction, the Compensation Committee, without concurring, directed management to implement a funding level...

  • Page 345
    ... in an extraordinarily difficult operating environment during 2011 and these accomplishments are especially significant considering the number of senior management departures during the year. Mr. Haldeman informed the Compensation Committee that the company's best interests would be served if he was...

  • Page 346
    ... Officer is a member of the Management Committee, a group of our senior-most officers. In addition to shared corporate objectives, each Named Executive Officer also had individual performance objectives which are generally established at the beginning of the year by Mr. Haldeman or, in the case...

  • Page 347
    ... risk by adding two new REO sales vendors to improve marketing efforts, enhance pricing precision, reduce inventory cycle times and, in turn, loss severity levels. Mr. Kari was a stabilizing leadership presence for employees in his division as well as his fellow Management Committee members...

  • Page 348
    ... plan or policy, subject to the approval of FHFA. Executive Compensation Program participants, including Messrs. Haldeman and Kari, are not currently entitled to a guaranteed level of severance benefits upon any type of termination event other than death or disability. For additional information...

  • Page 349
    ...the Named Executive Officer's medical insurance; • Relocation Benefits. Under our relocation program, we provide assistance in finding and moving into a new home and selling an existing home, temporary lodging, reimbursement of certain travel expenses, and a one-time payment to cover miscellaneous...

  • Page 350
    ...of the members of the Board of Directors who served on the Compensation Committee during fiscal year 2011 were our officers or employees 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...

  • Page 351
    ... employees. However, the Compensation Committee and management are concerned that this program may have an adverse effect on the company in future periods. Significant adverse changes in compensation levels could result in increased vacancies in positions that are important for our sound operation...

  • Page 352
    ... the terms of the Executive Compensation Program. The fixed portion of the 2011 Deferred Base Salary earned during each calendar quarter in 2011 will be paid in cash on the last business day of the corresponding quarter in 2012, provided the Named Executive Officer is employed by us on such payment...

  • Page 353
    ... terms of the Purchase Agreement. Accordingly, no stock awards were granted during 2011. For a description of the performance and other measures used to determine payouts, see "Compensation Discussion & Analysis - Executive Management Compensation Program - Elements of Compensation and Total Direct...

  • Page 354
    ... on the date of vesting. Pension Benefits - 2011 The following table shows the actuarial present value of the accumulated retirement benefits payable to each of the Named Executive Officers under our Pension Plan and the Pension SERP Benefit (the component of the SERP that relates 349 Freddie Mac

  • Page 355
    ... our Executive Compensation Program), as well as overtime pay, shift differentials, non-deferred bonuses paid under our corporate-wide annual bonus program or pursuant to a functional incentive plan (excluding the value of any stock options or cash equivalents), commissions and salary reductions...

  • Page 356
    ... December 2011, we advised participants in the EDCP that we are suspending deferrals of pay under the EDCP during calendar year 2011 and 2012. We will review future deferral options during the fourth quarter of 2012. None of the Named Executive Officers has a balance under the EDCP. 351 Freddie Mac

  • Page 357
    ...installments over 15 years commencing with retirement if actuarial estimates indicate that this payment form would yield a longer period of payment). In the case of death, the vested pre-2005 Thrift/401(k) SERP Benefit is paid in the form of a lump sum within 90 days of such event. 352 Freddie Mac

  • Page 358
    ... Payments Upon Termination of Employment or Change-in-Control We have entered into certain agreements and maintain certain plans that call for us to pay compensation to our Named Executive Officers in the event of a termination of employment with us. The compensation and benefits potentially payable...

  • Page 359
    ... in the Executive Compensation Program) is the same as upon Long-Term Disability, except that only a pro-rata portion of a Target Opportunity installment payment will occur based on the number of whole months worked in the performance year during which the officer retires. No information is provided...

  • Page 360
    ... vesting schedule outlined in the award agreement as if termination had not occurred. The values shown were calculated by multiplying the number of RSUs that will continue to vest by the closing price or our common stock on December 30, 2011 ($0.212), the last trading day of the year. Alternative...

  • Page 361
    ...the time of their employment. Director Compensation After we entered conservatorship, FHFA approved compensation for Board members in the form of cash retainers only, paid on a quarterly basis. Under the terms of the Purchase Agreement, without Treasury's consent, we are prohibited from making stock...

  • Page 362
    ...- Board Compensation - 2011 Non-Employee Director Compensation Levels Board Service Cash Compensation Annual Retainer ...Annual Retainer for Non-Executive Chairman ...Committee Service (Cash) Annual Retainer for Audit Committee Chair ...Annual Retainer for Business and Risk Committee Chair ...Annual...

  • Page 363
    ... ...EVP - Chief Financial Officer Anthony N. Renzi ...EVP - Single Family Business, Ops. and Tech. Jerry Weiss ...EVP - Chief Administrative Officer Paige H. Wisdom...EVP - Chief Enterprise Risk Officer All directors and executive officers as a group (18 persons) 5% Holder Common Stock Beneficially...

  • Page 364
    ... - Equity Compensation Plan Information Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans...

  • Page 365
    ... procedures for the review and approval or ratification of transactions involving related persons, which consist of any person who is, or 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...

  • Page 366
    ..., this stock represents a material portion of her net worth. JPMorgan conducts significant business with Freddie Mac, including, among other things, as a single-family and multifamily seller/servicer, as an underwriter of our debt and mortgage securities and as a capital markets counterparty...

  • Page 367
    ...The Business and Risk Committee is responsible for assisting the Board in the oversight, on an enterprise-wide basis, of our risk management framework, including management of credit risk (including counterparty risk), market risk (including interest rate and liquidity risk), model risk, operational...

  • Page 368
    ... us in April 2010 and currently serves as our Executive Vice President - Single Family Business, Operations and Technology. Prior to joining Freddie Mac, he served as the Chief Operating Officer of GMAC Residential Capital and as President of GMAC Mortgage Corporation. That employment ended in March...

  • Page 369
    ..., described in this Form 10-K. See "BUSINESS - Conservatorship and Related Matters - Treasury Agreements," "BUSINESS - Executive Summary - Government Support for our Business" and "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS - Related Parties as a Result of Conservatorship." 364 Freddie Mac

  • Page 370
    ...company's 2009 tax returns, preparation of quarterly estimated tax calculations and other services related to improving Freddie Mac's annual tax compliance process ($3,000,000), as well as process documentation services and tax accounting method change services ($50,000). (5) All other fees for 2011...

  • Page 371
    ... required to be filed in this annual report on Form 10-K are included in Part II, Item 8. (2) Financial Statement Schedules None. (3) Exhibits An Exhibit Index has been filed as part of this annual report on Form 10-K beginning on page E-1 and is incorporated herein by reference. 366 Freddie Mac

  • Page 372
    ... by the undersigned thereunto duly authorized. Federal Home Loan Mortgage Corporation By: /s/ Charles E. Haldeman, Jr. Charles E. Haldeman, Jr. Chief Executive Officer Date: March 9, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 373
    ... income (loss), net of taxes ARM - Adjustable-rate mortgage - A mortgage loan with an interest rate that adjusts periodically over the life of the mortgage loan based on changes in a benchmark index. Board - Board of Directors Bond insurers - Companies that provide credit insurance principally...

  • Page 374
    ... compensating an investor in the event of certain financial losses. Examples of credit enhancements include mortgage insurance, overcollateralization, indemnification agreements, and government guarantees. Credit losses - Consists of charge-offs and REO operations income (expense). Credit-related...

  • Page 375
    ...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 Reserve - Board of Governors of the Federal Reserve System FHA...

  • Page 376
    ... government, Freddie Mac and Fannie Mae commit funds to help eligible homeowners avoid foreclosure and keep their homes through mortgage modifications. HARP - Home Affordable Refinance Program - Refers to the effort under the MHA Program that seeks to help eligible borrowers (whose monthly payments...

  • Page 377
    .... Net worth (deficit) - The amount by which our total assets exceed (or are less than) our total liabilities as reflected on our consolidated balance sheets prepared in conformity with GAAP. NIBP - New Issue Bond Program is a component of the Housing Finance Agency Initiative in which we and Fannie...

  • Page 378
    ... Structured Securities) - Single- and multiclass securities issued by Freddie Mac that represent beneficial interests in pools of PCs and certain other types of mortgage-related assets. REMICs and Other Structured Securities that are single-class securities pass through the cash flows (principal and...

  • Page 379
    ... 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 Short sale...

  • Page 380
    ...for bonds of the same credit quality. The slope of the yield curve is an important factor in determining the level of net interest yield on a new mortgage asset, both initially and over time. For example, if a mortgage asset is purchased when the yield curve is inverted, with short-term rates higher...

  • Page 381
    ..., Limitations, Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 26, 2001 (incorporated by reference to Exhibit 4.11 to the Registrant's Registration Statement on Form 10 as filed on July 18, 2008) E-1 Freddie Mac

  • Page 382
    ..., Limitations, Restrictions, Terms and Conditions of 6.55% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated September 28, 2007 (incorporated by reference to Exhibit 4.24 to the Registrant's Registration Statement on Form 10 as filed on July 18, 2008) E-2 Freddie Mac

  • Page 383
    ... on Form 10 as filed on July 18, 2008)†Form of Performance Restricted Stock Units Agreement for executive officers under the Federal Home Loan Mortgage Corporation 2004 Stock Compensation Plan for supplemental bonus awards on March 29, 2007 (incorporated by reference to Exhibit 10.7 to the...

  • Page 384
    ...for executive officers under the Federal Home Loan Mortgage Corporation 1995 Stock Compensation Plan (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form 10 as filed on July 18, 2008)†Federal Home Loan Mortgage Corporation Employee Stock Purchase Plan (as...

  • Page 385
    ...to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.36 to the Registrant's Registration Statement on Form 10 as filed on July 18, 2008)†Executive Management Compensation Program (as amended and restated as of June 2, 2011) (incorporated...

  • Page 386
    ... HFA Initiative Program Modifications, dated November 23, 2011, among the U.S. Department of the Treasury, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Housing Finance Agency Statement re: computation of ratio of earnings to fixed charges and...

  • Page 387
    ... by reference into any disclosure document relating to Freddie Mac, except to the extent, if any, expressly set forth by specific reference in such filing. * The SEC file numbers for the Registrant's Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and...

  • Page 388
    ... TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2011 Year Ended December 31, 2010 2009 2008 (dollars in millions) 2007 Net loss before income tax benefit (expense) and cumulative effect of changes in accounting principles ...Add: Low-income housing tax credit partnerships ...Total interest...

  • Page 389
    ... Jr., certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of the Federal Home Loan Mortgage Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make...

  • Page 390
    ...Kari, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of the Federal Home Loan Mortgage Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make...

  • Page 391
    ...with the Annual Report on Form 10-K for the year ended December 31, 2011 of the Federal Home Loan Mortgage Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles E. Haldeman, Jr., Chief Executive Officer of the Company, certify...

  • Page 392
    ... with the Annual Report on Form 10-K for the year ended December 31, 2011 of the Federal Home Loan Mortgage Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ross J. Kari, Executive Vice President - Chief Financial Officer of the...

  • Page 393