Freddie Mac 2015 Annual Report Download - page 14

Management's Discussion and Analysis Key Economic Indicators | Interest Rates
Freddie Mac 2015 Form 10-K 12
INTEREST RATES
KEY MARKET INTEREST RATES AT
QUARTER END EFFECT ON FINANCIAL RESULTS
• The 30-year Primary Mortgage Market
Survey ("PMMS") interest rate represents
the national average of mortgage rates on
new 30-year fixed-rate mortgages. Declines
in the PMMS rate typically result in
increases in refinancing activity and
originations.
• Changes in interest rates affect the fair
value of certain of our assets and liabilities,
including derivatives, on our consolidated
balance sheets measured at fair value on a
recurring basis.
• For additional information on the effect of
LIBOR swap rates on our financial results,
see "Our Business Segments - Investments
- Market Conditions."
COMMENTARY
• Mortgage interest rates for 30-year fixed-rate loans are typically closely related to other long-term
interest rates such as the 10-year Treasury rate and the 10-year LIBOR rate. When these rates
decline, mortgage interest rates for 30-year fixed-rate loans usually also decline.
• Mortgage interest rates, as indicated by the 30-year PMMS rate, increased at the end of 2015.
However, the average 30-year PMMS rate was 3.85% in 2015 compared to 4.17% in 2014, resulting
in higher refinancing activity and higher overall origination activity during 2015.
• Longer-term interest rates, as indicated by the 10-year LIBOR rate and the 10-year Treasury rate,
declined sharply in 2014 but moderated in 2015.
• The Federal Reserve decided in December 2015 to begin raising short-term interest rates but
committed to a measured pace of monetary tightening. However, the magnitude and timing of the
impact of the Federal Reserve’s action on mortgage and other longer-term rates is uncertain.