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, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-34139
Federal Home Loan Mortgage Corporation
(Exact name of registrant as specified in its charter)
Federally chartered
corporation
(State or other jurisdiction of
incorporation or organization)
52-0904874
(I.R.S. Employer
Identification No.)
8200 Jones Branch Drive
McLean,
Virginia
22102-3110
(703)
903-2000
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number,
including area code)
Title of each class
None
Trading Symbol(s)
N/A
Name of each exchange on which registered
N/A
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, no par value per share (OTCQB: FMCC)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCI)
5% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCG)
5.1% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCH)
5.79% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCL)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCM)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCN)
5.81% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCO)
6% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCP)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCJ)
5.7% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKP)
Variable Rate, Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCS)
6.42% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCT)
5.9% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKO)
5.57% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKM)
5.66% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKN)
6.02% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKL)
6.55% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKI)
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKJ)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☐ No ☒
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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes
☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
☐
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates computed by reference to the price at which the common stock was last sold on June 30,
2021 (the last business day of the registrant's most recently completed second fiscal quarter) was $0.9 billion.
As of January 31, 2022, there were 650,059,553 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
Table of Contents
Table of Contents
INTRODUCTION
n About Freddie Mac
n Our Business
n Forward-Looking Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
n Market Conditions and Economic Indicators
n Consolidated Results of Operations
n Consolidated Balance Sheets Analysis
n Our Portfolios
n Our Business Segments
n Risk Management
l Credit Risk
l Market Risk
l Operational Risk
n Liquidity and Capital Resources
n Conservatorship and Related Matters
n Regulation and Supervision
n Critical Accounting Estimates
RISK FACTORS
LEGAL PROCEEDINGS
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
n Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
n Consolidated Financial Statements
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, CORPORATE GOVERNANCE, AND EXECUTIVE OFFICERS
n Directors
n Corporate Governance
n Executive Officers
EXECUTIVE COMPENSATION
n Compensation Discussion and Analysis
n Compensation and Risk
n CEO Pay Ratio
n 2021 Compensation Information for NEOs
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
GLOSSARY
EXHIBIT INDEX
SIGNATURES
FORM 10-K INDEX
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FREDDIE MAC | 2021 Form 10-K
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Table of Contents
MD&A Table Index
MD&A TABLE INDEX
Table Description
Summary of Consolidated Statements of Comprehensive Income (Loss)
Components of Net Interest Income
Analysis of Net Interest Yield
Net Interest Income Rate / Volume Analysis
Components of Guarantee Income
Investment Gains (Losses), Net
Benefit (Provision) for Credit Losses
Summarized Consolidated Balance Sheets
Mortgage Portfolio
Guarantee Portfolio
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11 Mortgage-Related Investments Portfolio
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Single-Family Segment Financial Results
13 Multifamily Segment Financial Results
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Allowance for Credit Losses Ratios
Principal Amounts Due for Held-for-Investment Loans
Single-Family New Business Activity
Single-Family Mortgage Portfolio CRT Issuance
Single-Family Mortgage Portfolio Credit Enhancement Coverage Outstanding
Serious Delinquency Rates for Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family Mortgage
Portfolio
Credit Enhancement Coverage by Year of Origination
Single-Family Mortgage Portfolio Without Credit Enhancement
Single-Family Credit Enhancement Receivables
Credit Quality Characteristics of Our Single-Family Mortgage Portfolio
Characteristics of the Loans in Our Single-Family Mortgage Portfolio
Single-Family Mortgage Portfolio Attribute Combinations
Single-Family Loans in Forbearance Plans by Payment Status
Single-Family Loans that Received Forbearance Plans
Single-Family Relief Refinance Loans
Credit Characteristics of Single-Family Modified Loans
Payment Performance of Single-Family Modified Loans
Seriously Delinquent Single-Family Loans by Jurisdiction
Average Length of Foreclosure Process for Single-Family Loans
Single-Family REO Activity
Single-Family Collateral Deficiency Ratios
Percentage of Multifamily New Business Activity with Higher Risk Characteristics
36 Multifamily Mortgage Portfolio CRT Issuance
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Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio
Level of Subordination Outstanding
Credit Quality of Our Multifamily Mortgage Portfolio Without Credit Enhancement
Single-Family Mortgage Purchases from Non-Depository Sellers
Single-Family Mortgage Portfolio Non-Depository Servicers
Single-Family Primary Mortgage Insurers
Single-Family ACIS Counterparties
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FREDDIE MAC | 2021 Form 10-K
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Table of Contents
Table Description
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Derivative Counterparty Credit Exposure
PVS-YC and PVS-L Results Assuming Shifts of the Yield Curve
Duration Gap and PVS Results
PVS-L Results Before Derivatives and After Derivatives
Earnings Sensitivity to Changes in Interest Rates
Liquidity Sources
Other Investments Portfolio
Funding Sources
Debt of Freddie Mac Activity
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53 Maturity and Redemption Dates
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Activity for Debt Securities of Consolidated Trusts Held by Third Parties
Freddie Mac Credit Ratings
Net Worth Activity
2020 and 2019 Affordable Housing Goals Results
2021-2024 Single-Family and 2021-2022 Multifamily Affordable Housing Goal Benchmark Levels
Forecasted House Price Growth Rates
Board Compensation Levels
Director Compensation
2021 Target TDC
2021 Deferred Salary
CEO Pay Ratio
Compensation Summary
Grants of Plan-Based Awards
SERP and SERP II Benefits
Compensation and Benefits if NEO Terminated Employment as of December 31, 2021
Stock Ownership by Directors and Executive Officers
Stock Ownership by Greater Than 5% Holders
Auditor Fees
MD&A Table Index
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FREDDIE MAC | 2021 Form 10-K
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Introduction
Introduction
About Freddie Mac
This Annual Report on Form 10-K includes forward-looking statements that are based on current expectations and that are
subject to significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-K. We
undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form
10-K. Actual results might differ significantly from those described in or implied by such statements due to various factors and
uncertainties, including those described in the Forward-Looking Statements and Risk Factors sections of this Form 10-K.
Throughout this Form 10-K, we use certain acronyms and terms that are defined in the Glossary.
ABOUT FREDDIE MAC
Freddie Mac is a GSE chartered by Congress in 1970, with a mission to provide liquidity, stability, and affordability to the U.S.
housing market. We do this primarily by purchasing single-family and multifamily residential mortgage loans originated by
lenders. In most instances, we package these loans into guaranteed mortgage-related securities, which are sold in the global
capital markets, and transfer interest-rate and liquidity risks to third-party investors. In addition, we transfer mortgage credit risk
exposure to third-party investors through our credit risk transfer programs, which include securities- and insurance-based
offerings. We also invest in mortgage loans and mortgage-related securities. We do not originate mortgage loans or lend money
directly to mortgage borrowers.
We support the U.S. housing market and the overall economy by enabling America's families to access mortgage loan funding
with better terms and by providing consistent liquidity to the single-family and multifamily mortgage markets. We have helped
many distressed borrowers keep their homes or avoid foreclosure and have helped many distressed renters avoid eviction.
COVID-19 Pandemic Response Efforts
The outbreak of COVID-19, a novel coronavirus disease detected in late 2019, was declared a pandemic by the World Health
Organization on March 11, 2020. The COVID-19 pandemic was declared a national emergency in the United States on March
13, 2020 and continued to evolve throughout 2020 and 2021, both globally and domestically, with significant adverse effects on
populations and economies. Throughout the COVID-19 pandemic, we have remained focused on serving our mission and the
crucial role we play in the U.S. housing finance system while supporting the health and safety of our communities, customers,
and staff. We have taken actions to help homeowners with Freddie Mac-owned mortgages who are directly or indirectly
affected by the COVID-19 pandemic stay in their homes during this challenging time. We have also provided support to the
multifamily mortgage market. For additional information on our support of the mortgage markets during the pandemic, see
MD&A - Our Business Segments - Single-Family, MD&A - Our Business Segments - Multifamily, MD&A - Risk
Management - Credit Risk - Single-Family Mortgage Credit Risk, and MD&A - Risk Management - Credit Risk -
Multifamily Mortgage Credit Risk. For more information on risks related to the COVID-19 pandemic, see Risk Factors -
COVID-19 Pandemic.
FREDDIE MAC | 2021 Form 10-K
1
Introduction
Business Results
Consolidated Financial Results
About Freddie Mac
Net Revenues, Net Income, and Comprehensive Income
Net Worth as of December 31,
(In billions)
(In billions)
Key Drivers:
n 2021 vs. 2020
l Net income was $12.1 billion, an increase of 65% year-over-year. Comprehensive income was $11.6 billion, an
increase of 54% year-over-year. The increases in both net income and comprehensive income were primarily driven by
higher net revenues and a credit reserve release in Single-Family.
l Net revenues increased 32% year-over-year to $22.0 billion, primarily driven by higher net interest income and higher
net investment gains.
l Net worth was $28.0 billion as of December 31, 2021, up from $16.4 billion as of December 31, 2020.
n 2020 vs. 2019
l Net income was $7.3 billion, an increase of 2% year-over-year. Comprehensive income was $7.5 billion, a decrease of
3% year-over-year. The changes in net income and comprehensive income were primarily driven by higher net
revenues, partially offset by higher provision for credit losses.
l Net revenues increased 18% year-over-year to $16.7 billion, primarily due to higher net interest income and higher net
investment gains.
l Net worth was $16.4 billion as of December 31, 2020, up from $9.1 billion as of December 31, 2019.
l We recognized a decrease in retained earnings of $0.2 billion upon our adoption of CECL on January 1, 2020.
FREDDIE MAC | 2021 Form 10-K
2
$14.1$16.7$22.0$7.2$7.3$12.1$7.8$7.5$11.6Net RevenuesNet IncomeComprehensive Income201920202021$9.1$16.4$28.0201920202021
Introduction
Market Liquidity
About Freddie Mac
Market Liquidity
(In thousands)
We support the U.S. housing market by executing our mission to provide liquidity and help maintain credit availability for new
and refinanced single-family mortgages as well as for rental housing. We provided $1.3 trillion in liquidity to the mortgage
market in 2021, which enabled the financing of nearly 4.9 million home purchases, refinancings, and rental units.
FREDDIE MAC | 2021 Form 10-K
3
2,5784,6014,8919871,1311,3787822,6672,858809803655Single-Family purchase borrowersSingle-Family refinance borrowersMultifamily rental units201920202021 Introduction
Portfolio Balances
About Freddie Mac
Mortgage Portfolio as of December 31,
(UPB in billions)
n Our mortgage portfolio increased 18% year-over-year to $3,207 billion at December 31, 2021, driven by a 20% increase in
our Single-Family mortgage portfolio and a 7% increase in our Multifamily mortgage portfolio. Our mortgage portfolio
increased 16% year-over-year to $2,714 billion at December 31, 2020, driven by a 17% increase in our Single-Family
mortgage portfolio and a 14% increase in our Multifamily mortgage portfolio.
l The growth in our Single-Family mortgage portfolio in 2021 and 2020 was primarily driven by higher new business
activity. Additionally, continued house price appreciation contributed to new business acquisitions having a higher
average loan size compared to older vintages that continued to run off.
l The growth in our Multifamily mortgage portfolio in 2021 and 2020 was primarily driven by ongoing loan purchase and
securitization activity attributable to continued high demand for multifamily financing.
FREDDIE MAC | 2021 Form 10-K
4
$2,335$2,714$3,207$1,994$2,326$2,792$341$388$415Single-Family mortgage portfolioMultifamily mortgage portfolio201920202021 Introduction
Credit Risk Transfer
About Freddie Mac
Single-Family Mortgage Portfolio with Credit Enhancement as of
December 31,
(UPB in billions)
Multifamily Mortgage Portfolio with Credit Enhancement
as of December 31,
(UPB in billions)
In addition to transferring interest-rate and liquidity risk to third-party investors through our securitization activities, we engage
in various credit enhancement arrangements to reduce our credit risk exposure. We transfer a portion of the credit risk,
primarily on recently acquired loans, through our CRT programs. We also reduce our credit risk exposure through other credit
enhancement arrangements, mainly primary mortgage insurance. See MD&A - Our Business Segments and MD&A - Risk
Management - Credit Risk for additional information on our credit enhancements and CRT programs.
Business Segments
During 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment
performance based on two reportable segments, Single-Family and Multifamily. Prior to 2021, we managed our business based
on three reportable segments, Single-Family Guarantee, Multifamily, and Capital Markets.
For additional information on our change in segment reporting presentation, see MD&A - Our Business Segments and
Note 15.
Conservatorship and Government Support for Our Business
Since September 2008, we have been operating in conservatorship, with FHFA as our Conservator. The conservatorship and
related matters significantly affect our management, business activities, financial condition, and results of operations. Our future
is uncertain, and the conservatorship has no specified termination date. We do not know what changes may occur to our
business model during or following conservatorship, including whether we will continue to exist.
In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury under which we
issued Treasury both senior preferred stock and a warrant to purchase common stock. The senior preferred stock and warrant
were issued as an initial commitment fee in consideration for Treasury's commitment to provide funding to us under the
Purchase Agreement. Our Purchase Agreement with Treasury is critical to keeping us solvent and avoiding the appointment of
a receiver by FHFA under statutory mandatory receivership provisions. We believe that the support provided by Treasury
pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business activities.
Our Purchase Agreement with Treasury significantly affects our business activities, including by limiting: our secondary market
activities; our single-family and multifamily loan acquisitions; the amount of indebtedness we can incur; the size of our
mortgage-related investments portfolio; and our ability to pay dividends, transfer certain assets, raise capital, pay down the
FREDDIE MAC | 2021 Form 10-K
5
$1,094$1,152$1,49155%50%53%UPBPercentage201920202021$307$346$38990%89%94%UPBPercentage201920202021 Introduction
About Freddie Mac
liquidation preference of the senior preferred stock, and exit conservatorship. In September 2021, certain limitations on our
secondary market activities and single-family and multifamily loan acquisitions were suspended.
Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as, and if
declared by the Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared
by, and paid at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of
Directors.
We have had a net worth sweep dividend requirement to Treasury on the senior preferred stock since the first quarter of 2013,
which was implemented pursuant to the August 2012 amendment to the Purchase Agreement. Pursuant to the Purchase
Agreement, Freddie Mac will not be required to pay a dividend to Treasury on the senior preferred stock until it has built
sufficient capital to meet the capital requirements and buffers set forth in the ERCF. As the company builds capital during this
period, increases in our Net Worth Amount have been, or will be, added to the aggregate liquidation preference of the senior
preferred stock. After we have maintained the level of capital prescribed in the Purchase Agreement for the requisite time, we
will be subject to a new periodic cash dividend requirement, as well as a periodic commitment fee to be agreed upon with
Treasury in consultation with the Chairman of the Federal Reserve.
See MD&A - Regulation and Supervision and Note 2 for additional information on the Purchase Agreement, senior
preferred stock, and warrant and Risk Factors - Conservatorship and Related Matters for related risks.
The graphs below show our net worth, the liquidation preference of the senior preferred stock, the remaining amount of
Treasury's funding commitment to us, the cumulative senior preferred stock dividends we have paid to Treasury, and the
cumulative funds we have drawn from Treasury pursuant to its funding commitment.
Net Worth, Liquidation Preference, and Treasury Funding
Commitment
(In billions)
Draws and Dividend Payments
(In billions)
n Our Net Worth Amount was $28.0 billion as of December 31, 2021, up from $16.4 billion on December 31, 2020. We did
not have a dividend requirement to Treasury on the senior preferred stock for 4Q 2021.
n The liquidation preference of the senior preferred stock increased from $95.0 billion on September 30, 2021 to $98.0 billion
on December 31, 2021 based on the $2.9 billion increase in our Net Worth Amount during 3Q 2021, and will increase to
$100.7 billion on March 31, 2022 based on the $2.7 billion increase in our Net Worth Amount during 4Q 2021.
n At December 31, 2021, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested from
Treasury under the Purchase Agreement.
FREDDIE MAC | 2021 Form 10-K
6
$28.0$98.0$140.2Net worthSenior preferred stock liquidationpreferenceRemaining Treasury funding commitmentAs of December 31, 2021$71.6$119.7Cumulative draws from TreasuryCumulative dividend payments to TreasuryAs of December 31, 2021 Introduction
OUR BUSINESS
Primary Business Strategies
Our Business
Freddie Mac's overall strategic direction is established by management and affirmed by the Board of Directors through its
approval of our Strategic Framework, which sets forth our strategic priorities and generally covers a three-year timeframe.
FHFA, the Administration, or Congress could take actions that cause us to alter our Strategic Framework. FHFA, as
Conservator, has influenced, and may in the future influence, our strategic direction, such as through our new initiatives, credit
and pricing policies, and capital, liquidity, and risk appetite constraints.
Our Charter and Mission
We are a GSE with a specific and limited corporate purpose to support the liquidity, stability, and affordability of the U.S.
housing market as a participant in the secondary mortgage market, while operating as a commercial enterprise earning an
appropriate return. Everything we do must be done within the constraints of our Charter.
As a result, our Charter forms the framework for our business activities. Pursuant to our Charter, our role in the secondary
mortgage market is to:
n Provide stability in the secondary mortgage market for residential loans;
n Respond appropriately to the private capital market;
n Provide ongoing assistance to the secondary mortgage market for residential loans (including activities relating to loans for
low- and moderate-income families involving a reasonable economic return that may be less than the return earned on
other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital
available for residential mortgage financing; and
n Promote access to mortgage loan credit throughout the United States (including central cities, rural areas, and other
underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital
available for residential mortgage financing.
Our Charter permits us to purchase first-lien single-family loans with LTV ratios at the time of our purchase of less than or equal
to 80%. For the purchase of first-lien single-family loans that do not meet this criterion, our Charter requires certain specified
credit protections, which include mortgage insurance from a qualified insurer on the portion of the UPB of the loan that exceeds
an 80% LTV ratio, a seller's agreement to repurchase or replace a defaulted loan, or the retention by the seller of at least a 10%
participation interest in the loan.
This Charter requirement does not apply to multifamily loans or to loans that have the benefit of any guarantee, insurance, or
other obligation by the U.S. or any of its agencies or instrumentalities (e.g., the FHA, VA, or USDA Rural Development).
Additionally, we purchase single-family refinanced loans we currently own or guarantee without obtaining additional credit
enhancement in excess of that already in place for any such loan, even when the LTV ratio of the new loan is above 80%.
Our Charter does not permit us to originate mortgage loans or lend money directly to mortgage borrowers in the primary
mortgage market. Our Charter limits our purchase of single-family loans to the conforming loan market, which consists of loans
originated with UPBs at or below limits determined annually based on changes in FHFA's housing price index. In most of the
U.S., the maximum conforming loan limit for a one-family residence has been set at $647,200 for 2022, an increase from
$548,250 for 2021, $510,400 for 2020, and $484,350 for 2019. Higher limits have been established in certain "high-cost" areas
(for 2022, up to $970,800 for a one-family residence). Higher limits also apply to two- to four-family residences and to one- to
four-family residences in Alaska, Guam, Hawaii, and the U.S. Virgin Islands.
Our Strategic Priorities
Our mission is to provide liquidity, stability, and affordability to the housing market. We interpret this mission expansively to
meet the country's broader housing needs in both good times and challenging times by:
n Enhancing liquidity within the mortgage and capital markets;
n Stabilizing the housing market throughout the economic cycle, including helping families facing hardship remain in their
homes;
n Working with an array of housing market participants to promote greater access to and supply of affordable and
sustainable homes throughout the country;
n Addressing longstanding issues of inequity in housing;
n Working with lenders of all sizes to better serve their communities; and
n Continuing progress to integrate ESG strategies into our business and operations.
FREDDIE MAC | 2021 Form 10-K
7
Introduction
Our Business
Delivering on our mission requires that we maintain safety and soundness, financial strength, and operational resilience. It
requires us to grow our talent for today and tomorrow. It also requires a commitment to examine our company's business and
risk environment in search of new and better ways to serve our mission. For these reasons, we have established the following
three focus areas to support our mission:
Practice Risk Management Excellence
n Improve our operations and risk management to maintain our safety and soundness;
n Seek to timely remediate outstanding significant safety and soundness issues; and
n Enhance operational resiliency with respect to our people, processes, and recovery capabilities.
Grow Talent for Today and Tomorrow
n Develop our current and future leaders and team members;
n Uphold a culture where talented and committed individuals work together to achieve success; and
n Build strength through DEI, integrating DEI through all dimensions of our business.
Deliver Results
n Generate strong financial results, build capital, and excel with respect to our FHFA and Corporate Scorecards;
n Deliver innovative solutions to advance the mission; and
n Increase efficiency to enhance productivity and bolster our financial results.
Human Capital Management
Our people are integral to our company’s success. It is our goal to sustain an inclusive and equitable culture with a highly
engaged diverse workforce focused on delivering on our mission. We are committed to growing our talent for today and
tomorrow and seek to be an employer of choice that attracts top talent through our commitment to DEI, employee engagement,
training, and other professional development opportunities. We also seek to implement competitive compensation programs
and practices within the constraints of our conservatorship status. We evaluate the success of our human capital management
by measuring and monitoring the performance, development, and retention of our employees.
Employees
At January 31, 2022, we had 7,284 full-time and 34 part-time employees. Our headquarters are in McLean, Virginia, and the
majority of our employees reside in the Washington, D.C., metropolitan area.
Board and FHFA Oversight
We assist the CHC Committee of the Board of Directors and support them in their oversight of compensation and benefits, DEI,
talent development, and strategies to strengthen our culture. Although the CHC Committee plays a significant role in these
matters, FHFA is actively involved in its role as our Conservator and as our regulator. For more information, see Directors,
Corporate Governance, and Executive Officers - Corporate Governance - Board of Directors and Board
Committee Information — Authority of the Board of Directors and Board Committees.
Attracting, Developing, and Retaining Talent
In a marketplace where the competition to attract, develop, and retain talent is ever increasing, we strive to be an employer of
choice. In doing so, we offer our employees a comprehensive suite of financial, health, and other benefits to support their
financial, physical, and mental well-being at every stage of their career. We use data, analytics, and insights to inform our
compensation and talent decisions. We also provide our employees with professional development and training opportunities
to enhance their workforce competencies and capabilities.
Throughout the COVID-19 pandemic, we have offered flexible work arrangements and other benefits, such as expanded leave
and expanded back-up childcare, to support our employees as they adjusted to all of the ways the COVID-19 pandemic
reshaped their lives. In addition, we have continued to support the health and safety of our employees. We have actively
monitored the effects of the pandemic and made decisions based on guidance from national, state, and local governments and
public health authorities, including the CDC. The majority of our employees continued to work remotely as of December 31,
2021. To prepare for their return to the office, we have developed a hybrid approach where the majority of our employees will
spend some of their time working in the office and some working remotely. Our approach seeks to create a more flexible
experience for our employees with a continued focus on fostering culture, community, and career development.
Our overall voluntary turnover rate in 2021 increased slightly above our historical experience and has been tracking lower than
financial services benchmarks. Certain areas of the company have experienced larger turnover rates, as market demand for
certain skills has increased.
FREDDIE MAC | 2021 Form 10-K
8
Introduction
DEI
Our Business
We are committed to embedding DEI in our business and culture. At Freddie Mac, we have long been committed to the belief
that our people should reflect the rich diversity of the communities in which we live. We use various types of inclusive
engagements to encourage our employees to intentionally cultivate diverse relationships. In doing so, we can continue to build
an environment that sparks productive dialogue, addresses unconscious bias, ignites innovation, and challenges the status
quo. In addition, we periodically survey our employees to better understand employee engagement and capture insights into
their needs and perspectives so that we can consider our workforce strategies accordingly. We believe that the result is a more
diverse and engaged community delivering on our mission for our customers.
Freddie Mac has a Board-approved DEI strategic plan that organizes our efforts into three areas: employees, suppliers, and
financial transaction counterparties. FHFA's Office of Minority and Women Inclusion has adopted regulations with respect to
the promotion of diversity and inclusion and has provided us with guidance on areas of improvement. The CHC Committee is
focused on our efforts to enhance DEI by incorporating all three areas of diversity focus into a single comprehensive strategy
with annual goals, enhanced oversight, and regular reporting.
We prioritize attracting and recruiting a pipeline of diverse candidates, with the goal of advancing a culture of inclusion where
we want everyone at the company to feel valued and like they belong. We reinforce DEI through organizational decisions and
business activities, which include:
n Working toward building a diverse pipeline of talent;
n Promoting a culture of inclusion and allyship;
n Offering targeted development and learning opportunities;
n Organizing community engagement and volunteer opportunities; and
n Matching eligible charitable contributions.
We have 10 business resource groups as well as division-specific teams that support employee engagement by providing
learning and networking opportunities that foster an inclusive workplace. In 2021, as part of our focus on inclusion, we added
Juneteenth as a company-paid holiday and continued offering educational opportunities to provide multiple perspectives on
social justice and equity issues. We have also expanded diversity through other programs, such as our neurodiversity hiring
program.
Our DEI efforts are reflected in the composition of our workforce, leadership, and Board of Directors. For example, we are a
majority-minority company, which means that over 50% of our workforce identifies as racially diverse. Our Single-Family
business as well as our Human Resources and Internal Audit functions are led by women. For information on the composition
of our Board of Directors, see Directors, Corporate Governance, and Executive Officers – Directors – Director
Criteria, Diversity, Qualifications, Experience, and Tenure.
Business Segments
We have two reportable segments: Single-Family and Multifamily. For more information on our segments, see MD&A - Our
Business Segments and Note 15.
Properties
Our principal offices consist of four office buildings we own in McLean, Virginia, comprising approximately 1.3 million square
feet. We operate our business in the United States and its territories, and accordingly, we generate no revenue from and have
no long-lived assets, other than financial instruments, in geographic locations other than the United States and its territories.
Government Regulation and Supervision
Our business is subject to extensive laws, regulations, and supervision. The laws and regulations to which we are subject cover
all key aspects of our business, and directly and indirectly impact our product offerings, pricing, competitive position and
strategic priorities, relationship with sellers and servicers, capital structure, cash needs and uses, privacy for borrowers and
others, and cybersecurity. As a result, such laws and regulations have a significant effect on key drivers of our results of
operations, including, for example, our capital and liquidity, guarantee fees, product offerings, risk management, and costs of
compliance. Failure to comply with our legal and regulatory requirements could result in enforcement actions, investigations,
fines, monetary and other penalties, and harm to our reputation. Our business and results of operations may also be directly
and adversely affected by future legislative, regulatory, or judicial actions. Such actions could affect us in a number of ways,
including by imposing significant additional legal, compliance, and other costs on us and limiting our business activities. For
example, recent changes to our capital requirements will affect our business and risk management strategies, including our risk
appetite, our risk-adjusted returns, and the impact of our CRT transactions on our capital needs, and will increase the amount
FREDDIE MAC | 2021 Form 10-K
9
Introduction
Our Business
of capital we will be required to retain or raise to exit from conservatorship.
In addition, our conservatorship and related matters significantly affect our management, business activities, financial condition,
and results of operations. We are under the control of FHFA, as our Conservator, and are not managed to maximize
stockholder returns. FHFA determines our strategic direction. We face a variety of different, and sometimes competing,
business objectives and FHFA-mandated activities. FHFA has required us to make changes to our business that have adversely
affected our financial results and could require us to make additional changes at any time. For example, FHFA may require us
to undertake activities that reduce our profitability, expose us to additional credit, market, funding, operational, and other risks,
or provide additional support for the mortgage market that serves our mission but adversely affects our financial results.
Further, we can be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons set forth in
the GSE Act.
FHFA is also Conservator of Fannie Mae, our primary competitor. FHFA’s actions, as Conservator of both companies, could
affect competition between us. It is also possible that FHFA could require us and Fannie Mae to take a uniform approach to
certain activities, limiting innovation and competition, and possibly putting us at a competitive disadvantage because of
differences in our respective businesses. FHFA also could limit our ability to compete with new entrants and other institutions.
For additional information on conservatorship and related risks, see Introduction – About Freddie Mac – Conservatorship
and Government Support for Our Business and Risk Factors – Conservatorship and Related Matters.
For additional information on government regulation and supervision and related risks, see Risk Factors - Legal and
Compliance Risks.
Available Information
We file reports and other information with the SEC. In view of the Conservator's succession to all of the voting power of our
stockholders, we have not prepared or provided proxy statements for the solicitation of proxies from stockholders since we
entered into conservatorship, and do not expect to do so while we remain in conservatorship. Pursuant to SEC rules, our
annual reports on Form 10-K contain certain information typically provided in an annual proxy statement.
We make available, free of charge through our website at www.freddiemac.com, our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all other SEC reports and amendments to those reports as soon as
reasonably practicable after we electronically file the material with the SEC. The SEC also maintains a website (www.sec.gov)
that contains reports, proxy and information statements, and other information regarding companies that file electronically with
the SEC.
We are providing our website addresses and the website address of the SEC here and elsewhere in this Form 10-K solely for
your information. Information appearing on our website or on the SEC's website is not incorporated into this Form 10-K.
We provide disclosure about our debt securities on our website at www.freddiemac.com/debt. From this address, investors
can access the offering circular and related supplements for debt securities offerings under Freddie Mac's global debt facility,
including pricing supplements for individual issuances of debt securities. Similar information about our STACR® transactions
and SCR debt notes is available at crt.freddiemac.com and mf.freddiemac.com/investors, respectively.
We provide disclosure about our mortgage-related securities, some of which are off-balance sheet obligations (e.g., K
Certificates and SB Certificates), on our website at www.freddiemac.com/mbs and mf.freddiemac.com/investors. From
these addresses, investors can access information and documents, including offering circulars and offering circular
supplements, for mortgage-related securities offerings.
We provide additional information, including product descriptions, investor presentations, securities issuance calendars,
transaction volumes and details, redemption notices, Freddie Mac research, and material developments or other events that
may be important to investors, in each case as applicable, on the websites for our business divisions, which can be found at
sf.freddiemac.com, mf.freddiemac.com, and capitalmarkets.freddiemac.com/capital-markets.
We provide information on our ESG efforts on our website freddiemac.com/about/esg.
FREDDIE MAC | 2021 Form 10-K
10
Introduction
Forward-Looking Statements
FORWARD-LOOKING STATEMENTS
We regularly communicate information concerning our business activities to investors, the news media, securities analysts, and
others as part of our normal operations. Some of these communications, including this Form 10-K, contain "forward-looking
statements." Examples of forward-looking statements include, but are not limited to, statements pertaining to the
conservatorship, our current expectations and objectives for the Single-Family and Multifamily segments of our business, our
efforts to assist the housing market, our liquidity and capital management, economic and market conditions and trends, our
market share, the effect of legislative and regulatory developments and new accounting guidance, the credit quality of loans we
own or guarantee, the costs and benefits of our CRT transactions, the effects of natural disasters, other catastrophic events,
including the COVID-19 pandemic, and significant climate change effects and actions taken in response thereto on our
business, and our results of operations and financial condition. Forward-looking statements involve known and unknown risks
and uncertainties, some of which are beyond our control. Forward-looking statements are often accompanied by, and identified
with, terms such as "could," "may," "will," "believe," "expect," "anticipate," "forecast," and similar phrases. These statements
are not historical facts, but rather represent our expectations based on current information, plans, judgments, assumptions,
estimates, and projections. Actual results may differ significantly from those described in or implied by such forward-looking
statements due to various factors and uncertainties, including those described in the Risk Factors section of this Form 10-K
and:
n Uncertainty regarding the duration and severity of the COVID-19 pandemic and the effects of the pandemic and actions
taken in response thereto on the U.S. economy and housing market, which could, in turn, adversely affect our business in
numerous ways, including, for example, by increasing our credit losses, impairing the value of our mortgage-related
securities, decreasing our liquidity and capital levels, and increasing our credit risk and operational risk;
n The actions the U.S. government (including FHFA, Treasury, and Congress) may take, require us to take, or restrict us from
taking, including actions to support the housing market, such as programs implemented in response to the COVID-19
pandemic or to implement the recommendations in FHFA's Conservatorship Scorecards, recent requirements and
guidance related to equitable housing, and other objectives for us;
n The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement;
n Changes in our Charter, applicable legislative or regulatory requirements (including any legislation affecting the future
status of our company), or the Purchase Agreement;
n Changes to our capital requirements and potential effects of such changes on our business strategies;
n Changes in the fiscal and monetary policies of the Federal Reserve, including changes in target interest rates and in the
amount of agency MBS and agency CMBS purchased to support the market during the COVID-19 pandemic;
n Changes in tax laws;
n Changes in privacy and cybersecurity laws and regulations;
n Changes in accounting policies, practices, or guidance;
n Changes in economic and market conditions generally, and as a result of the COVID-19 pandemic, including changes in
employment rates, interest rates, spreads, and house prices;
n Changes in the U.S. residential mortgage market, including changes in the supply and type of loan products (e.g., refinance
vs. purchase and fixed-rate vs. ARM);
n The success of our efforts to mitigate our losses on our Single-Family mortgage portfolio;
n The success of our strategy to transfer mortgage credit risk through STACR, ACIS®, K Certificate, SB Certificate, and other
CRT transactions;
n Our ability to maintain adequate liquidity to fund our operations;
n Our ability to maintain the security and resiliency of our operational systems and infrastructure, including against
cyberattacks or other security incidents;
n Our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;
n The adequacy of our risk management framework, including the adequacy of our capital framework for measuring risk;
n Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;
n Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate volatility and spread
volatility, including the availability of derivative financial instruments needed for interest-rate risk management purposes
and our ability to apply hedge accounting;
n Our operational ability to issue new securities, make timely and correct payments on securities, and provide initial and
ongoing disclosures;
n Our reliance on CSS and the CSP for the operation of the majority of our Single-Family securitization activities, limits on our
influence over CSS Board decisions, and any additional changes FHFA may require in our relationship with, or support of,
CSS;
n Changes in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make
business decisions, and manage risks;
FREDDIE MAC | 2021 Form 10-K
11
Introduction
Forward-Looking Statements
n Changes in investor demand for our debt or mortgage-related securities;
n Our ability to maintain market acceptance of the UMBS, including our ability to maintain alignment of the prepayment
speeds of our and Fannie Mae's respective UMBS;
n Changes in the practices of loan originators, servicers, investors, and other participants in the secondary mortgage market;
n The discontinuance of, transition from, or replacement of LIBOR and the adverse consequences it could have on our
business and operations;
n The occurrence of a major natural disaster, other catastrophic event, or significant climate change effects in areas in which
our offices, significant portions of our total mortgage portfolio, or the offices of our counterparties are located, and for
which we may be uninsured or significantly underinsured; and
n Other factors and assumptions described in this Form 10-K, including in the MD&A section.
Forward-looking statements are made only as of the date of this Form 10-K, and we undertake no obligation to update any
forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-K.
FREDDIE MAC | 2021 Form 10-K
12
Management's Discussion and Analysis
Market Conditions and Economic Indicators
Management's Discussion and Analysis of
Financial Condition and Results of Operations
MARKET CONDITIONS AND ECONOMIC INDICATORS
The following graphs and related discussions present certain market and macroeconomic indicators that can significantly affect
our business and financial results.
Interest Rates(1)
Quarterly Ending Rates
n The 30-year Primary Mortgage Market Survey (PMMS)
interest rate is indicative of what a consumer could
expect to be offered on a first-lien prime conventional
conforming home purchase mortgage with an LTV of
80%. Increases (decreases) in the PMMS rate typically
result in decreases (increases) in refinancing activity
and total originations.
n Changes in 10-year benchmark interest rates can
significantly affect the fair value of our financial
instruments. We have elected hedge accounting for
certain assets and liabilities in an effort to reduce
GAAP earnings variability attributable to changes in
benchmark interest rates.
n SOFR is a benchmark rate for secured overnight
dollar-denominated financing, identified by certain
banking regulators and market participants as a
replacement for LIBOR.
n Among other things, changes in SOFR and 3-month
LIBOR could affect the interest earned on our short-
term investments and/or the interest expense on our
debt funding.
(1) 30-year PMMS interest rates are as of the last week in each quarter. SOFR
interest rates are 30-day average rates.
Unemployment Rate and Monthly Net New Jobs
n Changes in the national unemployment rate can affect
several market factors, including the demand for
single-family and multifamily housing and loan
delinquency rates.
n The unemployment rate fell below 4% as of December
2021, down nearly three percentage points since
December 2020. Many workers have exited the labor
force and the labor force participation rate is well
below its pre-pandemic peak.
Source: U.S. Bureau of Labor Statistics.
FREDDIE MAC | 2021 Form 10-K
13
3.99%4.55%3.74%2.67%3.11%2.32%1.55%0.07%0.05%1.67%2.79%1.91%0.24%0.21%2.39%2.72%1.89%0.93%1.57%30-year PMMSSOFR3-month LIBOR10-year LIBOR4Q174Q184Q194Q204Q21181,000193,000168,000(785,000)537,0004.1%3.9%3.6%6.7%3.9%Average monthly net new jobs (non-farm)National unemployment rate (for the month of December)20172018201920202021 Management's Discussion and Analysis
Market Conditions and Economic Indicators
Single-Family Housing and Mortgage Market Conditions
U.S. Single-Family Home Sales and House Prices
n Despite low levels of inventory, home sales increased
in 2021. In 2022, we expect home sales to remain
relatively flat compared to 2021 as higher mortgage
interest rates and house prices offset the strong
demand for housing.
n Single-family house prices increased 16.8% in 2021,
compared to an increase of 11.3% during 2020.
Although supply constraints could continue to exert
pressure on house prices, we expect house price
growth to moderate in 2022.
Sources: National Association of Realtors, U.S. Census Bureau, and Freddie Mac
House Price Index.
U.S. Single-Family Mortgage Originations
(UPB in billions)
n U.S. single-family loan origination volumes increased
in 2021 compared to 2020 as a result of the low
average mortgage interest rates, higher home sales,
and increasing house prices. We expect total
originations to decrease in 2022 primarily due to a
decrease in refinance originations driven by higher
mortgage interest rates.
Source: Inside Mortgage Finance.
FREDDIE MAC | 2021 Form 10-K
14
6,1235,9576,0236,4626,8825,5105,3405,3405,6406,1206136176838227626.7%5.0%4.1%11.3%16.8%Sales of existing homes (units in thousands)Sales of new homes (units in thousands)Single-family house price growth rate20172018201920202021$1,810$1,630$2,325$4,100$4,82520172018201920202021
Management's Discussion and Analysis
Market Conditions and Economic Indicators
Multifamily Housing and Mortgage Market Conditions
Apartment Vacancy Rates and Change in Effective Rents
n Vacancy rates returned to pre-pandemic levels during
2021. The decrease in vacancy rates was driven by
higher demand for multifamily housing as a result of
improving economic conditions.
n Effective rent growth (i.e., the average rent paid by the
renter over the term of the lease, adjusted for
concessions by the property owner and costs borne
by the renter) was positive at the national level and in
all of the major geographic markets in 2021.
n Multifamily property prices grew 23.6% in 2021, as
investors continued to believe there was a need for
additional rental housing in the U.S. and the overall
investment environment remained attractive given low
interest rates.
Source: Reis.
Apartment Completions and Net Absorption
(Units in thousands)
n Net absorption rates increased during 2021 driven by
improving economic conditions, pent-up demand,
increasing house prices, and rising income levels. Net
absorptions exceeded completions for full-year 2021.
Source: Reis.
FREDDIE MAC | 2021 Form 10-K
15
4.7%4.8%4.8%5.3%4.7%3.9%5.0%3.6%(2.4)%12.5%3.0%Apartment vacancy rates (as of December 31)Change in effective rents (for the yearended December 31)Long-term effective rent growth20172018201920202021263304232224146197271305152202CompletionsNet absorption20172018201920202021 Management's Discussion and Analysis
Market Conditions and Economic Indicators
Mortgage Debt Outstanding
Single-Family Mortgage Debt Outstanding as of December 31,
(UPB in billions)
n U.S. single-family mortgage debt outstanding is
expected to increase year-over-year, driven by house
price appreciation and first-time homebuyers. An
increase in U.S. single-family mortgage debt
outstanding typically results in the growth of our
Single-Family mortgage portfolio.
Source: Federal Reserve Financial Accounts of the United States of America. For
2021, the amount is as of September 30, 2021 (latest available information).
Multifamily Mortgage Debt Outstanding as of December 31,
(UPB in billions)
n While the multifamily mortgage market grew, our share
of multifamily mortgage debt outstanding remained
relatively flat in 2021 due to a reduced FHFA
Multifamily loan purchase cap for 2021.
Source: Federal Reserve Financial Accounts of the United States of America. For
2021, the amount is as of September 30, 2021 (latest available information).
FREDDIE MAC | 2021 Form 10-K
16
$10,596$10,897$11,187$11,653$12,27117.3%17.4%17.8%20.0%22.8%U.S. single-family mortgage debt outstandingFreddie Mac share20172018201920202021$1,363$1,488$1,623$1,755$1,83817.0%17.6%17.9%19.1%19.1%U.S. multifamily mortgage debt outstandingFreddie Mac share20172018201920202021 Management's Discussion and Analysis
Market Conditions and Economic Indicators
Delinquency Rates
Single-Family Serious Delinquency Rates
as of December 31,
Source: National Delinquency Survey from the Mortgage Bankers Association.
For 2021, the total mortgage market rate is as of September 30, 2021 (latest
available information).
Multifamily Delinquency Rates as of December 31,
n Our Single-Family serious delinquency rate is based
on the number of loans in our Single-Family mortgage
portfolio that are three monthly payments or more past
due or in the process of foreclosure. We report single-
family loans in forbearance as delinquent during the
forbearance period to the extent that payments are
past due based on the loans' original contractual
terms, irrespective of the forbearance plan.
n Our Single-Family serious delinquency rate declined
year-over-year, due primarily to an increase in the
number of borrowers exiting forbearance and
completing loan workout solutions that return their
mortgages to current status. 56% of the seriously
delinquent loans at December 31, 2021 were covered
by credit enhancements that are designed to partially
reduce our credit risk exposure from these loans.
n While our Single-Family serious delinquency rate has
declined since the peak in 2020, we expect the rate to
remain above pre-pandemic levels as a result of the
COVID-19 pandemic and the forbearance programs
we are offering in response. Our Single-Family serious
delinquency rate as of February 29, 2020 was 0.60%.
n Our Multifamily delinquency rate is based on the UPB
of loans in our Multifamily mortgage portfolio that are
two monthly payments or more past due or in the
process of foreclosure. We report multifamily loans in
forbearance as current as long as the borrowers are in
compliance with their forbearance agreement,
including the agreed upon repayment plan.
n Our Multifamily delinquency rate returned to pre-
pandemic levels and remains low compared to many
other market participants. Our credit enhancement
coverage partially reduces our credit risk exposure
from current and future delinquencies. For additional
information on our delinquency and forbearance rates
and credit enhancement coverage, see MD&A - Risk
Management - Credit Risk - Multifamily Mortgage
Credit Risk.
Source: Freddie Mac, FDIC Quarterly Banking Profile, Intex Solutions, Inc., and
Wells Fargo Securities (Multifamily CMBS market, excluding REOs), American
Council of Life Insurers (ACLI). For 2021, the amounts for FDIC insured
institutions and ACLI investment bulletin are as of September 30, 2021 (latest
available information) and the amount for the Multifamily CMBS market is as of
December 31, 2021.
FREDDIE MAC | 2021 Form 10-K
17
2.91%2.06%1.81%5.16%3.40%1.08%0.69%0.63%2.64%1.12%Total mortgage marketFreddie Mac201720182019202020210.02%0.01%0.08%0.16%0.08%1.05%1.16%0.91%1.95%1.41%0.15%0.15%0.11%0.27%0.30%0.03%0.13%0.08%0.10%0.00%Freddie MacMultifamily CMBS marketFDIC insured institutionsACLI investment bulletin20172018201920202021 Management's Discussion and Analysis
Consolidated Results of Operations
CONSOLIDATED RESULTS OF OPERATIONS
This discussion of our consolidated results of operations should be read in conjunction with our consolidated financial
statements and accompanying notes.
We have three primary sources of revenue:
n Net interest income - Primarily consists of guarantee net interest income in Single-Family. We consolidate most of our
Single-Family securitization trusts and, therefore, we recognize the loans held by the trust and the debt securities issued by
the trust on our consolidated balance sheet. The difference between the interest income on these loans and the interest
expense on the related debt represents the guarantee fees we receive as compensation for our guarantee of the principal
and interest payments of the issued debt securities.
n Guarantee income - Primarily consists of guarantee income in Multifamily. We do not consolidate most of our Multifamily
securitization trusts, and therefore, we do not recognize the loans held by the trust or the debt securities issued by the trust
on our consolidated balance sheet. Rather, we separately account for our guarantee to the trust and recognize the revenue
from our guarantee as guarantee income.
n Investment gains (losses), net - Primarily consist of gains on sale of mortgage loans, net of interest-rate risk management
activities, from our purchase and securitization activities in Multifamily. Because we do not consolidate most of our
Multifamily securitization trusts, we account for most of our Multifamily securitizations as sales of the underlying loans. Net
investment gains may fluctuate significantly from period-to-period based on the pricing of our new multifamily loan
purchases, the volume and nature of our investment, funding, and hedging activities, and changes in market conditions,
such as interest rates and market spreads.
We have two primary expense items:
n Credit-related expenses - Primarily consist of benefit (provision) for credit losses, credit enhancement expense, benefit
for credit enhancement recoveries, and REO operations expense. Benefit (provision) for credit losses primarily represents
changes in expected credit losses on our single-family mortgage loans held-for-investment. Credit enhancement expense
and benefit for credit enhancement recoveries include the costs we incur to transfer credit risk and the changes in
expected recoveries, respectively, from certain contracts that are accounted for as freestanding credit enhancements. See
MD&A - Our Business Segments - Single-Family - Products and Activities, MD&A - Our Business Segments -
Multifamily - Products and Activities, and Note 6 for additional information on our accounting for credit enhancements.
REO operations expense represents expenses related to foreclosed properties.
n Operating expenses - Primarily consist of administrative expenses, the legislated 10 basis point fee, and other expenses
we incur to run our business.
FREDDIE MAC | 2021 Form 10-K
18
Management's Discussion and Analysis
Consolidated Results of Operations
The table below compares our consolidated results of operations for the past three years.
Table 1 - Summary of Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)
Net interest income
Guarantee income
Investment gains (losses), net
Other income (loss)
Net revenues
Benefit (provision) for credit losses
Credit enhancement expense
Benefit for (decrease in) credit enhancement
recoveries
REO operations income (expense)
Credit-related income (expense)
Administrative expense
Legislated 10 basis point fee expense
Other expense
Operating expense
Income (loss) before income tax (expense)
benefit
Income tax (expense) benefit
Net income (loss)
Total other comprehensive income (loss),
net of taxes and reclassification adjustments
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
2020 vs. 2019
$
%
$17,580
$12,771
$11,848
$4,809
38 %
$923
8 %
Year Over Year Change
1,032
2,746
593
1,442
1,813
633
1,089
818
323
21,951
16,659
14,078
1,041
(1,452)
(1,518)
(1,058)
(542)
323
(12)
(149)
(1,031)
(2,336)
746
(749)
41
(229)
(191)
(2,651)
(2,535)
(2,564)
(2,342)
(1,836)
(1,617)
(728)
(723)
(657)
(5,721)
(5,094)
(4,838)
(410)
933
(40)
5,292
2,493
(460)
(865)
137
1,305
(116)
(506)
(5)
(627)
15,199
9,229
9,049
5,970
(3,090)
(1,903)
(1,835)
12,109
7,326
7,214
(1,187)
4,783
(28)
51
(6)
32
172
(43)
(268)
92
56
(5)
(28)
(1)
(12)
65
(62)
65
353
995
310
2,581
(2,198)
(309)
282
80
32
122
96
18
(295)
(41)
688
35
(2,145)
(1,123)
29
(219)
(66)
(256)
180
(68)
112
1
(14)
(10)
(5)
2
(4)
2
(489)
205
573
(694)
(339)
(368)
(64)
Comprehensive income (loss)
$11,620
$7,531
$7,787
$4,089
54 %
($256)
(3) %
See Critical Accounting Estimates for information concerning certain significant accounting policies and estimates applied
in determining our reported results of operations and Note 1 for a summary of our accounting policies and the related notes in
which information about them can be found.
Net Revenues
Net Interest Income
Net interest income consists of guarantee net interest income, investments net interest income, and income (expense) from
hedge accounting.
n We refer to the net interest income generated by our consolidated securitization trusts as guarantee net interest income.
Guarantee net interest income primarily consists of the guarantee fees in Single-Family, as we consolidate most of our
Single-Family securitization trusts, and consists of three components:
l Contractual net interest income, which is equal to the difference between the interest income on loans held by
consolidated trusts and the interest expense on debt securities issued by consolidated trusts. This amount represents
the ongoing contractual monthly guarantee fee we receive for managing the credit risk associated with mortgage loans
held by consolidated trusts.
l The legislated 10 basis point fee on single-family loans that is remitted to Treasury as required by law.
l Deferred fee income, which primarily consists of recognition of premiums and discounts on mortgage loans and debt
securities of consolidated trusts and the fees that we receive or pay when we acquire single-family loans, which
represent a portion of the guarantee fee compensation we receive for managing the credit risk associated with
mortgage loans held by consolidated trusts. These amounts are recognized in net interest income based on the
effective yield over the contractual life of the associated financial instrument and may vary significantly from period to
period, primarily based on changes in actual prepayments on the underlying loans. Increases in actual prepayments
result in a faster rate of deferred fee income recognition, while decreases in actual prepayments result in a slower rate
of deferred fee income recognition. In addition, there is a difference in the timing of deferred fee income recognition
FREDDIE MAC | 2021 Form 10-K
19
Management's Discussion and Analysis
Consolidated Results of Operations
between debt securities of consolidated trusts and the underlying loans due to the payment delay associated with the
pass-through of principal payments on the underlying loans to the security holders.
n We refer to the net interest income generated by our investments portfolio as investments net interest income. Investments
net interest income primarily consists of the difference between the interest income earned on the assets in our
investments portfolio and the interest expense incurred on the liabilities used to fund those assets.
n
Income (expense) from hedge accounting primarily consists of amortization of previously deferred hedge accounting basis
adjustments and the earnings mismatch on qualifying fair value hedge relationships, which is equal to the difference
between fair value changes for the hedging instrument, including the accrual of periodic cash settlements, and fair value
changes for the hedged item attributable to the risk being hedged. See Note 9 for additional information on hedge
accounting.
The table below presents the components of net interest income.
Table 2 - Components of Net Interest Income
(Dollars in millions)
Guarantee net interest income:
Contractual net interest income
Net interest income related to the legislated 10
basis point fee
Deferred fee income
Total guarantee net interest income
Investments net interest income
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
2020 vs. 2019
$
%
Year Over Year Change
$8,736
$5,232
$4,034
$3,504
67%
$1,198
30%
2,397
1,884
4,874
3,787
16,007
10,903
3,068
4,100
1,590
2,436
8,060
4,040
513
1,087
5,104
(1,032)
737
27
29
47
(25)
33
294
1,351
2,843
60
18
55
35
1
(1,980)
(786)
Income (expense) from hedge accounting
(1,495)
(2,232)
(252)
Net interest income
Key Drivers:
n Guarantee net interest income
$17,580
$12,771
$11,848
$4,809
38%
$923
8%
l 2021 vs. 2020 - Increased primarily due to continued mortgage portfolio growth, higher average portfolio guarantee
fee rates, and higher deferred fee income recognition in Single-Family.
l 2020 vs. 2019 - Increased primarily due to continued mortgage portfolio growth coupled with higher contractual
guarantee fee rates in Single-Family.
n Investments net interest income
l 2021 vs. 2020 - Decreased primarily due to a decline in the size of the mortgage-related investments portfolio, partially
offset by lower funding costs.
l 2020 vs. 2019 - Increased primarily due to lower funding costs, partially offset by a change in our investment mix as
the lower-yielding other investments portfolio represented a larger percentage of our total investments portfolio.
n Income (expense) from hedge accounting
l 2021 vs. 2020 - Expense decreased primarily due to lower amortization of hedge accounting-related basis
adjustments driven by a decline in the unamortized balance.
l 2020 vs. 2019 - Expense increased primarily due to higher amortization of hedge accounting-related basis
adjustments driven by higher prepayments, partially offset by higher income related to accruals of periodic cash
settlements on derivatives in hedging relationships.
FREDDIE MAC | 2021 Form 10-K
20
Management's Discussion and Analysis
Consolidated Results of Operations
Net Interest Yield Analysis
The table below presents an analysis of interest-earning assets and interest-bearing liabilities. To calculate the average
balances, we generally use a daily weighted average of amortized cost. When daily average balance information is not
available, such as for mortgage loans, we use monthly averages. Mortgage loans on non-accrual status, where interest income
is generally recognized when collected, are included in the average balances.
Table 3 - Analysis of Net Interest Yield
2021
Interest
Income
(Expense)
Average
Balance
$62,042
75,425
$8
48
56,211
2,622,952
2,261
59,130
6,049
80
Year Ended December 31,
Average
Rate
Average
Balance
2020
Interest
Income
(Expense)
Average
Rate
Average
Balance
2019
Interest
Income
(Expense)
Average
Rate
0.01 %
$24,428
$30
0.12 %
$8,925
$187
2.10 %
0.06
4.02
2.25
1.32
94,350
354
0.38
56,465
1,284
2.27
71,842
2,581
2,149,787
59,290
4,752
85
3.59
2.76
1.79
70,104
1,969,775
2,737
68,583
2,933
104
3.90
3.48
3.55
(Dollars in millions)
Interest-earning assets:
Cash and cash equivalents
Securities purchased under
agreements to resell
Investment securities
Mortgage loans(1)
Other assets
Total interest-earning assets
2,822,679
61,527
2.18
2,345,159
62,340
2.66
2,108,202
72,895
3.46
Interest-bearing liabilities:
Debt securities of consolidated
trusts held by third parties
Debt of Freddie Mac:
Short-term debt
Long-term debt
Total debt of Freddie Mac
2,538,757
(42,209)
(1.66)
2,020,908
(46,281)
(2.29)
1,822,411
(53,980)
(2.96)
10,157
227,415
237,572
—
(1,738)
(1,738)
—
(0.76)
(0.73)
75,668
218,447
294,115
(606)
(2,682)
(3,288)
(0.80)
(1.23)
(1.12)
85,492
192,100
277,592
(1,910)
(5,157)
(7,067)
(2.23)
(2.68)
(2.55)
Total interest-bearing liabilities
2,776,329
(43,947)
(1.58)
2,315,023
(49,569)
(2.14)
2,100,003
(61,047)
(2.91)
Impact of net non-interest-bearing
funding
Total funding of interest-
earning assets
Net interest income/yield
46,350
—
0.02
30,136
—
0.03
8,199
—
0.01
2,822,679
(43,947)
(1.56)
2,345,159
(49,569)
(2.11)
2,108,202
(61,047)
(2.90)
$17,580
0.62 %
$12,771
0.55 %
$11,848
0.56 %
(1)
Loan fees included in interest income were $3.1 billion, $4.6 billion, and $3.3 billion during 2021, 2020, and 2019, respectively.
FREDDIE MAC | 2021 Form 10-K
21
Management's Discussion and Analysis
Consolidated Results of Operations
Net Interest Income Rate / Volume Analysis
The table below presents a rate and volume analysis of our net interest income. Our net interest income reflects the reversal of
interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.
Table 4 - Net Interest Income Rate / Volume Analysis
(Dollars in millions)
Interest-earning assets:
Cash and cash equivalents
Securities purchased under agreements to resell
Investment securities
Mortgage loans
Other assets
Total interest-earning assets
Interest-bearing liabilities:
Variance Analysis
2021 vs. 2020
2020 vs. 2019
Rate(1)
Volume(1)
Total
Change
Rate(1)
Volume(1)
Total
Change
($43)
(252)
826
$21
(54)
(1,146)
(11,660)
11,500
(16)
11
($22)
(306)
(320)
(160)
(5)
($249)
(1,450)
36
$92
520
(192)
($157)
(930)
(156)
(15,145)
5,852
(9,293)
(66)
47
(19)
(11,145)
10,332
(813)
(16,874)
6,319
(10,555)
Debt securities of consolidated trusts held by third parties
15,245
(11,173)
4,072
13,447
(5,748)
7,699
Debt of Freddie Mac:
Short-term debt
Long-term debt
Total debt of Freddie Mac
Total interest-bearing liabilities
Net interest income
324
1,050
1,374
282
(106)
176
16,619
(10,997)
606
944
1,550
5,622
1,105
3,105
4,210
199
(630)
(431)
1,304
2,475
3,779
17,657
(6,179)
11,478
$5,474
($665)
$4,809
$783
$140
$923
(1)
The total change variances are allocated between rate and volume based on the relative size of each variance.
Guarantee Income
Guarantee income relates primarily to our Multifamily securitizations, as we do not consolidate most of our Multifamily
securitization trusts. For additional details on our Multifamily securitizations, see MD&A - Our Business Segments -
Multifamily - Products and Activities - Loan Purchase, Securitization, and Guarantee Activities.
Guarantee income consists of the following:
n Contractual guarantee fees - Consists of the fees earned from guarantees issued to third parties and securitization trusts
that we do not consolidate.
n Guarantee obligation amortization - Represents the amortization of the initial fair value of the guarantee, which is
typically equal to the compensation we received for issuing the guarantee, over the term of the guarantee as we are
released from risk.
n Guarantee asset fair value changes - Represents the change in fair value of our right to receive contractual guarantee
fees. Because our Multifamily loans contain prepayment protection, declining interest rates generally result in a higher
guarantee asset fair value, with the opposite effect occurring when interest rates increase.
FREDDIE MAC | 2021 Form 10-K
22
Management's Discussion and Analysis
Consolidated Results of Operations
The table below presents the components of guarantee income.
Table 5 - Components of Guarantee Income
(Dollars in millions)
Contractual guarantee fees
Guarantee obligation amortization
Guarantee asset fair value changes
Guarantee income
Key Drivers:
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
2020 vs. 2019
$
%
Year Over Year Change
$1,217
$1,023
1,148
(1,333)
977
(558)
$910
813
(634)
$194
171
18
(775)
(139)
19 %
$113
12 %
164
76
20
12
$1,032
$1,442
$1,089
($410)
(28) %
$353
32 %
n 2021 vs. 2020 - Decreased as continued growth in our Multifamily guarantee portfolio was offset by the impacts of higher
interest rates on the fair values of our guarantee assets.
n 2020 vs. 2019 - Increased primarily driven by continued growth in our Multifamily guarantee portfolio, coupled with lower
fair value losses on our guarantee assets due to lower interest rates.
Investment Gains (Losses), Net
Net investment gains primarily consist of the gains on sale of mortgage loans from our multifamily loan purchase and
securitization activities. Net investment gains also include revenues from sales of single-family delinquent and reperforming
loans and gains and losses on investments in mortgage-related and other investments securities. These amounts are shown net
of gains and losses from the related debt funding and interest-rate risk management activities, as applicable. Net investment
gains can vary significantly from period-to-period based on a number of factors, such as:
n Pricing of new multifamily mortgage loans;
n The nature and volume of our investment, funding, and interest-rate risk management activities, including the volume of
multifamily loan purchase commitments and mortgage loans for which we have elected the fair value option; the volume of
held-for-sale multifamily loans measured at lower-of-cost-or-fair value; the volume of held-for-sale single-family mortgage
loans; the size of our investments portfolios and volume of sales of available-for-sale securities; the volume and type of
debt selected for repurchase based on our investment and funding strategies, including our efforts to support the liquidity
and price performance of our mortgage-related securities; and changes in the composition of our derivative portfolio; and
n Changes in market conditions, such as interest rates, market spreads, and implied volatility.
Derivative instruments are a key component of our interest-rate risk management strategy. We use derivatives to economically
hedge the interest-rate risk of our financial assets and liabilities and manage our exposure to interest-rate risk on an economic
basis to a low level as measured by our models. In addition, we routinely enter into commitments to purchase and sell
mortgage loans and mortgage-related securities. The majority of these commitments are accounted for as derivative
instruments. For additional information on derivative instruments, see Note 9.
We align our derivative portfolio to economically hedge the changing duration of our assets and liabilities and apply fair value
hedge accounting to certain single-family mortgage loans and long-term debt to reduce our GAAP earnings variability. As a
result, interest-rate-related fair value gains and losses that we recognize on financial instruments that we measure at fair value
generally have offsetting impacts from the derivative instruments that we use to economically hedge interest-rate risk. For more
information about our interest-rate risk management activities and the sensitivity of reported GAAP earnings to those activities,
see MD&A - Risk Management - Market Risk.
FREDDIE MAC | 2021 Form 10-K
23
Management's Discussion and Analysis
Consolidated Results of Operations
The table below presents the components of investment gains (losses), net.
Table 6 - Investment Gains (Losses), Net
(Dollars in millions)
Single-Family
Multifamily
Investment gains (losses), net
Key Drivers:
Year Over Year Change
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
$361
($112)
2,385
1,925
$2,746
$1,813
$300
518
$818
$473
460
$933
422%
24
51%
2020 vs. 2019
$
%
($412)
(137%)
1,407
$995
272
122%
n 2021 vs. 2020 - Increased primarily due to higher gains in Multifamily from higher pricing margins for new loan purchases
and greater spread tightening, partially offset by a smaller volume of new loan purchases as a result of a reduced
Multifamily loan purchase cap in 2021.
n 2020 vs. 2019 - Increased primarily due to higher gains in Multifamily from higher pricing margins and greater volume of
new loan purchases.
Credit-Related Expense
Benefit (Provision) for Credit Losses
Our benefit (provision) for credit losses relates primarily to single-family loans held-for-investment and can vary substantially
from period to period based on a number of factors, such as changes in actual and forecasted house prices and interest rates,
borrower prepayments and delinquency rates, events such as pandemics, the type and volume of our loss mitigation and
foreclosure activity, and government assistance provided to borrowers. See MD&A - Critical Accounting Estimates for
additional information.
The table below presents the components of benefit (provision) for credit losses.
Table 7 - Benefit (Provision) for Credit Losses
(Dollars in millions)
Single-Family
Multifamily
Year Over Year Change
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
2020 vs. 2019
$
%
$919
($1,320)
$749
$2,239
170 %
($2,069)
(276) %
122
(132)
(3)
254
192
(129)
(4,300)
Benefit (provision) for credit losses
$1,041
($1,452)
$746
$2,493
172 %
($2,198)
(295) %
Single-Family
n 2021 vs. 2020 - A benefit for credit losses in 2021 compared to a provision for credit losses in 2020 driven by the following
factors:
l A reserve release due to reduced expected credit losses related to COVID-19 during 2021 as economic conditions
improved. Our provision for credit losses increased during 2020 due to the increase in expected credit losses related
to the economic effects of the pandemic.
l This was partially offset by an increase in expected losses on new single-family loans due to growth in our Single-
Family mortgage portfolio. We recognize expected credit losses at the time of loan acquisition.
n 2020 vs. 2019 - A provision for credit losses in 2020 compared to a benefit for credit losses in 2019 primarily driven by the
following factors:
l A provision for credit losses due to:
–
–
Increased expected credit losses related to COVID-19 - Our provision for credit losses increased due to the
increase in expected credit losses related to the economic effects of the COVID-19 pandemic.
Portfolio growth - The expected losses on new single-family loans increased due to growth in our Single-Family
mortgage portfolio. We recognize expected credit losses at the time of loan acquisition.
l This was partially offset by a decrease in expected losses driven by growth in realized and forecasted house prices
and declines in forecasted interest rates.
FREDDIE MAC | 2021 Form 10-K
24
Management's Discussion and Analysis
Consolidated Results of Operations
Multifamily
n 2021 vs. 2020 - A benefit for credit losses in 2021 compared to a provision for credit losses in 2020 driven by improved
actual and forecasted economic factors.
n 2020 vs. 2019 - An increase in provision due to higher expected credit losses as a result of the COVID-19 pandemic.
Credit Enhancement Expense
Credit enhancement expense primarily relates to certain single-family CRT transactions that are accounted for as freestanding
credit enhancements and includes the premiums paid to transfer credit risk to third parties and transaction and other costs
incurred to enter into those transactions.
Key Drivers:
n 2021 vs. 2020 and 2020 vs. 2019 - Increased $460 million and $309 million, respectively, primarily due to higher
outstanding cumulative volumes of CRT transactions.
See MD&A - Our Business Segments - Single-Family - Products and Activities and MD&A - Our Business
Segments - Multifamily - Products and Activities for additional information on our credit enhancements.
Benefit for (Decrease in) Credit Enhancement Recoveries
Benefit for (decrease in) credit enhancement recoveries primarily relates to certain single-family CRT transactions that are
accounted for as freestanding credit enhancements and represents changes in expected recoveries from those transactions.
We recognize expected recoveries from freestanding credit enhancements at the same time that we recognize an allowance for
credit losses on the covered loans, measured on the same basis as the allowance for credit losses on the covered loans.
Key Drivers:
n 2021 vs. 2020 - Decreased $865 million as a result of the corresponding decrease in expected credit losses.
n 2020 vs. 2019 - Increased $282 million as a result of the corresponding increase in expected credit losses due to the
COVID-19 pandemic.
FREDDIE MAC | 2021 Form 10-K
25
Management's Discussion and Analysis
Consolidated Balance Sheets Analysis
CONSOLIDATED BALANCE SHEETS ANALYSIS
The table below compares our summarized consolidated balance sheets.
Table 8 - Summarized Consolidated Balance Sheets
(Dollars in millions)
Assets:
Cash and cash equivalents
Securities purchased under agreements to resell
Subtotal
Investment securities, at fair value
Mortgage loans, net
Accrued interest receivable, net
Deferred tax assets, net
Other assets
Total assets
Liabilities and Equity:
Liabilities:
Accrued interest payable
Debt
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
Key Drivers:
December 31,
2021
2020
Year Over Year Change
$
%
$10,150
71,203
81,353
53,015
2,848,109
7,474
6,214
29,421
$3,025,586
$6,268
2,980,185
11,100
2,997,553
28,033
$3,025,586
$23,889
105,003
128,892
59,825
2,383,888
7,754
6,557
40,499
$2,627,415
$6,210
2,592,546
12,246
2,611,002
16,413
$2,627,415
($13,739)
(33,800)
(47,539)
(6,810)
464,221
(280)
(343)
(11,078)
$398,171
$58
387,639
(1,146)
386,551
11,620
$398,171
(58) %
(32)
(37)
(11)
19
(4)
(5)
(27)
15 %
1 %
15
(9)
15
71
15 %
As of December 31, 2021 compared to December 31, 2020:
n Cash and cash equivalents and securities purchased under agreements to resell decreased on a combined basis
primarily due to a decrease in trust cash driven by lower loan prepayments and a decline in our operating cash due to a
lower cash window purchase forecast and continued funding of maturities, calls, and buybacks of debt of Freddie Mac
without issuing new debt.
n Mortgage loans, net and debt increased primarily due to the increase in the size of the Single-Family mortgage portfolio.
n Other assets decreased primarily due to lower servicer receivables driven by a decrease in loan prepayments.
FREDDIE MAC | 2021 Form 10-K
26
Management's Discussion and Analysis
OUR PORTFOLIOS
Our Portfolios
In connection with the change in our reportable segments, we updated the definitions of our portfolio balances and aligned the
definitions across our two reportable segments. Prior periods have been revised to conform to the current period presentation.
Mortgage Portfolio
Our mortgage portfolio includes assets held by both business segments and consists of:
n Securitized mortgage loans - Loans held by securitization trusts that issue securities that we guarantee.
n Unsecuritized mortgage loans
l Securitization pipeline and other loans - Single-family and multifamily loans that we have purchased for cash and
aggregate on our balance sheet prior to securitization and other multifamily loans we intend to hold for the foreseeable
future.
l Seasoned loans - Delinquent and modified single-family loans that we have purchased from securitization trusts.
Certain of these loans have re-performed, either on their own or through modification or other loss mitigation activity.
n Other - Primarily consists of other mortgage-related guarantees.
The table below presents the UPB of our mortgage portfolio by segment.
Table 9 - Mortgage Portfolio
(In millions)
Securitized mortgage loans:
Held by consolidated trusts
Held by nonconsolidated trusts
Total securitized mortgage loans
Unsecuritized mortgage loans:
Securitization pipeline and other loans
Seasoned loans
Total unsecuritized mortgage loans
Other
Total mortgage portfolio
Guarantee Portfolio
December 31, 2021
December 31, 2020
Single-Family
Multifamily
Total
Single-Family
Multifamily
Total
$2,706,514
33,340
2,739,854
$2,725,271
$18,757
362,627
395,967
381,384 3,121,238
$2,204,936
34,932
2,239,868
$12,305 $2,217,241
331,860
366,792
344,165 2,584,033
21,189
20,594
41,783
10,587
$2,792,224
22,771
—
22,771
10,508
43,960
20,594
64,554
21,095
$414,663 $3,206,887
51,040
26,303
77,343
9,215
$2,326,426
33,407
—
33,407
10,775
84,447
26,303
110,750
19,990
$388,347 $2,714,773
Our guarantee portfolio primarily consists of mortgage-related securities guaranteed by Freddie Mac in exchange for guarantee
fees. This amount differs from the securitized mortgage loans amount included in the mortgage portfolio because of two
primary factors: (1) it includes only the UPB of securities guaranteed by Freddie Mac and excludes the UPB of any
unguaranteed securities issued by securitization trusts and (2) it reflects timing differences between the receipt of mortgage
payments and the pass-through of those payments to security holders. The other category primarily consists of other
mortgage-related guarantees.
FREDDIE MAC | 2021 Form 10-K
27
Management's Discussion and Analysis
Our Portfolios
The table below presents the guarantee portfolio by segment.
Table 10 - Guarantee Portfolio
December 31, 2021
December 31, 2020
(In millions)
Single-Family
Multifamily
Total
Single-Family
Multifamily
Total
Guaranteed mortgage-related securities:
Issued by consolidated trusts
Issued by nonconsolidated trusts
$2,744,899
$18,883 $2,763,782
$2,273,736
$12,305 $2,286,041
27,538
318,756
346,294
29,300
289,056
318,356
Total guaranteed mortgage-related securities
2,772,437
337,639 3,110,076
2,303,036
301,361 2,604,397
Other
10,587
10,508
21,095
9,215
10,775
19,990
Total guarantee portfolio
$2,783,024
$348,147 $3,131,171
$2,312,251
$312,136 $2,624,387
Our guarantee portfolio excludes guarantees of Fannie Mae securities and other similar transactions in which we do not directly
guarantee mortgage credit risk in exchange for guarantee fees. See Note 5 for additional information on our guarantee
activities.
Investments Portfolio
Our investments portfolio consists of our mortgage-related investments portfolio and other investments portfolio.
Mortgage-Related Investments Portfolio
We primarily use our mortgage-related investments portfolio to provide liquidity to the mortgage market and support our loss
mitigation activities. Our mortgage-related investments portfolio includes assets held by both business segments and consists
of unsecuritized mortgage loans and mortgage-related securities. We primarily invest in mortgage-related securities that we
issue or guarantee, although we may also invest in other agency mortgage-related securities.
The Purchase Agreement limits the size of our mortgage-related investments portfolio to a maximum amount of $250 billion,
which will be reduced to $225 billion on December 31, 2022. The calculation of mortgage assets subject to the Purchase
Agreement cap includes the UPB of mortgage assets and 10% of the notional value of interest-only securities. We are also
subject to additional limitations on the size and composition of our mortgage-related investments portfolio pursuant to FHFA
guidance. For additional information on the restrictions on our mortgage-related investments portfolio, see Conservatorship
and Related Matters.
The table below presents the details of our mortgage-related investments portfolio.
Table 11 - Mortgage-Related Investments Portfolio
(In millions)
Unsecuritized mortgage loans
Mortgage-related securities
Mortgage-related investments portfolio
10% of notional amount of interest-only
securities
Mortgage-related investments portfolio for
purposes of Purchase Agreement cap
Other Investments Portfolio
December 31, 2021
Single-Family
Multifamily
$41,783
43,357
$85,140
$22,771
3,100
$25,871
Total
$64,554
46,457
$111,011
$12,517
123,528
December 31, 2020
Single-Family
Multifamily
$77,343
67,254
$144,597
$33,407
4,180
$37,587
Total
$110,750
71,434
$182,184
$6,586
188,770
Our other investments portfolio, which includes the liquidity and contingency operating portfolio, is primarily used for short-term
liquidity management, collateral management, and asset and liability management. The assets in the other investments portfolio
are primarily allocated to the Single-Family segment. See Liquidity and Capital Resources for additional information on our
other investments portfolio.
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Management's Discussion and Analysis
Our Business Segments
OUR BUSINESS SEGMENTS
As shown in the table below, we have two reportable segments, which are based on the way our chief operating decision
maker manages our business.
During 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment
performance based on two reportable segments, Single-Family and Multifamily. In prior periods, we managed our business
based on three reportable segments, Single-Family Guarantee, Multifamily, and Capital Markets. As our mortgage-related
investments portfolio has declined over time, our capital markets activities have become increasingly focused on supporting
our Single-Family and Multifamily businesses. As a result, we determined that, effective in 2021, our Capital Markets segment
should no longer be considered a separate reportable segment, and our chief operating decision maker no longer reviews
separate financial results or discrete financial information for our capital markets activities. Substantially all of the revenues and
expenses that were previously directly attributable to our Capital Markets segment are now included in our Single-Family
segment, while certain administrative expenses and other centrally-incurred costs previously allocated to the Capital Markets
segment are now allocated between the Single-Family and Multifamily segments using various methodologies depending on
the nature of the expense.
In connection with this change, we also changed the measure of segment profit and loss for each segment to be based on net
income and comprehensive income calculated using the same accounting policies we use to prepare our general purpose
financial statements in conformity with generally accepted accounting principles. The financial results of each reportable
segment include directly attributable revenue and expenses. We allocate interest expense and other funding and hedging-
related costs and returns on certain investments to each reportable segment using a funds transfer pricing process. We fully
allocate to each reportable segment the administrative expenses and other centrally-incurred costs that are not directly
attributable to a particular segment using various methodologies depending on the nature of the expense. As a result, the sum
of each income statement line item for the two reportable segments is equal to that same income statement line item for the
consolidated entity. We have discontinued the reclassifications of certain activities between various line items that were
included in our previous measure of segment profit and loss. Prior period information has been revised to conform to the
current period presentation. See Note 15 for additional information on the change in our segment reporting presentation.
Segment
Description
Single-Family
Multifamily
Reflects results from our purchase, securitization, and guarantee of single-family loans, our investments in
single-family loans and mortgage-related securities, the management of Single-Family mortgage credit risk and
market risk, and any results of our treasury function that are not allocated to each segment.
Reflects results from our purchase, securitization, and guarantee of multifamily loans, our investments in
multifamily loans and mortgage-related securities, and the management of Multifamily mortgage credit risk and
market risk.
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Management's Discussion and Analysis
Our Business Segments
Segment Net Income (Loss) and Comprehensive Income (Loss)
The graphs below show our net income (loss) and comprehensive income (loss) by segment.
Segment Net Income (Loss)
(In millions)
Segment Comprehensive Income (Loss)
(In millions)
FREDDIE MAC | 2021 Form 10-K
30
$7,214$7,326$12,109$5,387$4,212$8,820$1,827$3,114$3,289Single-FamilyMultifamily201920202021$7,787$7,531$11,620$5,859$4,316$8,441$1,928$3,215$3,179Single-FamilyMultifamily201920202021
Management's Discussion and Analysis
Our Business Segments | Single-Family
Single-Family
Business Overview
Our Single-Family segment provides liquidity and support to the single-family market through a variety of activities that include
the purchase, securitization, and guarantee of single-family loans originated by lenders. Central to our mission is our
commitment to helping more families attain affordable and sustainable housing and to increasing equitable access to housing
finance.
The U.S. residential mortgage market consists of a primary mortgage market that links homebuyers and lenders, and a
secondary mortgage market that links lenders and investors. The size of the U.S. residential mortgage market is affected by
many factors, including changes in interest rates, unemployment rates, homeownership rates, house prices, the supply of
housing, lender preferences regarding credit risk, and borrower preferences regarding mortgage debt.
In accordance with our Charter, we participate in the secondary mortgage market. The mix of loan products we purchase is
affected by several factors, including the volume of loans meeting the requirements of our Charter, the volume meeting our risk
appetite and originated according to our purchase standards, and the loan purchase and securitization activity of other financial
institutions.
Our primary business model is to acquire loans that lenders originate and then pool those loans into guaranteed mortgage-
related securities that transfer interest-rate, prepayment, and liquidity risk to investors and can be sold in the capital markets.
We consolidate most of our Single-Family securitization trusts and, therefore, we recognize the loans held by the trust and the
debt securities issued by the trust on our balance sheet and recognize the guarantee fees we receive as net interest income. To
reduce our exposure under our guarantees, we transfer credit risk on a portion of our Single-Family mortgage portfolio to the
private market in certain instances. The returns we generate from these activities are primarily derived from the guarantee fees
we receive in exchange for providing our guarantee of the principal and interest payments of the issued mortgage-related
securities.
The diagram below illustrates our primary business model.
Products and Activities
Our Single-Family business primarily consists of activities related to providing market liquidity by purchasing and securitizing
mortgage loans and issuing guaranteed mortgage-related securities, transferring credit risk, performing loss mitigation
activities, and investing in mortgage-related and other investments. Certain of our loan products and programs have been
designed to address affordability challenges, particularly in underserved markets.
Loan Purchase, Securitization, and Guarantee Activities
Cash Window Transactions
One of the primary ways we acquire mortgage loans and provide liquidity to our Single-Family lender customers is by
purchasing loans for aggregation in our securitization pipeline through our cash window. In these transactions, we purchase
mortgage loans from our customers in exchange for cash consideration. We enter into forward commitments with lenders in
advance of the loan purchase date to purchase loans through our cash window at a fixed price for our securitization pipeline,
allowing lenders to offer borrowers the opportunity to lock in the interest rate on the mortgage prior to loan origination. We refer
to the loan as being in our securitization pipeline for the period of time between loan purchase and securitization.
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Management's Discussion and Analysis
Our Business Segments | Single-Family
We typically economically hedge the market risk exposure of our securitization pipeline by entering into forward sale
commitments and obtain permanent financing for the loans in our securitization pipeline after a short aggregation period by
securitizing the loans into guaranteed mortgage-related securities. We sell the resulting securities to third-party investors,
typically through cash auctions, and may also retain certain of the securities in our mortgage-related investments portfolio prior
to selling them to third parties.
The Purchase Agreement requires us to purchase loans for cash consideration; operate this cash window with non-
discriminatory pricing; and comply with directives, regulations, restrictions, or other requirements prescribed by FHFA related to
equitable secondary market access by community lenders. In September 2021, the $1.5 billion Purchase Agreement limit on
cash window volumes that was to begin on January 1, 2022 was suspended. We will continue to manage cash window
activities in accordance with our risk limits and guidance from FHFA. For additional information about the Purchase Agreement,
see MD&A - Conservatorship and Related Matters.
The diagram below shows the process for acquiring and securitizing loans in our cash window transactions.
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Management's Discussion and Analysis
Our Business Segments | Single-Family
Guarantor Swap Transactions
In addition to cash window transactions, another primary way we acquire loans and provide liquidity to our Single-Family lender
customers is by securitizing loans into guaranteed mortgage-related securities in guarantor swap transactions. Our largest
guarantor swap customers are primarily large mortgage banking companies and commercial banks. In these transactions, we
purchase mortgage loans from our customers in exchange for a security backed by those same loans, as shown in the diagram
below:
Advances to Lenders
We also provide liquidity to certain of our small and medium-sized lenders through our early funding programs, where we
advance funds to lenders for mortgage loans prior to the loans being pooled and securitized. In some cases, the early funded
mortgages are ultimately delivered through cash window purchase transactions. We account for these transactions as
advances that are fully collateralized by the mortgage loans and recognize the associated fees as interest income on the
advances from the early funding date to the final settlement date.
Securitization Products
We offer the following types of securitization products to our customers.
Level 1 Securitization Products
The securities we issue in cash window securitizations and guarantor swap transactions are Level 1 Securitization Products,
which are pass-through securities that represent undivided beneficial interests in trusts that hold pools of loans.
We issue the following types of Level 1 Securitization Products:
n UMBS - Single-class pass-through securities issued through the CSP with a 55-day payment delay for TBA-eligible fixed-
rate mortgage loans. The UMBS is a single (common) security that is issued by either Fannie Mae or us. The UMBS market
is designed to enhance the overall liquidity of TBA-eligible Freddie Mac and Fannie Mae securities by supporting their
fungibility without regard to which company is the issuer. SIFMA permits UMBS TBA contracts to be settled by delivery of
UMBS issued by either Freddie Mac or Fannie Mae under its good-delivery guidelines.
n 55-day MBS - Single-class pass-through securities issued through the CSP with a 55-day payment delay for non-TBA-
eligible fixed-rate mortgage loans.
n ARM PCs - Single-class pass-through securities with a 75-day payment delay for ARM products. We do not use the CSP
to issue ARM PCs.
In prior years, we also issued Gold PCs, which were single-class pass-through securities with a 45-day payment delay for
fixed-rate mortgage loans. We discontinued the issuance of Gold PCs in 2019. Existing Gold PCs that are not entirely
resecuritized are eligible for exchange into UMBS (for TBA-eligible securities) or 55-day MBS (for non-TBA-eligible securities).
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Management's Discussion and Analysis
Our Business Segments | Single-Family
All Level 1 Securitization Products are backed only by mortgage loans that we have acquired. We offer (or previously offered) all
of the above products through both guarantor swap and cash window programs.
We also periodically use Level 1 Securitization Products to securitize certain reperforming loans subsequent to purchasing
them from the original securities pool, depending on market conditions, business strategy, credit risk considerations, and
operational efficiency.
When we issue a Level 1 Securitization Product, we retain the credit risk of the underlying mortgage loans by guaranteeing the
principal and interest payments of the issued securities and transfer the interest-rate, prepayment, and liquidity risks of those
loans to the investors in the securities. For our fixed-rate Level 1 Securitization Products, we guarantee the timely payment of
principal and interest. For our ARM PCs, we guarantee the timely payment of the weighted average coupon interest rate for the
underlying loans, and we also guarantee the full and final payment of principal, but not the timely payment of principal. In
exchange for our guarantee of Level 1 securitization products, we receive guarantee fees that are commensurate with the
aggregate risks assumed and that we expect will, over the long-term, provide income that exceeds the credit-related and
administrative expenses on the underlying loans and also provide a return on the capital that would be needed to support the
related credit risk. The guarantee fees charged on new acquisitions generally consist of:
n A contractual monthly fee paid as a percentage of the UPB of the underlying loan, including the legislated 10 basis point
fee and
n Fees we receive or pay when we acquire a loan, which include credit fees and buy-up and buy-down fees. Credit fees are
calculated based on credit risk factors such as the loan product type, loan purpose, LTV ratio, and credit score, and are
charged to compensate us for higher levels of risk in some loan products. Buy-up and buy-down fees are payments made
or received to buy up or buy down, respectively, the monthly contractual guarantee fee and are paid in conjunction with the
formation of a security to provide for a uniform net coupon rate for the mortgage pool underlying the security.
In general, we must obtain FHFA's approval to implement significant across-the-board changes to our credit fees. In addition,
from time to time, FHFA issues directives or guidance to us affecting the levels of guarantee fees that we may charge. In
January 2022, FHFA announced targeted increases to Freddie Mac's and Fannie Mae’s credit fees for certain high balance
loans and second home loans, effective for deliveries and acquisitions beginning April 1, 2022.
In order to issue mortgage-related securities, we establish trusts pursuant to our Master Trust agreements and place the
mortgage loans in the trust, which issues securities backed by those mortgage loans. The servicer administers the collection of
borrowers' payments on their loans and remits the collected funds to us. We administer the distribution of payments to the
investors in the mortgage-related securities, net of any applicable guarantee fees. When we securitize mortgage loans using
trusts, Freddie Mac typically functions in its capacity as depositor, guarantor, administrator, and trustee of the trusts. We
consolidate our Single-Family Level 1 Securitization Product trusts and recognize the mortgage loans held by and debt issued
by those trusts on our consolidated balance sheets. As a result, we recognize guarantee fees for these products as the
difference between the interest income on the loans held by the trusts and the interest expense on the debt issued by the
trusts. This amount is referred to as guarantee net interest income.
When a borrower prepays a loan that we have securitized, the outstanding balance of the security owned by investors is
reduced by the amount of the prepayment. If the borrower becomes delinquent, we continue to make the applicable payments
to the investors in the mortgage-related securities pursuant to our guarantee until we purchase the loan out of the securitization
trust. We have the option to purchase specified loans, including certain delinquent loans, from the trust at a purchase price
equal to the current UPB of the loan, less any outstanding advances of principal that have been previously distributed. At the
instruction of FHFA, we purchase loans from trusts when they reach 24 months of delinquency, except for loans that meet
certain criteria (e.g., permanently modified or foreclosure referral), which may be purchased sooner. Many delinquent loans are
purchased from trusts before they reach 24 months of delinquency under one of the exceptions provided. We must obtain
FHFA’s approval to implement changes to our policy to purchase loans from trusts. We implemented the 24-month policy on
January 1, 2021. Prior to that time, in accordance with FHFA instruction, we generally purchased loans from trusts if they were
delinquent for 120 days, subject to certain exceptions.
Resecuritization Products
Resecuritization products represent beneficial interests in pools of Level 1 Securitization Products and certain other types of
mortgage assets. We create these securities by using Level 1 Securitization Products or our previously issued resecuritization
products as the underlying collateral. We leverage the issuance of these securities to expand the range of investors in our
mortgage-related securities to include those seeking specific security attributes. Similar to our Level 1 Securitization Products,
we guarantee the payment of principal and interest to the investors in our resecuritization products. We do not charge a
guarantee fee for these securities if the underlying collateral is already guaranteed by us since no additional credit risk is
introduced, although we typically receive a transaction fee as compensation for creating the security and future administrative
responsibilities. We use the CSP for many of the securities administration activities for our resecuritization products.
We have the ability to commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products. When we
resecuritize Fannie Mae securities, which are separately guaranteed by Fannie Mae, in our commingled resecuritization
products, our guarantee covers timely payment of principal and interest on such products from the underlying Fannie Mae
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Management's Discussion and Analysis
Our Business Segments | Single-Family
securities. If Fannie Mae were to fail to make a payment on a Fannie Mae security that we resecuritized, we would be
responsible for making the payment. We do not currently charge an incremental guarantee fee to commingle Fannie Mae
collateral in resecuritization transactions, although we may do so in the future. However, we are required to hold incremental
capital for our guarantees of Fannie Mae securities under the ERCF.
All of the cash flows from the collateral underlying our resecuritization products are generally passed through to investors in
these securities. We do not issue resecuritization products that have concentrations of credit risk beyond those embedded in
the underlying assets. In many of our resecuritization transactions, securities dealers or investors deliver mortgage assets in
exchange for the resecuritization product. In certain cases, we may also transfer our own mortgage assets in exchange for the
resecuritization product. The diagram below provides a general example of how we create resecuritization products.
We offer the following types of resecuritization products:
n Single-class resecuritization products - Involve the direct pass through of all cash flows of the underlying collateral to
the beneficial interest holders and include:
l Supers - Resecuritizations of UMBS and certain other mortgage securities. This structure allows commingling of
Freddie Mac and Fannie Mae collateral, where newly issued or exchanged UMBS and Supers issued by us or Fannie
Mae may be commingled to back Supers issued by us. Fannie Mae also issues Supers. Supers can be backed by:
–
–
–
UMBS and/or other Supers issued by us or Fannie Mae;
Existing TBA-eligible Fannie Mae "MBS" and/or "Megas"; and/or
UMBS and Supers that we have issued in exchange for TBA-eligible PCs and Giant PCs that have been delivered
to us in response to our offer to exchange 45-day payment delay securities for corresponding 55-day payment
delay securities.
l Giant MBS - Resecuritizations of:
–
–
Newly issued 55-day MBS and/or Giant MBS; and/or
55-day MBS and/or Giant MBS that we have issued in exchange for non-TBA-eligible PCs and non-TBA-eligible
Giant PCs that have been delivered to us in response to our offer to exchange 45-day payment delay securities for
corresponding 55-day payment delay securities.
l Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Although we no longer issue Gold PCs, existing
Gold PCs may continue to be resecuritized into Giant PCs. In addition, ARM PCs may continue to be resecuritized into
ARM Giant PCs. Fixed-rate Giant PCs are eligible for exchange into Supers (for TBA-eligible securities) or Giant MBS
(for non-TBA-eligible securities).
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Management's Discussion and Analysis
Our Business Segments | Single-Family
n Multiclass resecuritization products
l REMICs - Resecuritizations of previously issued mortgage securities that divide all cash flows of the underlying
collateral into two or more classes of varying maturities, payment priorities, and coupons. This structure allows
commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
l Strips - Resecuritizations of previously issued Level 1 Securitization Products or single-class resecuritization products
and issuance of stripped securities, including principal-only and interest-only securities or floating rate and inverse
floating rate securities, backed by the cash flows from the underlying collateral. This structure allows commingling of
TBA-eligible Freddie Mac and Fannie Mae collateral.
Other Securitization Products
We securitize certain seasoned loans in transactions where we issue guaranteed senior securities and unguaranteed
subordinated securities. The collateral for these structures primarily consists of reperforming loans. The unguaranteed
subordinated securities absorb first losses on the related loans. After securitization, we do not control the servicing, and the
loans are not serviced in accordance with our Guide.
In prior years, we offered additional types of securitization products to our customers, including senior subordinate
securitization structures backed by recently originated loans and other securitization products collateralized by non-Freddie
Mac mortgage-related securities. We no longer offer these products on a regular basis and have not entered into these types of
transactions recently. We also periodically offer other securitization products backed by other mortgage-related assets, such as
excess servicing fees and buy-up cash flows.
Other Mortgage-Related Guarantees
We also offer a guarantee on mortgage assets held by third parties, in exchange for guarantee fees, without securitizing those
assets. These arrangements, referred to as long-term standby commitments, obligate us to purchase seriously delinquent loans
that are covered by those commitments. From time to time, we have consented to the termination of our long-term standby
commitments and simultaneously entered into guarantor swap transactions with the same counterparty, issuing securities
backed by many of the same loans.
CRT Activities
To reduce our credit risk exposure, we engage in various types of credit enhancements, including CRT transactions and other
credit enhancements. We define CRT transactions as those arrangements where we actively transfer the credit risk exposure
on mortgages that we own or guarantee. We define other credit enhancements as those arrangements, such as traditional
primary mortgage insurance, where we do not actively take part in the transfer of the credit risk exposure. Our CRT transactions
are designed to reduce the amount of required capital related to credit risk, to transfer portions of credit losses on groups of
previously acquired loans to third-party investors, and to reduce the risk of future losses to us when borrowers default. The
costs we incur in exchange for this credit protection effectively reduce our guarantee income from the associated mortgages.
Each CRT transaction is designed to transfer a certain portion of the credit risk that we assume for loans with certain targeted
characteristics. Risk positions may be transferred to third-party investors through one or more CRT transactions. The risk
transfer could occur prior to, or simultaneously with, our purchase of the loan (i.e., front-end coverage) or after the purchase of
the loan (i.e., back-end coverage). As CRT has become part of our normal business activities, we have established the following
programs to regularly transfer portions of credit risk to diversified investors:
STACR and ACIS Offerings
Our two primary CRT programs are STACR and ACIS.
n STACR - Our primary Single-Family securities-based credit risk sharing vehicle. STACR Trust note transactions transfer risk
to the private capital markets through the issuance of unguaranteed notes using a third-party trust. In a STACR
transaction, we create a reference pool of loans from our Single-Family mortgage portfolio, and a third-party trust issues
credit notes linked to the reference pool. The trust makes periodic payments of principal and interest on the notes to
noteholders, but is not required to repay principal to the extent that the note balance is reduced as a result of specified
credit events on the mortgage loans in the related reference pool. We make payments to the trust to support payment of
the interest due on the notes. The amount of risk transferred in each transaction affects the amounts we are required to
pay. We receive payments from the trust that otherwise would have been made to the noteholders to the extent there are
certain defined credit events on the mortgage loans in the related reference pool. The note balance is reduced by the
amount of the payments to us, thereby transferring the related credit risk of the loans in the reference pool to the note
investors. Generally, the note balance is also reduced based on principal payments that occur on the loans in the reference
pool. The diagram below illustrates a typical STACR transaction.
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Management's Discussion and Analysis
Our Business Segments | Single-Family
n ACIS - Our primary insurance-based credit risk sharing vehicle. ACIS transactions are insurance policies we enter into with
global insurance and reinsurance companies to cover a residual portion of credit risk on the STACR or standalone
reference pools. We pay monthly premiums to the insurers or reinsurers in exchange for claim coverage on their portion of
the reference pool. We require our ACIS counterparties to partially collateralize their exposure to reduce the risk that we will
not be reimbursed for our claims under the policies.
We have established programmatic offerings of STACR and ACIS transactions to regularly transfer credit risk on a targeted
population of recently acquired mortgage loans (on-the-run transactions). The targeted loan population for on-the-run
transactions is recently acquired fixed-rate mortgage loans with maturity terms greater than 20 years and LTV ratios between
60% and 97%, excluding loans acquired under our relief refinance programs, government guaranteed loans, and loans that do
not meet certain eligibility criteria. Our typical on-the-run transactions are issued on a monthly basis and provide back-end
coverage for loans that have been recently acquired and/or securitized into Level 1 Securitization Products. In a typical on-the-
run transaction, we transfer to third-party investors a portion of the credit risk between a specified attachment point and a
detachment point which may vary based on numerous factors, such as the type of collateral and market conditions. We
generally retain the initial loss position and at least 5% of the credit risk of all the positions sold to align our interests with those
of the investors. We also retain all of the senior credit risk position. Currently, on-the-run STACR transactions typically have a
20-year maturity and on-the-run ACIS transactions typically have a 12.5-year maturity. The diagram below illustrates a typical
on-the-run STACR and ACIS structure.
In addition to our regularly issued on-the-run transactions, we also periodically execute “off-the-run” STACR and ACIS
transactions that provide back-end coverage on certain loans that are not in the on-the-run transaction targeted loan
population. For example, we offer STACR and ACIS transactions that provide coverage on certain relief refinance loans, STACR
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Management's Discussion and Analysis
Our Business Segments | Single-Family
and ACIS transactions that provide coverage on unissued portions of the reference pools related to previous STACR and ACIS
transactions, and ACIS transactions that provide coverage on loans with 15-year maturities not related to any STACR offering.
Prior to 2018, the majority of our STACR transactions were structured as unsecured debt issued directly by us (STACR debt
notes) rather than as debt issued by a trust. These transactions operate similarly to STACR Trust notes, except that we make
payments of principal and interest on the issued STACR debt notes. Similar to STACR Trust notes, in a STACR debt
transaction, we are not required to repay principal to the extent that the notional credit risk position is reduced as a result of a
specified credit event on a loan in the reference pool. For certain STACR debt notes issued in prior years (generally STACR
debt notes issued prior to 2015), losses are allocated to the notional amounts of the credit risk positions based on calculated
losses using a predefined formula when the loans experience a credit event, which predominantly occurs when a loan becomes
180 days delinquent. As a result, in these transactions, we receive reimbursement of losses based on these calculated loss
amounts rather than based on actual losses. While we may issue STACR debt notes in the future, we expect to predominantly
issue STACR Trust notes. See Note 8 for additional information on these debt issuances.
We monitor the costs and benefits provided by the CRT coverage we have obtained on a regular basis. We may periodically
terminate certain CRT transactions, through the exercise of contractual call options, repurchases of outstanding securities, or
other means, if we determine prior to contractual maturity that they are no longer economically sensible.
Additional Offerings
We also transfer credit risk through issuance of senior subordinated securitization structures backed by seasoned loans,
additional types of insurance transactions, and risk-sharing arrangements with certain single-family lenders. For additional
information on Single-Family mortgage loan credit enhancements, see MD&A - Risk Management - Credit Risk - Single-
Family Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors.
We also periodically sell certain delinquent loans that we have previously repurchased from securitization trusts. See Note 4
for additional information on sales of mortgage loans.
Loss Mitigation Activities
Servicers perform loss mitigation activities as well as foreclosures on loans that they service for us. Our loss mitigation strategy
emphasizes early intervention by servicers in delinquent loans and offers alternatives to foreclosure by providing servicers with
default management programs designed to manage delinquent loans and to assist borrowers in maintaining homeownership or
facilitate foreclosure alternatives.
We offer a variety of borrower assistance programs, including refinance programs for certain eligible loans and loan workout
activities for struggling borrowers. Our loan workouts include both home retention options and foreclosure alternatives.
Relief Refinance Program
Our relief refinance initiative allows eligible homeowners whose loans we already own or guarantee to refinance with more
favorable terms (such as reduction in payment, reduction in interest rate, or movement to a more stable loan product) and
without the need to obtain additional mortgage insurance.
The relief refinance initiative provides liquidity for borrowers who are current on their mortgages but are unable to refinance
because their LTV ratios exceed our standard refinance limits. The Enhanced Relief RefinanceSM program has been suspended
until further notice for mortgages with applications dated on or after July 1, 2021 and all mortgages with settlement dates after
August 31, 2021.
Loan Workout Activities
Home Retention Options
When refinancing is not practicable, we require our servicers first to evaluate the loan for a forbearance plan, repayment plan,
payment deferral plan, or loan modification, because our level of recovery on a loan that reperforms is often higher than for a
loan that proceeds to a foreclosure alternative or foreclosure. Although workout options are often less costly than a foreclosure,
we incur costs as a result of our loss mitigation activities. Specifically, payment deferral plans result in non-interest-bearing
balances we have to finance for the life of the mortgage, resulting in economic costs as a result of this program. Additionally,
we incur economic losses on loan modifications that involve an interest rate reduction or principal forbearance, and we incur
expenses related to incentive fees we pay to servicers for certain successfully completed loan workouts.
We offer the following types of home retention options:
n Forbearance plans - Arrangements that require reduced or no payments during a defined period that provides borrowers
additional time to return to compliance with the original mortgage terms or to implement another type of loan workout
option.
n Repayment plans - Contractual plans that allow borrowers a specific period of time to return to current status by paying
the normal monthly payment plus additional agreed upon delinquent amounts. Repayment plans must have a term greater
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Management's Discussion and Analysis
Our Business Segments | Single-Family
than one month and less than or equal to 12 months and the monthly repayment plan payment amount must not exceed
150% of the contractual mortgage payment.
n Payment deferral plans - Arrangements that allow borrowers to return to current status by deferring delinquent principal
and interest into a non-interest-bearing principal balance that is due at the earlier of the payoff date, maturity date, or sale
of the property. The remaining mortgage term, interest rate, payment schedule, and maturity date remain unchanged and
no trial period plan is required. The number of months of payments deferred varies based upon the type of hardship the
borrower is experiencing.
n Loan modifications - Contractual plans that may involve changing the terms of the loan, adding outstanding
indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of both, including principal
forbearance. Our modification programs generally require completion of a trial period of at least three months prior to
receiving the modification. If a borrower fails to complete the trial period, the loan is considered for our other workout
activities. These modification programs offer eligible borrowers extension of the loan's term up to 480 months and a fixed
interest rate. Servicers are paid incentive fees for each completed modification, and there are limits on the number of times
a loan may be modified. Our primary loan modification program is the Freddie Mac Flex Modification® program, which
targets a 20% payment reduction through interest rate reduction, term extension, and principal forbearance. Under the
Freddie Mac Flex Modification program, borrowers must complete a 90-day trial period plan prior to permanent
modification.
Pursuant to FHFA guidance and the CARES Act, we have offered mortgage payment relief options to borrowers affected by the
COVID-19 pandemic. Among other things, we are offering forbearance of up to 18 months to single-family borrowers
experiencing a financial hardship and a payment deferral plan that allows a borrower to defer up to 18 months of payments for
eligible homeowners who have the financial capacity to resume making their monthly payments, but who are unable to afford
the additional monthly contributions required by a repayment plan. The types of loss mitigation options available to borrowers
impacted by the COVID-19 pandemic may be revised by further FHFA guidance or federal government regulation.
Foreclosure Alternatives
When a seriously delinquent single-family loan cannot be resolved through an economically sensible home retention option, we
typically seek to pursue a foreclosure alternative before we pursue a foreclosure sale. We pay servicers incentive fees for each
completed foreclosure alternative. In some cases, we provide cash relocation assistance to the borrower, while allowing the
borrower to exit the home in an orderly manner. We offer the following types of foreclosure alternatives:
n Short sale - The borrower sells the property for less than the total amount owed under the terms of the loan. A short sale
is preferable to a borrower because we provide limited relief to the borrower from repaying the entire amount owed on the
loan. A short sale allows us to avoid the costs we would otherwise incur to complete the foreclosure and subsequently sell
the property.
n Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer title of the property to us without going through
formal foreclosure proceedings.
When we are unable to successfully execute a loan workout and the loan remains delinquent, we may ultimately pursue
foreclosure. In a foreclosure, we may acquire the underlying property and later sell it, using the proceeds of the sale to reduce
our losses. For additional information on our loss mitigation and foreclosure activities, see MD&A - Our Business Segments
- Single-Family - Business Results and MD&A - Risk Management - Credit Risk - Single-Family Mortgage Credit
Risk.
FREDDIE MAC | 2021 Form 10-K
39
Management's Discussion and Analysis
Our Business Segments | Single-Family
Investing Activities
We primarily use our Single-Family mortgage-related investments portfolio to provide liquidity to the mortgage market by
purchasing loans for our securitization pipeline and by purchasing delinquent and modified loans from securitization trusts. We
also invest in agency mortgage-related securities. We manage the portfolio's risk-versus-return profile using our internal
economic framework and make appropriate risk and capital management decisions to effectively execute our strategy and be
responsive to market conditions. For additional information on our mortgage-related investments portfolio, see MD&A - Our
Portfolios - Investments Portfolio - Mortgage-Related Investments Portfolio.
We may use our Single-Family mortgage-related investments portfolio to undertake various activities to support our presence in
the agency securities market or to support the liquidity of our securities, including their price performance relative to
comparable Fannie Mae securities. Depending upon market conditions, there may be substantial variability in any period in the
total amount of securities we purchase or sell. The purchase or sale of agency securities could, at times, adversely affect the
price performance of our securities relative to comparable Fannie Mae securities. We may incur costs to support our presence
in the agency securities market and to support the liquidity and price performance of our securities. For more information, see
Risk Factors - Market Risks - A significant decline in the price performance of or demand for our UMBS could have an
adverse effect on the volume and/or profitability of our Single-Family business activity. For additional information on the
limits on the mortgage-related investments portfolio established by the Purchase Agreement and by FHFA, see MD&A -
Conservatorship and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness. In
addition, we may forgo certain investment opportunities for a variety of reasons, including the limit on the size of our mortgage-
related investments portfolio or the risk that an accounting treatment may create earnings variability.
Our company-wide Treasury function primarily includes issuing, calling, and repurchasing debt of Freddie Mac, managing our
other investments portfolio, and managing interest-rate risk, which includes monitoring and economically hedging interest-rate
risk for the entire company, primarily through the use of derivative instruments. We use a funds transfer pricing process to
allocate debt funding costs and interest-rate risk management gains and losses to specific assets and liabilities included in
each segment. The residual financial impact of our company-wide Treasury function and interest-rate risk management function
is primarily allocated to the Single-Family segment. For additional information on the company-wide Treasury function, see
MD&A - Liquidity and Capital Resources. For additional information on interest-rate risk management, see MD&A - Risk
Management - Market Risk.
Customers
Our Single-Family customers are investors in our mortgage-related securities, CRT offerings, and other debt, including banks
and other depository institutions, insurance companies, money managers, central banks, pension funds, state and local
governments, REITs, and brokers and dealers. We also maintain relationships with dealers in our guaranteed mortgage-related
securities and other debt securities. Our unsecured other debt securities and structured mortgage-related securities are initially
purchased by dealers and redistributed to their customers. Our Single-Family customers also include financial institutions that
originate, sell, and perform the ongoing servicing of loans for new or existing homeowners. These companies include mortgage
banking companies, commercial banks, regional banks, community banks, credit unions, HFAs, savings institutions, and non-
depository financial institutions. Many of these companies are both sellers and servicers for us.
We enter into loan purchase agreements with many of our Single-Family customers that outline the terms under which we
agree to purchase loans from them over a period of time. For most of the loans we purchase, the guarantee fees are not
specified contractually. Instead, we bid for some or all of the lender's loan volume on a monthly basis at a guarantee fee that
we specify. As a result, our loan purchase volumes from individual customers can fluctuate significantly.
We acquire a significant portion of our loans from several lenders that are among the largest originators in the U.S. In addition,
a significant portion of our single-family loans is serviced by several large servicers. The following charts show the
concentration of our 2021 Single-Family purchase volume by our largest sellers and our Single-Family loan servicing by our
largest servicers as of December 31, 2021. None of our Single-Family sellers or servicers had a 10% or greater share during
2021.
FREDDIE MAC | 2021 Form 10-K
40
Management's Discussion and Analysis
Our Business Segments | Single-Family
Percentage of Single-Family Purchase Volume
Percentage of Single-Family Servicing Volume(1)
(1) Percentage of servicing volume is based on the total Single-Family mortgage
portfolio, which includes loans where we do not exercise servicing control.
However, loans where we do not exercise servicing control are not included for
purposes of determining the concentration of servicers who serviced more than
10% of our Single-Family mortgage portfolio.
For additional information about seller and servicer concentration risk and our relationships with our seller and servicer
customers, see MD&A - Risk Management - Counterparty Credit Risk - Sellers and Servicers and Note 16.
Competition
We operate in a competitive market by varying our pricing for different customers, loan products, and underwriting
characteristics. We seek to maintain a broad-ranging mix of loan quality for the loans we purchase. However, sellers may elect
to retain loans with better credit characteristics. A seller’s decision to retain these loans, or its decision concerning the loans it
sells to Freddie Mac based on the credit standards and pricing policies of other secondary market participants, could result in
Freddie Mac purchasing loans with a more adverse credit profile.
Our principal competitors in Single-Family are Fannie Mae, FHA/VA (with Ginnie Mae securitization), and other financial
institutions that retain or securitize loans, such as commercial and investment banks, dealers, and savings institutions. Our
competitors in Single-Family also include firms that invest in loans and mortgage-related assets and issue corporate debt,
including Fannie Mae, REITs, supranationals (international institutions that provide development financing for member
countries), commercial and investment banks, dealers, savings institutions, insurance companies, the Federal Farm Credit
Banks, the FHLBs, and non-bank loan aggregators, who are both our customers and competitors. The conservatorship,
including direction provided to us by our Conservator, may affect our ability to compete. The areas in which we and Fannie Mae
compete have been limited as we have been required by FHFA to align certain of our Single-Family mortgage purchase
offerings, servicing, and securitization practices with Fannie Mae to achieve market acceptance of the UMBS. FHFA has also
placed limits on our and Fannie Mae's ability to compete with each other on pricing.
FREDDIE MAC | 2021 Form 10-K
41
(Based on UPB of $1,220 billion)50%50%Top 10 sellersAll other sellers(Based on UPB of $2,792 billion)47%53%Top 10 servicersAll other servicers
Management's Discussion and Analysis
Our Business Segments | Single-Family
Business Results
The graphs, tables, and related discussion below present the business results of our Single-Family segment.
New Business Activity
UPB of Single-Family Loan Purchases and Guarantees by Loan
Purpose and Average Guarantee Fee Rate(1) Charged on New
Acquisitions
Number of Families Helped to Own a Home and Average Loan UPB
of New Acquisitions
(UPB in billions, guarantee fee rate in bps)
(Loan count in thousands)
(1) Guarantee fee rate calculation excludes the legislated 10 basis point fee
and includes deferred fees recognized over the estimated life of the
related loans. We enhanced our estimation methodology related to
recognition of buy-up fees in 2019.
n As a key player in the secondary mortgage market, we maintain a consistent market presence by providing lenders with a
constant source of liquidity for conforming loan products. Our loan purchase and guarantee activity increased in 2021
compared to 2020 primarily due to an increase in home purchase volume, higher house price appreciation, and an increase
in our share of the GSE volume.
n The average guarantee fee rate charged on new acquisitions consists of the contractual guarantee fee rate and deferred
fee income, including the expected gains (losses) from buy-up and buy-down fees, recognized over the estimated life of
the related loans using our expectations of prepayments and other liquidations. The average guarantee fee rate charged on
new acquisitions increased in 2021 compared to 2020 primarily due to the adverse market refinance fee we began to
charge in December 2020. In July 2021, FHFA instructed us to eliminate this fee for loan deliveries effective August 1,
2021.
n In September 2021, certain requirements in the Purchase Agreement related to our cash window activities, acquisitions of
single-family loans with certain LTV, DTI, and credit score characteristics at origination, and acquisitions of single-family
loans secured by second homes or investment properties were suspended. We will continue to manage these activities in
accordance with our risk limits and guidance from FHFA. For additional information, see MD&A – Regulation and
Supervision – Legislative and Regulatory Developments – September 2021 Letter Agreement with Treasury.
FREDDIE MAC | 2021 Form 10-K
42
$453$1,090$1,220$250$325$430$203$765$790454749Home purchaseRefinanceAverage guarantee fee rate chargedon new acquisitions2019202020211,7693,7984,2369871,1311,3787822,6672,858$256,000$287,000$288,000Home purchase borrowersRefinance borrowersAverage loan UPB of new acquisitions201920202021
Management's Discussion and Analysis
Our Business Segments | Single-Family
n We continued working to improve equitable access to affordable and sustainable housing. For example, our Home
Possible® and Home One® initiatives offer down payment options as low as 3% and are designed to help qualified
borrowers with limited savings buy a home. We purchased approximately 186,000 loans under these initiatives in 2021.
Our Refi Possible® initiative provides more flexibilities to help low- and moderate-income borrowers take advantage of the
current low interest rate environment by refinancing their mortgages and lowering their monthly mortgage payments. We
also continue to implement programs that support responsibly broadening access to affordable housing by:
l Improving the effectiveness of pre-purchase and early delinquency counseling for borrowers;
l Implementing the Duty to Serve Underserved Markets plan;
l Implementing the Equitable Housing Finance plan;
l Developing and implementing a plan to increase and preserve sustainable mortgage purchase and refinance credit for
all qualified borrowers;
l Increasing support for first-time home buyers; and
l Introducing securitization products focused on addressing affordable and energy efficiency challenges.
While we are responsibly expanding our programs and outreach capabilities to better serve low- and moderate-income
borrowers and underserved markets, these loans may result in increased credit risk. Expanding access to affordable housing
will continue to be a top priority in 2022. See MD&A - Regulation and Supervision - Federal Housing Finance Agency -
Duty to Serve Underserved Markets Plan for more information.
Single-Family Mortgage Portfolio
Single-Family Mortgage Portfolio and Average Guarantee Fee
Rate(1) Charged on Mortgage Portfolio as of December 31,
Single-Family Loans as of December 31,
(UPB in billions, guarantee fee rate in bps)
(Loan count in millions)
(1) Guarantee fee rate calculation excludes the legislated 10 basis point fee.
As of December 31,2021, excludes $47 billion in UPB primarily related to
loans that we do not consolidate.
n The Single-Family mortgage portfolio grew $466 billion, or 20%, year-over-year driven by higher new business activity.
Additionally, continued house price appreciation contributed to new business acquisitions having a higher average loan
size compared to older vintages that continued to run off.
n 2021 vs. 2020 - The average guarantee fee rate charged on the Single-Family mortgage portfolio increased as older
vintages with lower charged guarantee fee rates were replaced by acquisitions of new loans with higher charged guarantee
fee rates, including the adverse market refinance fee we began to charge in December 2020. In July 2021, FHFA instructed
us to eliminate this fee for loan deliveries effective August 1, 2021.
FREDDIE MAC | 2021 Form 10-K
43
$1,994$2,326$2,792414446Single-Family mortgage portfolioAverage guarantee fee ratecharged on mortgage portfolio20192020202111.212.013.1$178,000$194,000$213,000Single-Family mortgage portfolioAverage loan UPB201920202021 Management's Discussion and Analysis
Our Business Segments | Single-Family
CRT Activities
We transfer credit risk on a portion of our Single-Family mortgage portfolio to the private market, reducing the risk of future
losses to us when borrowers default. The graphs below show the issuance amounts associated with CRT transactions for loans
in our Single-Family mortgage portfolio.
UPB Covered by New CRT Issuance
New CRT Issuance Maximum Coverage
(In billions)
(In billions)
n During 2021, 2020, and 2019, 63%, 62%, and 71%, respectively, of our Single-Family acquisitions were loans in the
targeted population for our CRT transactions (primarily 30-year fixed-rate loans with LTV ratios between 60% and 97%).
n The UPB of mortgage loans covered by CRT transactions issued in 2021 increased significantly compared to 2020 due to
the recovery of the CRT markets from the impact of the COVID-19 pandemic and the increase in loan acquisition activity.
The related maximum coverage also increased but was proportionally lower than the increase in UPB of mortgage loans
covered by CRT transactions due to the improved credit quality of the covered loans, which reduced the amount of credit
coverage we required on those loans.
n We evaluate and update our CRT strategy as needed depending on our business strategy, market conditions, and
regulatory requirements. We expect the issuance amounts of our CRT transactions to increase in 2022.
See MD&A – Risk Management - Single-Family Mortgage Credit Risk - Transferring Credit Risk to Third-Party
Investors for additional information on our CRT activities and other credit enhancements.
FREDDIE MAC | 2021 Form 10-K
44
$255$477$828201920202021$12$17$20201920202021
Management's Discussion and Analysis
Our Business Segments | Single-Family
Loss Mitigation Activities
The following graph provides details about our completed single-family loan workout activities. The forbearance data included
below is limited to loans in forbearance that are past due based on the loans' original contractual terms and excludes both
loans for which we do not control servicing and loans included in certain legacy transactions, as the forbearance data for such
loans is either not reported to us by the servicers or is otherwise not readily available to us.
Completed Loan Workout Activity
(UPB in billions, number of loan workouts in thousands)
(1) Other includes repayment plans, loan modifications, and foreclosure alternatives.
n Completed loan workout activity includes forbearance plans where borrowers fully reinstated the loan to current status
during or at the end of the forbearance period, payment deferral plans, loan modifications, successfully completed
repayment plans, short sales, and deeds in lieu of foreclosure. Completed loan workout activity excludes active loss
mitigation activity that was ongoing and had not been completed as of the end of the year, such as forbearance plans that
had been initiated but not completed and trial period modifications. There were approximately 67,000 loans in active
forbearance plans and 22,000 loans in other active loss mitigation activity as of December 31, 2021.
n We continue to help struggling families retain their homes or otherwise avoid foreclosure through loan workouts. Our loan
workout activity decreased in 2021 compared to 2020 primarily driven by the decrease in completed forbearance plans
related to the COVID-19 pandemic, partially offset by the increase of payment deferral plans related to the COVID-19
pandemic.
n Pursuant to FHFA guidance and the CARES Act, we have offered mortgage relief options for certain borrowers affected by
the COVID-19 pandemic. Among other things, we have offered forbearance of up to 18 months to single-family borrowers
experiencing a financial hardship, either directly or indirectly, related to the COVID-19 pandemic. We have also offered a
payment deferral plan that allows a borrower to defer up to 18 months of payments for eligible homeowners who have the
financial capacity to resume making their monthly payments, but who are unable to afford the additional monthly
contributions required by a repayment plan. The length of available forbearance or payment deferral plans may be
extended or the terms of forbearance or payment deferral plans revised by further FHFA guidance or government
regulation.
See MD&A - Risk Management for additional information on our loan workout activities.
FREDDIE MAC | 2021 Form 10-K
45
72281024169189362926$8$90$69Forbearance plansPayment deferral plansOther⁽¹⁾Total UPB in billions201920202021 Management's Discussion and Analysis
Our Business Segments | Single-Family
Financial Results
The table below presents the components of net income and comprehensive income for our Single-Family segment.
Table 12 - Single-Family Segment Financial Results
(Dollars in millions)
Guarantee net interest income
Investments net interest income
Income (expense) from hedge accounting
Net interest income
Non-interest income
Net revenues
Benefit (provision) for credit losses
Credit enhancement expense
Benefit for (decrease in) credit enhancement recoveries
REO operations income (expense)
Credit-related income (expense)
Operating expense
Year Over Year Change
Year Ended December 31,
2021 vs. 2020
2021
2020
2019
$
%
2020 vs. 2019
$
%
$15,745 $10,762
$7,999
$4,983
46 %
$2,763
2,023
3,062
2,917
(1,039)
(34)
145
35 %
5
(1,495)
(2,232)
(252)
16,273
11,592
10,664
954
457
560
17,227
12,049
11,224
919
(1,320)
(1,470)
(1,036)
(523)
(12)
305
(149)
(1,086)
(2,200)
749
(734)
41
(229)
(173)
(5,070)
(4,543)
(4,294)
737
4,681
497
5,178
2,239
(434)
(828)
137
1,114
(527)
5,765
33
40
109
43
170
(42)
(271)
92
51
(12)
109
(1,980)
(786)
928
(103)
825
9
(18)
7
(2,069)
(276)
(302)
264
80
(41)
644
35
(2,027)
(1,172)
(249)
(1,451)
276
(1,175)
(6)
(21)
20
(22)
(78)
(26) %
Income (loss) before income tax (expense) benefit
11,071
5,306
6,757
Income tax (expense) benefit
Net income (loss)
(2,251)
(1,094)
(1,370)
(1,157)
(106)
8,820
4,212
5,387
4,608
109
Total other comprehensive income (loss), net of taxes and
reclassification adjustments
(379)
104
472
(483)
(464)
(368)
Comprehensive income (loss)
$8,441
$4,316
$5,859
$4,125
96 %
($1,543)
Key Business Drivers:
n 2021 vs. 2020
l Higher net interest income primarily due to the continued growth in the Single-Family mortgage portfolio, higher
average guarantee fee rates on this portfolio, and higher deferred fee income recognition.
l Lower credit-related expense primarily driven by a shift to benefit for credit losses as a result of a credit reserve
release due to improving economic conditions, partially offset by a decrease in credit enhancement recoveries. Credit-
related expense in 2020 was primarily driven by the negative economic effects of the COVID-19 pandemic.
n 2020 vs. 2019
l Higher net interest income primarily due to the continued growth in the Single-Family mortgage portfolio, higher
average guarantee fee rates on this portfolio, and higher deferred fee income recognition.
l Higher credit-related expense primarily due to benefit (provision) for credit losses shifting to a provision driven by
higher expected credit losses as a result of the COVID-19 pandemic and portfolio growth, partially offset by growth in
realized and forecasted house prices and declines in forecasted interest rates during 2020.
FREDDIE MAC | 2021 Form 10-K
46
Management's Discussion and Analysis
Our Business Segments | Multifamily
Multifamily
Business Overview
Our Multifamily segment provides liquidity and support to the multifamily mortgage market through a variety of activities that
include the purchase, securitization, and guarantee of multifamily loans originated by our Optigo® network of approved lenders.
Our support of the multifamily mortgage market occurs through all economic cycles and is especially important during periods
of economic stress. During these periods, we serve a critical countercyclical role by providing liquidity when many other capital
providers exit the market. Central to our mission is our commitment to support greater access to quality, affordable, and
sustainable rental housing, particularly in underserved markets.
Through our support of the multifamily mortgage market, borrowers can obtain lower financing costs, which can benefit renters
through lower rental rates and/or improved services or amenities. Multifamily loans are typically originated by our Optigo
lenders without recourse to the borrower, making repayment dependent on the cash flows generated by the underlying
property. Cash flows generated by a property are significantly influenced by vacancy and rental rates, as well as conditions in
the local rental market, the physical condition of the property, the quality of property management, and the level of operating
expenses. The overall market demand for multifamily loans is generally affected by local and regional economic factors, such
as unemployment rates, construction cycles, property prices, preferences for homeownership versus renting, and the relative
affordability of single-family homes, as well as certain macroeconomic factors, such as interest rates.
Our primary business model is to acquire loans that lenders originate and then pool those loans into mortgage-related
securities that transfers all of the interest-rate and liquidity risk and a portion of the credit risk to third-party investors and that
can be sold in the capital markets. In our typical multifamily securitization, we guarantee the senior securities but do not
guarantee the subordinate securities, thereby transferring a portion of the credit risk on the underlying loans to third party
investors as part of the securitization process. We do not consolidate most of our Multifamily securitization trusts. As a result,
we account for most of our Multifamily securitizations as sales of the underlying loans and recognize the guarantee fees we
receive in exchange for our guarantee of the senior securities as guarantee income. For multifamily loans where we do not
transfer credit risk through the securitization process, we may pursue other strategies designed to transfer all or a portion of the
loan's credit risk to third parties, including the execution of other CRT products. The returns we generate from our business
activities are primarily derived from (1) the net interest income we earn on the loans prior to their securitization, (2) the gains on
sale of mortgage loans, net of interest-rate risk management activities, from our purchase and securitization activities and (3)
the ongoing guarantee fees we receive in exchange for providing our guarantee on the senior securities. We evaluate these
factors collectively to assess the profitability of any given transaction and to maximize our returns.
Products and Activities
Our Multifamily business consists of activities related to purchasing and securitizing mortgage loans and issuing mortgage-
related securities, transferring credit risk, and investing in mortgage-related and other investments.
Loan Purchase, Securitization, and Guarantee Activities
Loan Purchase
Our Optigo network allows lenders to offer borrowers a variety of loan products for the acquisition, refinance, and/or
rehabilitation of multifamily properties. While our Optigo lenders originate the loans that we purchase, we use a prior-approval
underwriting approach. Under this approach, we maintain credit discipline by completing our own underwriting, credit review,
and legal review for each loan prior to issuing a loan purchase commitment, including reviewing third-party appraisals and
performing cash flow analysis. This helps us maintain credit discipline throughout the process.
Certain of our products have been designed to support increased access to affordable housing, including in underserved
markets. Our primary multifamily loan products include the following:
n Conventional loans - Financing that includes fixed-rate and floating-rate loans, loans in lease-up and with moderate
property upgrades, manufactured housing community loans, senior housing loans, student housing loans, supplemental
loans, and certain Green Advantage loans.
n Targeted affordable housing loans - Financing provided to borrowers in underserved areas that have restricted units
affordable to households with low income (earning 80% or less of AMI) and very-low income (earning 50% or less of AMI)
and that typically receive government subsidies.
n Small balance loans - Financing provided to small rental property borrowers for the acquisition or refinance of multifamily
properties. Financing ranges from $1 million to $7.5 million and is focused on affordable or workforce housing properties
from 5 to 50 units.
FREDDIE MAC | 2021 Form 10-K
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Management's Discussion and Analysis
Our Business Segments | Multifamily
The amount and type of multifamily loans that we purchase is significantly influenced by the Multifamily loan purchase cap that
is established by FHFA. In October 2021, FHFA announced that the 2022 Multifamily loan purchase cap for the Multifamily
business will be $78 billion, up from $70 billion in 2021. FHFA will continue to require at least 50% of the Multifamily new
business activity to be mission-driven, affordable housing and, in 2022, such definitions will include loans on affordable units in
cost-burdened renter markets and loans to finance energy and water efficiency improvements with units affordable to renters at
or below 60% of AMI. In 2022, FHFA also will require at least 25% of the Multifamily new business activity to be affordable to
renters at or below 60% of AMI, up from 20% in 2021. The purchase cap is subject to reassessment throughout the year by
FHFA to determine whether an increase in the cap is appropriate based on a stronger than expected overall market.
In September 2021, certain requirements that were added to the Purchase Agreement pursuant to the January 2021 Letter
Agreement related to our multifamily loan purchase activity were suspended. For additional information, see MD&A -
Conservatorship and Related Matters - Limits on Our Multifamily Loan Purchase Activity.
We continue to support the multifamily mortgage market's LIBOR transition efforts. Since September 2020, we have
successfully quoted, purchased, and securitized new floating rate loans indexed to SOFR. The loans indexed to SOFR have
been used as collateral in our SOFR-based bond offerings, thereby adding liquidity to the market and facilitating the transition
to SOFR.
Our process for purchasing multifamily loans generally begins with a loan purchase commitment. Prior to issuing a commitment
to purchase a multifamily loan, we negotiate with the lender the specific economic terms and conditions of our commitment,
including the loan's purchase price, index, and mortgage spread. We price our loans to achieve an initial pricing margin that we
generally expect to realize at securitization. Decisions related to the commitment price and/or mortgage spread will affect our
initial pricing margin and are generally influenced by our current business strategy, the type of loan that we acquire (i.e., the
loan product and whether it qualifies as mission-driven), the amount available under the loan purchase cap, current
securitization spreads, and changing market conditions. We also offer lenders an option to lock the Treasury index component
of their fixed rate loans anytime during the quote or underwriting process. This option enables borrowers, through our lenders,
to lock the most volatile part of their coupon, thereby providing an enhanced level of risk mitigation against interest-rate
volatility. The index lock period offered for most loans is 60 days and is generally followed by a loan purchase commitment.
At the time we commit to purchase a multifamily loan, we preliminarily determine our intent with respect to that loan. For
commitments to purchase fixed-rate loans that we intend to sell (i.e., held-for-sale commitments), we elect the fair value option
and therefore recognize and measure these commitments at fair value in our consolidated financial statements. We do not elect
the fair value option for held-for-sale commitments to purchase floating-rate loans or loans that we intend to hold for the
foreseeable future (i.e., held-for-investment commitments), including loans that we intend to securitize using trusts that we
consolidate, and therefore these commitments are not recognized in our consolidated financial statements. As a result, we
recognize the initial pricing margin, which is based on the price we would receive to sell the mortgage loans in a typical
securitization transaction, at the commitment date for commitments we measure at fair value and generally at the time of
securitization for held-for-sale loans where we do not elect the fair value option. Similarly, we recognize changes in fair value
subsequent to the commitment date in earnings as they occur for commitments and loans we measure at fair value and at the
time of securitization for held-for-sale loans where we do not elect the fair value option. We do not recognize any changes in
fair value or gains at the time of securitization for loans or commitments that we classify as held-for-investment, including loans
that we intend to securitize using trusts that we consolidate.
Our multifamily commitments and loans are subject to changes in fair value due to changes in interest-rates and changes in K
Certificate benchmark spreads, which are market-quoted spreads over a referenced benchmark rate. We economically hedge
our interest-rate exposure from multifamily commitments and loans, including index lock agreements, primarily by entering into
pay-fixed interest-rate swaps. As a result, we typically have minimal exposure to earnings variability from changes in interest
rates, as the changes in fair value of the loans and commitments attributable to changes in interest rates generally have
offsetting effects from the changes in fair value of the associated interest-rate risk management derivatives. However, index
lock agreements temporarily create interest rate-related earnings variability as we economically hedge the interest-rate risk
created by the index lock agreement prior to entering into an offsetting loan purchase commitment. This temporary exposure is
typically fully offset when we enter into the associated loan purchase commitment, as the fair value of the commitment reflects
changes in the index rate that have occurred since we entered into the index lock agreement. As our ability to manage spread
risk is more limited than our ability to manage interest rate risk, we typically have significant exposure to earnings variability due
to changes in K Certificate benchmark spreads. We enter into certain transactions to manage this exposure, including the
following:
n When-Issued K-Deal (WI K-Deal) Certificates - In a WI K-Deal Certificate transaction, we forward sell a K Certificate
security that will be issued in the future to a WI K-Deal trust at a fixed price, thereby reducing our exposure to future
changes in interest rates and K Certificate benchmark spreads.
n Spread-related derivatives - We purchase or enter into certain spread-related derivatives including the purchase of
swaptions on credit indices providing some protection against adverse movements in K Certificate benchmark spreads.
FREDDIE MAC | 2021 Form 10-K
48
Management's Discussion and Analysis
Our Business Segments | Multifamily
Securitization Products
We securitize substantially all of the loans we purchase after a short holding period, which generally ranges between two and
four months, as we aggregate sufficient loans with similar terms and risk characteristics. For the period of time between loan
purchase and securitization, we refer to the loan as being in our securitization pipeline. We enter into various types of
securitizations that generally result in the transfer of all of the underlying collateral's interest-rate and liquidity risk, and a portion
of the credit risk to third parties. Our securitization products provide liquidity to the multifamily mortgage market, with certain
bond issuances being focused on addressing affordable housing challenges and supporting broader environmental, social, and
sustainability goals.
In our typical securitizations, we guarantee the issued senior securities. In exchange for providing this guarantee, we receive an
ongoing guarantee fee that is commensurate with the risks assumed and that will, over the long-term, provide us with
guarantee income that is expected to exceed the credit-related and administrative expenses of the underlying loans. Structural
deal features, such as term, type of underlying loan product, and subordination levels, generally influence the deal's risk profile,
which ultimately affects the guarantee fee rate we set at the time of securitization. We do not consolidate most of our
Multifamily securitization trusts. As a result, we account for most of our Multifamily securitizations as sales of the underlying
loans and recognize the guarantee fees we receive as guarantee income.
For guarantees to nonconsolidated entities or other third parties, we generally recognize a guarantee asset at inception. This
asset, which represents the right to collect contractual guarantee fees, is recorded at fair value with subsequent changes in fair
value recognized in earnings. The fair value of our guarantee assets may vary significantly from period-to-period based on
changes in market conditions, including interest rates and credit spreads. Because our multifamily loans contain prepayment
protection, decreasing interest rates generally result in higher guarantee asset fair values, with the opposite effect occurring
when interest rates increase. See Note 5 for additional information on our accounting for guarantees.
Our typical securitization structure and level of subordination are designed to achieve appropriate economic returns when we
sell loans for securitization. Depending on the securitization product and subordination levels selected, we may realize a higher
(lower) gain on sale, but recognize lower (higher) ongoing guarantee income.
K Certificates and SB Certificates
Our primary securitization products are K Certificate and SB Certificate transactions, which transfer all of the interest-rate and
liquidity risk and a portion of the credit risk of the underlying collateral. The structures of these transactions typically involve the
issuance of senior, mezzanine, and subordinated securities that represent undivided beneficial interests in trusts that hold pools
of multifamily loans that we previously purchased. In a typical K Certificate transaction, we sell multifamily loans to a non-
Freddie Mac securitization trust that issues senior, mezzanine, and subordinated securities, and simultaneously purchase and
place the senior securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. In these transactions,
we guarantee the senior securities, but do not issue or guarantee the mezzanine or subordinated securities.
n K Certificates - Regularly issued structured pass-through securities backed by recently originated multifamily loans. This
product offers investors a wide range of structural and collateral options that provide for stable cash flows and a structured
credit enhancement. While the amount of guarantee fee we receive may vary by collateral type, it is generally fixed for
those K Certificate series that we issue with regular frequency (e.g., 7- and 10-year fixed-rate K Certificates and floating
rate K Certificates). The guarantee fees received on recently issued standard K Certificates range between 40 basis points
and 45 basis points.
The guarantee fee on K Certificates that we do not issue on a regular basis, such as our single-sponsor K Certificates, is
determined based on the specific risks associated with the underlying collateral and the structure of the securitization,
including tranche sizes and risk distribution.
n SB Certificates - Regularly issued securities typically backed by multifamily small balance loans that we underwrite at loan
origination and purchase prior to securitization. Similar to our K Certificate transactions, a non-Freddie Mac trust will issue
the senior classes of securities, which we guarantee, as well as the unguaranteed subordinated securities. However, unlike
our K Certificate transactions, while we may purchase a portion of the senior securities, we generally do not place those
securities into a Freddie Mac trust. The guarantee fee we receive in these transactions is generally 35 basis points.
The volume of our K Certificate and SB Certificate securitizations is generally influenced by the product mix and size of our
securitization pipeline, along with market demand for multifamily securities. We do not typically consolidate the securitization
trusts used in these transactions and therefore account for these securitizations as sales of the underlying loans.
FREDDIE MAC | 2021 Form 10-K
49
Management's Discussion and Analysis
Our Business Segments | Multifamily
The diagram below shows a typical K Certificate transaction.
Other Securitization Products
Our other securitization products involve the issuance of pass-through securities that represent beneficial interests in trusts that
hold pools of multifamily loans. The collateral for these securitizations may include loans underwritten and purchased by us at
loan origination and loans we do not own prior to securitization and that we underwrite after (rather than at) origination.
Our largest other securitization product is PCs, which are fully guaranteed securities. In these transactions, we securitize
multifamily loans into pass-through securities that are similar in structure to Single-Family Level 1 Securitization Products.
Since we guarantee the timely payment of scheduled principal and interest and direct loss mitigation activities, we consolidate
the securitization trusts used in these PC transactions and therefore do not account for PC securitizations as sales of the
underlying loans. Certain other securitization products are not consolidated as we do not direct loss mitigation activities and
therefore account for those securitizations as sales of the underlying loans.
Other Mortgage-Related Guarantees
We also guarantee mortgage-related assets held by third parties in exchange for guarantee fees, without securitizing those
assets. For example, we provide guarantees on certain tax-exempt multifamily housing revenue bonds secured by low- and
moderate-income multifamily loans.
CRT Activities
We primarily transfer credit risk to third parties through subordination, which is created through our securitization products
described above. In addition to subordination, we enter into other types of CRT transactions to transfer to third parties all or a
portion of the credit risk of certain loans that are not covered by subordination.
Other CRT Products
For multifamily assets for which we have not transferred credit risk through securitization, we may pursue other strategies to
reduce our credit risk exposure. Our other CRT products include the following:
n MCIP - insurance coverage underwritten by a group of insurers and/or reinsurers that generally provide first loss and/or
mezzanine loss credit protection. These transactions are similar in structure to ACIS contracts purchased in Single-Family,
except the reference pool, in addition to loans, may include bonds underlying our other mortgage-related guarantees.
When specific credit events occur, we receive compensation from the insurance policy up to an aggregate limit based on
actual losses. We require our counterparties to partially collateralize their exposure to reduce the risk that we will not be
reimbursed for our claims under the policies.
FREDDIE MAC | 2021 Form 10-K
50
Management's Discussion and Analysis
Our Business Segments | Multifamily
n SCR Trust notes - a securities-based credit risk sharing vehicle similar to STACR Trust notes in Single-Family. In a SCR
Trust notes transaction, we create a reference pool of loans from our Multifamily mortgage portfolio and a trust issues
notes linked to the reference pool. The trust makes periodic payments of principal and interest on the notes to noteholders,
but is not required to repay principal to the extent the note balance is reduced as a result of specified credit events on the
mortgage loans in the reference pool. We make payments to the trust to support the interest due on the notes. The amount
of risk transferred in each transaction affects the amounts we are required to pay. We receive payments from the trust that
otherwise would have been made to the noteholders to the extent that a defined credit event occurs on the mortgage loans
in the reference pool. The note balance is reduced by any payments made to us, thereby transferring the related credit risk
of the loans in the reference pool to the noteholders. Generally, the note balance is also reduced based on principal
payments that occur on the loans in the reference pool.
We previously issued SCR debt notes that are generally similar in structure to Single-Family STACR debt notes.
In addition to our other CRT products, we engage in whole loan sales, including sales of loans to funds to which we may also
provide secured financing, to eliminate our interest-rate risk, liquidity risk, and credit risk exposure to certain loans.
For additional information on multifamily credit enhancements, see MD&A - Risk Management - Multifamily Mortgage
Credit Risk - Transferring Credit Risk to Third Party Investors.
Investing Activities
We primarily use our Multifamily mortgage-related investments portfolio to provide liquidity to the multifamily mortgage market
by purchasing loans for our securitization pipeline. We may also hold certain multifamily mortgage loans or agency mortgage-
related securities as investments. Depending on market conditions and our business strategy, we may purchase or sell
guaranteed K Certificates or SB Certificates at issuance or in the secondary market, including interest-only securities. Through
our ownership of the interest-only securities, we are exposed to the market risk on the loans underlying our securitizations. We
also invest in certain non-mortgage investments, including LIHTC partnerships and other secured lending activities.
From time to time, we may undertake certain activities to support the liquidity of K Certificates and SB Certificates. For more
information, see Risk Factors - Market Risk - The profitability of our multifamily business could be adversely affected
by a significant decrease in demand for our K Certificates and SB Certificates. Also, we may undertake certain actions to
support the overall multifamily mortgage market, including the market's LIBOR transition efforts.
Customers
Our Multifamily customers include both investors in our securitization products and other CRT products, as well as financial
institutions that originate and sell multifamily mortgage loans to us for aggregation and securitization. Investors include banks
and other financial institutions, insurance companies, money managers, hedge funds, pension funds, state and local
governments, and broker dealers. Our multifamily loan purchases are generally sourced through our Optigo network of
approved lenders, who are primarily non-bank real estate finance companies and banks. Many of these lenders are both sellers
and servicers to us.
The following charts show the concentration of our 2021 Multifamily new business activity by our largest sellers and loan
servicing by our largest servicers as of December 31, 2021. Any seller or servicer with a 10% or greater share is listed
separately.
FREDDIE MAC | 2021 Form 10-K
51
Management's Discussion and Analysis
Our Business Segments | Multifamily
Percentage of New Business Activity
Percentage of Servicing Volume(1)
Competition
(1) Percentage of servicing volume is based on the total multifamily mortgage
portfolio.
We compete on the basis of price, service, and products, including our use of certain securitization structures. Our principal
competitors in the multifamily mortgage market are Fannie Mae, FHA, commercial and investment banks, CMBS conduits,
savings institutions, and life insurance companies.
FREDDIE MAC | 2021 Form 10-K
52
(Based on UPB of $70.0 billion)15%13%10%41%21%Berkadia Commercial Mortgage LLCCBRE Capital Markets, Inc.JLL Real Estate Capital, LLCOther top 10 sellersAll other sellers(Based on UPB of $414.7 billion)16%14%11%39%20%CBRE Capital Markets, Inc.Berkadia Commercial Mortgage LLCJLL Real Estate Capital, LLCOther top 10 servicersAll other servicers Management's Discussion and Analysis
Our Business Segments | Multifamily
Business Results
The graphs, tables, and related discussion below present the business results of our Multifamily segment.
New Business Activity
New Business Activity
Total Number of Units Financed
(In billions)
(In thousands)
n As of December 31, 2021, the total Multifamily new business activity was equal to the FHFA 2021 loan purchase cap of
$70.0 billion. Approximately 57% of this activity, based on UPB, was mission-driven, affordable housing, with
approximately 26% being affordable to renters at or below 60% of AMI, exceeding FHFA's minimum requirements (50%
and 20%, respectively).
n While broader economic activity and demographic trends have contributed to higher demand for multifamily mortgage
financing, our new business activity was lower in 2021 compared to 2020 due to a reduced FHFA loan purchase cap.
n Outstanding commitments, including index lock agreements and commitments to purchase or guarantee multifamily
assets, were $19.5 billion and $18.7 billion as of December 31, 2021 and December 31, 2020, respectively. The
outstanding commitments as of December 31, 2021 indicate a strong pipeline for 2022.
FREDDIE MAC | 2021 Form 10-K
53
$78$83$70201920202021809803655201920202021
Management's Discussion and Analysis
Our Business Segments | Multifamily
Multifamily Mortgage Portfolio and Guarantee Portfolio
Mortgage Portfolio
Guarantee Portfolio
(In billions)
(In billions)
n Our Multifamily mortgage and guarantee portfolios increased as of December 31, 2021 compared to December 31, 2020
primarily due to ongoing loan purchase and securitization activities. We expect continued growth in these portfolios as our
purchase and securitization activities should outpace loan payoffs.
n The average guarantee fee rate on our guarantee portfolio increased as of December 31, 2021 and December 31, 2020,
respectively, and the average remaining guarantee term was eight years as of December 31, 2021 and December 31, 2020.
While we expect to earn future guarantee fees at the average guarantee fee rate over the average remaining guarantee
term, the actual amount earned will depend on the performance of the underlying collateral subject to our financial
guarantee.
n In addition to our Multifamily mortgage portfolio, we own equity interests in LIHTC fund partnerships with carrying values
totaling $2.0 billion and $1.4 billion as of December 31, 2021 and December 31, 2020, respectively. In September 2021,
FHFA announced that Freddie Mac may invest up to $850 million annually in the LIHTC market, an increase from the
previous limit of $500 million.
FREDDIE MAC | 2021 Form 10-K
54
$341$388$4154,3054,5984,652UPB of mortgage portfolioTotal units financed (In thousands)201920202021$270$312$348373942UPB of guarantee portfolioAverage guarantee fee rate charged (bps)201920202021
Management's Discussion and Analysis
Our Business Segments | Multifamily
CRT Activities
UPB Covered by New CRT Issuance New CRT Issuance Maximum Coverage
(In billions) (In billions)
n As of December 31, 2021, we had cumulatively transferred a substantial amount of the expected and stressed credit risk
on the Multifamily mortgage portfolio primarily through subordination in our securitizations. In addition, all of our
securitization activities shifted the interest rate and liquidity risk associated with the underlying collateral away from Freddie
Mac to third-party investors.
n The UPB of CRT transactions issued during 2021 increased compared to 2020 as we securitized the large securitization
pipeline from December 31, 2020, along with a significant portion of the 2021 new loan purchase activity. Our CRT
issuance activity also included several SCR Trust note transactions linked to reference pools of assets acquired prior to
2021. Despite the increased CRT UPB, our maximum coverage amount remained flat due to lower average subordination
levels on our K Certificate transactions issued during 2021. The lower subordination levels are still expected to absorb a
substantial amount of expected and stressed credit losses.
n As part of our securitization-related CRT activities, we generally guarantee the issued senior securities, thereby retaining
the most senior-level credit risk. In exchange for retaining this credit risk exposure we receive an ongoing guarantee fee.
We evaluate and update our risk transfer strategy as needed depending on our business strategy, market conditions, and
regulatory requirements. See MD&A - Risk Management - Multifamily Mortgage Credit Risk - Transferring Credit Risk
to Third-Party Investors for more information on risk transfer transactions and credit enhancements on our Multifamily
mortgage portfolio.
FREDDIE MAC | 2021 Form 10-K
55
$71$70$84201920202021$8.2$6.0$6.0201920202021 Management's Discussion and Analysis
Our Business Segments | Multifamily
Financial Results
The table below presents the components of net income and comprehensive income for our Multifamily segment.
Table 13 - Multifamily Segment Financial Results
Year Over Year Change
Year Ended December 31,
2021 vs. 2020
(Dollars in millions)
Net interest income
Guarantee income
Investment gains (losses), net
Other income (loss)
Net revenues
Credit-related income (expense)
Operating expense
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
2021
$1,307
918
2,385
114
2020
$1,179
1,330
1,925
176
2019
$1,184
1,045
518
107
4,724
4,610
2,854
55
(651)
4,128
(839)
3,289
(136)
(551)
3,923
(809)
3,114
(18)
(544)
2,292
(465)
1,827
Total other comprehensive income (loss), net of taxes
and reclassification adjustments
Comprehensive income (loss)
(110)
$3,179
101
$3,215
101
$1,928
$
$128
(412)
460
(62)
114
191
(100)
205
(30)
175
(211)
($36)
Key Drivers:
n 2021 vs. 2020
%
11 %
(31)
24
(35)
2
140
(18)
5
(4)
6
2020 vs. 2019
$
%
($5)
285
1,407
69
1,756
— %
27
272
64
62
(118)
(656)
(7)
1,631
(344)
1,287
(1)
71
(74)
70
—
67 %
(209)
(1) %
—
$1,287
l Lower guarantee income as continued growth in our guarantee portfolio was offset by the impacts of higher interest
rates on the fair values of our guarantee assets.
l Increase in net investment gains primarily due to higher pricing margins for new loan purchases and greater spread
tightening, partially offset by a smaller volume of new loan purchases as a result of a reduced Multifamily loan
purchase cap in 2021.
n 2020 vs. 2019
l Increase in guarantee income driven by continued growth in our guarantee portfolio, coupled with lower fair value
losses on our guarantee assets due to lower interest rates.
l Increase in net investment gains primarily due to higher pricing margins and greater volume of new loan purchases.
l Increase in credit-related expense due to higher expected credit losses as a result of the negative economic effects of
the COVID-19 pandemic.
FREDDIE MAC | 2021 Form 10-K
56
Management's Discussion and Analysis
Risk Management
RISK MANAGEMENT
Overview
To achieve our mission of providing liquidity, stability, and affordability to the U.S. housing market, we take risks as an integral
part of our business activities. Risk is the possibility that events will occur that adversely affect our financial strength,
operational resiliency, and the achievement of our mission, strategic, and business objectives. Risk can manifest itself in many
ways and the responsibility for risk management resides at all levels of the company. We seek to take risks in a safe and sound,
well-controlled manner to earn acceptable risk-adjusted returns on a corporate-wide, divisional, and, where applicable,
transaction basis. Our goal is to maintain an effective risk culture where employees are risk aware, collaborative, transparent,
and individually accountable for their decisions, and conduct business in an effective, legal, and ethical manner.
We utilize a risk taxonomy to define, classify, and report risks that we face in operating our business. These risks have the
potential to adversely affect our current or projected financial and operational resilience. Risks are classified into the following
categories:
n Credit Risk;
n Market Risk;
n Liquidity Risk;
n Operational Risk;
n Strategic Risk;
n Reputation Risk; and
n Legal Risk.
These risks are factored into our business decisions, as appropriate, with strategic, reputation, and legal risks managed outside
of the three lines of defense (which is referenced below). For more discussion of these and other risks facing our business, see
Risk Factors. See Liquidity and Capital Resources for a discussion of liquidity risk.
Enterprise Risk Framework
The enterprise risk framework is a key component for how we manage risk to achieve our mission, strategic, and business
objectives. The enterprise risk framework:
n Defines risk roles and responsibilities across the three lines of defense and
n Promotes accountability and transparency in risk management decisions and execution.
The framework includes the following components:
n Risk Governance - Risk governance defines the way in which we manage risk across the company by articulating specific
roles and responsibilities across the three lines of defense, including escalation and reporting. It is formalized through the
delegations of authority, corporate risk policies and standards, and the risk governance structure at the division, enterprise,
and Board levels.
l Delegations of Authority - The Board of Directors delegates authority to the CEO, who then delegates to members of
executive management.
l Corporate Risk Policies and Standards - Corporate risk policies and standards define roles and responsibilities with
respect to risk management, establish limits to risk taking authority, and set forth escalation and reporting
requirements.
l Risk Governance Structure - The risk governance structure consists of management- and Board-level committees
with roles and responsibilities formalized in their charters.
n Risk Culture - An effective risk culture promotes an environment where employees who take and manage risks for the
company are risk aware, collaborative, and transparent. Freddie Mac employees are held accountable for their decisions,
and must conduct business in a legal, ethical, and effective manner. Our risk culture is supported by performance
objectives and compensation programs that appropriately balance risk and return and motivate employees to conduct
business in compliance with our established risk appetite and corporate risk policies and standards.
n Risk Appetite - Risk appetite is the level of risk, both in aggregate and by risk type, within the company's risk capacity that
the Board of Directors and management are willing to assume to achieve the company's strategic goals. The risk appetite
is integrated and aligned with the strategic plans for the company and each business division. The risk appetite is
approved by the Board of Directors and then by FHFA as Conservator, which may change our risk appetite, including risk
limits.
FREDDIE MAC | 2021 Form 10-K
57
Management's Discussion and Analysis
Risk Management
n Risk Identification, Assessment, Control, and Monitoring - We use a risk taxonomy to define, classify, and report risks
that are associated with our business model and that we face in our day-to-day operations. Our risk management program
is supported through enterprise-wide practices and processes designed to identify, assess, control, monitor, and report on
all risks, including emerging risks and top risks. Our risk assessment process considers the inherent and residual risk levels
that inform our risk profile and allows us to identify and monitor risks. We have issue management processes established
in order to manage the remediation of identified process deficiencies and/or control weaknesses.
n Risk Reporting - Our risk management framework requires accurate and timely reporting needed for managing risks.
Regular reporting is provided to senior management and to the Board of Directors, or appropriate Board committees, at an
aggregate level to provide a comprehensive view of the company's risk position, its adherence to established Board limits
and management thresholds, emerging and top risks and an assessment of the control environment, risk drivers, stress
testing and scenario analysis, and issues and their remediation status.
FHFA has increased supervisory expectations related to how risk is managed and overseen by management and the Board of
Directors, and specifically the role of ERM to provide independent risk oversight and effective challenge. As a result, we must
continue to invest in our risk management practices to meet these expectations.
Enterprise Risk Governance Structure
We manage risk using a three-lines-of-defense risk management model and governance structure that includes enterprise-wide
oversight by the Board of Directors and its committees, the CRO, and the CCO.
The information and diagram below present the responsibilities associated with our three-lines-of-defense risk management
model and our risk governance structure. The risk governance structure also includes division risk committees to actively
discuss and monitor division-specific risk profiles, risk decisions, and risk appetite metrics, limits and thresholds, and risk type
committees to oversee specific risk types that are present in and span across business lines.
For more information on the role of the Board of Directors and its committees, see Directors, Corporate Governance, and
Executive Officers - Corporate Governance - Board of Directors and Board Committee Information.
FREDDIE MAC | 2021 Form 10-K
58
Management's Discussion and Analysis
Risk Management
FREDDIE MAC | 2021 Form 10-K
59
Management's Discussion and Analysis
Risk Management
Credit Risk
Overview
Credit risk is the risk associated with the inability or failure of a borrower, issuer, or counterparty to meet its financial and/or
contractual obligations. We are exposed to both mortgage credit risk and counterparty credit risk.
Mortgage credit risk is the risk associated with the inability or failure of a borrower to meet its financial and/or contractual
obligations. We are exposed to two types of mortgage credit risk:
n Single-Family mortgage credit risk, through our ownership or guarantee of loans in our Single-Family mortgage portfolio
and
n Multifamily mortgage credit risk, through our ownership or guarantee of loans in our Multifamily mortgage portfolio.
Counterparty credit risk is the risk associated with the inability or failure of a counterparty to meet its contractual obligations.
In the sections below, we provide a general discussion of our enterprise risk framework and current risk environment for
mortgage credit risk, including natural disaster and climate risk, and for counterparty credit risk.
Allowance for Credit Losses
Upon the adoption of CECL on January 1, 2020, we recognized an increase to the opening balance of the allowance for credit
losses. Under CECL, we recognize an allowance for credit losses before a loss event has been incurred, which results in earlier
recognition of credit losses compared to the previous incurred loss impairment methodology.
For Single-Family credit exposures under CECL, we estimate the allowance for credit losses for loans on a pooled basis using a
discounted cash flow model that evaluates a variety of factors to estimate the cash flows we expect to collect. The discounted
cash flow model forecasts cash flows over the loan’s remaining contractual life, adjusted for expectations of prepayments and
TDRs we reasonably expect will occur, and using our historical experience, adjusted for current and future economic forecasts.
These projections require significant management judgment, and we face uncertainties and risks related to the models we use
for financial accounting and reporting purposes. For further information on our accounting policies and methods for estimating
our allowance for credit losses and related management judgments, see MD&A - Critical Accounting Estimates.
For Multifamily credit exposures under CECL, we estimate the allowance for credit losses using a loss-rate method to estimate
the net amount of cash flows we expect to collect. The loss rate method is based on a probability of default and loss given
default framework that estimates credit losses by considering a loan’s underlying characteristics and current and forecasted
economic conditions. Loan characteristics considered by our model include vintage, loan term, current DSCR, current LTV
ratio, occupancy rate, and interest rate hedges. We generally forecast economic conditions over a reasonable and supportable
two-year period prior to reverting to historical averages at the model input level over a five-year period, using a linear reversion
method. We also consider as model inputs expected prepayments, contractually specified extensions, modifications we
reasonably expect will occur, expected recoveries from collateral posting requirements, and expected recoveries from attached
credit enhancements. Management adjustments may be necessary to our model output to take into consideration current
economic events and other external factors.
Under CECL, upon reclassification from held-for-investment to held-for-sale, we perform a collectability assessment. When we
determine that a loan to be reclassified has experienced a more-than-insignificant deterioration in credit quality since
origination, the excess of the loan’s amortized cost basis over its fair value is written off against the allowance for credit losses
prior to the reclassification.
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Management's Discussion and Analysis
Risk Management
The table below presents a summary of key allowance for credit losses ratios and the changes in our allowance for credit
losses.
Table 14 - Allowance for Credit Losses Ratios
December 31, 2021
December 31, 2020
December 31, 2019
Single-
Family
Multifamily
Total
Single-
Family
Multifamily
Total
Single-
Family
Multifamily
Total
(Dollars in millions)
Allowance for credit losses:
Beginning balance
$6,353
$200
$6,553
$5,233
$68
$5,301
$6,176
$15
$6,191
Provision (benefit) for credit
losses
Charge-offs(1)
Recoveries collected
Net charge-offs
Other(2)
Ending balance
(919)
(122)
(1,041)
1,320
132
1,452
(749)
(1,107)
197
(910)
916
—
—
—
—
(1,107)
197
(910)
916
(592)
210
(382)
182
—
—
—
—
(592)
210
(382)
182
(1,737)
452
(1,285)
126
3
—
—
—
—
(746)
(1,737)
452
(1,285)
126
$5,440
$78
$5,518
$6,353
$200
$6,553
$4,268
$18
$4,286
Components of ending balance of allowance for credit losses:
Mortgage loans held-for-
investment
Advances of pre-foreclosure
costs
Accrued interest receivable
on mortgage loans
Off-balance sheet credit
exposures
$4,913
$34
$4,947
$5,628
$104
$5,732
$4,222
$12
$4,234
450
24
53
—
—
44
450
24
97
536
140
49
—
—
96
536
140
145
—
—
46
—
—
—
—
6
52
Total ending balance
$5,440
$78
$5,518
$6,353
$200
$6,553
$4,268
$18
$4,286
Loan balances(3):
Non-accrual loans
$18,650
$—
$18,650
$13,677
$—
$13,677
$6,370
$13
$6,383
Total loans outstanding
2,806,535
26,743
2,833,278
2,333,991
21,977
2,355,968
1,971,657
17,489
1,989,146
Average loans outstanding
during the year
Ratios:
Allowance for credit losses(4)
to total loans outstanding
Non-accrual loans to total
loans outstanding
Allowance for credit losses(5)
to non-accrual loans
Net charge-offs to average
loans outstanding
2,597,016
23,736
2,620,752
2,113,212
19,546
2,132,758
1,921,198
15,414
1,936,612
0.18 %
0.13 %
0.17 %
0.24 %
0.47 %
0.24 %
0.21 %
0.07 %
0.21 %
0.66
—
0.66
0.59
26.34
NM
26.53
41.15
0.04
—
0.03
0.02
—
NM
—
0.58
0.32
0.07
0.32
41.91
66.28
92.31
66.33
0.02
0.07
—
0.07
(1)
(2)
(3)
(4)
(5)
The Single-Family mortgage portfolio in 2021, 2020 and 2019 includes charge-offs of $0.1 billion, $0.3 billion and $1.3 billion, respectively, related to the transfer of
loans from held-for-investment to held-for-sale.
Primarily includes capitalization of past due interest related to non-accrual loans that receive payment deferral plans and loan modifications.
Based on amortized cost basis of held-for-investment loans.
Represent allowance for credit losses on total held-for-investment loans.
NM - not meaningful due to the non-accrual loans balance rounding to zero.
n 2021 vs. 2020
l The ratio of allowance for credit losses to total loans outstanding decreased as the allowance for credit losses
decreased due to the reserve release driven by reduced expected credit losses related to the COVID-19 pandemic.
This was partially offset by growth in our Single-Family mortgage portfolio as newly acquired loans had a higher ratio
than the existing portfolio.
l The ratio of non-accrual loans to total loans outstanding increased as we placed certain loans in forbearance plans on
non-accrual status.
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Management's Discussion and Analysis
Risk Management
l The ratio of allowance for credit losses to non-accrual loans decreased as we placed certain loans in forbearance
plans on non-accrual status.
n 2020 vs. 2019
l The ratio of non-accrual loans to total loans outstanding increased as the increase in the number of loans we placed
on non-accrual status outpaced the growth in our Single-Family mortgage portfolio.
l The ratio of allowance for credit losses to non-accrual loans decreased as the increase in the allowance for credit
losses was offset by the increase in the number of loans we placed on non-accrual status.
See Note 6 for additional information on our allowance for credit losses and Note 4 for additional information on our non-
accrual policy.
The table below shows the contractual principal payments due by specified timeframe for held-for-investment loans
outstanding as of December 31, 2021.
Table 15 - Principal Amounts Due for Held-for-Investment Loans
(In millions)
Single-Family:
Fixed-rate
Adjustable-rate
Total Single-Family
Multifamily:
Fixed-rate
Adjustable-rate
Total Multifamily
Cost basis adjustments
Total
Due in One Year
or Less
Due after One Year
through Five Years
Due after Five Years
through 15 Years
Due after 15
Years
Total
December 31, 2021
$87,916
874
88,790
186
933
1,119
$376,616
$1,011,848
$1,243,084
$2,719,464
3,683
380,299
10,110
8,720
23,387
1,021,958
1,251,804
2,742,851
3,937
1,610
5,547
17,971
510
18,481
1,510
—
1,510
23,604
3,053
26,657
63,770
$2,833,278
Single-Family Mortgage Credit Risk
We manage our exposure to Single-Family mortgage credit risk, which is a type of consumer credit risk, using the following
principal strategies:
n Maintaining prudent underwriting standards and quality control practices and managing seller/servicer performance;
n Transferring credit risk to third-party investors;
n Monitoring loan performance and characteristics;
n Engaging in loss mitigation activities; and
n Managing foreclosure and REO activities.
Maintaining Prudent Underwriting Standards and Quality Control Practices and
Managing Seller/Servicer Performance
We employ multiple strategies to maintain loan quality:
n Underwriting standards, as published in our Guide and incorporated in Freddie Mac Loan Advisor®, establish the
requirements for eligibility, documentation, and representations and warranties;
n Loan quality control practices, including post-close credit review and the remedy management repurchase process, help to
validate that the loan origination process is acceptable to us and loans are produced to perform at or above expected
levels; and
n Seller/servicer management, including review of their in-house quality control as well as our loan performance monitoring,
helps to maintain quality control for loans sold and/or serviced by third parties.
Underwriting Standards
We use a delegated underwriting process in connection with our acquisition of single-family loans whereby we set eligibility and
underwriting standards, and sellers represent and warrant to us that loans they sell to us meet these standards. Our eligibility
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Management's Discussion and Analysis
Risk Management
and underwriting standards are used to assess loans based on a number of characteristics.
Limits are established on the purchase of loans with certain higher risk characteristics. These limits are designed to balance our
credit risk exposure while supporting affordable housing in a responsible manner. Our purchase guidelines generally provide
for:
n A maximum original LTV ratio of 97% for creditworthy first-time homebuyers and for a targeted segment of creditworthy
borrowers meeting certain AMI requirements under our affordable housing initiatives;
n A maximum original LTV ratio of 95% for all other home purchase and no cash-out refinance loans; and
n A maximum original LTV ratio of 80% for cash-out refinance loans.
Loan Advisor is our main tool for assessing loan eligibility and documentation. Loan Advisor is a set of integrated software
applications and services designed to give lenders access to our view of risk, loan quality, and eligibility during the origination
process, which promotes efficient commerce between lenders and Freddie Mac. As a key component of Loan Advisor, Loan
Product Advisor® (LPA) takes advantage of proprietary data models and intelligent automation to help lenders validate that
submitted loans meet our underwriting standards. LPA features innovative tools and offerings leveraging algorithms to enhance
the origination process and generates an assessment of a loan’s credit risk and overall quality.
Historically, the majority of our purchase volume was assessed using either LPA, Fannie Mae's comparable software Desktop
Underwriter (DU), or the seller's proprietary automated underwriting system. We have implemented steps to require the loans
we purchase to be assessed by one of Freddie Mac's proprietary underwriting software tools, LPA or Loan Quality Advisor®,
prior to purchase. Substantially all of the loans we purchase are now assessed by Freddie Mac's proprietary underwriting
software, helping validate their compatibility with our risk appetite.
With Loan Advisor, lenders can actively monitor representation and warranty relief earlier in the mortgage loan production
process. Loan Advisor offers limited representation and warranty relief for certain loan components that satisfy automated data
analytics related to appraisal quality, valuation, borrower assets, and borrower income. In general, limited representation and
warranty relief is only offered when information provided by lenders is validated through the use of independent data sources.
If we discover that the representations or warranties related to a loan were breached (i.e., that contractual standards were not
followed), we can exercise certain contractual remedies to mitigate our actual or potential credit losses. These contractual
remedies include the ability to require the seller or servicer to repurchase the loan at its current UPB, reimburse us for losses
realized with respect to the loan after consideration of any other recoveries, and/or indemnify us. Our current remedies
framework provides for the categorization of loan origination defects for loans with settlement dates on or after January 1,
2016. Among other items, the framework provides that "significant defects" will result in a repurchase request or a repurchase
alternative, such as recourse or indemnification.
Under our current selling and servicing representation and warranty framework for our mortgage loans, we relieve sellers of
repurchase obligations for breaches of certain selling representations and warranties for certain types of loans, including:
n Loans that have established an acceptable payment history for 36 months (12 months for relief refinance loans) of
consecutive, on-time payments after purchase, subject to certain exclusions and
n Loans that have satisfactorily completed a quality control review.
An independent dispute resolution process for alleged breaches of selling or servicing representations and warranties on our
loans allows for a neutral third party to render a decision on demands that remain unresolved after the existing appeal and
escalation processes have been exhausted.
Quality Control Practices
We employ a quality control process to review loan underwriting documentation for compliance with our standards using both
random and targeted samples. We also perform quality control reviews of many delinquent loans and review loans that have
resulted in credit losses before the representations and warranties are relieved. Sellers may appeal our ineligible loan
determinations prior to repurchase of the loan.
We use a standard quality control process that facilitates more timely reviews and is designed to identify breaches of
representations and warranties early in the life of the loan. Proprietary tools, such as Quality Control Advisor®, provide greater
transparency into our customer quality control reviews.
Appraisal Waivers
Since June 2017, we have permitted sellers to originate certain eligible loans without a traditional appraisal by leveraging our
proprietary models, along with historical data and public records through our Loan Product Advisor® Automated Collateral
Evaluation (ACE). For mortgaged properties meeting certain qualifications as specified in the Guide, the property value
(purchase price for purchase transactions and borrower provided estimated value for refinances) and condition are assessed
using ACE. ACE uses our in-house automated valuation model, Home Value Explorer® (HVE). HVE was built and is periodically
enhanced for the express purpose of managing collateral risk at Freddie Mac. ACE leverages statistically based, empirically
derived confidence scores to assess collateral risk. House price appreciation during the COVID-19 pandemic has increased
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Management's Discussion and Analysis
Risk Management
uncertainty for HVE, house price appreciation models, and traditional valuation methods, including appraisals. House prices
have appreciated markedly despite the lagging performance of underlying fundamentals such as the unemployment rate and
other economic indicators.
In response to the COVID-19 pandemic, in March 2020, we introduced expanded eligibility of ACE waivers to include no cash-
out refinance with LTV ratios up to 90%, cash-out refinances for primary residences with LTV ratios up to 70%, and second
homes with LTV ratios up to 60%. During the pandemic, homeowners and appraisers expressed concerns with appraisers
entering properties, which potentially could stall the process of closing loans. As a result of this expansion, combined with a
historically high refinance market (ACE waivers are granted more often for refinanced loans), ACE waiver usage increased from
approximately 11% during 2019 to 40% during 2020, and averaged 39% during 2021. We monitor the size of ACE waivers
relative to Fannie Mae’s appraisal waivers to reduce prepayment misalignment risk in UMBS.
Managing Seller/Servicer Performance
We actively monitor seller and servicer performance, including compliance with our standards. We maintain approval standards
for our seller/servicers, which include requiring our sellers to maintain an in-house quality control program with written
procedures that operates independently of the seller’s underwriting and origination functions. We monitor servicer performance
using our Servicer Success Scorecard. In addition, we perform servicing and loan modification quality control reviews on
selected servicers through random sampling of delinquent loans and executed loan modifications.
Temporary Underwriting Changes Due to the COVID-19 Pandemic
We announced temporary changes in our underwriting standards due to the COVID-19 pandemic, which may negatively affect
the expected performance of purchased loans that were underwritten under these temporary changes. Many of these
temporary changes have either expired or, in certain cases, been made permanent.
In March and May 2020, we introduced a number of temporary measures to help provide sellers with the clarity and flexibility to
continue to lend in a prudent and responsible manner during the COVID-19 pandemic. The flexibility we allowed in
demonstrating a borrower's current employment status has expired and is not applicable to loan applications dated on or after
May 1, 2021. The option to verify the borrower’s employment via email was included permanently in our Guide on April 7, 2021.
The following temporary measures have expired and are not applicable to loan applications dated on or after August 11, 2021:
n Requiring income and asset documentation to be dated closer to the loan closing date in order to verify the most up-to-
date information is being used to support the borrower's ability to repay and
n Establishing underwriting restrictions applicable to a borrower's accounts containing stocks, stock options, and mutual
funds due to then current market volatility.
The following temporary measures are in effect until further notice:
n Requiring verification that the business is open and operating for self-employed borrowers;
n Requiring mortgages to be sold to Freddie Mac within six months of the note date; and
n Verifying that any mortgage that a borrower has is current or is brought current via reinstatement or by making at least
three consecutive timely payments under a loss mitigation program.
The temporary measure that required additional income documentation for self-employed borrowers expired on February 2,
2022 for most mortgages.
In March and April 2020, we announced loan processing flexibilities to expedite loan closings and help keep homebuyers,
sellers, and appraisers safe during the COVID-19 pandemic. These flexibilities expired and are not applicable to loan
applications dated on or after June 1, 2021. They included:
n Allowing desktop appraisals or exterior-only inspection appraisals for certain purchase transactions;
n Allowing exterior-only appraisals for certain no cash-out refinances;
n Allowing desktop appraisals on new construction properties (purchase transactions);
n Allowing flexibility on demonstrating that construction has been completed; and
n Allowing flexibility for borrowers to provide documentation (rather than requiring an inspection) to allow renovation
disbursements (draws).
The following temporary flexibilities have expired and are not applicable to loan applications dated on or after May 1, 2021:
n Offering flexibility in condominium project reviews and
n Expanding the use of powers of attorney and remote online notarizations. Permanent updates to our requirements for the
use of powers of attorney were included in our Guide and are effective for applications dated on or after June 30, 2021.
Some of these changes in our underwriting standards due to the COVID-19 pandemic may negatively affect the expected
performance of loans purchased while these changes are in effect. The pandemic may also strain sellers' ability to increase
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Management's Discussion and Analysis
Risk Management
their operational capacity to handle the historically high volume of refinance mortgages while maintaining proper quality control,
which may further impact the credit quality of the loans we purchase during the affected periods. In addition, the CARES Act
requires creditors to report to credit bureaus that loans in relief programs, such as forbearance plans, repayment plans, and
loan modification programs, are current as long as the loans were current prior to entering into the relief programs and the
borrowers remain in compliance with the programs. This credit reporting requirement applies to all mortgage relief programs
entered into between January 31, 2020 and the date that is 120 days after the declaration of the national emergency related to
the COVID-19 pandemic ends. As a result, our ability to evaluate purchases of new loans may be adversely affected as credit
scores may not fully reflect the impact of relief programs, offered by us or other creditors, into which borrowers may have
entered.
We announced in April 2020 that we would temporarily purchase certain single-family mortgage loans that have entered into
forbearance as a result of borrower hardship caused by the COVID-19 pandemic in order to help provide liquidity to the
mortgage market and allow originators to keep lending. This temporary measure was extended to include mortgage loans with
note dates on or after April 1, 2020 and on or before December 31, 2020 and with settlement dates on or before February 28,
2021. The purchases of such loans have been insignificant. We also temporarily halted the purchase of negotiated bulk
transactions and the purchase of flow loans with more than six months seasoning in May 2020.
At the instruction of FHFA, we implemented a 50 basis point adverse market refinance fee for refinance mortgages, excluding
those with low balances and certain product types, with settlement dates on or after December 1, 2020. In July 2021, FHFA
instructed us to eliminate this fee for loan deliveries effective August 1, 2021.
Underwriting Restrictions Related to Purchase Agreement
The Purchase Agreement requires us to limit our acquisition of certain single-family mortgage loans as follows:
n A maximum of 6% of purchase money mortgages and 3% of refinance mortgages over the preceding 52-week period can
have two or more of the following characteristics at origination: combined LTV ratio greater than 90%; debt-to-income ratio
greater than 45%; and FICO or equivalent credit score less than 680.
n Acquisitions of single-family mortgage loans secured by either second homes or investment properties are limited to 7% of
the single-family mortgage loan acquisitions over the preceding 52-week period.
n Subject to such exceptions as FHFA may prescribe to permit us to acquire single-family mortgage loans that are currently
eligible for acquisition, we were required to implement by July 1, 2021 a program reasonably designed to ensure that each
single-family mortgage loan acquired is: (1) a qualified mortgage; (2) exempt from the CFPB’s ability-to-repay
requirements; (3) secured by an investment property, subject to the restrictions above; (4) a refinancing with streamlined
underwriting for high LTV ratios; (5) a loan with temporary underwriting flexibilities due to exigent circumstances, as
determined in consultation with FHFA; or (6) secured by manufactured housing.
In September 2021, the Purchase Agreement limits on our acquisitions of single-family loans with certain LTV, DTI, and credit
score characteristics at origination and on our acquisitions of single-family loans secured by second homes or investment
properties were suspended. For additional information, see MD&A - Regulation and Supervision - Legislative and
Regulatory Developments - September 2021 Letter Agreement with Treasury.
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65
Management's Discussion and Analysis
Loan Purchase Credit Characteristics
Risk Management
We monitor and evaluate market conditions that could affect the credit quality of our single-family loan purchases. The graphs
below show the credit profile of the single-family loans we purchased or guaranteed.
Weighted Average Original LTV Ratio
Weighted Average Original Credit Score
(1) Weighted average original credit score is based on three credit bureaus
(Equifax, Experian, and TransUnion).
The table below contains additional information about the single-family loans we purchased or guaranteed.
Table 16 - Single-Family New Business Activity
(Dollars in billions)
Amount
% of Total
Amount
% of Total
Amount
% of Total
Year Ended December 31,
2021
2020
2019
20- and 30-year or more amortizing fixed-rate
$1,042
86 %
15-year amortizing fixed-rate
Adjustable-rate
Total
Percentage of purchases
DTI ratio > 45%
Original LTV ratio > 90%
Transaction type:
Cash window
Guarantor swap
Property type:
Detached single-family houses and townhouses
Condominium or co-op
Occupancy type:
Primary residence
Second home
Investment property
Loan purpose:
Purchase
Cash-out refinance
Other refinance
FREDDIE MAC | 2021 Form 10-K
173
5
14
—
$919
167
4
85 %
$405
15
—
43
5
89 %
10
1
$1,220
100 %
$1,090
100 %
$453
100 %
11 %
11
43
57
93
7
93
3
4
35
25
40
10 %
11
61
39
93
7
94
3
3
30
18
52
14 %
19
48
52
92
8
92
4
4
55
18
27
66
77%71%71%201920202021751759753201920202021
Management's Discussion and Analysis
Risk Management
Transferring Credit Risk to Third-Party Investors
Types of Credit Enhancements
Our Charter requires coverage by specified credit enhancements or participation interests on single-family loans with LTV ratios
above 80% at the time of purchase. Most of our loans with LTV ratios above 80% are protected by primary mortgage
insurance, which provides loan-level protection against loss up to a specified amount, the premium for which is typically paid
by the borrower. Generally, an insured loan must be in default and the borrower's interest in the underlying property must have
been extinguished, such as through a short sale or foreclosure sale, before a claim can be filed under a primary mortgage
insurance policy. The mortgage insurer has a prescribed period of time within which to process a claim and make a
determination as to its validity and amount.
In addition to obtaining credit enhancements required by our Charter, we also enter into various CRT transactions in which we
transfer mortgage credit risk to third parties. The table below contains a summary of the types of credit enhancements we use
to transfer credit risk on our single-family loans. See MD&A - Our Business Segments - Single-Family - Products and
Activities for more information on our CRT transactions.
Category
Products
Primary mortgage insurance
Primary mortgage insurance
STACR
Insurance/reinsurance
Other
STACR Trust notes
STACR debt notes
ACIS
Other insurance/reinsurance products
Senior subordinate securitization structures backed by
seasoned loans (nonconsolidated)
Senior subordinate securitization structures backed by
recently originated loans (consolidated)
Lender risk-sharing
CRT
Coverage type
Accounting treatment
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Front-end
Back-end
Back-end
Back-end
Front-end
Back-end
Back-end
Front-end
Attached
Freestanding
Debt
Freestanding
Freestanding
Guarantee
Debt
Freestanding
Single-Family Mortgage Portfolio CRT Issuance
The table below provides the UPB of the mortgage loans covered by CRT transactions issued during the periods presented as
well as the maximum coverage provided by those transactions.
Table 17 - Single-Family Mortgage Portfolio CRT Issuance
2021
Year Ended December 31,
2020
2019
UPB(1)
Maximum
Coverage(2)
UPB(1)
Maximum
Coverage(2)
UPB(1)
Maximum
Coverage(2)
$574,705
465,043
5,094
(216,386)
$11,024
$427,155
$11,141
7,885
1,062
—
422,719
15,563
(388,340)
4,181
2,379
(769)
$203,239
210,650
43,888
(203,239)
$6,671
2,687
3,526
(723)
(In millions)
STACR
Insurance/reinsurance
Other
Less: UPB with more than
one type of CRT
Total CRT Issuance
$828,456
$19,971
$477,097
$16,932
$254,538
$12,161
(1)
(2)
Represents the UPB of the assets included in the associated reference pool or securitization trust, as applicable. Prior periods have been revised to conform to the
current period presentation.
For STACR transactions, represents the balance held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance
purchased from third parties at issuance.
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Management's Discussion and Analysis
Risk Management
Single-Family Mortgage Portfolio Credit Enhancement Coverage Outstanding
The table below provides information on the UPB and maximum coverage associated with credit-enhanced loans in our Single-
Family mortgage portfolio.
Table 18 - Single-Family Mortgage Portfolio Credit Enhancement Coverage Outstanding
(Dollars in millions)
Primary mortgage insurance(3)
STACR
Insurance/reinsurance
Other
Less: UPB with multiple credit enhancements and other reconciling items(4)
Single-Family mortgage portfolio - credit-enhanced
Single-Family mortgage portfolio - non-credit-enhanced
Total
(Dollars in millions)
Primary mortgage insurance(3)
STACR
Insurance/reinsurance
Other
Less: UPB with multiple credit enhancements and other reconciling items(4)
Single-Family mortgage portfolio - credit-enhanced
Single-Family mortgage portfolio - non-credit-enhanced
December 31, 2021
UPB(1)
% of Portfolio
Maximum Coverage(2)
$545,293
1,024,013
914,003
42,273
(1,034,546)
1,491,036
1,301,188
$2,792,224
20%
$135,330
37
33
1
(38)
53
47
100%
32,641
16,209
10,598
—
194,778
N/A
$194,778
December 31, 2020
UPB(1)
% of Portfolio
Maximum Coverage(2)
$472,881
853,733
876,815
50,275
(1,101,461)
1,152,243
1,174,183
$2,326,426
20%
$116,973
37
38
2
(47)
50
50
100%
29,665
11,586
11,384
—
169,608
N/A
$169,608
Total
(1)
(2)
(3)
(4)
Represents the current UPB of the assets included in the associated reference pool or securitization trust, as applicable. Prior periods have been revised to conform
to the current period presentation.
For STACR transactions, represents the outstanding balance held by third parties. For insurance/reinsurance transactions, represents the remaining aggregate limit
of insurance purchased from third parties.
Amounts exclude certain loans for which we do not control servicing, as the coverage information for these loans is not readily available to us.
Other reconciling items primarily include timing differences in reporting cycles between the UPB of certain CRT transactions and the UPB of the underlying loans.
Our maximum coverage as a percentage of the UPB associated with credit-enhanced loans decreased to 13% as of December
31, 2021 from 15% as of December 31, 2020, driven by the improved credit quality of the covered loans, which reduced the
amount of credit coverage we required on those loans.
Credit Enhancement Coverage Characteristics
The table below provides the serious delinquency rates for the credit-enhanced and non-credit-enhanced loans in our Single-
Family mortgage portfolio. The credit-enhanced categories are not mutually exclusive as a single loan may be covered by both
primary mortgage insurance and other credit enhancements.
Table 19 - Serious Delinquency Rates for Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family
Mortgage Portfolio
December 31, 2021
December 31, 2020
% of Portfolio
SDQ Rate
% of Portfolio
SDQ Rate
(% of portfolio based on UPB)(1)
Credit-enhanced:
Primary mortgage insurance
CRT and other
Non-credit-enhanced
Total
(1)
Excludes loans underlying certain securitization products for which loan-level data is not available.
FREDDIE MAC | 2021 Form 10-K
20 %
47
47
N/A
1.79 %
1.24
0.93
1.12
21 %
41
50
N/A
3.77 %
3.22
2.13
2.64
68
Management's Discussion and Analysis
Risk Management
The table below provides information on the amount of credit enhancement coverage by year of origination associated with
loans in our Single-Family mortgage portfolio.
Table 20 - Credit Enhancement Coverage by Year of Origination
(Dollars in millions)
Year of Loan Origination
2021
2020
2019
2018
2017
2016 and prior
Total
December 31, 2021
December 31, 2020
% of UPB with
Credit
Enhancement
UPB
$1,059,299
40 %
867,122
157,971
66,149
88,800
552,883
$2,792,224
68
71
78
72
46
53
UPB
N/A
$971,092
276,302
118,668
147,856
812,508
$2,326,426
% of UPB with
Credit
Enhancement
N/A
36 %
73
80
75
49
50
The following table provides information on the characteristics of the loans in our Single-Family mortgage portfolio without
credit enhancement.
Table 21 - Single-Family Mortgage Portfolio Without Credit Enhancement(1)
(Dollars in millions)
Low current LTV ratio(1)(2)
Short-term(1)(3)
CRT pipeline(1)(4)
Other(1)(5)
December 31, 2021
December 31, 2020
UPB
% of Portfolio
UPB
% of Portfolio
$968,315
73,947
239,330
19,596
35 %
$784,150
2
9
1
81,681
276,611
31,741
34 %
3
12
1
50 %
Single-Family mortgage portfolio - non-credit-enhanced
$1,301,188
47 %
$1,174,183
(1)
(2)
(3)
(4)
(5)
Loans with multiple characteristics are assigned to categories in this table based on the following order: low current LTV ratio, short-term, and CRT pipeline.
Represents loans with current LTV ratio less than or equal to 60%.
Represents loans with an original maturity of 20 years or less.
Represents recently acquired loans that are targeted to be included in on-the-run CRT transactions and have not been included in a reference pool.
Primarily includes government guaranteed loans, ARM loans, loans with a current LTV ratio greater than 97%, loans that fail the delinquency requirements for CRT
transactions, and relief refinance loans and loans that were acquired before the inception of our CRT programs in 2013.
Credit Enhancement Expenses and Recoveries
The recognition of expenses and recoveries associated with credit enhancements in our consolidated financial statements
depends on the type of credit enhancement.
Expected recoveries from attached credit enhancements, mainly primary mortgage insurance, reduce the amount of the
provision for credit losses on the covered loans. There is no separate credit enhancement expense or expected credit
enhancement recovery for attached credit enhancements. Rather, the cost of the credit enhancement is reflected in our
financial results as lower revenue, as we charge a lower guarantee fee for loans covered by these types of credit enhancements
than we would otherwise charge for a similar loan without credit enhancement. If the loan proceeds to a loss event, we
derecognize the loan and associated allowance for credit losses and recognize a receivable for the expected primary mortgage
insurance proceeds. Similarly, we do not recognize a provision for credit losses on guarantees protected by subordination
unless expected credit losses exceed the amount of subordination.
Expected recoveries from freestanding credit enhancements do not reduce the provision for credit losses on the covered loans
but are recognized separately, at the same time that we recognize an allowance for credit losses on the covered loans, as a
reduction to non-interest expense measured on the same basis as the allowance for credit losses on the covered loans. We
recognize the payments we make to transfer credit risk under freestanding credit enhancements, primarily STACR Trust notes
and insurance/reinsurance transactions, as credit enhancement expense when incurred.
In prior years, we obtained credit enhancement through the issuance of credit-linked debt, primarily STACR debt notes. We
recognize the cost of these transactions as interest expense. We no longer issue credit-linked debt as part of our primary CRT
strategy and therefore expect the effect of these transactions on our financial results to become less significant over time.
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Management's Discussion and Analysis
Risk Management
See MD&A - Consolidated Results of Operations and MD&A - Our Business Segments - Single-Family for
additional information on credit enhancement expense.
The table below presents the details of the credit enhancement recovery receivables we have recognized within other assets on
our consolidated balance sheet.
Table 22 - Single-Family Credit Enhancement Receivables
(In millions)
December 31, 2021
December 31, 2020
Freestanding credit enhancement expected recovery receivables, net of allowance
Primary mortgage insurance receivables(1), net of allowance
Total credit enhancement receivables
$114
76
$190
$653
74
$727
(1)
Excludes $433 million and $444 million of deferred payment obligations associated with unpaid claim amounts as of December 31, 2021 and December 31, 2020,
respectively. We have reserved substantially all of these unpaid amounts as collectability is uncertain.
Monitoring Loan Performance and Characteristics
We review loan performance, including delinquency statistics and related loan characteristics, in conjunction with housing
market and economic conditions, including economic effects associated with the COVID-19 pandemic, to assess credit risk
when estimating our allowance for credit losses. We also use this information to determine if our pricing and eligibility standards
reflect the risk associated with the loans we purchase and guarantee. We review the payment performance of our loans to
facilitate early identification of potential problem loans, which could inform our loss mitigation strategies. We also review
performance metrics for additional loan characteristics that may expose us to concentrations of credit risk.
FREDDIE MAC | 2021 Form 10-K
70
Management's Discussion and Analysis
Risk Management
Loan Characteristics
The table below contains a description of some of the credit characteristics that we monitor for loans in our Single-Family
mortgage portfolio.
Credit Characteristic
Description
Impact on Credit Quality
LTV ratio
Credit score
Ratio of the UPB of the loan to the value of the underlying
property collateralizing the loan. Original LTV ratio is
measured at loan origination, while CLTV ratio is defined
as the ratio of the current loan UPB to the estimated
current property value.
Statistically-derived number that may indicate a
borrower's likelihood to repay debt. Original credit score
represents each borrower's FICO score at the time of
origination or our purchase, while current credit score
represents each borrower's most recent FICO score,
which is obtained by Freddie Mac as of the first month of
the most recent quarter
• Measures ability of the underlying property to cover our
exposure on the loan
• Higher LTV ratios indicate higher risk, as proceeds from sale of
the property may not cover our exposure on the loan
• Lower LTV ratios indicate borrowers are more likely to repay
• Borrowers with higher credit scores are generally more likely to
repay or have the ability to refinance their loans than those with
lower scores
Loan purpose
Indicates how the borrower intends to use the proceeds
from a loan (i.e., purchase, cash-out refinance, or other
refinance)
• Cash-out refinancings, which increase the LTV ratios, generally
have a higher risk of default than loans originated in purchase
or other refinance transactions
Property type
Indicates whether the property is a detached single-family
house, townhouse, condominium, or co-op
Occupancy type
Indicates whether the borrower intends to use the
property as a primary residence, second home, or
investment property
Product type
Indicates the type of loan based on key loan terms, such
as the contractual maturity, type of interest rate, and
payment characteristics of the loan
Second liens
Indicates whether the underlying property is covered by
more than one loan at the time of origination
• Detached single-family houses and townhouses are the
predominant type of single-family property
• Condominiums historically have experienced greater volatility in
house prices than detached single-family houses, which may
expose us to more risk
• Loans on primary residence properties tend to have lower credit
risk than loans on second homes or investment properties
• Loan products that contain terms which result in scheduled
changes in monthly payments may result in higher risk
• Shorter loan terms result in faster repayment of principal and
may indicate lower risk
• Second liens can increase the risk of default
• Borrowers are free to obtain second-lien financing after
origination, and we are not entitled to receive notification when
a borrower does so
DTI ratio
Ratio of the borrowers' total monthly debt payments to
gross monthly income. One indicator of the
creditworthiness of the borrowers, as it measures
borrowers' ability to manage monthly payments and repay
debts
• Borrowers with lower DTI ratios are generally more likely to
repay their loans than those with higher DTI ratios, holding all
other factors equal
• DTI ratios are at the time of origination and may not be
indicative of the borrowers' current credit worthiness
FREDDIE MAC | 2021 Form 10-K
71
Management's Discussion and Analysis
Risk Management
The tables below contain details of the characteristics of the loans in our Single-Family mortgage portfolio.
Table 23 - Credit Quality Characteristics of Our Single-Family Mortgage Portfolio
(Dollars in billions)
Single-Family mortgage portfolio year of origination:
2021
2020
2019
2018
2017
2016 and prior
Total
(Dollars in billions)
Single-Family mortgage portfolio year of origination:
2020
2019
2018
2017
2016
2015 and prior
Total
(1)
(2)
December 31, 2021
Original
Credit
Score (1)
Current
Credit
Score (1)(2)
Original
LTV Ratio
Current
LTV
Ratio
Current
LTV Ratio
>100%
UPB
$1,059
867
158
66
89
553
752
760
746
736
741
737
751
769
751
736
746
752
71 %
66 %
— %
71
76
76
75
75
72
56
55
52
46
36
55
—
—
—
—
—
—
$2,792
751
756
December 31, 2020
Original
Credit
Score (1)
Current
Credit
Score (1)(2)
Original
LTV Ratio
Current
LTV
Ratio
Current
LTV Ratio
>100%
UPB
$971
276
119
148
187
625
760
747
739
742
748
737
758
754
739
747
758
750
$2,326
749
754
71 %
68 %
— %
77
77
75
73
75
74
67
62
56
49
41
58
—
—
—
—
—
—
Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.
Credit scores for certain recently acquired loans may not have been updated by the credit bureau since the loan acquisition, and therefore, the original credit scores
also represent the current credit scores.
FREDDIE MAC | 2021 Form 10-K
72
Management's Discussion and Analysis
Risk Management
Table 24 - Characteristics of the Loans in Our Single-Family Mortgage Portfolio
(Dollars in billions)
20- and 30-year or more amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable-rate
Alt-A, interest-only, and option ARM
Total
Percentage of portfolio based on UPB
Original LTV ratio range:
60% and below
Above 60% to 80%
Above 80% to 90%
Above 90% to 100%
Above 100%
Portfolio weighted average original LTV ratio
Current LTV ratio range:
60% and below
Above 60% to 80%
Above 80% to 90%
Above 90% to 100%
Above 100%
Portfolio weighted average current LTV ratio
Original credit score(1)
:
740 and above
700 to 739
680 to 699
660 to 679
620 to 659
Less than 620
Portfolio weighted average original credit score
Current credit score(1)(2)
:
740 and above
700 to 739
680 to 699
660 to 679
620 to 659
Less than 620
Portfolio weighted average current credit score
DTI ratio:
Above 45%
Portfolio weighted average DTI ratio
Property type:
Detached single-family houses and townhouse
Condominium or co-op
Occupancy type at origination:
Primary residence
Second home
Investment property
Loan purpose:
Purchase
Cash-out refinance
Other refinance
2021
Year Ended December 31,
2020
2019
Amount
% of Total
Amount
% of Total
Amount
% of Total
$2,359
393
21
19
$2,792
84 %
14
1
1
100 %
1,950
326
26
24
$2,326
84 %
14
1
1
100 %
1,689
241
37
27
$1,994
25 %
51
11
12
1
72
58
35
5
2
—
55
65
20
7
4
3
1
751
70
15
5
4
4
2
756
14
34
93
7
91
4
5
36
22
42
22 %
51
12
13
2
74
51
37
10
2
—
58
64
20
7
4
4
1
749
70
15
5
3
4
3
754
14
35
92
8
90
4
6
38
19
43
85 %
12
2
1
100 %
18 %
52
12
16
2
76
51
35
9
5
—
59
61
21
7
5
4
2
745
66
16
5
4
4
5
749
15
35
92
8
90
4
6
46
20
34
(1)
(2)
Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.
Credit scores for certain recently acquired loans may not have been updated by the credit bureau since the loan acquisition, and therefore, the original credit scores
also represent the current credit scores.
FREDDIE MAC | 2021 Form 10-K
73
Management's Discussion and Analysis
Risk Management
At December 31, 2021, approximately 4% of our loans had second-lien financing by the originator or other third party at
origination, and these loans comprised approximately 9% of our seriously delinquent loan population. It is likely that additional
borrowers have post-origination second-lien financing.
Participants in the mortgage market have characterized single-family loans based upon their overall credit quality at the time of
origination, including as prime or subprime. While we have used the terms subprime and Alt-A in this Form 10-K, there is no
universally accepted definition of subprime or Alt-A, and the classification of such loans may differ from company to company.
We have not historically characterized the loans in our Single-Family mortgage portfolio as either prime or subprime for
purposes of evaluating credit risk, and we do not rely on these loan classifications to evaluate the credit risk exposure relating
to such loans in our Single-Family mortgage portfolio. To evaluate credit risk, we monitor the amount of loans we have
guaranteed with characteristics that indicate a higher degree of credit risk.
There are also several types of loans that contain terms which result in scheduled changes in the borrower’s monthly payments
after specified initial periods, such as option ARM and interest-only loans. These products may result in higher credit risk
because the payment changes may increase the borrower’s monthly payment, resulting in a higher risk of default. Only a small
percentage of our Single-Family mortgage portfolio consists of option ARM, Alt-A, and interest-only loans. We fully
discontinued purchases of option ARM loans in 2007, Alt-A loans in 2009, and interest-only loans in 2010.
The following table presents the combination of credit score and CLTV ratio attributes of loans in our Single-Family mortgage
portfolio.
Table 25 - Single-Family Mortgage Portfolio Attribute Combinations
December 31, 2021
CLTV ≤ 60
CLTV > 60 to 80
CLTV > 80 to 90
CLTV > 90 to 100
CLTV > 100
All Loans
(Original Credit
score)
% of
Portfolio
SDQ Rate
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ Rate(1)
% of
Portfolio
SDQ Rate
%
Modified(2)
< 620
0.8 % 6.69 %
0.2 % 11.68 %
— % NM
— % NM
— %
620 to 679
≥ 680
Not
available
4.4
51.9
3.29
0.80
2.3
32.3
3.05
0.78
0.1
6.58
—
NM
0.3
5.3
—
2.56 %
0.54
NM
0.1
2.3
—
2.57 %
0.25
NM
—
—
—
NM
NM
NM
NM
1.0 % 7.50 %
8.5 %
7.1
91.8
3.22
0.78
3.7
0.6
0.1
6.85
18.7
Total
57.2 % 1.19
34.8 % 1.04
5.6 % 0.77
2.4 % 0.47
— % NM
100.0 % 1.12
1.0
CLTV ≤ 60
CLTV > 60 to 80
CLTV > 80 to 90
CLTV > 90 to 100
CLTV > 100
All Loans
December 31, 2020
(Original Credit
score)
% of
Portfolio
SDQ Rate
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ
Rate(1)
% of
Portfolio
SDQ Rate
%
Modified(2)
< 620
0.9 % 9.27 %
0.3 % 14.96 %
0.1 % 18.74 %
— % NM
— % NM
1.3 % 11.00 % 10.2 %
620 to 679
≥ 680
Not
available
4.2
45.4
5.93
1.83
2.5
34.5
7.93
2.31
0.1
7.96
—
NM
0.5
8.9
—
8.17
2.37
NM
0.1
2.4
—
7.92 %
0.96
NM
—
0.1
—
NM
7.3
12.56 % 91.3
6.64
2.00
7.1
0.6
NM
0.1
8.79
16.9
Total
50.6 % 2.46
37.3 % 2.94
9.5 % 2.90
2.5 % 1.69
0.1 % 18.11
100.0 % 2.64
1.4
(1)
(2)
NM - not meaningful due to the percentage of the portfolio rounding to zero.
Primarily includes loans modified through the Freddie Mac Flex Modification program.
Certain of the loan attributes shown above may indicate a higher risk of default. For example, loans with LTV ratios over 90% or
credit scores below 620 may be higher risk. A single loan may fall within more than one risk category. Certain combinations of
loan attributes can indicate an even higher degree of credit risk, such as loans with both higher LTV ratios and lower credit
scores.
Geographic Concentrations
We purchase mortgage loans from across the U.S. However, local economic conditions can affect the borrower's ability to
repay and the value of the underlying collateral, leading to concentrations of credit risk in certain geographic areas. In addition,
certain states and municipalities may pass laws that limit our ability to foreclose or evict and make it more difficult and costly to
manage our risk.
See Note 16 for more information about the geographic distribution of our Single-Family mortgage portfolio.
FREDDIE MAC | 2021 Form 10-K
74
Management's Discussion and Analysis
Risk Management
Delinquency Rates
We report Single-Family delinquency rates based on the number of loans in our Single-Family mortgage portfolio that are past
due as reported to us by our servicers as a percentage of the total number of loans in our Single-Family mortgage portfolio.
The chart below shows the delinquency rates of mortgage loans in our Single-Family mortgage portfolio.
Single-Family Delinquency Rates
The percentages of loans that were one month past due and two months past due increased in early 2020 due to the COVID-19
pandemic and have trended back towards pre-pandemic levels as the impact of the pandemic on early-stage delinquencies
has started to stabilize. The percentage of loans one month past due can be volatile due to seasonality and other factors that
may not be indicative of default. As a result, the percentage of loans two months past due tends to be a better early
performance indicator than the percentage of loans one month past due.
Our Single-Family serious delinquency rate decreased to 1.12% as of December 31, 2021, compared to 2.64% as of December
31, 2020 as borrowers continued to exit forbearance and complete loan workout solutions that returned their mortgages to
current status. In addition, 56% of the seriously delinquent loans at December 31, 2021 were covered by credit enhancements
that are designed to partially reduce our credit risk exposure to these loans. See Note 4 for additional information on the
payment status of our single-family mortgage loans.
Loans in COVID-19 Related Forbearance Plans
Pursuant to FHFA guidance and the CARES Act, we have offered mortgage relief options for borrowers affected by the
COVID-19 pandemic. Among other things, we have offered forbearance of up to 18 months to single-family borrowers
experiencing a financial hardship, either directly or indirectly, related to the COVID-19 pandemic. We have also offered a
payment deferral plan that allows a borrower to defer up to 18 months of payments for eligible homeowners who have the
financial capacity to resume making their monthly payments, but who are unable to afford the additional monthly contributions
required by a repayment plan. The CARES Act requires our servicers to report to credit bureaus that loans in mortgage relief
programs, such as forbearance plans, repayment plans, and loan modification programs, are current as long as the loans were
current prior to entering into the mortgage relief programs and the borrowers remain in compliance with the programs. This
credit reporting requirement applies to all mortgage relief programs entered into between January 31, 2020 and the date that is
120 days after the declaration of the national emergency related to the COVID-19 pandemic ends. Our ability to monitor the
credit quality of loans in our Single-Family mortgage portfolio may be adversely affected as credit scores may not reflect the
impact of relief programs, offered by us or other creditors, into which borrowers may have entered.
For the purpose of reporting delinquency rates, we report single-family loans in forbearance as delinquent during the
forbearance period to the extent that payments are past due based on the loan's original contractual terms, irrespective of the
forbearance plan.
FREDDIE MAC | 2021 Form 10-K
75
1.26%1.01%0.81%0.33%0.38%0.20%0.63%2.64%1.12%One month past dueTwo months past dueSeriously delinquent4Q194Q204Q21 Management's Discussion and Analysis
Risk Management
The table below presents payment status information of our single-family loans in forbearance based on the loans' original
contractual terms.
Table 26 - Single-Family Loans in Forbearance Plans by Payment Status(1)
Current
One Month
Past Due
December 31, 2021
Two
Months
Past Due
Three
Months to Six
Months Past Due(2)
Greater Than Six
Months Past Due(2)
Total
(Dollars in millions)
UPB
Number of loans (in thousands)
8
7
6
$1,553
$1,474
$1,233
$3,713
18
$7,890
$15,863
36
75
As a percentage of our Single-Family
mortgage portfolio(3)
0.06 %
0.05 %
0.05 %
0.13 %
0.28 %
0.57 %
Current
One Month
Past Due
December 31, 2020
Two
Months
Past Due
Three
Months to Six
Months Past Due(2)
Greater Than Six
Months Past Due(2)
Total
(Dollars in millions)
UPB
Number of loans (in thousands)
44
28
22
As a percentage of our Single-Family
mortgage portfolio(3)
0.37 %
0.23 %
0.18 %
$8,907
$5,443
$4,372
$15,366
75
0.63 %
$35,144
$69,232
155
1.29 %
324
2.70 %
(1)
(2)
Excludes certain loans for which we do not control servicing and loans underlying certain legacy transactions, as the forbearance information for these loans is
either not reported to us by the servicers or is otherwise not readily available to us. These loans represented approximately 1.6% and 2.0% of the Single-Family
mortgage portfolio as of December 31, 2021 and December 31, 2020, respectively.
The UPB of loans in forbearance that were three months or more past due and continuing to accrue interest was $5.9 billion and $42.2 billion, respectively, as of
December 31, 2021 and December 31, 2020.
(3)
Based on loan count.
The CARES Act, as amended by the Consolidated Appropriations Act, 2021, provides temporary relief from the accounting
requirements for TDRs for certain loan modifications that are the result of a hardship that is related, either directly or indirectly,
to the COVID-19 pandemic. We have elected to apply this temporary relief and, therefore, do not account for qualifying loan
modifications as TDRs. In addition, interpretive guidance issued by federal banking regulators and endorsed by the FASB staff
has indicated that government-mandated modification or deferral programs related to the COVID-19 pandemic are not TDRs as
the lender did not choose to grant a concession to the borrower. As a result, substantially all of the forbearance and other relief
programs we have been offering because of COVID-19 have not been accounted for as TDRs.
We generally place single-family loans on non-accrual status when the loan becomes three monthly payments past due. For
loans in active forbearance plans that were current prior to receiving forbearance, we continue to accrue interest income while
the loan is in forbearance and is three or more monthly payments past due when we believe the available evidence indicates
that collectability of principal and interest is reasonably assured based on management judgment, taking into consideration
additional factors, the most important of which is the current LTV ratio. When we accrue interest on loans that are three or more
monthly payments past due, we measure an allowance for expected credit losses on unpaid accrued interest receivable
balances such that the balance sheet reflects the net amount of interest we expect to collect. The balance of accrued interest
receivable, net of allowance for credit losses, recognized on our consolidated balance sheet related to loans in COVID-19
forbearance plans was $0.2 billion and $1.1 billion as of December 31, 2021 and December 31, 2020, respectively. See Note 4
for additional information on our accounting policies for forbearance programs related to the COVID-19 pandemic.
Prior to expiration of a borrower's forbearance plan, servicers are required to contact the borrower to determine how the
payments missed during the forbearance period will be repaid. We require servicers to follow a defined loss mitigation hierarchy
to determine which options to offer to borrowers. This hierarchy is determined based on certain factors, such as the borrowers’
delinquency status, reasons for delinquency, loan types, and types of hardships. Borrowers are not required to repay all past
due amounts in a single lump sum. Upon expiration of the forbearance plan, borrowers may reinstate the loan or enter into
either a repayment plan, a payment deferral plan, or a trial period plan pursuant to a loan modification. If the borrower is not
eligible for any of the home retention options, we may seek to pursue a foreclosure alternative or foreclosure. As a result of
loans exiting COVID-19 related forbearance plans through payment deferral plans or loan modifications during 2021 and 2020,
we deferred $1.4 billion and $0.4 billion, respectively, of delinquent interest into non-interest-bearing principal balances that are
due at the earlier of the payoff date, maturity date, or sale of the property.
FREDDIE MAC | 2021 Form 10-K
76
Management's Discussion and Analysis
Risk Management
The table below presents a summary of single-family loans that received forbearance plans and were past due based on the
loans' original contractual terms at some point during the forbearance period.
Table 27 - Single-Family Loans that Received Forbearance Plans(1)
(Loan count in thousands)
December 31, 2021 December 31, 2020
Active forbearance plan at end of period
Forbearance plan exits(2) (from January 1, 2020 to end of period):
Reinstatement(3)
Pay-off
Payment deferral plan
Other(4)
Total forbearance plan exits(5)
Total single-family loans that received forbearance plans(6) (from January 1, 2020 to end of period)
67
263
67
374
87
791
858
280
189
39
166
43
437
717
(1)
(2)
(3)
(4)
(5)
Excludes certain loans for which we do not control servicing and loans underlying certain legacy transactions, as the forbearance information for these loans is either
not reported to us by the servicers or is otherwise not readily available to us. These loans represented approximately 1.6% and 2.0% of the Single-Family mortgage
portfolio as of December 31, 2021 and December 31, 2020, respectively.
Represents the exit path the borrower took upon exit from the forbearance plan, which could be during or at the end of the forbearance period.
Includes forbearance plans where the borrower brought the mortgage current during forbearance.
Primarily includes forbearance plans where the borrowers remained delinquent and the exit paths were not determined at the end of the forbearance periods. Also
includes other exit paths such as repayment plans, modifications, and foreclosure alternatives.
86% and 83% of loans that received and subsequently exited forbearance plans were current, paid off, or sold as of December 31, 2021 and December 31, 2020,
respectively.
(6)
Based on number of forbearance plans. A loan may be included more than once if it received more than one forbearance plan during the period.
Engaging in Loss Mitigation Activities
We offer a variety of borrower assistance programs, including refinance programs for certain eligible loans and loan workout
activities for struggling borrowers. See MD&A - Our Business Segments - Single-Family for more information on our loss
mitigation activities.
Relief Refinance Program
The following table includes information about the performance of our relief refinance mortgage portfolio.
Table 28 - Single-Family Relief Refinance Loans
(Dollars in millions)
Above 125% Original LTV
Above 100% to 125% Original LTV
Above 80% to 100% Original LTV
80% and below Original LTV
Total
Loan Workout Activities
December 31, 2021
December 31, 2020
UPB
Loan Count
SDQ Rate
UPB
Loan Count
SDQ Rate
2.69 %
$11,972
$8,084
15,538
27,035
40,442
$91,099
61,100
116,683
222,332
460,777
860,892
2.51
2.05
1.36
1.79
23,064
38,994
55,291
83,439
159,542
293,582
575,708
$129,321
1,112,271
4.41 %
4.33
3.88
2.70
3.38
The table below contains credit characteristic data on our single-family modified loans.
Table 29 - Credit Characteristics of Single-Family Modified Loans
(Dollars in billions)
Loan modifications(1)
UPB
% of
Portfolio
CLTV Ratio
SDQ Rate
UPB
% of
Portfolio
CLTV Ratio
SDQ Rate
$21.9
1 %
51 %
14.65 %
$27.6
1 %
58 %
22.39 %
December 31, 2021
December 31, 2020
(1)
Primarily includes loans modified through the Freddie Mac Flex Modification program and excludes certain loans for which we do not control servicing.
FREDDIE MAC | 2021 Form 10-K
77
Management's Discussion and Analysis
Risk Management
The table below contains information about the payment performance of modified loans in our Single-Family mortgage
portfolio, based on the number of loans that were current or paid off one year and, if applicable, two years after modification.
Table 30 - Payment Performance of Single-Family Modified Loans(1)
Current or paid off
one year after modification:
Current or paid off
two years after modification:
Quarter of Loan Modification Completion
4Q 2020
3Q 2020
2Q 2020
1Q 2020
4Q 2019
3Q 2019
2Q 2019
1Q 2019
83 %
70 %
64 %
59 %
57 %
57 %
57 %
67 %
N/A
N/A
N/A
N/A
65
64
61
58
(1)
Primarily includes loans modified through the Freddie Mac Flex Modification program and excludes certain loans for which we do not control servicing.
Managing Foreclosure and REO Activities
In a foreclosure, we may acquire the underlying property and later sell it, using the proceeds of the sale to reduce our losses.
We typically acquire properties as a result of borrower defaults and subsequent foreclosures or deeds in lieu of foreclosure on
loans that we own or guarantee. We evaluate the condition of, and market for, newly acquired REO properties, determine if
repairs will be performed and manage such repairs, determine occupancy status and whether there are legal or other issues to
be addressed, and determine our sale or disposition strategy. When we sell REO properties, we typically provide an initial
period where we consider offers by owner occupants and entities engaged in community stabilization activities before offers by
investors. We also consider disposition strategies, such as auctions, as appropriate to improve collateral recoveries and/or
when traditional sales strategies (i.e., marketing via Multiple Listing Service and a real estate agent) may not be as effective.
We are subject to various state and local laws that affect the foreclosure process. The pace and volume of REO acquisitions are
affected not only by the delinquent loan population but also by when we can initiate the foreclosure process and the length of
the process. These factors extend the time it takes for loans to be foreclosed upon and for the underlying properties to
transition to REO. Our management of REO properties is also governed by federal fair housing/fair lending requirements. We
are revising our REO repair program to increase the number of homes we refurbish so as to attract more owner-occupant
buyers.
Pursuant to FHFA guidance and the CARES Act, we were required to suspend COVID-19-related foreclosures, other than for
vacant or abandoned properties, until July 31, 2021, and COVID-19-related REO evictions until September 30, 2021. As a result
of these suspensions, the volume of our foreclosure sales decreased from 13,000 in 2019 to 4,000 in 2020 and 3,000 in 2021.
After July 31, 2021, servicers implemented CFPB foreclosure regulations issued on June 28, 2021, which established temporary
protections for borrowers affected by the COVID-19 pandemic through December 31, 2021.
Delays in Foreclosure Process and Average Length of Foreclosure Process
Our serious delinquency rates and credit losses may be adversely affected by delays in the foreclosure process, particularly in
states where a judicial foreclosure process is required. Foreclosures generally take longer to complete in such states, resulting
in concentrations of delinquent loans in those states, as shown in the table below. At December 31, 2021, loans in states with a
judicial foreclosure process comprised 37% of our Single-Family mortgage portfolio.
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Management's Discussion and Analysis
Risk Management
The table below presents the length of time our loans have been seriously delinquent, by jurisdiction type.
Table 31 - Seriously Delinquent Single-Family Loans by Jurisdiction
Aging, by locality
Judicial states
<= 1 year
> 1 year and <= 2 years
> 2 years
Non-judicial states
<= 1 year
> 1 year and <= 2 years
> 2 years
Combined
<= 1 year
> 1 year and <= 2 years
> 2 years
Total
Year Ended December 31,
2021
2020
2019
Loan Count
%
Loan Count
%
Loan Count
%
33,252
30,896
7,271
37,426
34,975
3,402
70,678
65,871
10,673
23 %
132,103
42 %
26,063
37 %
21
5
25
24
2
48
45
7
9,627
6,072
158,563
6,659
2,283
290,666
16,286
8,355
3
2
50
2
1
92
5
3
7,416
5,336
24,997
3,928
1,981
51,060
11,344
7,317
11
8
36
5
3
73
16
11
147,222
100 %
315,307
100 %
69,721
100 %
The longer a loan remains delinquent, the greater the associated costs we incur. Loans that remain delinquent for more than
one year, and are not in active forbearance plans, are more challenging to resolve as many of these borrowers may not be in
contact with the servicer, may not be eligible for loan modifications, or may determine that it is not economically beneficial for
them to enter into a loan modification due to the amount of costs incurred on their behalf while the loan was delinquent. We
expect the portion of our credit losses related to loans in states with judicial foreclosure processes will remain high as loans
awaiting court proceedings in those states transition to REO or other loss events. The number of our single-family loans
delinquent for more than one year increased 211% during 2021.
Our servicing guidelines do not allow initiation of the foreclosure process on a primary residence until a loan is at least 121 days
delinquent, regardless of where the property is located. However, we evaluate the timeliness of foreclosure completion by our
servicers based on the state where the property is located. Our servicing guide provides for instances of allowable foreclosure
delays in excess of the expected timelines for specific situations involving delinquent loans, such as when the borrower files for
bankruptcy or appeals a denial of a loan modification.
The table below presents average completion times for foreclosures of our single-family loans.
Table 32 - Average Length of Foreclosure Process for Single-Family Loans
(Average days)
Judicial states
Florida
New Jersey
New York
All other judicial states
Judicial states, in aggregate
Non-judicial states, in aggregate
Total
Year Ended December 31,
2021
2020
2019
1,262
1,179
1,653
889
970
827
916
1,037
983
1,800
669
802
537
690
1,143
1,089
1,765
692
872
520
730
As indicated in the table above, the average length of the foreclosure process for our single-family loans generally increased in
2021 compared to 2020 as loans impacted by the COVID-19 pandemic and related foreclosure moratorium awaited court
proceedings before transitioning to REO or other loss events.
Our REO inventory continued to decline in 2021, although at a slower pace than in 2020, primarily due to FHFA guidance and
the CARES Act, which required us to suspend certain foreclosures and evictions due to the COVID-19 pandemic. In addition to
significantly slower new REO inflows, increased buyer demand resulting from low interest rates and a housing shortage kept
REO dispositions at a steady pace. Foreclosure and eviction suspensions began to end in 3Q 2021, and our REO inventory
began to increase in 4Q 2021. Even in the absence of these unique circumstances, the decline of our REO inventory continued
to be driven in part by the improved credit quality of our portfolio, effective loss mitigation and REO disposition strategies, and
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Management's Discussion and Analysis
Risk Management
a large proportion of property sales to third parties at foreclosure. Third-party sales at foreclosure auction allow us to avoid the
REO property expenses that we would have otherwise incurred if we held the property in our REO inventory until disposition.
The table below shows our Single-Family REO activity.
Table 33 - Single-Family REO Activity
(Dollars in millions)
Beginning balance - REO
Additions
Dispositions
Ending balance - REO
Beginning balance, valuation allowance
Change in valuation allowance
Ending balance, valuation allowance
Ending balance - REO, net
Collateral Deficiency Ratios
Year Ended December 31,
2021
2020
2019
Number of
Properties
Amount
Number of
Properties
Amount
Number of
Properties
Amount
1,766
1,693
(1,844)
1,615
$199
159
(179)
179
(1)
(2)
(3)
$176
4,989
2,361
(5,584)
1,766
$565
214
(580)
199
(10)
9
(1)
$198
7,100
7,910
$780
786
(10,021)
(1,001)
4,989
565
(11)
1
(10)
$555
Collateral deficiency ratios are the percentages of our realized losses when loans are resolved by the completion of REO
dispositions and third-party foreclosure sales or short sales. Collateral deficiency ratios are calculated as the amount of our
recognized losses divided by the aggregate UPB of the related loans. The amount of recognized losses is equal to the amount
by which the UPB of the loans exceeds the amount of sales proceeds from disposition of the properties, net of capitalized
repair and selling expenses, if applicable. Collateral deficiency excludes recoveries from credit enhancements and certain
expenses and costs related to the foreclosure process that are recognized on our consolidated financial statements, such as
property taxes, homeowner's insurance premiums, property maintenance costs, and the cost of funding the loans after they are
repurchased from the associated security pool. Our overall loss severity is typically higher than the collateral deficiency when
these items are included.
The table below presents Single-Family collateral deficiency ratios.
Table 34 - Single-Family Collateral Deficiency Ratios
REO dispositions and third-party foreclosure sales
Short sales
Year Ended December 31,
2020
2019
2021
6.8 %
19.1
20.4 %
22.6
21.7 %
24.5
Our collateral deficiency ratios declined during 2021 compared to 2020, primarily driven by house price appreciation as well as
effective cost control and disposition strategies.
REO Property Status
A significant portion of our REO portfolio is unable to be marketed at any given time because the properties are occupied,
involved in legal matters (e.g., bankruptcy or other litigation), or subject to a redemption period, which is a post-foreclosure
period during which borrowers may reclaim a foreclosed property. Redemption periods increase the average holding period of
our inventory by as much as 10% or more. As of December 31, 2021, approximately 36% of our REO properties were unable to
be marketed because the properties were occupied, located in states with a redemption period, or subject to other legal
matters. Another 29% of the properties were being prepared for sale (i.e., valued, marketing strategies determined, and
repaired). As of December 31, 2021, approximately 22% of our REO properties were listed and available for sale, and 13% of
our inventory was pending the settlement of sales. Though it varied significantly by state, the average holding period of our
single-family REO properties, excluding any redemption period, was 284 days and 250 days for our REO dispositions during
2021 and 2020, respectively.
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Management's Discussion and Analysis
Risk Management
Multifamily Mortgage Credit Risk
We manage our exposure to multifamily mortgage credit risk, which is a type of commercial real estate credit risk, using the
following principal strategies:
n Maintaining policies and procedures for new business activity, including prudent underwriting standards;
n Managing our portfolio, including loss mitigation activities; and
n Transferring credit risk to third-party investors.
Maintaining Policies and Procedures for New Business Activity, Including Prudent
Underwriting Standards
We use a prior approval underwriting approach for multifamily loans, completing our own underwriting, credit review, and legal
review for each new loan prior to issuing a loan purchase commitment. This helps us maintain credit discipline throughout the
process. Our underwriting standards focus on the LTV ratio and DSCR, which estimates a borrower's ability to repay the loan
using the secured property's cash flows, after expenses. A higher DSCR indicates lower credit risk. Our standards define
maximum LTV ratios and minimum DSCRs that vary based on the characteristics and features of the loan. Loans are generally
underwritten with a maximum original LTV ratio of 80% and a DSCR of greater than 1.25, assuming monthly payments that
reflect amortization of principal. However, certain loans may have a higher LTV ratio and/or a lower DSCR, typically where this
will serve our mission and contribute to achieving our affordable housing goals.
Underwriting consideration is also given to other qualitative factors, such as borrower experience, the type of loan, location of
the property, and the strength of the local market. Sellers provide certain representations and warranties regarding the loans
they sell to us and are required to repurchase loans for which there has been a breach of representation or warranty. These
representations and warranties are made as of the date the loan is sold to Freddie Mac, and unless Freddie Mac agrees to an
exception to the representation and warranty at purchase, the repurchase remedy may be claimed upon proof of the breach.
However, repurchases of multifamily loans have been rare due to our underwriting approach, which is completed prior to
issuance of a loan purchase commitment.
Multifamily loans may be amortizing or interest-only (for the full term or a portion thereof) and have a fixed or variable rate of
interest. Multifamily loans generally amortize over a thirty-year period, but have shorter contractual maturity terms than single-
family loans, typically ranging from five to ten years. As a result, most multifamily loans require a balloon payment at maturity,
making a borrower's ability to refinance or pay off the loan at maturity a key attribute. Some borrowers may be unable to
refinance during periods of rising interest rates or adverse market conditions, increasing the likelihood of borrower default.
Occasionally, we securitize loans or bonds contributed by third parties that are underwritten by us after origination. Prior to
securitization, we are not exposed to the credit risk of these underlying loans or bonds. However, as we may guarantee some
or all of the securities issued by the trusts used in these transactions, we effectively assume credit risk equal to the guaranteed
UPB. Similar to our primary securitizations, these other securitizations generally provide for structural credit enhancements
(e.g., subordination or other loss sharing arrangements) that allocate first loss exposure to third parties.
Notwithstanding the effects of the COVID-19 pandemic on the multifamily market and broader economic environment, the
credit quality of our multifamily new loan purchases and guarantees in 2021 remained consistent with prior periods.
The graphs below show the original credit profile of the multifamily loans we purchased or guaranteed.
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Management's Discussion and Analysis
Risk Management
Weighted Average Original LTV Ratio
Weighted Average Original DSCR
The table below presents the percentage of our Multifamily new business activity that had certain characteristics that may be
considered higher risk.
Table 35 - Percentage of Multifamily New Business Activity With Higher Risk Characteristics
Original LTV ratio greater than 80%(1)
Original DSCR less than or equal to 1.10(1)
(1) Shown as a percentage of Multifamily new business activity.
Managing Our Portfolio, Including Loss Mitigation Activities
Year Ended December 31,
2021
2020
2019
1 %
1
1 %
1
2 %
1
To help mitigate our potential losses, we generally require sellers to act as the primary servicer for loans they have sold to us,
including property monitoring tasks beyond those typically performed by single-family servicers. We typically transfer the role of
master servicer in our K Certificate transactions to third parties, while retaining that role in our SB Certificate transactions.
Servicers for unsecuritized loans over $1 million must generally provide us with an assessment of the mortgaged property at
least annually based on the servicer's analysis of the property as well as the borrower's financial statements. In situations
where a borrower or property is in distress, the frequency of communications with the borrower may be increased. We rate
servicing performance on a regular basis, and we may conduct on-site reviews to confirm compliance with our standards.
Substantially all of our guarantees have first loss credit protection provided by subordination. As a result, our primary credit risk
exposure stems from unsecuritized loans and consolidated loans underlying our PC securitizations. By their nature, loans
awaiting securitization that we hold for sale remain on our balance sheet for a shorter period than loans we hold for investment.
For unsecuritized loans, we may offer a workout option to give the borrower an opportunity to bring the loan current and retain
ownership of the property, such as providing a short-term extension of up to 12 months. These arrangements are entered into
with the expectation that we will recover our initial investment or minimize our losses. We do not enter into these arrangements
in situations where we believe we would experience a loss in the future that is greater than or equal to the loss we would
experience if we foreclosed on the property at the time of the agreement. Our multifamily loan modification and other workout
activities on unsecuritized loans have been minimal in the last three years.
For consolidated loans underlying our PC securitizations, we generally retain full credit risk exposure through our guarantee,
although we may subsequently transfer a portion of that credit risk using other CRT products.
Various federal, state, and local laws may affect our business processes and financial results. Future changes in these laws
may adversely impact our borrowers or make it more difficult and costly for us to manage our credit risk. Rent restrictions and
eviction moratoriums may adversely impact the cash flows generated by the underlying properties, while foreclosure
moratoriums may limit our ability to pursue certain loss mitigation actions (e.g., foreclosure) upon a borrower default.
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68%69%68%2019202020211.331.401.35201920202021 Management's Discussion and Analysis
Risk Management
Loans in COVID-19 Related Forbearance Plans
Pursuant to FHFA guidance and the CARES Act, Freddie Mac and Fannie Mae offer multifamily borrowers mortgage
forbearance with the condition that they suspend all evictions during the forbearance period for renters unable to pay rent.
Under our forbearance program, which is available until otherwise instructed by FHFA, multifamily borrowers with a fully
performing loan as of February 1, 2020 can defer their loan payments for up to 90 days by showing hardship as a consequence
of the COVID-19 pandemic and by gaining lender approval. After the forbearance period, the borrower is required to repay the
forborne loan amounts in no more than 12 equal monthly installments.
In June 2020, in coordination with FHFA, we announced three supplemental forbearance relief options that servicers may use to
assist borrowers that continue to be affected by the COVID-19 pandemic. These supplemental relief options added to the
original tenant protections by providing flexibility to tenants to repay past due rent over time and not in a lump sum, and
extended the prohibition on charging tenants fees and penalties for past due rent through both the forbearance and repayment
periods. The three supplemental relief options include: (1) the option to delay the start of the repayment period following the
initial forbearance period, (2) an extension of the repayment period, and (3) an extension of the forbearance period with an
optional extended repayment period.
In coordination with FHFA, we have implemented numerous protections for tenants as part of our forbearance program. In May
2020, pursuant to FHFA guidance, we introduced an online multifamily property lookup tool to help renters determine if they are
temporarily protected from eviction due to nonpayment of rent during the COVID-19 national health emergency. In August
2020, we modified our forbearance program to introduce requirements for borrowers with a forbearance plan to provide
notification to tenants of certain protections available to those tenants. In August 2021, we further modified our forbearance
program to provide reminders to borrowers of the continuing applicability of the CARES Act requirement that tenants be given
at least 30 days' notice to vacate, and to request that borrowers provide their tenants with information on tenant assistance
resources.
We report multifamily delinquency rates based on the UPB of loans in our Multifamily mortgage portfolio that are two monthly
payments or more past due based on the loan's current contractual terms, or in the process of foreclosure, as reported by our
servicers. Loans in forbearance are not considered delinquent as long as the borrower is in compliance with the forbearance
agreement, including the agreed upon repayment plan.
As of December 31, 2021 and December 31, 2020, the UPB of multifamily loans in our COVID-19 forbearance program was
$1.7 billion and $7.8 billion, respectively. Since the inception of our COVID-19 forbearance program, 77.0% of loans, based on
UPB, that received relief have exited forbearance through full repayment of the forborne amounts, while 17.8% remain active in
either their forbearance or repayment periods. The remaining percentage exited our forbearance program through either
delinquency or a third-party modification program.
Of the loans that remain in our COVID-19 forbearance program, 68.7%, based on UPB, are in securitizations with first loss
credit protection provided by subordination. The weighted average subordination level of securitizations with subordination that
have loans in forbearance was 14.2% as of December 31, 2021. 13.0% of loans in forbearance are scheduled to mature prior to
2023.
Transferring Credit Risk to Third-Party Investors
Types of Credit Enhancements
In connection with the acquisition, guarantee, and/or securitization of a loan or group of loans, we may obtain various forms of
credit protection that reduce our credit risk exposure to the underlying mortgage borrower and reduce our required capital. For
example, at the time of loan acquisition or guarantee, we may obtain recourse and/or indemnification protection from our
lenders or sellers. After acquisition, we primarily reduce our credit risk exposure to the underlying borrower by using one of our
securitization products.
The following table summarizes our principal types of credit enhancements. See Our Business Segments - Multifamily -
Business Overview - Products and Activities for additional information on our securitization and credit risk transfer products.
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Management's Discussion and Analysis
Risk Management
Category
Products
Subordination
Primary securitization products
Other securitization products:
• Securitizations of purchased collateral
• Securitizations of collateral contributed by third parties
Lender risk-sharing
Securitizations in which we issue fully guaranteed securities and
simultaneously enter into a separate loss sharing agreement.
Insurance/reinsurance MCIP
SCR
SCR Trust notes
SCR debt notes
Multifamily Mortgage Portfolio CRT Issuance
CRT
Yes
Yes
No
Yes
Yes
Yes
Yes
Coverage Type
Back-end
Back-end
Front-end
Front-end
Back-end
Back-end
Back-end
Accounting
Treatment
Guarantee
Guarantee/Debt
Guarantee
Freestanding
Freestanding
Freestanding
Debt
The table below provides the UPB of the mortgage loans covered by CRT transactions issued during the periods presented as
well as the maximum coverage provided by those transactions.
Table 36 - Multifamily Mortgage Portfolio CRT Issuance
(In millions)
Subordination
SCR
Insurance/reinsurance
Lender risk-sharing
Total CRT Issuance
2021
December 31,
2020
2019
UPB(1)
Maximum
Coverage(2)
UPB(1)
Maximum
Coverage(2)
UPB(1)
Maximum
Coverage(2)
$68,836
14,502
—
1,015
$84,353
$5,079
$66,187
$5,741
$67,648
$8,011
827
—
110
—
2,646
1,568
—
65
217
—
1,873
1,263
—
84
149
$6,016
$70,401
$6,023
$70,784
$8,244
(1)
Represents the UPB of the assets included in the associated reference pool or securitization trust, as applicable.
(2) For subordination, represents the UPB of the securities that are held by third parties at issuance and are subordinate to the securities we guarantee. For SCR
transactions, represents the UPB of securities held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance
purchased from third parties at issuance. For lender risk-sharing, represents the amount of loss recovery that is available subject to the terms of counterparty
agreements at issuance.
Multifamily Mortgage Portfolio Credit Enhancement Coverage Outstanding
While we obtain various forms of credit protection in connection with the acquisition, guarantee, and/or securitization of a loan
or group of loans, our principal credit enhancement type is subordination, which is created through our securitization
transactions. As of December 31, 2021 and December 31, 2020, our maximum coverage provided by subordination in
nonconsolidated VIEs was $43.9 billion and $42.8 billion, respectively.
The table below presents the UPB, delinquency rates, and forbearance rates for both credit-enhanced and non-credit-
enhanced loans underlying our Multifamily mortgage portfolio.
Table 37 - Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio
(Dollars in millions)
Credit-enhanced:
Subordination
Other
Total credit-enhanced
Non-credit-enhanced
Total
December 31,
2021
2020
UPB
Delinquency
Rate
Forbearance
Rate(1)(2)
UPB
Delinquency
Rate
Forbearance
Rate(1)(2)
$360,113
0.08 %
0.33 %
$328,897
0.18 %
1.99 %
28,565
388,678
25,985
$414,663
0.16
0.08
0.05
0.08
0.77
0.36
1.25
0.42
17,352
346,249
42,098
$388,347
0.17
0.18
0.02
0.16
2.73
2.03
1.83
2.01
(1)
Excludes loans granted forbearance outside of our COVID-19 forbearance program. These loans represented less than 0.1% of the Multifamily mortgage portfolio as
of December 31, 2021 and December 31, 2020.
(2)
Forbearance rate includes loans in a forbearance program, including loans in their repayment period.
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Management's Discussion and Analysis
Risk Management
Our securitizations remain our principal risk transfer mechanism. Through securitizations, we have transferred a substantial
amount of the expected and stressed credit risk on the Multifamily mortgage portfolio, thereby reducing our overall credit risk
exposure and required capital.
The table below provides information on the level of subordination outstanding on our securitizations with subordination.
Table 38 - Level of Subordination Outstanding
(Dollars in millions)
Less than 10%
10% or greater
Total
December 31,
2021
2020
Delinquency
Rate
Forbearance
Rate
UPB
Delinquency
Rate
Forbearance
Rate
— %
0.01 %
$53,220
0.04 %
0.15 %
0.11
0.08
0.47
0.33
275,677
$328,897
0.20
0.18
2.35
1.99
UPB
$109,174
250,939
$360,113
Weighted average subordination level
12%
13%
The increase in the "Less than 10%" level of subordination outstanding in 2021 was driven by ongoing issuances of typical K
Certificate securitizations with lower subordination levels. The lower subordination levels are still expected to absorb a
substantial amount of expected and stressed credit losses. We have not experienced significant credit losses associated with
our guarantees on our primary securitizations.
In addition to the credit enhancements listed above, we have various other credit enhancements related to our multifamily
unsecuritized loans, securitizations, and other mortgage-related guarantees, in the form of collateral posting requirements, pool
insurance, bond insurance, loss sharing agreements, and other similar arrangements that along with the proceeds received
from the sale of the underlying mortgage collateral, are designed to enable us to recover all or a portion of our losses on our
mortgage loans or the amounts paid under our financial guarantee contracts. Our historical losses paid under our guarantee
contracts and related recoveries pursuant to these agreements have not been significant.
The table below contains details on the loans underlying our Multifamily mortgage portfolio that are not credit enhanced.
Table 39 - Credit Quality of Our Multifamily Mortgage Portfolio Without Credit Enhancement
(Dollars in millions)
Unsecuritized loans:
Held-for-sale
Held-for-investment
Securitized loans
Other mortgage-related guarantees
Total
REO Activity
December 31,
2021
2020
UPB
Delinquency
Rate
Forbearance
Rate
UPB
Delinquency
Rate
Forbearance
Rate
$12,596
0.07 %
0.48 %
$21,794
0.04 %
0.85 %
7,180
4,097
2,112
$25,985
—
—
0.16
0.05
—
6.42
—
1.25
8,655
6,711
4,938
$42,098
—
—
—
0.02
1.40
6.84
0.07
1.83
Our REO activity has remained low in the past several years as a result of the strong property performance of our Multifamily
mortgage portfolio. As of December 31, 2021, and December 31, 2020, we had no REO properties.
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Management's Discussion and Analysis
Risk Management
Natural Disaster and Climate Risk Management
Major natural or environmental disasters or other catastrophic events in an area where we own or guarantee mortgage loans,
especially in densely populated geographic areas and in high-risk areas, such as coastal areas vulnerable to severe storms and
flooding or areas prone to earthquakes or wildfires, expose us to credit risk in a variety of ways, including by damaging
properties that secure loans in our mortgage portfolio and by negatively impacting the ability of borrowers to make payments
on mortgage loans we own or guarantee. This could increase our serious delinquency rates and average loan loss severity in
the affected areas.
Historically, our losses from natural or environmental disasters have not been significant. We require all homes underlying
single-family mortgages in our portfolio to have homeowner's insurance coverage throughout the life of the loan. In addition, for
homes located in SFHAs, we also require flood insurance coverage. Sellers are required to determine whether homes
underlying single-family mortgages are located in a SFHA and, if so, to confirm that flood insurance coverage exists at the time
the loan is sold to Freddie Mac. Servicers are also required to confirm that flood insurance on these homes is maintained
throughout the life of the loan and is in amounts needed to comply with federal government and Freddie Mac requirements. If a
borrower fails to obtain and maintain required flood insurance coverage, servicers must directly place such coverage. In
addition, our Single-Family segment reviews flood models from other third-party sources to help us assess potential or
emerging flood risk exposure.
We also have insurance requirements to address catastrophic risks relevant to the characteristics and location of properties
securing multifamily loans we purchase. For properties located in SFHAs, we require flood insurance coverage. Furthermore,
we require property insurance to cover earthquake damage if required by a seismic risk assessment. Freddie Mac reviews
insurance compliance prior to loan purchase. We also review insurance compliance post-purchase and prior to securitization
and require our seller/servicers to report details of insurance compliance annually. Our Multifamily segment uses property
surveys, virtual maps, and environmental and property condition reports to identify properties that are potentially at higher risk
for natural disasters related to flooding and earthquakes.
Freddie Mac’s loss exposure is further limited by the geographic diversity of our mortgage portfolio, borrower equity in the
properties underlying mortgage loans, relief options for borrowers affected by natural disasters, our credit risk transfer
products, and community support provided by FEMA and local and federal governments for areas affected by natural disasters.
For additional information on the geographic diversity of our mortgage portfolio and our management of Single-Family and
Multifamily mortgage credit risk, see Note 16 and MD&A - Risk Management - Credit Risk, respectively.
An increased frequency and intensity of major natural disasters may be indicative of the impact of climate change and is
expected to persist for the foreseeable future. In addition, significant long-term climate change effects could increase the
vulnerability of areas to natural disasters as well as the impact of these events.
In 2021, our Climate Advisory Group engaged leadership on climate matters to drive climate-related activities and facilitate
cross-divisional collaboration and decision-making. We are also developing a corporate framework for incorporating climate
risks into the existing risk management structure to help ensure that climate risk is considered in key business decisions.
In December 2021, FHFA instructed us to designate climate change as a priority concern and actively consider its effects in our
decision making and, to this end, included climate change as a priority for Freddie Mac in the 2022 Conservatorship Scorecard.
We are exploring the role that we, along with FHFA and others, can play in helping to address climate risk. Developing solutions
to these challenges is complicated by the range and diversity of affected stakeholders, the possible need for legislative or
regulatory action, insurance industry capacity, and the need to balance risk mitigation, affordability, and sustainability.
For additional information, see Risk Factors - Credit Risks - We are exposed to increased credit losses and credit-
related expenses in the event of a major natural disaster, other catastrophic event, including a pandemic, or significant
climate change effects.
Counterparty Credit Risk
We are exposed to counterparty credit risk as a result of our contracts with sellers and servicers, credit enhancement providers,
financial intermediaries, clearinghouses, and other counterparties, as well as through our guarantees of Fannie Mae securities
underlying commingled resecuritization transactions. We manage our exposure to counterparty credit risk using the following
principal strategies:
n Maintaining eligibility standards;
n Evaluating creditworthiness and monitoring performance; and
n Working with underperforming counterparties and limiting our losses from their nonperformance of obligations, when
possible.
In the sections below, we discuss our management of counterparty credit risk for each type of counterparty to which we have
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significant exposure.
Sellers and Servicers
Overview
In our Single-Family business, we do not originate mortgage loans or have our own loan servicing operation. Instead, we
purchase loans from sellers and engage servicers, which perform loan servicing functions on our behalf. We establish
underwriting and servicing standards for our sellers and servicers to follow and have contractual arrangements with them under
which they represent and warrant that the loans they sell to us meet our standards and that they will service loans in
accordance with our standards. If we discover that the representations or warranties related to a loan were breached (i.e., that
contractual standards were not followed), we can exercise certain contractual remedies to mitigate our actual or potential credit
losses. If our sellers or servicers lack appropriate controls, experience a failure in their controls, or experience an operational
disruption, including as a result of financial stress, legal or regulatory actions, or ratings downgrades, we could experience a
decline in mortgage servicing quality and/or be less likely to recover losses through lender repurchases, recourse agreements,
or other credit enhancements, where applicable.
In our Multifamily business, we are exposed to the risk that multifamily sellers and servicers could come under financial stress,
which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring of each
property's financial performance and physical condition. This could also, in certain cases, reduce the likelihood that we could
recover losses through lender repurchases, recourse agreements, or other credit enhancements, where applicable. This risk
primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit
risk.
In addition, our Single-Family business is exposed to settlement risk from the non-performance of sellers and servicers as a
result of our forward settlement loan purchase programs. For additional details, see Financial Intermediaries,
Clearinghouses, and Other Counterparties - Other Counterparties - Forward Settlement Counterparties.
Maintaining Eligibility Standards
Our eligibility standards for sellers and servicers require the following: a demonstrated operating history in residential mortgage
origination and servicing, or an eligible agent acceptable to us; a quality control program that meets our standards; and
sufficient net worth, capital, liquidity, and funding sources, as well as adequate insurance coverage. We and Fannie Mae are
coordinating with FHFA to establish new eligibility rules for sellers and servicers of single-family mortgages.
Evaluating Counterparty Creditworthiness and Monitoring Performance
We perform ongoing monitoring and review of our exposure to individual sellers or servicers in accordance with our
counterparty credit risk management practices, including requiring our counterparties to provide regular financial reporting to
us. We also monitor and rate our sellers and servicers' compliance with our standards and periodically review their operational
processes. We may disqualify or suspend a seller or servicer with or without cause at any time. Once a seller or servicer is
disqualified or suspended, we no longer purchase loans originated by that counterparty and generally no longer allow that
counterparty to service loans for us, while seeking to transfer servicing of existing portfolios.
As discussed in more detail in MD&A - Our Business Segments, we acquire a significant portion of both our single-family
and multifamily loan purchase volume from several large lenders, and a large percentage of our loans are also serviced by
several large servicers.
We have significant exposure to non-depository and smaller depository financial institutions in our Single-Family business.
These institutions may not have the same financial strength or operational capacity, or be subject to the same level of
regulatory oversight, as large depository institutions.
In recent years, non-depository institutions have made up a greater portion of mortgage originations while depository
institutions have declined as a portion of the mortgage market. As a result, we are acquiring a greater portion of our business
from non-depository institutions.
The table below summarizes the concentration of our Single-Family mortgage purchases acquired from non-depository sellers.
Table 40 - Single-Family Mortgage Purchases from Non-Depository Sellers
Top five non-depository sellers
Other non-depository sellers
Total
2021
% of Purchases
2020
% of Purchases
30 %
41
71 %
For our single-family servicing, we utilize both depository institutions and non-depository institutions. Some of these non-
depository institutions service a large share of our loans.
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26 %
40
66 %
87
Management's Discussion and Analysis
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The table below summarizes the concentration of non-depository servicers of our Single-Family mortgage portfolio.
Table 41 - Single-Family Mortgage Portfolio Non-Depository Servicers
Top five non-depository servicers
Other non-depository servicers
Total
December 31, 2021
December 31, 2020
% of Portfolio(1)
% of Seriously Delinquent
Single-Family Loans
% of Portfolio(1)
% of Seriously Delinquent
Single-Family Loans
19 %
35
54 %
17 %
32
49 %
18 %
30
48 %
17 %
28
45 %
(1) Excludes loans where we do not exercise control over the associated servicing.
For our mortgage-related securities, we guarantee the payment of principal and interest, and when the underlying borrowers do
not pay their mortgages, our Guide requires single-family servicers to advance the missed mortgage interest payments from
their own funds for up to 120 days. After this time, we will make the missed mortgage principal and interest payments to
security holders until the mortgages are no longer held by the securitization trust.
At the instruction of FHFA, we purchase loans from trusts when they reach 24 months of delinquency, except for loans that
meet certain criteria (e.g., permanently modified or foreclosure referral), which may be purchased sooner. Many delinquent
loans are purchased from trusts before they reach 24 months of delinquency under one of the exceptions provided. We must
obtain FHFA’s approval to implement changes to our policy to purchase loans from trusts. We implemented the 24-month
policy on January 1, 2021. Prior to that time, in accordance with FHFA instruction, we generally purchased loans from trusts if
they were delinquent for 120 days, subject to certain exceptions.
In addition to principal and interest payments, borrowers are also responsible for other expenses such as property taxes and
homeowner's insurance premiums. When borrowers do not pay these expenses, our Guide generally requires single-family
servicers to advance the funds for these expenses in order to protect or preserve our interest in or legal right to the properties.
These advances are ultimately collectible from the borrowers. If the borrowers reperform through loan workout activities, the
missed payments and incurred expenses will be collected from the borrowers. Should the borrower not reinstate the loan, we
will reimburse the servicer for the advanced amounts at completion of foreclosures or loan workout activities.
We monitor and review the financial stability of our non-depository counterparties. However, if these counterparties experience
financial difficulty, we could see a decline in mortgage servicing quality and/or be less likely to recover losses.
Working with Underperforming Seller and Servicer Counterparties and Limiting Our Losses from Their
Nonperformance of Obligations, When Possible
Seller and servicer performance is actively managed for both single-family and multifamily loans. We actively manage the
current quality of loan originations of our largest single-family sellers by performing loan quality control sampling reviews and
communicating loan defect rates and the causes of those defects to such sellers on a monthly basis. If necessary, we work with
these sellers to develop an appropriate plan of corrective action.
We use a variety of tools and techniques to engage our single-family sellers and servicers and limit our losses, including the
following:
n Repurchases and other remedies - For certain violations of our single-family selling or servicing policies, we can
require the counterparty to repurchase loans or provide alternative remedies, such as reimbursement of realized losses or
indemnification, and/or suspend or terminate the selling and servicing relationship. The UPB of loans subject to repurchase
requests issued to our single-family sellers and servicers was $1.3 billion and $0.5 billion at December 31, 2021 and
December 31, 2020, respectively. The increase in repurchase requests is due to increased loan purchase volume during
the year and a trend of higher defect rates in 2021. See Note 16 for additional information about loans subject to
repurchase requests.
n Incentives and compensatory fees - We pay various incentives to single-family servicers for completing workouts of
problem loans. We also assess compensatory fees if single-family servicers do not achieve certain benchmarks with
respect to servicing delinquent loans.
n Servicing transfers - From time to time, we may facilitate the transfer of servicing as a result of poor servicer
performance, or for certain groups of single-family loans that are delinquent or are deemed at risk of default, to servicers
that we believe have the capabilities and resources necessary to improve the loss mitigation associated with the loans. We
may also facilitate the transfer of servicing on loans at the request of the servicer.
The majority of our multifamily loans are securitized using trusts that are administered by master servicers who bear
responsibility to advance funds in the event of payment shortfalls, including principal and interest payments related to loans in
forbearance. For the majority of our K Certificate transactions, we utilize one of three large depository institutions as master
servicer. For SB Certificate securitizations and a smaller number of K Certificate securitizations, we serve as master servicer. In
instances where payment shortfalls occur, the master servicer is required to make advances as long as such advances have
not been deemed non-recoverable. For multifamily loans purchased and held in our mortgage-related investments portfolio, the
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primary servicers are not required to advance funds in the event of payment shortfalls and therefore do not present significant
counterparty credit risk from this source.
Credit Enhancement Providers
Overview
We have exposure to credit enhancement providers through certain credit enhancements we obtain on single-family loans. If
any of our credit enhancement providers fail to fulfill their obligations, we may not receive reimbursement for credit losses to
which we are contractually entitled pursuant to our credit enhancements.
With respect to primary mortgage insurers, we currently cannot differentiate pricing based on counterparty strength or revoke a
primary mortgage insurer's status as an eligible insurer without FHFA approval. Further, we generally do not select the
insurance provider on a specific loan, because the selection is made by the lender at the time the loan is originated.
Accordingly, we are limited in our ability to manage our concentration risk with respect to primary mortgage insurers.
As part of our insurance/reinsurance CRT transactions, we regularly obtain insurance coverage from global insurers and
reinsurers. These transactions incorporate features designed to increase the likelihood that we will recover on the claims we file
with the insurers and reinsurers. In each transaction, we require the individual insurers and reinsurers to post collateral to cover
portions of their exposure, which helps to promote certainty and timeliness of claim payment.
While private mortgage insurance companies are required to be monoline (i.e., to participate solely in the mortgage insurance
business, although the holding company may be a diversified insurer), our insurers and reinsurers generally participate in
multiple types of insurance businesses, which helps to diversify their risk exposure.
Maintaining Eligibility Standards
We maintain eligibility standards for mortgage insurers and other insurers and reinsurers. Our eligibility requirements include
financial requirements determined using a risk-based framework and are designed to promote the ability of mortgage insurers
to fulfill their intended role of providing consistent liquidity throughout the mortgage cycle. Our mortgage insurers are required
to submit audited financial information and certify compliance with the Private Mortgage Insurer Eligibility Requirements on an
annual basis. Our eligibility requirements also include operational requirements.
Evaluating Counterparty Creditworthiness and Monitoring Our Exposure
We monitor our exposure to individual insurers by performing periodic analysis of the ability of each insurer to remain solvent
under various adverse economic conditions. Monitoring performance and potentially identifying underperformance allows us to
plan for loss mitigation. If our credit enhancement providers fail to meet their obligations to reimburse us for claims, we could
experience an increase in credit losses.
The table below summarizes our exposure to single-family mortgage insurers as of December 31, 2021. In the event a
mortgage insurer fails to perform, the coverage amounts represent our maximum exposure to credit losses resulting from such
a failure.
Table 42 - Single-Family Primary Mortgage Insurers
(In millions)
Arch Mortgage Insurance Company
Mortgage Guaranty Insurance Corporation (MGIC)
Radian Guaranty Inc. (Radian)
Essent Guaranty, Inc.
Enact(3)
National Mortgage Insurance (NMI)
Others
Total
Credit Rating(1)
A
BBB+
BBB+
BBB+
BBB
BBB
N/A
December 31, 2021
Credit Rating
Outlook(1)
UPB
Coverage(2)
Negative
Stable
Stable
Stable
Stable
Stable
N/A
$104,008
103,818
98,884
83,077
84,462
67,603
3,441
$545,293
$26,045
25,928
23,949
20,747
20,834
17,001
826
$135,330
(1)
(2)
Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Latest rating available as of December 31, 2021. Represents the lower of
S&P and Moody's credit ratings and outlooks stated in terms of the S&P equivalent.
Coverage amounts exclude coverage primarily related to certain loans for which we do not control servicing, and may include coverage provided by consolidated
affiliates and subsidiaries of the counterparty.
(3)
Enact was previously known as Genworth Mortgage Insurance Corporation.
Although the financial condition of our mortgage insurers improved in recent years, there is still a risk that some of these
counterparties may fail to fully meet their obligations under a stress economic scenario because they are monoline entities
primarily exposed to mortgage credit risk.
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Except for those insurers under regulatory supervision, which no longer issue new coverage, we continue to acquire new loans
with mortgage insurance from the mortgage insurers shown in the table above. For more information about counterparty credit
risk associated with mortgage insurers, see Note 16.
The table below displays the concentration of our single-family credit risk exposure to our ACIS counterparties.
Table 43 - Single-Family ACIS Counterparties
(Dollars in billions)
Top five ACIS counterparties
All other ACIS counterparties
Total
December 31, 2021
December 31, 2020
Maximum Coverage(1)
% of Total
Maximum Coverage(1)
% of Total
$6.8
8.9
$15.7
43 %
57
100 %
$5.3
5.8
$11.1
48 %
52
100 %
(1)
Represents maximum coverage exclusive of the collateral posted to secure the counterparties' obligations.
As of December 31, 2021 and December 31, 2020, our ACIS counterparties posted collateral of $4.1 billion and $2.4 billion,
respectively. There is a possibility that, if our ACIS counterparties become insolvent, a third-party involved in the restructure
process could cancel a contract or contracts and prevent us from accessing collateral for future claims despite current
collateral provisions. We have taken steps to reduce the associated legal risk.
For more information on our single-family CRT transactions, see MD&A - Our Business Segments - Single-Family -
Business Overview - Products and Activities - CRT Activities, and MD&A - Risk Management - Single-Family
Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors.
Fannie Mae
We have counterparty credit risk exposure to Fannie Mae through our ability to commingle TBA-eligible Fannie Mae collateral in
certain of our resecuritization products. When we resecuritize Fannie Mae securities in our commingled resecuritization
products, our guarantee covers timely payments of principal and interest on such securities. If Fannie Mae were to fail to make
a payment on a Fannie Mae security that we resecuritized, we would be responsible for making the payment to the securities
holders. Our pricing does not currently reflect any incremental credit, liquidity, or operational risk associated with our guarantee
of resecuritized Fannie Mae securities. We will be dependent on FHFA, Fannie Mae, and Treasury (pursuant to Fannie Mae's
and our respective Purchase Agreements with Treasury) to avoid a liquidity event or default.
For additional information on commingled resecuritizations and the associated risks, see MD&A - Our Business Segments
- Single-Family and Risk Factors.
Financial Intermediaries, Clearinghouses, and Other Counterparties
Derivative Counterparties
We use cleared derivatives, exchange-traded derivatives, OTC derivatives, and forward sales and purchase commitments to
mitigate risk, and are exposed to the non-performance of each of the related financial intermediaries and clearinghouses. Our
financial intermediaries and clearinghouse credit exposure relates principally to interest-rate derivative contracts. We maintain
internal standards for approving new derivative counterparties, clearinghouses, and clearing members.
n Cleared and exchange-traded derivatives - Cleared and exchange-traded derivatives expose us to counterparty credit
risk of central clearinghouses and our clearing members. The use of cleared and exchange-traded derivatives mitigates our
counterparty credit risk exposure to individual counterparties because a central counterparty is substituted for individual
counterparties, and changes in the value of open contracts are settled daily via payments made through the clearinghouse.
We are required to post initial and variation margin to the clearinghouses. The amount of initial margin we must post for
cleared and exchange-traded derivatives may be based, in part, on S&P or Moody's credit rating of our long-term senior
unsecured debt securities. Our obligation to post margin may increase as a result of the lowering or withdrawal of our
credit rating by S&P or Moody's and/or of changes in the counterparty's exposure generated by the derivative
transactions.
n OTC derivatives - OTC derivatives expose us to counterparty credit risk of individual counterparties because these
transactions are executed and settled directly between us and each counterparty, exposing us to potential losses if a
counterparty fails to meet its contractual obligations. When a counterparty in OTC derivatives that is subject to a master
netting agreement has a net obligation to us with a market value above an agreed upon threshold, if any, the counterparty
is obligated to deliver collateral in the form of cash, securities, or a combination of both, to satisfy its obligation to us under
the master netting agreement. Our OTC derivatives also require us to post collateral to counterparties in accordance with
agreed-upon thresholds, if any, when we are in a derivative liability position. The collateral posting thresholds we assign to
our OTC counterparties, as well as the ones they assign to us, are generally based on S&P or Moody's credit rating. The
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lowering or withdrawal of our or our counterparty's credit rating by S&P or Moody's may increase our or our counterparty's
obligation to post collateral, depending on the amount of the counterparty's exposure to Freddie Mac with respect to the
derivative transactions. Only OTC derivatives transactions executed prior to March 1, 2017 are subject to collateral posting
thresholds. Based upon regulations that took effect March 1, 2017, OTC derivative transactions executed or materially
amended after that date require posting of variation margin without the application of any thresholds. Our OTC derivative
transactions became subject to new initial margin requirements on September 1, 2021.
Evaluating Counterparty Creditworthiness and Monitoring Performance
Over time, our exposure to derivative counterparties varies depending on changes in fair values, which are affected by changes
in interest rates and other factors. Due to risk limits with certain counterparties, we may be forced to execute transactions with
lower returns with other counterparties when managing our interest-rate risk. We manage our exposure through master netting
and collateral agreements and stress-testing to evaluate potential exposure under possible adverse market scenarios.
Collateral is typically transferred within one business day based on the values of the related derivatives. We regularly review the
market values of the securities pledged to us, primarily agency and U.S. Treasury securities, to manage our exposure to loss.
We conduct additional reviews of our exposure when market conditions dictate or certain events affecting an individual
counterparty occur. When non-cash collateral is posted to us, we require collateral in excess of our exposure to satisfy the net
obligation to us in accordance with the counterparty agreement.
In the event a counterparty defaults, our economic loss may be higher than the uncollateralized exposure of our derivatives if
we are not able to replace the defaulted derivatives in a timely and cost-effective fashion (e.g., due to a significant interest rate
movement during the period or other factors). We could also incur economic losses if non-cash collateral posted to us by the
defaulting counterparty cannot be liquidated at prices that are sufficient to recover the amount of such exposure.
The table below compares the gross fair value of our derivative asset positions after counterparty netting with our net exposure
to these positions after considering cash and non-cash collateral held.
Table 44 - Derivative Counterparty Credit Exposure
(Dollars in millions)
OTC interest-rate swap and swaption counterparties (by rating):
A+, A, or A-
Cleared and exchange-traded derivatives
Total
December 31, 2021
Number of
Counterparties
Fair Value -
Gain Positions
Fair Value -
Gain Positions,
Net of Collateral
7
2
9
$1,233
56
$1,289
$20
94
$114
Approximately 98% of our exposure at fair value for OTC interest-rate swap and option-based derivatives, excluding amounts
related to our posting of cash collateral in excess of our derivative liability determined at the counterparty level, was
collateralized at December 31, 2021. The remaining exposure was primarily due to market movements between the
measurement of a derivative at fair value and our receipt of the related collateral, as well as exposure amounts below the then
applicable counterparty collateral posting threshold, if any. The concentration of our derivative exposure among our primary
OTC derivative counterparties remains high and could further increase.
Other Counterparties
We enter into other types of transactions in the ordinary course of business that expose us to counterparty credit risk, including
those below. An individual counterparty may be included in more than one transaction type below.
n Other investments - We are exposed to the non-performance of institutions relating to other investments (including non-
mortgage-related securities and cash and cash equivalents) transactions, including those entered into on behalf of our
securitization trusts. Our policies require that the institution be evaluated using our internal rating model prior to our
entering into such transactions. We monitor the financial strength of these institutions and may use collateral maintenance
requirements to manage our exposure to individual counterparties.
The major financial institutions with which we transact regarding our other investments (including non-mortgage-related
securities and cash and cash equivalents) include other GSEs, Treasury, the Federal Reserve Bank of New York, GSD/
FICC, highly-rated supranational institutions, depository and non-depository institutions, brokers and dealers, and
government money market funds. For more information on our other investments portfolio, see MD&A - Liquidity and
Capital Resources.
We utilize the GSD/FICC as a clearinghouse to transact many of our trades involving securities purchased under
agreements to resell, securities sold under agreements to repurchase, and other non-mortgage related securities. As a
clearing member of GSD/FICC, we are required to post initial and variation margin payments and are exposed to the
counterparty credit risk of GSD/FICC (including its clearing members). In the event a clearing member fails and causes
losses to the GSD/FICC clearing system, we could be subject to the loss of the margin that we have posted to the GSD/
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FICC. Moreover, our exposure could exceed that amount, as members are generally required to cover losses caused by
defaulting members on a pro rata basis.
n Forward settlement counterparties - We are exposed to the non-performance (settlement risk) of counterparties relating
to the forward settlement of loans and securities (including agency debt, agency residential mortgage-backed securities,
and cash window loans). Our policies require that the counterparty be evaluated using our internal counterparty rating
model prior to our entering into such transactions. We monitor the financial strength of these counterparties and may use
collateral maintenance requirements or offsetting transactions to manage our exposure to individual counterparties.
We also execute forward purchase and sale commitments of mortgage-related securities, including dollar roll transactions,
that are treated as derivatives for accounting purposes and utilize the MBSD/FICC as a clearinghouse. As a clearing
member of the clearinghouse, we post margin to the MBSD/FICC and are exposed to the counterparty credit risk of the
organization. In the event a clearing member fails and causes losses to the MBSD/FICC clearing system, we could be
subject to the loss of the margin that we have posted to the MBSD/FICC. Moreover, our exposure could exceed the
amount of margin we have posted to the MBSD/FICC, as clearing members are generally required to cover losses caused
by defaulting members on a pro rata basis. As of December 31, 2021, the gross fair value of such forward purchase and
sale commitments that were in derivative asset positions was $64 million.
n Secured lending activities - As part of our other investments portfolio, we enter into secured lending arrangements to
provide financing for certain Freddie Mac securities and other assets related to our guarantee businesses. These
transactions differ from those we use for liquidity purposes, as the borrowers may not be major financial institutions,
potentially exposing us to the institutional credit risk of these institutions. We also provide liquidity to certain of our small
and medium-sized lenders through our early funding programs, where we advance funds to lenders for mortgage loans
prior to the loans being pooled and securitized. In some cases, the early funded mortgages are ultimately delivered through
cash window purchase transactions.
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 sellers and servicers or their affiliates also serve as document custodians for us.
Our ownership rights to the loans that we own or that back our securitization products could be challenged if a seller or servicer
intentionally or negligently pledges, sells, or fails to obtain a release of prior liens on the loans that we purchased, which could
result in financial losses to us. When a seller or servicer, or one of its affiliates, acts as a document custodian for us, the risk
that our ownership interest in the loans may be adversely affected is increased, particularly in the event the seller or servicer
were to become insolvent. To manage these risks, we establish qualifying standards for our document custodians and maintain
legal and contractual arrangements that identify our ownership interest in the loans. We also monitor the financial strength of
our document custodians on an ongoing basis in accordance with our counterparty credit risk management framework, and we
require transfer of documents to a different third-party document custodian if we have concerns about the solvency or
competency of the document custodian.
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Market Risk
Overview
Our business segments have embedded exposure to market risk, which is the economic risk associated with adverse changes
in interest rates, volatility, and spreads. Market risk can adversely affect future cash flows, or economic value, as well as
earnings and net worth. The primary sources of interest-rate risk are from our investments in mortgage-related assets, the debt
we issue to fund these assets, and our Single-Family guarantees.
Our mortgage-related assets are held in both business segments and consist of unsecuritized mortgage loans and mortgage-
related securities. Typically, an existing loan or bond investment in our investments portfolio is worth less to an investor when
interest rates (yields) rise and worth more when they decline. For a majority of our single-family mortgage-related assets, the
borrower has the option to make unscheduled principal payments at any time before maturity without incurring a prepayment
penalty. Thus, our mortgage-related asset portfolio is also exposed to uncertainty as to when borrowers will exercise their
option and pay the outstanding principal balance of their loans. We face similar (and in most cases directionally opposite)
exposure related to unsecured debt. Unsecured debt is typically worth less to an investor when interest rates (yields) rise and
worth more when they decline. In addition, we issue debt with embedded options, such as an option to call, which provides us
flexibility concerning the timing of our debt maturities.
Our Single-Family guarantee market risk exposure results from upfront fees (including buy-downs), buy-ups, and float. Upfront
fees are cash we receive at loan acquisition as compensation for our guarantee. From an interest-rate risk standpoint, receiving
upfront fees increases risk as the actual prepayment rate of the loans we purchase may be different than our original estimates
and may vary based on changes in interest rates. As interest rates decrease, loans typically prepay more quickly, resulting in
accelerated recognition of upfront fees in earnings and a higher annualized rate of income. The opposite occurs as interest
rates increase, resulting in slower recognition of upfront fees in earnings and a lower annualized rate of income. We incorporate
upfront fees in our interest-rate risk metrics by assuming upfront fees are equivalent to the sale of an interest-only security,
allowing for modeling and aggregation of the interest-rate exposure of upfront fees with the rest of our interest-rate exposures.
Conversely, buy-ups are treated as the purchase of an interest-only security as they represent the excess borrower interest
payments remaining from the securitization process that we effectively purchase from the seller.
Interest-rate risk related to float arises from the timing differences between the borrowers' principal payments on the loans and
the reduction of the security balance. This can lead to significant interest expense if the interest amount paid to a security
investor is higher than the reinvestment amount earned by the securitization trust on payments received from borrowers and
paid to us as trust management income. In general, as interest rates decrease and prepayments increase, this expense to
Freddie Mac increases. Conversely, as interest rates increase and prepayments decrease, this expense to Freddie Mac
decreases.
We actively manage our economic exposure to interest rate fluctuations. Our primary goal in managing interest-rate risk is to
reduce the amount of change in the value of our future cash flows due to future changes in interest rates. We use models to
analyze possible future interest-rate scenarios, along with the cash flows of our assets and liabilities over those scenarios. Our
models include the possibility of future negative interest rate scenarios and that risk is included in our hedging framework.
Management of Market Risk
We employ risk management practices that seek to maintain certain interest-rate characteristics of our assets and liabilities
within our risk limits through a number of different strategies, including:
n Asset selection and structuring, such as acquiring or structuring mortgage-related securities with certain expected
prepayment and other characteristics;
n Issuance of both callable and non-callable unsecured debt; and
n Use of interest-rate derivatives, including swaps, swaptions, and futures.
Our use of derivatives is an important part of our strategy to manage interest-rate risk. When deciding to use derivatives to
mitigate our exposures, we consider a number of factors, including cost, exposure to counterparty credit risks, and our overall
risk management strategy. See MD&A - Risk Management - Counterparty Credit Risk and Risk Factors for more
discussion of our market risk exposures, including those related to derivatives, institutional counterparties, and other market
risks.
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Although we have limited ability to manage spread risk, we employ the following strategies:
n Limiting the size of our assets that are exposed to spread risk;
n Using short-TBA positions to hedge certain assets, primarily loans acquired through our cash window that are awaiting
securitization and portions of our agency mortgage-related securities portfolio; and
n Entering into certain transactions and spread-related derivatives to offset our spread exposures.
Interest-Rate Risk
Interest-rate risk is the economic risk related to adverse changes in the level or volatility of interest rates. A change in the level
of interest rates (represented by a parallel shift of the yield curve, all else constant) exposes our assets and liabilities to risk,
potentially affecting expected future cash flows and their present values. This is reflected in our PVS-L and duration gap
disclosures. Similarly, changes in the shape or slope of the yield curve (often reflecting changes in the market's expectation of
future interest rates) expose our assets and liabilities to risk, potentially affecting expected future cash flows and their present
values. This is reflected in our PVS-YC disclosure. Volatility risk is the risk that changes in the market's expectation of the
magnitude of future variations in interest rates will adversely affect our economic value. We are exposed to volatility risk in both
our mortgage-related assets and liabilities, especially in instruments with embedded options.
Measurement of Interest-Rate Risk
We calculate our exposure to changes in interest rates for our interest-rate sensitive assets and liabilities using effective
duration and effective convexity, based on our models.
n Effective duration measures the percentage change in the price of financial instruments from a 100 basis point change in
interest rates. Financial instruments with positive duration increase in value as interest rates decline. Conversely, financial
instruments with negative duration increase in value as interest rates rise.
n Effective convexity measures the change in effective duration for a 100 basis point change in interest rates. Effective
duration is not constant over the entire yield curve and effective convexity measures how effective duration changes over
large changes in interest rates.
Together, effective duration and effective convexity provide a measure of an instrument's overall price sensitivity to changes in
interest rates. We utilize the concepts of effective duration and effective convexity in calculating our primary interest-rate risk
measures: duration gap and PVS.
n Duration gap - The net effective duration of our overall portfolio of interest-rate sensitive assets and liabilities is expressed
in months as our duration gap. Duration gap measures the difference in price sensitivity to interest rate changes between
our financial assets and liabilities and is expressed in months relative to the value of assets. For example, assets with a six-
month duration and liabilities with a five-month duration would result in a positive duration gap of one month.
The table below shows various duration gap measurements and the effects that changes in interest rates would generally have
on portfolio value.
Negative Duration Gap
Zero Duration Gap
Positive Duration Gap
Asset Duration < Liability Duration
Asset Duration = Liability Duration
Asset Duration > Liability Duration
Net portfolio will increase in value when interest
rates rise and decrease in value when interest
rates fall.
Net portfolio economic value will be unchanged.
The change in the value of assets from an
instantaneous move in interest rates, either up or
down, would be expected to be accompanied by
an equal and offsetting change in the value of
liabilities.
Net portfolio will increase in value when interest
rates fall and decrease in value when interest
rates rise.
We actively measure and manage our duration gap exposure. In addition to duration gap management, we also measure and
manage the price sensitivity of our portfolio to a number of different specific interest rate changes along the yield curve. The
price sensitivity of an instrument to specific changes in interest rates is known as the instrument's key rate duration risk. By
managing our duration exposure both in aggregate through duration gap and to specific changes in interest rates through key
rate duration, we expect to limit our exposure to interest rate changes for a wide range of interest rate yield curve scenarios.
n PVS - PVS is an estimate of the change in the present value of the cash flows of our financial assets and liabilities from an
instantaneous shock to interest rates, assuming spreads are held constant and no rebalancing actions are undertaken.
PVS is measured in two ways, one measuring the estimated sensitivity of our portfolio's value to a 50 basis point parallel
movement in interest rates (PVS-L) and the other to a nonparallel movement (PVS-YC), resulting from a 25 basis point
change in slope of the yield curve. The 50 basis point shift and 25 basis point change in slope of the yield curve used for
our PVS measures reflect reasonably possible near-term changes that we believe provide a meaningful measure of our
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Management's Discussion and Analysis
interest-rate risk sensitivity.
Risk Management
To calculate PVS, the interest rate shock is applied to the duration (and convexity for PVS-L) of all interest-rate sensitive
financial instruments. The resulting change in value for the aggregate portfolio is computed for both the up-rate and down-
rate shock, and whichever produces the more adverse outcome is the PVS. In cases where both the up rate and down rate
shocks result in a positive effect, the PVS is zero. PVS results are shown on a pre-tax basis.
Interest-Rate Risk Results
Beginning in October 2021, we transitioned from LIBOR to SOFR in measuring the company's interest-rate risk. As a result, for
periods after September 30, 2021, the measurement of the price sensitivity and valuation of our assets and liabilities uses the
SOFR curve instead of the LIBOR yield curve. This change did not have a significant impact on measurement of our interest-
rate risk or our financial results.
The following tables provide our duration gap, estimated point-in-time and minimum and maximum PVS-L and PVS-YC results,
and an average of the daily values and standard deviation. The table below also provides PVS-L estimates assuming an
immediate 100 basis point shift in the yield curve. The interest-rate sensitivity of a mortgage portfolio varies across a wide
range of interest rates.
Table 45 - PVS-YC and PVS-L Results Assuming Shifts of the Yield Curve
December 31, 2021
PVS-L
50 bps
100 bps
PVS-YC
25 bps
December 31, 2020
PVS-L
50 bps
100 bps
PVS-YC
25 bps
$368
$3,531
$7,101
(242)
126
18
(144)
$—
$—
(1,181)
2,350
(2,385)
94
$59
$59
(1,830)
5,271
(4,870)
(217)
$184
$184
($314)
193
(121)
(54)
185
$10
$10
$3,837
$7,979
(1,828)
2,009
(3,237)
1,180
($48)
$—
(3,559)
4,420
(7,503)
2,839
($244)
$—
(In millions)
Assuming shifts of the yield curve, (gains)
losses on:(1)
Assets:
Investments(2)
Guarantees(2)(3)
Total assets
Liabilities
Derivatives
Total
PVS
(1)
(2)
(3)
The categorization of the PVS impact between assets, liabilities, and derivatives on this table is based upon the economic characteristics of those assets and
liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt securities of consolidated trusts
held by the mortgage-related investments portfolio are both categorized as assets on this table.
Prior periods were revised to conform to the current period presentation as securitized buy-ups were reclassified from Investments to Guarantees.
Represents the interest-rate risk from our Single-Family guarantees, which include buy-ups, float, and upfront fees (including buy-downs).
Table 46 - Duration Gap and PVS Results
(Duration gap in months, dollars in millions)
Average
Minimum
Maximum
Standard deviation
Duration
Gap
2021
PVS-YC
25 bps
Year Ended December 31,
PVS-L
50 bps
Duration
Gap
2020
PVS-YC
25 bps
PVS-L
50 bps
0.2
(1.2)
1.0
0.4
$8
—
45
7
$50
—
200
44
0.5
(0.7)
1.5
0.4
$11
—
44
8
$73
—
275
68
The disclosure in our Monthly Volume Summary reports, which are available on our website www.freddiemac.com/investors/
financials/monthly-volume-summaries.html, reflects the average of the daily PVS-L, PVS-YC, and duration gap estimates for
a given reporting period (a month, a quarter, or a year).
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Management's Discussion and Analysis
Risk Management
Derivatives enable us to reduce our economic interest-rate risk exposure as we continue to align our derivative portfolio with
the changing duration of our economically hedged assets and liabilities. The table below shows that the PVS-L risk levels,
assuming a 50 basis point shift in the yield curve for the periods presented, would have been higher if we had not used
derivatives.
Table 47 - PVS-L Results Before Derivatives and After Derivatives
(In millions)
December 31, 2021 (1)
December 31, 2020 (1)
PVS-L (50 bps)
Before
Derivatives
After
Derivatives
Effect of
Derivatives
$508
601
$59
—
($449)
(601)
(1)
Before derivatives, our adverse PVS-L rate movement is -50 bps whereas after derivatives our adverse PVS-L rate movement is +50 bps.
Spread Risk
Spread risk is the risk that yields in different asset classes may not move together and may adversely affect our economic
value. This risk arises principally because interest rates on our mortgage-related investments may not move in tandem with
interest rates on our financial liabilities and derivatives, potentially affecting the effectiveness of our hedges. We are exposed to
the following types of market spread risk:
n Market spread risk arising from mortgage-related investments, including loans and securities, and certain non-mortgage
investments;
n Market spread risk arising from our use of LIBOR-, SOFR-, and Treasury-based instruments in our risk management
activities; and
n Market spread risk arising from the difference in time between when we commit to purchase a mortgage loan through our
pipeline path and when we either securitize the loan or hedge it by using forward TBA securities or derivatives. During this
time, market spreads can widen, causing losses due to changes in fair value.
Spread duration measures the percentage change in the price of financial instruments from a change in spread over the
benchmark interest rates. Unlike effective duration, spread duration typically only impacts the discounting of an instrument’s
cash flows, and not the underlying cash flows themselves. This discounting impact creates a measure that is typically positive,
where the instrument increases in value as spreads decline and decreases in value as spreads widen.
Limitations of Interest-Rate Risk Measures
While we believe that PVS and duration gap are useful risk management tools, they should be understood as estimates rather
than as precise measurements. Mis-estimation of economic market risk could result in over or under hedging of interest-rate
risk, significant economic losses, and an adverse impact on earnings. The limitations of our economic market risk measures
include the following:
n Our PVS and duration gap estimates are determined using models that involve our judgment of interest-rate and
prepayment assumptions.
n There could be times when we hedge differently than our model estimates during the period, such as when we are making
changes or market updates to these models.
n PVS and duration gap do not capture the potential effect of certain other market risks, such as changes in volatility and
market spread risk. The effect of these other market risks can be significant.
n Our sensitivity analyses for PVS and duration gap contemplate only certain movements in interest rates and are performed
at a particular point in time based on the estimated fair value of our existing portfolio.
n Although the mortgage-related investments portfolio and Single-Family guarantees are the primary sources of interest-rate
risk to the company, other core businesses also contribute to our interest-rate risk and may be managed differently. We
have certain assets that have a relatively short holding period. As a result, we may manage the risk of these assets based
on their disposition, while our risk measures use long-term cash flows. Hedging these businesses at times requires
additional assumptions concerning risk metrics to accommodate changes in pricing that may not be related to the future
cash flow of the assets. This could create a perceived risk exposure as the hedged risk may differ from the modeled risk.
n The choice of the benchmark rate used to model and hedge our positions is a significant assumption. The effectiveness of
our hedges ultimately depends on how closely the different instruments (assets, liabilities, and derivatives) react to the
underlying chosen benchmark. In the simplest example, all instruments would have interest-rate risk based on the same
underlying benchmark, in our case, the swap rate. In practice, however, different instruments react differently versus the
benchmark rate, which creates a market spread between the benchmark rate and the instrument. As the market spreads of
these instruments move differently, our ability to predict the behavior of each instrument relative to the others is reduced,
potentially affecting the effectiveness of our hedges.
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Management's Discussion and Analysis
Risk Management
n Our reported measurements do not include the sensitivity to interest-rate changes of net worth and the following assets
and liabilities:
l Credit guarantee activities - We currently do not hedge the interest-rate exposure of our credit guarantees except for
the interest-rate exposure related to upfront fees (including buy-downs), buy-ups, float, and STACR debt notes.
l Other assets and other liabilities - We do not include other miscellaneous assets and liabilities, primarily deferred tax
assets, accounts payable and receivable, and non-cash basis adjustments.
Earnings Sensitivity to Market Risk
The GAAP accounting treatment for our financial assets and liabilities (i.e., some are measured at amortized cost, while others
are measured at fair value) creates variability in our GAAP earnings when interest rates and spreads change. We manage this
variability of GAAP earnings, which may not reflect the economics of our business, using fair value hedge accounting.
Interest Rate Related Earnings Sensitivity
While we manage our interest-rate risk exposure on an economic basis to a low level as measured by our models, our GAAP
financial results are subject to significant earnings variability from period to period based on changes in market conditions.
Based upon the composition of our financial assets and liabilities, including derivatives, at December 31, 2021, we would
generally recognize fair value losses when interest rates increase if we did not apply fair value hedge accounting.
In an effort to reduce our GAAP earnings variability and better align our GAAP results with the economics of our business, we
elect hedge accounting for certain single-family mortgage loans and certain debt instruments. We use LIBOR as our benchmark
interest rate for our fair value hedge accounting and intend to use SOFR in the future as we transition away from LIBOR. See
Note 9 for additional information on hedge accounting.
Earnings Sensitivity to Changes in Interest Rates
We evaluate a range of interest rate scenarios to determine the sensitivity of our earnings due to changes in interest rates and
to determine our fair value hedge accounting strategies. The interest rate scenarios evaluated include parallel shifts in the yield
curve in which interest rates increase or decrease by 100 basis points, non-parallel shifts in the yield curve in which long-term
interest rates increase or decrease by 100 basis points, and non-parallel shifts in the yield curve in which short-term and
medium-term interest rates increase or decrease by 100 basis points. This evaluation identifies the net effect on comprehensive
income from changes in fair value attributable to changes in interest rates for financial instruments measured at fair value,
including the effects of fair value hedge accounting, for each of the identified scenarios. This evaluation does not include the
net effect on comprehensive income from interest-rate sensitive items that are not measured at fair value (e.g., amortization of
mortgage loan premiums and discounts, changes in fair value of held-for-sale mortgage loans for which we have not elected
the fair value option, etc.) or from changes in our future contractual net interest income due to repricing of our interest-bearing
assets and liabilities. The before-tax results of this evaluation are shown in the table below.
Table 48 - Earnings Sensitivity to Changes in Interest Rates
(In millions)
Interest Rate Scenarios
Parallel yield curve shifts:
+100 basis points
-100 basis points
Non-parallel yield curve shifts - long-term interest rates:
+100 basis points
-100 basis points
Non-parallel yield curve shifts - short-term and medium-term interest rates:
+100 basis points
-100 basis points
December 31, 2021
December 31, 2020
$16.7
(16.7)
(27.3)
27.3
44.0
(44.0)
$97.9
(97.9)
(10.9)
10.9
108.7
(108.7)
The actual effect of changes in interest rates on our comprehensive income in any given period may vary based on a number of
factors, including, but not limited to, the composition of our assets and liabilities, the actual changes in interest rates that are
realized at different terms along the yield curve, and the effectiveness of our hedge accounting strategies. Even if implemented
properly, our hedge accounting programs may not be effective in reducing earnings volatility, and our hedges may fail in any
given future period, which could expose us to significant earnings variability in that period. In addition, after dedesignation of a
fair value hedging relationship, the amount of amortization of the fair value hedging basis adjustment associated with the
previously designated hedged item that we recognize in a period may differ from the change in fair value of the previously
designated hedging instrument during that period, which may create variability in our earnings. See Risk Factors - Market
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Management's Discussion and Analysis
Risk Management
Risks - Changes in interest rates could negatively affect the fair value of financial assets and liabilities, our results of
operations, and our net worth for additional information.
Spread-Related Earnings Sensitivity
We have limited ability to manage our spread risk exposure and, therefore, the volatility of market spreads may contribute to
significant GAAP earnings variability. For financial assets measured at fair value, we generally recognize fair value losses when
market spreads widen. Conversely, for financial liabilities measured at fair value, we generally recognize fair value gains when
market spreads widen. Certain accounting elections we make, such as election of the fair value option, may affect the amount
of spread volatility recognized in our results of operations.
Transition from LIBOR
In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, confirmed its intention to cease
publishing the 1-week and 2-month U.S. Dollar LIBOR setting after December 2021 and to cease publishing the other most
widely used tenors of U.S. Dollar LIBOR after June 2023. The U.K. Financial Conduct Authority, which regulates LIBOR
publication, announced that it would not compel panel bank submissions after those dates. Freddie Mac has exposure to
LIBOR, including financial instruments that mature after or extend beyond June 2023. Our exposure arises from floating rate
securities that we historically issued, loans and securities we acquired (including loans we subsequently resecuritized), and
derivatives we entered into that reference LIBOR. To manage the risk related to the LIBOR transition and prepare for and
continue progress towards an orderly transition from LIBOR, we have formed LIBOR transition committees across businesses,
functions, and products to develop appropriate strategies to address this transition. Senior management and the committees
are working with FHFA on our plans for transition implementation. We also provide ongoing public communications, updates,
and education about the status of this transition.
The Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee
(ARRC), a group of private-market participants, to help ensure a successful transition from U.S. Dollar LIBOR to a more robust
reference rate. The Federal Reserve Bank of New York began publishing the ARRC's recommended alternative, SOFR, in April
2018. Various industry groups have continued working to implement plans and documentation to facilitate a transition to SOFR
as the new market-accepted benchmark. We have been a member of the ARRC since 2018 and have participated in many of its
working groups.
We support the ARRC’s recommendation to replace U.S. Dollar LIBOR with SOFR and have taken steps to transition to that
reference rate. We have issued SOFR-based debt securities and executed SOFR-based securitizations and interest-rate
derivatives transactions. We purchase single-family ARMs and multifamily floating-rate loans indexed to SOFR, and effective
January 1, 2021, we no longer purchase single-family ARMs and multifamily floating-rate loans tied to LIBOR. Beginning July 1,
2021, we ceased issuing multifamily LIBOR-based securities. We continue to work with our customers, investors, and servicers
to prepare to transition existing LIBOR-based ARM products containing ARRC-recommended fallback language to SOFR-
based ARM products. In addition, in 4Q 2021, we transitioned from LIBOR to SOFR in measuring our interest-rate risk.
For a discussion of the risks related to the LIBOR transition, see Risk Factors - Market Risks - The discontinuance of
LIBOR could negatively affect the fair value of our financial assets and liabilities, results of operations, and net worth. A
transition to an alternative reference interest rate could present operational problems and subject us to possible
litigation risk. We may be unable to take a consistent approach across our financial products.
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Management's Discussion and Analysis
Operational Risk
Risk Management
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people, or systems or
from external events. Operational risk is inherent in all of our activities. Operational risk events include breakdowns related to
people, process, and/or technology that could result in financial loss, legal actions, regulatory fines, and reputational harm.
Operational Risk Management and Risk Profile
Our operational risk management methodology includes risk identification, measurement, monitoring, control, and reporting.
When operational risk events are identified, our policies require that the events be documented and analyzed to determine
whether changes are required in our systems, people, and/or processes to mitigate the risk of future events.
In order to evaluate and monitor the risks associated with business processes, each business line periodically completes an
assessment using the RCSA methodology. The methodology is designed to identify and assess the business line's exposure to
operational risk and determine if action is required to manage the risk to an acceptable level.
In addition to the RCSA process, we employ several tools to identify, measure, and monitor operational risks, including loss
event data, key risk indicators, root cause analysis, and testing. Our operational risk methodology requires that the primary
responsibility for managing both the day-to-day risk and longer-term or emerging risks lies with the business divisions, with
independent oversight performed by the second line of defense.
We continue to face heightened operational risk and expect the risk to remain elevated for the near term. This elevated risk
profile is due to the layering impact of several factors including: legacy systems requiring upgrade for operational resiliency;
reliance on manual processes and models; volume and complexity of business initiatives, including new initiatives we are
pursuing as required by the Conservatorship Scorecard; external events such as cybersecurity attacks, other security incidents,
and third-party failures; and issues requiring remediation. Other factors contributing to our heightened operational risk are
discussed in Risk Factors - Operational Risks. We also continue to manage other operational risks, such as compliance risk.
While our operational risk profile remains elevated, we are continuing to strengthen our operational control environment by
building out our operational risk resources within the first and second lines of defense.
Operational Resiliency Risk
Operational resiliency risk is the risk of the inability of an organization to quickly adapt to disruptions while maintaining
continuous business operations and safeguarding its people, assets, and overall reputation. The inability to manage resiliency
risk of our critical processes and supporting technology can negatively impact our ability to meet our business objectives. Our
operational resiliency risk has increased as a result of the COVID-19 pandemic and is being managed through operational
changes. For select applications, we have successfully completed the infrastructure migration to the cloud, enabling near
continuous availability across primary and alternate data centers. However, further improvements are underway to reduce
resiliency risk of our business critical processes. These improvements are designed to enable stability of business critical
processes and meet the desired recovery time objectives.
CSP
We continue to make investments to support the ongoing development and maintenance of the CSP. The CSP is owned and
operated by CSS, which is jointly owned by Freddie Mac and Fannie Mae. While we exercise influence over CSS through our
representation on the CSS Board of Managers, we do not control its day-to-day operations. Freddie Mac, Fannie Mae, FHFA,
and CSS continue to work together to monitor the operational effectiveness of the platform.
We rely on CSS and the CSP for the operation of many of our single-family securitization activities. Our business activities
would be adversely affected and the market for Freddie Mac securities would be disrupted if the CSP were to fail or otherwise
become unavailable to us or if CSS were unable to perform its obligations to us. As the CSP has an operational dependency on
Fannie Mae to administer Freddie Mac issued commingled securities, an operational failure at Fannie Mae could also adversely
impact the ability of CSS to perform its obligations to Freddie Mac. In the event of a CSS operational failure, we may be unable
to issue certain new single-family mortgage-related securities, and investors in mortgage-related securities hosted on the CSS
platform may experience payment delays.
For additional information, see Risk Factors - Operational Risks - A failure in our operational systems or infrastructure, or
those of third parties, could impair our ability to provide market liquidity, disrupt our business, damage our reputation,
and cause financial losses.
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Management's Discussion and Analysis
Risk Management
Cybersecurity Risk
Our operations rely on the secure, accurate, and timely receipt, storage, transmission, and other processing of confidential and
other information (including personal information) in our systems and networks and in those of our customers, counterparties,
service providers, and financial institutions. Cybersecurity risks for companies like ours have increased significantly in recent
years. Like many companies and government entities, from time to time we have been, and expect to continue to be, the target
of attempted cyberattacks and other information security threats, including those from nation-state and nation-state supported
actors.
We continue to invest in the cybersecurity area to strengthen our capabilities to prevent, detect, respond to and mitigate risk,
and protect our systems, networks, and other technology assets against unauthorized attempts to access confidential or other
information (including personal information) or to disrupt or degrade our business operations. We have obtained insurance
coverage relating to cybersecurity risks. However, this insurance may not be sufficient to provide adequate loss coverage or the
insurer may deny coverage for a particular claim, and such insurance may not always be available to us on commercially
reasonable terms or at all. Although to date we have not experienced any cyberattacks resulting in significant impact to our
company, there is no assurance that our cybersecurity risk management program will prevent cyberattacks from having
significant impacts in the future.
Insider threats also remain a significant risk as the workforce diversifies to include contractors, remote workers, and part-time
employees. Our third-party vendors and their supply chain connections remain another significant risk. While we have
strengthened our capabilities over critical third-party monitoring and surveillance with continued focus on detecting deliberate
actions such as malicious exploitation, theft or destruction of data (including personal information), or the compromise of our
systems or networks, our control over the security posture of our third-party vendors and their supply chain connections
remains limited.
For additional information, see Risk Factors - Operational Risks - Potential cybersecurity threats are changing rapidly
and advancing in sophistication. We may not be able to protect our systems and networks, or the confidentiality of our
confidential or other information (including personal information), from cyberattacks and other unauthorized access,
disclosure, and disruption.
Third-Party Risk
Third party risk is the risk of failure of an individual or entity engaged to deliver a product, service, or process to, or on behalf of,
Freddie Mac. We rely on third parties, and their supply chains, to support critical processes and core functions, and are
exposed to operational risks as a result of this reliance. These third parties could experience, directly or through their supply
chains, failures due to process breakdowns, technology outages, cyberattacks and other security incidents, adverse financial
conditions, or other disruptions. We are enhancing our enterprise capabilities to manage third-party operational risks. While we
continue to mature our program, we may be exposed to associated elevated risks. Our use of third parties increases exposure
to data breaches through third parties that access and store our data (including personal information) and their supply chains.
Efforts are underway to improve our controls and procedures related to third-party data sharing. We have not experienced
significant issues with our third-party vendors, service providers, sellers, servicers, or other counterparties during the COVID-19
pandemic. We have increased our monitoring of third parties with which we do business that we deem to be critical to our
operations; however, our control over their security posture remains limited. We are also working to strengthen our processes
related to identifying material subcontractors and service providers of the third parties with which we do business and
managing the associated operational risk.
In addition to credit risk exposure, sellers and servicers expose us to operational risk, including operational resilience,
information, and reporting risks. Sellers and servicers also expose us to compliance risk resulting from non-compliance with
applicable laws, regulations, and FHFA supervisory or conservator requirements. For additional information on our monitoring
of our sellers and servicers and related risks, see MD&A - Risk Management - Counterparty Credit Risk and Risk
Factors - Operational Risks - We rely on third parties, or their vendors and other business partners, for certain
important functions. Any failures by those parties to deliver products or services, or to manage risks effectively, could
disrupt our business operations, or expose us to other operational risks.
Model Risk
Model risk is the potential for adverse consequences from model errors or decisions based on the incorrect use or application
of model outputs. The unprecedented events surrounding the COVID-19 pandemic have generated an increased degree of
model risk and uncertainty. As a result, we expect our models to face significant challenges in accurately forecasting key inputs
into our financial projections. These can include, but are not limited to, projections of mortgage rates, house prices, credit
defaults, yields, prepayments, and interest rates. In response, we are mitigating this increased risk by monitoring model
performance and applying model overlays and adjustments when deemed appropriate. These will be driven by the latest
developments and emerging trends in the economy, as well as any additional government interventions and internal policy
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Management's Discussion and Analysis
Risk Management
changes. However, these adjustments incorporate subjectivity and may be based upon judgment. Actual results could differ
from our estimates, and the use of different judgments and assumptions related to these estimates could have a material
impact on our consolidated financial statements.
Model development, changes to existing models, and model risks are managed in each business line according to our three-
lines-of-defense framework. New model development and changes to existing models undergo a review process. Each
business periodically reviews model performance, embedded assumptions, limitations, and modeling techniques, and updates
its models as it deems appropriate. ERM independently validates the work done by the business lines (e.g., conducting
independent assessments of ongoing monitoring results, model risk ratings, performance monitoring, and reporting against
thresholds and alerts).
Given the importance and complexity of models in our business, model development may take significant time to complete.
Delays in our model development process could affect our ability to make sound business and risk management decisions, and
increase our exposure to risk. We have procedures designed to mitigate this risk.
For additional information, see Risk Factors - Operational Risks - We face risks and uncertainties associated with the
models that we use to inform business and risk management decisions and for financial accounting and reporting
purposes.
Compliance Risk
Compliance risk is the risk of non-compliance with applicable laws, regulations, FHFA supervisory or conservator requirements,
trustee agreement requirements or ethical standards (collectively, regulatory obligations). We have established a compliance
program, leveraging the three lines of defense enterprise risk framework, to oversee and manage compliance risk, including
effective challenge of our business areas’ compliance with such obligations, as appropriate. We maintain policies and
procedures that provide the governance framework for the identification, measurement, monitoring, testing, reporting, and
remediation of compliance issues. We have continued to enhance our overall compliance program, including risk assessments,
monitoring, testing, and reporting to address regulatory concerns requiring the strengthening of these areas. To the extent
additional concerns are identified, we will continue to coordinate with FHFA and our internal auditors to assess the impact and
remediate these concerns, as appropriate. For additional information relating to our compliance program, see Risk Factors -
Legal and Compliance Risks.
Effectiveness of Our Disclosure Controls and Procedures
Management, including our CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2021. As of that date, we had one material weakness related to conservatorship, which
remained unremediated, causing us to conclude that our disclosure controls and procedures were not effective at a reasonable
level of assurance. For additional information, see Controls and Procedures.
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Management's Discussion and Analysis
Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our business activities require that we maintain adequate liquidity to meet our financial obligations as they come due and meet
the needs of customers in a timely and cost-efficient manner. We also must maintain adequate capital resources to avoid being
placed into receivership by FHFA.
We are required to comply with minimum short-, medium-, and long-term liquidity requirements established by FHFA. These
requirements are based on cash flows needed under a stressed scenario that assumes, among other things, that for short- and
medium-term debt, we may not have access to funding from the market for an extended period of time and therefore must fund
our cash needs utilizing certain liquid assets in our portfolio.
The minimum liquidity requirements have four components:
n A 30-day cash flow stress test that assumes we continue to provide liquidity to the market while holding a $10 billion buffer
above outflows;
n A 365-day metric that requires us to hold liquidity to meet our expected cash outflows over 365 days and to continue to
provide liquidity to the market under certain stress conditions;
n A specified minimum long-term debt to less-liquid asset ratio. Less-liquid assets are those that are not eligible to be
pledged as collateral to the FICC; and
n A requirement that we fund our assets with liabilities that have a specified minimum term relative to the term of the assets.
These updated liquidity requirements have been effective since December 1, 2020 and have resulted in higher funding costs
and negatively affected our net interest income during 2021. In addition, they have impacted the size and the allowable
investments in our other investments portfolio.
Sources and Uses of Funds
Our primary source of funding for the assets on our balance sheet is the issuance of debt. In addition to the funding provided
by issuing debt, our other sources of funds include:
n Principal payments on and sales of securities and loans that we own;
n Repurchase transactions;
n Interest income on securities and loans that we own;
n Guarantee fees (inclusive of fees that we receive at the time we purchase a loan); and
n Net worth.
We use these sources to fund the assets on our balance sheet. Our primary uses of funds include:
n Principal payments upon the maturity, redemption, or repurchase of our debt;
n Payments of interest on our debt and other expenses;
n Purchases of mortgage loans, including purchases of seriously delinquent or modified loans underlying our securities,
mortgage-related securities, and other investments; and
n Payments related to derivative contracts and posting or pledging of collateral to third parties in connection with secured
financing and daily trade activities.
In addition to the sources and uses of cash described above, we are involved in various legal proceedings, including those
discussed in Legal Proceedings, which may result in a need to use cash to settle claims or pay certain costs or receipt of
cash from settlements.
Our securities and other obligations are not guaranteed by the U.S. government and do not constitute a debt or obligation of
the U.S. government or any agency or instrumentality thereof, other than Freddie Mac. We continue to manage our debt
issuances to remain in compliance with the aggregate indebtedness limits set forth in the Purchase Agreement.
FREDDIE MAC | 2021 Form 10-K
102
Management's Discussion and Analysis
Liquidity and Capital Resources
Liquidity Management Framework
The support provided by Treasury pursuant to the Purchase Agreement enables us to have adequate liquidity to conduct our
normal business activities. However, the costs and availability of our debt funding could vary for a number of reasons, including
the uncertainty about the future of the GSEs and any future downgrades in our credit ratings or the credit ratings of the U.S.
government.
We make extensive use of the Federal Reserve's payment system in our business activities. The Federal Reserve requires that
we fully fund our accounts at the Federal Reserve Bank of New York to the extent necessary to cover cash payments on our
debt and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will
initiate such payments. Although we seek to maintain sufficient intraday liquidity to fund our activities through the Federal
Reserve's payment system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash may
cause our account to be overdrawn, potentially resulting in penalties and reputational harm.
Maintaining sufficient liquidity is of primary importance to, and a cost of, our business. Under our liquidity management
practices and policies, we:
n Manage intraday cash needs and provide for the contingency of an unexpected cash demand;
n Maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a limited period of time,
assuming no access to unsecured debt markets;
n Maintain unencumbered securities with a value greater than or equal to the largest projected daily cash shortfall for an
extended period of time, assuming no access to unsecured debt markets; and
n Manage the maturity of our unsecured debt based on our asset profile.
To facilitate cash management, we forecast cash outflows and inflows using assumptions and models. These forecasts help us
to manage our liabilities with respect to the timing of our cash flows. Differences between actual and forecasted cash flows
have resulted in higher costs from issuing a higher amount of debt than needed or unexpectedly needing to issue debt, and
may do so in the future. Differences between actual and forecasted cash flows also could result in our account at the Federal
Reserve Bank of New York being overdrawn. We maintain daily cash reserves to manage this risk.
Liquidity Profile
Primary Sources of Liquidity
The following table lists the sources of our liquidity, the balances as of the dates shown, and a brief description of their
importance to Freddie Mac. Our ability to maintain sufficient liquidity, including by pledging mortgage-related and other
securities as collateral to other institutions, could cease or change rapidly and the cost of the available funding could increase
significantly due to changes in market interest rates, market confidence, operational risks, and other factors.
Table 49 - Liquidity Sources
(In millions)
•
Other Investments Portfolio -
Liquidity and Contingency
Operating Portfolio
• Mortgage Loans and Mortgage-
Related Securities - Liquid
Portion of the Mortgage-
Related Investments Portfolio
Balance(1) at
December 31, 2021
Balance(1) at
December 31, 2020
$80,262
$95,894 •
43,393
67,562 •
Description
The liquidity and contingency operating portfolio, included within
our other investments portfolio, is primarily used for short-term
liquidity management.
The liquid portion of our mortgage-related investments portfolio
can be pledged or sold for liquidity purposes. The amount of cash
we may be able to successfully raise may be substantially less
than the balance.
(1) Represents carrying value for the liquidity and contingency operating portfolio, included within our other investments portfolio, and UPB for the liquid portion of the
mortgage-related investments portfolio.
FREDDIE MAC | 2021 Form 10-K
103
Management's Discussion and Analysis
Liquidity and Capital Resources
Other Investments Portfolio
The table below summarizes the balances in our other investments portfolio, which includes the liquidity and contingency
operating portfolio. The investments in our other investments portfolio are important to our cash flow, collateral management,
asset and liability management, and ability to provide liquidity and stability to the mortgage market. The other investments
portfolio is primarily used for short-term liquidity management, cash and other investments held by consolidated trusts, and
other investments, which include investments in debt securities used to pledge as collateral, LIHTC partnerships, and secured
lending activities.
Table 50 - Other Investments Portfolio
(In millions)
Cash and cash equivalents
Securities purchased under
agreements to resell
December 31, 2021
December 31, 2020
Liquidity and
Contingency
Operating
Portfolio
Custodial
Account
Other
Total Other
Investments
Portfolio(1)
Liquidity and
Contingency
Operating
Portfolio
Custodial
Account
Other
Total Other
Investments
Portfolio(1)
$8,455
$1,596
$99
$10,150
$6,509 $17,380
$—
$23,889
43,729
34,000
807
78,536
65,753
38,487
763
105,003
Non-mortgage related securities
28,078
—
4,695
—
—
8,194
32,773
8,194
23,632
— 3,321
—
— 7,252
26,953
7,252
$80,262 $35,596 $13,795
$129,653
$95,894 $55,867 $11,336
$163,097
Other assets
Total
(1) Represents carrying value.
Our non-mortgage-related investments in the liquidity and contingency operating portfolio consist of U.S. Treasury securities
and other investments that we could sell to provide us with an additional source of liquidity to fund our business operations. We
also maintain non-interest-bearing deposits at the Federal Reserve Bank of New York and interest-bearing deposits at
commercial banks. Our interest-bearing deposits at commercial banks totaled $3.5 billion and $3.1 billion as of December 31,
2021 and December 31, 2020, respectively.
The liquidity and contingency operating portfolio also included collateral posted to us in the form of cash primarily by
derivatives counterparties of $1.2 billion and $2.8 billion as of December 31, 2021 and December 31, 2020, respectively. We
have invested this collateral in securities purchased under agreements to resell and non-mortgage-related securities as part of
our liquidity and contingency operating portfolio, although the collateral may be subject to return to our counterparties based
on the terms of our master netting and collateral agreements.
Mortgage Loans and Mortgage-Related Securities
We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely unencumbered
and liquid. Our primary source of liquidity among these mortgage assets is our holdings of agency securities.
In addition, we hold certain single-family loans and multifamily loans that could be securitized and would then be available for
sale or for use as collateral for repurchase agreements. Due to the large size of our portfolio of liquid assets, the amount of
mortgage-related assets that we may successfully sell or borrow against in the event of a liquidity crisis or significant market
disruption may be substantially less than the amount of mortgage-related assets we hold. There would likely be insufficient
market demand for large amounts of these assets over a prolonged period of time, which would limit our ability to sell or borrow
against these assets.
We hold other mortgage assets, but given their characteristics, they may not be available for immediate sale or for use as
collateral for repurchase agreements. These assets principally consist of single-family delinquent and modified loans.
We are subject to limits on the amount of mortgage assets we can sell in any calendar month without review and approval by
FHFA and, if FHFA so determines, Treasury. See Conservatorship and Related Matters - Limits on Our Mortgage-
Related Investments Portfolio and Indebtedness for additional details.
FREDDIE MAC | 2021 Form 10-K
104
Management's Discussion and Analysis
Liquidity and Capital Resources
Primary Sources of Funding
Debt securities that we issue are classified either as debt securities of consolidated trusts held by third parties or debt of
Freddie Mac. The following table lists the sources and balances of our funding as of the dates shown and a brief description of
their importance to Freddie Mac.
Table 51 - Funding Sources
(In millions)
•
Debt of Freddie Mac
•
Debt Securities of
Consolidated Trusts
December 31, 2021(1) December 31, 2020(1)
Description
$177,131
$284,370 •
Debt of Freddie Mac is used to fund our business activities.
2,803,054
2,308,176 •
Debt securities of consolidated trusts are used primarily to fund
our single-family guarantee activities. This type of debt is
principally repaid by the cash flows of the associated mortgage
loans. As a result, our repayment obligation is limited to amounts
paid pursuant to our guarantee of principal and interest and to
purchase modified or seriously delinquent loans from the trusts.
(1) Represents carrying value of debt balances after consideration of offsetting arrangements.
Debt of Freddie Mac
We issue debt of Freddie Mac to fund our operations. Competition for funding can vary with economic, financial market, and
regulatory environments. The amount, type, and term of debt issued is based on a variety of factors and is designed to meet
our ongoing cash needs and to comply with our Liquidity Management Framework.
We may use the following types of products as part of our funding and liquidity management activities:
n Securities sold under agreements to repurchase - Collateralized short-term borrowings where we sell securities to
a counterparty with an agreement to repurchase those securities at a future date.
n Discount notes and Reference Bills® - We issue short-term instruments with maturities of one year or less. These
products are generally sold on a discounted basis, paying principal only at maturity. Reference Bills are auctioned to
dealers on a regular schedule, while discount notes are issued in response to investor demand and our cash needs.
n Medium-term notes - We issue a variety of fixed-rate and variable-rate medium-term notes, including callable and
noncallable securities, and zero-coupon securities, with various maturities.
n Reference Notes® securities - Reference Notes securities are non-callable fixed-rate securities, which we generally
issue with original maturities greater than or equal to two years.
As of December 31, 2021, our aggregate indebtedness, calculated as the par value of debt of Freddie Mac, was $181.7 billion,
which was below the current $300.0 billion debt cap limit imposed by the Purchase Agreement. The Purchase Agreement debt
limit cap will decrease to $270.0 billion on January 1, 2023 as a result of the decrease in the Mortgage Asset limit under the
Purchase Agreement to $225.0 billion on December 31, 2022. Our aggregate indebtedness to meet our funding needs is
constrained by the debt cap limit. We disclose the amount of our indebtedness on this basis monthly under the caption
"Indebtedness Pursuant to the Purchase Agreement - Total Debt Outstanding" in our Monthly Volume Summary reports, which
are available on our website at www.freddiemac.com/investors/financials/monthly-volume-summaries.html.
To fund our business activities, we depend on the continuing willingness of investors to purchase our debt securities. Changes
or perceived changes in the government's support of us could have a severe negative effect on our access to the debt markets
and on our debt funding costs.
In addition, any change in applicable legislative or regulatory exemptions, including those described in Regulation and
Supervision, could adversely affect our access to some debt investors, thereby potentially increasing our debt funding costs.
FREDDIE MAC | 2021 Form 10-K
105
Management's Discussion and Analysis
Liquidity and Capital Resources
The table below summarizes the par value and the average rate of debt of Freddie Mac securities we issued or paid off,
including regularly scheduled principal payments, payments resulting from calls, and payments for repurchases. We call,
exchange, or repurchase our outstanding debt securities from time to time for a variety of reasons, including managing our
funding composition and supporting the liquidity of our debt securities.
Table 52 - Debt of Freddie Mac Activity
(Dollars in millions)
Short-term:
Beginning balance
Issuances
Repayments
Maturities
Ending balance
Securities sold under agreement to repurchase
Offsetting arrangements
Securities sold under agreement to repurchase, net
Total short-term debt
Long-term:
Beginning balance
Issuances
Repayments
Maturities
Total long-term debt
Total debt of Freddie Mac, net
(1)
Average rate is weighted based on par value.
Year Ended December 31,
2021
2020
Par Value
Average Rate(1)
Par Value
Average Rate(1)
$4,955
22,050
(24,569)
(2,436)
—
7,333
(7,333)
—
—
281,386
1,090
(58,067)
(42,794)
181,615
$181,615
1.31 %
0.04
0.15
1.49
—
(0.10)
—
—
1.12
0.60
0.70
1.06
1.11
1.11 %
$101,237
162,290
(16,608)
(241,964)
4,955
—
—
—
4,955
171,876
304,087
(159,945)
(34,632)
281,386
$286,341
1.92 %
1.02
1.40
1.40
1.31
—
—
1.31
2.65
0.69
1.64
1.88
1.12
1.12 %
Our outstanding total debt of Freddie Mac balance decreased primarily due to a lower mortgage-related investments portfolio
balance and lower cash window purchase volume. In 2020, we replaced a majority of our short-term debt with longer-term
callable and non-callable debt to comply with the minimum liquidity requirements established by FHFA. As a result of this
funding mix change, our funding cost has increased. Our callable debt provides us with the option to repay the outstanding
principal balance of the debt prior to its contractual maturity date. As of December 31, 2021, $62 billion of the outstanding
$69 billion of callable debt may be called within one year, not including callable debt due to contractually mature within one
year.
Maturity and Redemption Dates
The following table presents the debt of Freddie Mac by contractual maturity date and earliest redemption date. The earliest
redemption date refers to the earliest call date for callable debt and the contractual maturity date for all other debt of Freddie
Mac.
Table 53 - Maturity and Redemption Dates
(Par value in billions)
Debt of Freddie Mac(1):
1 year or less
1 year through 2 years
2 years through 3 years
3 years through 4 years
4 years through 5 years
Thereafter
STACR and SCR debt(2)
Total debt of Freddie Mac
As of December 31, 2021
Contractual Maturity Date
Earliest Redemption Date
$56
39
13
35
5
32
9
$189
$118
36
2
12
—
12
9
$189
(1)
(2)
Includes payables related to securities sold under agreements to repurchase that we offset against receivables related to securities purchased under agreements to
resell on our consolidated balance sheets, when such amounts meet the conditions for offsetting in the accounting guidance.
STACR debt notes and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage assets that
may be prepaid by the related mortgage borrower at any time generally without penalty and are, therefore, included as a separate category in the table.
FREDDIE MAC | 2021 Form 10-K
106
Management's Discussion and Analysis
Liquidity and Capital Resources
Debt Securities of Consolidated Trusts
The largest component of debt on our consolidated balance sheets is debt securities of consolidated trusts, which relates to
securitization transactions that we consolidate for accounting purposes. We primarily issue this type of debt by securitizing
mortgage loans to fund the majority of our Single-Family activities. When we consolidate securitization trusts, we recognize on
our consolidated balance sheets the assets held by the trusts, the majority of which are mortgage loans, and the debt securities
issued by the trusts, the majority of which are Level 1 Securitization Products.
Debt securities of consolidated trusts represent our liability to third parties that hold beneficial interests in our consolidated
securitization trusts. Debt securities of consolidated trusts are principally repaid from the cash flows of the mortgage loans held
by the securitization trusts that issued the debt securities. In circumstances when the cash flows of the mortgage loans are not
sufficient to repay the debt, we make up the shortfall because we have guaranteed the payment of principal and interest on the
debt. In certain circumstances, we have the right and/or obligation to purchase the loan from the trust prior to its contractual
maturity. For more information on our purchases of loans from trusts, see Our Business Segments - Single-Family -
Business Overview.
At December 31, 2021, our estimated net exposure to these debt securities (including the amounts that are due to Freddie Mac
for debt securities of consolidated trusts that we purchased) is recognized as the allowance for credit losses on mortgage loans
held by consolidated trusts. See Note 6 for details on our allowance for credit losses.
The table below shows the issuance and extinguishment activity for the debt securities of our consolidated trusts.
Table 54 - Activity for Debt Securities of Consolidated Trusts Held by Third Parties
(In millions)
Beginning balance
Issuances
Extinguishments
Ending balance
Unamortized premiums and discounts
Debt securities of consolidated trusts held by third parties
Credit Ratings
Year Ended December 31,
2021
$2,240,602
1,532,367
(1,040,913)
2,732,056
70,998
$2,803,054
2020
$1,854,802
1,231,008
(845,208)
2,240,602
67,574
$2,308,176
Our ability to access the capital markets and other sources of funding, as well as our cost of funds, may be affected by our
credit ratings. The table below indicates our credit ratings as of January 31, 2022.
Table 55 - Freddie Mac Credit Ratings
Senior long-term debt
Short-term debt
Preferred stock(1)
Outlook
Nationally Recognized Statistical Rating
Organization
S&P
AA+
A-1+
D
Stable
Moody's
Aaa
P-1
Ca
Stable
Fitch
AAA
F1+
C
Negative
(1)
Does not include senior preferred stock issued to Treasury.
Our credit ratings and outlooks are primarily based on the support we receive from Treasury and, therefore, are affected by
changes in the credit ratings and outlooks of the U.S. government.
A security rating is not a recommendation to buy, sell, or hold securities. It may be subject to revision or withdrawal at any time
by the assigning rating organization. Each rating should be evaluated independently of any other rating.
FREDDIE MAC | 2021 Form 10-K
107
Management's Discussion and Analysis
Liquidity and Capital Resources
Contractual Obligations
Our contractual obligations affect our liquidity and capital resource needs and primarily include the debt (and associated
interest payments) and derivative liabilities recognized on our consolidated balance sheets. We also have contractual
obligations recognized in other liabilities on our consolidated balance sheets, including payments to our qualified and non-
qualified defined contribution plans and other benefit plans, and future cash payments due under our obligations to make
delayed equity contributions to LIHTC partnerships.
We also have contractual obligations associated with our commitments to purchase loans and mortgage-related securities from
third parties, most of which are accounted for as derivatives, as well as certain off-balance sheet obligations that are legally
binding and enforceable, including guarantees, unfunded lending arrangements, and obligations to advance funds upon the
occurrence of certain events. See Off-Balance Sheet Arrangements for additional information on the potential effects of our
off-balance sheet obligations on our liquidity and capital resources.
The amount and timing of payments due related to debt of Freddie Mac is discussed in Primary Sources of Funding. Most of
our purchase commitments are scheduled to occur within the next 12 months. The amount and timing of certain other of our
contractual obligations is uncertain, including future payments of principal and interest related to debt securities of
consolidated trusts held by third parties, STACR and SCR transactions, cash settlements on derivative agreements not yet
accrued, guarantee payments, and commitments to advance funds under certain off-balance sheet arrangements.
Off-Balance Sheet Arrangements
We enter into certain business arrangements that are not recorded on our consolidated balance sheets or that may be recorded
in amounts that differ from the full contractual or notional amount of the transaction that affect our short- and long-term liquidity
needs. Certain of these arrangements present credit risk exposure. See MD&A - Risk Management - Credit Risk for
additional information on our credit risk exposure on off-balance sheet arrangements.
Guarantees
We have certain off-balance sheet arrangements related to our securitization and other mortgage-related guarantee activities.
Our off-balance sheet arrangements related to securitization activities primarily consist of guaranteed K Certificates and SB
Certificates. Our guarantee of these securitization activities and other mortgage-related guarantees may result in liquidity needs
to cover potential cash flow shortfalls from borrower defaults. As of December 31, 2021 and December 31, 2020, the
outstanding UPB of these guarantees was $366.0 billion and $337.0 billion, respectively.
In addition to our securitization and other mortgage-related guarantees, we have certain other guarantees that are accounted
for as derivative instruments and are recognized on our consolidated balance sheets at fair value. See Note 9 for additional
information on these guarantees, which are not included in the totals above.
We have the ability to commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products. When we
resecuritize Fannie Mae securities in our commingled resecuritization products, our guarantee covers timely payments of
principal and interest on such securities. Accordingly, commingling Fannie Mae collateral in our resecuritization transactions
increases our off-balance sheet liquidity exposure as we do not have control over the Fannie Mae collateral. As of
December 31, 2021 and December 31, 2020, the total amount of our off-balance sheet exposure related to Fannie Mae
securities backing Freddie Mac resecuritization products was approximately $111.2 billion and $85.8 billion, respectively.
Commitments
We have entered into certain commitments, including commitments to purchase securities under agreements to resell,
commitments to purchase multifamily loans, and unfunded multifamily lending arrangements, that are not recorded on our
consolidated balance sheets. As of December 31, 2021 and December 31, 2020, these commitments totaled $16.5 billion and
$59.2 billion in notional amount, respectively. We have elected the fair value option for certain of our commitments to purchase
multifamily loans.
We also have entered into other commitments to purchase or sell mortgage loans or mortgage-related securities that are
accounted for as derivative instruments. These commitments are recognized on our consolidated balance sheets at fair value
and are not included in the totals above. See Note 9 for additional information on these commitments.
In addition, in connection with certain of our multifamily other mortgage-related guarantee arrangements and other
securitization products, we have provided commitments to advance funds, commonly referred to as "liquidity guarantees,"
which were $4.2 billion and $4.8 billion at December 31, 2021 and December 31, 2020, respectively. These guarantees require
us to advance funds to third parties that enable them to repurchase tendered bonds or securities that are unable to be
remarketed. At both December 31, 2021 and December 31, 2020, there were no liquidity guarantee advances outstanding.
FREDDIE MAC | 2021 Form 10-K
108
Management's Discussion and Analysis
Liquidity and Capital Resources
Cash Flows
n 2021 vs. 2020 - Cash and cash equivalents (including restricted cash and cash equivalents) decreased by $13.7 billion
from $23.9 billion as of December 31, 2020 to $10.2 billion as of December 31, 2021, primarily due to a decrease in trust
cash driven by lower loan prepayments and a decline in our operating cash due to a lower cash window purchase forecast
and continued funding of maturities, calls, and buybacks of debt of Freddie Mac without issuing new debt.
n 2020 vs. 2019 - Cash and cash equivalents (including restricted cash and cash equivalents) increased by $18.7 billion from
$5.2 billion as of December 31, 2019 to $23.9 billion as of December 31, 2020, primarily due to higher loan prepayments
and our transition to comply with updated minimum liquidity requirements established by FHFA.
Capital Resources
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our management
of capital. We entered into the Purchase Agreement with Treasury, under which we issued to Treasury both senior preferred
stock and a warrant to purchase 79.9% of our common stock outstanding on a fully diluted basis on the date of exercise.
Under the Purchase Agreement, Treasury made a commitment to provide us with equity funding, under certain conditions, to
eliminate deficits in our net worth. Obtaining equity funding from Treasury pursuant to its commitment under the Purchase
Agreement enables us to avoid being placed into receivership by FHFA and to maintain the confidence of the debt markets as a
very high-quality credit, upon which our business model is dependent. The amount of available funding remaining under the
Purchase Agreement was $140.2 billion as of December 31, 2021, which will be reduced by any future draws.
In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage our financial risk and to make business
decisions, while in conservatorship, utilizing a risk-based CCF, a capital system with detailed formulae provided by FHFA. In
December 2020, FHFA published a final rule that establishes the ERCF as a new enterprise regulatory capital framework for
Freddie Mac and Fannie Mae. The ERCF, which went into effect in February 2021, has a transition period for compliance. In
general, the compliance date for the regulatory capital requirements will be the later of the date of termination of our
conservatorship and any later compliance date provided in a consent order or other transition order. Pursuant to the final rule,
we are required to comply with the regulatory capital reporting requirements under the ERCF in 2022, with our initial quarterly
capital report due by May 30, 2022, 60 days after the last day of the first quarter.
Pursuant to the Purchase Agreement, we will not have a dividend requirement to Treasury on the senior preferred stock until
our Net Worth Amount exceeds the amount of adjusted total capital necessary to meet capital requirements and buffers set
forth in the ERCF. Based on our Net Worth Amount of $28.0 billion as of December 31, 2021, no dividend is payable to
Treasury for the quarter ended December 31, 2021. Under the Purchase Agreement, the payment of dividends does not reduce
the outstanding liquidation preference on the senior preferred stock. Our cumulative senior preferred stock dividend payments
totaled $119.7 billion as of December 31, 2021.
The aggregate liquidation preference of the senior preferred stock owned by Treasury was $98.0 billion as of December 31,
2021. The aggregate liquidation preference of the senior preferred stock will be increased, at the end of each fiscal quarter
through the Capital Reserve End Date, by an amount equal to the increase in the Net Worth Amount, if any, during the
immediately prior fiscal quarter. In addition, to the extent that we draw additional funds in the future, the aggregate liquidation
preference will increase by the amount of those draws. For additional information on the Purchase Agreement, warrant and
senior preferred stock, including our dividend requirement on the senior preferred stock and the commitment fee to be paid to
Treasury after the Capital Reserve End Date, see MD&A - Conservatorship and Related Matters, Note 2, and Note
12.
FREDDIE MAC | 2021 Form 10-K
109
Management's Discussion and Analysis
Liquidity and Capital Resources
We invest our retained earnings primarily in short-term investments. The table below presents activity related to our net worth.
Table 56 - Net Worth Activity
(In millions)
Ending balance, December 31
Cumulative-effect adjustment (1)
Beginning balance, January 1
Comprehensive income (loss)
Capital draws from Treasury
Senior preferred stock dividends declared
Total equity / net worth
Aggregate draws under Purchase Agreement
Aggregate cash dividends paid to Treasury
Liquidation preference of the senior preferred stock
(1)
Cumulative-effect adjustment related to our adoption of CECL on January 1, 2020.
Year Ended December 31,
2021
2020
2019
$16,413
$9,122
$4,477
—
16,413
11,620
—
—
$28,033
$71,648
119,680
97,959
(240)
8,882
7,531
—
—
$16,413
$71,648
119,680
86,539
—
4,477
7,787
—
(3,142)
$9,122
$71,648
119,680
79,322
FREDDIE MAC | 2021 Form 10-K
110
Management's Discussion and Analysis
Conservatorship and Related Matters
CONSERVATORSHIP AND RELATED MATTERS
Supervision of Our Company During Conservatorship
FHFA has broad powers when acting as our Conservator. Upon its appointment, the Conservator immediately succeeded to all
rights, titles, powers, and privileges of Freddie Mac and of any stockholder, officer, or director of Freddie Mac with respect to
Freddie Mac and its assets. The Conservator also succeeded to the title to all books, records, and assets of Freddie Mac held
by any other legal custodian or third party.
Under the GSE Act, the Conservator may take any actions it determines are necessary to put us in a safe and solvent condition
and appropriate to carry on our business and preserve and conserve our assets and property. The Conservator's powers
include the ability to transfer or sell any of our assets or liabilities, subject to certain limitations and post-transfer notice
provisions, without any approval, assignment of rights or consent of any party. However, the GSE Act provides that loans and
mortgage-related assets that have been transferred to a Freddie Mac securitization trust must be held by the Conservator for
the beneficial owners of the trust and cannot be used to satisfy our general creditors.
We conduct our business subject to the direction of FHFA as our Conservator. The Conservator has authorized the Board of
Directors to oversee management's conduct of our business operations so we can operate in the ordinary course. The directors
serve on behalf of, exercise authority as provided by, and owe their fiduciary duties of care and loyalty to the Conservator. The
Conservator retains the authority to withdraw or revise the authority it has provided at any time. The Conservator also retains
certain significant authorities for itself and has not provided them to the Board of Directors. The Conservator continues to
provide strategic direction for the company and directs the efforts of the Board of Directors and management to implement its
strategy. Many management decisions are subject to review and/or approval by FHFA and management frequently receives
direction from FHFA on various matters involving day-to-day operations.
Our current business objectives reflect direction we have received from the Conservator, including in the Conservatorship
Scorecards. At the direction of the Conservator, we have made changes to certain business practices that are designed to
provide support for the mortgage market in a manner that serves our mission and other non-financial objectives. Given our
mission and the important role our Conservator has placed on Freddie Mac in addressing housing and mortgage market
conditions, we sometimes take actions that could have a negative impact on our business, operating results, or financial
condition. Certain of these actions are intended to help homeowners and the mortgage market.
Purchase Agreement, Warrant, and Senior Preferred Stock
In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury. Under the Purchase
Agreement, we issued to Treasury both senior preferred stock and a warrant to purchase common stock. The Purchase
Agreement, warrant, and senior preferred stock do not contain any provisions causing them to terminate or cease to exist upon
the termination of conservatorship. The conservatorship, Purchase Agreement, warrant, and senior preferred stock materially
limit the rights of our common and preferred stockholders (other than Treasury).
Pursuant to the Purchase Agreement, which we entered into through FHFA, in its capacity as Conservator, on September 7,
2008, we issued to Treasury one million shares of Variable Liquidation Preference Senior Preferred Stock with an initial
liquidation preference of $1 billion and a warrant to purchase, for a nominal price, shares of our common stock equal to 79.9%
of the total number of shares outstanding. The senior preferred stock and warrant were issued to Treasury as an initial
commitment fee in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. We did
not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or the warrant. Under the
Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited, and we will not be
able to do so for the foreseeable future, if at all.
The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by which
our total liabilities exceed our total assets, as reflected on our GAAP consolidated balance sheet for the applicable fiscal
quarter, provided that the aggregate amount funded under the Purchase Agreement may not exceed Treasury's commitment.
The amount of any draw will be added to the aggregate liquidation preference of the senior preferred stock and will reduce the
amount of available funding remaining. Deficits in our net worth have made it necessary for us to make substantial draws on
Treasury's funding commitment under the Purchase Agreement, with the majority of these draws occurring from 2008 to 2011.
In addition, increases in our Net Worth Amount since December 2017 have been, or will be, added to the aggregate liquidation
preference of the senior preferred stock. The liquidation preference of the senior preferred stock will continue to be increased at
the end of each fiscal quarter through the Capital Reserve End Date, by an amount equal to the increase in the Net Worth
Amount, if any, during the immediately prior fiscal quarter. As of December 31, 2021, the aggregate liquidation preference of
the senior preferred stock was $98.0 billion, and the amount of available funding remaining under the Purchase Agreement was
$140.2 billion, which will be reduced by any future draws.
Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as, and if
declared by our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared
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by, and paid at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of
Directors. We have had a net worth sweep dividend requirement to Treasury on the senior preferred stock since the first quarter
of 2013, which was implemented pursuant to the August 2012 amendment to the Purchase Agreement. Our cash dividend
requirement each quarter is the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal
quarter, less the applicable Capital Reserve Amount, exceeds zero. The applicable Capital Reserve Amount is currently the
amount of adjusted total capital necessary to meet capital requirements and buffers set forth in the ERCF. This Capital Reserve
Amount will remain in effect until the last day of the second consecutive fiscal quarter during which we have reached and
maintained such level of capital (the Capital Reserve End Date). As a result, we will not have another dividend requirement on
the senior preferred stock until we have built sufficient capital to meet the capital requirements and buffers set forth in the
ERCF. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period
until the Capital Reserve End Date, the unpaid amount would be added to the liquidation preference and the applicable Capital
Reserve Amount would thereafter be zero.
After the Capital Reserve End Date, our dividend requirement to Treasury on the senior preferred stock will be an amount equal
to the lesser of (1) 10% per annum on the then-current liquidation preference of the senior preferred stock and (2) a quarterly
amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter. As a result, after the
Capital Reserve End Date, all or significant portions of our future profits will be distributed to Treasury, and the holders of our
common stock and non-senior preferred stock will not receive benefits that could otherwise flow from such profits. If for any
reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period after the Capital
Reserve End Date, the unpaid amount would be added to the liquidation preference. Immediately following such failure and for
all dividend periods thereafter until the dividend period following the date on which we shall have paid in cash full cumulative
dividends, the dividend amount will be 12% per annum on the then-current liquidation preference of the senior preferred stock.
This would not affect our ability to draw funds from Treasury under the Purchase Agreement.
The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well as any
capital stock we issue in the future, as to both dividends and rights upon liquidation. We are not permitted to redeem the senior
preferred stock prior to the termination of Treasury's funding commitment under the Purchase Agreement.
We are also required under the Purchase Agreement to pay a quarterly commitment fee to Treasury, which was to be
determined in an amount mutually agreed to by us and Treasury with reference to the market value of Treasury's funding
commitment as then in effect. However, this commitment fee requirement has been suspended since January 1, 2013 and until
the Capital Reserve End Date. We and Treasury, in consultation with the Chairman of the Federal Reserve, will mutually agree
on a periodic commitment fee that we will pay for Treasury’s remaining funding commitment with respect to the five-year period
commencing on the first January 1 after the Capital Reserve End Date.
The Purchase Agreement and warrant also contain covenants that significantly restrict our business and capital activities. For
example, the Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not,
without the prior written consent of Treasury:
n Pay dividends on our equity securities, other than the senior preferred stock or warrant, or repurchase our equity securities;
n Issue any additional equity securities, except in limited instances;
n Exit from conservatorship, except in limited circumstances;
n Sell, transfer, lease, or otherwise dispose of any assets, other than dispositions for fair market value in the ordinary course
of business, consistent with past practices, and in other limited circumstances; and
n Issue any subordinated debt.
In addition, the Purchase Agreement requires us to comply with the ERCF as published in December 2020, disregarding any
subsequent amendment or other modification to that rule. For more information on the Purchase Agreement covenants, see
Note 2, and for related risks, see Risk Factors - Conservatorship and Related Matters.
Limits on Our Mortgage-Related Investments Portfolio and
Indebtedness
Our ability to acquire and sell mortgage assets is significantly constrained by limitations under the Purchase Agreement and
other limitations imposed by FHFA:
n Since 2014, we have been managing the mortgage-related investments portfolio so that the UPB of our mortgage assets
does not exceed 90% of the cap under the Purchase Agreement, which reached $250 billion as of December 31, 2018. In
February 2019, FHFA directed us to maintain the mortgage-related investments portfolio at or below $225 billion at all
times. In November 2019, FHFA instructed us, by January 31, 2020, to include 10% of the notional value of certain
interest-only securities owned by Freddie Mac in the calculation of this portfolio, while continuing to maintain the portfolio
below the limit imposed by FHFA. The Purchase Agreement cap on our mortgage-related investments portfolio will be
lowered from $250 billion to $225 billion at the end of 2022. Since January 2021, the calculation of mortgage assets
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subject to the Purchase Agreement cap also includes 10% of the notional value of interest-only securities. Our mortgage-
related investments portfolio was $123.5 billion as of December 31, 2021, including $12.5 billion representing 10% of the
notional amount of the interest-only securities we held as of December 31, 2021.
n With respect to the composition of our mortgage-related investments portfolio, FHFA instructed us to: (1) reduce the
amount of agency MBS we hold to no more than $50 billion by June 30, 2021 and no more than $20 billion by June 30,
2022, with all dollar caps to be based on UPB; and (2) reduce the UPB of our existing portfolio of collateralized mortgage
obligations (CMOs), which are also sometimes referred to as REMICs, to zero by June 30, 2021. We will have a holding
period limit to sell any new CMO tranches created but not sold at issuance. CMOs do not include tranches initially retained
from reperforming loans senior subordinate securitization structures.
n Under the Purchase Agreement, we may not incur indebtedness that would result in the par value of our aggregate
indebtedness exceeding 120% of the amount of mortgage assets we are permitted to own on December 31 of the
immediately preceding calendar year. Our debt cap under the Purchase Agreement has been $300 billion since January 1,
2019. As of December 31, 2021, our aggregate indebtedness for purposes of the debt cap was $181.7 billion. Our debt
cap under the Purchase Agreement will decrease to $270 billion on January 1, 2023 as a result of the decrease in the
mortgage assets limit under the Purchase Agreement to $225 billion on December 31, 2022.
n FHFA has indicated that any portfolio sales should be commercially reasonable transactions that consider impacts to the
market, borrowers, and neighborhood stability.
Our decisions with respect to managing the mortgage-related investments portfolio affect our business segments. In order to
achieve all of our portfolio goals, it is possible that we may forgo economic opportunities in one business segment in order to
pursue opportunities in the other business segment.
Our results against the limits imposed on our mortgage-related investments portfolio and aggregate indebtedness for the year
ended December 31, 2021 are shown below.
Mortgage Assets(1) as of December 31,
Indebtedness as of December 31,
(In billions)
(In billions)
(1) 2021 and 2020 include 10% of the notional value of certain interest-only
securities owned by Freddie Mac. 2020 has been revised to conform to the
current presentation.
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$213$189$124$250$250$250$225$225$22590% of mortgage-related investmentsportfolio limitMortgage-related investments portfoliolimitMortgage-related investments portfolioending balance201920202021$283$287$182$300$300$300Indebtedness limitTotal debt of Freddie Mac outstanding201920202021
Management's Discussion and Analysis
Conservatorship and Related Matters
Limits on Our Secondary Market Activities and Single-Family Loan
Acquisitions
The Purchase Agreement restricts our secondary market activities and single-family loan acquisitions:
n Secondary Market Activities - We cannot vary the pricing or any other term of the acquisition of a single-family loan based
on the size, charter type, or volume of business of the seller of the loan and are required to:
l Offer to purchase loans for cash consideration and operate this cash window with non-discriminatory pricing; and
l Comply with directives, regulations, restrictions, or other requirements prescribed by FHFA related to equitable
secondary market access by community lenders.
n Single-Family Loan Acquisitions - We are required to limit our acquisition of certain single-family mortgage loans.
l Subject to such exceptions as FHFA may prescribe to permit us to acquire single-family mortgage loans that are
currently eligible for acquisition, we were required to implement a program reasonably designed to ensure that each
single-family mortgage is:
–
–
–
–
–
–
A qualified mortgage;
Expressly exempt from the CFPB’s ability-to-repay requirements;
Secured by an investment property, subject to the related Purchase Agreement restriction described below, which
has been suspended;
A refinancing with streamlined underwriting for high LTV ratios;
A loan with temporary underwriting flexibilities due to exigent circumstances, as determined in consultation with
FHFA; or
Secured by manufactured housing.
The Purchase Agreement also includes restrictions on the volume of our cash window activities, acquisitions of single-family
loans with certain LTV, DTI, and credit score characteristics at origination, and acquisitions of single-family loans secured by
second homes or investment properties, but these requirements have been suspended until the later of September 14, 2022
and six months after Treasury so notifies Freddie Mac. For additional information on the suspended Purchase Agreement
requirements, see MD&A – Regulation and Supervision – Legislative and Regulatory Developments – September 2021
Letter Agreement with Treasury.
We will continue to manage these activities in accordance with our risk limits and guidance from FHFA.
Limits on Our Multifamily Loan Purchase Activity
The amount and type of multifamily loans that we purchase are significantly influenced by the loan purchase cap established by
FHFA for our multifamily business. In October 2021, FHFA announced that the 2022 loan purchase cap for the multifamily
business will be $78 billion, up from $70 billion in 2021. FHFA will continue to require at least 50% of the Multifamily new
business activity to be mission-driven, affordable housing. FHFA has changed certain definitions of mission-driven, affordable
housing and, in 2022, such definitions will include loans on affordable units in cost-burdened renter markets and loans to
finance energy and water efficiency improvements with units affordable to renters at or below 60% of AMI. In 2022, FHFA also
will require at least 25% of the Multifamily new business activity to be affordable to renters at or below 60% of AMI, up from
20% in 2021. The loan purchase cap is subject to reassessment by FHFA throughout the year to determine whether an increase
in the cap is appropriate based on a stronger than expected overall market. To prevent market disruption, if FHFA determines
the actual size of the market is smaller than was initially projected, FHFA will not reduce the cap. For additional information on
the Multifamily loan purchase cap, see MD&A - Our Business Segments - Multifamily - Products and Activities - Loan
Purchase.
The Purchase Agreement also includes restrictions on our multifamily loan purchase activity, but these Purchase Agreement
restrictions have been suspended until the later of September 14, 2022 and six months after Treasury so notifies Freddie Mac.
For additional information, see MD&A – Regulation and Supervision - Legislative and Regulatory Developments –
September 2021 Letter Agreement with Treasury.
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FHFA's Strategic Plan: Fiscal Years 2021-2024 and
Conservatorship Scorecard
In October 2020, FHFA released its Strategic Plan for fiscal years 2021-2024. This Strategic Plan establishes the goals needed
for FHFA to fulfill its statutory duties.
This Strategic Plan formalizes the direction of FHFA, and its regulated entities, by updating FHFA's mission, vision, and values,
and by establishing three new strategic goals:
n Ensuring safe and sound regulated entities through world-class supervision;
n Fostering competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets; and
n Positioning FHFA as a model of operational excellence by strengthening its workforce and infrastructure.
In February 2021, FHFA released the 2021 Conservatorship Scorecard. The purpose of this Scorecard is to ensure that the
Enterprises and CSS focus on their core mission responsibilities, operate in a manner appropriate for entities in conservatorship
with limited capital buffers, and undertake those activities necessary to support an exit from conservatorship. In August 2021,
FHFA removed the following two objectives from the 2021 Conservatorship Scorecard: (1) Roadmap Toward End of
Conservatorship: Continue to provide support to FHFA as needed to develop a roadmap with milestones for exiting
conservatorship, including the development of any capital restoration plans, and (2) Housing Market Reform and Alignment:
Conduct such activities as directed by FHFA related to housing market reform. For more information on the 2021
Conservatorship Scorecard, see Executive Compensation - CD&A - Determination of 2021 At-Risk Deferred Salary -
At-Risk Deferred Salary Based on Conservatorship Scorecard Performance.
In November 2021, FHFA released the 2022 Conservatorship Scorecard. The purpose of this Scorecard is to hold the
Enterprises and CSS accountable for fulfilling their core mission requirements by promoting sustainable and equitable access
to affordable housing and operating in a safe and sound manner. For more information on the 2022 Conservatorship Scorecard,
see our Current Report on Form 8-K filed on November 18, 2021.
For more information on the conservatorship and related matters, see Regulation and Supervision, Risk Factors -
Conservatorship and Related Matters, Note 2, Note 12, and Directors, Corporate Governance, and Executive
Officers - Corporate Governance - Board of Directors and Board Committee Information - Authority of the Board of
Directors and Board Committees.
Equitable Housing Finance Plan
On September 7, 2021, FHFA announced that Freddie Mac and Fannie Mae will be required to submit equitable housing
finance plans to FHFA. These plans will cover a three-year period and will be updated annually. The plans are intended to
identify and address barriers to sustainable housing opportunities, including the Enterprises' goals and action plans to advance
equity in housing finance for the next three years. FHFA will also require the Enterprises to submit annual progress reports on
the actions undertaken during the prior year to implement their plans. In December 2021, we submitted our 2022-2024
Equitable Housing Finance Plan to FHFA.
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Management's Discussion and Analysis
Regulation and Supervision
REGULATION AND SUPERVISION
In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our Charter
and the GSE Act and to certain regulation by other government agencies. Furthermore, regulatory activities by other
government agencies can affect us indirectly, even if we are not directly subject to such agencies' regulation or oversight, such
as regulations that modify requirements applicable to the purchase or servicing of mortgages.
Federal Housing Finance Agency
FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac, Fannie
Mae, and the FHLBs.
Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some respects broader than, that
of the federal banking agencies. FHFA is responsible for implementing the various provisions of the GSE Act that were added
by the Reform Act.
Receivership and Resolution Planning
Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than our
obligations or we have not been paying our debts as they become due, in each case for a period of 60 days. FHFA has notified
us that the measurement period for any mandatory receivership determination with respect to our assets and obligations would
commence no earlier than the SEC public filing deadline for our quarterly or annual financial statements and would continue for
60 calendar days after that date. FHFA has also advised us that, if, during such a 60-day period, we receive funds from
Treasury in an amount at least equal to the deficiency amount under the Purchase Agreement, the Director of FHFA will not
make a mandatory receivership determination.
In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons set forth in
the GSE Act. The statutory grounds for discretionary appointment of a receiver include: a substantial dissipation of assets or
earnings due to unsafe or unsound practices; the existence of an unsafe or unsound condition to transact business; an inability
to meet our obligations in the ordinary course of business; a weakening of our condition due to unsafe or unsound practices or
conditions; critical undercapitalization; undercapitalization and no reasonable prospect of becoming adequately capitalized; the
likelihood of losses that will deplete substantially all of our capital; or by consent.
Certain aspects of conservatorship and receivership operations of Freddie Mac, Fannie Mae, and the FHLBs are addressed in
an FHFA rule on conservatorship and receivership. Among other provisions, FHFA generally will not permit payment of
securities litigation claims during conservatorship, and claims by current or former shareholders arising as a result of their
status as shareholders would receive the lowest priority of claim in receivership. In addition, administrative expenses of the
conservatorship will be deemed to be administrative expenses of receivership and capital distributions may not be made during
conservatorship, except as specified in the rule.
In May 2021, FHFA published a final rule that requires Freddie Mac and Fannie Mae to develop credible resolution plans, also
known as living wills. The purpose of the rule is to require each Enterprise to develop a resolution plan to facilitate its rapid and
orderly resolution under FHFA’s receivership authority in a manner that: (1) minimizes disruption in the national housing finance
markets by providing for the continued operation of the core business lines of the Enterprise in receivership by a newly
constituted LLRE; (2) preserves the value of the Enterprise's franchise and assets; (3) facilitates the division of assets and
liabilities between the LLRE and the receivership estate; (4) ensures that investors in mortgage-backed securities guaranteed by
the Enterprises and in Enterprise unsecured debt bear losses in accordance with the priority of payments established in the
GSE Act, while minimizing unnecessary losses and costs to these investors; and (5) fosters market discipline by making clear
that no extraordinary government support will be available to indemnify investors against losses or fund the resolution of an
Enterprise. The rule also addresses procedural requirements related to the frequency and timing for submission of initial and
subsequent resolution plans to FHFA. The rule provides a set of required and prohibited assumptions when developing the
resolution plans, including assuming that receivership may occur under the severely adverse economic conditions provided by
FHFA in conjunction with any stress testing required or another scenario provided by FHFA, not assuming the provision or
continuation of extraordinary government support (including support under the Purchase Agreement), and reflecting statutory
provisions that obligations and securities of the Enterprises are not guaranteed by the United States and do not constitute a
debt or obligation of the United States. Our first resolution plan must be submitted to FHFA in April 2023.
The appointment of FHFA as receiver would immediately terminate the conservatorship. In the event of receivership, the GSE
Act requires FHFA, as the receiver, to organize a LLRE with respect to Freddie Mac. Among other requirements, the GSE Act
provides that this LLRE:
n Would succeed to Freddie Mac's Charter and thereafter operate in accordance with and subject to such Charter;
n Would assume, acquire, or succeed to our assets and liabilities to the extent that such assets and liabilities are transferred
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Management's Discussion and Analysis
Regulation and Supervision
by FHFA to the LLRE; and
n Would not be permitted to assume, acquire, or succeed to any of our obligations to shareholders.
Placement into receivership would likely have a material adverse effect on holders of our common stock and preferred stock,
and could have a material adverse effect on holders of our debt securities and Freddie Mac mortgage-related securities. Should
we be placed into receivership, different assumptions would be required to determine the carrying value of our assets, which
could lead to substantially different financial results. For more information on the risks to our business relating to receivership
and uncertainties regarding the future of our business, see Risk Factors - Conservatorship and Related Matters.
Capital Standards
The GSE Act specifies certain capital requirements for us and authorizes FHFA to establish other capital requirements as well
as to increase our minimum capital requirements or to establish additional capital and reserve requirements for particular
purposes. In 2008, FHFA suspended capital classification of us during conservatorship, in light of the Purchase Agreement.
In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage our financial risk and to make business
decisions utilizing a risk-based CCF, a capital system with detailed formulae provided by FHFA. We have used FHFA's CCF,
and internal capital methodologies, where available, to measure risk for making economically effective decisions. The CCF
includes specific requirements relating to risk on our book of business and modeled returns on our new acquisitions. In
December 2020, FHFA published the ERCF, establishing a new regulatory capital framework for Freddie Mac and Fannie Mae.
In accordance with FHFA guidance, we are transitioning the management of our business from the CCF to the ERCF.
The ERCF establishes risk-based and leverage capital requirements for the Enterprises, and includes the following:
n Supplemental capital requirements relating to the amount and form of the capital we hold, based largely on definitions of
capital used in U.S. banking regulators' regulatory capital framework. The final rule includes leverage-based and risk-based
requirements, which together determine the requirements for each tier of capital;
n A requirement that we hold prescribed capital buffers that can be drawn down in periods of financial stress and then rebuilt
over time as economic conditions improve. If we fall below the prescribed buffer amounts, we must restrict capital
distributions such as stock repurchases and dividends, as well as discretionary bonus payments to executives, until the
buffer amounts are restored;
n A requirement to file quarterly public capital reports with FHFA starting in 2022, regardless of our status in conservatorship;
n A requirement to maintain capital for operational and market risk, in addition to our credit risk;
n Specific minimum percentages, or "floors," on the risk-weights applicable to single-family and multifamily exposures,
which have the effect of increasing the capital required to be held for loans otherwise subject to lower risk weights;
n Specific floors on the risk-weights applicable to retained portions of credit risk transfer transactions, which have the effect
of decreasing the capital relief obtained from these transactions; and
n Additional elements based on U.S. banking regulators' regulatory capital framework, including the phased implementation
of advanced approaches as an alternative to the standardized approach for measuring risk weighted assets.
The ERCF will require us to hold substantially more capital than prior requirements. Our current capital levels are significantly
below the levels that would be required under the ERCF. The ERCF, which went into effect in February 2021, has a transition
period for compliance. In general, the compliance date for the regulatory capital requirements in the ERCF will be the later of
the date of termination of our conservatorship and any later compliance date provided in a consent order or other transition
order, and the compliance date for buffer requirements in the ERCF will be the date of termination of our conservatorship. With
respect to the ERCF’s advanced approaches requirements, the compliance date is January 1, 2025 or any later compliance
date specified by FHFA. Pursuant to the final rule, we are required to comply with the regulatory capital reporting requirements
under the ERCF in 2022, with our initial quarterly capital report due by May 30, 2022, 60 days after the last day of the first
quarter. Further, the Purchase Agreement includes a covenant requiring us to comply with the ERCF disregarding any
subsequent amendment or other modifications to the final rule. As a result, any amendments or FHFA-directed modifications to
the ERCF may affect our compliance with this covenant. For additional information on these capital standards, see Note 19
and on risks related to non-compliance with the Purchase Agreement, see Risk Factors – Conservatorship and Related
Matters - The Purchase Agreement and the terms of the senior preferred stock significantly limit our business
activities. In the event of non-compliance with any Purchase Agreement covenants, Treasury may be entitled to
specific performance, damages, and other remedies, and if the corrective actions we were to take were determined by
FHFA to be insufficient, FHFA could impose penalties on us or take other remedial actions.
Pursuant to an FHFA rule on stress testing of regulated entities, Freddie Mac and Fannie Mae are required to conduct annual
stress tests using scenarios specified by FHFA to determine whether each Enterprise has sufficient capital to absorb losses as
a result of adverse economic conditions. Under the rule, the Enterprises must publicly disclose the results of the stress test
under the "severely adverse" scenario. In accordance with FHFA guidance, in August 2021, we disclosed the results of both our
2021 and 2020 "severely adverse" scenario stress tests.
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Management's Discussion and Analysis
Regulation and Supervision
New Products
The GSE Act requires Freddie Mac and Fannie Mae to obtain the approval of FHFA before initially offering any product (as
defined in the statute), subject to certain exceptions. The GSE Act also requires us to provide FHFA with written notice of any
new activity that we consider not to be a product. While FHFA published an interim final rule on prior approval of new products
to implement these statutory requirements in July 2009, it stated that permitting us to engage in new products is inconsistent
with the goals of conservatorship and instructed us not to submit such requests under the interim final rule. In October 2020,
FHFA published a proposed rule that, if adopted, will replace the interim final rule. The proposed rule outlines the process for
FHFA review and timelines for approving a new product. It sets forth the criteria for evaluating whether a new product is within
the Enterprise’s Charter, is in the public interest, and is consistent with maintaining the safety and soundness of the Enterprise
or the mortgage finance system. It also establishes a new three-part objective test for determining whether an activity is a new
activity.
Affordable Housing Goals
We are subject to annual affordable housing goals. We view the purchase of loans that are eligible to count toward our
affordable housing goals to be a principal part of our mission and business, and we are committed to facilitating the financing
of affordable housing for very low-, low-, and moderate-income families. In light of the affordable housing goals, we may make
adjustments to our strategies for purchasing loans, which could potentially increase our credit losses. These strategies could
include entering into purchase and securitization transactions with lower expected economic returns than our typical
transactions. In February 2010, FHFA stated that it does not intend for us to undertake uneconomic or high-risk activities in
support of the housing goals nor does it intend for the state of conservatorship to be a justification for withdrawing our support
from these market segments.
FHFA housing goals applicable to our 2021 purchases consist of four goals and one subgoal for single-family owner-occupied
housing, one multifamily affordable housing goal, and two multifamily affordable housing subgoals. Single-family goals are
expressed as a percentage of the total number of eligible loans underlying our total single-family loan purchases, while the
multifamily goals are expressed in terms of minimum numbers of units financed.
Three of the single-family housing goals and the subgoal target purchase mortgage loans for low-income families, very low-
income families, and/or families that reside in low-income areas. The single-family housing goals also include one goal that
targets refinancing loans for low-income families. The multifamily affordable housing goal targets multifamily rental housing
affordable to low-income families. The multifamily affordable housing subgoals target multifamily rental housing affordable to
very low-income families and small (5- to 50-unit) multifamily properties affordable to low-income families.
We may achieve a single-family or multifamily housing goal by meeting or exceeding the FHFA benchmark level for that goal
(Benchmark Level). We also may achieve a single-family goal by meeting or exceeding the actual share of the market that
meets the criteria for that goal (Market Level).
If the Director of FHFA finds that we failed (or there is a substantial probability that we will fail) to meet a housing goal and that
achievement of the housing goal was or is feasible, the Director may require the submission of a housing plan that describes
the actions we will take to achieve the unmet goal. FHFA has the authority to take actions against us if we fail to submit a
required housing plan, submit an unacceptable plan, fail to comply with a plan approved by FHFA, or fail to submit certain
mortgage purchase data, information or reports as required by law. See Risk Factors - Legal And Regulatory Risks - We
may make certain changes to our business in an attempt to meet our housing goals, duty to serve, and equitable
housing finance requirements, which may adversely affect our profitability.
Affordable Housing Goal Results and Housing Plan
In December 2021, FHFA informed us that, for 2020, we achieved four of our five single-family affordable housing goals and all
three of our multifamily goals. Because FHFA determined that we failed to meet one of our housing goals for 2020 and that
achievement of that goal was feasible, FHFA required us to submit a housing plan that indicates how we plan to meet the
missed goal during 2022 to 2024. We submitted our housing plan to FHFA in February 2022. Our performance on the goals, as
determined by FHFA, is set forth in the table below.
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Management's Discussion and Analysis
Regulation and Supervision
Table 57 - 2020 and 2019 Affordable Housing Goals Results
Affordable Housing Goals
Single-Family
Low-income home purchase goal
Very low-income home purchase goal
Low-income areas home purchase goal
Low-income areas home purchase subgoal
Low-income refinance goal
Multifamily
Benchmark
Level
2020
Market
Level
Results
Benchmark
Level
2019
Market
Level
Results
24 %
6 %
18 %
14 %
21 %
27.6 %
7.0 %
22.4 %
17.6 %
21.0 %
28.5 %
6.9 %
21.8 %
17.1 %
19.7 %
24 %
6 %
19 %
14 %
21 %
26.6 %
6.6 %
22.9 %
18.1 %
24.0 %
27.4 %
6.8 %
22.9 %
18.0 %
22.4 %
Low-income goal (units)
Very low-income subgoal (units)
Small multifamily (5-50 units) low-income subgoal
315,000
60,000
10,000
N/A 473,338
N/A 107,105
N/A 28,142
315,000
60,000
10,000
N/A 455,451
N/A 112,773
N/A 34,847
We expect to report our performance with respect to the 2021 affordable housing goals included in Table 58 below in March
2022. At this time, based on preliminary information, we believe we met all five of our single-family goals and all three of our
multifamily goals. We expect that FHFA will make a final determination on our 2021 performance following the release of market
data in 2022.
2021-2024 Single-Family and 2021-2022 Multifamily Affordable Housing Goals
In December 2021, FHFA announced its higher benchmark levels for the single-family affordable housing goals for Freddie Mac
for 2022 to 2024. These goals include two new single-family home purchase subgoals: a Minority Census Tracts Home
Purchase Subgoal and a Low-Income Census Tracts Home Purchase Subgoal. These two new goals replace the previous low-
income areas subgoal.
FHFA also announced its benchmark levels for the multifamily affordable housing goals for Freddie Mac for 2022. In response
to public comments on the proposed affordable housing goals and the differential impact of COVID-19 on various multifamily
origination segments, the multifamily housing goals apply to 2022 only. In 2022, FHFA expects to engage in further rulemaking
to establish the multifamily benchmarks for 2023 and will notify the Enterprises of the low-income areas home purchase goal
benchmark level for 2022. FHFA also established different benchmark levels for Freddie Mac and Fannie Mae for the small
multifamily low-income subgoal (23,000 for Freddie Mac and 17,000 for Fannie Mae).
Our single-family and multifamily affordable housing goal benchmark levels for 2021 and our single-family affordable housing
goal benchmark levels for 2022-2024 and multifamily affordable housing goal benchmark levels for 2022 are set forth below.
Table 58 - 2021-2024 Single-Family and 2021-2022 Multifamily Affordable Housing Goal Benchmark Levels
Affordable Housing Goals
Single-Family
Low-income home purchase goal
Very low-income home purchase goal
Low-income areas home purchase goal
Low-income areas subgoal
Minority census tracts home purchase subgoal (new)
Low-income census tracts home purchase subgoal (new)
Low-income refinance goal
Multifamily
Low-income goal (units)
Very low-income subgoal (units)
Small multifamily (5-50 units) low-income subgoal (units)
Benchmark
Levels for 2021
Benchmark
Levels for
2022-2024
24 %
6 %
18 %
14 %
N/A
N/A
21 %
28 %
7 %
TBD
N/A
10 %
4 %
26 %
315,000
60,000
10,000
415,000
88,000
23,000
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Management's Discussion and Analysis
Regulation and Supervision
Duty to Serve Underserved Markets Plan
The GSE Act establishes a duty for Freddie Mac and Fannie Mae to serve three underserved markets (manufactured housing,
affordable housing preservation, and rural areas) by providing leadership in developing loan products and flexible underwriting
guidelines to facilitate a secondary market for mortgages for very low-, low-, and moderate-income families in those markets. In
December 2016, FHFA issued a final rule to implement our duty to serve these underserved markets. Under this rule, we are
required to establish three-year plans that describe the activities and objectives we will undertake to serve each underserved
market.
Freddie Mac is currently operating under an underserved markets plan for 2018-2021. FHFA has evaluated our 2020 Duty to
Serve performance under this plan and determined that we complied with our Duty to Serve requirements in all three
underserved markets in 2020. As required by the FHFA Duty to Serve regulation, in May 2021, we submitted to FHFA a
proposed Duty to Serve Underserved Markets Plan covering a three-year period from 2022 to 2024. In October 2021, we
submitted to FHFA a revised proposed Plan that reflected FHFA feedback. On December 21, 2021, FHFA requested that
Freddie Mac resubmit our Plan to address additional feedback.
Affordable Housing Fund Allocations
The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points of each dollar of total new
business purchases and pay such amount to certain housing funds. FHFA suspended this requirement when we were placed
into conservatorship. However, in December 2014, FHFA terminated the suspension and instructed us to begin setting aside
and paying amounts into those funds, subject to any subsequent guidance or instruction from FHFA.
During 2021, we completed $1.3 trillion of new business purchases subject to this requirement and accrued $539.8 million of
related expense, of which $350.9 million is related to the Housing Trust Fund administered by HUD and $188.9 million is related
to the Capital Magnet Fund administered by Treasury. We are prohibited from passing through the costs of these allocations to
the originators of the loans that we purchase.
Portfolio Activities
The GSE Act provides FHFA with the power to regulate the size and composition of our mortgage-related investments portfolio.
The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio holdings to ensure the holdings are backed
by sufficient capital and consistent with our mission and safe and sound operations. FHFA adopted the portfolio holdings
criteria established in the Purchase Agreement, as it may be amended from time to time, for so long as we remain subject to
the Purchase Agreement. See Conservatorship and Related Matters - Limits on Our Mortgage-Related Investments
Portfolio and Indebtedness for more information.
Department of Housing and Urban Development
HUD has regulatory authority over Freddie Mac with respect to fair lending. All aspects of the credit or housing-related business
practices of Freddie Mac are potentially subject to federal anti-discrimination laws, as well as state and local fair housing and
fair lending statutes. In addition, the GSE Act prohibits discriminatory practices in our loan purchase activities, requires us to
submit data to HUD to assist in its fair lending investigations of primary market lenders with which we do business, and requires
us to undertake remedial actions against such lenders found to have engaged in discriminatory lending practices. HUD
periodically reviews and comments on our underwriting and appraisal guidelines for consistency with the Fair Housing Act and
the anti-discrimination provisions of the GSE Act.
Department of the Treasury
Treasury has significant rights and powers as a result of the Purchase Agreement. In addition, under our Charter, the Secretary
of the Treasury has approval authority over our issuances of notes, debentures, and substantially identical types of unsecured
debt obligations (including the interest rates and maturities of these securities), as well as new types of mortgage-related
securities issued subsequent to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The
Secretary of the Treasury has performed this debt securities approval function by coordinating GSE debt offerings with
Treasury funding activities. Our Charter also authorizes Treasury to purchase Freddie Mac debt obligations not exceeding
$2.25 billion in aggregate principal amount at any time.
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120
Management's Discussion and Analysis
Regulation and Supervision
Consumer Financial Protection Bureau
The CFPB regulates consumer financial products and services. The CFPB adopted a number of final rules relating to loan
origination, finance, and servicing practices that generally went into effect in January 2014. The rules include an ability-to-repay
rule, which requires loan originators to make a reasonable and good faith determination that a borrower has a reasonable ability
to repay the loan according to its terms. This rule provides certain protection from liability for originators making loans that
satisfy the definition of a qualified mortgage. The ability-to-repay rule applies to most loans acquired by Freddie Mac, and for
loans covered by the rule, FHFA has directed us to limit our single-family acquisitions to loans that generally would constitute
qualified mortgages under applicable CFPB regulations. The directive generally restricts us from acquiring loans that are not
fully amortizing, have a term greater than 30 years, or have points and fees in excess of 3% of the total loan amount (or other
threshold amount for loans of less than $114,847). Under CFPB rules, one category of qualified mortgages consists of loans
that are eligible for purchase or guarantee by either Freddie Mac or Fannie Mae. Under the final rule, as amended in April 2021,
this category of qualified mortgages will expire upon the earlier of the Enterprise's exit from conservatorship or the mandatory
compliance date of final amendments to the definition of a qualified mortgage in the ability-to-repay rule (October 1, 2022),
rather than on July 1, 2021.
While the CFPB issued a final rule in October 2020 that extended the category of qualified mortgages that consists of loans that
are eligible for purchase or guarantee by either Freddie Mac or Fannie Mae, FHFA provided that the Enterprises were only
permitted to purchase such loans until August 31, 2021, provided the application received date for such loans was prior to July
1, 2021. In December 2020, the CFPB issued a final rule that amended the qualified mortgage definition by establishing pricing
thresholds for loans to qualify as qualified mortgages, eliminated the DTI threshold and the standards for determining monthly
debt and income under Appendix Q, and refined the general qualified mortgage definition to require lenders to consider and
verify borrowers’ income, assets, debts, and DTI or residual income. While the mandatory compliance date of these final
amendments to the definition of qualified mortgage is October 1, 2022 the Enterprises adopted this policy on July 1, 2021
pursuant to FHFA directive. Under the amended ability-to-repay rule, qualified mortgages will include loans for which lenders
consider and verify the borrower’s income, assets, debts, and DTI or residual income, meet the newly established pricing
thresholds, and satisfy the previously established requirements regarding product features, pricing, points, and fees.
Securities and Exchange Commission
We are subject to the reporting requirements applicable to registrants under the Exchange Act, including the requirement to file
with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Although our
common stock is required to be registered under the Exchange Act, we continue to be exempt from certain federal securities
law requirements, including the following:
n Securities we issue or guarantee are "exempted securities" and may be sold without registration under the Securities Act
of 1933;
n We are excluded from the definitions of "government securities broker" and "government securities dealer" under the
Exchange Act;
n The Trust Indenture Act of 1939 does not apply to securities issued by us; and
n We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, as we are an "agency,
authority, or instrumentality" of the U.S. for purposes of such Acts.
Legislative and Regulatory Developments
September 2021 Letter Agreement with Treasury
On September 14, 2021, we, acting through FHFA as our Conservator, and Treasury entered into a letter agreement to suspend
the following Purchase Agreement requirements related to our cash window activities, multifamily loan purchase activity, single-
family loan acquisitions:
n Cash Window Activity - Beginning on January 1, 2022, we are required to limit the volume purchased through the cash
window to $1.5 billion per lender during any period comprising four calendar quarters;
n Multifamily New Business Activity - We are required to cap multifamily loan purchases at $80 billion in any 52-week period,
subject to annual adjustment by FHFA based on changes in the Consumer Price Index. At least 50% of our multifamily loan
purchases in any calendar year must be, at the time of acquisition, classified as mission-driven pursuant to FHFA
guidelines; and
n Single-Family Loan Acquisitions - We are required to limit our acquisition of certain single-family mortgage loans.
l A maximum of 6% of purchase money mortgages and 3% of refinance mortgages over the preceding 52-week period
can have two or more of the following characteristics at origination: combined LTV ratio greater than 90%; DTI ratio
greater than 45%; and FICO or equivalent credit score less than 680.
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Management's Discussion and Analysis
Regulation and Supervision
l We are required to limit acquisitions of single-family mortgage loans secured by either second homes or investment
properties to 7% of the single-family mortgage loan acquisitions over the preceding 52-week period.
Each such suspension shall terminate on the later of September 14, 2022 and six months after Treasury so notifies Freddie
Mac. We will continue to manage these activities pursuant to our risk limits and FHFA guidance.
Extension of Legislated 10 Basis Point Fee
In December 2011, Congress enacted the Temporary Payroll Tax Cut Continuation Act of 2011 (TCCA) pursuant to which, at
the direction of FHFA, we increased the guarantee fee by 10 basis points on all single-family residential mortgages delivered to
us on or after April 1, 2012. Pursuant to the TCCA, the revenue generated by this fee increase is paid to Treasury. Although the
guarantee fee provision of the TCCA expired on October 1, 2021, FHFA advised us to charge and remit this 10 basis point fee
to Treasury with respect to single-family residential loans acquired by us before January 1, 2022. On November 15, 2021,
President Biden signed into law the Infrastructure Investment and Jobs Act, which extended our obligation to charge and remit
to Treasury this 10 basis point fee on single-family residential mortgages delivered to us through October 1, 2032.
FHFA Proposed Rules to Amend the ERCF
On September 15, 2021, FHFA issued a notice of proposed rulemaking to amend the ERCF. The proposed amendments would
refine the PLBA and the capital treatment of CRT transactions. Specifically, the proposed rule would replace the fixed PLBA
equal to 1.5% of an Enterprise's adjusted total assets with a dynamic PLBA equal to 50% of the Enterprise's stability capital
buffer (which is related to the Enterprise's relative share of total residential mortgage debt outstanding that exceeds 5%);
replace the prudential floor of 10% on the risk weight assigned to any retained CRT exposure with a prudential floor of 5% on
the risk weight assigned to any retained CRT exposure; and remove the requirement that an Enterprise must apply an overall
effectiveness adjustment to its retained CRT exposures.
On October 27, 2021, FHFA issued an additional notice of proposed rulemaking to amend the ERCF by introducing additional
public disclosure requirements for the Enterprises. This proposed rule would implement quarterly quantitative and annual
qualitative disclosure requirements for the Enterprises related to regulatory capital instruments, risk-weighted assets calculated
under the ERCF’s standardized approach, and risk management policies and procedures.
On December 16, 2021, FHFA issued a notice of proposed rulemaking that would require Freddie Mac and Fannie Mae to
develop, maintain, and submit annual capital plans to FHFA. Under the proposed rule the Enterprises' capital plans would be
required to include the following:
n An assessment of the expected sources and uses of capital over the planning horizon;
n Estimates of projected revenues, expenses, losses, reserves, and pro forma capital levels under a range of the Enterprise's
internal scenarios, as well as under FHFA's scenarios;
n A description of all planned capital actions over the planning horizon;
n A discussion of how the Enterprise will, under expected and stressful conditions, maintain capital commensurate with its
business risks and continue to serve the housing market; and
n A discussion of any expected changes to the Enterprise's business plan that are likely to have a material impact on the
Enterprise's capital adequacy or liquidity.
The proposed rule also incorporates the determination of the stress capital buffer into the capital planning process and builds
upon the existing supervisory expectation that the Enterprises incorporate forward-looking projections of revenue and losses to
monitor and maintain their internal capital adequacy. FHFA is seeking comment on this proposed rule through February 25,
2022.
We cannot predict whether and when FHFA will finalize these amendments to the ERCF or the content of any such amended
rule that FHFA may adopt, or how this will affect our ability to comply with the covenant in the Purchase Agreement that
requires us to comply with the ERCF as published in December 2020.
Special Purpose Credit Programs
On December 6, 2021, HUD’s Office of General Counsel issued a legal opinion that publicly clarifies that special purpose credit
programs that are lawful under the Equal Credit Opportunity Act and other federal laws generally do not violate the Fair Housing
Act's antidiscrimination provisions. On December 20, 2021, FHFA Acting Director Sandra Thompson issued a statement urging
financial institutions, including Freddie Mac, Fannie Mae, and the Federal Home Loan Banks, to consider special purpose credit
programs to advance equitable outcomes and fairness in the housing finance system. FHFA Acting Director Thompson further
noted that, in addition to contemplating special purpose credit programs of their own, Freddie Mac, Fannie Mae, and the
Federal Home Loan Banks can impact the availability of these programs by providing liquidity and support for existing and
future special purpose credit programs, within the umbrella of safety and soundness.
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Management's Discussion and Analysis
Regulation and Supervision
Enterprise Fair Lending and Fair Housing Compliance
On December 20, 2021, FHFA released an advisory bulletin to provide FHFA's supervisory expectations and guidance to
Freddie Mac and Fannie Mae on fair lending and fair housing compliance. FHFA considers ensuring Enterprise compliance with
fair lending laws part of FHFA's obligation to further the purposes of the Fair Housing Act in its program of regulatory and
supervisory oversight of the Enterprises and its responsibility to ensure that the Enterprises comply with applicable laws.
FHFA's fair lending policy statement generally articulates its policy on fair lending and how FHFA uses its authorities to ensure
compliance with fair lending laws. The Enterprises are subject to several associated fair lending requirements, such as
requirements to obtain and maintain data relevant to ensuring compliance with fair lending laws, report certain information to
FHFA pursuant to FHFA's reporting order on fair lending, include certain information related to fair lending in their annual
housing reports, and comply with fair lending requirements associated with other FHFA processes and requirements. The
Enterprises are also subject to HUD oversight related to fair housing. FHFA and HUD have signed a memorandum of
understanding regarding cooperation and coordination with respect to fair housing and fair lending. In certain circumstances,
FHFA will provide notification to HUD and the U.S. Department of Justice of information that suggests a violation of the Fair
Housing Act or that indicates a possible pattern or practice of discrimination in violation of the Fair Housing Act.
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Management's Discussion and Analysis
Critical Accounting Estimates
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with GAAP requires us to make a number of judgments and assumptions
that affect estimates of the reported amounts within our consolidated financial statements. Critical accounting estimates are
important to the presentation of our financial condition and results of operations and require management to make difficult,
complex, or subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could
differ from our estimates, and the use of different judgments and assumptions related to these estimates could have a material
impact on our consolidated financial statements.
Our critical accounting estimates and policies relate to the Single-Family allowance for credit losses. For additional information
about our critical accounting estimates and significant accounting policies, see the notes accompanying our consolidated
financial statements.
Single-Family Allowance for Credit Losses
The Single-Family allowance for credit losses represents our estimate of expected credit losses over the contractual term of the
mortgage loans. The Single-Family allowance for credit losses pertains to all single-family loans classified as held-for-
investment on our consolidated balance sheets.
Determining the appropriateness of the Single-Family allowance for credit losses is a complex process that is subject to
numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of
subjectivity. This process involves the use of models that require us to make judgments about matters that are difficult to
predict, the most significant of which are the probability of default and severity of expected credit losses. We regularly evaluate
the underlying estimates and models we use when determining the Single-Family allowance for credit losses and update our
assumptions to reflect our historical experience and current view of economic factors. For additional information on uncertainty
and risks related to models, see Risk Factors - Operational Risks - We face risks and uncertainties associated with the
models that we use to inform business and risk management decisions and for financial accounting and reporting
purposes. Changes in our forecasts or the occurrence of actual economic conditions that differ significantly from our forecasts
may significantly affect the measurement of our Single-Family allowance for credit losses.
We believe the level of our Single-Family allowance for credit losses is appropriate based on internal reviews of the factors and
methodologies used. No single statistic or measurement determines the appropriateness of the allowance for credit losses.
Changes in one or more of the estimates or assumptions used to calculate the Single-Family allowance for credit losses could
have a material impact on the allowance for credit losses and benefit (provision) for credit losses.
Changes in forecasted house price growth rates can have a significant effect on our allowance for credit losses. Our estimate of
expected credit losses leverages an internally based model that uses a Monte Carlo simulation which generates many possible
house price scenarios for up to 40 years for each metropolitan statistical area (MSA). These scenarios are used to estimate
loan-level expected future cash flows and credit losses based on each loan’s individual characteristics. The table below shows
our nationwide forecasted house price growth rates that were used in determining our allowance for credit losses as of
December 31, 2021 and as of December 31, 2020. These growth rates are used as inputs to our models to develop the detailed
forecasted life-of-loan house price growth rates for each MSA. See Note 6 for additional information regarding our current
period benefit (provision) for credit losses and estimation process.
Table 59 - Forecasted House Price Growth Rates
December 31, 2021
December 31, 2020
2022
2021
6.2 %
5.4 %
2023
2022
2.5 %
3.0 %
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Risk Factors
Risk Factors
RISK FACTORS SUMMARY
The summary of risks below provides an overview of the principal risks that could affect our business, financial condition,
results of operations, cash flows, reputation, strategies, and/or prospects. This summary does not contain all of the information
that may be important to you, and you should read the more detailed discussion of risks that follows this summary.
Conservatorship and Related Matters
n Freddie Mac's future is uncertain.
n FHFA, as our Conservator, controls our business activities. We may be required to take actions that reduce our profitability,
are difficult to implement, or expose us to additional risk.
n The Purchase Agreement and the terms of the senior preferred stock significantly limit our business activities. In the event
of non-compliance with any Purchase Agreement covenants, Treasury may be entitled to specific performance, damages,
and other remedies, and if the corrective actions we were to take were determined by FHFA to be insufficient, FHFA could
impose penalties on us or take other remedial actions.
n If FHFA placed us into receivership, our assets would be liquidated. The liquidation proceeds might not be sufficient to pay
claims outstanding against Freddie Mac, repay the liquidation preference of our preferred stock, or make any distribution to
our common stockholders.
n Our business and results of operations may be materially adversely affected if we are unable to attract and retain well-
qualified and diverse employees across the company. The conservatorship, uncertainty of our future, and limitations on our
executive and employee compensation put us at a disadvantage compared to other companies in attracting and retaining
employees. In addition, we face increased competition for talented executives and other employees as a result of the
increased availability of job opportunities in the current economy.
COVID-19 Pandemic
n The ongoing COVID-19 pandemic has significantly affected general economic conditions and the housing market. Our
business and financial condition may be adversely affected by the effects of the COVID-19 pandemic.
Credit Risks
n We are subject to mortgage credit risk. Credit losses and costs related to this risk could adversely affect our financial
results.
n We face significant risks related to our delegated underwriting process for single-family loans, including risks related to
data accuracy, mortgage fraud, and our sellers' origination operations. Changes to the process could increase our risks.
n Declines in national or regional house prices or other adverse changes in the housing market could negatively affect both
our Single-Family and Multifamily businesses.
n We are exposed to counterparty credit risk with respect to our business counterparties. Our financial results may be
adversely affected if one or more of our counterparties fail to meet their contractual obligations to us.
n Our loss mitigation activities may be unsuccessful or costly and may adversely affect our financial results.
n We have been, and will continue to be, adversely affected by delays and deficiencies in the single-family foreclosure
process.
n We are exposed to increased credit losses and credit-related expenses in the event of a major natural disaster, other
catastrophic event, including a pandemic, or significant climate change effects.
n Our CRT transactions may not be available to us in adverse economic conditions. These transactions also lower our
profitability.
Market Risks
n Changes in interest rates could negatively affect the fair value of our financial assets and liabilities, results of operations,
and net worth.
n Changes in market spreads could negatively affect the fair value of our financial assets and liabilities, results of operations,
and net worth.
n A significant decline in the price performance of, or demand for, our UMBS could have an adverse effect on the volume
and/or profitability of our new Single-Family business activity.
n If the UMBS does not continue to receive widespread market acceptance, the liquidity and price performance of our
Single-Family mortgage-related securities and our market share and profitability could be adversely affected. Commingling
certain Fannie Mae securities in resecuritizations has increased our counterparty risk.
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Risk Factors
n The profitability of our Multifamily business could be adversely affected by a significant decrease in demand for our K
Certificates and SB Certificates.
n The discontinuance of LIBOR could negatively affect the fair value of our financial assets and liabilities, results of
operations, and net worth. A transition to an alternative reference interest rate could present operational problems and
subject us to possible litigation risk. We may be unable to take a consistent approach across our financial products.
Liquidity Risks
n Our activities may be adversely affected by limited availability of financing and increased funding costs.
n Any downgrade in the credit ratings of the U.S. government would likely be followed by a downgrade in our credit ratings.
A downgrade in the credit ratings of our debt could adversely affect our liquidity and other aspects of our business.
Operational Risks
n A failure in our operational systems or infrastructure, or those of third parties, could impair our ability to provide market
liquidity, disrupt our business, damage our reputation, and cause financial losses.
n Potential cybersecurity threats are changing rapidly and advancing in sophistication. We may not be able to protect our
systems and networks, or the confidentiality of our confidential or other information (including personal information), from
cyberattacks and other unauthorized access, disclosure, and disruption.
n We rely on third parties, or their vendors and other business partners, for certain important functions. Any failures by those
third parties to deliver products or services, or to manage risks effectively, could disrupt our business operations, or
expose us to other operational risks.
n We face risks and uncertainties associated with the models that we use to inform business and risk management decisions
and for financial accounting and reporting purposes.
Legal and Compliance Risks
n Legislative or regulatory changes or actions could adversely affect our business activities and financial results. We face risk
of non-compliance with our legal and regulatory obligations.
n We may make certain changes to our business in an attempt to meet our housing goals, duty to serve, and equitable
housing finance requirements, which may adversely affect our profitability.
Conservatorship and Related Matters
Freddie Mac's future is uncertain.
Our future structure and role in the mortgage industry will be determined by the Administration, Congress, and FHFA. It is
possible, and perhaps likely, that there will be significant changes that will materially affect our business model and results of
operations. Some or all of our functions could be transferred to other institutions, and we could cease to exist as a stockholder-
owned company. If any of these events occur, our shares could diminish in value, or cease to have any value. Our stockholders
may not receive any compensation for such loss in value.
Several bills were introduced in past sessions of Congress concerning the future status of Freddie Mac, Fannie Mae, and the
mortgage finance system, including bills that provided for the wind down of Freddie Mac and Fannie Mae and modification of
the terms of the Purchase Agreement. While none of these bills was enacted, it is possible that similar or new bills will be
introduced and considered in the future.
The conservatorship is indefinite in duration. The likelihood, timing, and circumstances under which we might emerge from
conservatorship are uncertain. Our current capital levels are significantly below the levels that would be required under the
ERCF. Under the Purchase Agreement, we cannot exit from conservatorship, other than in connection with receivership, unless
all currently pending material litigation relating to the conservatorship and/or the Purchase Agreement has been resolved or
settled and for two or more consecutive periods we have common equity tier 1 capital (which does not include our senior
preferred stock) of at least 3% of our adjusted total assets. While we are increasing our net worth as a result of changes to our
senior preferred stock dividend requirement, the increases in our net worth since September 30, 2019 have been or will be
added to the aggregate liquidation preference of the senior preferred stock. In addition, our ability to increase our capital, other
than through retained earnings, is limited, and it may not be possible for us to raise private capital on acceptable terms, if at all.
Under the Purchase Agreement, we can raise up to $70.0 billion of capital through the issuance of common stock only after
Treasury has exercised in full its warrant to purchase 79.9% of our common stock and pending material conservatorship-
related litigation has been resolved or settled. Treasury’s potential substantial equity ownership in our company, along with
restrictions imposed on our business and post-recapitalization dividends and fees we will be required to pay to Treasury, will
reduce our attractiveness as an investment opportunity for third-party investors. It is uncertain whether or when we will be able
to retain or raise sufficient capital to permit an end to our conservatorship, and this may not happen for several years or at all.
For additional information on the conservatorship, Purchase Agreement, and terms of the senior preferred stock, see Note 2.
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Risk Factors
Treasury would be required to consent to the termination of our conservatorship other than as discussed above or in
connection with receivership, and there can be no assurance Treasury would do so. Even if the conservatorship is terminated,
we would remain subject to the Purchase Agreement and the terms of the senior preferred stock unless they are terminated or
amended.
Even if the conservatorship ends and the voting rights of common stockholders are restored, we could effectively remain under
the control of the U.S. government because of the Purchase Agreement, Treasury's warrant to acquire nearly 80% of our
common stock for nominal consideration, or Treasury’s ownership of our common stock after it exercises its warrant. If
Treasury exercises the warrant, the ownership interest of our existing common stockholders will be substantially diluted.
FHFA, as our Conservator, controls our business activities. We may be required to take actions that reduce our
profitability, are difficult to implement, or expose us to additional risk.
We are under the control of FHFA, as our Conservator, and are not managed to maximize stockholder returns. FHFA
determines our strategic direction. We face a variety of different, and sometimes competing, business objectives and FHFA-
mandated activities, such as the initiatives we are pursuing under the Conservatorship Scorecards. Some of the activities FHFA
has required us to undertake have been costly and/or difficult to implement, such as development and support of the CSP. The
current Administration has not articulated a formal position on housing finance reform or the future of Freddie Mac and Fannie
Mae. Nonetheless, the Administration and FHFA have indicated that their current areas of focus in the housing market include
issues related to affordability, equity, sustainability, and climate. For example, in 4Q 2021, the Administration and FHFA
announced actions to promote affordable and sustainable housing, and our 2022 Conservatorship Scorecard includes several
objectives related to promoting sustainable and equitable housing finance markets, affordable housing opportunities, and
consideration of climate risks.
FHFA has required us to make changes to our business that have adversely affected our financial results and could require us
to make additional changes at any time. For example, FHFA may require us to undertake activities that (1) reduce our
profitability; (2) expose us to additional credit, market, funding, operational, and other risks; or (3) provide additional support for
the mortgage market that serves our mission, but adversely affects our financial results.
FHFA also has required us to take other actions that may adversely affect our business or financial results, such as requiring us
to maintain increased liquidity and directing us to amend the CSS LLC agreement in a manner that limits our influence over
CSS Board decisions. During conservatorship, the CSS Board Chair must be designated by FHFA, and all CSS Board decisions
require the affirmative vote of the Board Chair. FHFA also has the right to appoint up to three additional CSS Board members.
In October 2021, the three additional CSS Board members FHFA previously appointed left the CSS Board. If FHFA appoints
three additional independent members, the CSS Board members we and Fannie Mae appoint could be outvoted by non-GSE
designated Board members on any matter during conservatorship and on a number of significant matters after conservatorship.
It is possible that FHFA may require us to make additional changes to the CSS LLC agreement, or may otherwise impose
restrictions or provisions relating to CSS or the UMBS, that may adversely affect us.
From time to time, FHFA has prevented us from engaging in business activities or transactions that we believe would be
profitable, and it may do so again in the future. For example, FHFA has limited the size and composition of our mortgage-
related investments portfolio and the amount and type of new single-family and multifamily loans we may acquire. We may be
required to adopt business practices that help serve our mission and other non-financial objectives, but that may negatively
affect our future financial results. Congress or FHFA may require us to set aside or otherwise pay monies to fund third-party
initiatives, such as the existing requirement under the GSE Act that we allocate amounts for certain housing funds. FHFA also
could require us to take actions that would adversely affect our ability to compete and innovate, such as through its proposed
rule for new GSE products and activities; changing our risk appetite (including risk limits); and limiting our control over pricing.
FHFA is also Conservator of Fannie Mae, our primary competitor. FHFA’s actions, as Conservator of both companies, could
require us and Fannie Mae to take a uniform approach to certain activities, limiting innovation and competition and possibly
putting us at a competitive disadvantage because of differences in our respective businesses. FHFA also could limit our ability
to compete with new entrants and other institutions. The combination of the restrictions on our business activities and our
potential inability to generate sufficient revenue through our guarantee activities to offset the effects of those restrictions may
have an adverse effect on our results of operations and financial condition.
The Purchase Agreement and the terms of the senior preferred stock significantly limit our business activities. In
the event of non-compliance with any Purchase Agreement covenants, Treasury may be entitled to specific
performance, damages, and other remedies, and if the corrective actions we were to take were determined by
FHFA to be insufficient, FHFA could impose penalties on us or take other remedial actions.
The Purchase Agreement and the terms of the senior preferred stock place significant restrictions on our ability to manage our
business, including limiting (1) our secondary market activities; (2) our single-family and multifamily loan acquisitions; (3) the
amount of indebtedness we may incur; (4) the size of our mortgage-related investments portfolio; and (5) our ability to pay
dividends, transfer certain assets, raise capital, pay down the liquidation preference of the senior preferred stock, and exit
conservatorship. The Purchase Agreement also requires us to comply with the ERCF as published in December 2020,
disregarding any subsequent amendment or other modification to that rule.
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The Purchase Agreement prohibits us from taking a variety of actions without Treasury's consent. Treasury has the right to
withhold its consent for any reason. The restrictions on our business under the Purchase Agreement, senior status and net
worth sweep dividend provisions of the senior preferred stock, and warrant held by Treasury could adversely affect our ability
to attract capital from the private sector in the future, should we be in a position to do so. For more information, see
Conservatorship and Related Matters - Freddie Mac's Future is Uncertain.
In the event of non-compliance with any Purchase Agreement covenants, although such non-compliance would not affect our
ability to draw from Treasury under the Purchase Agreement, Treasury may be entitled to specific performance, damages, and
other such remedies as may be available at law or in equity. In addition, if the corrective actions we were to take or plan to take
to comply with such covenants were determined by FHFA to be insufficient or unsuccessful, FHFA could impose penalties on
us or take other remedial action.
If FHFA placed us into receivership, our assets would be liquidated. The liquidation proceeds might not be
sufficient to pay claims outstanding against Freddie Mac, repay the liquidation preference of our preferred stock,
or make any distribution to our common stockholders.
We can be put into receivership at the discretion of the Director of FHFA at any time for a number of reasons set forth in the
GSE Act. Several bills were introduced in past sessions of Congress that provided for Freddie Mac to be placed into
receivership. In addition, FHFA could be required to place us into receivership if Treasury were unable to provide us with
funding requested under the Purchase Agreement to address a deficit in our net worth. Treasury might not be able to provide
the requested funding if, for example, the U.S. government were not fully operational because Congress had failed to approve
funding or the government had reached its borrowing limit. For more information, see MD&A - Regulation and
Supervision.
Being placed into receivership would terminate our conservatorship. The purpose of receivership is to liquidate our assets and
resolve claims against us. The appointment of FHFA as our receiver would terminate all rights and claims that our stockholders
and creditors might have against our assets or under our Charter as a result of their status as stockholders or creditors, other
than possible payment upon our liquidation.
The GSE Act provides that, if we were placed into receivership, the mortgages underlying our mortgage-related securities (and
the payments thereon) would be held for the benefit of the holders of those securities and not for the benefit of any receivership
estate or LLRE. However, payments on the mortgages underlying our mortgage-related securities might not be sufficient to
make full payments of principal and interest on the securities. If we were unable to fulfill our guarantee, the holders of our
mortgage-related securities would experience delays in receiving payments because the relevant systems are not designed to
make partial payments, and they could ultimately suffer losses on their investments to the extent the payments on the
mortgages underlying our mortgage-related securities were not sufficient to make full payments of principal and interest on the
securities. In addition, when administering the receivership claims process, FHFA could treat similarly situated creditors
unequally, including treating creditors with claims related to senior unsecured debt securities and creditors with claims related
to guarantee obligations on mortgage-related securities unequally, if FHFA determines such treatment is necessary to maximize
the value of the assets of Freddie Mac, to maximize the present value return from the sale or other disposition of the assets of
Freddie Mac, or to minimize the amount of any loss realized upon the sale or other disposition of the assets of Freddie Mac, as
long as all creditors would receive at least as much as they would in a liquidation. During receivership or conservatorship, FHFA
may take any authorized action that FHFA determines is in the best interest of Freddie Mac or FHFA, including the public that
FHFA serves.
If our assets were liquidated, the liquidation proceeds might not be sufficient to pay the secured and unsecured claims against
us (including claims on our guarantees), repay the liquidation preference on any series of our preferred stock, or make any
distribution to our common stockholders. Proceeds would first be applied to the secured and unsecured claims against us, the
administrative expenses of the receiver, and the liquidation preference of the senior preferred stock. Any remaining proceeds
would then be available to repay the liquidation preference of other series of preferred stock. Only after the liquidation
preference of all series of preferred stock is repaid would any proceeds be available for distribution to the holders of our
common stock.
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Our business and results of operations may be materially adversely affected if we are unable to attract and retain
well-qualified and diverse employees across the company. The conservatorship, uncertainty of our future, and
limitations on our executive and employee compensation put us at a disadvantage compared to other companies
in attracting and retaining employees. In addition, we face increased competition for talented executives and
other employees as a result of the increased availability of job opportunities in the current economy.
Our business is highly dependent on the talents and efforts of our employees. The conservatorship, uncertainty of our future,
and limitations on executive and employee compensation have had, and are likely to continue to have, an adverse effect on our
ability to retain and recruit talent. Our voluntary employee turnover in 2021 increased slightly overall compared to historical
experience, with a more notable increase at the officer level. If we are unable to attract and retain talent, our ability to manage
our business effectively, implement strategic initiatives successfully and control operational risk would be adversely affected,
and this ultimately would adversely affect our financial performance.
Actions taken by Congress, FHFA, and Treasury to date, or that may be taken by them in the future, have had, and may
continue to have, an adverse effect on our retention and recruitment of executives and other employees. We are subject to
significant restrictions on the amount and type of compensation we may pay while under conservatorship. For example:
n The Equity in Government Compensation Act of 2015 limits the compensation and benefits for our Chief Executive Officer
to the same level in effect as of January 1, 2015 while we are in conservatorship or receivership. Accordingly, annual direct
compensation for our Chief Executive Officer is limited to base salary at an annual rate of $600,000.
n The Stop Trading on Congressional Knowledge Act of 2012, known as the STOCK Act, and related FHFA regulations
prohibit our senior executives from receiving bonuses during conservatorship.
n FHFA, as our Conservator, has the authority to approve the terms and amount of our executive compensation and may
require us to make changes to our executive compensation program. FHFA has advised us that, given our conservatorship
status, our executive compensation program is designed generally to provide for lower pay levels relative to large financial
services firms that are not in conservatorship. FHFA has instructed us to benchmark to the lower end of the range of
market compensation for new executive hires and compensation increase requests for existing executives, which limits our
ability to offer market-competitive compensation to our executives if FHFA does not grant an exception. For additional
information on restrictions on executive compensation, see Executive Compensation – CD&A – Other Executive
Compensation Considerations – Legal, Regulatory, and Conservator Restrictions on Executive Compensation.
n The terms of our senior preferred stock purchase agreement with Treasury contain specified restrictions relating to
compensation, including a prohibition on selling or issuing equity securities without Treasury’s prior written consent except
under limited circumstances, which effectively eliminates our ability to offer equity-based compensation to our employees.
These restrictions reduce our flexibility to offer competitive compensation, which adversely affects our ability to attract and
retain executives and other employees. These restrictions also prohibit our ability to motivate and reward high performance with
compensation structures that provide upside potential to our executives, putting us at a disadvantage to other companies in
attracting and retaining executives. In addition, the uncertainty of potential action by Congress or the Administration with
respect to our future – including whether we will exit conservatorship, how long it may take before we exit conservatorship, or
whether housing finance reform will result in a significant restructuring of the company or the company no longer continuing to
exist – also negatively affects our ability to recruit and retain executives and other employees.
The cap on our Chief Executive Officer compensation continues to make retention and succession planning for this position
difficult, and it may make it difficult to attract qualified candidates for this critical role in the future.
We face competition from the financial services and technology industries, and from businesses outside of these industries, for
well-qualified and diverse talent. The increased availability of job opportunities in the current economy has made the attraction
and retention of executive and employee talent more competitive. If this increased competition persists and if we are unable to
attract and retain executives and other employees with the necessary skills and talent, we would face increased operational
risk. Leadership departures, or multiple such departures at approximately the same time, and challenges in integrating new
leaders, could materially adversely affect our business, results of operations, and financial condition.
COVID-19 Pandemic
The ongoing COVID-19 pandemic has significantly affected general economic conditions and the housing market.
Our business and financial condition may be adversely affected by the effects of the COVID-19 pandemic.
Although the U.S. and global economies have begun to recover from the COVID-19 pandemic as many health and safety
restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to
impact the macroeconomic environment. The growth in economic activity and demand for goods and services, alongside labor
shortages and supply chain complications, has also contributed to rising inflationary pressures. The extent of the continuing
impact of COVID-19 on the economic environment, the housing market, and our business depends on future developments,
which are highly uncertain and difficult to predict, including, but not limited to, the duration and magnitude of the pandemic, the
willingness of the government to provide financial assistance in response to the COVID-19 pandemic, the actions taken to
contain the virus or treat its impact, the rate of distribution and administration of vaccines globally, the severity and duration of
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any resurgence of COVID-19 variants, and how quickly and to what extent economic and operating conditions and consumer
and business spending can return to their pre-pandemic levels.
Notwithstanding the negative effects of COVID-19 on the macroeconomic environment, house and multifamily property price
growth, low mortgage rates, and strength in housing demand have contributed to a strong performance by the housing market.
We cannot, however, exclude the risk that the housing sector’s performance in the future may vary due to the many
uncertainties driven by the ongoing COVID-19 pandemic and its impact on the economy as well as actions taken in response to
the pandemic.
Since the inception of the COVID-19 pandemic, Freddie Mac has taken several steps to support the mortgage market, such as
forbearance for Freddie Mac-owned mortgages and other measures to assist homeowners, renters, multifamily property
owners, lenders, and sellers. While we believe our initial actions have reduced our credit losses to date, it is possible that these
actions or future actions may not ultimately be successful due to the ongoing impact of the COVID-19 pandemic or otherwise
and, therefore, may negatively affect our financial condition and results of operations, perhaps significantly. Borrowers that
obtain forbearance may be unable to resume making payments on their mortgage loans at the end of the forbearance period,
which could result in losses. COVID-related foreclosure and eviction moratoriums have largely expired, and an elevated level of
foreclosures and evictions could lead to higher operational costs and REO inventory. While our Single-Family serious
delinquency rate has declined since its peak in 2020, we expect our Single-Family serious delinquency rate and the volume of
our single-family loss mitigation activity to remain above pre-pandemic levels as a result of the pandemic and our forbearance
programs.
To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it has the
effect of heightening many of the other risks described in this 2021 Annual Report on Form 10-K.
Credit Risks
We are subject to mortgage credit risk. Credit losses and costs related to this risk could adversely affect our
financial results.
Mortgage credit risk is the risk that a borrower will fail to make timely payments on a loan we own or guarantee. This exposes
us to the risk of credit losses and credit-related expenses, which could adversely affect our financial results. We are primarily
exposed to mortgage credit risk with respect to the single-family and multifamily loans and securities reflected as assets on our
consolidated balance sheets. We are also exposed to mortgage credit risk with respect to guaranteed securities and guarantee
arrangements that are not reflected as assets on our consolidated balance sheets, including K Certificates, SB Certificates, and
certain other senior subordinate securitization structures.
We continue to have loans in our Single-Family mortgage portfolio with certain characteristics, that are typically associated with
higher levels of credit risk. See MD&A - Risk Management - Single-Family Mortgage Credit Risk - Monitoring Loan
Performance and Characteristics for additional information on the characteristics of the loans in our Single-Family mortgage
portfolio. We also expect to continue acquiring loans with higher LTV ratios through our Home Possible and Home One
initiatives, as well as loans with higher DTI ratios, generally up to 50%, which will increase our exposure to credit risk. Our
efforts to increase eligible borrowers' access to single-family mortgage credit, including our affordable housing program and
our plan for fulfilling our duty to serve underserved markets and recent FHFA requirements and guidance related to equitable
housing, may expose us to increased mortgage credit risk.
We face significant risks related to our delegated underwriting process for single-family loans, including risks
related to data accuracy, mortgage fraud, and our sellers' origination operations. Changes to the process could
increase our risks.
We delegate to our sellers the underwriting for the single-family loans we purchase or securitize. Our contracts with sellers
describe mortgage eligibility and underwriting standards, and the sellers represent and warrant to us that the loans they deliver
to us meet these standards.
We rely on the strength of our sellers' origination processes and controls. We perform risk-based audits to test our
counterparties' control environments. However, our review may not detect weak operations that could lead to errors in seller
decisions concerning, for example, correspondent approvals, property valuations, and insurance coverage.
We do not independently verify most of the information provided to us before we purchase or securitize a loan. This exposes us
to the risk that one or more of the parties involved in a transaction (such as the borrower, property seller, broker, appraiser, title
agent, loan officer, or lender) misrepresented facts about the borrower, property, or loan, or otherwise engaged in fraud.
We review a sample of loans after we purchase them to determine if they comply with our contractual standards. However, our
review may not detect any misrepresentations by the parties involved in the transaction, deter loan fraud, or reduce our
exposure to these risks.
We can exercise certain contractual remedies, including requiring repurchase of the loan, for loans that do not meet our
standards. However, at the direction of FHFA, we have significantly revised our representation and warranty framework
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Risk Factors
(including changes to remedies for certain defects) to relieve sellers of certain repurchase obligations with respect to single-
family loans in specific cases. As a result, we may face greater exposure to credit and other losses under this revised
framework, because our ability to seek recovery or repurchase from sellers is more limited, and we must identify breaches of
representations and warranties early in the life of the loan.
Our suite of tools, collectively referred to as Loan Advisor, offers limited representation and warranty relief for certain loan
components that satisfy automated data analytics related to appraisal quality, collateral valuation, borrower assets, and
borrower income. In general, limited representation and warranty relief is offered when information provided by the lender is
validated against independent data sources. However, there is a risk that the enhanced tools and processes provided by Loan
Advisor will not enable us to identify all breaches in a timely manner. In addition, there is a risk that data provided by the
independent data sources is not accurate, impacting the representation and warranty relief decision. In turn, this could increase
our exposure to credit and other losses. For more information, see MD&A - Risk Management - Single-Family Mortgage
Credit Risk and MD&A - Risk Management - Operational Risk - Third-Party Risk.
Declines in national or regional house prices or other adverse changes in the housing market could negatively
affect both our Single-Family and Multifamily businesses.
Our financial results and business volumes can be negatively affected by declines in house prices and other adverse changes in
the housing market. This could (1) significantly increase our expected credit losses; (2) result in higher stress losses for both the
Single-Family and Multifamily portfolios; (3) increase our losses on foreclosure alternatives, third-party sales, and dispositions of
REO properties; (4) reduce our returns or result in losses on our Single-Family and Multifamily guarantee business, as default
rates could be higher than we expected when we issued the guarantees; (5) negatively affect loan pricing, which could cause us
to change our disposition strategies for our Single-Family delinquent and modified loans; or (6) adversely impact our ability to
transfer credit risk. For more information regarding these risks, see MD&A - Risk Management - Credit Risk.
The proportion of our refinance loan purchases to total loan purchases could decrease if mortgage interest rates increase. This
could increase our exposure to mortgage credit risk, as refinance loans (particularly those that do not involve "cash-out")
generally present less credit risk than purchase loans. Some of our seller/servicer counterparties are highly dependent on
refinance loan volumes. A decrease in such volumes could adversely affect these counterparties, which could increase our
exposure to counterparty credit risk.
We are exposed to counterparty credit risk with respect to our business counterparties. Our financial results may
be adversely affected if one or more of our counterparties fail to meet their contractual obligations to us.
We depend on our institutional counterparties to provide services that are critical to our business. We face the risk that one or
more of our counterparties may fail to meet their contractual obligations to us. Our major counterparties include sellers,
servicers, credit enhancement providers, and counterparties to derivatives, short-term lending, and other funding transactions
(e.g., cash and other investments transactions). For more information, see MD&A - Risk Management - Counterparty
Credit Risk.
Many of our major counterparties provide several types of services to us. The concentration of our exposure to our
counterparties remains high. Efforts we take to reduce exposure to financially weak counterparties could increase the relative
concentration of our exposure to other counterparties, increase our costs, and reduce our revenue. It is possible that our
counterparties could experience challenging market conditions that could adversely affect their liquidity and financial condition
and cause some of them to fail. Many of our counterparties are subject to increasingly complex regulatory requirements and
oversight, which place additional stress on their resources and may affect their ability or willingness to do business with us.
Credit risk related to Single-Family seller/servicers
We are exposed to credit risk from the seller/servicers of our Single-Family loans, as described below.
n A decline in servicing performance - A decline in a servicer's performance, such as delayed foreclosures or missed
opportunities for foreclosure alternatives, could significantly affect our ability to mitigate credit losses and could affect the
overall credit performance of our Single-Family mortgage portfolio. A large volume of seriously delinquent loans, the
complexity of the servicing function, and heightened liquidity requirements are significant factors contributing to the risk of
a decline in performance by servicers. Servicers may experience financial and other difficulties due to the advances they
are required to make to us on delinquent single-family mortgages, including mortgages subject to forbearance plans. We
could be adversely affected if our servicers lack appropriate controls, experience a failure in their controls, or experience a
disruption in their ability to service loans, including as a result of legal or regulatory actions or ratings downgrades. We also
are exposed to fraud by third parties in the loan servicing function, particularly with respect to short sales and other
dispositions of non-performing assets.
We could attempt to mitigate our exposure to a poorly performing servicer by terminating its right to service our loans;
however, in a highly adverse economic environment, there could be scarce capacity in the marketplace and we may not be
able to find successor servicers who have the capacity to service the affected loans and who are also willing to assume the
representations and warranties of the terminated servicer. In addition, terminating a large servicer may not be feasible
because of the operational and capacity challenges related to transferring large servicing portfolios. There is also a
possibility that the performance of some loans may degrade during the transition to new servicers. During a period of
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heightened delinquencies, we may incur costs and potential increases in servicing fees if we replace a servicer with a high
concentration of loans in default, which are more costly to service. We may also be exposed to concentrations of credit
risk among certain servicers.
n A failure by seller/servicers to fulfill their obligations to repurchase loans or indemnify us as a result of breaches of
representations and warranties - While we may have the contractual right to require a seller or servicer to repurchase
loans from us, it may be difficult, expensive, and time-consuming to enforce such repurchase obligations. We could enter
into settlements to resolve repurchase obligations; however, the amounts we receive under any such settlements may be
less than the losses we ultimately incur on the underlying loans.
Under our representation and warranty framework, revised as directed by FHFA, we are required in some cases to utilize
an alternative remedy, such as indemnification, in lieu of repurchase. The amount we recover under an alternative remedy
may be less than the amount we could have recovered in a repurchase.
n Increased exposure to non-depository and smaller financial institutions - A large volume of our single-family loans is
acquired from and serviced by non-depository and smaller financial institutions. Some of these institutions may not have
the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as large
depository institutions. As a result, we face increased risk that these counterparties could fail to perform their obligations to
us. In particular, non-depository servicers grew their servicing portfolios in the last several years as a result of higher
originations. This appears to have resulted in operational strains that have subjected some of these servicers to regulatory
scrutiny. This rapid growth could expose us to increased risks if any operational strain adversely affects these servicers'
servicing performance or their financial strength. These institutions also service portfolios for other investors and
guarantors (i.e., Fannie Mae and Ginnie Mae) and operational issues related to those portfolios could affect the
performance of our portfolio. In addition, these servicers may not always have ready access to appropriate sources of
liquidity to finance their operations, particularly during periods when the mortgage market is experiencing a downturn. If
these servicers reduce their servicing portfolios, overall servicing capacity may be constrained.
Our seller/servicers also have a significant role in servicing loans in our Multifamily mortgage portfolio. We are exposed to the
risk that multifamily seller/servicers could come under financial pressure, which could potentially cause a decline in their
servicing performance and cause us to terminate their right to service our loans, potentially resulting in further concentration of
exposure to other seller/servicers.
We are also exposed to settlement risk from the non-performance of sellers and servicers as a result of our forward settlement
loan purchase programs in our Single-Family and Multifamily businesses.
Credit risk related to counterparties to derivatives, funding, short-term lending, securities, and other transactions
We have significant exposure to institutions in the financial services industry relating to derivatives, funding, short-term lending,
securities, securities purchased under agreements to resell, secured lending, forward settlement of loans and securities, and
other transactions (e.g., cash and other investments transactions). These transactions are critical to our business, including our
ability to:
n Manage interest-rate risk and other risks related to our investments in mortgage-related assets;
n Fund our business operations; and
n Service our customers.
We face the risk of operational failure of the clearing members, exchanges, clearinghouses, or other financial intermediaries we
use to facilitate derivatives, short-term lending, securities, and other transactions. If a clearing member or clearinghouse were
to fail, we could lose the collateral or margin posted with the clearing member or clearinghouse.
We are a clearing member of the clearinghouses through which we execute mortgage-related and Treasury securities
transactions. As a result, we could be subject to losses because we are required to participate in the coverage of losses
incurred by other clearing members if they fail to meet their obligations to the clearinghouse.
If our counterparties to short-term lending transactions fail, we are exposed to losses to the extent the transaction is unsecured
or the collateral posted to us is insufficient.
Credit risk related to mortgage insurers and other credit enhancement providers
If a mortgage insurer fails to meet its obligations to reimburse us for claims, our credit losses could increase. In addition, if a
regulator determines that a mortgage insurer lacks sufficient capital to pay all claims when due, the regulator could take action
that might affect the timing and amount of claim payments made to us. We face similar risks with respect to our counterparties
on ACIS and comparable transactions.
We cannot differentiate pricing based on the strength of a mortgage insurer or revoke a mortgage insurer's status as an eligible
insurer without FHFA approval. In addition, we generally do not select the mortgage insurance provider on a specific loan
because the selection is usually made by the lender at the time the loan is originated. As a result, we could acquire a
concentration of risk to certain insurance providers.
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Our loss mitigation activities may be unsuccessful or costly and may adversely affect our financial results.
Our loss mitigation activities, including the forbearance and other programs we have implemented in response to the COVID-19
pandemic, may not be successful. The costs we incur related to loan modifications and other loss mitigation activities have
been, and could continue to be, significant. For example, we generally bear the full cost of the monthly payment reductions
related to modifications of loans we own or guarantee, as well as all applicable servicer incentive fees for our single-family
mortgage modifications.
We could be required to make changes to our loss mitigation activities that could make these activities more costly to us.
FHFA, as Conservator and regulator, may continue to issue directives and Advisory Bulletins to assist borrowers and align
servicing practices for the GSEs. These directives and Advisory Bulletins could make these activities more costly to us,
especially with regard to loan modification initiatives. FHFA may continue to issue these directives and Advisory Bulletins for a
variety of reasons, including consumer relief and alignment of the prepayment behavior of our and Fannie Mae's respective
UMBS.
We have loans on trial period plans as required under certain loan modification programs. Some of these loans may fail to
complete the trial period or fail to qualify for our other borrower assistance programs. For these loans, the trial period will have
effectively delayed the foreclosure process and could increase our costs.
The type of loss mitigation activities we pursue could affect prepayments on our Single-Family securities (e.g., UMBS, 55-day
MBS, PCs, and REMICs), which could affect the value of these securities or the earnings from the assets in our mortgage-
related investments portfolio. In addition, loss mitigation activities may adversely affect our ability to securitize, resecuritize, and
sell the loans subject to those activities.
We devote significant resources to our borrower assistance initiatives. The size and scope of these efforts may compete with
other business opportunities or corporate initiatives.
For more information on our loss mitigation activities, see MD&A - Our Business Segments - Single-Family - Business
Results - Loss Mitigation Activities and MD&A - Risk Management - Single-Family Mortgage Credit Risk - Engaging
in Loss Mitigation Activities.
We have been, and will continue to be, adversely affected by delays and deficiencies in the single-family
foreclosure process.
The average length of time for foreclosure of a Freddie Mac Single-Family loan has significantly increased since 2008,
particularly in states that require a judicial foreclosure process, and may further increase. Delays in the foreclosure process
could cause our expenses to increase. For example, properties awaiting foreclosure could deteriorate until we acquire them,
resulting in increased expenses to repair and maintain the properties. Foreclosure process delays could also adversely affect
trends in house prices regionally or nationally, which could adversely affect our financial results. Pursuant to FHFA guidance
and the CARES Act, we were required to suspend COVID-19-related foreclosures, other than for vacant or abandoned
properties, until July 31, 2021, and COVID-19-related REO evictions until September 30, 2021. These foreclosure and eviction
moratoriums will result in higher costs and expenses for the affected properties.
We are exposed to increased credit losses and credit-related expenses in the event of a major natural disaster,
other catastrophic event, including a pandemic, or significant climate change effects.
The occurrence, severity, and duration of a major natural or environmental disaster or other catastrophic event, including a
pandemic, in an area where we own or guarantee mortgage loans, especially in densely populated geographic areas and in
high-risk areas, such as coastal areas vulnerable to severe storms and flooding or areas prone to earthquake or wildfires, could
increase our credit losses and credit-related expenses. A natural disaster or catastrophic event that either damages or destroys
single-family or multifamily real estate underlying mortgage loans that we own or guarantee, or negatively affects the ability of
borrowers to continue to make payments on mortgage loans that we own or guarantee, could increase our serious delinquency
rates and average loan loss severity in the affected areas. Such events could generate credit losses and credit-related
expenses and have a material adverse effect on our business and financial results. We may not have adequate insurance
coverage for some of these natural disaster and catastrophic events.
An increased frequency and intensity of major natural disasters may be indicative of the impact of climate change and are
expected to persist for the foreseeable future. Although historically our losses from these events have not been significant, we
remain exposed to risk, particularly in connection with geographically widespread weather events, changes in weather patterns,
and significant climate change effects, such as rising sea levels, wildfires, and increased storms and flooding. Significant long-
term climate change effects could increase the vulnerability of an area to natural disasters, which could discourage housing
activity, decrease mortgage originations, and negatively affect house prices and property values in affected areas. Investors
may place greater weight on these risks when making asset pricing decisions, which could increase our cost or ability to
transfer risk. Increases in the intensity and frequency of natural disasters, particularly with respect to flooding in areas not
designated as SFHAs (i.e., in areas where we do not require flood insurance), as well as any decrease in the willingness of
insurers to provide coverage in certain areas for certain perils, will increase the foregoing risks. In addition, the unpredictability
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of natural disasters and the complexity of forecasting long-term climate change effects negatively affect our ability to forecast
losses from such events.
Further, actions taken by Congress, the Administration, and FHFA in response to climate change concerns may create
transition risks that impact the housing market and our business. For example, policy actions to address climate change could
result in a potentially disruptive transition away from carbon-intense industries. Such a transition could impact certain industries
and regional economies, affecting the ability of borrowers in those industries or regions to pay their mortgage loans. Several
bills have been introduced or legislation enacted in past sessions of Congress to address environmental matters, including
climate change, and President Biden has indicated that addressing climate change will be a priority for the Administration.
In addition, FHFA, as Conservator, has instructed us to designate climate change as a priority concern and actively consider its
effects on our decision making and, to this end, included climate change as a priority for Freddie Mac in the 2022
Conservatorship Scorecard. FHFA may require us to undertake activities that promote environmental sustainability but that
adversely affect our business or financial results.
Our CRT transactions may not be available to us in adverse economic conditions. These transactions also lower
our profitability.
Our ability to transfer credit risk (and the cost to us of doing so) could change rapidly depending on market conditions. Adverse
market conditions may result in insufficient investor demand for CRT transactions at acceptable prices. For example, our ability
to transfer Single-Family credit risk was temporarily negatively affected by adverse market conditions resulting from the
COVID-19 pandemic. It is possible that our CRT strategies may not prevent us from incurring substantial losses. For instance, it
takes time to transfer risk and we are exposed to credit losses during this pipeline period. Additionally, some of our CRT
transactions have early termination clauses or maturity dates that are earlier than the maturities of the reference mortgage
loans, and we may also seek to terminate certain CRT transactions by repurchasing the related securities. We will be exposed
to increased credit risk on the reference mortgage loans after termination of such transactions. Additionally, we retain a portion
of the risk of future losses on loans covered by CRT transactions, including all or a portion of the first loss risk in most single-
family and back-end multifamily transactions. The costs associated with CRT transactions are significant and may increase. For
some CRT transactions, there may be a significant difference in time between when we recognize a credit loss in earnings and
when we recognize the related recovery in earnings, and this lag could adversely affect our financial results in the earlier period.
Changes in regulatory guidance, such as capital requirements under the ERCF, may cause us to modify our credit risk transfer
activities.
Market Risks
Changes in interest rates could negatively affect the fair value of our financial assets and liabilities, results of
operations, and net worth.
Our financial results can be significantly affected by changes in interest rates.
Interest rates can fluctuate for many reasons, including changes in the fiscal and monetary policies of the federal government
and its agencies as well as geopolitical events or changes in general economic conditions, such as increased inflation.
Changes in interest rates could adversely affect the cash flows and prepayment rates on assets that we own and related debt
and derivatives. In addition, changes in interest rates could adversely affect the prepayment rate or default rate on the loans
that we guarantee. For example, when interest rates decrease, borrowers are more likely to prepay their loans by refinancing
them at a lower rate. An increased likelihood of prepayment on the loans underlying our mortgage-related securities may
adversely affect the value of these securities.
We expect that the temporary reduction of interest rates to near zero will, gradually over the course of the next year, be
reversed, with the Federal Reserve signaling its concerns with respect to inflation and tapering its purchases of mortgage and
other securities. The timing and impact of this expected reversal of interest rates trends is unknown.
Additionally, we may issue callable debt instruments to manage the duration and prepayment risk of expected cash flows of the
mortgage assets we own. We may exercise the option to repay the outstanding principal balance when interest rates decrease.
However, we may replace the called debt at a higher spread due to the market conditions at that time. In the event we decide
not to call our debt, we may incur higher hedging costs.
We incur costs as a result of our risk management activities, which may not be successful. Our interest-rate risk management
activities are designed to reduce our economic exposure to changes in interest rates to a low level as measured by our models.
However, the accounting treatment for certain of our assets and liabilities, including derivatives, creates variability in our
earnings when interest rates fluctuate, as some assets and liabilities are measured at amortized cost and some are measured at
fair value, while all derivatives are measured at fair value. While we use hedge accounting to attempt to reduce interest-rate-
related earnings volatility, our hedge accounting programs may not be effective in reducing this variability. In addition,
differences in amortization between our assets and the liabilities we use to fund them, including amortization of fair value
hedging basis adjustments, may also be affected by changes in interest rates and prepayment rates and may contribute to
earnings variability.
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Changes in market spreads could negatively affect the fair value of our financial assets and liabilities, results of
operations, and net worth.
Changes in market conditions, including changes in interest rates, liquidity, prepayment, and/or default expectations and the
level of uncertainty in the market for a particular asset class, may cause fluctuations in market spreads. Our financial results and
net worth can be significantly affected by changes in market spreads, especially results driven by financial instruments that are
measured at fair value. These instruments include trading securities, available-for-sale securities, derivatives, loans held-for-
sale, and loans and debt with the fair value option elected.
A narrowing or tightening of the market spreads on a given asset is typically associated with an increase in the fair value of that
asset. Narrowing market spreads may reduce the number of attractive investment opportunities and could increase the cost of
our activities to support the liquidity and price performance of our UMBS and other securities. Consequently, a tightening of the
market spreads on our assets may adversely affect our future financial results and net worth. A widening of the market spreads
on a given asset is typically associated with a decline in the fair value of that asset or tightening of the market spread on a given
liability is typically associated with a decline in the fair value of that liability, which may adversely affect our near-term financial
results and net worth. While wider market spreads may create favorable investment opportunities, our ability to take advantage
of any such opportunities is limited due to various restrictions on our mortgage-related investments portfolio activities. See
MD&A - Conservatorship and Related Matters for additional information on these restrictions.
Changes in market spreads also affect the fair value of our debt with the fair value option elected. A narrowing or tightening of
the market spreads on a given liability is typically associated with an increase in the fair value of that liability, which is
recognized as a loss by us.
A significant decline in the price performance of, or demand for, our UMBS could have an adverse effect on the
volume and/or profitability of our Single-Family business activity.
Our UMBS are an integral part of our loan purchase program. Our competitiveness in purchasing single-family loans from our
sellers and the volume and profitability of our Single-Family business activity are directly affected by the price performance of
UMBS issued by us relative to comparable Fannie Mae-issued UMBS. If our UMBS were to trade at a discount relative to
comparable Fannie Mae securities due to prepayment performance or other factors, such a difference in relative pricing may
create an incentive for sellers to conduct a disproportionate share of their single-family business with Fannie Mae.
It is possible that a liquid market for our UMBS may not be sustained, which could adversely affect their price performance and
our single-family market share. A significant reduction in our market share, and thus in the volume of loans that we securitize, or
a reduction in the trading volume of our UMBS could reduce the liquidity of our UMBS. While we may decide to employ various
strategies to support the liquidity and price performance of our UMBS, any such strategies may fail or adversely affect our
business and financial results. We may cease any such activities at any time, or FHFA could require us to do so, which could
adversely affect the liquidity and price performance of our UMBS. We may incur costs to support our presence in the agency
securities market and to support the liquidity and price performance of our securities.
Liquidity-related price differences could occur between UMBS issued by us and comparable Fannie Mae-issued UMBS due to
factors that are largely outside of our control. For example, the level of the Federal Reserve’s purchases and sales of agency
mortgage-related securities, including any reduction in the Federal Reserve's purchases of mortgage-related securities
undertaken to support financial markets during the COVID-19 pandemic, could affect the demand for and values of our UMBS.
Therefore, any strategies we employ to reduce any liquidity-related price differences may not reduce or eliminate any such price
differences over the long term.
We may experience price differences with Fannie Mae on individual new production pools of TBA-eligible mortgages,
particularly with respect to specified pools and our multilender securities. From time to time, we may need to adjust our pricing
for a particular new production pool category or introduce new initiatives to maintain alignment and competitiveness with
Fannie Mae with respect to the acquisition of such pools. Depending on the amount of pricing adjustments in any period, it is
possible that they could adversely affect the profitability of our Single-Family business for that period. This risk is heightened
with FHFA restrictions on our cash window volumes and on pooling, limiting our pooling flexibility and ability to manage
alignment. For more information, see MD&A - Our Business Segments - Single-Family - Business Overview - Products
and Activities.
If the UMBS does not continue to receive widespread market acceptance, the liquidity and price performance of
our Single-Family mortgage-related securities and our market share and profitability could be adversely affected.
Commingling certain Fannie Mae securities in resecuritizations has increased our counterparty risk.
As part of the combined UMBS market, we have been required by FHFA to align certain of our Single-Family mortgage
purchase offerings, servicing, and securitization programs, policies and practices with Fannie Mae to achieve market
acceptance of the UMBS. We cannot provide any assurance that these efforts will reduce the pricing disparities discussed
above over the long-term. This alignment is more challenging during periods of increased refinances, automation, innovation,
and change in the industry, such as we experienced in 2021. These alignment activities may adversely affect our business and
our ability to compete with Fannie Mae. We may be required to further align our business processes with those of Fannie Mae.
Uncertainty concerning the extent of the alignment between Freddie Mac's and Fannie Mae's mortgage purchase, servicing,
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and securitization programs, policies, and practices may affect the degree to which the UMBS receives widespread market
acceptance.
If investors do not continue to accept the fungibility of Freddie Mac and Fannie Mae UMBS and instead prefer Fannie Mae
UMBS over Freddie Mac UMBS, this could affect the liquidity or market value of our Single-Family mortgage-related securities
and have a significant adverse impact on our business, liquidity, financial condition, net worth, and results of operations, and
could affect the liquidity or market value of our Single-Family mortgage-related securities.
We have counterparty credit exposure to Fannie Mae due to investors' ability to commingle certain Freddie Mac and Fannie
Mae securities in resecuritizations. When we resecuritize Fannie Mae securities, our guarantee of timely principal and interest
extends to the underlying Fannie Mae securities. In the event that Fannie Mae were to fail to make a payment on a Fannie Mae
security that we resecuritized, Freddie Mac would be responsible for making the payment. We do not control or limit the
amount of resecuritized Fannie Mae securities that we could be required to guarantee. We are dependent on FHFA, Fannie
Mae, and Treasury (pursuant to Fannie Mae's and our respective Purchase Agreements with Treasury) to avoid a liquidity event
or default. We have not modified our liquidity strategies to address the possibility of non-timely payment by Fannie Mae, but we
may do so in the future.
We and Fannie Mae both rely on the Federal Reserve Banks to make payments on our respective mortgage-related securities.
As noted above, in the event that Fannie Mae were to fail to make a payment on a Fannie Mae security that we resecuritized,
Freddie Mac would be responsible for providing the Federal Reserve Banks with the funds to make the payment. If we failed to
provide the Federal Reserve Banks with all funds to make such payment on such resecuritized Fannie Mae securities, the
Federal Reserve Banks would not make any payment on any of our outstanding Freddie Mac-issued UMBS, Supers, REMICs,
or other securities to be paid on that payment date, regardless of whether such Freddie Mac-issued securities were backed by
Fannie Mae-issued securities.
The ERCF requires us to hold capital to account for the counterparty credit risk of Fannie Mae. Given the resulting risk weights
for commingled securities or crossholding of Enterprise UMBS, it is possible that the fungibility of UMBS will be reduced and
that enterprise-specific markets will re-emerge. The ERCF risk weighting may cause each Enterprise to choose whether to
stipulate delivery of its own UMBS or to provision excess capital to account for the risk of receiving the other Enterprise’s
UMBS. Further, the ERCF requirements may discourage the Enterprises from issuing commingled securities and may create
incentives to resort to single-issuer resecuritizations, undermining the goal of fungibility of Freddie Mac and Fannie Mae UMBS.
The profitability of our Multifamily business could be adversely affected by a significant decrease in demand for
our K Certificates and SB Certificates.
Our current Multifamily business model is highly dependent on our ability to finance purchased multifamily loans through
securitization into K Certificates and SB Certificates. A significant decrease in demand for K Certificates and SB Certificates
could have an adverse impact on the profitability of the Multifamily business to the extent that our holding period for the loans
increases and we are exposed to credit, spread, and other market risks for a longer period of time or receive reduced proceeds
from securitization. We employ various strategies to support the liquidity of our K Certificates and SB Certificates, but those
strategies may fail or adversely affect our business. We may cease such activities at any time, or FHFA could require us to do
so, which could adversely affect the liquidity and price performance of our K Certificates and SB Certificates.
The discontinuance of LIBOR could negatively affect the fair value of our financial assets and liabilities, results of
operations, and net worth. A transition to an alternative reference interest rate could present operational
problems and subject us to possible litigation risk. We may be unable to take a consistent approach across our
financial products.
In March 2021, ICE Benchmark Administration Limited, the administrator of LIBOR, confirmed its intention to cease publishing
the 1-week and 2-month U.S. Dollar LIBOR settings after December 2021 and to cease publishing the other, most widely used,
tenors of U.S. Dollar LIBOR after June 2023. The U.K. Financial Conduct Authority, which regulates LIBOR publication,
announced that it would not compel panel bank submissions after those dates. Although the discontinuance of the U.S. Dollar
LIBOR tenors that continue to be published is therefore expected in mid-2023, we are not able to predict whether SOFR, the
ARRC-recommended alternative reference rate, will become the market-accepted replacement benchmark, or what impact
such a transition may have on our business, results of operations, and financial condition.
The transition from LIBOR could affect the financial performance of instruments we hold, require changes to hedging strategies,
and adversely affect our financial performance. The transition could adversely affect the pricing, liquidity, value of, return on,
and trading for a broad array of financial products that are included in our financial assets and liabilities. We have various
financial products, including mortgage loans, mortgage-related securities, and derivatives, that are tied to LIBOR, and many of
these products will mature after June 2023. While the documentation for certain of these products provides us with discretion
to select an alternative reference rate if LIBOR is discontinued, there is a possibility of disputes, litigation, and other actions
arising with customers, investors, and counterparties concerning, for example, our exercise of this discretion or the
interpretation and enforceability of fallback language and related provisions. In certain other cases, the documentation limits
our discretion to select an alternative reference rate if LIBOR is no longer available, representative, or viable, creating
uncertainty and the risk of legal disputes. New York State has enacted legislation that is intended to minimize legal and
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economic uncertainty following U.S. Dollar LIBOR’s cessation by replacing LIBOR references in certain contracts governed by
New York law with a benchmark based on SOFR, including any spread adjustment, recommended by the Federal Reserve, the
Federal Reserve Bank of New York or the ARRC. However, this legislation does not apply to all contracts, and it is uncertain
whether the documentation for our products will allow those products to qualify for the legal protection against litigation
contained in other proposed federal and state legislation dealing with the LIBOR transition. These potential challenges in
implementing an alternative reference rate could result in customers, investors, and counterparties acquiring fewer products
and entering into fewer transactions, which could result in losses or reputational damage or otherwise adversely affect our
business.
The large volume of products and transactions that may require changes to documentation, systems, or remediation could
present substantial operational and legal challenges and result in significant costs. We may be unable to have a consistent
approach to the LIBOR transition with respect to our products, including within a particular class of products, which could
disrupt the market for those products. It is possible that actions we take in connection with the discontinuance of LIBOR,
including the adoption of SOFR, could subject us to basis risk, monetary losses, and possible disputes and litigation. In
addition, the transition could result in inquiries or other actions from regulators in respect of our preparation, readiness and
transition plans.
The use of SOFR as the alternative reference rate for LIBOR-based products may present certain market concerns. Among the
concerns, although a term structure for SOFR has been developed, the ARRC-recommended scope of use of SOFR term rates
is limited. SOFR represents an overnight, risk-free rate, whereas U.S. Dollar LIBOR has various tenors and reflects a credit risk
component. It is still uncertain how soon acceptance and widespread market adoption of SOFR will occur, whether the use of
overnight SOFR and SOFR averages will predominate over the use of SOFR term rates, whether SOFR will be more or less
volatile than LIBOR during times of economic stress, and whether sufficient liquidity of SOFR-based products will develop.
As described above, we have identified material exposures to LIBOR but cannot reasonably estimate the expected impact or
other consequences of such exposure. For additional information regarding the actions we have taken to prepare for an orderly
transition from LIBOR, see MD&A - Risk Management - Market Risk - Transition from LIBOR.
Liquidity Risks
Our activities may be adversely affected by limited availability of financing and increased funding costs.
The amount, type, and cost of our unsecured funding directly affects our interest expense and results of operations. A number
of factors could make such financing more difficult to obtain; more expensive; or unavailable on any terms, including market
and other factors, changes in U.S. government support for us, and reduced demand for our debt securities.
Market and Other Factors
Our ability to obtain funding in the public unsecured debt markets or by selling or pledging mortgage-related and other
securities as collateral to other institutions could change rapidly or cease. The cost of available funding could increase
significantly due to changes in interest rates, market confidence, operational risks, regulatory requirements, or other factors.
Prolonged wide market spreads on long-term debt could cause us to reduce our long-term debt issuances and increase our
reliance on short-term and callable debt issuances. Such increased reliance on short-term and callable debt could increase the
risk that we may be unable to refinance our debt when it becomes due and result in a greater use of derivatives. Greater
derivatives use could increase the variability of our comprehensive income or increase our credit exposure to our
counterparties. Additionally, we may incur higher hedging costs in the event that we decide not to call our debt.
We may incur higher funding costs due to our liquidity management requirements, practices, and procedures, including FHFA
minimum liquidity requirements that limit the size and the allowable investments in our other investments portfolio. Our
practices and procedures may not provide us with sufficient liquidity to meet our ongoing cash obligations under all
circumstances. In particular, we believe that our liquidity contingency plans may be inadequate or difficult to execute during a
liquidity crisis or period of significant market turmoil. If we cannot access the unsecured debt markets, our ability to repay
maturing indebtedness and fund our operations could be significantly impaired or eliminated, as our alternative sources of
liquidity (e.g., cash and other investments) may not be sufficient to meet our liquidity needs. We have limited ability to use the
less liquid assets in our mortgage-related investments portfolio as a significant source of liquidity (e.g., through sales or as
collateral in secured borrowing transactions).
We make extensive use of the Federal Reserve's payment system in our business activities. The Federal Reserve requires that
we fully fund accounts at the Federal Reserve Bank of New York to the extent necessary to cover cash payments on our debt
and mortgage-related securities each day, before the Federal Reserve Bank of New York, acting as our fiscal agent, will initiate
such payments. Although we seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's
payment system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash may cause our
account to be overdrawn, potentially resulting in penalties and reputational harm. Unlike certain of our competitors, we do not
have access to the Federal Reserve's discount window.
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Changes in U.S. Government Support
Treasury supports us through the Purchase Agreement and Treasury's ability to purchase up to $2.25 billion of our obligations
under its permanent statutory authority. Changes or perceived changes in the U.S. government's support for us could have a
severe negative effect on our access to the unsecured debt markets and our debt funding costs. Our access to the unsecured
debt markets and the costs of our debt funding could be adversely affected by several factors relating to U.S. government
support, including uncertainty about the future of the GSEs; any concerns by debt investors that we face increasing risk of
being placed in receivership; and future draws that significantly reduce the amount of available funding remaining under the
Purchase Agreement.
Pursuant to the Purchase Agreement, it is possible that we may be required to pay a dividend to Treasury in the future that
would cause us to fall below our capital requirements under the ERCF. In addition, we and Treasury are required to agree to a
periodic commitment fee that we will pay to Treasury for a five-year period (after we have reached prescribed capital levels) in
return for Treasury's remaining funding commitment.
Reduced Demand for Debt Securities
If investor demand for our debt securities were to decrease, our liquidity, business, and results of operations could be materially
adversely affected. The willingness of investors to purchase and hold our debt securities can be influenced by many factors,
including changes in the world economy, changes in inflation and exchange rates, and regulatory and political factors, as well
as the availability of and investor preferences for other investments. We compete for debt funding with Fannie Mae, the FHLBs,
and other institutions. Our funding costs and liquidity contingency plans may also be affected by changes in the amount of, and
demand for, debt issued by Treasury.
If investors were to reduce their purchases of our debt securities or divest their holdings, our funding costs could increase and
our business activities could be curtailed. The market for our debt securities may become less liquid as a result of our having
reached the Purchase Agreement limits on the size of our mortgage-related investments portfolio and the amount of our
unsecured debt, or future reductions in those limits. This could lead to a decrease in demand for our debt securities and an
increase in our funding costs.
Any downgrade in the credit ratings of the U.S. government would likely be followed by a downgrade in our credit
ratings. A downgrade in the credit ratings of our debt could adversely affect our liquidity and other aspects of
our business.
Our credit ratings are important to our liquidity. We currently receive ratings for our unsecured debt from three nationally
recognized statistical rating organizations (S&P, Moody's, and Fitch). These ratings are primarily based on the support we
receive from Treasury and therefore are affected by changes in the credit ratings of the U.S. government. Any downgrade in the
credit ratings of the U.S. government would be expected to be accompanied by a downgrade in our credit ratings.
In addition to a downgrade in the credit ratings of or outlook on the U.S. government, several other events could adversely
affect our debt credit ratings, including actions by governmental entities, changes in government support for us, future GAAP
losses, and additional draws under the Purchase Agreement. Any such downgrades could lead to major disruptions in the
mortgage and financial markets and to our business due to lower liquidity, higher borrowing costs, lower asset values, and
higher credit losses, and could cause us to experience net losses and net worth deficits.
For more information, see MD&A - Liquidity and Capital Resources.
Operational Risks
A failure in our operational systems or infrastructure, or those of third parties, could impair our ability to provide
market liquidity, disrupt our business, damage our reputation, and cause financial losses.
Operational risk is elevated due to the volume, complexity, and pace of change across the company. We face significant levels
of operational risk due to a variety of factors, including the size and complexity of our business operations, the amount of
change to our core systems required to keep pace with market demands, regulatory requirements, and business initiatives, and
the ever-changing cybersecurity landscape. Shortcomings or failures in our internal processes, people, or systems, or those of
third parties with which we interact, could lead to impairment of our liquidity, disruption of our business (e.g., issuing mortgage
and/or debt securities), incorrect payments to investors in our securities, errors in our financial statements, liability to customers
or investors, further legislative or regulatory intervention, reputational damage, and financial and economic loss.
Our business is highly dependent on our ability to process a large number of transactions on a daily basis and manage and
analyze significant amounts of information, much of which is provided by third parties. This information may be incorrect, or we
may fail to properly manage or analyze it.
The transactions we process are complex and are subject to various legal, accounting, tax, and regulatory standards, which
can change rapidly in response to external events, such as the implementation of government-mandated programs and
changes in market conditions. Our financial, accounting, data processing, or other operating systems and facilities may contain
design flaws or may fail to operate properly, adversely affecting our ability to process these transactions, including our ability to
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Risk Factors
compile and process legally required information. We have certain systems that require manual support and intervention, which
may lead to heightened risk of system failures. The inability of our systems to accommodate an increasing volume of
transactions or new types of transactions or products could constrain our ability to pursue new business initiatives or improve
existing business activities.
Our technological connections with our customers, counterparties, service providers, and other financial institutions continue to
increase, which increases our risk exposure with respect to an operational failure of their infrastructure systems. We have
developed, and expect to continue to develop, software tools for use by our customers in the customers' loan production and
other processes. These tools may fail to operate properly, which could disrupt our or our customers' business and adversely
affect our relationships with our customers.
We continue to increase our use of a third-party cloud infrastructure platform for both customer-facing applications and
internal-use applications. If we do not implement changes to this platform in a well-managed, secure, and effective manner, we
may experience unplanned service disruptions or unplanned costs which may harm our business and operating results. In
addition, our cloud infrastructure providers, or other service providers, could experience system breakdowns or failures,
outages, downtime, cyberattacks and other security incidents, adverse changes to financial condition, bankruptcy, or other
adverse conditions, which could have a material adverse effect on our business and reputation. Thus, our plans to increase the
amount of our infrastructure that we outsource to the cloud or to other third parties may increase our risk exposure.
We face increased operational risk due to the magnitude and complexity of the new initiatives we are undertaking. Some of
these initiatives require significant changes to our operational systems. In some cases, the changes must be implemented
within a short period of time. Our legacy systems may create increased operational risk for these new initiatives.
We also face significant risks related to CSS and the operation and continued development of the CSP. We rely on CSS and
the CSP (which is owned and operated by CSS) for the operation of many of our Single-Family securitization activities. Our
business activities would be adversely affected and the market for Freddie Mac securities would be disrupted if the CSP were
to fail or otherwise become unavailable to us or if CSS were unable to perform its obligations to us. As the CSP has an
operational dependency on Fannie Mae to administer Freddie Mac-issued commingled securities, an operational failure at
Fannie Mae could also adversely impact the ability of CSS to perform its obligations to Freddie Mac. In the event of a CSS
operational failure, we may be unable to issue certain new single-family mortgage-related securities, and investors in mortgage-
related securities hosted on the CSS platform may experience payment delays. Any measures we could take to mitigate these
risks might not be sufficient to prevent our business from being harmed. We update our internal systems and processes on a
regular basis, including to improve existing processes and respond to market and regulatory developments. We could be
adversely affected if CSS and/or the CSP are unable to make any necessary corresponding changes to their systems and
processes in a timely manner. CSS could adopt or prioritize strategies that could adversely affect its ability to perform its
obligations to us. For example, as a result of amendments to the CSS LLC agreement required by FHFA, during
conservatorship, the CSS Board Chair must be designated by FHFA, and all CSS Board decisions require the affirmative vote
of the Board Chair.
Our employees could act improperly for their own or third-party gain and cause unexpected losses or reputational damage.
While we have processes and systems in place designed to prevent and detect fraud, these processes may not be successful.
Most of our key business activities are conducted in the Washington D.C. metropolitan area and represent a concentrated risk
of people, technology, and facilities. As a result, an infrastructure disruption in or around our offices or affecting the power grid,
such as from a terrorist event, active shooter, or natural disaster, could significantly adversely affect our ability to conduct
normal business operations. Any measures we take to mitigate this risk may not be sufficient to respond to the full range of
events that may occur or allow us to resume normal business operations in a timely manner.
Potential cybersecurity threats are changing rapidly and advancing in sophistication. We may not be able to
protect our systems and networks, or the confidentiality of our confidential or other information (including
personal information), from cyberattacks and other unauthorized access, disclosure, and disruption.
Our operations rely on the secure, accurate, and timely receipt, storage, transmission, and other processing of confidential and
other information (including personal information) in our systems and networks and with counterparties, vendors, service
providers, and financial institutions.
Cybersecurity risks for companies like ours have significantly increased in recent years, in part because of the proliferation of
new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the
increased sophistication and activities of organized crime, hackers, terrorists, and other external parties, including foreign state-
sponsored actors. There have been several highly publicized cases involving financial services companies, consumer-based
companies, and other organizations reporting the unauthorized disclosure, dissemination, theft, or destruction of client,
customer, or other confidential information (including personal information), corporate information, intellectual property, cash, or
other valuable assets. There have also been several highly publicized cases where hackers have requested "ransom" payments
in exchange for not disclosing customer information (including personal information) or for not making the targets' computer
systems unavailable. In addition, there have been cases where hackers have misled company personnel into making
unauthorized transfers of funds to the hackers' accounts.
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Like many companies and government entities, from time to time we have been, and expect to continue to be, the target of
attempted cyberattacks and other security incidents. Such incidents may include malware, ransomware, denial-of-service
attacks, social engineering, unauthorized access, human error, theft or misconduct, fraud, and phishing, as part of an effort to
disrupt operations, potentially test cybersecurity capabilities, or obtain confidential, proprietary, or other information (including
personal information). We could also be adversely affected by cyberattacks or other security incidents that target the
infrastructure of the internet, as such incidents could cause widespread unavailability of websites and degrade website
performance. Our risk and exposure to these matters remain heightened because of, among other things, the evolving nature
and increasing frequency, levels of persistence, sophistication, and intensity of these threats, our role in the financial services
industry, the outsourcing of some of our business operations, and the current global economic and political environment. The
ongoing COVID-19 pandemic also increases the risk that we may experience cybersecurity incidents as a result of our
employees, vendors, service providers, and other third parties with which we interact working remotely on less secure systems
and environments.
Because we are interconnected with and dependent on third-party vendors, exchanges, clearinghouses, fiscal and paying
agents, and other financial institutions, we could be adversely affected if any of them is subject to a successful cyberattack or
other security incident. Third parties with which we do business may also be sources of cybersecurity or other technology risks.
We routinely transmit and receive confidential, proprietary, and other information (including personal information) by electronic
means. This information could be subject to interception, misuse, or mishandling. Our exposure to these risks could increase as
a result of our migration of core systems and applications to a third-party cloud environment. While we generally perform
cybersecurity diligence on our key vendors, because we do not control third parties with whom we do business and our ability
to monitor their cybersecurity posture is limited, we cannot ensure that the cybersecurity measures they take will be sufficient
to protect any information we share with them. Due to applicable laws and regulations or contractual obligations, we may be
held responsible for data breaches resulting from cyberattacks or other security incidents attributed to third parties with whom
we do business in relation to the information we share with them.
Although we devote significant resources to protecting our critical assets and provide employee awareness training about
phishing, malware, and other cybersecurity risks, these measures may not provide effective security. Our computer systems,
software, end point devices, and networks may be vulnerable to cyberattacks and other security incidents, supply chain
disruptions, or other attempts to harm them or misuse or steal information (including personal information). We routinely identify
cybersecurity threats as well as vulnerabilities in our systems and work to address them, but these efforts may be insufficient.
Outside parties may attempt to induce employees, customers, counterparties, vendors, service providers, financial institutions,
or other users of our systems or networks to disclose confidential, proprietary, or other information (including personal
information) in order to gain access to our systems and networks and the information they contain. Unauthorized access or
disclosure, or breaches of our security, also may result from human error. We may not be able to anticipate, prevent, detect,
recognize, or react to threats to our systems, networks, and assets, or implement effective preventative measures against
cyberattacks or other security incidents, especially because the techniques used change frequently or are not recognized until
launched.
A cyberattack or other security incident could occur and persist for an extended period of time without detection. We expect
that any investigation of such an incident would take time, during which we would not necessarily know the extent of the harm
or how best to remediate it. Although to date we have not experienced any such incident resulting in significant impact to the
company, our cybersecurity risk management program may not prevent such an incident from having a significant impact in the
future. We have obtained insurance coverage relating to cybersecurity risks, but this insurance may not be sufficient to provide
adequate loss coverage (including if the insurer denies future claims) and may not continue to be available to us on
economically reasonable terms, or at all. Further, we cannot ensure that any limitations of liability provisions in our agreements
with vendors, customers, and other third parties with which we do business would be enforceable or adequate or would
otherwise protect us from any liabilities or damages with respect to any particular claim in connection with a cyberattack or
other security incident.
The occurrence of one or more cyberattacks or other security incidents could result in thefts of important assets (such as cash
or source code) or the unauthorized disclosure, misuse, or corruption of confidential, proprietary, and other information
(including personal and other information about our borrowers, our customers, or our counterparties) or could otherwise cause
interruptions or malfunctions in our operations or the operations of our customers or counterparties. This could result in
significant losses or reputational damage, adversely affect our relationships with our customers and counterparties, negatively
affect our competitive position, or otherwise harm our business. We could also face regulatory and other legal action, including
for any failure to provide timely disclosure concerning, or appropriately to limit trading in our securities, following an incident.
We might be required to expend significant additional resources to modify our internal controls and other protective measures
or to investigate and remediate vulnerabilities or other exposures, and we might be subject to litigation and financial losses that
are not fully insured. In addition, customers, counterparties, vendors, service providers, financial intermediaries, and
governmental organizations may not be adequately protecting the information that we share with them. As a result, a
cyberattack or other security incident on their systems and networks, or a breach of their cybersecurity measures, may result in
harm to our business and business relationships.
FREDDIE MAC | 2021 Form 10-K
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Risk Factors
We rely on third parties, or their vendors and other business partners, for certain important functions. Any
failures by those third parties to deliver products or services, or to manage risks effectively, could disrupt our
business operations, or expose us to other operational risks.
Our use of third parties, including vendors, service providers, sellers, and servicers, exposes us to the risk of failures in their risk
and control environments. We outsource certain key functions to these external parties, including some that are critical to
financial reporting, our mortgage-related investment activity, loan underwriting, loan servicing, UMBS issuance and
administration (i.e., CSS), and data processing. We may enter into other key outsourcing relationships in the future and
continue to expand our existing reliance on public cloud services. Additionally, we may be fully reliant on a third party to
complete certain business operations (e.g., financial market utilities that provide the infrastructure for transferring, clearing, and
settling payments, securities, and other financial transactions). If one or more of these key external parties were not able to
perform their functions for a period of time, perform them at an acceptable service level or handle increased volumes, or if one
or more of them experiences a disruption in its own business or technology from any cause, our business operations could be
constrained, disrupted, or otherwise negatively affected. Our use of third parties also exposes us to other harm, such as in the
event of a cyberattack or other security incident impacting our data (including personal information), fraud, or damage to our
reputation if one or more of these third parties fails to maintain adequate risk and control environments. Our ability to monitor
the activities or performance of certain third parties may be limited based on restricted access to and availability of risk
management information for the third party, which may make it difficult for us to assess and manage the risks associated with
these relationships.
We face risks and uncertainties associated with the models that we use to inform business and risk management
decisions and for financial accounting and reporting purposes.
We use models to project significant factors in our businesses, including, but not limited to, interest rates and house prices
under a variety of scenarios. We also use models to project borrower prepayment and default behavior and loss severity over
long periods of time. Models are inherently imperfect predictors of actual results. There is inherent uncertainty associated with
model projections of economic variables and the downstream projections of prepayment and default behavior dependent on
these variables.
Uncertainty and risks related to models may arise from a number of sources, including the following:
n We could fail to design, implement, operate, adjust, or use our models as intended. We may fail to code a model correctly,
we could use incorrect or insufficient data inputs or fail to fully understand the data inputs, or model implementation
software could malfunction. We may not have performed user acceptance testing appropriately or correctly, including
allowing sufficient testing time and resources and using the right subject matter experts before deploying the model. The
complexity and interconnectivity of our models create additional risk regarding the accuracy of model output. We may not
be able to deploy or update models in a timely manner.
n When market conditions change in unforeseen ways, our model projections may not accurately reflect these conditions, or
we may not fully understand the model outputs. For example, models may not fully reflect the effect of certain government
policy changes or new industry trends. In such cases, it is often necessary to make assumptions and judgments to
accommodate the effect of scenarios that are not sufficiently well represented in the historical data. While we may adjust
our models in response to new events, considerable residual uncertainty remains. In particular, the COVID-19 pandemic
has increased the degree of uncertainty concerning key inputs into our financial cash flows, such as projections of interest
rates, house prices, credit defaults, negative yields, and prepayments, and we expect our models to face significant
challenges in accurately forecasting these inputs.
n We also use selected third-party models. While the use of such models may reduce our risk where no internal model is
available, it exposes us to additional risk, as third parties typically do not provide us with proprietary information regarding
their models. We have little control over the processes by which these models are adjusted or changed. As a result, we
may be unable to fully evaluate the risks associated with the use of such models.
Our use of models could affect decisions concerning the purchase, sale, securitization, and credit risk transfer of loans; the
purchase and sale of securities; funding; the setting of guarantee fee prices; and the management of interest-rate, market, and
credit risk. Our use of models also affects our quality-control sampling strategies for loans in our Single-Family mortgage
portfolio and potential settlements with our counterparties. We also use models in our financial reporting process, including
when measuring our allowance for credit losses and applying hedge accounting. See MD&A - Risk Management - Market
Risk and Critical Accounting Estimates for more information on our use of models.
Legal and Compliance Risks
Legislative or regulatory changes or actions could adversely affect our business activities and financial results.
We face risk of non-compliance with our legal and regulatory obligations.
We operate in a highly regulated industry and are subject to heightened supervision from FHFA, as our Conservator. Our
compliance systems and programs may not be adequate to confirm that we are in compliance with all legal, regulatory, and
other requirements. We could incur fines or other negative consequences for violations of such requirements. For example,
FREDDIE MAC | 2021 Form 10-K
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Risk Factors
FHFA has raised concerns that we need to strengthen our compliance practices by further developing our compliance
framework with respect to identifying, assessing, monitoring, testing, and reporting compliance risk. Although we are taking
steps to strengthen our compliance program and address FHFA’s concerns, our efforts may not be successful. Until we
satisfactorily remediate FHFA’s concerns, we may be subject to continued regulatory criticism. We also rely upon third parties
and their respective compliance risk management programs, and the failure or limits of any such third-party compliance
programs may expose us to legal and compliance risk.
Our business may be directly adversely affected by future legislative, regulatory, or judicial actions at the federal, state, and
local levels. Such actions could affect us in a number of ways, including by imposing significant additional legal, compliance,
and other costs on us, limiting our business activities, and diverting management attention or other resources. Such actions,
and any required changes to our business or operations or those of third parties upon whom we rely in response thereto, could
result in reduced profitability and increased compliance risk, particularly because of the identified weaknesses in our
compliance program noted above. If we were not to comply with our legal and regulatory obligations, this could result in
enforcement actions, investigations, fines, monetary and other penalties, and harm to our reputation.
For example, we are, or may in the future become, subject to a variety of complex and evolving laws, regulations, rules, and
standards in the United States (at the federal, state and local level), as well as contractual obligations, regarding privacy and
cybersecurity. Privacy and cybersecurity are currently areas of considerable legislative and regulatory attention, with new or
modified laws, regulations, rules, and standards being frequently adopted and potentially subject to divergent interpretation or
application from state to state in a manner that may create inconsistent or conflicting requirements for businesses. The
uncertainty and compliance risk created by these legislative and regulatory developments are compounded by the rapid pace
of technology development in disciplines that may impact the use or security of data and, in particular the use or security of
personal information, such as artificial intelligence and advancements in the field of data science. Privacy and cybersecurity
laws and regulations often impose strict requirements regarding the collection, storage, handling, use, disclosure, transfer,
security, and other processing of personal information, which may have adverse consequences on our business, including
incurring significant compliance costs, requiring changes to our business or operations, and imposing severe penalties for non-
compliance. Further, any failure or perceived failure to comply with our public privacy policies and other public statements
about privacy and cybersecurity could potentially subject us to regulatory investigations, enforcement or legal actions, and
harm to our reputation and, if such public policies or statements are found to be deceptive, unfair, or misrepresentative of our
actual practices, we may be subject to fines, monetary or other penalties, and other damage to our business and results.
We expect the Administration will continue to implement a regulatory reform agenda that is significantly different from that of
the previous one. This reform agenda could include a heightened focus on affordability, equity, sustainability, and climate. It is
uncertain whether, and to what extent, potential action by Congress or the Administration will affect our regulatory compliance.
We may make certain changes to our business in an attempt to meet our housing goals, duty to serve, and
equitable housing finance requirements, which may adversely affect our profitability.
We may make adjustments to our loan sourcing and purchase strategies in an effort to meet our housing goals and subgoals,
including modifying some of our underwriting standards and expanding the use of targeted initiatives to reach underserved
populations. For example, we may purchase loans that offer lower expected returns on our investment and potentially increase
our exposure to credit losses. We may also make changes to our business in response to our duty to serve underserved
markets or equitable housing finance requirements that could adversely affect our profitability.
If we do not meet our housing goals or duty to serve requirements, and FHFA finds that the goals or requirements were
feasible, we may become subject to a housing plan that could require us to take additional steps that could potentially
adversely affect our profitability. The benchmark levels for our single-family and multifamily affordable housing goals for 2022
increased significantly compared to those for 2021. While we may achieve these housing goals by meeting or exceeding either
the FHFA benchmark level or the market level, these increases to the benchmark levels may require additional changes to our
business, and we may not meet these housing goals. In addition, because we did not meet one of our housing goals for 2020
and FHFA determined that achievement of that goal was feasible, FHFA required us to submit a housing plan that indicates
how we plan to meet the missed goal during 2022 to 2024. We submitted our housing plan to FHFA in February 2022. If we fail
to comply with this housing plan, when approved, FHFA could take additional action against us.
FREDDIE MAC | 2021 Form 10-K
142
Legal Proceedings
Legal Proceedings
We are involved as a party to a variety of legal proceedings arising from time to time in the ordinary course of business. See
Note 18 for more information regarding our involvement as a party to various legal proceedings. We discuss below certain
litigation against the U.S. government concerning conservatorship and the Purchase Agreement.
Over the last several years, numerous lawsuits have been filed against the U.S. government and, in some cases, the Secretary
of the Treasury and the Director of FHFA. These lawsuits challenge certain government actions related to the conservatorship
(including actions taken in connection with the imposition of conservatorship) and the Purchase Agreement. Several of the
lawsuits seek to invalidate the net worth sweep dividend provisions of the senior preferred stock, which were implemented
pursuant to the August 2012 amendment to the Purchase Agreement. Some of these cases also have challenged the
constitutionality of the structure of FHFA. A number of cases have been dismissed. Cases are currently pending in the U.S.
Court of Federal Claims and the U.S. District Court for the Eastern District of Pennsylvania. In addition, one such case, filed in
the U.S. District Court for the Southern District of Texas, was appealed to the U.S. Court of Appeals for the Fifth Circuit and
subsequently to the U.S. Supreme Court. On June 23, 2021, the Supreme Court held that the shareholders’ statutory claim is
barred and found the “for cause” removal provision for the director of FHFA in HERA unconstitutional. The Supreme Court held
that the August 2012 amendment to the Purchase Agreement should not be voided as a result of the constitutional violation
and remanded the case to the lower courts to determine what other remedy, if any, the shareholders are entitled to receive on
their constitutional claim. Another such case, filed in the U.S. District Court for the District of Minnesota, was appealed to the
U.S. Court of Appeals for the Eighth Circuit. On October 6, 2021, the Eighth Circuit affirmed the dismissal of all of the plaintiffs’
claims except their claim that the “for cause” removal provision in HERA was unconstitutional. The Eighth Circuit reversed
dismissal of that claim and remanded the case to the district court for consideration of the same issue that the Supreme Court
remanded, i.e., what remedy, if any, the shareholders are entitled to receive on their claim. In addition, on October 1, 2021, a
case was filed in the U.S. Court of Federal Claims claiming that FHFA’s placement of Freddie Mac into conservatorship violated
HERA and represented an unlawful taking or illegal exaction and breached an implied regulatory contract with certain banks.
Plaintiffs are also appealing a September 2020 order by the U.S. District Court for the Western District of Michigan to dismiss
the case in that Court and several orders by the U.S. Court of Federal Claims dismissing certain claims filed in that Court.
Freddie Mac is not a party to any of these lawsuits. However, a number of other lawsuits have been filed against Freddie Mac
concerning the August 2012 amendment to the Purchase Agreement. See Note 18 for information on the lawsuits filed against
Freddie Mac. Pershing Square Capital Management, L.P. (Pershing) is a plaintiff in one of the lawsuits filed against Freddie
Mac. Pershing has filed reports with the SEC, most recently in March 2014, indicating that it beneficially owned more than 5%
of our common stock. We do not know Pershing's current beneficial ownership of our common stock. For more information,
see Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
It is not possible for us to predict the outcome of these lawsuits (including the outcome of any appeal), or the actions the U.S.
government (including Treasury and FHFA) might take in response to any ruling or finding in any of these lawsuits or any future
lawsuits. However, it is possible that we could be adversely affected by these events, including, for example, by changes to the
Purchase Agreement, or any resulting actual or perceived changes in the level of U.S. government support for our business.
Pursuant to the Purchase Agreement, all currently pending material litigation related to our conservatorship and/or the
Purchase Agreement must be resolved or settled and we must indemnify Treasury and the United States from and against any
loss, cost, or damage of any kind arising out of our placement into conservatorship or the August 2012 amendment to the
Purchase Agreement in order to (1) use up to $70 billion in proceeds from issuances of common stock to build capital or (2) exit
from conservatorship.
FREDDIE MAC | 2021 Form 10-K
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Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market for Registrant's Common Equity, Related
Stockholder Matters, and Issuer Purchases of
Equity Securities
MARKET INFORMATION
Common Stock
Our common stock is traded in the over-the-counter market and quoted on the OTCQB, operated by OTC Markets Group Inc.,
under the ticker symbol "FMCC." Over-the-counter market quotations for our common stock reflect inter-dealer prices, without
retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
Holders
As of January 31, 2022, we had 1,545 common stockholders of record.
Recent Sales of Unregistered Securities
The securities we issue are "exempted securities" under the Securities Act of 1933. As a result, we do not file registration
statements with the SEC with respect to offerings of our securities.
Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity
compensation plans. Previously, we had provided equity compensation under these plans to employees and members of our
Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or
other equity interests without Treasury's prior approval. However, grants outstanding as of the date of the Purchase Agreement
remain in effect in accordance with their terms. During 2021, the deferral period lapsed on 351 RSUs, and as of December 31,
2021, no RSUs remained outstanding. At December 31, 2021, no stock options were outstanding. See Note 12 for more
information.
ISSUER PURCHASES OF EQUITY SECURITIES
We did not repurchase any of our common or preferred stock during 2021. Additionally, we do not currently have any
outstanding authorizations to repurchase common or preferred stock. Under the Purchase Agreement, we cannot repurchase
our common or preferred stock without Treasury's prior consent, and we may only purchase or redeem the senior preferred
stock in certain limited circumstances set forth in the certificate of designation of the senior preferred stock.
TRANSFER AGENT AND REGISTRAR
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233-5000
Telephone: 877-373-6374
https://www-us.computershare.com/investor
FREDDIE MAC | 2021 Form 10-K
144
Financial Statements
Financial Statements and Supplementary Data
FREDDIE MAC | 2021 Form 10-K
145
Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Stockholders of Federal Home Loan Mortgage Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Federal Home Loan Mortgage Corporation, a stockholder-
owned government sponsored enterprise, and its subsidiaries (the “Company” or “Freddie Mac”) as of December 31, 2021 and
2020, and the related consolidated statements of comprehensive income (loss), of equity and of cash flows for each of the
three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated
financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to
disclosure controls and procedures that do not provide adequate mechanisms for information known to the Federal Housing
Finance Agency (FHFA) that may have financial statement disclosure ramifications to be communicated to management of
Freddie Mac.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or
detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control
over Financial Reporting appearing under Item 9A - Controls and Procedures. We considered this material weakness in
determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and
our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on
those consolidated financial statements.
Change in Accounting Principle
As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for
credit losses in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial
statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all
material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audits provide a reasonable basis for our opinions.
FREDDIE MAC | 2021 Form 10-K
146
Financial Statements
Report of Independent Registered Public Accounting Firm
Emphasis of Matter – Conservatorship
As discussed in Note 2, in September 2008, the Company was placed into conservatorship by FHFA. The U.S. Department of
the Treasury (Treasury) has committed financial support to the Company, and FHFA, as Conservator, provided for the Board of
Directors to perform certain functions and to oversee management and the Board delegated to management authority to
conduct business operations during conservatorship. The Company is dependent upon the continued support of Treasury and
FHFA.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation 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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses for Single-Family Mortgage Loans Held-for-Investment - Probability of Default
As described in Note 6 to the consolidated financial statements, the Company’s allowance for credit losses for single-family
mortgage loans held-for-investment was $4.9 billion as of December 31, 2021. Management estimates the allowance for credit
losses for single-family loans on a pooled basis using a discounted cash flow model. Management projects cash flows they
expect to collect using historical experience, such as historical default rates and severity of loss based on loan characteristics,
adjusted for current and future economic forecasts. As disclosed by management, the process involves the use of models that
require management to make judgments about matters that are difficult to predict, the most significant of which are the
probability of default and severity of expected credit losses.
The principal considerations for our determination that performing procedures relating to the allowance for credit losses for
single-family mortgage loans held-for-investment specific to the probability of default is a critical audit matter are (i) the
significant judgment by management when determining the probability of default, which in turn led to a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s
determination, and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
determination of the allowance for credit losses for single-family mortgage loans held-for-investment, including controls over
the model, data, and judgments specific to the probability of default. These procedures also included, among others, (i) testing
management’s process for determining the allowance for credit losses for single-family loans held-for investment specific to the
probability of default, and (ii) testing the completeness, accuracy, reliability and relevance of the data used by management.
These procedures also included the use of professionals with specialized skill and knowledge to assist in evaluating the
appropriateness of management’s model and evaluating the reasonableness of the probability of default.
/s/ PricewaterhouseCoopers LLP
Washington, DC
February 10, 2022
We have served as the Company's auditor since 2002.
FREDDIE MAC | 2021 Form 10-K
147
Financial Statements
Consolidated Statements of Comprehensive Income
FREDDIE MAC
Consolidated Statements of Comprehensive Income (Loss)
(In millions, except share-related amounts)
Net interest income
Interest income
Interest expense
Net interest income
Non-interest income (loss)
Guarantee income
Investment gains (losses), net
Other income (loss)
Non-interest income (loss)
Net revenues
Benefit (provision) for credit losses
Non-interest expense
Salaries and employee benefits
Other administrative expense
Total administrative expense
Credit enhancement expense
Benefit for (decrease in) credit enhancement recoveries
REO operations income (expense)
Legislated 10 basis point fee expense
Other expense
Non-interest expense
Income (loss) before income tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Other comprehensive income (loss), net of taxes and reclassification adjustments
Comprehensive income (loss)
Net income (loss)
Future increase in senior preferred stock liquidation preference
Net income (loss) attributable to common stockholders
Net income (loss) per common share
Weighted average common shares outstanding (in millions)
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2021
2020
2019
$61,527
(43,947)
17,580
$62,340
(49,569)
12,771
$72,895
(61,047)
11,848
1,032
2,746
593
4,371
1,442
1,813
633
3,888
21,951
16,659
1,089
818
323
2,230
14,078
1,041
(1,452)
746
(1,398)
(1,253)
(2,651)
(1,518)
(542)
(12)
(2,342)
(728)
(7,793)
15,199
(3,090)
12,109
(489)
(1,344)
(1,191)
(2,535)
(1,058)
323
(149)
(1,836)
(723)
(5,978)
9,229
(1,903)
7,326
205
$11,620
$7,531
$12,109
(11,620)
$489
$0.15
3,234
$7,326
(7,291)
$35
$0.01
3,234
(1,434)
(1,130)
(2,564)
(749)
41
(229)
(1,617)
(657)
(5,775)
9,049
(1,835)
7,214
573
$7,787
$7,214
(7,787)
($573)
($0.18)
3,234
FREDDIE MAC | 2021 Form 10-K
148
Financial Statements
FREDDIE MAC
Consolidated Balance Sheets
(In millions, except share-related amounts)
Assets
Cash and cash equivalents (includes $1,695 and $17,379 of restricted cash and cash equivalents)
Securities purchased under agreements to resell
Investment securities, at fair value
Mortgage loans held-for-sale (includes $10,498 and $14,199 at fair value)
Mortgage loans held-for-investment (net of allowance for credit losses of $4,947 and $5,732)
Accrued interest receivable
Deferred tax assets, net
Other assets (includes $6,594 and $6,980 at fair value)
Total assets
Liabilities and equity
Liabilities
Accrued interest payable
Debt (includes $2,478 and $2,592 at fair value)
Other liabilities (includes $287 and $958 at fair value)
Total liabilities
Commitments and contingencies (Notes 5, 9, 18)
Equity
Senior preferred stock (liquidation preference of $97,959 and $86,539)
Preferred stock, at redemption value
Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and
650,059,553 shares and 650,059,292 shares outstanding
Additional paid-in capital
Retained earnings (accumulated deficit)
AOCI, net of taxes, related to:
Available-for-sale securities
Other
AOCI, net of taxes
Treasury stock, at cost, 75,804,333 shares and 75,804,594 shares
Total equity
Total liabilities and equity
Consolidated Balance Sheets
December 31,
2021
2020
$10,150
71,203
53,015
19,778
2,828,331
7,474
6,214
29,421
$3,025,586
$6,268
2,980,185
11,100
2,997,553
72,648
14,109
—
—
(54,993)
297
(143)
154
(3,885)
28,033
$3,025,586
$23,889
105,003
59,825
33,652
2,350,236
7,754
6,557
40,499
$2,627,415
$6,210
2,592,546
12,246
2,611,002
72,648
14,109
—
—
(67,102)
810
(167)
643
(3,885)
16,413
$2,627,415
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our consolidated balance sheets.
(In millions)
Consolidated Balance Sheet Line Item
Assets:
Mortgage loans held-for-investment
All other assets
Total assets of consolidated VIEs
Liabilities:
Debt
All other liabilities
Total liabilities of consolidated VIEs
The accompanying notes are an integral part of these consolidated financial statements.
December 31,
2021
2020
$2,784,626
54,300
$2,838,926
$2,803,054
5,823
$2,808,877
$2,273,347
83,982
$2,357,329
$2,308,176
5,610
$2,313,786
FREDDIE MAC | 2021 Form 10-K
149
Financial Statements
FREDDIE MAC
Consolidated Statements of Equity
Consolidated Statements of Equity
Shares Outstanding
Senior
Preferred
Stock
Preferred
Stock
Common
Stock
Senior
Preferred
Stock
Preferred
Stock, at
Redemption
Value
464
650
$72,648
$14,109
Common
Stock, at
Par Value
$—
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
$—
($78,260)
AOCI,
Net of
Tax
($135)
Treasury
Total
Stock,
Equity
at Cost
($3,885) $4,477
(In millions)
Balance at December 31, 2018
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on
available-for-sale securities (net of taxes of
$177 million)
Reclassification adjustment for gains on
available-for-sale securities included in net
income (net of taxes of $35 million)
Other (net of taxes of $10 million)
Comprehensive income (loss)
Senior preferred stock dividends paid
Ending balance at December 31, 2019
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on
available-for-sale securities (net of taxes of
$133 million)
Reclassification adjustment for gains on
available-for-sale securities included in net
income (net of taxes of $83 million)
Other (net of taxes of $6 million)
Comprehensive income (loss)
Cumulative effect from adoption of CECL
Ending balance at December 31, 2020
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on
available-for-sale securities (net of taxes of
$36 million)
Reclassification adjustment for gains on
available-for-sale securities included in net
income (net of taxes of $101 million)
Other (net of taxes of $4 million)
Comprehensive income (loss)
Ending balance at December 31, 2021
1
—
—
—
—
—
—
1
—
—
—
—
—
—
1
—
—
—
—
—
1
—
—
—
—
—
—
7,214
—
—
7,214
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
668
—
668
—
(133)
—
7,214
(3,142)
38
573
—
—
—
—
—
(133)
38
7,787
(3,142)
464
650
$72,648
$14,109
$—
$—
($74,188)
$438
($3,885) $9,122
—
—
—
—
—
—
7,326
—
—
7,326
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
502
—
502
—
—
7,326
(240)
(310)
13
205
—
—
—
(310)
13
—
7,531
—
(240)
464
650
$72,648
$14,109
$—
$—
($67,102)
$643
($3,885) $16,413
—
—
—
—
—
—
12,109
—
—
12,109
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
464
650
$72,648
$14,109
—
—
—
—
$0
—
—
—
—
—
(134)
—
(134)
—
—
12,109
(379)
24
(489)
—
—
—
(379)
24
11,620
$0
($54,993)
$154
($3,885) $28,033
The accompanying notes are an integral part of these consolidated financial statements.
FREDDIE MAC | 2021 Form 10-K
150
Financial Statements
Consolidated Statements of Cash Flows
FREDDIE MAC
Consolidated Statements of Cash Flows
(In millions)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of cost basis adjustments
(Benefit) provision for credit losses
Investment (gains) losses, net
(Benefit for) decrease in credit enhancement recoveries
Hedge accounting earnings mismatch
Deferred income tax expense (benefit)
Purchases of mortgage loans acquired as held-for-sale
Proceeds from sales of mortgage loans acquired as held-for-sale
Proceeds from repayments of mortgage loans acquired as held-for-sale
Payments to servicers for pre-foreclosure expense and servicer incentive fees
Change in accrued interest receivable
Change in interest payable
Change in income taxes receivable
Other, net
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchases of investment securities
Proceeds from sales of investment securities
Proceeds from maturities and repayments of investment securities
Purchases of mortgage loans acquired as held-for-investment
Proceeds from sales of mortgage loans acquired as held-for-investment
Proceeds from repayments of mortgage loans acquired as held-for-investment
Advances under secured lending arrangements
Repayments of secured lending arrangements
Net proceeds from dispositions of real estate owned and other recoveries
Net (increase) decrease in securities purchased under agreements to resell
Derivative premiums and terminations, swap collateral, and exchange settlement payments, net
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of debt securities of consolidated trusts held by third parties
Repayments and redemptions of debt securities of consolidated trusts held by third parties
Proceeds from issuance of debt of Freddie Mac
Repayments of debt of Freddie Mac
Net increase (decrease) in securities sold under agreements to repurchase
Payment of cash dividends on senior preferred stock
Other, net
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents (includes restricted cash and cash equivalents)
Cash and cash equivalents (includes restricted cash and cash equivalents) at the beginning of year
Cash and cash equivalents (includes restricted cash and cash equivalents) at end of period
Supplemental cash flow information
Cash paid for:
Debt interest
Income taxes
Non-cash investing and financing activities (Notes 4, 7, and 8)
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2020
2019
2021
$12,109
$7,326
$7,214
(1,922)
(1,041)
(4,312)
557
147
473
(59,270)
69,891
390
(340)
396
57
(586)
(196)
16,353
(124,710)
154,352
7,701
(542,222)
9,255
757,186
(264,790)
501
244
26,467
1,070
(804)
24,250
825,632
(782,545)
23,153
(127,911)
7,333
—
(4)
(54,342)
(13,739)
23,889
214
1,452
(3,390)
(289)
(162)
(590)
(69,908)
68,065
116
(232)
(1,046)
(238)
845
(1,256)
907
(159,202)
175,422
31,504
(695,645)
11,657
744,571
(144,828)
1,515
670
(39,143)
(9,185)
(691)
(83,355)
811,707
(713,382)
465,260
(452,548)
(9,843)
—
(46)
101,148
18,700
5,189
(466)
(746)
(1,100)
(2)
(288)
817
(65,516)
71,557
517
(282)
(120)
177
712
(277)
12,197
(111,136)
97,274
18,786
(228,628)
15,218
348,387
(54,176)
1,275
1,150
(31,343)
(8,163)
(492)
48,152
264,373
(351,099)
554,812
(531,103)
3,856
(3,142)
(130)
(62,433)
(2,084)
7,273
$10,150
$23,889
$5,189
$69,093
3,204
$70,073
1,690
$70,918
306
FREDDIE MAC | 2021 Form 10-K
151
Financial Statements
Notes to the Consolidated Financial Statements | Note 1
Notes to Consolidated Financial Statements
NOTE 1
Summary of Significant Accounting Policies
Freddie Mac is a GSE chartered by Congress in 1970, with a mission to provide liquidity, stability, and affordability to the U.S.
housing market. We are regulated by FHFA, the SEC, HUD, and Treasury, and are currently operating under the
conservatorship of FHFA. For more information on the roles of FHFA and Treasury, see Note 2. Throughout our consolidated
financial statements and related notes, we use certain acronyms and terms which are defined in the Glossary.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our accounts
as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances and
transactions have been eliminated.
We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of business as a going
concern and in accordance with the authority provided by FHFA to our Board of Directors to oversee management's conduct of
our business operations.
During 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment
performance based on two reportable segments, Single-Family and Multifamily. See Note 15 for additional information on the
change in our segment reporting presentation.
Use of Estimates
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.
Management has made significant estimates to report the allowance for credit losses on single-family mortgage loans. Actual
results could be different from these estimates.
Consolidation and Equity Method Accounting
For each entity with which we are involved, we determine whether the entity should be consolidated in our financial statements.
We consolidate entities in which we have a controlling financial interest. The method for determining whether a controlling
financial interest exists varies depending on whether the entity is a VIE. For entities that are not VIEs, we hold a controlling
financial interest in entities where we hold a majority of the voting rights or a majority of a limited partnership's kick-out rights
through voting interests. We do not currently consolidate any entities which are not VIEs. We use the equity method to account
for our interests in entities in which we do not have a controlling financial interest, but over which we have significant influence.
Cash and Cash Equivalents
Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash equivalents.
Original maturity means the original maturity to us when we acquire the investment, not the original maturity of the instrument
itself. Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is
classified as restricted cash and cash equivalents on our consolidated balance sheets. Restricted cash and cash equivalents
include cash remittances received from servicers of the underlying assets of our consolidated trusts which are deposited into a
separate custodial account. We invest the cash held in the custodial account in short-term investments and are entitled to the
interest income earned on these short-term investments, which is recorded as interest income on our consolidated statements
of comprehensive income.
Comprehensive Income
Comprehensive income includes all changes in equity during a period, except those resulting from investments by, or
distributions to, stockholders. We define comprehensive income as consisting of net income (loss) plus other comprehensive
income (loss), which primarily consists of unrealized gains and losses on available-for-sale securities.
FREDDIE MAC | 2021 Form 10-K
152
Financial Statements
Notes to the Consolidated Financial Statements | Note 1
Other Significant Accounting Policies
The table below identifies our other significant accounting policies and the related note in which information about them can be
found.
Note
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 12
Note 12
Note 14
Note 15
Note 17
Accounting Policy
Securitization Activities and Consolidation
Mortgage Loans
Guarantees and Other Off-Balance Sheet Credit Exposures
Allowance for Credit Losses
Investment Securities
Debt
Derivatives
Collateralized Agreements and Offsetting Arrangements
Stockholders' Equity
Earnings Per Share
Income Taxes
Segment Reporting
Fair Value Disclosures
Recently Adopted Accounting Guidance
Standard
Description
The amendments in this Update simplify an issuer's
accounting for certain financial instruments with
characteristics of liabilities and equity, primarily by
eliminating many of the current separation models used
to account for convertible debt and convertible preferred
stock.
Date of
Adoption
January 1,
2021
Effect on Consolidated Financial
Statements
The adoption of the amendments did not
have a material effect on our consolidated
financial statements.
The amendments in this Update clarify the guidance for
the reevaluation of whether a callable debt security's
amortized cost basis exceeds the amount repayable by
the issuer at the next call date.
January 1,
2021
The adoption of the amendments did not
have a material effect on our consolidated
financial statements.
Recently Issued Accounting Guidance, Not Yet Adopted Within Our Consolidated Financial Statements
Standard
Description
The amendments in this Update require issuers to
account for modifications or exchanges of freestanding
equity-classified written call options based on the reason
for the modification or exchange, to issue equity, to
issue or modify debt, or for other reasons.
ASU 2021-04, Earnings Per
Share (Topic 260), Debt-
Modifications and
Extinguishments (Subtopic
470-50), Compensation-Stock
Compensation (Topic 718), and
Derivatives and Hedging-
Contracts in Entity's Own
Equity (Subtopic 815-40):
Issuer's Accounting for Certain
Modifications or Exchanges of
Freestanding Equity-Classified
Written Call Options
Date of
Planned
Adoption
January 1,
2022
Effect on Consolidated Financial
Statements
The adoption of these amendments will not
have a material effect on our consolidated
financial statements.
FREDDIE MAC | 2021 Form 10-K
153
ASU 2020-06, Debt-Debt with
Conversion and Other Options
(Subtopic 470-20) and
Derivatives and Hedging-
Contracts in Entity's Own
Equity (Subtopic 815-40):
Accounting for Convertible
Instruments and Contracts in
an Entity's Own Equity
ASU 2020-08, Codification
Improvements to Subtopic
310-20, Receivables-
Nonrefundable Fees and Other
Costs
Financial Statements
NOTE 2
Notes to the Consolidated Financial Statements | Note 2
Conservatorship and Related Matters
Business Objectives
We operate under the conservatorship that commenced on September 6, 2008, conducting our business under the direction of
FHFA, as our Conservator. The conservatorship and related matters significantly affect our management, business activities,
financial condition, and results of operations. Upon its appointment, FHFA, as Conservator, immediately succeeded to all
rights, titles, powers, and privileges of Freddie Mac, and of any stockholder, officer, or director thereof, with respect to the
company and its assets. The Conservator also succeeded to the title to all books, records, and assets of Freddie Mac held by
any other legal custodian or third party. The Conservator provided for the Board of Directors to perform certain functions and to
oversee management, and the Board of Directors delegated to management authority to conduct business operations so that
the company can continue to operate in the ordinary course. The directors serve on behalf of, and perform such functions as
provided by, the Conservator.
We are subject to certain constraints on our business activities under the Purchase Agreement. However, the support provided
by Treasury pursuant to the Purchase Agreement currently enables us to maintain our access to the debt markets and to have
adequate liquidity to conduct our normal business activities, although the costs of our debt funding could vary. Our ability to
access funds from Treasury under the Purchase Agreement is critical to keeping us solvent.
Our current business objectives reflect direction we have received from the Conservator (including the Conservatorship
Scorecards). At the direction of the Conservator, we have made changes to certain business practices that are designed to
provide support for the mortgage market in a manner that serves our mission and other non-financial objectives but may not
contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and may
help to mitigate future credit losses. Some of these initiatives affect our near- and long-term financial results. Given our mission
and the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing and
mortgage market conditions, we may be required to take actions that could have a negative impact on our business, operating
results, or financial condition.
Under the Purchase Agreement, we cannot return capital to stockholders other than Treasury, the holder of our senior preferred
stock. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what changes may
occur to our business model during or following conservatorship, including whether we will continue to exist. Our Conservator
has not made us aware of any plans to make any significant changes that would affect our ability to continue as a going
concern. Our future structure and role will be determined by the Administration, Congress, and FHFA. It is possible, and
perhaps likely, that there will be significant changes to our business beyond the near term.
Purchase Agreement and Warrant
Overview
On September 7, 2008, we, through FHFA, in its capacity as Conservator, entered into the Purchase Agreement with Treasury.
The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on May 6,
2009, December 24, 2009, August 17, 2012, December 21, 2017, September 27, 2019, January 14, 2021, and September 14,
2021. The amount of available funding remaining under the Purchase Agreement was $140.2 billion as of December 31, 2021.
This amount will be reduced by any future draws.
The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us after any quarter in
which we have a negative net worth (that is, our total liabilities exceed our total assets, as reflected on our consolidated balance
sheets). In addition, the Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to us if
the Conservator determines, at any time, that it will be mandated by law to appoint a receiver for us unless we receive these
funds from Treasury. In exchange for Treasury's funding commitment, we issued to Treasury, as an aggregate initial
commitment fee, one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation
preference of $1 billion), which we refer to as the senior preferred stock, and 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. We received no cash proceeds or other consideration from
Treasury for issuing the senior preferred stock or the warrant. The amount of any draw will be added to the aggregate
liquidation preference of the senior preferred stock. Deficits in our net worth have made it necessary for us to make substantial
draws on Treasury's funding commitment under the Purchase Agreement. Pursuant to the December 2017 Letter Agreement,
the liquidation preference of the senior preferred stock increased by $3.0 billion on December 31, 2017. Pursuant to the
September 2019 Letter Agreement and January 2021 Letter Agreement, increases in the Net Worth Amount, if any, during the
immediately prior fiscal quarter have been, or will be, added to the liquidation preference of the senior preferred stock at the
FREDDIE MAC | 2021 Form 10-K
154
Financial Statements
Notes to the Consolidated Financial Statements | Note 2
end of each fiscal quarter, from September 30, 2019 through the Capital Reserve End Date. As a result, the liquidation
preference of the senior preferred stock increased from $95.0 billion on September 30, 2021 to $98.0 billion on December 31,
2021 based on the $2.9 billion increase in our Net Worth Amount during 3Q 2021 and will increase to $100.7 billion on March
31, 2022 based on the $2.7 billion increase in our Net Worth Amount during 4Q 2021. Under the Purchase Agreement, our
ability to repay the liquidation preference of the senior preferred stock is limited, and we will not be able to do so for the
foreseeable future, if at all. In addition to increases based on quarterly increases in our Net Worth Amount, as discussed above,
the liquidation preference will increase if we receive additional draws under the Purchase Agreement or if any dividends or
quarterly commitment fees payable under the Purchase Agreement are not paid in cash.
Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as, and if declared by
our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared by, and paid
at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of Directors.
Through December 31, 2012, the senior preferred stock accrued quarterly cumulative dividends at a rate of 10% per year.
However, under the August 2012 amendment to the Purchase Agreement, the fixed dividend rate was replaced with a net worth
sweep dividend beginning in the first quarter of 2013.
We have had a net worth sweep dividend requirement to Treasury on the senior preferred stock since the first quarter of 2013,
which was implemented pursuant to the August 2012 amendment to the Purchase Agreement. Our cash dividend requirement
for each quarter from January 1, 2013 until the Capital Reserve End Date is the amount, if any, by which our Net Worth Amount
at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net
Worth Amount is defined as the total assets of Freddie Mac (excluding Treasury's commitment and any unfunded amounts
thereof), less our total liabilities (excluding any obligation in respect of capital stock), in each case as reflected on our
consolidated balance sheets prepared in accordance with GAAP. If the calculation of the dividend payment for a quarter does
not exceed zero, then no dividend will accrue or be payable for that quarter. The applicable Capital Reserve Amount is currently
the amount of adjusted total capital necessary to meet capital requirements and buffers set forth in the ERCF. This Capital
Reserve Amount will remain in effect until the last day of the second consecutive fiscal quarter during which we have reached
and maintained such level of capital (the Capital Reserve End Date). As a result, we will not be required to pay a dividend on the
senior preferred stock to Treasury until we have built sufficient capital to meet the capital requirements and buffers set forth in
the ERCF. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future
period until the Capital Reserve End Date, the unpaid amount would be added to the liquidation preference and the applicable
Capital Reserve Amount would thereafter be zero.
After the Capital Reserve End Date, we will be subject to a new periodic cash dividend requirement. Our quarterly senior
preferred stock dividend requirement will be an amount equal to the lesser of (1) 10% per annum on the then-current liquidation
preference of the senior preferred stock and (2) a quarterly amount equal to the increase in the Net Worth Amount, if any, during
the immediately prior fiscal quarter. If for any reason we were not to pay our dividend requirement on the senior preferred stock
in full in any future period after the Capital Reserve End Date, the unpaid amount would be added to the liquidation preference
and immediately following such failure and for all dividend periods thereafter until the dividend period following the date on
which we shall have paid in cash full cumulative dividends, the dividend amount will be 12% per annum on the then-current
liquidation preference of the senior preferred stock. The amounts payable for dividends on the senior preferred stock could be
substantial and will have an adverse impact on our financial position and net worth. The senior preferred stock is senior in
liquidation preference to our common stock and all other series of preferred stock.
In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to pay a
quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee was to be determined in an amount mutually
agreed to by us and Treasury with reference to the market value of Treasury's funding commitment as then in effect. However,
pursuant to the August 2012 amendment to the Purchase Agreement, as further amended by the January 2021 Letter
Agreement, for each quarter commencing January 1, 2013, no periodic commitment fee under the Purchase Agreement will be
set, accrue, or be payable. Pursuant to the January 2021 Letter Agreement, by the Capital Reserve End Date, we and Treasury,
in consultation with the Chairman of the Federal Reserve, will mutually agree on a periodic commitment fee that we will pay for
Treasury's remaining funding commitment with respect to the five-year period commencing on the first January 1 after the
Capital Reserve End Date.
The Purchase Agreement includes significant restrictions on our ability to manage our business, including limits on the amount
of indebtedness we can incur, the size of our mortgage-related investments portfolio, our secondary market activities, and our
single-family and multifamily loan acquisitions.
The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the end
of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. However, Treasury's
consent is required for a termination of conservatorship other than in connection with receivership or under the limited
circumstances specified in the Purchase Agreement involving maintenance of certain capital and resolution of currently pending
material litigation related to our conservatorship and the Purchase Agreement. Treasury has the right to exercise the warrant, in
whole or in part, at any time on or before September 7, 2028.
FREDDIE MAC | 2021 Form 10-K
155
Financial Statements
Notes to the Consolidated Financial Statements | Note 2
Purchase Agreement Covenants
The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without the
prior written consent of Treasury:
n Declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac equity
securities (other than with respect to the senior preferred stock or warrant);
n Redeem, purchase, retire, or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or
warrant);
n Sell or issue any Freddie Mac equity securities (other than the senior preferred stock, warrant, and common stock issuable
upon exercise of the warrant and certain issuance(s) of common stock after the occurrence of both Treasury's exercise in
full of its warrant to acquire 79.9% of our common stock and resolution of currently pending material litigation relating to
our conservatorship and the Purchase Agreement);
n Terminate the conservatorship (other than in connection with a receivership or under limited circumstances involving
maintenance of certain capital levels and resolution of currently pending material litigation related to our conservatorship
and the Purchase Agreement);
n Sell, transfer, lease, or otherwise dispose of any assets, other than dispositions for fair market value:
l To a limited life regulated entity (in the context of a receivership);
l Of assets and properties in the ordinary course of business, consistent with past practice;
l Of assets and properties having fair market value individually or in aggregate less than $250 million in one transaction
or a series of related transactions;
l In connection with our liquidation by a receiver;
l Of cash or cash equivalents for cash or cash equivalents; or
l To the extent necessary to comply with the covenant described below relating to the reduction of our mortgage-
related investments portfolio;
n Issue any subordinated debt;
n Enter into a corporate reorganization, recapitalization, merger, acquisition, or similar event; or
n Engage in transactions with affiliates unless the transaction is:
l Pursuant to the Purchase Agreement, the senior preferred stock, or the warrant;
l Upon arm's length terms; or
l A transaction undertaken in the ordinary course or pursuant to a contractual obligation or customary employment
arrangement in existence on the date of the Purchase Agreement.
In addition, the Purchase Agreement requires us to comply with the ERCF as published in December 2020, disregarding any
subsequent amendment or other modification to that rule.
The Purchase Agreement also required us to reduce the UPB of the mortgage assets in our mortgage-related investments
portfolio to a limit of $250 billion at December 31, 2018. The Purchase Agreement cap on our mortgage-related investments
portfolio will be lowered to $225 billion on December 31, 2022. Since January 2021, the calculation of mortgage assets subject
to the Purchase Agreement cap also includes 10% of the notional value of interest-only securities.
Under the Purchase Agreement, we also may not, without the prior written consent of Treasury, incur indebtedness that would
result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are permitted to
own on December 31 of the immediately preceding calendar year. Our debt cap under the Purchase Agreement is currently
$300 billion and will decrease to $270 billion on January 1, 2023 as a result of the decrease in the mortgage assets limit under
the Purchase Agreement to $225 billion on December 31, 2022. The mortgage asset and indebtedness limitations are
determined without giving effect to the changes to the accounting guidance for transfers of financial assets and consolidation
of VIEs, under which we consolidated certain VIEs in our consolidated financial statements as of January 1, 2010.
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 consent of the Director of FHFA, in consultation with the Secretary
of the Treasury.
The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to Treasury
setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the financial and
operational risk associated with each of our reportable business segments.
The Purchase Agreement also restricts our secondary market activities and single-family and multifamily loan acquisitions:
n Secondary Market Activities - We cannot vary the pricing or any other term of the acquisition of a single-family loan based
on the size, charter type, or volume of business of the seller of the loan and are required to:
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l Offer to purchase loans for cash consideration and operate this cash window with non-discriminatory pricing;
l Beginning on January 1, 2022, limit the volume purchased through the cash window to $1.5 billion per lender during
any period comprising four calendar quarters; and
l Comply with directives, regulations, restrictions, or other requirements prescribed by FHFA related to equitable
secondary market access by community lenders.
n Multifamily New Business Activity - We are required to cap multifamily loan purchases at $80 billion in any 52-week period,
subject to annual adjustment by FHFA based on changes in the Consumer Price Index. At least 50% of our multifamily loan
purchases in any calendar year must be, at the time of acquisition, classified as mission-driven pursuant to FHFA
guidelines.
n Single-Family Loan Acquisitions - We are required to limit our acquisition of certain single-family mortgage loans.
l A maximum of 6% of purchase money mortgages and 3% of refinance mortgages over the preceding 52-week period
can have two or more of the following characteristics at origination: combined LTV ratio greater than 90%; DTI ratio
greater than 45%; and FICO or equivalent credit score less than 680.
l We are required to limit acquisitions of single-family mortgage loans secured by either second homes or investment
properties to 7% of the single-family mortgage loan acquisitions over the preceding 52-week period.
l Subject to such exceptions as FHFA may prescribe to permit us to acquire single-family mortgage loans that are
currently eligible for acquisition, we are required to implement by July 1, 2021 a program reasonably designed to
ensure that each single-family mortgage is:
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A qualified mortgage;
Expressly exempt from the CFPB’s ability-to-repay requirements;
Secured by an investment property, subject to the related Purchase Agreement restriction described below, which
has been suspended;
A refinancing with streamlined underwriting for high LTV ratios;
A loan with temporary underwriting flexibilities due to exigent circumstances, as determined in consultation with
FHFA; or
Secured by manufactured housing.
In September 2021, the Purchase Agreement requirements related to the $1.5 billion limit on our cash window volumes and
requirements related to our multifamily loan purchase activity, acquisitions of single-family loans with certain LTV, DTI, and
credit score characteristics at origination, and acquisitions of single-family loans secured by second homes or investment
properties were suspended. Each such suspension shall terminate on the later of September 14, 2022 and six months after
Treasury notifies us.
Warrant Covenants
The warrant we issued to Treasury includes, among others, the following covenants:
n Our SEC filings under the Exchange Act will comply in all material respects as to form with the Exchange Act and the rules
and regulations thereunder;
n Without the prior written consent of Treasury, we may not permit any of our significant subsidiaries to issue capital stock or
equity securities, or securities convertible into or exchangeable for such securities, or any stock appreciation rights or other
profit participation rights to any person other than Freddie Mac or its wholly-owned subsidiaries;
n We may not take any action that will result in an increase in the par value of our common stock;
n Unless waived or consented to in writing by Treasury, we may not take any action to avoid the observance or performance
of the terms of the warrant and we must take all actions necessary or appropriate to protect Treasury's rights against
impairment or dilution; and
n We must provide Treasury with prior notice of specified actions relating to our common stock, such as setting a record
date for a dividend payment, granting subscription or purchase rights, authorizing a recapitalization, reclassification,
merger or similar transaction, commencing a liquidation of the company, or any other action that would trigger an
adjustment in the exercise price or number or amount of shares subject to the warrant.
Termination Provisions
The Purchase Agreement provides that the Treasury's funding commitment will terminate under any of the following
circumstances:
n The completion of our liquidation and fulfillment of Treasury's obligations under its funding commitment at that time;
n The payment in full of, or reasonable provision for, all of our liabilities (whether or not contingent, including mortgage
guarantee obligations); and
n The funding by Treasury of the maximum amount of the commitment under the Purchase Agreement.
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In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null and void if a court
vacates, modifies, amends, conditions, enjoins, stays, or otherwise affects the appointment of the Conservator or otherwise
curtails the Conservator's powers. Treasury may not terminate its funding commitment under the Purchase Agreement solely by
reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our financial condition or any
adverse change in our financial condition.
Waivers and Amendments
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury's
aggregate funding commitment or add conditions to Treasury's funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or mortgage guarantee obligations.
Third-Party Enforcement Rights
In the event of our default on payments with respect to our debt securities or mortgage guarantee obligations, if Treasury fails
to perform its obligations under its funding commitment and if we and/or the Conservator are not diligently pursuing remedies
in respect of that failure, the holders of these debt securities or mortgage guarantee obligations may file a claim in the United
States Court of Federal Claims for relief requiring Treasury to fund to us the lesser of:
n The amount necessary to cure the payment defaults on our debt securities and mortgage guarantee obligations and
n The lesser of:
l The deficiency amount and
l The maximum amount of the commitment less the aggregate amount of funding previously provided under the
commitment.
Any payment that Treasury makes under those circumstances will be treated for all purposes as a draw under the Purchase
Agreement that will increase the liquidation preference of the senior preferred stock.
Impact of Conservatorship and Related Developments on the Mortgage-
Related Investments Portfolio
In February 2019, FHFA directed us to maintain the mortgage-related investments portfolio at or below $225 billion at all times.
We began including 10% of the notional value of certain interest-only securities owned by Freddie Mac in the calculation of this
portfolio for purposes of the FHFA cap during 1Q 2020 as instructed by FHFA in November 2019.
The size of this portfolio for purposes of the FHFA and Purchase Agreement caps was $123.5 billion at December 31, 2021,
including $12.5 billion representing 10% of the notional amount of the interest-only securities we held as of December 31,
2021. Our ability to acquire and sell mortgage assets continues to be significantly constrained by limitations imposed by the
Purchase Agreement and FHFA.
With respect to the composition of our mortgage-related investments portfolio, FHFA has instructed us to: (1) reduce the
amount of agency MBS we hold to no more than $50 billion by June 30, 2021 and no more than $20 billion by June 30, 2022,
with all dollar caps to be based on UPB; and (2) reduce the UPB of our existing portfolio of collateralized mortgage obligations
(CMOs), which are also sometimes referred to as REMICs, to zero by June 30, 2021. We will have a holding period limit to sell
any new CMO tranches created but not sold at issuance. CMOs do not include tranches initially retained from reperforming
loans senior subordinate securitization structures.
Government Support for Our Business
We receive substantial support from Treasury and are dependent upon its continued support in order to continue operating our
business. Our ability to access funds from Treasury under the Purchase Agreement is critical to:
n Keeping us solvent;
n Allowing us to focus on our primary business objectives under conservatorship; and
n Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions.
At December 31, 2021, our assets exceeded our liabilities under GAAP. As a result, FHFA will not submit a draw request from
Treasury on our behalf. Based on our Net Worth Amount at December 31, 2021 and the applicable Capital Reserve Amount, we
will not have a dividend requirement to Treasury in March 2022. Since conservatorship began through December 31, 2021, we
have paid cash dividends of $119.7 billion to Treasury at the direction of the Conservator.
See Note 8 and Note 12 for more information on the conservatorship and the Purchase Agreement.
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Related Parties as a Result of Conservatorship
As a result of our issuance to Treasury of the warrant to purchase 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, we are deemed a related party to the U.S.
government. During the years ended December 31, 2021, 2020, and 2019, no transactions outside of normal business activities
have occurred between us and the U.S. government (or any of its related parties), except for the following:
n The transactions with Treasury discussed above in Purchase Agreement and Warrant and Government Support
for Our Business;
n The transactions entered into whereby we and Fannie Mae, in conjunction with Treasury, provided assistance to state and
local HFAs. Treasury will reimburse Freddie Mac for initial guarantee losses on these transactions;
n The transactions discussed in Note 4 and Note 12;
n The allocation or transfer of 4.2 basis points of each dollar of new business purchases to certain housing funds as required
under the GSE Act; and
n The legislated 10 basis point fee on single-family loans that is remitted to Treasury as required by law.
In addition, we are deemed a related party with Fannie Mae as both we and Fannie Mae have the same relationships with FHFA
and Treasury. All transactions between us and Fannie Mae have occurred in the normal course of business in conservatorship.
In October 2013, FHFA announced the formation of CSS. CSS is a limited liability company equally-owned by Freddie Mac and
Fannie Mae, and CSS is also deemed a related party. In connection with the formation of CSS, we entered into a limited liability
company (LLC) agreement with Fannie Mae. Additionally, we and Fannie Mae each appointed two executives to the CSS Board
of Managers and signed governance and operating agreements for CSS, including an updated customer services agreement
with Fannie Mae and CSS in May 2019. In June 2019, we entered into an agreement with Fannie Mae regarding the
commingling of certain of our mortgage securities and related indemnification obligations. During the year ended December 31,
2021, we contributed $76 million of capital to CSS, and we have contributed $734 million since the fourth quarter of 2014. The
carrying value of our investment in CSS was $8 million and $16 million as of December 31, 2021 and December 31, 2020,
respectively, and was included in other assets on our consolidated balance sheets.
In January 2020, FHFA directed Freddie Mac and Fannie Mae to amend the LLC agreement for CSS to change the structure of
the Board of Managers (CSS Board). The revised LLC agreement also removed the requirement that any CSS Board decision
must be approved by at least one of the CSS Board members appointed by Freddie Mac and one appointed by Fannie Mae.
These amendments reduce Freddie Mac’s and Fannie Mae’s ability to control CSS Board decisions, even after conservatorship,
including decisions about strategy, business operations, and funding.
Under the revised CSS LLC agreement, the CSS Board will continue to include two Freddie Mac and two Fannie Mae
representatives, and it will also include two additional members: the Chief Executive Officer of CSS and an independent, non-
Executive Chair. During conservatorship, the CSS Board Chair shall be designated by FHFA, and all CSS Board decisions will
require the affirmative vote of the Board Chair. During conservatorship, FHFA also may appoint up to three additional
independent members to the CSS Board, who along with the Board Chair and the Chief Executive Officer of CSS may continue
to serve on the CSS Board after conservatorship. FHFA appointed a CSS Board member to serve as Chair in January 2020,
and FHFA subsequently appointed three additional CSS Board members, one in June 2020 and two in January 2021. In
October 2021, FHFA announced that it had named a new interim CSS Board Chair and that the independent members FHFA
previously appointed had left the CSS Board. If FHFA were to appoint three additional independent members to the CSS
Board, the CSS Board members we and Fannie Mae appoint could be outvoted by non-GSE designated Board members on
any matter during conservatorship and on a number of significant matters, including approval of the annual budget and
strategic plan for CSS, if either we or Fannie Mae exits from conservatorship. Certain material post-conservatorship decisions,
however, would require approval of at least one Board member designated by us and one designated by Fannie Mae, including
those decisions involving a material change in CSS’s functionality, such as the addition of a new business line or reduction in
CSS’s support of the UMBS, capital contributions beyond those necessary to support CSS’s ordinary business operations,
appointment or removal of the Chief Executive Officer of CSS, and admission of new members.
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Securitization Activities and Consolidation
Our primary business activities in our Single-Family and Multifamily segments involve the securitization of loans or other
mortgage-related assets using trusts that are VIEs. These trusts issue beneficial interests in the loans or other mortgage-related
assets that they own. We guarantee the principal and interest payments on some or all of the issued beneficial interests in
substantially all of our securitization transactions. See Note 5 for additional information on our guarantee activities. We also
use trusts that are VIEs in certain credit risk transfer products.
We consolidate VIEs when we have a controlling financial interest in the VIE and are therefore considered the primary
beneficiary of the VIE. We are the primary beneficiary of a VIE when we have both the power to direct the activities of the VIE
that most significantly impact its economic performance and exposure to losses or benefits of the VIE that could potentially be
significant to the VIE. We evaluate whether we are the primary beneficiary of VIEs in which we have interests at both inception
and on an ongoing basis, and the primary beneficiary determination may change over time as our interest in the VIE changes.
We do not believe the maximum exposure to loss from our involvement with VIEs for which we are not the primary beneficiary
discussed below is representative of the actual loss we are likely to incur, based on our historical loss experience and after
consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. Certain
of our interest-rate risk-related guarantees to VIEs for which we are not the primary beneficiary may create exposure to loss
that is unlimited. We account for these interest-rate risk-related guarantees at fair value as discussed further in Note 5 and
generally reduce our exposure to these guarantees with unlimited interest rate exposure through separate derivative contracts
with third parties. See Note 9 for additional information on derivatives.
Securitization Activities
Single-Family
Level 1 Securitization Products
Level 1 Securitization Products consist of UMBS, 55-day MBS, and PCs, which are all pass-through debt securities that
represent undivided beneficial interests in a pool of loans held by a securitization trust. All Level 1 Securitization Products are
backed only by mortgage loans we have acquired. We serve as both administrator and guarantor for these trusts. As
administrator, we have the right to establish servicing terms and direct loss mitigation activities for the loans held by these
trusts. As guarantor, we guarantee the payment of principal and interest on these securities in exchange for a guarantee fee,
and we have the right to purchase delinquent loans from the trust to help improve the economic performance of the trust. We
absorb all credit losses of these trusts through our guarantee of the principal and interest payments.
The economic performance of these trusts is most significantly affected by the performance of the underlying loans. Our rights
as administrator and guarantor provide us with the power to direct the activities that most significantly affect the performance
of the underlying loans. We also have the obligation to absorb losses of these trusts that could potentially be significant through
our guarantee of principal and interest payments. Accordingly, we concluded that we are the primary beneficiary of and
therefore consolidate these trusts.
Loans held by these trusts are recognized on our consolidated balance sheets as mortgage loans held-for-investment. The
corresponding securities held by third parties are recognized on our consolidated balance sheets as debt. We extinguish the
outstanding debt securities of the related consolidated trust and recognize gains or losses on debt extinguishment for the
difference between the consideration paid and the debt carrying value when we purchase these securities as investments in our
mortgage-related investments portfolio. Sales of these securities that were previously held as investments in our mortgage-
related investments portfolio are accounted for as debt issuances.
We no longer issue securities with a 45-day payment delay. As a result, we are offering an optional exchange program for
security holders to exchange certain existing fixed-rate Gold PCs and Giant PCs for corresponding UMBS and other applicable
55-day payment delay Freddie Mac securities. We make a one-time payment to exchanging security holders for the value of the
10 additional days of payment delay based on float compensation rates we calculate. When existing PCs are exchanged for
UMBS or 55-day MBS under our exchange program, we account for the exchange as a debt modification, as the terms of the
securities are not substantially different and the exchange does not result in a change in the creditor. The float compensation
we pay in conjunction with the exchange is deferred as a basis adjustment to the debt and amortized into interest expense over
the remaining life of the debt. See Note 4 and Note 8 for additional information on loans and debt securities of consolidated
trusts.
At December 31, 2021 and December 31, 2020, we were the primary beneficiary of, and therefore consolidated, Level 1
securitization trusts with assets totaling $2.7 trillion and $2.3 trillion, respectively. During 2021 and 2020, we issued
approximately $1.2 trillion and $1.1 trillion, respectively, of Level 1 Securitization Products. Our exposure for guarantees to
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consolidated securitization trusts is generally equal to the UPB of the loans recorded on our consolidated balance sheets.
Resecuritization Products
We create resecuritization products primarily by using Level 1 Securitization Products, our previously issued resecuritization
products, or similar TBA-eligible products issued and guaranteed by Fannie Mae as the underlying collateral. In a typical
resecuritization transaction, previously issued Level 1 Securitization Products or resecuritization products are transferred to a
resecuritization trust that issues beneficial interests in the underlying collateral. We establish parameters that define eligibility
standards for assets that may be used as collateral for each of our resecuritization programs. Resecuritization products can
then be created based on the parameters that we have established. Similar to our Level 1 Securitization Products, we
guarantee the full payment of principal and interest to the investors in our resecuritization products.
The main types of resecuritization products we create are single-class resecuritization products (Supers, Giant MBS, and Giant
PCs) and multiclass resecuritization products (REMICs and Strips).
n Single-class resecuritization products - These securities are direct pass-throughs of the cash flows of the underlying
collateral, which may be previously issued Level 1 Securitization Products, single-class resecuritization products, or similar
TBA-eligible products issued and guaranteed by Fannie Mae. We do not consolidate these securities as their
resecuritization does not result in any new or incremental risk to the holders of the securities issued by the resecuritization
trust and because we are not exposed to any incremental rights to receive benefits or obligations to absorb losses that
could be significant to the resecuritization trust.
We account for purchases of single-class resecuritization products that we issue that are substantially the same as the
underlying collateral as debt extinguishment of a pro-rata portion of the underlying Level 1 Securitization Product. We
account for purchases of single-class resecuritization products that we issue that are not considered substantially the
same as the underlying collateral as investments in debt securities. Single-class resecuritization products that we issue
that are backed entirely by Freddie Mac collateral are considered substantially the same as the underlying collateral, while
commingled single-class resecuritization products that we issue are not considered substantially the same as the
underlying collateral.
n Multiclass resecuritization products - These securities are multiclass resecuritizations of the cash flows of the underlying
collateral, which may be previously issued Level 1 Securitization Products, single-class resecuritization products,
multiclass resecuritization products, or similar TBA-eligible products issued and guaranteed by Fannie Mae. The activity
that most significantly impacts the economic performance of our multiclass resecuritization trusts is typically the initial
design and structuring of the trust. Substantially all multiclass resecuritization trusts are created as part of customer-driven
transactions in which an investor or dealer participates in the decisions made during the design and establishment of the
trust. As a result, we do not have the unilateral ability to direct the activities of our multiclass resecuritization trusts that
most significantly impact the economic performance of those trusts. In addition, unless we retain a portion of the issued
multiclass resecuritization products, we do not have the right to receive benefits or the obligation to absorb losses that
could potentially be significant to the trusts because we have already provided a guarantee on the underlying assets. As a
result, we have concluded that we are not the primary beneficiary of our multiclass resecuritization trusts and, therefore, do
not consolidate those trusts.
When we purchase a multiclass resecuritization product as an investment in our mortgage-related investments portfolio,
we generally record the security as an investment in debt securities rather than extinguishment of debt since we are
generally investing in the debt securities of a nonconsolidated entity. We do not consolidate multiclass resecuritization
trusts in which we hold variable interests, as we are not deemed to be the primary beneficiary of the trusts, unless we have
the unilateral ability to liquidate the trust. Similarly, sales of multiclass resecuritization products previously held as
investments in our mortgage-related investments portfolio are accounted for as sales of investments in debt securities. See
Note 7 for additional information on accounting for investments in debt securities.
With the exception of commingled securities, our investments in and guarantees of securities issued by resecuritization trusts
do not create any incremental exposure to loss because we already guarantee the underlying collateral. As a result, we do not
receive any incremental guarantee fees in exchange for our guarantee, and, accordingly, we do not recognize any additional
guarantee assets, guarantee obligations or reserves for guarantee losses related to resecuritization trusts. In a typical multiclass
resecuritization, we receive a one-time transaction fee which represents compensation for both the structuring and creation of
the securities and for our ongoing administrative responsibilities to service the securities. We recognize the portion of the
transaction fee related to creation of the securities immediately in earnings. We defer the portion of the fee related to ongoing
administrative responsibilities and amortize it over the life of the associated trust.
When we issue commingled resecuritization products, our guarantee of the Fannie Mae securities used as collateral creates
incremental exposure to loss because our guarantee covers timely payment of principal and interest on such products from
underlying Fannie Mae securities. If Fannie Mae were to fail to make a payment on a Fannie Mae security that we resecuritized,
we would be responsible for making the payment. However, we view the likelihood of being required to perform on our
guarantee of Fannie Mae securities as remote due to Fannie Mae’s status as a GSE and the funding commitment available to it
through its senior preferred stock purchase agreement with Treasury, and we do not charge an incremental guarantee fee to
commingle Fannie Mae collateral in resecuritization transactions. The UPB of Fannie Mae securities underlying commingled
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Freddie Mac resecuritization trusts for which we are not the primary beneficiary totaled $110.8 billion and $85.3 billion as of
December 31, 2021 and December 31, 2020, respectively. See Note 5 for additional information on our guarantee of Fannie
Mae securities.
Other Securitization Products
We do not consolidate our Single-Family senior subordinate securitization structures backed by seasoned loans because we do
not have the ability to direct the loss mitigation activities of the underlying loans, which is the most significant activity affecting
the economic performance of the VIE. When we sell loans in this type of transaction, we derecognize the transferred loans and
account for our guarantee to the nonconsolidated VIE. We account for our investments in the beneficial interests issued by the
nonconsolidated VIE, if any, as investments in debt securities. During 2021 and 2020, we issued approximately $4.0 billion and
$7.0 billion, respectively, of guaranteed securities in these securitization structures. The maximum exposure to loss for our
Single-Family senior subordinate securitization structures for which we are not the primary beneficiary totaled $26.5 billion and
$28.1 billion at December 31, 2021 and December 31, 2020, respectively, and represents the UPB of the beneficial interests
that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $32.3 billion and $33.7 billion at December 31,
2021 and December 31, 2020, respectively.
We are the primary beneficiary of and, therefore, consolidate the trusts used to issue other types of our Single-Family other
securitization products when we have the ability to direct the activities that most significantly affect the economic performance
of the trusts and we have the obligation to absorb credit losses through our guarantee of some or all of the issued securities. As
a result, we consolidated trusts used to issue these products with underlying assets totaling $6.1 billion and $11.2 billion at
December 31, 2021 and December 31, 2020, respectively. We do not consolidate the trusts used to issue other types of our
Single-Family other securitization products that do not meet these conditions. The maximum exposure to loss for these Single-
Family securitizations for which we are not the primary beneficiary totaled $1.5 billion and $1.7 billion at December 31, 2021
and December 31, 2020, respectively. The total assets of these nonconsolidated VIEs, excluding certain nonfinancial assets
held by the VIEs, totaled $1.3 billion and $1.8 billion at December 31, 2021 and December 31, 2020, respectively.
Multifamily
K Certificates
In a K Certificate transaction, we sell multifamily loans to a non-Freddie Mac trust that issues senior, mezzanine, and
subordinate securities, and simultaneously purchase and place the senior securities into a Freddie Mac trust that issues
guaranteed K Certificates. In these transactions, we guarantee the senior securities issued by the non-Freddie Mac trust but do
not issue or guarantee the mezzanine or subordinate securities. We receive a guarantee fee in exchange for our guarantee. In
certain of our K Certificate securitizations, we may also serve as master servicer. However, in contrast to most single-family
transactions, the rights to direct loss mitigation activities of the underlying loans and to purchase delinquent loans from the
securitization trust are generally held by the investor in the most subordinate remaining securities issued by the non-Freddie
Mac trust, and therefore we do not have any power to direct those activities unless we are the investor in the most subordinate
remaining securities. We do not typically invest in the subordinate securities issued in our K Certificate transactions.
The economic performance of our K Certificate trusts is most significantly affected by the performance of the underlying loans.
We do not consolidate our K Certificate securitization trusts that have subordination because we do not have the ability to
direct the loss mitigation activities of the underlying loans, which is the most significant activity affecting the economic
performance of the VIE.
When we sell loans in a K Certificate transaction, we derecognize the transferred loans and account for our guarantee to the
nonconsolidated VIE. We account for our investments in the beneficial interests issued by the trusts used in our K Certificate
transactions as investments in debt securities.
During 2021 and 2020, we issued approximately $58.9 billion and $55.6 billion, respectively, of K Certificates. The maximum
exposure to loss for our K Certificate securitizations for which we are not the primary beneficiary totaled $281.9 billion and
$253.0 billion at December 31, 2021 and December 31, 2020, respectively, and primarily represents the UPB of the beneficial
interests that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $321.1 billion and $291.3 billion at
December 31, 2021 and December 31, 2020, respectively.
SB Certificates
In a SB Certificate transaction, we securitize multifamily small balance loans using a non-Freddie Mac SB Certificate trust that
issues senior classes of securities that we guarantee, as well as subordinated classes of securities that we do not guarantee.
Similar to our K Certificate transactions, we are not the primary beneficiary of and, therefore, do not consolidate our SB
Certificate trusts, as we do not have the ability to direct loss mitigation activities of the underlying loans, which is the most
significant activity affecting the economic performance of the VIE.
In a typical SB Certificate transaction, we sell loans to a SB Certificate trust, derecognize the transferred loans and account for
our guarantee to the nonconsolidated SB Certificate trust. We account for our investments in the beneficial interests issued by
nonconsolidated SB Certificate trusts as investments in debt securities.
During 2021 and 2020, we issued approximately $4.5 billion and $4.4 billion, respectively, of SB Certificates. The maximum
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exposure to loss for our SB Certificate securitizations for which we are not the primary beneficiary totaled $22.4 billion and
$21.5 billion at December 31, 2021 and December 31, 2020, respectively, and primarily represents the UPB of the beneficial
interests that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $24.9 billion and $23.9 billion at
December 31, 2021 and December 31, 2020, respectively.
WI K-Deal Certificates
In a WI K-Deal Certificate transaction, we forward sell a K Certificate security that will be issued in the future to a WI K-Deal
trust at a fixed price, thereby reducing our exposure to future changes in interest rates and K Certificate benchmark spreads.
The WI K-Deal trust simultaneously issues guaranteed securities (WI Certificates).
The economic performance of our WI K-Deal trusts is most significantly affected by the performance of the underlying assets.
We manage the underlying assets of the trust prior to the delivery of the K Certificate and determine which K Certificate will be
delivered into the trust. Therefore, we have the power to direct the activities that are most significant to the WI K-Deal trust. We
also initially have economic exposure to the variability of the trust through our guarantee of the issued WI Certificates. As a
result, we are the primary beneficiary of and, therefore, initially consolidate the trusts used to issue WI Certificates.
We began issuing WI K-Deal Certificates in 2021 and issued approximately $2.0 billion of WI Certificates and initially
consolidated the trusts. Upon delivering the K Certificate into the trust, we no longer have a variable interest and therefore
deconsolidate the WI K-Deal trust. As of December 31, 2021, we continued to consolidate WI K-Deal trusts with underlying
assets totaling $0.9 billion.
Other Securitization Products
We are the primary beneficiary of and, therefore, consolidate the trusts used to issue certain of our other securitization products
because we have the ability to direct the activities that most significantly affect the economic performance of the trusts and we
have the obligation to absorb credit losses through our guarantee of some or all of the issued securities. As a result, we
consolidated trusts used in these other securitization products with underlying assets totaling $19.3 billion and $14.3 billion at
December 31, 2021 and December 31, 2020, respectively. During 2021 and 2020, we issued approximately $7.0 billion and
$6.0 billion, respectively, of other securitization products that we consolidated.
We do not consolidate the trusts used to issue our other securitization products when we do not meet the above conditions.
For those products, we account for our guarantee to the nonconsolidated VIE. During 2021 and 2020, we issued approximately
$2.4 billion and $3.1 billion of these securities, respectively. The maximum exposure to loss for our other securitization products
for which we are not the primary beneficiary totaled $14.8 billion and $14.9 billion at December 31, 2021 and December 31,
2020, respectively, and primarily represents the UPB of the beneficial interests that we have guaranteed. The total assets of
these nonconsolidated VIEs totaled $16.7 billion and $16.9 billion at December 31, 2021 and December 31, 2020, respectively.
CRT Activities
In our CRT Trust note transactions, which include both STACR Trust notes and SCR Trust notes, a trust issues credit-linked
notes whose repayments are based on the credit performance of a reference pool of mortgage loans. The trust makes periodic
payments of principal and interest on the notes to investors. We make payments to the trust to support payment of the interest
due on the notes, and we receive payments from the trust that otherwise would have been made to the noteholders to the
extent there are credit events on the mortgages in the reference pool. The note balances are reduced by the amount of the
payments to us. The trust was designed to create and pass along to its interest holders the variability related to the credit risk
of the mortgages in the reference pool. We do not have a variable interest in the risk that the trust was designed to create and
pass along to its interest holders and do not consolidate the trusts used in the CRT Trust note transactions. The maximum
exposure to loss for our CRT Trust notes for which we are not the primary beneficiary represents our recorded expected
recovery receivable and totaled $44 million and $420 million at December 31, 2021 and December 31, 2020, respectively. The
total assets of these nonconsolidated VIEs totaled $23.6 billion and $17.3 billion at December 31, 2021 and December 31,
2020, respectively.
Consolidated VIEs
We consolidated the VIEs for which we are the primary beneficiary as discussed above. Our exposure on debt securities of
consolidated trusts represents our liability to third parties that hold beneficial interests in our consolidated trusts.
When we consolidate a VIE, we recognize the assets and liabilities of the VIE on our consolidated balance sheets and account
for those assets and liabilities based on the applicable GAAP for each specific type of asset or liability. Assets and liabilities that
we transfer to a VIE at, after or shortly before the date we become the primary beneficiary of the VIE are initially measured at
the same amounts that they would have been measured if they had not been transferred, and no gain or loss is recognized on
these transfers. For all other VIEs that we consolidate, we recognize the assets and liabilities of the VIE at fair value, and we
recognize a gain or loss for the difference between:
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 3
n The sum of the fair value of the consideration paid, the fair value of any noncontrolling interests, and the reported amount
of any previously held interests and
n The net fair value of the assets and liabilities recognized.
Guarantees to consolidated VIEs are eliminated in consolidation and are therefore not separately recognized on our
consolidated balance sheets.
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our
consolidated balance sheets.
Table 3.1 - Consolidated VIEs
(In millions)
Consolidated Balance Sheet Line Item
Assets:
Cash and cash equivalents (includes $1,595 and $17,289 of restricted cash and
cash equivalents)
Securities purchased under agreements to resell
Investment securities, at fair value
Mortgage loans held-for-investment, net
Accrued interest receivable, net
Other assets
Total assets of consolidated VIEs
Liabilities:
Accrued interest payable
Debt
Total liabilities of consolidated VIEs
Nonconsolidated VIEs
December 31, 2021
December 31, 2020
$1,596
34,000
420
2,784,626
7,019
11,265
$2,838,926
$5,823
2,803,054
$2,808,877
$17,290
38,487
591
2,273,347
7,134
20,480
$2,357,329
$5,610
2,308,176
$2,313,786
The following table presents the carrying amounts and classification of the assets and liabilities recorded on our consolidated
balance sheets related to VIEs for which we are not the primary beneficiary and with which we were involved in the design and
creation and have a significant continuing involvement. Our involvement with such VIEs primarily consists of investments in
debt securities issued by resecuritization trusts and guarantees of senior securities issued by certain Multifamily securitization
trusts.
Table 3.2 - Nonconsolidated VIEs
(In millions)
Assets and Liabilities Recorded on our Consolidated Balance Sheets(1)
December 31, 2021
December 31, 2020
Assets:
Investment securities, at fair value
Accrued interest receivable, net
Other assets(2)
Liabilities:
Debt
Other liabilities(3)
$16,506
220
5,589
67
5,172
$28,459
239
5,614
—
4,562
(1)
(2)
(3)
Includes our variable interests in REMICs and Strips, K Certificates, SB Certificates, certain senior subordinate securitization structures, and other securitization
products that we do not consolidate.
Primarily includes guarantee assets.
Primarily includes guarantee obligations.
We also obtain interests in various other entities created by third parties through the normal course of business that may be
VIEs, such as through purchases of multifamily loans, guarantees of multifamily housing revenue bonds, as a derivative
counterparty or through other activities. To the extent that we were not involved in the design or creation of these VIEs, they are
excluded from the table above. Our interests in these VIEs are generally passive in nature and are not expected to result in us
obtaining a controlling financial interest in these VIEs in the future. As a result, we do not consolidate these VIEs and we
account for our interests in these VIEs in the same manner that we account for our interests in other third-party transactions.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
NOTE 4
Mortgage Loans
Notes to the Consolidated Financial Statements | Note 4
On January 1, 2020, we adopted CECL, which changed certain of our significant accounting policies for mortgage loans held-
for-investment, as discussed further in the sections below.
The table below provides details of the loans on our consolidated balance sheets.
Table 4.1 - Mortgage Loans
December 31, 2021
December 31, 2020
(In millions)
Held-for-sale UPB
Single-Family Multifamily
Total
Single-Family Multifamily
Total
$5,446
$14,871
$20,317
$10,702
$23,789
$34,491
Cost basis and fair value adjustments, net
Total held-for-sale loans, net
(813)
4,633
274
(539)
15,145
19,778
(1,637)
9,065
798
(839)
24,587
33,652
Held-for-investment UPB
Cost basis adjustments
Allowance for credit losses
2,742,851
26,657
2,769,508
2,271,576
21,923
2,293,499
63,684
(4,913)
86
(34)
63,770
(4,947)
62,415
(5,628)
54
(104)
62,469
(5,732)
Total held-for-investment loans, net
2,801,622
26,709
2,828,331
2,328,363
21,873
2,350,236
Total mortgage loans, net
$2,806,255
$41,854
$2,848,109
$2,337,428
$46,460
$2,383,888
We own both single-family loans, which are secured by one- to four-unit residential properties, and multifamily loans, which are
secured by properties with five or more residential rental units. Our single-family loans are predominantly first lien, fixed-rate
loans secured by the borrower's primary residence. We do not typically acquire loans that have experienced more-than-
insignificant deterioration in credit quality since origination as of our acquisition date, although we may acquire such loans in
connection with certain of our securitization activities or other mortgage-related guarantees.
Upon acquisition, we classify a loan as either held-for-investment or held-for-sale. Loans that we have the ability and intent to
hold for the foreseeable future, including loans held by consolidated trusts and loans we intend to securitize using an entity we
will consolidate, are classified as held-for-investment. Loans that we intend to sell are classified as held-for-sale.
Held-for-investment loans for which we have not elected the fair value option are reported on our consolidated balance sheets
at their amortized cost basis, net of the allowance for credit losses. The amortized cost basis is based on a loan's outstanding
UPB, net of deferred fees and other cost basis adjustments (including unamortized premiums and discounts, fees we receive or
pay when we acquire loans, commitment-related derivative basis adjustments, hedge accounting-related basis adjustments,
and other pricing adjustments), excluding accrued interest receivable. Accrued interest receivable for both held-for-investment
and held-for-sale loans is separately presented on our consolidated balance sheets and excluded for the purposes of
disclosure of the amortized cost basis of mortgage loans held-for-investment.
Held-for-sale loans for which we have not elected the fair value option are reported at lower-of-cost-or-fair-value determined on
an individual loan basis on our consolidated balance sheets. Any excess of a held-for-sale loan's cost over its fair value is
recognized as a valuation allowance in investment gains (losses), net on our consolidated statements of comprehensive
income, with subsequent changes in this valuation allowance also being recorded in investment gains (losses), net. Premiums,
discounts, and other cost basis adjustments (including lower-of-cost-or-fair-value adjustments) are deferred and not amortized.
We elect the fair value option for certain multifamily loans that are originally classified as held-for-sale. Loans for which we have
elected the fair value option are measured at fair value on a recurring basis, with subsequent gains or losses related to changes
in fair value reported in investment gains (losses), net on our consolidated statements of comprehensive income. All fees,
upfront costs, and other cost basis adjustments are recognized in earnings as incurred.
Cash flows related to loans originally classified as held-for-investment are classified as either investing activities (e.g., principal
repayments) or operating activities (e.g., interest payments received from borrowers included within net income (loss)) on our
consolidated statements of cash flows. Cash flows related to loans originally classified as held-for-sale are classified as
operating activities on our consolidated statements of cash flows.
The table below provides details of the UPB of loans we purchased, reclassified from held-for-investment to held-for-sale, and
sold during the periods presented.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 4
Table 4.2 - Loans Purchased, Reclassified from Held-for-Investment to Held-for-Sale, and Sold
(In billions)
Single-Family
Purchases:
Held-for-investment loans
Reclassified from held-for-investment to held-for-sale(1)
Sale of held-for-sale loans(2)
Multifamily
Purchases:
Held-for-investment loans
Held-for-sale loans
Reclassified from held-for-investment to held-for-sale(1)
Sale of held-for-sale loans(3)
Year Ended December 31,
2021
2020
2019
$1,215.3
1.6
5.5
$1,085.9
4.6
9.0
$451.2
13.6
13.1
9.4
59.1
2.6
70.4
9.6
69.7
2.7
66.7
9.5
65.3
1.9
71.3
(1) We reclassify loans from held-for-investment to held-for-sale when we no longer have both the intent and ability to hold the loans for the foreseeable future. For
additional information regarding the fair value of our loans classified as held-for-sale, see Note 17.
(2)
Our sales of single-family loans reflect the sale of single-family seasoned loans.
(3)
Our sales of multifamily loans occur primarily through the issuance of Multifamily K Certificates and SB Certificates. See Note 3 for more information on our K
Certificates and SB Certificates.
Reclassifications
We reclassify loans from held-for-investment to held-for-sale depending on our intent and ability to hold the loan for the
foreseeable future. Upon reclassification from held-for-investment to held-for-sale, we perform a collectability assessment.
When we determine that a loan to be reclassified has experienced more-than-insignificant deterioration in credit quality since
origination, the excess of the loan’s amortized cost basis over its fair value is written off against the allowance for credit losses
prior to the reclassification. If the write-off amount exceeds the existing allowance for credit losses amount, an additional
provision for credit losses is recognized. Any remaining allowance for credit losses after the write-off is reversed through benefit
(provision) for credit losses.
We reclassify loans from held-for-sale to held-for-investment when we have both the intent and ability to hold the loan for the
foreseeable future. Upon reclassification from held-for-sale to held-for-investment, we reverse the loan’s held-for-sale valuation
allowance, if any, and establish an allowance for credit losses as needed.
Prior to adoption of CECL, when we reclassified a loan from held-for-investment to held-for-sale, we wrote off the entire
difference between the loan's amortized cost basis and its fair value if the loan had a history of credit-related issues. If the
write-off amount exceeded the existing allowance for credit losses amount, an additional provision for credit losses was
recorded. Any declines in loan fair value after the date of reclassification were recognized as a valuation allowance, with an
offset recorded to investment gains (losses), net.
The table below presents the allowance for credit losses or valuation allowance that was reversed or established due to loan
reclassifications between held-for-investment and held-for-sale during the periods presented.
Table 4.3 - Loan Reclassifications
(In millions)
UPB
2021
Allowance for
Credit Losses
Reversed or
(Established)
Valuation
Allowance
(Established)
or Reversed
2020
Allowance for
Credit Losses
Reversed or
(Established)
Valuation
Allowance
(Established)
or Reversed
UPB
Single-Family reclassifications from:
Held-for-investment to held-for-sale(1)
Held-for-sale to held-for-investment(2)
Multifamily reclassifications from:
Held-for-investment to held-for-sale
Held-for-sale to held-for-investment
$1,642
266
2,602
76
$66
18
7
—
$—
—
—
—
$4,628
1,721
2,703
775
$300
147
9
(1)
$—
34
(6)
4
(1)
(2)
Prior to reclassification from held-for-investment to held-for-sale, we charged off $57 million against the allowance for credit losses during 2021 compared to $264
million during 2020.
Allowance for credit losses reversed upon reclassifications from held-for-sale to held-for-investment for loans that were previously charged off and the present
values of expected future cash flows were in excess of the amortized cost basis upon reclassification.
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Financial Statements
Interest Income
Notes to the Consolidated Financial Statements | Note 4
We recognize interest income on an accrual basis except when we believe the collection of principal and interest in full is not
reasonably assured, which generally occurs when a loan is three monthly payments or more past due, at which point we place
the loan on non-accrual status unless the loan is well secured and in the process of collection based upon an individual loan
assessment. A loan is considered past due if a full payment of principal and interest is not received within one month of its due
date. We charge off outstanding accrued interest receivable through interest income when loans are placed on non-accrual
status and recognize interest income on a cash basis while a loan is on non-accrual status.
Cost basis adjustments on held-for-investment loans are amortized into interest income over the contractual life of the loan
using the effective interest method. No amortization is recognized during periods in which a loan is on non-accrual status.
A non-accrual loan is returned to accrual status when the collectability of principal and interest in full is reasonably assured. For
single-family loans, we generally determine that collectability is reasonably assured when the loan returns to current payment
status. For multifamily loans, the collectability of principal and interest is considered reasonably assured based on an analysis
of the factors specific to the loan being assessed. Upon a loan's return to accrual status, all previously reversed interest income
is recognized and amortization of any basis adjustments into interest income is resumed.
For loans in active forbearance plans that were current prior to receiving forbearance, we continue to accrue interest income
while the loan is in forbearance and is three or more monthly payments past due when we believe the available evidence
indicates that collectability of principal and interest is reasonably assured based on management judgment, taking into
consideration additional factors, the most important of which is current LTV ratio. When we accrue interest on loans that are
three or more monthly payments past due, we measure an allowance for expected credit losses on unpaid accrued interest
receivable balances such that the balance sheet reflects the net amount of interest we expect to collect. See Note 6 for
additional information on the allowance for credit losses on accrued interest receivable and Note 13 for additional information
on interest income on mortgage loans.
The table below presents the amortized cost basis of non-accrual loans as of the beginning and the end of the periods
presented, including the interest income recognized for the period that is related to the loans on non-accrual status as of the
period end.
Table 4.4 - Amortized Cost Basis of Held-for-Investment Loans on Non-accrual
(In millions)
Single-Family:
20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable-rate
Alt-A, interest-only, and option ARM
Total Single-Family
Total Multifamily
Total Single-Family and Multifamily
(In millions)
Single-Family:
20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable-rate
Alt-A, interest-only, and option ARM
Total Single-Family
Total Multifamily
Total Single-Family and Multifamily
Non-accrual Amortized Cost Basis
January 1, 2021
December 31, 2021
Interest Income
Recognized(1)
Year Ended
December 31, 2021
$12,151
696
193
637
13,677
—
$13,677
$17,013
844
233
560
18,650
—
$18,650
$197
7
1
7
212
—
$212
Non-accrual Amortized Cost Basis
January 1, 2020
December 31, 2020
Interest Income
Recognized(1)
Year Ended
December 31, 2020
$5,598
242
91
439
6,370
13
$6,383
$12,151
696
193
637
13,677
—
$13,677
$235
10
3
10
258
—
$258
(1)
Represents the amount of payments received during the period, including those received while the loans were on accrual status, for the held-for-investment loans on
non-accrual status as of period end.
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167
Financial Statements
Notes to the Consolidated Financial Statements | Note 4
The table below provides the amount of accrued interest receivable, net presented on our consolidated balance sheets and the
amount of accrued interest receivable related to loans on non-accrual status at the end of the periods that is charged off.
Table 4.5 - Accrued Interest Receivable, Net and Related Charge-offs
Accrued Interest Receivable, Net
Accrued Interest Receivable Related Charge-offs
December 31, 2021
December 31, 2020
Year Ended
December 31, 2021
Year Ended
December 31, 2020
$7,065
125
$7,292
139
($742)
—
($333)
—
(In millions)
Single-Family loans
Multifamily loans
Credit Quality
Single-Family
The current LTV ratio is one key factor we consider when estimating our allowance for credit losses for single-family loans. As
current LTV ratios increase, the borrower's equity in the home decreases, which may negatively affect the borrower's ability to
refinance (outside of our relief refinance programs) or to sell the property for an amount at or above the balance of the
outstanding loan.
The tables below present the amortized cost basis of single-family held-for-investment loans by current LTV ratio. Our current
LTV ratios are estimates based on available data through the end of each period presented. For reporting purposes:
n Loans within the Alt-A category continue to be presented in that category following modification, even though the borrower
may have provided full documentation of assets and income to complete the modification and
n Loans within the option ARM category continue to be presented in that category following modification, even though the
modified loan no longer provides for optional payment provisions.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 4
Table 4.6 - Amortized Cost Basis of Single-Family Held-for-Investment Loans by Current LTV Ratio and Vintage
(In millions)
Current LTV Ratio:
20- and 30-year or more, amortizing fixed-rate
≤ 60
> 60 to 80
> 80 to 90
> 90 to 100
> 100
December 31, 2021
Year of Origination
2021
2020
2019
2018
2017
Prior
Total
$260,244 $397,680 $77,812 $39,143 $61,434 $405,467 $1,241,780
911,306
467,193 334,560
156,560
28,944
124,074
68,443
1,083
66,851
435
2
75
60,570
2,034
126
4
12,715
208
29
18
18,914
482
45
8
17,354
818
309
328
Total 20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
918,437 762,269 140,546
58,592
74,404 424,276 2,378,524
≤ 60
> 60 to 80
> 80 to 90
> 90 to 100
> 100
Total 15-year amortizing fixed-rate
Adjustable-rate
≤ 60
> 60 to 80
> 80 to 90
> 90 to 100
> 100
Total Adjustable-rate
Alt-A, Interest-only, and option ARM
≤ 60
> 60 to 80
> 80 to 90
> 90 to 100
> 100
Total Alt-A, Interest-only, and option ARM
93,732 111,899
18,834
52,521
168
3,785
2
598
—
4
17,335
1,136
6
1
—
7,161
137
2
1
1
13,602
54
2
1
1
78,001
36
3
2
3
321,730
72,718
3,966
605
9
150,640 130,903
18,478
7,302
13,660
78,045
399,028
2,054
2,435
417
116
1
5,023
1,554
535
16
—
—
2,105
—
—
—
—
—
—
—
—
—
—
—
—
727
209
6
—
—
942
—
—
—
—
—
—
543
90
3
—
—
636
—
—
—
—
—
—
1,657
190
4
—
—
10,011
151
2
1
—
1,851
10,165
—
—
—
—
—
—
7,506
644
64
29
18
8,261
16,546
3,610
448
117
1
20,722
7,506
644
64
29
18
8,261
Total Single-Family loans
$1,074,100 $895,277 $159,966 $66,530 $89,915 $520,747 $2,806,535
Total for all loan product types by Current LTV ratio:
≤ 60
> 60 to 80
> 80 to 90
> 90 to 100
> 100
$356,030 $511,133 $95,874 $46,847 $76,693 $500,985 $1,587,562
988,278
522,149 353,929
161,038
29,128
128,276
69,194
1,085
67,565
12,959
214
30
61,915
2,046
127
19,141
487
46
18,185
887
341
80
2
4
9
19
349
463
Total Single-Family loans
$1,074,100 $895,277 $159,966 $66,530 $89,915 $520,747 $2,806,535
FREDDIE MAC | 2021 Form 10-K
169
Financial Statements
Notes to the Consolidated Financial Statements | Note 4
(In millions)
Current LTV Ratio:
20- and 30-year or more, amortizing fixed-rate
≤ 60
> 60 to 80
> 80 to 100
> 100
December 31, 2020
Year of Origination
2020
2019
2018
2017
2016
Prior
Total
$203,333 $52,820 $33,139 $64,834 $115,978 $431,406
$901,510
437,107 141,094
64,236
59,110
40,614
44,636
786,797
206,457
53,926
8,822
2,117
654
3,983
275,959
202
7
25
64
61
948
1,307
Total 20- and 30-year or more, amortizing fixed-rate
847,099 247,847 106,222 126,125 157,307 480,973 1,965,573
15-year amortizing fixed-rate
≤ 60
> 60 to 80
> 80 to 100
> 100
78,269
17,753
9,914
19,650
29,916
83,842
239,344
67,904
12,169
2,195
961
215
135
83,579
8,553
21
400
—
17
3
12
5
9
3
17
7
9,008
39
Total 15-year amortizing fixed-rate
154,747
30,322
12,129
20,628
30,143
84,001
331,970
Adjustable-rate
≤ 60
> 60 to 80
> 80 to 100
> 100
Total adjustable-rate
Alt-A, Interest-only, and option ARM
≤ 60
> 60 to 80
> 80 to 100
> 100
Total Alt-A, interest-only, and option ARM
1,427
1,403
232
—
850
877
125
—
731
537
34
—
2,429
2,042
12,993
20,472
1,061
329
528
4,735
29
—
2
—
8
1
430
1
3,062
1,852
1,302
3,519
2,373
13,530
25,638
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,620
1,818
314
58
8,620
1,818
314
58
10,810
10,810
Total Single-Family loans
$1,004,908 $280,021 $119,653 $150,272 $189,823 $589,314 $2,333,991
Total for all loan product types by Current LTV ratio:
≤ 60
> 60 to 80
> 80 to 100
> 100
$283,029 $71,423 $43,784 $86,913 $147,936 $536,861 $1,169,946
506,414 154,140
66,968
61,132
41,158
47,117
876,929
215,242
54,451
8,873
2,158
665
4,322
285,711
223
7
28
69
64
1,014
1,405
Total Single-Family loans
$1,004,908 $280,021 $119,653 $150,272 $189,823 $589,314 $2,333,991
Multifamily
The table below presents the amortized cost basis of our multifamily held-for-investment loans, by credit quality indicator,
based on available data through the end of each period presented. These indicators involve significant management judgment
and are defined as follows:
n "Pass" is current and adequately protected by the borrower's current financial strength and debt service capacity;
n "Special mention" has administrative issues that may affect future repayment prospects but does not have current credit
weaknesses. In addition, this category generally includes loans in forbearance;
n "Substandard" has a weakness that jeopardizes the timely full repayment; and
n "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing
conditions.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 4
Table 4.7 - Amortized Cost Basis of Multifamily Held-for-Investment Loans by Credit Quality Indicator and Vintage
December 31, 2021
Year of Origination
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Total
$6,955
$7,116
$5,273
$979
$610
$2,795
$2,275
$26,003
—
—
—
40
62
—
372
171
—
—
4
—
3
2
—
42
44
—
—
—
—
457
283
—
$6,955
$7,218
$5,816
$983
$615
$2,881
$2,275
$26,743
December 31, 2020
Year of Origination
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Total
$7,486
$6,491
$1,075
—
—
—
$7,486
524
—
—
$7,015
115
6
—
$1,196
$722
—
41
—
$763
$590
8
—
—
$598
$2,715
$2,024
$21,103
108
72
—
$2,895
—
—
—
$2,024
755
119
—
$21,977
(In millions)
Category:
Pass
Special mention
Substandard
Doubtful
Total
(In millions)
Category:
Pass
Special mention
Substandard
Doubtful
Total
Past Due Status
The table below presents the amortized cost basis of our single-family and multifamily held-for-investment loans, by payment
status. Pursuant to FHFA guidance and the CARES Act, we have offered mortgage relief options for borrowers affected by the
COVID-19 pandemic. Among other things, we have offered forbearance to single-family and multifamily borrowers experiencing
a financial hardship, either directly or indirectly, related to the COVID-19 pandemic. We report single-family loans in forbearance
as past due during the forbearance period to the extent that payments are past due based on the loan's original contractual
terms, irrespective of the forbearance plan, based on the information reported to us by our servicers. We report multifamily
loans in forbearance as current as long as the borrower is in compliance with the forbearance agreement, including the agreed
upon repayment plan, even if payments are past due based on the loan's original contractual terms.
Table 4.8 - Amortized Cost Basis of Held-for-Investment Loans by Payment Status
(In millions)
Single-Family:
20- and 30-year or more, amortizing
fixed-rate
December 31, 2021
One
Month
Past Due
Two
Months
Past Due
Three Months or
More Past Due,
or in Foreclosure(1)
Total
Current
Three Months or
More Past Due
and Accruing
Interest
Non-accrual
With No
Allowance(2)
$2,338,076 $14,833
$3,214
$22,401 $2,378,524
$5,784
$857
15-year amortizing fixed-rate
396,030
1,550
230
1,218
399,028
Adjustable-rate
Alt-A, interest-only, and option ARM
20,302
7,450
105
175
31
58
284
578
20,722
8,261
Total Single-Family
Total Multifamily(3)
2,761,858
16,663
3,533
24,481 2,806,535
26,743
—
—
—
26,743
Total Single-Family and Multifamily
$2,788,601 $16,663
$3,533
$24,481 $2,833,278
392
54
41
6,271
—
$6,271
Referenced footnotes are included after the prior period table.
FREDDIE MAC | 2021 Form 10-K
13
8
94
972
—
$972
171
Financial Statements
Notes to the Consolidated Financial Statements | Note 4
(In millions)
Single-Family:
20- and 30-year or more, amortizing
fixed-rate
December 31, 2020
One
Month
Past Due
Two
Months
Past Due
Three Months or
More Past Due,
or in Foreclosure(1)
Total
Current
Three Months or
More Past Due
and Accruing
Interest
Non-accrual
With No
Allowance(2)
$1,891,981 $15,798
$5,941
$51,853 $1,965,573
$40,162
$648
15-year amortizing fixed-rate
326,651
1,439
Adjustable-rate
Alt-A, interest-only, and option ARM
24,483
9,227
192
292
429
79
130
3,451
331,970
884
25,638
1,161
10,810
2,723
690
538
Total Single-Family
Total Multifamily(3)
2,252,342
17,721
6,579
57,349 2,333,991
44,113
21,977
—
—
—
21,977
—
11
5
115
779
—
Total Single-Family and Multifamily
$2,274,319 $17,721
$6,579
$57,349 $2,355,968
$44,113
$779
(1)
(2)
Includes $0.7 billion and $1.0 billion of loans that were in the process of foreclosure as of December 31, 2021 and December 31, 2020, respectively.
Loans with no allowance for loan losses primarily represent those loans that were previously charged-off and therefore the collateral value is sufficiently in excess of
the amortized cost to result in recovery of the entire amortized cost basis if the property were foreclosed upon or otherwise subject to disposition. We exclude the
amounts of allowance for credit losses on accrued interest receivable and advances of pre-foreclosure costs when determining whether a loan has an allowance for
credit losses.
(3)
As of December 31, 2021 and December 31, 2020, includes $0.4 billion and $0.7 billion of multifamily loans in forbearance that are reported as current.
At the instruction of FHFA, we purchase loans from trusts when they reach 24 months of delinquency, except for loans that
meet certain criteria (e.g., permanently modified or foreclosure referral), which may be purchased sooner. Many delinquent
loans are purchased from trusts before they reach 24 months of delinquency under one of the exceptions provided. We must
obtain FHFA’s approval to implement changes to our policy to purchase loans from trusts. We implemented the 24-month
policy on January 1, 2021. Prior to that time, in accordance with FHFA instruction, we generally purchased loans from trusts if
they were delinquent for 120 days, subject to certain exceptions.
When we purchase loans from the trust, we record an extinguishment of the corresponding portion of the debt securities of the
consolidated trusts and we reclassify the loans from mortgage loans held-for-investment by consolidated trusts to mortgage
loans held-for-investment by Freddie Mac. We purchased $4.2 billion and $5.6 billion in UPB of loans from consolidated trusts
(or purchased delinquent loans associated with other mortgage-related guarantees) during the years ended December 31, 2021
and December 31, 2020, respectively.
Troubled Debt Restructurings
A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial
difficulties is considered a TDR. A concession is deemed granted when, as a result of the restructuring, we do not expect to
collect all amounts due, including interest accrued, at the original contractual interest rate. As appropriate, we also consider
other qualitative factors in determining whether a concession is deemed granted, including whether the borrower's modified
interest rate is consistent with that of a non-troubled borrower. We do not consider restructurings that result in an insignificant
delay in payment to be a concession. We generally consider a delay in monthly amortizing payments of three months or less to
be insignificant. A concession typically includes one or more of the following being granted to the borrower:
n A trial period where the expected permanent modification will change our expectation of collecting all amounts due at the
original contract rate;
n A delay in payment that is more than insignificant;
n A reduction in the contractual interest rate;
n Interest forbearance for a period of time that is more than insignificant or forgiveness of accrued but uncollected interest
amounts;
n Principal forbearance that is more than insignificant; and
n Discharge of the borrower's obligation in Chapter 7 bankruptcy.
The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the unique facts and
circumstances of each loan. This assessment considers qualitative factors such as whether the borrower's modified interest
rate is consistent with that of a non-troubled borrower having a similar credit profile at the time of modification. In certain cases,
for maturing loans we may provide short-term loan extensions of up to one year with no changes to the effective borrowing
rate. In other cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such
as reducing the interest rate, extending the maturity for longer than one year, providing principal forbearance, or some
combination of these terms.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 4
Section 4013 of the CARES Act provides temporary relief from the accounting and reporting requirements for TDRs for certain
loan modifications related to COVID-19. Specifically, the CARES Act provides that a qualifying financial institution may elect to
suspend:
n The requirements under U.S. GAAP for certain loan modifications that would otherwise be categorized as a TDR and
n Any determination that such loan modifications would be considered a TDR, including the related impairment for
accounting purposes.
The relief provided by Section 4013 of the CARES Act has been extended by the Consolidated Appropriations Act, 2021. As a
result, Section 4013 of the CARES Act applies to any modification related to an economic hardship as a result of the COVID-19
pandemic, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement
that defers or delays payment of principal or interest, that occurs during the period beginning on March 1, 2020 and ending on
January 1, 2022 for a loan that was not more than 30 days past due as of December 31, 2019. We have elected to suspend
TDR accounting for eligible modifications under Section 4013 of the CARES Act.
In addition, Section 4022 and Section 4023 of the CARES Act require us to offer forbearance to certain single-family and
multifamily borrowers, respectively, with an economic hardship related to the COVID-19 pandemic. Guidance issued by federal
banking regulators and endorsed by the FASB staff has indicated that government-mandated modification or deferral programs
related to the COVID-19 pandemic should not be accounted for as TDRs as the lender did not choose to grant a concession to
the borrower. We have concluded that the forbearance programs we are offering under Section 4022 and Section 4023 of the
CARES Act are government-mandated deferral programs related to the COVID-19 pandemic, and therefore we will not account
for such modifications as TDRs.
We recognize an allowance for credit losses on TDRs as discussed in Note 6. We recognize interest income at the modified
interest rate, subject to our non-accrual policy as discussed in the Interest Income section above, with all other changes in the
present value of expected future cash flows being recognized as a component of benefit (provision) for credit losses on our
consolidated statements of comprehensive income (loss). We report single-family loans with modifications that were classified
as TDRs based on the original product categories of the loans before modifications. The tables below include loans that were
reclassified from held-for-investment to held-for-sale after TDR modifications.
The table below provides details of our single-family loan modifications that were classified as TDRs during the periods
presented.
Table 4.9 - Single-Family TDR Modification Metrics
Percentage of single-family loan modifications that were classified as TDRs with:
Interest rate reductions and related term extensions
Principal forbearance and related interest rate reductions and term extensions
Average coupon interest rate reduction
Average months of term extension
2021
2020
2019
13%
33
0.4 %
155
15%
22
0.3 %
179
9%
23
0.1 %
180
Substantially all of our completed single-family loan modifications classified as a TDR during 2021 resulted in a modified loan
with a fixed interest rate.
FREDDIE MAC | 2021 Form 10-K
173
Financial Statements
Notes to the Consolidated Financial Statements | Note 4
The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs. Loans classified
as a TDR in one period may be subject to further action (such as a modification or remodification) in a subsequent period. In
such cases, the subsequent action would not be reflected in the table below since the loan would already have been classified
as a TDR.
Table 4.10 - TDR Activity
(Dollars in millions)
Single-Family(1)(2):
Year Ended December 31,
2021
2020
2019
Number of
Loans
Post-TDR
Amortized
Cost Basis
Number of
Loans
Post-TDR
Amortized
Cost Basis
Number of
Loans
Post-TDR
Amortized
Cost Basis
20- and 30-year or more, amortizing fixed-rate
13,448
$2,368
22,471
$4,169
25,924
$4,331
15-year amortizing fixed-rate
Adjustable-rate
Alt-A, interest-only, and option ARM
Total Single-Family
Multifamily
1,620
172
508
167
31
65
2,584
334
1,300
283
59
204
3,018
529
1,523
296
86
219
15,748
2,631
26,689
4,715
30,994
4,932
—
—
—
—
—
—
(1)
(2)
The pre-TDR amortized cost basis for single-family loans initially classified as TDRs during the years ended December 31, 2021, December 31, 2020, and December
31, 2019 was $2.6 billion, $4.7 billion, and $4.9 billion, respectively.
Includes certain bankruptcy events and forbearance plans, repayment plans, payment deferral plans, and modification activities that do not qualify for the temporary
relief related to TDRs provided by the CARES Act, based on servicer reporting at the time of the TDR event.
The table below presents the volume of our TDR modifications that experienced payment defaults (i.e., loans that became two
months delinquent or completed a loss event) during the applicable periods and had completed a modification during the year
preceding the payment default.
Table 4.11 - Payment Defaults of Completed TDR Modifications
(Dollars in millions)
Single-Family:
Year Ended December 31,
2021
2020
2019
Number of
Loans
Post-TDR
Amortized
Cost Basis
Number of
Loans
Post-TDR
Amortized
Cost Basis
Number of
Loans
Post-TDR
Amortized
Cost Basis
20- and 30-year or more, amortizing fixed-rate
3,044
$535
10,339
$1,869
13,428
$1,702
15-year amortizing fixed-rate
Adjustable-rate
Alt-A, interest-only, and option ARM
Total Single-Family
Multifamily
121
30
337
3,532
—
13
5
53
606
—
482
130
749
58
19
144
451
132
871
36
15
129
11,700
2,090
14,882
1,882
—
—
—
—
In addition to modifications, loans may be classified as TDRs as a result of other loss mitigation activities (i.e., repayment plans,
forbearance plans, payment deferral plans, or loans in modification trial periods). During the years ended December 31, 2021,
December 31, 2020, and December 31, 2019, 2,790, 3,862, and 5,158, respectively, of such loans (with a post-TDR amortized
cost basis of $0.4 billion, $0.6 billion, and $0.6 billion, respectively) experienced a payment default within a year after the loss
mitigation activity occurred.
Non-Cash Investing and Financing Activities
During the years ended December 31, 2021, December 31, 2020, and December 31, 2019, we acquired $705.4 billion, $435.5
billion, and $238.4 billion, respectively, of loans held-for-investment in exchange for the issuance of debt securities of
consolidated trusts in guarantor swap transactions. We received approximately $263.9 billion, $141.7 billion, and $50.0 billion
of loans held-for-investment from sellers during the years ended December 31, 2021, December 31, 2020, and December 31,
2019, respectively, to satisfy advances to lenders that were recorded in other assets on our consolidated balance sheets.
FREDDIE MAC | 2021 Form 10-K
174
Financial Statements
NOTE 5
Notes to the Consolidated Financial Statements | Note 5
Guarantees and Other Off-Balance Sheet Credit Exposures
We generate revenue through our guarantee activities by agreeing to absorb the credit risk associated with certain financial
instruments that are owned or held by third parties. In exchange for providing this guarantee, we receive an upfront or ongoing
guarantee fee that is commensurate with the risks assumed and that will, over the long-term, provide us with cash flows that
are expected to exceed the credit-related and administrative expenses of the underlying financial instruments. The profitability
of our guarantee activities may vary and will be dependent on our guarantee fee and the actual credit performance of the
underlying financial instruments that we have guaranteed.
Guarantees to consolidated entities are eliminated in consolidation and therefore are not separately recognized on our
consolidated balance sheets. The accounting treatment for guarantees provided to nonconsolidated entities or other third
parties will depend on whether the guarantee contract qualifies as a financial guarantee.
If the guarantee contract qualifies as a financial guarantee and exposes us to incremental credit risk, we will recognize both a
guarantee obligation at fair value and the consideration we receive for providing the guarantee, which typically consists of a
guarantee asset that represents the fair value of future guarantee fees. As a practical expedient, the measurement of the fair
value of the guarantee obligation is set equal to the consideration we receive to provide the guarantee, and no gain or loss is
recognized upon issuance of the guarantee. Subsequently, we recognize changes in the fair value of the guarantee asset in
current period earnings and amortize the guarantee obligation into earnings as we are released from risk under the guarantee.
We also recognize an allowance for expected credit losses over the contractual period in which we are exposed to credit risk.
See Note 6 for additional information on our allowance for credit losses.
If the guarantee contract provided to nonconsolidated entities does not qualify as a financial guarantee, that contract will
generally be accounted for as a derivative instrument and measured at fair value with changes in fair value recognized
immediately in earnings.
Guarantee Activities
Our principal guarantee activities include the following:
Securitization Activity Guarantees
For substantially all of our securitization transactions, we guarantee the principal and interest payments on some or all of the
issued beneficial interests. Typically, these guarantees will cover the senior classes of beneficial interests issued by the
securitization trust(s). Securitization activity guarantees provided to nonconsolidated trusts will generally qualify and be
accounted for as financial guarantees. Our maximum exposure on these guarantees is generally limited to the UPB of the
beneficial interests that we have guaranteed.
Guarantees of Fannie Mae Securities
We have the ability to commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products. We extend our
guarantee of these products to cover principal and interest that are payable from the underlying Fannie Mae collateral. Because
both Freddie Mac and Fannie Mae are under the common control of FHFA, and due to Fannie Mae’s status as a GSE and the
funding commitment available to it through its senior preferred stock purchase agreement with Treasury, we view the likelihood
of being required to perform on our guarantee of Fannie Mae collateral as remote and do not charge an incremental guarantee
fee to include Fannie Mae securities in our resecuritization products. Thus, we do not record a guarantee obligation with
respect to Fannie Mae securities backing Freddie Mac resecuritization products.
Other Mortgage-Related Guarantees
In certain circumstances, we provide a credit guarantee of mortgage-related assets held by third parties, in exchange for a
guarantee fee, without securitizing those assets. These guarantees consist of the following:
n Long-term standby commitments of single-family loans which obligate us to purchase the covered loans when they
become seriously delinquent. Periodically, certain of our customers seek to terminate long-term standby commitments and
simultaneously enter into guarantor swap transactions to obtain our securities backed by many of the same loans. During
2021 and 2020, we guaranteed $4.3 billion and $4.2 billion, respectively, of loans under new long-term standby
commitments and
n Guarantees of the timely payment of principal and interest for certain multifamily bonds, which primarily consist of
multifamily housing revenue bonds that were issued by HFAs. During 2021 and 2020, we guaranteed $0.7 billion and $1.4
billion, respectively, of multifamily bonds.
FREDDIE MAC | 2021 Form 10-K
175
Financial Statements
Notes to the Consolidated Financial Statements | Note 5
Our other mortgage-related guarantees will generally qualify and be accounted for as financial guarantees. Our maximum
exposure on these guarantees is limited to the UPB of the mortgage-related assets that we have guaranteed.
Other Guarantees
Other guarantees that do not qualify as financial guarantees are generally accounted for as derivative instruments and
measured at fair value. These guarantees primarily include:
n Certain interest-rate guarantees related to our securitization activities that do not qualify as financial guarantees;
n Certain market value guarantees, including written options and written swaptions; and
n Guarantees of third-party derivative instruments.
Other Indemnifications
In connection with certain business transactions, we may provide indemnification to counterparties for claims arising out of
breaches of certain obligations (e.g., those arising from representations and warranties) in contracts entered into in the normal
course of business. Our assessment is that the risk of any material loss from such a claim for indemnification is remote and
there are no significant probable and estimable losses associated with these contracts. In addition, we provided indemnification
for litigation defense costs to certain former officers who are subject to ongoing litigation. See Note 18 for information on
ongoing litigation. These indemnification obligations will generally be accounted for and qualify as financial guarantees. The
recognized liabilities on our consolidated balance sheets related to indemnifications were not significant at both December 31,
2021 and December 31, 2020.
The table below shows our maximum exposure, recognized liability, and maximum remaining term of our recognized
guarantees to nonconsolidated VIEs and other third parties. This table does not include our unrecognized guarantees, such as
guarantees to consolidated VIEs or to resecuritization trusts that do not expose us to incremental credit risk. The maximum
exposure disclosed in the table is not representative of the actual loss we are likely to incur, based on our historical loss
experience and after consideration of proceeds from related collateral liquidation, including possible recoveries under credit
enhancements.
December 31, 2021
December 31, 2020
Maximum
Exposure(1)
Recognized
Liability(2)
Maximum
Remaining
Term
Maximum
Exposure(1)
Recognized
Liability(2)
Maximum
Remaining
Term
Table 5.1 - Financial Guarantees
(Dollars in millions, terms in years)
Single-Family:
Securitization activity guarantees
Other mortgage-related guarantees
Total Single-Family
Multifamily:
$27,975
10,588
$38,563
$398
251
$649
Securitization activity guarantees
$317,006
$4,663
Other mortgage-related guarantees
Total Multifamily
Other guarantees
Fannie Mae securities backing Freddie Mac
resecuritization products
10,456
$327,462
$69,799
404
$5,067
$1,652
111,150
—
39
30
38
32
30
40
$29,739
9,215
$38,954
$401
193
$594
$287,334
$4,031
10,721
$298,055
$47,703
425
$4,456
$794
85,841
—
39
30
39
33
30
41
(1)
The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of proceeds from
related collateral liquidation and possible recoveries under credit enhancements. For other guarantees, this amount primarily represents the notional value or UPB of
our interest-rate and market value guarantees and guarantees of third-party derivatives. For certain of our other guarantees, our exposure may be unlimited;
however, we generally reduce our exposure through separate derivative contracts with third parties.
(2)
For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our consolidated balance sheets
and excludes our allowance for credit losses on off-balance sheet credit exposures. For other guarantees, this amount represents the fair value of the contract.
FREDDIE MAC | 2021 Form 10-K
176
Financial Statements
Notes to the Consolidated Financial Statements | Note 5
The table below shows the payment status of the mortgage loans underlying our guarantees that are not measured at fair value.
Table 5.2 – UPB of Loans Underlying Our Guarantees by Payment Status
(In millions)
Single-Family
Multifamily(2)
Total
(In millions)
Single-Family
Multifamily(2)
Total
December 31, 2021
Current
$38,964
370,541
$409,505
One
Month
Past Due
Two
Months
Past Due
Three Months or
More Past Due,
or in Foreclosure
$2,040
47
$2,087
$692
7
$699
$2,341
317
$2,658
Total(1)
$44,037
370,912
$414,949
December 31, 2020
Current
$37,187
339,614
$376,801
One
Month
Past Due
Two
Months
Past Due
Three Months or
More Past Due,
or in Foreclosure
$2,204
87
$2,291
$945
62
$1,007
$3,922
557
$4,479
Total(1)
$44,258
340,320
$384,578
(1)
(2)
Loan-level payment status is not available for certain guarantees totaling $0.4 billion and $0.7 billion as of December 31, 2021 and December 31, 2020,
respectively, and therefore is not included in the tables above.
As of December 31, 2021 and December 31, 2020, includes $1.3 billion and $6.9 billion, respectively, of multifamily loans in forbearance that are reported as
current.
Other Off-Balance Sheet Credit Exposures
In addition to our guarantees, we enter into other agreements that expose us to off-balance sheet credit risk, primarily related to
our multifamily business, including certain purchase commitments that are not accounted for as derivative instruments, liquidity
guarantees, unfunded lending arrangements and other similar commitments. These agreements may require us to transfer cash
before or upon settlement of our contractual obligation. We recognize an allowance for credit losses for those agreements not
measured at fair value or otherwise recognized in the financial statements. The total notional value of off-balance sheet credit
exposures was $14.5 billion and $15.4 billion at December 31, 2021 and December 31, 2020, respectively. See Note 6 for
additional discussion of our allowance for credit losses on our off-balance sheet credit exposures.
We also have certain multifamily purchase commitments totaling $6.2 billion and $5.5 billion at December 31, 2021 and
December 31, 2020, respectively, that are excluded from the amounts above as they are not included in our allowance for
credit losses. We have elected the fair value option for certain of these commitments.
Credit Enhancements
We obtain credit protection for most of our securitization activity guarantees through the creation of unguaranteed
subordinated securities issued by nonconsolidated securitization trusts that absorb first losses prior to us having to perform on
our guarantee of the senior securities. For our Multifamily guarantees, subordination is our principal credit enhancement. As of
December 31, 2021 and December 31, 2020, our maximum coverage provided by subordination for our Multifamily guarantees
in nonconsolidated VIEs was $43.9 billion and $42.8 billion, respectively.
We also have other types of credit enhancements, primarily related to our Multifamily guarantees, in the form of collateral
posting requirements, indemnification, pool insurance, bond insurance, recourse, and other similar arrangements. These credit
enhancements, along with the proceeds received from the sale of the underlying mortgage collateral, are designed to recover
all or a portion of the amounts paid under our financial guarantee contracts. For additional information on credit enhancements,
see Note 6 and Note 11.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
NOTE 6
Allowance for Credit Losses
On January 1, 2020, we adopted CECL. The general objective of CECL is to recognize an allowance for credit losses that is
deducted from or added to the amortized cost basis of the financial asset to present the net amount expected to be collected
on the financial asset on the balance sheet. Under CECL, an allowance for credit losses is recognized before a loss event has
been incurred, which results in earlier recognition of credit losses compared to the previous incurred loss methodology.
The table below summarizes changes in our allowance for credit losses.
Table 6.1 - Details of the Allowance for Credit Losses
(In millions)
Beginning balance(1)
Provision (benefit) for
credit losses
Charge-offs
Recoveries collected
Other(2)
December 31, 2021
December 31, 2020
December 31, 2019
Single-
Family
Multifamily
Total
Single-
Family
Multifamily
Total
Single-
Family
Multifamily
Total
$6,353
$200
$6,553
$5,233
$68
$5,301
$6,176
$15
$6,191
(919)
(122)
(1,041)
1,320
132
1,452
(749)
3
(746)
(1,107)
197
916
—
—
—
(1,107)
197
916
(592)
210
182
—
—
—
(592)
210
182
(1,737)
452
126
—
—
—
(1,737)
452
126
Ending balance
$5,440
$78
$5,518
$6,353
$200
$6,553
$4,268
$18
$4,286
Components of the ending balance of the allowance for credit losses:
Mortgage loans held-
for-investment
Advances of pre-
foreclosure costs
Accrued interest
receivable on mortgage
loans
Off-balance sheet credit
exposures
$4,913
$34
$4,947
$5,628
$104
$5,732
$4,222
$12
$4,234
450
—
450
536
—
536
—
—
24
—
53
44
24
97
140
—
140
—
—
49
96
145
46
6
—
—
52
Total
$5,440
$78
$5,518
$6,353
$200
$6,553
$4,268
$18
$4,286
(1)
(2)
Includes transition adjustments recognized upon the adoption of CECL on January 1, 2020.
Primarily includes capitalization of past due interest related to non-accrual loans that receive payment deferral plans and loan modifications.
n 2021 vs. 2020 - A benefit for credit losses in 2021 compared to a provision for credit losses in 2020 driven by the following
factors:
l A reserve release due to reduced expected credit losses related to COVID-19 during 2021 as economic conditions
improved. Our provision for credit losses increased during 2020 due to the increase in expected credit losses related
to the economic effects of the pandemic.
l This was partially offset by an increase in expected losses on new single-family loans due to growth in our Single-
Family mortgage portfolio. We recognize expected credit losses at the time of loan acquisition.
n 2020 vs. 2019 - A provision for credit losses in 2020 compared to a benefit for credit losses in 2019 driven by the following
factors:
l A provision for credit losses due to:
–
–
Increased expected credit losses related to COVID-19 - Our provision for credit losses increased due to the
increase in expected credit losses related to the economic effects of the COVID-19 pandemic.
Portfolio growth - The expected losses on new single-family loans increased due to growth in our Single-Family
mortgage portfolio. We recognize expected credit losses at the time of loan acquisition.
l This was partially offset by a decrease in expected losses driven by growth in realized and forecasted house prices
and declines in forecasted interest rates.
In addition, charge-offs increased in 2021 compared to 2020 due to an increase in the number of loans we placed on non-
accrual status. Charge-offs decreased in 2020 compared to 2019 due to a lower volume of transfers of single-family loans from
held-for investment to held-for-sale.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
Allowance for Credit Losses Methodology
Upon adoption of CECL on January 1, 2020, we began applying the below allowance for credit losses methodologies. We
recognize changes in the allowance for credit losses through benefit (provision) for credit losses on our consolidated
statements of comprehensive income (loss).
Mortgage Loans Held-for-Investment
Our allowance for credit losses on mortgage loans pertains to single-family and multifamily loans classified as held-for-
investment for which we have not elected the fair value option. We measure the allowance for credit losses on a pooled basis
when our loans share similar risk characteristics. We record charge-offs in the period in which a loan is deemed uncollectible.
Proceeds received in excess of amounts previously written off are recorded as a decrease to REO operations expense on our
consolidated statements of comprehensive income (loss).
Single-Family
We estimate the allowance for credit losses for single-family loans on a pooled basis using a discounted cash flow model that
evaluates a variety of factors to estimate the cash flows we expect to collect. If we determine that foreclosure on the underlying
collateral is probable, we measure the allowance for credit losses for single-family loans based upon the fair value of the
collateral, less costs to sell, adjusted for estimated proceeds from attached credit enhancements.
The discounted cash flow model we use to estimate the single-family loan allowance for credit losses forecasts cash flows over
the loan’s remaining contractual term, adjusted for expectations of prepayments and TDRs we reasonably expect will occur. As
a result, we do not revert to historical loss information for single-family loans. Cash flow estimates are discounted at the loan’s
prepayment-adjusted effective interest rate, which is adjusted for projections in the underlying benchmark interest rate for
adjustable-rate loans. We project cash flows we expect to collect using our historical experience, such as historical default
rates and severity of loss, based on loan characteristics, such as current LTV ratios, delinquency status, geography, and
borrowers' credit scores. These cash flow estimates are adjusted for current and future economic forecasts, such as current
and forecasted interest rates and house price growth rates, and estimated recoveries from loss mitigation activities, attached
credit enhancements, and disposition of collateral, less estimated disposition costs.
Our estimate of expected credit losses is sensitive to changes in forecasted house price growth rates, which affect both the
probability of default and severity of expected credit losses, and changes in forecasted interest rates, as declining (increasing)
interest rates typically result in higher (lower) expected prepayments and a shorter (longer) estimated loan life, and therefore
lower (higher) expected credit losses. Our forecast of house price growth rates leverages an internally based model and uses a
nationwide house price growth forecast for the next three years. A Monte Carlo simulation generates many possible house
price scenarios for up to 40 years for each metropolitan statistical area (MSA). These scenarios are used to estimate loan-level
expected future cash flows and credit losses based on each loan’s individual characteristics. Our forecast of interest rates
incorporates various interest rate scenarios over the remaining contractual life of the loan based on current interest rates and
implied market volatilities.
These projections require significant management judgment. We rely on third parties to provide certain model inputs used in
our projections. At loan delivery, the seller provides us with loan data, which includes borrower and loan characteristics and
underwriting information. Each subsequent month, the servicers provide us with monthly loan-level servicing data, including
delinquency and loss information.
We measure an allowance for credit losses for TDR loans on a pooled basis when they share similar risk characteristics, using
either the discounted cash flow approach discussed above or based on the fair value of the collateral, less costs to sell when
foreclosure is probable. When using a discounted cash flow approach, the present value of the expected future cash flows is
discounted at the loan's prepayment-adjusted effective interest rate just prior to the restructuring, with no adjustments made to
the effective interest rate for changes in the timing of expected cash flows subsequent to the restructuring.
We review the outputs of our model by considering qualitative factors such as current economic events and other external
factors, including the economic effects of the COVID-19 pandemic and the impact of associated government relief programs, to
determine whether the model outputs are consistent with our expectations. Additionally, we incorporate expected credit losses
for TDRs that are reasonably expected to occur and the incidence of redefault we have experienced on similar loans that have
completed a loan modification. Further management adjustments may be necessary to take into consideration the qualitative
factors that have occurred but that are not yet reflected in the factors used to derive the model outputs or the uncertainty
inherent in our projections. Significant judgment is exercised in making these adjustments.
Attached credit enhancements are obtained contemporaneously with, and in contemplation of, the origination of a financial
instrument, and effectively travel with the financial instrument upon sale. Attached credit enhancements include primary
mortgage insurance, which provides us with loan-level protection up to a specified percentage.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
Expected recoveries from attached credit enhancements are considered in determining the allowance for loan losses as
discussed above, resulting in a reduction in the recognized provision for credit losses by the amount of the expected
recoveries. Subsequent to foreclosure and charge-off of the allowance for credit losses, we reclassify expected recoveries from
attached credit enhancements that were previously offset against the allowance for credit losses as separate receivables.
Multifamily
We estimate the allowance for credit losses for multifamily loans using a loss-rate method to estimate the net amount of cash
flows we expect to collect. The loss-rate method is based on a probability of default and loss given default framework that
estimates credit losses by considering a loan’s underlying characteristics and current and forecasted economic conditions.
Loan characteristics considered by our model include vintage, loan term, current DSCR, current LTV ratio, occupancy rate, and
interest rate hedges. We generally forecast economic conditions over a reasonable and supportable two-year period prior to
reverting to historical averages at the model input level over a five-year period, using a linear reversion method. We also
consider as model inputs expected prepayments, contractually specified extensions, modifications we reasonably expect will
occur, expected recoveries from collateral posting requirements, and the expected recoveries from attached credit
enhancements.
Our loss rates incorporate published historical commercial loan performance data, which we calibrate for differences between
that data and our portfolio experience. Except for cases of fraud and certain other types of borrower defaults, most multifamily
loans are nonrecourse to the borrower. As a result, the cash flows of the underlying property (including any attached credit
enhancements) serve as the primary source of funds for repayment of the loan. For loans where we determined that the
borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the
operation or sale of the collateral, we measure the allowance for credit losses using the fair value of the underlying collateral,
less estimated costs to sell, adjusted for estimated proceeds from credit enhancements that are not freestanding contracts.
Factors considered by management in determining whether a borrower is experiencing financial difficulty include the borrower’s
current payment status and an evaluation of the underlying property's operating performance as represented by its current
DSCR, its available credit enhancements, the current LTV ratio, the management of the underlying property, and the property's
geographic location.
We review the outputs of our model considering qualitative factors such as current economic events and other external factors
to determine whether the model outputs are consistent with our expectations. Further management adjustments may be
necessary to take into consideration the qualitative factors that have occurred but that are not yet reflected in the factors used
to derive the model outputs.
Advances of Pre-foreclosure Costs
We may incur expenses related to a mortgage loan subsequent to its original acquisition but prior to foreclosure (pre-
foreclosure costs). These expenses are generally to protect or preserve our interest or legal right in or to the property prior to
foreclosure, such as property taxes or homeowner's insurance premiums owed by the borrower. Many of these expenses are
advanced by the servicer and are reimbursable from the borrower. If the borrower ultimately defaults, we reimburse the servicer
for the advances it has made. Upon advance by the servicer, we recognize a receivable for the amounts due from the borrower
and a payable for amounts due to the servicer. We recognize an allowance for credit losses for amounts that we do not
ultimately expect to collect from the borrower. See Note 11 for additional information on advances of pre-foreclosure costs.
Accrued Interest Receivable
When we accrue interest on mortgage loans that are three or more monthly payments past due, we measure an allowance for
expected credit losses on the unpaid accrued interest receivable balances such that the balance sheet reflects the net amount
of accrued interest we expect to collect. For additional information on our policy for recognition of interest income on mortgage
loans, see Note 4.
Off-Balance Sheet Credit Exposures
We recognize an allowance for credit losses on off-balance sheet credit exposures for our guarantees that are not measured at
fair value and other off-balance sheet arrangements based on expected credit losses over the contractual period in which we
are exposed to credit risk through a present contractual obligation to extend credit, unless that obligation is unconditionally
cancellable by us. We include this allowance for credit losses on off-balance sheet credit exposures within other liabilities on
our consolidated balance sheets, with changes recognized through benefit (provision) for credit losses on our consolidated
statements of comprehensive income (loss).
Our methodologies for estimating the allowance for credit losses on off-balance sheet credit exposures for our Single-Family
and Multifamily guarantees are generally consistent with our methodologies for estimating the allowance for credit losses for
single-family mortgage loans and multifamily mortgage loans, respectively.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
We obtain credit enhancements for certain of our guarantees through the creation of unguaranteed subordinated securities
issued by nonconsolidated securitization trusts that absorb first losses prior to us having to perform on our guarantee of the
senior securities. Expected recoveries from guarantee credit enhancements are considered when measuring the allowance for
loan losses. Many of our guarantees have credit enhancement provided by subordination that exceeds the amount of expected
credit losses. As a result, we recognize an allowance for credit losses on off-balance sheet credit exposures only if expected
credit losses exceed the amount of subordination. We have not recorded an allowance for credit losses on our guarantees of
Fannie Mae securities due to the support provided to Fannie Mae by the U.S. government, the importance of Fannie Mae to the
liquidity and stability of the U.S. housing market, and the long history of zero credit losses on Fannie Mae securities.
Freestanding Credit Enhancements
Freestanding credit enhancements are entered into separately and apart from any other financial instruments or entered into in
conjunction with some other transaction and are legally detachable and separately exercisable. Freestanding credit
enhancements primarily include insurance/reinsurance transactions and STACR Trust notes transactions and are accounted for
separately from the underlying mortgage loans or guarantees. Our allowance for credit losses does not consider expected
recoveries from freestanding credit enhancements, which are recorded separately in other assets in our consolidated balance
sheet.
We recognize the payments we make to transfer credit risk under freestanding credit enhancements in credit enhancement
expense in our consolidated statements of comprehensive income when they are incurred. We recognize expected recoveries
from freestanding credit enhancements in other assets with an offsetting reduction to non-interest expense, at the same time
that we recognize an allowance for credit losses on the covered loans, measured on the same basis as the allowance for credit
losses on the covered loans. See Note 11 for additional information on credit enhancement assets.
Prior Period Allowance for Credit Losses and Related Information
Under the previous incurred loss impairment methodology that was effective prior to January 1, 2020, we assessed loan
impairment on a collective basis unless we considered the loan to be impaired. We assessed loan impairment on an individual
basis when, based on current information, it was probable that we would not receive all amounts due (including both principal
and interest) in accordance with the contractual terms of the original loan agreement.
Allowance for Loan Losses Determined on a Collective Basis
Single-Family Loans
Prior to our implementation of CECL on January 1, 2020, we estimated allowance for loan losses on homogeneous pools of
single-family loans using a model that evaluated a variety of factors affecting collectability. We reviewed the outputs of this
model by considering qualitative factors such as macroeconomic and other factors to see whether the model outputs were
consistent with our expectations. Management adjustments were made as necessary to take into consideration external factors
and current economic events that had occurred but that were not yet reflected in the factors used to derive the model outputs.
Significant judgment was exercised in making these adjustments. The homogeneous pools of single-family loans were
determined based on common underlying characteristics, including current LTV ratios, trends in house prices, loan product
type, and geographic region.
We rely upon third parties to service our loans. At loan delivery, the seller provides us with loan data, which includes
characteristics and underwriting information. Each subsequent month, the servicers provide us with monthly loan-level
servicing data, including delinquency and loss information. Our Single-Family allowance for loan losses default models
produced estimates based on 12 months of loan-level performance data, which included a history of delinquency, foreclosures,
foreclosure alternatives, and modifications. Our allowance for loan losses estimate included projections of:
n Loss mitigation activities when a loss was incurred, including loan modifications for troubled borrowers and the incidence
of redefault we had experienced on similar loans that had completed a loan modification and
n Defaults we believed were likely to occur as a result of loss events that had occurred through the respective balance sheet
date.
We also considered macroeconomic and other factors that affect the quality of the loans underlying our portfolio, including
regional housing trends, applicable house price indices, unemployment and employment dislocation trends, the effects of
changes in government policies and programs, consumer credit statistics, and the extent of third-party insurance.
Our Single-Family allowance for loan losses severity was based on actual REO dispositions, short sales, and third-party sales
that incorporated the most recent:
n Twelve months of sales experience realized on our distressed property dispositions and
n Twelve months of pre-foreclosure expenses on our distressed properties, including REO, short sales, and third-party sales.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
Our Single-Family allowance for loan losses severity estimate also captured expectations about recoveries from the collateral
and attached credit enhancements, such as primary mortgage insurance. We used historical trends in house prices in our
Single-Family allowance for loan losses process, primarily through the use of current LTV ratios in our default models and
through the use of recent house price sales experience in our severity estimate. However, we did not use a forecast of trends in
house prices in our Single-Family allowance for loan losses process.
For loans where foreclosure was probable, we measured impairment based upon an estimate of the fair value of the underlying
collateral less estimated disposition costs. Our estimate also considered the effect of historical house price changes on
borrower behavior.
We applied proceeds from attached credit enhancements (e.g., primary mortgage insurance) entered into contemporaneously
with, and in contemplation of, a guarantee or loan purchase transaction as a recovery of our recorded investment in a charged-
off loan, up to the amount of loss recognized as a charge-off. Proceeds received in excess of our recorded investment in loans
were recorded as a decrease to REO operations expense on our consolidated statements of comprehensive income.
Multifamily Loans
Multifamily loans evaluated collectively for impairment were aggregated into book year vintage portfolios. Potential impairment
related to these portfolios was measured by benchmarking published historical commercial loan performance data to those
vintages based upon available economic data related to multifamily real estate, including apartment vacancy and rental rates.
Allowance for Loan Losses Determined on an Individual Basis
We considered a loan to be impaired when, based on current information, it was probable that we would not receive all
amounts due (including both principal and interest) in accordance with the contractual terms of the original loan agreement.
Single-family loans individually evaluated for impairment included TDRs, as well as loans acquired under our financial
guarantees with deteriorated credit quality prior to 2010. Impairment of a single-family loan having undergone a TDR was
generally measured as the excess of our recorded investment in the loan over the present value of the expected future cash
flows, discounted at the loan's effective interest rate. Our expectation of future cash flows incorporated, among other items, an
estimated probability of default which was based on a number of market factors as well as the characteristics of the loan, such
as past due status. If we determined that foreclosure on the underlying collateral was probable, we measured impairment
based upon the fair value of the collateral, as reduced by estimated disposition costs and adjusted for estimated proceeds from
primary mortgage insurance and similar sources. Multifamily loans individually evaluated for impairment included TDRs, loans
three monthly payments or more past due, and loans that were impaired based on management judgment. Multifamily loans
were generally measured individually for impairment based on the fair value of the underlying collateral, as reduced by
estimated disposition costs.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 6
The table below presents the average recorded investment and interest income recognized for individually impaired loans.
Table 6.2 - Individually Impaired Loans
Year Ended December 31, 2019
Average Recorded
Investment
Interest Income
Recognized
Interest Income
Recognized on
Cash Basis(3)
(In millions)
Single-Family:
With no allowance recorded:(1)
20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable rate
Alt-A, interest-only, and option ARM
Total with no allowance recorded
With an allowance recorded:(2)
20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable rate
Alt-A, interest-only, and option ARM
Total with an allowance recorded
Combined Single-Family:
20- and 30-year or more, amortizing fixed-rate
15-year amortizing fixed-rate
Adjustable rate
Alt-A, interest-only, and option ARM
Total Single-Family
Multifamily:
With no allowance recorded (1)
With an allowance recorded
Total Multifamily
$2,450
20
200
891
3,561
32,960
653
135
3,917
37,665
35,410
673
335
4,808
41,226
83
—
83
$262
1
11
66
340
1,805
22
6
226
2,059
2,067
23
17
292
2,399
5
—
5
$7
—
—
1
8
156
4
2
20
182
163
4
2
21
190
1
—
1
$191
Total Single-Family and Multifamily
$41,309
$2,404
(1)
(2)
(3)
Individually impaired loans with no allowance primarily represent those loans for which the collateral value is sufficiently in excess of the loan balance to result in
recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to disposition.
Consists primarily of loans classified as TDRs.
Consists of income recognized during the period related to loans on non-accrual status.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 7
NOTE 7
Investment Securities
The table below summarizes the fair values of our investments in debt securities by classification.
Table 7.1 - Investment Securities
(In millions)
Trading securities
Available-for-sale securities
Total fair value of investment securities
December 31, 2021
December 31, 2020
$49,003
4,012
$53,015
$44,458
15,367
$59,825
We currently classify and account for our securities as either available-for-sale or trading. As of December 31, 2021 and
December 31, 2020, we did not classify any securities as held-to-maturity, although we may elect to do so in the future.
Securities classified as available-for-sale and trading are reported at fair value with changes in fair value included in AOCI, net
of income taxes and investment gains (losses), net, respectively. See Note 17 for more information on how we determine the
fair value of securities.
We generally record purchases and sales of securities on the trade date when the related forward commitments are exempt
from the accounting guidance for derivatives. Alternatively, we record purchases and sales of securities on the expected
settlement date, with a corresponding derivative recorded on the trade date, when the related forward commitments are not
exempt from the accounting guidance for derivatives.
For most of our securities, interest income is recognized using the effective interest method, which considers the contractual
terms of the security. Deferred items, including premiums, discounts, and other basis adjustments, are amortized into interest
income over the contractual lives of the securities.
For certain securities, interest income is recognized using the prospective effective interest method. We apply this method to
securities that can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of our
recorded investment. Under this method, we recognize as interest income, over the expected life of the securities, the excess
of the cash flows expected to be collected over the securities' carrying value. We update our estimates of expected cash flows
periodically and recognize changes in the calculated effective interest rate on a prospective basis.
For securities classified as trading or available-for-sale, we classify the cash flows as investing activities because we hold these
securities for investment purposes. In cases where the transfer of a security represents a secured borrowing, we classify the
related cash flows as financing activities.
Trading Securities
The table below presents the estimated fair values for our securities classified as trading. Our non-mortgage-related securities
primarily consist of investments in U.S. Treasury securities.
Table 7.2 - Trading Securities
(In millions)
Mortgage-related securities
Non-mortgage-related securities
Total fair value of trading securities
December 31, 2021
December 31, 2020
$16,231
32,772
$49,003
$17,505
26,953
$44,458
For trading securities held at December 31, 2021, 2020, and 2019, we recorded net unrealized losses of $589 million, $296
million, and $8 million during 2021, 2020 and 2019, respectively.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 7
Available-for-Sale Securities
At both December 31, 2021 and December 31, 2020, all available-for-sale securities were mortgage-related securities.
The table below presents the amortized cost, gross unrealized gains and losses, and fair value for our securities classified as
available-for-sale.
Table 7.3 - Available-for-Sale Securities
(In millions)
December 31, 2021
December 31, 2020
Amortized
Cost Basis
Gross Unrealized
Gains in Other
Comprehensive Income
Gross Unrealized
Losses in Other
Comprehensive Income
Fair
Value
Accrued
Interest
Receivable
$3,638
14,344
$376
1,027
($2)
$4,012
(4)
15,367
$10
40
The fair value of our available-for-sale securities held at December 31, 2021 scheduled to contractually mature after ten years
was $1.6 billion, with an additional $1.5 billion scheduled to contractually mature after five years through ten years.
Gains and losses on the sale of securities are included in investment securities gains (losses), including those gains (losses)
reclassified into earnings from AOCI. We use the specific identification method for determining the cost basis of a security in
computing the gain or loss.
The table below summarizes the gross realized gains and gross realized losses from the sale of available-for-sale securities.
Table 7.4 - Gross Realized Gains and Gross Realized Losses from Sales of Available-for-Sale Securities
(In millions)
Gross realized gains
Gross realized losses
Net realized gains
Year Ended December 31,
2021
2020
2019
$540
(60)
$480
$501
(108)
$393
$219
(49)
$170
Non-Cash Investing and Financing Activities
During the years ended December 31, 2021, December 31, 2020, and December 31, 2019, we recognized $34.8 billion,
$30.8 billion, and $10.9 billion, respectively, of investments in securities in exchange for the issuance of debt securities of
consolidated trusts through partial sales of commingled single-class securities that were previously consolidated.
During 2021, we deconsolidated $1.1 billion in UPB of mortgage-related securities and debt securities of consolidated trusts
where we were no longer deemed the primary beneficiary.
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Financial Statements
NOTE 8
Debt
Notes to the Consolidated Financial Statements | Note 8
The table below summarizes the balances of total debt per our consolidated balance sheets.
Table 8.1 - Total Debt
(In millions)
Debt securities of consolidated trusts held by third parties
Debt of Freddie Mac:
Short-term debt
Long-term debt
Total Debt of Freddie Mac
Total debt
December 31,
2021
2020
$2,803,054
$2,308,176
—
177,131
177,131
4,955
279,415
284,370
$2,980,185
$2,592,546
Debt securities that we issue are classified as either debt securities of consolidated trusts held by third parties or debt of
Freddie Mac. We issue debt of Freddie Mac to fund our operations.
Our debt is reported at amortized cost, with the exception of certain debt for which we elected the fair value option. Deferred
items, including premiums, discounts, issuance costs, and hedge accounting-related basis adjustments, are reported as a
component of total debt. These items are amortized and reported through interest expense using the effective interest method
over the contractual life of the related indebtedness. Amortization of premiums, discounts, and issuance costs begins at the
time of debt issuance. Amortization of hedge accounting-related basis adjustments begins upon the discontinuation of the
related hedge relationship.
A portion of our outstanding unsecured debt consists of credit-linked notes. The principal types of unsecured credit-linked debt
are single-family STACR debt notes and multifamily SCR debt notes. For these unsecured debt issuances, we create a
reference pool of mortgage assets (generally loans) to which we currently have credit risk exposure and an associated
securitization-like structure with notional credit risk positions. To the extent a specified credit event occurs on the mortgage
assets in the reference pool, the outstanding balance of our debt obligations is written down, thereby reducing our future
principal and interest payment obligations, and the benefits are recognized as investment gains (losses), net on our
consolidated statements of comprehensive income.
We elected the fair value option on debt that contains embedded derivatives, including certain STACR and SCR debt notes,
and certain other debt issuances. Changes in the fair value of these debt obligations are recorded in investment gains (losses),
net, with any upfront costs and fees incurred or received in exchange for the issuance of the debt being recognized in earnings
as incurred and not deferred. Related interest expense continues to be reported as interest expense based on the stated terms
of the debt securities. For additional information on our election of the fair value option, see Note 17.
When we repurchase or call outstanding debt securities, we recognize the difference between the amount paid to redeem the
debt security and the carrying value in earnings as a component of investment gains (losses), net. Contemporaneous transfers
of cash between us and a creditor in connection with the issuance of a new debt security and satisfaction of an existing debt
security are accounted for as either an extinguishment or a modification of an existing debt security. If the debt securities have
substantially different terms, the transaction is accounted for as an extinguishment of the existing debt security. The issuance
of a new debt security is recorded at fair value, fees paid to the creditor are expensed as incurred, and fees paid to third parties
are deferred and amortized into interest expense over the life of the new debt security using the effective interest method. If the
terms of the existing debt security and the new debt security are not substantially different, the transaction is accounted for as
a modification of the existing debt. Fees paid to the creditor are deferred and amortized into interest expense over the life of the
modified debt security using the effective interest method and fees paid to third parties are expensed as incurred.
We also engage in dollar roll transactions whereby we enter into an agreement to sell and subsequently repurchase (or
purchase and subsequently resell) agency securities. When these transactions involve securities issued by consolidated
entities, they are treated as issuances and extinguishments of debt.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that would result
in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are allowed to own on
December 31 of the immediately preceding 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 transfers of financial
assets and consolidation of VIEs. Therefore, "indebtedness" generally does not include debt securities of consolidated trusts
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 8
held by third parties. We also cannot become liable for any subordinated indebtedness without the prior consent of Treasury.
See Note 2 for information regarding restrictions on the amount of mortgage-related securities that we may own.
Beginning January 1, 2019, our debt cap under the Purchase Agreement is $300 billion. Our debt cap under the Purchase
Agreement will decrease to $270 billion on January 1, 2023 pursuant to the January 2021 Letter Agreement. As of
December 31, 2021, our aggregate indebtedness for purposes of the debt cap was $181.7 billion. Our aggregate indebtedness
primarily includes the par value of short- and long-term debt.
Debt Securities of Consolidated Trusts Held By Third Parties
Debt securities of consolidated trusts held by third parties represent our liability to third parties that hold beneficial interests in
our consolidated securitization trusts. Debt securities of consolidated trusts held by third parties are subject to prepayment risk
as their payments are based upon the performance of the underlying mortgage loans that may be prepaid by the related
mortgage borrower at any time generally without penalty.
The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying loan product
type.
Table 8.2 - Debt Securities of Consolidated Trusts Held by Third Parties
(Dollars in millions)
Single-Family:
30-year or more, fixed-rate
20-year fixed-rate
15-year fixed-rate
Adjustable-rate
Interest-only
FHA/VA
Total Single-Family
Multifamily
December 31, 2021
December 31, 2020
Contractual
Maturity
UPB
Carrying
Amount(1)
Weighted
Average
Coupon(2)
Contractual
Maturity
UPB
Carrying
Amount(1)
Weighted
Average
Coupon(2)
2022 - 2061 $2,178,150 $2,235,903
132,410
2022 - 2042
388,893
2022 - 2037
22,038
2022 - 2052
2,883
2026 - 2051
838
2022 - 2051
2,712,218 2,782,965
20,089
129,193
379,805
21,546
2,702
822
2022 - 2051
19,838
2021 - 2041
2021 - 2036
2021 - 2051
2026 - 2041
2021 - 2050
2.63 % 2021 - 2060 $1,799,065 $1,855,438
100,498
2.40
310,612
2.14
24,484
2.30
3,736
2.42
769
3.61
2,228,114 2,295,537
12,639
97,520
303,142
23,964
3,671
752
2021 - 2050
12,488
2.17
3.07 %
2.84
2.46
2.76
3.15
4.04
2.43
Total debt securities of consolidated
trusts held by third parties
$2,732,056 $2,803,054
$2,240,602 $2,308,176
(1)
(2)
Includes $1,094 million and $205 million at December 31, 2021 and December 31, 2020, respectively, of debt securities of consolidated trusts that represents the
fair value of debt for which the fair value option has been elected.
The effective rate for debt securities of consolidated trusts held by third parties was 1.71% and 1.76% as of December 31, 2021 and December 31, 2020,
respectively.
Short-Term Debt
Discount notes, Reference Bills securities, and medium-term notes are unsecured general corporate obligations. Discount
notes and Reference Bills securities pay only principal at maturity. Securities sold under agreements to repurchase are
effectively collateralized borrowings where we sell securities with an agreement to repurchase such securities at a future date.
Certain medium-term notes that have original maturities of one year or less are classified as short-term debt for purposes of
this presentation.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 8
The table below summarizes the balances and effective interest rates for short-term debt.
Table 8.3 - Short-Term Debt
(Dollars in millions)
Short-term debt:
December 31, 2021
December 31, 2020
Par Value
Carrying
Amount
Weighted
Average
Effective Rate
Par Value
Carrying
Amount
Weighted
Average
Effective Rate
Discount notes and Reference Bills
Medium-term notes
Securities sold under agreements to repurchase
Offsetting arrangements(1)
Total short-term debt
$—
—
7,333
(7,333)
$—
$—
—
7,333
(7,333)
$—
— %
—
(0.10)
$11
4,944
—
—
$11
4,944
—
—
0.69 %
1.31
—
— %
$4,955
$4,955
1.31 %
(1) We offset payables related to securities sold under agreements to repurchase against receivables related to securities purchased under agreements to resell on our
consolidated balance sheets, when such amounts meet the conditions for offsetting in the accounting guidance.
Long-Term Debt
The table below summarizes our long-term debt.
Table 8.4 - Long-Term Debt
(Dollars in millions)
Long-term debt:
Fixed-rate:
Medium-term notes — callable
Medium-term notes — non-callable
Reference Notes securities — non-
callable
STACR and SCR debt notes
Variable-rate:
Medium-term notes — callable
Medium-term notes — non-callable
STACR
Zero-coupon:
Medium-term notes — non-callable
Other
December 31, 2021
December 31, 2020
Contractual
Maturity
Par Value
Carrying
Amount(1)
Weighted
Average
Effective
Rate(2)
Contractual
Maturity
Par Value
Carrying
Amount(1)
2022 - 2050 $68,411 $68,364
6,573
2022 - 2028
6,551
0.80 % 2021 - 2050 $122,967 $122,895
7,758
0.54
2021 - 2028
7,710
Weighted
Average
Effective
Rate(2)
0.71 %
0.75
2022 - 2032 59,412
103
2031 - 2042
59,413
106
1.19
12.69
2021 - 2032 64,162
111
2031 - 2042
64,124
114
1.55
12.71
2022 - 2025
166
2022 - 2026 33,090
9,036
2023 - 2042
166
33,087
8,875
2022 - 2039
2047 - 2051
4,846
—
2,740
74
1.75
0.23
4.13
6.05
0.45
2021 - 2025
371
2021 - 2026 68,838
2023 - 2042 12,377
371
68,824
12,228
2021 - 2039
2047 - 2050
4,850
—
N/A
2,578
57
466
1.93
0.63
4.10
5.99
0.49
Hedging-related basis adjustments
N/A
(2,267)
Total long-term debt
$181,615 $177,131
1.07 %
$281,386 $279,415
1.09 %
(1)
Represents par value, net of associated discounts or premiums and issuance costs. Includes $1.4 billion and $2.4 billion at December 31, 2021 and December 31,
2020, respectively, of long term-debt that represents the fair value of debt for which the fair value option has been elected.
(2)
Based on carrying amount, excluding hedge-related basis adjustments.
A portion of our long-term debt is callable. Callable debt gives us the option to redeem the debt security at par on one or more
specified call dates or at any time on or after a specified call date.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 8
The table below summarizes the contractual maturities of long-term debt securities at December 31, 2021.
Table 8.5 - Contractual Maturities of Long-Term Debt and Debt Securities
(In millions)
Annual Maturities
Long-term debt (excluding STACR and SCR debt notes):
2022
2023
2024
2025
2026
Thereafter
Debt securities of consolidated trusts held by third parties, STACR, and SCR debt notes(1)
Total
Net discounts, premiums, debt issuance costs, hedge-related, and other basis adjustments(2)
Total debt securities of consolidated trusts held by third parties, STACR, SCR and long-term debt
Amounts
$48,625
38,688
13,274
35,436
4,717
31,736
2,741,195
2,913,671
66,514
$2,980,185
(1)
Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon the performance of
a pool of mortgage assets that may be prepaid by the related mortgage borrower at any time generally without penalty.
Other basis adjustments primarily represent changes in fair value on debt where we have elected the fair value option.
(2)
Non-Cash Investing and Financing Activities
During the years ended December 31, 2020 and December 31, 2019, we issued $0.8 billion and $0.7 billion, respectively, of
debt of Freddie Mac in exchange for cash collateral that was previously pledged by sellers.
FREDDIE MAC | 2021 Form 10-K
189
Financial Statements
NOTE 9
Derivatives
Notes to the Consolidated Financial Statements | Note 9
Derivatives are reported at their fair value on our consolidated balance sheets. Changes in fair value and interest accruals on
derivatives not in qualifying fair value hedge relationships are recorded as investment gains (losses), net on our consolidated
statements of comprehensive income. Derivatives in a net asset position, including net derivative interest receivable or payable,
are reported as derivative assets, net, which is included in other assets on our consolidated balance sheet. Similarly, derivatives
in a net liability position, including net derivative interest receivable or payable, are reported as derivative liabilities, net, which is
included in other liabilities on our consolidated balance sheet. We offset fair value amounts recognized for the right to reclaim
cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments
executed with the same counterparty under a master netting agreement. Non-cash collateral held is not recognized on our
consolidated balance sheets as we do not obtain effective control over the collateral, and non-cash collateral posted is not de-
recognized from our consolidated balance sheets as we do not relinquish effective control over the collateral. Therefore, non-
cash collateral held or posted is not presented as an offset against derivative assets or derivative liabilities on our consolidated
balance sheets.
We evaluate whether financial instruments that we purchase or issue contain embedded derivatives. We generally elect to
measure newly acquired or issued financial instruments that contain embedded derivatives at fair value, with changes in fair
value recorded in earnings.
On our consolidated statements of cash flows, cash flows related to the acquisition and termination of derivatives, other than
forward commitments, are generally classified in investing activities. Cash flows related to forward commitments are classified
within the section of the consolidated statements of cash flows in accordance with the cash flows of the financial instruments
to which they relate.
Use of Derivatives
We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets and liabilities. We
analyze the interest-rate sensitivity of financial assets and liabilities across a variety of interest-rate scenarios based on market
prices, models, and economics. When we use derivatives to mitigate our exposures, we consider a number of factors, including
cost, exposure to counterparty credit risk, and our overall risk management strategy.
We classify derivatives into three categories:
n Exchange-traded derivatives;
n Cleared derivatives; and
n OTC derivatives.
Exchange-traded derivatives include standardized interest-rate futures contracts and options on futures contracts. Cleared
derivatives include interest-rate swaps that the U.S. Commodity Futures Trading Commission has determined are subject to the
central clearing requirement of the Dodd-Frank Act. OTC derivatives refer to those derivatives that are neither exchange-traded
derivatives nor cleared derivatives.
Types of Derivatives
We principally use the following types of derivatives:
n LIBOR- and SOFR-based interest-rate swaps;
n LIBOR-, SOFR-, and Treasury-based purchased options (including swaptions); and
n LIBOR-, SOFR-, and Treasury-based exchange-traded futures.
We also purchase swaptions on credit indices in order to obtain protection against adverse movements in multifamily spreads
which may affect the profitability of our K Certificate or SB Certificate transactions. In addition, our derivative positions also
include written options and commitments.
Our written options primarily consist of call and put swaptions, which are sold to counterparties allowing them the option to
enter into receive-fixed and pay-fixed interest rate swaps, respectively.
We routinely enter into commitments to purchase and sell investments in securities, purchase and sell loans, and purchase and
extinguish or issue debt securities of our consolidated trusts. Most of these commitments meet the definition of a derivative
and therefore are subject to the accounting guidance for derivatives and hedging.
FREDDIE MAC | 2021 Form 10-K
190
Financial Statements
Notes to the Consolidated Financial Statements | Note 9
Hedge Accounting
We apply fair value hedge accounting to certain single-family mortgage loans where we hedge the changes in fair value of
these loans attributable to the designated benchmark interest rate (i.e., LIBOR), using LIBOR-based interest-rate swaps. We
also apply fair value hedge accounting to certain issuances of debt where we hedge the changes in fair value of the debt
attributable to the designated benchmark interest rate (i.e., LIBOR), using LIBOR-based interest-rate swaps. Under the last-of-
layer fair value hedge accounting strategy, we hedge the changes in fair value of a portion of a closed pool of single-family
mortgage loans that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount
of cash flows. As part of this strategy, we have also elected to measure the change in fair value of the hedged item on the basis
of the benchmark rate component of the contractual coupon cash flows determined at the hedge inception and by assuming
the hedged item has a term that reflects only the designated cash flows being hedged.
We apply hedge accounting to qualifying hedge relationships. A qualifying hedge relationship exists when changes in the fair
value of a derivative hedging instrument are expected to be highly effective in offsetting changes in the fair value of the hedged
item attributable to the risk being hedged during the term of the hedge relationship. No amounts have been excluded from the
assessment of hedge effectiveness. To assess hedge effectiveness, we use a statistical regression analysis.
At inception of the hedge relationship, we prepare formal contemporaneous documentation of our risk management objective
and strategies for undertaking the hedge.
If a hedge relationship qualifies for fair value hedge accounting, all changes in fair value of the derivative hedging instrument,
including interest accruals, are recognized in the same consolidated statements of comprehensive income line item used to
present the earnings effect of the hedged item. Therefore, changes in the fair value of the hedged item, mortgage loans and
debt, attributable to the risk being hedged are recognized in interest income - mortgage loans and interest expense,
respectively, along with the changes in the fair value of the respective derivative hedging instruments.
Changes in the fair value of the hedged item attributable to the risk being hedged are recognized as a cumulative basis
adjustment against the mortgage loans and debt. The cumulative basis adjustments are amortized to the same consolidated
statements of comprehensive income line item used to present the changes in fair value of the hedged item using the effective
interest method considering the contractual terms of the hedged item, with amortization beginning no later than the period in
which hedge accounting was discontinued.
FREDDIE MAC | 2021 Form 10-K
191
Financial Statements
Notes to the Consolidated Financial Statements | Note 9
Derivative Assets and Liabilities at Fair Value
The table below presents the notional value and fair value of derivatives reported on our consolidated balance sheets.
Table 9.1 - Derivative Assets and Liabilities at Fair Value
(In millions)
Not designated as hedges
Interest-rate risk management derivatives:
Swaps
Written options
Purchased options (1)
Futures
Total interest-rate risk management derivatives
Mortgage commitment derivatives:
Forward contracts to purchase mortgage loans
Forward contracts to purchase mortgage-related securities
Forward contracts to sell mortgage-related securities
Total mortgage commitment derivatives
CRT-related derivatives
Other
December 31, 2021
December 31, 2020
Notional or
Contractual
Amount
Derivatives at Fair Value
Assets
Liabilities
Notional or
Contractual
Amount
Derivatives at Fair Value
Assets
Liabilities
$561,393
34,861
137,873
126,528
860,655
$1,748
—
3,585
—
5,333
($3,319)
(1,597)
—
—
(4,916)
$559,596
18,259
169,995
181,702
929,552
$2,639
—
5,265
—
7,904
($7,091)
(735)
—
—
(7,826)
7,582
16,605
59,469
83,656
33,351
4,335
15
26
38
79
15
2
(5)
(8)
(73)
(86)
(37)
(21)
37,122
45,185
136,802
219,109
28,949
4,029
183
203
2
388
61
2
—
—
(759)
(759)
(47)
(16)
Total derivatives not designated as hedges
981,997
5,429
(5,060)
1,181,639
8,355
(8,648)
Designated as fair value hedges
Interest-rate risk management derivatives:
Swaps
Total derivatives designated as fair value hedges
Derivative interest receivable (payable)(2)
Netting adjustments(3)
154,819
154,819
37
37
360
(5,366)
(2,689)
(2,689)
(413)
7,880
180,686
180,686
224
224
455
(7,829)
Total derivative portfolio, net
$1,136,816
$460
($282)
$1,362,325
$1,205
(1)
(2)
(3)
Includes swaptions on credit indices with a notional or contractual amount of $9.4 billion and $16.8 billion at December 31, 2021 and December 31, 2020,
respectively, and a fair value of $1.0 million and $9.0 million at December 31, 2021 and December 31, 2020, respectively.
Includes other derivative receivables and payables.
Represents counterparty netting and cash collateral netting.
See Note 10 for information related to our derivative counterparties and collateral held and posted.
(500)
(500)
(523)
8,717
($954)
FREDDIE MAC | 2021 Form 10-K
192
Financial Statements
Notes to the Consolidated Financial Statements | Note 9
Gains and Losses on Derivatives
The table below presents the gains and losses on derivatives, including the accrual of periodic cash settlements, while not
designated in qualifying hedge relationships and reported on our consolidated statements of comprehensive income (loss) as
investment gains (losses), net.
Table 9.2 - Gains and Losses on Derivatives
(In millions)
Not designated as hedges
Interest-rate risk management derivatives:
Swaps
Written options
Purchased options
Futures
Total interest-rate risk management derivatives fair value gains (losses)
Mortgage commitment derivatives
CRT-related derivatives
Other
Total derivatives not designated as hedges fair value gains (losses)
Accrual of periodic cash settlements on swaps(1)
Total
(1)
Includes interest on variation margin on cleared interest-rate swaps.
Year Ended December 31,
2021
2020
2019
$2,851
($1,627)
($3,085)
(77)
(982)
235
2,027
713
(41)
30
2,729
(1,578)
$1,151
(161)
2,404
(2,442)
(1,826)
(1,856)
163
57
(3,462)
(1,576)
($5,038)
(235)
423
(946)
(3,843)
(452)
(1)
52
(4,244)
(272)
($4,516)
FREDDIE MAC | 2021 Form 10-K
193
Financial Statements
Notes to the Consolidated Financial Statements | Note 9
Fair Value Hedges
The table below presents the effects of fair value hedge accounting by consolidated statements of comprehensive income
(loss) line, including the gains and losses on derivatives and hedged items designated in qualifying hedge relationships and
other components due to the application of hedge accounting.
Table 9.3 - Gains and Losses on Fair Value Hedges
(In millions)
Total amounts of income and expense line items
presented on our consolidated statements of
comprehensive income in which the effects of fair
value hedges are recorded:
Interest contracts on mortgage
loans held-for-investment:
Gain or (loss) on fair value hedging relationships:
Hedged items
Derivatives designated as hedging instruments
Interest accruals on hedging instruments
Discontinued hedge related basis
adjustment amortization
Interest contracts on debt:
Gain or (loss) on fair value hedging relationships:
Hedged Items
Derivatives designated as hedging instruments
Interest accruals on hedging instruments
Discontinued hedge related basis adjustment
amortization
Year Ended December 31,
2021
2020
2019
Interest
Income
Interest
Expense
Interest
Income
Interest
Expense
Interest
Income
Interest
Expense
$61,527
($43,947)
$62,340
($49,569)
$72,895
($61,047)
(457)
529
(433)
(1,884)
—
—
—
—
—
—
—
—
2,698
(2,895)
931
55
5,071
(4,836)
(434)
(2,840)
—
—
—
—
—
—
—
—
(49)
11
835
60
4,569
(4,309)
(48)
(446)
—
—
—
—
—
—
—
—
(1,038)
1,231
(184)
63
The table below presents the hedged item cumulative basis adjustments due to qualifying fair value hedging and the related
hedged item carrying amounts by their respective balance sheet line item.
Table 9.4 - Cumulative Basis Adjustments Due to Fair Value Hedging
December 31, 2021
Cumulative Amount of Fair Value Hedging Basis
Adjustment Included in the Carrying Amount
Closed Portfolio Under the Last-
of-Layer Method
Under the
Last-of-Layer
Method
Discontinued -
Hedge Related
Total Amount
by Amortized
Cost Basis
Designated
Amount by
UPB
$—
—
$2,774
(30)
$—
—
$—
—
Total
$2,774
2,267
December 31, 2020
Cumulative Amount of Fair Value Hedging Basis
Adjustment Included in the Carrying Amount
Under the
Last-of-Layer
Method
Discontinued -
Hedge Related
Total
Closed Portfolio Under the Last-
of-Layer Method
Total Amount
by Amortized
Cost Basis
Designated
Amount by
UPB
Carrying
Amount
Assets /
(Liabilities)
$855,173
(124,235)
Carrying
Amount
Assets /
(Liabilities)
$478,077
(176,512)
$5,117
(466)
($318)
—
$5,435
$220,301
$9,112
(38)
—
—
(In millions)
Mortgage loans held-for-investment
Debt
(In millions)
Mortgage loans held-for-investment
Debt
FREDDIE MAC | 2021 Form 10-K
194
Financial Statements
NOTE 10
Notes to the Consolidated Financial Statements | Note 10
Collateralized Agreements and Offsetting Arrangements
Derivative Portfolio
Our use of cleared derivatives, exchange-traded derivatives, and OTC derivatives exposes us to counterparty credit risk in the
event our counterparties fail to meet their contractual obligations. We are required to post margin in connection with our
derivatives transactions. The use of cleared and exchange-traded derivatives decreases our credit risk exposure to individual
counterparties because a central counterparty is substituted for individual counterparties. OTC derivatives expose us to the
credit risk of individual counterparties because transactions are executed and settled between us and each counterparty,
exposing us to potential losses if a counterparty fails to meet its obligations.
Our use of interest-rate swaps and option-based derivatives is subject to internal credit and legal reviews. On an ongoing basis,
we review the credit fundamentals of all of our derivative counterparties, clearinghouses, and clearing members to confirm that
they continue to meet our internal risk management standards.
Over-the-Counter Derivatives
We use master netting and collateral agreements to reduce our credit risk exposure to our OTC derivative counterparties for
interest-rate swap and option-based derivatives. Master netting agreements provide for the netting of amounts receivable and
payable from an individual counterparty, as well as posting of collateral in the form of cash, Treasury securities or agency
mortgage-related or debt securities, or a combination of both by either the counterparty or us, depending on which party is in a
liability position. Although it is our practice not to repledge assets held as collateral, these agreements may allow us or our
counterparties to repledge all or a portion of the collateral.
We have master netting agreements in place with all of our OTC derivative counterparties. On a daily basis, the market value of
each counterparty's derivatives outstanding is calculated to determine the amount of our net credit exposure, which is equal to
the market value of derivatives in a net gain position by counterparty after giving consideration to collateral posted. In the event
a counterparty defaults on its obligations under the derivatives agreement and the default is not remedied in the manner
prescribed in the agreement, we have the right under the agreement to sell the collateral. As a result, our use of master netting
and collateral agreements reduces our exposure to our counterparties in the event of default.
In the event that all of our counterparties for OTC interest-rate swaps and option-based derivatives were to have defaulted
simultaneously on December 31, 2021, our maximum loss for accounting purposes after applying netting agreements and
collateral on an individual counterparty basis would have been approximately $20 million. A significant majority of our net
uncollateralized exposure to OTC derivative counterparties is concentrated with four counterparties, all of which were
investment grade as of December 31, 2021. We regularly review the market value of securities pledged as collateral and
derivative counterparty collateral posting thresholds, where applicable, in an effort to manage our exposure to losses.
Regulations adopted by certain financial institution regulators (including FHFA) that became effective March 1, 2017 require
posting of variation margin without the application of any thresholds for OTC derivative transactions executed after that date.
However, for OTC derivative transactions executed before March 1, 2017 the amount of collateral we pledge to counterparties
related to our derivative instruments is determined after giving consideration to our credit rating. The aggregate fair value of our
OTC derivative instruments containing credit-risk related contingent features, netted by counterparty, that were in a liability
position on December 31, 2021 was $2.0 billion for which we posted cash and non-cash collateral of $1.9 billion in the normal
course of business. A reduction in our credit ratings may trigger additional collateral requirements related to these OTC
derivative instruments. If a reduction in our credit ratings had triggered additional collateral requirements related to these OTC
derivative instruments on December 31, 2021, the maximum additional collateral we would have been required to post to our
counterparties would be $0.1 billion.
Beginning in September 1, 2021, Freddie Mac is subject to new initial margin requirements for OTC derivative transactions. The
new initial margin requirements did not have a significant impact on our collateral posting arrangements.
Cleared and Exchange-Traded Derivatives
The majority of our interest-rate swaps are subject to the central clearing requirement. Changes in the value of open exchange-
traded contracts and cleared derivatives are settled daily via payments made through the clearinghouse. We net our exposure
to cleared derivatives by clearinghouse and clearing member. A reduction in our credit ratings could cause the clearinghouses
or clearing members we use for our cleared and exchange-traded derivatives to demand additional collateral.
FREDDIE MAC | 2021 Form 10-K
195
Financial Statements
Notes to the Consolidated Financial Statements | Note 10
Other Derivatives
We also execute forward purchase and sale commitments of loans and mortgage-related securities, including dollar roll
transactions, that are treated as derivatives for accounting purposes. The total exposure on our forward purchase and sale
commitments was $79 million and $388 million at December 31, 2021 and December 31, 2020, respectively.
Many of our transactions involving forward purchase and sale commitments of mortgage-related securities utilize the MBSD/
FICC as a clearinghouse. As a clearing member of the clearinghouse, we post margin to the MBSD/FICC and are exposed to
the counterparty credit risk of the organization (including its clearing members). In the event a clearing member fails and causes
losses to the MBSD/FICC clearing system, we could be subject to the loss of the margin that we have posted to the MBSD/
FICC. Moreover, our exposure could exceed that amount, as members are generally required to cover losses caused by
defaulting members on a pro rata basis. It is difficult to estimate our maximum exposure under these transactions, as this
would require an assessment of transactions that we and other members of the MBSD/FICC may execute in the future.
Securities Purchased Under Agreements to Resell
As an investor, we enter into arrangements to purchase securities under agreements to subsequently resell the identical or
substantially the same securities to our counterparty. Our counterparties to these transactions are required to pledge the
purchased securities as collateral for their obligation to repurchase those securities at a later date. While such transactions
involve the legal transfer of securities, they are accounted for as secured financings because the transferor does not relinquish
effective control over the securities transferred. These agreements may allow us to repledge all or a portion of the collateral
pledged to us, and we may repledge such collateral periodically, although it is not typically our practice to repledge collateral
that has been pledged to us.
We consider the types of securities being pledged to us as collateral when determining how much we lend in transactions
involving securities purchased under agreements to resell. Additionally, we regularly review the market values of these
securities compared to amounts loaned in an effort to manage our exposure to losses.
We utilize the GSD/FICC as a clearinghouse to transact many of our trades involving securities purchased under agreements to
resell, securities sold under agreements to repurchase, and other non-mortgage related securities. As a clearing member of
GSD/FICC, we are required to post initial and variation margin payments and are exposed to the counterparty credit risk of
GSD/FICC (including its clearing members). In the event a clearing member fails and causes losses to the GSD/FICC clearing
system, we could be subject to the loss of the margin that we have posted to the GSD/FICC. Moreover, our exposure could
exceed that amount, as members are generally required to cover losses caused by defaulting members on a pro rata basis. It is
difficult to estimate our maximum exposure under these transactions, as this would require an assessment of transactions that
we and other members of the GSD/FICC may execute in the future.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are effectively collateralized borrowings where we sell securities with an
agreement to repurchase such securities at a future date. We are required to pledge the sold securities to the counterparties to
these transactions as collateral for our obligation to repurchase these securities at a later date. Similar to the securities
purchased under agreements to resell transactions, these transactions involve the legal transfer of securities. However, they are
accounted for as secured financings because the transferor does not relinquish effective control over the securities transferred.
These agreements may allow our counterparties to repledge all or a portion of the collateral.
Offsetting of Financial Assets and Liabilities
When we receive cash collateral, we recognize the amount received along with a corresponding obligation to return the
collateral. When we post cash collateral, we derecognize the amount posted and record a corresponding asset for our right to
receive the return of the collateral. We generally do not recognize or derecognize collateral received or pledged in the form of
securities as the transferor in such arrangements does not relinquish effective control over the securities transferred. See Note
9 for additional information on our consolidated balance sheets presentation of collateral related to derivatives transactions. At
December 31, 2021 and December 31, 2020, all amounts of cash collateral related to derivatives with master netting and
collateral agreements were offset against derivative assets, net or derivative liabilities, net, as applicable.
We offset payables related to securities sold under agreements to repurchase against receivables related to securities
purchased under agreements to resell when such amounts meet the conditions for balance sheet offsetting. The table below
presents offsetting and collateral information related to derivatives, securities purchased under agreements to resell, and
securities sold under agreements to repurchase which are subject to enforceable master netting agreements or similar
arrangements.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 10
Table 10.1 - Offsetting and Collateral Information of Financial Assets and Liabilities
December 31, 2021
Amount Offset in the
Consolidated
Balance Sheets
Gross
Amount
Recognized
Counterparty
Netting
Cash
Collateral
Netting(1)
Net Amount
Presented in
the Consolidated
Balance Sheets
Gross Amount
Not Offset in
the Consolidated
Balance Sheets(2)
Net
Amount
(In millions)
Assets:
Derivatives:
OTC derivatives
Cleared and exchange-traded derivatives
Mortgage commitment derivatives
Other
Total derivatives
Securities purchased under agreements to resell
Total
Liabilities:
Derivatives:
$5,670
60
79
17
5,826
78,536
($4,437)
(4)
—
—
(4,441)
(7,333)
($963)
38
—
—
(925)
—
$84,362
($11,774)
($925)
OTC derivatives
Cleared and exchange-traded derivatives
Mortgage commitment derivatives
Other
Total derivatives
Securities sold under agreements to repurchase
($7,979)
(39)
(86)
(58)
(8,162)
(7,333)
$4,437
4
—
—
$3,417
22
—
—
4,441
3,439
7,333
—
Total
($15,495)
$11,774
$3,439
$270
94
79
17
460
71,203
$71,663
($125)
(13)
(86)
(58)
(282)
—
($282)
($250)
—
—
—
(250)
(71,203)
$20
94
79
17
210
—
($71,453)
$210
$—
13
—
—
13
—
($125)
—
(86)
(58)
(269)
—
$13
($269)
(In millions)
Assets:
Derivatives:
OTC derivatives
Cleared and exchange-traded derivatives
Mortgage commitment derivatives
Other
Total derivatives
December 31, 2020
Amount Offset in the
Consolidated
Balance Sheets
Gross
Amount
Recognized
Counterparty
Netting
Cash
Collateral
Netting(1)
Net Amount
Presented in
the Consolidated
Balance Sheets
Gross Amount
Not Offset in
the Consolidated
Balance Sheets(2)
Net
Amount
$8,566
17
388
63
9,034
($5,932)
—
—
—
($1,957)
60
—
—
(5,932)
(1,897)
$677
77
388
63
1,205
($648)
—
—
—
(648)
$29
77
388
63
557
—
Securities purchased under agreements to resell
105,003
—
—
105,003
(105,003)
Total
Liabilities:
Derivatives:
OTC derivatives
Cleared and exchange-traded derivatives
Mortgage commitment derivatives
Other
Total derivatives
Securities sold under agreements to repurchase
Total
$114,037
($5,932)
($1,897)
$106,208
($105,651)
$557
($8,812)
$5,932
$2,759
(37)
(759)
(63)
(9,671)
—
($9,671)
—
26
—
—
5,932
—
$5,932
—
—
2,785
—
$2,785
($121)
(11)
(759)
(63)
(954)
—
($954)
$—
($121)
—
—
—
—
—
$—
(11)
(759)
(63)
(954)
—
($954)
(1)
(2)
Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a derivative asset.
Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, netted by counterparty, presented on
the consolidated balance sheets.
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197
Financial Statements
Notes to the Consolidated Financial Statements | Note 10
Collateral Pledged
Collateral Pledged to Freddie Mac
We have cash pledged to us as collateral primarily related to OTC derivative transactions. We had $1.2 billion and $2.8 billion
pledged to us as collateral that was invested as part of our other investments portfolio as of December 31, 2021 and December
31, 2020, respectively.
We primarily execute securities purchased under agreements to resell transactions with central clearing organizations where we
have the right to repledge the collateral that has been pledged to us, either with the central clearing organization or with other
counterparties. At December 31, 2021 and December 31, 2020, we had $32.7 billion and $85.8 billion, respectively, of securities
pledged to us in these transactions. In addition, at both December 31, 2021 and December 31, 2020, we had $0.8 billion of
securities pledged to us for transactions involving securities purchased under agreements to resell not executed with central
clearing organizations that we had the right to repledge.
Collateral Pledged by Freddie Mac
For cash collateral related to commitments and securities purchased under agreements to resell transactions primarily with
central clearing organizations, we posted less than $0.1 billion as of December 31, 2021 and $1.3 billion as of December 31,
2020.
The table below summarizes the fair value of the securities pledged as collateral by us for derivatives and collateralized
borrowing transactions, including securities that the secured party may repledge.
Table 10.2 - Collateral in the Form of Securities Pledged
(In millions)
Debt securities of consolidated trusts(1)
Trading securities
Total securities pledged
(In millions)
Debt securities of consolidated trusts(1)
Trading securities
Total securities pledged
December 31, 2021
Derivatives
Securities Sold
Under Agreements
to Repurchase
Other(2)
Total
$—
1,542
$1,542
$—
7,333
$7,333
$161
1,115
$1,276
$161
9,990
$10,151
December 31, 2020
Derivatives
Securities Sold
Under Agreements
to Repurchase
Other(2)
Total
$121
1,920
$2,041
$—
—
$—
$345
1,163
$1,508
$466
3,083
$3,549
(1)
Represents debt securities of consolidated trusts held by us in our mortgage-related investments portfolio which are recorded as a reduction to debt securities of
consolidated trusts held by third parties on our consolidated balance sheets.
(2)
Includes other collateralized borrowings and collateral related to transactions with certain clearinghouses.
The table below presents the underlying collateral pledged and the remaining contractual maturity of our gross obligations
under securities sold under agreements to repurchase as of December 31, 2021.
Table 10.3 - Underlying Collateral Pledged
(In millions)
Overnight and
Continuous
30 days or Less
After 30 days
Through 90 days
Greater Than
90 days
Total
U.S. Treasury securities and other
$—
$3,085
$4,248
$—
$7,333
December 31, 2021
FREDDIE MAC | 2021 Form 10-K
198
Financial Statements
NOTE 11
Notes to the Consolidated Financial Statements | Note 11
Other Assets and Other Liabilities
The table below presents the components of other assets and other liabilities on our consolidated balance sheets.
Table 11.1 - Significant Components of Other Assets and Other Liabilities
(In millions)
Other assets:
Real estate owned, net
Guarantee assets
Servicer receivables
Credit enhancement receivables
Advances of pre-foreclosure costs
Derivative assets, net
All other
Total other assets
Other liabilities:
Guarantee obligations
Derivative liabilities, net
All other
Total other liabilities
December 31,
2021
2020
$176
5,919
11,571
194
974
460
10,127
$29,421
$5,716
282
5,102
$198
5,509
20,926
751
1,372
1,205
10,538
$40,499
$5,050
954
6,242
$11,100
$12,246
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199
Financial Statements
NOTE 12
Notes to the Consolidated Financial Statements | Note 12
Stockholders' Equity and Earnings Per Share
Senior Preferred Stock
Pursuant to the Purchase Agreement described in Note 2, we issued one million shares of senior preferred stock to Treasury
on September 8, 2008, in partial consideration of Treasury's commitment to provide funds to us.
Shares of the senior preferred stock have a par value of $1 and have a stated value and initial liquidation preference of $1
billion, or $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that are
not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred stock. In
addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and any
quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation
preference of the senior preferred stock. The liquidation preference of the senior preferred stock also increased by $3.0 billion
on December 31, 2017 pursuant to the December 2017 Letter Agreement. Pursuant to the September 2019 Letter Agreement
and January 2021 Letter Agreement, increases in the Net Worth Amount, if any, during the immediately prior fiscal quarter have
been, or will be, added to the liquidation preference of the senior preferred stock at the end of each fiscal quarter, from
September 30, 2019 through the Capital Reserve End Date. During 3Q 2021, our Net Worth Amount increased by $2.9 billion.
As a result, the liquidation preference of the senior preferred stock increased to $98.0 billion on December 31, 2021 and will
increase to $100.7 billion on March 31, 2022 based on the $2.7 billion increase in our Net Worth Amount during 4Q 2021. As
described below, we may make payments to reduce the liquidation preference of the senior preferred stock in limited
circumstances. As discussed in Note 2, the quarterly commitment fee has been suspended until the Capital Reserve End Date.
By the Capital Reserve End Date, we and Treasury, in consultation with the Chairman of the Federal Reserve, will mutually
agree on a periodic commitment fee we will pay for Treasury's remaining funding commitment with respect to the five-year
period commencing on the first January 1 after the Capital Reserve End Date.
Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as and if declared by
our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared by, and paid
at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of Directors.
The dividend is presented in the period in which it is determinable for the senior preferred stock, as a reduction to net income
(loss) available to common stockholders and net income (loss) per common share. The dividend is declared and paid in the
following period and recorded as a reduction to equity in the period declared. There were no cash dividends paid in 2021 or
2020. Dividends paid in cash during 2019 at the direction of the Conservator totaled $3.1 billion. See Note 2 for a discussion of
our net worth sweep dividend.
The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well as any
capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock provides that
we may not, at any time, declare or pay dividends on, make distributions with respect to, redeem, purchase or acquire, or make
a liquidation payment with respect to, any common stock or other securities ranking junior to the senior preferred stock unless:
n Full cumulative dividends on the outstanding senior preferred stock (including any unpaid dividends added to the liquidation
preference) have been declared and paid in cash and
n All amounts required to be paid with the net proceeds of any issuance of capital stock for cash (as described below) have
been paid in cash.
Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no general or special voting
rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise required by law. The
consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required to amend the
terms of the senior preferred stock or to create any class or series of stock that ranks prior to or on parity with the senior
preferred stock.
We are not permitted to redeem the senior preferred stock prior to the termination of Treasury's funding commitment set forth
in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding shares of
senior preferred stock to the extent of accrued and unpaid dividends previously added to the liquidation preference and not
previously paid down and quarterly commitment fees previously added to the liquidation preference and not previously paid
down. Pursuant to the January 2021 Letter Agreement, we are permitted to issue common stock with aggregate gross
proceeds of up to $70 billion after Treasury's exercise in full of its warrant to acquire 79.9% of our common stock and
resolution of currently pending material litigation related to our conservatorship and the Purchase Agreement, and we are
permitted to use the net proceeds of such issuance(s) to build capital. If we issue any other shares of capital stock for cash
while the senior preferred stock is outstanding, the net proceeds of such issuances must be used to pay down the liquidation
preference of the senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be
paid down below $1,000 per share prior to the termination of Treasury's funding commitment. Following the termination of
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200
Financial Statements
Notes to the Consolidated Financial Statements | Note 12
Treasury's funding commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock
at any time, in whole or in part. If, after termination of Treasury's funding commitment, we pay down the liquidation preference
of each outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment
date.
The table below provides a summary of our senior preferred stock outstanding at December 31, 2021.
Table 12.1 - Senior Preferred Stock
(In millions, except initial liquidation
preference price per share)
Non-draw Adjustments:
2008
2017
2019
2020
2021
Total non-draw adjustments
Draw Adjustments:
2008
2009
2010
2011
2012
2018
Total draw adjustments
Total senior preferred stock
Shares
Authorized
Shares
Outstanding
Total
Par Value
Initial
Liquidation
Preference
Price per Share
Total
Liquidation
Preference
1.00
—
—
—
—
1.00
—
—
—
—
—
—
—
1.00
—
—
—
—
1.00
—
—
—
—
—
—
—
$1.00
—
—
—
—
1.00
—
—
—
—
—
—
—
$1,000
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1.00
1.00
$1.00
$1,000
3,000
3,674
7,217
11,420
26,311
13,800
36,900
12,500
7,971
165
312
71,648
$97,959
No cash was received from Treasury under the Purchase Agreement in 2021 because we had positive net worth at December
31, 2020, March 31, 2021, June 30, 2021, and September 30, 2021 and, consequently, FHFA did not request a draw on our
behalf in 2021. At December 31, 2021, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested
from Treasury under the Purchase Agreement. The aggregate liquidation preference of the senior preferred stock owned by
Treasury was $98.0 billion as of December 31, 2021 and $86.5 billion as of December 31, 2020.
Our quarterly senior preferred stock dividend requirement is currently the amount, if any, by which our Net Worth Amount at the
end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. The applicable
Capital Reserve Amount is currently the amount of adjusted total capital necessary to meet the capital requirements and buffers
set forth in the ERCF. This Capital Reserve Amount will remain in effect until the last day of the second consecutive fiscal
quarter during which we have reached and maintained such level of capital (the Capital Reserve End Date). As a result, we will
not have a dividend requirement on the senior preferred stock until we have built sufficient capital to meet the capital
requirements and buffers set forth in the ERCF. If, for any reason, we were not to pay our dividend requirement on the senior
preferred stock in full in any future period until the Capital Reserve End Date, the unpaid amount would be added to the
liquidation preference and the applicable Capital Reserve Amount would thereafter be zero.
After the Capital Reserve End Date, our quarterly senior preferred stock dividend requirement will be an amount equal to the
lesser of (1) 10% per annum on the then-current liquidation preference of the Senior Preferred Stock and (2) a quarterly amount
equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter. If for any reason we were not
to pay our dividend requirement on the senior preferred stock in full in any future period after the Capital Reserve End Date, the
unpaid amount would be added to the liquidation preference and immediately following such failure and for all dividend periods
thereafter until the dividend period following the date on which we shall have paid in cash full cumulative dividends, the
dividend amount will be 12% per annum on the then-current liquidation preference of the senior preferred stock. See Note 2
for additional information.
Common Stock Warrant
Pursuant to the Purchase Agreement described in Note 2, on September 7, 2008, we issued a warrant to purchase common
stock to Treasury, in partial consideration of Treasury's commitment to provide funds to us.
The warrant may be exercised in whole or in part at any time on or before September 7, 2028, by delivery to us of a notice of
exercise, payment of the exercise price of $0.00001 per share and the warrant. If the market price of one share of our common
stock is greater than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to
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201
Financial Statements
Notes to the Consolidated Financial Statements | Note 12
the value of the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of
the warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.
We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the warrant at fair value,
and we do not recognize subsequent changes in fair value while the warrant remains classified in equity. We recorded an
aggregate fair value of $2.3 billion for the warrant as a component of additional paid-in-capital. We derived the fair value of the
warrant using a modified Black-Scholes model. If the warrant is exercised, the stated value of the common stock issued will be
reclassified to common stock on our consolidated balance sheets. The warrant was determined to be in-substance non-voting
common stock, because the warrant's exercise price of $0.00001 per share is considered non-substantive (compared to the
market price of our common stock). As a result, the shares associated with the warrant are included in the computation of basic
and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended
December 31, 2021, 2020, and 2019 included shares of common stock that would be issuable upon full exercise of the warrant
issued to Treasury.
Preferred Stock
We have the option to redeem our preferred stock on specified dates, at their redemption price plus dividends accrued through
the redemption date. However, without the consent of Treasury, we are restricted from making payments to purchase or
redeem preferred stock as well as paying any preferred dividends, other than dividends on the senior preferred stock. 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 incurred in connection with the issuance of preferred stock are charged to
additional paid-in capital.
FREDDIE MAC | 2021 Form 10-K
202
Financial Statements
Notes to the Consolidated Financial Statements | Note 12
The table below provides a summary of our preferred stock outstanding at their redemption values at December 31, 2021.
Table 12.2 - Preferred Stock
(In millions, except
redemption price per share)
Issue Date
Shares
Authorized
Shares
Outstanding
Total
Par Value
Redemption
Price per
Share
Total
Outstanding
Balance
Redeemable
On or After
OTCQB
Symbol
5.00
$5.00
$50.00
$250
June 30, 2001
FMCCI
Preferred stock:
1996 Variable-rate(1)
5.81%
5%
April 26, 1996
October 27, 1997
March 23, 1998
1998 Variable-rate(3)
September 23 and 29, 1998
5.10%
5.30%
5.10%
5.79%
1999 Variable-rate(4)
2001 Variable-rate(5)
2001 Variable-rate(6)
5.81%
6%
2001 Variable-rate(7)
5.70%
5.81%
September 23, 1998
October 28, 1998
March 19, 1999
July 21, 1999
November 5, 1999
January 26, 2001
March 23, 2001
March 23, 2001
May 30, 2001
May 30, 2001
October 30, 2001
January 29, 2002
5.00
3.00
8.00
4.40
8.00
4.00
3.00
5.00
5.75
6.50
4.60
3.45
3.45
4.02
6.00
6.00
3.00
8.00
4.40
8.00
4.00
3.00
5.00
5.75
6.50
4.60
3.45
3.45
4.02
6.00
6.00
3.00
8.00
4.40
8.00
4.00
3.00
5.00
5.75
6.50
4.60
3.45
3.45
4.02
6.00
6.00
2006 Variable-rate(8)
July 17, 2006
15.00
15.00
15.00
July 17, 2006
5.00
5.00
5.00
October 16, 2006
20.00
20.00
20.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
25.00
150
400
October 27, 1998
(2)
March 31, 2003
FMCKK
220 September 30, 2003
FMCCG
400 September 30, 2003
FMCCH
200
150
250
October 30, 2000
March 31, 2004
(2)
(2)
June 30, 2009
FMCCK
287
December 31, 2004
FMCCL
325
230
173
173
201
March 31, 2003
FMCCM
March 31, 2003
FMCCN
March 31, 2011
FMCCO
June 30, 2006
FMCCP
June 30, 2003
FMCCJ
300
December 31, 2006
FMCKP
300
750
250
March 31, 2007
(2)
June 30, 2011
FMCCS
June 30, 2011
FMCCT
500 September 30, 2011
FMCKO
January 16, 2007
44.00
44.00
44.00
25.00
1,100
December 31, 2011
FMCKM
April 16, 2007
20.00
20.00
20.00
July 24, 2007
20.00
20.00
20.00
September 28, 2007
20.00
20.00
20.00
25.00
25.00
25.00
500
500
March 31, 2012
FMCKN
June 30, 2012
FMCKL
500 September 30, 2017
FMCKI
December 4, 2007
240.00
240.00
240.00
25.00
6,000
December 31, 2012
FMCKJ
464.17
464.17
$464.17
$14,109
6.42%
5.90%
5.57%
5.66%
6.02%
6.55%
2007 Fixed-to-floating rate(9)
Total, preferred stock
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 9.00%.
Issued through private placement.
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377, and is capped at 7.50%.
Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury rate, and is capped at 11.00%. Optional
redemption on December 31, 2004 and on December 31 every five years thereafter.
Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.10%, and is capped at 11.00%.
Optional redemption on March 31, 2003 and on March 31 every two years thereafter.
Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%, and is capped at 11.00%. Optional redemption on March 31, 2003 and on
March 31 every year thereafter.
Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year Constant Maturity Treasury rate plus 0.20%, and is capped at 11.00%.
Optional redemption on June 30, 2003 and on June 30 every two years thereafter.
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.
Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after January 1, 2013,
dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum; or (b) 7.875% per annum. Optional redemption
on December 31, 2012 and on December 31 every five years thereafter.
FREDDIE MAC | 2021 Form 10-K
203
Financial Statements
Notes to the Consolidated Financial Statements | Note 12
Stock-Based Compensation
Following the implementation of the conservatorship in September 2008, we suspended the operation of and/or ceased making
grants under our stock-based compensation plans. Under the Purchase Agreement, we cannot issue any new options, rights to
purchase, participations or other equity interests without Treasury's prior approval.
We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2021 and 2020, except for
issuances of treasury stock as reported on our consolidated statements of equity relating to stock-based compensation
granted prior to conservatorship. Common stock delivered under these stock-based compensation plans consists of treasury
stock or shares acquired in market transactions on behalf of the participants. During 2021, the deferral period lapsed on 351
RSUs. At December 31, 2021, no RSUs remained outstanding. In addition, there were 41,160 shares of restricted stock
outstanding at both December 31, 2021 and December 31, 2020, respectively. At December 31, 2021, no stock options were
outstanding.
Earnings Per Share
During 2021, 2020, and 2019, we had participating securities related to RSUs with dividend equivalent rights that received
dividends as declared on an equal basis with common shares but were not obligated to participate in undistributed net losses.
These participating securities consisted of vested RSUs that earned dividend equivalents at the same rate when and as
declared on common stock.
Consequently, in accordance with accounting guidance, we use the "two-class" method of computing earnings per common
share. The "two-class" method is an earnings allocation formula that determines earnings per share for common stock and
participating securities based on dividends declared and participation rights in undistributed earnings.
Basic earnings per common share is computed as net income attributable to common stockholders divided by the weighted
average common shares outstanding for the period. The weighted average common shares outstanding for the period includes
the weighted average number of shares that are associated with the warrant for our common stock issued to Treasury pursuant
to the Purchase Agreement. These shares are included since the warrant is unconditionally exercisable by the holder at a
minimal cost.
Our diluted earnings per common share is the same as our basic earnings per common share because we had no common
equivalent shares outstanding during the periods presented which could have had a dilutive or antidilutive effect.
Dividends and Dividend Restrictions
No common dividends were declared in 2021, 2020, and 2019. No dividends were paid during 2021 and 2020 on the senior
preferred stock as a result of the increase in the applicable Capital Reserve Amount pursuant to the September 2019 and
January 2021 Letter Agreements. In 2019, we paid dividends of $3.1 billion 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
2021.
Our payment of dividends is subject to the following restrictions:
n Restrictions Relating to the Conservatorship - The Conservator has prohibited us from paying any dividends on our
common stock or on any series of our preferred stock (other than the senior preferred stock). FHFA has instructed our
Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving dividends. In
addition, FHFA has adopted a regulation prohibiting us from making capital distributions during conservatorship, except as
authorized by the Director of FHFA.
n Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of our subsidiaries from
declaring or paying any dividends on Freddie Mac equity securities (other than with respect to the senior preferred stock or
warrant) without the prior written consent of Treasury.
n Restrictions Under the GSE Act - Under the GSE Act, FHFA has authority to prohibit capital distributions, including
payment of dividends, if we fail to meet applicable capital requirements. However, our capital requirements have been
suspended during conservatorship.
n Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior written approval of
FHFA to make any capital distribution that would decrease total capital to an amount less than the risk-based capital level
or that would decrease core capital to an amount less than the minimum capital level. As noted above, our capital
requirements have been suspended during conservatorship.
n Restrictions Relating to Preferred Stock - Payment of dividends on our common stock is also subject to the prior
payment of dividends on our 24 series of preferred stock and one series of senior preferred stock, representing an
aggregate of 464,170,000 shares and 1,000,000 shares outstanding, respectively, as of December 31, 2021. Payment of
FREDDIE MAC | 2021 Form 10-K
204
Financial Statements
Notes to the Consolidated Financial Statements | Note 12
dividends on all outstanding preferred stock, other than the senior preferred stock, is subject to the prior payment of
dividends on the senior preferred stock.
Delisting of Common Stock and Preferred Stock from NYSE
On July 8, 2010, we delisted our common stock and 20 previously listed classes of preferred stock from the NYSE as directed
by our Conservator.
Our common stock and the classes of preferred stock that were previously listed on the NYSE are traded exclusively in the
OTCQB Marketplace. Shares of our common stock now trade under the ticker symbol FMCC. We expect that our common
stock and the previously listed classes of preferred stock will continue to trade in the OTCQB Marketplace so long as market
makers demonstrate an interest in trading the common and preferred stock.
FREDDIE MAC | 2021 Form 10-K
205
Financial Statements
NOTE 13
Net Interest Income
Notes to the Consolidated Financial Statements | Note 13
The table below presents the components of net interest income per our consolidated statements of comprehensive income
(loss).
Table 13.1 - Components of Net Interest Income
(In millions)
Interest income
Mortgage loans
Investment securities
Other
Total interest income
Interest expense
Year Ended December 31,
2021
2020
2019
$59,130
$59,290
$68,583
2,261
2,581
136
469
2,737
1,575
61,527
62,340
72,895
Debt securities of consolidated trusts held by third parties
(42,209)
(46,281)
(53,980)
Debt of Freddie Mac:
Short-term debt
Long-term debt
Total interest expense
Net interest income
Benefit (provision) for credit losses
Net interest income after benefit (provision) for credit losses
—
(606)
(1,738)
(2,682)
(1,910)
(5,157)
(43,947)
(49,569)
(61,047)
17,580
12,771
11,848
1,041
(1,452)
746
$18,621
$11,319
$12,594
FREDDIE MAC | 2021 Form 10-K
206
Notes to the Consolidated Financial Statements | Note 14
Financial Statements
NOTE 14
Income Taxes
Income Tax Expense
Total income tax expense includes:
n Current income tax expense, which represents the amount of federal tax currently payable to or receivable from the
Internal Revenue Service, including interest and penalties and amounts accrued for unrecognized tax benefits, if any, and
n Deferred income tax expense, which represents the net change in the deferred tax asset or liability balance during the year,
including any change in the valuation allowance.
The table below presents the components of our federal income tax expense for the past three years. We are exempt from
state and local income taxes.
Table 14.1 - Federal Income Tax Expense
(In millions)
Current income tax (expense) benefit
Deferred income tax (expense) benefit
Total income tax (expense) benefit
Year Ended December 31,
2021
2020
2019
($2,617)
(473)
($3,090)
($2,493)
590
($1,903)
($1,018)
(817)
($1,835)
Income tax expense increased from both 2020 to 2021 and 2019 to 2020 primarily due to an increase in pre-tax book income.
The table below presents the reconciliation between our federal statutory income tax rate and our effective tax rate for the past
three years.
Table 14.2 - Reconciliation of Federal Statutory Income Tax Rate to Effective Tax Rate
(Dollars in millions)
Statutory corporate tax rate
Tax-exempt interest
Tax credits
Valuation allowance
Other
Effective tax rate
Deferred Tax Assets, Net
Year Ended December 31,
2021
2020
2019
Amount
Percent
Amount
Percent
Amount
Percent
($3,192)
21.0 %
($1,938)
21.0 %
($1,900)
21.0 %
20
133
(11)
(40)
(0.2)
(0.9)
0.1
0.3
25
55
(4)
(41)
(0.3)
(0.6)
0.1
0.4
18
48
9
(10)
(0.2)
(0.5)
(0.1)
0.1
($3,090)
20.3 %
($1,903)
20.6 %
($1,835)
20.3 %
We use the asset and liability method of accounting for income taxes for financial reporting purposes. Under this method,
deferred tax assets and liabilities are recognized 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, if any. To the extent tax laws change, deferred tax assets and
liabilities are adjusted in the period that the tax change is enacted. The realization of our net deferred tax assets is dependent
upon the generation of sufficient taxable income.
FREDDIE MAC | 2021 Form 10-K
207
Financial Statements
Notes to the Consolidated Financial Statements | Note 14
The table below presents the balance of significant deferred tax assets and liabilities at December 31, 2021 and December 31,
2020. The valuation allowance relates to capital loss carryforwards included in Other items, net that we expect to expire
unused.
Table 14.3 - Deferred Tax Assets and Liabilities
(In millions)
Deferred tax assets:
Deferred fees
Basis differences related to derivative instruments
Credit related items and allowance for loan losses
Basis differences related to assets held-for-investment and held-for-sale
Other items, net
Total deferred tax assets
Deferred tax liabilities:
Unrealized gains related to available-for-sale securities
Total deferred tax liabilities
Valuation allowance
Deferred tax assets, net
Valuation Allowance
Year Ended December 31,
2021
2020
$3,179
1,629
815
544
178
6,345
(79)
(79)
(52)
$6,214
$3,354
1,810
844
999
134
7,141
(543)
(543)
(41)
$6,557
A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not that all or part of our tax
benefits will not be realized. On a quarterly basis, we determine whether a valuation allowance is necessary. In doing so, we
consider all evidence available, both positive and negative, in determining whether, based on the weight of the evidence, it is
more likely than not that the net deferred tax asset will be realized.
We are not permitted to consider in our analysis the impacts proposed legislation may have on our business because the timing
and certainty of those actions are unknown and beyond our control.
Based on all positive and negative evidence available at December 31, 2021, we determined that it is more likely than not that
our net deferred tax assets, except for the deferred tax asset related to our capital loss carryforwards, will be realized. A
valuation allowance of $52 million has been recorded against our capital loss carryforward deferred tax asset.
Unrecognized Tax Benefits
We recognize a tax position taken or expected to be taken (and any associated interest and penalties) if it is more likely than
not that it will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the
technical merits of the position. We measure the tax position at the largest amount of benefit that is greater than 50% likely of
being realized upon ultimate settlement. We evaluated all income tax positions and determined that there were no uncertain tax
positions that required reserves as of December 31, 2021.
FREDDIE MAC | 2021 Form 10-K
208
Financial Statements
NOTE 15
Segment Reporting
Notes to the Consolidated Financial Statements | Note 15
During 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment
performance based on two reportable segments, Single-Family and Multifamily. In prior periods, we managed our business
based on three reportable segments, Single-Family Guarantee, Multifamily, and Capital Markets. As our mortgage-related
investments portfolio has declined over time, our capital markets activities have become increasingly focused on supporting
our Single-Family and Multifamily businesses. As a result, we determined that, effective in 2021, our Capital Markets segment
should no longer be considered a separate reportable segment, and our chief operating decision maker no longer reviews
separate financial results or discrete financial information for our capital markets activities. Substantially all of the revenues and
expenses that were previously directly attributable to our Capital Markets segment are now included in our Single-Family
segment, while certain administrative expenses and other centrally-incurred costs previously allocated to the Capital Markets
segment are now allocated between the Single-Family and Multifamily segments using various methodologies depending on
the nature of the expense.
In connection with this change, we also changed the measure of segment profit and loss for each segment to be based on net
income and comprehensive income calculated using the same accounting policies we use to prepare our general purpose
financial statements in conformity with generally accepted accounting principles. The financial results of each reportable
segment include directly attributable revenue and expenses. We allocate interest expense and other funding and hedging-
related costs and returns on certain investments to each reportable segment using a funds transfer pricing process. We fully
allocate to each reportable segment the administrative expenses and other centrally-incurred costs that are not directly
attributable to a particular segment using various methodologies depending on the nature of the expense. As a result, the sum
of each income statement line item for the two reportable segments is equal to that same income statement line item for the
consolidated entity. We have discontinued the reclassifications of certain activities between various line items that were
included in our previous measure of segment profit and loss. Prior period information has been revised to conform to the
current period presentation.
Segment
Description
Single-Family
Reflects results from our purchase, securitization, and guarantee of single-family loans, our investments in single-family loans and
mortgage-related securities, the management of Single-Family mortgage credit risk and market risk, and any results of our treasury
function that are not allocated to each segment.
Multifamily
Reflects results from our purchase, securitization, and guarantee of multifamily loans, our investments in multifamily loans and
mortgage-related securities, and the management of Multifamily mortgage credit risk and market risk.
Segment Allocations and Results
The results of each reportable segment include directly attributable revenues and expenses. We allocate interest expense and
other funding and hedging-related costs and returns on certain investments to each reportable segment using a funds transfer
pricing process. We fully allocate to each reportable segment administrative expenses and other centrally-incurred costs that
are not directly attributable to a particular segment using various methodologies depending on the nature of the expense.
FREDDIE MAC | 2021 Form 10-K
209
Financial Statements
Notes to the Consolidated Financial Statements | Note 15
The table below presents the financial results for our Single-Family and Multifamily segments.
Table 15.1 - Segment Financial Results
Year Ended December 31, 2021
Year Ended December 31, 2020
Year Ended December 31, 2019
(In millions)
Single-
Family Multifamily
Total
Single-
Family
Multifamily
Total
Single-
Family
Multifamily
Total
Net interest income
$16,273
$1,307 $17,580 $11,592
$1,179 $12,771 $10,664
$1,184 $11,848
Non-interest income (loss)
Guarantee income
Investment gains (losses), net
Other income (loss)
Non-interest income (loss)
Net revenues
Benefit (provision) for credit
losses
Non-interest expense
Administrative expense
Credit enhancement expense
Benefit for (decrease in) credit
enhancement recoveries
REO operations income
(expense)
Legislated 10 basis point fee
expense
Other expense
114
361
479
954
918
1,032
2,385
2,746
114
593
3,417
4,371
112
(112)
457
457
1,330
1,442
1,925
1,813
176
633
3,431
3,888
44
300
216
560
1,045
1,089
518
107
818
323
1,670
2,230
17,227
4,724
21,951
12,049
4,610
16,659
11,224
2,854
14,078
919
122
1,041
(1,320)
(132)
(1,452)
749
(3)
746
(2,033)
(1,470)
(618)
(2,651)
(2,021)
(514)
(2,535)
(2,061)
(503)
(2,564)
(48)
(1,518)
(1,036)
(22)
(1,058)
(734)
(15)
(749)
(523)
(19)
(542)
305
18
323
41
—
41
(12)
—
(12)
(149)
—
(149)
(229)
—
(229)
(2,342)
(695)
—
(2,342)
(1,836)
(33)
(728)
(686)
—
(37)
(1,836)
(1,617)
(723)
(616)
—
(41)
(1,617)
(657)
Non-interest expense
(7,075)
(718)
(7,793)
(5,423)
(555)
(5,978)
(5,216)
(559)
(5,775)
Income (loss) before income
tax (expense) benefit
Income tax (expense) benefit
Net income (loss)
Other comprehensive income
(loss), net of taxes and
reclassification adjustments
Comprehensive income
(loss)
11,071
4,128
15,199
5,306
3,923
9,229
6,757
2,292
9,049
(2,251)
8,820
(839)
(3,090)
(1,094)
(809)
(1,903)
(1,370)
(465)
(1,835)
3,289
12,109
4,212
3,114
7,326
5,387
1,827
7,214
(379)
(110)
(489)
104
101
205
472
101
573
$8,441
$3,179 $11,620
$4,316
$3,215
$7,531
$5,859
$1,928
$7,787
We measure total assets for our reportable segments based on the mortgage portfolio for each segment. We operate our
business in the U.S. and its territories, and accordingly, we generate no revenue from and have no long-lived assets, other than
financial instruments, in geographic locations other than the U.S. and its territories.
The table below presents total assets for our Single-Family and Multifamily segments.
Table 15.2 - Segment Assets
(In millions)
Single-Family
Multifamily
Total segment assets
Reconciling items(1)
Total assets per consolidated balance sheets
December 31, 2021
December 31, 2020
$2,792,224
414,663
3,206,887
(181,301)
$3,025,586
$2,326,426
388,347
2,714,773
(87,358)
$2,627,415
(1)
Reconciling items include assets in our mortgage portfolio that are not recognized on our consolidated balance sheets and assets recognized on our consolidated
balance sheets that are not allocated to the reportable segments.
FREDDIE MAC | 2021 Form 10-K
210
Financial Statements
NOTE 16
Notes to the Consolidated Financial Statements | Note 16
Concentration of Credit and Other Risks
Concentrations of credit risk may arise when we do business with a number of customers or counterparties that engage in
similar activities or have similar economic characteristics that make them vulnerable in similar ways to changes in industry
conditions, which could affect their ability to meet their contractual obligations. Concentrations of credit risk may also arise
when there are a limited number of counterparties in a certain industry. Based on our assessment of business conditions that
could affect our financial results, we have determined that concentrations of credit risk exist among certain borrowers (including
geographic concentrations), loan sellers and servicers, credit enhancement providers, and other investment counterparties. In
the sections below, we discuss our concentration of credit risk for each of the groups to which we are exposed. For a
discussion of our derivative counterparties, as well as related master netting and collateral agreements, see Note 10.
Single-Family Mortgage Portfolio
Single-family borrowers are primarily affected by house prices and interest rates, which are influenced by economic factors.
Geographic concentrations may increase the exposure of our portfolio to credit risk, as regional economic conditions may
affect a borrower's ability to repay and the underlying property value.
The table below summarizes the concentration by geographic area of our Single-Family mortgage portfolio as of December 31,
2021 and December 31, 2020, respectively. See Note 4, Note 5, and Note 6 for more information about credit risk
associated with single-family loans that we hold or guarantee.
Table 16.1 - Concentration of Credit Risk of Our Single-Family Mortgage Portfolio
December 31, 2021
December 31, 2020
Portfolio
UPB(2)
% of
Portfolio
SDQ Rate
Portfolio
UPB(2)
% of
Portfolio
SDQ Rate
2021(1)
Credit
Losses
Amount
2020(1)
Credit
Losses
Amount
(Dollars in billions)
Region(3):
West
Northeast
North Central
Southeast
Southwest
Total
State:
California
Texas
Florida
New York
Illinois
All other
Total
$859
31 %
0.92 %
$720
31 %
2.41 %
660
416
461
396
24
15
16
14
$2,792
100 %
$498
18 %
177
169
121
109
6
6
4
4
1,718
$2,792
62
100 %
1.37
0.98
1.21
1.14
1.12
0.99
1.23
1.36
2.07
1.44
1.03
1.12
549
357
375
325
24
15
16
14
$2,326
100 %
$424
18 %
145
135
103
96
6
6
4
4
1,423
$2,326
62
100 %
3.16
2.06
2.95
2.59
2.64
2.64
3.11
3.70
4.56
2.96
2.34
2.64
$—
—
0.1
—
—
$0.1
$—
—
—
—
—
0.1
$0.1
$—
0.2
0.1
0.1
—
$0.4
$—
—
—
0.1
0.1
0.2
$0.4
(1)
(2)
(3)
Consists of net charge-offs (excluding charge-offs of accrued interest receivable) and REO operations (income) expense.
Excludes $439 million and $505 million in UPB of loans underlying certain securitization products for which data was not available as of December 31, 2021 and
December 31, 2020, respectively.
Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, WV); North Central (IL, IN, IA,
MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).
Multifamily Mortgage Portfolio
Numerous factors affect a multifamily borrower's ability to repay and the underlying property value. The most significant factors
affecting credit risk are effective rents paid and capitalization rates for the mortgaged property. Effective rents paid vary among
geographic regions of the United States. The average UPB for multifamily loans is significantly larger than for single-family loans
and, therefore, individual defaults for multifamily borrowers can result in more significant losses.
In the Multifamily mortgage portfolio, the primary concentration of credit risk is based on the legal structure of the investments
FREDDIE MAC | 2021 Form 10-K
211
Financial Statements
Notes to the Consolidated Financial Statements | Note 16
we hold. Our exposure to credit risk in our securitization-related products is minimal, as the expected credit risk is generally
absorbed by the subordinate tranches, which are typically sold to third-party investors. As a result, our Multifamily mortgage
credit risk is primarily related to loans that have not been securitized.
The table below summarizes the concentration of multifamily loans in our Multifamily mortgage portfolio classified by legal
structure, based on UPB.
Table 16.2 - Concentration of Credit Risk of Our Multifamily Mortgage Portfolio
(Dollars in billions)
Unsecuritized loans
Securitized loans
Other mortgage-related guarantees
Total
(1)
Based on loans two monthly payments or more delinquent or in foreclosure.
Sellers and Servicers
December 31, 2021
December 31, 2020
UPB
Delinquency
Rate(1)
UPB
Delinquency
Rate(1)
$22.8
381.4
10.5
$414.7
0.04 %
0.07
0.44
0.08
$33.4
344.1
10.8
$388.3
0.04 %
0.18
0.06
0.16
We acquire a significant portion of our Single-Family and Multifamily loan purchase and guarantee volume from several large
sellers. Single-Family top 10 sellers provided 50% and 44% of our purchase and guarantee volume during 2021 and 2020,
respectively. None of our Single-Family sellers provided 10% or more of our purchase and guarantee volume during these
periods. The table below summarizes the concentration of Multifamily sellers who provided 10% or more of our purchase and
guarantee volume during 2021 and 2020.
Table 16.3 - Multifamily Seller Concentration
Multifamily Sellers
Berkadia Commercial Mortgage LLC
CBRE Capital Markets, Inc.
JLL Real Estate Capital LLC
Walker & Dunlop LLC
Other top 10 sellers
Top 10 Multifamily sellers
2021
2020
15 %
14 %
13
10
9
32
16
11
10
31
79 %
82 %
We purchase single-family loans from both depository and non-depository sellers. Non-depository institutions may not have the
same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as large depository
institutions. Our top five non-depository sellers provided approximately 30% and 26% of our Single-Family purchase volume
during 2021 and 2020, respectively.
If we discover that the representations or warranties related to a loan were breached (i.e., that contractual standards were not
followed), we can exercise certain contractual remedies to mitigate our actual or potential credit losses. These contractual
remedies include the ability to require the seller or servicer to repurchase the loan at its current UPB, reimburse us for losses
realized with respect to the loan after consideration of any other recoveries, and/or indemnify us. Our current remedies
framework provides for the categorization of loan origination defects for loans with settlement dates on or after January 1,
2016. Among other items, the framework provides that "significant defects" will result in a repurchase request or a repurchase
alternative, such as recourse or indemnification.
Under our current selling and servicing representation and warranty framework for our mortgage loans, we relieve sellers of
repurchase obligations for breaches of certain selling representations and warranties for certain types of loans, including:
n Loans that have established an acceptable payment history for 36 months (12 months for relief refinance loans) of
consecutive, on-time payments after purchase, subject to certain exclusions and
n Loans that have satisfactorily completed a quality control review.
An independent dispute resolution process for alleged breaches of selling or servicing representations and warranties on our
loans allows for a neutral third party to render a decision on demands that remain unresolved after the existing appeal and
escalation processes have been exhausted.
As of December 31, 2021 and December 31, 2020, the UPB of loans subject to our repurchase requests issued to our Single-
Family sellers and servicers was approximately $1.3 billion and $0.5 billion, respectively (these figures include repurchase
FREDDIE MAC | 2021 Form 10-K
212
Financial Statements
Notes to the Consolidated Financial Statements | Note 16
requests for which appeals were pending). During 2021 and 2020, we recovered amounts with respect to $1.4 billion and $0.9
billion, respectively, in UPB of loans subject to our repurchase requests.
The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase obligations may be
significantly less than the amount of our estimates of potential exposure to losses. Our expected credit losses for exposure to
seller/servicers for their repurchase obligations are considered in our allowance for credit losses. See Note 6 for further
information.
We are also exposed to the risk that servicers might fail to service loans in accordance with the contractual requirements,
resulting in increased credit losses. For example, our servicers have an active role in our loss mitigation efforts, and we
therefore have exposure to them to the extent a decline in their performance results in a failure to realize the anticipated
benefits of the loss mitigation plans. Since we do not have our own servicing operation, if our servicers lack appropriate
controls, experience a failure in their controls, or experience an operating disruption in their ability to service loans, our business
and financial results could be adversely affected.
Significant portions of our single-family and multifamily loans are serviced by several large servicers. The table below
summarizes the concentration of Single-Family and Multifamily servicers who serviced 10% or more of our Single-Family
mortgage portfolio and Multifamily mortgage portfolio as of December 31, 2021 and December 31, 2020.
Table 16.4 - Servicer Concentration
Single-Family Servicers
Wells Fargo Bank, N.A.
Other top 10 servicers
Top 10 Single-Family servicers
Multifamily Servicers(2)
CBRE Capital Markets, Inc.
Berkadia Commercial Mortgage LLC
JLL Real Estate Capital LLC
Other top 10 servicers
Top 10 Multifamily servicers
December 31, 2021(1)
December 31, 2020(1)
8 %
39
47 %
11 %
38
49 %
December 31, 2021
December 31, 2020
16 %
14
11
39
80 %
17 %
13
11
39
80 %
(1)
Percentage of servicing volume is based on the total Single-Family mortgage portfolio, which includes loans where we do not exercise servicing control. However,
loans where we do not exercise servicing control are not included for purposes of determining the concentration of servicers who serviced more than 10% of our
Single-Family mortgage portfolio.
(2)
Represents multifamily primary servicers.
We utilize both depository and non-depository servicers for single-family loans. Some of these non-depository servicers service
a large share of our loans. As of December 31, 2021 and December 31, 2020, approximately 19% and 18% of our Single-
Family mortgage portfolio, excluding loans where we do not exercise control over the associated servicing, was serviced by our
five largest non-depository servicers, on a combined basis. We routinely monitor the performance of our largest non-depository
servicers.
For our mortgage-related securities, we guarantee the payment of principal and interest, and when the underlying borrowers do
not pay their mortgages, our Guide generally requires Single-Family servicers to advance the missed mortgage interest
payments for up to 120 days. After this time, Freddie Mac will make the missed mortgage principal and interest payments until
the mortgages are no longer held by the securitization trust. At the instruction of FHFA, we purchase loans from trusts when
they reach 24 months of delinquency, except for loans that meet certain criteria (e.g., permanently modified or foreclosure
referral), which may be purchased sooner. Many delinquent loans are purchased from trusts before they reach 24 months of
delinquency under one of the exceptions provided. We must obtain FHFA’s approval to implement changes to our policy to
purchase loans from trusts. We implemented the 24-month policy on January 1, 2021. Prior to that time, in accordance with
FHFA instruction, we generally purchased loans from trusts if they were delinquent for 120 days, subject to certain exceptions.
In addition to principal and interest payments, borrowers are also responsible for other expenses such as property taxes and
homeowner's insurance premiums. When borrowers do not pay these expenses, our Guide generally requires Single-Family
servicers to advance the funds for these expenses in order to protect or preserve our interest in or legal right to the properties.
These advances are ultimately collectible from the borrowers. If the borrowers reperform through loan workout activities, the
missed payments and incurred expenses will be collected from them. We will reimburse the servicers for the advanced
amounts when uncollected from the borrowers at completion of foreclosures or foreclosure alternatives.
Multifamily loans utilize both primary and master servicers. Primary servicers service unsecuritized mortgage loans and are also
typically engaged by master servicers to service on their behalf the mortgage loans underlying securitizations. For a majority of
our K Certificate securitizations, we utilize one of three large financial depository institutions as master servicer. For SB
Certificate securitizations and a smaller number of K Certificate securitizations, we serve as master servicer. Multifamily primary
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servicers included in the table above present potential operational risk and impact to the borrowers if the servicing needs to be
transferred to another servicer. We also rely on master servicers of our multifamily securitization transactions to advance funds
in the event of payment shortfalls, including principal and interest payments related to loans in forbearance. In instances where
payment shortfalls occur, the master servicer is required to make advances as long as such advances have not been deemed
unrecoverable. For multifamily loans purchased and held in our mortgage-related investments portfolio, the primary servicers
are not required to advance funds in the event of payment shortfalls and therefore do not present significant counterparty credit
risk from this source.
Credit Enhancement Providers
We have counterparty credit risk relating to the potential insolvency of, or nonperformance by, mortgage insurers that insure
single-family loans we purchase or guarantee. We also have similar exposure to insurers and reinsurers through our ACIS and
other insurance transactions where we purchase insurance policies as part of our CRT activities.
In March 2019, we implemented a set of revised Private Mortgage Insurer Eligibility Requirements (PMIERs) with enhancements
to the risk-based capital requirements for mortgage insurers. In addition, we revised master policies with mortgage insurers
which provide contract certainty and improve our ability to collect claims for mortgage insurance obligations. These policies
were approved by FHFA and became effective on March 1, 2020.
We evaluate the recovery and collectability from mortgage insurers as part of the estimate of our allowance for credit losses.
See Note 6 for additional information. As of December 31, 2021, mortgage insurers provided coverage with maximum loss
limits of $135.3 billion, for $545.3 billion of UPB, in connection with our Single-Family mortgage portfolio. These amounts are
based on gross coverage without regard to netting of coverage that may exist to the extent an affected loan is covered under
other types of insurance. Changes in our expectations related to recovery and collectability from our credit enhancement
providers may affect our estimates of expected credit losses, perhaps significantly.
The table below summarizes the concentration of mortgage insurer counterparties who provided 10% or more of our overall
primary mortgage insurance coverage.
Table 16.5 - Primary Mortgage Insurer Concentration
Mortgage Insurer
Arch Mortgage Insurance Company
Mortgage Guaranty Insurance Corporation
Radian Guaranty Inc.
Enact(3)
Essent Guaranty, Inc.
National Mortgage Insurance Corporation
Total
Credit Rating(1)
A
BBB+
BBB+
BBB
BBB+
BBB
Mortgage Insurance Coverage(2)
December 31, 2021
December 31, 2020
19 %
19
18
15
15
13
99 %
20 %
18
19
15
16
10
98 %
(1)
(2)
Ratings are for the corporate entity to which we have the greatest exposure. Latest rating available as of December 31, 2021. Represents the lower of S&P and
Moody's credit ratings stated in terms of the S&P equivalent.
Coverage amounts exclude coverage primarily related to certain loans for which we do not control servicing, and may include coverage provided by affiliates and
subsidiaries of the counterparty.
(3)
Enact was previously known as Genworth Mortgage Insurance Corporation.
As part of our insurance/reinsurance CRT transactions, we regularly obtain insurance coverage from global insurers and
reinsurers. These transactions incorporate several features designed to increase the likelihood that we will recover on the
claims we file with the insurers and reinsurers. In each transaction, we require the individual insurers and reinsurers to post
collateral to cover portions of their exposure, which helps to promote certainty and timeliness of claim payment.
While private mortgage insurance companies are required to be monoline (i.e., to participate solely in the mortgage insurance
business, although the holding company may be a diversified insurer), many of our insurers and reinsurers in these transactions
participate in multiple types of insurance businesses, which helps diversify their risk exposure.
Other Investment Counterparties
We are exposed to the non-performance of counterparties relating to other investments (including non-mortgage-related
securities and cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our policies
require that the counterparty be evaluated using our internal counterparty rating model prior to our entering such transactions.
We monitor the financial strength of our counterparties to these transactions and may use collateral maintenance requirements
to manage our exposure to individual counterparties. The permitted term and dollar limits for each of these transactions are
also based on the counterparty's financial strength.
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Our other investments (including non-mortgage-related securities and cash equivalents) counterparties are primarily major
financial institutions, including other GSEs, Treasury, the Federal Reserve Bank of New York, GSD/FICC, highly-rated
supranational institutions, depository and non-depository institutions, brokers and dealers, and government money market
funds. As of December 31, 2021 and December 31, 2020, including amounts related to our consolidated VIEs, the balance in
our other investments portfolio was $129.7 billion and $163.1 billion, respectively. The balance consists primarily of cash,
securities purchased under agreements to resell, U.S. Treasury securities, cash deposited with the Federal Reserve Bank of
New York, and secured lending activities. As of December 31, 2021, all of our securities purchased under agreements to resell
were fully collateralized. As of both December 31, 2021 and December 31, 2020, $0.8 billion of our securities purchased under
agreements to resell were used to provide financing to investors in Freddie Mac securities to increase liquidity and expand the
investor base for those securities. These transactions differ from the securities purchased under agreements to resell that we
use for liquidity purposes as the counterparties we face may not be major financial institutions and we are exposed to greater
counterparty credit risk for these institutions.
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NOTE 17
Fair Value Disclosures
Notes to the Consolidated Financial Statements | Note 17
The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework for measuring
fair value and sets forth disclosure requirements regarding fair value measurements. This guidance applies whenever other
accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value represents the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place
either in the principal market for the asset or liability, or, in the absence of a principal market, in the most advantageous market
for the asset or liability.
We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain
assets and liabilities on a recurring or non-recurring basis.
Fair Value Measurements
The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy that
prioritizes the inputs into the valuation techniques used to measure fair value. The levels of the fair value hierarchy are defined
as follows in priority order:
n Level 1 - Inputs to the valuation techniques are based on quoted prices in active markets for identical assets or liabilities.
n Level 2 - Inputs to the valuation techniques are based on observable inputs other than quoted prices in active markets for
identical assets or liabilities.
n Level 3 - One or more inputs to the valuation technique are unobservable and significant to the fair value measurement.
We use quoted market prices and valuation techniques that seek to maximize the use of observable inputs, where available,
and minimize the use of unobservable inputs. Our inputs are based on the assumptions a market participant would use in
valuing the asset or liability. Assets and liabilities are classified in their entirety within the fair value hierarchy based on the
lowest level input that is significant to the fair value measurement.
Valuation Risk and Controls Over Fair Value Measurements
Valuation risk is the risk that fair values used for financial disclosures, risk metrics, and performance measures do not
reasonably reflect market conditions and prices.
We designed our control processes so that our fair value measurements are appropriate and reliable, that they are based on
observable inputs where possible, and that our valuation approaches are consistently applied and the assumptions and inputs
are reasonable. Our control processes provide a framework for segregation of duties and oversight of our fair value
methodologies, techniques, validation procedures, and results.
Groups within our Finance Division, independent of our business functions, execute and validate the valuation processes and
are responsible for determining the fair values of the majority of our financial assets and liabilities. In determining fair value, we
consider the credit risk of our counterparties in estimating the fair values of our assets and our own credit risk in estimating the
fair values of our liabilities. The fair values determined by our Finance Division are further verified by an independent group
within our ERM Division.
The independent validation procedures performed by the ERM Division are intended to monitor that the prices we receive from
third parties are consistent with our observations of market activity, and that fair value measurements developed using internal
data reflect the assumptions that a market participant would use in pricing our assets and liabilities. These validation
procedures include performing a daily price review and a monthly independent verification of fair value measurements through
independent modeling, analytics, and comparisons to other market source data, if available. If we are unable to validate the
reasonableness of a given price, we ultimately do not use that price for fair value measurements on our consolidated financial
statements. These procedures are risk-based and are executed before we finalize the prices used in preparing our fair value
measurements for our financial statements.
In addition to performing the validation procedures noted above, the ERM Division provides independent risk governance over
all valuation processes by establishing and maintaining a corporate-wide valuation risk policy. The ERM Division also
independently reviews significant judgments, methodologies, and valuation techniques to monitor compliance with established
policies.
Our Valuation Risk Committee, which includes representation from our business lines, the ERM Division, and the Finance
Division, provides senior management's governance over valuation processes, methodologies, controls, and fair value
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measurements. Identified exceptions are reviewed and resolved through the verification process and reviewed at the Valuation
Risk Committee.
Where models are employed to assist in the measurement and verification of fair values, changes made to those models during
the period are reviewed and approved according to the corporate model change governance process, with material changes
reviewed at the Valuation Risk Committee. Inputs used by models are regularly updated for changes in the underlying data,
assumptions, valuation inputs, and market conditions and are subject to the valuation controls noted above.
Use of Third-Party Pricing Data in Fair Value Measurement
Many of our valuation techniques use, either directly or indirectly, data provided by third-party pricing services or dealers. The
techniques used by these pricing services and dealers to develop the prices generally are either:
n A comparison to transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on
specific characteristics of the asset or liability being valued or
n Industry-standard modeling, such as a discounted cash flow model.
The prices provided by the pricing services and dealers reflect their observations and assumptions related to market activity,
including risk premiums and liquidity adjustments. The models and related assumptions used by the pricing services and
dealers are owned and managed by them and, in many cases, the significant inputs used in the valuation techniques are not
reasonably available to us. However, we have an understanding of the processes and assumptions used to develop the prices
based on our ongoing due diligence, which includes discussions with our vendors at least annually and often more frequently.
We believe that the procedures executed by the pricing services and dealers, combined with our internal verification and
analytical procedures, provide assurance that the prices used in our financial statements comply with the accounting guidance
for fair value measurements and disclosures and reflect the assumptions that a market participant would use in pricing our
assets and liabilities. The price quotes we receive are non-binding both to us and to our counterparties.
In many cases, we receive quotes from third-party pricing services or dealers and use those prices without adjustment. For a
large majority of the assets and liabilities we value using pricing services and dealers, we obtain quotes from multiple external
sources and use the median of the prices to measure fair value. This technique is referred to below as "median of external
sources." The significant inputs used in the fair value measurement of assets and liabilities that are valued using the median of
external sources pricing technique are the third-party quotes. Significant increases (decreases) in any of the third-party quotes
in isolation may result in a significantly higher (lower) fair value measurement. In limited circumstances, we may be able to
receive pricing information from only a single external source. This technique is referred to below as "single external source."
Valuation Techniques
The following table contains a description of the valuation techniques we use for fair value measurement and disclosure; the
significant inputs used in those techniques (if applicable); the classification within the fair value hierarchy; and, for those
measurements that we report on our consolidated balance sheets and are classified as Level 3 of the hierarchy, a narrative
description of the uncertainty of the fair value measurement to changes in significant unobservable inputs. Although the
uncertainties of the unobservable inputs are discussed below in isolation, interrelationships exist among the inputs such that a
change in one unobservable input can result in a change to one or more of the other inputs. For example, the most common
interrelationship that affects the majority of our fair value measurements is between future interest rates, prepayment speeds,
and probabilities of default. Generally, a change in the assumption used for future interest rates results in a directionally
opposite change in the assumption used for prepayment speeds and a directionally similar change in the assumption used for
probabilities of default.
Each technique discussed below may not be used in a given reporting period, depending on the composition of our assets and
liabilities measured at fair value and relevant market activity during that period.
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Instrument
Valuation Technique
Securities
U.S. Treasury Securities
Quoted prices in active markets
Mortgage-related
securities
Majority of agency securities
Median of external sources
Certain other agency securities
Single external source
Certain securities with limited
market activity
Derivatives
Exchange-traded futures
Interest-rate swaps
Option-based derivatives
Discounted cash flows or risk metric pricing.
Significant inputs used in the discounted cash flow technique
include OAS. Significant increases (decreases) in the OAS in
isolation would result in a significantly lower (higher) fair value
measurement.
Significant inputs used in the risk metric pricing technique
include key risk metrics, such as key rate durations.
Significant increases (decreases) in key rate durations in
isolation would result in a significant increase (decrease) in
the magnitude of change of fair value measurement in
response to key rate movements. Under risk metric pricing,
securities are valued by starting with a prior period price and
adjusting that price for market changes in the key risk metric
input used.
Quoted prices in active markets
Discounted cash flows. Significant inputs include market-
based interest rates.
Option-pricing models. Significant inputs include interest-rate
volatility matrices.
Purchase and sale commitments
See Mortgage-related securities
Debt
Debt securities of consolidated trusts
held by third parties
Debt of Freddie Mac
Mortgage Loans
Single-Family loans
GSE securitization market
Whole loan market
Certain held-for-investment
See Mortgage-related securities
Median of external sources
Single external source
Published yield matrices
Benchmark security pricing for actively traded mortgage-
related securities with similar characteristics, adjusting for the
value of our guarantee fee and our credit obligation related to
performing our guarantee (see Guarantee obligation). The
credit obligation is based on: delivery and guarantee fees we
charge under current market pricing for loans that qualify
under our current underwriting standards (Level 2) and
internal credit models for loans that do not qualify under our
current underwriting standards (Level 3).
Median of external sources, referencing market activity for
deeply delinquent and modified loans, where available
Internal models that estimate the fair value of the underlying
collateral for impaired loans. Significant inputs used by our
internal models include REO disposition, short sale, and third-
party sale values, combined with mortgage loan level
characteristics using the repeat housing sales index to
estimate the current fair value of the mortgage loan.
Significant increases (decreases) in the historical average
sales proceeds per mortgage loan in isolation would result in
significantly higher (lower) fair value measurements.
Classification in the
Fair Value Hierarchy
Level 1
Level 2
Levels 2 and 3
Level 3
Level 1
Level 2
Level 2
Level 2
Level 2 or 3
Level 2
Level 2 or 3
Level 3
Level 3
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Instrument
Valuation Technique
Multifamily loans
Held-for-sale
Discounted cash flows based on observable K Certificate and
SB Certificate market spreads
Classification in the
Fair Value Hierarchy
Level 2
Held-for-investment
Market prices from a third-party pricing service using
discounted cash flows incorporating credit spreads for similar
loans based on the loan's LTV and DSCR
Level 3
Non-derivative Purchase Commitments
Multifamily loan purchase commitments
See Multifamily loans
Other Assets
Guarantee assets
Single-Family
Multifamily
Median of external sources with adjustments for specific loan
characteristics
Discounted cash flows. Significant inputs include current OAS-
to-benchmark interest rates for new guarantees. Significant
increases (decreases) in the OAS in isolation would result in a
significantly lower (higher) fair value measurement.
Level 2 or 3
Level 3
Level 3
Mortgage servicing rights
Market prices from a third party or internally developed prices
using discounted cash flows. Significant inputs include:
Level 3
Estimated prepayment rates,
Estimated costs to service both performing and non-accrual
loans, and
Estimated servicing income per loan (including ancillary
income).
Significant increases (decreases) in cost to service per loan
and prepayment rate in isolation would result in a significantly
lower (higher) fair value measurement. Significant increases
(decreases) in servicing income per loan in isolation would
result in a significantly higher (lower) fair value measurement.
Delivery and guarantee fees that we charge under our current
market pricing
Internal credit models. Significant inputs include loan
characteristics, loan performance, and status information.
Other Liabilities
Guarantee obligations Single-Family
Multifamily
Discounted cash flows. Significant inputs are similar to those
used in the valuation technique for the Multifamily guarantee
assets.
Level 2
Level 3
Level 3
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring
basis subsequent to initial recognition, including instruments where we have elected the fair value option.
Table 17.1 - Assets and Liabilities Measured at Fair Value on a Recurring Basis
(In millions)
Assets:
Investments securities:
Available-for-sale, at fair value
Trading, at fair value:
Mortgage-related securities
Non-mortgage-related securities
Total trading securities, at fair value
Total investments in securities
Mortgage loans:
Held-for-sale, at fair value
Other assets:
Guarantee assets, at fair value
Derivative assets, net
Netting adjustments(1)
Total derivative assets, net
Non-derivative purchase commitments, at fair value
All other, at fair value
Total other assets
December 31, 2021
Level 1
Level 2
Level 3
Netting
Adjustment(1)
Total
$—
$2,726
$1,286
$—
$4,012
—
31,780
31,780
31,780
12,845
992
13,837
16,563
3,386
—
3,386
4,672
—
—
—
—
16,231
32,772
49,003
53,015
—
10,498
—
—
10,498
—
33
—
33
—
—
33
—
5,416
—
5,416
131
—
5,547
5,919
17
—
17
—
84
6,020
—
—
(5,006)
(5,006)
—
—
(5,006)
5,919
5,466
(5,006)
460
131
84
6,594
Total assets carried at fair value on a recurring basis
$31,813
$32,608
$10,692
($5,006)
$70,107
Liabilities:
Debt securities of consolidated trusts held by third parties, at fair
value
Debt of Freddie Mac, at fair value
Other liabilities:
Derivative liabilities, net
Netting adjustments(1)
Total derivative liabilities, net
Non-derivative purchase commitments, at fair value
All other, at fair value
Total other liabilities
$—
—
—
—
—
—
—
—
$910
1,274
7,726
—
7,726
4
—
7,730
$184
110
$—
—
$1,094
1,384
23
—
23
—
1
24
—
(7,467)
(7,467)
—
—
(7,467)
7,749
(7,467)
282
4
1
287
Total liabilities carried at fair value on a recurring basis
$—
$9,914
$318
($7,467)
$2,765
Referenced footnote is included after the prior period table.
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Notes to the Consolidated Financial Statements | Note 17
(In millions)
Assets:
Investments securities:
Available-for-sale, at fair value:
Trading, at fair value:
Mortgage-related securities
Non-mortgage-related securities
Total trading securities, at fair value
Total investments in securities
Mortgage loans:
Held-for-sale, at fair value
Other assets:
Guarantee assets, at fair value
Derivative assets, net
Netting adjustments(1)
Total derivative assets, net
Non-derivative purchase commitments, at fair value
All other, at fair value
Total other assets
December 31, 2020
Level 1
Level 2
Level 3
Netting
Adjustment(1)
Total
$—
$13,779
$1,588
$—
$15,367
—
26,255
26,255
26,255
14,246
698
14,944
28,723
3,259
—
3,259
4,847
—
—
—
—
17,505
26,953
44,458
59,825
—
14,199
—
—
14,199
—
—
—
—
—
—
—
—
8,516
—
8,516
158
—
8,674
5,509
63
—
63
—
108
5,680
—
—
(7,374)
(7,374)
—
—
(7,374)
5,509
8,579
(7,374)
1,205
158
108
6,980
Total assets carried at fair value on a recurring basis
$26,255
$51,596
$10,527
($7,374)
$81,004
Liabilities:
Debt securities of consolidated trusts held by third parties, at fair
value
Debt of Freddie Mac, at fair value
Other liabilities:
Derivative liabilities, net
Netting adjustments(1)
Total derivative liabilities, net
Non-derivative purchase commitments, at fair value
All other, at fair value
Total other liabilities
$—
—
—
—
—
—
—
—
$2
2,267
9,132
—
9,132
1
—
9,133
$203
120
$—
—
$205
2,387
16
—
16
—
3
19
—
(8,194)
(8,194)
—
—
(8,194)
9,148
(8,194)
954
1
3
958
Total liabilities carried at fair value on a recurring basis
$—
$11,402
$342
($8,194)
$3,550
(1) Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
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Level 3 Fair Value Measurements
The table below presents a reconciliation of all assets and liabilities measured on our consolidated balance sheets at fair value
on a recurring basis using significant unobservable inputs (Level 3), including transfers into and out of Level 3. The table also
presents gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recognized on
our consolidated statements of comprehensive income for Level 3 assets and liabilities.
Table 17.2 - Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs
Year Ended December 31, 2021
Total Realized/Unrealized
Gains (Losses)
Balance,
January 1,
2021
Included
in
Earnings
Included in
Other
Comprehensive
Income
Purchases
Issues
Sales
Settlements,
Net
Transfers
into
Level 3
Transfers
out of
Level 3(1)
Balance,
December
31,
2021
Change in
Unrealized
Gains (Losses)
Included in Net
Income
Related to
Assets and
Liabilities Still
Held as of
December 31,
2021(2)
Change in
Unrealized
Gains (Losses),
Net of Tax,
Included in OCI
Related to
Assets and
Liabilities Still
Held as of
December 31,
2021
(In millions)
Assets
Investments in
securities:
Available-for-sale, at
fair value
Trading, at fair value
Total investments in
securities
Other assets:
Guarantee assets
Derivative assets
All other, at fair value
Total other assets
1,588
3,259
29
(869)
7
—
—
—
(32)
1,536
—
(277)
(306)
(83)
4,847
(840)
7
1,536
—
(309)
(389)
5,509
63
108
5,680
(378)
(45)
(9)
(432)
—
—
—
—
7
1,742
—
—
—
(6)
—
19
(6)
1,761
(1)
(8)
(9)
(954)
—
(20)
(974)
Total assets
10,527
(1,272)
1,530
1,761
(318)
(1,363)
—
—
—
—
—
—
—
—
—
(180)
1,286
3,386
(180)
4,672
—
—
—
—
5,919
17
84
6,020
(180)
10,692
26
(872)
(846)
(378)
(46)
(9)
(433)
(1,279)
7
—
7
—
—
—
—
7
Total Realized/Unrealized
(Gains) Losses
Balance,
January 1,
2021
Included
in
Earnings
Included in
other
comprehensive
income
Purchases
Issues
Sales
Settlements,
Net
Transfers
into
Level 3
Transfers
out of
Level 3(1)
Balance,
December
31,
2021
Change in
Unrealized
(Gains) Losses
Included in Net
Income
Related to
Assets and
Liabilities Still
Held as of
December 31,
2021(2)
Change in
Unrealized
(Gains) Losses,
Net of Tax,
Included in OCI
Related to
Assets and
Liabilities Still
Held as of
December 31,
2021
$203
($27)
$—
($8)
$168
$—
($152)
$—
$—
$184
($16)
$—
120
323
16
3
19
342
(3)
(30)
15
(8)
7
(23)
—
—
—
—
—
—
—
1
—
(8)
169
—
2
—
—
7
7
—
2
(1)
171
(1)
(1)
(1)
(8)
(160)
(10)
—
(10)
(170)
—
—
—
—
—
—
—
—
—
—
—
—
110
294
23
1
24
318
(3)
(19)
5
(8)
(3)
(22)
—
—
—
—
—
—
Liabilities
Debt securities of
consolidated trusts held
by third parties, at fair
value
Debt of Freddie Mac, at
fair value
Total Debt
Other liabilities:
Derivative liabilities
All other, at fair value
Total other liabilities
Total liabilities
Referenced footnotes are included after the prior period table.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 17
Year Ended December 31, 2020
Total Realized/Unrealized
Gains (Losses)
Balance,
January 1,
2020
Included
in
Earnings
Included in
Other
Comprehensive
Income
Purchases
Issues
Sales
Settlements,
Net
Transfers
into
Level 3
Transfers
out of
Level 3(1)
Balance,
December
31,
2020
(In millions)
Assets
Investments in
securities:
Available-for-sale, at
fair value
$3,227
Trading, at fair value
2,710
$27
(251)
($8)
—
$—
$—
($218)
1,555
—
(281)
($344)
(77)
$—
—
($1,096)
$1,588
(397)
3,259
5,937
—
(224)
(8)
1,555
—
(499)
(421)
—
(1,493)
4,847
4,426
15
120
4,561
250
22
(3)
269
45
—
—
—
—
1,641
—
—
—
(15)
26
27
—
(19)
(19)
(15)
1,694
(808)
—
(2)
(810)
—
—
—
—
—
—
—
—
—
5,509
63
108
5,680
(1,493)
10,527
Total assets
10,498
(8)
1,540
1,694
(518)
(1,231)
Total investments in
securities
Other assets:
Guarantee assets
Derivative assets
All other, at fair value
Total other assets
Total Realized/Unrealized
(Gains) Losses
Balance,
January 1,
2020
Included
in
Earnings
Included in
Other
Comprehensive
Income
Purchases
Issues
Sales
Settlements,
Net
Transfers
into
Level 3
Transfers
out of
Level 3(1)
Balance,
December
31,
2020
Change in
Unrealized
Gains(Losses)
Included in Net
Income
Related to
Assets and
Liabilities Still
Held as of
December 31,
2020(2)
Change in
Unrealized
Gains (Losses),
Net of Tax,
Included in OCI
Related to
Assets and
Liabilities Still
Held as of
December 31,
2020
$15
(241)
(226)
250
21
(3)
268
42
($38)
—
(38)
—
—
—
—
(38)
Change in
Unrealized
(Gains) Losses
Included in Net
Income
Related to
Assets and
Liabilities Still
Held as of
December 31,
2020(2)
Change in
Unrealized
(Gains) Losses,
Net of Tax,
Included in OCI
Related to
Assets and
Liabilities Still
Held as of
December 31,
2020
Liabilities
Debt securities of
consolidated trusts held
by third parties, at fair
value
Debt of Freddie Mac, at
fair value
Total Debt
Other liabilities:
Derivative liabilities
All other, at fair value
Total other liabilities
Total liabilities
$203
$—
$—
$—
$—
$—
$—
$—
$—
$203
$—
$—
129
332
36
1
37
369
(1)
(1)
(8)
—
(8)
(9)
—
—
—
—
—
—
—
—
—
1
1
1
4
4
—
—
2
—
—
2
6
1
1
1
(12)
(12)
(14)
—
(14)
(26)
—
—
—
—
—
—
—
—
—
—
—
—
120
323
16
3
19
342
(1)
(1)
(23)
—
(23)
(24)
—
—
—
—
—
—
(1)
(2)
Transfers out of Level 3 during 2021 and 2020 consisted primarily of certain mortgage-related securities due to an increased volume and level of activity in the
market and availability of price quotes from dealers and third-party pricing services. Certain Freddie Mac securities are classified as Level 3 at issuance and
generally are classified as Level 2 when they begin trading.
Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to assets and
liabilities classified as Level 3 that were still held at December 31, 2021 and December 31, 2020, respectively. This amount includes any allowance for credit losses
recorded on available-for-sale securities and amortization of basis adjustments.
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 17
The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for Level
3 assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis.
Table 17.3 - Quantitative Information about Recurring Level 3 Fair Value Measurements
(Dollars in millions, except for certain unobservable
inputs as shown)
Assets
Available-for-sale, at fair value
Mortgage-related securities
Trading, at fair value
Mortgage-related securities
Guarantee assets, at fair value
Insignificant Level 3 assets(2)
Total level 3 assets
Liabilities
Debt securities of consolidated trusts held by third
parties, at fair value
Insignificant Level 3 liabilities(2)
Total level 3 liabilities
December 31, 2021
Level 3
Fair
Value
Predominant
Valuation
Technique(s)
Unobservable Inputs
Type
Range
Weighted
Average(1)
$839
Median of external
sources
External pricing
sources
322
Discounted cash flows
OAS
$72.8 - $83.7
87 - 198 bps
$77.0
88 bps
124
Other
2,846
Single external source
273
259
9
Median of external
sources
Discounted cash flows
Other
5,531
Discounted cash flows
External pricing
sources
External pricing
sources
OAS
OAS
$0.0 - $7,343.1
$396.7
$3.8 - $4.4
(339) - 3,000 bps
$4.1
551 bps
17 - 186 bps
45 bps
Other
Other
388
101
$10,692
135
183
$318
(1) Unobservable inputs were weighted primarily by the relative fair value of the financial instruments.
(2) Represents the aggregate amount of Level 3 assets or liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant.
FREDDIE MAC | 2021 Form 10-K
224
Financial Statements
Notes to the Consolidated Financial Statements | Note 17
(Dollars in millions, except for certain unobservable inputs
as shown)
Assets
Available-for-sale, at fair value
Mortgage-related securities(2)
Trading, at fair value
Mortgage-related securities(2)
Guarantee assets, at fair value
Insignificant Level 3 assets(3)
Total level 3 assets
Liabilities
December 31, 2020
Level 3
Fair
Value
Predominant
Valuation
Technique(s)
Unobservable Inputs
Type
Range
Weighted
Average(1)
$1,009
Median of external
sources
External pricing
sources
$70.6 - $81.6
$75.9
410
Discounted cash flows
OAS
90 - 90 bps
119
Single external source
External pricing
sources
$100.9 - $100.9
90 bps
$100.9
50
Other
2,204
Single external source
472
583
Discounted cash flows
Other
5,195
Discounted cash flows
Other
314
171
$10,527
External pricing
sources
OAS
OAS
$0.0 - $8,894.6
$947.8
(951) - 2,910 bps
834 bps
15 - 186 bps
38 bps
Debt securities of consolidated trusts held by third parties, at
fair value
Insignificant Level 3 liabilities(3)
Total level 3 liabilities
$203
Single External Source
External Pricing
Sources
$97.3 - $107.0
$101.7
139
$342
(1) Unobservable inputs were weighted primarily by the relative fair value of the financial instruments.
(2) Prior periods have been conformed to the current period presentation.
(3) Represents the aggregate amount of Level 3 assets or liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant.
FREDDIE MAC | 2021 Form 10-K
225
Financial Statements
Notes to the Consolidated Financial Statements | Note 17
Assets Measured at Fair Value on a Non-Recurring Basis
We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These adjustments
usually result from the application of lower-of-cost-or-fair-value accounting or an allowance for credit losses based on the fair
value of the underlying collateral. Certain of the fair values in the tables below were not obtained as of the period end, but were
obtained during the period.
The table below presents assets measured on our consolidated balance sheets at fair value on a non-recurring basis.
Table 17.4 - Assets Measured at Fair Value on a Non-Recurring Basis
(In millions)
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
December 31, 2021
December 31, 2020
Assets measured at fair value on a
non-recurring basis:
Mortgage loans(1)
$—
$12
$797
$809
$—
$6
$2,241
$2,247
(1)
Includes loans that are classified as held-for-investment and have an allowance for credit losses based on the fair value of the underlying collateral and held-for-sale
loans where the fair value is below cost.
The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for Level
3 assets measured on our consolidated balance sheets at fair value on a non-recurring basis.
Table 17.5 - Quantitative Information about Non-Recurring Level 3 Fair Value Measurements
(Dollars in millions, except
for certain unobservable
inputs as shown)
Non-recurring fair value
measurements
Level 3
Fair
Value
Predominant
Valuation
Technique(s)
Mortgage loans
$797
Internal model
Internal model
(Dollars in millions, except
for certain unobservable
inputs as shown)
Non-recurring fair value
measurements
Level 3
Fair
Value
Predominant
Valuation
Technique(s)
Mortgage loans
$2,241
Internal model
Internal model
December 31, 2021
Unobservable Inputs
Type
Range
Weighted
Average(1)
Historical sales proceeds
$3,956 - $744,000
$221,442
Housing sales index
72 - 439 bps
140 bps
$97.3
December 31, 2020
Unobservable Inputs
Type
Range
Weighted
Average(1)
Historical sales proceeds
$3,001 - $696,004
$202,539
Housing sales index
66 - 345 bps
119 bps
$92.1
Median of external sources
External pricing sources
$61.9 - $107.1
(1) Unobservable inputs were weighted primarily by the relative fair value of the financial instruments.
Median of external sources
External pricing sources
$59.5 - $104.0
FREDDIE MAC | 2021 Form 10-K
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Financial Statements
Notes to the Consolidated Financial Statements | Note 17
Fair Value of Financial Instruments
The table below presents the carrying value and estimated fair value of our financial instruments. For certain types of financial
instruments, such as cash and cash equivalents, securities purchased under agreements to resell, secured lending, and certain
debt, the carrying value on our GAAP balance sheets approximates fair value, as these assets and liabilities are short-term in
nature and have limited fair value volatility.
Table 17.6 - Fair Value of Financial Instruments
GAAP
Measurement
Category(1)
GAAP
Carrying
Amount
December 31, 2021
Fair Value
Level 1
Level 2
Level 3
Netting
Adjustments(2)
Total
(In millions)
Financial Assets
Cash and cash equivalents
Amortized cost
$10,150
$10,150
$—
Securities purchased under agreements
to resell
Amortized cost
71,203
—
—
31,780
31,780
78,536
2,726
13,837
16,563
$—
—
1,286
3,386
4,672
—
—
—
—
33
—
—
—
2,563,588
238,133
35,856
29,803
2,599,444
267,936
—
5,416
217
—
1,187
5,923
17
—
4,932
76
$—
$10,150
(7,333)
71,203
—
—
—
—
—
—
—
(5,006)
—
—
—
4,012
49,003
53,015
2,801,721
65,659
2,867,380
5,923
460
217
4,932
1,263
FV - OCI
FV - NI
4,012
49,003
53,015
2,784,626
63,483
Various(3)
2,848,109
FV - NI
FV - NI
FV - NI
Amortized cost
Amortized cost
5,919
460
131
4,932
1,263
$2,995,182
$41,963
$2,701,363
$283,556
($12,339)
$3,014,543
Debt securities of consolidated trusts
held by third parties
$2,803,054
$—
$2,803,030
177,131
Various(4)
2,980,185
Amortized cost
FV - NI
FV - NI
5,716
282
13
—
—
—
—
—
185,793
2,988,823
—
7,726
$656
3,957
4,613
6,240
23
$—
$2,803,686
(7,333)
182,417
(7,333)
2,986,103
—
(7,467)
6,240
282
$2,986,196
$—
$2,996,553
$10,977
($14,800)
$2,992,730
4
101
—
105
(1)
(2)
(3)
FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
As of December 31, 2021, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NI were $2.8 trillion, $9.3 billion and $10.5
billion, respectively.
(4)
As of December 31, 2021, the GAAP carrying amounts measured at amortized cost and FV - NI were $3.0 trillion and $2.5 billion, respectively.
FREDDIE MAC | 2021 Form 10-K
227
Investments in securities:
Available-for-sale, at fair value
Trading, at fair value
Total investments in securities
Mortgage loans:
Loans held by consolidated trusts
Loans held by Freddie Mac
Total mortgage loans
Guarantee assets
Derivative assets, net
Non-derivative purchase and other
commitments
Advances to lenders
Secured lending
Total financial assets
Financial Liabilities
Debt:
Debt of Freddie Mac
Total debt
Guarantee obligations
Derivative liabilities, net
Non-derivative purchase and other
commitments
Total financial liabilities
Financial Statements
Notes to the Consolidated Financial Statements | Note 17
GAAP
Measurement
Category(1)
GAAP
Carrying
Amount
December 31, 2020
Fair Value
Level 1
Level 2
Level 3(2)
Netting
Adjustments(3)
Total
(In millions)
Financial Assets
Cash and cash equivalents
Amortized cost
$23,889
$23,889
$—
Securities purchased under agreements
to resell
Investments in securities:
Available-for-sale, at fair value
Trading, at fair value
Total investments in securities
Mortgage loans:
Loans held by consolidated trusts
Loans held by Freddie Mac
Total mortgage loans
Guarantee assets
Derivative assets, net
Non-derivative purchase and other
commitments
Advances to lenders
Secured lending
Total financial assets
Financial Liabilities
Debt:
Amortized cost
105,003
—
105,003
FV - OCI
FV - NI
15,367
44,458
59,825
—
26,255
26,255
13,779
14,944
28,723
$—
—
1,588
3,259
4,847
2,273,347
110,541
Various(4)
2,383,888
FV - NI
FV - NI
FV - NI
Amortized cost
Amortized cost
5,509
1,205
158
4,162
1,680
—
—
—
—
—
—
—
—
2,080,687
262,309
76,917
36,578
2,157,604
298,887
—
8,516
246
—
1,427
5,515
63
—
4,162
253
$—
$23,889
—
105,003
—
—
—
—
—
—
—
(7,374)
—
—
—
15,367
44,458
59,825
2,342,996
113,495
2,456,491
5,515
1,205
246
4,162
1,680
$2,585,319
$50,144
$2,301,519
$313,727
($7,374)
$2,658,016
Debt securities of consolidated trusts
held by third parties
$2,308,176
$—
$2,382,157
Debt of Freddie Mac
Total debt
Guarantee obligations
Derivative liabilities, net
Non-derivative purchase and other
commitments
Total financial liabilities
284,370
Various(5)
2,592,546
Amortized cost
FV - NI
FV - NI
5,050
954
20
—
—
—
—
—
286,634
2,668,791
—
9,132
$852
4,088
4,940
5,378
16
$—
$2,383,009
—
—
—
(8,194)
290,722
2,673,731
5,378
954
$2,598,570
$—
$2,677,924
$10,641
($8,194)
$2,680,371
1
307
—
308
(1)
(2)
(3)
(4)
FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
Certain amounts were reclassified from secured lending to non-derivative purchase and other commitments. Prior periods have been revised to conform to the
current period presentation.
Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
As of December 31, 2020, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value and FV - NI were $2.4 trillion, $19.5 billion and
$14.2 billion, respectively.
As of December 31, 2020, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.6 trillion and $2.6 billion, respectively.
(5)
Fair Value Option
We elected the fair value option for certain multifamily held-for-sale loans, multifamily held-for-sale loan purchase
commitments, and debt.
Multifamily Held-for-Sale Loans and Held-for-Sale Commitments
We elected the fair value option for certain fixed-rate multifamily loan purchase commitments and the related loans that were
acquired for securitization. We use derivatives to economically hedge the interest rate-related fair value changes and a portion
of the spread-related fair value changes of the multifamily commitments and loans for which we have elected the fair value
option. These loans are classified as held-for-sale loans on our consolidated balance sheets to reflect our intent to sell in the
future and are measured at fair value on a recurring basis, with subsequent gains or losses related to changes in fair value (net
FREDDIE MAC | 2021 Form 10-K
228
Financial Statements
Notes to the Consolidated Financial Statements | Note 17
of accrued interest income) reported in investment gains (losses), net, on our consolidated statements of comprehensive
income. We elected to report separately the portion of the changes in fair value of the loans related to accrued interest from the
remaining changes in fair value. Related interest income continues to be reported, based on the stated terms of the loans, as
interest income on our consolidated statements of comprehensive income.
Debt Securities of Consolidated Trusts Held by Third Parties and Debt of Freddie
Mac
We elected the fair value option on debt that contains embedded derivatives, including certain STACR and SCR debt notes,
and certain other debt issuances. Fair value changes are recorded in investment gains (losses), net, on our consolidated
statements of comprehensive income. For debt where we have elected the fair value option, upfront costs and fees are
recognized in earnings as incurred and not deferred. Related interest expense continues to be reported as interest expense
based on the stated terms of the debt securities.
The table below presents the fair value and UPB related to certain loans and debt for which we have elected the fair value
option. This table does not include interest-only securities related to debt securities of consolidated trusts and debt of Freddie
Mac held by third parties with a fair value of $268 million and $173 million and multifamily held-for-sale loan purchase
commitments with a fair value of $127 million and $157 million, as of December 31, 2021 and December 31, 2020, respectively.
Table 17.7 - Difference between Fair Value and UPB for Certain Financial Instruments with Fair Value Option Elected
December 31, 2021
December 31, 2020
Multifamily
Held-For-Sale
Loans
Debt of
Freddie Mac
Debt Securities of
Consolidated
Trusts Held by
Third Parties
Multifamily
Held-For-Sale
Loans
Debt of
Freddie Mac
Debt Securities of
Consolidated
Trusts Held by
Third Parties
$10,498
10,224
$274
$1,252
1,220
$32
$958
958
$—
$14,199
13,400
$799
$2,216
2,189
$27
$203
200
$3
(In millions)
Fair value
UPB
Difference
Changes in Fair Value Under the Fair Value Option Election
The table below presents the changes in fair value included in investment gains (losses),net, on our consolidated statements of
comprehensive income, related to items for which we have elected the fair value option.
Table 17.8 - Changes in Fair Value under the Fair Value Option Election
December 31, 2021
December 31, 2020
December 31, 2019
(In millions)
Multifamily held-for-sale loans
Multifamily held-for-sale loan purchase commitments
Debt of Freddie Mac - long term
Debt securities of consolidated trusts held by third parties
Gains (Losses)
$1,247
2,288
335
4
($407)
1,271
50
17
$853
1,913
136
(4)
Changes in fair value attributable to instrument-specific credit risk were not material for the years ended December 31, 2021,
2020 or 2019 for any assets or liabilities for which we elected the fair value option.
FREDDIE MAC | 2021 Form 10-K
229
Financial Statements
NOTE 18
Legal Contingencies
Notes to the Consolidated Financial Statements | Note 18
We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary course of
business including, among other things, contractual disputes, personal injury claims, employment-related litigation, and other
legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation involving mortgage
foreclosures. From time to time, we are also involved in proceedings arising from our termination of a seller's or servicer's
eligibility to sell loans to, and/or service loans for, us. In these cases, the former seller or servicer sometimes seeks damages
against us for wrongful termination under a variety of legal theories. In addition, we are sometimes sued in connection with the
origination or servicing of loans. These suits typically involve claims alleging wrongful actions of sellers and servicers. Our
contracts with our sellers and servicers generally provide for indemnification of Freddie Mac against liability arising from sellers'
and servicers' wrongful actions with respect to loans sold to or serviced for Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In accordance
with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or threatened
against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably estimated.
Putative Securities Class Action Lawsuit: Ohio Public Employees
Retirement System vs. Freddie Mac, Syron, Et Al.
This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008 in the
U.S. District Court for the Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock from
August 1, 2006 through November 20, 2007. FHFA later intervened as Conservator, and the plaintiff amended its complaint on
several occasions. The plaintiff alleged, among other things, that the defendants violated federal securities laws by making false
and misleading statements concerning our business, risk management, and the procedures we put into place to protect the
company from problems in the mortgage industry. The plaintiff seeks unspecified damages and interest, and reasonable costs
and expenses, including attorney and expert fees.
In October 2013, defendants filed motions to dismiss the complaint. In October 2014, the District Court granted defendants'
motions and dismissed the case in its entirety against all defendants, with prejudice. In November 2014, plaintiff filed a notice of
appeal in the U.S. Court of Appeals for the Sixth Circuit. In July 2016, the Sixth Circuit reversed the District Court's dismissal
and remanded the case to the District Court for further proceedings. In August 2018, the District Court denied the plaintiff's
motion for class certification, and in January 2019, the Sixth Circuit denied plaintiff's petition for leave to appeal that decision.
On September 17, 2020, the District Court granted a request from the plaintiff for summary judgment and entered final
judgment in favor of Freddie Mac and the other defendants. On October 9, 2020, the plaintiff filed a notice of appeal in the Sixth
Circuit. On January 27, 2021, Freddie Mac filed a motion to dismiss the appeal, which the Sixth Circuit denied on January 6,
2022.
At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our business,
financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or
range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among others:
the inherent uncertainty of the appellate process, and the inherent uncertainty of pre-trial litigation in the event the case is
ultimately remanded to the District Court in whole or in part. In particular, while the District Court denied plaintiff's motion for
class certification, this decision and the entry of final judgment in defendants' favor have been appealed. Absent a final
resolution of whether a class will be certified, the identification of a class if one is certified, and the identification of the alleged
statement or statements that survive dispositive motions, we cannot reasonably estimate any possible loss or range of possible
loss.
LIBOR Lawsuit
On March 14, 2013, Freddie Mac filed a lawsuit in the U.S. District Court for the Eastern District of Virginia against the British
Bankers Association and the 16 U.S. Dollar LIBOR panel banks and a number of their affiliates. The case was subsequently
transferred to the U.S. District Court for the Southern District of New York. The complaint alleges, among other things, that the
defendants fraudulently and collusively depressed LIBOR, a benchmark interest rate indexed to trillions of dollars of financial
products, and asserts claims for antitrust violations, breach of contract, tortious interference with contract, and fraud. Freddie
Mac filed an amended complaint in July 2013, and a second amended complaint in October 2014. In August 2015, the District
Court dismissed the portion of our claim related to antitrust violations and fraud and we filed a motion for reconsideration. In
March 2016, the District Court granted a portion of our motion, finding personal jurisdiction over certain defendants, and denied
the portion of our motion with respect to statutes of limitation for our fraud claims.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 18
In May 2016, in a related case, the U.S. Court of Appeals for the Second Circuit reversed the District Court's dismissal of
certain plaintiffs' antitrust claims and remanded the case to the District Court for consideration of whether, among other things,
the plaintiffs are "efficient enforcers" of the antitrust laws. In December 2016, the District Court denied in part and granted in
part defendants' renewed motions to dismiss on personal jurisdiction and efficient enforcer grounds. The District Court held
that Freddie Mac is an efficient enforcer of the antitrust laws, but dismissed on personal jurisdiction grounds Freddie Mac's
antitrust claims against all defendants except HSBC USA, N.A. (HSBC). In February 2017, the District Court effectively
dismissed Freddie Mac's remaining antitrust claim against HSBC.
In February 2018, in a related case, the Second Circuit reversed the District Court's dismissal of certain plaintiffs' state law
fraud and unjust enrichment claims on statutes of limitations grounds. The Second Circuit also reversed certain aspects of the
District Court's personal jurisdiction rulings and remanded with instructions to allow the named appellant to amend its
complaint. The District Court subsequently granted in part Freddie Mac's motion for leave to amend its complaint, and Freddie
Mac filed its third amended complaint in April 2019. Subsequently, the District Court held that Freddie Mac's fraud claims were
not reinstated by the Second Circuit's February 2018 decision.
In December 2021, in a related case, the Second Circuit reversed the District Court’s December 2016 ruling with respect to
certain personal jurisdiction issues. While Freddie Mac was not a party to that appeal, this ruling should apply to Freddie Mac’s
claims.
At present, Freddie Mac's only remaining causes of action are certain contract-based claims against Bank of America, N.A.,
Barclays Bank, Citibank, N.A., Credit Suisse, Deutsche Bank, Royal Bank of Scotland, and UBS AG.
Litigation Concerning the Purchase Agreement
Since July 2013, a number of lawsuits have been filed against us concerning the August 2012 amendment to the Purchase
Agreement, which created the net worth sweep dividend provisions of the senior preferred stock. The plaintiffs in the lawsuits
allege that they are holders of common stock and/or junior preferred stock issued by Freddie Mac and Fannie Mae. (For
purposes of this discussion, junior preferred stock refers to the various series of preferred stock of Freddie Mac and Fannie
Mae other than the senior preferred stock issued to Treasury.) It is possible that similar lawsuits will be filed in the future. The
lawsuits against us are described below.
Litigation in the U.S. District Court for the District of Columbia
In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. This case is
the result of the consolidation of three putative class action lawsuits: Cacciapelle and Bareiss vs. Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 29, 2013; American European Insurance
Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 30,
2013; and Marneu Holdings, Co. vs. FHFA, Treasury, Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation, filed on September 18, 2013. (The Marneu case was also filed as a shareholder derivative lawsuit.) A consolidated
amended complaint was filed in December 2013. In the consolidated amended complaint, plaintiffs alleged, among other items,
that the August 2012 amendment to the Purchase Agreement breached Freddie Mac's and Fannie Mae's respective contracts
with the holders of junior preferred stock and common stock and the covenant of good faith and fair dealing inherent in such
contracts. Plaintiffs sought unspecified damages, equitable and injunctive relief, and costs and expenses, including attorney
and expert fees.
The Cacciapelle and American European Insurance Company lawsuits were filed purportedly on behalf of a class of purchasers
of junior preferred stock issued by Freddie Mac or Fannie Mae who held stock prior to, and as of, August 17, 2012. The Marneu
lawsuit was filed purportedly on behalf of a class of purchasers of junior preferred stock and purchasers of common stock
issued by Freddie Mac or Fannie Mae over a not-yet-defined period of time.
Arrowood Indemnity Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, FHFA, and Treasury. This case was filed on September 20, 2013. The allegations and demands made by
plaintiffs in this case were generally similar to those made by the plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred
Stock Purchase Agreement Class Action Litigations case described above. Plaintiffs in the Arrowood lawsuit also requested
that, if injunctive relief were not granted, the Arrowood plaintiffs be awarded damages against the defendants in an amount to
be determined including, but not limited to, the aggregate par value of their junior preferred stock, the total of which they stated
to be approximately $42 million.
American European Insurance Company, Cacciapelle, and Miller vs. Treasury and FHFA. This case was filed as a
shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a nominal defendant, on July 30, 2014. The complaint
alleged that, through the August 2012 amendment to the Purchase Agreement, Treasury and FHFA breached their respective
fiduciary duties to Freddie Mac, causing Freddie Mac to suffer damages. The plaintiffs asked that Freddie Mac be awarded
compensatory damages and disgorgement, as well as attorneys' fees, costs, and other expenses.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 18
FHFA, joined by Freddie Mac and Fannie Mae, moved to dismiss the In re Fannie Mae/Freddie Mac Senior Preferred Stock
Purchase Agreement Class Action Litigations case and the other related cases in January 2014. Treasury filed a motion to
dismiss the same day. In September 2014, the District Court granted the motions and dismissed the plaintiffs' claims. All
plaintiffs appealed that decision, and on February 21, 2017, the U.S. Court of Appeals for the District of Columbia Circuit
affirmed in part and remanded in part the decision granting the motions to dismiss. The DC Circuit affirmed dismissal of all
claims except certain claims seeking monetary damages for breach of contract and breach of implied duty of good faith and
fair dealing. In March 2017, certain institutional and class plaintiffs filed petitions for panel rehearing with respect to certain
claims. On July 17, 2017, the DC Circuit granted the petitions for rehearing and issued a modified decision, which permitted the
institutional plaintiffs to pursue the breach of contract and breach of implied duty of good faith and fair dealing claims that had
been remanded. The DC Circuit also removed language related to the standard to be applied to the implied duty claims, leaving
that issue for the District Court to determine on remand. On October 16, 2017, certain institutional and class plaintiffs filed
petitions for a writ of certiorari in the U.S. Supreme Court challenging whether the prohibition in the Housing and Economic
Recovery Act (HERA) on injunctive relief against FHFA bars judicial review of the net worth sweep dividend provisions of the
August 2012 amendment to the Purchase Agreement, as well as whether HERA bars shareholders from pursuing derivative
litigation where they allege the conservator faces a conflict of interest. The Supreme Court denied the petitions on February 20,
2018. On November 1, 2017, certain institutional and class plaintiffs and plaintiffs in another case in which Freddie Mac was not
originally a defendant, Fairholme Funds, Inc. v. FHFA, Treasury, and Federal National Mortgage Association, filed proposed
amended complaints in the District Court. Each of the proposed amended complaints names Freddie Mac as a defendant for
breach of contract and breach of the covenant of good faith and fair dealing claims as well as for new claims alleging breach of
fiduciary duty and breach of Virginia corporate law. On January 10, 2018, FHFA, Freddie Mac, and Fannie Mae moved to
dismiss the amended complaints. On September 28, 2018, the District Court dismissed all of the claims except those alleging
breach of the implied covenant of good faith and fair dealing. On November 18, 2021, the parties filed a stipulation to dismiss
the Arrowood lawsuit without prejudice. On December 7, 2021, the District Court certified three classes in the In Re Fannie
Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations based on share type, including a
"Freddie Preferred Class" for holders of Freddie Mac junior preferred stock and a "Freddie Common Class" for holders of
Freddie Mac common stock. To be included in one of these classes, shareholders must have held their shares as of December
7, 2021 or acquired their shares after December 7, 2021 and before any final judgment is entered or settlement is reached in
the lawsuit. Discovery is ongoing.
Litigation in the U.S. Court of Federal Claims
Reid and Fisher vs. the United States of America and Federal Home Loan Mortgage Corporation. This case was filed
as a derivative lawsuit, purportedly on behalf of Freddie Mac as a "nominal" defendant, on February 26, 2014. The complaint
alleges, among other items, that the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful
taking of private property for public use without just compensation. The plaintiffs ask that Freddie Mac be awarded just
compensation for the U.S. government's alleged taking of its property, attorneys' fees, costs, and other expenses. On March 8,
2018, the plaintiffs filed an amended complaint under seal, with a redacted copy filed on November 14, 2018. The United States
filed a motion to dismiss on August 1, 2018 and an amended motion to dismiss on October 1, 2018. The court denied the
United States' motion to dismiss on May 8, 2020 and granted plaintiffs' motion to certify the decisions for interlocutory appeal
on June 11, 2020. The Federal Circuit denied the petition for interlocutory appeal on August 21, 2020. These proceedings are
stayed pending a ruling on the Fairholme Funds appeals.
Fairholme Funds, Inc., et al. vs. the United States of America, Federal National Mortgage Association, and
Federal Home Loan Mortgage Corporation. This case was originally filed on July 9, 2013 against the United States of
America. On March 8, 2018, plaintiffs filed an amended complaint under seal. A redacted public version was filed on May 11,
2018 and adds Freddie Mac and Fannie Mae as nominal defendants. The amended complaint alleges, among other items, that
the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful taking or exaction of private
property for public use without just compensation, and that by enacting the net worth sweep, the government breached the
fiduciary duty it owed to Freddie Mac and Fannie Mae, and implied-in-fact contracts between the United States on the one
hand and Freddie Mac and Fannie Mae on the other. The plaintiffs ask that plaintiffs, Freddie Mac, and Fannie Mae be awarded
(1) just compensation for the government's alleged taking or exaction of their property, (2) damages for the government's
breach of fiduciary duties, and (3) damages for the government's breach of the alleged implied-in-fact contracts. In addition,
plaintiffs seek pre- and post-judgment interest, attorneys' fees, costs, and other expenses. The United States filed a motion to
dismiss on August 1, 2018 and an amended motion to dismiss on October 1, 2018. On December 6, 2019, the Court dismissed
the claims plaintiffs labeled as direct claims and denied defendant's motion to dismiss with respect to the claims plaintiffs
labeled as derivative. Accordingly, derivative takings, exaction, breach of fiduciary duty, and breach of implied-in-fact contract
claims remain. By order dated March 9, 2020, the Court granted unopposed motions by plaintiffs and defendant to certify the
December 6 opinion for interlocutory review, modified its December 6 opinion to include the language necessary for an
interlocutory appeal to the U.S. Court of Appeals for the Federal Circuit, and stayed further proceedings in the case pending the
completion of the interlocutory appeal process. The Federal Circuit granted the petition for interlocutory appeal on June 18,
2020.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 18
Perry Capital LLC vs. the United States of America, Federal National Mortgage Association, and Federal Home
Loan Mortgage Corporation. This case was filed as a derivative lawsuit, purportedly on behalf of Freddie Mac and Fannie
Mae as "nominal" defendants, on August 15, 2018. The complaint alleges, among other items, that the net worth sweep
dividend provisions of the senior preferred stock constitute an unlawful taking of private property for public use without just
compensation or an illegal exaction in violation of the Fifth Amendment, and that by enacting the net worth sweep, the
government breached the fiduciary duty it owed to Freddie Mac and Fannie Mae, and implied-in-fact contracts between the
United States on the one hand and Freddie Mac and Fannie Mae on the other. The plaintiff asks that it, Freddie Mac, and
Fannie Mae be awarded just compensation for the government's alleged taking of their property or damages for the illegal
exaction; damages for the government's breach of fiduciary duties; and damages for the government's breach of the alleged
implied-in-fact contracts. These proceedings are stayed pending a ruling on the Fairholme Funds appeals.
At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in the U.S. District Courts
and the U.S. Court of Federal Claims (including the outcome of any appeal) or any potential effect on our business, financial
condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or range of
possible loss in the event of an adverse judgment in the foregoing matters due to a number of factors, including the inherent
uncertainty of pre-trial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase
Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of damages they believe are due.
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Financial Statements
NOTE 19
Regulatory Capital
Notes to the Consolidated Financial Statements | Note 19
The GSE Act specifies certain capital requirements for us and authorizes FHFA to establish other capital requirements as well
as to increase our minimum capital levels or to establish additional capital and reserve requirements for particular purposes. In
October 2008, FHFA suspended capital classification of us during conservatorship, in light of the Purchase Agreement. FHFA
continues to monitor our capital levels, and we continue to provide quarterly submissions to FHFA on minimum capital in
accordance with FHFA guidance.
In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage our financial risk and to make economic
business decisions, while in conservatorship, utilizing a risk-based CCF, a capital system with detailed formulae provided by
FHFA. In December 2020, FHFA published the ERCF, establishing a new regulatory capital framework for Freddie Mac and
Fannie Mae. The ERCF, which went into effect in February 2021, has a transition period for compliance. In general, the
compliance date for the regulatory capital requirements will be the later of the date of termination of our conservatorship and
any later compliance date provided in a consent order or other transition order, and the compliance date for buffer
requirements in the ERCF will be the date of termination of our conservatorship. In accordance with FHFA guidance, we are
transitioning to ERCF to measure and manage risk. Pursuant to the final rule, we are required to comply with the regulatory
capital reporting requirements under the ERCF in 2022, with our initial quarterly capital report due by May 30, 2022, 60 days
after the last day of the first quarter.
On September 15, 2021, FHFA issued a notice of proposed rulemaking to amend the ERCF. The proposed amendments would
refine the PLBA and the capital treatment of CRT transactions. On October 27, 2021, FHFA issued an additional notice of
proposed rulemaking to amend the ERCF by introducing additional public disclosure requirements for the Enterprises. On
December 16, 2021, FHFA issued a notice of proposed rulemaking that would require Freddie Mac and Fannie Mae to develop,
maintain, and submit annual capital plans to FHFA. FHFA is seeking comment on this proposed rule through February 25, 2022.
Regulatory Capital Standards
The GSE Act established minimum, critical, and risk-based capital standards for us. However, per guidance received from
FHFA, we no longer are required to submit risk-based capital reports to FHFA.
Prior to our entry into conservatorship, those standards determined the amounts of core capital that we were to maintain to
meet regulatory capital requirements. Core capital consisted of the par value of outstanding common stock (common stock
issued less common stock held in treasury), the par or stated value of outstanding non-cumulative, perpetual preferred stock,
additional paid-in capital, and retained earnings (accumulated deficit), as determined in accordance with GAAP.
Minimum Capital
The minimum capital standard required us to hold an amount of core capital that was generally equal to the sum of 2.50% of
aggregate on-balance sheet assets and approximately 0.45% of the sum of our guaranteed securities held by third parties and
other aggregate off-balance sheet obligations.
Pursuant to regulatory guidance from FHFA, our minimum capital requirement was not affected by adoption of amendments to
the accounting guidance for transfers of financial assets and consolidation of VIEs effective January 1, 2010. Specifically, upon
adoption of these amendments, FHFA directed us, for purposes of minimum capital, to continue reporting guaranteed
securities held by third parties using a 0.45% capital requirement. FHFA reserves the authority under the GSE Act to raise the
minimum capital requirement for any of our assets or activities.
Critical Capital
The critical capital standard required us to hold an amount of core capital that was generally equal to the sum of 1.25% of
aggregate on-balance sheet assets and approximately 0.25% of the sum of our guaranteed securities held by third parties and
other aggregate off-balance sheet obligations.
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Financial Statements
Notes to the Consolidated Financial Statements | Note 19
Performance Against Regulatory Capital Standards
The table below summarizes our net worth and estimated core capital and minimum capital levels reported to FHFA.
Table 19.1 - Net Worth and Minimum Capital
(In millions)
GAAP net worth (deficit)
Core capital (deficit)(1)(2)
Less: Minimum capital(1)
Minimum capital surplus (deficit)(1)
December 31, 2021
December 31, 2020
$28,033
(44,769)
24,302
($69,071)
$16,413
(56,878)
22,694
($79,572)
(1)
(2)
Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative source for our regulatory capital.
Core capital excludes certain components of GAAP total equity (i.e., AOCI and senior preferred stock) as these items do not meet the statutory definition of core
capital.
The Purchase Agreement provides that, if FHFA determines as of quarter end that our liabilities have exceeded our assets
under GAAP, Treasury will contribute funds to us in an amount at least equal to the difference between such liabilities and
assets.
Under the GSE Act, FHFA must place us into receivership if FHFA determines that our assets are and have been less than our
obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for our
quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA has advised us that, if,
during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the
Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. If funding has been
requested 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.
At December 31, 2021, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested from Treasury
under the Purchase Agreement. As of December 31, 2021, our aggregate funding received from Treasury under the Purchase
Agreement was $71.6 billion. This aggregate funding amount does not include the initial $1.0 billion liquidation preference of
senior preferred stock that we issued to Treasury in September 2008 as an initial commitment fee and for which no cash was
received, and increases in the aggregate liquidation preference of the senior preferred stock related to the increases in our Net
Worth Amount since December 2017 that have been permitted pursuant to the Purchase Agreement.
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Controls and Procedures
Controls and Procedures
MANAGEMENT'S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed by, or under the
supervision of, our Chief Executive Officer and Chief Financial Officer and effected by the Board of Directors, management, and
other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It is a
process that involves human diligence and compliance and is, therefore, subject to lapses in judgment and breakdowns
resulting from human error. It also can be circumvented by collusion or improper management override. Because of its
limitations, there is a risk that internal control over financial reporting may not prevent or detect, on a timely basis, errors that
could cause a material misstatement of the financial statements.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making our
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or
COSO, in Internal Control — Integrated Framework (2013 Framework). A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the company's annual or interim financial statements will not be prevented or detected on a timely basis by a company's
internal controls. Based on our assessment, we identified a material weakness related to our inability to update our disclosure
controls and procedures in a manner that adequately ensures the accumulation and communication to management of
information known to FHFA that is needed to meet our disclosure obligations under the federal securities laws, including
disclosures affecting our consolidated financial statements.
We have been under conservatorship of FHFA since September 6, 2008. FHFA is an independent agency that currently
functions as both our Conservator and our regulator with respect to our safety, soundness, and mission. Because we are in
conservatorship, some of the information that we may need to meet our disclosure obligations may be solely within the
knowledge of FHFA. As our Conservator, FHFA has the power to take actions without our knowledge that could be material to
investors and could significantly affect our financial performance. Although we and FHFA have attempted to design and
implement disclosure policies and procedures to account for the conservatorship and accomplish the same objectives as
disclosure controls and procedures for a typical reporting company, there are inherent structural limitations on our ability to
design, implement, test, or operate effective disclosure controls and procedures under the circumstances of conservatorship.
As our Conservator and regulator, FHFA is limited in its ability to design and implement a complete set of disclosure controls
and procedures relating to us, particularly with respect to current reporting pursuant to Form 8-K. Similarly, as a regulated
entity, we are limited in our ability to design, implement, operate, and test the controls and procedures for which FHFA is
responsible. For example, FHFA may formulate certain intentions with respect to the conduct of our business that, if known to
management, would require consideration for disclosure or reflection in our financial statements, but that FHFA, for regulatory
reasons, may be constrained from communicating to management. As a result of these considerations, we have concluded that
this control deficiency constitutes a material weakness in our internal control over financial reporting.
Because of this material weakness, we have concluded that our internal control over financial reporting was not effective as of
December 31, 2021 based on the COSO criteria (2013 Framework). PricewaterhouseCoopers LLP, an independent registered
public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2021 and
also determined that our internal control over financial reporting was not effective. PricewaterhouseCoopers LLP's report
appears in Financial Statements — Report of Independent Registered Public Accounting Firm.
EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information
we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified by the SEC's rules and forms and that such information is accumulated and
communicated to management of the company, including the company's Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls and procedures, we
recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable
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Controls and Procedures
assurance of achieving the desired control objectives, and we must apply judgment in implementing possible controls and
procedures.
Management, including the company's Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of December 31, 2021. As a result of management's evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as
of December 31, 2021, at a reasonable level of assurance, because we have not been able to update our disclosure controls
and procedures to provide reasonable assurance that information known by FHFA on an ongoing basis is communicated from
FHFA to Freddie Mac's management in a manner that allows for timely decisions regarding our required disclosure under the
federal securities laws. As discussed above, we consider this situation to be a material weakness in our internal control over
financial reporting. Based on discussions with FHFA and the structural nature of this continuing weakness, we believe it is likely
that we will not remediate this material weakness while we are under conservatorship.
MITIGATING ACTIONS RELATED TO THE MATERIAL
WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL
REPORTING
As described above under Management's Report on Internal Control Over Financial Reporting, we have one material
weakness in internal control over financial reporting as of December 31, 2021 that we have not remediated.
Given the structural nature of this material weakness, we believe it is likely that we will not remediate it while we are under
conservatorship. However, both we and FHFA have continued to engage in activities and employ procedures and practices
intended to permit accumulation and communication to management of information needed to meet our disclosure obligations
under the federal securities laws. These include the following:
n FHFA has established the Division of Conservatorship Oversight and Readiness, which is intended to facilitate operation of
the company with the oversight of the Conservator.
n We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also provide drafts
of certain external press releases and statements to FHFA personnel for their review and comment prior to release.
n FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-K, and engage in
discussions with us regarding issues associated with the information contained in those filings. Prior to filing this Form 10-
K, FHFA provided us with a written acknowledgment that it had reviewed the Form 10-K, was not aware of any material
misstatements or omissions in the Form 10-K, and had no objection to our filing the Form 10-K.
n The Director of FHFA is in frequent communication with our Chief Executive Officer (or if that office is vacant, with our
President), typically meeting (in person or by phone) on at least a bi-weekly basis.
n FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of
information and to provide oversight on a variety of matters, including accounting, credit and capital markets management,
external communications, and legal matters.
n Senior officials within FHFA's accounting group meet frequently with our senior financial executives regarding our
accounting policies, practices, and procedures.
In view of our mitigating actions related to this material weakness, we believe that our consolidated financial statements for the
year ended December 31, 2021 have been prepared in conformity with GAAP.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL
REPORTING DURING THE QUARTER ENDED
DECEMBER 31, 2021
We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended December 31,
2021 and concluded that there were no changes that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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237
Other Information
Other Information
DIRECTOR ELECTION
On February 7, 2022, Kevin G. Chavers and Luke S. Hayden were elected to our Board of Directors, effective February 15,
2022. Mr. Chavers brings extensive experience in mortgage finance, capital markets, and public policy to the Board of Directors
and will serve on our Audit Committee and Nominating and Governance Committee. Mr. Hayden is an experienced executive
who brings expertise in residential real estate finance, capital markets, and risk management to the Board of Directors and will
serve on our Operations and Technology Committee and Risk Committee.
Mr. Chavers, 58, retired as Managing Director, Global Fixed Income Investment Team, at BlackRock, Inc. in 2021. After joining
BlackRock in 2011, he also served as Managing Director, Global Public Policy Group, and Managing Director, BlackRock
Solutions, Financial Markets Advisory Group. Prior to joining BlackRock, he held various positions at Morgan Stanley from 2003
to 2011, including Managing Director, Senior Relationship Management and Head, Mortgage Strategy & Execution. Mr. Chavers
joined Morgan Stanley from Goldman Sachs & Company, where he was Vice President, Principal Finance Group, Mortgage
Securities Department from 1998 to 2003. He had previously held various positions in the U.S. Government from 1989 to 1998,
ultimately serving as President of Ginnie Mae from 1995 to 1998. Mr. Chavers began his career as an associate at the law firm
of Milbank, Tweed, Hadley & McCloy LLP. He currently serves as an Independent Trustee of Optimum Funds and as a member
of the Board of Directors of Toorak Capital Partners, SMBC Americas Holdings, Inc. (SMBC), and Chimera Investment
Corporation, Inc. (Chimera). He serves on the Audit Committee of SMBC and as the Chair of the Compensation Committee and
a member of the Risk Committee of Chimera.
Mr. Hayden, 65, has been the CEO of Hayden Consulting, a firm that provides consulting services for mortgage banks,
commercial banks, thrifts, REITs, and private equity firms, since 2012. He served as Vice Chairman of Residential Mortgage
Services Holdings, Inc. from 2013 to 2021. Prior to joining Residential Mortgage Services Holdings, he was President of PHH
Mortgage Corporation from 2010 to 2012 and Executive Vice President and Senior Managing Director at GMAC Residential
Capital from 2007 to 2008. From 1992 to 2005, he held various positions at JPMorgan Chase & Company and its predecessors,
eventually becoming Executive Vice President of Consumer Market Risk Management. Mr. Hayden began his career as a loan
officer and loan purchaser at Ralph C. Sutro Company.
Messrs. Chavers and Hayden will receive compensation as non-executive directors of Freddie Mac as described in Directors,
Corporate Governance, and Executive Officers – Corporate Governance – Director Compensation.
Freddie Mac will also enter into indemnification agreements with Messrs. Chavers and Hayden, effective as of February 15,
2022, the form of which is filed in the Exhibit Index. For a description of this indemnification agreement, see Directors,
Corporate Governance, and Executive Officers – Corporate Governance – Director Compensation –
Indemnification.
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Directors, Corporate Governance, and Executive Officers
Directors
Directors, Corporate Governance, and Executive
Officers
DIRECTORS
Election of Directors
As Conservator, FHFA determines the size of the Board of Directors and the scope of its authority. At the start of the
conservatorship, FHFA determined that the Board of Directors is to have a Non-Executive Chair and is to consist of a minimum
of 9 and not more than 13 directors. FHFA determined that the CEO is the only executive officer permitted to serve as a
member of the Board of Directors.
In addition, because FHFA as Conservator has succeeded to the rights of all stockholders of the company, the Conservator
elects the directors each year by written consent in lieu of an annual meeting. Accordingly, we will not solicit proxies, distribute
a proxy statement to stockholders, or hold an annual meeting of stockholders to elect directors during the conservatorship.
Prior to each election by written consent, the Board of Directors identifies director nominees for the Conservator's
consideration. When there is a vacancy, the Board of Directors may exercise the authority provided to it by the Conservator to
fill such vacancy, subject to review by the Conservator.
On February 7, 2022, the Conservator executed a written consent electing the 13 directors listed below that we submitted for
election as members of our Board of Directors. Messrs. Kevin G. Chavers and Luke S. Hayden are newly elected Board
members effective February 15, 2022, with all other directors re-elected for another term effective February 15, 2022. See
Other Information for additional information.
n Mark H. Bloom
n Kathleen L. Casey
n Kevin G. Chavers
n Michael J. DeVito
n Lance F. Drummond
n Aleem Gillani
n Mark B. Grier
n Luke S. Hayden
n Grace A. Huebscher
n Sara Mathew
n Allan P. Merrill
n Christopher E. Herbert
n Alberto G. Musalem
We did not submit for election, and FHFA did not elect, Saiyid T. Naqvi, who retired from the Board of Directors on February 7,
2022, the effective date of the Conservator's written consent, because he had reached the age limit set forth in our Corporate
Governance Guidelines, or the Guidelines.
See Directors, Corporate Governance, and Executive Officers — Directors — Director Biographical Information
for information about each of our current directors and Other Information for information about our two new directors. The
terms of the directors elected by FHFA will end on the date the director retires or resigns, the effective date of the
Conservator's next election of directors by written consent, or the date of the next annual meeting of our stockholders,
whichever occurs first.
Director Criteria, Diversity, Qualifications, Experience, and Tenure
Our Board of Directors seeks candidates for directorship who have achieved a high level of stature, success, and respect in
their principal occupations and exemplify high standards of integrity.
We initially selected our directors as candidates because of their character, judgment, experience, and expertise. In selecting
candidates, we follow the requirements set forth in our Charter, the Guidelines, and the Corporate Governance Rule. When
identifying director nominees, the Nominating and Governance Committee considers, among other factors, the talents and
skills then available on the Board of Directors, the continued involvement of incumbent directors in business and professional
activities relevant to us, the skills and experience that should be represented on the Board of Directors, and the availability of
other individuals with desirable skills to join the Board of Directors. Specifically, the Nominating and Governance Committee
seeks candidates that would supplement the knowledge the Board of Directors collectively would have in the areas of business,
finance, accounting, risk management, technology (including cybersecurity), public policy, mortgage lending, real estate, low-
income housing, homebuilding, regulation of financial institutions, and any other areas that may be relevant to our safe and
sound operation. We also consider whether a candidate's other commitments, including the number of other board
memberships held by the candidate, would permit the candidate to devote sufficient time to the candidate's duties and
responsibilities as a director. In addition, our Charter provides that our Board of Directors has at least one person from each of
the homebuilding, mortgage lending, and real estate industries and at least one person from an organization representing
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Directors, Corporate Governance, and Executive Officers
Directors
community or consumer interests or one person who has demonstrated a career commitment to the provision of housing for
low-income households.
As set forth in the Guidelines, the Board of Directors seeks to have a diversity of talent, perspectives, experience, and cultures
among its members by including minorities, women, and individuals with disabilities, and these are important factors in the
Board of Directors’ candidate solicitation and nomination processes. FHFA requires us to ensure, to the maximum extent
possible in balance with financially safe and sound business practices, inclusion of minorities, women, and individuals with
disabilities in our process of nominating directors, as we do in all of our activities.
Prioritizing diversity as an important part of our candidate solicitation and nomination process has resulted in a Board of
Directors with members who have a variety of backgrounds and overall experience. Over half of our directors are women,
minorities, or both. Our Non-Executive Chair is a minority woman, and a woman and/or minority serves in a leadership position
as the Chair of the Audit, Compensation and Human Capital (CHC), Executive, and Risk Committees. Our Board of Directors
also values having a balance of longer-serving directors with institutional knowledge and newer directors that bring fresh
perspectives and ideas. The charts below provide information on the composition of our Board of Directors by demographic
background and tenure, as of February 15, 2022, and include Messrs. Chavers and Hayden. See Other Information for
additional information about our two new directors.
Director Biographical Information
The following summarizes each director's Board service, experience, qualifications, attributes, and/or skills that led to their
selection as a director, and provides other biographical information, as of February 9, 2022. For biographical information
regarding Messrs. Chavers and Hayden, who will join our Board of Directors effective February 15, 2022, see Other
Information.
Mark H. Bloom
Age
57
Director Since
November 2019
Freddie Mac Committees
Public Company Directorships
• Compensation and Human Capital
None
• Executive
• Operations and Technology, Chair
• Risk
Mr. Bloom is an experienced executive who has held a variety of leadership positions at the intersection of finance, technology,
and risk management. He brings technological expertise to drive efficiency and enhance the customer experience to the Board
of Directors.
Experience and Qualifications
n Management Consultant, Operations & Technology (2021-present)
n Global Chief Technology Officer and a member of the Management Board of Aegon N.V. (2016-2021)
n Various positions at Citigroup, Inc., including Managing Director, Head of Global Consumer Technology Delivery Services
(2007-2016)
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Gender103MenWomenRace/Ethnicity8221WhiteAfrican AmericanAsianHispanic or LatinoTenure652< 2 Years2 < 5 Years> 5 YearsAge7650s60s Directors, Corporate Governance, and Executive Officers
Directors
n Various positions at JPMorgan Chase & Company, including Senior Vice President, Chase Home Financial Technology
(2001-2007)
n Senior Vice President, eBusiness Solutions at CACI International, Inc. (1999-2001)
Kathleen L. Casey
Age
55
Director Since
Freddie Mac Committees
Public Company Directorships
October 2019
• Audit
• None
• Nominating and Governance
• Operations and Technology
Ms. Casey is an experienced leader with extensive financial regulatory policy experience. She brings high-level regulatory and
financial oversight experience as well as a deep understanding of financial markets and governance to the Board of Directors.
Experience and Qualifications
n Senior Advisor with Patomak Global Partners, a financial services consulting firm (2012-present)
n Member of the Board of HSBC Holdings Plc (2014-2020), including service during her tenure on the Group Audit, Financial
System Vulnerabilities, Nominations & Corporate Governance, and Group Risk Committees
n Commissioner of the Securities and Exchange Commission (2006-2011)
n Various roles with the U.S. Senate, including Staff Director and Counsel of the Senate Banking, Housing, and Urban Affairs
Committee and Staff Director of the Senate Banking Committee's Subcommittee on Financial Institutions and Regulatory
Relief (1993-2006)
n Member of the Financial Accounting Foundation Board of Trustees (2018-present); Chair (2020-present)
n Member of the Board of Sepio Systems Inc. (2020-present)
n Member of the International Valuation Standards Council Board of Trustees (2016-present)
n Member of the Library of Congress Trust Fund Board (2011-present)
n Chair of the Alternative Investment Management Association Council (2012-2016)
Michael J. DeVito
Age
57
Director Since
Freddie Mac Committees
Public Company Directorships
June 2021
• Executive
None
Mr. DeVito brings more than 30 years of experience in the mortgage and financial services industries to Freddie Mac and its
Board of Directors. He has extensive experience across home lending, including in loan origination, servicing, portfolio
management, secondary marketing, credit, and risk management.
Experience and Qualifications
n Chief Executive Officer of Freddie Mac (2021-present)
n Various positions with Wells Fargo and Company, including Executive Vice President - Head of Home Lending of Wells
Fargo (2017-2020), Head of Home Lending Production (2015-2017), Head of Home Lending Servicing (2013-2015), Head of
Default Servicing (2011-2013), Head of Loan Workout (2009-2011), Head of Education Financial Services (2007-2009) and
Head of Mortgage Retail Underwriting and Operations (1996-2007)
Lance F. Drummond
Age
67
Director Since
July 2015
Freddie Mac Committees
Public Company Directorships
• Audit
• AvidXchange Holdings, Inc.
• Compensation and Human Capital, Chair
• United Community Banks, Inc.
• Executive
• Operations and Technology
Mr. Drummond is a senior business leader who brings extensive experience, specializing in business transforming strategy
development and execution, operations, technology, and process re-engineering to the Board of Directors.
Experience and Qualifications
n Executive in Residence, Christopher Newport University (2015-2017)
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Directors, Corporate Governance, and Executive Officers
Directors
n Executive Vice President of Operations and Technology of TD Canada Trust (2011-2014)
n Executive Vice President of Human Resources and Shared Services of Fiserv Inc. (2009-2011)
n Senior Vice President and Supply Chain Executive, Service and Fulfillment Executive for Global Technology and
Operations, and eCommerce and ATM Executive of Bank of America (2002-2008)
n Various positions with Eastman Kodak Company, including Chief Operating Officer and Corporate Vice President of Kodak
Professional Division (1976-2002)
n Member of the Board and Executive, Risk, and Talent & Compensation Committees, and Chair of the Nominating and
Governance Committee of United Community Banks, Inc. (2018-present)
n Member of the Board and Compensation and Risk Management Committees of AvidXchange (2020-present)
n Member of the Board and Conflicts and Management Compensation Committees and Chair of the Audit Committee of the
Financial Industry Regulatory Authority (2018-present)
n Member of the Board and Audit Committee of CurAegis Technologies, Inc. (2018-2020)
Aleem Gillani
Age
59
Director Since
January 2019
Freddie Mac Committees
Public Company Directorships
• Audit, Chair
None
• Compensation and Human Capital
• Executive
Mr. Gillani is a seasoned executive with extensive experience at sophisticated financial institutions. He brings a blend of
industry, financial, and risk management experience to the Board of Directors.
Experience and Qualifications
n Various positions with SunTrust Banks, Inc., including Chief Financial Officer and Corporate Executive Vice President,
Executive Vice President and Corporate Treasurer, and Senior Vice President and Chief Market Risk Officer (2007-2018)
n Senior Vice President and Chief Market Risk Officer of PNC Financial Services Group, Inc. (2004-2007)
n Chief Market Risk Officer of BankBoston and FleetBoston Corp. (1996-2004)
n Advanced Management Program, Harvard Business School (2003)
n Member of the Board of SunTrust Robinson Humphrey (2011-2018)
n Founding Chair of the Market Risk Council for the Risk Management Association (1998)
Mark B. Grier
Age
69
Director Since
February 2020
Freddie Mac Committees
Public Company Directorships
• Executive
None
• Nominating and Governance, Chair
• Risk
Mr. Grier is an executive with decades of finance, risk, and capital markets experience and contributes his deep expertise in
capital management to the Board of Directors.
Experience and Qualifications
Interim Chief Executive Officer of Freddie Mac (2021)
n
n Various positions with Prudential Financial, Inc., including Vice Chairman, Member of the Office of the Chairman, and Chief
Financial Officer (1995-2019)
n Various positions with The Chase Manhattan Corporation and its predecessors, including Executive Vice President, Co-
Head, Global Markets and Executive Vice President, Global Risk Management (1978-1995)
n Member of the Board of Trustees of The Geraldine R. Dodge Foundation (2021-present)
n Chair of the Board of the Global Impact Investing Network (2017-present)
n Member of the Board of Trustees of Eisenhower Fellowships (2013-present)
n Member of the Board of Achieve Inc. (2009-2020); Chair (2014-2020)
n Member of the Board of Trustees of the Tragedy Assistance Program for Survivors (2013-2019)
n Vice Chair and Member of the Board of Directors of Prudential Financial, Inc. (2008-2019)
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Directors, Corporate Governance, and Executive Officers
Directors
Christopher E. Herbert
Age
61
Director Since
March 2018
Freddie Mac Committees
Public Company Directorships
• Compensation and Human Capital
None
• Risk
Mr. Herbert is an experienced leader in the governmental and educational sectors and provides the Board of Directors with in-
depth knowledge of housing policy, including low-income housing, and urban development, including the financial and
demographic dimensions of home ownership.
Experience and Qualifications
n Managing Director for Harvard University's Joint Center for Housing Studies and Lecturer in Urban Planning and Design at
the Harvard Graduate School of Design (2015-present)
n Research Director for Harvard University's Joint Center for Housing Studies (2010-2014)
n Senior Associate at Abt Associates, Inc. (1997-2010)
n Member of the Board of the Homeownership Preservation Foundation (2011-2019)
n Member of the Research Advisory Council for the Center for Responsible Lending (2006-2019)
n Member of the Board of GreenPath Financial Wellness (2017-2019)
n Member of the Federal Reserve Bank of Boston's Community Development Research Advisory Council (2014-2016)
Grace A. Huebscher
Age
62
Director Since
December 2017
Freddie Mac Committees
Public Company Directorships
• Executive
None
• Nominating and Governance
• Operations and Technology
• Risk, Chair
Ms. Huebscher is an executive with extensive experience in capital markets and real estate. She brings deep multifamily
industry knowledge, entrepreneurial experience, and business savvy to the Board of Directors.
Experience and Qualifications
n Advisor to Capital One Commercial Bank (2017)
n President of Capital One Multifamily Finance, LLC (2013-2017)
n Co-Founder and Chief Executive Officer of Beech Street Capital, LLC (2009-2013)
n Various positions with Fannie Mae, including Vice President, Capital Markets (1997-2009)
n Member of the Board of The Kenyon Review (1998-present)
n Member of the Commercial Board of Governors of the Mortgage Bankers Association (2014-2017)
Sara Mathew
Age
66
Director Since
December 2013
Freddie Mac Committees
Public Company Directorships
• Executive, Chair
• Dropbox, Inc.
• State Street Corporation
• Xos, Inc.
Ms. Mathew is an executive with global financial and general management experience. Ms. Mathew's extensive business,
financial, and management experience, and her public company board and audit committee experience, positions her to make
valuable contributions to Board oversight of our internal control over financial reporting and compliance matters.
Experience and Qualifications
n Various positions with Dun & Bradstreet Corporation (2001-2013), including Chairman and Chief Executive Officer
(2010-2013); President and Chief Operating Officer (2007-2010); and Senior Vice President and CFO (2001-2006)
n Various finance and management positions with The Procter & Gamble Company, including Vice President of Finance for
Australia, Asia, and India (1983-2001)
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Directors
n Member of the Board and Audit and Compensation Committees of Dropbox, Inc. (2021-present)
n Member of the Board and Audit Committee and Chair of the Compensation Committee of Xos, Inc. (formerly NextGen
Acquisition Corporation) (2020-present)
n Member of the Board, Executive and Risk Committees, Chair of the Human Resources Committee, and former member of
the Nominating and Corporate Governance Committee of State Street Corporation (2018-present)
n Member of the Board and Audit Committee of Reckitt Benckiser Group plc (2019-2021)
n Member of the Board and Audit and Finance and Corporate Development Committees of Campbell Soup Company
(2005-2019)
n Member of the Board, Chair of the Audit, Compliance and Risk Committee, member of the Nomination and Governance
Committee, and former member of the Remuneration Committee of Shire plc (2015-2019)
n Member of the Board and Finance and Nominating and Corporate Governance Committees of Avon Products, Inc.
(2014-2016)
n Member of the International Advisory Council of Zurich Financial Services Group (2012-2017)
n Member of the Board of Dun & Bradstreet Corporation (2008-2013)
Allan P. Merrill
Age
55
Director Since
September 2020
Freddie Mac Committees
Public Company Directorships
• Audit
• Beazer Homes USA, Inc.
• Nominating and Governance
Mr. Merrill is an experienced executive in the homebuilding industry and brings in-depth knowledge of the housing market as
well as considerable executive leadership and financial experience to the Board of Directors.
Experience and Qualifications
n Various positions with Beazer Homes USA, Inc., including Chairman of the Board, President, and Chief Executive Officer,
and Executive Vice President and Chief Financial Officer (2007-present)
n Various leadership positions with Move, Inc., including Executive Vice President of Corporate Development and Strategy,
and President of Homebuilder.com, a division of Move, Inc. (2000-2007)
n Various positions with UBS Group AG and its predecessors, including Managing Director and Co-Head of the Global
Resources Group (1987-2000)
n Member of the Board of Builder Homesite, Inc. (2011-present)
n Member of the Board of the Leading Builders of America (2011-present)
n Member of the Board of Harvard University's Joint Center for Housing Studies (1992-present)
Alberto G. Musalem
Age
53
Director Since
June 2021
Freddie Mac Committees
Public Company Directorships
• Compensation and Human Capital
None
• Operations and Technology
• Risk
Mr. Musalem is a financial executive who brings proven leadership and significant finance, capital markets, economics, and
public policy experience to the Board of Directors.
Experience and Qualifications
n Adjunct Professor at Georgetown University (2022-present)
n Chief Executive Officer and Co-Founder of Evince Asset Management LP, a quantitative investment manager (2018-
present)
n Executive Vice President of the Federal Reserve Bank of New York (2014-2016)
n Chairman and Board Member of School the World (2012-2017)
n Managing Director and Partner of Tudor Investment Corporation (2000-2013)
n Adjunct Professor at Johns Hopkins University (2007)
n Economist at the International Monetary Fund (1996-2000)
n Analyst at Bankers Trust (1995)
n Analyst at McKinsey & Co. (1994)
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Corporate Governance
CORPORATE GOVERNANCE
Our Corporate Governance Practices
We are committed to best practices in corporate governance. Our Board of Directors has adopted the Guidelines, which
embody many of our long-standing practices, policies, and procedures and are available on our website at
www.freddiemac.com/governance/pdf/gov_guidelines.pdf. Our Board of Directors reviews the Guidelines annually and
regularly assesses them against the regulatory and legislative environment in which we operate as well as evolving best
practices.
The Guidelines are designed to provide for effective collaboration between management and the Board of Directors. We have
instituted the following specific corporate governance practices:
n Our Board of Directors has an independent Non-Executive Chair, whose responsibilities include presiding over Board
meetings and executive sessions of the non-employee or independent directors.
n Each of our directors is independent, except for the CEO.
n Our directors are elected annually.
n Each of the Audit, CHC, Nominating and Governance, Operations and Technology, and Risk Committees consists entirely
of independent directors.
n Each committee operates pursuant to a written charter that has been approved by the Board of Directors (these charters
are available at http://www.freddiemac.com/governance/board-committees.html).
Independent directors meet regularly without management.
n
n The Board of Directors and each of the Audit, CHC, Nominating and Governance, and Risk Committees conduct an annual
self-evaluation, as will the newly formed Operations and Technology Committee.
n New directors receive a full orientation regarding the company and issues specific to the committees to which they have
been appointed.
n All directors are provided with access to, and are encouraged to utilize, third-party continuing education.
n Management provides the Board of Directors and its committees with in-depth technical briefings on substantive issues
affecting the company.
n The Board of Directors reviews management talent and succession planning at least annually.
Director Independence and Relevant Considerations
The Nominating and Governance Committee has evaluated the independence of each of our non-employee Board members
and has made recommendations to the Board of Directors for determination and approval with respect thereto. For purposes of
these determinations, we use the definition of independence set forth in Sections 4 and 5 of the Guidelines and in Section
303A.02 of the NYSE Listed Company Manual. Based on the Nominating and Governance Committee’s evaluation and
recommendation, our Board of Directors and, in certain circumstances, consistent with our Guidelines, our non-employee
Board members on behalf of the Board of Directors, made the following determinations. The Board of Directors determined that
all current non-employee Board members are, and that Messrs. Chavers and Hayden will be, independent, except that Mr.
Grier was not considered to be independent during the period he served as our Interim CEO. Mr. DeVito is not considered to be
an independent director due to his service as our CEO. With respect to former Board members who served in 2021, Mr. Saiyid
T. Naqvi and Mr. Paul T. Schumacher were, and Mr. Brickman (our former CEO) was not determined to be independent.
Our Board of Directors determined that all members of our Audit, CHC, Nominating and Governance, Operations and
Technology, and Risk Committees are independent within the meaning of Sections 4 and 5 of the Guidelines and Section
303A.02 of the NYSE Listed Company Manual. Our Board of Directors also determined that: (1) all members of our Audit
Committee are independent within the meaning of Exchange Act Rule 10A-3 and Section 303A.06 of the NYSE Listed Company
Manual; and (2) all members of our CHC Committee are independent within the meaning of Exchange Act Rule 10C-1 and
Section 303A.02(a)(ii) of the NYSE Listed Company Manual.
In determining the independence of each Board member, the Board of Directors reviewed the following categories or types of
relationships, in addition to those specifically addressed by the standards contained in Section 5 of the Guidelines, to
determine whether those relationships, either individually or in aggregate, would constitute a material relationship between the
director and us that would impair the director's judgment as a member of the Board of Directors or create the perception or
appearance of such an impairment:
n Employment Affiliation with the Company - Mr. Grier served as our interim CEO from March 15, 2021 to May 31, 2021.
During this period, he was not considered an independent director. After he stepped down as Interim CEO, he returned to
being an independent director, consistent with Section 303A.02(b)(i) of the NYSE Listed Company Manual, which does not
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Directors, Corporate Governance, and Executive Officers
Corporate Governance
preclude a director from being found independent after service as an interim CEO ends as the compensation he received
during such service did not constitute a material relationship that would impair Mr. Grier's independence as our director.
n Employment Affiliations with Business Partners - Mr. Herbert is, and Mr. Bloom was, employed by organizations that
engage or have engaged in business with us resulting in payments between us and such organizations. Under the
Guidelines, no specific independence determination is required with respect to these payments because they do not
exceed the greater of $1 million or 2% of the firm's consolidated gross revenues for each of the last three fiscal years. After
considering the nature and extent of the specific relationships between these organizations and us, our Board of Directors
concluded that the business relationships do not constitute material relationships between either Mr. Bloom or Mr. Herbert
and us that would impair their respective independence as our directors.
Immediate family members of Messrs. Chavers and Hayden and Ms. Huebscher are employed by companies that engage
or have engaged in business with us resulting in payments between us and such companies. After considering the nature
and extent of the specific relationships between the companies and the immediate family members, and between the
companies and Freddie Mac, our Board of Directors concluded that these business relationships do not constitute a
material relationship that would impair Messrs. Chavers, Hayden, or Ms. Huebscher's independence as our directors.
n Employment Affiliations with Competitors - An immediate family member of Ms. Huebscher is employed by a company
that is a competitor of Freddie Mac. After considering the nature and extent of the specific relationship between the
competitor and the immediate family member and between the competitor and Freddie Mac, our Board of Directors
concluded that the business relationship does not constitute a material relationship that would impair Ms. Huebscher's
independence as our director.
n Board Memberships with Business Partners - Messrs. Chavers, Drummond, and Merrill serve as directors of other
organizations that engage in business with us resulting in payments between us and such organizations. After considering
the nature and extent of the specific relationship between each of those organizations and us, and the fact that these
Board members are directors of these other organizations rather than employees, our Board of Directors concluded that
those business relationships do not constitute material relationships that would impair their independence as our directors.
n Financial Relationships with Business Partners - Messrs. Bloom, Gillani, Grier, and Hayden each own stock in
companies with which we conduct significant business, and such ownership represents a material portion of their
respective net worth. To eliminate any potential conflict of interest that might arise as a result of their respective stock
ownership, we have established mechanisms pursuant to which they will be recused from discussing and acting upon any
matters considered by the Board of Directors or any of the committees of which they are or were a member and that
directly relate to the company in which they have such stock ownership. In situations where matters are frequently
presented to the Board of Directors regarding these companies, we have established formal recusal arrangements. The
Audit Committee Chair, in consultation with the Non-Executive Chair, addresses any questions regarding whether recusal
from a particular discussion or action is appropriate.
In evaluating the independence of Messrs. Bloom, Gillani, Grier, and Hayden in light of their stock ownership of our
business partners, our Board of Directors considered the nature and extent of our business relationships with such
business partners and any potential impact that their respective stock ownership may have on their independent judgment
as our directors, taking into account the relevant recusal mechanisms. Our Board of Directors concluded that these
mechanisms addressed any actual or potential conflicts of interest with respect to the stock ownership. Accordingly, our
Board of Directors concluded that the stock ownership of our business partners by Messrs. Bloom, Gillani, Grier, and
Hayden do not constitute material relationships that would impair their independence as our directors.
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Corporate Governance
Board of Directors and Board Committee Information
Authority of the Board of Directors and Board Committees
The directors serve on behalf of, and exercise authority as directed by, the Conservator and owe their fiduciary duties of care
and loyalty to the Conservator. Although the Conservator has provided authority for the Board of Directors and its committees
to function in accordance with the duties and authorities set forth in applicable statutes, regulations, guidance, orders, and
directives, and our Bylaws and committee charters, the Conservator has reserved certain powers of approval for itself. The
Conservator provided instructions to the Board of Directors in 2008, 2012, and 2017 to consult with and obtain the
Conservator's decision before taking certain actions.
The Conservator's instructions as currently revised require that we obtain the Conservator's decision before taking action on
any matters that require the consent of or consultation with Treasury under the Purchase Agreement. See Note 2 for a list of
matters that require the approval of Treasury under the Purchase Agreement.
The Conservator's revised instructions also require us to obtain the Conservator's decision before taking action in the areas
identified in the table below. For some matters, the Conservator's revised instructions specify that our Board of Directors must
review and approve the matter before we request the Conservator's decision, and for other matters the Board of Directors is
expected to determine the appropriate level of FHFA's engagement.
Matters Requiring Prior Board Review and Approval
• Redemptions or repurchases of our subordinated debt, except as may
be necessary to comply with Section 5.7 of the Purchase Agreement;
• Creation of any subsidiary or affiliate, or entering into a substantial
transaction with a subsidiary or affiliate, except for routine, ongoing
transactions with CSS or the creation of, or a transaction with, a
subsidiary or affiliate undertaken in the ordinary course of business;
• Changes to, or removal of, Board risk limits that would result in an
increase in the amount of risk that may be taken by us;
• Retention and termination of external auditors to perform an integrated
audit of our financial statements and internal controls over financial
reporting;
• Termination of law firms serving as consultants to the Board;
• Proposed amendments to our bylaws or Board committee charters;
• Setting or increasing the compensation or benefits payable to
members of the Board; and
• Establishing the annual operating budget.
• Material changes in accounting policy;
Other Matters
• Proposed changes in our business operations, activities, and transactions
that, in the reasonable business judgment of our management, are more
likely than not to result in a significant increase in credit, market,
reputational, operational, or other key risks;
• Matters, including our initiation or substantive response to litigation, that
impact or question the Conservator's powers, our status in
conservatorship, the legal effect of the conservatorship, interpretations of
the Purchase Agreement or terms and conditions of the Financial Agency
Agreement with Treasury or our performance under the Financial Agency
Agreement;
• Agreements with respect to any securities litigation claim and agreements
pursuant to which we settle, resolve, or compromise demands, claims,
litigation, lawsuits, prosecutions, regulatory proceedings, or tax matters
when the amount in dispute is more than $50 million, including each
separate agreement with the same counterparty involving the same
dispute or common facts when the aggregate amount in dispute totals
more than $50 million (this provision excludes loan workouts, which are
conducted in the ordinary course of business);
• Mergers, acquisitions and changes in control of a Key Counterparty where
we have a direct contractual right to cease doing business with such Key
Counterparty or object to the merger or acquisition of such entity;
• Changes to requirements, policies, frameworks, standards, or products
that are aligned with Fannie Mae, pursuant to FHFA's direction;
• Credit risk transfers that are new transaction types, recurring transactions
with any material change in terms, and transactions that involve collateral
types not previously included in a risk transfer transaction;
• Mortgage servicing rights sales and transfers involving:
◦ 100,000 or more loans to a non-bank transferee; or
◦ 25,000 or more loans to any transferee servicer when the transfer
would increase the number of the transferee's Freddie Mac- and
Fannie Mae-owned seriously delinquent loans by at least 25 percent
and the servicing transfer has a minimum of 500 seriously delinquent
loans; and
• Changes in employee compensation that could significantly impact our
employees, including, but not limited to, retention awards, special
incentive plans, and merit increase pool funding.
In addition, FHFA requires us to provide it with timely notice of: (1) activities that represent a significant change in current
business practices, operations, policies, or strategies not otherwise addressed in the Conservator decision items referenced
above; (2) exceptions and waivers to aligned requirements, policies, frameworks, standards, or products if not otherwise
submitted to FHFA for Conservator approval as required above; and (3) accounting error corrections to previously issued
financial statements that are not de minimis. FHFA will then determine whether any such items require Conservator approval.
For more information on the conservatorship, see MD&A — Conservatorship and Related Matters.
FREDDIE MAC | 2021 Form 10-K
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Directors, Corporate Governance, and Executive Officers
Corporate Governance
Board Committees
The Board of Directors has six standing committees: Audit, CHC, Executive, Nominating and Governance, Operations and
Technology, and Risk. All standing committees, other than the Executive Committee, meet regularly and are chaired by, and
consist entirely of, independent directors. The Committees perform essential functions on behalf of the Board of Directors. The
Committee Chairs review and approve agendas for all meetings of their respective Committees. Charters for the standing
committees describe each committee's responsibilities and have been adopted by the Board of Directors and approved by the
Conservator. These charters are available on our website at http://www.freddiemac.com/governance/board-
committees.html. The membership of each committee as of February 9, 2022, except as otherwise noted below, and the
number of meetings held by each committee in 2021 are set forth below, together with a description of the primary
responsibilities of each committee.
Committee
Meetings in 2021
Chair
Members
Audit Committee
10 Committee meetings
Aleem Gillani
Compensation and Human
Capital Committee
8 Committee meetings
Lance F. Drummond
Executive Committee
None
Sara Mathew
Nominating and Governance
Committee
7 Committee meetings
Mark B. Grier
Operations and Technology
(established in October 2021)
1 Committee meeting
Mark H. Bloom
Risk Committee
7 Committee meetings
Grace A. Huebscher
• Kathleen L. Casey
• Kevin G. Chavers(1)
• Lance F. Drummond
• Allan P. Merrill
• Mark H. Bloom
• Aleem Gillani
• Christopher E. Herbert
• Alberto G. Musalem
• Mark H. Bloom
• Michael J. DeVito
• Lance F. Drummond
• Aleem Gillani
• Mark B. Grier
• Grace A. Huebscher
• Kathleen L. Casey
• Kevin G. Chavers (1)
• Grace A. Huebscher
• Allan P. Merrill
• Kathleen L. Casey
• Lance F. Drummond
• Luke S. Hayden(1)
• Grace A. Huebscher
• Alberto G. Musalem
• Mark H. Bloom
• Mark B. Grier
• Luke S. Hayden(1)
• Christopher E. Herbert
• Alberto G. Musalem
FREDDIE MAC | 2021 Form 10-K
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Directors, Corporate Governance, and Executive Officers
Corporate Governance
(1) Mr. Chavers will join the Audit and Nominating and Governance Committees and Mr. Hayden will join the Operations and Technology and Risk Committees, effective
February 15, 2022.
Audit Committee
The Audit Committee provides oversight of the company's accounting and financial reporting and disclosure processes, the
adequacy of the systems of disclosure and internal control established by management, and the audit of the company's
financial statements. Among other things, the Audit Committee: (1) appoints the independent auditor and evaluates its
independence and performance; (2) reviews the audit plans for and results of the independent audit and internal audits; and (3)
reviews reports related to processes established by management to provide compliance with legal and regulatory requirements.
The Audit Committee's activities during 2021 with respect to the oversight of the independent auditor are described in more
detail in Principal Accounting Fees and Services — Approval of Independent Auditor Services and Fees. The Audit
Committee also periodically reviews the company's guidelines and policies governing the processes for assessing and
managing the company's risks and generally reviews the company's major financial risk exposures and the steps taken to
monitor and control such exposures. The Audit Committee also approves all decisions regarding the appointment, removal, and
compensation of the General Auditor, who reports independently to the Audit Committee, as well as the annual incentive
funding level for our Internal Audit division.
Our Audit Committee satisfies the definition of "audit committee" in Exchange Act Section 3(a)(58)(A) and the requirements of
Exchange Act Rule 10A-3. Although our stock is no longer listed on the NYSE, certain of the corporate governance
requirements of the NYSE Listed Company Manual, including those relating to audit committees, continue to apply to us
because they are incorporated by reference in the Corporate Governance Rule. Our Audit Committee satisfies the "audit
committee" requirements in Sections 303A.06 and 303A.07 of the NYSE Listed Company Manual. The Board of Directors has
determined that all members of our Audit Committee are independent and that Mr. Gillani, a member of the Audit Committee
since January 2019 and its current chair, meets the definition of an "audit committee financial expert" under SEC regulations.
Compensation and Human Capital Committee
The CHC Committee oversees the company's compensation and benefits policies and programs, as well as other human capital
processes, including: (1) an annual review of talent development programs and initiatives, including succession planning; (2)
oversight of our diversity and inclusion programs and policies, and related management strategies; and (3) the design and
execution of initiatives to strengthen our culture. The company's processes for consideration and determination of executive
compensation, and the role of the CHC Committee in those processes, are further described in Executive Compensation —
CD&A. The CHC Committee Report is included in Executive Compensation — CD&A — Compensation and Human
Capital Committee Report.
Although the CHC Committee plays a significant role in considering and recommending executive compensation, FHFA is
actively involved in determining such compensation in its role as our Conservator and as our regulator. The CHC Committee's
authority and flexibility is, therefore, subject to certain limitations as discussed in Executive Compensation – CD&A –
Other Executive Compensation Considerations – Legal, Regulatory, and Conservator Restrictions on Executive
Compensation.
For a discussion of the CHC Committee's conclusion that our compensation policies and practices do not create risks that are
reasonably likely to have a material adverse effect on us, see Executive Compensation — Compensation and Risk.
For a discussion of the CHC Committee's role with respect to human capital generally, see Introduction — Our Business —
Primary Business Strategies — Human Capital Management.
The CHC Committee consists entirely of independent directors. None of the members of the CHC Committee during 2021 were
officers or employees of Freddie Mac or had any relationship with us that would be required to be disclosed by us under
Item 407(e)(4) of Regulation S-K.
Executive Committee
The Executive Committee consists of the Non-Executive Chair, the chair of each other standing committee, and our CEO. It
consists of independent directors, with the exception of our CEO, and is authorized to exercise the corporate powers of the
Board of Directors between Board meetings, except for those powers reserved to the Board of Directors by our Charter and
Bylaws or otherwise.
Nominating and Governance Committee
The Nominating and Governance Committee, which consists entirely of independent directors, oversees the company's
corporate governance, including reviewing the company's Bylaws and the Guidelines. The Nominating and Governance
Committee also assists the Board of Directors and its committees in conducting annual self-evaluations and identifying qualified
individuals to become directors; reviews Board member independence and qualifications and recommends membership of the
committees of the Board of Directors; and reviews potential conflicts of interest for members of senior management as well as
certain related person transactions.
FREDDIE MAC | 2021 Form 10-K
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Directors, Corporate Governance, and Executive Officers
Corporate Governance
Operations and Technology Committee
The Operations and Technology Committee, which was established in October 2021 and consists entirely of independent
directors, has responsibility for overseeing the development and execution of our enterprise information, operations, and
technology strategies and information and operational resiliency programs. Specifically, the Operations and Technology
Committee oversees: (1) our information, operations, and technology strategies and planning, and the implementation of
technology initiatives critical to the achievement of our mission, strategy and business objectives; (2) in conjunction with the
Risk Committee, our management of information (including cybersecurity), technology, and operational resiliency risk, including
the possibility that these risks will adversely affect the achievement of our mission and business objectives; and (3) our
information (including cybersecurity and information security) and operational resiliency programs, including risk and controls.
The Operations and Technology Committee also reviews capabilities for and adequacy of resources allocated to operations and
technology and monitors and evaluates trends in technology that may affect our strategy and business objectives. See
Directors, Corporate Governance, and Executive Officers — Board of Directors and Board Committee
Information — Additional Board Oversight of Information and Cybersecurity Operations for additional information.
Risk Committee
The Risk Committee, which consists entirely of independent directors, oversees on an enterprise-wide basis the company's risk
management framework, including credit risk, market risk, liquidity risk, operational risk, and enterprise-wide strategic risk. The
Risk Committee reviews and recommends the company's enterprise risk policy and Board-level risk appetite metrics and limits
to the Board of Directors for approval and, among other responsibilities, reviews significant: (1) enterprise risk exposures; (2) risk
management strategies; (3) results of risk management reviews and assessments; and (4) emerging risks. The Risk Committee
also approves all decisions regarding the appointment or removal of the CRO, and the CRO reports independently to the Risk
Committee.
Additional Board Oversight of Information and Cybersecurity Operations
The Board of Directors and the Operations and Technology and Risk Committees oversee the company's information and
cybersecurity operations by receiving periodic reports from the Chief Information Officer and other key officers. These updates
include information regarding management's ongoing efforts to manage cybersecurity risk and the steps management has
taken to address and mitigate the evolving cybersecurity threat environment. In addition, the Risk Committee receives updates
regarding any assessments by external parties about the company's cybersecurity program. Senior management discusses
cybersecurity developments with the Chairs of the Operations and Technology Committee and the Risk Committee and other
Board members between Board and Board committee meetings, as necessary. Additionally, certain Board members are
involved in, and have an opportunity to provide feedback on management's participation in, internal cybersecurity incident
simulations, including tabletop exercises relating to cyber-attacks, ransomware, and other security events. Members of the
Board of Directors also receive reports from management regarding certain internal and industry-wide trends and exercises
relating to these matters to assist with their oversight responsibilities. The company has procedures to escalate information
regarding certain cybersecurity incidents to the appropriate Board members in a timely fashion. The Board of Directors and its
committees also have authority, as they deem appropriate to fulfill Board or Board committee responsibilities, to engage outside
consultants or advisors, including technology and cybersecurity experts, and evaluate the company's information security
program. See MD&A — Risk Management — Overview for more information on the Board of Directors' role in risk
oversight.
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250
Directors, Corporate Governance, and Executive Officers
Corporate Governance
Board Leadership Structure
The leadership structure established by the Conservator requires that the positions of CEO and chair of the Board of Directors
be held by different individuals. In addition, FHFA's Corporate Governance Rule requires that the position of chair of the Board
of Directors be filled by an independent director as defined under the rules of the NYSE.
Communications with Directors
Interested parties wishing to communicate any concerns or questions about Freddie Mac to the Board of Directors or its
members may do so by U.S. mail, addressed to the Corporate Secretary, Freddie Mac, 8200 Jones Branch Drive, McLean, VA
22102-3110 or by email at boardofdirectors@freddiemac.com. Communications may be directed to the Non-Executive Chair,
to any other director or directors, or to groups of directors, such as the independent or non-employee directors.
Codes of Conduct
We have separate codes of conduct for our employees and Board members. The employee code of conduct serves as the
code of ethics for senior executives and financial officers. All employees, including senior executives and financial officers, are
required to sign an annual acknowledgment that they have read the employee code of conduct and agree to abide by it and will
report suspected deviations from the employee code of conduct. When joining our Board of Directors, our directors
acknowledge that they have reviewed and understand the director code of conduct and agree to be bound by its provisions,
and each director re-executes such confirmation annually.
Copies of our employee and director codes of conduct are available, and any amendments or waivers that would be required to
be disclosed are posted, on our website at www.freddiemac.com/governance/code-conduct.html.
Director Compensation
Non-employee Board members receive compensation in the form of cash retainers, paid on a quarterly basis. Non-employee
directors are also reimbursed for reasonable out-of-pocket costs for attending meetings of the Board of Directors or a Board
committee of which they are a member and for other reasonable expenses associated with carrying out their responsibilities as
directors.
Our directors are compensated entirely in cash because the Purchase Agreement prohibits us from issuing any shares of our
equity securities without the prior written consent of Treasury. See Executive Compensation — CD&A — Overview of
Executive Management Compensation Program. Unlike compensation for our executive officers, there is no provision in the
director compensation program for pay that varies depending on business results. Although such incentive compensation is
deemed appropriate to give management strong incentives to devise and execute business plans and achieve positive financial
results, it is viewed as inconsistent with the oversight role of directors.
2021 Non-Employee Director Compensation Levels
Board compensation levels during conservatorship are shown in the table below.
Table 60 - Board Compensation Levels
Board Service
Annual Retainer for Non-Executive Chair
Annual Retainer for Non-Employee Directors (other than the Non-Executive Chair)
Committee Service
Annual Retainer for Audit Committee Chair
Annual Retainer for Risk Committee Chair
Annual Retainer for Committee Chairs (other than Audit or Risk)
Annual Retainer for Audit Committee Members
FREDDIE MAC | 2021 Form 10-K
Cash Compensation
$290,000
160,000
Cash Compensation
$25,000
15,000
10,000
10,000
251
Directors, Corporate Governance, and Executive Officers
Corporate Governance
2021 Director Compensation
The following table summarizes the 2021 compensation earned by all persons who served as a non-employee director during
2021.
Table 61 - Director Compensation
Non-Employee Director
Sara Mathew
Mark H. Bloom(2)
Kathleen L. Casey
Lance F. Drummond
Aleem Gillani
Mark B. Grier(3)
Christopher E. Herbert
Grace A. Huebscher
Allan P. Merrill
Alberto G. Musalem(4)
Saiyid T. Naqvi(5)
Paul T. Schumacher(5)
Fees Earned or
Paid in Cash(1)
Total
$290,000
$290,000
162,391
170,000
180,000
185,000
125,631
160,000
170,000
170,000
86,154
175,000
18,417
162,391
170,000
180,000
185,000
125,631
160,000
170,000
170,000
86,154
175,000
18,417
(1) We do not have pension or retirement plans for our non-employee directors, and all compensation is paid in cash with no other compensation paid. Therefore, we
have omitted the "Change in Pension Value and Non-qualified Deferred Compensation Earnings" and "All Other Compensation" columns.
(2)
Reflects partial annual compensation for service as Chair of the Operations and Technology Committee. The committee was created, and Mr. Bloom became Chair,
in October 2021.
(3) Mr. Grier served as our Interim Chief Executive Officer from March 15, 2021 to May 31, 2021. The amounts for Mr. Grier reflect the compensation that he received
as a non-employee director before and after his service as our Interim Chief Executive Officer. During the period he served as our Interim Chief Executive Officer, he
was paid as an officer of the Company and did not receive compensation as a non-employee director. See Summary Compensation Table for additional information.
(4) Mr. Musalem joined the Board of Directors in June 2021.
(5) Mr. Schumacher left the Board of Directors in February 2021; Mr. Naqvi left in February 2022.
Indemnification
We have made arrangements to indemnify our directors against certain liabilities which are similar to the terms on which our
executive officers are indemnified. For a description of such terms, see Executive Compensation — CD&A — Written
Agreements Relating to NEO Employment — Indemnification Agreements.
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252
Directors, Corporate Governance, and Executive Officers
Executive Officers
EXECUTIVE OFFICERS
As of February 9, 2022, our executive officers are as follows:
Michael J. DeVito
Age
57
Year of Affiliation
Position
2021
Chief Executive Officer
Mr. DeVito has served as our CEO and a member of our Board of Directors since June 2021. See Directors, Corporate
Governance, and Executive Officers —Directors — Director Biographical Information for a biography of Mr. DeVito.
Michael T. Hutchins
Age
66
Year of Affiliation
Position
2013
President
Mr. Hutchins has served as our President since December 2020 after serving as our interim President beginning in November
2020. In this role, he oversees the company's Single-Family, Multifamily, Investments and Capital Markets, Enterprise
Operations and Technology, and Administration divisions. In addition, since the departure of the head of the Multifamily division
in December 2021, he has actively managed that division. He previously served as EVP - Investments and Capital Markets from
January 2015 to November 2020 and as SVP - Investments and Capital Markets from July 2013 to January 2015. From 2007 to
2013, prior to joining Freddie Mac, Mr. Hutchins was Co-Founder and Chief Executive Officer of PrinceRidge, a financial
services firm. Prior to founding PrinceRidge, he was with UBS Group AG from 1996 to 2007, holding a variety of senior
management positions, including the Global Head of the Fixed Income Rates & Currencies Group. Prior to UBS, Mr. Hutchins
worked at Salomon Brothers, Inc. from 1986 to 1996, where he held a number of management positions, including Co-Head of
Fixed Income Capital Markets.
Christian M. Lown
Age
52
Year of Affiliation
Position
2020
Executive Vice President & Chief Financial Officer
Mr. Lown has served as our EVP & Chief Financial Officer since June 2020. In this role, he is responsible for the company's
accounting, capital oversight, ESG, financial controls, financial planning and reporting, investor relations, procurement, and tax.
Mr. Lown joined Freddie Mac from Navient Corporation where he served as Executive Vice President and Chief Financial Officer
from March 2017 to June 2020. Prior to that, he served as Managing Director of the Financial Institutions Group and Co-Head
of Global Financial Technology, North America Banks, and Diversified Finance at Morgan Stanley from 2006 to 2017; Director,
Financial Institutions Group, at UBS AG from 2003 to 2006; and Associate, Financial Institutions Group, at Credit Suisse First
Boston from 2001 to 2003.
Donna M. Corley
Age
48
Year of Affiliation
Position
1995
Executive Vice President - Single-Family Business
Ms. Corley has served as our EVP - Single-Family Business since February 2020 after serving as SVP & Interim Head of Single-
Family from November 2019 to February 2020. In this role, she is responsible for managing our relationships with our Seller/
Servicers, the performance of our guarantee book of business, and all sourcing, servicing, risk management, and business
operations. Previously, she served as SVP & Chief Risk Officer of Single-Family Business, where she led the team responsible
for analyzing and managing the risks that affect Freddie Mac's Single-Family business. She joined Freddie Mac in 1995 as a
research analyst and since then has held various portfolio manager positions within the Investment and Capital Markets division
and has also led Freddie Mac’s credit pricing, risk transfer, and securitization teams.
John Glessner
Age
49
Year of Affiliation
Position
2010
Senior Vice President - Investments and Capital Markets
Mr. Glessner has served as our SVP - Investments and Capital Markets since April 2021. In this role, he is responsible for
managing our liquidity, financing, securitization, and derivative activities as well as our portfolio of single-family mortgage
FREDDIE MAC | 2021 Form 10-K
253
Directors, Corporate Governance, and Executive Officers
Executive Officers
securities and loan investments. Previously, he served as our Senior Vice President of Asset and Liability Management and
Treasurer where he was responsible for overseeing our corporate treasury function, liquidity management, and interest-rate
hedging activities. He also oversaw the Capital Markets division's counterparty credit risk activities and secured lending to our
investors and customers. He previously worked in the Securities Sales & Trading Group and on the Collateralized Mortgage
Obligation (CMO) and Cash Window desks, among other areas. Prior to re-joining Freddie Mac in 2010, he held various trading
positions at the Friedman, Billings, Ramsey Group and GMAC ResCap.
Anil D. Hinduja
Age
58
Year of Affiliation
Position
2015
Executive Vice President - Chief Risk Officer
Mr. Hinduja has served as our EVP - Chief Risk Officer and head of Enterprise Risk Management since July 2015. In this role,
he is responsible for the company's enterprise-wide risk framework and providing overall direction and leadership for the risk
function. He joined Freddie Mac from Barclays PLC, where he served in increasingly broader risk management roles beginning
in 2009, including Chief Risk Officer for Barclays Africa Group Limited, Group Credit Director for Retail Credit Risk, and Chief
Risk Officer for Barclays' retail bank in the U.K. Prior to joining Barclays, he spent 19 years at Citigroup in diverse roles with
increasing responsibility across finance, operations, sales and distribution, business, and risk management in global consumer
businesses. These included Director for Global Consumer Credit Risk, Chief Risk Officer for the North America Consumer
Lending Group, and President and CEO of Citi Home Equity.
Frank Nazzaro
Age
60
Year of Affiliation
Position
2018
Executive Vice President - Enterprise Operations & Technology
Mr. Nazzaro has served as our EVP - Enterprise Operations & Technology (EO&T) since April 2021 after serving as Chief
Information Officer from October 2019 to April 2021, and Acting Chief Information Officer from May 2019 to October 2019. He
provides corporate-wide leadership for the company’s technology strategy. Mr. Nazzaro is an accomplished senior technology
executive with more than 20 years of experience in the financial services industry. With an in-depth knowledge in infrastructure
and applications, he brings a wealth of experience in transformational IT activities and strong leadership capabilities essential to
EO&T’s strategic initiatives, including Cloud migration, Modern Delivery, and Employee Technology Experience. He joined
Freddie Mac in 2018 as Senior Vice President and Chief Technology Officer leading Enterprise Technology Solutions. From
2016 to 2018, he was Group Vice President and CTO for Travelport LLC, where he led Cloud Architecture, Infrastructure, and
Operations globally. From 2012 to 2016, he was CTO at CIT Group where he was responsible for Transformation, Architecture,
Technology Strategy, and IT Infrastructure. He has held several senior technology and management roles at RBC Capital
Markets, Bridgewater, and UBS.
Jerry Weiss
Age
63
Year of Affiliation
Position
2003
Executive Vice President - Chief Administrative Officer & Interim General Counsel
Mr. Weiss has served as our EVP - Chief Administrative Officer since August 2010 and as Interim General Counsel since March
2021. As Chief Administrative Officer, he serves as the company's senior executive liaison to FHFA and Treasury, and he
oversees the Government and Industry Relations and Public Policy, Public Relations and Corporate Marketing, Internal
Communications, Conservatorship Affairs and Initiatives, Economic and Housing Research, Regulatory Affairs, Corporate
Services, and Making Home Affordable - Compliance organizations. As Interim General Counsel, he is responsible for the
company's legal division, including advising the Board of Directors and senior management on legal and governance matters
and litigation strategy, and leading the company's efforts to navigate complex business and regulatory initiatives. In addition,
since November 2014, he has served as a member of the Board of Managers of CSS. Prior to August 2010, Mr. Weiss served
as our Chief Compliance Officer and in various other senior management capacities after joining us in October 2003. Before
that, Mr. Weiss worked from 1990 at Merrill Lynch Investment Managers, including as First Vice President and Global Head of
Compliance. From 1982 to 1990, Mr. Weiss was with a national law practice in Washington, D.C., where he specialized in
securities regulation and corporate finance matters.
FREDDIE MAC | 2021 Form 10-K
254
Executive Compensation
Compensation Discussion and Analysis
Executive Compensation
COMPENSATION DISCUSSION AND ANALYSIS
This section contains information regarding our compensation programs (all of which have been approved by FHFA) and the
compensation of the following individuals who we determined to be our Named Executive Officers, or NEOs, for the year ended
December 31, 2021.
Named Executive Officers
Michael DeVito
Chief Executive Officer(1)
Michael T. Hutchins
President(2)
Christian M. Lown
Executive Vice President & Chief Financial Officer
Donna Corley
Anil Hinduja
Jerry Weiss
Mark B. Grier
Executive Vice President - Single-Family Business
Executive Vice President - Chief Risk Officer
Executive Vice President - Chief Administrative Officer & Interim General Counsel
Former Interim Chief Executive Officer(3)
David M. Brickman
Former Chief Executive Officer(4)
(1) Mr. DeVito became our Chief Executive Officer effective June 1, 2021.
(2) Mr. Hutchins served as our President and also served as our Principal Executive Officer from January 9, 2021 to March 14, 2021 while a search was underway for a
new chief executive officer.
(3) Mr. Grier served as our Interim Chief Executive Officer from March 15, 2021 to May 31, 2021.
(4) Mr. Brickman served as our Chief Executive Officer until he resigned from the company effective January 8, 2021.
For information on our primary business objectives and the progress we made during 2021 toward accomplishing those
objectives, see Introduction — About Freddie Mac.
Overview of Executive Management Compensation Program
Compensation in 2021 for each NEO, other than Messrs. Brickman, DeVito and Grier, whose compensation is discussed below,
was governed by the Executive Management Compensation Program, or EMCP. The EMCP balances our need to retain and
attract executive talent with promoting the conservatorship objectives included in FHFA's Conservatorship Scorecard, as well
as goals separately established by management related to the commercial aspects of our business, which are included in our
Corporate Scorecard. All compensation under the EMCP is delivered in cash because the Purchase Agreement does not permit
us to provide equity-based compensation to our employees unless approved by Treasury.
FHFA has advised us that the design of the EMCP, which applies to our NEOs other than our CEO, was intended to fulfill and
balance three primary objectives:
n Maintain Lower Pay Levels to Conserve Taxpayer Resources. Given our conservatorship status, the EMCP is designed
generally to provide for lower pay levels relative to large financial services firms that are not in conservatorship.
n Attract and Retain Executive Talent. The EMCP is intended to attract and retain executive officers with the specialized skills
and knowledge necessary to effectively manage a large financial services company. Executive officers with these
qualifications are needed for the company to continue to fulfill its important role in providing liquidity, stability, and
affordability to the housing market. We face competition for qualified executives from other companies. The CHC
Committee regularly considers the level of our executive officers’ compensation and whether changes are needed to
attract and retain executive officers. See Risk Factors for a discussion of the risks associated with executive retention
and succession planning.
n Reduce Pay if Goals Are Not Achieved. To support FHFA’s goals for our conservatorship and encourage performance in
furtherance of these goals, 30% of each NEO’s Target TDC (other than the CEO's compensation) consists of At-Risk
Deferred Salary subject to reduction based on corporate and individual performance as reflected in the Conservatorship
and Corporate Scorecards.
FHFA’s objectives for the EMCP and the legal and regulatory restrictions on our executive compensation described in
Executive Compensation – CD&A – Other Executive Compensation Considerations – Legal, Regulatory, and
Conservator Restrictions on Executive Compensation limit our ability to make changes to the EMCP and limit the amount
and type of compensation we may pay our executive officers.
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255
Executive Compensation
Compensation Discussion and Analysis
CEO Compensation
Compensation in 2021 for Messrs. Brickman, DeVito, and Grier (for the period during which Mr. Grier served as Interim CEO)
consists of an annual Base Salary level of $600,000, in compliance with the Equity in Government Compensation Act of 2015.
They did not participate in the EMCP and, therefore, did not receive any compensation subject to either corporate or individual
performance. Messrs. Brickman, DeVito, and Grier were eligible to participate in all employee benefit plans offered to Freddie
Mac's other senior executives under the terms of those plans. See Executive Compensation — 2021 Compensation
Information For NEOs — Summary Compensation Table for additional information.
Elements of Target TDC
For all NEOs other than the CEO, compensation under the EMCP in 2021 consisted of the following elements:
n The amount earned in each quarter, including interest, is paid (1) on the last pay date of the corresponding quarter in
the first year following the performance period for Fixed Deferred Salary; and (2) on the last pay date of the
corresponding quarter in either the first or second year following the performance period for At-Risk Deferred Salary(1)
Deferred Salary
Base Salary Rate
At-Risk Deferred Salary
Fixed Deferred Salary
performance goals
n To encourage achievement of conservatorship, corporate, and individual
Conservatorship Scorecard and
Assessment Criteria
Corporate Scorecard / Individual
n Cannot exceed $600,000
without approval from
FHFA
n To encourage executive
retention
n Equal to total Deferred Salary
less the At-Risk portion
n Subject to reduction based on
Conservatorship Scorecard
performance and the Assessment
Criteria
n Subject to reduction based on
performance against both the
Corporate Scorecard and individual
objectives
(1)
As discussed below, pursuant to an update to the EMCP effective January 1, 2020, At-Risk Deferred Salary will be paid on the last pay date of the corresponding
quarter of the second year following the performance period for Mr. Lown, who joined us as our CFO in June 2020. For executive officers hired before December 31,
2019, including all other eligible NEOs, the increase in the mandatory deferral period for At-Risk Deferred Salary from one year to two years will take effect
beginning with amounts earned in the 2022 performance period.
As in past years, 30% of Target TDC for each NEO (other than individuals who served as our CEO) is At-Risk Deferred Salary
that is subject to reduction based on Conservatorship Scorecard performance as well as Corporate Scorecard and individual
performance. This At-Risk Deferred Salary has been paid in end-of-quarter installments in the year following the performance
year. In 2019, FHFA directed us to increase the mandatory deferral period for At-Risk Deferred Salary received by certain
executive officers (including our NEOs) from one year to two years. For executive officers hired before December 31, 2019, this
change is effective for At-Risk Deferred Salary earned beginning January 1, 2022. For executive officers hired on or after
December 31, 2019, the change became effective immediately. Accordingly, At-Risk Deferred Salary earned beginning January
1, 2022 by our current eligible NEOs (other than Mr. Lown) will be paid in quarterly installments in the corresponding calendar
quarter in the second year following the performance year. Therefore, At-Risk Deferred Salary earned in 2022 by these NEOs
will be paid in quarterly installments in 2024. For Mr. Lown, who was hired after December 31, 2019, all At-Risk Deferred Salary
earned will be paid in quarterly installments in the second year following the performance year, resulting in his At-Risk Deferred
Salary earned in 2020 being paid in quarterly installments in 2022 and his At-Risk Deferred Salary earned in 2021 being paid in
quarterly installments in 2023.
The objectives against which 2021 corporate performance was measured, together with the assessment of actual performance
against those objectives and the Assessment Criteria used by FHFA, are described in Executive Compensation — CD&A
— Determination of 2021 At-Risk Deferred Salary — At-Risk Deferred Salary Based on Conservatorship Scorecard
Performance and Executive Compensation — CD&A — Determination of 2021 At-Risk Deferred Salary — At-Risk
Deferred Salary Based on Corporate Scorecard Goals and Individual Performance. These performance measures were
chosen because they reflected our 2021 goals during conservatorship.
See Executive Compensation — CD&A — Other Executive Compensation Considerations — Effect of Termination of
Employment for information on the effect of a termination of employment, including the timing and payment of any unpaid
portion of Deferred Salary and related interest.
FREDDIE MAC | 2021 Form 10-K
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Executive Compensation
Compensation Discussion and Analysis
Executive Compensation Best Practices
What We Do
What We Don't Do
n Clawback provisions with a significant portion of compensation
n No agreements that guarantee a specific amount of compensation for
subject to recapture and/or forfeiture
a specified term of employment
n Use of an independent compensation consultant by the Compensation
n No golden parachute payments or other similar change in control
and Human Capital Committee
n Annual compensation risk review
provisions
n No tax "gross-ups"
n No executive perquisites other than reimbursement of tax, estate,
n No hedging or pledging of company securities permitted
and/or personal financial planning (which we discontinued in 2022)
and reimbursement of relocation expenses
n Evaluation of company performance against multiple measures,
including non-financial measures
Determination of 2021 Target TDC for Eligible NEOs
Role of Compensation Consultant
As part of the annual process to determine the Target TDC for each of the eligible NEOs, the CHC Committee receives
guidance from Meridian Compensation Partners, LLC, or Meridian, its independent compensation consultant. In addition to the
annual process to determine Target TDC, Meridian provides guidance to the CHC Committee throughout the year on other
executive compensation matters.
Meridian has not provided the CHC Committee with any non-executive compensation services, nor has the firm provided any
consulting or other services to our management. During 2021, the CHC Committee reviewed Meridian's independence based
on the factors outlined in Exchange Act Rule 10C-1(b)(4) and determined that Meridian continues to be independent.
2021 Comparator Group Companies
The CHC Committee annually evaluates each eligible NEO's Target TDC in relation to the compensation of executive officers in
comparable positions at companies that are either in a similar line of business or are otherwise comparable for purposes of
recruiting and retaining individuals with the necessary skills and capabilities. We refer to this group of companies as the
Comparator Group. Finding comparable companies for purposes of benchmarking executive compensation is challenging due
to our unique business, structure and mission, and the large size of our book of business compared to other financial services
firms. We believe the only directly comparable firm to us is Fannie Mae, but we use a broader group of companies to provide
market benchmark data.
At FHFA's request, Freddie Mac and Fannie Mae use the same Comparator Group for benchmarking executive compensation
to provide consistency in the market data used for compensation decisions for similar positions. Factors relevant to the
selection of companies for our Comparator Group included their status as U.S. public companies, the industry in which they
operate, and their size (in terms of assets and number of employees) relative to the size of Freddie Mac.
When there is either no reasonable match or insufficient data from the Comparator Group for a position, or if Meridian believes
that additional data sources would strengthen the analysis of competitive market compensation levels, the CHC Committee
may use alternative survey sources.
FHFA has instructed us to benchmark to the lower end of the compensation ranges offered by the Comparator Group, which
limits our ability to offer market-competitive compensation if FHFA does not grant an exception.
FREDDIE MAC | 2021 Form 10-K
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Executive Compensation
Compensation Discussion and Analysis
The Comparator Group used in determining compensation for 2021 consisted of the following companies:
The Allstate Corporation
Ally Financial Inc.
American Express Company
Fannie Mae
Fifth Third Bancorp
Prudential Financial, Inc.
Regions Financial Corporation
The Hartford Financial Services Group, Inc.
State Street Corporation
American International Group, Inc.
JPMorgan Chase & Co*
Bank of America Corporation*
KeyCorp
The Bank of New York Mellon Corporation
Mastercard Incorporated
Capital One Financial Corporation
MetLife, Inc.
Synchrony Financial
Truist Financial Corporation
U.S. Bancorp
Visa, Inc.
Citigroup Inc.*
Citizens Financial Group, Inc.
Discover Financial Services
Northern Trust Corporation
Voya Financial, Inc.
PNC Financial Services Group, Inc.
Wells Fargo & Company*
* Only mortgage or real estate division-level compensation data from these diversified banking firms may be utilized where available and appropriate
for the position being benchmarked.
The CHC Committee has determined that these same companies will comprise the 2022 Comparator Group.
Establishing Target TDC
The CHC Committee developed its 2021 Target TDC recommendations for the eligible NEOs, other than Messrs. Hutchins and
Weiss, by reviewing data from the Comparator Group. For Mr. Hutchins, the CHC Committee reviewed data from a broader
financial services survey including companies with significant assets under management. For Mr. Weiss, whose TDC remained
unchanged in 2021 and was established for his role as Chief Administrative Officer prior to also becoming Interim General
Counsel, there was not an appropriate market comparison in the data from the Comparator Group.
2021 Target TDC
The following table sets forth the components of 2021 Target TDC for each of our eligible NEOs.
Table 62 - 2021 Target TDC
2021 Target TDC
Named
Executive
Officer(1)
Michael T.
Hutchins
Christian M.
Lown(2)
Donna M.
Corley(3)
Anil D. Hinduja
Jerry Weiss
Base
Salary Rate
$600,000
600,000
600,000
600,000
600,000
Fixed
Deferred
Salary
$1,675,000
1,500,000
1,176,923
1,220,000
975,000
At-Risk
Deferred
Salary
$975,000
900,000
761,538
780,000
675,000
Target TDC
$3,250,000
3,000,000
2,538,461
2,600,000
2,250,000
(1) Messrs. Brickman, DeVito, and Grier did not participate in the EMCP in 2021 and therefore are not included in this table. For a discussion of their compensation, see
Executive Compensation — CD&A — CEO Compensation. Although Mr. Hutchins served as our principal executive officer while the CEO office was vacant
from January 9, 2021 to March 14, 2021, he remained our President and was therefore eligible to participate in the EMCP.
(2)
In connection with his appointment as our Chief Financial Officer in June 2020, we agreed to pay Mr. Lown a cash sign-on award of $1,275,000 in recognition of
forfeited compensation at his previous employer payable in three installments: $475,000 was paid in February 2021; $475,000 will be paid in February 2022; and
$325,000 will be paid in February 2023. If Mr. Lown is not an employee of Freddie Mac on an installment payment date because he voluntarily resigns from the
company or if the company terminates his employment due to the occurrence of any of the Forfeiture Events described in the Recapture and Forfeiture Agreement,
the installment will be forfeited. Each installment is subject to repayment if, prior to the first anniversary of an installment payment, Mr. Lown voluntarily resigns
from the company or if the company terminates his employment due to the occurrence of any of the Forfeiture Events described in the Recapture and Forfeiture
Agreement.
(3)
The amounts in the table reflect the prorated impact of the June 2021 increase to Ms. Corley's Target TDC from $2,000,000 to $3,000,000, consisting of a Deferred
Salary increase of $1,000,000. Her Target TDC increased after considering her scope of responsibilities and data from the Comparator Group.
FREDDIE MAC | 2021 Form 10-K
258
Executive Compensation
Compensation Discussion and Analysis
Determination of 2021 At-Risk Deferred Salary
The CHC Committee and FHFA considered our achievements in pursuing our primary business objectives, as well as other
factors, in determining the funding level for At-Risk Deferred Salary in 2021. FHFA determined the funding level for the portion
of At-Risk Deferred Salary based on Conservatorship Scorecard performance and Assessment Criteria, and the CHC
Committee determined, with FHFA's review and approval, the amounts payable to each eligible NEO for the portion of At-Risk
Deferred Salary based on Corporate Scorecard goals and individual performance.
At-Risk Deferred Salary Based on Conservatorship Scorecard
Performance
Half of each eligible NEO's 2021 At-Risk Deferred Salary, or 15% of Target TDC, was subject to reduction based on FHFA's
assessment of (1) the company's performance against the goals in the 2021 Conservatorship Scorecard and (2) the
Assessment Criteria described below. FHFA independently assessed our performance against the 2021 Conservatorship
Scorecard and the Assessment Criteria and determined that a 92% funding level was justified for the portion of the eligible
NEOs' At-Risk Deferred Salary. In assessing our performance against the 2021 Conservatorship Scorecard, the factors
considered by FHFA included our completion of all of the Conservatorship Scorecard objectives and our performance against
the Assessment Criteria.
In making its assessment, FHFA used the following criteria (collectively, the Assessment Criteria):
n The extent to which our activities foster Competitive, Liquid, Efficient, And Resilient (CLEAR) national housing finance
markets that support homeowners and renters with responsible and sustainable products and programs;
n The extent to which we conduct business in a safe and sound manner, anticipate and mitigate emerging risk issues, and
remediate identified risk concerns on a timely basis;
n The extent to which we meet expectations under all of FHFA’s requirements, including capital, liquidity, and resolution
planning requirements;
n The extent to which we conduct initiatives with consideration for diversity and inclusion under statutory requirements
consistent with FHFA's expectations;
n The extent to which we cooperate and collaborate with Fannie Mae, CSS, the industry, and other stakeholders, in
consultation with FHFA; and
n The extent to which we deliver work products that are high quality, thorough, creative, effective, and timely.
The table below presents the Conservatorship Scorecard objectives and FHFA's assessment of our achievement against those
objectives.
Performance Goals
FHFA's Summary of Performance
I.
Foster CLEAR National Housing Finance Markets
• Housing Goals / Duty-to-Serve: Fulfill Freddie Mac’s Housing Goals and Duty-to-
Serve plans by offering sustainable mortgage programs and conducting effective
outreach.
Goal was achieved.(1)
• UMBS: Carefully monitor and maintain UMBS cash flow alignment and take such
further steps as necessary to ensure a well-functioning TBA securitization market.
Goal was achieved.
• Key On-going Initiatives: Successfully continue to implement key on-going
All goals were achieved.
initiatives.
- COVID-19 Market Actions - Continue to respond as appropriate to mortgage
market needs related to COVID-19.
- Multifamily Caps - manage to the multifamily cap requirements announced
November 17, 2020.
- Credit Score Rule - Continue implementation of the final Credit Score Rule with
adherence to the regulation’s requirements in a timely and effective manner.
- Collateral Evaluation Request for Information Process - Continue to support
FHFA’s assessment of the collateral evaluation process, including alternative
appraisal approaches and supporting technology.
- LIBOR Transition - Continue to ensure that there is an effective transition from
LIBOR to approved alternative reference rates by announcing plans and
milestones to transition legacy LIBOR products.
• Level Playing Field Standards and Increased Transparency:
FHFA suspended these goals.
- Support strategies that enhance a level playing field for a wide range of mortgage
market participants.
FREDDIE MAC | 2021 Form 10-K
259
Executive Compensation
Compensation Discussion and Analysis
Performance Goals
FHFA's Summary of Performance
- Continue to comply with prohibitions on volume-based pricing for purchases of
mortgage loans from lenders and work to ensure that all approved lenders have
access to Freddie Mac programs on consistent terms.
- Continue to operate the cash window and whole loan conduit and implement
requirements related to focusing cash window and whole loan conduit purchases
on small and regional lenders.
- Continue to assess additional data that could be made publicly available to inform
risk transfer markets and foster a competitive mortgage market that does not
crowd out private capital.
• Efficient Operation of State and Local Housing Markets: Assess opportunities and
seek stakeholder feedback through an RFI to support and encourage state and local
policies that enable the housing market to function more efficiently by (1) reducing
the cost of housing production and/or (2) lowering the cost or risk of providing
mortgage financing.
Goal was achieved.
• Natural Disaster Assessment: Monitor risks and exposures to Freddie Mac’s books
Goal was achieved.
of business from natural disasters.
II. Ensure Safety and Soundness
• Risk Profile: Develop appropriate Freddie Mac risk limits to ensure risk and
FHFA suspended this goal.
complexity are reduced to levels more appropriate for regulated entities with limited
capital cushions.
• Capital Management and Planning: Implement capital management and capital
planning capabilities that transition away from the existing Conservatorship Capital
Framework to the Enterprise Capital Rule requirements.
- Develop and implement transition plans that achieve compliance with the
Enterprise Capital Rule in a reasonable amount of time under alternative
scenarios.
-
Implement capabilities to allocate capital and manage risk dynamically.
- Develop and implement sound capital management plans that appropriately tailor
risk to Freddie Mac capital levels and incorporate resolution planning objectives.
All goals were achieved.
• Resolution Planning: Begin developing, in coordination with and pursuant to
Goal was achieved.
guidance from FHFA, a plan to resolve Freddie Mac without recourse to extraordinary
support from Treasury or taxpayers, that preserves the core businesses of Freddie
Mac and minimizes potential disruption to housing and finance markets.
• Risk Transfer: Continue to transfer credit risk to private markets in a commercially
reasonable and safe and sound manner, including actively pursuing sales of less
liquid assets such as non-performing loans and re-performing loans.
• Mortgage Selling and Servicing: Continue mortgage selling, servicing, and asset
management efforts that promote stability and readiness for continued COVID-19
stress and the potential for more challenging market conditions.
- Assist FHFA in finalizing and implementing updated Seller / Servicer Eligibility
Requirements.
- Continue to assess additional counterparty risk management controls and
requirements that further ensure appropriate safety and soundness.
- Continue to assess readiness and capability of servicers and appropriateness of
servicing policies and processes.
- Carefully assess and mitigate, to the extent possible, any material adverse risk
impacts from COVID-19 selling or servicing flexibilities.
- Partner with FHFA, the Mortgage Industry Standards Maintenance Organization
(MISMO) and the Servicing Transfers Development Work Group membership,
including the Consumer Financial Protection Bureau (CFPB), to further data
standardization efforts.
• Core Operations and Technology: Increase focus on core Freddie Mac operational
and technology management to ensure stability, resiliency, efficiency, and risk
reduction.
- Continue efforts to enhance business resiliency and recovery management
capabilities to minimize the impact of disruptions and maintain business
operations for mission-critical processes.
- Continue efforts to protect the availability, security, integrity, and confidentiality of
information.
- Continue efforts to improve the efficiency and effectiveness of operations,
including multi-year planning for legacy system modernization.
- Continue efforts to establish and improve enterprise-level data management and
governance capabilities.
Goal was achieved.
All goals were achieved. Note that FHFA deferred
the implementation of the updated Seller / Servicer
Eligibility Requirements.
All goals were achieved.
FREDDIE MAC | 2021 Form 10-K
260
Executive Compensation
Compensation Discussion and Analysis
Performance Goals
FHFA's Summary of Performance
- Ensure that the structure and design of core operations and technology systems
are reflected in Freddie Mac resolution planning efforts.
-
In partnership with CSS, ensure that CSS and the Common Securitization Platform
(CSP) support the securitization needs of the Enterprises and operate in an
efficient and safe and sound manner.
III. Prepare for a Transition Out of Conservatorship
• Efficient Utilization of Capital: Develop and implement strategies that ensure the
efficient utilization of capital targeted to support the core guaranty business with
adequate returns to attract the private capital necessary to enable an exit from the
conservatorship.
• Common Securitization Platform Strategy: Continue efforts to develop and
implement, in conjunction with FHFA, a post-conservatorship strategy and
governance framework for CSS/CSP.
This goals was consolidated under "II. Ensure
Safety and Soundness - Capital Management and
Planning" per direction from FHFA.
We achieved this goal by providing FHFA with the
requested analysis and recommendation. In
October 2021, FHFA decided to better align CSS’
governance structure with its core mission of
supporting the Enterprises.
• Address Identified Areas in Need of Improvement: Timely resolve supervisory
Goal was achieved.
findings to FHFA’s satisfaction, and maintain an effective process to ensure that new
findings are remediated by management in a timely fashion with appropriate board
oversight.
• Fair Lending: Maintain a sustainable, effective process for fair lending risk
Goal was achieved.
assessment, monitoring, and mitigation, and work with the FHFA’s Office of Fair
Lending Oversight to prepare for transition to post-conservatorship fair lending
supervision and oversight.
(1)
Although the overall goal was achieved, we failed to meet one of our 2020 single-family affordable housing goals. FHFA notified us that we must prepare a
housing plan describing the actions that we will take during 2022-2024 to improve our performance with respect to this missed goal. We met all other 2020
single-family and multifamily affordable housing goals as well as our 2020 Duty to Serve goals. For additional information, see MD&A – Regulation and
Supervision – Federal Housing Finance Agency – Affordable Housing Goals and MD&A – Regulation and Supervision – Federal Housing Finance
Agency – Duty to Serve Underserved Markets Plan.
FREDDIE MAC | 2021 Form 10-K
261
Executive Compensation
Compensation Discussion and Analysis
At-Risk Deferred Salary Based on Corporate Scorecard Goals and
Individual Performance
The other half of each eligible NEO's At-Risk Deferred Salary, also equal to 15% of Target TDC, was subject to reduction based
on the company's performance against the Corporate Scorecard goals and the NEO's individual performance. The Corporate
Scorecard goals drive how we manage and improve the commercial aspects of our business and are intended to complement
the FHFA Strategic Plan and Conservatorship Scorecard. Certain of the individual performance objectives for the eligible NEOs
were either Conservatorship Scorecard objectives or Corporate Scorecard goals, or directly supported their achievement.
No weightings were assigned to the Corporate Scorecard goals. As a result, it was necessary for the CHC Committee to use its
judgment in determining the overall level of performance. In making its determination, the CHC Committee primarily considered
the fact that almost all of the Corporate Scorecard goals were achieved or exceeded. The CHC Committee determined that,
based on the company's performance against the Corporate Scorecard, no reduction should be applied due to company
performance for this portion of At-Risk Deferred Salary.
The Board of Directors has adopted Corporate Scorecard goals for 2022 that align with our Strategic Plan.
The table below presents the Corporate Scorecard goals and the CHC Committee's assessment of our achievement against
those goals.
Corporate Scorecard Goal
Assessment of Performance
Financial Measures
The company exceeded all elements of this goal with strong financial results and capital accretion.
Major Conservatorship Exit Milestones The company achieved or exceeded all elements of this goal, including executing on our capital
management roadmap and preparing for resolution planning.
Major Remediation and Risk
Reduction Milestones
The company achieved all elements of this goal, including remediation of significant issues, maturation of
firm-wide risk management, and managing risk within established limits.
Technology
The company exceeded all elements of this goal, including achieving capability milestones in information
security.
Business Transformation
The company achieved all elements of this goal through improvements in operational resiliency, payment
modernization, information lifecycle management, and third party risk management.
People and Culture
The company achieved or exceeded all elements of this goal, including the development of strategies and
programs to support our corporate culture evolution.
Inclusion and Diversity
The company achieved or exceeded all elements of this goal through the engagement of minority-, woman-,
and disabled-owned businesses in capital markets and corporate transactions.
Mission
The company achieved all elements of this goal, including, based on preliminary information, meeting our
2021 single-family and multifamily affordable housing goals, and developing strategies to address racial
and social injustice in the housing market.
The CHC Committee also assessed the individual performance of each eligible NEO. In making its assessments, the CHC
Committee took into consideration input from Mr. DeVito as well as the company's Corporate Scorecard performance. In each
case, the CHC Committee's determination was consistent with Mr. DeVito's recommendation. FHFA reviewed and approved
the compensation associated with these determinations.
Each eligible NEO's individual performance is discussed below.
FREDDIE MAC | 2021 Form 10-K
262
Executive Compensation
Michael T. Hutchins, President
Compensation Discussion and Analysis
Performance Highlights
n Effectively assumed leadership over Freddie Mac’s major divisions: Single-Family, Multifamily, Investments & Capital Markets, Enterprise Operations
& Technology, and Administration.
n Provided strong leadership on all aspects of the company, including: developing the company’s business plan and financial budget; designing the
Future of Work strategy; and other key priorities such as resolution planning and capital deliverables.
n Led the Single-Family and Multifamily businesses to develop impactful equitable housing and sustainable homeownership plans as well as initiatives
related to affordable housing and Duty to Serve goals.
n Continued to enhance liquidity in the capital markets, level the playing field between small and large mortgage originators, and offer innovative credit
risk transfer structures while managing to various risk/capital/volume limitations.
n Restructured the company’s operations and technology function to realign resources to enhance business synergies, increased operational efficiency
with targeted investments for system modernization, and continued to strengthen operational risk management, including technology resiliency and
cybersecurity capabilities.
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
The CHC Committee determined that Mr. Hutchins should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the
company's performance against the Corporate Scorecard and his individual performance.
Christian M. Lown, Executive Vice President & Chief Financial Officer
Performance Highlights
n Led the advancement of several large financial projects, including: the transition to the Enterprise Regulatory Capital Framework; Dodd-Frank Stress
Testing; and Resolution Planning.
n Continued focus on enhanced analytical and forecasting capabilities as well as improved financial analysis and budget planning for business insights
and cost transparency.
n Continued focus on transformation of the enterprise supply chain organization and processes to achieve cost savings and improved efficiencies.
n Advanced operational and productivity initiatives, including: enhanced internal and external reporting; revised technology and operating processes;
and accelerated development of corporate sustainability objectives.
n Strong leadership in the ongoing development of the Finance division staff with continued focus on expanding hiring pipelines and skill sets needed
for future organizational success as well as ongoing job rotation.
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
The CHC Committee determined that Mr. Lown should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the
company's performance against the Corporate Scorecard and his individual performance.
Donna M. Corley, Executive Vice President - Single-Family Business
Performance Highlights
n Led the continued strong financial performance of the Single-Family business, with focus on capital management, managing risks, identifying growth
opportunities, and innovation.
n Continued to advance initiatives to serve the company’s mission to Make Home Possible, including those related to: affordable housing goals, Duty to
Serve objectives, enhancing fair lending techniques, and developing equitable and sustainable housing plans.
n Continued to elevate operational capabilities to provide a more efficient experience for our customers with a focus on continuously improving
technology, managing operational risks, and improving business resiliency.
n Strong leadership in the ongoing support and development of staff of the Single-Family business with enhanced focus on organizational realignment
of resources, expanded hiring pipelines, and prioritization of skill sets needed for current and future organizational success.
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
The CHC Committee determined that Ms. Corley should receive 97.5% of her At-Risk Deferred Salary that was subject to reduction based on the
company's performance against the Corporate Scorecard and her individual performance.
Anil D. Hinduja, Executive Vice President - Chief Risk Officer
Performance Highlights
n Advanced the company’s risk management framework incorporating regulatory expectations.
n Aligned the risk appetite framework with the Enterprise Regulatory Capital Framework while enhancing risk measurement.
n Partnered with other leaders to develop a common approach to risk calibration for non-financial risks.
n Strengthened capabilities within the independent risk function through continuing build-out of risk, compliance, and control capabilities.
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
The CHC Committee determined that Mr. Hinduja should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the
company's performance against the Corporate Scorecard and his individual performance.
FREDDIE MAC | 2021 Form 10-K
263
Executive Compensation
Compensation Discussion and Analysis
Jerry Weiss, Executive Vice President - Chief Administrative Officer & Interim General Counsel
Performance Highlights
n Outstanding leadership performing dual senior executive-level roles as both Chief Administrative Officer and Interim General Counsel for almost the
entire year.
n Provided guidance to the Board and senior management on a wide range of legal and governance issues, including: a variety of complex business-
line initiatives; the transition in leadership of Freddie Mac; the development of equitable and sustainable housing plans; resolution planning; and
implementation of initiatives to reduce risk and increase efficiency to support new products.
n Played a key role in partnering with the CEO and the Board in developing the company’s updated strategic plan and related corporate priorities and
objectives.
n Partnered with other leaders to continue providing support to meet the evolving needs of the company, including: addressing FHFA’s regulatory and
conservatorship initiatives; advancing housing and economic research and internal and external communications, and improving employees' on-site
experience.
n Led the company’s Future of Work strategy and partnered with other leaders on the Return-to-Office planning to help grow our talent and support our
staff in a dynamic environment due to COVID-19.
n Provided strong leadership in the ongoing development of the staff of the Legal and Administrative divisions with continued focus on leadership and
management skills development.
At-Risk Deferred Salary (Corporate Scorecard/Individual) Funding Decision
The CHC Committee determined that Mr. Weiss should receive 100% of his At-Risk Deferred Salary that was subject to reduction based on the
company's performance against the Corporate Scorecard and his individual performance.
FREDDIE MAC | 2021 Form 10-K
264
Executive Compensation
Compensation Discussion and Analysis
2021 Deferred Salary
The following chart reports the actual amounts of 2021 Deferred Salary for each NEO, other than Messrs. Brickman, DeVito,
and Grier who were not eligible for 2021 Deferred Salary. The actual amount earned in each calendar quarter is scheduled to be
paid on the last pay date of the corresponding calendar quarter in 2022, except for Mr. Lown, whose At-Risk Deferred Salary
earned in 2021 will be paid on the last pay date of the corresponding calendar quarter in 2023. See Executive
Compensation — CD&A — Overview of Executive Management Compensation Program for additional information.
Table 63 - 2021 Deferred Salary
Named Executive
Officer
Mr. Hutchins
Mr. Lown
Ms. Corley
Mr. Hinduja
Mr. Weiss
Fixed
$1,675,000
1,500,000
1,176,923
1,220,000
975,000
2021 Actual Deferred Salary
At-Risk
Conservatorship
Scorecard
Corporate
Scorecard/
Individual
$448,500
414,000
350,308
358,800
310,500
$487,500
450,000
371,250
390,000
337,500
Written Agreements Relating to NEO Employment
We entered into agreements with each of our NEOs, in connection with their hiring, which set forth the specific initial levels of
compensation, including, as applicable, Base Salary and Target TDC. The compensation of each NEO is subject to change by
FHFA and the terms of the EMCP. See Executive Compensation — CD&A — Determination of 2021 Target TDC for
Eligible NEOs — 2021 Target TDC for 2021 Target TDC amounts for our eligible NEOs. Other than the agreements described
below, there are no remaining material provisions of any of the agreements we entered into with our NEOs in connection with
their hiring as they have either been superseded by the EMCP, as described above, or the provisions are no longer effective,
such as sign-on bonuses that have been paid and are no longer subject to repayment.
We entered into memorandum agreements with Messrs. Grier and DeVito, in connection with their hiring as our Interim CEO
and CEO, respectively. Consistent with the Equity in Government Compensation Act of 2015, the agreements provide for direct
compensation consisting solely of Base Salary at the rate of $600,000 per year, pro-rated for their period of service in 2021. In
addition, the agreements provide that Messrs. Grier and DeVito are eligible to participate in all employee benefit plans offered
to Freddie Mac’s other executive officers. See Executive Compensation — CD&A — CEO Compensation for more
information. In connection with Mr. DeVito's appointment as our CEO, he was offered relocation benefits to reimburse him for
his costs associated with relocating to the Washington, D.C. area. These relocation benefits are subject to repayment if, within
two years of receiving them, Mr. DeVito terminates his employment with us for any reason or Freddie Mac terminates his
employment due to the occurrence of forfeiture events relating to material inaccurate information, termination for felony
conviction or willful misconduct, gross neglect or gross misconduct, or violation of a post termination non-competition
covenant.
We entered into a letter agreement with Mr. Lown in connection with his employment as our EVP & Chief Financial Officer. The
terms of Mr. Lown's agreement provided him with an annual Target TDC opportunity of $3,000,000, consisting of Base Salary
of $600,000, Fixed Deferred Salary of $1,500,000, and At-Risk Deferred Salary of $900,000, as well as the opportunity to
participate in all employee benefit plans offered to our executive officers pursuant to the terms of those plans, and certain
relocation benefits. The letter agreement with Mr. Lown also provides for a cash sign-on award of $1,275,000 in recognition of
forfeited compensation at his previous employer, payable in three installments: $475,000 was paid in February 2021; $475,000
will be paid in February 2022; and $325,000 will be paid in February 2023. If Mr. Lown is not an employee of Freddie Mac on an
installment payment date due to his voluntary resignation or if Freddie Mac has terminated his employment due to the
occurrence of any of the Forfeiture Events described in the Recapture and Forfeiture Agreement, the installment will be
forfeited. Each installment will be subject to repayment in the event that, prior to the first anniversary of an installment payment
date, Mr. Lown voluntarily resigns from his employment with Freddie Mac for any reason or Freddie Mac terminates his
employment due to the occurrence of any of the Forfeiture Events described in the Recapture and Forfeiture Agreement.
We have also entered into restrictive covenant and confidentiality agreements with each of our NEOs. The non-competition and
non-solicitation provisions included in the restrictive covenant and confidentiality agreements are described in Executive
Compensation — CD&A — Written Agreements Relating to NEO Employment — Restrictive Covenant and
Confidentiality Agreements.
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Executive Compensation
Compensation Discussion and Analysis
The NEOs are not currently entitled to severance benefits upon any type of termination event. For additional information on
compensation and benefits payable in the event of a termination of employment, see Executive Compensation — 2021
Compensation Information for NEOs — Potential Payments Upon Termination of Employment.
Restrictive Covenant and Confidentiality Agreements
Each of our NEOs is subject to a restrictive covenant and confidentiality agreement with us. Each agreement provides that the
NEO will not seek or accept employment with designated competitors that involves performing similar duties for 12 months
immediately following termination of employment, regardless of whether the executive officer's employment is terminated by
the executive officer, by us, or by mutual agreement. During this period, each NEO agrees not to solicit or recruit any of our
managerial employees. The agreements also provide for the confidentiality of information that constitutes trade secrets or
proprietary or other confidential information. In addition, the restrictive covenant and confidentiality agreement provides in
some circumstances for a six-month “cooling off” period after a separation from employment, during which the NEO will be
prohibited from participating directly or indirectly in a transaction involving Freddie Mac.
Recapture and Forfeiture Agreement
To participate in the EMCP, each of our eligible NEOs has entered into a Recapture and Forfeiture Agreement. Messrs.
Brickman, DeVito, and Grier are or were not eligible to participate in the EMCP due to their service as our CEO or Interim CEO
and, as such, have not entered into a Recapture and Forfeiture Agreement.
The Recapture and Forfeiture Agreement provides for the recapture and/or forfeiture of Deferred Salary (including related
interest) earned, paid, or to be paid pursuant to the terms of the EMCP if, after providing the required notice, our Board of
Directors, in the good faith exercise of its sole discretion, determines that a Forfeiture Event has occurred. The Forfeiture Events
and compensation subject to recapture and/or forfeiture are described below.
Materially Inaccurate Information
n Forfeiture Event - The NEO has earned or obtained the legally binding right to a payment of Deferred Salary based on
materially inaccurate financial statements or any other materially inaccurate performance measure.
n Compensation Subject to Recapture and/or Forfeiture - Any Deferred Salary earned up to two years prior to the
Forfeiture Event in excess of the amount that the Board of Directors determines Freddie Mac would have paid if the
Forfeiture Event had been considered at the time of the earlier compensation decisions (amounts may vary depending on
the specific Forfeiture Event).
Termination for Felony Conviction or Willful Misconduct
n Forfeiture Event - The NEO's employment is terminated in any of the following circumstances:
l Termination of employment because the NEO is convicted of, or pleads guilty or nolo contendere to, a felony;
l Subsequent to termination of employment, the NEO is convicted of, or pleads guilty or nolo contendere to, a felony,
based on conduct occurring prior to termination, and within one year of such conviction or plea, the Board of Directors
determines that such conduct is materially harmful to Freddie Mac; or
l Termination of employment because, or, within two years of termination, the Board of Directors determines that, the
NEO engaged in willful misconduct in the performance of their duties that was materially harmful to Freddie Mac.
n Compensation Subject to Recapture and/or Forfeiture - Any Deferred Salary earned during the two years prior to the
date that the NEO is terminated, any Deferred Salary scheduled to be paid within two years after termination, and any cash
payment made or to be made as consideration for any release of claims agreement.
Gross Neglect or Gross Misconduct
n Forfeiture Event - The NEO's employment is terminated because, in carrying out their duties, the NEO engages in conduct
that constitutes gross neglect or gross misconduct that is materially harmful to Freddie Mac, or, within two years after the
NEO's termination of employment, the Board of Directors determines that the NEO, prior to their termination, engaged in
such conduct.
n Compensation Subject to Recapture and/or Forfeiture - Any Deferred Salary paid at the time of termination or
subsequent to the date of termination, including any cash payment made as consideration for any release of claims
agreement.
Violation of a Post-Termination Non-Competition Covenant
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Executive Compensation
Compensation Discussion and Analysis
n Forfeiture Event - The NEO violates a post-termination non-competition covenant set forth in the restrictive covenant and
confidentiality agreement in effect when a payment of Deferred Salary is scheduled to be made.
n Compensation Subject to Recapture and/or Forfeiture - 50% of the Deferred Salary paid during the twelve months
immediately preceding the violation and 100% of any unpaid Deferred Salary.
Under the Recapture and Forfeiture Agreement, the Board of Directors has discretion to determine the appropriate dollar
amount, if any, to be recaptured from and/or forfeited by the NEO, which is intended to be the gross amount of compensation
in excess of what Freddie Mac would have paid the NEO had Freddie Mac taken the Forfeiture Event into consideration at the
time such compensation decision was made.
Indemnification Agreements
We have entered into an indemnification agreement with each of our directors and executive officers (including each of our
NEOs), each an indemnitee. The form of agreement provides that indemnification rights under the agreement would terminate if
and when the executive officer remained with Freddie Mac after ceasing to report directly to the CEO or President with respect
to any claims arising from matters occurring after the officer no longer reported directly to the CEO or President. Similar
indemnification rights would continue to be available to such executive officers under the Bylaws going forward. The
indemnification agreements provide that we will indemnify the indemnitee to the fullest extent permitted by our Bylaws and
Virginia law. This obligation includes, subject to certain terms and conditions, indemnification against all liabilities and
reasonable expenses (including attorneys' fees) actually incurred by the indemnitee in connection with any threatened or
pending action, suit, or proceeding, except such liabilities and expenses as are incurred because of the indemnitee's willful
misconduct or knowing violation of criminal law. The indemnification agreements provide that if requested by the indemnitee,
we will advance expenses, subject to repayment by the indemnitee of any funds advanced if it is ultimately determined that the
indemnitee is not entitled to indemnification. The rights to indemnification under the indemnification agreements are not
exclusive of any other right the indemnitee may have under any statute, agreement, or otherwise. Our obligations under the
indemnification agreements will continue after the indemnitee is no longer a director or officer of the company with respect to
any possible claims based on the fact that the indemnitee was a director or officer, and the indemnification agreements will
remain in effect in the event the conservatorship is terminated. The indemnification agreements also provide that
indemnification for actions instituted by FHFA will be governed by the standards set forth in FHFA’s Rule on Golden Parachute
and Indemnification Payments.
Other Executive Compensation Considerations
Accounting Restatement Resulting from Misconduct
If, as a result of misconduct, we are required to prepare an accounting restatement due to material non-compliance with
financial reporting requirements, the CEO and CFO are required to reimburse us for amounts determined in accordance with
Section 304 of the Sarbanes-Oxley Act of 2002.
Effect of Termination of Employment
The timing and payment of any unpaid portion of Deferred Salary and related interest is based upon the reason for termination,
as discussed in Potential Payments Upon Termination of Employment.
Perquisites
We believe that perquisites should be a minimal part of the compensation package for our NEOs. Total annual perquisites for
any NEO cannot exceed $25,000 without FHFA approval, and we do not provide a gross-up to cover any taxes due on the
perquisite itself. The only perquisite provided to our NEOs during 2021 was reimbursement for assistance with personal
financial planning, tax planning, and/or estate planning, up to an annual maximum benefit of $4,500, with an additional $2,500
allowance provided in the first year in which an NEO becomes eligible for the benefit. In 2022, we discontinued this perquisite.
SERP and SERP II
After our NEOs have satisfied the one-year service requirement, they are eligible to participate in our SERP. The SERP is
designed to provide participants with the full amount of benefits to which they would have been entitled under our Thrift/401(k)
Plan if that plan was not subject to certain dollar limits under the Internal Revenue Code. This is referred to as the "SERP
Benefit." For participants in the EMCP, no SERP Benefit is accrued with respect to annual pay in excess of two times a
participant's Base Salary.
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Executive Compensation
Compensation Discussion and Analysis
The SERP II was available to employees who were participants in the company’s Pension Plan as of the date the Pension Plan
was terminated. It was intended to provide participants with the full amount of the benefits to which they would have been
entitled under the tax-qualified Transitional Plan (see our Annual Report on Form 10-K filed on February 19, 2015 for additional
information) if that plan was not subject to certain dollar limits under the Internal Revenue Code. This was referred to as the
"SERP II Benefit." Messrs. Brickman and Weiss and Ms. Corley were the only NEOs who were eligible for the SERP II Benefit in
2021.
For additional information regarding these benefits, see Executive Compensation — 2021 Compensation Information
for NEOs — Nonqualified Deferred Compensation.
Stock Ownership, Hedging, and Pledging Policies
Our stock ownership guidelines were suspended when conservatorship began because we ceased paying our executive
officers stock-based compensation. The Purchase Agreement prohibits us from issuing any shares of our equity securities
without the prior written consent of Treasury. The suspension of stock ownership requirements is expected to continue through
conservatorship and until such time that we resume granting stock-based compensation.
Pursuant to our company policy, all employees, including our NEOs, and our directors are prohibited from:
n Engaging in all transactions (including purchasing and selling equity and non-equity securities) involving our securities
(except selling company securities owned prior to the implementation of the policy and then only with pre-clearance);
n Purchasing or selling derivative securities related to our equity securities or dealing in any derivative securities related to
our equity securities;
n Transacting in options (other than options granted by us, and then only with pre-clearance) or other hedging instruments
related to our securities; and
n Holding our securities in a margin account or pledging our securities as collateral for a loan.
Legal, Regulatory, and Conservator Restrictions on Executive
Compensation
The amount of compensation we may pay our NEOs is subject to a number of legal, regulatory, and conservator restrictions,
particularly while we are in conservatorship. Conservatorship also significantly affects the process by which the CHC
Committee determines our executive officers’ compensation. We describe below legal and regulatory requirements that
significantly affect our executive compensation program and policies.
Requirements Applicable During Conservatorship
While we are in conservatorship, we are subject to additional legal and regulatory requirements relating to our executive
compensation, including the following:
n Equity in Government Compensation Act. The Equity in Government Compensation Act of 2015 limits the compensation
and benefits for our CEO to the same level in effect as of January 1, 2015 while we are in conservatorship or receivership.
This law also provides that compensation and benefits for our CEO may not be increased while we are in conservatorship
or receivership. Accordingly, annual direct compensation for our CEO is limited to Base Salary at an annual rate of
$600,000. See Executive Compensation — CD&A — CEO Compensation for additional information.
n STOCK Act. Pursuant to the STOCK Act and related FHFA regulations, our senior officers, including our NEOs, are
prohibited from receiving bonuses during conservatorship. FHFA defines a bonus as a payment that rewards an employee
for work performed, where details of the award (such as the decision to grant it or its amounts) are determined after the
performance period using discretion or inherently subjective measures.
n FHFA Instructions – Executive Compensation. The powers of FHFA as our Conservator include the authority to set
executive compensation. FHFA, as Conservator, has retained the authority to approve the terms and amounts of our
executive compensation. In its instructions to us, FHFA directed that management obtain FHFA’s decision before entering
into new compensation arrangements or increasing amounts or benefits payable under existing compensation
arrangements of NEOs or other executive officers as defined in SEC rules.
n FHFA Instructions – Other Compensation. Pursuant to FHFA instructions, FHFA’s decision as Conservator is required with
regard to any changes in employee compensation that could significantly impact our employees, including but not limited
to retention awards, special incentive plans, and merit increase pool funding.
n FHFA Directives. FHFA, as Conservator, has directed us to:
l Limit base salaries for all employees to no more than $600,000;
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Executive Compensation
Compensation Discussion and Analysis
l Obtain FHFA’s decision before entering into any compensation arrangement for a new hire where the proposed Target
TDC is $600,000 or above;
l Obtain FHFA’s decision before increasing the Total TDC of any employee where the proposed Target TDC is $600,000
or above;
l Increase the mandatory deferral period for At-Risk Deferred Salary as described under Executive Compensation —
CD&A — Overview of Executive Management Compensation Program — Elements of Target TDC; and
l Include in our policies and procedures penalties for executive officers and certain other covered employees who are
found to have engaged in specified activities, including the recapture and/or forfeiture of Deferred Salary in
appropriate circumstances to the extent permitted by law. See Executive Compensation — CD&A — Written
Agreements Related to NEO Employment — Recapture and Forfeiture Agreement for a description of the
compensation forfeiture and recoupment provisions we have implemented pursuant to this FHFA directive.
n FHFA Guidance. FHFA, as Conservator, has instructed us to benchmark to the lower end of the range of market
compensation for both new executive hires and compensation increase requests for existing executives, unless FHFA has
granted an exception.
n Shareholder Powers. FHFA, as Conservator, has all powers of our shareholders. Accordingly, we have not held
shareholders’ meetings since entering into conservatorship, nor have we held any shareholder advisory votes on executive
compensation.
n Golden Parachute Regulation. A golden parachute payment generally refers to a compensatory payment that is contingent
on or provided in connection with termination of employment. FHFA regulation pursuant to the GSE Act generally prohibits
us from making golden parachute payments to any current or former director, officer, or employee of the company during
any period in which we are in conservatorship, receivership, or other troubled condition, unless either a specific exemption
applies or the Director of FHFA approves the payments. Specific exemptions include qualified pension or retirement plans,
nondiscriminatory employee plans or programs that meet specified requirements, and bona fide deferred compensation
plans or arrangements that meet specified requirements.
Other Applicable Requirements
We are also subject to legal and regulatory requirements relating to our executive compensation that apply whether or not we
are in conservatorship, including the following:
n Purchase Agreement. Under the terms of the Purchase Agreement, until the senior preferred stock is repaid or redeemed in
full:
l We may not enter into any new compensation arrangements with, or increase amounts or benefits payable under
existing compensation arrangements of, any NEOs or other executive officers as defined in SEC rules without the
consent of the Director of FHFA, in consultation with the Secretary of the Treasury.
l We may not sell or issue any equity securities without the prior written consent of Treasury except under limited
circumstances, which effectively eliminates our ability to offer stock-based compensation.
n Our Charter. Under our Charter and related FHFA regulations, FHFA as our regulator must approve any termination benefits
we offer to our NEOs and certain other officers identified by FHFA.
n GSE Act. Pursuant to the GSE Act and related FHFA regulations, FHFA as our regulator has specified oversight authority
over our executive compensation. The GSE Act directs FHFA to prohibit us from providing compensation to our NEOs and
certain other officers identified by FHFA that is not reasonable or comparable with compensation for employment in other
similar businesses involving similar duties and responsibilities. FHFA may at any time review the reasonableness and
comparability of an executive officer’s compensation and may require us to withhold any payment to the executive officer
during such review. The GSE Act also provides that, if we are classified as significantly undercapitalized, FHFA’s prior
written approval is required to pay any bonus to an executive officer or to provide certain increases in compensation to an
executive officer.
Section 162(m) Limits on the Tax Deductibility of Compensation Expenses
Section 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount that we may annually deduct for
compensation (including performance-based compensation) to: (1) anyone serving as CEO or CFO at any time during the year,
(2) the three highest paid NEOs (other than the CEO and CFO) employed by us at any time during the year and (3) any individual
who was a CEO, CFO, or one of the top three highest paid NEOs after 2016 and who is receiving Freddie Mac compensation.
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Executive Compensation
Compensation Discussion and Analysis
Compensation and Human Capital Committee Report
The Compensation and Human Capital Committee has reviewed and discussed the Compensation Discussion and
Analysis with management and, based on such review and discussion, has recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this Form 10-K.
This report is respectfully submitted by the members of the Compensation and Human Capital Committee.
Lance F. Drummond, Chair
Mark H. Bloom
Aleem Gillani
Christopher E. Herbert
Alberto G. Musalem
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Executive Compensation
Compensation and Risk
COMPENSATION AND RISK
Our management conducted an assessment of our compensation policies and practices that apply to employees at all levels,
including those participating in the EMCP. The assessment was conducted by members of our ERM and human resources
divisions, and included an evaluation of:
n The types of compensation offered (including fixed, variable, and deferred);
n Eligibility for participation in compensation programs;
n Compensation program design and governance;
n The process for establishing performance objectives; and
n Processes and program approvals for our compensation programs.
The assessment was discussed with the CHC Committee in January 2022. Management's conclusion, with which the CHC
Committee concurred, is that the company's compensation programs and practices do not encourage unnecessary or
excessive risk behaviors in pursuit of Corporate or Conservatorship Scorecard objectives or otherwise, and the programs and
practices would not be reasonably likely to have a material adverse effect on Freddie Mac.
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Executive Compensation
CEO PAY RATIO
CEO Pay Ratio
SEC rules require annual disclosure of the ratio of a company's CEO's total annual compensation to that of its median
employee. For 2021, we used the 2021 median employee who we identified as of December 31, 2021 using payroll data as
reported on Form W-2, Box 5 and annualizing it for individuals that had not worked the full year. Except as noted below, we
calculated that employee's total annual compensation for 2021 using the same method required for calculating total annual
compensation for our CEO (and other NEOs) for purposes of Table 65 - Summary Compensation Table.
The table below sets forth the total annual compensation for our CEO and median employee and the ratio between the two.
Table 64 - CEO Pay Ratio
Employee
Michael J. DeVito (CEO)
Median Employee
CEO Pay Ratio
Total Compensation
$687,647(1)
154,483(2)
Ratio
4.5 to 1
(1)
(2)
The total compensation of $687,647 for Mr. DeVito includes his annualized base salary and relocation benefits. See Executive Compensation — CD&A —CEO
Compensation and Executive Compensation — 2021 Compensation Information for NEOs — Summary Compensation Table for further discussion.
Reflects actual 2021 total compensation for the median employee except for estimated incentive compensation payment because, as of the filing of this Form 10-K,
we have not concluded our performance year 2021 compensation planning process for employees other than our NEOs. This estimate includes the projected
incentive payout for individuals with similar performance ratings.
Given the different methodologies that companies may use to determine their CEO pay ratio, the ratio reported above should
not be used as a basis for comparison between companies.
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Executive Compensation
2021 Compensation Information for NEOs
2021 COMPENSATION INFORMATION FOR NEOs
The following sections set forth compensation information for our NEOs: Mr. Brickman (who served as CEO until January 8,
2021); Mr. Hutchins (who served as our Principal Executive Officer from January 9, 2021 to March 14, 2021); Mr. Grier (who
served as Interim CEO from March 15, 2021 to May 31, 2021); Mr. DeVito (who has served as CEO since June 1, 2021); Mr.
Lown (who has served as our CFO since June 15, 2020); and the three other most highly compensated executive officers who
were serving as executive officers as of December 31, 2021.
Summary Compensation Table
Table 65 - Compensation Summary
Named Executive Officer
Michael J. DeVito(6)
Chief Executive Officer
Year
2021
Salary
Earned During
Year(1)
Deferred(2)
Bonus(3)
Non-Equity
Incentive Plan
Compensation(4)
All Other
Compensation(5)
Total
$355,385
$—
$—
$—
$87,647
$443,032
600,000
623,077
600,000
600,000
334,616
1,675,000
1,675,000
1,675,000
—
—
—
1,500,000
475,000
815,934
600,000
1,176,923
600,000
623,077
600,000
600,000
1,220,000
1,220,000
1,220,000
975,000
—
—
—
—
—
—
2021
2020
2019
2021
2020
2021
2021
2020
2019
2021
Michael T. Hutchins
President
Christian M. Lown(6)
EVP & Chief Financial Officer
Donna M. Corley(6)
EVP - Single-Family Business
Anil D. Hinduja
EVP - Chief Risk Officer
Jerry Weiss(6)
EVP - Chief Administrative
Officer & Interim General
Counsel
Mark B. Grier(6)
Former Interim Chief
Executive Officer
2021
129,231
—
—
David M. Brickman(7)
Former Chief Executive Officer 2020
2021
2019
11,538
600,000
600,000
—
—
837,500
—
—
—
936,468
884,476
913,735
864,864
447,610
721,918
749,174
707,581
730,988
648,324
—
—
—
102,838
3,314,306
119,239
3,301,792
123,634
3,312,369
116,682
3,556,546
49,096
1,647,256
102,588
2,601,429
102,610
2,671,784
115,622
2,666,280
117,651
2,668,639
102,488
2,325,812
—
129,231
981
102,000
12,519
702,000
456,867
112,621
2,006,988
(1)
(2)
(3)
(4)
Amounts shown in this sub-column consist of base salary paid during the year on a bi-weekly basis. Calendar year 2020 contained 27 bi-weekly pay periods, rather
than the usual 26 bi-weekly pay periods. This additional pay period occurs approximately once every 11 years because we pay on a bi-weekly basis. As a result of
the additional bi-weekly pay period in 2020, salary amounts for 2020 for Messrs. Hinduja, Hutchins, and Lown are slightly higher than the annual base salary rate.
The 2020 base salary rate for each executive officer was as follows: for Mr. Hutchins: $600,000; for Mr. Lown: $600,000; and for Mr. Hinduja: $600,000. In
February 2021, FHFA requested that Mr. Brickman repay the amount he received for the 27th pay period, and Mr. Brickman voluntarily agreed to do so.
Amounts shown reflect Fixed Deferred Salary earned during the year. The interest rate for Fixed Deferred Salary earned during 2021, 2020, and 2019 was 0.05%
0.795%, and 1.315%, respectively, which is equal to 50% of the one-year Treasury Bill rate as of December 31 of the applicable prior year. Fixed Deferred Salary
earned during each quarter is paid in cash on the last pay date of the corresponding quarter in the following year, along with accrued interest. Interest on Fixed
Deferred Salary earned during 2021, 2020, and 2019 is included in All Other Compensation.
Amount shown reflects a cash sign-on payment made to Mr. Lown in connection with his hiring. Although we classified the payment in the “Bonus” column for
purposes of the Summary Compensation Table, it is not considered a “bonus” under the STOCK Act. Please see Executive Compensation — CD&A — Written
Agreements Relating to NEO Employment and Executive Compensation — CD&A — Other Executive Compensation Considerations —Legal,
Regulatory, and Conservator Restrictions on Executive Compensation for additional details.
Amounts shown reflect At-Risk Deferred Salary earned during each year as well as interest on that At-Risk Deferred Salary. The interest rate for At-Risk Deferred
Salary earned during 2021, 2020, and 2019 was the same as noted for the interest rate for the Fixed Deferred Salary. Except in the case of Mr. Lown, At-Risk
Deferred Salary earned during each quarter will be paid in cash on the last pay date of the corresponding quarter in the following year. For Mr. Lown, At-Risk
Deferred Salary earned during each quarter will be paid in cash on the last pay date of the corresponding quarter in the second calendar year. See Executive
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Executive Compensation
2021 Compensation Information for NEOs
Compensation — CD&A — Determination of 2021 At-Risk Deferred Salary and Executive Compensation — CD&A — Executive Management
Compensation Program Overview.
(5)
Amounts for 2021 reflect: (i) contributions made under our tax-qualified Thrift/401(k) Plan for plan year 2021; (ii) accruals earned pursuant to the SERP Benefit for
plan year 2021; (iii) interest on Fixed Deferred Salary earned during 2020; and (iv) reimbursement of certain relocation expenses incurred by Messrs. DeVito and
Lown and reimbursement of financial planning expenses incurred by Mr. Lown. The amounts for 2021 are as follows:
Named Executive Officer
Thrift/401(k) Plan
Contributions
SERP Benefit
Accruals
Interest on Fixed
Deferred Salary
Relocation and
Financial Planning
Expenses
Mr. DeVito
Mr. Hutchins
Mr. Lown
Ms. Corley
Mr. Hinduja
Mr. Weiss
Mr. Grier
Mr. Brickman
$—
24,650
9,419
24,650
24,650
24,650
—
981
$—
77,350
49,427
77,350
77,350
77,350
—
—
$—
838
750
588
610
488
—
—
$87,647
—
57,086
—
—
—
—
—
Employer contributions to the Thrift/401(k) Plan are generally available on the same terms to all our employees. After the first year of employment, we match up to
6% of eligible compensation at 100% of the employee's contributions. Also, after their first year of employment, employees receive an additional employer
contribution to our Thrift/401(k) Plan equal to 2.5% of compensation earned in the prior year. Employee contributions, our matching contributions, and the 2.5%
employer contribution are invested in accordance with the employee's investment elections and are immediately vested. For additional information regarding the
SERP Benefit, see Executive Compensation — 2021 Compensation Information for NEOs — Nonqualified Deferred Compensation.
Perquisites are valued at their aggregate incremental cost to us. During the years reported, the aggregate value of perquisites received by any NEO was less than
$10,000, except for Mr. DeVito, who, in 2021, was reimbursed for relocation expenses, as described above, and Mr. Lown who was reimbursed $56,496 in
relocation expenses and $590 in financial planning services. Therefore, in accordance with SEC rules, amounts shown under "All Other Compensation" do not
include perquisites, other than for Messrs. DeVito and Lown.
(6)
Pursuant to SEC reporting requirements, because Mr. Lown first became an NEO in 2020, information for 2019 is not required to be disclosed. Similarly, because
Messrs. DeVito, Weiss, and Grier and Ms. Corley first became NEOs in 2021, information for 2019 and 2020 is not required to be disclosed.
(7) Mr. Brickman resigned effective January 8, 2021. Mr. Brickman became CEO in July 2019, and, during his tenure as CEO, his compensation consisted solely of an
annual Base Salary of $600,000. Prior to his service as CEO, he participated in the EMCP and was eligible for Deferred Salary.
Grants of Plan-Based Awards
The following table contains information concerning grants of plan-based awards to each of the NEOs during 2021. The
Purchase Agreement prohibits us from issuing equity securities without Treasury's prior written consent. No stock awards were
granted during 2021. For a description of the performance and other measures used to determine payouts, see Executive
Compensation — CD&A — Elements of Target Total Direct Compensation, — Determination of 2021 Target TDC for
NEOs, — Determination of 2021 At-Risk Deferred Salary, and — 2021 Deferred Salary.
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Executive Compensation
2021 Compensation Information for NEOs
Table 66 - Grants of Plan-Based Awards
Named Executive Officer(1)
At-Risk Deferred Salary Award
Threshold
Target/Maximum
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(2)
Mr. Hutchins
Mr. Lown
Ms. Corley
Mr. Hinduja
Mr. Weiss
Conservatorship Scorecard
Corporate Scorecard/Individual
Total
Conservatorship Scorecard
Corporate Scorecard/Individual
Total
Conservatorship Scorecard
Corporate Scorecard/Individual
Total
Conservatorship Scorecard
Corporate Scorecard/Individual
Total
Conservatorship Scorecard
Corporate Scorecard/Individual
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$487,500
487,500
975,000
450,000
450,000
900,000
380,769
380,769
761,538
390,000
390,000
780,000
337,500
337,500
675,000
(1) Messrs. Brickman, DeVito, and Grier were not eligible to receive Deferred Salary in 2021, and therefore are not included in this table.
(2)
The amounts reported reflect At-Risk Deferred Salary granted in 2021 which is subject to reduction based on: (i) corporate performance against the Conservatorship
Scorecard; and (ii) the company's performance against the Corporate Scorecard goals and an officer's individual performance. The amount of At-Risk Deferred
Salary actually earned can range from 0% of target (reported in the Threshold column) to a maximum of 100% of target (reported in the Target/Maximum column).
Actual At-Risk Deferred Salary amounts earned during 2021 are reported in the Non-Equity Incentive Plan Compensation column of Table 65 - Summary
Compensation Table.
Outstanding Equity Awards at Fiscal Year-End
None of the NEOs had unexercised options or unvested RSUs as of December 31, 2021.
Option Exercises and Stock Vested
None of the NEOs exercised options or had RSUs vest during 2021.
Pension Benefits
No Pension Benefits table is presented here as the Pension Plan termination was completed in 2015. For additional information,
see Executive Compensation — CD&A — Other Executive Compensation Considerations.
Nonqualified Deferred Compensation
Non-qualified deferred compensation for the NEOs consists of the SERP Benefit and, for those NEOs who were eligible for the
Transitional Plan (or those NEOs who may have deferred Roth contributions into their Thrift/401(k) Plan account), the SERP II
Benefit. The SERP and SERP II are unfunded, non-qualified defined contribution plans designed to provide participants with the
full amount of benefits to which they would have been entitled under the Thrift/401(k) Plan and Transitional Plan (for those
NEOs eligible) if these plans were not subject to certain dollar limits under the Internal Revenue Code.
The SERP Benefit equals the amount of the employer matching and 2.5% contributions for each NEO that would have been
made to the Thrift/401(k) Plan during the year, based upon the participant's eligible compensation, without application of those
limits, less the amount of the matching contributions and 2.5% contributions made to the Thrift/401(k) Plan during the year, but
does not take into account pay that exceeds two times the NEO's Base Salary. We believe the SERP Benefit is an appropriate
benefit because offering such a benefit helps us remain competitive with the companies in our Comparator Group.
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Executive Compensation
2021 Compensation Information for NEOs
To be eligible for the SERP Benefit, the NEO must be eligible for matching contributions and the 2.5% contribution under the
Thrift/401(k) Plan for part of the year, as discussed in Footnote 4 to Table 65 - Summary Compensation Table. In addition, to
be eligible for the portion of the SERP Benefit attributable to employer matching contributions, the NEO must contribute the
maximum amount permitted under the terms of the Thrift/401(k) Plan on either a pre- or post-tax basis.
The SERP II Benefit provided an accrual for each year an NEO participated in the Transitional Plan equal to the amount of the
employer contribution that would have been made to the Transitional Plan for the year, without application of the Internal
Revenue Code limits, less the amount of the contribution actually made to the Transitional Plan, but does not take into account
pay that exceeds two times the NEO's Base Salary. The SERP II also provides participants with the flexibility to make Roth
contributions to the Thrift/401(k) Plan and still receive employer matching contributions as noted above.
Participants are credited with earnings or losses in their SERP and SERP II Benefit accounts based upon each participant's
individual direction of the investment of such notional amounts among the virtual investment funds available under the SERP
and SERP II, which are the same as the investment options available under the Thrift/401(k) Plan. SERP and SERP II Benefits
are generally distributed in a lump sum 90 days after the end of the calendar year in which a separation from service occurs. A
six-month delay in the commencement of distributions on account of a separation from service applies to key employees, in
accordance with Internal Revenue Code Section 409A. If the NEO dies, the vested SERP Benefit is paid in the form of a lump
sum within 90 days of death, and the SERP II Benefit is paid by March 31st following the year the NEO dies.
The following table shows the contributions, earnings, withdrawals and distributions, and accumulated balances under the
SERP and SERP II Benefits for each NEO.
Table 67 - SERP and SERP II Benefits
Named Executive
Officer
Executive
Contribution in
Last FY ($)(1)
Freddie Mac
Accruals in
Last FY ($)(2)
Aggregate
Earnings in
Last FY ($)(3)
Aggregate
Withdrawals/
Distributions ($)
Balance at
Last FYE ($)(4)
Mr. DeVito(5)
SERP Benefit
Mr. Hutchins
SERP Benefit
Mr. Lown
SERP Benefit
Ms. Corley
SERP Benefit
SERP II Benefit
Mr. Hinduja
SERP Benefit
Mr. Weiss
SERP Benefit
SERP II Benefit
Mr. Grier(5)
SERP Benefit
Mr. Brickman
SERP Benefit
SERP II Benefit
$—
$—
$—
$—
$—
—
77,350
99,043
—
740,207
2,073
—
51,500
—
—
—
—
—
—
—
—
—
49,427
77,350
—
154,676
18
77,350
91,387
77,350
—
—
—
—
241,010
37,819
—
232,362
111,658
—
—
—
1,334,717
171,378
620,423
—
—
2,095,066
533,014
—
—
—
—
1,218,661(6)
531,728
(1)
(2)
(3)
(4)
The SERP and SERP II do not allow for employee contributions.
Amounts reported reflect accruals under the SERP during 2021, including the 2.5% contribution accruals which will be allocated to NEO accounts in 2022. These
amounts are also reported in the "All Other Compensation" column in Table 65 - Summary Compensation Table.
Amounts reported represent the total interest and other earnings credited to each NEO under the SERP and SERP II Benefits.
Amounts reported reflect the accumulated balances under the SERP and SERP II Benefits for each NEO and include the plan year 2021 accruals noted in footnote 2
above. All NEOs are fully vested in their SERP and, for Messrs. Brickman and Weiss, and Ms. Corley, their SERP II Benefit account balances.
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Executive Compensation
2021 Compensation Information for NEOs
The following 2020 SERP Benefit accrual amounts were reported in the "All Other Compensation" column in the 2020 Summary Compensation Table as
compensation for each NEO for whom accruals were made during 2020: Mr. Hutchins: $81,698, Mr. Hinduja: $81,698 and Mr. Brickman: $77,775. See our Annual
Report on Form 10-K filed on February 13, 2020.
(5) Mr. DeVito was not eligible for the SERP Benefit in 2021 because he had not satisfied the one-year service requirement. Mr. Grier also did not satisfy the one-year
service requirement during his service as our Interim CEO.
Amount reported reflects adjustments made to Mr. Brickman's SERP II balance related to tax and other withholdings.
(6)
Potential Payments Upon Termination of Employment
The EMCP addresses the treatment of Base Salary and Deferred Salary upon various termination events. Base Salary ceases
upon an NEO's termination of employment, regardless of the termination reason. An NEO generally does not need to be
employed by us on the payment date to receive payments of Deferred Salary (including related interest) that are unpaid at the
time of termination of employment. The following table describes the effect of various termination events upon unpaid Deferred
Salary. The actual payment of any level of termination benefits that is not otherwise provided for in the EMCP is subject to
FHFA review and approval.
n Forfeiture Event — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is subject to
forfeiture upon the occurrence of a Forfeiture Event, as described above under Executive Compensation — CD&A —
Written Agreements Relating to NEO Employment — Recapture and Forfeiture Agreement.
n Death — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid in full as soon as
administratively possible, but not later than 90 calendar days after the date of death. Any earned but unpaid At-Risk
Deferred Salary is not subject to reduction based on corporate and individual performance if the reduction has not been
determined as of the date of death.
n Long-Term Disability — All earned but unpaid Fixed and At-Risk Deferred Salary (including related interest) is paid in full
in accordance with the Approved Payment Schedule. Any earned but unpaid At-Risk Deferred Salary is not subject to
reduction based on corporate and individual performance if the reduction has not been determined as of the termination
date.
n Any Other Reason (including, but not limited to, voluntary termination, retirement, and involuntary termination for
any reason other than a Forfeiture Event) — All earned but unpaid Deferred Salary (including related interest) is paid in
accordance with the Approved Payment Schedule, and earned but unpaid At-Risk Deferred Salary remains subject to the
performance assessment and reduction process. Except in the case of retirement, the amount of earned but unpaid Fixed
Deferred Salary will be reduced by 2% for each full or partial month by which the NEO's termination precedes January 31
of the second calendar year following the calendar year in which the Fixed Deferred Salary is earned. No such reduction is
applicable if an NEO retires, which is deemed to have occurred upon a voluntary termination of employment after attaining
or exceeding 62 years of age, without regard to length of service, or attaining or exceeding 55 years of age with 10 or more
years of service.
The table below describes the compensation and benefits that would have been payable to each NEO had the officer
terminated their employment under various circumstances as of December 31, 2021.
The table below does not address changes in control, as we are not obligated to provide any additional compensation to our
NEOs in connection with a change in control. The table also does not address potential payments upon a termination for cause,
which is a termination resulting from the occurrence of an event or conduct described in the Recapture and Forfeiture
Agreement. All earned but unpaid Deferred Salary is subject to forfeiture upon the occurrence of such a termination. However,
the amount of compensation, if any, to be recaptured and/or forfeited is determined by the Board of Directors, which can only
occur following the occurrence of a for cause termination. See Executive Compensation — CD&A — Written Agreements
Relating to NEO Employment — Recapture and Forfeiture Agreement.
The table below does not include vested balances in the SERP and SERP II. All NEOs are fully vested in their account balances.
Amounts shown in the table also do not include certain items available to all employees generally upon a termination event.
The table below also does not include stock options or RSUs, as there were no outstanding stock options or RSUs held by
NEOs as of December 31, 2021.
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Executive Compensation
2021 Compensation Information for NEOs
Table 68 - Compensation and Benefits if NEO Terminated Employment as of December 31, 2021
Named Executive Officer(1)
Death
Disability
Retirement(2)
All Other Not
For Cause
Terminations(3)
Michael T. Hutchins
Deferred Salary:
Fixed
At Risk-Conservatorship Scorecard(4)
At Risk-Corporate Scorecard/Individual(5)
Interest on Deferred Salary(6)
Total
Christian M. Lown
Deferred Salary:
Fixed
At Risk-Conservatorship Scorecard(4)(7)
At Risk-Corporate Scorecard/Individual(5)(7)
Interest on Deferred Salary(6)
Total
Donna M. Corley
Deferred Salary:
Fixed
At Risk-Conservatorship Scorecard(4)
At Risk-Corporate Scorecard/Individual(5)
Interest on Deferred Salary(6)
Total
Anil D. Hinduja
Deferred Salary:
Fixed
At Risk-Conservatorship Scorecard(4)
At Risk-Corporate Scorecard/Individual(5)
Interest on Deferred Salary(6)
Total
Jerry Weiss
Deferred Salary:
Fixed
At Risk-Conservatorship Scorecard(4)
At Risk-Corporate Scorecard/Individual(5)
Interest on Deferred Salary(6)
$1,675,000
$1,675,000
$1,675,000
487,500
487,500
827
487,500
487,500
1,325
448,500
487,500
1,306
$2,650,827
$2,651,325
$2,612,306
$1,500,000
$1,500,000
450,000
450,000
749
450,000
450,000
1,650
$2,400,749
$2,401,650
$1,176,923
$1,176,923
380,769
380,769
544
380,769
380,769
969
$1,939,005
$1,939,430
$1,220,000
$1,220,000
390,000
390,000
624
390,000
390,000
1,000
$2,000,624
$2,001,000
$975,000
337,500
337,500
515
$975,000
337,500
337,500
825
$975,000
310,500
337,500
812
$1,110,000
414,000
450,000
1,419
$1,975,419
$870,923
350,308
371,250
796
$1,593,277
$902,800
358,800
390,000
826
$1,652,426
Total
$1,650,515
$1,650,825
$1,623,812
(1) Messrs. Brickman, DeVito, and Grier are excluded from this table because they were not eligible for any additional compensation in connection with a termination of
employment.
(2) Messrs. Hutchins and Weiss are the only retirement-eligible NEOs under the EMCP.
(3)
All Other Not For Cause Terminations refer to (i) voluntary terminations other than for retirement; or (ii) involuntary terminations other than for cause. No amount is
shown for Messrs. Hutchins and Weiss because they are retirement eligible. In accordance with early termination provisions in the EMCP, the amounts disclosed for
Deferred Salary: Fixed for all other NEOs have been reduced by 26% to reflect a December 31, 2021 termination event.
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Executive Compensation
2021 Compensation Information for NEOs
(4)
(5)
(6)
The amounts reported for Deferred Salary: At Risk-Conservatorship Scorecard reflect the funding level determined by FHFA with respect to performance against the
2021 Conservatorship Scorecard. In cases of death or disability, the process for determining funding level is waived if the funding level has not been determined at
the date of termination.
The amounts reported for Deferred Salary: At Risk-Corporate Scorecard/Individual in the Retirement and All Other Not For Cause Terminations columns reflect the
assessment of 2021 performance approved by the CHC Committee and FHFA. For death or disability, the provisions are the same as for the amounts reported for
Deferred Salary: At Risk-Conservatorship Scorecard.
Interest on Deferred Salary is accrued and paid in accordance with the terms of the EMCP. The amount of interest in the Death column assumes that payment
occurs on the 90th day following the date of death, which is assumed to be December 31, 2021. For Mr. Lown, the interest on At-Risk Deferred Salary in the case of
disability and all other not for cause terminations is calculated for two years based on the two-year deferral period in accordance with the EMCP for executive
officers hired on or after December 31, 2019.
(7)
The amounts reported for At-Risk Deferred Salary reflect amounts earned by Mr. Lown in 2021 and do not include At-Risk Deferred Salary earned by Mr. Lown in
2020 that, pursuant to the EMCP, we will pay to him in 2022.
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279
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder
Matters
SECURITY OWNERSHIP
Our only class of voting stock is our common stock. Upon its appointment as Conservator, FHFA immediately succeeded to the
voting rights of holders of our common stock. The following table shows the beneficial ownership of our common stock as of
February 9, 2022 by our directors, our NEOs, all of our directors and executive officers as a group, and holders of more than
5% of our common stock. Beneficial ownership is determined in accordance with SEC rules for computing the number of
shares of common stock beneficially owned by a person and the percentage ownership of that person. As of February 9, 2022,
each director and NEO, and all of our directors and executive officers as a group, owned less than 1% of our outstanding
common stock. We ceased paying our executive officers and directors stock-based compensation when we entered
conservatorship. In addition, the Purchase Agreement prohibits us from issuing any of our equity securities, including as
compensation to our directors and executive officers, without the prior written consent of Treasury, and no equity securities,
other than the senior preferred stock issued to Treasury, have been issued since we entered conservatorship. In addition,
company policy prohibits directors and executive officers from engaging in transactions involving our equity securities, except
selling company securities owned prior to the implementation of the policy. See Executive Compensation — CD&A —
Other Executive Compensation Considerations — Stock Ownership, Hedging, and Pledging Policies for additional
information. Unless otherwise noted, the information presented below is based on information provided to us by the individuals
or entities specified in the table.
Stock Ownership By Directors and Executive Officers
Table 69 - Stock Ownership by Directors and Executive Officers
Directors and Named
Executive Officers
Position
Common Stock
Beneficially Owned
Excluding
Stock Options(1)
Stock Options
Exercisable
Within 60 Days of
Feb. 9, 2022
Total Common Stock
Beneficially Owned
Mark H. Bloom
Kathleen L. Casey
Lance F. Drummond
Aleem Gillani
Mark B. Grier
Christopher E. Herbert
Grace A. Huebscher
Sara Mathew
Allan P. Merrill
Alberto G. Musalem
Director
Director
Director
Director
Director and Former Interim Chief Executive Officer
Director
Director
Director
Director
Director
Michael J. DeVito
Chief Executive Officer and Director
Michael T. Hutchins
President
Christian M. Lown
EVP & Chief Financial Officer
Donna M. Corley
Anil D. Hinduja
Jerry Weiss
EVP - Single-Family Business
EVP - Chief Risk Officer
EVP - Chief Administrative Officer & Interim
General Counsel
David M. Brickman(3)
Former Chief Executive Officer
All directors and executive officers as a group (19 persons)(4)
—
—
—
—
—
—
—
—
—
—
—
—
5,998
—
—
3,395
9,393
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,998(2)
—
—
3,395(2)
9,393(2)
(1)
(2)
Includes shares of stock beneficially owned as of February 9, 2022.
Represents shares of stock beneficially owned prior to the company's entry into conservatorship.
(3) Mr. Brickman resigned from the company effective January 8, 2021.
(4)
This table does not include Messrs. Chavers and Hayden who will join the Board of Directors effective February 15, 2022. Neither Mr. Chavers nor Mr. Hayden
beneficially own any shares of our stock.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Stock Ownership by Greater-Than 5% Holders
Table 70 - Stock Ownership by Greater Than 5% Holders
5% Holders(1)
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Common Stock
Beneficially Owned
Percent of Class
Variable(2)
79.9%
(1)
(2)
Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackman ("Pershing") have filed certain reports on Schedule 13D, the latest of
which was filed on March 31, 2014. In that report, Pershing reported a beneficial ownership percentage calculation of 9.78%, based solely on the 650,039,533
shares of our common stock outstanding as reported in our Annual Report on Form 10-K filed on February 27, 2014, and excluding the shares issuable to Treasury
pursuant to the warrant. The Schedule 13D indicated that Pershing also had additional economic exposure to approximately 8,434,958 notional shares of common
stock, bringing the total aggregate economic exposure on the date of that filing to 72,010,523 shares of common stock (approximately 11.08% of the outstanding
common stock). In that filing, Pershing indicated that because it believes our common stock is not a voting security, it had determined not to file future reports on
Schedule 13D. We do not know Pershing's current beneficial ownership of our common stock.
In September 2008, we issued Treasury a warrant to purchase, for one one-thousandth of a cent ($0.00001) per share, 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. The warrant may be exercised in whole
or in part at any time until September 7, 2028. As of the date of this filing, Treasury has not exercised the warrant. The information above assumes Treasury
beneficially owns no other shares of our common stock.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER
EQUITY COMPENSATION PLANS
We have no shares of common stock available for issuance upon the exercise of options, warrants, and rights under our
existing equity compensation plans as of December 31, 2021. Prior to conservatorship, stockholders approved the Employee
Stock Purchase Plan, the 2004 Stock Compensation Plan, and the 1995 Stock Compensation Plan (together, the Employee
Plans), and the 1995 Directors' Stock Compensation Plan (the Directors' Plan). The authorizations to issue shares of common
stock under the Employee Plans and Directors' Plan have expired pursuant to their respective terms. Therefore, we are not
providing an Equity Compensation Table.
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Certain Relationships and Related Transactions
Certain Relationships And Related Transactions
POLICY GOVERNING RELATED PERSON
TRANSACTIONS
The Board of Directors has adopted a written policy governing the approval of related person transactions. This policy sets
forth procedures for the review and approval or ratification of transactions involving related persons. Under the policy, "related
person" means 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 of the foregoing persons.
Under authority delegated by the Board of Directors, the Nominating and Governance Committee, or its Chair or other
designated member under certain circumstances, each an Authorized Approver, is responsible for applying the Related Person
Transactions Policy. Transactions covered by the Related Person Transactions Policy consist of any transaction, arrangement,
or relationship or series of similar transactions, arrangements, or relationships, in which:
n The aggregate amount involved exceeded or is expected to exceed $120,000;
n We were or are expected to be a participant; and
n Any related person had or will have a direct or indirect material interest.
The Related Person Transactions Policy includes a list of categories of transactions identified by the Board of Directors as
having no significant potential for an actual conflict of interest or the appearance of a conflict or benefit to a related person, and
thus such transactions are not considered potential related person transactions subject to review.
Our Legal division (or our Compliance department in certain limited circumstances) assesses whether any proposed transaction
involving a related person is covered by the Related Person Transactions Policy. If so, the transaction is reviewed by the
appropriate Authorized Approver.
In determining whether to approve or ratify a related person transaction covered by the Related Person Transactions Policy, the
Authorized Approver reviews and considers all relevant information, which may include:
n The nature of the related person's interest in the transaction;
n The approximate total dollar value of, and extent of the related person's interest in, the transaction;
n Whether the transaction was or would be undertaken in the ordinary course of our business;
n Whether the transaction is proposed to be, or was, entered into on terms no less favorable to us than terms that could
have been reached with an unrelated third party; and
n The purpose, and potential benefits to us, of the transaction.
TRANSACTIONS WITH 5% SHAREHOLDERS
In connection with our entry into conservatorship, we issued a warrant to Treasury to purchase 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. There have been a
number of transactions between us and Treasury since the beginning of 2021, as discussed in MD&A — Consolidated
Results of Operations, MD&A — Liquidity and Capital Resources, MD&A — Conservatorship and Related
Matters, MD&A — Regulation and Supervision, Note 2, Note 8, and Note 12.
We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP. Among other duties, as the
program compliance agent, we conduct examinations and review servicer compliance with the published requirements for the
program.
FHFA, as Conservator, approved the Purchase Agreement and our role as compliance agent in the MHA Program and the
Memorandum of Understanding with Treasury, FHFA, and Fannie Mae under the HFA Initiative. FHFA also instructed us to
implement a $5,000 principal reduction incentive under HAMP in which Treasury will pay the incentive for borrowers with
certain of our HAMP modified loans. The remaining transactions described in the sections referenced above did not require
review and approval under any of our policies and procedures relating to transactions with related persons.
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Certain Relationships and Related Transactions
TRANSACTIONS WITH INSTITUTIONS RELATED TO
EXECUTIVE OFFICERS
Mr. Lown’s brother, Jeffrey Lown, serves as the Chief Executive Officer and President of Cherry Hill Mortgage Investment
Corporation (“Cherry Hill”) and serves as the President and a director of one of Cherry Hill’s subsidiaries, Aurora Financial
Group Inc. (“Aurora”). Aurora is a single-family servicer servicing approximately 34,000 loans with a UPB as of December 31,
2021 of $7.9 billion. These transactions are conducted in the ordinary course and on an arm's length basis.
CONSERVATORSHIP AGREEMENTS
Treasury, FHFA, and the Federal Reserve have taken a number of actions to support us during conservatorship, including
entering into the Purchase Agreement, described in this Form 10-K. See MD&A — Conservatorship and Related Matters
and Note 2.
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Principal Accounting Fees and Services
Principal Accounting Fees and Services
DESCRIPTION OF FEES
PricewaterhouseCoopers LLP has served as our independent public accountants since 2002. The following is a description of
fees billed to us by PricewaterhouseCoopers LLP during 2021 and 2020.
Auditor Fees(1)
Table 71 - Auditor Fees
(In thousands)
Audit Fees(2)
Audit-Related Fees(3)
Tax Fees(4)
All Other Fees(5)
Total
2021
2020
$22,744
7,530
2,432
10
$20,550
7,180
48
10
$32,716
$27,788
(1)
(2)
(3)
(4)
(5)
These fees represent amounts billed (including reimbursable expenses within the designated year).
Audit fees include fees in connection with quarterly reviews of our interim financial information and the audit of our annual consolidated financial statements.
Audit-related fees include: (i) fees for the performance of certain agreed-upon procedures regarding aspects of compliance with the Purchase Agreement covenants;
(ii) attestation-related services on debt offerings; (iii) compliance evaluation of the minimum servicing standards as set forth in the Uniform Single Attestation
Program for Mortgage Bankers; (iv) fees related to accounting policy consultations; and (v) fees for the performance of certain agreed-upon procedures related to
our risk transfer and structured transactions, pursuant to engagement letters with the company, including where the fees are billed to and paid by unconsolidated
trusts created in connection with such transactions.
The tax fees related to non-audit tax compliance and consulting services arising from research and development tax credits and advice and recommendations
related to tax planning and reporting matters.
All other fees include: (i) our subscription to a web-based suite of human resources benchmark data; and (ii) our subscription to accounting research and disclosure
software.
APPROVAL OF INDEPENDENT AUDITOR SERVICES
AND FEES
Under its charter, the Audit Committee is responsible for the following:
n Appointing our independent public accounting firm (subject to FHFA approval as required);
n Approving all audit and non-audit services permitted under applicable law to be performed by the independent public
accounting firm (subject to FHFA approval as required);
n Approving our independent public accounting firm's proposed risk assessment, scope, and audit approach with respect to
the annual audit; and
n Overseeing the performance of, and relationship with, our independent public accounting firm.
The Sarbanes-Oxley Act of 2002 and related SEC rules require that all services provided to companies subject to the reporting
requirements of the Exchange Act by their independent auditors be pre-approved by their audit committee or by authorized
members of the committee, with certain exceptions. The Audit Committee's charter requires that the Audit Committee pre-
approve any audit services, and any non-audit services permitted under applicable law, to be performed by our independent
auditors (or to designate one or more members of the Audit Committee to pre-approve such services and report such pre-
approval to the Audit Committee).
Audit services that are within the scope of an auditor's engagement approved by the Audit Committee prior to the performance
of those services are deemed pre-approved and do not require separate pre-approval. Audit services not within the scope of an
Audit Committee-approved engagement, as well as permissible non-audit services, must be separately pre-approved by the
Audit Committee.
When the Audit Committee pre-approves a service, it sets a dollar limit for such service. Management obtains pre-approval of
the Audit Committee, or of the Chair of the Audit Committee (when the Chair of the Audit Committee has been delegated such
authority), before it incurs fees exceeding the dollar limit. If the Chair of the Audit Committee approves the increase, the Chair
will report such approval at the Audit Committee's next scheduled meeting. The Audit Committee has delegated to the Chair
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Principal Accounting Fees and Services
the authority to address requests to pre-approve certain additional audit and non-audit services to be performed by the
company's independent auditor with fees totaling up to a maximum of $250,000 per quarter, with reporting of any such
approval decisions to the Audit Committee at its next scheduled meeting. The pre-approval procedure is administered by our
senior financial management, which reports throughout the year to the Audit Committee. The Audit Committee pre-approved all
audit, audit-related, tax, and other services performed by our independent public accounting firm in 2021 and 2020.
The Audit Committee appoints the independent public accounting firm on an annual basis. In connection with applicable
partner rotation requirements, the Audit Committee and its Chair are involved in considering the selection of the independent
registered public accounting firm’s new lead partner and concurring/reviewing partner. In evaluating the performance of the
independent public accounting firm, the Audit Committee considers a number of factors, including the following:
n The firm's status as a registered public accounting firm with the Public Company Accounting Oversight Board (United
States), or PCAOB, as required by the Sarbanes-Oxley Act of 2002 and the Rules of the PCAOB;
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Its independence and processes for maintaining its independence;
Its approach to resolving significant accounting and auditing matters;
Its capability and expertise in handling the complexity of the company's business, including the capability and expertise of
the lead audit partner and of the key members of the engagement team;
n Historical and recent performance, including the extent and quality of the independent public accounting firm's
communications with the Audit Committee, and the results of a management survey of the independent public accounting
firm's overall performance;
n Data related to audit quality and performance, including recent PCAOB inspection reports on the firm; and
n The appropriateness of its fees, both on an absolute basis and as compared with peers.
The Audit Committee has determined that the non-audit services rendered by PricewaterhouseCoopers during its most recent
fiscal year are compatible with maintaining PricewaterhouseCoopers' independence.
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Exhibits and Financial Statement Schedules
Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements
The consolidated financial statements required to be filed in this Form 10-K are included in
Financial Statements and Supplementary Data.
(2) Financial Statement Schedules
None.
(3) Exhibits
An Exhibit Index has been filed as part of this Form 10-K beginning on page 296.
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Glossary
Glossary
This Glossary includes acronyms and defined terms that are used throughout this report.
n ACIS - Agency Credit Insurance Structure - Transactions in which we purchase insurance policies that provide credit
protection for certain specified credit events that are typically allocated to the non-issued notional credit risk positions of a
STACR transaction. We also enter into other ACIS transactions that provide credit protection for certain specified credit
events on loans not included in a reference pool created for a STACR transaction, or provide front-end credit risk transfer
as loans come into the portfolio. Under each of these insurance policies, we pay monthly premiums that are determined
based on the outstanding balance of the reference pool. When specific credit events occur, we generally receive
compensation from the insurance policy up to an aggregate limit based on actual losses.
n Administration - Executive branch of the U.S. government.
n Agency securities - Generally refers to mortgage-related securities issued or guaranteed by the GSEs or government
agencies.
n Alt-A loan - Although there is no universally accepted definition of Alt-A, many mortgage market participants have
classified single-family loans as Alt-A if these loans have credit characteristics that range between their prime and
subprime categories, if these loans are underwritten with lower or alternative income or asset documentation requirements
compared to a full documentation loan, or both. We categorize loans in our single-family mortgage portfolio as Alt-A if the
lender that delivered them to us classified the loans as Alt-A, or if the loans had reduced documentation requirements as
well as a combination of certain credit characteristics and expected performance characteristics at acquisition which, when
compared to full documentation loans in our portfolio, indicate that the loan should be classified as Alt-A. In the event we
purchase a refinance loan and the original loan had been previously identified as Alt-A, such refinance loan may no longer
be categorized as an Alt-A loan because the refinance loan is not identified by the servicer as an Alt-A loan. We categorize
our investments in non-agency mortgage-related securities as Alt-A if the securities were identified as such based on
information provided to us when we entered into these transactions.
n AMI - Area Median Income.
n AOCI - Accumulated other comprehensive income (loss), net of taxes.
n ARM - Adjustable-rate mortgage - A mortgage loan with an interest rate that adjusts periodically over the life of the loan
based on changes in a benchmark index.
n ASU - Accounting Standards Update.
n Back-end coverage type - Applies to transactions in which the credit risk transfer occurs after our purchase of the loan or
guarantee of a security.
n Bps - Basis points - One one-hundredth of 1%. This term is commonly used to quote the yields of debt instruments or
movements in interest rates.
n Capital Reserve Amount - See Net worth sweep dividend, Net Worth Amount, Capital Reserve Amount, and Capital
Reserve End Date for additional information.
n Capital Reserve End Date - See Net worth sweep dividend, Net Worth Amount, Capital Reserve Amount, and
Capital Reserve End Date for additional information.
n CARES Act - Coronavirus Aid, Relief, and Economic Security Act - An economic stimulus bill signed into law on March 27,
2020, designed to mitigate the negative economic effects of the COVID-19 pandemic in the United States.
n CCF - Conservatorship Capital Framework - An economic capital system with detailed formulae provided by FHFA to
evaluate and manage our financial risk and to make economic business decisions while in conservatorship.
n CCO - Chief Compliance Officer.
n CD&A - Compensation Discussion and Analysis.
n CDC - Centers for Disease Control and Prevention
n CECL - The Current Expected Credit Losses impairment model as defined by FASB ASC Topic 326, Financial Instruments
- Credit Losses, pursuant to ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments; ASU 2019-04, Codification Improvements to Financial Instruments - Credit Losses (Topic
326); ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments; and ASU 2019-11, Codification Improvements to Financial Instruments - Credit Losses (Topic 326).
n CEO - Chief Executive Officer.
n CFO - Chief Financial Officer.
n CFPB - Consumer Financial Protection Bureau.
n Charge-offs - Represent the amount of a financial asset that is removed from our consolidated balance sheets when
deemed uncollectible, regardless of when the impact of the credit loss was recorded on our consolidated statements of
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Glossary
comprehensive income. For mortgage loans, generally the amount of a charge-off is the recorded investment in excess of
the fair value of the loan's collateral.
n Charter - The Federal Home Loan Mortgage Corporation Act, as amended, 12 U.S.C. § 1451 et seq.
n CHC Committee - The Compensation and Human Capital Committee of the Board.
n CMBS - Commercial mortgage-backed security - A security backed by loans on commercial property (often including
multifamily rental properties) as opposed to one-to-four family residential real estate.
n Comprehensive income (loss) - Consists of net income (loss) plus other comprehensive income (loss).
n Conforming loan/Conforming loan limit - A conventional single-family loan with an original principal balance that is equal
to or less than the applicable statutory conforming loan limit, which is a dollar amount cap on the original principal balance
of single-family loans we are permitted by law to purchase or securitize. The conforming loan limit is determined annually
based on changes in FHFA's house price index.
n Conservator - FHFA, acting in its capacity as Conservator of Freddie Mac.
n Conservatorship Scorecard - FHFA's mechanism for outlining specific conservatorship priorities for Freddie Mac, Fannie
Mae, and their joint venture, Common Securitization Solutions, LLCSM.
n Convexity - A measure of how much a financial instrument's duration changes as interest rates change.
n Corporate Governance Rule - FHFA's rule regarding the Responsibilities of Board of Directors, Corporate Practices and
Corporate Governance Matters.
n Credit enhancement - A financial arrangement that is designed to reduce credit risk by partially or fully compensating an
investor in a mortgage or security (e.g., Freddie Mac) in the event of specified losses. Examples of credit enhancements
include insurance, CRT transactions, overcollateralization, indemnification agreements, and government guarantees.
n Credit fee - A fee charged to sellers above base contractual guarantee fees to compensate us for higher levels of risk in
some loan products.
n Credit losses - Consists of net charge-offs and REO operations (income) expense.
n Credit risk transfer (CRT) transactions - Arrangements where we actively transfer the credit risk exposure on mortgages
that we own or guarantee.
n Credit score - Credit score data is based on FICO scores, a credit scoring system developed by Fair, Isaac and Co. FICO
scores are currently the most commonly used credit scores. FICO scores are ranked on a scale of approximately 300 to
850 points with a higher value indicating a lower likelihood of credit default.
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Original credit score - The credit score of the borrower at the time of loan origination or our purchase.
Current credit score - The credit score of the borrower as of the first month of the most recent quarter.
n CRO - Chief Risk Officer.
n CSS - Common Securitization Solutions, LLC.
n CSP - Common Securitization Platform.
n Current LTV Ratio or CLTV - The current LTV ratios are management estimates, which are updated on a monthly basis.
Current market values are estimated by adjusting the value of the property at origination based on changes in the market
value of homes in the same geographic area since that time. Changes in market value of single-family properties are
derived from our internal index, which measures price changes for repeat sales and refinancing activity on the same
properties using Freddie Mac and Fannie Mae single-family loan acquisitions. Estimates of the current LTV ratio exclude
any secondary financing by third parties.
n December 2017 Letter Agreement - An agreement that we through the Conservator, acting on our behalf, entered into
with Treasury on December 21, 2017 to amend the Amended and Restated Certificate of Creation, Designation, Powers,
Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms, and Conditions of Variable Liquidation
Preference Senior Preferred Stock (Par Value $1.00 Per Share) dated September 27, 2012.
n Deed in lieu of foreclosure - An alternative to foreclosure in which the borrower voluntarily conveys title to the property to
the lender and the lender accepts such title (sometimes together with an additional payment by the borrower) in full
satisfaction of the mortgage indebtedness.
n DEI - Diversity, Equity, and Inclusion.
n Delinquency - A failure to make timely payments of principal and/or interest on a loan. For single-family loans, we
generally report delinquency rate information based on the number of loans that are seriously delinquent. We report single-
family loans in forbearance as delinquent during the forbearance period to the extent that payments are past due based on
the loan's original contractual terms, irrespective of the forbearance plan. For multifamily loans, we report delinquency rate
information based on the UPB of loans that are two monthly payments or more past due or in the process of foreclosure.
Loans that have been modified or received forbearance are not counted as delinquent as long as the borrower is
performing pursuant to the terms of the modified loan or forbearance agreement. Unless stated otherwise, multifamily
delinquency rates presented in this Form 10-K refer to gross delinquency rates before consideration of risk transfers.
n Derivative - A financial instrument whose value depends upon the characteristics and value of an underlying such as a
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financial asset or index. Examples of underlyings include security or commodity prices, interest or currency rates, and
other financial indices.
n Director - Director or Acting Director.
n Dodd-Frank Act - Dodd-Frank Wall Street Reform and Consumer Protection Act.
n Dollar roll transactions - Transactions whereby we enter into an agreement to sell and subsequently repurchase (or
purchase and subsequently resell) agency securities.
n DSCR - Debt Service Coverage Ratio - An indicator of future credit performance for multifamily loans. The DSCR estimates
a multifamily borrower's ability to service its mortgage obligation using the secured property's cash flow, after deducting
non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to continue
servicing its loan obligation.
n DTI - Debt-to-income.
n Duration - A measure of a financial instrument's price sensitivity to changes in interest rates.
n Duration gap - One of our primary interest-rate risk measures. Duration gap is a measure of the difference between the
estimated durations of our interest rate sensitive assets and liabilities. We present the duration gap of our financial
instruments in units expressed as months. A duration gap of zero implies that the change in value of our interest rate
sensitive assets from an instantaneous change in interest rates would be expected to be accompanied by an equal and
offsetting change in the value of our interest rate sensitive liabilities, thus leaving economic value unchanged.
n DUS - Fannie Mae's Delegated Underwriting and Servicing program.
n EMCP - Executive Management Compensation Program.
n Enterprises - Freddie Mac and Fannie Mae.
n ERC - Enterprise Risk Committee.
n ERCF - Enterprise Regulatory Capital Framework - Final rule adopted by FHFA in 2020 that establishes a new regulatory
capital framework for Freddie Mac and Fannie Mae.
n ERM - Enterprise Risk Management.
n ERP - Enterprise Risk Policy - The ERP sets forth the core components of the enterprise risk framework that defines how
we identify, assess, manage, control, and report on risks.
n ESG - Environmental, Social, and Governance.
n EVP - Executive Vice President.
n Exchange Act - Securities Exchange Act of 1934, as amended.
n Fannie Mae - Federal National Mortgage Association.
n FASB - Financial Accounting Standards Board.
n Federal Reserve - Board of Governors of the Federal Reserve System.
n FEMA - Federal Emergency Management Agency.
n FHA - Federal Housing Administration.
n FHFA - Federal Housing Finance Agency - An independent agency of the U.S. government with responsibility for regulating
Freddie Mac, Fannie Mae, and the FHLBs.
n FHLB - Federal Home Loan Bank.
n 55-day MBS - A single-class pass-through security with a 55-day payment delay for non-TBA-eligible fixed-rate mortgage
loans. Freddie Mac began issuing 55-day MBS on and after June 3, 2019.
n Fixed-rate loan - Refers to a loan originated at a specific rate of interest that remains constant over the life of the loan. For
purposes of presentation in this report, we have categorized a number of modified loans as fixed-rate loans, even though
the modified loans have rate adjustment provisions. In these cases, while the terms of the modified loans provide for the
interest rate to adjust in the future, such future rates are determined at the time of the modification rather than at a
subsequent date.
n Foreclosure alternative - A workout option pursued when a home retention action is not successful or not possible. A
foreclosure alternative is either a short sale or deed in lieu of foreclosure.
n Foreclosure or foreclosure sale - Refers to our completion of a transaction provided for by the foreclosure laws of the
applicable state, in which a delinquent borrower's ownership interest in a mortgaged property is terminated and title to the
property is transferred to us or to a third party. When we, as loan holder, acquire a property in this manner, we pay for it by
extinguishing some or all of the mortgage debt.
n Freddie Mac mortgage-related securities - Securities we issue and guarantee that are backed by mortgages.
n Front-end coverage type - Applies to transactions in which the credit risk transfer occurs prior to, or simultaneously with,
our purchase of the loan.
n FSOC - Financial Stability Oversight Council.
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n GAAP - Generally accepted accounting principles in the United States of America.
n Giant MBS - Resecuritizations of newly issued 55-day MBS (and/or Giant MBS), and/or 55-day MBS (and/or Giant MBS)
that Freddie Mac has issued in exchange for non-TBA-eligible PCs and non-TBA-eligible Giant PCs that have been
delivered to Freddie Mac in response to the exchange offer. Giant MBS are single-class securities that involve the direct
pass-through of all cash flows of the underlying collateral to holders of the beneficial interests.
n Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Giant PCs are single-class securities that involve the
direct pass through of all cash flows of the underlying collateral to holders of the beneficial interests.
n Ginnie Mae - Government National Mortgage Association, which guarantees 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 the VA.
n Green Advantage loan - A multifamily loan that we offer under our Green Advantage initiative, whereby borrowers finance
the installation of green technologies that reduce energy and water consumption.
n GSD/FICC - Government Securities Division of the Fixed Income Clearing Corporation.
n GSE Act - The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended by the Reform Act.
n GSEs - Government-sponsored enterprises - Refers to certain legal entities created by the U.S. government, including
Freddie Mac, Fannie Mae, and the FHLBs.
n Guarantee fee - The fee that we receive for guaranteeing the payment of principal and interest to mortgage security
investors, which consists primarily of a combination of a monthly guarantee fee paid as a percentage of the UPB of the
underlying loans, and initial upfront payments, such as credit fees.
n Guidelines - Corporate Governance Guidelines, as revised.
n HAMP - Home Affordable Modification Program - Refers to the effort under the MHA Program whereby the
U.S. government, Freddie Mac, and Fannie Mae committed funds to help eligible homeowners avoid foreclosure and keep
their homes through loan modifications. HAMP ended in December 2016.
n HERA - Housing and Economic Recovery Act.
n HFA - State or local Housing Finance Agency.
n HUD - U.S. Department of Housing and Urban Development.
n Implied volatility - A measurement of how the value of a financial instrument changes due to changes in the market's
expectation of potential changes in future interest rates. A decrease in implied volatility generally increases the estimated
fair value of our mortgage-related assets and decreases the estimated fair value of our callable debt and option-based
derivatives, while an increase in implied volatility generally has the opposite effect.
n Initial margin - The collateral that we post with a derivatives clearinghouse in order to do business with such
clearinghouse. The amount of initial margin varies over time.
n Interest-only loan - A loan that allows the borrower to pay only interest (either fixed-rate or adjustable-rate) for a fixed
period of time before payments of principal begin. After the interest-only period, the borrower may choose to refinance the
loan, pay off the principal balance in total, or pay the scheduled principal and interest payment due on the loan.
n January 2021 Letter Agreement - An agreement that we through the Conservator, acting on our behalf, entered into with
Treasury on January 14, 2021 to further amend (1) the Amended and Restated Certificate of Creation, Designation, Powers,
Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms, and Conditions of Variable Liquidation
Preference Senior Preferred Stock (Par Value $1.00 Per Share) dated September 30, 2019 and (2) the Purchase Agreement.
n K Certificates - Structured pass-through certificates backed primarily by recently originated multifamily loans purchased
by Freddie Mac.
n Legislated 10 basis point fee - The 10 basis point increase in guarantee fees we implemented for all single-family
residential mortgages delivered to us on or after April 1, 2012, at the direction of FHFA pursuant to the Temporary Payroll
Tax Cut Continuation Act of 2011 as extended by the Infrastructure Investment and Jobs Act. We are required to charge
and remit to Treasury this 10 basis point fee for all single-family residential mortgage loans delivered to us through October
1, 2032.
n Level 1 Securitization Products - Single-class pass-through securities that represent undivided beneficial interests in
trusts that hold pools of loans. These products include UMBS, 55-day MBS, and PCs.
n LIBOR - London Interbank Offered Rate.
n LIHTC partnerships - Low-income housing tax credit partnerships - These LIHTC partnerships invest directly in limited
partnerships that own and operate affordable multifamily rental properties that generate federal income tax credits and
deductible operating losses.
n Liquidation preference - Generally refers to an amount that holders of preferred securities are entitled to receive out of
available assets upon liquidation of a company. The initial liquidation preference of our senior preferred stock was
$1.0 billion. The aggregate liquidation preference of our senior preferred stock includes the initial liquidation preference
plus amounts funded by Treasury under the Purchase Agreement, as well as $3.0 billion added pursuant to the December
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2017 Letter Agreement. In addition, pursuant to the September 2019 Letter Agreement and January 2021 Letter
Agreement, increases in the Net Worth, if any, during the immediately prior fiscal quarter have been, or will be, added to
the liquidation of the senior preferred stock at the end of each fiscal quarter, from September 30, 2019 through the Capital
Reserve End Date. We may make payments to reduce the liquidation preference of the senior preferred stock only in
limited circumstances.
n Liquidity and Contingency Operating Portfolio - Subset of our other investments portfolio. Consists of cash and cash
equivalents, certain securities purchased under agreements to resell, and certain non-mortgage-related securities.
n LLC - Limited liability company.
n LLRE - Limited life regulated entity.
n Long-term debt - Debt due after one year based on the original contractual maturity of the debt instrument. Our long-term
debt issuances include medium-term notes, Reference Notes securities, STACR debt notes, and SCR debt notes.
n LTV ratio - Loan-to-value ratio - The ratio of the unpaid principal amount of a loan to the value of the property that serves
as collateral for the loan, expressed as a percentage. We report LTV ratios based solely on the amount of the loan
purchased or guaranteed by us, generally excluding any second-lien loans (unless we own or guarantee the second lien).
n Market spread - The difference between the yields of two debt securities, or the difference between the yield of a debt
security and a benchmark yield, such as LIBOR or SOFR. We measure market spreads primarily using our models.
n MBS - Mortgage-backed security.
n MBSD/FICC - Mortgage-Backed Securities Division of the Fixed Income Clearing Corporation.
n MCIP - Multifamily Credit Insurance Pool.
n MD&A - Management's Discussion and Analysis of Financial Condition and Results of Operations.
n Mortgage assets - Refers to both loans and mortgage-related securities we hold in our mortgage-related investments
portfolio.
n MSA - Metropolitan Statistical Area.
n Multifamily loan - A loan secured by a property with five or more residential rental units or by a manufactured housing
community.
n Multifamily new business activity - Represents loan purchases, issuances of other mortgage-related guarantees, and
issuances of other securitization products for which we have not previously purchased the underlying loans.
n Net Worth Amount - See Net worth sweep dividend, Net Worth Amount, Capital Reserve Amount, and Capital
Reserve End Date for additional information.
n 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.
n Net worth sweep dividend requirement, Net Worth Amount, Capital Reserve Amount, and Capital Reserve End Date
- For each quarter from January 1, 2013 through the Capital Reserve End Date, the dividend requirement on the senior
preferred stock will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal
quarter, less the applicable Capital Reserve Amount, exceeds zero. The term Net Worth Amount is defined as the total
assets of Freddie Mac (excluding Treasury's commitment and any unfunded amounts thereof), less our total liabilities
(excluding any obligation in respect of capital stock), in each case as reflected on our consolidated balance sheets
prepared in conformity with GAAP. If the calculation of the dividend payment for a quarter does not exceed zero, then no
dividend shall accrue or be payable for that quarter. The applicable Capital Reserve Amount was $3.0 billion for 2018,
increased to $20.0 billion in 3Q 2019 pursuant to the September 2019 Letter Agreement, and increased further to the
amount of adjusted total capital necessary to meet capital requirements and buffers set forth in the ERCF in 1Q 2021
pursuant to the January 2021 Letter Agreement. If we were not to pay our dividend requirement on the senior preferred
stock in full in any future period until the Capital Reserve End Date, the applicable Capital Reserve Amount would
thereafter be zero. The Capital Reserve End Date is the last day of the second consecutive fiscal quarter during which
Freddie Mac has had and maintained capital equal to or in excess of all of the capital requirements and buffers under the
ERCF.
n Non-accrual loan - A loan for which we are not accruing interest income. We place loans on non-accrual status when we
believe collectability of principal and interest in full is not reasonably assured, which generally occurs when a loan is three
monthly payments past due, unless the loan is well secured and in the process of collection based upon an individual loan
assessment.
n NYSE - New York Stock Exchange.
n OAS - Option-adjusted spread - An estimate of the incremental yield spread between a particular financial instrument (e.g.,
a security, loan, or derivative contract) and a benchmark yield curve (e.g., LIBOR, SOFR, agency, or U.S. Treasury
securities). This includes consideration of potential variability in the instrument's cash flows resulting from any options
embedded in the instrument, such as prepayment options. When the OAS on a given asset widens, the fair value of that
asset will typically decline, all other market factors being equal. The opposite is true when the OAS on a given asset
tightens.
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n Optigo® - Freddie Mac's Multifamily lender network and loan offerings.
n Option ARM loan - Loans that permit a variety of repayment options, including minimum, interest-only, fully amortizing 30-
year, and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows the borrower
to make monthly payments that may be less than the interest accrued for the period. The unpaid interest is added to the
principal balance of the loan, known as negative amortization. For our non-agency mortgage-related securities that are
backed by option ARM loans, we categorize securities as option ARM if the securities were identified as such based on
information provided to us when we entered into these transactions. We have not identified option ARM securities as either
subprime or Alt-A securities.
n Original LTV ratio - A credit measure for loans, calculated as the UPB of the loan divided by the lesser of the appraised
value of the property at the time of loan origination or the borrower's purchase price. Second liens not owned or
guaranteed by us are excluded from the LTV ratio calculation. The existence of a second-lien loan reduces the borrower's
equity in the home and, therefore, can increase the risk of default and the amount of the gross loss if a default occurs.
n OTC - Over-the-counter.
n OTCQB - A marketplace, operated by the OTC Markets Group Inc., for OTC-traded U.S. companies that are registered and
current in their reporting with the SEC or a U.S. banking or insurance regulator.
n PCs - Participation Certificates - Single-class pass-through securities that we issue and guarantee as part of a
securitization transaction. Typically we purchase loans from sellers, place a pool of loans into a PC trust, and issue PCs
from that trust. The PCs are generally transferred to the seller of the loans as consideration for the loans or are sold to
third-party investors or retained by us if we purchased the loans for cash.
l Gold PCs - Single-class pass-through securities with a 45-day payment delay that Freddie Mac issued for fixed-rate
mortgage loans prior to June 3, 2019. Freddie Mac no longer issues Gold PCs. Existing Gold PCs are eligible for
exchange into UMBS (for TBA-eligible securities) or 55-day MBS (for non-TBA-eligible securities).
l ARM PCs - Single-class pass-through securities with a 75-day payment delay for ARM products.
n PCCBA - Prescribed capital conservation buffer amount.
n Pension Plan - The Federal Home Loan Mortgage Corporation Employees' Pension Plan.
n Performing loan - A loan where the borrower is less than three months past due and is not in the process of foreclosure.
n PLBA - Prescribed leverage buffer amount.
n Primary mortgage market - The market where lenders originate loans by lending funds to borrowers. We do not lend
money directly to homeowners and do not participate in this market.
n Purchase Agreement / Senior Preferred Stock Purchase Agreement - An agreement that we through the Conservator,
acting on our behalf, entered into with Treasury on September 7, 2008, relating to Treasury's purchase of senior preferred
stock and warrant, which was subsequently amended and restated on September 26, 2008 and further amended on
May 6, 2009, December 24, 2009, August 17, 2012, December 21, 2017, September 27, 2019, January 14, 2021, and
September 14, 2021.
n PVS - Portfolio Value Sensitivity - One of our primary interest-rate risk measures. PVS measures are estimates of the
amount of average potential pre-tax loss in the value of our financial assets and liabilities due to parallel (PVS-L) and non-
parallel (PVS-YC) changes in SOFR.
n RCSA - Risk and Control Self-Assessment.
n Reform Act - The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, amended the GSE
Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae, and the FHLBs.
n REIT - Real estate investment trust.
n Relief refinance loan - A single-family loan delivered to us for purchase or guarantee that meets the criteria of one of our
relief refinance programs which include Enhanced Relief Refinance and other legacy programs.
n REMIC - Real Estate Mortgage Investment Conduit - A type of multiclass mortgage-related security that divides the cash
flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the investment
criteria and portfolio needs of different investors. This structure allows commingling of TBA-eligible Freddie Mac and
Fannie Mae collateral.
n REO - Real estate owned - Real estate which we have acquired through a foreclosure sale or through a deed in lieu of
foreclosure.
n Reperforming loan - An unsecuritized loan that was previously three months or more past due based on the loan’s original
contractual terms or in the process of foreclosure, but the borrower subsequently made payments or entered into payment
deferral plans such that the loan returns to less than three months past due, or a performing modified loan, which is a loan
that was modified and is less than three months past due and is not in the process of foreclosure.
n Reputation risk - The risk of damage to the Freddie Mac brand and reputation from any action, inaction, or association
that is perceived to be inappropriate, unethical, or inconsistent with our mission.
n RSU - Restricted stock unit.
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n S&P - Standard & Poor's.
n SB Certificates - Structured pass-through certificates backed primarily by recently originated small balance multifamily
loans purchased by Freddie Mac.
n SCR debt note - Structured Credit Risk debt note - A debt security where the principal balance is subject to the
performance of a reference pool of multifamily loans guaranteed by Freddie Mac.
n SCR Trust note - Structured Credit Risk Trust note - A debt security issued by a nonconsolidated trust where the principal
balance is linked to the credit performance of a reference pool of multifamily loans owned or guaranteed by Freddie Mac.
We make payments to the trust to support payment of the interest due on the notes, and we receive payments from the
trust as a result of defined credit events on the reference pool.
n SEC - U.S. Securities and Exchange Commission.
n Secondary mortgage market - A market consisting of institutions engaged in buying and selling loans in the form of
whole loans (i.e., loans that have not been securitized) and mortgage-related securities. We participate in the secondary
mortgage market by issuing guaranteed mortgage-related securities and by purchasing loans and mortgage-related
securities for investment.
n Seller/Servicer Guide (Guide) - The Guide consists of Freddie Mac's requirements relating to the purchase, sale, and
servicing of single-family mortgages.
n Senior preferred stock - The shares of Variable Liquidation Preference Senior Preferred Stock issued to Treasury under
the Purchase Agreement.
n Senior subordinate securitization structures - Structures in which we issue guaranteed senior securities and
unguaranteed subordinated securities backed by reperforming single-family loans or recently originated single-family
loans.
n September 2019 Letter Agreement - An agreement that we through the Conservator, acting on our behalf, entered into
with Treasury on September 27, 2019 to amend the Amended and Restated Certificate of Creation, Designation, Powers,
Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms, and Conditions of Variable Liquidation
Preference Senior Preferred Stock (Par Value $1.00 Per Share) dated September 27, 2012.
n September 2021 Letter Agreement - An agreement that we through the Conservator, acting on our behalf, entered into
with Treasury on September 14, 2021 to amend the Purchase Agreement to suspend certain requirements that were added
to the Purchase Agreement pursuant to the January 2021 Letter Agreement.
n Seriously delinquent or SDQ - Single-family loans that are three monthly payments or more past due or in the process of
foreclosure as reported to us by our servicers. Unless stated otherwise, SDQ rates presented in this Form 10-K refer to
gross SDQ rates before consideration of credit enhancements.
n SERP - The Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan.
n SFHAs - Special Flood Hazard Areas designated by FEMA.
n Short sale - An alternative to foreclosure consisting of a sale of a mortgaged property in which the homeowner sells the
home at market value and the lender accepts proceeds (sometimes together with an additional payment or promissory
note from the borrower) that are less than the outstanding loan indebtedness in full satisfaction of the loan.
n Short-term debt - Debt due within one year based on the original contractual maturity of the debt instrument. Our short-
term debt issuances primarily include discount notes and Reference Bills securities.
n SIFMA - Securities Industry and Financial Markets Association.
n Single-family loan - A loan secured by a property containing four or fewer residential dwelling units.
n Single-family new business activity - Single-family loans we purchased or guaranteed.
n SOFR - Secured Overnight Financing Rate.
n STACR debt note - Structured Agency Credit Risk debt note - A Freddie Mac issued debt security where the principal
balance is linked to the credit performance of a reference pool of single-family loans owned or guaranteed by Freddie Mac.
n STACR Trust note - Structured Agency Credit Risk Trust note - A debt security issued by a nonconsolidated trust where
the principal balance is linked to the credit performance of a reference pool of single-family loans owned or guaranteed by
Freddie Mac. We make payments to the trust to support payment of the interest due on the notes, and we receive
payments from the trust as a result of defined credit events on the reference pool.
n Strategic risk - The risk to earnings, capital, profitability, mission, or reputation arising from adverse business decisions, or
the improper implementation of those decisions, that may negatively affect the company's strategy.
n Strips - Multiclass securities that are formed by resecuritizing previously issued Level 1 Securitization Products or single-
class resecuritization products and issuing stripped securities, including principal-only and interest-only securities or
floating rate and inverse floating rate securities, backed by the cash flows from the underlying collateral. This structure
allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
n Subprime - Participants in the mortgage market may characterize single-family loans, based upon their overall credit
quality at the time of origination, generally considering them to be prime or subprime. Subprime generally refers to the
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Glossary
credit risk classification of a loan. There is no universally accepted definition of subprime. The subprime segment of the
mortgage market primarily serves borrowers with poorer credit payment histories and such loans typically have a mix of
credit characteristics that indicate a higher likelihood of default and higher loss severities than prime loans. Such
characteristics might include, among other factors, a combination of high LTV ratios, low credit scores, or originations
using lower underwriting standards, such as limited or no documentation of a borrower's income. While we have not
historically characterized the loans in our single-family mortgage portfolio as either prime or subprime, we monitor the
amount of loans we have guaranteed with characteristics that indicate a higher degree of credit risk. Certain security
collateral underlying our other securitization products has been identified as subprime based on information provided to
Freddie Mac when the transactions were entered into. We also categorize our investments in non-agency mortgage-related
securities as subprime if they were identified as such based on information provided to us when we entered into these
transactions.
n Supers - Resecuritizations of UMBS and certain other mortgage securities. Supers are single-class securities that involve
the direct pass-through of all cash flows of the underlying collateral to holders of the beneficial interests. This structure
allows commingling of TBA-eligible Freddie Mac and Fannie Mae collateral.
n SVP - Senior Vice President.
n Swaption - An option contract to enter into an interest-rate swap. In exchange for an option premium, a buyer obtains the
right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
n Target TDC - Target total direct compensation.
n TBA - To be announced.
n TDR - Troubled debt restructuring - A restructuring of a debt constitutes a TDR if the creditor, for economic or legal
reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would not otherwise consider.
n Thrift/401(k) Plan - The Federal Home Loan Mortgage Corporation Thrift/401(k) Savings Plan.
n Top risk - Enterprise-wide elevated risk or emerging risk that could significantly affect the organization's ability to achieve
its strategic objectives, has the potential to create significant financial, operational, or reputational risk, and requires an
appropriate risk response by senior management and reporting to the Risk Committee of the Board.
n Treasury - U.S. Department of the Treasury.
n UMBS - Uniform mortgage-backed security - A single (common) mortgage-related security with a 55-day payment delay
for TBA-eligible fixed-rate mortgage loans. Freddie Mac and Fannie Mae began issuing UMBS on and after June 3, 2019.
The UMBS represents undivided beneficial ownership interest in, and the right to receive payments from, pools of one- to
four- family residential mortgages that are held in trust for investors.
n UPB - Unpaid principal balance - Loan UPB amounts in this report have not been reduced by charge-offs recognized prior
to the loan being subject to a foreclosure sale, deed in lieu of foreclosure, or short sale transaction.
n Upfront fee - A fee charged to sellers that primarily includes credit fees that are calculated based on credit risk factors
such as the loan product type, loan purpose, LTV ratio, and credit score.
n USDA - U.S. Department of Agriculture.
n VA - U.S. Department of Veterans Affairs.
n Variation margin - Payments we make to or receive from a derivatives clearinghouse or counterparty based on the change
in fair value of a derivative instrument. Variation margin is typically transferred within one business day.
n VIE - Variable Interest Entity - A VIE is an entity that has a total equity investment at risk that is not sufficient to finance its
activities without additional subordinated financial support provided by another party, or where the group of equity holders
does not have: (1) the ability to make significant decisions about the entity's activities; (2) the obligation to absorb the
entity's expected losses; or (3) the right to receive the entity's expected residual returns.
n Warrant - Refers to the warrant we issued to Treasury on September 7, 2008 pursuant to the Purchase Agreement. The
warrant provides Treasury the ability to purchase, for a nominal price, shares of our common stock equal to 79.9% of the
total number of shares of Freddie Mac common stock outstanding on a fully diluted basis on the date of exercise.
n When-Issued K-Deal (WI K-Deal) Certificates - Guaranteed certificates initially backed by cash until a future K Certificate
is delivered.
n Workforce housing - Multifamily housing that is affordable to the majority of low to middle income households.
n Workout, or loan workout - A workout is either a home retention action, which is either a loan modification, repayment
plan, or forbearance plan, or a foreclosure alternative, which is either a short sale or a deed in lieu of foreclosure.
n XBRL - eXtensible Business Reporting Language.
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n Yield curve - A graphical display of the relationship between yields and maturity dates 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 (i.e., short-term
interest rates higher than long-term interest rates), our net interest yield on the asset will tend to be lower initially and then
increase over time. Likewise, if a mortgage asset is purchased when the yield curve is steep (i.e., short-term interest rates
lower than long-term interest rates), our net interest yield on the asset will tend to be higher initially and then decrease over
time.
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Exhibit Index
Exhibit
Description*
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Federal Home Loan Mortgage Corporation Act (12 U.S.C. §1451 et seq.), as amended by the Economic Growth, Regulatory Relief, and
Consumer Protection Act (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on July 31, 2018)
Bylaws of the Federal Home Loan Mortgage Corporation, as amended and restated December 22, 2020 (incorporated by reference to
Exhibit 3.1 to the Registrant’s Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on December 23, 2020)
Eighth Amended and Restated Certificate of Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions,
Terms and Conditions of Voting Common Stock (no par value per share) dated September 10, 2008 (incorporated by reference to Exhibit
4.1 to the Registrant’s Current Report on Form 8-K filed on September 11, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated April 23, 1996 (incorporated by reference to Exhibit
4.2 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 27, 1997 (incorporated by reference to Exhibit 4.3 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 1998 (incorporated by reference to Exhibit 4.4 to the
Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 23, 1998 (incorporated by reference to Exhibit 4.5
to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated September 29,
1998 (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.3% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 28, 1998 (incorporated by reference to Exhibit 4.7 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.1% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 19, 1999 (incorporated by reference to Exhibit 4.8 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.79% Non-Cumulative Preferred Stock (par value $1.00 per share), dated July 21, 1999 (incorporated by reference to Exhibit 4.9 to the
Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
4.10
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated November 5, 1999 (incorporated by reference to
Exhibit 4.10 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
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Exhibit
Description*
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, 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 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by reference to Exhibit
4.12 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated March 23, 2001 (incorporated by reference to Exhibit 4.13 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Rate, Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by reference to Exhibit
4.14 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 6% Non-Cumulative Preferred Stock (par value $1.00 per share), dated May 30, 2001 (incorporated by reference to Exhibit 4.15 to the
Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.7% Non-Cumulative Preferred Stock (par value $1.00 per share), dated October 30, 2001 (incorporated by reference to Exhibit 4.16 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.81% Non-Cumulative Preferred Stock (par value $1.00 per share), dated January 29, 2002 (incorporated by reference to Exhibit 4.17
to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Rate, Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 (incorporated by reference to
Exhibit 4.18 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 6.42% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 17, 2006 (incorporated by reference to Exhibit
4.19 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.9% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated October 16, 2006 (incorporated by reference to
Exhibit 4.20 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.57% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated January 16, 2007 (incorporated by reference to
Exhibit 4.21 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 5.66% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated April 16, 2007 (incorporated by reference to Exhibit
4.22 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of 6.02% Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated July 24, 2007 (incorporated by reference to Exhibit
4.23 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
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Exhibit Index
Exhibit
Description*
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, 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 filed on July 18, 2008)
Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions
of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock (par value $1.00 per share), dated December 4, 2007 (incorporated by
reference to Exhibit 4.25 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)
Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated
September 27, 2012 (incorporated by reference to Exhibit 4.26 to the Registrant's Annual Report on Form 10-K filed on February 28, 2013)
Second Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated January 1,
2018 (incorporated by reference to Exhibit 4.27 to the Registrant's Annual Report on Form 10-K filed on February 15, 2018)
Third Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated September
30, 2019 (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q filed on October 30, 2019)
Fourth Amended and Restated Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Variable Liquidation Preference Senior Preferred Stock (par value $1.00 per share), dated April 13,
2021 (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 29, 2021)
Description of Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
Federal Home Loan Mortgage Corporation Global Debt Facility Agreement, dated February 11, 2021 (incorporated by reference to Exhibit
4.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 29, 2021)
4.24
4.25
4.26
4.27
4.28
4.29
4.30
4.31
10.1
Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated effective January 1, 2008)
(incorporated by reference to Exhibit 10.28 the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†
10.2
10.3
10.4
10.5
10.6
First Amendment to the Federal Home Loan Mortgage Corporation Executive Deferred Compensation Plan (as amended and restated
effective January 1, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed on November
14, 2008)†
Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated effective January 1, 2008)
(incorporated by reference to Exhibit 10.33 to the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†
First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated
January 1, 2008) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed on February 24, 2010)†
Second Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated
January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 28, 2011)†
Third Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated
January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 6, 2012)†
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan, contract, or arrangement.
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Exhibit Index
Exhibit
Description*
10.7
10.8
10.9
Fourth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated
January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 7, 2013)†
Fifth Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan (as amended and restated
January 1, 2008) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 25, 2013)†
Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective January 1, 2014) (incorporated by reference
to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed on February 19, 2015)†
10.10
First Amendment to the Federal Home Loan Mortgage Corporation Supplemental Executive Retirement Plan II (effective January 1, 2014)
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2015)†
10.11
10.12
10.13
10.14
Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.34 to the Registrant’s
Registration Statement on Form 10 filed on July 18, 2008)†
First Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.35 to
the Registrant’s Registration Statement on Form 10 filed on July 18, 2008)†
Second Amendment 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 filed on July 18, 2008)†
Third Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K filed on February 18, 2016)†
10.15
Fourth Amendment to the Federal Home Loan Mortgage Corporation Long-Term Disability Plan (incorporated by reference to Exhibit 10.17
to the Registrant's Annual Report on Form 10-K filed on February 16, 2017)†
10.16
Executive Management Compensation Program Recapture and Forfeiture Agreement (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K filed on February 16, 2017)†
10.17
2020 Executive Management Compensation Program (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q filed on October 30, 2019)†
10.18
Restrictive Covenant and Confidentiality Agreement, dated June 4, 2021, between Freddie Mac and Michael DeVito (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on July 29, 2021)†
10.19
Form of Restrictive Covenant and Confidentiality Agreement between the Federal Home Loan Mortgage Corporation and Executive Officers
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on July 29, 2021)†
10.20
Memorandum Agreement, dated May 4, 2021, between Freddie Mac and Michael J. DeVito (incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q filed on July 29, 2021)†
10.21
10.22
Memorandum Agreement, dated May 22, 2020, between Freddie Mac and Christian M. Lown (incorporated by reference to Exhibit 10.1 to
the Registrant's Current Report on Form 8-K filed on June 2, 2020)†
Agreement, dated February 9, 2021, between Freddie Mac and David M. Brickman (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q filed on April 29, 2021)†
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan, contract, or arrangement.
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Exhibit Index
Exhibit
10.23
Memorandum Agreement, dated February 9, 2021, between Freddie Mac and David M. Brickman (incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q filed on April 29, 2021)†
Description*
10.24
Restrictive Covenant and Confidentiality Agreement, dated September 6, 2018, between Freddie Mac and David Brickman (incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 6, 2018)†
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Memorandum Agreement, dated March 3, 2021, between Freddie Mac and Mark B. Grier (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on March 16, 2021)†
Description of Non-Employee Director Compensation (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed on December 23, 2008)†
Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and Executive Officers†
Form of Indemnification Agreement between the Federal Home Loan Mortgage Corporation and Outside Directors†
PC Master Trust Agreement, dated May 16, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q filed July 31, 2019)
UMBS and MBS Master Trust Agreement, dated April 30, 2019 (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q filed on July 31, 2019)
Amended and Restated Senior Preferred Stock Purchase Agreement dated as of September 26, 2008, between the United States
Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its duly
appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 14,
2008)
Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement, dated as of May 6, 2009, between the United States
Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through the Federal Housing Finance Agency as its duly
appointed Conservator (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2009)
Second Amendment dated as of December 24, 2009, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as
of September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting
through the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on December 29, 2009)
Third Amendment dated as of August 17, 2012, to the Amended and Restated Senior Preferred Stock Purchase Agreement dated as of
September 26, 2008, between the United States Department of the Treasury and Federal Home Loan Mortgage Corporation, acting through
the Federal Housing Finance Agency as its duly appointed Conservator (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed on August 17, 2012)
Letter Agreement dated December 21, 2017 between the United States Department of the Treasury and the Federal Home Loan Mortgage
Corporation, acting through the Federal Housing Finance Agency as its Conservator (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on December 21, 2017)
Letter Agreement dated September 27, 2019 between the United States Department of the Treasury and the Federal Home Loan Mortgage
Corporation, acting through the Federal Housing Finance Agency as its Conservator (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on October 1, 2019)
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
† This exhibit is a management contract or compensatory plan, contract, or arrangement.
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Exhibit Index
Exhibit
10.37
10.38
Description*
Letter Agreement dated January 14, 2021 between the United States Department of the Treasury and the Federal Home Loan Mortgage
Corporation, acting through the Federal Housing Finance Agency as its Conservator (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on January 19, 2021)
Letter Agreement dated September 14, 2021 between the United States Department of the Treasury and the Federal Home Loan Mortgage
Corporation, acting through the Federal Housing Finance Agency as its Conservator (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on September 20, 2021)
10.39
Warrant to Purchase Common Stock, dated September 7, 2008 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed on September 11, 2008)
24.1
Powers of Attorney
31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)
31.2
Certification of Executive Vice President and Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2
Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
99.1
Third Amended and Restated Limited Liability Company Agreement of Common Securitization Solutions, LLC, dated as of January 9, 2020
(incorporated by reference to Exhibit 99.1 to the Registrant's Annual Report on Form 10-K filed on February 13, 2020)
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation
101.DEF
XBRL Taxonomy Extension Definition
101.LAB
XBRL Taxonomy Extension Label
101.PRE
XBRL Taxonomy Extension Presentation
104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
* 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 Current Reports on Form 8-K are 000-53330 and 001-34139.
FREDDIE MAC | 2021 Form 10-K
301
Signatures
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Federal Home Loan Mortgage Corporation
By:
/s/ Michael J. DeVito
Michael J. DeVito
Chief Executive Officer
Date: February 10, 2022
FREDDIE MAC | 2021 Form 10-K
302
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
Non-Executive Chair of the Board
February 10, 2022
Chief Executive Officer and Director
(Principal Executive Officer)
February 10, 2022
Executive Vice President and Chief Financial Officer
February 10, 2022
(Principal Financial Officer)
Senior Vice President — Corporate Controller and
Principal Accounting Officer (Principal Accounting Officer)
February 10, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
February 10, 2022
/s/ Sara Mathew*
Sara Mathew
/s/ Michael J. DeVito
Michael J. DeVito
/s/ Christian M. Lown
Christian M. Lown
/s/ Donald F. Kish
Donald F. Kish
/s/ Mark H. Bloom*
Mark H. Bloom
/s/ Kathleen L. Casey*
Kathleen L. Casey
/s/ Launcelot F. Drummond*
Launcelot F. Drummond
/s/ Aleem Gillani*
Aleem Gillani
/s/ Mark B. Grier*
Mark B. Grier
/s/ Christopher E. Herbert*
Christopher E. Herbert
/s/ Grace A. Huebscher*
Grace A. Huebscher
/s/ Allan P. Merrill*
Allan P. Merrill
/s/ Alberto G. Musalem*
Alberto G. Musalem
*By:
/s/ Jerry Weiss
Jerry Weiss
Attorney-in-Fact
FREDDIE MAC | 2021 Form 10-K
303
Page(s)
1, 5-10, 31-41, 47-52,
111-123
125-142
Not Applicable
9
143
Not Applicable
Index
Form 10-K Index
Item Number
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
144
Not Applicable
Management's Discussion and Analysis of Financial Condition and Results of
Operations
2-6, 11-28, 30, 42-46,
53-110, 124
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdiction that Prevent Inspection
93-98
145-235
Not Applicable
101, 146-147, 236-237
238-239
Not Applicable
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
57-59, 239-254
251-252, 255-279
280-281
245-246, 282-283
284-285
Item 15
Item 16
Signatures
Exhibits and Financial Statement Schedules
Form 10-K Summary
286, 296-301
Not Applicable
302-303
FREDDIE MAC | 2021 Form 10-K
304
Description of Registrant’s Securities
Registered Pursuant to Section 12 of
The Securities Exchange Act of 1934
Exhibit 4.30
As of December 31, 2021, Federal Home Loan Mortgage Corporation (Freddie Mac) had 21 classes of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended: (1) our voting common stock, no par value per share
(Common Stock) and (2) twenty series of perpetual, non-cumulative preferred stock, par value of $1.00 per share (Preferred
Stock). We also have four classes of perpetual, non-cumulative preferred stock outstanding that were issued through private
placement and are not registered under Section 12.
Since September 2008, we have been operating in conservatorship, with the Federal Housing Finance Agency (FHFA) as our
Conservator. In connection with our entry into conservatorship, we, through FHFA, in its capacity as Conservator, entered into
the Senior Preferred Stock Purchase Agreement with the U.S. Department of the Treasury (Treasury). Under this Purchase
Agreement, we issued Treasury one million shares of Variable Liquidation Preference Senior Preferred Stock (Senior Preferred
Stock) and 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 (Warrant). The
conservatorship, Senior Preferred Stock Purchase Agreement as amended and restated (Purchase Agreement), Senior
Preferred Stock, and Warrant have a significant impact on the rights, preferences, and privileges of the holders of our Common
Stock and Preferred Stock.
The following description is a summary and does not purport to be complete. It is subject to and qualified in its entirety by
reference to the Certificate of Designation for the Common Stock or class of Preferred Stock (as applicable, each a Certificate
of Designation), Federal Home Loan Mortgage Corporation Act, as amended (our Charter), and our Amended and Restated
Bylaws (Bylaws), each of which are incorporated by reference as an exhibit to this Annual Report on Form 10-K. We encourage
you to read the Certificates of Designation, Charter, Bylaws, Purchase Agreement, and applicable provisions of Virginia law for
additional information.
I.
Description of Common Stock
General
Under Section 304 of our Charter, we are authorized to issue an unlimited number of shares of Common Stock. The Common
Stock has the terms set forth in the Certificate of Designation. Computershare Trust Company, N.A., is the transfer agent,
dividend disbursing agent, and registrar for the Common Stock.
Authorized Issuance
Our Common Stock was created by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Under
Section 731(d) of this Act, shares of our then-outstanding senior participating preferred stock were automatically converted into
an equivalent number of shares of Common Stock.
There are currently 4,000,000,000 shares of Common Stock issued or authorized for issuance by our Board of Directors. As of
December 31, 2021, there were 725,863,886 shares of Common Stock issued and 650,059,553 shares outstanding. The
outstanding shares of our Common Stock are fully paid and non-assessable. Any additional shares of Common Stock that we
issue will be fully paid and non-assessable. Our Board of Directors may increase the authorized number of shares of Common
Stock at any time, without the consent of the holders of Common Stock.
Under the Purchase Agreement, we cannot repurchase our Common Stock without Treasury’s consent.
Dividends
Dividends on shares of our Common Stock are not mandatory. Holders of our Common Stock are entitled to receive dividends
when, as, and if declared by our Board of Directors out of assets legally available therefor. The Board of Directors fixes both the
amount of dividends, if any, to be paid to holders of our outstanding Common Stock and the dates of payment. We will pay
each dividend on shares of Common Stock to the holders of record of outstanding shares as they appear in our books and
records on the record date fixed by our Board of Directors. The record date must not be earlier than 45 days or later than ten
days before a dividend payment date.
Our payment of dividends is subject to the following restrictions:
•
Restrictions Relating to the Conservatorship - During conservatorship, any dividends will be declared by, and paid
at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of
Directors. The Conservator has prohibited us from paying any dividends on our Common Stock. FHFA has instructed
our Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving
dividends. In addition, FHFA has adopted a regulation prohibiting us from making capital distributions during
conservatorship, except as authorized by the Director of FHFA.
•
•
•
•
Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of our subsidiaries
from declaring or paying any dividends on the Common Stock without the prior written consent of the Treasury.
Restrictions Under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended
(GSE Act) - Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if
we fail to meet applicable capital requirements. However, our capital requirements have been suspended during
conservatorship.
Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior written approval of
FHFA to make any capital distribution that would decrease total capital to an amount less than the risk-based capital
level or that would decrease core capital to an amount less than the minimum capital level. As noted above, our capital
requirements have been suspended during conservatorship.
Restrictions Relating to Preferred Stock - Payment of dividends on our Common Stock is also subject to the prior
payment of dividends on our 24 series of preferred stock and one series of Senior Preferred Stock outstanding,
representing an aggregate of 464,170,000 shares and 1,000,000 shares, respectively, as of December 31, 2021.
Payment of dividends on all outstanding preferred stock, other than the Senior Preferred Stock, is subject to the prior
payment of dividends on the Senior Preferred Stock.
Voting Rights
During conservatorship, the holders of our Common Stock have no voting rights. Upon its appointment as Conservator, FHFA
immediately succeeded to the voting rights of holders of our Common Stock, including the right to elect members of our Board
of Directors.
If the company was not in conservatorship, holders of our Common Stock would have the right to vote:
•
For the election of members of our Board of Directors, to the extent prescribed by applicable federal law;
• With respect to amendment, alteration, supplementation, or repeal of the provisions of the Certificate of Designation
(described below);
• With respect to such other matters, if any, as may be prescribed by our Board of Directors, in its sole discretion, or by
applicable federal law.
Holders of our Common Stock are not granted any right under our Charter or the Certificate of Designation to vote on specified
matters in which stockholders in business corporations under state law are typically entitled to vote, such as amendments to
our Charter or changes in our capital structure.
Holders of our Common Stock entitled to vote are entitled to one vote per share on all matters presented to them for their vote.
Holders may cast votes in person or by proxy at a meeting of the holders of our Common Stock or, if so determined by our
Board of Directors, by written consent of the holders of the requisite number of shares of our Common Stock. In connection
with any meeting of the holders of shares of our Common Stock, our Board of Directors will fix a record date, which must not
be earlier than 60 days or later than 10 days before the date of such meeting. The holders of record of shares of our Common
Stock on the record date are entitled to notice of, and to vote at, any such meeting and any adjournment. We may establish
reasonable rules and procedures regarding the solicitation of the vote of holders of our Common Stock at any such meeting or
otherwise, the conduct of such vote, quorum requirements and the requisite number or percentage of affirmative votes required
for the approval of any matter and as to all related questions. Such rules and procedures shall conform to the requirements of
any national securities exchange on which our Common Stock may be listed.
Ownership Reports
The Certificate of Designation includes provisions that require certain persons to report to us their beneficial ownership of our
Common Stock. Except as otherwise provided in the Certificate of Designation, any “beneficial owner” (as that term is defined
in Rule 13d-3 under the Exchange Act) of the outstanding Common Stock must report such ownership to us and the NYSE (and
to any other exchange on which our Common Stock is then listed). The required reports of beneficial ownership and any
amendments must be submitted in writing to us and each exchange where the Common Stock is listed on the forms, in the
time periods, and in the manner as would be required by Sections 13(d) and 13(g) of the Exchange Act and the rules and
regulations thereunder if the Common Stock were registered under Section 12 of the Exchange Act.
To ensure compliance with the beneficial ownership reporting requirements relating to our Common Stock, we may refuse to
permit the voting of any shares of Common Stock in excess of 5% beneficially owned by any person who fails to comply with
those requirements. Any beneficial owner of our Common Stock that we believe to be in violation of the beneficial ownership
reporting requirements must respond to our inquiries for the purpose of determining the existence, nature, or extent of any such
violation. If a response satisfactory to us has not been received within five business days after the date on which the inquiry
was mailed, the shares of our Common Stock to which the inquiry relates will be considered for all purposes to be beneficially
owned in violation of the reporting requirements, and we are authorized to take appropriate remedial actions, including the
refusal to permit the voting of those excess shares.
No Preemptive Rights and No Conversion
No holder of our Common Stock has any preemptive right to purchase or subscribe for any of our other shares, rights, options,
or other securities. The holders of shares of our Common Stock do not have any right to convert their shares into or exchange
their shares for any of our other classes or series of stock or other securities or other obligations of Freddie Mac.
No Redemption
We do not have the right to redeem any shares of our Common Stock, and no holders of our Common Stock have the right to
require us to redeem their shares.
No Sinking Fund
Our Common Stock is not subject to any sinking fund, which is a separate capital reserve maintained to pay stockholders with
preferred rights for their investment in the event of liquidation or redemption.
Liquidation Rights
Upon our dissolution, liquidation, or winding up, after payment of or provision for our liabilities and the expenses of our
dissolution, liquidation, or winding up, and after any payment or distribution has been made on any of our other classes or
series of stock ranking prior to our Common Stock upon liquidation, the holders of the outstanding shares of our Common
Stock will be entitled to receive out of our assets available for distribution to stockholders, before any payment or distribution is
made on any of our other classes or series of stock ranking junior to Common Stock upon liquidation, the amount of $0.21 per
share, plus a sum equal to all dividends declared but unpaid on their shares to the date of final distribution. The holders of the
outstanding shares of any class or series of our stock ranking prior to, on a parity with, or junior to our Common Stock upon
liquidation will also receive out of those assets payment of any corresponding preferential amount to which the holders of that
stock may, by the terms thereof, be entitled. No stock with that corresponding right currently exists. The remaining balance of
any of our assets available for distribution to stockholders upon a dissolution, liquidation or winding up will be distributed to the
holders of our outstanding Common Stock in the aggregate. As of December 31, 2021, the Senior Preferred Stock had an
aggregate liquidation preference of $98.0 billion, and the 24 outstanding classes of our preferred stock, other than the Senior
Preferred Stock, had an aggregate liquidation preference of $14.1 billion plus any then-current dividends, which would have
priority over our Common Stock upon liquidation. We are authorized to issue an unlimited amount of preferred stock.
Neither the sale of all or substantially all of our property or business, nor our merger, consolidation, or combination into or with
any other corporation or entity, will be deemed to be a dissolution, liquidation, or winding up for the purpose of these provisions
on liquidation rights.
Additional Classes or Series of Stock
We have the right to create and issue additional classes or series of stock ranking prior to, on a parity with, or junior to our
Common Stock, as to dividends, liquidation, or otherwise, without the consent of holders of our Common Stock.
Amendments
Without the consent of the holders of our Common Stock, we have the right to amend, alter, supplement, or repeal any terms of
our Common Stock in the Certificate of Designation to cure any ambiguity, to correct or supplement any term that may be
defective or inconsistent with any other term, or to make any other provisions so long as such action does not materially and
adversely affect the interests of the holders of our Common Stock. Otherwise, the Certificate of Designation may be amended,
altered, supplemented, or repealed only with the consent of the holders of at least two-thirds of the outstanding shares of our
Common Stock. The creation of additional classes and series of stock whether ranking prior to, on a parity with, or junior to our
Common Stock, or a split or reverse split of our Common Stock (including an attendant adjustment to its par value), does not
require any consent. As a consequence, the rights of holders of our Common Stock could be adversely affected by the creation
of additional classes or series of stock. The Conservator currently holds voting rights on any such matters requiring consent of
the holders of our Common Stock.
Listing
On July 8, 2010, we delisted our Common Stock from the NYSE pursuant to a directive by our Conservator. Our Common
Stock is traded exclusively in the OTCQB Marketplace under the ticker symbol FMCC. We expect that our Common Stock will
continue to trade in the OTCQB Marketplace so long as market makers demonstrate an interest in trading the Common Stock.
II.
Description of Preferred Stock
Summary of Key Terms and Listing
Under Section 306(f) of our Charter, we are authorized to issue an unlimited number of shares of preferred stock, on such terms
and conditions as the Board of Directors shall prescribe. Each class of the Preferred Stock has the terms set forth in its
Certificate of Designation. Computershare Trust Company, N.A., is the transfer agent, dividend disbursing agent, and registrar
for the Preferred Stock.
On July 8, 2010, we delisted our Preferred Stock from the NYSE pursuant to a directive by our Conservator. Our Preferred
Stock is traded exclusively in the OTCQB Marketplace. We expect that our Preferred Stock will continue to trade in the OTCQB
Marketplace so long as market makers demonstrate an interest in trading the Preferred Stock.
The table below provides a summary of the Preferred Stock outstanding as of December 31, 2021, including dividend rates,
issue dates, shares authorized and outstanding, redemption prices per share, total outstanding balances, earliest redemption
dates, and ticker symbols.
(In millions, except
redemption price per share)
1996 Variable-rate(1)
5%
1998 Variable-rate(2)
5.10%
5.79%
1999 Variable-rate(3)
2001 Variable-rate(4)
2001 Variable-rate(5)
5.81%
6%
2001 Variable-rate(6)
5.70%
2006 Variable-rate(7)
6.42%
5.90%
5.57%
5.66%
6.02%
6.55%
Issue Date
April 26, 1996
March 23, 1998
Sept 23/29, 1998
Sept 23, 1998
July 21, 1999
November 5, 1999
January 26, 2001
March 23, 2001
March 23, 2001
May 30, 2001
May 30, 2001
October 30, 2001
July 17, 2006
July 17, 2006
October 16, 2006
January 16, 2007
April 16, 2007
July 24, 2007
Sept 28, 2007
Shares
Authorized
Shares
Outstanding
Redemption
Price per
Share
Total
Outstanding
Balance
Redeemable
On or After
OTCQB
Symbol
5.00
8.00
4.40
8.00
5.00
5.75
6.50
4.60
3.45
3.45
4.02
6.00
15.00
5.00
20.00
44.00
20.00
20.00
20.00
5.00
8.00
4.40
8.00
5.00
5.75
6.50
4.60
3.45
3.45
4.02
6.00
15.00
5.00
20.00
44.00
20.00
20.00
20.00
$50.00
$250
June 30, 2001
FMCCI
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
25.00
25.00
25.00
25.00
25.00
25.00
400
220
400
250
March 31, 2003
FMCKK
Sept 30, 2003
FMCCG
Sept 30, 2003
FMCCH
June 30, 2009
FMCCK
287
December 31, 2004
FMCCL
325
230
173
173
201
March 31, 2003
FMCCM
March 31, 2003
FMCCN
March 31, 2011
FMCCO
June 30, 2006
FMCCP
June 30, 2003
FMCCJ
300
December 31, 2006
FMCKP
750
250
500
June 30, 2011
FMCCS
June 30, 2011
FMCCT
Sept 30, 2011
FMCKO
1,100
December 31, 2011
FMCKM
500
500
500
March 31, 2012
FMCKN
June 30, 2012
FMCKL
Sept 30, 2017
FMCKI
6,000
December 31, 2012
FMCKJ
2007 Fixed-to-floating rate(8)
December 4, 2007
240.00
240.00
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377. The dividend rate is capped at 9.00%.
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 1% divided by 1.377. The dividend rate is capped at 7.50%.
Dividend rate resets on January 1 every five years after January 1, 2005 based on a five-year Constant Maturity Treasury (CMT) rate. The dividend rate is capped at
11.00%. Optional redemption on December 31, 2004 and on December 31 every five years thereafter.
Dividend rate resets on April 1 every two years after April 1, 2003 based on the two-year CMT rate plus 0.10%. The dividend rate is capped at 11.00%. Optional
redemption on March 31, 2003 and on March 31 every two years thereafter.
Dividend rate resets on April 1 every year based on 12-month LIBOR minus 0.20%. The dividend rate is capped at 11.00%. Optional redemption on March 31, 2003
and on March 31 every year thereafter.
Dividend rate resets on July 1 every two years after July 1, 2003 based on the two-year CMT rate plus 0.20%. The dividend rate is capped at 11.00%. Optional
redemption on June 30, 2003 and on June 30 every two years thereafter.
Dividend rate resets quarterly and is equal to the sum of three-month LIBOR plus 0.50% but not less than 4.00%.
Dividend rate is set at an annual fixed rate of 8.375% from December 4, 2007 through December 31, 2012. For the period beginning on or after January 1, 2013,
dividend rate resets quarterly and is equal to the higher of: (a) the sum of three-month LIBOR plus 4.16% per annum or (b) 7.875% per annum. Optional redemption
on December 31, 2012 and on December 31 every five years thereafter.
The outstanding shares of our Preferred Stock are fully paid and non-assessable. Any additional shares of Preferred Stock that
we issue will be fully paid and non-assessable. Our Board of Directors may increase the authorized number of shares of any
class of our Preferred Stock at any time, without the consent of the holders of any class of our Preferred Stock.
The Preferred Stock shall rank prior to the Common Stock to the extent provided in the Certificate of Designation; shall rank, as
to both dividends and distributions upon liquidation, on a parity with the other classes of Preferred Stock as well as the four
classes of perpetual, non-cumulative preferred stock that we issued through private placements; and shall rank junior to the
Senior Preferred Stock.
Dividends and Dividend Restrictions
Dividends on shares of our Preferred Stock are not mandatory and are non-cumulative. Holders of our Preferred Stock are
entitled to receive dividends when, as, and if declared by our Board of Directors out of assets legally available therefor on the
payment dates as prescribed in the applicable Certificate of Designation. The Preferred Stock has the dividend rates as
described in the table above. We will pay each dividend on shares of Preferred Stock to the holders of record of outstanding
shares as they appear in our books and records on the record date fixed by our Board of Directors. The record date must not
be earlier than 45 days or later than 10 days before a dividend payment date.
Our payment of dividends is subject to the following restrictions:
•
•
•
•
•
Restrictions Relating to the Conservatorship - During conservatorship, any dividends will be declared by, and paid
at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of
Directors. The Conservator has prohibited us from paying any dividends on our Preferred Stock. FHFA has instructed
our Board of Directors that it should consult with and obtain the approval of FHFA before taking actions involving
dividends. In addition, FHFA has adopted a regulation prohibiting us from making capital distributions during
conservatorship, except as authorized by the Director of FHFA.
Restrictions Under the Purchase Agreement - The Purchase Agreement prohibits us and any of our subsidiaries
from declaring or paying any dividends on our Preferred Stock without the prior written consent of Treasury.
Restrictions Under the GSE Act - Under the GSE Act, FHFA has authority to prohibit capital distributions, including
payment of dividends, if we fail to meet applicable capital requirements. However, our capital requirements have been
suspended during conservatorship.
Restrictions Under our Charter - Without regard to our capital classification, we must obtain prior written approval of
FHFA to make any capital distribution that would decrease total capital to an amount less than the risk-based capital
level or that would decrease core capital to an amount less than the minimum capital level. As noted above, our capital
requirements have been suspended during conservatorship.
Restrictions Relating to Senior Preferred Stock - Payment of dividends on our Preferred Stock is subject to the
prior payment of dividends on our Senior Preferred Stock.
Optional Redemption
Freddie Mac has the option to redeem the Preferred Stock, in whole or in part, out of funds legally available therefor, at the
redemption price prescribed in the applicable Certificate of Designation plus the amount of any dividend that would otherwise
be payable for the dividend period that ends on the date of redemption, whether or not declared. The Preferred Stock has the
redemption prices and timing limitations as described in the table above. The dividend that would otherwise be payable will be
included in the redemption price of the shares and will not be separately payable.
If less than all of the outstanding shares are to be redeemed, Freddie Mac will select shares to be redeemed from the
outstanding shares by lot or pro rata or by any other method which Freddie Mac in its sole discretion decides equitable.
During conservatorship and pursuant to the Purchase Agreement, we cannot redeem the Preferred Stock without FHFA and
Treasury consent.
No Voting Rights
The shares of Preferred Stock shall not have any voting rights, general or special, other than with respect to amendment,
alteration, supplementation, or repeal of the provisions of the applicable Certificate of Designation (described below).
During conservatorship, the holders of Preferred Stock have no voting rights. Upon its appointment as Conservator, FHFA
immediately succeeded to the voting rights of holders of our Preferred Stock.
No Preemptive Rights and No Conversion
No holder of our Preferred Stock has any preemptive right to purchase or subscribe for any other shares, rights, options, or
other securities. The holders of shares of our Preferred Stock do not have any right to convert their shares into or exchange
their shares for any of our other classes or series of stock or other securities or other obligations of Freddie Mac.
Liquidation Rights and Preference
Upon our dissolution, liquidation, or winding up, after payment of or provision for our liabilities and the expenses of our
dissolution, liquidation, or winding up, and after any payment or distribution has been made on any of our other classes or
series of stock ranking prior to our Preferred Stock upon liquidation, the holders of the outstanding shares of our Preferred
Stock will be entitled to receive out of our assets available for distribution to stockholders, before any payment or distribution is
made on the Common Stock or any of our other classes or series of stock ranking junior to the Preferred Stock upon
liquidation, the amount of the liquidation preference in the applicable Certificate of Designation (which amount equals the
redemption price per share summarized in the table above), plus a sum equal to any dividend that would otherwise be payable
for the dividend period through and including the date of final distribution. The holders of the outstanding shares of any class or
series of our stock ranking on parity with the Preferred Stock upon liquidation shall be entitled to receive out of our assets
available for distribution to shareholders, before any such payment or distribution shall be made on the Common Stock or any
other class or series of stock of Freddie Mac ranking junior to the Preferred Stock and to such parity stock upon liquidation, any
corresponding preferential amount to which the holders of that stock may, by the terms thereof, be entitled. The remaining
balance of any of our assets available for distribution to stockholders upon a dissolution, liquidation, or winding up will be
distributed to the holders of our outstanding Common Stock in the aggregate. If our assets available for distribution to
stockholders shall be insufficient for the payment of the amount which the holders of the outstanding Preferred Stock shall be
entitled to receive upon such dissolution, liquidation, or winding up, all of our assets available for distribution to stockholders
shall be distributed to the holders of outstanding shares of Preferred Stock pro rata, so that the amounts so distributed shall
bear to each other the same ratio that the respective distributive amounts to which they are so entitled bear to each other, and
the holders of outstanding shares of Preferred Stock shall not be entitled to any further participation in any distribution of our
assets. As of December 31, 2021, the Senior Preferred Stock had an aggregate liquidation preference of $98.0 billion, which
would have priority over our Preferred Stock upon liquidation, and the 24 outstanding classes of our preferred stock, other than
the Senior Preferred Stock, had an aggregate liquidation preference of $14.1 billion plus any then-current dividends. We are
authorized to issue an unlimited amount of preferred stock.
Neither the sale of all or substantially all of our property or business, nor our merger, consolidation, or combination into or with
any other corporation or entity, will be deemed to be a dissolution, liquidation, or winding up for the purpose of these provisions
on liquidation rights.
Additional Classes or Series of Stock
We have the right to authorize, create, and issue additional classes or series of stock ranking prior to, on a parity with, or junior
to our Preferred Stock, as to dividends, liquidation, or otherwise, without the consent of holders of our Preferred Stock.
Amendments
Without the consent of the holders of the Preferred Stock, we have the right to amend, alter, supplement, or repeal the terms of
any series of our Preferred Stock to cure any ambiguity, to correct or supplement any provision that may be defective or
inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the
applicable Certificate of Designation so long as such action does not materially and adversely affect the interests of the holders
of the applicable series of Preferred Stock. Otherwise, the terms of any series of our Preferred Stock may be amended, altered,
supplemented, or repealed only with the consent of the holders of at least two-thirds of the outstanding shares of the
applicable series of our Preferred Stock. The creation and issuance of additional classes and series of stock, or the issuance of
additional shares of any existing class or series of our stock, whether ranking prior to, on a parity with, or junior to our Preferred
Stock does not require any consent. As a consequence, the rights of holders of our Preferred Stock could be adversely affected
by the creation of additional classes or series of stock. The Conservator currently holds voting rights on any such matters
requiring consent of the holders of our Preferred Stock.
Exhibit 10.27
INDEMNIFICATION AGREEMENT (“Agreement”)
between
FEDERAL HOME LOAN MORTGAGE CORPORATION (“Freddie Mac”)
and [NAME] (“Indemnitee”)
WHEREAS, the inability to attract and retain qualified persons as directors and officers is
detrimental to the best interests of Freddie Mac’s stockholders and Freddie Mac should act to
assure such persons that there will be adequate certainty of protection through insurance and
indemnification against risks of claims and actions against them arising out of their service to
and activities on behalf of Freddie Mac; and
WHEREAS, Freddie Mac has adopted provisions in its bylaws (the “Bylaws”) providing
for indemnification of its officers and directors against all liabilities reasonably incurred in
connection with proceedings in which they are involved as a result of their service to Freddie
Mac, except such liabilities as are incurred because of the indemnitee’s willful misconduct,
knowing violation of criminal law or receipt of an improper personal benefit, and Freddie Mac
wishes to clarify and enhance the rights and obligations of Freddie Mac and Indemnitee with
respect to indemnification; and
WHEREAS, Freddie Mac has elected to follow the corporate governance practices and
procedures of the law of the Commonwealth of Virginia, including without limitation the
Virginia Stock Corporation Act, as the same may be amended from time to time; and
WHEREAS, in order to induce and encourage highly experienced and capable persons
such as Indemnitee to serve and continue to serve as directors and officers of Freddie Mac and in
any other capacity with respect to Freddie Mac, and to otherwise promote the desirable end that
such persons will resist what they consider unjustified lawsuits and claims made against them in
connection with the performance of their duties to Freddie Mac, with the knowledge that certain
costs, judgments, penalties, fines, liabilities and expenses incurred by them in their defense of
such litigation are to be borne by Freddie Mac and they will receive the maximum protection
against such risks and liabilities as may be afforded under the Bylaws and applicable law; and
WHEREAS, Freddie Mac desires to have Indemnitee serve or continue to serve as a
director or officer of Freddie Mac and in such other capacity with respect to Freddie Mac as
Freddie Mac may request, as the case may be, free from undue concern for unpredictable,
inappropriate or unreasonable legal risks and personal liabilities by reason of Indemnitee acting
in accordance with the standards of the Bylaws in the performance of Indemnitee’s duties at
Freddie Mac; and Indemnitee desires so to serve or to continue so to serve Freddie Mac,
provided, and on the express condition, that such Indemnitee is furnished with the indemnity set
forth hereinafter;
WHEREAS, the Federal Housing Finance Agency (“FHFA”) was appointed conservator
of Freddie Mac on September 6, 2008;
Now, therefore, in consideration of Indemnitee’s service or continued service as a
director or officer of Freddie Mac, the parties hereto agree as follows:
1.
Service by Indemnitee. Indemnitee will serve or continue to serve as a director or
officer of Freddie Mac in good faith so long as Indemnitee is duly elected or appointed and until
such time as Indemnitee is removed as permitted by law or tenders a resignation in writing.
2.
Indemnification. Freddie Mac shall indemnify Indemnitee to the fullest extent
permitted by the Bylaws and Virginia law in effect on the date hereof or as the Bylaws or such
law may from time to time be amended (but, in the case of any such amendment, only to the
extent that such amendment permits Freddie Mac to provide broader indemnification rights than
the Bylaws or said law permitted Freddie Mac to provide prior to such amendment). Without
diminishing the scope of the indemnification provided by this Section, the rights of indem-
nification of Indemnitee provided hereunder shall include but shall not be limited to those rights
hereinafter set forth, except that no indemnification shall be paid to Indemnitee:
a.
to the extent expressly prohibited by Virginia law;
b.
for which payment is actually made to Indemnitee or for Indemnitee’s benefit
under a valid and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement of Freddie Mac or any other entity that Indemnitee serves at
the request of Freddie Mac, except in respect of any indemnity exceeding the payment
under such insurance, clause, bylaw or agreement;
in connection with a Proceeding (or part thereof) initiated by Indemnitee unless
c.
such Proceeding (or part thereof) was authorized by the Board of Directors.
3.
Action or Proceedings Other than an Action by or in the Right of Freddie Mac.
Except as limited by Section 2 above, Indemnitee shall be entitled to the indemnification rights
provided in this Section if Indemnitee is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the name of Freddie Mac) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of Freddie Mac, or is or was serving
at the request of Freddie Mac as a director, officer, manager, partner, trustee, fiduciary, employee
or agent of another corporation, limited liability company, partnership, joint venture, trust or
other entity, including service with respect to an employee benefit plan. Pursuant to this Section,
Indemnitee shall be indemnified against all Liabilities and Expenses actually and reasonably
incurred by Indemnitee in connection with such Proceeding, except such Liabilities and
Expenses as are incurred because of Indemnitee’s willful misconduct or knowing violation of
criminal law; provided, however, that Freddie Mac may not indemnify Indemnitee in connection
with any Proceeding charging improper personal benefit to Indemnitee, whether or not involving
action in Indemnitee’s official capacity, to the extent Indemnitee was adjudged liable on the basis
that personal benefit was improperly received by Indemnitee.
4.
Indemnity in Proceedings by or in the Name of Freddie Mac. Except as limited
by Section 2 above, Indemnitee shall be entitled to the indemnification rights provided in this
Section if Indemnitee was or is a party or is threatened to be made a party to any Proceeding
brought by or in the name of Freddie Mac to procure a judgment in its favor by reason of the fact
2
that Indemnitee is or was a director, officer, employee or agent of Freddie Mac. Pursuant to this
Section, Indemnitee shall be indemnified against all Liabilities and Expenses actually and
reasonably incurred by Indemnitee in connection with such Proceeding, except such Liabilities
and Expenses as are incurred because of Indemnitee’s willful misconduct or knowing violation
of criminal law or of any federal or state securities law, including, without limitation, any claim
of unlawful insider trading or the manipulation of the market for any security; provided,
however, that Freddie Mac may not indemnify Indemnitee in connection with any Proceeding
charging improper personal benefit to Indemnitee, whether or not involving action in
Indemnitee’s official capacity, to the extent Indemnitee was adjudged liable on the basis that
personal benefit was improperly received by Indemnitee.
5.
Indemnification for Costs, Charges and Expenses of Successful Party. Notwith-
standing the limitations of Sections 3 and 4 above, Freddie Mac shall indemnify Indemnitee who
entirely prevails, on the merits or otherwise, in the defense of any Proceeding to which
Indemnitee was a party because Indemnitee is or was director, officer, employee or agent of
Freddie Mac or was serving at the request of Freddie Mac as a director, officer, manager, partner,
trustee, fiduciary, employee or agent of another corporation, limited liability company,
partnership, joint venture, trust or other entity, including service with respect to an employee
benefit plan, against Expenses incurred by Indemnitee in connection with the Proceeding.
6.
Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by Freddie Mac for some or a portion of the Liabilities or
Expenses actually and reasonably incurred in connection with any action, suit or proceeding
(including an action, suit or proceeding brought by or on behalf of Freddie Mac), but not,
however, for all of the total amount thereof, Freddie Mac shall nevertheless indemnify
Indemnitee for the portion of such Liabilities and Expenses actually and reasonably incurred to
which Indemnitee is entitled.
7.
Indemnification for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the maximum extent permitted by applicable law, Indemnitee shall be
entitled to indemnification against all Expenses actually and reasonably incurred or suffered by
Indemnitee or on Indemnitee’s behalf if Indemnitee appears as a witness or otherwise incurs
legal expenses as a result of or related to Indemnitee’s service as a director, officer, employee or
agent of Freddie Mac, in any threatened, pending or completed Proceeding to which Indemnitee
neither is, nor is threatened to be made, a party; provided, however, that no such indemnification
will be provided with respect to Expenses incurred in obtaining legal advice regarding
Indemnitee’s willful misconduct, knowing violation of criminal law or receipt of improper
personal benefits.
8.
Determination of Entitlement to Indemnification. Upon written request by
Indemnitee for indemnification pursuant to Sections 3, 4, 5, 6 or 7, the entitlement of Indemnitee
to indemnification, to the extent not provided pursuant to the terms of this Agreement, shall be
determined by the following person or persons who shall be empowered to make such
determination: (i) by the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding; (ii) by a majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are parties may
3
participate), consisting solely of two or more directors not at the time parties to the proceeding;
(iii) by Special Legal Counsel (as defined below) (1) selected by the Board of Directors or its
committee in a manner prescribed in subsection (i) or (ii) hereof, or (2) if a quorum of the Board
of Directors cannot be obtained under subsection (i) hereof and a committee cannot be
designated under subsection (ii) hereof, selected by a majority vote of the full Board of Directors
(in which selection directors who are parties may participate); or (iv) by the stockholders,
provided, however, that shares owned by or voted under the control of directors who are at the
time parties to the proceeding may not be voted on the determination. Upon failure of the Board
of Directors or committee designated by the Board of Directors, as applicable, so to select such
Special Legal Counsel, or upon failure of Indemnitee so to approve, such Special Legal Counsel
shall be selected upon application to a court of competent jurisdiction. Authorization of
indemnification and evaluation as to reasonableness of Expenses shall be made in the same
manner as the determination that indemnification is permissible, as provided in this Section 8,
provided however, that, if the determination is made by Special Legal Counsel, authorization of
indemnification and evaluation as to the reasonableness of Expenses shall be made by those
entitled under subsection (iii) hereof to select such Special Legal Counsel.
Such determination of entitlement to indemnification shall be made not later than 90
calendar days after receipt by Freddie Mac of a written request for indemnification. Such request
shall include documentation or information which is necessary for such determination and which
is reasonably available to Indemnitee. Any Expenses incurred by Indemnitee in connection with
a request for indemnification or payment of Expenses hereunder, under any other agreement, any
provision of the Bylaws or any directors’ and officers’ liability insurance, shall be borne by
Freddie Mac. Freddie Mac hereby indemnifies Indemnitee for any such Expense and agrees to
hold Indemnitee harmless therefrom irrespective of the outcome of the determination of
Indemnitee’s entitlement to indemnification. If the person making such determination shall
determine that Indemnitee is entitled to indemnification as to part (but not all) of the application
for indemnification, such person shall reasonably prorate such partial indemnification among the
claims, issues or matters at issue at the time of the determination.
9.
Presumptions and Effect of Certain Proceedings. The Corporate Secretary of
Freddie Mac shall, promptly upon receipt of Indemnitee’s request for indemnification, advise in
writing the Board of Directors or such other person or persons empowered to make the
determination as provided in Section 8 that Indemnitee has made such request for
indemnification. The Corporate Secretary of Freddie Mac shall also promptly notify the
Conservator that such a request has been made. Upon making such request for indemnification,
Indemnitee shall be presumed to be entitled to indemnification hereunder and Freddie Mac shall
have the burden of proof in making any determination contrary to such presumption. The
termination of any Proceeding described in Sections 3 or 4 by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself be
determinative that the Indemnitee did not meet the relevant standard of conduct.
10.
Remedies of Indemnitee in Cases where Claim is not Paid in Full in a Timely
Manner. If a claim under this Agreement is not paid in full by Freddie Mac within 90 days after
a written claim has been received by Freddie Mac, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20 days, Indemnitee may
4
at any time thereafter apply to either the United States District Court for the district within which
Freddie Mac’s principal office is located or to the court where the Proceeding is pending, if any,
for an order directing Freddie Mac to make an advancement of expenses or to provide
indemnification. The court shall order Freddie Mac to make an advancement of expenses or to
provide indemnification, as the case may be, if it determines that Indemnitee is entitled under this
Agreement to such an advancement of expenses or indemnification, and in such event shall order
Freddie Mac to pay Indemnitee’s reasonable expenses (including attorneys’ fees) to obtain the
order. Neither the failure of Freddie Mac (including its Board of Directors, committee, Special
Legal Counsel or its stockholders) to have made a determination, as provided in Section 8, prior
to the commencement of such action permitted by this Section, that Indemnitee is entitled to
receive an advancement of expenses or indemnification, nor the determination by Freddie Mac
(including its Board of Directors, committee, Special Legal Counsel or its stockholders) that
Indemnitee is not entitled to an advancement of expenses or indemnification, shall create a
presumption to that effect or otherwise itself be a defense to Indemnitee’s application for an
advancement of expenses or indemnification.
11.
Remedies of Indemnitee in Cases of Determination not to Indemnify or to Pay
Expenses. In the event that a determination is made that Indemnitee is not entitled to
indemnification hereunder or if payment has not been timely made following a determination of
entitlement to indemnification pursuant to Sections 8 and 9, or if Expenses are not paid pursuant
to Section 17, Indemnitee shall be entitled to final adjudication in a court of competent
jurisdiction of entitlement to such indemnification or payment from Freddie Mac. Alternatively,
Indemnitee at Indemnitee’s option may seek an award in an arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association, such award to be
made within 60 days following the filing of the demand for arbitration. Freddie Mac shall not
oppose Indemnitee’s right to seek any such adjudication or award in arbitration or any other
claim. The determination in any such judicial proceeding or arbitration shall be made de novo
and Indemnitee shall not be prejudiced by reason of a determination (if so made) pursuant to
Sections 8 or 9 that Indemnitee is not entitled to indemnification. If a determination is made or
deemed to have been made pursuant to the terms of Section 8 or 9 that Indemnitee is entitled to
indemnification, Freddie Mac shall be bound by such determination and is precluded from
asserting that such determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. Freddie Mac further agrees to
stipulate in any such court or before any such arbitrator that Freddie Mac is bound by all the
provisions of this Agreement and is precluded from making any assertions to the contrary. If the
court or arbitrator shall determine that Indemnitee is entitled to any indemnification or payment
of Expenses hereunder, Freddie Mac shall pay all Expenses actually and reasonably incurred by
Indemnitee in connection with such adjudication or award in arbitration (including, but not
limited to, any appellate Proceedings).
12.
Other Rights to Indemnification. The rights to indemnification and to the
advance-ment of expenses conferred in this Agreement shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute (including Freddie Mac’s
enabling legislation), or any agreement, vote of stockholders or disinterested directors or
otherwise.
5
13.
Expenses to Enforce Agreement. In the event that Indemnitee is subject to or
intervenes in any Proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce Indemnitee’s rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if Indemnitee prevails in whole or in
part in such action, shall be entitled to recover from Freddie Mac and shall be indemnified by
Freddie Mac against any actual Expenses incurred by Indemnitee.
14.
Effective Date and Continuation of Indemnity. This Agreement shall be
[retroactive to and] effective as of [DATE]. All agreements and obligations of Freddie Mac
contained herein (“Freddie Mac’s Obligations) shall commence on such effective date and
continue during the period Indemnitee is an officer of Freddie Mac who reports directly (whether
substantively or, in the case of the General Auditor, administratively) to the Chief Executive
Officer or President, as applicable, of Freddie Mac (a “Senior Officer”). Freddie Mac’s
Obligations shall terminate as of the date, if any, as of which Indemnitee is no longer a Senior
Officer (the “Termination Date”) with respect to any possible claims relating entirely to any
period beginning on or after the Termination Date; provided, however, that Freddie Mac’s
Obligations shall continue after the Termination Date with respect to any possible claims that are
based in whole or in part on the fact that prior to the Termination Date, Indemnitee was a
director, officer employee or agent of Freddie Mac or was serving at the request of Freddie Mac
as a director, officer, manager, partner, trustee, fiduciary, employee or agent of another
corporation, limited liability company, partnership, joint venture, trust or other entity, including
service with respect to an employee benefit plan. This Agreement shall be binding upon all
successors and assigns of Freddie Mac (including any transferee of all or substantially all of its
assets and any successor by merger or operation of law) and shall inure to the benefit of the heirs,
personal representatives and estate of Indemnitee. The termination of Freddie Mac’s Obligations
to have such
at
indemnification, advancement and related rights as may be provided to Indemnitee at that time or
thereafter under the Bylaws, Virginia law, Freddie Mac’s enabling legislation, any other
agreement, vote of stockholders or disinterested directors or otherwise.
the Termination Date notwithstanding,
Indemnitee shall continue
15.
Notification and Defense of Claim. Promptly after receipt by Indemnitee of
notice of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against
Freddie Mac under this Agreement, notify the Corporate Secretary of Freddie Mac in writing of
the commencement thereof; but the omission so to notify Freddie Mac will not relieve it from
any liability that it may have to Indemnitee. Notwithstanding any other provision of this
Agreement, with respect to any such Proceeding of which Indemnitee notifies Freddie Mac:
a.
Freddie Mac shall be entitled to participate therein at its own expense; and
b.
Except as otherwise provided in this Section 15(b), to the extent that it may wish,
Freddie Mac, jointly with any other indemnifying party similarly notified, shall be
entitled to assume the defense thereof, with counsel satisfactory to Indemnitee. After
notice from Freddie Mac to Indemnitee of its election so to assume the defense thereof,
Freddie Mac shall not be liable to Indemnitee under this Agreement for any expenses of
counsel subsequently incurred by Indemnitee in connection with the defense thereof
except as otherwise provided below. Indemnitee shall have the right to employ
6
Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel
incurred after notice from Freddie Mac of its assumption of the defense thereof shall be at
the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by Freddie Mac, (ii) Indemnitee shall have reasonably concluded that there
may be a conflict of interest between Freddie Mac and Indemnitee in the conduct of the
defense of such action or (iii) Freddie Mac shall not within 60 calendar days of receipt of
notice from Indemnitee in fact have employed counsel to assume the defense of the
action, in each of which cases the fees and expenses of Indemnitee’s counsel shall be at
the expense of Freddie Mac. Freddie Mac shall not be entitled to assume the defense of
any Proceeding brought by or on behalf of Freddie Mac or as to which Indemnitee shall
have made the conclusion provided for in (ii) above; and
c.
If Freddie Mac has assumed the defense of a Proceeding, Freddie Mac shall not be
liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement
of any Proceeding effected without Freddie Mac’s written consent. Freddie Mac shall not
settle any Proceeding in any manner that would impose any penalty or limitation on or
disclosure obligation with respect to Indemnitee without Indemnitee’s written consent.
Neither Freddie Mac nor Indemnitee will unreasonably withhold its consent to any
proposed settlement.
16.
Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during
normal business hours of the recipient, and if not so confirmed, then on the next business day, (c)
five (5) days after having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier,
specifying next-day delivery, with written verification of receipt. All communications shall be
sent:
a.
To Indemnitee at:
[NAME]
Federal Home Loan Mortgage Corporation
Attention: Corporate Secretary
8200 Jones Branch Drive
McLean, Virginia 22102
b.
To Freddie Mac at:
Federal Home Loan Mortgage Corporation
Attention: Corporate Secretary
8200 Jones Branch Drive
McLean, Virginia 22102
Telephone: 703-903-3380
7
or to such other address as may have been furnished by a party hereto to the other party hereto,
by like notice.
17.
Advancement of Expenses. Indemnitee shall have the right to have the Expenses
reasonably incurred or suffered in defending any Proceeding in advance of its final disposition or
in the circumstances described in Section 7 paid by Freddie Mac (hereinafter, an “advancement
of expenses”); provided, however, that an advancement of expenses shall be made (i) only upon
delivery to Freddie Mac of a written statement by Indemnitee of Indemnitee’s good faith belief
that Indemnitee has met the standard of conduct set forth in the applicable Section of this
Agreement, and (ii) only if Indemnitee furnishes to Freddie Mac a written undertaking, executed
by or on behalf of Indemnitee, to repay any funds advanced if Indemnitee is not entitled to
mandatory indemnification under Section 5 and it is ultimately determined that Indemnitee is not
entitled to indemnification. The undertaking required above shall be an unlimited general
obligation of Indemnitee but need not be secured and shall be accepted without reference to the
financial ability of Indemnitee to make repayment.
18.
Severability; Prior Indemnification Agreements. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever (a)
the validity, legality and enforceability of the remaining provisions of this Agreement (including
without limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest
extent possible, the provisions of this Agreement (including, without limitation, all portions of
any paragraph of this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent of the parties that Freddie Mac provide protection to Indemnitee to the
fullest enforceable extent. This Agreement shall supersede and replace any prior indemnification
agreements entered into by and between Freddie Mac and Indemnitee and any such prior
agreements shall be terminated upon execution of this Agreement.
19.
Headings; References. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this Agreement or to
affect the construction thereof References herein to section numbers are to sections of this
Agreement.
20.
Definitions. For purposes of this Agreement:
a.
“Expenses” includes, without limitation, expenses incurred in connection with the
defense or settlement of any and all investigations, judicial or administrative proceedings
or appeals, attorneys’ fees, witness fees and expenses, fees and expenses of accountants
and other advisors, retainers and disbursements and advances thereon, the premium,
security for, and other costs relating to any bond (including cost bonds, appraisal bonds
or their equivalents), and any expenses of establishing a right to indemnification under
Sections 8, 11 and 13 above but shall not include the amount of judgments, fines or
penalties actually levied against Indemnitee and shall include only amounts reasonably
and actually incurred by Indemnitee.
8
“Liabilities” means the obligation to pay a judgment, settlement, penalty, fine,
b.
including any excise tax assessed with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a Proceeding.
“Special Legal Counsel” means a law firm or a member of a law firm that neither
c.
is presently nor in the past five years has been retained to represent: (i) Freddie Mac or
Indemnitee in any matter material to either such party, provided, however, that it shall be
permissible for Special Legal Counsel to have been previously engaged by Freddie Mac,
its Board of Directors or committee thereof to make determinations with respect to
indemnification or advancement of expenses, or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the
term “Special Legal Counsel” shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of interest in
representing either Freddie Mac or Indemnitee in an action to determine Indemnitee’s
right to indemnification under this Agreement.
d.
“Proceeding” includes any threatened, pending or completed investigation (other
than internal investigations of the conduct of Freddie Mac employees), action, suit or
other proceeding, whether brought in the name of Freddie Mac or otherwise, against
Indemnitee, for which indemnification is not prohibited under Section 2 above and
whether of a civil, criminal, administrative, arbitrative or investigative and whether
formal or informal, including, but not limited to, actions, suits or proceedings in which
Indemnitee may be or may have been involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director, officer, employee or agent of Freddie Mac, or is
or was serving, at the request of Freddie Mac, as a director, officer, manager, partner,
trustee, fiduciary, employee or agent of another corporation, limited liability company,
partnership, joint venture, trust or other entity, including service with respect to an
employee benefit plan, whether or not Indemnitee is serving in such capacity at the time
any Liability or Expense is incurred for which indemnification or reimbursement can be
provided under this Agreement.
21.
Other Provisions.
This Agreement shall be interpreted and enforced in accordance with the laws of
a.
Virginia, without regard to its conflict of laws rules.
This Agreement may be executed in one or more counterparts, each of which shall
b.
for all purposes be deemed to be an original but all of which together shall constitute one
and the same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced as evidence of the existence of this
Agreement.
c.
This Agreement shall not be deemed an employment contract between Freddie
Mac and Indemnitee, and Indemnitee specifically acknowledges that Indemnitee may be
discharged at any time for any reason, with or without cause, and with or without
9
severance compensation, except as may be otherwise provided in a separate written
contract between Indemnitee and Freddie Mac.
d.
Upon a payment to Indemnitee under this Agreement, Freddie Mac shall be
subrogated to the extent of such payment to all of the rights of Indemnitee to recover
against any person for such liability, and Indemnitee shall execute all documents and
instruments required and shall take such other actions as may be necessary to secure such
rights, including the execution of such documents as may be necessary for Freddie Mac
to bring suit to enforce such rights.
e.
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Any
subsequent supplement, modification or amendment of this Agreement shall not diminish
Indemnitee’s rights under this Agreement with respect to any act or omission occurring
before such supplement, modification or amendment.
Nothing in this Agreement shall be construed to permit indemnification expressly
f.
prohibited by 12 U.S.C. §4636.
g.
Notwithstanding any provision to the contrary in this Agreement, indemnification
for actions instituted by FHFA will be governed by the standards set forth in FHFA’s
Rule on Golden Parachute and Indemnification Payments at 12 CFR Part 1231.
Nothing in this Agreement is intended to, or shall be construed to, create in any
h.
way any liability or obligation on the part of the United States or any department or
agency thereof under or in any provision of this Agreement, it being the intention of
Freddie Mac and Indemnitee that the obligations undertaken by Freddie Mac hereunder
are the sole and exclusive responsibility of Freddie Mac.
In the event conservatorship is terminated, this Agreement shall remain in full
i.
force and effect.
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the
date set forth in Section 14.
FEDERAL HOME LOAN MORTGAGE CORPORATION
By:
[NAME], Chief Executive Officer
Date:
[NAME], Indemnitee
Date:
11
Exhibit 1
UNDERTAKING TO REPAY INDEMNIFICATION EXPENSES
I, ___________________, agree to reimburse Federal Home Loan Mortgage Corporation
(“Freddie Mac”) for all expenses paid to me by Freddie Mac pursuant to Section 17 of the
Indemnification Agreement effective as of [DATE], for my defense in any civil or criminal
action, suit, or proceeding, in the event, and to the extent that it shall ultimately be determined
that I am not entitled to retain such amounts. I believe in good faith good that I have met the
standard of conduct set forth in the Indemnification Agreement effective as of [DATE].
Signature
Typed Name
Office
STATE OF
COUNTY OF
Before me _____________________, on this day personally appeared ____________________,
known to me to be the person whose name is subscribed to the foregoing instrument, and who,
after being duly sworn, stated that the contents of said instrument is to the best of his/her
knowledge and belief true and correct and who acknowledged that he/she executed the same for
the purpose and consideration therein expressed.
GIVEN under my hand and official seal on this _____ day of 20___.
Notary Public
My commission expires:
12
Exhibit 10.28
INDEMNIFICATION AGREEMENT (“Agreement”)
between
FEDERAL HOME LOAN MORTGAGE CORPORATION (“Freddie Mac”)
and [NAME] (“Indemnitee”)
WHEREAS, the inability to attract and retain qualified persons as directors and officers is
detrimental to the best interests of Freddie Mac’s stockholders and Freddie Mac should act to
assure such persons that there will be adequate certainty of protection through insurance and
indemnification against risks of claims and actions against them arising out of their service to
and activities on behalf of Freddie Mac; and
WHEREAS, Freddie Mac has adopted provisions in its bylaws (the “Bylaws”) providing
for indemnification of its officers and directors against all liabilities reasonably incurred in
connection with proceedings in which they are involved as a result of their service to Freddie
Mac, except such liabilities as are incurred because of the indemnitee’s willful misconduct,
knowing violation of criminal law or receipt of an improper personal benefit, and Freddie Mac
wishes to clarify and enhance the rights and obligations of Freddie Mac and Indemnitee with
respect to indemnification; and
WHEREAS, Freddie Mac has elected to follow the corporate governance practices and
procedures of the law of the Commonwealth of Virginia, including without limitation the
Virginia Stock Corporation Act, as the same may be amended from time to time; and
WHEREAS, in order to induce and encourage highly experienced and capable persons
such as Indemnitee to serve and continue to serve as directors and officers of Freddie Mac and in
any other capacity with respect to Freddie Mac, and to otherwise promote the desirable end that
such persons will resist what they consider unjustified lawsuits and claims made against them in
connection with the performance of their duties to Freddie Mac, with the knowledge that certain
costs, judgments, penalties, fines, liabilities and expenses incurred by them in their defense of
such litigation are to be borne by Freddie Mac and they will receive the maximum protection
against such risks and liabilities as may be afforded under the Bylaws and applicable law; and
WHEREAS, Freddie Mac desires to have Indemnitee serve or continue to serve as a
director or officer of Freddie Mac and in such other capacity with respect to Freddie Mac as
Freddie Mac may request, as the case may be, free from undue concern for unpredictable,
inappropriate or unreasonable legal risks and personal liabilities by reason of Indemnitee acting
in accordance with the standards of the Bylaws in the performance of Indemnitee’s duties at
Freddie Mac; and Indemnitee desires so to serve or to continue so to serve Freddie Mac,
provided, and on the express condition, that such Indemnitee is furnished with the indemnity set
forth hereinafter;
WHEREAS, the Federal Housing Finance Agency (“FHFA”) was appointed conservator
of Freddie Mac on September 6, 2008;
Now, therefore, in consideration of Indemnitee’s service or continued service as a
director or officer of Freddie Mac, the parties hereto agree as follows:
1.
Service by Indemnitee. Indemnitee will serve or continue to serve as a director or
officer of Freddie Mac in good faith so long as Indemnitee is duly elected or appointed and until
such time as Indemnitee is removed as permitted by law or tenders a resignation in writing.
2.
Indemnification. Freddie Mac shall indemnify Indemnitee to the fullest extent
permitted by the Bylaws and Virginia law in effect on the date hereof or as the Bylaws or such
law may from time to time be amended (but, in the case of any such amendment, only to the
extent that such amendment permits Freddie Mac to provide broader indemnification rights than
the Bylaws or said law permitted Freddie Mac to provide prior to such amendment). Without
diminishing the scope of the indemnification provided by this Section, the rights of indem-
nification of Indemnitee provided hereunder shall include but shall not be limited to those rights
hereinafter set forth, except that no indemnification shall be paid to Indemnitee:
a.
to the extent expressly prohibited by Virginia law;
b.
for which payment is actually made to Indemnitee or for Indemnitee’s benefit
under a valid and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement of Freddie Mac or any other entity that Indemnitee serves at
the request of Freddie Mac, except in respect of any indemnity exceeding the payment
under such insurance, clause, bylaw or agreement;
in connection with a Proceeding (or part thereof) initiated by Indemnitee unless
c.
such Proceeding (or part thereof) was authorized by the Board of Directors.
3.
Action or Proceedings Other than an Action by or in the Right of Freddie Mac.
Except as limited by Section 2 above, Indemnitee shall be entitled to the indemnification rights
provided in this Section if Indemnitee is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the name of Freddie Mac) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent of Freddie Mac, or is or was serving
at the request of Freddie Mac as a director, officer, manager, partner, trustee, fiduciary, employee
or agent of another corporation, limited liability company, partnership, joint venture, trust or
other entity, including service with respect to an employee benefit plan. Pursuant to this Section,
Indemnitee shall be indemnified against all Liabilities and Expenses actually and reasonably
incurred by Indemnitee in connection with such Proceeding, except such Liabilities and
Expenses as are incurred because of Indemnitee’s willful misconduct or knowing violation of
criminal law; provided, however, that Freddie Mac may not indemnify Indemnitee in connection
with any Proceeding charging improper personal benefit to Indemnitee, whether or not involving
action in Indemnitee’s official capacity, to the extent Indemnitee was adjudged liable on the basis
that personal benefit was improperly received by Indemnitee.
4.
Indemnity in Proceedings by or in the Name of Freddie Mac. Except as limited
by Section 2 above, Indemnitee shall be entitled to the indemnification rights provided in this
Section if Indemnitee was or is a party or is threatened to be made a party to any Proceeding
brought by or in the name of Freddie Mac to procure a judgment in its favor by reason of the fact
2
that Indemnitee is or was a director, officer, employee or agent of Freddie Mac. Pursuant to this
Section, Indemnitee shall be indemnified against all Liabilities and Expenses actually and
reasonably incurred by Indemnitee in connection with such Proceeding, except such Liabilities
and Expenses as are incurred because of Indemnitee’s willful misconduct or knowing violation
of criminal law or of any federal or state securities law, including, without limitation, any claim
of unlawful insider trading or the manipulation of the market for any security; provided,
however, that Freddie Mac may not indemnify Indemnitee in connection with any Proceeding
charging improper personal benefit to Indemnitee, whether or not involving action in
Indemnitee’s official capacity, to the extent Indemnitee was adjudged liable on the basis that
personal benefit was improperly received by Indemnitee.
5.
Indemnification for Costs, Charges and Expenses of Successful Party. Notwith-
standing the limitations of Sections 3 and 4 above, Freddie Mac shall indemnify Indemnitee who
entirely prevails, on the merits or otherwise, in the defense of any Proceeding to which
Indemnitee was a party because Indemnitee is or was director, officer, employee or agent of
Freddie Mac or was serving at the request of Freddie Mac as a director, officer, manager, partner,
trustee, fiduciary, employee or agent of another corporation, limited liability company,
partnership, joint venture, trust or other entity, including service with respect to an employee
benefit plan, against Expenses incurred by Indemnitee in connection with the Proceeding.
6.
Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by Freddie Mac for some or a portion of the Liabilities or
Expenses actually and reasonably incurred in connection with any action, suit or proceeding
(including an action, suit or proceeding brought by or on behalf of Freddie Mac), but not,
however, for all of the total amount thereof, Freddie Mac shall nevertheless indemnify
Indemnitee for the portion of such Liabilities and Expenses actually and reasonably incurred to
which Indemnitee is entitled.
7.
Indemnification for Expenses of a Witness. Notwithstanding any other provision
of this Agreement, to the maximum extent permitted by applicable law, Indemnitee shall be
entitled to indemnification against all Expenses actually and reasonably incurred or suffered by
Indemnitee or on Indemnitee’s behalf if Indemnitee appears as a witness or otherwise incurs
legal expenses as a result of or related to Indemnitee’s service as a director, officer, employee or
agent of Freddie Mac, in any threatened, pending or completed Proceeding to which Indemnitee
neither is, nor is threatened to be made, a party; provided, however, that no such indemnification
will be provided with respect to Expenses incurred in obtaining legal advice regarding
Indemnitee’s willful misconduct, knowing violation of criminal law or receipt of improper
personal benefits.
8.
Determination of Entitlement to Indemnification. Upon written request by
Indemnitee for indemnification pursuant to Sections 3, 4, 5, 6 or 7, the entitlement of Indemnitee
to indemnification, to the extent not provided pursuant to the terms of this Agreement, shall be
determined by the following person or persons who shall be empowered to make such
determination: (i) by the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding; (ii) by a majority vote of a committee duly
designated by the Board of Directors (in which designation directors who are parties may
3
participate), consisting solely of two or more directors not at the time parties to the proceeding;
(iii) by Special Legal Counsel (as defined below) (1) selected by the Board of Directors or its
committee in a manner prescribed in subsection (i) or (ii) hereof, or (2) if a quorum of the Board
of Directors cannot be obtained under subsection (i) hereof and a committee cannot be
designated under subsection (ii) hereof, selected by a majority vote of the full Board of Directors
(in which selection directors who are parties may participate); or (iv) by the stockholders,
provided, however, that shares owned by or voted under the control of directors who are at the
time parties to the proceeding may not be voted on the determination. Upon failure of the Board
of Directors or committee designated by the Board of Directors, as applicable, so to select such
Special Legal Counsel, or upon failure of Indemnitee so to approve, such Special Legal Counsel
shall be selected upon application to a court of competent jurisdiction. Authorization of
indemnification and evaluation as to reasonableness of Expenses shall be made in the same
manner as the determination that indemnification is permissible, as provided in this Section 8,
provided however, that, if the determination is made by Special Legal Counsel, authorization of
indemnification and evaluation as to the reasonableness of Expenses shall be made by those
entitled under subsection (iii) hereof to select such Special Legal Counsel.
Such determination of entitlement to indemnification shall be made not later than 90
calendar days after receipt by Freddie Mac of a written request for indemnification. Such request
shall include documentation or information which is necessary for such determination and which
is reasonably available to Indemnitee. Any Expenses incurred by Indemnitee in connection with
a request for indemnification or payment of Expenses hereunder, under any other agreement, any
provision of the Bylaws or any directors’ and officers’ liability insurance, shall be borne by
Freddie Mac. Freddie Mac hereby indemnifies Indemnitee for any such Expense and agrees to
hold Indemnitee harmless therefrom irrespective of the outcome of the determination of
Indemnitee’s entitlement to indemnification. If the person making such determination shall
determine that Indemnitee is entitled to indemnification as to part (but not all) of the application
for indemnification, such person shall reasonably prorate such partial indemnification among the
claims, issues or matters at issue at the time of the determination.
9.
Presumptions and Effect of Certain Proceedings. The Corporate Secretary of
Freddie Mac shall, promptly upon receipt of Indemnitee’s request for indemnification, advise in
writing the Board of Directors or such other person or persons empowered to make the
determination as provided in Section 8 that Indemnitee has made such request for
indemnification. The Corporate Secretary of Freddie Mac shall also promptly notify the
Conservator that such a request has been made. Upon making such request for indemnification,
Indemnitee shall be presumed to be entitled to indemnification hereunder and Freddie Mac shall
have the burden of proof in making any determination contrary to such presumption. The
termination of any Proceeding described in Sections 3 or 4 by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself be
determinative that the Indemnitee did not meet the relevant standard of conduct.
10.
Remedies of Indemnitee in Cases where Claim is not Paid in Full in a Timely
Manner. If a claim under this Agreement is not paid in full by Freddie Mac within 90 days after
a written claim has been received by Freddie Mac, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20 days, Indemnitee may
4
at any time thereafter apply to either the United States District Court for the district within which
Freddie Mac’s principal office is located or to the court where the Proceeding is pending, if any,
for an order directing Freddie Mac to make an advancement of expenses or to provide
indemnification. The court shall order Freddie Mac to make an advancement of expenses or to
provide indem-nification, as the case may be, if it determines that Indemnitee is entitled under
this Agreement to such an advancement of expenses or indemnification, and in such event shall
order Freddie Mac to pay Indemnitee’s reasonable expenses (including attorneys’ fees) to obtain
the order. Neither the failure of Freddie Mac (including its Board of Directors, committee,
Special Legal Counsel or its stockholders) to have made a determination, as provided in Section
8, prior to the commencement of such action permitted by this Section, that Indemnitee is
entitled to receive an advancement of expenses or indemnification, nor the determination by
Freddie Mac (including its Board of Directors, committee, Special Legal Counsel or its
stockholders) that Indemnitee is not entitled to an advancement of expenses or indemnification,
shall create a presumption to that effect or otherwise itself be a defense to Indemnitee’s
application for an advancement of expenses or indemnification.
11.
Remedies of Indemnitee in Cases of Determination not to Indemnify or to Pay
Expenses. In the event that a determination is made that Indemnitee is not entitled to
indemnification hereunder or if payment has not been timely made following a determination of
entitlement to indemnification pursuant to Sections 8 and 9, or if Expenses are not paid pursuant
to Section 17, Indemnitee shall be entitled to final adjudication in a court of competent
jurisdiction of entitlement to such indemnification or payment from Freddie Mac. Alternatively,
Indemnitee at Indemnitee’s option may seek an award in an arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association, such award to be
made within 60 days following the filing of the demand for arbitration. Freddie Mac shall not
oppose Indemnitee’s right to seek any such adjudication or award in arbitration or any other
claim. The determination in any such judicial proceeding or arbitration shall be made de novo
and Indemnitee shall not be prejudiced by reason of a determination (if so made) pursuant to
Sections 8 or 9 that Indemnitee is not entitled to indemnification. If a determination is made or
deemed to have been made pursuant to the terms of Section 8 or 9 that Indemnitee is entitled to
indemnification, Freddie Mac shall be bound by such determination and is precluded from
asserting that such determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. Freddie Mac further agrees to
stipulate in any such court or before any such arbitrator that Freddie Mac is bound by all the
provisions of this Agreement and is precluded from making any assertions to the contrary. If the
court or arbitrator shall determine that Indemnitee is entitled to any indemnification or payment
of Expenses hereunder, Freddie Mac shall pay all Expenses actually and reasonably incurred by
Indemnitee in connection with such adjudication or award in arbitration (including, but not
limited to, any appellate Proceedings).
12.
Other Rights to Indemnification. The rights to indemnification and to the
advance-ment of expenses conferred in this Agreement shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute (including Freddie Mac’s
enabling legislation), or any agreement, vote of stockholders or disinterested directors or
otherwise.
5
13.
Expenses to Enforce Agreement. In the event that Indemnitee is subject to or
intervenes in any Proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce Indemnitee’s rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if Indemnitee prevails in whole or in
part in such action, shall be entitled to recover from Freddie Mac and shall be indemnified by
Freddie Mac against any actual Expenses incurred by Indemnitee.
14.
Effective Date and Continuation of Indemnity. This Agreement shall be
[retroactive to and] effective as of [DATE]. All agreements and obligations of Freddie Mac
contained herein shall continue during the period Indemnitee is a director, officer, employee or
agent of Freddie Mac or is serving at the request of Freddie Mac as a director, officer, manager,
partner, trustee, fiduciary, employee or agent of another corporation, limited liability company,
partnership, joint venture, trust or other entity, including service with respect to an employee
benefit plan and shall continue thereafter with respect to any possible claims based on the fact
that Indemnitee was a director, officer employee or agent of Freddie Mac or was serving at the
request of Freddie Mac as a director, officer, manager, partner, trustee, fiduciary, employee or
agent of another corporation, limited liability company, partnership, joint venture, trust or other
entity, including service with respect to an employee benefit plan. This Agreement shall be
binding upon all successors and assigns of Freddie Mac (including any transferee of all or
substantially all of its assets and any successor by merger or operation of law) and shall inure to
the benefit of the heirs, personal representatives and estate of Indemnitee.
15.
Notification and Defense of Claim. Promptly after receipt by Indemnitee of
notice of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against
Freddie Mac under this Agreement, notify the Corporate Secretary of Freddie Mac in writing of
the commencement thereof; but the omission so to notify Freddie Mac will not relieve it from
any liability that it may have to Indemnitee. Notwithstanding any other provision of this
Agreement, with respect to any such Proceeding of which Indemnitee notifies Freddie Mac:
a.
Freddie Mac shall be entitled to participate therein at its own expense; and
b.
Except as otherwise provided in this Section 15(b), to the extent that it may wish,
Freddie Mac, jointly with any other indemnifying party similarly notified, shall be
entitled to assume the defense thereof, with counsel satisfactory to Indemnitee. After
notice from Freddie Mac to Indemnitee of its election so to assume the defense thereof,
Freddie Mac shall not be liable to Indemnitee under this Agreement for any expenses of
counsel subsequently incurred by Indemnitee in connection with the defense thereof
except as otherwise provided below. Indemnitee shall have the right to employ
Indemnitee’s own counsel in such Proceeding, but the fees and expenses of such counsel
incurred after notice from Freddie Mac of its assumption of the defense thereof shall be at
the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been
authorized by Freddie Mac, (ii) Indemnitee shall have reasonably concluded that there
may be a conflict of interest between Freddie Mac and Indemnitee in the conduct of the
defense of such action or (iii) Freddie Mac shall not within 60 calendar days of receipt of
notice from Indemnitee in fact have employed counsel to assume the defense of the
action, in each of which cases the fees and expenses of Indemnitee’s counsel shall be at
6
the expense of Freddie Mac. Freddie Mac shall not be entitled to assume the defense of
any Proceeding brought by or on behalf of Freddie Mac or as to which Indemnitee shall
have made the conclusion provided for in (ii) above; and
If Freddie Mac has assumed the defense of a Proceeding, Freddie Mac shall not be
c.
liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement
of any Proceeding effected without Freddie Mac’s written consent. Freddie Mac shall not
settle any Proceeding in any manner that would impose any penalty or limitation on or
disclosure obligation with respect to Indemnitee without Indemnitee’s written consent.
Neither Freddie Mac nor Indemnitee will unreasonably withhold its consent to any
proposed settlement.
16.
Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during
normal business hours of the recipient, and if not so confirmed, then on the next business day, (c)
five (5) days after having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier,
specifying next-day delivery, with written verification of receipt. All communications shall be
sent:
a.
To Indemnitee at:
[NAME]
Federal Home Loan Mortgage Corporation
Attention: Corporate Secretary
8200 Jones Branch Drive
McLean, Virginia 22102
b.
To Freddie Mac at:
Federal Home Loan Mortgage Corporation
Attention: Corporate Secretary
8200 Jones Branch Drive
McLean, Virginia 22102
Telephone: 703-903-3380
or to such other address as may have been furnished by a party hereto to the other party hereto,
by like notice.
17.
Advancement of Expenses. Indemnitee shall have the right to have the Expenses
reasonably incurred or suffered in defending any Proceeding in advance of its final disposition or
in the circumstances described in Section 7 paid by Freddie Mac (hereinafter, an “advancement
of expenses”); provided, however, that an advancement of expenses shall be made (i) only upon
delivery to Freddie Mac of a written statement by Indemnitee of Indemnitee’s good faith belief
that Indemnitee has met the standard of conduct set forth in the applicable Section of this
7
Agreement, and (ii) only if Indemnitee furnishes to Freddie Mac a written undertaking, executed
by or on behalf of Indemnitee, to repay any funds advanced if Indemnitee is not entitled to
mandatory indemnification under Section 5 and it is ultimately determined that Indemnitee is not
entitled to indemnification. The undertaking required above shall be an unlimited general
obligation of Indemnitee but need not be secured and shall be accepted without reference to the
financial ability of Indemnitee to make repayment.
18.
Severability; Prior Indemnification Agreements. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever (a)
the validity, legality and enforceability of the remaining provisions of this Agreement (including
without limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest
extent possible, the provisions of this Agreement (including, without limitation, all portions of
any paragraph of this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent of the parties that Freddie Mac provide protection to Indemnitee to the
fullest enforceable extent. This Agreement shall supersede and replace any prior indemnification
agreements entered into by and between Freddie Mac and Indemnitee and any such prior
agreements shall be terminated upon execution of this Agreement.
19.
Headings; References. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this Agreement or to
affect the construction thereof References herein to section numbers are to sections of this
Agreement.
20.
Definitions. For purposes of this Agreement:
a.
“Expenses” includes, without limitation, expenses incurred in connection with the
defense or settlement of any and all investigations, judicial or administrative proceedings
or appeals, attorneys’ fees, witness fees and expenses, fees and expenses of accountants
and other advisors, retainers and disbursements and advances thereon, the premium,
security for, and other costs relating to any bond (including cost bonds, appraisal bonds
or their equivalents), and any expenses of establishing a right to indemnification under
Sections 8, 11 and 13 above but shall not include the amount of judgments, fines or
penalties actually levied against Indemnitee and shall include only amounts reasonably
and actually incurred by Indemnitee.
b.
“Liabilities” means the obligation to pay a judgment, settlement, penalty, fine,
including any excise tax assessed with respect to an employee benefit plan, or reasonable
expenses incurred with respect to a Proceeding.
c.
“Special Legal Counsel” means a law firm or a member of a law firm that neither
is presently nor in the past five years has been retained to represent: (i) Freddie Mac or
Indemnitee in any matter material to either such party, provided, however, that it shall be
permissible for Special Legal Counsel to have been previously engaged by Freddie Mac,
8
its Board of Directors or committee thereof to make determinations with respect to
indemnification or advancement of expenses, or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the
term “Special Legal Counsel” shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of interest in
representing either Freddie Mac or Indemnitee in an action to determine Indemnitee’s
right to indemnification under this Agreement.
d.
“Proceeding” includes any threatened, pending or completed investigation (other
than internal investigations of the conduct of Freddie Mac employees), action, suit or
other proceeding, whether brought in the name of Freddie Mac or otherwise, against
Indemnitee, for which indemnification is not prohibited under Section 2 above and
whether of a civil, criminal, administrative, arbitrative or investigative and whether
formal or informal, including, but not limited to, actions, suits or proceedings in which
Indemnitee may be or may have been involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director, officer, employee or agent of Freddie Mac, or is
or was serving, at the request of Freddie Mac, as a director, officer, manager, partner,
trustee, fiduciary, employee or agent of another corporation, limited liability company,
partnership, joint venture, trust or other entity, including service with respect to an
employee benefit plan, whether or not Indemnitee is serving in such capacity at the time
any Liability or Expense is incurred for which indemnification or reimbursement can be
provided under this Agreement.
21.
Other Provisions.
This Agreement shall be interpreted and enforced in accordance with the laws of
a.
Virginia, without regard to its conflict of laws rules.
b.
This Agreement may be executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original but all of which together shall constitute one
and the same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced as evidence of the existence of this
Agreement.
c.
This Agreement shall not be deemed an employment contract between Freddie
Mac and Indemnitee, and Indemnitee specifically acknowledges that Indemnitee may be
discharged at any time for any reason, with or without cause, and with or without
severance compensation, except as may be otherwise provided in a separate written
contract between Indemnitee and Freddie Mac.
d.
Upon a payment to Indemnitee under this Agreement, Freddie Mac shall be
subrogated to the extent of such payment to all of the rights of Indemnitee to recover
against any person for such liability, and Indemnitee shall execute all documents and
instruments required and shall take such other actions as may be necessary to secure such
rights, including the execution of such documents as may be necessary for Freddie Mac
to bring suit to enforce such rights.
9
No supplement, modification or amendment of this Agreement shall be binding
e.
unless executed in writing by both parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Any
subsequent supplement, modification or amendment of this Agreement shall not diminish
Indemnitee’s rights under this Agreement with respect to any act or omission occurring
before such supplement, modification or amendment.
Nothing in this Agreement shall be construed to permit indemnification expressly
f.
prohibited by 12 U.S.C. §4636.
Notwithstanding any provision to the contrary in this Agreement, indemnification
g.
for actions instituted by FHFA will be governed by the standards set forth in FHFA’s
Rule on Golden Parachute and Indemnification Payments at 12 CFR Part 1231.
Nothing in this Agreement is intended to, or shall be construed to, create in any
h.
way any liability or obligation on the part of the United States or any department or
agency thereof under or in any provision of this Agreement, it being the intention of
Freddie Mac and Indemnitee that the obligations undertaken by Freddie Mac hereunder
are the sole and exclusive responsibility of Freddie Mac.
In the event conservatorship is terminated, this Agreement shall remain in full
i.
force and effect.
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the
date set forth in Section 14.
FEDERAL HOME LOAN MORTGAGE CORPORATION
By:
[NAME], Chief Executive Officer
Date:
[NAME], Indemnitee
Date:
11
Exhibit 1
UNDERTAKING TO REPAY INDEMNIFICATION EXPENSES
I, ____________________, agree
to reimburse Federal Home Loan Mortgage
Corporation (“Freddie Mac”) for all expenses paid to me by Freddie Mac pursuant to Section 17
of the Indemnification Agreement effective as of [DATE], for my defense in any civil or
criminal action, suit, or proceeding, in the event, and to the extent that it shall ultimately be
determined that I am not entitled to retain such amounts. I believe in good faith good that I have
met the standard of conduct set forth in the Indemnification Agreement effective as of [DATE].
Signature
Typed Name
Office
STATE OF
COUNTY OF
Before me _____________________, on this day personally appeared ____________________,
known to me to be the person whose name is subscribed to the foregoing instrument, and who,
after being duly sworn, stated that the contents of said instrument is to the best of his/her
knowledge and belief true and correct and who acknowledged that he/she executed the same for
the purpose and consideration therein expressed.
GIVEN under my hand and official seal on this _____ day of 20___.
Notary Public
My commission expires:
12
Exhibit 24.1
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021.
/s/ Mark H. Bloom
Mark H. Bloom
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 7, 2021
/s/ Kathleen L. Casey
Kathleen L. Casey
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of January 11, 2022
/s/ Launcelot F. Drummond
Launcelot F. Drummond
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021
/s/ Aleem Gillani
Aleem Gillani
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021.
/s/ Mark B. Grier
Mark B. Grier
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021.
/s/ Christopher E. Herbert
Christopher E. Herbert
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021.
/s/ Grace A. Huebscher
Grace A. Huebscher
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 7, 2021
/s/ S. Sara Mathew
S. Sara Mathew
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 8, 2021.
/s/ Allan P. Merrill
Allan P. Merrill
Power of Attorney
Annual Report on Form 10-K
Freddie Mac
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, a director of Freddie Mac (formally known as
the Federal Home Loan Mortgage Corporation), a federally chartered corporation, hereby constitute and appoint Michael J.
DeVito, Christian M. Lown, Jerry Weiss, Alicia S. Myara, and Prabha Sipi Bhandari, and each of them severally, my true and
lawful attorney-in-fact with power of substitution and resubstitution to sign in my name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable
under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange
Commission in connection with the Annual Report on Form 10-K for the year ended December 31, 2021 and any and all
amendments thereto, as fully for all intents and purposes as I might or could do in person, and hereby ratify and confirm all said
attorneys-in-fact, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of December 7, 2021.
/s/ Alberto G. Musalem
Alberto G. Musalem
PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)
CERTIFICATION
I, Michael J. DeVito, certify that:
Exhibit 31.1
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2021 of the Federal Home Loan Mortgage Corporation;
2.
3.
4.
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
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 10, 2022
/s/ Michael J. DeVito
Michael J. DeVito
Chief Executive Officer
PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(a)
CERTIFICATION
I, Christian M. Lown, certify that:
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2021 of the Federal Home Loan Mortgage Corporation;
2.
3.
4.
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
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: February 10, 2022
/s/ Christian M. Lown
Christian M. Lown
Executive Vice President and Chief Financial Officer
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
Exhibit 32.1
AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2021 of the Federal Home Loan Mortgage
Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Michael J. DeVito, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 10, 2022
/s/ Michael J. DeVito
Michael J. DeVito
Chief Executive Officer
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
Exhibit 32.2
AS ENACTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2021 of the Federal Home Loan Mortgage
Corporation (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I,
Christian M. Lown, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 10, 2022
/s/ Christian M. Lown
Christian M. Lown
Executive Vice President and Chief Financial Officer