Federal Home Loan Mortgage Corporation (Freddie Mac) operates as a government-sponsored enterprise (GSE).
The company does this primarily by purchasing single-family and multifamily residential mortgage loans originated by lenders. In most instances, the company packages these loans into guaranteed mortgage-related securities, which are sold in the global capital markets, and transfers interest-rate and liquidity risks to third-party investors. In addition, the company transfers a portion of it...
Federal Home Loan Mortgage Corporation (Freddie Mac) operates as a government-sponsored enterprise (GSE).
The company does this primarily by purchasing single-family and multifamily residential mortgage loans originated by lenders. In most instances, the company packages these loans into guaranteed mortgage-related securities, which are sold in the global capital markets, and transfers interest-rate and liquidity risks to third-party investors. In addition, the company transfers a portion of its mortgage credit risk exposure to third-party investors through its credit risk transfer programs, which include securities- and insurance-based offerings. The company also invests in mortgage loans, mortgage-related securities, and other types of assets.
The company supports 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. The company has helped many distressed borrowers keep their homes or avoid foreclosure and has helped many distressed renters avoid eviction.
The company’s role in the secondary mortgage market is to provide stability in the secondary mortgage market for residential loans; respond appropriately to the private capital market; 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 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.
Strategic Priorities
The company’s strategic priorities include delivering on affordable housing; identifying, assessing, and managing its risks; and building financial strength to serve its mission.
Segments
The company operates through two segments, Single-Family and Multifamily.
Single-Family
This segment reflects results from the company’s purchase, securitization, and guarantee of single-family loans, its investments in single-family loans and mortgage-related securities, the management of Single-Family mortgage credit risk and market risk, and any results of the company’s treasury function that are not allocated to each segment.
Multifamily
This segment reflects results from the company’s purchase, securitization, and guarantee of multifamily loans, its investments in multifamily loans and mortgage-related securities, and the management of Multifamily mortgage credit risk and market risk.
Single-Family
The company’s Single-Family segment provides liquidity and support to the single-family mortgage market through a variety of activities that include the purchase, securitization, and guarantee of single-family loans originated by lenders. Central to the company’s mission is its commitment to helping families attain affordable and sustainable housing and to increasing equitable access to housing finance.
In accordance with the company’s Charter, the company participates in the secondary mortgage market. The company’s 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. The company consolidates most of its Single-Family securitization trusts and, therefore, recognizes the loans held by such trusts and the debt securities issued by such trusts on its balance sheet and recognizes the guarantee fees it receives as net interest income. To reduce its exposure under its guarantees, the company transfers credit risk on a portion of its Single-Family mortgage portfolio to the private market in certain instances. The returns the company generates from its business activities are primarily derived from the guarantee fees it receives in exchange for providing its guarantee of the principal and interest payments of the issued mortgage-related securities.
Products and Activities
The company’s 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 the company’s loan products and programs have been designed to address affordability challenges, particularly in underserved markets.
Loan Purchase, Securitization, and Guarantee Activities
Guarantor Swap Transactions
One of the primary ways the company acquires mortgage loans and provides liquidity to its Single-Family lender customers is by securitizing loans into guaranteed mortgage-related securities in guarantor swap transactions. The company’s largest guarantor swap customers are primarily large mortgage banking companies and commercial banks. In these transactions, the company purchases mortgage loans from its customers in exchange for a security backed by those same loans.
Cash Window Transactions
In addition to guarantor swap transactions, another primary way the company acquires loans and provides liquidity to its Single-Family lender customers is by purchasing loans through its cash window for future aggregation and securitization via its securitization pipeline. In these transactions, the company purchases mortgage loans from its customers in exchange for cash consideration. The company enters into forward commitments with lenders in advance of the loan purchase date to purchase loans through the company’s cash window at a fixed price for the company’s securitization pipeline, allowing lenders to offer borrowers the opportunity to lock in the interest rate on the mortgage prior to loan origination. The company refers to the loan as being in its securitization pipeline for the period of time between loan purchase and securitization.
The company typically economically hedges the market risk exposure of its forward loan purchase commitments with lenders and the company’s securitization pipeline by entering into forward sale commitments and obtains permanent financing for the loans in its securitization pipeline after a short aggregation period by securitizing the loans into guaranteed mortgage-related securities and selling the resulting securities to third-party investors, typically through cash auctions. The company may also retain certain of these securities in its mortgage-related investments portfolio prior to selling them to third parties.
The Purchase Agreement requires the company to purchase loans for cash consideration; operate the cash window with non-discriminatory pricing; and comply with directives, regulations, restrictions, and other requirements prescribed by FHFA related to equitable secondary market access by community lenders. The company manages cash window activities in accordance with its risk limits and limitations imposed by FHFA.
Advances to Lenders
The company also provides liquidity to certain lenders through its early funding programs, where it advances funds to lenders for mortgage loans prior to the loans being pooled and securitized generally through the company’s guarantor swap transactions. In some cases, the early funded mortgages are ultimately delivered through cash window purchase transactions. The company accounts for these transactions as advances that are fully collateralized by the mortgage loans and recognizes the associated fees as interest income on the advances from the early funding date to the final settlement date.
Securitization Products
The company offers the following types of securitization products to its customers.
Level 1 Securitization Products
The company refers to the securities it issues in guarantor swap transactions and cash window securitizations as Level 1 Securitization Products, which are pass-through securities that represent undivided beneficial interests in trusts that hold pools of loans or participation interests in loans.
The company issues the following types of Level 1 Securitization Products:
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 the company. 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.
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.
ARM PCs - Single-class pass-through securities with a 75-day payment delay for ARM products. The company does not use the CSP to issue ARM PCs.
In prior years, the company also issued Gold PCs, which were single-class pass-through securities with a 45-day payment delay for fixed-rate mortgage loans. The company 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).
All Level 1 Securitization Products issued by the company is backed only by mortgage loans that it has acquired. The company offers (or previously offered) all of the above products through both guarantor swap and cash window programs.
The company also periodically uses 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 the company issues a Level 1 Securitization Product, it retains the credit risk of the underlying mortgage loans by guaranteeing the principal and interest payments of the issued securities and transfers the interest-rate, prepayment, and liquidity risks of those loans to the investors in the securities. For the company’s fixed-rate Level 1 Securitization Products, it guarantees the timely payment of principal and interest. For the company’s ARM PCs, it guarantees the timely payment of the weighted average coupon interest rate for the underlying loans, and it also guarantees the full and final payment of principal, but not the timely payment of principal. In exchange for the company’s guarantee of Level 1 Securitization Products, it receives guarantee fees that are designed to be commensurate with the risks assumed and that it expects 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:
A contractual monthly fee paid as a percentage of the UPB of the underlying loan, including the legislated guarantee fees and
Fees the company receives or pays when it acquires 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 the company 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 rate 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, the company must obtain FHFA's approval to implement significant across-the-board changes to its credit fees. In addition, from time to time, FHFA issues directives or guidance to the company affecting the levels of guarantee fees that it may charge.
In order to issue mortgage-related securities, the company establishes trusts pursuant to its Master Trust Agreements and places 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 the company, net of servicing fees. The company administers the distribution of payments to the investors in the mortgage-related securities, net of any applicable guarantee fees. When the company securitizes mortgage loans using trusts, Freddie Mac typically functions in its capacity as depositor, guarantor, administrator, and trustee of the trusts. The company consolidates its Single-Family Level 1 Securitization Product trusts and recognizes the mortgage loans held and debt issued by those trusts on its consolidated balance sheets. The difference between the interest income on the loans and the interest expense on the debt primarily represents the guarantee fees it receives as compensation for its guarantee. This amount is referred to as guarantee net interest income.
When a borrower prepays a loan that the company has securitized, the outstanding balance of the security owned by investors is reduced by the amount of the prepayment. If the borrower becomes delinquent, the company continues to make the applicable payments to the investors in the mortgage-related securities pursuant to its guarantee until it purchases the loan out of the securitization trust. The company has the option to purchase loans from the trusts under certain circumstances (including certain levels of delinquency) 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, the company purchases 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. The company must obtain FHFA’s approval to implement changes to its policy to purchase loans from trusts.
Other Securitization Products
The company securitizes certain seasoned loans in transactions where it issues 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, the company does not control the servicing, and the loans are not serviced in accordance with the company’s Guide.
Resecuritization Products
Resecuritization products represent beneficial interests in pools of Level 1 Securitization Products and certain other types of mortgage assets. The company generally creates these securities by using Level 1 Securitization Products or its previously issued resecuritization products as the underlying collateral. The company leverages the issuance of these securities to expand the range of investors in its mortgage-related securities to include those seeking specific security attributes. Similar to the company’s Level 1 Securitization Products, it guarantees the payment of principal and interest to the investors in its resecuritization products. The company does not charge a guarantee fee for these securities if the underlying collateral is already guaranteed by it since no additional credit risk is introduced, although it typically receives a transaction fee as compensation for creating the security and future administrative responsibilities. The company uses the CSP for many of the securities issuance and administration activities for its resecuritization products.
The company has the ability to commingle TBA-eligible Fannie Mae collateral in certain of its resecuritization products. When the company resecuritizes Fannie Mae securities, which are separately guaranteed by Fannie Mae, in the company’s commingled resecuritization products, its guarantee covers timely payment of principal and interest on such products from the underlying Fannie Mae securities.
All of the cash flows from the collateral underlying the company’s resecuritization products are generally passed through to investors in these securities. The company does not issue resecuritization products that have concentrations of credit risk beyond those embedded in the underlying assets. In many of the company’s resecuritization transactions, securities dealers or investors deliver mortgage assets in exchange for the resecuritization product. In certain cases, the company may also transfer its own mortgage assets in exchange for the resecuritization product.
The company offers the following types of resecuritization products:
Single-class resecuritization products - Involve the direct pass-through of all cash flows of the underlying collateral to the beneficial interest holders and include:
Supers - Resecuritizations of UMBS and certain other TBA-eligible mortgage securities. This structure allows commingling of Freddie Mac and Fannie Mae collateral, where newly issued or exchanged UMBS and Supers issued by the company or Fannie Mae may be commingled to back Supers issued by the company. Fannie Mae also issues Supers. Supers can be backed by:
UMBS and/or other Supers issued by the company or Fannie Mae;
Existing TBA-eligible Fannie Mae "MBS" and/or "Megas"; and/or
UMBS and Supers that the company has issued in exchange for TBA-eligible PCs and Giant PCs that have been delivered to it in response to the company’s offer to exchange 45-day payment delay securities for corresponding 55-day payment delay securities.
Giant MBS - Resecuritizations of:
Newly issued 55-day MBS and/or Giant MBS and/or
55-day MBS and/or Giant MBS that the company has issued in exchange for non-TBA-eligible PCs and non-TBA-eligible Giant PCs that have been delivered to it in response to its offer to exchange 45-day payment delay securities for corresponding 55-day payment delay securities.
Giant PCs - Resecuritizations of previously issued PCs or Giant PCs. Although the company no longer issues 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).
Multiclass resecuritization products
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.
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 Mortgage-Related Guarantees
The company previously offered 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, have obligated the company to purchase seriously delinquent loans that are covered by those commitments. From time to time, the company has consented to the termination of its long-term standby commitments and simultaneously entered into guarantor swap transactions with the same counterparty, issuing securities backed by many of the same loans.
Credit Enhancement Activities
To reduce the company’s credit risk exposure, the company engages in various types of credit enhancements, including primary mortgage insurance and CRT transactions. The company’s 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 the company’s loans with LTV ratios above 80% are credit enhanced by primary mortgage insurance, which provides loan-level credit enhancement 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.
The company defines CRT transactions as those arrangements where it actively transfers the credit risk exposure on mortgages that it owns or guarantees. The company’s 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 it when borrowers default. The costs the company incurs in exchange for this credit protection effectively reduce its guarantee income from the associated mortgages. The company evaluates and updates its CRT activities as needed depending on its business strategy, market conditions, and regulatory requirements.
Each CRT transaction is designed to transfer a certain portion of the credit risk that the company assumes 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, the company’s purchase of the loan (i.e., front-end coverage) or after the purchase of the loan (i.e., back-end coverage).
STACR and ACIS Offerings
The company’s two primary CRT programs are STACR and ACIS.
STACR - The company’s primary Single-Family securities-based credit risk sharing transaction. 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, the company creates a reference pool of loans from its 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. The company makes 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 the company is required to pay. The company receives 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 the company, 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.
ACIS - The company’s primary insurance-based credit risk sharing transaction. ACIS transactions are insurance policies the company enters into with global insurance and reinsurance companies to cover a portion of credit risk on the mortgage loans in the related reference pools. The company pays monthly premiums to the insurers or reinsurers in exchange for claim coverage on specified credit events on the mortgage loans in the related reference pool. The company requires its ACIS counterparties to partially collateralize their exposure to reduce the risk that it will not be reimbursed for its claims under the policies.
The company primarily uses STACR and ACIS transactions to transfer credit risk on certain recently acquired fixed-rate mortgage loans with maturity terms greater than 20 years and original LTV ratios between 60% and 97%. In a typical STACR or ACIS transaction, the company transfers 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. The company generally retains the initial loss position and at least 5% of the credit risk of all the positions sold to align its interests with those of the investors.
The company monitors the costs and benefits provided by the CRT coverage it has obtained on a regular basis, including the impact of CRT on its capital requirements under the ERCF. The company may periodically terminate certain CRT transactions, through the exercise of contractual call options, repurchases of outstanding securities, or other means, if it determines prior to contractual maturity that they are no longer economically sensible.
Additional Offerings
The company also transfers credit risk through the issuance of senior subordinate securitizations, additional types of insurance and reinsurance transactions, and risk-sharing arrangements with certain single-family lenders. The company also periodically sells certain delinquent loans that it has previously repurchased from securitization trusts.
Loss Mitigation Activities
Servicers perform loss mitigation activities, as well as foreclosures on loans that they service for the company. The company’s 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.
The company offers (or previously offered) a variety of borrower assistance programs, including refinance programs and loan workout activities for eligible borrowers. The company’s loan workouts include both home retention options and foreclosure alternatives.
Relief Refinance Program
The company previously offered relief refinance programs for eligible homeowners whose loans it already owned or guaranteed 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. These programs also provided liquidity for borrowers who were current on their mortgages but were unable to refinance because their LTV ratios exceeded its standard refinance limits. The company’s most recent relief refinance offering, the Enhanced Relief Refinance program, has been suspended until further notice.
Loan Workout Activities
Home Retention Options
When refinancing is not practicable, the company requires its servicers to attempt to establish contact with the borrowers to discuss the most appropriate options for delinquency resolution. When the contact is established, the company requires its servicers first to evaluate the loan for a forbearance plan, repayment plan, payment deferral plan, or loan modification, because its 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, the company incurs costs as a result of its loss mitigation activities. Specifically, payment deferral plans result in non-interest-bearing balances the company has to finance for the life of the mortgage, resulting in economic costs as a result of this program. Additionally, the company incurs economic losses on loan modifications that involve an interest rate reduction or principal forbearance, and it incurs expenses related to incentive fees it pays to servicers for certain successfully completed loan workouts.
The company offers the following types of home retention options:
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. Borrowers may exit forbearance by repaying all past due amounts thus fully reinstating the loan, paying off the loan in full, or entering into a repayment plan, a payment deferral plan, or a trial period plan pursuant to a loan modification. The company offers forbearance of up to 12 months to single-family borrowers experiencing financial difficulty. Borrowers may receive an initial forbearance term of one to six months and, if necessary, one or more forbearance term extensions of one to six months, as long as the delinquency of the mortgage does not exceed 12 months.
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 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.
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.
Loan modifications - Contractual plans that may involve changing the terms of the loan, such as payment delays, interest rate reductions, term extensions, or a combination of these items. Payment delays in the company’s loan modification programs most commonly consist of adding outstanding indebtedness, such as delinquent interest, to the UPB of the loan, and may also include principal forbearance, in which a portion of the principal balance becomes non-interest-bearing and is due at the earlier of the payoff date, maturity date, or sale of the property. The company’s 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 the company’s other workout activities. These modification programs offer eligible borrowers an 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. The company’s primary loan modification program is the Freddie Mac Flex Modification program, which intends to create a suitable payment reduction through payment delays, interest rate reduction, and term extension. Freddie Mac announced updates to the Flex Modification program on May 29, 2024, and those updates went into effect with all new evaluations beginning December 1, 2024.
Foreclosure Alternatives
When a seriously delinquent single-family loan cannot be resolved through an economically sensible home retention option, the company typically seeks to pursue a foreclosure alternative before it pursues a foreclosure sale. The company pays servicers incentive fees for each completed foreclosure alternative. In some cases, the company provides cash relocation assistance to the borrower, while allowing the borrower to exit the home in an orderly manner. The company offers the following types of foreclosure alternatives:
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 for a borrower because the company provides limited relief to the borrower from repaying the entire amount owed on the loan. A short sale allows the company to avoid the costs it would otherwise incur to complete the foreclosure and subsequently sell the property.
Deed in lieu of foreclosure - The borrower voluntarily agrees to transfer title of the property to the company without going through formal foreclosure proceedings.
When the company is unable to successfully execute a loan workout and the loan remains delinquent, it may ultimately pursue foreclosure. In a foreclosure, the company may acquire the underlying property and later sell it, using the proceeds of the sale to reduce its losses.
Investing Activities
The company primarily uses its Single-Family mortgage-related investments portfolio to provide liquidity to the mortgage market by purchasing loans for its securitization pipeline and by purchasing delinquent and modified loans from securitization trusts. The company also invests in agency mortgage-related securities. The company manages the portfolio's risk-versus-return profile using its internal economic framework and makes risk and capital management decisions intended to execute its business strategy and be responsive to market conditions.
The company may use its Single-Family mortgage-related investments portfolio to undertake various activities to support its presence in the agency securities market or to support the liquidity of its 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 the company purchases or sells. The purchase or sale of agency securities could, at times, adversely affect the price performance of the company’s securities relative to comparable Fannie Mae securities. The company may incur costs to support its presence in the agency securities market and to support the liquidity and price performance of its securities.
The company’s company-wide Treasury function primarily includes issuing, calling, and repurchasing debt of Freddie Mac, managing its 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. The company allocates 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 the company’s company-wide Treasury function and interest-rate risk management function is primarily allocated to the Single-Family segment.
Customers
The company’s Single-Family customers are investors in its mortgage-related securities, CRT offerings, and Freddie Mac debt securities, including banks and other depository institutions, insurance companies, money managers, central banks, pension funds, state and local governments, REITs, non-depository institutions, and brokers and dealers. The company also maintains relationships with dealers in its guaranteed mortgage-related securities and Freddie Mac debt securities. The company’s unsecured Freddie Mac debt securities and structured mortgage-related securities are initially purchased by dealers and redistributed to their customers. The company’s Single-Family customers also include 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 institutions. Many of these companies are both sellers and servicers for the company.
The company enters into loan purchase agreements with many of its Single-Family customers that outline the terms under which it agrees to purchase loans from them over a period of time.
The company acquires a significant portion of its loans from several lenders that are among the largest originators in the U.S. In addition, a significant portion of the company’s single-family loans is serviced by several large servicers.
Competition
The company’s principal competitors in the single-family mortgage market are Fannie Mae and FHA/VA (with Ginnie Mae securitization). Other institutions, such as commercial and investment banks, dealers, savings institutions, REITs, insurance companies, the Federal Farm Credit Banks, the FHLBs, and independent mortgage companies, also compete with the company by retaining or securitizing loans that would otherwise be eligible for purchase by it.
PORTFOLIOS
Mortgage Portfolio
The company’s mortgage portfolio includes assets held by both business segments and consists of mortgage loans held-for-investment, mortgage loans held-for-sale, and mortgage loans underlying its mortgage-related guarantees.
Investments Portfolio
The company’s investments portfolio consists of its mortgage-related investments portfolio and other investments portfolio.
Mortgage-Related Investments Portfolio
The company primarily uses its mortgage-related investments portfolio to provide liquidity to the mortgage market and support its loss mitigation activities. The company’s mortgage-related investments portfolio includes assets held by both business segments and consists of unsecuritized mortgage loans and mortgage-related securities. The company primarily invests in mortgage-related securities that it issues or guarantees, although it may also invest in other agency mortgage-related securities.
The company is also subject to additional limitations on the size and composition of its mortgage-related investments portfolio pursuant to FHFA guidance.
Other Investments Portfolio
The company’s 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.
Multifamily
The company’s 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 its Optigo network of approved lenders. The company’s support of the multifamily mortgage market occurs through all economic cycles and is especially important during periods of economic stress. During these periods, the company serves a critical countercyclical role by providing liquidity when many other capital providers exit the market. Central to the company’s mission is its commitment to support greater access to quality, affordable, and sustainable rental housing, particularly in underserved markets.
Multifamily loans are typically originated by the company’s Optigo lenders without recourse to the borrower, making repayment dependent on the cash flows generated by the underlying property.
The company’s primary business model is to acquire loans that lenders originate and then securitize those loans into mortgage-related securities that transfer interest-rate and liquidity risk to investors and can be sold in the capital markets. The company guarantees some or all of the issued mortgage-related securities in exchange for guarantee fees. In transactions where the company guarantees all issued mortgage-related securities, it typically consolidates the securitization trusts. Therefore, the company recognizes the loans held by the trusts and the debt securities that the trusts issue on its balance sheet. The company also recognizes the guarantee fees it receives as net interest income. In senior subordinate securitization transactions, the company typically does not consolidate the securitization trusts. Therefore, it accounts for these securitizations as sales of the underlying loans and recognizes the guarantee fees it receives as guarantee income. To reduce the company’s exposure under its guarantees, it transfers mortgage credit risk to third-party investors, either through the issuance of subordinate securities as part of the securitization transaction or by entering into a freestanding CRT transaction. The returns the company generates from its business activities are primarily derived from the net interest income it earns on the loans held on its balance sheet, the ongoing guarantee fees it receives in exchange for providing its guarantee on the issued mortgage-related securities, and the gains on the sale of mortgage loans, net of interest-rate risk management activities, from the company’s senior subordinate securitization transactions. The company evaluates these factors collectively to assess the profitability of any given transaction.
Products and Activities
The company’s Multifamily 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, and investing in mortgage-related and other investments. Certain of the company’s loan and securitization products have been designed to support increased access to and preservation of affordable housing, particularly in underserved markets.
Loan Purchase, Securitization, and Guarantee Activities
Loan Purchase
The company’s Optigo network allows lenders to offer borrowers a variety of loan products for the acquisition, refinance, and/or rehabilitation of multifamily properties. While the company’s Optigo lenders originate the loans that it purchases, the company uses a prior-approval underwriting approach. Under this approach, the company maintains credit discipline by completing its own underwriting, credit review, and legal review for each loan prior to issuing a loan purchase commitment, including reviewing third-party appraisals, performing cash flow analysis, and evaluating a borrower's ability to exit at maturity. This helps the company maintain credit discipline throughout the process. Additionally, to protect against prepayments, most multifamily mortgage loans impose prepayment charges, such as a yield maintenance fee.
The company’s primary multifamily loan products include the following:
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.
Targeted affordable housing loans - Financing for properties located 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.
Small balance loans - Financing provided to small rental property borrowers for the acquisition or refinance of multifamily properties.
The volume and type of multifamily loans that the company purchases are influenced by the Multifamily loan purchase cap and the Multifamily Affordable Housing goals established by FHFA.
The company’s process for purchasing multifamily loans generally begins with a loan purchase commitment. Prior to issuing a commitment to purchase a multifamily loan, the company negotiates with the lender and quotes the specific economic terms and conditions of its commitment, including the loan's purchase price, index, and mortgage spread. Decisions related to the commitment price and/or mortgage spread are generally influenced by its current business strategy, competition in the market, the type of loan that it acquires (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. The company may offer pricing for a loan that furthers certain elements of its mission and/or supports its affordable housing goals that result in lower profitability as compared to the pricing it offers generally. The company also offers borrowers 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 its lenders, to lock the most volatile part of their coupon, thereby providing an enhanced level of risk mitigation against their 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 the company commits to purchase a multifamily loan, it preliminarily determines its intent with respect to that loan. For commitments to purchase fixed-rate loans that the company intends to sell (i.e., held-for-sale commitments), it generally elects the fair value option and therefore recognizes and measures these commitments at fair value in its consolidated financial statements. The company does not elect the fair value option for held-for-sale commitments to purchase floating-rate loans or loans that it intends to hold for the foreseeable future, including loans that it intends to securitize using trusts that it consolidates. As a result, the company recognizes a fair value gain based on the price it would receive to sell the mortgage loans in a typical securitization transaction at the commitment date for commitments it measures at fair value and generally at the time of securitization for held-for-sale loans where it does not elect the fair value option. Similarly, the company recognizes changes in fair value subsequent to the commitment date in earnings as they occur for commitments and loans it measures at fair value and at the time of securitization for held-for-sale loans where it does not elect the fair value option. The company does not recognize gains or losses at the time of securitization for loans or commitments that it classifies as held-for-investment, including loans that it intends to securitize using trusts that it consolidates.
The company’s multifamily commitments and loans are subject to changes in fair value due to changes in interest rates and changes in spreads. The company enters into interest-rate risk management derivatives and forward sale contracts to manage its interest-rate exposures from multifamily commitments and loans prior to securitization, including index lock agreements. As a result of the company’s interest-rate risk management activities, it has minimal exposure to earnings variability from changes in interest rates. However, index lock agreements for loans that the company intends to sell create temporary interest-rate-related earnings variability as it economically hedges the interest-rate risk created by the index lock agreement prior to entering into an offsetting loan purchase commitment. This exposure is typically fully offset when the company enters into the associated loan purchase commitment and elects to measure the commitment at fair value, as the fair value of the commitment reflects changes in the index rate that have occurred since it entered into the index lock agreement. As the company’s ability to manage spread risk is more limited than its ability to manage interest rate risk, it has exposure to earnings variability due to changes in spreads. The company enters into certain transactions to manage this exposure, including the following:
WI K-Deal Certificates - The company forward sells a K Certificate to be issued in the future to WI K Certificate investors, thereby reducing its exposure to future changes in interest rates and K Certificate spreads.
Spread-related derivatives - The company purchases or enters into certain spread-related derivatives, including the purchase of swaptions on credit indices providing some protection against significant adverse movements in spreads.
Securitization Products
The company securitizes substantially all of the loans it purchases after a short holding period. Loans awaiting securitization are generally referred to as being in its securitization pipeline. The company offers two main types of securitization products: K Certificates, which could either be fully guaranteed or senior subordinate securitizations, and Multifamily PCs, which are fully guaranteed securities where the company retains the credit risk of the underlying mortgage loans. The company may accept lower economic returns for securitizations that further certain elements of its mission and/or support its affordable housing goals while operating in a safe and sound manner.
K Certificates
In a senior subordinate K Certificate securitization, the company transfers the interest-rate risk, liquidity risk, and a portion of the credit risk of the underlying collateral to third-party investors. The structures of these transactions involve the issuance of senior and subordinate securities that represent undivided beneficial interests in trusts that hold pools of multifamily loans that the company previously purchased. In a senior subordinate K Certificate, the company sells multifamily loans to a non-Freddie Mac securitization trust that issues senior and subordinate securities and simultaneously purchases and places the senior securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. The company does not issue or guarantee the subordinate securities.
At the inception of a senior subordinate K Certificate transaction, the company recognizes a guarantee asset. This asset, which represents the right to collect contractual fees in exchange for its guarantee of the issued senior mortgage-related securities, is recorded at fair value with subsequent changes in fair value recognized in earnings. The fair value of the company’s guarantee assets may vary significantly from period to period based on changes in market conditions, including interest rates and credit spreads. Because the company’s 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. Pursuant to the company’s funds transfer pricing methodologies, gains and losses on interest-rate risk management derivative instruments are allocated to Multifamily to offset interest rate-related changes in fair value on guarantee assets.
The company’s K Certificate product offers investors a variety of structural and collateral options that provide for stable cash flows and structured credit enhancement. The volume and type of the company’s K Certificate securitizations are generally influenced by its business strategy, the product mix and size of its held-for-sale securitization pipeline, and market demand for multifamily securities. While the amount of guarantee fees the company receives may vary by collateral type and deal structure, it is generally fixed for those K Certificate series that the company issues with regular frequency (e.g., 5-, 7-, and 10-year fixed-rate K Certificates and floating rate K Certificates).
Multifamily PCs
Multifamily PCs are fully guaranteed securitizations. In a Multifamily PC securitization, the company retains the credit risk of the underlying mortgage loan by guaranteeing the principal and interest payments of the issued security while transferring the interest-rate and liquidity risks to the PC investors. Multifamily PCs are fully guaranteed pass-through securities with a 55-day payment delay that are collateralized by a single underlying mortgage loan. In exchange for providing the company’s guarantee, it receives an ongoing guarantee fee that is designed to be commensurate with the risks assumed and that will, over the long term, provide the company with guarantee net interest income that is expected to exceed the credit, administrative, and implied capital costs of the underlying loans. The company consolidates the securitization trusts used in these transactions and therefore does not account for Multifamily PC securitizations as sales of the underlying loans. As a result, the company classifies loans that it intends to securitize in Multifamily PC transactions as held-for-investment.
Other Securitization Products
The company’s other securitization products involve the issuance of mortgage-related 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 the company at loan origination and loans it does not own prior to securitization and that it underwrites after (rather than at) origination. These transactions involve a variety of structures, and the mortgage-related securities issued in these transactions may include guaranteed senior and unguaranteed subordinate securities or fully guaranteed pass-through securities. The company generally does not consolidate the securitization trusts used in these transactions as it does not direct loss mitigation activities.
Resecuritization Products
During 2024, the company expanded its security offerings to include Multifamily Giant PCs. Similar to the Single-Family Giant program, Multifamily Giant PCs enable investors to pool eligible PCs into a larger, single security with desired features to manage their portfolios more efficiently.
Other Mortgage-Related Guarantees
The company also guarantees mortgage-related assets held by third parties in exchange for guarantee fees, without securitizing those assets. For example, the company provides guarantees on certain tax-exempt multifamily housing revenue bonds issued by state and local housing finance authorities that are secured by low- and moderate-income multifamily loans.
Credit Enhancement Activities
The company transfers credit risk to third parties through subordination, which is created through its securitization products. In addition to subordination, the company enters into other types of CRT transactions to transfer to third parties a portion of the credit risk of certain loans that are not covered by subordination. In determining the nature and extent of the company’s credit enhancement activities, it considers a number of factors, including the degree of regulatory capital relief provided by a transaction, its risk appetite, the cost of CRT transactions, and the company’s internal view of future multifamily market conditions.
Other CRT Products
For multifamily assets for which the company has not transferred credit risk through securitization, it may pursue other strategies to reduce its credit risk exposure. The company’s primary other CRT products include the following:
MCIP - Insurance coverage underwritten by a group of insurers and/or reinsurers that generally provides mezzanine loss credit protection. These transactions are similar in structure to ACIS contracts purchased in Single-Family, except the reference pool may include bonds for which the company provided credit enhancement, in addition to loans, underlying its other mortgage-related guarantees. When specific credit events occur, the company receives compensation from the insurance policy up to an aggregate limit based on actual losses. The company requires its counterparties to partially collateralize their exposure to reduce the risk that it will not be reimbursed for its claims under the policies.
MSCR notes - A securities-based credit risk sharing vehicle similar to STACR Trust notes in Single-Family. In a MSCR notes transaction, the company creates a reference pool of loans from its 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. The company makes payments to the trust to support the interest due on the notes. The amount of risk transferred in each transaction affects the amounts the company is required to pay. The company receives 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 the company, 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.
In addition to the company’s other CRT products, it may engage in whole loan sales, including sales of loans to funds to which it may also provide secured financing, to eliminate its interest-rate risk, liquidity risk, and credit risk exposure to certain loans.
Investing Activities
The company primarily uses its Multifamily mortgage-related investments portfolio to provide liquidity to the multifamily mortgage market by purchasing loans for its securitization pipeline. The company may also hold certain multifamily mortgage loans or agency mortgage-related securities as investments. Depending on market conditions and its business strategy, the company may purchase or sell guaranteed K Certificates or other securitization products at issuance or in the secondary market, including interest-only securities. Through the company’s ownership of the securities, it is exposed to the market risk on the loans underlying its securitizations. The company also invests in certain non-mortgage investments, including LIHTC partnerships and other secured lending activities. The company’s current investment in the LIHTC market is limited to $1 billion annually. The company’s ongoing investment in LIHTC partnerships helps to support and preserve the supply of affordable housing.
Customers
The company’s Multifamily customers include both investors in its securitization products and other CRT products, as well as financial institutions that originate, sell, and service multifamily mortgage loans to it. Investors include banks and other financial institutions, insurance companies, money managers, hedge funds, pension funds, state and local governments, and broker dealers. The company’s multifamily loan purchases are generally sourced through its Optigo network of approved lenders, which are primarily non-bank real estate finance companies and banks. Many of these lenders are both sellers and servicers to the company.
Competition
The company’s principal competitors in the multifamily mortgage market are Fannie Mae, FHA, commercial and investment banks, CMBS conduits, savings institutions, debt funds, and life insurance companies.
Regulation and Supervision
In addition to the company’s oversight by FHFA as its Conservator, it is subject to regulation and oversight by FHFA under its Charter and the GSE Act and to certain regulation by other government agencies.
The GSE Act specifies certain capital requirements for the company and authorizes FHFA to establish other capital requirements, as well as to increase its minimum capital requirements or to establish additional capital and reserve requirements for particular purposes.
HUD has regulatory authority over Freddie Mac with respect to fair lending. HUD periodically reviews and comments on the company’s underwriting and appraisal guidelines for consistency with the Fair Housing Act and the anti-discrimination provisions of the GSE Act.
In addition, under the company’s Charter, the Secretary of the Treasury has approval authority over its 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 company is subject to the reporting requirements applicable to registrants under the Exchange Act.
History
Federal Home Loan Mortgage Corporation was founded in 1970 by Congress. The company was incorporated in 1970.
