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Slide 1: Freddie Mac Update January 2009
Slide 2: Table of Contents Section I II III IV V VI Freddie Mac Overview U.S. Housing Market Credit Guarantee Business Investment Management Business Global Debt Funding Program Mortgage Funding Page 2 10 24 33 42 48 For more information about Freddie Mac and its business, please see the company’s filings with the Securities and Exchange Commission, including the company’s Registration Statement on Form 10, dated July 18, 2008, which are available on the Investor Relations page of the company’s Web site at www.FreddieMac.com/investors and the Securities and Exchange Commission’s Web site at www.sec.gov. 1
Slide 3: Freddie Mac Overview
Slide 4: Congress created Freddie Mac to provide stability, liquidity, and affordability to the U.S. residential mortgage market U.S. Residential Mortgage Market Mortgage Securitization Freddie Mac Mortgage Investments Mortgage-backed Securities Global Capital Markets Debt Securities “A primary purpose is to provide stability in the secondary market for home mortgages including mortgages securing housing for low and moderate income families. This can be accomplished through both portfolio purchasing and selling activities, as well as through the securitization of home mortgages.”1 1House of Representatives report on FIRREA, No. 54, 101st Congress, 1st Session, Part 3 at 2 (1989). 3
Slide 5: Freddie Mac is a central part of the U.S. housing market $ Trillions 25 U.S. Residential Mortgage Debt Outstanding 2007 FRE/FNM Total Portfolio FRE/FNM Eligible Total US Residential Mortgages $ Trillions 5.0 10.4 12.0 $13.3 20 $19.7 15 $11.2 $12.0 $12.2 $12.4 10 $5.5 $10.1 5 $2.9 $3.7 0 1990 1995 2000 2005 2006 2007 2008 Est. 2009 Est. 2010 Est. 2015 Est. FRE/FNM Total Portfolio Total U.S. Residential Mortgages FRE/FNM Eligible Sources: Freddie Mac Total Portfolio: Monthly Volume Summary, January 2008; Fannie Mae Total Portfolio: Monthly Summary, January 2008, “Book of Business”; Total US Residential MDO: Federal Reserve Board’s Flow of Funds Accounts, December 11, 2008. The MDO forecast for 2008 through 2011 is based on the December 2008 forecast of Freddie Mac’s Chief Economist. Forecasted figures for 2012 through 2015 are from the Homeownership Alliance, based on an 8.25% annual growth rate, and assume a constant FHA & VA share of MDO; FRE/FNM Eligible MDO: Nets out an assumed 15% jumbo share of single-family conventional MDO. 4
Slide 6: Our credit guarantee business has accounted for most of our growth UPB $ Billions 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2002 1 Total mortgage portfolio $2,103 $1,827 $1,685 $1,317 $1,415 $1,506 $2,200 $1,395 $1,827 $805 $432 $373 2003 1 2004 1 2005 2006 2007 2008 YTD Outstanding Guaranteed PCs and Structured Securities Retained Portfolio (PCs & Structured Securities) Retained Portfolio (Non-Freddie Mac Mortgage-Related Securities & Mortgage Loans) 1 Includes PCs and Structured Securities Freddie Mac held in connection with PC market-making and support activities accomplished through the Securities Sales & Trading Group business unit and the Money Manager program. These programs ceased in the fourth quarter of 2004. Source: Data as of period end. Data for 2002-2004 is based on Freddie Mac’s Information Statements dated September 24, 2004 and June 14, 2005. Data for 2005-2007 is based on Freddie Mac’s Registration Statement on Form 10 dated July 18, 2008. Data for 2008 is based on Freddie Mac’s November 2008 Monthly Volume Summary. Figures for 2008 are subject to change. 5
Slide 7: Housing and Economic Recovery Act of 2008 The Housing and Economic Recovery Act of 2008 was signed into law by President Bush on July 30, 2008 » The Act is a comprehensive housing stimulus package containing GSE reform, FHA modernization, and foreclosure prevention measures, among other provisions » The Act consolidates the regulation of Freddie Mac, Fannie Mae, and the Federal Home Loan Banks into a single new regulator called the Federal Housing Finance Agency (FHFA) Implementation of many provisions of the new law will occur over time through the public rulemaking process The Act requires FHFA to consult with the Federal Reserve with respect to the risk posed to the financial system before issuing any regulations, guidelines, and orders regarding safe and sound operations, prudential management and operations standards, capital requirements, and portfolio standards » This consultative requirement expires on December 31, 2009 6
Slide 8: Key provisions of the Act Under the Act, FHFA has authority to: » Assess our safety and soundness » Regulate our portfolio investments » Change our minimum and risk-based capital levels » Approve new products before they are initially offered In addition, the Act: » Allows increases in GSE loan limits based on changes in a new housing price index established by FHFA, beginning January 1, 2009 • In high-cost areas, increases the limits to the lesser of 115% of the median home price or 150% of the limit, currently $625,500 for a 1-unit single-family home » Establishes a new affordable housing regime » Requires the GSEs to set aside and transfer, in each fiscal year, an amount equal to 4.2 basis points of the unpaid principal balance of total new business purchases to two new housing funds Provides Treasury authority to purchase GSE obligations and securities, under certain conditions, until December 31, 2009 7
Slide 9: Conservatorship The Director of the Federal Housing Finance Agency (FHFA) has placed Freddie Mac and Fannie Mae in conservatorship in order to restore the balance between the GSEs’ safety and soundness and mission » Treasury Secretary Paulson stated that the primary mission of the GSEs is to proactively work to increase the availability of mortgage finance, including consideration of mortgage affordability FHFA is the Conservator for both GSEs » The Conservator assumes all power of the Boards, management and shareholders » FHFA has appointed a new CEO to lead each GSE » FHFA has stated that the GSEs will continue business as usual during the conservatorship FHFA has indicated that the conservatorship goals include: » Restoring confidence in the GSEs » Enhancing the GSEs’ capacity to fulfill their missions » Mitigating systemic risk that contributes to market instability FHFA has indicated that a GSE’s conservatorship will end when the Director determines that it has been restored to a safe and solvent condition On October 9, 2008, FHFA announced that has suspended the capital classification of both GSEs during the conservatorship, in light of the United States Treasury Senior Preferred Stock Purchase Agreement 8
Slide 10: Treasury Actions Treasury has announced additional actions: » Entering into a Senior Preferred Stock Purchase Agreement with each GSE • Each Agreement provides a commitment for a maximum amount funded of $100 billion for the GSE • As consideration, each GSE has issued to Treasury senior preferred stock and a warrant to acquire 79.9% of the GSE’s common stock Creating a GSE Credit Facility • Short-term facility is available to Freddie Mac, Fannie Mae and the Federal Home Loan Banks • Funding under the facility would be provided directly by Treasury to Freddie Mac in exchange for eligible collateral consisting of guaranteed agency MBS • Facility available until December 31, 2009 Announcing an MBS Purchase Program • Treasury will purchase GSE MBS in the open market • Program will begin in September 2008 and expire on December 31, 2009 • Scale of program will be based on developments in the capital markets and housing markets » » 9
Slide 11: U.S. Housing Market
Slide 12: Single-family mortgage debt is protected in relation to total value of housing stock $ Trillions 25 20 $8.5 Trillion 15 Value of Housing Stock1 10 Home Equity $7.1 Trillion (2001) 5 $10.6 Trillion Single Family Mortgage Debt 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1 Value of Housing Stock: Federal Reserve Board’s Flow of Funds Accounts, December 11, 2008, Table B.100 (line #50). Note this figure includes homes with and without underlying mortgages. Home equity is the difference between the value of the housing stock and the amount of single-family debt. 2 Single-family Mortgage Debt Outstanding: Federal Reserve Board’s Flow of Funds Accounts, December 11, 2008, Table B.100 (line #33). 11 Source: Federal Reserve Board’s Flow of Funds Accounts. 2008 data as of September 30, 2008.
Slide 13: U.S. nominal house prices declined sharply Percent Annual national house price growth 16 14 12 10 8 6 4 2 0 -2 -4 -6 1952 1956 1960 1964 1968 1972 1976 - Recession Year 4.7%: 1952-2008 Average Growth Rate 1980 1984 1988 1992 1996 2000 2004 2008 Forecast Note: Growth rates for 1952 to 2007 are calculated using the annual average of certain third party and Freddie Mac indices. The forecasted growth rate for 2008 is calculated using a Freddie Mac index. Sources: E. H. Boeckh and Associates, Bureau of Labor Statistics, U.S. Census Bureau and Freddie Mac. 12
Slide 14: Inventories of homes for sale remain above recent levels Months Supply of Homes for Sale 15 14 Existing Homes 13 12 11 10 9 8 7 6 5 4 New Homes 3 2 1 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 - Recession Sources: Census Bureau and National Association of Realtors. 2008 data as of November 30, 2008. 13
Slide 15: Fewer refinances imply a 27 percent drop in mortgage originations in 2008 Total single-family mortgage originations $ Billions 4,000 Refinance Originations Home Purchase Originations 3,000 2,000 1,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Est. Est. Source: U.S. Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Federal Housing Finance Board. 2008 data based on the December 2008 forecast of Freddie Mac’s Office of the Chief Economist. 14
Slide 16: National home prices have continued to decline1 Quarterly home price change Percent 5 4 3 2 1 0 (1) (2) (3) (4) (5) 1Q 2005 3Q 2005 1Q 2006 3Q 2006 1Q 2007 3Q 2007 1Q 2008 3Q 2008 (3.9) (3.9) (1.1) (0.3) (0.9) (1.4) (1.8) 2.5 1.7 1.7 1.2 0.4 0.7 3.8 3.4 1 National home prices use the internal Freddie Mac index, which is value-weighted based on Freddie Mac’s single-family portfolio. Source: Freddie Mac. 15
Slide 17: 43 states and Washington DC had home price declines from 3Q 2007 to 3Q 20081 United States -10.5% -4.3 -0.9 -5.8 -3.9 -0.1 -1.5 -26.8 -27.7 -19.2 -6.1 -4.4 -1.0 -6.7 -1.4 -3.5 -2.9 1.5 -0.1 -2.6 -3.4 0.7 -3.2 1.4 -1.5 -1.3 -0.5 -2.5 -5.2 0.7 -0.8 0.0 2.4 -7.2 -4.6 -12.7 -2.7 -5.7 -6.7 -9.3 -5.1 -10.3 RI –11.7 CT –6.1 DC –6.5 -1.9 -4.8 -8.1 -6.5 -2.6 4.1 -20.8 >= 0% -5 to 0% -10 to -5% -20 to -10% < -20% 1 National home prices use the internal Freddie Mac index, which is value-weighted based on Freddie Mac’s single-family portfolio. Source: Freddie Mac. 16
Slide 18: Subprime and Alt-A shares of the market quintupled between 2001 and 2006, then declined sharply 2001 5% 8% 7% 57% 20% 20% 16% 13% 3% 2006 2008 YTD 3% 14% 33% 8% 17% 3% 1% 7% 64% $2.2 trillion $3.0 trillion $1.8 trillion Conventional, Conforming Prime Jumbo Prime Subprime Alt-A FHA & VA Home Equity Loans 17 Source: Inside Mortgage Finance (by dollar amount) and Freddie Mac. 2008 data is as of September 30, 2008.
Slide 19: Recent Alt-A and subprime originations are performing far worse than earlier originations Cumulative 60-days or more delinquency rate as a share of the number of loans originated Alt-A Percent (% ) 11 10 9 8 7 6 5 4 3 2 1 0 0 4 8 12 16 20 24 28 32 36 40 44 48 Age in Months 2002 2003 2004 2005 2006 Subprime Percent (% ) 30 25 20 15 10 5 0 0 4 8 12 16 20 24 28 32 36 40 44 48 Age in Months 2007 18 Source: Loan Performance, a subsidiary of First American Real Estate Solutions.
Slide 20: Hybrid ARM mortgages are experiencing faster delinquency rates than fixed-rate mortgages Hybrid ARM Mortgages Percent 40 Subprime 35 30 25 20 15 10 5 0 1998 Alt-A Percent 40 35 30 25 20 15 10 5 Jumbo 0 1998 2000 2002 2004 2006 2008 Fixed-rate Mortgages Subprime Alt-A Jumbo 2000 2002 2004 2006 2008 Source: Citigroup. 19
Slide 21: Subprime ARM defaults are 21 times those on prime fixedrate mortgages Loans 90 days or more delinquent or in foreclosure Percent 25 - Recession 20 Subprime ARM 15 10 Subprime FRM FHA & VA 5 Prime Conventional FRM 0 1998 1999 2000 2001 2002 2003 Prime Conventional ARM 2004 2005 2006 2007 2008 20 Source: Mortgage Bankers Association. Quarterly data not seasonally adjusted (Q1 1998 – Q2 2008).
Slide 22: Annual MBS issuance by product type Subprime Alt-A $ Billions 500 450 400 350 300 250 200 150 100 50 0 Percent 25 20 15 10 5 0 $ Billions 500 450 400 350 300 250 200 150 100 50 0 Percent 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD Subprime MBS Issuance Percent of Total MBS Issuance 2000 2001 2002 2003 2004 2005 2006 2007 2008 YTD Alt-A MBS Issuance Percent of Total MBS Issuance Source: Inside MBS & ABS – October 10, 2008 edition, Freddie Mac and Fannie Mae. Data as of September 30, 2008. 21
Slide 23: Jumbo-conforming spreads spiked to record levels in December 2008 Basis points 200 180 160 140 120 100 80 60 40 20 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 22 Record: 184 bps 12/09/08 Most recent: 169 bps 12/26/08 Effective jumbo-conforming interest rate spread Note: Effective spread adds fees and points to the interest rate. Source: HSH Associates. Data as of December 26, 2008.
Slide 24: Mortgage rates on conforming jumbo loans 30-year fixed mortgage rates Percent 8 7 6 5 Jan Jan Feb Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug Aug Aug Sep Sep Oct- Oct4 18 1 15 29 14 28 11 25 9 23 6 20 3 18 1 15 29 12 26 10 24 30-Year Conforming 30-Year Conforming Jumbo 30-Year Non-Conforming Jumbo Source: HSH Associates. Points and fees are added to interest rates. 23
Slide 25: Credit Guarantee Business
Slide 26: Our GSE market share remains near historical levels Freddie Mac share of PC/MBS issuances1 (Percent) Freddie Mac’s GSE market share 50 45% 43% 41% 40 37% 35 43% 43% 40% 45 30 2002 2003 2004 2005 2006 2007 2008 YTD For 2006, 2007 and 2008, Freddie Mac’s share of PC/MBS issuances is calculated as Freddie Mac’s issuance activities for Total Guaranteed PCs and Structured Securities Issued divided by the sum of such issuances and Fannie Mae’s Total MBS Issuances. Source: Freddie Mac and Fannie Mae Monthly Summaries. 2008 data as of November 30, 2008. Figures for 2008 are subject to change. 1 25
Slide 27: We fulfill our mission through a diversity of mortgage products Total mortgage portfolio purchases Eleven months ended November 30, 2008 $369.1 Billion 20-year Fixed Rate 2% 30-year Fixed Rate 72% 30-year Fixed Rate 64% Total mortgage portfolio As of November 30, 2008 $1.9 Trillion 20-year Fixed Rate 4% 15-year Fixed Rate 13% 15-year Fixed Rate 8% IO 6% ARM 3% IO 8% Multifamily Conventional 6% Other 3% ARM 4% Option ARM 1% Balloon 1% Multifamily Conventional 4% Other 1% Note: Excludes non-Freddie Mac mortgage-related securities. Source: Freddie Mac. 26
Slide 28: Significant homeowner equity supports the credit quality of our single-family portfolio Average estimated loan-to-value1 ratio of our single-family portfolio adjusted to reflect current market prices Average Estimated Current LTV (Percent) 70 68% 65% 65 63% 60% 61% 61% 61% 58% 56% 55 63% 60 57% 50 1998 1 1999 2000 2001 2002 2003 2004 2005 2006 2007 Sept 30, 2008 Based on the unpaid principal balance of the single-family mortgage portfolio, excluding Structured Transactions backed by Ginnie Mae Certificates and certain Structured Transactions that are backed by non-Freddie Mac mortgage-related securities. Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes since origination. Estimated current LTV ratio range is not applicable to purchases we made during 2008, includes the credit-enhanced portion of the loan and excludes any secondary financing by third parties. 27 Source: Freddie Mac’s Form 10-Q dated November 14, 2008. Data as of period end.
Slide 29: Freddie Mac’s portfolio is well diversified1 North Central West 26% 19% Northeast 24% Southwest 13% Southeast 18% 1 Based on unpaid principal balances. Source: Freddie Mac’s Form 10-Q dated November 14, 2008. Data as of September 30, 2008. 28
Slide 30: Estimated sensitivity of credit losses to an immediate 5% decline in house prices1 Net Present Value ($ Millions) 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 9/30/2008 Before credit enhancements 2 1 2 3 After credit enhancements 3 Based on the single-family mortgage portfolio, excluding Structured Securities backed by Ginnie Mae Certificates. Assumes that none of the credit enhancements currently covering our mortgage loans has any mitigating impact on our credit losses. Assumes we collect amounts due from credit enhancement providers after giving effect to certain assumptions about counterparty default rates. 29 Source: Freddie Mac’s Form 10-Q dated November 14, 2008.
Slide 31: Credit delinquencies and losses continue to increase 90-day single-family delinquencies1 Total credit losses2 Basis Points 130 120 110 100 90 80 70 60 50 40 30 2004 2005 2006 2007 Basis Points 20 18 16 14 12 10 8 6 4 2 0 Sept 30, 2004 2008 2005 2006 2007 2008 YTD 1 Based on mortgage loans in our retained portfolio and total guaranteed PCs and Structured Securities issued, excluding Structured Transactions, Structured Securities backed by Ginnie Mae Certificates and mortgage loans whose contractual terms have been modified under an agreement with the borrower and the borrower is less than 90 days delinquent under the modified terms. as annualized credit losses divided by the average total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and that portion of Structured Securities that is backed by Ginnie Mae Certificates. 2008 YTD is for nine months ended September 30, 2008. Source: Freddie Mac’s Form 10-Q dated November 14, 2008. 2Calculated 30
Slide 32: Delinquencies are low relative to the industry 90-day or more delinquencies Basis Points 300 287 250 200 167 199 235 150 100 65 77 93 152 122 134 50 0 2003 2004 2005 2006 2007 1Q 2Q 3Q Oct Nov 2008 2008 2008 2008 2008 1 MBA Prime Conventional Mortgage Delinquencies Freddie Mac Total Single-Family 90-day or More Delinquencies 1 Based on mortgage loans in our retained portfolio and total guaranteed PCs and Structured Securities issued, excluding Structured Transactions, Structured Securities backed by Ginnie Mae Certificates and mortgage loans whose contractual terms have been modified under an agreement with the borrower and the borrower is less than 90 days delinquent under the modified terms. Source: Mortgage Bankers Association and Freddie Mac. Data as of period end. 31
Slide 33: Single-family delinquency rates by region (In Basis Points) Non-credit enhanced delinquency rates 1 2 3 4 5 North Central Northeast Southeast Southwest West 1 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 39 31 43 27 26 48 39 59 32 42 52 45 76 33 59 59 53 98 38 80 72 69 131 46 108 Total single-family delinquency rate 6 Total portfolio 2 51 65 77 93 122 1 Presentation of non-credit-enhanced delinquency rates with the following regional 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); and Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY). on mortgage loans in our retained portfolio and total guaranteed PCs and Structured Securities issued, excluding Structured Transactions, Structured Securities backed by Ginnie Mae Certificates and mortgage loans whose contractual terms have been modified under an agreement with the borrower and the borrower is less than 90 days delinquent under the modified terms. Source: Freddie Mac’s Form 10-Q dated November 14, 2008. Data as of period end. 2 Based 32
Slide 34: Investment Management Business
Slide 35: Freddie Mac’s asset-liability management framework is disciplined Return Equity Threshold Return onon Equity Threshold Interest Rate Risk Management Maximize Fair Value 34
Slide 36: Retained portfolio growth depends on market conditions Retained portfolio growth $85 $78 $70 $57 UPB $ Billions 90 80 70 60 50 40 30 20 10 0 -10 2002 2003 $17 $7 -$6 2004 2005 2006 2007 2008 YTD Note: Data represents net growth of the Retained portfolio based on unpaid principal balances. Source: Data for 2002-2004 is based on Freddie Mac’s Information Statements dated September 24, 2004 and June 14, 2005. Data for 2005-2007 is based on Freddie Mac’s SEC Registration Statement on Form 10 dated July 18, 2008. Data for 2008 is based on Freddie Mac’s November 2008 Monthly Volume Summary. Figures for 2008 are subject to change. 35
Slide 37: Freddie Mac’s Retained portfolio is diversified among a number of product types Retained portfolio1 Mortgage Loans 14% Freddie Mac Multi-class Structured Securities 18% Non-Freddie Mac MBS 35% Non-FRE MBS1 CMBS 25% Subprime 30% Ginnie Mae <1% Alt-A & Other 18% Freddie Mac Single Class PCs 33% Manufactured Housing <1% Fannie Mae 22% Mortgage Revenue Bonds 5% 1 Based on unpaid principal balances. Exclude mortgage-related securities traded, but not yet settled. Source: Freddie Mac. Data as of September 30, 2008. 36
Slide 38: Retained portfolio composition Retained portfolio $737 billion Mortgage Loans 14% ($100 B) Agency 8% ($57 B) Non-Agency Backed by Subprime Loans 11% ($80 B) Non-Agency Backed by Alt-A and Other Loans 6% ($46 B) PCs and Structured Securities 51% ($375 B) Other Non-Agency 11% ($79 B) Note: Credit ratings for most non-agency mortgage-related securities are designated by no fewer than two nationally recognized statistical rating organizations. Approximately 66% and 96% of total non-agency mortgage-related securities held at September 30, 2008 and December 31, 2007, respectively, were AAA-rated as of those dates, based on the lowest rating available. Source: Freddie Mac’s Form 10-Q dated November 14, 2008. Data based on unpaid principal balances as of September 30, 2008 and exclude mortgage-related securities traded, but not yet settled. 37
Slide 39: The majority of our convexity is hedged upfront Example of how we limit the negative convexity embedded in our Retained portfolio assuming the convexity risk of the mortgage universe Asset Selection Dynamically Rebalanced Mortgage Structuring Swaptions Callable Debt Hedging activities executed upon purchase of mortgage 38 Note: Figure above is an example only. It is not intended to represent percentages of Freddie Mac’s Retained portfolio hedged by each instrument.
Slide 40: PMVS is Freddie Mac’s primary interest-rate risk measure PMVS-Level Parallel LIBOR Curve Shifts PMVS-Yield Curve Non-Parallel LIBOR Curve Shifts << Yield Yield < Term << + 50 bps - 50 bps - 12.5 bps(2-year) + 12.5 bps(10-year) < Term Source: Freddie Mac. 39
Slide 41: Interest-rate risk is well controlled Average monthly PMVS-Level $ Millions 600 500 400 300 200 100 0 Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov 07 07 08 08 08 08 08 08 08 08 08 08 08 $378 $385 $331 Average monthly duration gap Months $571 $576 $438 $437 $390 $348 $271 $395 $354 $394 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov 07 07 08 08 08 08 08 08 08 08 08 08 08 Note: 2007 and 2008 figures based on Freddie Mac’s November 2008 Monthly Volume Summary. Figures for 2008 are subject to change. Source: Freddie Mac. 40
Slide 42: Callable debt is an integral part of our interest-rate risk management framework Callable debt outstanding as a share of fixed-rate assets1 Percent 50 49 48 47 46 45 44 43 2004 1Excludes 2005 2006 2007 1Q 2008 2Q 2008 3Q 2008 41 callable debt with expired options. Source: Freddie Mac.
Slide 43: Global Debt Funding Program
Slide 44: Freddie Mac’s suite of debt products $ Billions 900 10 800 251 700 600 500 400 300 200 100 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Short-term Debt MTN Bullet Debt US$ Reference Notes® Callable Debt Subordinated Debt €Reference Notes® 312 206 5 78 Debt securities outstanding Note: All figures represent face amounts in USD billions based on trade date. These figures could differ significantly from proceeds, amortized principal amount and book value figures, particularly for zero-coupon securities. Source: Freddie Mac. 2008 data as of December 31, 2008. 43
Slide 45: Refinancing our maturing debt requires substantial issuance of debt $ Billions 250 Freddie Mac long-term debt maturities1 200 Other Debt Securities Reference Notes 150 149 100 52 50 53 0 2009 1Freddie 46 27 51 14 35 2011 24 2012 26 2013 13 9 2014 11 2015 5 17 2016 4 33 49 2010 >2017 Mac long-term debt maturity figures excluding subordinated debt. Note: All figures represent face amounts in USD billions based on the settlement date. Source: Freddie Mac. Data as of December 31, 2008. 44
Slide 46: Short-term debt balances have grown but remain within historical levels Total short-term debt outstanding Total short-term as a % of total debt outstanding $ Billions 350 300 35% 40% 250 200 30% 150 100 50 0 Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul02 02 03 03 04 04 05 05 06 06 07 07 08 08 20% Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul- Jan- Jul02 02 03 03 04 04 05 05 06 06 07 07 08 08 25% Rapid Portfolio Growth Periods Source: Freddie Mac. Data as of December 31, 2008. 45
Slide 47: Our debt funding program accesses diverse pools of global capital Geographical area Other 2% Investor type Insurance & Pension 6% Bank 10% Central Bank 42% Europe 14% Other 12% N. America 51% Asia 33% Investment Manager 30% 46 Note: Data reflects orders placed in our US$ Reference Notes® securities syndicated bond deals. Source: Freddie Mac. Data for the 12 months ended December 31, 2008.
Slide 48: Agencies vs FDIC guaranteed bank paper Freddie Mac Funding Unlimited secured short-term borrowing facility through Treasury $100 billion of preferred capital from U.S. Treasury Short-term borrowing facility reverts to $2.25 billion on December 31, 2009 $100 billion of preferred capital agreement is indefinite in duration 20% (possibly lowered to 10%) Mandate for some local entities and banks allows them to invest in Agencies in addition to Treasuries Traditional investors already hold a large pool of Agencies Issues with > $1 billion are liquid Easy to repo Offer tailored, flexible investment and maturity dates and size Over $1 trillion of short-term debt maturing for Freddie Mac, Fannie Mae & Home Loan Bank combined FDIC Guaranteed Bank Paper FDIC has unlimited borrowing authority at Treasury FDIC guarantee on members’ debt FDIC borrowing reverts to $30 billion on December 31, 2009 Valid on debt issued from now until June 30, 2009, with coverage ending in June 2012 Yet to be decided New instrument with no precedence Expiration Risk Weight Structural Considerations Diversification Liquidity Repo Flexibility New Supply through Dec ‘09 Attractive for investors looking to diversify from Agencies To be determined Repo market needs to be established Less flexible maturity structure Maximum of $1.4 trillion of debt could be guaranteed by the FDIC Sources: Freddie Mac, Barclays Capital and Morgan Stanley 47
Slide 49: Mortgage Funding
Slide 50: U.S. mortgage securities are the largest fixed-income sector Outstanding public and private bond market debt – $33.2 Trillion Treasury 1 ($5.5) Municipal 17% ($2.7) 8% Corporate Debt ($6.1) 18% 4 Agency Debt ($3.2) 10% 2 3 MBS ($8.9) 27% Market 5 Asset-Backed ($2.8) 8% 4 Money ($4.0) 12% 1 2 3 4 5 Interest-bearing marketable public debt. Includes Freddie Mac, Fannie Mae, Federal Home Loan Banks, Tennessee Valley Authority and Farm Credit System. MBS include Ginnie Mae, Fannie Mae and Freddie Mac mortgage-backed securities, CMOs and private-label MBS/CMOs. Securities Industry and Financial Markets Association estimates. Includes commercial paper, bankers acceptances and large time deposits. Beginning in 2006, bankers’ acceptance are excluded. Note: Percentages may not add up to 100% due to rounding. Source: Securities Industry and Financial Markets Association as of September 30, 2008. 49
Slide 51: MBS – a major investment vehicle Amount Outstanding $ Billions 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1970 1975 1980 1985 1990 1995 2000 2005 2006 2007 2Q 2008 GSE, Ginnie Mae & Private-Label MBS Treasury Securities Non-GSE Corporate Bonds Sources: Federal Reserve Board and Securities Industry and Financial Markets Association. 2008 data as of June 30, 2008. 50
Slide 52: To-be-announced (TBA) market Buyer and seller decide on general trade parameters » Term » Agency » Coupon » Settlement date » Par amount » Price Buyer does not know which pools will actually be delivered until two days before settlement Seller is obligated to provide pool information by 3 p.m. two days prior to settlement (“48-Hour Rule”) Pools must satisfy Securities Industry and Financial Markets Association (SIFMA) good delivery guidelines 51
Slide 53: Secondary market securities Pass-throughs or participation certificates (PCs) » Securitization structure where a GSE or other entity ‘passes’ the amount collected from the borrowers every month to the investor, after deducting fees and expenses CMOs or REMICs » Collateralized Mortgage Obligations or Real Estate Mortgage Investment Conduits » Multiclass securities backed by mortgage loans, pools of mortgages, or even existing CMOs or REMICs Strips » Separation of coupons from a bond, where the coupons become a security and the remaining face-value bond becomes another security • Interest-only (IO) • Principal-only (PO) 52
Slide 54: Pass-through formation TBA Market P Loan A Loan B Loan C . . . i P i P i P i P i P i P i P i Pass-through Freddie PC P i Loan X Pass-through Freddie Giant PC Pass-through Freddie PC P i Loan A Loan B Loan C . . . Loan X 53
Slide 55: REMIC formation Pass-Through Freddie PC P i . . . Tranche A Tranche B Tranche C REMIC Trust Freddie REMIC . . . Tranche D Tranche E Tranche D Tranche E F Pass-Through Freddie Giant PC P i Tranche G 54
Slide 56: Sequential REMIC tranches Note: Chart shows how principal (darker shading) and interest (lighter shading) would be allocated to each of three hypothetical sequential tranches if no repayments were made on the underlying mortgages. 55
Slide 57: Strip formation Pass-through Freddie PC P i . . . Principal-only P PO Strip Trust Freddie Giant PC Pass-through Freddie PC P i i Interest-only IO 56
Slide 58: Reference REMIC securities offer liquidity, transparency and predictability Liquidity » Broad dealer sponsorship and secondary market support Transparency » Primary issuance through syndicated offerings » Secondary market support through Freddie Mac REMIC Dealer Group » PCs underlying the offered GMC are disclosed prior to pricing Predictability » Calendar-based monthly optional issuance windows » Maximum of three Reference REMICs issued per quarter » Average life extension limited by shortened stated final maturity date 57
Slide 59: Freddie Mac’s mortgage products Mortgage products outstanding $ Billions 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2000 2001 REMICs 2002 2003 2004 2005 2006 Strips 2007 PCs 2008-YTD Reference REMIC T-deals/Whole Loan REMIC 58 Source: Freddie Mac. Data as of November 30, 2008.
Slide 60: Freddie Mac mortgage securities products Gold PCs » Pass-through securities representing an undivided interest in a pool of residential mortgages Giant PCs » Pass-through securities that are created by consolidating smaller PCs into larger Giant PCs ARM PCs » Mortgage-backed securities representing an undivided interest in a pool of residential adjustable-rate mortgages Multifamily PCs » PCs backed by loans covering residences with five or more units designed principally for residential use 59
Slide 61: Freddie Mac mortgage securities products REMICs » Customized mortgage structures created from mortgage pass-through securities by redistributing cash flows to cater to a variety of market demands Reference REMICs® » A structured alternative to a traditional 30- or 15-year mortgage-backed security and built on the success of Freddie Mac’s guaranteed maturity class (GMC) product Strips » Formed from Giant PCs of either Freddie Mac Gold PCs or GNMA certificates and generally represent the Interest-only (IO) and Principal-only (PO) cash flow components of a pool 60
Slide 62: Composition of Freddie Mac’s single-family pass-through securities1 Option ARMs <1% Balloons/Resets 1% ARMs/ Adjustable-Rate 5% Interest-Only 9% Conformingjumbo <1% FHA/VA <1% RHS and other federally guaranteed loans <1% 15-year fixed-rate 14% 30-year fixed-rate 71% 1 2 Based on unpaid principal balances of the securities and excludes mortgage-related securities traded, but not yet settled. Also includes long-term standby commitments for mortgage assets held by third parties that require that we purchase loans from lenders when these loans meet certain delinquency criteria. 2 Portfolio balances include $1.9 billion and $1.8 billion of 40-year fixed-rate mortgages as well as $68.7 billion and $72.2 billion of 20-year fixed-rate mortgages at September 30, 2008 and December 31, 2007, respectively. 61 Source: Freddie Mac’s Form 10-Q dated November 14, 2008. Data as of September 30, 2008.
Slide 63: Agency CMO issuance Agency CMO Issuance $ Billions 400 300 200 100 0 2004 2005 2006 Fannie Mae 2007 Freddie Mac Agency CMO Outstanding $ Billions 1,400 1,200 1,000 800 600 400 200 0 2008 2004 2005 2006 Fannie Mae 2007 2008 Ginnie Mae Freddie Mac Ginnie Mae Source: Bloomberg. Data as of December 31, 2008. 62
Slide 64: Composition of collateral underlying Freddie Mac’s REMICs issued Other <1% Balloon <1% ARM 1% 20-year 5% 15-year 12% 30-year 82% Source: Freddie Mac. Data as of September 30, 2008. 63
Slide 65: Reference REMIC® securities – a structured mortgagebacked securities investment option Calendar-based issuance of REMIC securities with a guaranteed maturity class (GMC) offered through a syndicate underwriting group Stated final maturity date guaranteed by Freddie Mac. » Average issue size of $1.5 billion Integrated into Freddie Mac’s Reference suite of products, Reference Bills® and Reference Notes®, featuring: » Liquidity » Transparency » Calendar-based predictability Designed to further Freddie Mac’s housing mission by broadening the investor base for mortgage-backed securities 64
Slide 66: Reference REMIC securities offer an unmatched array of attractive features Reference REMIC securities are an outstanding compliment to traditional REMICs and TBA pass-through securities currently offered by Freddie Mac. Freddie Mac Reference REMIC TradeWeb Eligibility Daily Closing Prices Guaranteed Shortened Final Maturity Syndicate Led Issuance Calendar Fully Collateralized by Mortgages/MBS Collateral Disclosed Pre-Pricing Re-REMIC/MACR Eligible No Upsize (or "Tapping") Post-Pricing √ √ √ √ √ √ √ √ √ √ √ √ Prepayment Linked Notes Some Some √ Some √ √ Syndicated Callables √ √ ABS 65
Slide 67: Reference REMIC® securities access diverse pools of global capital Geographical area Europe 1% Investor type Other 4% Bank 27% Asia 36% Investment Manager 37% N. America 63% Other <1% Central Bank 18% Insurance & Pension 14% Note: Data reflects orders placed in Freddie Mac’s Reference REMIC® securities. Source: Freddie Mac. Data as of December 31, 2008. 66
Slide 68: Safe Harbor Statements Freddie Mac obligations Freddie Mac’s securities are obligations of Freddie Mac only. The securities, including any interest or return of discount on the securities, are not guaranteed by and are not debts or obligations of the United States or any federal agency or instrumentality other than Freddie Mac. No offer or solicitation of securities This presentation includes information related to, or referenced in the offering documentation for, certain Freddie Mac securities, including offering circulars and related supplements and agreements. Freddie Mac securities may not be eligible for offer or sale in certain jurisdictions or to certain persons. This information is provided for your general information only, is current only as of its specified date and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information does not constitute a sufficient basis for making a decision with respect to the purchase or sale of any security. All information regarding or relating to Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. Investors should review the relevant offering circular and any related supplements before making a decision with respect to the purchase or sale of any security. In addition, before purchasing any security, please consult your legal and financial advisors for information about and analysis of the security, its risks and its suitability as an investment in your particular circumstances. Forward-looking statements Freddie Mac's presentations sometimes contain forward-looking statements pertaining to management's current expectations as to the conservatorship and its effect on the business and company’s future business plans, capital management, credit losses and credit-related expenses, returns on investments, results of operations and/or financial condition. Management's expectations for the company’s future necessarily involve a number of assumptions, judgments and estimates, and various factors, including changes in market conditions, liquidity, mortgage-to-debt OAS, credit outlook, actions by FHFA and Treasury, and the impacts of newly enacted legislation or regulations, could cause actual results to differ materially from these expectations. These assumptions, judgments, estimates and factors are discussed in the company’s Registration Statement on Form 10, dated July 18, 2008, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which are available on the the company’s Web site at www.FreddieMac.com/investors and the Securities and Exchange Commission’s Web site at www.sec.gov. © 2008 by Freddie Mac. No part of this document may be duplicated, reproduced, distributed or displayed in public in any manner or by any means without the written permission of Freddie Mac.