Full Description

Freddie Mac is engaged in purchasing residential mortgages and mortgage-related securities in the secondary mortgage market and securitizing them into mortgage-related securities that can be sold to investors. The Company purchases single-family and multifamily mortgage-related securities for its mortgage-related investments portfolio. It also purchases multifamily residential mortgages in the secondary mortgage market and hold those loans either for investment or sale. Freddie Mac finances purchases of its mortgage-related securities and mortgage loans, and manages its interest-rate and other market risks, primarily by issuing a variety of debt instruments and entering into derivative contracts in the capital markets. The Company operates in three segments: Investments, Single-family Guarantee and Multifamily.

Investments

The Company’s Investments business is responsible for investment activity in mortgages and mortgage-related securities, other investments, debt financing, and managing its interest rate risk, liquidity and capital positions. It invests principally in mortgage-related securities and single-family mortgages through its mortgage-related investments portfolio. The Company funds its investment activities in its Investments and Multifamily segments by issuing short-term and long-term debt. It supports the liquidity of the market for participation certificates (PCs) through a variety of activities, including educating dealers and investors about the merits of trading and investing in PCs, enhancing disclosure related to the collateral underlying its securities, and introducing mortgage-related securities products and initiatives. It supports the price performance of its PCs through a variety of strategies, including the purchase and sale of PCs and other agency securities, as well as through the issuance of structured securities.

Single-Family Guarantee

In its Single-family Guarantee segment, the Company purchases single-family mortgages originated by its lender customers in the primary mortgage market, primarily through its guarantor swap program. The Company securitizes mortgages it has purchased, and issues mortgage-related securities that can be sold to investors or held by the Company in its Investments segment. Earnings for this segment consist primarily of management and guarantee fee revenues, including amortization of upfront payments the Company receives, less related credit costs and operating expenses. Earnings for this segment also include the interest earned on assets held in the Investments segment related to single-family guarantee activities, net of allocated funding costs and amounts related to net float benefits.

In the Single-family Guarantee segment, the Company purchases and securitizes single-family mortgages, which are mortgages that are secured by one- to four-family properties. It securitizes substantially all of the newly or recently originated single-family mortgages it has purchased, and issue PCs that can be sold to investors or held by the Company. It issues single-class structured securities and multi-class structured securities. Single-class structured securities involve the straight pass through of all of the cash flows of the underlying collateral. Multi-class structured securities divide all of the cash flows of the underlying mortgage-related assets into two or more classes designed to meet the investment criteria and portfolio needs of different investors by creating classes of securities with varying maturities, payment priorities and coupons, each of which represents a beneficial ownership interest in a separate portion of the cash flows of the underlying collateral. It also issues structured securities to third parties in exchange for non-Freddie Mac mortgage-related securities.

Multifamily

The Company’s Multifamily segment activities include purchases of multifamily mortgages for investment or sale and guarantees of payments of principal and interest on mortgages underlying multifamily housing revenue bonds and mortgage-related securities. The mortgage loans of the Multifamily segment consist of mortgages that are secured by properties with five or more residential rental units. These are generally structured as balloon mortgages with terms ranging from five to ten years, and include provisions for the payment of yield maintenance fees to the Company in the event the mortgage is paid prior to the end of its term. Its Multifamily segment also includes certain equity investments in various limited partnerships that sponsor low-and moderate-income multifamily rental apartments, which benefit from low-income housing tax credits (LIHTC).

The Company competes with Fannie Mae, the Federal Home Loan Banks (FHLBs) and Ginnie Mae.