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Profile: Federal Home Loan Mortgage Corp (FRE.F)

FRE.F on Frankfurt Stock Exchange

2.54EUR
14 Jun 2019
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Federal Home Loan Mortgage Corporation is a government-sponsored enterprise (GSE). The Company is engaged in purchasing residential mortgage loans originated by lenders. The Company also invests in mortgage loans and mortgage-related securities. The Company's segments include Single-family Guarantee, Multifamily, Investments and All Other. The Single-family Guarantee segment includes the purchase, securitization and guarantee of single-family loans and the management of single-family credit risk. The Multifamily segment includes the purchase, securitization and guarantee of multifamily loans and securities; its investments in these loans and securities, and the management of multifamily mortgage credit risk and mortgage market spread risk. The Investments segment manages its mortgage-related investments portfolio (excluding Multifamily segment investments, single-family seriously delinquent loans, and the credit risk of single-family performing loans), treasury function and interest-rate risk. It packages the mortgage loans into mortgage-related securities, which are guaranteed by the Company and are sold in the global capital markets.

Single-Family Guarantee

The Company purchases loans that lenders originate and then pool those loans into mortgage-related securities that are sold in the capital markets. The Company's primary single-family mortgage securitization and guarantee process involves its issuance of single-class participation certificates (PCs), which are pass-through securities that represent undivided beneficial interests in trusts that hold pools of loans. It issues PCs in guarantor swap transactions, in which the Company's customers provide it with loans in exchange for PCs. It also issues PCs in transactions, in which it purchases performing loans (securitization pipeline) and securitize them for retention in its mortgage-related investments portfolio or for sale to third parties.

The Company's resecuritization products represent beneficial interests in pools of PCs and certain other types of mortgage assets. It creates these securities by using PCs or its previously issued resecuritization products as the underlying collateral. It issues various types of resecuritization products, such as Giant PCs, Stripped Giant PCs, Real Estate Mortgage Investment Conduits (REMICs) and Other securitization products. It provides a guarantee on mortgage assets held by third parties, in exchange for management and guarantee fees, without securitizing those assets. Its credit risk transfer transactions are designed to transfer a portion of the expected credit losses and a significant portion of credit losses in a stressed economic environment on groups of previously acquired loans to third-party investors.

In structured agency credit risk (STACR) debt notes transaction, the Company creates a reference pool of loans from its single-family book and an associated securitization structure with notional credit risk positions, such as first loss, mezzanine and senior positions. It issues STACR debt notes related to certain of the notional credit risk positions to third-party investors and retain the remaining credit risk. In Agency Credit Insurance Structure (ACIS) insurance policies transaction, it purchases insurance policies (underwritten by a group of insurers and reinsurers) that provide credit protection for certain specified credit events that occur and are allocated to the non-issued notional credit risk positions of a STACR debt note transaction. In Whole loan securities transaction and Senior subordinate securitization structures, the Company issues guaranteed senior securities and unguaranteed subordinated securities backed by single-family loans. In Seller indemnification agreement transaction, it enters into an agreement upon loan acquisition with a seller under which the seller will absorb a portion of losses on the related single-family loans in exchange for a fee or a reduction in its guarantee fee. In Deep mortgage insurance credit risk transfer, the Company purchases a credit enhancement from affiliates of mortgage insurance companies. It also uses other types of credit enhancements, such as primary mortgage insurance, to mitigate its credit risk exposure. The Company's customers in the Single-family Guarantee segment are financial institutions that originate, sell and perform the ongoing servicing of loans for new or existing homeowners. These companies include mortgage banking companies, commercial banks, community banks, credit unions, other non-depository financial institutions and savings institutions.

Multifamily

The Company's Multifamily segment provides liquidity to the multifamily market and supports a supply of workforce housing by purchasing and securitizing loans secured by properties with five or more units. In its Multifamily segment, the Company issues various types of securitization, guarantee, and credit risk transfer products. Its primary securitization and credit risk transfer products include K Certificates and SB Certificates. The Company is engaged in purchasing of multifamily loans for aggregation and securitization through the issuance of multifamily K Certificates, which allows it to transfer the expected and stress credit losses of the loans to third-party investors. It also purchases small balance multifamily loans for aggregation and securitization through the issuance of multifamily SB Certificates. It also issues other securitization products, including PCs, K Certificates without subordination, Q Certificates and M Certificates.

The Company guarantees mortgage-related assets held by third parties in exchange for guarantee fee income without securitizing these assets. Its other credit risk transfer products include Structured Credit Risk (SCR) debt notes. Its investing activities include mortgage loans, agency mortgage-related securities, non-agency mortgage-related securities, swaptions on credit indices and commercial mortgage-backed security (CMBS). It provides post-construction financing to apartment project operators.

Investments

The Investments segment manages products, such as agency mortgage-related securities, non-agency mortgage-related securities, single-family unsecuritized loans, and other investments and cash portfolio. Its activities with respect to agency mortgage-related securities product include purchases and sales, dollar roll transactions and structuring activities. Its single-family unsecuritized loans are classified into over three categories, including loans acquired through its cash loan purchase program that are awaiting securitization; reperforming loans and performing modified loans, and delinquent loans that it has removed from PC pools. Its other investments and cash portfolio consists of the Liquidity and Contingency Operating Portfolio; cash and other investments held by consolidated trusts; collateral pledged by derivative and other counterparties; investments in unsecured agency debt, and advances to lenders. The Company's treasury function manages the funding needs of the Company, including the Investments segment, primarily through the issuance of unsecured other debt. The type and term of debt issued is based on a range of factors and is designed to meet ongoing cash needs, and to comply with its Liquidity Management Framework. It uses various types of products, such as securities sold under agreements to repurchase; discount notes and reference bills, medium-term notes and reference notes securities as part of its funding and liquidity management activities. Under collateralized short-term borrowings, the Company sells securities to a counterparty with an agreement to repurchase those securities at a future date.

The Company issues short-term instruments with maturities of one year or less. These products are sold on a discounted basis, paying principal only at maturity. Reference Bills are auctioned to dealers on a regular schedule, while discount notes are issued in response to investor demand and its cash needs. It issues a range of fixed-rate and variable-rate medium-term notes, including callable and non-callable securities, and zero-coupon securities, with various maturities. Reference Notes securities are non-callable fixed-rate securities, which it issues with original maturities greater than or equal to two years. Its unsecured other debt securities and structured mortgage-related securities are initially purchased by dealers and redistributed to their customers. The customers for these securities include state and local governments, insurance companies, money managers, central banks, depository institutions and pension funds.

The Company competes with Federal National Mortgage Association, Government National Mortgage Association, Federal Farm Credit Banks, Federal Housing Administration, the United States Department of Veterans Affairs and Federal Home Loan Banks.

Company Address

Federal Home Loan Mortgage Corp

8200 Jones Branch Dr
MC LEAN   VA   22102-3107
P: +1703.9032000
F: +1703.9032759

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