Notes to Condensed Consolidated Financial Statements
NOTE 1
Summary of Significant Accounting Policies
Freddie Mac is a GSE chartered by Congress in 1970. Our public mission is to provide liquidity, stability, and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, and Treasury, and are currently operating under the conservatorship of FHFA. For more information on the roles of FHFA and Treasury, see Note 2 in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020, or 2020 Annual Report. Throughout our unaudited condensed consolidated financial statements and related notes, we use certain acronyms and terms which are defined in the Glossary of our 2020 Annual Report.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in our 2020 Annual Report.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include our accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances and transactions have been eliminated.
We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of business as a going concern and in accordance with the authority provided by FHFA to our Board of Directors to oversee management's conduct of our business operations. In the opinion of management, our unaudited condensed consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary for a fair statement of our results.
During 1Q 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment performance based on two reportable segments, Single-family and Multifamily. See Note 15 for additional information on the change in our segment reporting presentation.
The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, and losses during the reporting period. Management has made significant estimates in preparing the financial statements for establishing the allowance for credit losses and valuing financial instruments and other assets and liabilities. Actual results could be different from these estimates.
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Freddie Mac 1Q 2021 Form 10-Q
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73
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 1
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Recently Issued Accounting Guidance
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Recently Adopted Accounting Guidance
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Standard
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Description
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Date of Adoption
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Effect on Condensed Consolidated Financial Statements
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ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging -Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
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The amendments in this Update simplify an issuer's
accounting for certain financial instruments with
characteristics of liabilities and equity, primarily by
eliminating many of the current separation models
used to account for convertible debt and convertible
preferred stock.
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January 1, 2021
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The adoption of the amendments did not have a material effect on our condensed consolidated financial statements or on our disclosures.
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ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables -Nonrefundable Fees and Other Costs
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The amendments in this Update clarify the guidance
for the reevaluation of whether a callable debt
security’s amortized cost basis exceeds the amount
repayable by the issuer at the next call date.
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January 1, 2021
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The adoption of the amendments did not have a material effect on our condensed consolidated financial statements or on our disclosures.
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Freddie Mac 1Q 2021 Form 10-Q
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74
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 2
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NOTE 2
Conservatorship and Related Matters
We operate under the conservatorship that commenced on September 6, 2008, conducting our business under the direction of FHFA, as our Conservator. The conservatorship and related matters significantly affect our management, business activities, financial condition, and results of operations. Upon its appointment, FHFA, as Conservator, immediately succeeded to all rights, titles, powers, and privileges of Freddie Mac, and of any stockholder, officer, or director thereof, with respect to the company and its assets. The Conservator also succeeded to the title to all books, records, and assets of Freddie Mac held by any other legal custodian or third party. The Conservator provided for the Board of Directors to perform certain functions and to oversee management, and the Board of Directors delegated to management authority to conduct business operations so that the company can continue to operate in the ordinary course. The directors serve on behalf of, and perform such functions as provided by, the Conservator.
We are subject to certain constraints on our business activities under the Purchase Agreement. However, the support provided by Treasury pursuant to the Purchase Agreement currently enables us to maintain our access to the debt markets and to have adequate liquidity to conduct our normal business activities, although the costs of our debt funding could vary. Our ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent.
Treasury, as the holder of the senior preferred stock, is entitled to receive quarterly cash dividends, when, as, and if declared by our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared by, and paid at the direction of, the Conservator, acting as successor to the rights, titles, powers, and privileges of the Board of Directors.
Under the August 2012 amendment to the Purchase Agreement, for each quarter from January 1, 2013 and thereafter, the dividend payment will be the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. Pursuant to the January 2021 Letter Agreement, the applicable Capital Reserve Amount from October 1, 2020 is the amount of adjusted total capital necessary to meet capital requirements and buffers set forth in the ERCF. This increased Capital Reserve Amount will remain in effect until the last day of the second fiscal quarter during which we have reached and maintained such level of capital (the Capital Reserve End Date). As a result, the company was not required to pay a dividend to Treasury on the senior preferred stock in March 2021, and we will not be required to pay a dividend on the senior preferred stock to Treasury until we have built sufficient capital to meet the capital requirements and buffers set forth in the ERCF. If for any reason we were not to pay our dividend requirements on the senior preferred stock in full in any future period until the Capital Reserve End Date, the unpaid amount would be added to the liquidation preference and the applicable Capital Reserve Amount would thereafter be zero.
As the company builds capital during this period, the quarterly increases in our Net Worth Amount have been, and will continue to be, added to the liquidation preference of the senior preferred stock. As a result, the liquidation preference of the senior preferred stock increased from $86.5 billion as of December 31, 2020 to $89.1 billion on March 31, 2021 based on the $2.5 billion increase in our Net Worth Amount during 4Q 2020, and will increase to $91.4 billion on June 30, 2021 based on the $2.4 billion increase in our Net Worth Amount during 1Q 2021.
The Purchase Agreement, as amended by the January 2021 Letter Agreement, includes significant restrictions on our ability to manage our business, including limits on our secondary market activities; the amount and type of single-family and multifamily loans we can acquire; the amount of indebtedness we can incur; the size of our mortgage-related investments portfolio; and our ability to pay dividends, transfer certain assets, raise capital, pay down the liquidation preference of the senior preferred stock, and exit conservatorship. We have accounted for the January 2021 Letter Agreement as a modification of the senior preferred stock recognized on our condensed consolidated balance sheet.
The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. However, Treasury's consent is required for a termination of conservatorship other than in connection with receivership or under the limited circumstances specified in the Purchase Agreement as amended by the January 2021 Letter Agreement involving maintenance of certain capital and resolution of currently pending material litigation related to our conservatorship and the Purchase Agreement. Treasury has the right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028.
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Freddie Mac 1Q 2021 Form 10-Q
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75
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 2
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Impact of Conservatorship and Related Developments on the Mortgage-Related Investments Portfolio
In February 2019, FHFA directed us to maintain our mortgage-related investments portfolio at or below $225 billion at all times. The amount of mortgage assets that we may own in this portfolio is also currently capped under the Purchase Agreement at $250 billion. The Purchase Agreement cap will be lowered from $250 billion to $225 billion at the end of 2022. In addition to UPB, the calculation of mortgage assets subject to the FHFA and Purchase Agreement caps includes 10% of the notional value of interest-only securities. The balance of the mortgage-related investments portfolio for the purposes of the FHFA and Purchase Agreement limits was $181.5 billion at March 31, 2021, including $7.0 billion representing 10% of the notional amount of the interest-only securities we held as of March 31, 2021. Our ability to acquire and sell mortgage assets continues to be significantly constrained by limitations imposed by the Purchase Agreement and FHFA.
With respect to the composition of our mortgage-related investments portfolio, in August 2020, FHFA instructed us to: (1) reduce the amount of agency MBS to no more than $50 billion by June 30, 2021 and no more than $20 billion by June 30, 2022, with all dollar caps to be based on UPB; and (2) reduce the UPB of our existing portfolio of CMOs, which are also sometimes referred to as REMICs, to zero by June 30, 2021. We will have a holding period limit to sell any new CMO tranches created but not sold at issuance. CMOs do not include tranches initially retained from reperforming loans senior subordinate securitization structures.
Government Support for Our Business
We receive substantial support from Treasury and are dependent upon its continued support to continue operating our business. Our ability to access funds from Treasury under the Purchase Agreement is critical to:
n Keeping us solvent;
n Allowing us to focus on our primary business objectives under conservatorship; and
n Avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions.
At December 31, 2020, our assets exceeded our liabilities under GAAP; therefore, FHFA did not request a draw on our behalf and, as a result, we did not receive any funding from Treasury under the Purchase Agreement during 1Q 2021. The amount of available funding remaining under the Purchase Agreement is $140.2 billion and will be reduced by any future draws.
See Note 9 and Note 12 for more information on the conservatorship and the Purchase Agreement.
Related Parties As a Result of Conservatorship
We are deemed related parties with Fannie Mae as both we and Fannie Mae have the same relationships with FHFA and Treasury. CSS was formed in 2013 as a limited liability company equally owned by Freddie Mac and Fannie Mae and is also deemed a related party. In connection with the formation of CSS, we entered into a limited liability company agreement with Fannie Mae. We and Fannie Mae have each appointed two executives to the CSS Board of Managers and signed governance and operating agreements for CSS, including an updated customer services agreement with Fannie Mae and CSS in May 2019. In June 2019, we entered into an agreement with Fannie Mae regarding the commingling of certain of our mortgage securities under the Single Security Initiative and related indemnification obligations.
In January 2020, FHFA directed Freddie Mac and Fannie Mae to amend the LLC agreement for CSS to change the structure of the Board of Managers (CSS Board). The revised LLC agreement also removed the requirement that any CSS Board decision must be approved by at least one of the CSS Board members appointed by Freddie Mac and one appointed by Fannie Mae. These amendments reduce Freddie Mac’s and Fannie Mae’s ability to control CSS Board decisions, even after conservatorship, including decisions about strategy, business operations, and funding.
Under the revised CSS LLC agreement, the CSS Board will continue to include two Freddie Mac and two Fannie Mae representatives, and it will also include two additional members: the Chief Executive Officer of CSS and an independent, non-Executive Chair. During conservatorship, the CSS Board Chair shall be designated by FHFA, and all CSS Board decisions will require the affirmative vote of the Board Chair. During conservatorship, FHFA also may appoint up to three additional independent members to the CSS Board, who along with the Board Chair and the Chief Executive Officer of CSS may continue to serve on the CSS Board after conservatorship. FHFA appointed a CSS Board member to serve as Chair in January 2020, and FHFA subsequently appointed three additional CSS Board members, one in June 2020 and two in January 2021. As a result, the CSS Board members we and Fannie Mae appoint could be outvoted by non-GSE designated Board members on any matter during conservatorship and on a number of significant matters, including approval of the annual budget and strategic plan for CSS, if either we or Fannie Mae exits from conservatorship. Certain material post-conservatorship decisions, however, would require approval of at least one Board member designated by us and one designated by Fannie Mae, including those decisions involving a material change in CSS’s functionality, such as the addition of a new business line or reduction in CSS’s
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Freddie Mac 1Q 2021 Form 10-Q
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76
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 2
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support of the UMBS, capital contributions beyond those necessary to support CSS’s ordinary business operations, appointment or removal of the Chief Executive Officer of CSS, and admission of new members.
We account for our investment in CSS using the equity method. We increase the carrying value of our investment in CSS when we contribute capital to CSS. We recognize our equity in the net earnings of CSS each period as a component of investment gains (losses), net on our condensed consolidated statements of comprehensive income (loss). During 1Q 2021, we contributed $27 million of capital to CSS, and we have contributed $685 million since we began making contributions in the fourth quarter of 2014. The carrying value of our investment in CSS was $20 million and $16 million as of March 31, 2021 and December 31, 2020, respectively, and was included in other assets on our condensed consolidated balance sheets.
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Freddie Mac 1Q 2021 Form 10-Q
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77
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 3
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NOTE 3
Securitization Activities and Consolidation
Our primary business activities in our Single-family and Multifamily segments involve the securitization of loans or other mortgage-related assets using trusts that are VIEs. These trusts issue beneficial interests in the loans or other mortgage-related assets that they own. We guarantee the principal and interest payments on some or all of the issued beneficial interests in substantially all of our securitization transactions. We consolidate VIEs when we have a controlling financial interest in the VIE and are therefore considered the primary beneficiary of the VIE. See Note 5 for additional information on our guarantee activities.
We do not believe the maximum exposure to loss from our involvement with VIEs for which we are not the primary beneficiary discussed below is representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. See Note 8 for additional information on credit enhancements. Certain of our interest-rate risk-related guarantees to VIEs for which we are not the primary beneficiary may create exposure to loss that is unlimited. We account for these interest-rate risk-related guarantees at fair value as discussed further in Note 5 and generally reduce our exposure to these guarantees with unlimited interest rate exposure through separate derivative contracts with third parties. See Note 10 for additional information on derivatives.
Securitization Activities
Single-family
Resecuritization Products
With the exception of commingled securities, our investments in and guarantees of securities issued by resecuritization trusts for which we are not the primary beneficiary typically do not create any incremental exposure to loss because we already guarantee and consolidate the underlying collateral. The fair value of these investments in our resecuritization trusts for which we are not the primary beneficiary was $24.9 billion and $28.5 billion as of March 31, 2021 and December 31, 2020, respectively. While our guarantee of Fannie Mae securities underlying commingled resecuritization products creates incremental exposure to loss, we view the likelihood of being required to perform on our guarantee as remote due to Fannie Mae’s status as a GSE and the funding commitment available to it through its senior preferred stock purchase agreement with Treasury. The UPB of Fannie Mae securities underlying commingled Freddie Mac resecuritization trusts for which we are not the primary beneficiary totaled $92.3 billion and $85.3 billion as of March 31, 2021 and December 31, 2020, respectively. See Note 5 for additional information on our guarantee of Fannie Mae securities.
Senior Subordinate Securitization Structures
We do not consolidate our single-family senior subordinate securitization structures backed by seasoned loans because we do not have the ability to direct the loss mitigation activities of the underlying loans, which is the most significant activity affecting the economic performance of the VIE. The maximum exposure to loss for our single-family senior subordinate securitization structures for which we are not the primary beneficiary totaled $26.9 billion and $28.1 billion at March 31, 2021 and December 31, 2020, respectively, and represents the guaranteed UPB of the assets held by these unconsolidated VIEs. The total assets of these unconsolidated VIEs totaled $32.5 billion and $33.7 billion at March 31, 2021 and December 31, 2020, respectively.
Other Securitization Products
We do not consolidate the trusts used to issue our single-family other securitization products when we are not the primary beneficiary. The maximum exposure to loss for these single-family securitizations for which we are not the primary beneficiary totaled $1.6 billion and $1.7 billion at March 31, 2021 and December 31, 2020, respectively. The total assets of these unconsolidated VIEs totaled $1.6 billion and $1.8 billion at March 31, 2021 and December 31, 2020, respectively.
Multifamily
K Certificates
We do not consolidate our K Certificate securitization trusts that have subordination because we do not have the ability to direct the loss mitigation activities of the underlying loans, which is the most significant activity affecting the economic performance of the VIE. The maximum exposure to loss for our K Certificate securitizations for which we are not the primary beneficiary totaled $265.2 billion and $253.0 billion at March 31, 2021 and December 31, 2020, respectively, and primarily represents the UPB of the beneficial interests that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $304.3 billion and $291.3 billion at March 31, 2021 and December 31, 2020, respectively.
SB Certificates
Similar to K Certificate transactions, we are not the primary beneficiary of and, therefore, do not consolidate SB Certificate
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Freddie Mac 1Q 2021 Form 10-Q
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78
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 3
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trusts, as we do not have the ability to direct loss mitigation activities of the underlying loans, which is the most significant activity affecting the economic performance of the VIE. The maximum exposure to loss for our SB Certificate securitizations for which we are not the primary beneficiary totaled $21.8 billion and $21.5 billion at March 31, 2021 and December 31, 2020, respectively, and primarily represents the UPB of the beneficial interests that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $24.2 billion and $23.9 billion at March 31, 2021 and December 31, 2020, respectively.
Other Securitization Products
We do not consolidate the trusts used to issue our other securitization products when we are not the primary beneficiary. The maximum exposure to loss for our other securitization products for which we are not the primary beneficiary totaled $15.0 billion and $14.9 billion at March 31, 2021 and December 31, 2020, respectively, and primarily represents the UPB of the beneficial interests that we have guaranteed. The total assets of these nonconsolidated VIEs totaled $17.0 billion and $16.9 billion at March 31, 2021 and December 31, 2020, respectively.
STACR Trust Notes
We are not the primary beneficiary of and, therefore, do not consolidate the STACR Trusts used in the STACR Trust Note transactions. The maximum exposure to loss for our STACR Trust Notes for which we are not the primary beneficiary represents our recorded expected recovery receivable and totaled $350 million and $420 million at March 31, 2021 and December 31, 2020, respectively. The total assets of these nonconsolidated VIEs totaled $19.7 billion and $17.3 billion at March 31, 2021 and December 31, 2020, respectively. See Note 8 for additional information on the amount of available coverage.
The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our condensed consolidated balance sheets.
Table 3.1 - Consolidated VIEs
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(In millions)
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March 31, 2021
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December 31, 2020
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Condensed Consolidated Balance Sheet Line Item
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Assets:
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Cash and cash equivalents (includes $61,856 and $17,289 of restricted cash and cash equivalents)
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$61,857
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$17,290
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Securities purchased under agreements to resell
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—
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38,487
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Investment securities, at fair value
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1,383
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591
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Mortgage loans held-for-investment, net
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2,395,707
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2,273,347
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Accrued interest receivable, net
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7,056
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7,134
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Other assets
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19,832
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20,480
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Total assets of consolidated VIEs
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$2,485,835
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$2,357,329
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Liabilities:
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Accrued interest payable
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$5,591
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$5,610
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Debt
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2,445,829
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2,308,176
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Other liabilities
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1
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—
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Total liabilities of consolidated VIEs
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$2,451,421
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$2,313,786
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The following table presents the carrying amounts and classification of the assets and liabilities recorded on our condensed consolidated balance sheets related to VIEs for which we are not the primary beneficiary and with which we were involved in the design and creation and have a significant continuing involvement. Our involvement with such VIEs primarily consists of investments in debt securities issued by resecuritization trusts and guarantees of senior securities issued by certain Multifamily securitization trusts.
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Freddie Mac 1Q 2021 Form 10-Q
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79
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 3
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Table 3.2 - Non-Consolidated VIEs
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(In millions)
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March 31, 2021
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December 31, 2020
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Assets and Liabilities Recorded on our Condensed Consolidated Balance Sheets(1)
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Assets:
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Investment securities, at fair value
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$24,898
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$28,459
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Accrued interest receivable, net
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232
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239
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Derivative assets, net
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29
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61
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Other assets
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5,651
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5,553
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Liabilities:
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Debt
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89
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—
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Derivative liabilities, net
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72
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47
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Other liabilities
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4,739
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4,515
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(1)Includes our variable interests in REMICs and Strips, commingled Supers, K Certificates, SB Certificates, certain senior subordinate securitization structures, and other securitization products that we do not consolidate.
We also obtain interests in various other entities created by third parties through the normal course of business that may be VIEs, such as through our investments in certain non-Freddie Mac mortgage-related securities, purchases of multifamily loans, guarantees of multifamily housing revenue bonds, as a derivative counterparty or through other activities. To the extent that we were not involved in the design or creation of these VIEs, they are excluded from the table above. Our interests in these VIEs are generally passive in nature and are not expected to result in us obtaining a controlling financial interest in these VIEs in the future. As a result, we do not consolidate these VIEs and we account for our interests in these VIEs in the same manner that we account for our interests in other third-party transactions. See Note 6 for additional information regarding our investments in non-Freddie Mac mortgage-related securities. See Note 4 for more information regarding multifamily loans.
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Freddie Mac 1Q 2021 Form 10-Q
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80
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Financial Statements
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Notes to the Condensed Consolidated Financial Statements | Note 4
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NOTE 4
Mortgage Loans
The table below provides details of the loans on our condensed consolidated balance sheets.
Table 4.1 - Mortgage Loans
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March 31, 2021
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December 31, 2020
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(In millions)
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Single-family
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Multifamily
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Total
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Single-family
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Multifamily
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Total
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Held-for-sale UPB
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$10,850
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$15,450
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$26,300
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$10,702
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$23,789
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$34,491
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Cost basis and fair value adjustments, net
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(1,592)
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207
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(1,385)
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(1,637)
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798
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(839)
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Total held-for-sale loans, net
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9,258
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15,657
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24,915
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9,065
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24,587
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33,652
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Held-for-investment UPB
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2,403,981
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22,738
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2,426,719
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2,271,576
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21,923
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2,293,499
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Cost basis adjustments
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61,527
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56
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61,583
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62,415
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54
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62,469
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Allowance for credit losses
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(5,253)
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(77)
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(5,330)
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(5,628)
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(104)
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(5,732)
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Total held-for-investment loans, net
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2,460,255
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22,717
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2,482,972
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2,328,363
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21,873
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2,350,236
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Total mortgage loans, net
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$2,469,513
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$38,374
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$2,507,887
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$2,337,428
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$46,460
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$2,383,888
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The table below provides details of the UPB of loans we purchased and sold during the periods presented.
Table 4.2 - Loans Purchased and Sold
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(In billions)
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1Q 2021
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1Q 2020
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Single-family:
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Purchases
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Held-for-investment loans
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$360.6
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$137.7
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Sale of held-for-sale loans(1)
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|
—
|
|
2.2
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
Held-for-investment loans
|
|
1.6
|
|
1.2
|
|
|
|
|
|
|
|
Held-for-sale loans
|
|
12.3
|
|
8.2
|
|
|
|
|
|
|
|
Sale of held-for-sale loans(2)
|
|
21.1
|
|
10.7
|
|
|
|
|
|
|
(1)Our sales of single-family loans reflect the sale of seasoned single-family mortgage loans.
(2)Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates and SB Certificates. See Note 3 for more information on our K Certificates and SB Certificates.
We reclassify loans between held-for-investment and held-for-sale depending on our intent and ability to hold the loan for the foreseeable future. The table below presents the allowance for credit losses or valuation allowance that was reversed or established due to loan reclassifications between held-for-investment and held-for-sale during the period presented.
Table 4.3 - Loan Reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
|
|
(In millions)
|
|
UPB
|
Allowance for Credit Losses Reversed or (Established)
|
Valuation Allowance (Established) or Reversed
|
UPB
|
Allowance for Credit Losses Reversed or (Established)
|
Valuation Allowance (Established) or Reversed
|
|
|
|
|
|
|
|
|
Single-family reclassifications from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment to held-for-sale(1)
|
|
$501
|
|
$7
|
|
$—
|
|
$2,637
|
|
$214
|
|
$—
|
|
|
|
|
|
|
|
|
|
Held-for-sale to held-for-investment(2)
|
|
35
|
|
3
|
|
—
|
|
1
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
Multifamily reclassifications from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment to held-for-sale
|
|
528
|
|
1
|
|
—
|
|
32
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
Held-for-sale to held-for-investment
|
|
9
|
|
—
|
|
—
|
|
482
|
|
(1)
|
|
—
|
|
|
|
|
|
|
|
|
Referenced footnotes are on the next page.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
81
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
(1)Prior to reclassification from held-for-investment to held-for-sale, we charged-off $27 million and $79 million against the allowance for credit losses during 1Q 2021 and 1Q 2020, respectively.
(2)Allowance for credit losses reversed upon reclassifications from held-for-sale to held-for-investment for loans that were previously charged off and the present values of expected future cash flows were in excess of the amortized cost basis upon reclassification.
The table below provides the amortized cost basis of non-accrual loans as of the beginning and the end of the periods presented, including the interest income recognized for the period that is related to the loans on non-accrual status as of the period end.
Table 4.4 - Amortized Cost Basis of Held-for-Investment Loans on Non-accrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual Amortized Cost Basis
|
Interest Income Recognized(1)
|
|
(In millions)
|
|
January 1, 2021
|
March 31, 2021
|
1Q 2021
|
|
|
Single-family:
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
$12,151
|
|
$21,137
|
|
$36
|
|
|
|
15-year amortizing fixed-rate
|
|
696
|
|
1,031
|
|
1
|
|
|
|
Adjustable-rate
|
|
193
|
|
296
|
|
—
|
|
|
|
Alt-A, interest-only, and option ARM
|
|
637
|
|
700
|
|
1
|
|
|
|
Total single-family
|
|
13,677
|
|
23,164
|
|
38
|
|
|
|
Total multifamily
|
|
—
|
|
—
|
|
—
|
|
|
|
Total single-family and multifamily
|
|
$13,677
|
|
$23,164
|
|
$38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual Amortized Cost Basis
|
Interest Income Recognized(1)
|
|
(In millions)
|
|
January 1, 2020
|
March 31, 2020
|
1Q 2020
|
|
|
Single-family:
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
$5,598
|
|
$5,494
|
|
$4
|
|
|
|
15-year amortizing fixed-rate
|
|
242
|
|
241
|
|
—
|
|
|
|
Adjustable-rate
|
|
91
|
|
83
|
|
—
|
|
|
|
Alt-A, interest-only, and option ARM
|
|
439
|
|
389
|
|
2
|
|
|
|
Total single-family
|
|
6,370
|
|
6,207
|
|
6
|
|
|
|
Total multifamily
|
|
13
|
|
13
|
|
—
|
|
|
|
Total single-family and multifamily
|
|
$6,383
|
|
$6,220
|
|
$6
|
|
|
(1)Represents the amount of payments received during the period, including those received while the loans were on accrual status, for the held-for-investment loans on non-accrual status as of the period end.
The table below provides the amount of accrued interest receivable, net presented on our condensed consolidated balance sheets and the amount of accrued interest receivable related to loans on non-accrual status at the end of the periods that is charged off.
Table 4.5 - Accrued Interest Receivable, Net and Related Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest Receivable, Net
|
Accrued Interest Receivable Related Charge-offs
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
1Q 2021
|
1Q 2020
|
|
Single-family loans
|
|
$7,229
|
|
$7,292
|
|
($166)
|
|
($29)
|
|
|
Multifamily loans
|
|
120
|
|
139
|
|
—
|
|
—
|
|
Single-Family
The current LTV ratio is one key factor we consider when estimating our allowance for credit losses for single-family loans. As current LTV ratios increase, the borrower's equity in the home decreases, which may negatively affect the borrower's ability to refinance (outside of the Enhanced Relief Refinance program) or to sell the property for an amount at or above the balance of the outstanding loan.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
82
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
A second-lien loan also reduces the borrower's equity in the home and has a similar negative effect on the borrower's ability to refinance or sell the property for an amount at or above the combined balances of the first and second loans. However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive notification when a borrower does so. For further information about concentrations of risk associated with our single-family and multifamily loans, see Note 16.
The table below presents the amortized cost basis of single-family held-for-investment loans by current LTV ratio. Our current LTV ratios are estimates based on available data through the end of each period presented. For reporting purposes:
n Loans within the Alt-A category continue to be presented in that category following modification, even though the borrower may have provided full documentation of assets and income to complete the modification and
n Loans within the option ARM category continue to be presented in that category following modification, even though the modified loan no longer provides for optional payment provisions.
Table 4.6 - Amortized Cost Basis of Single-Family Held-for-Investment Loans by Current LTV Ratio and Vintage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Year of Origination
|
Total
|
|
(In millions)
|
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
|
Current LTV Ratio:
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
$51,100
|
|
$243,582
|
|
$53,075
|
|
$33,730
|
|
$63,245
|
|
$498,835
|
|
$943,567
|
|
|
> 60 to 80
|
|
112,096
|
|
466,621
|
|
125,253
|
|
51,535
|
|
43,041
|
|
61,433
|
|
859,979
|
|
|
> 80 to 100
|
|
52,066
|
|
182,963
|
|
28,503
|
|
4,226
|
|
1,292
|
|
3,529
|
|
272,579
|
|
|
> 100(1)
|
|
92
|
|
93
|
|
5
|
|
20
|
|
49
|
|
812
|
|
1,071
|
|
|
Total 20- and 30-year or more, amortizing fixed-rate
|
|
215,354
|
|
893,259
|
|
206,836
|
|
89,511
|
|
107,627
|
|
564,609
|
|
2,077,196
|
|
|
15-year amortizing fixed-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
18,098
|
|
90,471
|
|
17,571
|
|
9,263
|
|
17,916
|
|
103,499
|
|
256,818
|
|
|
> 60 to 80
|
|
16,388
|
|
64,103
|
|
8,417
|
|
1,237
|
|
506
|
|
211
|
|
90,862
|
|
|
> 80 to 100
|
|
2,650
|
|
5,156
|
|
135
|
|
10
|
|
9
|
|
20
|
|
7,980
|
|
|
> 100(1)
|
|
9
|
|
7
|
|
—
|
|
2
|
|
3
|
|
8
|
|
29
|
|
|
Total 15-year amortizing fixed-rate
|
|
37,145
|
|
159,737
|
|
26,123
|
|
10,512
|
|
18,434
|
|
103,738
|
|
355,689
|
|
|
Adjustable-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
29
|
|
1,422
|
|
772
|
|
655
|
|
2,205
|
|
13,493
|
|
18,576
|
|
|
> 60 to 80
|
|
34
|
|
1,221
|
|
692
|
|
382
|
|
715
|
|
597
|
|
3,641
|
|
|
> 80 to 100
|
|
7
|
|
146
|
|
56
|
|
14
|
|
17
|
|
7
|
|
247
|
|
|
> 100(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
1
|
|
|
Total adjustable-rate
|
|
70
|
|
2,789
|
|
1,520
|
|
1,051
|
|
2,937
|
|
14,098
|
|
22,465
|
|
|
Alt-A, Interest-only, and option ARM
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,361
|
|
8,361
|
|
|
> 60 to 80
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,497
|
|
1,497
|
|
|
> 80 to 100
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
252
|
|
252
|
|
|
> 100(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
48
|
|
48
|
|
|
Total Alt-A, interest-only, and option ARM
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10,158
|
|
10,158
|
|
|
Total single-family loans
|
|
$252,569
|
|
$1,055,785
|
|
$234,479
|
|
$101,074
|
|
$128,998
|
|
$692,603
|
|
$2,465,508
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for all loan product types by current LTV ratio:
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
$69,227
|
|
$335,475
|
|
$71,418
|
|
$43,648
|
|
$83,366
|
|
$624,188
|
|
$1,227,322
|
|
|
> 60 to 80
|
|
128,518
|
|
531,945
|
|
134,362
|
|
53,154
|
|
44,262
|
|
63,738
|
|
955,979
|
|
|
> 80 to 100
|
|
54,723
|
|
188,265
|
|
28,694
|
|
4,250
|
|
1,318
|
|
3,808
|
|
281,058
|
|
|
> 100(1)
|
|
101
|
|
100
|
|
5
|
|
22
|
|
52
|
|
869
|
|
1,149
|
|
|
Total single-family loans
|
|
$252,569
|
|
$1,055,785
|
|
$234,479
|
|
$101,074
|
|
$128,998
|
|
$692,603
|
|
$2,465,508
|
|
Referenced footnotes are included after the prior period table.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
83
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Year of Origination
|
Total
|
|
(In millions)
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
|
Current LTV Ratio:
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
$203,333
|
|
$52,820
|
|
$33,139
|
|
$64,834
|
|
$115,978
|
|
$431,406
|
|
$901,510
|
|
|
> 60 to 80
|
|
437,107
|
|
141,094
|
|
64,236
|
|
59,110
|
|
40,614
|
|
44,636
|
|
786,797
|
|
|
> 80 to 100
|
|
206,457
|
|
53,926
|
|
8,822
|
|
2,117
|
|
654
|
|
3,983
|
|
275,959
|
|
|
> 100(1)
|
|
202
|
|
7
|
|
25
|
|
64
|
|
61
|
|
948
|
|
1,307
|
|
|
Total 20- and 30-year or more, amortizing fixed-rate
|
|
847,099
|
|
247,847
|
|
106,222
|
|
126,125
|
|
157,307
|
|
480,973
|
|
1,965,573
|
|
|
15-year amortizing fixed-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
78,269
|
|
17,753
|
|
9,914
|
|
19,650
|
|
29,916
|
|
83,842
|
|
239,344
|
|
|
> 60 to 80
|
|
67,904
|
|
12,169
|
|
2,195
|
|
961
|
|
215
|
|
135
|
|
83,579
|
|
|
> 80 to 100
|
|
8,553
|
|
400
|
|
17
|
|
12
|
|
9
|
|
17
|
|
9,008
|
|
|
> 100(1)
|
|
21
|
|
—
|
|
3
|
|
5
|
|
3
|
|
7
|
|
39
|
|
|
Total 15-year amortizing fixed-rate
|
|
154,747
|
|
30,322
|
|
12,129
|
|
20,628
|
|
30,143
|
|
84,001
|
|
331,970
|
|
|
Adjustable-rate
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
1,427
|
|
850
|
|
731
|
|
2,429
|
|
2,042
|
|
12,993
|
|
20,472
|
|
|
> 60 to 80
|
|
1,403
|
|
877
|
|
537
|
|
1,061
|
|
329
|
|
528
|
|
4,735
|
|
|
> 80 to 100
|
|
232
|
|
125
|
|
34
|
|
29
|
|
2
|
|
8
|
|
430
|
|
|
> 100(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
1
|
|
|
Total adjustable-rate
|
|
3,062
|
|
1,852
|
|
1,302
|
|
3,519
|
|
2,373
|
|
13,530
|
|
25,638
|
|
|
Alt-A, Interest-only, and option ARM
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,620
|
|
8,620
|
|
|
> 60 to 80
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,818
|
|
1,818
|
|
|
> 80 to 100
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
314
|
|
314
|
|
|
> 100(1)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
58
|
|
58
|
|
|
Total Alt-A, interest-only, and option ARM
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10,810
|
|
10,810
|
|
|
Total single-family loans
|
|
$1,004,908
|
|
$280,021
|
|
$119,653
|
|
$150,272
|
|
$189,823
|
|
$589,314
|
|
$2,333,991
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for all loan product types by Current LTV ratio:
|
|
|
|
|
|
|
|
|
|
≤ 60
|
|
$283,029
|
|
$71,423
|
|
$43,784
|
|
$86,913
|
|
$147,936
|
|
$536,861
|
|
$1,169,946
|
|
|
> 60 to 80
|
|
506,414
|
|
154,140
|
|
66,968
|
|
61,132
|
|
41,158
|
|
47,117
|
|
876,929
|
|
|
> 80 to 100
|
|
215,242
|
|
54,451
|
|
8,873
|
|
2,158
|
|
665
|
|
4,322
|
|
285,711
|
|
|
> 100(1)
|
|
223
|
|
7
|
|
28
|
|
69
|
|
64
|
|
1,014
|
|
1,405
|
|
|
Total single-family loans
|
|
$1,004,908
|
|
$280,021
|
|
$119,653
|
|
$150,272
|
|
$189,823
|
|
$589,314
|
|
$2,333,991
|
|
(1)The serious delinquency rate for the single-family held-for-investment mortgage loans with current LTV ratios in excess of 100% was 10.75% and 11.17% as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
84
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
Multifamily
The table below presents the amortized cost basis of our multifamily held-for-investment loans, by credit quality indicator, based on available data through the end of each period presented. These indicators involve significant management judgment and are defined as follows:
n "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower;
n "Special mention" has administrative issues that may affect future repayment prospects but does not have current credit weaknesses. In addition, this category generally includes loans in forbearance;
n "Substandard" has a weakness that jeopardizes the timely full repayment; and
n "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions.
Table 4.7 - Amortized Cost Basis of Multifamily Held-for-Investment Loans by Credit Quality Indicator by Vintage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Year of Origination
|
Total
|
|
(In millions)
|
|
2021
|
2020
|
2019
|
2018
|
2017
|
Prior
|
|
Revolving Loans
|
|
Category:
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$438
|
|
$8,169
|
|
$6,258
|
|
$1,160
|
|
$656
|
|
$3,191
|
|
|
$2,215
|
|
$22,087
|
|
|
Special mention
|
|
—
|
|
—
|
|
500
|
|
—
|
|
—
|
|
107
|
|
|
—
|
|
607
|
|
|
Substandard
|
|
—
|
|
—
|
|
23
|
|
—
|
|
13
|
|
64
|
|
|
—
|
|
100
|
|
|
Doubtful
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Total
|
|
$438
|
|
$8,169
|
|
$6,781
|
|
$1,160
|
|
$669
|
|
$3,362
|
|
|
$2,215
|
|
$22,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Year of Origination
|
Total
|
|
(In millions)
|
|
2020
|
2019
|
2018
|
2017
|
2016
|
Prior
|
|
Revolving Loans
|
|
Category:
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$7,486
|
|
$6,491
|
|
$1,075
|
|
$722
|
|
$590
|
|
$2,715
|
|
|
$2,024
|
|
$21,103
|
|
|
Special mention
|
|
—
|
|
524
|
|
115
|
|
—
|
|
8
|
|
108
|
|
|
—
|
|
755
|
|
|
Substandard
|
|
—
|
|
—
|
|
6
|
|
41
|
|
—
|
|
72
|
|
|
—
|
|
119
|
|
|
Doubtful
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Total
|
|
$7,486
|
|
$7,015
|
|
$1,196
|
|
$763
|
|
$598
|
|
$2,895
|
|
|
$2,024
|
|
$21,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
85
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
The table below presents the amortized cost basis of our single-family and multifamily loans, held-for-investment, by payment status.
Table 4.8 - Amortized Cost Basis of Held-for-Investment Loans by Payment Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In millions)
|
|
Current
|
One
Month
Past Due
|
Two
Months
Past Due
|
Three Months or
More Past Due,
or in Foreclosure(1)
|
Total
|
Three Months or More Past Due, and Accruing
|
Non-accrual With No Allowance(2)
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
$2,015,453
|
|
$11,184
|
|
$4,152
|
|
$46,407
|
|
$2,077,196
|
|
$25,654
|
|
$791
|
|
|
15-year amortizing fixed-rate
|
|
351,388
|
|
1,024
|
|
309
|
|
2,968
|
|
355,689
|
|
1,907
|
|
11
|
|
|
Adjustable-rate
|
|
21,474
|
|
151
|
|
80
|
|
760
|
|
22,465
|
|
464
|
|
10
|
|
|
Alt-A, interest-only, and option ARM
|
|
8,725
|
|
243
|
|
129
|
|
1,061
|
|
10,158
|
|
376
|
|
139
|
|
|
Total single-family
|
|
2,397,040
|
|
12,602
|
|
4,670
|
|
51,196
|
|
2,465,508
|
|
28,401
|
|
951
|
|
|
Total multifamily(3)
|
|
22,788
|
|
6
|
|
—
|
|
—
|
|
22,794
|
|
—
|
|
—
|
|
|
Total single-family and multifamily
|
|
$2,419,828
|
|
$12,608
|
|
$4,670
|
|
$51,196
|
|
$2,488,302
|
|
$28,401
|
|
$951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In millions)
|
|
Current
|
One
Month
Past Due
|
Two
Months
Past Due
|
Three Months or
More Past Due,
or in Foreclosure(1)
|
Total
|
Three Months or More Past Due, and Accruing
|
Non-accrual with No Allowance(2)
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
$1,891,981
|
|
$15,798
|
|
$5,941
|
|
$51,853
|
|
$1,965,573
|
|
$40,162
|
|
$648
|
|
|
15-year amortizing fixed-rate
|
|
326,651
|
|
1,439
|
|
429
|
|
3,451
|
|
331,970
|
|
2,723
|
|
11
|
|
|
Adjustable-rate
|
|
24,483
|
|
192
|
|
79
|
|
884
|
|
25,638
|
|
690
|
|
5
|
|
|
Alt-A, interest-only, and option ARM
|
|
9,227
|
|
292
|
|
130
|
|
1,161
|
|
10,810
|
|
538
|
|
115
|
|
|
Total single-family
|
|
2,252,342
|
|
17,721
|
|
6,579
|
|
57,349
|
|
2,333,991
|
|
44,113
|
|
779
|
|
|
Total multifamily(3)
|
|
21,977
|
|
—
|
|
—
|
|
—
|
|
21,977
|
|
—
|
|
—
|
|
|
Total single-family and multifamily
|
|
$2,274,319
|
|
$17,721
|
|
$6,579
|
|
$57,349
|
|
$2,355,968
|
|
$44,113
|
|
$779
|
|
(1)Includes $0.9 billion and $1.0 billion of single-family loans that were in the process of foreclosure as of March 31, 2021 and December 31, 2020, respectively.
(2)Loans with no allowance for loan losses primarily represent those loans that were previously charged-off and therefore the collateral value is sufficiently in excess of the amortized cost to result in recovery of the entire amortized cost basis if the property were foreclosed upon or otherwise subject to disposition. The amounts of allowance for credit losses on accrued interest receivable and advances of pre-foreclosure costs related to these loans are excluded.
(3)As of March 31, 2021 and December 31, 2020, includes $0.6 billion and $0.7 billion of multifamily loans in forbearance that are reported as current.
Troubled Debt Restructurings
The table below provides details of our single-family loan modifications that were classified as TDRs during the periods presented.
Table 4.9 - Single-Family TDR Modification Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
1Q 2020
|
|
Percentage of single-family loan modifications that were classified as TDRs with:
|
|
|
|
|
Interest rate reductions and related term extensions
|
|
15
|
%
|
14
|
%
|
|
Principal forbearance and related interest rate reductions and term extensions
|
|
34
|
|
19
|
|
|
Average coupon interest rate reduction
|
|
0.4
|
%
|
0.3
|
%
|
|
Average months of term extension
|
|
153
|
187
|
Substantially all of our completed single-family loan modifications classified as a TDR during 1Q 2021 and 1Q 2020 resulted in a modified loan with a fixed interest rate.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
86
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 4
|
The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs. Loans classified as a TDR in one period may be subject to further action (such as a modification or remodification) in a subsequent period. In such cases, the subsequent action would not be reflected in the table below since the loan would already have been classified as a TDR.
Table 4.10 - TDR Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
1Q 2020
|
|
|
|
|
|
(Dollars in millions)
|
|
Number of
Loans
|
Post-TDR
Amortized Cost Basis
|
|
Number of
Loans
|
Post-TDR
Amortized Cost Basis
|
|
|
|
|
|
|
|
Single-family:(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
3,782
|
$671
|
|
|
6,432
|
$1,127
|
|
|
|
|
|
|
|
|
15-year amortizing fixed-rate
|
|
472
|
47
|
|
|
729
|
72
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
48
|
9
|
|
|
97
|
17
|
|
|
|
|
|
|
|
|
Alt-A, interest-only, and option ARM
|
|
151
|
19
|
|
|
166
|
24
|
|
|
|
|
|
|
|
|
Total single-family
|
|
4,453
|
746
|
|
|
7,424
|
1,240
|
|
|
|
|
|
|
|
|
Multifamily
|
|
—
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
(1)The pre-TDR amortized cost basis for single-family loans initially classified as TDR during 1Q 2021 and 1Q 2020 was $0.7 billion and $1.2 billion, respectively.
(2)Includes certain bankruptcy events and forbearance plans, repayment plans, payment deferrals, and modification activities that do not qualify for the temporary relief related to TDR provided by the CARES Act based on servicer reporting at the time of the TDR event.
The table below presents the volume of our TDR modifications that experienced payment defaults (i.e., loans that became two months delinquent or completed a loss event) during the applicable periods and had completed a modification during the year preceding the payment default.
Table 4.11 - Payment Defaults of Completed TDR Modifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
1Q 2020
|
|
|
|
|
|
(Dollars in millions)
|
|
Number of Loans
|
Post-TDR
Amortized Cost Basis
|
|
Number of Loans
|
Post-TDR
Amortized Cost Basis
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20- and 30-year or more, amortizing fixed-rate
|
|
1,131
|
|
$198
|
|
|
2,504
|
|
$427
|
|
|
|
|
|
|
|
|
15-year amortizing fixed-rate
|
|
62
|
|
7
|
|
|
119
|
|
14
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
15
|
|
3
|
|
|
29
|
|
4
|
|
|
|
|
|
|
|
|
Alt-A, interest-only, and option ARM
|
|
127
|
|
21
|
|
|
164
|
|
32
|
|
|
|
|
|
|
|
|
Total single-family
|
|
1,335
|
|
229
|
|
|
2,816
|
|
477
|
|
|
|
|
|
|
|
|
Multifamily
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
In addition to modifications, loans may be classified as TDRs as a result of other loss mitigation activities (i.e., repayment plans, forbearance plans, or loans in modification trial periods). During 1Q 2021 and 1Q 2020, 831 and 1,026, respectively, of such loans (with a post-TDR amortized cost basis of $0.1 billion during both periods) experienced a payment default within a year after the loss mitigation activity occurred.
Non-Cash Investing and Financing Activities
During 1Q 2021 and 1Q 2020, we acquired $139.5 billion and $73.2 billion, respectively, of loans held-for-investment in exchange for the issuance of debt securities of consolidated trusts in guarantor swap transactions. We received approximately $52.5 billion and $15.6 billion of loans held-for-investment from sellers during 1Q 2021 and 1Q 2020, respectively, to satisfy advances to lenders that were recorded in other assets on our condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
87
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 5
|
NOTE 5
Guarantees and Other Off-Balance Sheet Credit Exposures
We generate revenue through our guarantee activities by agreeing to absorb the credit risk associated with certain financial instruments that are owned or held by third parties. In exchange for providing this guarantee, we generally receive an ongoing guarantee fee that is commensurate with the risks assumed and that will, over the long-term, provide us with cash flows that are expected to exceed the credit-related and administrative expenses of the underlying financial instruments. The profitability of our guarantee activities may vary and will be dependent on our guarantee fee and the actual credit performance of the underlying financial instruments that we have guaranteed.
The table below shows our maximum exposure, recognized liability, and maximum remaining term of our guarantees to non-consolidated VIEs and other third parties. This table does not include certain of our unrecognized guarantees, such as guarantees to consolidated VIEs or to resecuritization trusts that do not expose us to incremental credit risk. The maximum exposure disclosed in the table is not representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral liquidation, including possible recoveries under credit enhancements. See Note 8 for additional information on our credit enhancements.
Table 5.1 - Financial Guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(Dollars in millions, terms in years)
|
|
Maximum
Exposure(1)
|
Recognized
Liability(2)
|
Maximum
Remaining
Term
|
|
Maximum
Exposure(1)
|
Recognized
Liability(2)
|
Maximum
Remaining
Term
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
Securitization activity guarantees
|
|
$28,466
|
|
$387
|
|
39
|
|
$29,739
|
|
$401
|
|
39
|
|
Other mortgage-related guarantees
|
|
9,584
|
|
214
|
|
30
|
|
9,215
|
|
193
|
|
30
|
|
Total single-family
|
|
$38,050
|
|
$601
|
|
|
|
$38,954
|
|
$594
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
Securitization activity guarantees
|
|
$299,878
|
|
$4,267
|
|
39
|
|
$287,334
|
|
$4,031
|
|
39
|
|
Other mortgage-related guarantees
|
|
10,243
|
|
407
|
|
33
|
|
10,721
|
|
425
|
|
33
|
|
Total multifamily
|
|
$310,121
|
|
$4,674
|
|
|
|
$298,055
|
|
$4,456
|
|
|
|
Other guarantees
|
|
$62,729
|
|
$1,796
|
|
30
|
|
$47,703
|
|
$794
|
|
30
|
|
Fannie Mae securities backing Freddie Mac resecuritization products
|
|
93,726
|
|
—
|
|
40
|
|
85,841
|
|
—
|
|
41
|
(1)The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of proceeds from related collateral liquidation and possible recoveries under credit enhancements. For other guarantees, this amount primarily represents the notional amount or UPB of our interest-rate and market value guarantees and guarantees of third-party derivatives. For certain of our other guarantees, our exposure may be unlimited; however, we generally reduce our exposure through separate contracts with third parties.
(2)For securitization activity guarantees and other mortgage-related guarantees, this amount represents the guarantee obligation on our condensed consolidated balance sheets and excludes our allowance for credit losses on off-balance sheet credit exposures. For other guarantees, this amount represents the fair value of the contract.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
88
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 5
|
The table below shows the payment status of the mortgage loans underlying our guarantees that are not measured at fair value.
Table 5.2 – UPB of Loans Underlying Our Guarantees by Payment Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In millions)
|
|
Current
|
One
Month
Past Due
|
Two
Months
Past Due
|
Three Months or
More Past Due,
or in Foreclosure
|
Total(1)
|
|
Single-family
|
|
$36,577
|
|
$2,123
|
|
$811
|
|
$3,878
|
|
$43,389
|
|
|
Multifamily(2)
|
|
352,559
|
|
55
|
|
63
|
|
592
|
|
353,269
|
|
|
Total
|
|
$389,136
|
|
$2,178
|
|
$874
|
|
$4,470
|
|
$396,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In millions)
|
|
Current
|
One
Month
Past Due
|
Two
Months
Past Due
|
Three Months or
More Past Due,
or in Foreclosure
|
Total(1)
|
|
Single-family
|
|
$37,187
|
|
$2,204
|
|
$945
|
|
$3,922
|
|
$44,258
|
|
|
Multifamily
|
|
339,614
|
|
87
|
|
62
|
|
557
|
|
340,320
|
|
|
Total
|
|
$376,801
|
|
$2,291
|
|
$1,007
|
|
$4,479
|
|
$384,578
|
|
(1)Loan-level payment status is not available for certain guarantees totaling $0.6 billion and $0.7 billion as of March 31, 2021 and December 31, 2020, respectively, and therefore is not included in the table above.
(2)As of March 31, 2021, includes $6.6 billion of multifamily loans in forbearance that are reported as current.
Other Off-Balance Sheet Credit Exposures
In addition to our guarantees, we enter into other agreements that expose us to off-balance sheet credit risk, primarily related to our multifamily business, including certain purchase commitments that are not accounted for as derivative instruments, liquidity guarantees, unfunded lending arrangements and other similar commitments. These agreements may require us to transfer cash before or upon settlement of our contractual obligation. We recognize an allowance for credit losses for those agreements not measured at fair value or otherwise recognized in the financial statements. The total notional value of off-balance sheet credit exposures was $14.8 billion and $15.4 billion at March 31, 2021 and December 31, 2020, respectively. See Note 7 for additional discussion of our allowance for credit losses on our off-balance sheet credit exposures.
We also have certain multifamily purchase commitments totaling $5.2 billion and $5.5 billion at March 31, 2021 and December 31, 2020, respectively, that are excluded from the amounts above as they are not included in our allowance for credit losses. We have elected the fair value option for certain of these commitments.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
89
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 6
|
NOTE 6
Investment Securities
The table below summarizes the fair values of our investments in debt securities by classification.
Table 6.1 - Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
|
Trading securities
|
|
$54,289
|
|
$44,458
|
|
|
Available-for-sale securities
|
|
7,591
|
|
15,367
|
|
|
Total fair value of investment securities
|
|
$61,880
|
|
$59,825
|
|
As of March 31, 2021 and December 31, 2020, we did not classify any securities as held-to-maturity, although we may elect to do so in the future.
The table below presents the estimated fair values of our trading securities by major security type. Our non-mortgage-related securities primarily consist of investments in U.S. Treasury securities.
Table 6.2 - Trading Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
|
Mortgage-related securities:
|
|
|
|
|
Agency
|
|
$23,015
|
|
$17,504
|
|
|
Non-agency
|
|
1
|
|
1
|
|
|
Total mortgage-related securities
|
|
23,016
|
|
17,505
|
|
|
Non-mortgage-related securities
|
|
31,273
|
|
26,953
|
|
|
Total fair value of trading securities
|
|
$54,289
|
|
$44,458
|
|
For trading securities held at March 31, 2021 and 2020, we recorded net unrealized gains (losses) of ($506) million and $723 million during 1Q 2021 and 1Q 2020, respectively.
Available-for-Sale Securities
At March 31, 2021 and December 31, 2020, all available-for-sale securities were mortgage-related securities. We had no allowance for credit losses on our available-for-sale securities as of March 31, 2021 and December 31, 2020.
The table below provides details of the securities classified as available-for-sale on our condensed consolidated balance sheets.
Table 6.3 - Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Amortized
Cost
Basis
|
Gross Unrealized Gains in Other Comprehensive Income
|
Gross Unrealized
Losses in Other Comprehensive Income
|
Fair Value
|
Accrued Interest Receivable
|
|
(In millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Agency
|
|
$6,267
|
|
$294
|
|
($6)
|
|
$6,555
|
|
$16
|
|
|
Non-agency and other
|
|
802
|
|
234
|
|
—
|
|
1,036
|
|
4
|
|
|
Total available-for-sale securities
|
|
$7,069
|
|
$528
|
|
($6)
|
|
$7,591
|
|
$20
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
90
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Amortized
Cost
Basis
|
Gross Unrealized
Gains in Other Comprehensive Income
|
Gross Unrealized
Losses in Other Comprehensive Income
|
Fair Value
|
Accrued Interest Receivable
|
|
(In millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Agency
|
|
$13,514
|
|
$794
|
|
($4)
|
|
$14,304
|
|
$36
|
|
|
Non-agency and other
|
|
830
|
|
233
|
|
—
|
|
1,063
|
|
4
|
|
|
Total available-for-sale securities
|
|
$14,344
|
|
$1,027
|
|
($4)
|
|
$15,367
|
|
$40
|
|
The fair value of our available-for-sale securities held at March 31, 2021 scheduled to contractually mature after ten years was $4.8 billion, with an additional $1.7 billion scheduled to contractually mature after five years through ten years.
Available-for-Sale Securities in a Gross Unrealized Loss Position
The table below presents available-for-sale securities in a gross unrealized loss position and whether such securities have been in an unrealized loss position for less than 12 months, or 12 months or greater.
Table 6.4 - Available-for-Sale Securities in a Gross Unrealized Loss Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
(In millions)
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Agency
|
|
$617
|
|
($3)
|
|
|
$117
|
|
($3)
|
|
|
Non-agency and other
|
|
1
|
|
—
|
|
|
16
|
|
—
|
|
|
Total available-for-sale securities in a gross unrealized loss position
|
|
$618
|
|
($3)
|
|
|
$133
|
|
($3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Less than 12 Months
|
|
12 Months or Greater
|
|
(In millions)
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Fair
Value
|
Gross Unrealized Losses
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
Agency
|
|
$223
|
|
($2)
|
|
|
$144
|
|
($2)
|
|
|
Non-agency and other
|
|
17
|
|
—
|
|
|
—
|
|
—
|
|
|
Total available-for-sale securities in a gross unrealized loss position
|
|
$240
|
|
($2)
|
|
|
$144
|
|
($2)
|
|
At March 31, 2021, the gross unrealized losses relate to 43 securities.
Realized Gains and Losses on Sales of Available-for-Sale Securities
The table below summarizes the gross realized gains and gross realized losses from the sale of available-for-sale securities.
Table 6.5 - Gross Realized Gains and Gross Realized Losses from Sales of Available-for-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
Gross realized gains
|
|
$399
|
|
$33
|
|
|
|
|
|
Gross realized losses
|
|
(31)
|
|
(23)
|
|
|
|
|
|
Net realized gains (losses)
|
|
$368
|
|
$10
|
|
|
|
|
Non-Cash Investing and Financing Activities
During 1Q 2021 and 1Q 2020, we recognized $13.3 billion and $3.5 billion, respectively, of investment securities in exchange for the issuance of debt securities of consolidated trusts through partial sales of commingled single-class securities that were previously consolidated.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
91
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 7
|
NOTE 7
Allowance for Credit Losses
The table below summarizes changes in our allowance for credit losses.
Table 7.1 - Details of the Allowance for Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
1Q 2020
|
|
(In millions)
|
|
Single-family
|
Multifamily
|
Total
|
|
Single-family
|
Multifamily
|
Total
|
|
Beginning balance
|
|
$6,353
|
|
$200
|
|
$6,553
|
|
|
$5,233
|
|
$69
|
|
$5,302
|
|
|
Provision (benefit) for credit losses
|
|
(146)
|
|
(50)
|
|
(196)
|
|
|
1,166
|
|
67
|
|
1,233
|
|
|
Charge-offs
|
|
(238)
|
|
—
|
|
(238)
|
|
|
(164)
|
|
—
|
|
(164)
|
|
|
Recoveries collected
|
|
46
|
|
—
|
|
46
|
|
|
88
|
|
—
|
|
88
|
|
|
Other
|
|
115
|
|
—
|
|
115
|
|
|
24
|
|
—
|
|
24
|
|
|
Ending balance
|
|
$6,130
|
|
$150
|
|
$6,280
|
|
|
$6,347
|
|
$136
|
|
$6,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of ending balance of allowance for credit losses:
|
|
|
|
|
|
Mortgage loans held-for-investment
|
|
$5,253
|
|
$77
|
|
$5,330
|
|
|
$6,044
|
|
$77
|
|
$6,121
|
|
|
Advances of pre-foreclosure costs
|
|
615
|
|
—
|
|
615
|
|
|
254
|
|
—
|
|
254
|
|
|
Accrued interest receivable on mortgage loans
|
|
213
|
|
—
|
|
213
|
|
|
—
|
|
—
|
|
—
|
|
|
Off-balance sheet credit exposures
|
|
49
|
|
73
|
|
122
|
|
|
49
|
|
59
|
|
108
|
|
|
Total
|
|
$6,130
|
|
$150
|
|
$6,280
|
|
|
$6,347
|
|
$136
|
|
$6,483
|
|
Current Period Changes
The change to a benefit for credit losses in 1Q 2021 from a provision for credit losses in 1Q 2020 was primarily driven by the following factors:
n Expected credit losses related to COVID-19 - Our provision for credit losses increased significantly in 1Q 2020 due to the increase in expected credit losses related to the economic effects of the COVID-19 pandemic. Our estimate of expected credit losses related to the pandemic decreased in 1Q 2021 as economic conditions improved.
n Portfolio growth - We recognize expected credit losses over the entire contractual term of the loan at the time of loan acquisition. Our single-family mortgage portfolio grew by $438 billion, or 22%, year-over-year, which partially offset the benefit for credit losses.
n Changes in house prices and interest rates - The effect of changes in forecasted interest rates and changes related to house price growth rates had largely offsetting impacts in both periods.
In addition, charge-offs increased year-over-year due to an increase in the number of loans we placed on non-accrual status and the related accrued interest receivable that was charged off. The decline in economic activity caused by the COVID-19 pandemic, and the corresponding government response, is unprecedented, and as a result, our estimate of expected credit losses is subject to significant uncertainty.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
92
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 8
|
NOTE 8
Credit Enhancements
We obtain various forms of credit enhancements that reduce our exposure to credit losses. These credit enhancements may be associated with mortgage loans or guarantees recognized on our condensed consolidated balance sheets or embedded in debt recognized on our condensed consolidated balance sheets.
The table below presents details of our credit enhancement receivables. These amounts are recognized in other assets on our condensed consolidated balance sheets.
Table 8.1 - Credit Enhancement Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
|
Freestanding credit enhancement expected recovery receivables, net of allowance
|
|
$406
|
|
$677
|
|
|
Primary mortgage insurance receivables(1), net of allowance
|
|
82
|
|
74
|
|
|
Total credit enhancement receivables
|
|
$488
|
|
$751
|
|
(1)Excludes $433 million and $444 million of deferred payment obligations associated with unpaid claim amounts as of March 31, 2021 and December 31, 2020, respectively. We have reserved for substantially all these unpaid amounts as collectability is uncertain.
For information about counterparty credit risk associated with mortgage insurers and other credit enhancement providers, see Note 16.
Single-Family Credit Enhancements
The table below presents the total current and protected UPB and maximum amounts of potential loss recovery related to our single-family credit enhancements.
Table 8.2 - Single-Family Credit Enhancements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(In millions)
|
|
Credit Enhancement Accounting Treatment
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Primary mortgage insurance
|
|
Attached
|
$485,593
|
|
$119,111
|
|
|
$472,881
|
|
$116,973
|
|
|
STACR:(2)
|
|
|
|
|
|
|
|
|
Trust notes
|
|
Freestanding
|
589,150
|
|
19,728
|
|
|
488,251
|
|
17,288
|
|
|
Debt notes
|
|
Debt
|
316,378
|
|
11,954
|
|
|
365,482
|
|
12,377
|
|
|
Insurance/reinsurance(3)
|
|
Freestanding
|
975,289
|
|
13,645
|
|
|
876,815
|
|
11,586
|
|
|
Subordination:(4)
|
|
|
|
|
|
|
|
|
Non-consolidated VIEs
|
|
Guarantee
|
27,774
|
|
5,686
|
|
|
29,039
|
|
5,718
|
|
|
Consolidated VIEs
|
|
Debt
|
7,203
|
|
404
|
|
|
9,035
|
|
464
|
|
|
Lender risk-sharing
|
|
Freestanding
|
5,177
|
|
4,587
|
|
|
5,731
|
|
4,831
|
|
|
Other
|
|
Primarily attached
|
314
|
|
311
|
|
|
374
|
|
371
|
|
|
Total single-family credit enhancements
|
|
|
|
$175,426
|
|
|
|
$169,608
|
|
(1)Underlying loans may be covered by more than one form of credit enhancement. For certain transactions, protected UPB may be different from the UPB of the underlying loans due to timing differences in reporting cycles between the transactions and the loans.
(2)Total current and protected UPB represents the UPB of the assets included in the reference pool. Maximum coverage amount represents the outstanding balance held by third parties.
(3)As of March 31, 2021 and December 31, 2020, substantially all of our counterparties posted sufficient collateral on our ACIS transactions to meet the minimum collateral requirements of the ACIS program. Minimum collateral requirements are assessed on each deal based on a combination of factors, including counterparty credit risk of the reinsurer, as well as the structure and risk profile of the transaction. Other insurance/reinsurance transactions have similar collateral requirements.
(4)Total current and protected UPB includes the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities. For non-consolidated VIEs, the total current and protected UPB also includes the UPB of guarantor advances made to the holders of the guaranteed securities. Maximum coverage represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
93
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 8
|
Multifamily Credit Enhancements
The table below presents the total current and protected UPB and maximum amounts of potential loss recovery related to our multifamily credit enhancements.
Table 8.3 - Multifamily Credit Enhancements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(In millions)
|
|
Credit Enhancement Accounting Treatment
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Total Current and Protected UPB(1)
|
Maximum Coverage
|
|
Subordination:(2)
|
|
|
|
|
|
|
|
|
Non-consolidated VIEs
|
|
Guarantee
|
$298,965
|
|
$43,450
|
|
|
$286,199
|
|
$42,712
|
|
|
Consolidated VIEs
|
|
Debt
|
1,800
|
|
200
|
|
|
1,800
|
|
200
|
|
|
Lender risk-sharing(3)
|
|
Freestanding
|
3,127
|
|
597
|
|
|
3,321
|
|
598
|
|
|
Insurance/reinsurance(4)
|
|
Freestanding
|
5,366
|
|
190
|
|
|
5,383
|
|
190
|
|
|
SCR:(5)
|
|
|
|
|
|
|
|
|
Trust notes
|
|
Freestanding
|
4,801
|
|
273
|
|
|
—
|
|
—
|
|
|
Debt notes
|
|
Debt
|
2,149
|
|
107
|
|
|
2,217
|
|
111
|
|
|
Other(3)
|
|
Attached
|
251
|
|
251
|
|
|
253
|
|
253
|
|
|
Total multifamily credit enhancements
|
|
|
|
$45,068
|
|
|
|
$44,064
|
|
(1)Underlying loans may be covered by more than one form of credit enhancement.
(2)Total current and protected UPB includes the UPB of the guaranteed securities, which represents the UPB of the assets included in the trust net of the protection provided by the subordinated securities, and the UPB of master servicer advances made to the holders of the guaranteed and unguaranteed securities. For non-consolidated VIEs, the total current and protected UPB also includes the UPB of guarantor advances made to the holders of the guaranteed securities. Maximum coverage represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.
(3)Maximum coverage represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements.
(4)As of March 31, 2021 and December 31, 2020, the counterparties to our insurance/reinsurance transactions have complied with the minimum collateral requirements. Minimum collateral requirements are assessed on each deal based on a combination of factors, including counterparty credit risk of the reinsurer, as well as the structure and risk profile of the transaction.
(5)Total current and protected UPB represents the UPB of the assets included in the reference pool. Maximum coverage amount represents the outstanding balance of the SCR notes held by third parties.
We have other multifamily credit enhancements in the form of collateral posting requirements, indemnification, pool insurance, bond insurance, recourse, and other similar arrangements. These credit enhancements, along with the proceeds received from the sale of the underlying mortgage collateral, are designed to recover all or a portion of our losses on our mortgage loans or the amounts paid under our financial guarantee contracts. Our historical losses and related recoveries pursuant to these agreements have not been significant and therefore these other types of multifamily credit enhancements are excluded from the table above.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
94
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 9
|
NOTE 9
Debt
The table below summarizes the balances of total debt per our condensed consolidated balance sheets.
Table 9.1 - Total Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
|
Debt securities of consolidated trusts held by third parties
|
|
$2,445,829
|
|
$2,308,176
|
|
|
Debt of Freddie Mac:
|
|
|
|
|
Short-term debt
|
|
10,910
|
|
4,955
|
|
|
Long-term debt
|
|
247,531
|
|
279,415
|
|
|
Total Debt of Freddie Mac
|
|
258,441
|
|
284,370
|
|
|
Total debt
|
|
$2,704,270
|
|
$2,592,546
|
|
As of March 31, 2021, our aggregate indebtedness was $262.7 billion, which was below the current $300.0 billion debt cap limit imposed by the Purchase Agreement. Our aggregate indebtedness calculation primarily includes the par value of short- and long-term debt.
Debt Securities of Consolidated Trusts Held by Third Parties
The table below summarizes the debt securities of consolidated trusts held by third parties based on underlying loan product type.
Table 9.2 - Debt Securities of Consolidated Trusts Held by Third Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(Dollars in millions)
|
|
Contractual
Maturity
|
UPB
|
Carrying Amount(1)
|
Weighted
Average
Coupon(2)
|
|
Contractual
Maturity
|
UPB
|
Carrying Amount(1)
|
Weighted
Average
Coupon(2)
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
30-year or more, fixed-rate
|
|
2021 - 2060
|
$1,896,894
|
|
$1,953,618
|
|
2.89
|
%
|
|
2021 - 2060
|
$1,799,065
|
|
$1,855,438
|
|
3.07
|
%
|
|
20-year fixed-rate
|
|
2021 - 2041
|
107,510
|
|
110,680
|
|
2.67
|
|
|
2021 - 2041
|
97,520
|
|
100,498
|
|
2.84
|
|
|
15-year fixed-rate
|
|
2021 - 2036
|
332,355
|
|
340,820
|
|
2.34
|
|
|
2021 - 2036
|
303,142
|
|
310,612
|
|
2.46
|
|
|
Adjustable-rate
|
|
2021 - 2051
|
21,801
|
|
22,280
|
|
2.64
|
|
|
2021 - 2051
|
23,964
|
|
24,484
|
|
2.76
|
|
|
Interest-only
|
|
2026 - 2048
|
3,404
|
|
3,520
|
|
2.85
|
|
|
2026 - 2041
|
3,671
|
|
3,736
|
|
3.15
|
|
|
FHA/VA
|
|
2021 - 2050
|
759
|
|
774
|
|
4.02
|
|
|
2021 - 2050
|
752
|
|
769
|
|
4.04
|
|
|
Total single-family
|
|
|
2,362,723
|
|
2,431,692
|
|
|
|
|
2,228,114
|
|
2,295,537
|
|
|
|
Multifamily
|
|
2021-2050
|
13,968
|
|
14,137
|
|
2.34
|
|
|
2021-2050
|
12,488
|
|
12,639
|
|
2.43
|
|
|
Total debt of consolidated trusts held by third parties
|
|
|
$2,376,691
|
|
$2,445,829
|
|
|
|
|
$2,240,602
|
|
$2,308,176
|
|
|
(1)Includes $262 million and $205 million at March 31, 2021 and December 31, 2020, respectively, of debt securities of consolidated trusts that represents the fair value of debt for which the fair value option was elected.
(2)The effective interest rate for debt securities of consolidated trusts held by third parties was 1.58% and 1.76% as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
95
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 9
|
The table below summarizes the balances and effective interest rates for debt of Freddie Mac.
Table 9.3 - Total Debt of Freddie Mac
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(Dollars in millions)
|
|
Par Value
|
Carrying Amount(1)
|
Weighted
Average
Effective Rate(2)
|
|
Par Value
|
Carrying Amount(1)
|
Weighted
Average
Effective Rate(2)
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
Discount notes and Reference Bills
|
|
$—
|
|
$—
|
|
—
|
%
|
|
$11
|
|
$11
|
|
0.69
|
%
|
|
Medium-term notes
|
|
10,910
|
|
10,910
|
|
0.03
|
|
|
4,944
|
|
4,944
|
|
1.31
|
|
|
Securities sold under agreements to repurchase (3)
|
|
7,930
|
|
7,930
|
|
(0.05)
|
|
|
—
|
|
—
|
|
—
|
|
|
Total short-term debt
|
|
18,840
|
|
18,840
|
|
—
|
|
|
4,955
|
|
4,955
|
|
1.31
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Original maturities on or before December 31,
|
|
|
|
|
|
|
|
|
|
2021
|
|
35,488
|
|
35,484
|
|
0.71
|
|
|
43,422
|
|
43,417
|
|
0.95
|
|
|
2022
|
|
59,002
|
|
59,022
|
|
0.69
|
|
|
61,071
|
|
61,092
|
|
0.68
|
|
|
2023
|
|
54,049
|
|
53,980
|
|
0.45
|
|
|
61,998
|
|
61,920
|
|
0.45
|
|
|
2024
|
|
17,744
|
|
17,719
|
|
0.55
|
|
|
21,679
|
|
21,651
|
|
0.61
|
|
|
2025
|
|
36,587
|
|
36,207
|
|
0.83
|
|
|
44,342
|
|
43,944
|
|
0.84
|
|
|
Thereafter
|
|
36,617
|
|
34,881
|
|
2.62
|
|
|
36,386
|
|
34,583
|
|
2.64
|
|
|
STACR and SCR debt(4)
|
|
12,061
|
|
11,888
|
|
4.23
|
|
|
12,488
|
|
12,342
|
|
4.18
|
|
|
Hedging-related basis adjustments
|
|
N/A
|
(1,650)
|
|
|
|
N/A
|
466
|
|
|
|
Total long-term debt
|
|
251,548
|
|
247,531
|
|
1.09
|
|
|
281,386
|
|
279,415
|
|
1.09
|
|
|
Total debt of Freddie Mac(5)
|
|
$270,388
|
|
$266,371
|
|
|
|
$286,341
|
|
$284,370
|
|
|
(1)Represents par value, net of associated discounts or premiums and issuance cost. Includes $2.1 billion and $2.4 billion at March 31, 2021 and December 31, 2020, respectively, of long-term debt that represents the fair value of debt for which the fair value option was elected.
(2)Based on carrying amount.
(3)We offset payables related to securities sold under agreements to repurchase against receivables related to securities purchased under agreements to resell on our condensed consolidated balance sheets, when such amounts meet the conditions for offsetting in the accounting guidance.
(4)Contractual maturities of these debt securities are not presented because they are subject to prepayment risk, as their payments are based upon the performance of a pool of mortgage assets that may be prepaid by the related mortgage borrower at any time, generally without penalty.
(5)Carrying amount for debt of Freddie Mac includes callable debt of $112.4 billion and $124.0 billion at March 31, 2021 and December 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
96
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 10
|
NOTE 10
Derivatives
We use derivatives primarily to hedge interest-rate sensitivity mismatches between our financial assets and liabilities. We analyze the interest-rate sensitivity of financial assets and liabilities across a variety of interest-rate scenarios based on market prices, models, and economics. When we use derivatives to mitigate our exposures, we consider a number of factors, including cost, exposure to counterparty risk, and our overall risk management strategy.
We classify derivatives into three categories:
n Exchange-traded derivatives;
n Cleared derivatives; and
n OTC derivatives.
Exchange-traded derivatives include standardized interest-rate futures contracts and options on futures contracts. Cleared derivatives refer to those interest-rate swaps that the CFTC has determined are subject to the central clearing requirement of the Dodd-Frank Act. OTC derivatives refer to those derivatives that are neither exchange-traded derivatives nor cleared derivatives.
We principally use the following types of derivatives:
n LIBOR- and SOFR-based interest-rate swaps;
n LIBOR-, Treasury-, and SOFR-based purchased options (including swaptions); and
n LIBOR-, Treasury-, and SOFR-based exchange-traded futures.
We also purchase swaptions on credit indices in order to obtain protection against adverse movements in multifamily spreads which may affect the profitability of our K Certificate or SB Certificate transactions.
In addition to swaps, futures, and purchased options, our derivative positions include written options and swaptions, and commitments.
We apply fair value hedge accounting to certain single-family mortgage loans and certain issuances of debt where we hedge the changes in fair value of these items attributable to the designated benchmark interest rate (i.e., LIBOR), using LIBOR-based interest-rate swaps.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
97
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 10
|
Derivative Assets and Liabilities at Fair Value
The table below presents the notional value and fair value of derivatives reported on our condensed consolidated balance sheets.
Table 10.1 - Derivative Assets and Liabilities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
Notional or
Contractual
Amount
|
Derivatives at Fair Value
|
|
Notional or
Contractual
Amount
|
Derivatives at Fair Value
|
|
(In millions)
|
|
Assets
|
Liabilities
|
|
Assets
|
Liabilities
|
|
Not designated as hedges
|
|
|
|
|
|
|
|
|
|
Interest-rate risk management derivatives:
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$534,976
|
|
$1,947
|
|
($4,140)
|
|
|
$559,596
|
|
$2,639
|
|
($7,091)
|
|
|
Written options
|
|
30,830
|
|
—
|
|
(1,714)
|
|
|
18,259
|
|
—
|
|
(735)
|
|
|
Purchased options (1)
|
|
242,260
|
|
5,107
|
|
—
|
|
|
169,995
|
|
5,265
|
|
—
|
|
|
Futures
|
|
157,628
|
|
—
|
|
—
|
|
|
181,702
|
|
—
|
|
—
|
|
|
Total interest-rate management derivatives
|
|
965,694
|
|
7,054
|
|
(5,854)
|
|
|
929,552
|
|
7,904
|
|
(7,826)
|
|
|
Mortgage commitment derivatives:
|
|
|
|
|
|
|
|
|
|
Forward contracts to purchase mortgage loans
|
|
38,152
|
|
5
|
|
(337)
|
|
|
37,122
|
|
183
|
|
—
|
|
|
Forward contracts to purchase mortgage-related securities
|
|
55,805
|
|
19
|
|
(316)
|
|
|
45,185
|
|
203
|
|
—
|
|
|
Forward contracts to sell mortgage-related securities
|
|
171,285
|
|
1,483
|
|
(34)
|
|
|
136,802
|
|
2
|
|
(759)
|
|
|
Total mortgage commitment derivatives
|
|
265,242
|
|
1,507
|
|
(687)
|
|
|
219,109
|
|
388
|
|
(759)
|
|
|
CRT-related derivatives
|
|
30,513
|
|
29
|
|
(57)
|
|
|
28,949
|
|
61
|
|
(47)
|
|
|
Other
|
|
9,190
|
|
1
|
|
(30)
|
|
|
4,029
|
|
2
|
|
(16)
|
|
|
Total derivatives not designated as hedges
|
|
1,270,639
|
|
8,591
|
|
(6,628)
|
|
|
1,181,639
|
|
8,355
|
|
(8,648)
|
|
|
Designated as fair value hedges
|
|
|
|
|
|
|
|
|
|
Interest-rate risk management derivatives:
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
238,120
|
|
149
|
|
(2,521)
|
|
|
180,686
|
|
224
|
|
(500)
|
|
|
Total derivatives designated as fair value hedges
|
|
238,120
|
|
149
|
|
(2,521)
|
|
|
180,686
|
|
224
|
|
(500)
|
|
|
Derivative interest receivable (payable)(2)
|
|
|
480
|
|
(485)
|
|
|
|
455
|
|
(523)
|
|
|
Netting adjustments(3)
|
|
|
(7,135)
|
|
8,684
|
|
|
|
(7,829)
|
|
8,717
|
|
|
Total derivative portfolio, net
|
|
$1,508,759
|
|
$2,085
|
|
($950)
|
|
|
$1,362,325
|
|
$1,205
|
|
($954)
|
|
(1)Includes swaptions on credit indices with a notional or contractual amount of $14.3 billion and $16.8 billion at March 31, 2021 and December 31, 2020, respectively, and a fair value of $5.0 million and $9.0 million at March 31, 2021 and December 31, 2020, respectively.
(2)Includes other derivative receivables and payables.
(3)Represents counterparty netting and cash collateral netting.
See Note 11 for information related to our derivative counterparties and collateral held and posted.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
98
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 10
|
Gains and Losses on Derivatives
The table below presents the gains and losses on derivatives, including the accrual of periodic cash settlements, while not designated in qualifying hedge relationships and reported on our condensed consolidated statements of comprehensive income (loss) as investment gains (losses), net.
Table 10.2 - Gains and Losses on Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
Not designated as hedges
|
|
|
|
|
|
|
|
Interest-rate risk management derivatives:
|
|
|
|
|
|
|
|
Swaps
|
|
$615
|
|
($4,863)
|
|
|
|
|
|
Written options
|
|
(461)
|
|
(320)
|
|
|
|
|
|
Purchased options
|
|
(48)
|
|
4,542
|
|
|
|
|
|
Futures
|
|
286
|
|
(2,328)
|
|
|
|
|
|
Total interest-rate risk management derivatives fair value gains (losses)
|
|
392
|
|
(2,969)
|
|
|
|
|
|
Mortgage commitment derivatives
|
|
1,476
|
|
(726)
|
|
|
|
|
|
CRT-related derivatives
|
|
(42)
|
|
78
|
|
|
|
|
|
Other
|
|
(3)
|
|
31
|
|
|
|
|
|
Total derivatives not designated as hedges fair value gains (losses)
|
|
1,823
|
|
(3,586)
|
|
|
|
|
|
Accrual of periodic cash settlements(1)
|
|
(452)
|
|
(176)
|
|
|
|
|
|
Total
|
|
$1,371
|
|
($3,762)
|
|
|
|
|
(1)Includes interest on variation margin on cleared interest-rate swaps.
The table below presents the effects of fair value hedge accounting by condensed consolidated statements of comprehensive income (loss) line item, including the gains and losses on derivatives and hedged items designated in qualifying hedge relationships and other components due to the application of hedge accounting.
Table 10.3 - Gains and Losses on Fair Value Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
1Q 2020
|
|
(In millions)
|
|
Interest Income
|
Interest Expense
|
Interest Income
|
Interest Expense
|
|
Total amounts of income and expense line items presented in our condensed consolidated statements of comprehensive income in which the effects of fair value hedges are recorded:
|
|
$13,902
|
|
($10,263)
|
|
$17,592
|
|
($14,807)
|
|
|
|
|
|
|
|
|
|
Interest contracts on mortgage loans held-for-investment:
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
Hedged items
|
|
(1,523)
|
|
—
|
|
4,893
|
|
—
|
|
|
Derivatives designated as hedging instruments
|
|
1,534
|
|
—
|
|
(5,080)
|
|
—
|
|
|
Interest accruals on hedging instruments
|
|
(114)
|
|
—
|
|
(63)
|
|
—
|
|
|
Discontinued hedge-related basis adjustments amortization
|
|
(781)
|
|
—
|
|
(253)
|
|
—
|
|
|
Interest contracts on debt:
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
Hedged items
|
|
—
|
|
2,114
|
|
—
|
|
(505)
|
|
|
Derivatives designated as hedging instruments
|
|
—
|
|
(2,188)
|
|
—
|
|
554
|
|
|
Interest accruals on hedging instruments
|
|
—
|
|
255
|
|
—
|
|
100
|
|
|
Discontinued hedge-related basis adjustments amortization
|
|
—
|
|
5
|
|
—
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
99
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 10
|
Cumulative Basis Adjustments Due to Fair Value Hedging
The table below presents the cumulative basis adjustments and the carrying amounts of the hedged item by its respective balance sheet line item.
Table 10.4 - Cumulative Basis Adjustments Due to Fair Value Hedging
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount
|
|
Closed Portfolio Under the Last-of-Layer Method
|
|
(In millions)
|
|
|
Total
|
Under the Last-of-Layer Method
|
Discontinued - Hedge Related
|
|
Total Amount by Amortized Cost Basis
|
Designated Amount by UPB
|
|
Mortgage loans held-for-investment
|
|
$417,644
|
|
|
$2,813
|
|
($1,152)
|
|
$3,965
|
|
|
$192,912
|
|
$9,507
|
|
|
Debt
|
|
(158,646)
|
|
|
1,650
|
|
—
|
|
(33)
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Carrying Amount Assets / (Liabilities)
|
|
Cumulative Amount of Fair Value Hedging Basis Adjustments Included in the Carrying Amount
|
|
Closed Portfolio Under the Last-of-Layer Method
|
|
(In millions)
|
|
|
Total
|
Under the Last-of-Layer Method
|
Discontinued - Hedge Related
|
|
Total Amount by Amortized Cost Basis
|
Designated Amount by UPB
|
|
Mortgage loans held-for-investment
|
|
$478,077
|
|
|
$5,117
|
|
($318)
|
|
$5,435
|
|
|
$220,301
|
|
$9,112
|
|
|
Debt
|
|
(176,512)
|
|
|
(466)
|
|
—
|
|
(38)
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
100
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 11
|
NOTE 11
Collateralized Agreements and Offsetting Arrangements
Offsetting of Financial Assets and Liabilities
We offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting and collateral agreement. We also offset payables related to securities sold under agreements to repurchase against receivables related to securities purchased under agreements to resell when such amounts meet the conditions for balance sheet offsetting.
The table below presents offsetting and collateral information related to derivatives, securities purchased under agreements to resell, and securities sold under agreements to repurchase which are subject to enforceable master netting agreements or similar arrangements.
Table 11.1 - Offsetting and Collateral Information of Financial Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Gross
Amount
Recognized
|
|
Amount
Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented in the Consolidated
Balance Sheets
|
Gross Amount
Not Offset in the Consolidated
Balance Sheets(2)
|
Net
Amount
|
|
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting(1)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
OTC derivatives
|
|
$7,614
|
|
|
($5,681)
|
|
($1,497)
|
|
|
$436
|
|
($392)
|
|
$44
|
|
|
Cleared and exchange-traded derivatives
|
|
69
|
|
|
—
|
|
43
|
|
|
112
|
|
—
|
|
112
|
|
|
Mortgage commitment derivatives
|
|
1,507
|
|
|
—
|
|
—
|
|
|
1,507
|
|
—
|
|
1,507
|
|
|
Other
|
|
30
|
|
|
—
|
|
—
|
|
|
30
|
|
—
|
|
30
|
|
|
Total derivatives
|
|
9,220
|
|
|
(5,681)
|
|
(1,454)
|
|
|
2,085
|
|
(392)
|
|
1,693
|
|
|
Securities purchased under agreements to resell
|
|
23,070
|
|
|
(7,930)
|
|
—
|
|
|
15,140
|
|
(15,140)
|
|
—
|
|
|
Total
|
|
$32,290
|
|
|
($13,611)
|
|
($1,454)
|
|
|
$17,225
|
|
($15,532)
|
|
$1,693
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
OTC derivatives
|
|
($8,828)
|
|
|
$5,681
|
|
$2,975
|
|
|
($172)
|
|
$—
|
|
($172)
|
|
|
Cleared and exchange-traded derivatives
|
|
(32)
|
|
|
—
|
|
28
|
|
|
(4)
|
|
4
|
|
—
|
|
|
Mortgage commitment derivatives
|
|
(687)
|
|
|
—
|
|
—
|
|
|
(687)
|
|
—
|
|
(687)
|
|
|
Other
|
|
(87)
|
|
|
—
|
|
—
|
|
|
(87)
|
|
—
|
|
(87)
|
|
|
Total derivatives
|
|
(9,634)
|
|
|
5,681
|
|
3,003
|
|
|
(950)
|
|
4
|
|
(946)
|
|
|
Securities sold under agreements to repurchase
|
|
(7,930)
|
|
|
7,930
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
($17,564)
|
|
|
$13,611
|
|
$3,003
|
|
|
($950)
|
|
$4
|
|
($946)
|
|
Referenced footnotes are included after the next table.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
101
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Gross
Amount
Recognized
|
|
Amount
Offset in the
Consolidated
Balance Sheets
|
|
Net Amount
Presented in the Consolidated
Balance Sheets
|
Gross Amount
Not Offset in the Consolidated
Balance Sheets(2)
|
Net
Amount
|
|
(In millions)
|
|
|
Counterparty Netting
|
Cash Collateral Netting(1)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
OTC derivatives
|
|
$8,566
|
|
|
($5,932)
|
|
($1,957)
|
|
|
$677
|
|
($648)
|
|
$29
|
|
|
Cleared and exchange-traded derivatives
|
|
17
|
|
|
—
|
|
60
|
|
|
77
|
|
—
|
|
77
|
|
|
Mortgage commitment derivatives
|
|
388
|
|
|
—
|
|
—
|
|
|
388
|
|
—
|
|
388
|
|
|
Other
|
|
63
|
|
|
—
|
|
—
|
|
|
63
|
|
—
|
|
63
|
|
|
Total derivatives
|
|
9,034
|
|
|
(5,932)
|
|
(1,897)
|
|
|
1,205
|
|
(648)
|
|
557
|
|
|
Securities purchased under agreements to resell
|
|
105,003
|
|
|
—
|
|
—
|
|
|
105,003
|
|
(105,003)
|
|
—
|
|
|
Total
|
|
$114,037
|
|
|
($5,932)
|
|
($1,897)
|
|
|
$106,208
|
|
($105,651)
|
|
$557
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
OTC derivatives
|
|
($8,812)
|
|
|
$5,932
|
|
$2,759
|
|
|
($121)
|
|
$—
|
|
($121)
|
|
|
Cleared and exchange-traded derivatives
|
|
(37)
|
|
|
—
|
|
26
|
|
|
(11)
|
|
—
|
|
(11)
|
|
|
Mortgage commitment derivatives
|
|
(759)
|
|
|
—
|
|
—
|
|
|
(759)
|
|
—
|
|
(759)
|
|
|
Other
|
|
(63)
|
|
|
—
|
|
—
|
|
|
(63)
|
|
—
|
|
(63)
|
|
|
Total derivatives
|
|
(9,671)
|
|
|
5,932
|
|
2,785
|
|
|
(954)
|
|
—
|
|
(954)
|
|
|
Securities sold under agreements to repurchase
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
|
($9,671)
|
|
|
$5,932
|
|
$2,785
|
|
|
($954)
|
|
$—
|
|
($954)
|
|
(1)Excess cash collateral held is presented as a derivative liability, while excess cash collateral posted is presented as a derivative asset.
(2)Does not include the fair value amount of non-cash collateral posted or held that exceeds the associated net asset or liability, netted by counterparty, presented on the condensed consolidated balance sheets.
Collateral Pledged to Freddie Mac
We have cash pledged to us as collateral primarily related to OTC derivative transactions. We had $1.9 billion and $2.8 billion pledged to us as collateral that was invested as part of our liquidity and contingency operating portfolio as of March 31, 2021 and December 31, 2020, respectively.
We primarily execute securities purchased under agreements to resell transactions with central clearing organizations where we have the right to repledge the collateral that has been pledged to us, either with the central clearing organization or with other counterparties. At March 31, 2021, and December 31, 2020, we had $22.3 billion and $85.8 billion, respectively, of securities pledged to us in these transactions. In addition, at March 31, 2021 and December 31, 2020, we had $0.7 billion and $0.8 billion, respectively, of securities pledged to us for transactions involving securities purchased under agreements to resell not executed with central clearing organizations that we had the right to repledge.
Collateral Pledged by Freddie Mac
We posted cash collateral totaling $0.2 billion and $1.3 billion as of March 31, 2021 and December 31, 2020, respectively, related to commitments and securities purchased under agreements to resell transactions primarily with central clearing organizations.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
102
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 11
|
The table below summarizes the fair value of the securities pledged as collateral by us for derivatives and collateralized borrowing transactions, including securities that the secured party may repledge.
Table 11.2 - Collateral in the Form of Securities Pledged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In millions)
|
|
Derivatives
|
Securities Sold Under Agreements to Repurchase
|
Other(3)
|
Total
|
|
Cash equivalents(1)
|
|
$—
|
|
$2,671
|
|
$—
|
|
$2,671
|
|
|
Debt securities of consolidated trusts(2)
|
|
—
|
|
—
|
|
348
|
|
348
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
1,555
|
|
5,230
|
|
1,442
|
|
8,227
|
|
|
Total securities pledged
|
|
$1,555
|
|
$7,901
|
|
$1,790
|
|
$11,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In millions)
|
|
Derivatives
|
Securities Sold Under Agreements to Repurchase
|
Other(3)
|
Total
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts(2)
|
|
$121
|
|
$—
|
|
$345
|
|
$466
|
|
|
Trading securities
|
|
1,920
|
|
—
|
|
1,163
|
|
3,083
|
|
|
Total securities pledged
|
|
$2,041
|
|
$—
|
|
$1,508
|
|
$3,549
|
|
(1)Represents U.S. Treasury securities accounted for as cash equivalents.
(2)Represents debt securities of consolidated trusts held by us in our mortgage-related investments portfolio which are recorded as a reduction to debt securities of consolidated trusts held by third parties on our condensed consolidated balance sheets.
(3)Includes other collateralized borrowings and collateral related to transactions with certain clearinghouses.
The table below summarizes the underlying collateral pledged and the remaining contractual maturity of our gross obligations under securities sold under agreements to repurchase.
Table 11.3 - Underlying Collateral Pledged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In millions)
|
|
Overnight and Continuous
|
30 Days or Less
|
After 30 Days Through 90 Days
|
Greater Than 90 Days
|
Total
|
|
U.S. Treasury securities and other
|
|
$2,453
|
|
$5,448
|
|
$—
|
|
$—
|
|
$7,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
103
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 12
|
NOTE 12
Stockholders' Equity and Earnings Per Share
Accumulated Other Comprehensive Income
The table below presents changes in AOCI after the effects of our federal statutory tax rate of 21% for the periods presented, related to available-for-sale securities, cash flow hedges, and our defined benefit plans.
Table 12.1 - Changes in AOCI by Component, Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
(In millions)
|
|
AOCI Related
to Available-
for-Sale
Securities
|
AOCI Related
to Cash Flow
Hedge
Relationships
|
AOCI Related
to Defined
Benefit Plans
|
Total
|
|
Beginning balance
|
|
$810
|
|
($206)
|
|
$39
|
|
$643
|
|
|
Other comprehensive income before reclassifications
|
|
(105)
|
|
—
|
|
(1)
|
|
(106)
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(290)
|
|
10
|
|
(3)
|
|
(283)
|
|
|
Changes in AOCI by component
|
|
(395)
|
|
10
|
|
(4)
|
|
(389)
|
|
|
Ending balance
|
|
$415
|
|
($196)
|
|
$35
|
|
$254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2020
|
|
(In millions)
|
|
AOCI Related
to Available-
for-Sale
Securities
|
AOCI Related
to Cash Flow
Hedge
Relationships
|
AOCI Related
to Defined
Benefit Plans
|
Total
|
|
Beginning balance
|
|
$618
|
|
($244)
|
|
$64
|
|
$438
|
|
|
Other comprehensive income before reclassifications
|
|
446
|
|
—
|
|
2
|
|
448
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
(8)
|
|
13
|
|
(4)
|
|
1
|
|
|
Changes in AOCI by component
|
|
438
|
|
13
|
|
(2)
|
|
449
|
|
|
Ending balance
|
|
$1,056
|
|
($231)
|
|
$62
|
|
$887
|
|
Reclassifications from AOCI to Net Income
The table below presents reclassifications from AOCI to net income, including the affected line items in our condensed consolidated statements of comprehensive income (loss).
Table 12.2 - Reclassifications from AOCI to Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
AOCI related to available-for-sale securities
|
|
|
|
|
|
|
|
Affected line items on the condensed consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
Investment gains (losses), net
|
|
$368
|
|
$10
|
|
|
|
|
|
Income tax (expense) benefit
|
|
(78)
|
|
(2)
|
|
|
|
|
|
Net of tax
|
|
290
|
|
8
|
|
|
|
|
|
AOCI related to cash flow hedge relationships
|
|
|
|
|
|
|
|
Affected line items on the condensed consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
Interest expense
|
|
(11)
|
|
(16)
|
|
|
|
|
|
Income tax (expense) benefit
|
|
1
|
|
3
|
|
|
|
|
|
Net of tax
|
|
(10)
|
|
(13)
|
|
|
|
|
|
AOCI related to defined benefit plans
|
|
|
|
|
|
|
|
Affected line items on the condensed consolidated statements of comprehensive income (loss):
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
4
|
|
5
|
|
|
|
|
|
Income tax (expense) benefit
|
|
(1)
|
|
(1)
|
|
|
|
|
|
Net of tax
|
|
3
|
|
4
|
|
|
|
|
|
Total reclassifications in the period net of tax
|
|
$283
|
|
($1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
104
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 12
|
As a result of changes to the terms of the senior preferred stock pursuant to the January 2021 Letter Agreement, the company will not be required to pay a dividend to Treasury until we have built sufficient capital to meet the capital requirements and buffers set forth in the ERCF. Accordingly, the company was not required to pay a dividend to Treasury on the senior preferred stock in March 2021. As the company builds capital during this period, the quarterly increases in our Net Worth Amount have been, and will continue to be, added to the aggregate liquidation preference of the senior preferred stock. As a result, the liquidation preference of the senior preferred stock increased from $86.5 billion as of December 31, 2020 to $89.1 billion on March 31, 2021 based on the $2.5 billion increase in the Net Worth Amount during 4Q 2020. The liquidation preference will increase to $91.4 billion on June 30, 2021 based on the $2.4 billion increase in our Net Worth Amount during 1Q 2021. See Note 2 for additional information.
As of March 31, 2021, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested from Treasury under the Purchase Agreement.
The table below provides a summary of our senior preferred stock outstanding at March 31, 2021.
Table 12.3 - Senior Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except initial liquidation preference price per share)
|
|
Shares
Authorized
|
Shares
Outstanding
|
Total
Par Value
|
Initial
Liquidation
Preference
Price per Share
|
Total
Liquidation
Preference
|
|
Non-draw Adjustment Dates:
|
|
|
|
September 8, 2008
|
|
1.00
|
|
1.00
|
|
$1.00
|
|
$1,000
|
|
$1,000
|
|
|
December 31, 2017
|
|
—
|
|
—
|
|
—
|
|
N/A
|
3,000
|
|
|
September 30, 2019
|
|
—
|
|
—
|
|
—
|
|
N/A
|
1,826
|
|
|
December 31, 2019
|
|
—
|
|
—
|
|
—
|
|
N/A
|
1,848
|
|
|
March 31, 2020
|
|
—
|
|
—
|
|
—
|
|
N/A
|
2,448
|
|
|
June 30, 2020
|
|
—
|
|
—
|
|
—
|
|
N/A
|
382
|
|
|
September 30, 2020
|
|
—
|
|
—
|
|
—
|
|
N/A
|
1,938
|
|
|
December 31, 2020
|
|
—
|
|
—
|
|
—
|
|
N/A
|
2,449
|
|
|
March 31, 2021
|
|
—
|
|
—
|
|
—
|
|
N/A
|
2,522
|
|
|
Total non-draw adjustments
|
|
1.00
|
|
1.00
|
|
1.00
|
|
|
17,413
|
|
|
Draw Dates:
|
|
|
|
|
|
|
|
November 24, 2008
|
|
—
|
|
—
|
|
—
|
|
N/A
|
13,800
|
|
|
March 31, 2009
|
|
—
|
|
—
|
|
—
|
|
N/A
|
30,800
|
|
|
June 30, 2009
|
|
—
|
|
—
|
|
—
|
|
N/A
|
6,100
|
|
|
June 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
10,600
|
|
|
September 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
1,800
|
|
|
December 30, 2010
|
|
—
|
|
—
|
|
—
|
|
N/A
|
100
|
|
|
March 31, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
500
|
|
|
September 30, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
1,479
|
|
|
December 30, 2011
|
|
—
|
|
—
|
|
—
|
|
N/A
|
5,992
|
|
|
March 30, 2012
|
|
—
|
|
—
|
|
—
|
|
N/A
|
146
|
|
|
June 29, 2012
|
|
—
|
|
—
|
|
—
|
|
N/A
|
19
|
|
|
March 30, 2018
|
|
—
|
|
—
|
|
—
|
|
N/A
|
312
|
|
|
Total draw adjustments
|
|
—
|
|
—
|
|
—
|
|
|
71,648
|
|
|
Total senior preferred stock
|
|
1.00
|
|
1.00
|
|
$1.00
|
|
|
$89,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
105
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 12
|
Stock Issuances and Repurchases
We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 1Q 2021, except for issuances of treasury stock relating to stock-based compensation granted prior to conservatorship. During 1Q 2021, the deferral period lapsed on 351 RSUs. At March 31, 2021, there were no RSUs outstanding.
Dividends and Dividend Restrictions
No common dividends were declared during 1Q 2021. As a result of the increase in the applicable Capital Reserve Amount pursuant to the January 2021 Letter Agreement, we did not declare or pay a dividend on the senior preferred stock during 1Q 2021. We also did not declare or pay dividends on any other series of Freddie Mac preferred stock outstanding during 1Q 2021.
Our payment of dividends on Freddie Mac common stock or any series of Freddie Mac preferred stock (other than senior preferred stock) is subject to certain restrictions.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
106
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 13
|
NOTE 13
Net Interest Income
The table below presents the components of net interest income per our condensed consolidated statements of comprehensive income (loss).
Table 13.1 - Components of Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
March 31, 2020
|
|
Interest income
|
|
|
|
|
Mortgage loans
|
|
$13,255
|
|
$16,632
|
|
|
Investment securities
|
|
610
|
|
652
|
|
|
Other
|
|
37
|
|
308
|
|
|
Total interest income
|
|
13,902
|
|
17,592
|
|
|
Interest expense
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
(9,756)
|
|
(13,447)
|
|
|
Debt of Freddie Mac:
|
|
|
|
|
Short-term debt
|
|
(2)
|
|
(430)
|
|
|
Long-term debt
|
|
(505)
|
|
(930)
|
|
|
Total interest expense
|
|
(10,263)
|
|
(14,807)
|
|
|
Net interest income
|
|
3,639
|
|
2,785
|
|
|
Benefit (provision) for credit losses
|
|
196
|
|
(1,233)
|
|
|
Net interest income after benefit (provision) for credit losses
|
|
$3,835
|
|
$1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
107
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 14
|
NOTE 14
Investment Gains (Losses), Net
The table below presents the components of investment gains (losses), net on our condensed consolidated statements of comprehensive income (loss).
Table 14.1 - Components of Investment Gains (Losses), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
Investment gains (losses), net:
|
|
|
|
|
|
|
|
Mortgage loans gains (losses)
|
|
$206
|
|
$1,172
|
|
|
|
|
|
Investment securities gains (losses)
|
|
(507)
|
|
1,055
|
|
|
|
|
|
Debt gains (losses)
|
|
138
|
|
700
|
|
|
|
|
|
Derivative gains (losses)
|
|
1,371
|
|
(3,762)
|
|
|
|
|
|
Investment gains (losses), net
|
|
$1,208
|
|
($835)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
108
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 15
|
NOTE 15
Segment Reporting
During 1Q 2021, our chief operating decision maker began making decisions about allocating resources and assessing segment performance based on two reportable segments, Single-family and Multifamily. In prior periods, we managed our business based on three reportable segments, Single-family Guarantee, Multifamily, and Capital Markets. As our mortgage-related investments portfolio has declined over time, our capital markets activities have become increasingly focused on supporting our single-family and multifamily businesses. As a result, we have determined that, effective in 1Q 2021, our Capital Markets segment should no longer be considered a separate reportable segment, and our chief operating decision maker no longer reviews separate financial results or discrete financial information for our capital markets activities. Substantially all of the revenues and expenses that were previously directly attributable to our Capital Markets segment are now included in our Single-family segment, while certain administrative expenses and other centrally-incurred costs previously allocated to the Capital Markets segment are now allocated between the Single-family and Multifamily segments using various methodologies depending on the nature of the expense.
In connection with this change, we have also changed the measure of segment profit and loss for each segment to be based on net income and comprehensive income calculated using the same accounting policies we use to prepare our general purpose financial statements in conformity with generally accepted accounting principles. The financial results of each reportable segment include directly attributable revenue and expenses. We allocate interest expense and other debt funding and hedging-related costs to each reportable segment using a funds transfer pricing process. We fully allocate to each reportable segment the administrative expenses and other centrally-incurred costs that are not directly attributable to a particular segment using various methodologies depending on the nature of the expense. As a result, the sum of each income statement line item for the two reportable segments is equal to that same income statement line item for the consolidated entity. We have discontinued the reclassifications of certain activities between various line items that were included in our previous measure of segment profit and loss. Prior period information has been revised to conform to the current period presentation.
|
|
|
|
|
|
|
|
Segment
|
Description
|
|
Single-family
|
Reflects results from our purchase, sale, securitization, and guarantee of single-family loans and securities, our investments in those loans and securities, the management of single-family mortgage credit risk and market risk, and any results of our treasury function that are not allocated to each segment.
|
|
|
|
|
|
Multifamily
|
Reflects results from our purchase, sale, securitization, and guarantee of multifamily loans and securities, our investments in those loans and securities, and the management of multifamily mortgage credit risk and market risk.
|
|
|
Segment Allocations and Results
The results of each reportable segment include directly attributable revenues and expenses. We allocate interest expense and other debt funding and hedging-related costs to each reportable segment using a funds transfer pricing process. We fully allocate to each reportable segment administrative expenses and other centrally-incurred costs that are not directly attributable to a particular segment using various methodologies depending on the nature of the expense.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
109
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 15
|
The table below presents the financial results for our Single-family and Multifamily segments.
Table 15.1 - Segment Financial Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
|
|
Single-family
|
Multifamily
|
|
Total
|
|
(In millions)
|
|
|
Net interest income
|
|
$3,308
|
|
$331
|
|
|
$3,639
|
|
|
Non-interest income (loss)
|
|
|
|
|
|
|
Guarantee fee income
|
|
89
|
|
159
|
|
|
248
|
|
|
Investment gains (losses), net
|
|
300
|
|
908
|
|
|
1,208
|
|
|
Other income (loss)
|
|
152
|
|
26
|
|
|
178
|
|
|
Non-interest income (loss)
|
|
541
|
|
1,093
|
|
|
1,634
|
|
|
Net revenues
|
|
3,849
|
|
1,424
|
|
|
5,273
|
|
|
Benefit (provision) for credit losses
|
|
146
|
|
50
|
|
|
196
|
|
|
Non-interest expense
|
|
|
|
|
|
|
Administrative expense
|
|
(488)
|
|
(151)
|
|
|
(639)
|
|
|
Credit enhancement expense
|
|
(325)
|
|
(10)
|
|
|
(335)
|
|
|
Benefit for (decrease in) credit enhancement recoveries
|
|
(245)
|
|
(12)
|
|
|
(257)
|
|
|
REO operations expense
|
|
(8)
|
|
—
|
|
|
(8)
|
|
|
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(534)
|
|
—
|
|
|
(534)
|
|
|
Other expense
|
|
(209)
|
|
(6)
|
|
|
(215)
|
|
|
Non-interest expense
|
|
(1,809)
|
|
(179)
|
|
|
(1,988)
|
|
|
Income (loss) before income tax (expense) benefit
|
|
2,186
|
|
1,295
|
|
|
3,481
|
|
|
Income tax (expense) benefit
|
|
(448)
|
|
(266)
|
|
|
(714)
|
|
|
Net income (loss)
|
|
1,738
|
|
1,029
|
|
|
2,767
|
|
|
Other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
(335)
|
|
(60)
|
|
|
(395)
|
|
|
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
10
|
|
—
|
|
|
10
|
|
|
Changes in defined benefit plans
|
|
(3)
|
|
(1)
|
|
|
(4)
|
|
|
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
(328)
|
|
(61)
|
|
|
(389)
|
|
|
Comprehensive income (loss)
|
|
$1,410
|
|
$968
|
|
|
$2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
110
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2020
|
|
|
|
Single-family
|
Multifamily
|
|
Total
|
|
(In millions)
|
|
|
Net interest income
|
|
$2,485
|
|
$300
|
|
|
$2,785
|
|
|
Non-interest income (loss)
|
|
|
|
|
|
|
Guarantee fee income
|
|
(13)
|
|
390
|
|
|
377
|
|
|
Investment gains (losses), net
|
|
24
|
|
(859)
|
|
|
(835)
|
|
|
Other income (loss)
|
|
58
|
|
37
|
|
|
95
|
|
|
Non-interest income (loss)
|
|
69
|
|
(432)
|
|
|
(363)
|
|
|
Net revenues
|
|
2,554
|
|
(132)
|
|
|
2,422
|
|
|
Benefit (provision) for credit losses
|
|
(1,166)
|
|
(67)
|
|
|
(1,233)
|
|
|
Non-interest expense
|
|
|
|
|
|
|
Administrative expense
|
|
(467)
|
|
(120)
|
|
|
(587)
|
|
|
Credit enhancement expense
|
|
(227)
|
|
(4)
|
|
|
(231)
|
|
|
Benefit for (decrease in) credit enhancement recoveries
|
|
439
|
|
28
|
|
|
467
|
|
|
REO operations expense
|
|
(85)
|
|
—
|
|
|
(85)
|
|
|
Temporary Payroll Tax Cut Continuation Act of 2011 expense
|
|
(432)
|
|
—
|
|
|
(432)
|
|
|
Other expense
|
|
(98)
|
|
(5)
|
|
|
(103)
|
|
|
Non-interest expense
|
|
(870)
|
|
(101)
|
|
|
(971)
|
|
|
Income (loss) before income tax (expense) benefit
|
|
518
|
|
(300)
|
|
|
218
|
|
|
Income tax (expense) benefit
|
|
(107)
|
|
62
|
|
|
(45)
|
|
|
Net income (loss)
|
|
411
|
|
(238)
|
|
|
173
|
|
|
Other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to available-for-sale securities
|
|
374
|
|
64
|
|
|
438
|
|
|
Changes in unrealized gains (losses) related to cash flow hedge relationships
|
|
13
|
|
—
|
|
|
13
|
|
|
Changes in defined benefit plans
|
|
(2)
|
|
—
|
|
|
(2)
|
|
|
Total other comprehensive income (loss), net of taxes and reclassification adjustments
|
|
385
|
|
64
|
|
|
449
|
|
|
Comprehensive income (loss)
|
|
$796
|
|
($174)
|
|
|
$622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We measure total assets for our reportable segments based on the mortgage portfolio for each segment. We operate our business in the U.S. and its territories, and accordingly, we generate no revenue from and have no long-lived assets, other than financial instruments, in geographic locations other than the U.S. and its territories.
The table below presents total assets for our Single-family and Multifamily segments.
Table 15.2 - Segment Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
March 31, 2021
|
December 31, 2020
|
|
Single-family
|
|
|
$2,458,112
|
|
$2,326,426
|
|
|
Multifamily
|
|
|
393,677
|
|
388,347
|
|
|
Total segment assets
|
|
|
2,851,789
|
|
2,714,773
|
|
|
Reconciling items(1)
|
|
|
(109,915)
|
|
(87,358)
|
|
|
Total assets per condensed consolidated balance sheets
|
|
|
$2,741,874
|
|
$2,627,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Reconciling items include assets included in our mortgage portfolio that are not recognized on our condensed consolidated balance sheets and assets recognized on our condensed consolidated balance sheets that are not allocated to the reportable segments.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
111
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 16
|
NOTE 16
Concentration of Credit and Other Risks
Single-Family Mortgage Portfolio
The table below summarizes the concentration by loan portfolio and geographic area of the approximately $2.5 trillion and $2.3 trillion UPB of our single-family mortgage portfolio as of March 31, 2021 and December 31, 2020, respectively. See Note 4, Note 6, and Note 7 for more information about credit risk associated with loans and mortgage-related securities that we hold or guarantee.
Table 16.1 - Concentration of Credit Risk of Our Single-Family Mortgage Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
1Q 2021(1)
|
|
1Q 2020(1)
|
|
(Dollars in billions)
|
|
Portfolio UPB
|
% of
Portfolio
|
SDQ Rate
|
|
Portfolio UPB
|
% of
Portfolio
|
SDQ Rate
|
|
Credit Losses Amount
|
% of Credit Losses(2)
|
|
Credit Losses Amount
|
% of Credit Losses
|
|
Region:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
$770
|
|
31
|
%
|
2.11
|
%
|
|
$720
|
|
31
|
%
|
2.41
|
%
|
|
$—
|
|
NM
|
|
$—
|
|
8
|
%
|
|
Northeast
|
|
581
|
|
24
|
|
2.82
|
|
|
549
|
|
24
|
|
3.16
|
|
|
—
|
|
NM
|
|
0.1
|
|
36
|
|
|
North Central
|
|
371
|
|
15
|
|
1.88
|
|
|
357
|
|
15
|
|
2.06
|
|
|
—
|
|
NM
|
|
0.1
|
|
29
|
|
|
Southeast
|
|
393
|
|
16
|
|
2.58
|
|
|
375
|
|
16
|
|
2.95
|
|
|
—
|
|
NM
|
|
—
|
|
18
|
|
|
Southwest
|
|
343
|
|
14
|
|
2.33
|
|
|
325
|
|
14
|
|
2.59
|
|
|
—
|
|
NM
|
|
—
|
|
9
|
|
|
Total
|
|
$2,458
|
|
100
|
%
|
2.34
|
|
|
$2,326
|
|
100
|
%
|
2.64
|
|
|
$—
|
|
NM
|
|
$0.2
|
|
100
|
%
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
$455
|
|
19
|
%
|
2.29
|
|
|
$424
|
|
18
|
%
|
2.64
|
|
|
$—
|
|
NM
|
|
$—
|
|
5
|
%
|
|
Texas
|
|
152
|
|
6
|
|
2.75
|
|
|
145
|
|
6
|
|
3.11
|
|
|
—
|
|
NM
|
|
—
|
|
3
|
|
|
Florida
|
|
142
|
|
6
|
|
3.14
|
|
|
135
|
|
6
|
|
3.70
|
|
|
—
|
|
NM
|
|
—
|
|
9
|
|
|
New York
|
|
108
|
|
4
|
|
4.07
|
|
|
103
|
|
4
|
|
4.56
|
|
|
—
|
|
NM
|
|
—
|
|
9
|
|
|
Illinois
|
|
99
|
|
4
|
|
2.83
|
|
|
96
|
|
4
|
|
2.96
|
|
|
—
|
|
NM
|
|
0.1
|
|
16
|
|
|
All other
|
|
1,502
|
|
61
|
|
2.09
|
|
|
1,423
|
|
62
|
|
2.34
|
|
|
—
|
|
NM
|
|
0.1
|
|
58
|
|
|
Total
|
|
$2,458
|
|
100
|
%
|
2.34
|
|
|
$2,326
|
|
100
|
%
|
2.64
|
|
|
$—
|
|
NM
|
|
$0.2
|
|
100
|
%
|
(1)Excludes credit losses related to charge-offs of accrued interest receivables.
(2)NM - not meaningful due to the credit losses amount rounding to zero.
(3)Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).
Credit Performance of Certain Higher Risk Single-Family Loan Categories
Participants in the mortgage market have characterized single-family loans based upon their overall credit quality at the time of origination, including as prime or subprime. Mortgage market participants have classified single-family loans as Alt-A if these loans have credit characteristics that range between their prime and subprime categories, if they are underwritten with lower or alternative income or asset documentation requirements compared to a full documentation loan, or both. Although we discontinued new purchases of loans with lower documentation standards beginning March 1, 2009, we continued to purchase certain amounts of these loans in cases where the loan was either:
n Purchased pursuant to a previously issued other mortgage-related guarantee;
n Part of our relief refinance initiative; or
n In another refinance loan initiative and the pre-existing loan (including Alt-A loans) was originated under less than full documentation standards.
In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized or reported as Alt-A in the table below because the new refinance loan replacing the original loan would not be identified by the seller/servicer as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such refinancing not occurred.
Although we do not categorize single-family loans we purchase or guarantee as prime or subprime, we recognize that there are
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
112
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 16
|
a number of loan types with certain characteristics that indicate a higher degree of credit risk.
For example, a borrower's credit score is a useful measure for assessing the credit quality of the borrower. Statistically, borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores.
Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based on characteristics of the loan at origination) of loans in our single-family mortgage portfolio. The table presents each higher-risk category in isolation. A single loan may fall within more than one category (for example, an interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these attributes will have an even higher risk of delinquency than those with an individual attribute.
Table 16.2 - Certain Higher Risk Categories in Our Single-Family Mortgage Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Portfolio(1)
|
|
SDQ Rate(1)
|
|
(% of portfolio based on UPB)
|
|
March 31, 2021
|
December 31, 2020
|
|
March 31, 2021
|
December 31, 2020
|
|
Interest-only
|
|
—
|
%
|
—
|
%
|
|
NM
|
NM
|
|
Alt-A
|
|
1
|
|
1
|
|
|
10.49
|
%
|
10.66
|
%
|
|
Original LTV ratio greater than 90%(2)
|
|
14
|
|
15
|
|
|
4.01
|
|
4.25
|
|
|
Lower credit scores at origination (less than 620)
|
|
1
|
|
1
|
|
|
10.93
|
|
11.00
|
|
(1)Excludes $493 million and $505 million UPB of loans underlying certain other securitization products for which data was not available as of March 31, 2021 and December 31, 2020, respectively.
(2)Includes HARP loans, which we purchased as part of our participation in the MHA Program.
(3)NM - not meaningful due to the percentage of the portfolio rounding to zero.
We acquire a significant portion of our single-family and multifamily loan purchase and guarantee volume from several large sellers. The table below summarizes the concentration of single-family and multifamily sellers who provided 10% or more of our purchase and guarantee volume.
Table 16.3 - Seller Concentration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family Sellers
|
|
1Q 2021
|
1Q 2020
|
|
JPMorgan Chase Bank, N.A.
|
|
4
|
%
|
12
|
%
|
|
United Wholesale Mortgage, LLC(1)
|
|
5
|
|
10
|
|
|
Other top 10 sellers
|
|
39
|
|
33
|
|
|
Top 10 single-family sellers
|
|
48
|
%
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Sellers
|
|
1Q 2021
|
1Q 2020
|
|
Berkadia Commercial Mortgage LLC
|
|
14
|
%
|
14
|
%
|
|
CBRE Capital Markets, Inc.
|
|
14
|
|
17
|
|
|
JLL Real Estate Capital, LLC
|
|
10
|
|
4
|
|
|
Other top 10 sellers
|
|
43
|
|
43
|
|
|
Top 10 multifamily sellers
|
|
81
|
%
|
78
|
%
|
(1)United Wholesale Mortgage, LLC was previously known as United Shore Financial Services, LLC.
We purchase single-family loans from both depository and non-depository sellers. Non-depository institutions may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as large depository institutions. Our top five non-depository sellers provided approximately 30% and 27% of our single-family purchase volume during 1Q 2021 and 1Q 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
113
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 16
|
Significant portions of our single-family and multifamily loans are serviced by several large servicers. The table below summarizes the concentration of single-family and multifamily servicers who serviced 10% or more of our single-family mortgage portfolio and multifamily mortgage portfolio as of March 31, 2021 or December 31, 2020.
Table 16.4 - Servicer Concentration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family Servicers
|
|
March 31, 2021(1)
|
December 31, 2020(1)
|
|
Wells Fargo Bank, N.A.
|
|
10
|
%
|
11
|
%
|
|
|
|
|
|
|
Other top 10 servicers
|
|
37
|
|
38
|
|
|
Top 10 single-family servicers
|
|
47
|
%
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily Servicers(2)
|
|
March 31, 2021
|
December 31, 2020
|
|
CBRE Capital Markets, Inc.
|
|
17
|
%
|
17
|
%
|
|
Berkadia Commercial Mortgage LLC
|
|
13
|
|
13
|
|
|
JLL Real Estate Capital LLC
|
|
11
|
|
11
|
|
|
Other top 10 servicers
|
|
40
|
|
39
|
|
|
Top 10 multifamily servicers
|
|
81
|
%
|
80
|
%
|
(1)Percentage of servicing volume is based on the total single-family mortgage portfolio, which includes loans where we do not exercise servicing control. However, loans where we do not exercise servicing control are not included for purposes of determining the concentration of servicers who serviced more than 10% of our single-family mortgage portfolio.
(2)Represents multifamily primary servicers.
Single-family loans utilize both depository and non-depository servicers. Some of these non-depository servicers have grown in recent years and now service a large share of our loans. As of both March 31, 2021 and December 31, 2020, approximately 18% of our single-family mortgage portfolio, excluding loans for which we do not exercise control over the associated servicing, was serviced by our five largest non-depository servicers, on a combined basis. We routinely monitor the performance of our largest non-depository servicers.
Multifamily loans utilize both primary and master servicers. Primary servicers service unsecuritized mortgage loans and are also typically engaged by master servicers to service on their behalf the mortgage loans underlying securitizations. For a majority of our K Certificate securitizations, we utilize one of three large financial depository institutions as master servicer. For SB Certificate securitizations and a smaller number of K Certificate securitizations, we serve as master servicer. Multifamily primary servicers included in the table above present potential operational risk and impact to the borrowers if the servicing needs to be transferred to another servicer. We also have exposure to the master servicers of our multifamily securitization transactions who bear responsibility to advance funds in the event of payment shortfalls, including principal and interest payments related to loans in forbearance. In instances where payment shortfalls occur, the master servicer is required to make advances as long as such advances have not been deemed unrecoverable. For multifamily loans purchased and held in our mortgage-related investments portfolio, the primary servicers are not required to advance funds in the event of payment shortfalls and therefore do not present significant counterparty credit risk.
Credit Enhancement Providers
We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that insure single-family loans we purchase or guarantee. We also have similar exposure to insurers and reinsurers through our ACIS and other insurance transactions where we purchase insurance policies as part of our CRT activities. See Note 8 for additional information on our credit enhancements.
We evaluate the recovery and collectability from mortgage insurers as part of the estimate of our allowance for credit losses. See Note 7 for additional information. As of March 31, 2021, mortgage insurers provided coverage with maximum loss limits of $119.1 billion, for $485.6 billion of UPB, in connection with our single-family mortgage portfolio. These amounts are based on gross coverage without regard to netting of coverage that may exist to the extent an affected loan is covered under other types of insurance. Changes in our expectations related to recovery and collectability from our credit enhancement providers may affect our estimates of expected credit losses, perhaps significantly.
The table below summarizes the concentration of mortgage insurer counterparties who provided 10% or more of our overall mortgage insurance coverage. On October 23, 2016, Genworth Financial, Inc. ("Genworth") announced that it had entered into an agreement to be acquired by China Oceanwide Holdings Group Co., Ltd. ("Oceanwide"). Because Genworth Mortgage Insurance Corporation, a subsidiary of Genworth, is an approved mortgage insurer, Freddie Mac evaluated the planned acquisition and approved Oceanwide's control of Genworth Mortgage Insurance Corporation. On April 6, 2021, Genworth announced that it had terminated its merger agreement with Oceanwide.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
114
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 16
|
Table 16.5 - Mortgage Insurer Concentration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Insurance Coverage(2)
|
|
Mortgage Insurer
|
|
Credit Rating(1)
|
|
March 31, 2021
|
December 31, 2020
|
|
Arch Mortgage Insurance Company
|
|
A-
|
|
20
|
%
|
20
|
%
|
|
Radian Guaranty Inc.
|
|
BBB+
|
|
19
|
|
19
|
|
|
Mortgage Guaranty Insurance Corporation
|
|
BBB+
|
|
18
|
|
18
|
|
|
Essent Guaranty, Inc.
|
|
BBB+
|
|
16
|
|
16
|
|
|
Genworth Mortgage Insurance Corporation
|
|
BB+
|
|
15
|
|
15
|
|
|
National Mortgage Insurance Corporation
|
|
BBB
|
|
11
|
|
10
|
|
|
Total
|
|
|
|
99
|
%
|
98
|
%
|
(1) Ratings are for the corporate entity to which we have the greatest exposure. Latest rating available as of March 31, 2021. Represents the lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.
(2) Coverage amounts exclude coverage related to IMAGIN and may include coverage provided by affiliates and subsidiaries of the counterparty.
PMI Mortgage Insurance Co. and Triad Guaranty Insurance Corp. are both under the control of their state regulators and are in run-off. A substantial portion of their claims is recorded by us as deferred payment obligations. As of both March 31, 2021 and December 31, 2020, we had cumulative unpaid deferred payment obligations of $0.4 billion from these insurers. We have reserved substantially all of these unpaid amounts as collectability is uncertain. It is not clear how the regulators of these companies will administer their respective deferred payment plans in the future, nor when or if those obligations will be paid.
As part of our insurance/reinsurance CRT transactions, we regularly obtain insurance coverage from insurers and reinsurers. These transactions incorporate several features designed to increase the likelihood that we will recover on the claims we file with the insurers and reinsurers, including the following:
n In each transaction, we require the individual insurers and reinsurers to post collateral to cover portions of their exposure, which helps to promote certainty and timeliness of claim payment and
n While private mortgage insurance companies are required to be monoline (i.e., to participate solely in the mortgage insurance business, although the holding company may be a diversified insurer), many of our insurers and reinsurers in these transactions participate in multiple types of insurance business, which helps diversify their risk exposure.
Other Investments Counterparties
We are exposed to the non-performance of counterparties relating to other investments (including non-mortgage-related securities and cash equivalents) transactions, including those entered into on behalf of our securitization trusts. Our policies require that the counterparty be evaluated using our internal counterparty rating model prior to our entering into such transactions. We monitor the financial strength of our counterparties to these transactions and may use collateral maintenance requirements to manage our exposure to individual counterparties. The permitted term and dollar limits for each of these transactions are also based on the counterparty's financial strength.
Our other investments (including non-mortgage-related securities and cash equivalents) counterparties are primarily major financial institutions, including other GSEs, Treasury, the Federal Reserve Bank of New York, GSD/FICC, highly-rated supranational institutions, depository and non-depository institutions, brokers and dealers, and government money market funds. As of March 31, 2021 and December 31, 2020, including amounts related to our consolidated VIEs, the balance in our other investments portfolio was $164.8 billion and $163.1 billion, respectively. The balances consist primarily of cash, securities purchased under agreements to resell invested with counterparties, U.S. Treasury securities, cash deposited with the Federal Reserve Bank of New York, and secured lending activities. As of March 31, 2021, all of our securities purchased under agreements to resell were fully collateralized. As of March 31, 2021 and December 31, 2020, $0.7 billion and $0.8 billion, respectively, of our securities purchased under agreements to resell were used to provide financing to investors in Freddie Mac securities to increase liquidity and expand the investor base for those securities. These transactions differ from the securities purchased under agreements to resell that we use for liquidity purposes as the counterparties we face may not be major financial institutions and we are exposed to the counterparty risk of these institutions.
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|
Freddie Mac 1Q 2021 Form 10-Q
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115
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|
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|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
NOTE 17
Fair Value Disclosures
The accounting guidance for fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and sets forth disclosure requirements regarding fair value measurements. This guidance applies whenever other accounting guidance requires or permits assets or liabilities to be measured at fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or, in the absence of a principal market, in the most advantageous market for the asset or liability.
We use fair value measurements for the initial recording of certain assets and liabilities and periodic remeasurement of certain assets and liabilities on a recurring or non-recurring basis.
The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy that prioritizes the inputs into the valuation techniques used to measure fair value. The levels of the fair value hierarchy are defined as follows in priority order:
n Level 1 - inputs to the valuation techniques are based on quoted prices in active markets for identical assets or liabilities.
n Level 2 - inputs to the valuation techniques are based on observable inputs other than quoted prices in active markets for identical assets or liabilities.
n Level 3 - one or more inputs to the valuation technique are unobservable and significant to the fair value measurement.
We use quoted market prices and valuation techniques that seek to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs. Our inputs are based on the assumptions a market participant would use in valuing the asset or liability. Assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
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|
Freddie Mac 1Q 2021 Form 10-Q
|
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116
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|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The table below presents our assets and liabilities measured on our condensed consolidated balance sheets at fair value on a recurring basis subsequent to initial recognition, including instruments where we have elected the fair value option.
Table 17.1 - Assets and Liabilities Measured at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Netting Adjustment(1)
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
Agency
|
|
$—
|
|
$5,754
|
|
$801
|
|
$—
|
|
$6,555
|
|
|
Non-agency and other
|
|
—
|
|
1
|
|
1,035
|
|
—
|
|
1,036
|
|
|
Total available-for-sale securities, at fair value
|
|
—
|
|
5,755
|
|
1,836
|
|
—
|
|
7,591
|
|
|
Trading, at fair value:
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
Agency
|
|
—
|
|
19,954
|
|
3,061
|
|
—
|
|
23,015
|
|
|
Non-agency
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|
Total mortgage-related securities
|
|
—
|
|
19,954
|
|
3,062
|
|
—
|
|
23,016
|
|
|
Non-mortgage-related securities
|
|
30,208
|
|
1,065
|
|
—
|
|
—
|
|
31,273
|
|
|
Total trading securities, at fair value
|
|
30,208
|
|
21,019
|
|
3,062
|
|
—
|
|
54,289
|
|
|
Total investments in securities
|
|
30,208
|
|
26,774
|
|
4,898
|
|
—
|
|
61,880
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
—
|
|
8,093
|
|
—
|
|
—
|
|
8,093
|
|
|
|
|
|
|
|
|
|
|
Derivative assets, net
|
|
30
|
|
8,680
|
|
30
|
|
—
|
|
8,740
|
|
|
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(6,655)
|
|
(6,655)
|
|
|
Total derivative assets, net
|
|
30
|
|
8,680
|
|
30
|
|
(6,655)
|
|
2,085
|
|
|
Other assets:
|
|
|
|
|
|
|
|
Guarantee assets, at fair value
|
|
—
|
|
—
|
|
5,688
|
|
—
|
|
5,688
|
|
|
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
91
|
|
—
|
|
—
|
|
91
|
|
|
All other, at fair value
|
|
—
|
|
—
|
|
115
|
|
—
|
|
115
|
|
|
Total other assets
|
|
—
|
|
91
|
|
5,803
|
|
—
|
|
5,894
|
|
|
Total assets carried at fair value on a recurring basis
|
|
$30,238
|
|
$43,638
|
|
$10,731
|
|
($6,655)
|
|
$77,952
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$—
|
|
$2
|
|
$260
|
|
$—
|
|
$262
|
|
|
Debt of Freddie Mac, at fair value
|
|
—
|
|
1,982
|
|
120
|
|
—
|
|
2,102
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, net
|
|
—
|
|
9,115
|
|
34
|
|
—
|
|
9,149
|
|
|
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(8,199)
|
|
(8,199)
|
|
|
Total derivative liabilities, net
|
|
—
|
|
9,115
|
|
34
|
|
(8,199)
|
|
950
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
5
|
|
—
|
|
—
|
|
5
|
|
|
All other, at fair value
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total other liabilities
|
|
—
|
|
5
|
|
—
|
|
—
|
|
5
|
|
|
Total liabilities carried at fair value on a recurring basis
|
|
$—
|
|
$11,104
|
|
$414
|
|
($8,199)
|
|
$3,319
|
|
Referenced footnote is included after the next table.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
117
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Netting Adjustment(1)
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
Agency
|
|
$—
|
|
$13,778
|
|
$526
|
|
$—
|
|
$14,304
|
|
|
Non-agency and other
|
|
—
|
|
1
|
|
1,062
|
|
—
|
|
1,063
|
|
|
Total available-for-sale securities, at fair value
|
|
—
|
|
13,779
|
|
1,588
|
|
—
|
|
15,367
|
|
|
Trading, at fair value:
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
Agency
|
|
—
|
|
14,246
|
|
3,258
|
|
—
|
|
17,504
|
|
|
Non-agency
|
|
—
|
|
—
|
|
1
|
|
—
|
|
1
|
|
|
Total mortgage-related securities
|
|
—
|
|
14,246
|
|
3,259
|
|
—
|
|
17,505
|
|
|
Non-mortgage-related securities
|
|
26,255
|
|
698
|
|
—
|
|
—
|
|
26,953
|
|
|
Total trading securities, at fair value
|
|
26,255
|
|
14,944
|
|
3,259
|
|
—
|
|
44,458
|
|
|
Total investments in securities
|
|
26,255
|
|
28,723
|
|
4,847
|
|
—
|
|
59,825
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
—
|
|
14,199
|
|
—
|
|
—
|
|
14,199
|
|
|
|
|
|
|
|
|
|
|
Derivative assets, net
|
|
—
|
|
8,516
|
|
63
|
|
—
|
|
8,579
|
|
|
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(7,374)
|
|
(7,374)
|
|
|
Total derivative assets, net
|
|
—
|
|
8,516
|
|
63
|
|
(7,374)
|
|
1,205
|
|
|
Other assets:
|
|
|
|
|
|
|
|
Guarantee assets, at fair value
|
|
—
|
|
—
|
|
5,509
|
|
—
|
|
5,509
|
|
|
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
158
|
|
—
|
|
—
|
|
158
|
|
|
All other, at fair value
|
|
—
|
|
—
|
|
108
|
|
—
|
|
108
|
|
|
Total other assets
|
|
—
|
|
158
|
|
5,617
|
|
—
|
|
5,775
|
|
|
Total assets carried at fair value on a recurring basis
|
|
$26,255
|
|
$51,596
|
|
$10,527
|
|
($7,374)
|
|
$81,004
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$—
|
|
$2
|
|
$203
|
|
$—
|
|
$205
|
|
|
Debt of Freddie Mac, at fair value
|
|
—
|
|
2,267
|
|
120
|
|
—
|
|
2,387
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, net
|
|
—
|
|
9,132
|
|
16
|
|
—
|
|
9,148
|
|
|
Netting adjustments(1)
|
|
—
|
|
—
|
|
—
|
|
(8,194)
|
|
(8,194)
|
|
|
Total derivative liabilities, net
|
|
—
|
|
9,132
|
|
16
|
|
(8,194)
|
|
954
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
Non-derivative held-for-sale purchase commitments, at fair value
|
|
—
|
|
1
|
|
—
|
|
—
|
|
1
|
|
|
All other, at fair value
|
|
—
|
|
—
|
|
3
|
|
—
|
|
3
|
|
|
Total other liabilities
|
|
—
|
|
1
|
|
3
|
|
—
|
|
4
|
|
|
Total liabilities carried at fair value on a recurring basis
|
|
$—
|
|
$11,402
|
|
$342
|
|
($8,194)
|
|
$3,550
|
|
(1) Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
118
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
Level 3 Fair Value Measurements
The table below presents a reconciliation of all assets and liabilities measured on our condensed consolidated balance sheets at fair value on a recurring basis using significant unobservable inputs (Level 3), including transfers into and out of Level 3. The table also presents gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recognized on our condensed consolidated statements of comprehensive income (loss) for Level 3 assets and liabilities.
Table 17.2 - Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
|
|
|
Balance,
January 1,
2021
|
|
Total Realized/Unrealized Gains (Losses)
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
Net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
March 31,
2021
|
|
Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2021(2)
|
|
Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2021
|
|
(In millions)
|
|
|
Included in
Earnings
|
|
Included in Other
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$526
|
|
|
$—
|
|
|
($6)
|
|
|
$432
|
|
|
$—
|
|
|
($130)
|
|
|
($21)
|
|
|
$—
|
|
|
$—
|
|
|
$801
|
|
|
$—
|
|
|
($4)
|
|
|
Non-agency and other
|
|
1,062
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(33)
|
|
|
—
|
|
|
—
|
|
|
1,035
|
|
|
6
|
|
|
—
|
|
|
Total available-for-sale mortgage-related securities
|
|
1,588
|
|
|
6
|
|
|
(6)
|
|
|
432
|
|
|
—
|
|
|
(130)
|
|
|
(54)
|
|
|
—
|
|
|
—
|
|
|
1,836
|
|
|
6
|
|
|
(4)
|
|
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
3,258
|
|
|
(174)
|
|
|
—
|
|
|
445
|
|
|
—
|
|
|
(269)
|
|
|
(19)
|
|
|
—
|
|
|
(180)
|
|
|
3,061
|
|
|
(183)
|
|
|
—
|
|
|
Non-agency
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Total trading mortgage-related securities
|
|
3,259
|
|
|
(174)
|
|
|
—
|
|
|
445
|
|
|
—
|
|
|
(269)
|
|
|
(19)
|
|
|
—
|
|
|
(180)
|
|
|
3,062
|
|
|
(183)
|
|
|
—
|
|
|
Derivative assets
|
|
63
|
|
|
(33)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
(33)
|
|
|
—
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee assets
|
|
5,509
|
|
|
(86)
|
|
|
—
|
|
|
—
|
|
|
488
|
|
|
—
|
|
|
(223)
|
|
|
—
|
|
|
—
|
|
|
5,688
|
|
|
(86)
|
|
|
—
|
|
|
All other, at fair value
|
|
108
|
|
|
10
|
|
|
—
|
|
|
(4)
|
|
|
6
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
115
|
|
|
11
|
|
|
—
|
|
|
Total other assets
|
|
5,617
|
|
|
(76)
|
|
|
—
|
|
|
(4)
|
|
|
494
|
|
|
—
|
|
|
(228)
|
|
|
—
|
|
|
—
|
|
|
5,803
|
|
|
(75)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1,
2021
|
|
Total Realized/Unrealized (Gains) Losses
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
Net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
March 31,
2021
|
|
Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2021(2)
|
|
Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2021
|
|
|
|
|
Included in
Earnings
|
|
Included in Other
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$203
|
|
|
$4
|
|
|
$—
|
|
|
$—
|
|
|
$53
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$260
|
|
|
$4
|
|
|
$—
|
|
|
Debt of Freddie Mac, at fair value
|
|
120
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
120
|
|
|
2
|
|
|
—
|
|
|
Derivative liabilities
|
|
16
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
16
|
|
|
—
|
|
|
All other, at fair value
|
|
3
|
|
|
(5)
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
Referenced footnotes are included after the prior period table.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
119
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2020
|
|
|
|
Balance,
January 1,
2020
|
|
Total Realized/Unrealized Gains (Losses)
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
Net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
March 31,
2020
|
|
Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2020(2)
|
|
Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2020
|
|
(In millions)
|
|
|
Included in
Earnings
|
|
Included in Other
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$1,960
|
|
|
$12
|
|
|
$38
|
|
|
$—
|
|
|
$—
|
|
|
($208)
|
|
|
($57)
|
|
|
$—
|
|
|
($1,095)
|
|
|
$650
|
|
|
$—
|
|
|
($2)
|
|
|
Non-agency and other
|
|
1,267
|
|
|
3
|
|
|
(126)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43)
|
|
|
—
|
|
|
—
|
|
|
1,101
|
|
|
3
|
|
|
(100)
|
|
|
Total available-for-sale mortgage-related securities
|
|
3,227
|
|
|
15
|
|
|
(88)
|
|
|
—
|
|
|
—
|
|
|
(208)
|
|
|
(100)
|
|
|
—
|
|
|
(1,095)
|
|
|
1,751
|
|
|
3
|
|
|
(102)
|
|
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
2,709
|
|
|
15
|
|
|
—
|
|
|
352
|
|
|
—
|
|
|
(105)
|
|
|
(31)
|
|
|
—
|
|
|
(396)
|
|
|
2,544
|
|
|
1
|
|
|
—
|
|
|
Non-agency
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Total trading mortgage-related securities
|
|
2,710
|
|
|
15
|
|
|
—
|
|
|
352
|
|
|
—
|
|
|
(105)
|
|
|
(31)
|
|
|
—
|
|
|
(396)
|
|
|
2,545
|
|
|
1
|
|
|
—
|
|
|
Derivative assets
|
|
16
|
|
|
47
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63
|
|
|
47
|
|
|
—
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee assets
|
|
4,426
|
|
|
99
|
|
|
—
|
|
|
—
|
|
|
223
|
|
|
—
|
|
|
(183)
|
|
|
—
|
|
|
—
|
|
|
4,565
|
|
|
99
|
|
|
—
|
|
|
All other, at fair value
|
|
120
|
|
|
(7)
|
|
|
—
|
|
|
(1)
|
|
|
6
|
|
|
(8)
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
(8)
|
|
|
—
|
|
|
Total other assets
|
|
4,546
|
|
|
92
|
|
|
—
|
|
|
(1)
|
|
|
229
|
|
|
(8)
|
|
|
(187)
|
|
|
—
|
|
|
—
|
|
|
4,671
|
|
|
91
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1,
2020
|
|
Total Realized/Unrealized (Gains) Losses
|
|
Purchases
|
|
Issues
|
|
Sales
|
|
Settlements,
Net
|
|
Transfers
into
Level 3(1)
|
|
Transfers
out of
Level 3(1)
|
|
Balance,
March 31,
2020
|
|
Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of March 31, 2020(2)
|
|
Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of March 31, 2020
|
|
|
|
|
Included in
Earnings
|
|
Included in Other
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$203
|
|
|
($4)
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$199
|
|
|
($4)
|
|
|
$—
|
|
|
Debt of Freddie Mac, at fair value
|
|
129
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(1)
|
|
|
33
|
|
|
—
|
|
|
151
|
|
|
(11)
|
|
|
—
|
|
|
Derivative liabilities
|
|
37
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
(14)
|
|
|
—
|
|
|
All other, at fair value
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
B
(1)Transfers out of Level 3 during 1Q 2021 and 1Q 2020 consisted primarily of certain mortgage-related securities due to an increased volume and level of activity in the market and availability of price quotes from dealers and third-party pricing services. Certain Freddie Mac securities are classified as Level 3 at issuance and generally are classified as Level 2 when they begin trading. Transfers into Level 3 during 1Q 2020 consisted primarily of certain mortgage-related securities due to a decrease in market activity and the availability of relevant price quotes from dealers and third-party pricing services.
(2)Represents the amount of total gains or losses for the period, included in earnings, attributable to the change in unrealized gains and losses related to assets and liabilities classified as Level 3 that were still held at March 31, 2021 and March 31, 2020, respectively. This amount includes any allowance for credit losses recorded on available-for-sale securities and amortization of basis adjustments.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
120
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for Level 3 assets and liabilities measured on our condensed consolidated balance sheets at fair value on a recurring basis.
Table 17.3 - Quantitative Information about Recurring Level 3 Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
|
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average(2)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$690
|
|
|
Discounted cash flows
|
|
OAS
|
|
36 - 89 bps
|
|
66 bps
|
|
|
|
111
|
|
|
Other
|
|
|
|
|
|
|
|
Non-agency and other
|
|
879
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$66.2 - $79.3
|
|
$72.0
|
|
|
|
|
156
|
|
|
Other
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
2,360
|
|
|
Single external source
|
|
External pricing sources
|
|
$0.0 - $8,257.7
|
|
$970.5
|
|
|
|
|
364
|
|
|
Discounted cash flows
|
|
OAS
|
|
(811) - 56,028 bps
|
|
596 bps
|
|
|
|
337
|
|
|
Other
|
|
|
|
|
|
|
|
Guarantee assets, at fair value
|
|
5,300
|
|
|
Discounted cash flows
|
|
OAS
|
|
17 - 186 bps
|
|
45 bps
|
|
|
|
388
|
|
|
Other
|
|
|
|
|
|
|
|
Insignificant Level 3 assets(1)
|
|
146
|
|
|
|
|
|
|
|
|
|
|
Total level 3 assets
|
|
$10,731
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$204
|
|
|
Single external source
|
|
External pricing sources
|
|
$99.8 - $106.9
|
|
$102.2
|
|
|
|
|
56
|
|
|
Other
|
|
|
|
|
|
|
|
Insignificant Level 3 liabilities(1)
|
|
154
|
|
|
|
|
|
|
|
|
|
|
Total level 3 liabilities
|
|
$414
|
|
|
|
|
|
|
|
|
|
Referenced footnote is included after the next table.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
121
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
|
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
|
Range
|
|
Weighted
Average(2)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
$410
|
|
|
Discounted cash flows
|
|
OAS
|
|
90 - 90 bps
|
|
90 bps
|
|
|
|
116
|
|
|
Other
|
|
|
|
|
|
|
|
Non-agency and other
|
|
875
|
|
|
Median of external sources
|
|
External pricing sources
|
|
$67.1 - $79.1
|
|
$72.8
|
|
|
|
|
187
|
|
|
Other
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
2,204
|
|
|
Single external source
|
|
External pricing sources
|
|
$0.0 - $8,894.6
|
|
$947.8
|
|
|
|
|
472
|
|
|
Discounted cash flows
|
|
OAS
|
|
(951) - 2,910 bps
|
|
834 bps
|
|
|
|
583
|
|
|
Other
|
|
|
|
|
|
|
|
Guarantee assets, at fair value
|
|
5,195
|
|
|
Discounted cash flows
|
|
OAS
|
|
15 - 186 bps
|
|
38 bps
|
|
|
|
314
|
|
|
Other
|
|
|
|
|
|
|
|
Insignificant Level 3 assets(1)
|
|
171
|
|
|
|
|
|
|
|
|
|
|
Total level 3 assets
|
|
$10,527
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties, at fair value
|
|
$203
|
|
|
Single external source
|
|
External pricing sources
|
|
$97.3 - $ 107.0
|
|
$101.7
|
|
|
Insignificant Level 3 liabilities(1)
|
|
139
|
|
|
|
|
|
|
|
|
|
|
Total level 3 liabilities
|
|
$342
|
|
|
|
|
|
|
|
|
|
(1) Represents the aggregate amount of Level 3 assets or liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant.
(2) Unobservable inputs were weighted primarily by the relative fair value of the financial instruments.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
122
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
Assets Measured at Fair Value on a Non-Recurring Basis
We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These adjustments usually result from the application of lower-of-cost-or-fair-value accounting or measurement of impairment based on the fair value of the underlying collateral. Certain of the fair values in the tables below were not obtained as of the period end, but were obtained during the period.
The table below presents assets measured on our condensed consolidated balance sheets at fair value on a non-recurring basis.
Table 17.4 - Assets Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(In millions)
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans(1)
|
|
$—
|
|
$11
|
|
$1,731
|
|
$1,742
|
|
|
$—
|
|
$6
|
|
$2,241
|
|
$2,247
|
|
(1)Includes loans that are classified as held-for-investment and have been measured for impairment based on the fair value of the underlying collateral and held-for-sale loans where the fair value is below cost.
The table below provides valuation techniques, the range, and the weighted average of significant unobservable inputs for Level 3 assets measured on our condensed consolidated balance sheets at fair value on a non-recurring basis.
Table 17.5 - Quantitative Information About Non-Recurring Level 3 Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
|
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
Range
|
Weighted
Average(1)
|
|
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$1,731
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
$3,431 - $595,000
|
$209,549
|
|
|
|
|
|
Internal model
|
|
Housing sales index
|
69 - 640 bps
|
122 bps
|
|
|
|
|
|
Median of external sources
|
|
External pricing sources
|
$60.2 - $106.0
|
$94.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
Level 3
Fair
Value
|
|
Predominant
Valuation
Technique(s)
|
|
Unobservable Inputs
|
|
(Dollars in millions, except for certain unobservable inputs as shown)
|
|
Type
|
Range
|
Weighted
Average(1)
|
|
Non-recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$2,241
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal model
|
|
Historical sales proceeds
|
$3,001 - $696,004
|
$202,539
|
|
|
|
|
|
Internal model
|
|
Housing sales index
|
66 - 345 bps
|
119 bps
|
|
|
|
|
|
Median of external sources
|
|
External pricing sources
|
$59.5 - $104.0
|
$92.1
|
(1) Unobservable inputs were weighted primarily by the relative fair value of the financial instruments.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
123
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
Fair Value of Financial Instruments
The table below presents the carrying value and estimated fair value of our financial instruments. For certain types of financial instruments, such as cash and cash equivalents, securities purchased under agreements to resell, secured lending and other, and certain debt, the carrying value on our GAAP balance sheets approximates fair value, as these assets and liabilities are short-term in nature and have limited fair value volatility.
Table 17.6 - Fair Value of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
GAAP Measurement Category(1)
|
GAAP Carrying Amount
|
|
Fair Value
|
|
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting
Adjustments(2)
|
|
Total
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Amortized cost
|
$100,979
|
|
|
$100,979
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$100,979
|
|
|
Securities purchased under agreements to resell
|
|
Amortized cost
|
15,140
|
|
|
—
|
|
|
23,070
|
|
|
—
|
|
|
(7,930)
|
|
|
15,140
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
FV - OCI
|
7,591
|
|
|
—
|
|
|
5,755
|
|
|
1,836
|
|
|
—
|
|
|
7,591
|
|
|
Trading, at fair value
|
|
FV - NI
|
54,289
|
|
|
30,208
|
|
|
21,019
|
|
|
3,062
|
|
|
—
|
|
|
54,289
|
|
|
Total investment securities
|
|
|
61,880
|
|
|
30,208
|
|
|
26,774
|
|
|
4,898
|
|
|
—
|
|
|
61,880
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held by consolidated trusts
|
|
|
2,395,707
|
|
|
—
|
|
|
2,174,999
|
|
|
258,491
|
|
|
—
|
|
|
2,433,490
|
|
|
Loans held by Freddie Mac
|
|
|
112,180
|
|
|
—
|
|
|
77,983
|
|
|
37,537
|
|
|
—
|
|
|
115,520
|
|
|
Total mortgage loans
|
|
Various(3)
|
2,507,887
|
|
|
—
|
|
|
2,252,982
|
|
|
296,028
|
|
|
—
|
|
|
2,549,010
|
|
|
Derivative assets, net
|
|
FV - NI
|
2,085
|
|
|
30
|
|
|
8,680
|
|
|
30
|
|
|
(6,655)
|
|
|
2,085
|
|
|
Guarantee assets
|
|
FV - NI
|
5,688
|
|
|
—
|
|
|
—
|
|
|
5,694
|
|
|
—
|
|
|
5,694
|
|
|
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
91
|
|
|
—
|
|
|
192
|
|
|
—
|
|
|
—
|
|
|
192
|
|
|
Advances to lenders
|
|
Amortized cost
|
6,401
|
|
|
—
|
|
|
—
|
|
|
6,401
|
|
|
—
|
|
|
6,401
|
|
|
Secured lending
|
|
Amortized cost
|
1,632
|
|
|
—
|
|
|
1,430
|
|
|
49
|
|
|
—
|
|
|
1,479
|
|
|
Total financial assets
|
|
|
$2,701,783
|
|
|
$131,217
|
|
|
$2,313,128
|
|
|
$313,100
|
|
|
($14,585)
|
|
|
$2,742,860
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
$2,445,829
|
|
|
$—
|
|
|
$2,472,078
|
|
|
$855
|
|
|
$—
|
|
|
$2,472,933
|
|
|
Debt of Freddie Mac
|
|
|
258,441
|
|
|
—
|
|
|
268,093
|
|
|
3,813
|
|
|
(7,930)
|
|
|
263,976
|
|
|
Total debt
|
|
Various(4)
|
2,704,270
|
|
|
—
|
|
|
2,740,171
|
|
|
4,668
|
|
|
(7,930)
|
|
|
2,736,909
|
|
|
Derivative liabilities, net
|
|
FV - NI
|
950
|
|
|
—
|
|
|
9,115
|
|
|
34
|
|
|
(8,199)
|
|
|
950
|
|
|
Guarantee obligations
|
|
Amortized cost
|
5,275
|
|
|
—
|
|
|
—
|
|
|
6,100
|
|
|
—
|
|
|
6,100
|
|
|
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
29
|
|
|
—
|
|
|
5
|
|
|
167
|
|
|
—
|
|
|
172
|
|
|
Total financial liabilities
|
|
|
$2,710,524
|
|
|
$—
|
|
|
$2,749,291
|
|
|
$10,969
|
|
|
($16,129)
|
|
|
$2,744,131
|
|
(1)FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
(2)Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
(3)As of March 31, 2021, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value, and FV - NI were $2.5 trillion, $16.8 billion, and $8.1 billion, respectively.
(4)As of March 31, 2021, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.7 trillion and $2.4 billion, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
124
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
GAAP Measurement Category(1)
|
GAAP Carrying Amount
|
|
Fair Value
|
|
(In millions)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting Adjustments(2)
|
|
Total
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Amortized cost
|
$23,889
|
|
|
$23,889
|
|
|
$—
|
|
|
$—
|
|
|
$—
|
|
|
$23,889
|
|
|
Securities purchased under agreements to resell
|
|
Amortized cost
|
105,003
|
|
|
—
|
|
|
105,003
|
|
|
—
|
|
|
—
|
|
|
105,003
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
FV - OCI
|
15,367
|
|
|
—
|
|
|
13,779
|
|
|
1,588
|
|
|
—
|
|
|
15,367
|
|
|
Trading, at fair value
|
|
FV - NI
|
44,458
|
|
|
26,255
|
|
|
14,944
|
|
|
3,259
|
|
|
—
|
|
|
44,458
|
|
|
Total investment securities
|
|
|
59,825
|
|
|
26,255
|
|
|
28,723
|
|
|
4,847
|
|
|
—
|
|
|
59,825
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held by consolidated trusts
|
|
|
2,273,347
|
|
|
—
|
|
|
2,080,687
|
|
|
262,309
|
|
|
—
|
|
|
2,342,996
|
|
|
Loans held by Freddie Mac
|
|
|
110,541
|
|
|
—
|
|
|
76,917
|
|
|
36,578
|
|
|
—
|
|
|
113,495
|
|
|
Total mortgage loans
|
|
Various(3)
|
2,383,888
|
|
|
—
|
|
|
2,157,604
|
|
|
298,887
|
|
|
—
|
|
|
2,456,491
|
|
|
Derivative assets, net
|
|
FV - NI
|
1,205
|
|
|
—
|
|
|
8,516
|
|
|
63
|
|
|
(7,374)
|
|
|
1,205
|
|
|
Guarantee assets
|
|
FV - NI
|
5,509
|
|
|
—
|
|
|
—
|
|
|
5,515
|
|
|
—
|
|
|
5,515
|
|
|
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
158
|
|
|
—
|
|
|
246
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
Advances to lenders
|
|
Amortized cost
|
4,162
|
|
|
—
|
|
|
—
|
|
|
4,162
|
|
|
—
|
|
|
4,162
|
|
|
Secured lending
|
|
Amortized cost
|
1,680
|
|
|
—
|
|
|
1,427
|
|
|
89
|
|
|
—
|
|
|
1,516
|
|
|
Total financial assets
|
|
|
$2,585,319
|
|
|
$50,144
|
|
|
$2,301,519
|
|
|
$313,563
|
|
|
($7,374)
|
|
|
$2,657,852
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
$2,308,176
|
|
|
$—
|
|
|
$2,382,157
|
|
|
$852
|
|
|
$—
|
|
|
$2,383,009
|
|
|
Debt of Freddie Mac
|
|
|
284,370
|
|
|
—
|
|
|
286,634
|
|
|
4,088
|
|
|
—
|
|
|
290,722
|
|
|
Total debt
|
|
Various(4)
|
2,592,546
|
|
|
—
|
|
|
2,668,791
|
|
|
4,940
|
|
|
—
|
|
|
2,673,731
|
|
|
Derivative liabilities, net
|
|
FV - NI
|
954
|
|
|
—
|
|
|
9,132
|
|
|
16
|
|
|
(8,194)
|
|
|
954
|
|
|
Guarantee obligations
|
|
Amortized cost
|
5,050
|
|
|
—
|
|
|
—
|
|
|
5,378
|
|
|
—
|
|
|
5,378
|
|
|
Non-derivative purchase commitments, at fair value
|
|
FV - NI
|
20
|
|
|
—
|
|
|
1
|
|
|
143
|
|
|
—
|
|
|
144
|
|
|
Total financial liabilities
|
|
|
$2,598,570
|
|
|
$—
|
|
|
$2,677,924
|
|
|
$10,477
|
|
|
($8,194)
|
|
|
$2,680,207
|
|
(1)FV - NI denotes fair value through net income. FV - OCI denotes fair value through other comprehensive income.
(2)Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.
(3)As of December 31, 2020, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value, and FV - NI were $2.4 trillion, $19.5 billion, and $14.2 billion, respectively.
(4)As of December 31, 2020, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.6 trillion and $2.6 billion, respectively.
We elected the fair value option for certain multifamily held-for-sale loans, multifamily held-for-sale loan purchase commitments, and long-term debt.
The table below presents the fair value and UPB related to certain loans and long-term debt for which we have elected the fair value option. This table does not include interest-only securities related to debt securities of consolidated trusts and debt of Freddie Mac held by third parties with a fair value of $245 million and $173 million and multifamily held-for-sale loan purchase commitments with a net fair value of $86 million and $157 million, as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
125
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 17
|
Table 17.7 - Difference between Fair Value and UPB for Certain Financial Instruments with Fair Value Option Elected
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(In millions)
|
|
Multifamily
Held-For-Sale
Loans
|
Debt of Freddie Mac -
Long Term
|
Debt Securities of Consolidated Trusts Held by Third Parties
|
|
Multifamily
Held-For-Sale
Loans
|
Debt of Freddie Mac -
Long Term
|
Debt Securities of Consolidated Trusts Held by Third Parties
|
|
Fair value
|
|
$8,093
|
|
$1,915
|
|
$204
|
|
|
$14,199
|
|
$2,216
|
|
$203
|
|
|
UPB
|
|
7,884
|
|
1,896
|
|
200
|
|
|
13,400
|
|
2,189
|
|
200
|
|
|
Difference
|
|
$209
|
|
$19
|
|
$4
|
|
|
$799
|
|
$27
|
|
$3
|
|
Changes in Fair Value Under the Fair Value Option Election
The table below presents the changes in fair value included in non-interest income (loss) in our condensed consolidated statements of comprehensive income (loss), related to items for which we have elected the fair value option.
Table 17.8 - Changes in Fair Value Under the Fair Value Option Election
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q 2021
|
1Q 2020
|
|
|
|
|
(In millions)
|
|
Gains (Losses)
|
|
|
|
Multifamily held-for-sale loans
|
|
($451)
|
|
$638
|
|
|
|
|
|
Multifamily held-for-sale loan purchase commitments
|
|
195
|
|
532
|
|
|
|
|
|
Debt of Freddie Mac - long term
|
|
8
|
|
548
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
(4)
|
|
4
|
|
|
|
|
Changes in fair value attributable to instrument-specific credit risk were not material for 1Q 2021 and 1Q 2020 for any assets or liabilities for which we elected the fair value option.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
126
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 18
|
NOTE 18
Legal Contingencies
We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation, and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation involving mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a seller's or servicer's eligibility to sell loans to, and/or service loans for, us. In these cases, the former seller or servicer sometimes seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are sometimes sued in connection with the origination or servicing of loans. These suits typically involve claims alleging wrongful actions of sellers and servicers. Our contracts with our sellers and servicers generally provide for indemnification of Freddie Mac against liability arising from sellers' and servicers' wrongful actions with respect to loans sold to or serviced for Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or threatened against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably estimated.
Putative Securities Class Action Lawsuit: Ohio Public Employees Retirement System vs. Freddie Mac, Syron, Et Al.
This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008 in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock from August 1, 2006 through November 20, 2007. FHFA later intervened as Conservator, and the plaintiff amended its complaint on several occasions. The plaintiff alleged, among other things, that the defendants violated federal securities laws by making false and misleading statements concerning our business, risk management, and the procedures we put into place to protect the company from problems in the mortgage industry. The plaintiff seeks unspecified damages and interest, and reasonable costs and expenses, including attorney and expert fees.
In October 2013, defendants filed motions to dismiss the complaint. In October 2014, the District Court granted defendants' motions and dismissed the case in its entirety against all defendants, with prejudice. In November 2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit. On July 20, 2016, the Sixth Circuit reversed the District Court's dismissal and remanded the case to the District Court for further proceedings. On August 14, 2018, the District Court denied the plaintiff's motion for class certification. On January 23, 2019, the Sixth Circuit denied plaintiff's petition for leave to appeal that decision. On September 17, 2020, the District Court granted a request from the plaintiff for summary judgment and entered final judgment in favor of Freddie Mac and the other defendants. On October 9, 2020, the plaintiff filed a notice of appeal with the Sixth Circuit. On January 27, 2021, Freddie Mac filed a motion to dismiss the appeal.
At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or range of possible loss in the event of an adverse judgment in the foregoing matter due to the following factors, among others: the inherent uncertainty of the appellate process, and the inherent uncertainty of pre-trial litigation in the event the case is ultimately remanded to the District Court in whole or in part. In particular, while the District Court denied plaintiff's motion for class certification, this decision and the entry of final judgment in defendants' favor have been appealed. Absent a final resolution of whether a class will be certified, the identification of a class if one is certified, and the identification of the alleged statement or statements that survive dispositive motions, we cannot reasonably estimate any possible loss or range of possible loss.
On March 14, 2013, Freddie Mac filed a lawsuit in the U.S. District Court for the Eastern District of Virginia against the British Bankers Association and the 16 U.S. Dollar LIBOR panel banks and a number of their affiliates. The case was subsequently transferred to the U.S. District Court for the Southern District of New York. The complaint alleges, among other things, that the defendants fraudulently and collusively depressed LIBOR, a benchmark interest rate indexed to trillions of dollars of financial products, and asserts claims for antitrust violations, breach of contract, tortious interference with contract, and fraud. Freddie Mac filed an amended complaint in July 2013, and a second amended complaint in October 2014. In August 2015, the District Court dismissed the portion of our claim related to antitrust violations and fraud and we filed a motion for reconsideration. On March 31, 2016, the District Court granted a portion of our motion, finding personal jurisdiction over certain defendants, and denied the portion of our motion with respect to statutes of limitation for our fraud claims. Subsequently, in a related case, the U.S. Court of Appeals for the Second Circuit reversed the District Court's dismissal of certain plaintiffs' antitrust claims and
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|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
127
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 18
|
remanded the case to the District Court for consideration of whether, among other things, the plaintiffs are "efficient enforcers" of the antitrust laws.
On December 20, 2016, after briefing and argument on the defendants' renewed motions to dismiss on personal jurisdiction and efficient enforcer grounds, the District Court denied defendants' motions in part and granted them in part. The District Court held that Freddie Mac is an efficient enforcer of the antitrust laws, but dismissed on personal jurisdiction grounds Freddie Mac's antitrust claims against all defendants except HSBC USA, N.A. Then, in an order issued February 2, 2017, the District Court effectively dismissed Freddie Mac's remaining antitrust claim against HSBC USA, N.A. At present, Freddie Mac's breach of contract actions against Bank of America, N.A., Barclays Bank, Citibank, N.A., Credit Suisse, Deutsche Bank, Royal Bank of Scotland, and UBS AG are its only claims remaining in the District Court.
On February 23, 2018, the Second Circuit reversed the District Court's dismissal of certain plaintiffs' state law fraud and unjust enrichment claims on statutes of limitations grounds. While Freddie Mac was not a party to the appeal, this decision could have the effect of reinstating Freddie Mac's fraud claims against the above-named defendants. The Second Circuit also reversed certain aspects of the District Court's personal jurisdiction rulings and remanded with instructions to allow the named appellant to amend its complaint. The District Court subsequently granted in part Freddie Mac's motion for leave to amend its complaint, and Freddie Mac amended its complaint on April 16, 2019.
Litigation Concerning the Purchase Agreement
Since July 2013, a number of lawsuits have been filed against us concerning the August 2012 amendment to the Purchase Agreement, which created the net worth sweep dividend provisions of the senior preferred stock. The plaintiffs in the lawsuits allege that they are holders of common stock and/or junior preferred stock issued by Freddie Mac and Fannie Mae. (For purposes of this discussion, junior preferred stock refers to the various series of preferred stock of Freddie Mac and Fannie Mae other than the senior preferred stock issued to Treasury.) It is possible that similar lawsuits will be filed in the future. The lawsuits against us are described below.
Litigation in the U.S. District Court for the District of Columbia
In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations. This case is the result of the consolidation of three putative class action lawsuits: Cacciapelle and Bareiss vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 29, 2013; American European Insurance Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and FHFA, filed on July 30, 2013; and Marneu Holdings, Co. vs. FHFA, Treasury, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, filed on September 18, 2013. (The Marneu case was also filed as a shareholder derivative lawsuit.) A consolidated amended complaint was filed in December 2013. In the consolidated amended complaint, plaintiffs alleged, among other items, that the August 2012 amendment to the Purchase Agreement breached Freddie Mac's and Fannie Mae's respective contracts with the holders of junior preferred stock and common stock and the covenant of good faith and fair dealing inherent in such contracts. Plaintiffs sought unspecified damages, equitable and injunctive relief, and costs and expenses, including attorney and expert fees.
The Cacciapelle and American European Insurance Company lawsuits were filed purportedly on behalf of a class of purchasers of junior preferred stock issued by Freddie Mac or Fannie Mae who held stock prior to, and as of, August 17, 2012. The Marneu lawsuit was filed purportedly on behalf of a class of purchasers of junior preferred stock and purchasers of common stock issued by Freddie Mac or Fannie Mae over a not-yet-defined period of time.
Arrowood Indemnity Company vs. Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, FHFA, and Treasury. This case was filed on September 20, 2013. The allegations and demands made by plaintiffs in this case were generally similar to those made by the plaintiffs in the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations case described above. Plaintiffs in the Arrowood lawsuit also requested that, if injunctive relief were not granted, the Arrowood plaintiffs be awarded damages against the defendants in an amount to be determined including, but not limited to, the aggregate par value of their junior preferred stock, the total of which they stated to be approximately $42 million.
American European Insurance Company, Cacciapelle, and Miller vs. Treasury and FHFA. This case was filed as a shareholder derivative lawsuit, purportedly on behalf of Freddie Mac as a nominal defendant, on July 30, 2014. The complaint alleged that, through the August 2012 amendment to the Purchase Agreement, Treasury and FHFA breached their respective fiduciary duties to Freddie Mac, causing Freddie Mac to suffer damages. The plaintiffs asked that Freddie Mac be awarded compensatory damages and disgorgement, as well as attorneys' fees, costs, and other expenses.
FHFA, joined by Freddie Mac and Fannie Mae, moved to dismiss the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations case and the other related cases in January 2014. Treasury filed a motion to dismiss the same day. In September 2014, the District Court granted the motions and dismissed the plaintiffs' claims. All plaintiffs appealed that decision, and on February 21, 2017, the U.S. Court of Appeals for the District of Columbia Circuit affirmed in part and remanded in part the decision granting the motions to dismiss. The DC Circuit affirmed dismissal of all
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
128
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 18
|
claims except certain claims seeking monetary damages for breach of contract and breach of implied duty of good faith and fair dealing. In March 2017, certain institutional and class plaintiffs filed petitions for panel rehearing with respect to certain claims. On July 17, 2017, the DC Circuit granted the petitions for rehearing and issued a modified decision, which permitted the institutional plaintiffs to pursue the breach of contract and breach of implied duty of good faith and fair dealing claims that had been remanded. The DC Circuit also removed language related to the standard to be applied to the implied duty claims, leaving that issue for the District Court to determine on remand. On October 16, 2017, certain institutional and class plaintiffs filed petitions for a writ of certiorari in the U.S. Supreme Court challenging whether HERA's prohibition on injunctive relief against FHFA bars judicial review of the net worth sweep dividend provisions of the August 2012 amendment to the Purchase Agreement, as well as whether HERA bars shareholders from pursuing derivative litigation where they allege the conservator faces a conflict of interest. The Supreme Court denied the petitions on February 20, 2018. On November 1, 2017, certain institutional and class plaintiffs and plaintiffs in another case in which Freddie Mac was not originally a defendant, Fairholme Funds, Inc. v. FHFA, Treasury, and Federal National Mortgage Association, filed proposed amended complaints in the District Court. Each of the proposed amended complaints names Freddie Mac as a defendant for breach of contract and breach of the covenant of good faith and fair dealing claims as well as for new claims alleging breach of fiduciary duty and breach of Virginia corporate law. On January 10, 2018, FHFA, Freddie Mac, and Fannie Mae moved to dismiss the amended complaints. On September 28, 2018, the District Court dismissed all of the claims except those alleging breach of the implied covenant of good faith and fair dealing. Discovery is ongoing.
Litigation in the U.S. Court of Federal Claims
Reid and Fisher vs. the United States of America and Federal Home Loan Mortgage Corporation. This case was filed as a derivative lawsuit, purportedly on behalf of Freddie Mac as a nominal defendant, on February 26, 2014. The complaint alleges, among other items, that the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful taking of private property for public use without just compensation. The plaintiffs ask that Freddie Mac be awarded just compensation for the U.S. government's alleged taking of its property, attorneys' fees, costs, and other expenses. On March 8, 2018, the plaintiffs filed an amended complaint under seal, with a redacted copy filed on November 14, 2018. The United States filed a motion to dismiss on August 1, 2018 and an amended motion to dismiss on October 1, 2018. The Court denied the United States' motion to dismiss on May 8, 2020 and granted plaintiffs' motion to certify the decisions for interlocutory appeal on June 11, 2020. The Federal Circuit denied the petition for interlocutory appeal on August 21, 2020. These proceedings are stayed pending a ruling on the Fairholme Funds appeals.
Fairholme Funds, Inc., et al. vs. the United States of America, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation. This case was originally filed on July 9, 2013 against the United States of America. On March 8, 2018, plaintiffs filed an amended complaint under seal. A redacted public version was filed on May 11, 2018 and adds Freddie Mac and Fannie Mae as nominal defendants. The amended complaint alleges, among other items, that the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful taking or exaction of private property for public use without just compensation, and that by enacting the net worth sweep, the government breached the fiduciary duty it owed to Freddie Mac and Fannie Mae, and implied-in-fact contracts between the United States on the one hand and Freddie Mac and Fannie Mae on the other. The plaintiffs ask that plaintiffs, Freddie Mac, and Fannie Mae be awarded (1) just compensation for the government's alleged taking or exaction of their property, (2) damages for the government's breach of fiduciary duties, and (3) damages for the government's breach of the alleged implied-in-fact contracts. In addition, plaintiffs seek pre- and post-judgment interest, attorneys' fees, costs, and other expenses. The United States filed a motion to dismiss on August 1, 2018 and an amended motion to dismiss on October 1, 2018. On December 6, 2019, the Court dismissed the claims plaintiffs labeled as direct claims and denied defendant's motion to dismiss with respect to the claims plaintiffs labeled as derivative. Accordingly, derivative takings, exaction, breach of fiduciary duty, and breach of implied-in-fact contract claims remain. By order dated March 9, 2020, the Court granted unopposed motions by plaintiffs and defendant to certify the December 6 opinion for interlocutory review, modified its December 6 opinion to include the language necessary for an interlocutory appeal to the U.S. Court of Appeals for the Federal Circuit, and stayed further proceedings in the case pending the completion of the interlocutory appeal process. The Federal Circuit granted the petition for interlocutory appeal on June 18, 2020.
Perry Capital LLC vs. the United States of America, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation. This case was filed as a derivative lawsuit, purportedly on behalf of Freddie Mac and Fannie Mae as nominal defendants, on August 15, 2018. The complaint alleges, among other items, that the net worth sweep dividend provisions of the senior preferred stock constitute an unlawful taking of private property for public use without just compensation or an illegal exaction in violation of the Fifth Amendment, and that by enacting the net worth sweep, the government breached the fiduciary duty it owed to Freddie Mac and Fannie Mae, and implied-in-fact contracts between the United States on the one hand and Freddie Mac and Fannie Mae on the other. The plaintiff asks that it, Freddie Mac, and Fannie Mae be awarded just compensation for the government's alleged taking of their property or damages for the illegal exaction; damages for the government's breach of fiduciary duties; and damages for the government's breach of the alleged implied-in-fact contracts. These proceedings are stayed pending a ruling on the Fairholme Funds appeals.
At present, it is not possible for us to predict the probable outcome of the lawsuits discussed above in the U.S. District Courts and the U.S. Court of Federal Claims (including the outcome of any appeal) or any potential effect on our business, financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or range of
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|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
129
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 18
|
possible loss in the event of an adverse judgment in the foregoing matters due to a number of factors, including the inherent uncertainty of pre-trial litigation. In addition, with respect to the In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations case, the plaintiffs have not demanded a stated amount of damages they believe are due, and the Court has not certified a class.
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac 1Q 2021 Form 10-Q
|
|
130
|
|
|
|
|
|
|
|
|
Financial Statements
|
Notes to the Condensed Consolidated Financial Statements | Note 19
|
NOTE 19
Regulatory Capital
In October 2008, FHFA announced that it was suspending capital classification of us during conservatorship in light of the Purchase Agreement. FHFA continues to monitor our capital levels, but the existing statutory and FHFA regulatory capital requirements are not binding during conservatorship.
We continue to provide quarterly submissions to FHFA on minimum capital as required by FHFA. The table below summarizes our net worth and estimated core capital and minimum capital levels reported to FHFA.
Table 19.1 - Net Worth and Minimum Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31, 2021
|
December 31, 2020
|
|
GAAP net worth (deficit)
|
|
$18,791
|
|
$16,413
|
|
|
|
|
|
|
|
Core capital (deficit)(1)(2)
|
|
(54,111)
|
|
(56,878)
|
|
|
Less: Minimum capital(1)
|
|
23,068
|
|
22,694
|
|
|
Minimum capital surplus (deficit)(1)
|
|
($77,179)
|
|
($79,572)
|
|
(1)Core capital and minimum capital figures are estimates and represent amounts submitted to FHFA. FHFA is the authoritative source for our regulatory capital.
(2)Core capital excludes certain components of GAAP total equity (i.e., AOCI and senior preferred stock) as these items do not meet the statutory definition of core capital.
In May 2017, FHFA, as Conservator, issued guidance to us to evaluate and manage our financial risk and to make economic business decisions, while in conservatorship, utilizing a risk-based CCF, a capital system with detailed formulae provided by FHFA. In November 2020, FHFA released a final rule that establishes the ERCF as a new regulatory capital framework for Freddie Mac and Fannie Mae. The ERCF, which went into effect in February 2021, has a transition period for compliance. In general, the compliance date for the regulatory capital requirements will be the later of the date of termination of our conservatorship and any later compliance date provided in a consent order or other transition order; however, we may begin implementing the ERCF sooner, upon the direction of FHFA or otherwise. We will be required to report our regulatory capital under the ERCF beginning on January 1, 2022, and expect to continue capital reporting that is required by FHFA. The ERCF specifies substantial capital requirements and could affect our business strategies, perhaps significantly.
END OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
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|
Freddie Mac 1Q 2021 Form 10-Q
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131
|
Other Information
LEGAL PROCEEDINGS
We are involved as a party to a variety of legal proceedings. For more information, see Note 18 in this Form 10-Q and Note 20 in our 2020 Annual Report.
In addition, a number of lawsuits have been filed against the U.S. government related to the conservatorship and the Purchase Agreement. Some of these cases also have challenged the constitutionality of the structure of FHFA. For information on these lawsuits, see the Legal Proceedings section in our 2020 Annual Report. Freddie Mac is not a party to any of these lawsuits.
RISK FACTORS
This Form 10-Q should be read together with the Risk Factors section in our 2020 Annual Report, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties could, directly or indirectly, adversely affect our business, financial condition, results of operations, cash flows, strategies, and/or prospects.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
The securities we issue are "exempted securities" under the Securities Act of 1933, as amended. As a result, we do not file registration statements with the SEC with respect to offerings of our securities.
Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity compensation plans. Previously, we had provided equity compensation under those plans to employees and members of the Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or other equity interests without Treasury's prior approval. However, grants outstanding as of the date of the Purchase Agreement remain in effect in accordance with their terms.
Information About Certain Securities Issuances by Freddie Mac
We make available, free of charge through our website at www.freddiemac.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all other SEC reports and amendments to those reports as soon as reasonably practicable after we electronically file the material with the SEC. The SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding companies that file electronically with the SEC.
We provide disclosure about our debt securities on our website at www.freddiemac.com/debt. From this address, investors can access the offering circular and related supplements for debt securities offerings under Freddie Mac's global debt facility, including pricing supplements for individual issuances of debt securities. Similar information about our STACR transactions and SCR debt notes is available at crt.freddiemac.com and mf.freddiemac.com/investors, respectively.
We provide disclosure about our mortgage-related securities, some of which are off-balance sheet obligations (e.g., K Certificates and SB Certificates), on our website at www.freddiemac.com/mbs and mf.freddiemac.com/investors. From these addresses, investors can access information and documents, including offering circulars and offering circular supplements, for mortgage-related securities offerings.
We provide additional information, including product descriptions, investor presentations, securities issuance calendars, transactions volumes and details, redemption notices, Freddie Mac research, and material developments or other events that may be important to investors, in each case as applicable, on the websites for our business activities, which can be found at sf.freddiemac.com, mf.freddiemac.com, and www.freddiemac.com/capital-markets.
EXHIBITS
The exhibits are listed in the Exhibit Index of this Form 10-Q.
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Freddie Mac 1Q 2021 Form 10-Q
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132
|
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the SEC's rules and forms and that such information is accumulated and communicated to management of the company, including the company's Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we must apply judgment in implementing possible controls and procedures.
Management, including the company's Interim Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2021. As a result of management's evaluation, our Interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2021, at a reasonable level of assurance, because we have not been able to update our disclosure controls and procedures to provide reasonable assurance that information known by FHFA on an ongoing basis is communicated from FHFA to Freddie Mac's management in a manner that allows for timely decisions regarding our required disclosure under the federal securities laws. We consider this situation to be a material weakness in our internal control over financial reporting.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING DURING 1Q 2021
We evaluated the changes in our internal control over financial reporting that occurred during 1Q 2021 and concluded that there were no changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
MITIGATING ACTIONS RELATED TO THE MATERIAL WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As described above under Evaluation of Disclosure Controls and Procedures, we have one material weakness in internal control over financial reporting as of March 31, 2021 that we have not remediated.
Given the structural nature of this material weakness, we believe it is likely that we will not remediate it while we are under conservatorship. However, both we and FHFA have continued to engage in activities and employ procedures and practices intended to permit accumulation and communication to management of information needed to meet our disclosure obligations under the federal securities laws. These include the following:
n FHFA has established the Division of Resolutions, which is intended to facilitate operation of the company with the oversight of the Conservator.
n We provide drafts of our SEC filings to FHFA personnel for their review and comment prior to filing. We also provide drafts of certain external press releases and statements to FHFA personnel for their review and comment prior to release.
n FHFA personnel, including senior officials, review our SEC filings prior to filing, including this Form 10-Q, and engage in discussions with us regarding issues associated with the information contained in those filings. Prior to filing this Form 10-Q, FHFA provided us with a written acknowledgment that it had reviewed the Form 10-Q, was not aware of any material misstatements or omissions in the Form 10-Q, and had no objection to our filing the Form 10-Q.
n The Director of FHFA is in frequent communication with our Chief Executive Officer (or if that office is vacant, with our President), typically meeting (in person or by phone) on at least a bi-weekly basis.
n FHFA representatives attend meetings frequently with various groups within the company to enhance the flow of information and to provide oversight on a variety of matters, including accounting, credit and capital markets management, external communications, and legal matters.
n Senior officials within FHFA's accounting group meet frequently with our senior financial executives regarding our accounting policies, practices, and procedures.
In view of our mitigating actions related to this material weakness, we believe that our condensed consolidated financial statements for 1Q 2021 have been prepared in conformity with GAAP.
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Freddie Mac 1Q 2021 Form 10-Q
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133
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