UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                                       to

Commission File Number: 001-34139

Federal Home Loan Mortgage Corporation

(Exact name of registrant as specified in its charter)

Federally chartered	52-0904874	8200 Jones Branch Drive			22102-3110		(703)	903-2000
corporation			McLean,	Virginia
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)	(Address of principal executive offices)			(Zip Code)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒ Yes    ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒ Yes    ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of July 14, 2020, there were 650,059,292 shares of the registrant’s common stock outstanding.

Table of Contents

Table of Contents

	Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
n    Introduction	1
n    Market Conditions and Economic Indicators	8
n    Consolidated Results of Operations	13
n    Consolidated Balance Sheets Analysis	21
n    Our Business Segments	22
n    Risk Management	37
l Credit Risk	37
l Operational Risk	56
l Market Risk	57
n    Liquidity and Capital Resources	60
n    Off-Balance Sheet Arrangements	66
n    Critical Accounting Policies and Estimates	67
n    Conservatorship and Related Matters	69
n    Regulation and Supervision	70
n    Forward-Looking Statements	72
FINANCIAL STATEMENTS	75
OTHER INFORMATION	150
CONTROLS AND PROCEDURES	152
EXHIBIT INDEX	153
SIGNATURES	154
FORM 10-Q INDEX	155

Freddie Mac 2Q 2020 Form 10-Q i

Table of Contents

MD&A TABLE INDEX

Table	Description	Page
1	Summary of Condensed Consolidated Statements of Comprehensive Income (Loss)	13
2	Components of Net Interest Income	14
3	Analysis of Net Interest Yield	15
4	Components of Guarantee Fee Income	16
5	Components of Investment Gains (Losses), Net	17
6	Components of Mortgage Loans Gains (Losses)	17
7	Components of Investment Securities Gains (Losses)	17
8	Components of Debt Gains (Losses)	18
9	Components of Derivative Gains (Losses)	18
10	Components of Benefit (Provision) for Credit Losses	19
11	Summarized Condensed Consolidated Balance Sheets	21
12	Single-Family Guarantee Segment Financial Results	27
13	Multifamily Portfolio and Market Support	30
14	Multifamily Segment Financial Results	33
15	Capital Markets Segment Financial Results	36
16	Capital Markets Segment Interest Rate-Related and Market Spread-Related Fair Value Changes, Net of Tax	36
17	Single-Family New Business Activity	38
18	Single-Family Credit Guarantee Portfolio CRT Issuance	39
19	Single-Family Credit Guarantee Portfolio Credit Enhancement Coverage Outstanding	40
20	Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family Credit Guarantee Portfolio	41
21	Credit Enhancement Coverage by Year of Origination	41
22	Details of Single-Family Credit Enhancement Expenses and Recoveries	41
23	Reduction in Conservatorship Credit Capital as a Result of Certain CRT Transactions	42
24	Single-Family Allowance for Credit Losses Activity	43
25	Single-Family Credit Guarantee Portfolio Credit Performance Metrics	43
26	Single-Family TDR and Non-Accrual Loans	44
27	Single-Family TDR Loan Activity	45
28	Single-Family Loans in Forbearance by Payment Status	47
29	Credit Quality Characteristics of Our Single-Family Credit Guarantee Portfolio	47
30	Credit Quality Characteristics of Our Single-Family Loans in Forbearance	47
31	Single-Family Credit Guarantee Portfolio Attribute Combinations for Higher Risk Loans	48
32	Alt-A Loans in Our Single-Family Credit Guarantee Portfolio	49
33	Concentration of Credit Risk of Our Single-Family Credit Guarantee Portfolio	49
34	Single-Family Loans in Forbearance Activity	50
35	Single-Family REO Activity	51
36	Current Credit Quality of Multifamily Loans Under a Forbearance Program	53
37	Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio	53
38	Level of Subordination Outstanding	53
39	Credit Quality of Our Multifamily Mortgage Portfolio Without Credit Enhancement	54
40	Single-Family Credit Guarantee Portfolio Non-Depository Servicers	55
41	Single-Family Mortgage Insurers	55
42	PVS-YC and PVS-L Results Assuming Shifts of the LIBOR Yield Curve	57
43	Duration Gap and PVS Results	58
44	PVS-L Results Before Derivatives and After Derivatives	58
45	Earnings Sensitivity to Changes in Interest Rates	59
46	Liquidity Sources	60

Freddie Mac 2Q 2020 Form 10-Q ii

Table of Contents

Table	Description	Page
47	Other Investments Portfolio	60
48	Funding Sources	61
49	Other Debt Activity	62
50	Activity for Debt Securities of Consolidated Trusts Held by Third Parties	64
51	Net Worth Activity	64
52	Return on Conservatorship Capital	65
53	Mortgage-Related Investments Portfolio Details	69
54	Current and Proposed 2021 Affordable Housing Goal Benchmark Levels	70

Freddie Mac 2Q 2020 Form 10-Q iii

Management's Discussion and Analysis Introduction

Management's Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q includes forward-looking statements that are based on current expectations, including the effects the COVID-19 pandemic and the actions taken in response may have on our liquidity, business activities, financial condition, and results of operations, and are subject to significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-Q. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q. Actual results might differ significantly from those described in or implied by such statements due to various factors and uncertainties, including those described in the Forward-Looking Statements section of this Form 10-Q, the Other Information - Risk Factors section of our Form 10-Q for the quarter ended March 31, 2020 and the Business, Forward-Looking Statements, and Risk Factors sections of our Annual Report on Form 10-K for the year ended December 31, 2019, or 2019 Annual Report.

Throughout this Form 10-Q, we use certain acronyms and terms that are defined in the Glossary of our 2019 Annual Report.

You should read the following MD&A in conjunction with our 2019 Annual Report and our condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2020 included in Financial Statements.

INTRODUCTION

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 do this primarily by purchasing residential mortgage loans originated by lenders. In most instances, we package these loans into guaranteed mortgage-related securities, which are sold in the global capital markets and transfer interest-rate and liquidity risks to third-party investors. In addition, we transfer mortgage credit risk exposure to third-party investors through our credit risk transfer programs, which include securities- and insurance-based offerings. We also invest in mortgage loans and mortgage-related securities. We do not originate loans or lend money directly to mortgage borrowers.

We support the U.S. housing market and the overall economy by enabling America's families to access mortgage loan funding with better terms and by providing consistent liquidity to the multifamily mortgage market. We have helped many distressed borrowers keep their homes or avoid foreclosure. We are working with FHFA, our customers, and the industry to build a better housing finance system for the nation.

COVID-19 Pandemic Response Efforts

During 2Q 2020, the COVID-19 pandemic continued to evolve both globally and domestically with significant adverse effects on populations and economies. We remain focused on serving our mission and the crucial role we play in the U.S. housing finance system while supporting the health and safety of our communities, customers, and staff. We continue to actively monitor the situation and make decisions based on guidance from national, state, and local governments and public health authorities, including the U.S. Centers for Disease Control and Prevention (CDC).

Our business continuity plans have enabled us to continue fulfilling our mission while protecting our staff and community. Our senior leaders and Crisis Management Team (CMT), consisting of representatives from across the company, are meeting regularly, closely monitoring the situation, and providing frequent updates to our Board of Directors, our staff, and FHFA. While more than 95% of our staff continue to work remotely, our CMT has developed a framework focused on returning our staff to the office in a phased approach. The framework is predicated on several external and internal factors and will allow staff to return to the office in an organized manner, while not compromising their health, safety, and well-being. For example, we have implemented a number of measures that include daily temperature checks and required face coverings for all staff on-site. In addition, a number of new protocols have been established to adhere to best practices, including deep cleaning protocols, an upgraded air-filtration system, reduced touch points and foot traffic, and visitor restrictions. A number of facilities, such as cafeterias and fitness centers, will be unavailable in the early stages of re-entry.

Providing Assistance to Homeowners and Supporting the Single-Family Mortgage Market

We remain focused on making sure homeowners with Freddie Mac-owned mortgages who are directly or indirectly affected by the COVID-19 pandemic are able to stay in their homes during this challenging time. We have announced a number of mortgage-relief options for borrowers affected by the COVID-19 pandemic, including providing up to 12 months of mortgage forbearance during which a borrower’s payments are temporarily reduced or suspended. We have also established a foreclosure and eviction moratorium for homeowners with Freddie Mac-owned single-family mortgages, which FHFA recently instructed us to extend until at least August 31, 2020. In addition, we have introduced a number of temporary measures to help provide sellers with the clarity and flexibility to continue to lend in a prudent and responsible manner and to expedite loan closings and help keep homebuyers, sellers, and appraisers safe during the COVID-19 pandemic. We recently extended the

Freddie Mac 2Q 2020 Form 10-Q 1

Management's Discussion and Analysis Introduction

application date window for these measures to August 31, 2020 and also expanded certain of these measures.

As of June 30, 2020, 3.75% of loans in our single-family credit guarantee portfolio, based on loan count, were delinquent and in forbearance. All information included in this Form 10-Q related to single-family loans in forbearance is based on information reported to us by our servicers. For the purpose of reporting delinquency rates, we report single-family loans in forbearance as delinquent during the forbearance period to the extent that payments are past due based on the loan's original contractual terms, irrespective of the forbearance agreement. Single-family servicers are not required to report forbearance information to us if the borrower continues to make payments during the forbearance period and remains in current status. As a result, our forbearance data is limited to loans in forbearance that are past due based on the loan’s original contractual terms and does not include loans that are in forbearance where borrowers have continued to make payments during the forbearance period and remain in current status. For this reason, our reported forbearance rates may be lower than single-family forbearance rates reported by other industry participants, which generally report forbearance rates that include all loans in forbearance, including loans where the borrower has continued to make payments during the forbearance period and remain in current status. Effective October 1, 2020, we are requiring servicers to report to us all alternatives to foreclosure, which include forbearance plans on all mortgages, including those that are not delinquent. For additional information on our support of the single-family mortgage market during the COVID-19 pandemic, see MD&A - Risk Management - Credit Risk - Single-Family Mortgage Credit Risk.

Providing Assistance to Renters and Multifamily Borrowers and Supporting the Multifamily Mortgage Market

We have also provided support to the multifamily mortgage market, including by offering multifamily borrowers mortgage forbearance with the condition that they suspend all evictions during the forbearance period for renters unable to pay rent. Under our forbearance program, multifamily borrowers with a fully performing loan as of February 1, 2020 can defer their loan payments for up to 90 days by showing hardship as a consequence of the COVID-19 pandemic and by gaining lender approval. In June 2020, in coordination with FHFA, we announced several supplemental forbearance relief options to assist borrowers with a forbearance plan in place and who continue to be materially affected by the COVID-19 pandemic. These supplemental relief options extend most of the original tenant protections and provide increased flexibility to tenants, allowing the repayment of past due rent over time and not in a lump sum.

As of June 30, 2020, 2.43% of the loans in our multifamily mortgage portfolio, based on UPB, were in forbearance, approximately 83.5% of which are included in securitizations with credit enhancement provided by subordination. We report multifamily loans in forbearance as current as long as the borrower is in compliance with the forbearance agreement, including the agreed upon repayment plan. Loans in forbearance are therefore not included in our multifamily delinquency rates if the borrower is in compliance with the forbearance agreement. For additional information on our support of the multifamily mortgage market during the COVID-19 pandemic, see MD&A - Risk Management - Credit Risk - Multifamily Mortgage Credit Risk.

Business Outlook

We expect the COVID-19 pandemic to have an adverse effect on our business for the remainder of 2020 and into 2021, and perhaps beyond. The duration and continued severity of the COVID-19 pandemic will determine the extent of the effect on our business. The impact the pandemic has had on the economy is unprecedented, and as a result, our economic and business forecasts are more uncertain than usual, and there are significant downside risks.

The housing market, however, is one segment of the economy that has shown signs of recovery, with purchase applications increasing significantly since early 2Q 2020 and mortgage interest rates remaining at record lows. We expect the low mortgage rate environment, which led to a significant increase in mortgage refinance activity in the first half of 2020, to continue and result in high levels of mortgage refinance activity during the second half of 2020, before declining in 2021. However, due to the impact of the COVID-19 pandemic, we expect full-year home sales to fall in 2020 and then begin to rebound in 2021. While house prices increased at a solid pace during 1Q 2020, we expect full-year house price growth to slow in 2020 and 2021.

We also anticipate that supply and demand in the multifamily housing market will be affected over the next year or two due to the COVID-19 pandemic, which could flow through to multifamily fundamentals. The lack of ability to move and form new households, as well as economic uncertainty for renter households, will make it difficult to fill vacancies. As people sheltered in place, the number of lease renewals increased, partially offsetting the lack of new tenants moving in. We expect new completions to slow due to the COVID-19 pandemic, which should limit new supply. The multifamily sector entered the COVID-19 pandemic on solid ground, with below historical average vacancy rates and above average rent growth. The higher unemployment rate resulting from the COVID-19 pandemic will cause some renters to face financial hardships. Federal interventions from enhanced unemployment benefits and other forms of direct relief for the multifamily mortgage market helped lessen the impact of the COVID-19 pandemic on the multifamily sector in 2Q 2020. Many of those benefits are set to expire by the end of July, and without additional support, and if the unemployment rate remains elevated, there could be a greater impact to the multifamily sector in future periods. Multifamily delinquency rates could increase in the near term due to the effects of the COVID-19 pandemic. However, we currently do not expect to experience significant credit losses given our risk transfer business model. For additional information on market and macroeconomic indicators that can affect our business and financial results, see Market Conditions and Economic Indicators.

Freddie Mac 2Q 2020 Form 10-Q 2

Management's Discussion and Analysis Introduction

Our allowance for credit losses increased significantly during YTD 2020, and we expect single-family serious delinquency rates and the volume of loss mitigation activity to remain elevated as a result of the COVID-19 pandemic and the forbearance programs we have announced. While we expect that the actions we have taken to support the mortgage markets as a result of the COVID-19 pandemic will improve borrower outcomes, these actions may not be as successful as we hope. In addition, we expect these actions may continue to negatively affect our financial condition and results of operations, perhaps significantly. The ultimate success of these programs will depend on the duration and severity of the economic downturn. In addition, our counterparty credit risk level has increased, particularly with respect to non-depository institutions and credit enhancement providers, as a result of financial strains and liquidity pressures on our counterparties due to the COVID-19 pandemic. For additional information, see MD&A - Risk Management - Credit Risk.

While we continued to successfully transfer multifamily credit risk throughout 2Q 2020, our single-family CRT issuance amounts declined significantly during 2Q 2020 due to the volatility in the CRT markets driven by the impact of the COVID-19 pandemic. However, single-family CRT markets recovered substantially by the end of 2Q 2020 and demonstrated an ability to support new issuances, and we successfully executed new single-family CRT offerings in early 3Q 2020. While CRT remains a critical component of our business strategy, and we intend to continue to pursue our existing CRT strategies under the current capital framework, it is uncertain if there will be adequate demand for our single-family CRT transactions during the COVID-19 pandemic and shortly thereafter based on its potential effect on mortgage performance.

Our debt funding needs may increase as we expect to advance significant amounts to cover principal and interest payments to security holders for loans in forbearance and to purchase delinquent loans from securities after borrowers exit forbearance plans. Therefore, our less liquid assets in our mortgage-related investments portfolio are likely to increase in future periods.

Business Results

Consolidated Financial Results

Net Revenues, Net Income, and Comprehensive Income

n Comprehensive income was $1.9 billion for 2Q 2020, an increase of $0.1 billion, or 6%, from 2Q 2019, driven by higher net revenues, partially offset by higher expected credit losses due to the COVID-19 pandemic.

n Net revenues increased $0.9 billion compared to 2Q 2019, primarily due to higher guarantee fee income and higher investment gains (losses), net.

Freddie Mac 2Q 2020 Form 10-Q 3

Management's Discussion and Analysis Introduction

Total Equity

n Total equity was $11.4 billion as of June 30, 2020, up from $9.1 billion as of December 31, 2019.

n Pursuant to the September 2019 Letter Agreement, the liquidation preference of the senior preferred stock increased from $81.8 billion on March 31, 2020 to $82.2 billion on June 30, 2020 based on the $0.4 billion increase in our Net Worth Amount during 1Q 2020, and will increase to $84.1 billion on September 30, 2020 based on the $1.9 billion increase in our Net Worth Amount during 2Q 2020.

Housing Market Support

Housing Market Support

We support the U.S. housing market by executing our Charter Mission to ensure credit availability for new and refinanced single-family mortgages as well as for rental housing. We provided $253.5 billion in liquidity to the mortgage market in 2Q 2020, which enabled the financing of 1.0 million home purchases, refinancings, or rental units. Single-family refinance activity increased significantly during 2Q 2020, as borrowers took advantage of record low mortgage interest rates. In addition, multifamily new business activity increased during 2Q 2020, due to strong demand for multifamily loan products given the low interest-rate environment.

Freddie Mac 2Q 2020 Form 10-Q 4

Management's Discussion and Analysis Introduction

Portfolio Balances

Guarantee Portfolio

Investments Portfolio

n Our total guarantee portfolio grew $158 billion, or 7%, from June 30, 2019 to June 30, 2020, driven by a 7% increase in our single-family credit guarantee portfolio and a 13% increase in our multifamily guarantee portfolio.

l The growth in our single-family credit guarantee portfolio continued in 2Q 2020 driven by an increase in U.S. single-family mortgage debt outstanding and a higher GSE share of the total market. Additionally, continued house price appreciation contributed to new business acquisitions having a higher average loan size compared to older vintages that continued to run off.

l The growth in our multifamily guarantee portfolio also continued in 2Q 2020, primarily driven by strong loan purchase and securitization activity attributable to strong demand for multifamily loan products.

n Our total investments portfolio at June 30, 2020 increased compared to June 30, 2019, primarily due to an increase in our other investments portfolio driven by higher near-term cash needs for a higher expected single-family cash loan purchase forecast, coupled with upcoming debt maturities and anticipated calls of other debt. In addition, our custodial trust account balance increased due to higher loan prepayments. In February 2019, FHFA directed us to maintain the mortgage-related investments portfolio at or below $225 billion at all times.

Freddie Mac 2Q 2020 Form 10-Q 5

Management's Discussion and Analysis Introduction

Credit Risk Transfer

Single-Family Credit Guarantee Portfolio with Credit Enhancement

Multifamily Mortgage Portfolio with Credit Enhancement

In addition to transferring interest-rate and liquidity risk to third-party investors through our securitization activities, we have developed innovative CRT programs that distribute mortgage credit risk to third-party investors and have transformed our business model from one where we buy and hold credit risk to one where we buy and transfer a portion of such credit risk. Our programmatic offerings regularly transfer a portion of the credit risk primarily on recently acquired loans, with the percentage of our single-family credit guarantee portfolio and the percentage of our multifamily mortgage portfolio covered by credit enhancements at 54% and 87%, respectively, as of June 30, 2020. For additional information, see COVID-19 Pandemic Response Efforts - Business Outlook. See MD&A - Our Business Segments - Single-Family Guarantee - Products and Activities and MD&A - Our Business Segments - Multifamily - Products and Activities in our 2019 Annual Report for additional information on our credit enhancements.

FHFA Re-Proposed Capital Rule for the Enterprises

On May 20, 2020, FHFA issued a notice of proposed rulemaking for a new Enterprise Regulatory Capital Framework for Freddie Mac and Fannie Mae. This proposed rule is a re-proposal of the Enterprise Capital Rule published by FHFA in July 2018. FHFA is seeking comments on the re-proposed capital rule through August 31, 2020. The re-proposed capital rule, if adopted, would significantly increase our capital requirements and could affect our business strategies, perhaps significantly. For additional information regarding the re-proposed capital rule, see MD&A - Regulation and Supervision - Legislative and Regulatory Developments - FHFA Re-Proposed Capital Rule for the Enterprises.

Conservatorship and Government Support for Our Business

Since September 2008, we have been operating in conservatorship, with FHFA as our Conservator. The conservatorship and related matters significantly affect our management, business activities, financial condition, and results of operations. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what changes may occur to our business model during or following conservatorship, including whether we will continue to exist.

In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury, under which we issued Treasury both senior preferred stock and a warrant to purchase common stock. Our Purchase Agreement with Treasury and the terms of the senior preferred stock also affect our business activities and are critical to keeping us solvent and avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business activities.

Freddie Mac 2Q 2020 Form 10-Q 6

Management's Discussion and Analysis Introduction

Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as, and if declared by the Conservator, acting as successor to the rights, titles, powers, and privileges of 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.

Under the August 2012 amendment to the Purchase Agreement, our cash dividend requirement each quarter is 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 September 2019 Letter Agreement, the Capital Reserve Amount is $20.0 billion. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period, the unpaid amount would be added to the liquidation preference and our applicable Capital Reserve Amount would thereafter be zero. This would not affect our ability to draw funds from Treasury under the Purchase Agreement.

The September 2019 Letter Agreement also provides that the liquidation preference of the senior preferred stock will be increased, at the end of each fiscal quarter, beginning on September 30, 2019, by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until the liquidation preference has increased by $17.0 billion. See Note 2 for more information about our Purchase Agreement with Treasury.

Under the September 2019 Letter Agreement, Freddie Mac and Treasury agreed to negotiate and execute an amendment to the Purchase Agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative reform contained in Treasury's September 2019 Housing Reform Plan. For more information regarding Treasury's Plan, see MD&A - Regulation and Supervision - Legislative and Regulatory Developments - Treasury Housing Reform Plan in our 2019 Annual Report.

Draw Requests From and Dividend Payments to Treasury

At June 30, 2020, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested from Treasury under the Purchase Agreement. In addition, because our Net Worth Amount did not exceed the applicable Capital Reserve Amount of $20.0 billion, we did not declare or pay a dividend to Treasury on the senior preferred stock during the three months ended March 31, 2020 and June 30, 2020. The amount of available funding remaining under the Purchase Agreement was $140.2 billion at June 30, 2020 and will be reduced by any future draws.

The graph below shows our cumulative draw requests from Treasury and cumulative dividend payments to Treasury. The Treasury draw request amounts reflect the total draws requested based on our quarterly net deficits for the periods presented. Draw requests are funded in the quarter subsequent to any net deficit. The dividend payment amounts reflect the total dividend payments made to Treasury as required by the Purchase Agreement for the periods presented. Dividend payments are currently based on the prior quarter's Net Worth Amount. Under the Purchase Agreement, the payment of dividends does not reduce the outstanding liquidation preference of the senior preferred stock. For more information on the conservatorship and government support for our business, see MD&A - Conservatorship and Related Matters and Note 2 in our 2019 Annual Report.

Draw Requests From and Dividend Payments To Treasury

Freddie Mac 2Q 2020 Form 10-Q 7

Management's Discussion and Analysis Market Conditions and Economic Indicators

MARKET CONDITIONS AND ECONOMIC INDICATORS

The following graphs and related discussions present certain market and macroeconomic indicators that can significantly affect our business and financial results.

Interest Rates⁽¹⁾ 

(1) 30-year PMMS interest rates are as of the last week in each quarter. SOFR interest rates are 30-day average rates.

n The 30-year Primary Mortgage Market Survey (PMMS) interest rate is indicative of what a consumer could expect to be offered on a first-lien prime conventional conforming home purchase mortgage with an LTV of 80%. Increases (decreases) in the PMMS rate typically result in decreases (increases) in refinancing activity and originations.

n Changes in the 10-year LIBOR interest rate and other benchmark rates can significantly affect the fair value of our financial instruments. We have elected hedge accounting for certain assets and liabilities in an effort to reduce GAAP earnings variability attributable to changes in benchmark interest rates.

n Changes in the 3-month LIBOR rate affect the interest earned on our short-term investments and interest expense on our short-term funding.

n SOFR is a benchmark rate for secured overnight dollar denominated financing identified by certain banking regulators and market participants as a potential replacement for LIBOR.

n Interest rates continued to decline and remained at or near record lows during 2Q 2020.

Unemployment Rate and Monthly Net New Jobs

Source: U.S. Bureau of Labor Statistics.

n Changes in the national unemployment rate can affect several market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies.

n In response to the COVID-19 pandemic, many state and local governments enacted measures designed to curb the spread of COVID-19 that have severely curtailed economic activity and significantly increased unemployment levels, which may take an extended period of time to recover.

Freddie Mac 2Q 2020 Form 10-Q 8

Management's Discussion and Analysis Market Conditions and Economic Indicators

Single-Family Housing and Mortgage Market Conditions

Sources: National Association of Realtors, U.S. Census Bureau, and Freddie Mac House Price Index.

U.S. Single-Family Mortgage Originations

Source: Inside Mortgage Finance.

n Changes in house prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency rates. As house prices decline, the severity of losses we incur on defaulted loans that we hold or guarantee increases because the amount we can recover from the property securing the loan decreases.

n Single-family house prices increased 1.2% during 2Q 2020, compared to an increase of 2.5% during 2Q 2019. We expect full-year house price growth to slow in 2020 and 2021. The full effect of the COVID-19 pandemic on house prices is uncertain and dependent on the pandemic's economic impact and the pace of economic recovery.

n For full-year 2020, we expect a decline in U.S. single-family home purchase volume, while the low mortgage interest rate environment has led to a significant increase in refinance originations. Freddie Mac's single-family loan purchase volumes generally follow a similar trend.

n U.S. single-family mortgage origination volume increased to $865 billion in 2Q 2020 from $555 billion in 2Q 2019, driven by higher refinance volume as a result of lower average mortgage interest rates in recent quarters.

n We expect the low mortgage rate environment to continue and result in high levels of refinance activity during the second half of 2020, before declining in 2021.

Freddie Mac 2Q 2020 Form 10-Q 9

Management's Discussion and Analysis Market Conditions and Economic Indicators

Multifamily Housing and Mortgage Market Conditions

Source: Reis.

Apartment Completions and Net Absorption

Source: Reis. 2Q 2020 net absorption data is not yet available.

n Completions in 2Q 2020 totaled nearly 24,000 units, one of the lowest levels over the past several years, due to the COVID-19 pandemic slowing construction. Despite low absorptions, the vacancy rate remained unchanged from 1Q 2020 at 4.8% nationally. This rate is below the long-term average vacancy rate of 5.4% dating back to 2000, but it is anticipated to rise as COVID-19 relief programs expire.

n Effective rent (i.e., the average rent paid by the tenant over the term of the lease, adjusted for concessions by the landlord and costs borne by the tenant) decreased by 0.4% in 2Q 2020, the first decline since 2009. Annual rents increased 1.5% but are expected to decline given the weakening macroeconomy and labor market.

n Both supply and demand for rental housing will be affected over the next year or two due to the COVID-19 pandemic, which will flow through to multifamily fundamentals. The lack of ability to move and form new households, as well as economic uncertainty for renter households, will make it difficult to fill vacancies. As people sheltered in place, the number of lease renewals increased, partially offsetting the lack of new tenants moving in. Also, new completions are expected to slow, which should limit new supply.

n The multifamily sector entered the COVID-19 pandemic on solid ground, with below historical average vacancy rates and above average rent growth. The higher unemployment rate will cause some tenants to face financial hardships. Federal interventions from enhanced unemployment benefits and other forms of direct relief helped lessen the impact of the COVID-19 pandemic on the multifamily sector in the second quarter of 2020. However, as many of those benefits are set to expire by the end of July 2020, without additional support, and if the unemployment rate remains elevated, there could be a greater impact to the multifamily sector in future periods.

Freddie Mac 2Q 2020 Form 10-Q 10

Management's Discussion and Analysis Market Conditions and Economic Indicators

Mortgage Debt Outstanding

Single-Family Mortgage Debt Outstanding

Source: Federal Reserve Financial Accounts of the United States of America.

Multifamily Mortgage Debt Outstanding Source: Federal Reserve Financial Accounts of the United States of America. 2Q 2020 U.S. multifamily mortgage debt outstanding data is not yet available.

n During 2Q 2020, the single-family mortgage market grew primarily driven by house price appreciation. However, the length and severity of the economic downturn caused by the COVID-19 pandemic, and its impact on the housing market, is subject to significant uncertainty.

n Up until March 2020, multifamily market fundamentals were driven by a healthy job market, population growth, high propensity to rent among young adults, and rising single-family house prices. Since then, the effects of the COVID-19 pandemic have slowed the economy significantly, which we believe could negatively affect the multifamily mortgage market during the remainder of 2020.

Freddie Mac 2Q 2020 Form 10-Q 11

Management's Discussion and Analysis Market Conditions and Economic Indicators

Delinquency Rates

Source: National Delinquency Survey from the Mortgage Bankers Association. 2Q 2020 total mortgage market rate is not yet available.

Source: Freddie Mac, FDIC Quarterly Banking Profile, Intex Solutions, Inc., and Wells Fargo Securities (Multifamily CMBS market, excluding REOs), American Council of Life Insurers (ACLI). The 2Q 2020 delinquency rates for FDIC insured institutions and ACLI investment bulletin are not yet available.

n Our single-family serious delinquency rates are based on the number of loans in our single-family guarantee portfolio that are past due as reported to us by our servicers.

n We report single-family loans in forbearance as delinquent during the forbearance period to the extent that payments are past due based on the loan's original contractual terms, irrespective of the forbearance agreement.

n Our single-family serious delinquency rate was higher as of June 30, 2020 compared to June 30, 2019 driven by an increase in loans in forbearance due to the COVID-19 pandemic. However, 52% of the seriously delinquent loans at June 30, 2020 were covered by credit enhancements designed to reduce our credit risk exposure.

n We expect our single-family serious delinquency rate to remain elevated as a result of the COVID-19 pandemic and the forbearance programs we are offering in response.

n Our 2Q 2020 multifamily delinquency rate remained low compared to other market participants, ending the quarter at 10 basis points, primarily due to our prior-approval underwriting approach. We report multifamily loans in forbearance as current as long as the borrower is in compliance with the forbearance agreement, including the agreed upon repayment plan. Loans in forbearance are therefore not included in our multifamily delinquency rates if the borrower is in compliance with the forbearance agreement. See Risk Management - Credit Risk - Multifamily Mortgage Credit Risk for additional information on our delinquency and forbearance rates.

n Multifamily delinquency rates could increase in the near term due to the effects of the COVID-19 pandemic. However, we currently do not expect to experience significant credit losses given our risk transfer business model.

Freddie Mac 2Q 2020 Form 10-Q 12

Management's Discussion and Analysis Consolidated Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS

You should read this discussion of our consolidated results of operations in conjunction with our condensed consolidated financial statements and accompanying notes.

On January 1, 2020, we adopted CECL, which changed our methodology for accounting for credit losses on financial assets measured at amortized cost, off-balance sheet credit exposures, and investments in debt securities classified as available-for-sale. See Note 1 for additional information on our adoption of CECL. See Note 4, Note 5, Note 6, and Note 7 for additional information on the changes in our significant accounting policies as a result of our adoption of CECL.

The table below compares our summarized consolidated results of operations. Certain prior period amounts have been revised to conform to the current period presentation. See Note 1 in our 2019 Annual Report for additional information.

Table 1 - Summary of Condensed Consolidated Statements of Comprehensive Income (Loss)

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Net interest income		$2,876			$2,927			($51	)	(2	)%		$5,661			$6,080			($419	)	(7	)%
Guarantee fee income	469			280			189			68		846			570			276			48
Investment gains (losses), net	670			(138		)	808			586		(165		)	(651		)	486			75
Other income (loss)	134			143			(9		)	(6	)	229			126			103			82
Net revenues	4,149			3,212			937			29		6,571			6,125			446			7
Benefit (provision) for credit losses	(705		)	160			(865		)	(541	)	(1,938		)	295			(2,233		)	(757	)
Credit enhancement expense	(233		)	(177		)	(56		)	(32	)	(464		)	(339		)	(125		)	(37	)
Expected credit enhancement recoveries	221			38			183			482		688			42			646			1,538
REO operations expense	(14		)	(81		)	67			83		(99		)	(114		)	15			13
Credit-related expense	(731		)	(60		)	(671		)	(1,118	)	(1,813		)	(116		)	(1,697		)	(1,463	)
Administrative expense	(601		)	(619		)	18			3		(1,188		)	(1,197		)	9			1
Temporary Payroll Tax Cut Continuation Act of 2011 expense	(442		)	(399		)	(43		)	(11	)	(874		)	(789		)	(85		)	(11	)
Other expense	(140		)	(236		)	96			41		(243		)	(360		)	117			33
Operating expense	(1,183		)	(1,254		)	71			6		(2,305		)	(2,346		)	41			2
Income (loss) before income tax (expense) benefit	2,235			1,898			337			18		2,453			3,663			(1,210		)	(33	)
Income tax (expense) benefit	(458		)	(392		)	(66		)	(17	)	(503		)	(750		)	247			33
Net income (loss)	1,777			1,506			271			18		1,950			2,913			(963		)	(33	)
Total other comprehensive income (loss), net of taxes and reclassification adjustments	161			320			(159		)	(50	)	610			578			32			6
Comprehensive income (loss)		$1,938			$1,826			$112		6	%		$2,560			$3,491			($931	)	(27	)%

Freddie Mac 2Q 2020 Form 10-Q 13

Management's Discussion and Analysis Consolidated Results of Operations

Net Revenues

Net Interest Income

The table below presents the components of net interest income.

Table 2 - Components of Net Interest Income

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Guarantee portfolio net interest income:
Contractual net interest income		$1,054			$904			$150		17	%		$2,179			$1,808			$371		21	%
Net interest income related to the Temporary Payroll Tax Cut Continuation Act of 2011	454			389			65			17		883			767			116			15
Amortization	748			475			273			57		1,300			957			343			36
Total guarantee portfolio net interest income	2,256			1,768			488			28		4,362			3,532			830			23
Investments portfolio net interest income:
Contractual net interest income	1,460			1,603			(143		)	(9	)	2,893			3,139			(246		)	(8	)
Amortization	(178		)	(142		)	(36		)	(25	)	(342		)	(270		)	(72		)	(27	)
Interest expense related to CRT debt	(187		)	(289		)	102			35		(427		)	(576		)	149			26
Total investments portfolio net interest income	1,095			1,172			(77		)	(7	)	2,124			2,293			(169		)	(7	)
Income (expense) from hedge accounting	(475		)	(13		)	(462		)	(3,554	)	(825		)	255			(1,080		)	(424	)
Net interest income		$2,876			$2,927			($51	)	(2	)%		$5,661			$6,080			($419	)	(7	)%

Key Drivers:

n Guarantee portfolio contractual net interest income

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increased primarily due to a higher contractual guarantee fee rate coupled with the continued growth of the core single-family loan portfolio.

n Guarantee portfolio amortization

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increased primarily due to income from upfront fees due to an increase in the liquidation rate, partially offset by higher loan premium amortization.

n Investments portfolio contractual net interest income

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Decreased primarily due to the lower interest rate environment, coupled with a change in our investment mix as the other investments portfolio represented a larger percentage of our total investments portfolio.

n Investments portfolio amortization

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Expense increased primarily due to the change in our investment mix as the other investments portfolio represented a larger percentage of our total investments portfolio.

n Interest expense related to CRT debt

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Decreased primarily due to a decline in volume as we no longer issue STACR debt notes on a regular basis.

n Income (expense) from hedge accounting

l 2Q 2020 vs. 2Q 2019 - Expense increased primarily due to amortization of hedge accounting related basis adjustments, partially offset by a favorable earnings mismatch and higher income related to accruals of periodic cash settlements on derivatives in hedging relationships.

l YTD 2020 vs. YTD 2019 - Shifted to expense primarily due to amortization of hedge accounting related basis adjustments and an unfavorable earnings mismatch, partially offset by higher income related to accruals of periodic cash settlements on derivatives in hedging relationships.

Freddie Mac 2Q 2020 Form 10-Q 14

Management's Discussion and Analysis Consolidated Results of Operations

Net Interest Yield Analysis

The tables below present an analysis of interest-earning assets and interest-bearing liabilities.

Table 3 - Analysis of Net Interest Yield

	2Q 2020								2Q 2019
(Dollars in millions)	Average Balance			Interest Income (Expense)			Average Rate		Average Balance			Interest Income (Expense)			Average Rate
Interest-earning assets:
Cash and cash equivalents		$18,656			$3		0.06	%		$8,406			$46		2.16	%
Securities purchased under agreements to resell	95,243			30			0.13		55,731			350			2.52
Secured lending	4,574			20			1.83		2,325			24			4.09
Mortgage-related securities:
Mortgage-related securities	115,903			1,225			4.23		133,551			1,472			4.41
Extinguishment of debt securities of consolidated trusts held by Freddie Mac	(72,835		)	(672		)	(3.69	)	(87,156		)	(909		)	(4.17	)
Total mortgage-related securities, net	43,068			553			5.14		46,395			563			4.85
Non-mortgage-related securities	31,632			84			1.05		20,928			121			2.31
Loans held by consolidated trusts(1)	1,992,498			14,260			2.86		1,868,648			16,377			3.51
Loans held by Freddie Mac(1)	88,112			766			3.48		86,716			981			4.53
Total interest-earning assets	2,273,783			15,716			2.76		2,089,149			18,462			3.53
Interest-bearing liabilities:
Debt securities of consolidated trusts including those held by Freddie Mac	2,024,487			(12,647		)	(2.50	)	1,894,064			(14,605		)	(3.08	)
Extinguishment of debt securities of consolidated trusts held by Freddie Mac	(72,836		)	672			3.69		(87,156		)	909			4.17
Total debt securities of consolidated trusts held by third parties	1,951,651			(11,975		)	(2.45	)	1,806,908			(13,696		)	(3.03	)
Other debt:
Short-term debt	101,989			(130		)	(0.51	)	78,057			(484		)	(2.46	)
Long-term debt	195,573			(735		)	(1.50	)	198,009			(1,355		)	(2.73	)
Total other debt	297,562			(865		)	(1.16	)	276,066			(1,839		)	(2.65	)
Total interest-bearing liabilities	2,249,213			(12,840		)	(2.28	)	2,082,974			(15,535		)	(2.98	)
Impact of net non-interest-bearing funding	24,570			—			0.02		6,175			—			0.01
Total funding of interest-earning assets	2,273,783			(12,840		)	(2.26	)	2,089,149			(15,535		)	(2.97	)
Net interest income/yield					$2,876		0.50	%					$2,927		0.56	%

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $1.2 billion and $749 million for loans held by consolidated trusts and $20 million and $23 million for loans held by Freddie Mac during 2Q 2020 and 2Q 2019, respectively.

Freddie Mac 2Q 2020 Form 10-Q 15

Management's Discussion and Analysis Consolidated Results of Operations

	YTD 2020								YTD 2019
(Dollars in millions)	Average Balance			Interest Income (Expense)			Average Rate		Average Balance			Interest Income (Expense)			Average Rate
Interest-earning assets:
Cash and cash equivalents		$15,444			$24		0.31	%		$7,756			$84		2.15	%
Securities purchased under agreements to resell	83,767			291			0.69		51,478			647			2.51
Secured lending	4,127			46			2.22		1,946			40			4.09
Mortgage-related securities:
Mortgage-related securities	123,312			2,583			4.19		133,738			2,933			4.39
Extinguishment of debt securities of consolidated trusts held by Freddie Mac	(79,278		)	(1,501		)	(3.79	)	(85,933		)	(1,804		)	(4.20	)
Total mortgage-related securities, net	44,034			1,082			4.92		47,805			1,129			4.72
Non-mortgage-related securities	30,124			207			1.37		20,168			244			2.42
Loans held by consolidated trusts(1)	1,978,555			30,117			3.04		1,858,254			33,354			3.59
Loans held by Freddie Mac(1)	83,259			1,541			3.70		87,934			1,950			4.44
Total interest-earning assets	2,239,310			33,308			2.97		2,075,341			37,448			3.61
Interest-bearing liabilities:
Debt securities of consolidated trusts including those held by Freddie Mac	2,005,837			(26,923		)	(2.68	)	1,882,956			(29,481		)	(3.13	)
Extinguishment of debt securities of consolidated trusts held by Freddie Mac	(79,278		)	1,501			3.79		(85,933		)	1,804			4.20
Total debt securities of consolidated trusts held by third parties	1,926,559			(25,422		)	(2.64	)	1,797,023			(27,677		)	(3.08	)
Other debt:
Short-term debt	110,605			(560		)	(1.00	)	74,125			(920		)	(2.47	)
Long-term debt	183,022			(1,665		)	(1.81	)	198,973			(2,771		)	(2.78	)
Total other debt	293,627			(2,225		)	(1.51	)	273,098			(3,691		)	(2.70	)
Total interest-bearing liabilities	2,220,186			(27,647		)	(2.49	)	2,070,121			(31,368		)	(3.03	)
Impact of net non-interest-bearing funding	19,124			—			0.02		5,220			—			0.01
Total funding of interest-earning assets	2,239,310			(27,647		)	(2.47	)	2,075,341			(31,368		)	(3.02	)
Net interest income/yield					$5,661		0.50	%					$6,080		0.59	%

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $2.0 billion and $1.3 billion for loans held by consolidated trusts and $41 million and $39 million for loans held by Freddie Mac during YTD 2020 and YTD 2019, respectively.

Guarantee Fee Income

The table below presents the components of guarantee fee income.

Table 4 - Components of Guarantee Fee Income

							Change										Change
(Dollars in millions)	2Q 2020			2Q 2019			$		%		YTD 2020			YTD 2019			$		%
Contractual guarantee fees		$245			$222			$23	10	%		$485			$439			$46	10	%
Guarantee obligation amortization	254			195			59		30		474			387			87		22
Guarantee asset fair value changes	(30		)	(137		)	107		78		(113		)	(256		)	143		56
Guarantee fee income		$469			$280			$189	68	%		$846			$570			$276	48	%

Key Drivers:

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increased primarily driven by lower fair value losses on our multifamily guarantee asset coupled with continued growth in our multifamily guarantee portfolio.

Freddie Mac 2Q 2020 Form 10-Q 16

Management's Discussion and Analysis Consolidated Results of Operations

Investment Gains (Losses), Net

The table below presents the components of investment gains (losses), net.

Table 5 - Components of Investment Gains (Losses), Net

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Mortgage loans gains (losses)		$1,046			$1,544			($498	)	(32	)%		$2,218			$2,478			($260	)	(10	)%
Investment securities gains (losses)	65			358			(293		)	(82	)	1,120			502			618			123
Debt gains (losses)	60			49			11			22		760			64			696			1,088
Derivative gains (losses)	(501		)	(2,089		)	1,588			76		(4,263		)	(3,695		)	(568		)	(15	)
Investment gains (losses), net		$670			($138	)		$808		586	%		($165	)		($651	)		$486		75	%

Mortgage Loans Gains (Losses)

The table below presents the components of mortgage loans gains (losses).

Table 6 - Components of Mortgage Loans Gains (Losses)

					Change									Change
(Dollars in millions)	2Q 2020		2Q 2019		$			%		YTD 2020		YTD 2019		$			%
Gains (losses) on certain multifamily loan purchase commitments		$650		$613		$37		6	%		$1,182		$1,003		$179		18	%
Gains (losses) on mortgage loans:
Single-family	103		453		(350		)	(77	)	81		656		(575		)	(88	)
Multifamily	293		478		(185		)	(39	)	955		819		136			17
Total gains (losses) on mortgage loans	396		931		(535		)	(57	)	1,036		1,475		(439		)	(30	)
Mortgage loans gains (losses)		$1,046		$1,544		($498	)	(32	)%		$2,218		$2,478		($260	)	(10	)%

Key Drivers:

n 2Q 2020 vs. 2Q 2019 - Decreased primarily due to a lower volume of sales of single-family held-for-sale loans and lower interest rate-related fair value gains, partially offset by gains due to higher quoted spreads in our multifamily business resulting in higher margins on new loan commitments, as well as spread tightening on multifamily loans and commitments.

n YTD 2020 vs. YTD 2019 - Decreased primarily due to spread widening on multifamily loans and commitments, a lower volume of sales of single-family held-for-sale loans, and lower-of-cost-or-fair-value losses on single-family held-for-sale loans, partially offset by gains due to higher quoted spreads in our multifamily business resulting in higher margins on new loan commitments.

Investment Securities Gains (Losses)

The table below presents the components of investment securities gains (losses).

Table 7 - Components of Investment Securities Gains (Losses)

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Realized gains (losses) on sales of available-for-sale securities		$7			$33			($26	)	(79	)%		$17			$67			($50	)	(75	)%
Realized and unrealized gains (losses) on trading securities	84			358			(274		)	(77	)	1,153			497			656			132
Other	(26		)	(33		)	7			21		(50		)	(62		)	12			19
Investment securities gains (losses)		$65			$358			($293	)	(82	)%		$1,120			$502			$618		123	%

Freddie Mac 2Q 2020 Form 10-Q 17

Management's Discussion and Analysis Consolidated Results of Operations

Key Drivers:

n 2Q 2020 vs. 2Q 2019 - Decreased primarily due to lower gains on trading securities as long-term interest rates declined less in 2Q 2020 compared to 2Q 2019.

n YTD 2020 vs. YTD 2019 - Increased primarily due to higher gains on trading securities from the decline in long-term interest rates as a result of the significant market volatility caused by the COVID-19 pandemic.

Debt Gains (Losses)

The table below presents the components of debt gains (losses).

Table 8 - Components of Debt Gains (Losses)

							Change										Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020		YTD 2019			$		%
Fair value changes:
Debt securities of consolidated trusts		($1	)		($2	)		$1		50	%		$3		($4	)		$7	175	%
Other debt	(69		)	69			(138		)	(200	)	479		67			412		615
Total fair value changes	(70		)	67			(137		)	(204	)	482		63			419		665
Gains (losses) on extinguishment of debt:
Debt securities of consolidated trusts	35			(42		)	77			183		39		(49		)	88		180
Other debt	95			24			71			296		239		50			189		378
Total gains (losses) on extinguishment of debt	130			(18		)	148			822		278		1			277		27,700
Debt gains (losses)		$60			$49			$11		22	%		$760		$64			$696	1,088	%

Key Drivers:

n 2Q 2020 vs. 2Q 2019 - Remained relatively flat as gains on extinguishments of debt were mostly offset by fair value losses as a result of spread tightening on STACR debt notes for which we elected the fair value option.

n YTD 2020 vs. YTD 2019 - Increased primarily due to fair value gains on STACR debt notes for which we elected the fair value option as a result of spread widening caused by the significant market volatility related to the COVID-19 pandemic, coupled with an increase in gains on extinguishments of debt due to an increase in call volume.

Derivative Gains (Losses)

The table below presents the components of derivative gains (losses).

Table 9 - Components of Derivative Gains (Losses)

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Fair value changes:
Interest-rate swaps		$1,000			($1,709	)		$2,709		159	%		($3,863	)		($2,756	)		($1,107	)	(40	)%
Option-based derivatives	(705		)	648			(1,353		)	(209	)	3,517			461			3,056			663
Futures	(120		)	(779		)	659			85		(2,448		)	(1,021		)	(1,427		)	(140	)
Commitments	(396		)	(216		)	(180		)	(83	)	(1,122		)	(312		)	(810		)	(260	)
CRT-related derivatives	43			2			41			2,050		121			1			120			12,000
Other	6			7			(1		)	(14	)	37			28			9			32
Total fair value changes	(172		)	(2,047		)	1,875			92		(3,758		)	(3,599		)	(159		)	(4	)
Accrual of periodic cash settlements	(329		)	(42		)	(287		)	(683	)	(505		)	(96		)	(409		)	(426	)
Derivative gains (losses)		($501	)		($2,089	)		$1,588		76	%		($4,263	)		($3,695	)		($568	)	(15	)%

Key Drivers:

n 2Q 2020 vs. 2Q 2019 - Long-term interest rates declined less in 2Q 2020 compared to 2Q 2019 which resulted in lower fair value losses on pay-fixed interest rate swaps and futures, as well as on certain option-based derivatives, partially offset by lower fair value gains on receive-fixed swaps.

Freddie Mac 2Q 2020 Form 10-Q 18

Management's Discussion and Analysis Consolidated Results of Operations

n YTD 2020 vs. YTD 2019 - The decline in long-term interest rates during YTD 2020 resulted in higher fair value losses on pay-fixed interest rate swaps, forward commitments to issue mortgage-related securities, and futures, partially offset by fair value gains on receive-fixed swaps and certain option-based derivatives. These interest rate-related derivative losses offset the interest rate-related gains on our mortgage loans and investment securities.

Credit-Related Expense

Benefit (Provision) for Credit Losses

Our provision for credit losses relates primarily to single-family loans held-for-investment and can vary substantially from period to period based on a number of factors, such as changes in actual and forecasted house prices and interest rates, borrower prepayments and delinquency rates, events such as natural disasters or pandemics, the type and volume of our loss mitigation and foreclosure activity, government assistance provided to borrowers, and redesignation of loans between held-for-investment and held-for-sale. Our estimate of expected credit losses is particularly sensitive to changes in forecasted house price growth rates, which affect both the probability and severity of expected credit losses, and changes in forecasted interest rates, as lower (higher) interest rates typically result in higher (lower) expected prepayments and a shorter (longer) estimated loan life, and therefore lower (higher) expected credit losses. See Critical Accounting Policies and Estimates for additional information.

The table below presents the components of benefit (provision) for credit losses.

Table 10 - Components of Benefit (Provision) for Credit Losses

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Benefit (provision) for credit losses:
Single-family		($624	)		$161			($785	)	(488	)%		($1,790	)		$297			($2,087	)	(703	)%
Multifamily	(81		)	(1		)	(80		)	(8,000	)	(148		)	(2		)	(146		)	(7,300	)
Benefit (provision) for credit losses		($705	)		$160			($865	)	(541	)%		($1,938	)		$295			($2,233	)	(757	)%

Key Drivers:

n Single-family

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Shifted to a provision primarily due to higher expected credit losses as a result of the negative economic effects of the COVID-19 pandemic. The higher expected credit losses during YTD 2020 were primarily driven by the following factors:

– Expected credit losses related to COVID-19 relief programs - Our provision for credit losses in YTD 2020 required significant management judgment to estimate the impact of COVID-19-related forbearance and relief programs on our expected credit losses. These judgments included estimates of the number of loans that will receive forbearance, the likely exit paths for loans in forbearance, and the number of loans where forbearance will be unsuccessful and the borrower will ultimately default. These factors resulted in a significant increase in our provision for credit losses for YTD 2020, with the majority of the increase occurring in 1Q 2020. In total, we have increased our allowance for credit losses for single-family mortgage loans held-for-investment by $2.1 billion as a result of the forbearance plans related to the COVID-19 pandemic.

– Changes in forecasted house price growth rates - The overall effect of forecasted house price changes on our provision for credit losses for YTD 2020 was relatively minor, with an increase in provision in 1Q 2020 being largely offset by the improvement in 2Q 2020.

– Declines in forecasted interest rates - The effect of the significant declines in mortgage interest rates during YTD 2020 partially offset the increase in the provision for credit losses as a result of the COVID-19 pandemic.

n Multifamily

l 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increase in provision due to higher expected credit losses as a result of the negative economic effects of the COVID-19 pandemic.

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. See MD&A - Risk Management - Credit Risk for additional information.

Freddie Mac 2Q 2020 Form 10-Q 19

Management's Discussion and Analysis Consolidated Results of Operations

Credit Enhancement Expense

Key Drivers:

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increased primarily due to higher outstanding volumes of CRT transactions.

Expected Credit Enhancement Recoveries

Key Drivers:

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Increase in expected recoveries from freestanding credit enhancements as a result of the corresponding increase in expected credit losses due to the COVID-19 pandemic.

Other Comprehensive Income (Loss)

Key Drivers:

n 2Q 2020 vs. 2Q 2019 - Decrease of $0.2 billion primarily driven by lower fair value gains on available-for-sale securities due to a smaller decline in long-term interest rates in 2Q 2020 compared to 2Q 2019.

n YTD 2020 vs. YTD 2019 - Remained relatively flat.

Freddie Mac 2Q 2020 Form 10-Q 20

Management's Discussion and Analysis Consolidated Balance Sheets Analysis

CONSOLIDATED BALANCE SHEETS ANALYSIS

The table below compares our summarized condensed consolidated balance sheets.

Beginning January 1, 2020, we elected to 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. Prior period amounts have been reclassified to conform to the current presentation. See Note 1 and Note 10 in this Form 10-Q for additional information.

Table 11 - Summarized Condensed Consolidated Balance Sheets

					Change
(Dollars in millions)	June 30, 2020		December 31, 2019		$			%
Assets:
Cash and cash equivalents		$7,605		$5,189		$2,416		47	%
Securities purchased under agreements to resell	100,525		56,271		44,254			79
Subtotal	108,130		61,460		46,670			76
Investment securities, at fair value	77,902		75,711		2,191			3
Mortgage loans, net	2,100,640		2,020,200		80,440			4
Accrued interest receivable, net	7,132		6,848		284			4
Derivative assets, net	1,402		844		558			66
Deferred tax assets, net	5,698		5,918		(220		)	(4	)
Other assets	34,751		22,799		11,952			52
Total assets		$2,335,655		$2,193,780		$141,875		6	%
Liabilities and Equity:
Liabilities:
Accrued interest payable		$6,246		$6,559		($313	)	(5	)%
Debt	2,308,301		2,169,685		138,616			6
Derivative liabilities, net	839		372		467			126
Other liabilities	8,827		8,042		785			10
Total liabilities	2,324,213		2,184,658		139,555			6
Total equity	11,442		9,122		2,320			25
Total liabilities and equity		$2,335,655		$2,193,780		$141,875		6	%

Key Drivers:

As of June 30, 2020 compared to December 31, 2019:

n Cash and cash equivalents and securities purchased under agreements to resell increased on a combined basis primarily due to higher near-term cash needs for upcoming debt maturities and anticipated calls of other debt and a higher expected single-family cash loan purchase forecast. In addition, our custodial trust account balance increased due to higher loan prepayments.

n Derivative assets, net and derivative liabilities, net increased primarily due to significant changes in the fair value of forward commitments to purchase and sell mortgage loans and mortgage-related securities.

n Other assets increased primarily due to higher servicer receivables driven by an increase in mortgage loan payoffs reported but not yet remitted at the end of 2Q 2020.

Freddie Mac 2Q 2020 Form 10-Q 21

Management's Discussion and Analysis Our Business Segments | Segment Earnings

OUR BUSINESS SEGMENTS

We have three reportable segments, which are based on the way we manage our business.

n Single-Family Guarantee - Reflects results from our purchase, securitization, and guarantee of single-family loans and the management of single-family mortgage credit risk.

n 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.

n Capital Markets - Reflects results from managing our mortgage-related investments portfolio (excluding Multifamily segment investments, single-family seriously delinquent loans, and the credit risk of single-family performing and reperforming loans), single-family securitization activities, and treasury function, which includes interest-rate risk management for the company.

Certain activities that are not part of a reportable segment, such as material corporate-level activities that are infrequent in nature and based on decisions outside the control of the management of our reportable segments, are included in the All Other category.

Segment Earnings

We present Segment Earnings by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on our GAAP condensed consolidated statements of comprehensive income (loss) and allocating certain revenues and expenses to our three reportable segments. For more information on our segment reclassifications, see Note 13.

Segment Comprehensive Income (Loss)

The graph below shows our comprehensive income (loss) by segment.

(In millions)

Freddie Mac 2Q 2020 Form 10-Q 22

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Single-Family Guarantee

Business Results

The following tables, graphs, and related discussion present the business results of our Single-family Guarantee segment.

New Business Activity

UPB of Single-Family Loan Purchases and Guarantees by Loan Purpose and Average Guarantee Fee Rate ⁽¹⁾ Charged on New Acquisitions

(UPB in billions, guarantee fee in bps)

(1) Guarantee fee excludes legislated 10 basis point increase.

Number of Families Helped to Own a Home

(In thousands)

2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019

n Our loan purchase and guarantee activity increased, primarily due to higher refinance activity driven by the declining average mortgage interest rates in recent quarters.

n The average guarantee fee rate charged on new acquisitions increased, primarily due to an increase in contractual guarantee fees and an enhancement in our estimation methodology related to recognition of buy-up fees in 2Q 2019.

n Home sales fell in 2Q 2020 as a result of the COVID-19 pandemic. The housing market, however, has shown signs of recovery, with purchase applications increasing significantly since early 2Q 2020 and mortgage rates at record lows. The low mortgage rate environment, which led to a significant increase in mortgage refinance activity in the first half of 2020, is expected to continue and result in high levels of mortgage refinance activity for full-year 2020, before declining in 2021. However, due to the impact of the COVID-19 pandemic, we expect full-year home sales to fall in 2020 and then begin to rebound in 2021. While house prices increased at a solid pace during 1Q 2020, full-year house price growth is expected to slow in 2020 and 2021.

Freddie Mac 2Q 2020 Form 10-Q 23

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Single-Family Credit Guarantee Portfolio

Single-Family Credit Guarantee Portfolio Single-Family Loans

(UPB in billions) (Loan count in millions)

n The single-family credit guarantee portfolio increased at an annualized rate of approximately 7% between December 31, 2019 and June 30, 2020, driven by an increase in U.S. single-family mortgage debt outstanding and a higher GSE share of the total market. Additionally, continued house price appreciation contributed to new business acquisitions having a higher average loan size compared to older vintages that continued to run off.

n As we continued to purchase new loans, our core single-family loan portfolio grew to 87% of the single-family credit guarantee portfolio at June 30, 2020, compared to 85% at December 31, 2019. Our legacy and relief refinance single-family loan portfolio, which generally has a lower credit profile, continued to run off, declining to 13% of the single-family credit guarantee portfolio at June 30, 2020, compared to 15% at December 31, 2019.

n The average portfolio Segment Earnings guarantee fee rate was 50 basis points, 39 basis points, 46 basis points, and 37 basis points during 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019, respectively (all excluding the legislated 10 basis point increase in guarantee fees). The rate increased in the 2020 periods due to an increase in the recognition of upfront fees, partially offset by the amortization of hedge accounting related basis adjustments, driven by a higher prepayment rate and an increase in contractual guarantee fees as older vintages were replaced by acquisitions of new loans with higher contractual guarantee fees.

Freddie Mac 2Q 2020 Form 10-Q 24

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

CRT Activities

We transfer credit risk on a portion of our single-family credit guarantee portfolio to the private market, which reduces the risk of future losses to us and taxpayers when borrowers go into default. The graphs below show the issuance amounts associated with CRT transactions for loans in our single-family credit guarantee portfolio.

CRT Issuance Protected UPB CRT Issuance Maximum Coverage

(In billions) (In billions)

n During 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019, 63%, 72%, 66%, and 70% respectively, of our single-family acquisitions were loans in the targeted population for our CRT transactions (primarily 30-year fixed rate loans with LTV ratios between 60% and 97%).

n Our CRT issuance amounts declined significantly during 2Q 2020 due to the volatility in the CRT markets driven by the impact of the COVID-19 pandemic. However, single-family CRT markets recovered substantially by the end of 2Q 2020 and demonstrated an ability to support new issuances, and we successfully executed new single-family CRT offerings in early 3Q 2020. While CRT remains a critical component of our business strategy, and we intend to continue to pursue our existing CRT strategies under the current capital framework, it is uncertain if there will be adequate demand for our single-family CRT transactions during the pandemic and shortly thereafter based on the potential impacts on mortgage performance.

n In May 2020, FHFA released its re-proposed Enterprise Capital Rule for comment. The re-proposed capital rule, if adopted, would significantly change the impact of CRT transactions on our required capital by limiting the capital reduction resulting from such transactions. For additional information, see MD&A - Introduction - COVID-19 Pandemic Response Efforts.

n We are continually evaluating our CRT strategy, and we make changes depending on market conditions, including the significant market volatility caused by the COVID-19 pandemic, and our business strategy. See Risk Management - Single-Family Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors for additional information on our CRT activities and other credit enhancements.

Freddie Mac 2Q 2020 Form 10-Q 25

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Loss Mitigation Activities

We require our servicers to first evaluate seriously delinquent loans for home retention options such as forbearance agreements, repayment plans, and loan modifications. When a seriously delinquent single-family loan cannot be resolved through an economically sensible home retention option, we typically seek to pursue a foreclosure alternative, such as a short sale or a deed in lieu of foreclosure, or sale of the seriously delinquent loan.

The following graph provides details about our completed single-family loan workout activities. The forbearance data below is limited to loans in forbearance that are past due based on the loan’s original contractual terms.

Completed Loan Workout Activity

(UPB in billions, number of loan workouts in thousands)

n Completed loan workout activity includes modifications, successfully completed forbearance plans, successfully completed repayment agreements, short sales, and deeds in lieu of foreclosure. Completed loan workout activity excludes trial period modifications, and forbearance and repayment plans that have been initiated but not completed. There were approximately 4,000 loans in a trial modification period, 426,000 forbearance agreements, and 2,000 repayment plans that have been initiated but not completed as of June 30, 2020.

n Pursuant to FHFA guidance and the CARES Act, we offer mortgage relief options for borrowers affected by the COVID-19 pandemic. Among other things, we are offering forbearance of up to 12 months to single-family borrowers
experiencing a financial hardship, either directly or indirectly, related to COVID-19. We expect the volume of our loss mitigation activities related to the effects of the pandemic to remain elevated over the next several quarters as a result of the actions we take to support the mortgage market. For additional information on our responses to the pandemic, see MD&A - Introduction - COVID-19 Pandemic Response Efforts.

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019 - Our loan workout activity increased significantly primarily driven by the increase in completed forbearance agreements related to the COVID-19 pandemic.

Freddie Mac 2Q 2020 Form 10-Q 26

Management's Discussion and Analysis Our Business Segments | Single-Family Guarantee

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our Single-family Guarantee segment.

Table 12 - Single-Family Guarantee Segment Financial Results

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Guarantee fee income		$2,528			$1,875			$653		35	%		$4,621			$3,510			$1,111		32	%
Investment gains (losses), net	21			256			(235		)	(92	)	458			262			196			75
Other income (loss)	(83		)	58			(141		)	(243	)	(68		)	170			(238		)	(140	)
Net revenues	2,466			2,189			277			13		5,011			3,942			1,069			27
Benefit (provision) for credit losses	(752		)	88			(840		)	(955	)	(1,974		)	159			(2,133		)	(1,342	)
Credit enhancement expense	(399		)	(349		)	(50		)	(14	)	(810		)	(669		)	(141		)	(21	)
Expected credit enhancement recoveries	219			38			181			476		658			42			616			1,467
REO operations expense	(14		)	(86		)	72			84		(101		)	(124		)	23			19
Credit-related expense	(946		)	(309		)	(637		)	(206	)	(2,227		)	(592		)	(1,635		)	(276	)
Administrative expense	(379		)	(400		)	21			5		(751		)	(774		)	23			3
Other expense	(195		)	(277		)	82			30		(346		)	(445		)	99			22
Operating expense	(574		)	(677		)	103			15		(1,097		)	(1,219		)	122			10
Segment Earnings (Losses) before income tax (expense) benefit	946			1,203			(257		)	(21	)	1,687			2,131			(444		)	(21	)
Income tax (expense) benefit	(193		)	(248		)	55			22		(346		)	(436		)	90			21
Segment Earnings (Losses), net of taxes	753			955			(202		)	(21	)	1,341			1,695			(354		)	(21	)
Total other comprehensive income (loss), net of tax	(2		)	(2		)	—			—		(4		)	(6		)	2			33
Total comprehensive income (loss)		$751			$953			($202	)	(21	)%		$1,337			$1,689			($352	)	(21	)%

Key Business Drivers:

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019

l Higher guarantee fee income primarily due to increased upfront fee amortization income, partially offset by the amortization of hedge accounting related basis adjustments, driven by higher prepayments and a higher contractual guarantee fee rate.

l Lower investment gains in 2Q 2020 primarily due to a lower volume of sales of held-for-sale loans. However, investment gains increased during YTD 2020 primarily due to higher gains on STACR debt notes and ACIS, for which we have elected the fair value option, driven by significant widening of market spreads due to the COVID-19 pandemic, partially offset by higher lower-of-cost-or-fair-value losses related to held-for-sale loans.

l Other income (loss) shifted to a loss primarily due to higher non-cash premium/discount amortization expense driven by timing differences between liquidations of the loans and liquidations of the securities backed by these loans.

l Benefit (provision) for credit losses shifted to a provision primarily due to higher expected credit losses as a result of the COVID-19 pandemic.

l Credit enhancement expense increased primarily due to higher outstanding cumulative volumes of CRT transactions.

l Expected credit enhancement recoveries increased primarily due to a corresponding increase in expected credit losses as a result of the COVID-19 pandemic.

Freddie Mac 2Q 2020 Form 10-Q 27

Management's Discussion and Analysis Our Business Segments | Multifamily

Multifamily

Business Results

The graphs, tables, and related discussion below present the business results of our Multifamily segment.

New Business Activity

New Business Activity

(UPB in billions)

n In 3Q 2019, FHFA announced a revised loan purchase cap structure for the multifamily business. The loan purchase cap is $100.0 billion for the five-quarter period from 4Q 2019 through 4Q 2020 and applies to all multifamily business activity, with no exclusions. To ensure a strong focus on affordable housing and traditionally underserved markets, at least 37.5% of the new multifamily business activity must be mission-driven, affordable housing over the same five-quarter period.

l As of June 30, 2020, the total cumulative new business activity counting toward the cap was $47.6 billion. Approximately 40% of this activity was mission-driven, affordable housing.

n New business activity increased in 2Q 2020 compared to 2Q 2019 due to strong demand for multifamily loan products given the low interest-rate environment.

n Outstanding commitments, including index lock commitments and commitments to purchase or guarantee multifamily assets were $18.0 billion and $24.2 billion as of June 30, 2020 and June 30, 2019, respectively. The decline in the outstanding commitment balance was primarily driven by a temporary decline in multifamily acquisition activity due to the initial market uncertainty caused by the pandemic.

n The portion of our new mortgage loan purchase activity that was classified as held-for-sale and intended for our securitization pipeline decreased to 84% in 2Q 2020 from 92% in 2Q 2019. This was due to an increase in the issuance of fully guaranteed securitizations as we continued to refine the disposition path for certain loan products. The purchase activity in 2Q 2020, combined with market demand for our securities, will be a driver for our primary securitizations in the second half of 2020.

Freddie Mac 2Q 2020 Form 10-Q 28

Management's Discussion and Analysis Our Business Segments | Multifamily

Securitization, Guarantee, and Risk Transfer Activities

Securitization and Guarantee Activities

(UPB in billions)

n Total securitization UPB decreased during 2Q 2020 and YTD 2020 compared to 2Q 2019 and YTD 2019, primarily due to a lower held-for-sale loan portfolio available for securitization during the first half of 2020.

n Approximately 86% and 92% of total securitization UPB related to our primary securitizations during 2Q 2020 and 2Q 2019, respectively.

n The average guarantee fee rate on new guarantees increased during YTD 2020 compared to YTD 2019, primarily driven by a higher volume of fully guaranteed securitizations, which typically have higher guarantee fee rates than our primary securitizations with subordination. Additionally, we increased the guarantee fee rate on certain K Certificate securitizations in which we decreased the level of subordination. The lower subordination levels of these securitizations is still expected to absorb the majority of expected and stress credit losses.

n We further reduced our risk exposure through loan sales to whole loan funds of $0.2 billion and $0.5 billion in UPB during 2Q 2020 and 2Q 2019, respectively.

We continually evaluate our risk transfer strategy and make changes depending on market conditions and our business strategy. See Risk Management - Multifamily Mortgage Credit Risk - Transferring Credit Risk to Third-Party Investors for more information on risk transfer transactions and credit enhancements on our multifamily mortgage portfolio.

Freddie Mac 2Q 2020 Form 10-Q 29

Management's Discussion and Analysis Our Business Segments | Multifamily

Multifamily Portfolio and Market Support

The following table summarizes our multifamily portfolio and our support of the multifamily market by UPB.

Table 13 - Multifamily Portfolio and Market Support

(Dollars in millions)	June 30, 2020			December 31, 2019
Guarantee portfolio:
Primary securitizations		$247,221			$240,134
Other securitizations	22,182			20,205
Other mortgage-related guarantees	11,149			10,514
Total guarantee portfolio	280,552			270,853
Mortgage-related investments portfolio:
Unsecuritized mortgage loans held-for-sale	21,873			18,954
Unsecuritized mortgage loans held-for-investment	11,039			10,831
Mortgage-related securities(1)	4,797			5,889
Total mortgage-related investments portfolio	37,709			35,674
Other investments(2)	2,829			2,945
Total multifamily portfolio	321,090			309,472
Add: Unguaranteed securities(3)	41,182			40,666
Less: Acquired mortgage-related securities(4)	(4,660		)	(5,709		)
Total multifamily market support		$357,612			$344,429
Total units financed	4,370,534			4,305,480

(1) Includes mortgage-related securities acquired by us from our securitizations.

(2) Includes the carrying value of LIHTC investments and the UPB of non-mortgage loans, including financing provided to whole loan funds.

(3) Reflects the UPB of unguaranteed securities issued as part of our securitizations and amounts related to loans sold to whole loan funds that were not financed by Freddie Mac.

(4) Reflects the UPB of mortgage-related securities that were both issued as part of our securitizations and acquired by us. This UPB must be removed from the mortgage-related securities balance to avoid double-counting the exposure, as it is already reflected within the guarantee portfolio or unguaranteed securities.

n Our total multifamily portfolio increased during 2Q 2020 primarily due to our strong loan purchase and securitization activity. Despite the impact of the COVID-19 pandemic, we expect continued growth in our total portfolio as purchase and securitization activities should outpace run off.

n At June 30, 2020, approximately 74% of our held-for-sale loans were fixed-rate, while the remaining 26% were floating-rate.

n As of June 30, 2020, we had cumulatively transferred the large majority of expected and stress credit risk on the multifamily guarantee portfolio primarily through subordination in our securitizations. In addition, nearly all of our securitization activities shifted substantially all of the interest-rate and liquidity risk associated with the underlying collateral away from Freddie Mac to third-party investors.

n We earn guarantee fees in exchange for providing our guarantee of some or all of the securities we issue as part of our securitizations. The average guarantee fee rate that we earn on our guarantee portfolio was 37 basis points, and the average remaining guarantee term was eight years, as of both June 30, 2020 and December 31, 2019. While we expect to earn future guarantee fees at the average guarantee fee rate over the average remaining guarantee term, the actual amount earned will depend on the performance of the underlying collateral subject to our financial guarantee.

Freddie Mac 2Q 2020 Form 10-Q 30

Management's Discussion and Analysis Our Business Segments | Multifamily

Net Interest Yield

Net Interest Yield & Average Investment Portfolio Balance

(Weighted average balance in billions)

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019

l Net interest yield decreased in 2Q 2020 due to a decrease in prepayment income. Net interest yield increased during YTD 2020 primarily due to lower funding costs and higher yields on interest-only securities.

l The weighted average investment portfolio balance of interest-earning assets was lower during the 2020 periods compared to the 2019 periods due to a decrease in held-for-sale loans and mortgage-related securities.

Freddie Mac 2Q 2020 Form 10-Q 31

Management's Discussion and Analysis Our Business Segments | Multifamily

K Certificate Benchmark Spreads and Unrealized Spread-Related Fair Value Gains (Losses) on Loans and Commitments

Quarterly Ending K Certificate Benchmark Spreads

(In bps)

Unrealized Spread-Related Fair Value Gains (Losses)

(In millions)

n The valuations of held-for-sale loans and loan purchase commitments for which we have elected the fair value option are affected by both changes in the K Certificate benchmark spreads and deal specific attributes. As the K Certificate benchmark spreads change, we recognize fair value gains/(losses), which contribute to our earnings volatility. These fair value adjustments are considered unrealized and subject to further spread movements until the asset is securitized or otherwise disposed of and the fair value changes are realized. Spread tightening generally results in fair value gains, while spread widening generally results in fair value losses.

n K Certificate benchmark spreads tightened during 2Q 2020, resulting in spread-related fair value gains on our held-for-sale loans and commitments and mortgage-related securities.

Freddie Mac 2Q 2020 Form 10-Q 32

Management's Discussion and Analysis Our Business Segments | Multifamily

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our Multifamily segment.

Table 14 - Multifamily Segment Financial Results

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Net interest income		$228			$266			($38	)	(14	)%		$497			$513			($16	)	(3	)%
Guarantee fee income	442			293			149			51		855			580			275			47
Investment gains (losses), net	761			27			734			2,719		(90		)	1			(91		)	(9,100	)
Other income (loss)	51			28			23			82		88			57			31			54
Net revenues	1,482			614			868			141		1,350			1,151			199			17
Credit-related expense	(84		)	(4		)	(80		)	(2,000	)	(127		)	(9		)	(118		)	(1,311	)
Administrative expense	(124		)	(120		)	(4		)	(3	)	(244		)	(232		)	(12		)	(5	)
Other expense	(9		)	(7		)	(2		)	(29	)	(14		)	(13		)	(1		)	(8	)
Operating expense	(133		)	(127		)	(6		)	(5	)	(258		)	(245		)	(13		)	(5	)
Segment Earnings (Losses) before income tax benefit (expense)	1,265			483			782			162		965			897			68			8
Income tax (expense) benefit	(260		)	(100		)	(160		)	(160	)	(198		)	(184		)	(14		)	(8	)
Segment Earnings (Losses), net of taxes	1,005			383			622			162		767			713			54			8
Total other comprehensive income (loss), net of tax	58			57			1			2		122			122			—			—
Total comprehensive income (loss)		$1,063			$440			$623		142	%		$889			$835			$54		6	%

Key Business Drivers:

n 2Q 2020 vs. 2Q 2019

l Decrease in net interest income due to a decline in our weighted average portfolio balance of interest-earning assets and a decline in prepayment income, partially offset by higher yields on interest-only securities.

l Increase in guarantee fee income driven by lower fair value losses on our guarantee asset coupled with continued growth in our multifamily guarantee portfolio.

l Increase in investment gains (net of other comprehensive income) primarily due to higher quoted spreads resulting in higher margins on new loan commitments and fair value gains due to spread tightening.

n YTD 2020 vs. YTD 2019

l Decrease in net interest income due to a decline in our weighted average portfolio balance of interest-earning assets partially offset by higher yields on interest-only securities and lower funding costs.

l Increase in guarantee fee income driven by lower fair value losses on our guarantee asset coupled with continued growth in our multifamily guarantee portfolio.

l Decrease in investment gains (net of other comprehensive income) primarily driven by spread-related fair value losses on our held-for-sale loans and commitments and mortgage-related securities due to spread widening, partially offset by higher quoted spreads resulting in higher margins on new loan commitments.

l Increase in credit-related expense due to higher expected credit losses as a result of the negative economic effects of the COVID-19 pandemic.

Freddie Mac 2Q 2020 Form 10-Q 33

Management's Discussion and Analysis Our Business Segments | Capital Markets

Capital Markets

Business Results

The graphs and related discussion below present the business results of our Capital Markets segment.

Investing Activity

The following graphs present the Capital Markets segment's total investments portfolio and the composition of its mortgage investments portfolio by liquidity category.

Investments Portfolio

Mortgage Investments Portfolio

n The balance of our mortgage investments portfolio decreased by $21.6 billion from December 31, 2019 to June 30, 2020 primarily due to sales of agency securities to support our significantly higher single-family loan purchase volume. See Conservatorship and Related Matters - Managing Our Mortgage-Related Investments Portfolio for additional details.

n The balance of our other investments portfolio increased by 51.9% due to higher near-term cash needs as of June 30, 2020 compared to December 31, 2019 primarily due to a higher expected single-family cash loan purchase forecast, coupled with upcoming debt maturities and anticipated calls of other debt. In addition, our custodial trust account balance increased due to higher loan prepayments.

n Our less liquid assets decreased by $2.9 billion from December 31, 2019 to June 30, 2020 primarily due to repayments, sales, and securitizations. Our less liquid assets are likely to increase in future periods as we will likely purchase a higher amount of delinquent and modified loans from securities after borrowers exit forbearance plans.

n We continue to participate in transactions that support the development of SOFR as an alternative rate to LIBOR. These transactions may include investment in and issuance of SOFR indexed floating-rate debt securities and securitizations and execution of SOFR indexed derivatives. We plan to cease purchasing LIBOR indexed floating-rate loans by the end of 2020 and will begin to phase out the issuance of LIBOR indexed floating-rate securitizations starting in 4Q 2020.

Freddie Mac 2Q 2020 Form 10-Q 34

Management's Discussion and Analysis Our Business Segments | Capital Markets

Net Interest Yield and Average Balances

Net Interest Yield & Average Investments Portfolio Balances

(Weighted average balance in billions)

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019

l Net interest yield decreased 95 basis points and 73 basis points in 2Q 2020 compared to 2Q 2019 and YTD 2020 compared to YTD 2019, respectively, primarily due to higher liquidation rates resulting in an increase in amortization expense and additional expense due to payments to security holders of the full monthly coupon rate when loans pay off mid-month. In addition, our custodial trust account balance increased due to higher prepayments and earned a minimal yield due to historically low interest rates.

l Net interest yield for the Capital Markets segment is not affected by our hedge accounting programs due to reclassifications made for Segment Earnings. See Note 13 in our 2019 Annual Report for more information.

Freddie Mac 2Q 2020 Form 10-Q 35

Management's Discussion and Analysis Our Business Segments | Capital Markets

Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our Capital Markets segment.

Table 15 - Capital Markets Segment Financial Results

							Change											Change
(Dollars in millions)	2Q 2020			2Q 2019			$			%		YTD 2020			YTD 2019			$			%
Net interest income		$152			$747			($595	)	(80	)%		$661			$1,505			($844	)	(56	)%
Investment gains (losses), net	206			(259		)	465			180		(221		)	(295		)	74			25
Other income (loss)	(234		)	(172		)	(62		)	(36	)	(435		)	(378		)	(57		)	(15	)
Net revenues	124			316			(192		)	(61	)	5			832			(827		)	(99	)
Administrative expense	(98		)	(99		)	1			1		(193		)	(191		)	(2		)	(1	)
Other expense	(2		)	(5		)	3			60		(11		)	(6		)	(5		)	(83	)
Operating expense	(100		)	(104		)	4			4		(204		)	(197		)	(7		)	(4	)
Segment Earnings (Losses) before income tax (expense) benefit	24			212			(188		)	(89	)	(199		)	635			(834		)	(131	)
Income tax (expense) benefit	(5		)	(44		)	39			89		41			(130		)	171			132
Segment Earnings (Losses), net of taxes	19			168			(149		)	(89	)	(158		)	505			(663		)	(131	)
Total other comprehensive income (loss), net of tax	105			265			(160		)	(60	)	492			462			30			6
Total comprehensive income (loss)		$124			$433			($309	)	(71	)%		$334			$967			($633	)	(65	)%

The portion of total comprehensive income (loss) driven by interest rate-related and market spread-related fair value changes, after-tax, is presented in the table below. These amounts affect various line items in the table above, including investment gains (losses), net, income tax expense, and total other comprehensive income (loss), net of tax.

Table 16 - Capital Markets Segment Interest Rate-Related and Market Spread-Related Fair Value Changes, Net of Tax

						Change										Change
(Dollars in billions)	2Q 2020		2Q 2019			$		%		YTD 2020			YTD 2019			$			%
Interest rate-related		$0.2		($0.2	)		$0.4	200	%		$0.5			($0.1	)		$0.6		600	%
Market spread-related	0.2		0.1			0.1		100		(0.1		)	0.1			(0.2		)	(200	)

Key Drivers:

n 2Q 2020 vs. 2Q 2019 and YTD 2020 vs. YTD 2019    

l Net interest income decreased primarily due to higher liquidation rates resulting in an increase in amortization expense and additional expense due to payments to security holders of the full monthly coupon rate when loans pay off mid-month. In addition, our custodial trust account balance increased due to higher prepayments and earned a minimal yield due to historically low interest rates.

l Increase in investment gains (losses), net primarily due to interest rate-related fair value gains coupled with active management of our debt funding costs as long-term interest rates further declined during the 2020 periods as a result of market volatility caused by the COVID-19 pandemic. The decrease in long-term interest rates resulted in fair value gains on many of our investments in securities (some of which are recorded in other comprehensive income) partially offset by derivative losses and amortization expense from previously deferred fair value hedge accounting basis adjustments related to hedging company-wide interest-rate risk. See Risk Management - Market Risk for additional information on the effect of market-related items on our comprehensive income.

Freddie Mac 2Q 2020 Form 10-Q 36

Management's Discussion and Analysis Risk Management

RISK MANAGEMENT

Risk is an inherent part of our business activities. We are exposed to the following key types of risk: credit risk, operational risk, market risk, liquidity risk, strategic risk, and reputation risk.

For more discussion of these and other risks facing our business and our enterprise risk framework, see MD&A - Liquidity and Capital Resources in this Form 10-Q, Other Information - Risk Factors in our Form 10-Q for the quarter ended March 31, 2020, and Risk Factors, MD&A - Risk Management, and MD&A - Liquidity and Capital Resources in our 2019 Annual Report. See below for updates since our 2019 Annual Report.

Credit Risk

Overview

Credit risk is the risk associated with the inability or failure of a borrower, issuer, or counterparty to meet its financial and/or contractual obligations. We are exposed to both mortgage credit risk and counterparty credit risk.

Mortgage credit risk is the risk associated with the inability or failure of a borrower to meet its financial and/or contractual obligations. We are exposed to two types of mortgage credit risk:

n Single-family mortgage credit risk, through our ownership or guarantee of loans in the single-family credit guarantee portfolio and

n Multifamily mortgage credit risk, through our ownership or guarantee of loans in the multifamily mortgage portfolio.

On January 1, 2020, we adopted CECL, which changed our methodology for accounting for credit losses on financial assets measured at amortized cost and off-balance sheet credit exposures. See Note 1 for additional information on our adoption of CECL. See Note 4 and Note 5 for additional information on the changes in our significant accounting policies that affect the accounting for credit losses on our single-family and multifamily credit risk exposures as a result of our adoption of CECL.

In the section below, we provide a discussion of the current risk environment for our mortgage credit risk.

Single-Family Mortgage Credit Risk

Maintaining Prudent Underwriting Standards and Quality Control Practices and Managing Seller/Servicer Performance

Loan Purchase Credit Characteristics

The credit quality of our single-family loan purchases remained strong during the 2020 periods by historical standards. We continually monitor and evaluate market conditions that could affect the credit quality of our single-family loan purchases. We have announced temporary changes in our underwriting standards due to the COVID-19 pandemic, which may affect the expected performance of loans purchased while these changes are in effect.

In March and May 2020, we introduced a number of temporary measures to help provide sellers with the clarity and flexibility to continue to lend in a prudent and responsible manner during the COVID-19 pandemic. The application date windows for these measures have been extended to August 31, 2020. These temporary measures include:

n Allowing flexibility in demonstrating a borrower's current employment status or the existence of a borrower's business;

n Establishing underwriting restrictions applicable to a borrower's accounts containing stocks, stock options, and mutual funds due to current market volatility;

n Requiring income and asset documentation, including that associated with self-employed borrowers, to be dated closer to the loan closing date in order to ensure the most up-to-date information is being used to support the borrower's ability to repay;

n Providing additional document requirements and guidance for borrowers whose income is derived from self-employment;

n Requiring mortgages to be sold to Freddie Mac within six months of the note date; and

n Verifying that any mortgage that a borrower has is current or is brought current via reinstatement or by making at least three consecutive timely payments under a loss mitigation program.

In March and April 2020, we announced loan processing flexibilities to expedite loan closings and help keep homebuyers, sellers, and appraisers safe during the COVID-19 pandemic. These flexibilities have also been extended to August 31, 2020. They include:

Freddie Mac 2Q 2020 Form 10-Q 37

Management's Discussion and Analysis Risk Management

n Allowing desktop appraisals or exterior-only inspection appraisals for certain purchase transactions;

n Allowing exterior-only appraisals for certain no cash-out refinances;

n Allowing desktop appraisals on new construction properties (purchase transactions);

n Allowing flexibility on demonstrating that construction has been completed;

n Allowing flexibility for borrowers to provide documentation (rather than requiring an inspection) to allow renovation disbursements (draws);

n Offering flexibility in condominium project reviews; and

n Expanding the use of powers of attorney and remote online notarizations.

Additionally, we announced in April 2020 that we would temporarily purchase certain single-family mortgage loans that have entered into forbearance as a result of borrower hardship caused by the COVID-19 pandemic to help provide liquidity to the mortgage market and allow originators to keep lending. The purchases of such loans have been insignificant. For additional information on these temporary changes, see MD&A - Introduction - COVID-19 Pandemic Response Efforts.

The graphs below show the credit profile of the single-family loans we purchased or guaranteed.

Weighted Average Original LTV Ratio

Weighted Average Original Credit Score ⁽¹⁾ 

(1) Original credit score is based on three credit bureaus (Equifax, Experian, and xxxTransUnion).

The table below contains additional information about the single-family loans we purchased or guaranteed.

Table 17 - Single-Family New Business Activity

	2Q 2020				2Q 2019				YTD 2020				YTD 2019
(Dollars in millions)	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
30-year or more amortizing fixed-rate		$182,193	78	%		$89,915	88	%		$296,444	80	%		$151,093	88	%
20-year amortizing fixed-rate	11,328		5		2,442		2		17,425		5		3,883		2
15-year amortizing fixed-rate	36,371		16		7,977		8		53,771		14		13,577		8
Adjustable-rate	1,932		1		1,713		2		2,581		1		3,530		2
FHA/VA and other governmental	46		—		29		—		75		—		54		—
Total		$231,870	100	%		$102,076	100	%		$370,296	100	%		$172,137	100	%
Percentage of purchases
DTI ratio > 45%			10	%			14	%			12	%			15	%
Property type:
Detached single-family houses			63				59				63				59
Townhouse			30				32				30				32
Condominium or co-op			7				9				7				9
Occupancy type:
Primary residence			94				91				93				91
Second home			3				4				3				4
Investment property			3				5				4				5
Loan purpose:
Purchase			26				64				31				64
Cash-out refinance			18				18				19				19
Other refinance			56				18				50				17

Freddie Mac 2Q 2020 Form 10-Q 38

Management's Discussion and Analysis Risk Management

Transferring Credit Risk to Third-Party Investors

To reduce our credit risk exposure, we engage in various credit enhancement arrangements, which include CRT transactions and other credit enhancements.

Single-Family Credit Guarantee Portfolio CRT Issuance

The tables below provide the issuance amounts during the applicable periods, including the protected UPB and maximum coverage by loss position, associated with CRT transactions for loans in our single-family credit guarantee portfolio. We have enhanced our methodology to identify UPB with more than one type of CRT activity and, as a result, certain prior period amounts have been revised to conform to the current period presentation. The COVID-19 pandemic has caused significant volatility in the single-family CRT markets. As a result, our CRT issuance amounts declined significantly during 2Q 2020. See MD&A - Introduction - COVID-19 Pandemic Response Efforts - Business Outlook for additional information.

Table 18 - Single-Family Credit Guarantee Portfolio CRT Issuance

	Issuance 2Q 2020												Issuance 2Q 2019
	Protected UPB(1)			Maximum Coverage(2)									Protected UPB(1)			Maximum Coverage(2)
(In millions)	Total			First Loss(3)			Mezzanine			Total			Total			First Loss(3)			Mezzanine			Total
STACR		$17,682			$174			$404			$578			$25,286			$419			$617			$1,036
Insurance/reinsurance	35,439			140			236			376			45,413			245			427			672
Subordination	—			—			—			—			3,105			220			303			523
Lender risk-sharing	246			188			—			188			7,858			211			241			452
Less: UPB with more than one type of CRT activity	(52,748		)	(174		)	(404		)	(578		)	(39,986		)	—			—			—
Total CRT Activities		$619			$328			$236			$564			$41,676			$1,095			$1,588			$2,683
	Issuance YTD 2020												Issuance YTD 2019
	Protected UPB(1)			Maximum Coverage(2)									Protected UPB(1)			Maximum Coverage(2)
(In millions)	Total			First Loss(3)			Mezzanine			Total			Total			First Loss(3)			Mezzanine			Total
STACR		$150,253			$1,214			$3,071			$4,285			$100,135			$1,001			$2,277			$3,278
Insurance/reinsurance	133,197			361			869			1,230			110,643			520			1,038			1,558
Subordination	1,688			118			59			177			5,008			335			382			717
Lender risk-sharing	6,453			390			189			579			11,918			211			369			580
Less: UPB with more than one type of CRT activity	(150,253		)	(174		)	(404		)	(578		)	(94,353		)	(60		)	(220		)	(280		)
Total CRT Activities		$141,338			$1,909			$3,784			$5,693			$133,351			$2,007			$3,846			$5,853

(1) For STACR and certain insurance/reinsurance transactions (e.g., ACIS), represents the UPB of the assets included in the reference pool of the transactions. For other insurance/reinsurance transactions, represents the UPB of the assets covered by the insurance policy. For subordination, represents 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.

(2) For STACR transactions, represents the balance held by third parties at issuance. For insurance/reinsurance transactions, represents the aggregate limit of insurance purchased from third parties at issuance. For subordination, represents the UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.

(3) First loss includes the most subordinate securities (i.e., B tranches) in our STACR Trust notes and their equivalent in ACIS and other CRT transactions.

Freddie Mac 2Q 2020 Form 10-Q 39

Management's Discussion and Analysis Risk Management

Single-Family Credit Guarantee Portfolio Credit Enhancement Coverage Outstanding

The tables below provide information on the total protected UPB and maximum coverage associated with credit enhanced loans in our single-family credit guarantee portfolio as of June 30, 2020 and December 31, 2019.

Table 19 - Single-Family Credit Guarantee Portfolio Credit Enhancement Coverage Outstanding

	Outstanding as of June 30, 2020
	Protected UPB(1)			Percentage of Single-Family Credit Guarantee Portfolio		Maximum Coverage(2)
(Dollars in millions)	Total			Total		First Loss(3)		Mezzanine		Total
Primary mortgage insurance		$426,954		21	%		$108,100		$—		$108,100
STACR	826,699			40		7,084		17,794		24,878
Insurance/reinsurance	843,713			41		2,810		6,757		9,567
Subordination	40,483			2		2,705		2,656		5,361
Lender risk-sharing	11,731			1		5,137		191		5,328
Other	761			—		756		—		756
Less: UPB with multiple CRT and/or other credit enhancements	(1,047,706		)	(51	)	—		—		—
Single-family credit guarantee portfolio with credit enhancement	1,102,635			54		126,592		27,398		153,990
Single-family credit guarantee portfolio without credit enhancement	958,150			46		—		—		—
Total		$2,060,785		100	%		$126,592		$27,398		$153,990

	Outstanding as of December 31, 2019
	Protected UPB(1)			Percentage of Single-Family Credit Guarantee Portfolio		Maximum Coverage(2)
(Dollars in millions)	Total			Total		First Loss(3)		Mezzanine		Total
Primary mortgage insurance		$421,870		21	%		$107,690		$—		$107,690
STACR	824,359			41		5,874		19,238		25,112
Insurance/reinsurance	863,149			43		2,483		7,674		10,157
Subordination	44,941			2		2,608		2,791		5,399
Lender risk-sharing	24,078			1		5,077		580		5,657
Other	1,056			—		1,051		—		1,051
Less: UPB with multiple CRT and/or other credit enhancements	(1,058,402		)	(52	)	—		—		—
Single-family credit guarantee portfolio with credit enhancement	1,121,051			56		124,783		30,283		155,066
Single-family credit guarantee portfolio without credit enhancement	873,398			44		—		—		—
Total		$1,994,449		100	%		$124,783		$30,283		$155,066

(1) For STACR and certain insurance/reinsurance transactions (e.g., ACIS), represents the UPB of the assets included in the reference pool of the transactions. For other insurance/reinsurance transactions, represents the UPB of the assets covered by the insurance policy. For subordination, represents 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.

(2) For STACR transactions, represents the outstanding balance held by third parties. For insurance/reinsurance transactions, represents the remaining aggregate limit of insurance purchased from third parties. For subordination, represents the outstanding UPB of the securities that are subordinate to Freddie Mac guaranteed securities and held by third parties.

(3) First loss includes the most subordinate securities (i.e., B tranches) in our STACR transactions and their equivalent in ACIS and other CRT transactions.

We had outstanding maximum coverage of $154.0 billion and $155.1 billion on our single-family credit guarantee portfolio as of June 30, 2020 and December 31, 2019, respectively. CRT transactions provided 29.3% and 29.8% of the outstanding maximum coverage on those dates.

Freddie Mac 2Q 2020 Form 10-Q 40

Management's Discussion and Analysis Risk Management

Credit Enhancement Coverage Characteristics

The table below provides information on the credit-enhanced and non-credit-enhanced loans in our single-family credit guarantee portfolio. The credit-enhanced categories are not mutually exclusive as a single loan may be covered by both primary mortgage insurance and other credit protection.

Table 20 - Credit-Enhanced and Non-Credit-Enhanced Loans in Our Single-Family Credit Guarantee Portfolio

	June 30, 2020				December 31, 2019
(Percentage of portfolio based on UPB)	% of Portfolio		SDQ Rate		% of Portfolio		SDQ Rate
Credit-enhanced
Primary mortgage insurance	21	%	3.39	%	21	%	0.79	%
Other	44		2.81		55		0.40
Non-credit-enhanced	48		2.16		45		0.70
Total	N/A		2.48		N/A		0.63

The table below provides information on the amount of credit enhancement coverage by year of origination associated with loans in our single-family credit guarantee portfolio.

Table 21 - Credit Enhancement Coverage by Year of Origination

	June 30, 2020				December 31, 2019
(Dollars in millions)	UPB(1)		Percentage of UPB with Credit Enhancement		UPB(1)		Percentage of UPB with Credit Enhancement
Year of Loan Origination
2020		$306,696	24	%	N/A		N/A
2019	377,076		54			$383,003	40	%
2018	167,888		81		221,712		81
2017	199,993		77		242,605		77
2016	242,357		70		277,762		71
2015 and prior	766,347		43		869,043		44
Total		$2,060,357	52			$1,994,125	55

(1) Excludes loans underlying certain securitization products for which loan-level data is not available.

Credit Enhancement Expenses and Recoveries

The recognition of expenses and expected recoveries associated with credit enhancements in our condensed consolidated financial statements depends on the type of credit enhancement. See our 2019 Annual Report for more information. See Note 6 for additional information on our credit enhancements. The table below contains details on the expenses and recoveries associated with our single-family credit enhancements.

Table 22 - Details of Single-Family Credit Enhancement Expenses and Recoveries

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Credit enhancement expenses:(1)
Credit enhancement expense		($230	)		($175	)		($455	)		($332	)
Interest expense related to CRT debt	(182		)	(277		)	(414		)	(552		)
Estimated reinvestment income from proceeds of CRT debt issuance	13			103			59			215
Single-family credit enhancement expenses	(399		)	(349		)	(810		)	(669		)
Single-family expected credit enhancement recoveries	219			38			658			42

(1) Excludes fair value gains and losses on CRT derivatives and CRT debt recorded at fair value. See MD&A - Consolidated Results of Operations for additional information on these items.

Our single-family freestanding credit enhancement expected recovery receivable was $1.0 billion and $0.1 billion as of June 30, 2020 and December 31, 2019, respectively.

Impact of CRT Transactions on Conservatorship Capital

We use FHFA's risk-based CCF guidelines to determine the amount of total conservatorship capital needed for our single-family credit guarantee portfolio. We reduce the amount of conservatorship capital needed for credit risk by shifting the risk of

Freddie Mac 2Q 2020 Form 10-Q 41

Management's Discussion and Analysis Risk Management

credit losses from Freddie Mac to third-party investors through our CRT transactions, primarily our STACR and ACIS transactions. In May 2020, FHFA released its re-proposed Enterprise Capital Rule for comment. The re-proposed capital rule, if adopted, would significantly change the impact of CRT transactions on our required capital by limiting the capital reduction resulting from such transactions and would materially increase the amount of capital required for loans covered by CRT transactions. The table below presents information on the impact of certain CRT transactions on the amount of capital needed for credit risk (conservatorship credit capital) pursuant to the existing CCF in effect during the period presented. For more information on the CCF, see Liquidity and Capital Resources - Capital Resources - Conservatorship Capital Framework.

Table 23 - Reduction in Conservatorship Credit Capital⁽¹⁾ as a Result of Certain CRT Transactions

	June 30, 2020									December 31, 2019
(Dollars in billions)	Single-Family Credit Guarantee Portfolio			Single-Family Credit Guarantee Portfolio - Covered by Certain CRT Transactions			Single-Family Credit Guarantee Portfolio - Other			Single-Family Credit Guarantee Portfolio			Single-Family Credit Guarantee Portfolio - Covered by Certain CRT Transactions			Single-Family Credit Guarantee Portfolio - Other
Conservatorship credit capital prior to CRT(2)		$33.0			$16.3			$16.7			$32.0			$16.1			$15.9
Conservatorship credit capital reduced by CRT(3)	(12.6		)	(12.6		)	—			(11.8		)	(11.8		)	—
Conservatorship credit capital needed after CRT		$20.4			$3.7			$16.7			$20.2			$4.3			$15.9
Reduction in conservatorship credit capital (%)(4)	38.2		%	77.3		%	—		%	36.9		%	73.3		%	—		%
UPB		$2,061			$917			$1,144			$1,994			$945			$1,049
% of portfolio	100		%	44		%	56		%	100		%	47		%	53		%

(1) Conservatorship credit capital figures for each period are based on the CCF in effect during the period. The CCF in effect as of June 30, 2020 was largely unchanged from the CCF as of December 31, 2019. The conservatorship credit capital figures as of June 30, 2020 are preliminary and subject to change until official submission to FHFA. The conservatorship credit capital figures as of December 31, 2019 have been revised to conform to the official submission to FHFA.

(2) Represents the total conservatorship credit capital prior to CRT on the outstanding balance of our single-family credit guarantee portfolio as of June 30, 2020 and December 31, 2019 based on prescribed CCF guidelines.

(3) Represents the amount of conservatorship credit capital released from certain CRT transactions, including STACR, ACIS/AFRM, certain senior subordination securitization structures, and certain lender risk-sharing transactions, based on prescribed CCF guidelines.

(4) Calculated as conservatorship credit capital reduced by CRT divided by conservatorship credit capital prior to CRT.

Monitoring Loan Performance and Characteristics

We review loan performance, including monitoring credit quality characteristics in conjunction with housing market and economic conditions, to assess credit risk when estimating our allowance for credit losses.

Loans in COVID-19 Related Forbearance Plans

Pursuant to FHFA guidance and the CARES Act, we offer mortgage relief options for borrowers affected by the
COVID-19 pandemic. Among other things, we are offering forbearance of up to 12 months to single-family borrowers
experiencing a financial hardship, either directly or indirectly, related to COVID-19. The CARES Act requires our servicers to report to credit bureaus that loans in mortgage relief programs, such as forbearance plans, repayment plans, and loan modification programs, are current as long as the loans were current prior to entering into the mortgage relief programs and the borrowers remain in compliance with the programs. This credit reporting requirement applies to all mortgage relief programs entered into between January 31, 2020 and July 25, 2020.

For the purpose of reporting delinquency rates, we report single-family loans in forbearance as delinquent during the forbearance period to the extent that payments are past due based on the loan's original contractual terms, irrespective of the forbearance agreement. Single-family servicers are not required to report forbearance information to us if the borrower continues to make payments during the forbearance period and remains in current status. As a result, our forbearance data is limited to loans in forbearance that are past due based on the loan’s original contractual terms and does not include loans that are in forbearance where borrowers have continued to make payments during the forbearance period and remain in current status. For this reason, our reported forbearance rates may be lower than single-family forbearance rates reported by other industry participants, which generally report forbearance rates that include all loans in forbearance, including loans where the borrower has continued to make payments during the forbearance period and remain in current status. Effective October 1, 2020, we are requiring servicers to report to us all alternatives to foreclosure, which include forbearance plans on all mortgages, including those that are not delinquent.

Freddie Mac 2Q 2020 Form 10-Q 42

Management's Discussion and Analysis Risk Management

Allowance for Credit Losses

Upon the adoption of CECL on January 1, 2020, we recognized an increase to the opening balance of the allowance for credit losses on single-family loans classified as held-for-investment. Under CECL, we recognize an allowance for credit losses before a loss event has been incurred, which results in earlier recognition of credit losses compared to the previous incurred loss impairment methodology. Under CECL, we estimate the allowance for credit losses for loans on a pooled basis using a discounted cash flow model that evaluates a variety of factors to estimate the cash flows we expect to collect. The discounted cash flow model forecasts cash flows over the loan’s remaining contractual life, adjusted for expectations of prepayments and TDRs we reasonably expect will occur, and using our historical experience, adjusted for current and future economic forecasts. These projections require significant management judgment and we face uncertainties and risks related to the models we use for financial accounting and reporting purposes. In particular, the length and severity of the economic downturn caused by the COVID-19 pandemic and its impact on house prices and the housing market, the number of borrowers that require assistance under the COVID-19 forbearance programs we are offering, and the ultimate success of those programs in resolving borrower hardships are all subject to significant uncertainty and may have a material effect on our allowance for credit losses in future periods.

For further information on our accounting policies and methods for estimating our allowance for credit losses and related management judgments, see Critical Accounting Policies and Estimates.

The table below summarizes our single-family allowance for credit losses activity.

Table 24 - Single-Family Allowance for Credit Losses Activity

(Dollar in millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Beginning balance(1)		$6,347			$5,582			$5,233			$6,176
(Benefit) provision for credit losses	623			(161		)	1,789			(297		)
Charge-offs	(121		)	(244		)	(285		)	(849		)
Recoveries collected	36			128			124			234
Other	31			21			55			62
Ending balance		$6,916			$5,326			$6,916			$5,326
Components of ending balance of allowance for credit losses:
Mortgage loans held-for-investment		$6,482			$5,280
Advances of pre-foreclosure costs	323			N/A
Accrued interest receivable	57			N/A
Off-balance-sheet credit exposures	54			46
Total		$6,916			$5,326
As a percentage of our single-family credit guarantee portfolio	0.34		%	0.27		%

(1) Includes transition adjustments recognized upon the adoption of CECL on January 1, 2020. See Note 1 for more information on transition adjustments.

Credit Losses and Recoveries

The table below contains certain credit performance metrics for our single-family credit guarantee portfolio.

Table 25 - Single-Family Credit Guarantee Portfolio Credit Performance Metrics

(Dollars in millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Charge-offs		$121			$244			$285			$849
Recoveries collected	(36		)	(128		)	(124		)	(234		)
Charge-offs, net	85			116			161			615
REO operations expense	14			81			99			114
Total credit losses		$99			$197			$260			$729
Total credit losses (in bps)	1.9			3.6			3.2			7.5
Recoveries from (gains) losses on loan sales		$2			$—			($27	)		$—
Recoveries collected under freestanding credit enhancements and write-offs of CRT debt	(5		)	(7		)	(8		)	(7		)

TDRs and Non-Accrual Loan Activity

Single-family loans that have been modified or placed on non-accrual status generally have a higher associated allowance for credit losses. Due to the large number of loan modifications completed in past years, a significant portion of our allowance for credit losses is attributable to TDR loans:

Freddie Mac 2Q 2020 Form 10-Q 43

Management's Discussion and Analysis Risk Management

n As of June 30, 2020, 25% of the allowance for credit losses for single-family loans related to interest-rate concessions provided to borrowers as part of loan modifications.

n Most of our modified single-family loans, including TDRs, were current and performing at June 30, 2020.

n In general, we expect our allowance for credit losses associated with existing single-family TDRs to decline over time as borrowers continue to make monthly payments under the modified terms and interest-rate concessions are amortized into earnings. In addition, our sales of reperforming loans will decrease these allowances for credit losses. However, the COVID-19 pandemic is likely to cause some borrowers to have difficulty making their monthly payments under the modified terms, and our ability to sell reperforming loans at acceptable prices has been negatively affected by the pandemic.

The CARES Act provides temporary relief from the accounting requirements for TDRs for certain loan modifications that are the result of a hardship that is related, either directly or indirectly, to the COVID-19 pandemic. We have elected to apply this temporary relief and therefore will not account for qualifying loan modifications as TDRs. In addition, interpretive guidance issued by federal banking regulators and endorsed by the FASB staff has indicated that government-mandated modification or deferral programs related to the COVID-19 pandemic are not TDRs as the lender did not choose to grant a concession to the borrower. As a result, we expect that substantially all of the forbearance and other relief programs we are offering as a result of COVID-19 will not be accounted for as TDRs.

We generally place single-family loans on non-accrual status when the loan becomes three monthly payments past due, but we make an exception to our standard non-accrual policy for loans in active COVID-19-related forbearance plans that were current prior to receiving forbearance and do not place such loans on non-accrual status based solely on delinquency status. For these loans, we consider additional factors, such as current LTV ratio, and continue to accrue interest while the loan is in forbearance and is three or more monthly payments past due when we believe the available evidence indicates that collectability of principal and interest is reasonably assured. When we accrue interest on loans that are three or more monthly payments past due, we measure an allowance for expected credit losses on unpaid accrued interest receivable balances such that the balance sheet reflects the net amount of interest we expect to collect. See Note 4 for additional information on our accounting policies for forbearance programs related to the COVID-19 pandemic.

The tables below present information about the UPB and interest income of single-family TDR loans and non-accrual loans on our condensed consolidated balance sheets.

Table 26 - Single-Family TDR and Non-Accrual Loans

	June 30, 2020									December 31, 2019
(Dollars in millions)	Mortgage Loans Held-for-Investment			Mortgage Loans Held-for-Sale			Total			Mortgage Loans Held-for-investment			Mortgage Loans Held-for-Sale			Total
UPB:
TDRs on accrual status(1)		$29,081			$11,000			$40,081			$32,188			$11,576			$43,764
Non-accrual loans	11,475			5,326			16,801			6,529			4,654			11,183
Total TDRs and non-accrual loans		$40,556			$16,326			$56,882			$38,717			$16,230			$54,947
Allowance for credit losses associated with:
TDRs on accrual status		$1,464			$9			$1,473			$2,452			$—			$2,452
Non-accrual loans	609			143			752			597			—			597
Total		$2,073			$152			$2,225			$3,049			$—			$3,049
Allowance as % of UPB:
TDRs on accrual status	5		%	—		%	4		%	8		%	—		%	6		%
Non-accrual loans	5			3			4			9			—			5
Total	5			1			4			8			—			6

Freddie Mac 2Q 2020 Form 10-Q 44

Management's Discussion and Analysis Risk Management

	2Q 2020									2Q 2019
(In millions)	Mortgage Loans Held-for-Investment			Mortgage Loans Held-for-Sale			Total			Mortgage Loans Held-for-Investment			Mortgage Loans Held-for-Sale			Total
Interest on TDRs and non-accrual loans:
At original contractual rates		$365			$230			$595			$595			$252			$847
Recognized	(179		)	(128		)	(307		)	(413		)	(157		)	(570		)
Foregone interest income on TDRs and non-accrual loans(2)		$186			$102			$288			$182			$95			$277

	YTD 2020(3)									YTD 2019(3)
(In millions)	Mortgage Loans Held-for-Investment			Mortgage Loans Held-for-Sale			Total			Mortgage Loans Held-for-Investment			Mortgage Loans Held-for-Sale			Total
Interest on TDRs and non-accrual loans:
At original contractual rates		$863			$446			$1,309			$1,170			$456			$1,626
Recognized	(559		)	(258		)	(817		)	(827		)	(272		)	(1,099		)
Foregone interest income on TDRs and non-accrual loans(2)		$304			$188			$492			$343			$184			$527

(1) In prior periods, UPB amounts included only loans classified as held-for-investment.

(2) Represents the amount of interest income that we did not recognize but would have recognized during the period for loans outstanding at the end of each period, had the loans performed according to their original contractual terms.

(3) Represents the interest income at original contractual rates, interest income recognized, and foregone interest income based on TDRs and non-accrual loans as of June 30, 2020.

The table below summarizes the UPB of single-family held-for-investment TDR loan activity.

Table 27 - Single-Family TDR Loan Activity

	June 30, 2020					June 30, 2019(1)
(Dollars in millions)	Loan Count		Amount			Loan Count		Amount
Beginning balance, as of January 1	249,182			$35,623		290,255			$42,254
New additions	13,546		2,230			16,508		2,577
Repayments and reclassifications to held-for-sale	(28,055	)	(4,657		)	(33,296	)	(5,764		)
Foreclosure sales and foreclosure alternatives	(1,120	)	(170		)	(2,537	)	(344		)
Ending balance, as of June 30	233,553		33,026			270,930		38,723
Loans impaired upon purchase	—		—			2,331		150
Total impaired loans with an allowance recorded	—		—			273,261		38,873
Allowance for credit losses			(1,839		)			(3,599		)
Net investment, as of June 30				$31,187					$35,274

(1) Excludes held-for-investment TDRs with no allowance for credit losses based on the individual impairment assessment according to the previous incurred loss impairment methodology.

Delinquency Rates

We report single-family delinquency rates based on the number of loans in our single-family guarantee portfolio that are past due as reported to us by our servicers as a percentage of the total number of loans in our single-family guarantee portfolio. The charts below show the credit losses and serious delinquency rates for each of our single-family loan portfolios.

The total serious delinquency rate on our single-family credit guarantee portfolio increased to 2.48% as of June 30, 2020 due to an increase in the number of loans in forbearance related to the COVID-19 pandemic. However, 52% of the seriously delinquent loans at June 30, 2020 were covered by credit enhancements designed to reduce our credit risk exposure. Despite the increase in the serious delinquency rate, our core single-family loan portfolio continued to perform well through June 30, 2020 and accounted for a small percentage of our credit losses. Our legacy and relief refinance single-family loan portfolio continued to decline but continued to account for the majority of our credit losses. See Note 4 for additional information on the payment status of our single-family mortgage loans.

The ongoing COVID-19 pandemic has caused an unprecedented disruption in the mortgage market. While we expect the actions we take to support the mortgage market to improve borrower outcomes, these actions may not be as successful as we hope, and we expect the serious delinquency rates for our single-family loan portfolio to remain elevated as a result of the pandemic and the forbearance programs we are offering in response.

Freddie Mac 2Q 2020 Form 10-Q 45

Management's Discussion and Analysis Risk Management

Serious Delinquency Rates

The chart below shows the percentage of mortgage loans in our single-family credit guarantee portfolio that are one month and two months past due. Both of these percentages increased compared to June 30, 2019 due to the increase in the number of loans that are in forbearance related to the COVID-19 pandemic.

Percentage of Single-Family Loans One Month and Two Months Past Due

Freddie Mac 2Q 2020 Form 10-Q 46

Management's Discussion and Analysis Risk Management

The table below presents the UPB of single-family loans in forbearance by payment status and the number of single-family loans in forbearance as a percentage of the total number of loans in our single-family credit guarantee portfolio by payment status. This table includes only single-family loans in forbearance that are past due based on the loan's original contractual terms.

Table 28 - Single-Family Loans in Forbearance by Payment Status

	June 30, 2020												December 31, 2019
(Dollars in millions)	One Month Past Due			Two Months Past Due			Three  Months or More Past Due			Total			One Month Past Due			Two Months Past Due			Three  Months or More Past Due			Total
Single-family loans in forbearance		$15,893			$31,675			$45,749			$93,317			$131			$85			$362			$578
As a percentage of our single-family credit guarantee portfolio(1)	0.67		%	1.28		%	1.80		%	3.75		%	0.01		%	—		%	0.02		%	0.03		%

(1) Based on loan count.

Loan Characteristics

The tables below contain details on characteristics of the loans in our single-family credit guarantee portfolio.

Table 29 - Credit Quality Characteristics of Our Single-Family Credit Guarantee Portfolio

	June 30, 2020
(Dollars in billions)	UPB		Original Credit Score (1)	Current Credit Score (1)	Original LTV Ratio		Current LTV Ratio		Current LTV Ratio >100%		Alt-A %
Core single-family loan portfolio		$1,794	751	754	74	%	60	%	—	%	—	%
Legacy and relief refinance single-family loan portfolio	267		711	694	83		50		2		7
Total		$2,061	746	751	75		59		—		1

Referenced footnotes are included after the next table.

	December 31, 2019
(Dollars in billions)	UPB		Original Credit Score (1)	Current Credit Score (1)	Original LTV Ratio		Current LTV Ratio		Current LTV Ratio >100%		Alt-A %
Core single-family loan portfolio		$1,701	750	752	75	%	60	%	—	%	—	%
Legacy and relief refinance single-family loan portfolio	293		712	692	83		52		2		7
Total		$1,994	745	749	76		59		—		1

(1) Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.

The tables below contain details on the characteristics of our single-family loans in forbearance that are past due based on the loan's original contractual terms.

Table 30 - Credit Quality Characteristics of Our Single-Family Loans in Forbearance

	June 30, 2020								December 31, 2019
(Dollars in billions)	UPB		Original Credit Score (1)	Current Credit Score (1)	Original LTV Ratio		Current LTV Ratio		UPB		Original Credit Score (1)	Current Credit Score (1)	Original LTV  Ratio		Current LTV Ratio
Single-family loans in forbearance		$93.3	720	695	79	%	62	%		$0.6	691	588	82	%	65	%

	June 30, 2020				December 31, 2019
(Dollars in billions)	UPB		As a Percentage of Total		UPB		As a Percentage of Total
Current LTV ratio:
≤ 60		$40.4	43	%		$0.2	33	%
> 60 to 80	36.3		39		0.3		50
> 80 to 100	16.0		17		0.1		17
> 100	0.6		1		—		NM
Total		$93.3	100	%		$0.6	100	%

(1) Original credit score is based on three credit bureaus (Equifax, Experian, and TransUnion). Current credit score is based on Experian only.

(2) NM - not meaningful due to the UPB rounding to zero.

Freddie Mac 2Q 2020 Form 10-Q 47

Management's Discussion and Analysis Risk Management

Higher Risk Loan Attributes and Attribute Combinations

Certain combinations of loan attributes can indicate a higher degree of credit risk, such as loans with both higher LTV ratios and lower credit scores. The following tables present the combination of credit score and CLTV ratio attributes of loans in our single-family credit guarantee portfolio.

Table 31 - Single-Family Credit Guarantee Portfolio Attribute Combinations for Higher Risk Loans

	June 30, 2020
	CLTV ≤ 80				CLTV > 80 to 100				CLTV > 100			All Loans
(Original credit score)	% Portfolio		SDQ Rate		% Portfolio		SDQ Rate(1)		% Portfolio		SDQ Rate(1)	% Portfolio		SDQ Rate		% Modified
Core single-family loan portfolio:
< 620	0.3	%	8.18	%	—	%	NM		—	%	NM	0.3	%	8.59	%	3.6	%
620 to 659	2.2		5.64		0.3		7.11	%	—		NM	2.5		5.80		2.0
≥ 660	71.2		1.71		13.0		2.34		—		NM	84.2		1.79		0.3
Not available	—		NM		—		NM		—		NM	—		NM		NM
Total	73.7	%	1.87		13.3	%	2.52		—	%	NM	87.0	%	1.95		0.4
Legacy and relief refinance single-family loan portfolio:
< 620	1.0	%	8.20		0.1	%	14.66		—	%	NM	1.1	%	8.92		17.5
620 to 659	1.5		6.76		0.1		13.61		—		NM	1.6		7.32		16.1
≥ 660	9.5		3.22		0.5		8.64		0.2		11.97	10.2		3.47		5.9
Not available	0.1		6.34		—		NM		—		NM	0.1		6.64		20.4
Total	12.1	%	4.09		0.7	%	10.44		0.2	%	15.12	13.0	%	4.44		8.3

Referenced footnotes are included after the next table.

	December 31, 2019
	CLTV ≤ 80				CLTV > 80 to 100				CLTV > 100				All Loans
(Original credit score)	% Portfolio		SDQ Rate		% Portfolio		SDQ Rate(1)		% Portfolio		SDQ Rate(1)		% Portfolio		SDQ Rate		% Modified
Core single-family loan portfolio:
< 620	0.3	%	2.68	%	—	%	NM		—	%	NM		0.3	%	2.87	%	3.5	%
620 to 659	2.1		1.26		0.4		1.59	%	—		NM		2.5		1.30		1.9
≥ 660	69.8		0.20		12.6		0.26		—		NM		82.4		0.20		0.3
Not available	0.1		1.23		—		NM		—		NM		0.1		1.96		3.6
Total	72.3	%	0.24		13.0	%	0.33		—	%	NM		85.3	%	0.26		0.4
Legacy and relief refinance single-family loan portfolio:
< 620	1.1	%	4.16		0.2	%	9.33		0.1	%	15.03	%	1.4	%	4.83		17.7
620 to 659	1.5		3.01		0.2		7.91		0.1		12.84		1.8		3.52		16.3
≥ 660	10.5		1.06		0.7		3.91		0.2		6.32		11.4		1.23		5.9
Not available	0.1		4.39		—		NM		—		NM		0.1		4.68		19.6
Total	13.2	%	1.58		1.1	%	5.39		0.4	%	8.96		14.7	%	1.84		8.3

(1) NM - not meaningful due to the percentage of the portfolio rounding to zero.

Alt-A and Subprime Loans

While we have referred to certain loans as subprime or Alt-A for purposes of the discussion below and elsewhere in this Form 10-Q, there is no universally accepted definition of subprime or Alt-A, and the classification of such loans may differ from company to company. We do not rely on these loan classifications to evaluate the credit risk exposure relating to such loans in our single-family credit guarantee portfolio.

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. While we have not historically characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we monitor the amount of loans we have guaranteed with characteristics that indicate a higher degree of credit risk. In addition, we estimate that approximately $0.7 billion and $0.8 billion of security collateral underlying our other securitization products at June 30, 2020 and December 31, 2019, respectively, were identified as subprime based on information provided to us when we entered into these transactions.

Freddie Mac 2Q 2020 Form 10-Q 48

Management's Discussion and Analysis Risk Management

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 have discontinued new purchases of loans with lower documentation standards, we continue to purchase certain amounts of such loans in cases where the loan was either purchased pursuant to a previously issued guarantee, part of our relief refinance initiative or part of another refinance loan initiative and the pre-existing loan 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 an Alt-A loan in this Form 10-Q and our other financial reports because the new refinance loan replacing the original loan would not be identified by the seller or 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. From the time the relief refinance initiative began in 2009 to June 30, 2020, we have purchased approximately $36.4 billion of relief refinance loans that were previously categorized as Alt-A loans in our portfolio.

The table below contains information on Alt-A loans in our single-family credit guarantee portfolio.

Table 32 - Alt-A Loans in Our Single-Family Credit Guarantee Portfolio

	June 30, 2020								December 31, 2019
(Dollars in billions)	UPB		CLTV		% Modified		SDQ Rate		UPB		CLTV		% Modified		SDQ Rate
Alt-A		$19.8	59	%	18.3	%	7.70	%		$21.1	61	%	18.4	%	3.75	%

The UPB of Alt-A loans in our single-family credit guarantee portfolio is continuing to decline due to borrowers refinancing into other mortgage products, foreclosure sales, and other liquidation events.

Geographic Concentrations

The table below summarizes the concentration by geographic area of our single-family credit guarantee portfolio as of June 30, 2020 and December 31, 2019, respectively. While our portfolio is well-diversified geographically, the economic effects of the COVID-19 pandemic may be disproportionately concentrated in certain geographic regions or areas. See Risk Management - Single-Family Mortgage Credit Risk in our 2019 Annual Report for additional information on geographic concentrations. See Note 14 for more information about credit risk associated with loans that we hold or guarantee.

Table 33 - Concentration of Credit Risk of Our Single-Family Credit Guarantee Portfolio

	June 30, 2020				December 31, 2019				Percent of Credit Losses
	Percentage  of Portfolio		Serious Delinquency Rate		Percentage  of Portfolio		Serious Delinquency Rate		YTD 2020		YTD 2019
Region(1)
West	30	%	2.29	%	30	%	0.36	%	6	%	13	%
Northeast	24		3.16		24		0.87		38		39
North Central	16		1.86		16		0.61		27		18
Southeast	16		2.77		16		0.73		20		24
Southwest	14		2.27		14		0.54		9		6
Total	100	%	2.48		100	%	0.63		100	%	100	%
State(2)
Illinois	4	%	2.61		4	%	0.85		14	%	10	%
Florida	6		3.53		6		0.77		11		16
New York	5		4.95		5		1.21		10		12
New Jersey	3		4.48		3		1.08		9		10
Ohio	3		1.86		3		0.69		5		3
All other	79		2.21		79		0.54		51		49
Total	100	%	2.48		100	%	0.63		100	%	100	%

(1) 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).

(2) States presented based on those with the highest percentage of credit losses during YTD 2020.

Freddie Mac 2Q 2020 Form 10-Q 49

Management's Discussion and Analysis Risk Management

Engaging in Loss Mitigation Activities

Loan Workout Activities

Servicers perform loss mitigation activities as well as foreclosures on loans that they service for us. Our loss mitigation strategy emphasizes early intervention by servicers in delinquent loans and offers alternatives to foreclosure by providing servicers with default management programs designed to manage non-performing loans more effectively and to assist borrowers in maintaining home ownership or to facilitate foreclosure alternatives.

We offer a variety of borrower assistance programs for struggling borrowers. Pursuant to FHFA guidance and the CARES Act, we offer mortgage relief options for borrowers affected by the COVID-19 pandemic. Among other things, we are offering forbearance of up to 12 months to single-family borrowers experiencing a financial hardship, either directly or indirectly, related to COVID-19. On July 1, 2020, we began providing servicers a payment deferral option to offer to eligible homeowners. This solution, a broad offering that, at the direction of FHFA, is aligned with Fannie Mae's approach, is available to homeowners who have endured a short-term hardship and subsequently resolved it (including but not limited to hardships related to COVID-19) and provides them with a means to make up for missed payments. The payment deferral provides relief to eligible borrowers who have the financial capacity to resume making their monthly payments, but who are unable to afford the additional monthly contributions required by a repayment plan. We expect these programs to result in elevated levels of loss mitigation activity.

Prior to expiration of a borrower's forbearance plan, servicers are required to contact the borrower to determine how the payments missed during the forbearance period will be repaid. Freddie Mac requires servicers to follow a defined loss mitigation hierarchy to determine which options to offer to borrowers. If the borrower is not eligible for any of the home-retention options below, we may seek to pursue a foreclosure alternative or foreclosure. Borrowers are not required to repay all past due amounts in a single lump sum. We offer the following options to borrowers upon expiration of the forbearance plan:

n Reinstatement - A relief option that allows borrowers to repay all delinquent amounts to return to current status;

n Repayment plan - A relief option that allows borrowers a specified period of time to return to current status by paying the normal monthly payment plus additional agreed upon delinquent amounts. Repayment plans must have a term greater than one month and less than or equal to 12 months and the monthly repayment plan payment amount must not exceed 150% of the contractual mortgage payment;

n Payment deferral - A relief option that allows borrowers to return to current status by deferring delinquent principal and interest into a non-interest-bearing principal balance that is due at the earlier of the payoff date, maturity date, or sale of the property. The remaining mortgage term, interest rate, payment schedule, and maturity date remain unchanged and no trial period plan is required; and

n Flex modification - A modification program that targets a 20% payment reduction through interest rate reduction, term extension, and principal forbearance. Borrowers must complete a 90-day trial period plan prior to permanent modification.

For additional information on actions we have taken in response to the COVID-19 pandemic, see MD&A - Introduction - COVID-19 Pandemic Response Efforts.

The table below presents a summary of our forbearance activity for single-family loans in forbearance that are past due based on the loan's original contractual terms.

Table 34 - Single-Family Loans in Forbearance Activity

(Loan count in thousands)	2Q 2020			2Q 2019		YTD 2020		YTD 2019
Beginning balance	15			4		3		5
New plans	526			3		541		8
Exits	(115		)	(3	)	(118	)	(9	)
Ending balance	426			4		426		4
Total ending UPB (in millions)		$93,317

Freddie Mac 2Q 2020 Form 10-Q 50

Management's Discussion and Analysis Risk Management

Sales and Securitization of Certain Seasoned Loans

We pursue sales of certain seriously delinquent loans when we believe the sale of these loans provides better economic returns than continuing to hold them. We also sell certain reperforming loans, which typically involves securitization of the loans using our senior subordinate securitization structures. In certain cases, operational constraints may preclude us from selling loans. Of the $18.6 billion in UPB of single-family loans classified as held-for-sale at June 30, 2020, $5.6 billion related to loans that were seriously delinquent.

We did not sell any seriously delinquent loans or reperforming loans during 2Q 2020 as our ability to sell such loans at acceptable prices was negatively affected by the COVID-19 pandemic. However, the market for certain loans improved by the end of 2Q 2020 and we successfully sold reperforming loans in early 3Q 2020. During 2Q 2019, we completed sales of $0.0 billion and $3.6 billion in UPB of seriously delinquent loans and reperforming loans, respectively.

Managing Foreclosure and REO Activities

Pursuant to FHFA guidance and the CARES Act, we are required to suspend foreclosures and evictions due to the COVID-19 pandemic until August 31, 2020, and this suspension period may be extended by FHFA, if necessary. As a result, our REO ending inventory declined as of June 30, 2020. The table below presents a summary of our single-family REO activity.

Table 35 - Single-Family REO Activity

	2Q 2020					2Q 2019					YTD 2020					YTD 2019
(Dollars in millions)	Number of Properties		Amount			Number of Properties		Amount			Number of Properties		Amount			Number of Properties		Amount
Beginning balance — REO	4,168			$474		6,714			$754		4,989			$565		7,100			$780
Additions	190		15			1,983		194			1,631		151			4,139		402
Dispositions	(1,546	)	(159		)	(2,828	)	(282		)	(3,808	)	(386		)	(5,370	)	(516		)
Ending balance — REO	2,812		330			5,869		666			2,812		330			5,869		666
Beginning balance, valuation allowance			(17		)			(10		)			(10		)			(11		)
Change in valuation allowance			9					4					2					5
Ending balance, valuation allowance			(8		)			(6		)			(8		)			(6		)
Ending balance — REO, net				$322					$660					$322					$660

Freddie Mac 2Q 2020 Form 10-Q 51

Management's Discussion and Analysis Risk Management

Multifamily Mortgage Credit Risk

Maintaining Prudent Underwriting Standards

We use a prior approval underwriting approach for multifamily loans in which we maintain credit discipline by completing our own underwriting and credit review for each new loan. Our underwriting standards focus on the LTV ratio and DSCR, which estimates a borrower's ability to repay the loan using the secured property's cash flows, after expenses. Our standards require maximum LTV ratios and minimum DSCRs that vary based on the characteristics and features of the loan. Changes in market conditions can affect the credit quality of our multifamily loan purchases and/or guarantees. Notwithstanding the effects of COVID-19 on the multifamily market and broader economic environment, the credit quality of our multifamily loan purchases and guarantees has remained strong during 2020.

The graphs below show the credit profile of the multifamily loans we purchased or guaranteed.

Weighted Average Original LTV Ratio

Weighted Average Original Debt Service Coverage Ratio

Managing Our Portfolio, Including Loss Mitigation Activities

Pursuant to FHFA guidance and the CARES Act, we offer multifamily borrowers mortgage forbearance with the condition that they suspend all evictions during the forbearance period for renters unable to pay rent. Under our forbearance program, multifamily borrowers with a fully performing loan as of February 1, 2020 can defer their loan payments for up to 90 days by showing hardship as a consequence of the COVID-19 pandemic and by gaining lender approval. After the forbearance period, the borrower is required to repay the forborne loan amounts in no more than 12 equal monthly installments.

In June 2020, in coordination with FHFA, we announced three supplemental forbearance relief options to assist borrowers with a forbearance plan who continue to be affected by the COVID-19 pandemic. These supplemental relief options extend most of the original tenant protections and provide increased flexibility to tenants, allowing the repayment of past due rent over time and not in a lump sum. The three supplemental relief options include: (i) the option to delay the start of the repayment period following the forbearance period, (ii) an extension of the repayment period, and (iii) an extension of the forbearance period with an optional extended repayment period. Borrower requests for supplemental forbearance relief will be reviewed by the applicable servicer to confirm that COVID-19 continues to be the underlying cause of the impairment of the property's performance. If so, the servicer will determine whether any of the three supplemental relief options can reasonably be expected to return the property's performance to its pre-pandemic levels. If none of the options seem appropriate, the loan will be transferred to the appropriate asset resolution group. The selection of the appropriate supplemental relief option is at the discretion of the servicer and will not be an election of the borrower. For additional information on our responses to the COVID-19 pandemic, see MD&A - Introduction - COVID-19 Pandemic Response Efforts.

We report multifamily delinquency rates based on the UPB of loans in our multifamily mortgage portfolio that are two monthly payments or more past due or in the process of foreclosure, as reported by our servicers. Loans in forbearance are not considered delinquent as long as the borrower is in compliance with the forbearance agreement, including the agreed upon repayment plan.

Prior to the COVID-19 pandemic, the multifamily market was on solid ground and the credit quality of the loans for which forbearance was requested was generally strong. The following table summarizes the current credit quality of loans under a forbearance program, which includes both the forbearance period and the repayment period.

Freddie Mac 2Q 2020 Form 10-Q 52

Management's Discussion and Analysis Risk Management

Table 36 - Current Credit Quality of Multifamily Loans Under a Forbearance Program

	June 30, 2020
(Dollars in millions)	UPB			LTV > 80%(1)		DSCR < 1.25(1)
Credit-enhanced(2)		$7,680			$347		$3,425
Non-credit-enhanced	876			343		288
Total		$8,556			$690		$3,713
Weighted average LTV(1)	63		%
Weighted average DSCR(1)	1.47

(1) Based on the most recent borrower financial information submissions received from the servicers.

(2) Represents the loan UPB underlying our multifamily mortgage portfolio.

Approximately 83.5% of the loans in forbearance by UPB are in securitizations with subordination, with forbearance requests related to loans underlying our SB Certificate securitizations being the most common. The weighted average subordination level of securitizations with subordination that have loans in forbearance was 14.4% as of June 30, 2020. 17.6% of loans in forbearance are scheduled to mature prior to 2024. Given the credit quality of the loans and subordination levels, we currently do not expect to experience significant credit losses related to the COVID-19 pandemic and the related forbearance program.

We will continue to assess the financial condition of our borrowers as they exit forbearance and evaluate their needs for supplemental relief.

Transferring Credit Risk to Third-Party Investors

To reduce our credit risk exposure, we engage in various credit enhancement arrangements, which include securitizations and other credit enhancements. Our securitizations remain our principal risk transfer mechanism. Through these securitizations, we have transferred a large majority of the expected and stress credit risk on the multifamily guarantee portfolio, thereby reducing our overall credit risk exposure and required conservatorship capital.

The table below presents the delinquency rates, forbearance rates, and current expected credit losses for both credit-enhanced and non-credit enhanced loans underlying our multifamily mortgage portfolio.

Table 37 - Credit-Enhanced and Non-Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio

	June 30, 2020								December 31, 2019
(Dollars in millions)	UPB		Delinquency Rate		Forbearance Rate(1)		Current Expected Credit Losses		UPB		Delinquency Rate		Forbearance Rate(1)
Credit-enhanced:
Subordination(2)		$258,120	0.11	%	2.46	%		$—		$251,008	0.09	%	—	%
Other(3)	14,806		0.17		2.57		69		16,069		0.06		—
Total credit-enhanced	272,926		0.12		2.46		69		267,077		0.09		—
Non-credit-enhanced	40,149		0.02		2.18		125		33,091		—		—
Total		$313,075	0.10		2.43			$194		$300,168	0.08		—

(1) Forbearance rate includes loans in our forbearance program including loans in their repayment period.

(2) For subordination, represents 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.

(3) Includes lender risk-sharing agreements related to certain securitizations, insurance/reinsurance contracts, SCR, and other credit enhancements.

The following table provides information on the level of subordination outstanding on our securitizations with subordination.

Table 38 - Level of Subordination Outstanding

	June 30, 2020							December 31, 2019
(Dollars in millions)	UPB			Delinquency Rate		Forbearance Rate		UPB			Delinquency Rate		Forbearance Rate
Less than 10%		$10,534		0.02	%	0.49	%		$2,094		0.04	%	—	%
10% or greater	247,586			0.12		2.54		248,914			0.09		—
Total		$258,120		0.11		2.46			$251,008		0.09		—
Weighted average subordination level	14		%					14		%

Freddie Mac 2Q 2020 Form 10-Q 53

Management's Discussion and Analysis Risk Management

The table below contains details on the loans underlying our multifamily mortgage portfolio that are not credit-enhanced.

Table 39 - Credit Quality of Our Multifamily Mortgage Portfolio Without Credit Enhancement

	June 30, 2020								December 31, 2019
(Dollars in millions)	UPB		Delinquency Rate		Forbearance Rate		Current Expected Credit Losses		UPB		Delinquency Rate		Forbearance Rate
Unsecuritized loans:
Held-for-sale		$19,116	0.05	%	1.51	%	N/A			$15,930	0.01	%	—	%
Held-for-investment	9,887		—		1.29			$80	9,408		—		—
Securitization-related products	6,151		—		7.47		28		3,656		—		—
Other mortgage-related guarantees	4,995		—		—		17		4,097		—		—
Total		$40,149	0.02		2.18			$125		$33,091	—		—

We continue to develop other strategies to reduce our credit risk exposure to multifamily loans and securities. See Our Business Segments - Multifamily - Business Overview - Products and Activities - Securitization and Guarantee Products in our 2019 Annual Report for additional information.

Counterparty Credit Risk

We are exposed to counterparty credit risk, which is a type of institutional credit risk, as a result of our contracts with sellers and servicers, credit enhancement providers (mortgage insurers, investors, etc.), financial intermediaries, clearinghouses, and other counterparties. Beginning in 1Q, 2020, many of our counterparties, primarily non-depository institutions, faced financial strains and liquidity pressure due to the economic downturn and market volatility caused by the COVID-19 pandemic. If these financial strains and liquidity pressure continue or increase, some of our counterparties may not be able to perform under their contracts and our counterparty credit risk exposure may increase. We continue to monitor and assess the impacts of the COVID-19 pandemic on our counterparty credit risk. However, despite our active monitoring and communication, as the effect of COVID-19 continues to evolve, it is difficult to currently assess the impact on our financial results of increased counterparty credit risk.

Sellers and Servicers

Single-Family

We perform ongoing monitoring and review of our exposure to individual sellers or servicers in accordance with our institutional credit risk management framework, including requiring our counterparties to provide regular financial reporting to us. We have significant exposure to non-depository and smaller depository financial institutions in our single-family business. As the COVID-19 pandemic evolved rapidly, liquidity concerns primarily regarding non-depository financial institutions arose as market conditions changed and borrowers affected by COVID-19 were offered widespread forbearance, including forbearance on loans purchased and securitized by Freddie Mac. Servicers must continue to advance funds during the forbearance period as discussed below, which may increase liquidity pressures on certain of our counterparties.

For our mortgage-backed securities, we guarantee the payment of principal and interest, and when the underlying borrowers do not pay their mortgages, our Guide generally requires single-family servicers to advance the missed mortgage interest payments from their own funds for up to 120 days. After this time, we will make the missed mortgage principal and interest payments to security holders until the mortgages are no longer held by the securitization trust. At the instruction of FHFA, our practice generally has been to purchase loans from the securitization trusts when the loans have been delinquent for 120 days or more. After the outbreak of COVID-19, FHFA further instructed us to maintain loans in COVID-19 payment forbearance plans in the securitization trusts for at least the duration of the forbearance. Once the forbearance period expires, the loan will remain in the related securities pool while (i) an offer to reinstate the loan or enter into either a payment deferral solution, repayment plan, or a trial period plan pursuant to a loan modification remains outstanding; (ii) the loan is in an active repayment plan or trial period plan; or (iii) a payment deferral solution is in effect.

In addition to principal and interest payments, borrowers are also responsible for other expenses such as property taxes and homeowner's insurance premiums. When borrowers do not pay these expenses, our Guide generally requires single-family servicers to advance the funds for these expenses in order to protect or preserve our interest in or legal right to the properties. These advances are ultimately collectible from the borrowers. If the borrowers reperform through loan workout activities, the missed payments and incurred expenses will be collected from the borrowers. If the borrowers ultimately default, we will reimburse the servicers for the advanced amounts upon foreclosure or a foreclosure alternative.

In response to the potential liquidity concerns for certain of our counterparties, we continued our heightened monitoring and review of the financial stability of our non-depository institutional counterparties. However, if these counterparties experience financial difficulty, we could see a decline in mortgage servicing quality and/or be less likely to recover losses. In order to

Freddie Mac 2Q 2020 Form 10-Q 54

Management's Discussion and Analysis Risk Management

reduce our credit exposure, we may use a variety of tools and techniques to engage our single-family sellers and servicers and limit our losses, including providing incentives and compensatory fees and facilitating servicing transfers.

The table below summarizes the concentration of non-depository servicers of our single-family credit guarantee portfolio.

Table 40 - Single-Family Credit Guarantee Portfolio Non-Depository Servicers

	June 30, 2020				December 31, 2019
	% of Portfolio(1)		% of Serious Delinquent Single-Family Loans		% of Portfolio(1)		% of Serious Delinquent Single-Family Loans
Top five non-depository servicers	18	%	15	%	18	%	13	%
Other non-depository servicers	23		27		20		55
Total	41	%	42	%	38	%	68	%

(1) Excludes loans where we do not exercise control over the associated servicing.

Multifamily

The majority of our multifamily loans are securitized using trusts that are administered by master servicers who bear responsibility to advance funds in the event of payment shortfalls, including principal and interest payments related to loans in forbearance. In the majority of our primary securitization transactions, we utilize one of three large financial depository institutions as master servicers, except for small balance loan securitizations where we serve as master servicer. In instances where payment shortfalls occur, the master servicer is required to make advances as long as such advances have not been deemed non-recoverable. For loans purchased and held in our mortgage-related investment 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 monitor our exposure to individual insurers by performing periodic analysis of the financial capacity of each insurer under various adverse economic conditions. The COVID-19 pandemic may increase financial strains on our credit enhancement providers, and as a result, we continued our close monitoring and active communication with our counterparties to assess potential risk impacts. If our credit enhancement providers fail to meet their obligations to reimburse us for claims, we could experience an increase in credit losses.

The table below summarizes our exposure to single-family mortgage insurers as of June 30, 2020. In the event a mortgage insurer fails to perform, the coverage amounts represent our maximum exposure to credit losses resulting from such a failure.

Table 41 - Single-Family Mortgage Insurers

			June 30, 2020
(In millions)	Credit Rating(1)	Credit Rating Outlook(1)	UPB		Coverage
Arch Mortgage Insurance Company	A-	Negative		$89,683		$22,819
Radian Guaranty Inc. (Radian)	BBB+	Negative	84,396		21,063
Mortgage Guaranty Insurance Corporation (MGIC)	BBB+	Negative	75,036		19,090
Genworth Mortgage Insurance Corporation	BB+	Watch Neg	67,128		17,030
Essent Guaranty, Inc.	BBB+	Negative	65,471		16,594
National Mortgage Insurance (NMI)	BBB	Negative	39,463		10,084
PMI Mortgage Insurance Co. (PMI)	Not Rated	N/A	2,505		626
Republic Mortgage Insurance Company (RMIC)	Not Rated	N/A	1,857		461
Triad Guaranty Insurance Corporation (Triad)	Not Rated	N/A	1,089		273
Others	N/A	N/A	326		60
Total				$426,954		$108,100

(1) Ratings and outlooks are for the corporate entity to which we have the greatest exposure. Coverage amounts may include coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest rating available as of June 30, 2020. Represents the lower of S&P and Moody's credit ratings and outlooks stated in terms of the S&P equivalent.

Other Counterparties

We have exposure to institutions that act as counterparties to other types of transactions that we enter into in the ordinary course of business, including derivatives, securities purchased under agreements to resell, secured lending transactions, and forward settlement of loans and securities. We monitor the financial strength of these institutions and may use collateral maintenance requirements to manage our exposure to individual counterparties.

Freddie Mac 2Q 2020 Form 10-Q 55

Management's Discussion and Analysis Risk Management

Operational Risk

Overview

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people, or systems or from external events. Operational risk is inherent in all of our activities. For additional discussion of operational risk events and our operational risk environment, see Risk Management - Operational Risk in our 2019 Annual Report.

See below for updates to operational risk since our 2019 Annual Report.

Business Resiliency Risk

As a result of the COVID-19 pandemic, our business resiliency risk has increased. We have instituted temporary operational changes, such as shifting to remote work for more than 95% of our staff. We have not yet experienced significant operational or technological issues associated with these operational changes. However, a prolonged period of remote work for us or our counterparties or vendors, or any significant technological or infrastructure-related disruptions during this period of remote work, could affect our ability to conduct normal business operations.

We continue to effectively manage this increased risk by leveraging our business resiliency and crisis management capabilities and our readiness to mitigate the impact of the COVID-19 pandemic on our operations. Our business resiliency and executive crisis management teams have been resolving issues as they arise. A number of scenarios with various degrees of impact on our resources and business operations have been in place with corresponding action plans that can be leveraged, if needed, as the situation evolves. The crisis management team and our senior leaders are providing frequent updates to our Board of Directors, our staff, and FHFA. We are also working with FHFA and third parties to ensure continuity of critical business activities.

Third-Party Risk

We anticipate that our third-party service providers, sellers, servicers, and other counterparties are facing challenges due to the unprecedented events surrounding the COVID-19 pandemic. To address the elevated third-party risks arising from these challenges, we have increased our monitoring of third parties we deem to be critical or high risk to our operations. For example, we are using market intelligence sources to assess a number of risk factors for certain critical third parties, including financial health, geographic risk, and liquidity risk. We have also evaluated the contingency plans provided to us by significant third parties as well as our internal plans in the event that these third parties were to fail. We will continue to assess the contingency plans as the situation evolves and, where necessary, will invoke our plans to ensure continuity of operations.

See Risk Management - Credit Risk - Counterparty Credit Risk for additional information on our monitoring of our sellers and servicers.

Model Risk

The unprecedented events surrounding the COVID-19 pandemic have generated an increased degree of model risk and uncertainty. As a result, we expect our models to face significant challenges in accurately forecasting key inputs into our financial projections. These can include, but are not limited to, projections of mortgage rates, house prices, credit defaults, negative yields, prepayments and interest rates. In response, we are attempting to mitigate this increased risk by monitoring model performance and applying model overlays and adjustments when deemed appropriate. These will be driven by the latest developments and emerging trends in the economy, as well as any additional government interventions and internal policy changes. However, these adjustments have an element of subjectivity and are based upon difficult and complex judgments. Actual results could differ from our estimates, and the use of different judgments and assumptions related to these estimates could have a material impact on our condensed consolidated financial statements.

For additional information on risks associated with our use of models, see Other Information - Risk Factors in our Form 10-Q for the quarter ended March 31, 2020 and MD&A - Risk Management - Operational Risk - Model Risk and Risk Factors - Operational Risks - We face risks and uncertainties associated with the models that we use to inform business and risk management decisions and for financial accounting and reporting purposes in our 2019 Annual Report.

Freddie Mac 2Q 2020 Form 10-Q 56

Management's Discussion and Analysis Risk Management 

Market Risk

Overview

Our business segments have embedded exposure to market risk, which is the economic risk associated with adverse changes in interest rates, volatility, and spreads. Interest-rate risk is consolidated and primarily managed by the Capital Markets segment, while spread risk is owned by each individual business segment. Market risk can adversely affect future cash flows, or economic value, as well as earnings and net worth.

The majority of our interest-rate risk comes from our investments in mortgage-related assets (securities and loans), the debt we issue to fund our assets, and upfront fees (including buy-downs) related to our single-family credit guarantee activity. Our primary goal in managing interest-rate risk is to reduce the amount of change in the value of our future cash flows due to future changes in interest rates. We use models to analyze possible future interest-rate scenarios, along with the cash flows of our assets and liabilities over those scenarios. Our models include the possibility of future negative interest rate scenarios and that risk is included in our hedging framework.

Interest-Rate Risk

Our primary interest-rate risk measures are duration gap and Portfolio Value Sensitivity (PVS). Duration gap measures the difference in price sensitivity to interest rate changes between our financial assets and liabilities and is expressed in months relative to the value of assets. PVS is our estimate of the change in the value of our financial assets and liabilities from an instantaneous shock to interest rates, assuming spreads are held constant and no rebalancing actions are undertaken. PVS is measured in two ways, one measuring the estimated sensitivity of our portfolio value to a 50 basis point parallel movement in interest rates (PVS-L) and the other to a non-parallel movement resulting from a 25 basis point change in slope of the LIBOR yield curve (PVS-YC). While we believe that duration gap and PVS are useful risk management tools, they should be understood as estimates rather than as precise measurements.

The following tables provide our duration gap, estimated point-in-time and minimum and maximum PVS-L and PVS-YC results, and an average of the daily values and standard deviation. The tables below also provide PVS-L estimates assuming an immediate 100 basis point shift in the LIBOR yield curve. The interest-rate sensitivity of a mortgage portfolio varies across a wide range of interest rates.

Table 42 - PVS-YC and PVS-L Results Assuming Shifts of the LIBOR Yield Curve

	June 30, 2020									December 31, 2019
	PVS-YC			PVS-L						PVS-YC			PVS-L
(In millions)	25 bps			50 bps			100 bps			25 bps			50 bps			100 bps
Assuming shifts of the LIBOR yield curve, (gains) losses on:(1)
Assets:
Investments		$331			$4,320			$8,931			($307	)		$4,840			$10,011
Guarantees(2)	171			(56		)	124			(224		)	351			706
Total Assets	502			4,264			9,055			(531		)	5,191			10,717
Liabilities	(5		)	(1,643		)	(3,297		)	20			(1,563		)	(3,413		)
Derivatives	(488		)	(2,571		)	(5,610		)	513			(3,646		)	(7,409		)
Total	9			50			148			2			(18		)	(105		)
PVS	9			50			148			2			—			—

(1) The categorization of the PVS impact between assets, liabilities, and derivatives on this table is based upon the economic characteristics of those assets and liabilities, not their accounting classification. For example, purchase and sale commitments of mortgage-related securities and debt securities of consolidated trusts held by the mortgage-related investments portfolio are both categorized as assets on this table.

(2) Represents the interest-rate risk from our single-family guarantee portfolio, which includes buy-ups, float, and upfront fees (including buy-downs).

Freddie Mac 2Q 2020 Form 10-Q 57

Management's Discussion and Analysis Risk Management 

Table 43 - Duration Gap and PVS Results

	2Q 2020						2Q 2019
(Duration gap in months, dollars in millions)	Duration Gap		PVS-YC 25 bps		PVS-L 50 bps		Duration Gap		PVS-YC 25 bps		PVS-L 50 bps
Average	0.4			$12		$60	2.2			$102		$275
Minimum	(0.6	)	—		—		(0.8	)	—		—
Maximum	0.9		30		200		8.6		345		950
Standard deviation	0.3		8		49		2.7		120		310
	YTD 2020						YTD 2019
(Duration gap in months, dollars in millions)	Duration Gap		PVS-YC 25 bps		PVS-L 50 bps		Duration Gap		PVS-YC 25 bps		PVS-L 50 bps
Average	0.4			$11		$61	1.2			$57		$147
Minimum	(0.6	)	—		—		(0.8	)	—		—
Maximum	1.5		30		236		8.6		345		950
Standard deviation	0.4		7		62		2.2		97		256

Derivatives enable us to reduce our economic interest-rate risk exposure as we continue to align our derivative portfolio with the changing duration of our economically hedged assets and liabilities. The table below shows that the PVS-L risk levels, assuming a 50 basis point shift in the LIBOR yield curve for the periods presented, would have been higher if we had not used derivatives.

Table 44 - PVS-L Results Before Derivatives and After Derivatives

	PVS-L (50 bps)
(In millions)	Before Derivatives		After Derivatives		Effect of Derivatives
June 30, 2020		$2,620		$50		($2,570	)
December 31, 2019	3,628		—		(3,628		)

Earnings Sensitivity to Market Risk

The accounting treatment for our financial assets and liabilities (i.e., some are measured at amortized cost, while others are measured at fair value) creates variability in our earnings when interest rates and spreads change. We have elected fair value hedge accounting for certain assets and liabilities in an effort to reduce this earnings variability and better align our financial results with the economics of our business. See Consolidated Results of Operations and Our Business Segments for additional information on the effect of changes in interest rates and market spreads on our financial results.

Interest Rate-Related Earnings Sensitivity

While we manage our interest-rate risk exposure on an economic basis to a low level as measured by our models, changes in interest rates may still result in significant earnings variability from period to period. Based upon the composition of our financial assets and liabilities, including derivatives, at June 30, 2020, we would generally recognize fair value losses when interest rates decline if we did not apply fair value hedge accounting.

By electing fair value hedge accounting for certain single-family mortgage loans and certain debt instruments, we are able to reduce the potential variability in our earnings attributable to changes in interest rates. See Note 9 for additional information on hedge accounting.

Earnings Sensitivity to Changes in Interest Rates

We evaluate a range of interest rate scenarios to determine the sensitivity of our earnings due to changes in interest rates and to determine our fair value hedge accounting strategies. The interest rate scenarios evaluated include parallel shifts in the yield curve in which interest rates increase or decrease by 100 basis points, non-parallel shifts in the yield curve in which long-term interest rates increase or decrease by 100 basis points, and non-parallel shifts in the yield curve in which short-term and medium-term interest rates increase or decrease by 100 basis points. This evaluation identifies the net effect on comprehensive income from changes in fair value attributable to changes in interest rates for financial instruments measured at fair value, including the effects of fair value hedge accounting, for each of the identified scenarios. This evaluation does not include the net effect on comprehensive income from interest-rate sensitive items that are not measured at fair value (e.g., amortization of

Freddie Mac 2Q 2020 Form 10-Q 58

Management's Discussion and Analysis Risk Management 

mortgage loan premiums and discounts, previously deferred fair value hedge accounting basis adjustments, changes in fair value of held-for-sale mortgage loans for which we have not elected the fair value option, etc.) or from changes in our future contractual net interest income due to repricing of our interest-bearing assets and liabilities. The results of this evaluation are shown in the table below.

Table 45 - Earnings Sensitivity to Changes in Interest Rates

	Changes in Fair Value Due to Changes in Interest Rates for Financial Instruments Measured at Fair Value, Net of Hedge Accounting (Before-Tax)
(In billions)	June 30, 2020			June 30, 2019
Interest Rate Scenarios
Parallel yield curve shifts:
+100 basis points		$—			$0.1
-100 basis points	—			(0.1		)
Non-parallel yield curve shifts - long-term interest rates:
+100 basis points	0.3			0.8
-100 basis points	(0.3		)	(0.8		)
Non-parallel yield curve shifts - short-term and medium-term interest rates:
+100 basis points	(0.3		)	(0.7		)
-100 basis points	0.3			0.7

The actual effect of changes in interest rates on our comprehensive income in any given period may vary based on a number of factors, including, but not limited to, the composition of our assets and liabilities, the actual changes in interest rates that are realized at different terms along the yield curve, and the effectiveness of our hedge accounting strategies. Even if implemented properly, our hedge accounting programs may not be effective in reducing earnings volatility, and our hedges may fail in any given future period, which could expose us to significant earnings variability in that period. See Risk Factors - Market Risk - Changes in interest rates could negatively affect the fair value of financial assets and liabilities, our results of operations, and our net worth in our 2019 Annual Report for additional information.

Spread-Related Earnings Sensitivity

We have limited ability to manage our spread risk exposure in a cost beneficial manner, and therefore the changes in market spreads may contribute to significant earnings variability from period to period. For financial assets measured at fair value, we generally recognize fair value losses when market spreads widen. Conversely, for financial liabilities measured at fair value, we generally recognize fair value gains when market spreads widen. See MD&A - Our Business Segments for additional information on the impact of market spreads on our results of operations.

Freddie Mac 2Q 2020 Form 10-Q 59

Management's Discussion and Analysis Liquidity and Capital Resources

LIQUIDITY AND CAPITAL RESOURCES

Our business activities require that we maintain adequate liquidity to meet our financial obligations as they come due and meet the needs of customers in a timely and cost-efficient manner. We also must maintain adequate capital resources to avoid being placed into receivership by FHFA. For further discussion of our liquidity framework and profile, see MD&A - Liquidity and Capital Resources in our 2019 Annual Report.

On June 17, 2020, FHFA provided us with updated liquidity guidance establishing minimum short-, medium-, and long-term liquidity requirements. These requirements are based on cash flows needed under a stressed scenario that assumes, among other things, that for short- and medium-term periods, we may not have access to debt funding from the market for an extended period of time and therefore must fund our cash needs utilizing certain liquid assets in our portfolio. These requirements also include issuing sufficient long-term debt to reduce rollover risk. The updated liquidity guidance is more stringent than our existing liquidity requirements and liquidity requirements of banks and other depository institutions, which could result in higher funding costs in the future and may negatively affect our net interest income. In addition, the updated liquidity guidance may impact the size and the allowable investments in our other investments portfolio. We must comply with these updated liquidity requirements by no later than September 1, 2020.

Liquidity

Primary Sources of Liquidity

The following table lists the sources of our liquidity, the balances as of June 30, 2020, and a brief description of their importance to Freddie Mac.

Table 46 - Liquidity Sources

Source		Balance(1)  (In billions)			Description
Liquidity
•	Other Investments Portfolio - Liquidity and Contingency Operating Portfolio		$95.5	•	The liquidity and contingency operating portfolio, included within our other investments portfolio, is primarily used for short-term liquidity management.
•	Liquid Portion of the Mortgage-Related Investments Portfolio		$88.3	•	The liquid portion of our mortgage-related investments portfolio can be pledged or sold for liquidity purposes. The amount of cash we may be able to successfully raise may be substantially less than the balance.

(1) Represents carrying value for the liquidity and contingency operating portfolio, included within our other investments portfolio, and UPB for the liquid portion of the mortgage-related investments portfolio.

Other Investments Portfolio

The investments in our other investments portfolio are important to our cash flow, collateral management, asset and liability management, and ability to provide liquidity and stability to the mortgage market. The table below summarizes the balances in our other investments portfolio, which includes the liquidity and contingency operating portfolio.

Table 47 - Other Investments Portfolio

	June 30, 2020								December 31, 2019
(In billions)	Liquidity and Contingency Operating Portfolio		Custodial Account		Other		Total Other Investments Portfolio (1)		Liquidity and Contingency Operating Portfolio		Custodial Account		Other		Total Other Investments Portfolio (1)
Cash and cash equivalents		$6.7		$0.9		$—		$7.6		$4.2		$0.9		$0.1		$5.2
Securities purchased under agreements to resell	61.0		47.4		0.8		109.2		40.6		23.1		2.4		66.1
Non-mortgage related securities	27.8		—		4.5		32.3		23.2		—		3.9		27.1
Secured lending and other	—		—		6.5		6.5		—		—		5.2		5.2
Total		$95.5		$48.3		$11.8		$155.6		$68.0		$24.0		$11.6		$103.6

(1) Represents carrying value.

Freddie Mac 2Q 2020 Form 10-Q 60

Management's Discussion and Analysis Liquidity and Capital Resources

Our non-mortgage-related investments in the liquidity and contingency operating portfolio consist of U.S. Treasury securities and other investments that we could sell to provide us with an additional source of liquidity to fund our business operations. We also maintain non-interest-bearing deposits at the Federal Reserve Bank of New York and interest-bearing deposits at commercial banks. Our interest-bearing deposits at commercial banks totaled $3.8 billion and $3.7 billion as of June 30, 2020 and December 31, 2019, respectively.

The liquidity and contingency operating portfolio also included collateral posted to us in the form of cash primarily by derivatives counterparties of $5.1 billion and $2.6 billion as of June 30, 2020 and December 31, 2019, respectively. We have invested this collateral in securities purchased under agreements to resell and non-mortgage-related securities as part of our liquidity and contingency operating portfolio, although the collateral may be subject to return to our counterparties based on the terms of our master netting and collateral agreements.

Mortgage Loans and Mortgage-Related Securities

We invest principally in mortgage loans and mortgage-related securities, certain categories of which are largely unencumbered and liquid. Our primary source of liquidity among these mortgage assets is our holdings of single-class and multiclass agency securities, excluding certain structured agency securities collateralized by non-agency mortgage-related securities. Our ability to pledge certain of these assets as collateral or sell them enhances our liquidity profile, although the amount of cash we may be able to successfully raise in the event of a liquidity crisis or significant market disruption may be substantially less than the amount of mortgage-related assets we hold. See Conservatorship and Related Matters for additional details on the liquidity of our mortgage-related investments portfolio.

Primary Sources of Funding

The following table lists the sources and balances of our funding as of June 30, 2020 and a brief description of their importance to Freddie Mac.

Table 48 - Funding Sources

Source		Balance(1)  (In billions)			Description
Funding
•	Other Debt		$287.4	•	Other debt is used to fund our business activities, including single-family guarantee activities not funded by debt securities of consolidated trusts.
•	Debt Securities of Consolidated Trusts		$2,020.9	•	Debt securities of consolidated trusts are used primarily to fund our single-family guarantee activities. This type of debt is principally repaid by the cash flows of the associated mortgage loans. As a result, our repayment obligation is limited to amounts paid pursuant to our guarantee of principal and interest and purchasing modified or seriously delinquent loans from the trusts.

(1) Represents carrying value of debt balances after consideration of offsetting arrangements.

Other Debt Activities

We issue other debt to fund our business activities. Competition for funding can vary with economic, financial market, and regulatory environments. We issue other debt based on a variety of factors, including market conditions and our liquidity requirements. We currently favor a mix of derivatives and shorter-term and callable debt to fund our business and manage interest-rate risk. Generally, this funding mix is a less expensive method than relying more extensively on long-term debt. However, our funding costs may increase due to an expected increase in term debt issuance to comply with new FHFA liquidity guidance.

The table below summarizes the par value and the average rate of other debt we issued or paid off, including regularly scheduled principal payments, payments resulting from calls, and payments for repurchases. We call, exchange, or repurchase our outstanding debt from time to time for a variety of reasons, including managing our funding composition and supporting the liquidity of our debt.

Freddie Mac 2Q 2020 Form 10-Q 61

Management's Discussion and Analysis Liquidity and Capital Resources

Table 49 - Other Debt Activity

	2Q 2020										YTD 2020
(Dollars in millions)	Short-term			Average Rate(1)		Long-term			Average Rate(1)		Short-term			Average Rate(1)		Long-term			Average Rate(1)
Discount notes and Reference Bills®
Beginning balance		$57,822		1.33	%		$—		—	%		$60,830		1.67	%		$—		—	%
Issuances	37,989			0.22		—			—		137,366			1.03		—			—
Repurchases	—			—		—			—		—			—		—			—
Maturities	(38,857		)	1.53		—			—		(141,242		)	1.60		—			—
Ending Balance	56,954			0.45		—			—		56,954			0.45		—			—
Securities sold under agreements to repurchase
Beginning balance	14,305			0.16		—			—		9,843			1.46		—			—
Additions	239,297			(0.02	)	—			—		538,976			0.60		—			—
Repayments	(244,938		)	(0.01	)	—			—		(540,155		)	0.63		—			—
Ending Balance	8,664			0.04		—			—		8,664			0.04		—			—
Callable debt
Beginning balance	—			—		84,869			1.92		1,000			2.36		94,152			2.03
Issuances	—			—		51,366			0.71		—			—		80,455			1.10
Repurchases	—			—		—			—		—			—		—			—
Calls	—			—		(46,947		)	1.93		(1,000		)	2.36		(83,049		)	2.00
Maturities	—			—		(2,507		)	1.55		—			—		(4,777		)	1.52
Ending Balance	—			—		86,781			1.21		—			—		86,781			1.21
Non-callable debt
Beginning balance	40,313			2.07		90,295			2.21		39,407			2.31		62,228			2.86
Issuances	—			—		31,548			0.34		14,356			1.57		63,204			0.60
Repurchases	(2,925		)	2.10		—			—		(2,925		)	2.10		—			—
Maturities	(16,177		)	2.31		(11,260		)	1.76		(29,627		)	2.28		(14,849		)	1.71
Ending Balance	21,211			1.87		110,583			1.72		21,211			1.87		110,583			1.72
STACR and SCR Debt(2)
Beginning balance	—			—		14,654			5.57		—			—		15,497			5.55
Issuances	—			—		578			—		—			—		578			1.62
Repurchases	—			—		—			—		—			—		—			—
Maturities	—			—		(1,617		)	3.08		—			—		(2,460		)	3.34
Ending Balance	—			—		13,615			4.12		—			—		13,615			4.12
Total other debt	86,829			0.75	%	210,979			1.66	%	86,829			0.75	%	210,979			1.66	%
Offsetting arrangements	(8,664		)								(8,664		)
Total other debt, net		$78,165					$210,979					$78,165					$210,979

(1) Average rate is weighted based on par value.

(2) STACR debt notes and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any time generally without penalty and are therefore included as a separate category in the table.

As of June 30, 2020, our aggregate indebtedness, calculated as the par value of other debt, was $289.3 billion, which was below the $300.0 billion debt cap limit imposed by the Purchase Agreement. Beginning January 1, 2020, we elected to net securities sold under agreements to repurchase against securities purchased under agreements to resell when such amounts meet the conditions for balance sheet offsetting, both on our condensed consolidated balance sheets and for purposes of measuring our aggregate indebtedness under the debt cap limit. See Note 10 for additional information.

Our outstanding other debt balance increased during the 2020 periods primarily due to a higher expected single-family cash loan purchase forecast, coupled with near-term cash needs for upcoming debt maturities and anticipated calls of other debt. We have maintained adequate access to debt markets to meet our financial obligations as they come due and to meet the needs of customers in a timely and cost-efficient manner throughout the course of the COVID-19 pandemic, and we expect to continue to do so.

Freddie Mac 2Q 2020 Form 10-Q 62

Management's Discussion and Analysis Liquidity and Capital Resources

Maturity and Redemption Dates

The following graphs present our other debt by contractual maturity date and earliest redemption date. The earliest redemption date refers to the earliest call date for callable debt and the contractual maturity date for all other debt.

Contractual Maturity Date as of June 30, 2020 ⁽¹⁾ 

Earliest Redemption Date as of June 30, 2020 ⁽¹⁾ 

(1) STACR debt notes and SCR debt notes are subject to prepayment risk as their payments are based upon the performance of a reference pool of mortgage assets that may be prepaid by the related mortgage borrower at any time generally without penalty and are therefore included as a separate category in the graphs.

Debt Securities of Consolidated Trusts

The largest component of debt on our condensed consolidated balance sheets is debt securities of consolidated trusts, which relates to securitization transactions that we consolidated for accounting purposes. We issue this type of debt by securitizing mortgage loans primarily to fund the majority of our single-family guarantee activities. When we consolidate securitization trusts, we recognize the following on our condensed consolidated balance sheets:

n The assets held by the securitization trusts, the majority of which are mortgage loans. We recognized $2,000.6 billion and $1,940.5 billion of mortgage loans, which represented 85.7% and 88.1% of our total assets, as of June 30, 2020 and December 31, 2019, respectively.

n The debt securities issued by the securitization trusts, the majority of which are Level 1 securitizations that are pass-through securities, where the cash flows of the mortgage loans held by the securitization trust are passed through to the holders of the securities. We recognized $2,020.9 billion and $1,898.4 billion of debt securities of consolidated trusts, which represented 87.5% and 87.1% of our total debt, as of June 30, 2020 and December 31, 2019, respectively.

Debt securities of consolidated trusts are principally repaid from the cash flows of the mortgage loans held by the securitization trusts that issued the debt securities. In circumstances when the cash flows of the mortgage loans are not sufficient to repay the debt, we make up the shortfall because we have guaranteed the payment of principal and interest on the debt. In certain circumstances, we have the right and/or obligation to purchase the loan from the trust prior to its contractual maturity. In April 2020, FHFA instructed us to maintain loans in payment forbearance plans (including COVID-19 payment forbearance plans) in mortgage-backed security pools for at least the duration of the forbearance plan. Once the forbearance period expires, the loan will remain in the related securities pool while (i) an offer to reinstate the loan or enter into either a payment deferral solution, repayment plan or a trial period plan pursuant to a loan modification remains outstanding; (ii) the loan is in an active repayment plan or trial period plan; or (iii) a payment deferral solution is in effect.

Freddie Mac 2Q 2020 Form 10-Q 63

Management's Discussion and Analysis Liquidity and Capital Resources

The table below shows the issuance and extinguishment activity for the debt securities of our consolidated trusts.

Table 50 - Activity for Debt Securities of Consolidated Trusts Held by Third Parties

(In millions)	2Q 2020			YTD 2020
Beginning balance		$1,885,771			$1,854,802
Issuances:
New issuances to third parties	132,506			236,275
Additional issuances of securities	146,285			188,937
Total issuances	278,791			425,212
Extinguishments:
Purchases of debt securities from third parties	(2,055		)	(6,072		)
Debt securities received in settlement of secured lending	(28,126		)	(42,891		)
Repayments of debt securities	(165,718		)	(262,388		)
Total extinguishments	(195,899		)	(311,351		)
Ending balance	1,968,663			1,968,663
Unamortized premiums and discounts	52,203			52,203
Debt securities of consolidated trusts held by third parties		$2,020,866			$2,020,866

Cash Flows

Cash and cash equivalents (including restricted cash and cash equivalents) increased by $4.2 billion from June 30, 2019 to June 30, 2020, primarily driven by an increase in proceeds from the issuance of debt due to higher near-term cash needs for upcoming debt maturities and anticipated calls of other debt. In addition, we carried higher cash and cash equivalents at June 30, 2020 due to a higher expected single-family cash loan purchase forecast.

Capital Resources

Primary Sources of Capital

Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our management of capital. Under the Purchase Agreement, Treasury made a commitment to provide us with funding, under certain conditions, to eliminate deficits in our net worth. Pursuant to the September 2019 Letter Agreement, we will not be required to pay a dividend on the senior preferred stock to Treasury until our Net Worth Amount exceeds $20.0 billion. Based on our Net Worth Amount of $11.4 billion, no dividend is payable to Treasury for the quarter ending June 30, 2020. See Note 2 for details of the support we receive from Treasury.

The table below presents activity related to our net worth during 2Q 2020 and YTD 2020

Table 51 - Net Worth Activity

(In millions)	2Q 2020		YTD 2020 (1)
Beginning balance		$9,504		$8,882
Comprehensive income (loss)	1,938		2,560
Capital draw from Treasury	—		—
Senior preferred stock dividends declared	—		—
Total equity / net worth		$11,442		$11,442
Aggregate draws under Purchase Agreement		$71,648		$71,648
Aggregate cash dividends paid to Treasury	119,680		119,680
Liquidation preference of the senior preferred stock	82,152		82,152

(1) Beginning balance includes cumulative-effect adjustment of ($240) million related to our adoption of CECL on January 1, 2020. See Note 1 for additional information on our adoption of CECL.

Freddie Mac 2Q 2020 Form 10-Q 64

Management's Discussion and Analysis Liquidity and Capital Resources

Conservatorship Capital Framework

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 newly-developed risk-based CCF, a capital system with detailed formulae provided by FHFA. In May 2020, FHFA released its re-proposed Enterprise Capital Rule for comment. FHFA's re-proposed capital rule, if adopted, would significantly increase our capital requirements and, as a result, would significantly lower our returns on capital. It also could affect our business strategies, perhaps significantly. For additional information on the re-proposed capital rule, see MD&A - Regulation and Supervision - Legislative and Regulatory Developments - FHFA Re-Proposed Capital Rule for the Enterprises.

Until FHFA issues a final Enterprise Capital Rule, we will continue to use the CCF to evaluate business decisions and ensure the company makes such decisions prudently when pricing transactions and managing its businesses. This framework focuses on returns on conservatorship capital.

The CCF has been and may be further revised by FHFA from time to time, including in connection with FHFA's consideration and adoption of a final Enterprise Capital Rule, which could possibly result in material changes in our conservatorship capital, and, thus, our returns on conservatorship capital.

The existing regulatory capital requirements have been suspended by FHFA during conservatorship. Consequently, we refer to the capital needed under the CCF for analysis of transactions and businesses as "conservatorship capital."

Under the Purchase Agreement and the September 2019 Letter Agreement, we are not able to retain equity, as calculated under GAAP, in excess of the $20.0 billion Capital Reserve Amount. As a result, we do not have capital sufficient to support our aggregate risk-taking activities.

Return on Conservatorship Capital

The table below provides the ROCC, calculated as (1) annualized comprehensive income for the period divided by (2) average conservatorship capital during the period.

The ROCC shown in the table below is not based on our total equity and does not reflect actual returns on total equity. We do not believe that returns on total equity are meaningful because of the net worth limit imposed since 2012 under the Purchase Agreement.

Table 52 - Return on Conservatorship Capital ⁽¹⁾  

(Dollars in billions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Comprehensive income		$1.9			$1.8			$2.5			$3.5
Conservatorship capital (average during the period)(2)	49.8			51.7			50.5			52.1
ROCC, based on comprehensive income(2)	15.6		%	14.1		%	10.1		%	13.4		%

(1) Average conservatorship capital and ROCC for 2Q 2020 and YTD 2020 are preliminary and subject to change until official submission to FHFA. Prior period preliminary numbers have been updated, as needed, to reflect final data submitted to FHFA.

(2) Average conservatorship capital for each period is based on the CCF in effect during that period. The CCF in effect as of June 30, 2020 was largely unchanged from the CCF as of June 30, 2019.

Our ROCC for 2Q 2020 compared to 2Q 2019 increased, primarily driven by a lower level of conservatorship capital needed, resulting from an increase in CRT activity in both the Single-family Guarantee and Multifamily segments, house price appreciation, the efficient disposition of legacy assets, and a decrease in our deferred tax assets. Our ROCC for YTD 2020 decreased compared to YTD 2019, primarily driven by a decrease in comprehensive income, partially offset by a lower level of conservatorship capital needed, resulting from an increase in CRT activity in both the Single-family Guarantee and Multifamily segments, house price appreciation, the efficient disposition of legacy assets, and a decrease in our deferred tax assets. Our ROCC in future periods may be affected by the significant adverse effect the COVID-19 pandemic may have on our business for the remainder of 2020 and into 2021, and perhaps beyond.

We find the returns calculated above, as well as the returns calculated on specific transactions and individual business lines, to be a reasonable measure of return-versus-risk to support our decision-making while we remain in conservatorship. These returns may not be indicative of the returns that would be generated if we were to exit conservatorship, especially as the terms and timing of any such exit are not currently known and will depend upon future actions by the U.S. government. Our belief, should we leave conservatorship, is that returns at that time would most likely be below the levels calculated above, assuming the same portfolio of risk assets, as our capital requirements are likely to be significantly higher under the re-proposed capital rule and we expect that we would hold capital post-conservatorship above the minimum required regulatory capital. It is also likely that we would be required to pay fees for federal government support, thereby reducing our total comprehensive income.

Freddie Mac 2Q 2020 Form 10-Q 65

Management's Discussion and Analysis Off-Balance Sheet Arrangements

OFF-BALANCE SHEET ARRANGEMENTS

We enter into certain off-balance sheet arrangements related to our securitization activities involving guaranteed loans and mortgage-related securities, though most of our securitization activities are on-balance sheet. For a description of our off-balance sheet arrangements, see MD&A - Off-Balance Sheet Arrangements in our 2019 Annual Report. See Note 3 and Note 5 for more information on our off-balance sheet securitization and guarantee activities. Our adoption of CECL on January 1, 2020 changed how we measure our allowance for credit losses on off-balance sheet credit exposures. See Note 5 for additional information.

Our maximum potential off-balance sheet exposure to credit losses relating to these securitization activities and guarantees is primarily represented by the UPB of the underlying loans and securities, which was $305.1 billion and $296.5 billion at June 30, 2020 and December 31, 2019, respectively. These amounts exclude Fannie Mae securities backing Freddie Mac resecuritization products discussed below.

We commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products. When we resecuritize Fannie Mae securities in our commingled resecuritization products, our guarantee covers timely payments of principal and interest on such securities. Accordingly, commingling Fannie Mae collateral in our resecuritization transactions increases our off-balance sheet exposure as we do not have control over the Fannie Mae collateral. The total amount of our off-balance sheet exposure related to Fannie Mae securities backing Freddie Mac resecuritization products was $54.3 billion and $27.4 billion at June 30, 2020 and December 31, 2019, respectively. We expect this exposure to increase over time.

Freddie Mac 2Q 2020 Form 10-Q 66

Management's Discussion and Analysis Critical Accounting Policies and Estimates

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make a number of judgments, estimates, and assumptions that affect the reported amounts within our condensed consolidated financial statements. Certain of our accounting policies, as well as estimates we make, are critical, as they are both important to the presentation of our financial condition and results of operations and require management to make difficult, complex, or subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from our estimates, and the use of different judgments and assumptions related to these policies and estimates could have a material impact on our condensed consolidated financial statements.

Our critical accounting policies and estimates relate to the single-family allowance for credit losses and fair value measurements. For additional information about our critical accounting policies and estimates and other significant accounting policies, as well as recently issued accounting guidance, see Note 1 in this Form 10-Q and Critical Accounting Policies and Estimates and Note 1 in our 2019 Annual Report.

Single-Family Allowance for Credit Losses

Beginning on January 1, 2020, upon the adoption of CECL, the single-family allowance for credit losses represents our estimate of expected credit losses over the contractual term of the mortgage loans. The single-family allowance for credit losses pertains to all single-family loans classified as held-for-investment on our condensed consolidated balance sheets.

Determining the appropriateness of the single-family allowance for credit losses is a complex process that is subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity. This process involves the use of models that require us to make judgments about matters that are difficult to predict, the most significant of which are the probability of default, prepayment, and loss severity. We regularly evaluate the underlying estimates and models we use when determining the single-family allowance for credit losses and update our assumptions to reflect our historical experience and current view of economic factors. For additional information on uncertainty and risks related to models, see Other Information - Risk Factors in our Form 10-Q for the quarter ended March 31, 2020 and Risk Factors - Operational Risks - We face risks and uncertainties associated with the models that we use to inform business and risk management decisions and for financial accounting and reporting purposes in our 2019 Annual Report. Upon adoption of CECL, the single-family allowance for credit losses also includes our reasonable and supportable forecast of certain future economic conditions, such as house prices and interest rates. Changes in our forecasts or the occurrence of actual economic conditions that differ significantly from our forecast may significantly affect the measurement of our single-family allowance for credit losses. The length and severity of the economic downturn caused by the COVID-19 pandemic, and its impact on the housing market, is subject to significant uncertainty, which makes it difficult to estimate credit losses. These developments may have a material effect on our allowance for credit losses in future periods.

We believe the level of our single-family allowance for credit losses is appropriate based on internal reviews of the factors and methodologies used. No single statistic or measurement determines the appropriateness of the allowance for credit losses. Changes in one or more of the estimates or assumptions used to calculate the single-family allowance for credit losses could have a material impact on the allowance for credit losses and benefit (provision) for credit losses.

Changes in forecasted house price growth rates can have a significant effect on our allowance for credit losses. Our estimate of expected credit losses leverages an internally based model and uses a nationwide house price growth forecast for the next three years. A Monte Carlo simulation generates many possible house price scenarios for up to 40 years for each metropolitan statistical area (MSA). These scenarios are used to estimate loan-level expected future cash flows and credit losses based on each loan’s individual characteristics. The COVID-19 pandemic has resulted in a significant decline in our near term forecasted house price growth rates compared to pre-pandemic estimates, although our forecast has improved since the end of 1Q 2020.

Inputs used by the model are regularly updated for changes in the underlying data, assumptions, and market conditions. We review the output of this model by considering qualitative factors such as macroeconomic and other factors to see whether the model outputs are consistent with our expectations. Management adjustments may be necessary to take into consideration external factors and current economic events that have occurred but are not yet reflected in the factors used to derive the model outputs. Significant judgment is exercised in making these adjustments.

Some examples of the qualitative factors considered include:

n    Regional housing trends;

n    Applicable house price indices;

n    Unemployment and employment dislocation trends;

n    The effects of changes in government policies and programs;

n    Industry trends;

n    Consumer credit statistics;

Freddie Mac 2Q 2020 Form 10-Q 67

Management's Discussion and Analysis Critical Accounting Policies and Estimates

n Third-party credit enhancements;

n Natural disasters (such as hurricanes and wildfires); and

n Other catastrophic events (such as the COVID-19 pandemic and the impact of associated relief programs).

The inability to realize the benefits of our loss mitigation activities, declines in house prices, deterioration in the financial condition of our mortgage insurers, or increases in delinquency rates would cause our losses to be significantly higher than those currently estimated.

Freddie Mac 2Q 2020 Form 10-Q 68

Management's Discussion and Analysis Conservatorship and Related Matters

CONSERVATORSHIP AND RELATED MATTERS

Managing Our Mortgage-Related Investments Portfolio

The table below presents the UPB of our mortgage-related investments portfolio. In February 2019, FHFA directed us to maintain this portfolio at or below $225 billion at all times. In November 2019, FHFA directed us, by January 31, 2020, to include 10% of the notional value of certain interest-only securities owned by Freddie Mac in the calculation of this portfolio, while continuing to maintain the portfolio below the limit imposed by FHFA. For this purpose, our mortgage-related investments portfolio was $199.4 billion as of June 30, 2020, including $5.3 billion representing 10% of the notional amount of the interest-only securities we held as of June 30, 2020.

Table 53 - Mortgage-Related Investments Portfolio Details

	June 30, 2020												December 31, 2019
(Dollars in millions)	Liquid			Securitiz-ation Pipeline			Less Liquid			Total			Liquid			Securitiz-ation Pipeline			Less Liquid			Total
Capital Markets segment - Mortgage investments portfolio:
Single-family unsecuritized loans
Performing loans		$—			$35,493			$—			$35,493			$—			$19,144			$—			$19,144
Reperforming loans	—			—			23,517			23,517			—			—			26,134			26,134
Total single-family unsecuritized loans	—			35,493			23,517			59,010			—			19,144			26,134			45,278
Agency securities	84,113			—			2,271			86,384			119,156			—			2,518			121,674
Non-agency mortgage-related securities	—			—			1,385			1,385			—			—			1,458			1,458
Total Capital Markets segment - Mortgage investments portfolio	84,113			35,493			27,173			146,779			119,156			19,144			30,110			168,410
Single-family Guarantee segment - Single-family unsecuritized seriously delinquent loans	—			—			9,622			9,622			—			—			8,589			8,589
Multifamily segment:
Unsecuritized loans	—			20,712			12,200			32,912			—			18,531			11,254			29,785
Mortgage-related securities	4,199			—			598			4,797			5,209			—			680			5,889
Total Multifamily segment	4,199			20,712			12,798			37,709			5,209			18,531			11,934			35,674
Total mortgage-related investments portfolio		$88,312			$56,205			$49,593			$194,110			$124,365			$37,675			$50,633			$212,673
Percentage of total mortgage-related investments portfolio	45		%	29		%	26		%	100		%	58		%	18		%	24		%	100		%

While we continued to purchase new single-family seriously delinquent loans from securities we guarantee and certain multifamily unsecuritized loans, which are classified as held-for-investment, our active disposition of less liquid assets during YTD 2020 included the following:

n Sales of $1.9 billion in UPB of single-family reperforming loans and $0.3 billion in UPB of seriously delinquent unsecuritized single-family loans;

n Securitizations of $2.6 billion in UPB of less liquid multifamily loans; and

n Transfers of $0.6 billion in UPB of less liquid multifamily loans to the securitization pipeline.

The less liquid assets in our mortgage-related investments portfolio increased in YTD 2020 and may continue to do so as we purchase delinquent loans from securities after the forbearance period ends.

Freddie Mac 2Q 2020 Form 10-Q 69

Management's Discussion and Analysis Regulation and Supervision

REGULATION AND SUPERVISION

In addition to our oversight by FHFA as our Conservator, we are subject to regulation and oversight by FHFA under our Charter and the GSE Act and to certain regulation by other government agencies. Furthermore, regulatory activities by other government agencies can affect us indirectly, even if we are not directly subject to such agencies' regulation or oversight. For example, regulations that modify requirements applicable to the purchase or servicing of mortgages can affect us.

Federal Housing Finance Agency

Affordable Housing Fund Allocations

The GSE Act requires us to set aside in each fiscal year an amount equal to 4.2 basis points of each dollar of total new business purchases, and pay this amount to certain housing funds. During 2Q 2020 and YTD 2020, we completed $250.9 billion and $398.5 billion, respectively, of new business purchases subject to this requirement and accrued $105 million and $168 million, respectively, of related expense. We are prohibited from passing through these costs to the originators of the loans that we purchase.

Proposed Affordable Housing Goals for 2021

On July 20, 2020, FHFA proposed its single-family and multifamily affordable housing goals for Freddie Mac for 2021. Due to the economic uncertainty related to the COVID-19 pandemic, FHFA is proposing benchmarks for 2021 only, and those levels will remain the same as they were for 2018-2020.

Our current and proposed affordable housing goal benchmark levels are set forth below.

Table 54 - Current and Proposed 2021 Affordable Housing Goal Benchmark Levels

	Current Benchmark Levels for 2020		Proposed Benchmark Levels for 2021
Single-family purchase money goals (Benchmark levels):
Low-income	24	%	24	%
Very low-income	6	%	6	%
Low-income areas	18	%	TBD
Low-income areas subgoal	14	%	14	%
Single-family refinance low-income goal (Benchmark level)	21	%	21	%
Multifamily low-income goal (In units)	315,000		315,000
Multifamily very low-income subgoal (In units)	60,000		60,000
Multifamily small property low-income subgoal (In units)	10,000		10,000

Duty to Serve Underserved Markets

In July 2020, FHFA announced that, due to the market disruption and uncertainty caused by the COVID-19 pandemic, it has made temporary adjustments to the Duty to Serve program for 2020 and 2021 by amending the 2020 modification process and extending our 2018-2020 Duty to Serve Underserved Markets Plan by one year to include 2021 activities and objectives. FHFA has instructed us to submit 2020 modification requests and proposed 2021 activities and objectives by September 15, 2020. FHFA expects that Freddie Mac’s next three-year Duty to Serve Underserved Markets Plan, covering 2022-2024, will be due in May 2021.

Freddie Mac 2Q 2020 Form 10-Q 70

Management's Discussion and Analysis Regulation and Supervision

Legislative and Regulatory Developments

FHFA Re-Proposed Capital Rule for the Enterprises

On May 20, 2020, FHFA issued a notice of proposed rulemaking for a new Enterprise Regulatory Capital Framework for Freddie Mac and Fannie Mae. This proposed rule is a re-proposal of the Enterprise Capital Rule published by FHFA in July 2018.  FHFA is seeking comments on the re-proposed capital rule through August 31, 2020. 

The re-proposed capital rule significantly expands on the requirements included in the 2018 proposed rule, primarily by incorporating several bank regulatory concepts that are intended to increase both the quality and quantity of capital that the Enterprises would be required to hold. The re-proposed capital rule also includes provisions designed to limit the pro-cyclicality of the risk-based capital provisions in the 2018 proposed rule. The re-proposed capital rule, if adopted, would significantly increase our capital requirements and could affect our business strategies, perhaps significantly.

The re-proposed capital rule would establish six capital requirements for the Enterprises: four risk-based requirements, which, in part, evaluate specified types of capital against a percentage of an Enterprise’s risk-weighted assets, and two leverage requirements, which evaluate specified types of capital against a percentage of an Enterprise’s adjusted total assets. The re-proposed capital rule also would specify certain capital buffer amounts. If an Enterprise does not maintain capital levels in excess of these supplemental buffer requirements, its ability to make certain capital distributions and discretionary executive bonus payments would be limited.

The re-proposed capital rule includes provisions for an Enterprise to calculate its risk-weighted assets under a “standardized approach,” which specifies requirements, based on relative risk, to determine a risk weight for the Enterprise’s assets and exposures. The standardized approach includes provisions to calculate risk weights for credit exposures to single-family and multifamily loans, credit risk transfers, derivatives, and other on- and off-balance sheet assets and exposures. The standardized approach also specifies requirements for including market and operational risks in the calculation of an Enterprise’s risk-weighted assets. In addition to requiring an Enterprise to use the standardized approach, the re-proposed capital rule also would require an Enterprise to calculate its risk-weighted assets using an “advanced approach,” which would rely entirely on the Enterprise’s models.  In determining its risk-weighted assets for evaluating capital adequacy, an Enterprise would use the higher of the amounts calculated under the standardized approach and the advanced approach. 

We cannot predict whether and when FHFA will finalize new capital requirements for the Enterprises and how much capital any final requirements would require the Enterprises to hold.

Proposed Rule to Extend Qualified Mortgage Definition

On June 22, 2020, the CFPB issued a proposed rule to extend the category of qualified mortgages that consists of loans that are eligible for purchase or guarantee by either Freddie Mac or Fannie Mae until the effective date of final amendments to the definition of a qualified mortgage in the ability-to-repay rule. This category of qualified mortgages is currently scheduled to expire in January 2021. The CFPB also proposed amendments to the general qualified mortgage definition to replace the 43% DTI limit with a price-based threshold, as measured by comparing a loan’s annual percentage rate (APR) to the average prime offer rate (APOR) for a comparable transaction.

Derivative Margin Requirements

On July 1, 2020, FHFA and certain banking agencies (the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Farm Credit Administration) published in the Federal Register a rule extending the implementation deadlines for swap dealers, security-based swap dealers, major swap participants, and major security-based swap participants to exchange collateral with their counterparties as initial margin for swaps that are not centrally cleared. The Commodity Futures Trading Commission (CFTC) and regulators in other jurisdictions whose rules are relevant to Freddie Mac’s derivatives trading relationships (as a result of direct application to Freddie Mac’s counterparties) have similarly delayed implementation or are expected to do so. As a result, Freddie Mac now anticipates that our OTC derivative transactions will become subject to the initial margin requirements on September 1, 2021.

Freddie Mac 2Q 2020 Form 10-Q 71

Management's Discussion and Analysis Forward-Looking Statements

FORWARD-LOOKING STATEMENTS

We regularly communicate information concerning our business activities to investors, the news media, securities analysts, and others as part of our normal operations. Some of these communications, including this Form 10-Q, contain "forward-looking statements." Examples of forward-looking statements include, but are not limited to, statements pertaining to the conservatorship, our current expectations and objectives for the Single-family Guarantee, Multifamily, and Capital Markets segments of our business, our efforts to assist the housing market, our liquidity and capital management, economic and market conditions and trends, the effects of the COVID-19 pandemic and actions taken in response thereto on our business, financial condition, and liquidity, our market share, the effect of legislative and regulatory developments and new accounting guidance, the credit quality of loans we own or guarantee, the costs and benefits of our CRT transactions, and our results of operations and financial condition on a GAAP, Segment Earnings, and fair value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control. Forward-looking statements are often accompanied by, and identified with, terms such as "could," "may," "will," "believe," "expect," "anticipate," "forecast," and similar phrases. These statements are not historical facts, but rather represent our expectations based on current information, plans, judgments, assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such forward-looking statements due to various factors and uncertainties, including those described in the Other Information - Risk Factors in our Form 10-Q for the quarter ended March 31, 2020, the Risk Factors section in our 2019 Annual Report, and:

n Uncertainty regarding the duration and severity of the COVID-19 pandemic and the effects of the pandemic and actions taken in response thereto on the United States economy and housing market, which could, in turn, adversely affect our business in numerous ways, including, for example, by increasing our credit losses, impairing the value of our mortgage-backed securities, decreasing our liquidity and capital levels, and increasing our credit risk and operational risk;

n The actions the U.S. government (including FHFA, Treasury, and Congress) may take, or require us to take, including to support the housing markets (such as programs implemented in response to the COVID-19 pandemic) or to implement the recommendations in the Treasury Housing Reform Plan or FHFA's Conservatorship Scorecards and other objectives for us;

n The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement;

n Changes in our Charter or in applicable legislative or regulatory requirements (including changes pursuant to the Treasury Housing Reform Plan or pursuant to any legislation affecting the future status of our company);

n Changes in the fiscal and monetary policies of the Federal Reserve (including purchasing agency MBS and agency CMBS in amounts needed to support the market during the COVID-19 pandemic);

n Changes in tax laws;

n Changes in accounting policies, practices, or guidance, such as our adoption of CECL;

n Changes in economic and market conditions generally, and as a result of the COVID-19 pandemic, including changes in employment rates, interest rates, spreads, and house prices;

n Changes in the U.S. residential mortgage market, including changes in the supply and type of loan products (e.g., refinance vs. purchase and fixed-rate vs. ARM);

n The success of our efforts to mitigate our losses on our single-family credit guarantee portfolio;

n The success of our strategy to transfer mortgage credit risk through STACR debt note, STACR Trust note, ACIS, K Certificate, SB Certificate, and other CRT transactions;

n Our ability to maintain adequate liquidity to fund our operations;

n Our ability to maintain the security and resiliency of our operational systems and infrastructure, including against cyberattacks;

n Our ability to effectively execute our business strategies, implement new initiatives, and improve efficiency;

n The adequacy of our risk management framework, including the adequacy of the CCF for measuring risk;

n Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;

n Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate volatility and spread volatility, including the availability of derivative financial instruments needed for interest-rate risk management purposes;

n Our operational ability to issue new securities, make timely and correct payments on securities, and provide initial and ongoing disclosures;

n Our reliance on CSS and the CSP for the operation of the majority of our single-family securitization activities, our reduced influence over CSS Board decisions as a result of recent FHFA-required changes to the CSS LLC agreement, and any additional changes FHFA may require in our relationship with, or support of, CSS;

n Changes or errors in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks;

n Changes in investor demand for our debt or mortgage-related securities;

n Our ability to align pooling practices and the treatment of forbearance loans with Fannie Mae;

Freddie Mac 2Q 2020 Form 10-Q 72

Management's Discussion and Analysis Forward-Looking Statements

n Changes in the practices of loan originators, servicers, investors, and other participants in the secondary mortgage market;

n The discontinuance of, transition from, or replacement of LIBOR and the adverse consequences it could have on our business and operations;

n The occurrence of a major natural or other catastrophic event (such as the COVID-19 pandemic) in areas in which our offices or significant portions of our total mortgage portfolio are located; and

n Other factors and assumptions described in this Form 10-Q and our 2019 Annual Report, including in the MD&A section.

Forward-looking statements are made only as of the date of this Form 10-Q, and we undertake no obligation to update any forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-Q.

Freddie Mac 2Q 2020 Form 10-Q 73

Financial Statements

Financial Statements

Freddie Mac 2Q 2020 Form 10-Q 74

Financial Statements Condensed Consolidated Statements of Comprehensive Income

FREDDIE MAC

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions, except share-related amounts)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Interest income
Mortgage loans		$15,026			$17,358			$31,658			$35,304
Investment securities	637			684			1,289			1,373
Other	53			420			361			771
Total interest income	15,716			18,462			33,308			37,448
Interest expense	(12,840		)	(15,535		)	(27,647		)	(31,368		)
Net interest income	2,876			2,927			5,661			6,080
Non-interest income (loss)
Guarantee fee income	469			280			846			570
Investment gains (losses), net	670			(138		)	(165		)	(651		)
Other income (loss)	134			143			229			126
Non-interest income (loss)	1,273			285			910			45
Net revenues	4,149			3,212			6,571			6,125
Benefit (provision) for credit losses	(705		)	160			(1,938		)	295
Non-interest expense
Salaries and employee benefits	(327		)	(328		)	(668		)	(650		)
Professional services	(88		)	(122		)	(164		)	(227		)
Other administrative expense	(186		)	(169		)	(356		)	(320		)
Total administrative expense	(601		)	(619		)	(1,188		)	(1,197		)
Credit enhancement expense	(233		)	(177		)	(464		)	(339		)
Expected credit enhancement recoveries	221			38			688			42
REO operations expense	(14		)	(81		)	(99		)	(114		)
Temporary Payroll Tax Cut Continuation Act of 2011 expense	(442		)	(399		)	(874		)	(789		)
Other expense	(140		)	(236		)	(243		)	(360		)
Non-interest expense	(1,209		)	(1,474		)	(2,180		)	(2,757		)
Income (loss) before income tax (expense) benefit	2,235			1,898			2,453			3,663
Income tax (expense) benefit	(458		)	(392		)	(503		)	(750		)
Net income (loss)	1,777			1,506			1,950			2,913
Other comprehensive income (loss), net of taxes and reclassification adjustments
Changes in unrealized gains (losses) related to available-for-sale securities	154			304			592			550
Changes in unrealized gains (losses) related to cash flow hedge relationships	11			20			24			38
Changes in defined benefit plans	(4		)	(4		)	(6		)	(10		)
Total other comprehensive income (loss), net of taxes and reclassification adjustments	161			320			610			578
Comprehensive income (loss)		$1,938			$1,826			$2,560			$3,491
Net income (loss)		$1,777			$1,506			$1,950			$2,913
Undistributed net worth sweep, senior preferred stock dividends, or future increase in senior preferred stock liquidation preference	(1,938		)	(1,826		)	(2,320		)	(3,491		)
Net income (loss) attributable to common stockholders		($161	)		($320	)		($370	)		($578	)
Net income (loss) per common share — basic and diluted		($0.05	)		($0.10	)		($0.11	)		($0.18	)
Weighted average common shares outstanding (in millions) — basic and diluted	3,234			3,234			3,234			3,234

The accompanying notes are an integral part of these condensed consolidated financial statements.

Freddie Mac 2Q 2020 Form 10-Q 75

Financial Statements Condensed Consolidated Balance Sheets

FREDDIE MAC

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
(In millions, except share-related amounts)	2020			2019
Assets
Cash and cash equivalents (Notes 1, 3, 14) (includes $908 and $991 of restricted cash and cash equivalents)		$7,605			$5,189
Securities purchased under agreements to resell (Notes 3, 10)	100,525			56,271
Investment securities, at fair value (Note 7)	77,902			75,711
Mortgage loans held-for-sale (Notes 3, 4) (includes $17,526 and $15,035 at fair value)	38,887			35,288
Mortgage loans held-for-investment (Notes 1, 3, 4) (net of allowance for credit losses of $6,606 and $4,234)	2,061,753			1,984,912
Accrued interest receivable (Notes 3, 4, 7, 10) (net of allowance of $57 and $0)	7,132			6,848
Derivative assets, net (Notes 9, 10)	1,402			844
Deferred tax assets, net (Note 12)	5,698			5,918
Other assets (Notes 3, 18) (includes $5,141 and $4,627 at fair value)	34,751			22,799
Total assets		$2,335,655			$2,193,780
Liabilities and equity
Liabilities
Accrued interest payable (Note 3)		$6,246			$6,559
Debt (Notes 3, 8) (includes $3,086 and $3,938 at fair value)	2,308,301			2,169,685
Derivative liabilities, net (Notes 9, 10)	839			372
Other liabilities (Notes 3, 18)	8,827			8,042
Total liabilities	2,324,213			2,184,658
Commitments and contingencies (Notes 5, 9, 16)
Equity (Note 11)
Senior preferred stock (liquidation preference of $82,152 and $79,322)	72,648			72,648
Preferred stock, at redemption value	14,109			14,109
Common stock, $0.00 par value, 4,000,000,000 shares authorized, 725,863,886 shares issued and 650,059,292 shares and 650,059,033 shares outstanding	—			—
Additional paid-in capital	—			—
Retained earnings (accumulated deficit)	(72,478		)	(74,188		)
AOCI, net of taxes, related to:
Available-for-sale securities	1,210			618
Cash flow hedge relationships	(220		)	(244		)
Defined benefit plans	58			64
Total AOCI, net of taxes	1,048			438
Treasury stock, at cost, 75,804,594 shares and 75,804,853 shares	(3,885		)	(3,885		)
Total equity	11,442			9,122
Total liabilities and equity		$2,335,655			$2,193,780

The table below presents the carrying value and classification of the assets and liabilities of consolidated VIEs on our condensed consolidated balance sheets.

	June 30,		December 31,
(In millions)	2020		2019
Condensed Consolidated Balance Sheet Line Item
Assets: (Note 3)
Mortgage loans held-for-investment		$2,000,649		$1,940,523
All other assets	74,186		40,598
Total assets of consolidated VIEs		$2,074,835		$1,981,121
Liabilities: (Note 3)
Debt		$2,020,866		$1,898,355
All other liabilities	5,617		5,537
Total liabilities of consolidated VIEs		$2,026,483		$1,903,892

The accompanying notes are an integral part of these condensed consolidated financial statements.

Freddie Mac 2Q 2020 Form 10-Q 76

Financial Statements Condensed Consolidated Statements of Equity

FREDDIE MAC

Condensed Consolidated Statements of Equity (Unaudited)

	Shares Outstanding			Senior Preferred Stock		Preferred Stock, at Redemption Value		Common Stock, at Par Value		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			AOCI, Net of Tax		Treasury Stock, at Cost			Total Equity
(In millions)	Senior Preferred Stock	Preferred Stock	Common Stock
Balance at March 31, 2020	1	464	650		$72,648		$14,109		$—		$—		($74,255	)		$887		($3,885	)		$9,504
Comprehensive income (loss):
Net income (loss)	—	—	—	—		—		—		—		1,777			—		—			1,777
Other comprehensive income (loss), net of taxes	—	—	—	—		—		—		—		—			161		—			161
Comprehensive income (loss)	—	—	—	—		—		—		—		1,777			161		—			1,938
Ending balance at June 30, 2020	1	464	650		$72,648		$14,109		$—		$—		($72,478	)		$1,048		($3,885	)		$11,442
Balance at March 31, 2019	1	464	650		$72,648		$14,109		$—		$—		($78,330	)		$123		($3,885	)		$4,665
Comprehensive income (loss):
Net income (loss)	—	—	—	—		—		—		—		1,506			—		—			1,506
Other comprehensive income (loss), net of taxes	—	—	—	—		—		—		—		—			320		—			320
Comprehensive income (loss)	—	—	—	—		—		—		—		1,506			320		—			1,826
Senior preferred stock dividends paid	—	—	—	—		—		—		—		(1,665		)	—		—			(1,665		)
Ending balance at June 30, 2019	1	464	650		$72,648		$14,109		$—		$—		($78,489	)		$443		($3,885	)		$4,826

	Shares Outstanding			Senior Preferred Stock		Preferred Stock, at Redemption Value		Common Stock, at Par Value		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			AOCI, Net of Tax			Treasury Stock, at Cost			Total Equity
(In millions)	Senior Preferred Stock	Preferred Stock	Common Stock
Balance at December 31, 2019	1	464	650		$72,648		$14,109		$—		$—		($74,188	)		$438			($3,885	)		$9,122
Comprehensive income (loss):
Net income (loss)	—	—	—	—		—		—		—		1,950			—			—			1,950
Other comprehensive income (loss), net of taxes	—	—	—	—		—		—		—		—			610			—			610
Comprehensive income (loss)	—	—	—	—		—		—		—		1,950			610			—			2,560
Cumulative effect from adoption of CECL	—	—	—	—		—		—		—		(240		)	—			—			(240		)
Ending balance at June 30, 2020	1	464	650		$72,648		$14,109		$—		$—		($72,478	)		$1,048			($3,885	)		$11,442
Balance at December 31, 2018	1	464	650		$72,648		$14,109		$—		$—		($78,260	)		($135	)		($3,885	)		$4,477
Comprehensive income (loss):
Net income (loss)	—	—	—	—		—		—		—		2,913			—			—			2,913
Other comprehensive income (loss), net of taxes	—	—	—	—		—		—		—		—			578			—			578
Comprehensive income (loss)	—	—	—	—		—		—		—		2,913			578			—			3,491
Senior preferred stock dividends paid	—	—	—	—		—		—		—		(3,142		)	—			—			(3,142		)
Ending balance at June 30, 2019	1	464	650		$72,648		$14,109		$—		$—		($78,489	)		$443			($3,885	)		$4,826

The accompanying notes are an integral part of these condensed consolidated financial statements.

Freddie Mac 2Q 2020 Form 10-Q 77

Financial Statements Condensed Consolidated Statements of Cash Flows

FREDDIE MAC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)	YTD 2020			YTD 2019
Net cash provided by (used in) operating activities		$428			$5,610
Cash flows from investing activities
Purchases of trading securities	(78,316		)	(49,153		)
Proceeds from sales of trading securities	58,808			39,094
Proceeds from maturities and repayments of trading securities	11,172			5,786
Purchases of available-for-sale securities	(5,668		)	(4,074		)
Proceeds from sales of available-for-sale securities	24,810			6,864
Proceeds from maturities and repayments of available-for-sale securities	1,737			2,041
Purchases of mortgage loans acquired as held-for-investment	(221,933		)	(85,212		)
Proceeds from sales of mortgage loans acquired as held-for-investment	2,706			5,975
Proceeds from repayments of mortgage loans acquired as held-for-investment	294,343			128,451
Advances under secured lending arrangements	(47,276		)	(18,759		)
Repayments of secured lending arrangements	964			488
Net proceeds from dispositions of real estate owned and other recoveries	446			599
Net (increase) decrease in securities purchased under agreements to resell	(43,234		)	(17,927		)
Derivative premiums and terminations, swap collateral, and exchange settlement payments, net	(9,273		)	(7,418		)
Other, net	(292		)	(302		)
Net cash provided by (used in) investing activities	(11,006		)	6,453
Cash flows from financing activities
Proceeds from issuance of debt securities of consolidated trusts held by third parties	267,231			93,610
Repayments and redemptions of debt securities of consolidated trusts held by third parties	(268,704		)	(130,056		)
Proceeds from issuance of other debt	834,121			373,249
Repayments of other debt	(819,614		)	(349,517		)
Payment of cash dividends on senior preferred stock	—			(3,142		)
Other, net	(40		)	(53		)
Net cash provided by (used in) financing activities	12,994			(15,909		)
Net increase (decrease) in cash and cash equivalents (includes restricted cash and cash equivalents)	2,416			(3,846		)
Cash and cash equivalents (includes restricted cash and cash equivalents) at beginning of year	5,189			7,273
Cash and cash equivalents (includes restricted cash and cash equivalents) at end of period		$7,605			$3,427
Supplemental cash flow information
Cash paid for:
Debt interest		$35,486			$34,715
Income taxes	340			306
Non-cash investing and financing activities (Note 4, 7, 8, and 10)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Freddie Mac 2Q 2020 Form 10-Q 78

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

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, 2019, or 2019 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 2019 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 2019 Annual Report.

Basis of Presentation

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. Certain amounts in prior periods' condensed consolidated financial statements have been reclassified to conform to the current presentation. See Note 1 in our 2019 Annual Report for additional information on these reclassifications. 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.

Beginning January 1, 2020, we elected to 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 under GAAP. Certain amounts in prior periods' condensed financial statements have been reclassified to conform to the current presentation. See Note 10 in this Form 10-Q for additional information.

We evaluate the materiality of identified errors in the financial statements using both an income statement, or "rollover," and a balance sheet, or "iron curtain," approach, based on relevant quantitative and qualitative factors. The financial statements include certain adjustments to correct immaterial errors related to previously reported periods.

Use of Estimates

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.

Cash and Cash Equivalents

Upon adoption of CECL on January 1, 2020, we measure an allowance for credit losses on cash equivalents based on expected credit losses over the contractual term of the instrument. As of June 30, 2020, we did not recognize an allowance for credit losses on our cash equivalents due to their overall high credit quality and short-term nature.

Freddie Mac 2Q 2020 Form 10-Q 79

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

Recently Issued Accounting Guidance

Recently Adopted Accounting Guidance
Standard	Description	Date of Adoption	Effect on Condensed Consolidated Financial Statements
ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments; ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses; and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses	The amendments in these Updates replace the incurred loss impairment methodology with a methodology that reflects lifetime expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.	January 1, 2020	Due to the adoption of these Updates, we recognized a reduction to retained earnings of $0.2 billion through a cumulative-effect adjustment on January 1, 2020. See the CECL Transition Impacts section below for additional information on transition impacts. See Note 4, Note 5, Note 6, and Note 7 for additional information on the changes in our significant accounting policies as a result of our adoption of CECL.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurements, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. Certain disclosure requirements were either removed, modified, or added.	January 1, 2020	We added disclosure of the change in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period. See Note 15 for additional information.
ASU 2018-15, Intangibles -Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).	January 1, 2020	The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.
ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities	The amendments in this Update require that indirect interests held through related parties under common control be considered on a proportional basis when determining whether fees paid to decision makers or service providers are variable interests. These amendments align with the determination of whether a reporting entity within a related party group is the primary beneficiary of a VIE.	January 1, 2020	The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.
ASU 2019-01, Leases (Topic 842): Codification Improvements	The amendments in this Update provide guidance for the: (1) lessor's fair value determination of the lease's underlying asset; (2) lessor's statement of cash flows presentation of cash received from sales-type and direct financing leases; and (3) removal of interim transition disclosure requirements related to changes in accounting principles.	January 1, 2020	The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this Update provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other interbank offered rates expected to be discontinued.	January 1, 2020	The adoption of the amendments did not have a material effect on our consolidated financial statements or on our disclosures.

Freddie Mac 2Q 2020 Form 10-Q 80

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 1

CECL Transition Impacts

The table below provides details on the transition impacts of adopting CECL. Other balance sheet lines not presented were not affected by CECL.

Table 1.1 CECL Transition Impacts

(In millions)	December 31, 2019			Transition Adjustments			January 1, 2020
Assets
Mortgage loans held-for-investment:
Single-family		$1,971,657			$199			$1,971,856
Multifamily	17,489			—			17,489
Less allowance for credit losses:
Single-family	(4,222		)	(668		)	(4,890		)
Multifamily	(12		)	(24		)	(36		)
Mortgage loans held-for-investment, net	1,984,912			(493		)	1,984,419
Deferred tax assets, net	5,918			64			5,982
Other assets	22,799			193			22,992
Total transition adjustments					($236	)
Liabilities and equity
Other liabilities	8,042			4			8,046
Retained earnings (accumulated deficit)	(74,188		)	(240		)	(74,428		)
Total transition adjustments					($236	)

Upon adoption of CECL on January 1, 2020, we did not recognize an allowance for credit losses on cash equivalents, investments in debt securities classified as available-for-sale, or securities purchased under agreements to resell. See Note 7 and Note 10, respectively, for additional information.

Freddie Mac 2Q 2020 Form 10-Q 81

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 2

NOTE 2

Conservatorship and Related Matters

Business Objectives

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 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.

Purchase Agreement

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.

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 September 2019 Letter Agreement, the applicable Capital Reserve Amount is $20.0 billion. As a result, we will not be required to pay a dividend on the senior preferred stock to Treasury until our Net Worth Amount exceeds $20.0 billion. If for any reason we do not pay the net worth sweep dividend in full for any period, the applicable Capital Reserve Amount will thereafter be zero.

In addition, pursuant to the September 2019 Letter Agreement, the liquidation preference of the senior preferred stock will be increased, at the end of each fiscal quarter, beginning on September 30, 2019, by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until the liquidation preference has increased by $17.0 billion. As a result, the liquidation preference of the senior preferred stock increased from $81.8 billion on March 31, 2020 to $82.2 billion on June 30, 2020 based on the $0.4 billion increase in our Net Worth Amount during 1Q 2020, and will increase to $84.1 billion on September 30, 2020 based on the $1.9 billion increase in our Net Worth Amount during 2Q 2020.

Under the September 2019 Letter Agreement, Freddie Mac and Treasury also agreed to negotiate and execute an amendment to the Purchase Agreement that further enhances taxpayer protections by adopting covenants broadly consistent with recommendations for administrative reform contained in the Treasury's September 2019 Housing Reform Plan.

Impact of Conservatorship and Related Developments on the Mortgage-Related Investments Portfolio

In February 2019, FHFA directed us to maintain the UPB of our mortgage-related investments portfolio at or below $225 billion at all times. We began including 10% of the notional value of certain interest-only securities owned by Freddie Mac in the calculation of this portfolio during 1Q 2020 as directed by FHFA in November 2019. The UPB of this portfolio was $199.4 billion at June 30, 2020, including $5.3 billion representing 10% of the notional amount of the interest-only securities we held as of June 30, 2020. Our ability to acquire and sell mortgage assets continues to be significantly constrained by limitations imposed by the Purchase Agreement and FHFA.

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:

Freddie Mac 2Q 2020 Form 10-Q 82

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 2

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 March 31, 2020, our assets exceeded our liabilities under GAAP; therefore, FHFA, as Conservator, 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 2Q 2020. The amount of available funding remaining under the Purchase Agreement is $140.2 billion and will be reduced by any future draws.

See Note 8 and Note 11 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 of 2019. In June of 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 CSS LLC agreement to change the structure of the CSS Board of Managers, appointing a new independent non-Executive Chair and providing the CSS CEO a seat on the CSS Board. During conservatorship, all CSS Board decisions will require the affirmative vote of the FHFA-designated CSS Board Chair and FHFA may appoint up to three additional independent members to the CSS Board.

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 YTD 2020, we contributed $48 million of capital to CSS, and we have contributed $618 million since we began making contributions in the fourth quarter of 2014. The carrying value of our investment in CSS was $29 million and $35 million as of June 30, 2020 and December 31, 2019, respectively, and was included in other assets on our condensed consolidated balance sheets.

Freddie Mac 2Q 2020 Form 10-Q 83

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 3

NOTE 3

Securitization Activities and Consolidation

Our primary business activities in our Single-family Guarantee 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.

Consolidated VIEs

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

(In millions)	June 30, 2020		December 31, 2019
Condensed Consolidated Balance Sheet Line Item
Assets:
Cash and cash equivalents (includes $820 and $869 of restricted cash and cash equivalents)		$821		$870
Securities purchased under agreements to resell	47,364		23,137
Investment securities, at fair value	988		597
Mortgage loans held-for-investment, net	2,000,649		1,940,523
Accrued interest receivable, net	6,481		6,170
Other assets	18,532		9,824
Total assets of consolidated VIEs		$2,074,835		$1,981,121
Liabilities:
Accrued interest payable		$5,617		$5,536
Debt	2,020,866		1,898,355
Other liabilities	—		1
Total liabilities of consolidated VIEs		$2,026,483		$1,903,892

Non-Consolidated VIEs

Our involvement with VIEs for which we are not the primary beneficiary takes one or both of two forms - purchasing an investment in these entities or providing a guarantee to these entities. As part of the Single Security Initiative, we have the ability to commingle TBA-eligible Fannie Mae collateral in certain of our resecuritization products that we do not consolidate. We extend our guarantee of these products to cover principal and interest that are payable from the underlying Fannie Mae collateral. See Note 5 for additional information on our guarantee of Fannie Mae securities.

The following table presents the carrying amounts and classification of the assets and liabilities recorded on our condensed consolidated balance sheets related to non-consolidated VIEs with which we were involved in the design and creation and have a significant continuing involvement, as well as our maximum exposure to loss and total assets of the VIEs. Our maximum exposure to loss includes the guaranteed UPB of the securities issued by the non-consolidated VIEs, the UPB of unguaranteed securities that we acquired from these securitization transactions, and the UPB of master servicer and guarantor advances made to the holders of the guaranteed securities. While we include the UPB of Fannie Mae securities backing non-consolidated Freddie Mac resecuritization trusts because we are providing a guaranty for the timely payment and interest on the underlying Fannie Mae securities that we have not previously guaranteed, we exclude the UPB of Freddie Mac securities backing these same trusts primarily because we already consolidate the underlying Freddie Mac collateral of these trusts on our condensed consolidated balance sheets. Our maximum exposure to loss also excludes our interest rate exposure on certain securitization activity and other mortgage-related guarantees measured at fair value where our interest rate exposure may be unlimited. We generally reduce our exposure to these guarantees with unlimited interest rate exposure through separate contracts with third parties. Total assets of non-consolidated VIEs excludes our investments in and obligations to non-consolidated Freddie Mac resecuritization trusts primarily because we already consolidate the underlying Freddie Mac collateral of these trusts on our condensed consolidated balance sheets. We do not believe the maximum exposure to loss disclosed in the table below is representative of the actual loss we are likely to incur, based on our historical loss experience and after consideration of

Freddie Mac 2Q 2020 Form 10-Q 84

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 3

proceeds from related collateral liquidation, including possible recoveries under credit enhancements. See Note 6 for additional information on credit enhancements.

Table 3.2 - Non-Consolidated VIEs

(In millions)	June 30, 2020		December 31, 2019
Assets and Liabilities Recorded on our Condensed Consolidated Balance Sheets(1)
Assets:
Investment securities, at fair value		$40,939		$37,918
Accrued interest receivable, net	244		212
Derivative assets, net	33		14
Other assets	5,050		3,951
Liabilities:
Derivative liabilities, net	72		108
Other liabilities	3,835		3,761
Maximum Exposure to Loss(2)	341,655		307,820
Total Assets of Non-Consolidated VIEs	344,652		335,562

(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.

(2) Includes amounts related to Fannie Mae securities backing non-consolidated Freddie Mac resecuritization trusts. These amounts were previously included in text in prior periods.

We also obtain interests in various other VIEs created by third parties through the normal course of business. To the extent that we were not involved in the design and 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.

Freddie Mac 2Q 2020 Form 10-Q 85

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

NOTE 4

Mortgage Loans and Allowance for Credit Losses

On January 1, 2020, we adopted CECL, which changed certain of our significant accounting policies for mortgage loans held- for-investment and the associated allowance for credit losses, as discussed further in the sections below.

The table below provides details of the loans on our condensed consolidated balance sheets.

Table 4.1 - Mortgage Loans

	June 30, 2020									December 31, 2019
(In millions)	Held by Freddie Mac			Held by Consolidated Trusts			Total			Held by Freddie Mac			Held by Consolidated Trusts			Total
Held-for-sale:
Single-family		$18,569			$—			$18,569			$18,543			$—			$18,543
Multifamily	21,873			—			21,873			18,954			—			18,954
Total UPB	40,442			—			40,442			37,497			—			37,497
Cost basis and fair value adjustments, net	(1,555		)	—			(1,555		)	(2,209		)	—			(2,209		)
Total held-for-sale loans, net	38,887			—			38,887			35,288			—			35,288
Held-for-investment:
Single-family	50,062			1,952,767			2,002,829			35,324			1,902,958			1,938,282
Multifamily	11,039			9,064			20,103			10,831			6,642			17,473
Total UPB	61,101			1,961,831			2,022,932			46,155			1,909,600			1,955,755
Cost basis adjustments	1,102			44,325			45,427			(183		)	33,574			33,391
Allowance for credit losses	(1,099		)	(5,507		)	(6,606		)	(1,583		)	(2,651		)	(4,234		)
Total held-for-investment loans, net	61,104			2,000,649			2,061,753			44,389			1,940,523			1,984,912
Total mortgage loans, net		$99,991			$2,000,649			$2,100,640			$79,677			$1,940,523			$2,020,200

We own both single-family loans, which are secured by one- to four-unit residential properties, and multifamily loans, which are secured by properties with five or more residential rental units. Our single-family loans are predominantly first lien, fixed-rate loans secured by the borrower's primary residence. We do not typically acquire loans that have experienced more-than-insignificant deterioration in credit quality since origination as of our acquisition date, although we may acquire such loans in connection with certain of our securitization activities or other mortgage-related guarantees. In addition, in April 2020, we announced that we would temporarily purchase certain single-family mortgage loans that have entered into forbearance as a result of borrower hardship caused by the COVID-19 pandemic. Our purchases of such loans have been insignificant.

Upon acquisition, we classify a loan as either held-for-investment or held-for-sale based on our intent with respect to the loan. Loans that we have the ability and intent to hold for the foreseeable future, including loans held by consolidated trusts and loans we intend to securitize using an entity we will consolidate, are classified as held-for-investment. Loans that we intend to sell are classified as held-for-sale.

Held-for-investment loans for which we have not elected the fair value option are reported on our condensed consolidated balance sheets at their amortized cost basis, net of the allowance for credit losses. The amortized cost basis is based on a loan’s outstanding UPB, net of deferred fees and other cost basis adjustments (including unamortized premiums and discounts, upfront fees, commitment-related derivative basis adjustments, fair value hedge accounting adjustments, and other pricing adjustments), excluding accrued interest receivable. Accrued interest receivable for both held-for-investment and held-for-sale loans is separately presented on our condensed consolidated balance sheets and excluded for the purposes of disclosure of the amortized cost basis of mortgage loans held-for-investment.

Held-for-sale loans for which we have not elected the fair value option are reported at lower-of-cost-or-fair-value on our condensed consolidated balance sheets. Any excess of a held-for-sale loan's cost over its fair value is recognized as a valuation allowance in investment gains (losses), net on our condensed consolidated statements of comprehensive income (loss), with subsequent changes in this valuation allowance also being recorded in investment gains (losses), net. Premiums, discounts, and other cost basis adjustments (including lower-of-cost-or-fair-value adjustments) are deferred and not amortized.

We elect the fair value option for certain multifamily loans that are originally classified as held-for-sale. Loans for which we have elected the fair value option are measured at fair value on a recurring basis, with subsequent gains or losses related to changes in fair value reported in investment gains (losses), net on our condensed consolidated statements of comprehensive income (loss). All fees, upfront costs, and other cost basis adjustments are recognized in earnings as incurred.

Freddie Mac 2Q 2020 Form 10-Q 86

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Cash flows related to loans originally classified as held-for-investment are classified as either investing activities (e.g., principal repayments) or operating activities (e.g., interest payments received from borrowers included within net income (loss)) on our condensed consolidated statements of cash flows. Cash flows related to loans originally classified as held-for-sale are classified as operating activities on our condensed consolidated statements of cash flows.

The table below provides details of the UPB of loans we purchased, reclassified from held-for-investment to held-for-sale, and sold during the periods presented.

Table 4.2 - Loans Purchased, Reclassified from Held-for-Investment to Held-for-Sale, and Sold

(In billions)	2Q 2020		2Q 2019		YTD 2020		YTD 2019
Single-family:
Purchases
Held-for-investment loans		$230.7		$101.6		$368.4		$171.2
Reclassified from held-for-investment to held-for-sale(1)	0.8		1.0		3.4		5.1
Sale of held-for-sale loans(2)	—		3.6		2.2		5.7
Multifamily:
Purchases
Held-for-investment loans	3.1		1.4		4.3		2.5
Held-for-sale loans	16.4		15.9		24.6		27.4
Reclassified from held-for-investment to held-for-sale(1)	0.6		0.3		0.6		0.8
Sale of held-for-sale loans(3)	11.0		15.2		21.7		29.9

(1) We reclassify loans from held-for-investment to held-for-sale when we no longer have both the intent and ability to hold the loans for the foreseeable future. For additional information regarding the fair value of our loans classified as held-for-sale, see Note 15.

(2) Our sales of single-family loans reflect the sale of seasoned single-family mortgage loans.

(3) 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.

Reclassifications

We reclassify loans from held-for-investment to held-for-sale when we no longer have both the intent and ability to hold the loan for the foreseeable future. Upon reclassification from held-for-investment to held-for-sale, we perform a collectability assessment. When we determine that a loan to be transferred has experienced more-than-insignificant deterioration in credit quality since origination, the excess of the loan’s amortized cost basis over its fair value is written off against the allowance for credit losses prior to the transfer. For all other loans, upon a transfer from held-for-investment to held-for-sale, we reverse the loan’s existing allowance for credit losses, if any, and establish a held-for-sale valuation allowance if the loan’s fair value is less than its amortized cost basis.

We reclassify loans from held-for-sale to held-for-investment when we have both the intent and ability to hold the loan for the foreseeable future. Upon a loan reclassification from held-for-sale to held-for-investment, we reverse the loan’s held-for-sale valuation allowance, if any, and establish an allowance for credit losses as needed.

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

	2Q 2020						YTD 2020
(In millions)	Unpaid Principal Balance		Allowance for Credit Losses Reversed or (Established)		Valuation Allowance (Established) or Reversed		Unpaid Principal Balance		Allowance for Credit Losses Reversed or (Established)			Valuation Allowance (Established) or Reversed
Single-family reclassifications from:
Held-for-investment to held-for-sale(1)		$759		$34		$—		$3,396		$248			$—
Held-for-sale to held-for-investment	244		20		4		245		20			4
Multifamily reclassifications from:
Held-for-investment to held-for-sale	615		—		—		647		—			—
Held-for-sale to held-for-investment	89		—		—		571		(1		)	—

(1) Prior to reclassification from held-for-investment to held-for-sale, we charged-off $94 million and $173 million against the allowance for credit losses during 2Q 2020 and YTD 2020.

Freddie Mac 2Q 2020 Form 10-Q 87

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Interest Income

We recognize interest income on an accrual basis except when we believe the collection of principal and interest in full is not reasonably assured, which generally occurs when a loan is three monthly payments or more past due, at which point we place the loan on non-accrual status unless the loan is well secured and in the process of collection based upon an individual loan assessment. A loan is considered past due if a full payment of principal and interest is not received within one month of its due date. We charge off outstanding accrued interest receivable through interest income when loans are placed on non-accrual status and recognize interest income on a cash basis while a loan is on non-accrual status.

Cost basis adjustments on held-for-investment loans are amortized into interest income over the contractual life of the loan using the effective interest method. No amortization is recognized during periods in which a loan is on non-accrual status.

A non-accrual loan is returned to accrual status when the collectability of principal and interest in full is reasonably assured. For single-family loans, we generally determine that collectability is reasonably assured when the loan returns to current payment status. For multifamily loans, the collectability of principal and interest is considered reasonably assured based on an analysis of the factors specific to the loan being assessed. Upon a loan's return to accrual status, all previously reversed interest income is recognized and amortization of any basis adjustments into interest income is resumed.

We make an exception to our standard non-accrual policy for loans in active COVID-19-related forbearance plans that were current prior to receiving forbearance and do not place such loans on non-accrual status based solely on delinquency status. For these loans, we consider additional factors, such as current LTV ratio, and continue to accrue interest while the loan is in forbearance and is three or more monthly payments past due when we believe the available evidence indicates that collectability of principal and interest is reasonably assured. When we accrue interest on loans that are three or more monthly payments past due, we measure an allowance for expected credit losses on unpaid accrued interest receivable balances such that the balance sheet reflects the net amount of interest we expect to collect.

The table below presents the amortized cost basis of non-accrual loans as of March 31, 2020 and June 30, 2020, including the interest income recognized for the periods presented that is related to the loans on non-accrual status at end of the periods.

Table 4.4 - Amortized Cost Basis of Held-for-Investment Loans on Non-accrual

	Non-accrual Amortized Cost Basis				Interest Income Recognized
(In millions)	March 31, 2020		June 30, 2020		2Q 2020			YTD 2020(1)
Single-family:
20- and 30-year or more, amortizing fixed-rate		$5,494		$10,226		($35	)		$30
15-year amortizing fixed-rate	241		528		(2		)	1
Adjustable-rate	83		150		—			—
Alt-A, interest-only, and option ARM	389		540		(1		)	2
Total single-family	6,207		11,444		(38		)	33
Total multifamily	13		—		—			—
Total single-family and multifamily		$6,220		$11,444		($38	)		$33

(1) Represents the amount of interest income recognized for the held-for-investment loans on non-accrual status as of June 30, 2020

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 end of the periods that is written off through reversal of interest income on our condensed consolidated statements of comprehensive income (loss) by portfolio.

Table 4.5 - Accrued Interest Receivable, Net and Related Charge-offs

	June 30, 2020		2Q 2020			YTD 2020
(In millions)	Accrued Interest Receivable, Net		Accrued Interest Receivable Related Charge-offs			Accrued Interest Receivable Related Charge-offs
Single-family loans		$6,639		($92	)		($121	)
Multifamily loans	132		—			—

Allowance for Credit Losses

On January 1, 2020, we adopted CECL. The objective of CECL is to recognize an allowance for credit losses that is deducted from or added to the amortized cost basis of the financial asset to present the net amount expected to be collected on the financial asset on the condensed consolidated balance sheets. Under CECL, an allowance for credit losses is recognized before a loss event has been incurred, which results in earlier recognition of credit losses compared to the previous incurred loss methodology.

Freddie Mac 2Q 2020 Form 10-Q 88

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Our allowance for credit losses on mortgage loans pertains to all single-family and multifamily loans classified as held-for-investment for which we have not elected the fair value option. We recognize changes in the allowance for credit losses by recording a provision for credit losses (or reversal of a provision for credit losses) on our condensed consolidated statements of comprehensive income (loss). We measure the allowance for credit losses on a collective basis when our loans share similar risk characteristics. We record charge-offs in the period in which a loan is deemed uncollectible. Proceeds received in excess of amounts previously written off are recorded as a decrease to REO operations expense on our condensed consolidated statements of comprehensive income (loss).

We may incur expenses related to a mortgage loan subsequent to its original acquisition but prior to foreclosure (pre-foreclosure costs). These expenses are generally to protect or preserve our interest or legal right in or to the property prior to foreclosure, such as property taxes or homeowner's insurance premiums owed by the borrower. Many of these expenses are advanced by the servicer and are reimbursable from the borrower. If the borrower ultimately defaults, we reimburse the servicer for the advances it has made. Upon advance by the servicer, we recognize a receivable for the amounts due from the borrower and a payable for amounts due to the servicer. We recognize an allowance for credit losses for amounts that we do not ultimately expect to collect from the borrower (allowance for credit losses on pre-foreclosure costs).

The table below summarizes changes in our allowance for credit losses for single-family and multifamily loans held-for-investment, single-family advances of pre-foreclosure costs, and single-family accrued interest receivable related to loans in forbearance caused by the COVID-19 pandemic.

Table 4.6 - Details of the Allowance for Credit Losses

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Single-family:
Beginning balance(1)		$6,298			$5,536			$5,184			$6,130
(Benefit) provision for credit losses	615			(162		)	1,779			(299		)
Charge-offs	(118		)	(243		)	(280		)	(847		)
Recoveries collected	36			128			124			234
Other	31			21			55			62
Single-family ending balance	6,862			5,280			6,862			5,280
Multifamily ending balance	124			12			124			12
Total ending balance		$6,986			$5,292			$6,986			$5,292
Components of ending balance of single-family allowance for credit losses:
Mortgage loans held-for-investment		$6,482			$5,280
Advances of pre-foreclosure costs	323			N/A
Accrued interest receivable	57			N/A
Total		$6,862			$5,280

(1) Includes transition adjustments recognized upon the adoption of CECL on January 1, 2020. See Note 1 for more information on transition adjustments.

During the 2020 periods, (benefit) provision for credit losses shifted to a provision from a benefit in the 2019 periods primarily due to higher expected credit losses as a result of the negative economic effects of the COVID-19 pandemic. The higher expected credit losses during YTD 2020 were primarily driven by the following factors:

n Expected credit losses related to COVID-19 relief programs - Our provision for credit losses in YTD 2020 required significant management judgment to estimate the impact of COVID-19-related forbearance and relief programs on our expected credit losses. These judgments included estimates of the number of loans that will receive forbearance, the likely exit paths for loans in forbearance, and the number of loans where forbearance will be unsuccessful and the borrower will ultimately default. These factors resulted in a significant increase in our provision for credit losses for YTD 2020, with the majority of the increase occurring in 1Q 2020. In total, we have increased our allowance for credit losses for single-family mortgage loans held-for-investment by $2.1 billion as a result of the forbearance plans related to the COVID-19 pandemic.

n Changes in forecasted house price growth rates - The overall effect of forecasted house price changes on our provision for credit losses for YTD 2020 was relatively minor, with an increase in provision in 1Q 2020 being largely offset by the improvement in 2Q 2020.

n Declines in forecasted interest rates - The effect of the significant declines in mortgage interest rates during YTD 2020 partially offset the increase in the provision for credit losses as a result of the COVID-19 pandemic.

In addition, charge-offs decreased in the 2020 periods due to a lower volume of transfers of single-family loans from held-for-investment to held-for-sale. The decline in economic activity caused by the COVID-19 pandemic, and the corresponding

Freddie Mac 2Q 2020 Form 10-Q 89

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

government response, is unprecedented, and as a result, our estimate of expected credit losses is subject to significant uncertainty.

Single-Family Loans

We estimate the allowance for credit losses for single-family loans on a pooled basis using a discounted cash flow model that evaluates a variety of factors to estimate the cash flows we expect to collect. If we determine that foreclosure on the underlying collateral is probable, we measure the allowance for credit losses for single-family loans based upon the fair value of the collateral, less costs to sell, adjusted for estimated proceeds from attached credit enhancements.

The discounted cash flow model we use to estimate the single-family loan allowance for credit losses forecasts cash flows over the loan’s remaining contractual life, adjusted for expectations of prepayments and TDRs we reasonably expect will occur. We do not have a reasonable and supportable forecast period beyond which we revert to historical loss information. Cash flow estimates are discounted at the loan’s prepayment-adjusted effective interest rate. For adjustable-rate loans, forecasts are adjusted for projections in the underlying benchmark interest rate. For both fixed-rate and adjustable-rate loans, we forecast cash flows we expect to collect using our historical experience, such as historical default rates and severity of loss based on loan characteristics, adjusted for current and future economic forecasts, such as current and projected house price appreciation and interest rate forecasts, and estimated recoveries from loss mitigation activities, attached credit enhancements, and disposition of collateral, less estimated disposition costs. We calculate the allowance for credit losses on accrued interest receivable based on similar default rate assumptions to those used for the related loans. We calculate the allowance for credit losses for advances of pre-foreclosure costs based on the amounts we expect to collect using our historical experience such as historical default rates.

These projections require significant management judgment. We rely on third-parties to provide certain model inputs used in our projections. At loan delivery, the seller provides us with loan data, which includes borrower and loan characteristics and underwriting information. Each subsequent month, the servicers provide us with monthly loan level servicing data, including delinquency and loss information.

We measure an allowance for credit losses for TDR loans on a pooled basis when they share similar risk characteristics, using either the discounted cash flow approach discussed above or based on the fair value of the collateral, less costs to sell when foreclosure is probable. When using a discounted cash flow approach, the present value of the expected future cash flows is discounted at the loan's prepayment-adjusted effective interest rate just prior to the restructuring, with no adjustments made to the effective interest rate for changes in the timing of expected cash flows subsequent to the restructuring.

We review the outputs of our model by considering qualitative factors such as current economic events and other external factors, including the economic effects of the COVID-19 pandemic and the impact of associated government relief programs, to see whether the model outputs are consistent with our expectations. Additionally, we incorporate expected credit losses for TDRs that are reasonably expected to occur and the incidence of redefault we have experienced on similar loans that have completed a loan modification. Further management adjustments may be necessary to take into consideration the qualitative factors that have occurred but that are not yet reflected in the factors used to derive the model outputs or the uncertainty inherent in our projections. Significant judgment is exercised in making these adjustments.

Multifamily Loans

We estimate the allowance for credit losses for multifamily loans using a loss-rate method to estimate the net amount of cash flows we expect to collect. The loss rate method is based on a probability of default and loss given default framework that estimates credit losses by considering a loan’s underlying characteristics and current and forecasted economic conditions. Loan characteristics considered by our model include vintage, loan term, current DSCR, current LTV ratio, occupancy rate, and interest rate hedges. We forecast economic conditions over a reasonable and supportable two-year period prior to reverting to historical averages at the model input level over a five-year period, using a linear reversion method. We also consider as model inputs expected prepayments, contractually specified extensions, modifications we reasonably expect will occur, expected recoveries from collateral posting requirements, and the expected recoveries from attached credit enhancements.

Our loss rates incorporate published historical commercial loan performance data, which we calibrate for differences between that data and our portfolio experience. Except for cases of fraud and certain other types of borrower defaults, most multifamily loans are non-recourse to the borrower. As a result, the cash flows of the underlying property (including any attached credit enhancements) serve as the primary source of funds for repayment of the loan. For loans where we determined that the borrower is experiencing financial difficulty and is two monthly payments or more past due, we measure the allowance for credit losses using the fair value of the underlying collateral, less estimated costs to sell, adjusted for estimated proceeds from credit enhancements that are not freestanding contracts. Factors considered by management in determining whether a borrower is experiencing financial difficulty include the borrower’s current payment status and an evaluation of the underlying property's operating performance as represented by its current DSCR, its available credit enhancements, the current LTV ratio, the management of the underlying property, and the property's geographic location.

We review the outputs of our model considering qualitative factors such as current economic events and other external factors to determine whether the model outputs are consistent with our expectations. Further management adjustments may be

Freddie Mac 2Q 2020 Form 10-Q 90

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

necessary to take into consideration the qualitative factors that have occurred but that are not yet reflected in the factors used to derive the model outputs. Significant judgment is exercised in making these adjustments.

Credit Quality

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.

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 14.

The tables below present 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 respective 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.

Freddie Mac 2Q 2020 Form 10-Q 91

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Table 4.7 - Amortized Cost Basis of Single-Family Held-for-Investment Loans by Current LTV Ratio and Vintage

	June 30, 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
≤ 80		$174,328		$217,266		$110,270		$158,778		$203,787		$588,770		$1,453,199
> 80 to 100	92,443		122,693		40,856		14,087		3,280		9,110		282,469
> 100(1)	496		192		76		131		126		1,963		2,984
Total 20- and 30-year or more, amortizing fixed-rate	267,267		340,151		151,202		172,996		207,193		599,843		1,738,652
15-year amortizing fixed-rate
≤ 80	41,123		36,883		15,881		25,373		35,694		100,826		255,780
> 80 to 100	5,813		2,718		246		48		24		48		8,897
> 100(1)	39		7		5		9		7		15		82
Total 15-year amortizing fixed-rate	46,975		39,608		16,132		25,430		35,725		100,889		264,759
Adjustable-rate
≤ 80	1,782		2,237		1,833		4,856		3,254		17,363		31,325
> 80 to 100	416		393		190		155		18		26		1,198
> 100(1)	2		1		—		—		—		3		6
Total Adjustable-rate	2,200		2,631		2,023		5,011		3,272		17,392		32,529
Alt-A, Interest-only, and option ARM
≤ 80	—		—		—		—		—		11,523		11,523
> 80 to 100	—		—		—		—		—		635		635
> 100(1)	—		—		—		—		—		118		118
Total Alt-A, Interest-only, and option ARM	—		—		—		—		—		12,276		12,276
Total single-family loans		$316,442		$382,390		$169,357		$203,437		$246,190		$730,400		$2,048,216
Total for all loan product types by CLTV ratio:
≤ 80		$217,233		$256,386		$127,984		$189,007		$242,735		$718,482		$1,751,827
> 80 to 100	98,672		125,804		41,292		14,290		3,322		9,819		293,199
> 100(1)	537		200		81		140		133		2,099		3,190
Total single-family loans		$316,442		$382,390		$169,357		$203,437		$246,190		$730,400		$2,048,216

Referenced footnotes are included after the next table.

	December 31, 2019
	Current LTV Ratio						Total
(In millions)	≤ 80		> 80 to 100		> 100(1)
20- and 30-year or more, amortizing fixed-rate		$1,405,562		$267,752		$3,954		$1,677,268
15-year amortizing fixed-rate	236,837		6,797		89		243,723
Adjustable-rate	35,478		1,425		6		36,909
Alt-A, interest-only, and option ARM	12,668		901		188		13,757
Total single-family loans		$1,690,545		$276,875		$4,237		$1,971,657

(1) The serious delinquency rate for the single-family held-for-investment mortgage loans with current LTV ratios in excess of 100% was 9.23% and 4.51% as of June 30, 2020 and December 31, 2019, respectively.

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

Freddie Mac 2Q 2020 Form 10-Q 92

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

n "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions.

Table 4.8 - Amortized Cost Basis of Multifamily Held-for-Investment Loans by Credit Quality Indicator by Vintage

	June 30, 2020																December 31, 2019
	Year of Origination														Total		Total
(In millions)	2020		2019		2018		2017		2016		Prior		Revolving Loans
Category:
Pass		$3,796		$7,438		$1,224		$824		$618		$3,084		$2,286		$19,270		$17,227
Special mention	—		489		115		20		—		107		—		731		141
Substandard	—		11		18		36		—		77		—		142		121
Doubtful	—		—		—		—		—		—		—		—		—
Total		$3,796		$7,938		$1,357		$880		$618		$3,268		$2,286		$20,143		$17,489

Past Due Status

The tables below present the amortized cost basis of our single-family and multifamily loans, held-for-investment, by payment status. Pursuant to FHFA guidance and the CARES Act, we offer mortgage relief options for borrowers affected by the COVID-19 pandemic. Among other things, we are offering forbearance to single-family and multifamily borrowers experiencing a financial hardship, either directly or indirectly, related to COVID-19. We report single-family loans in forbearance as past due during the forbearance period to the extent that payments are past due based on the loan's original contractual terms, irrespective of the forbearance agreement, based on the information reported to us by our servicers. We report multifamily loans in forbearance as current as long as the borrower is in compliance with the forbearance agreement, including the agreed upon repayment plan. As a result, all multifamily loans in forbearance are reported as current in the tables below, even if payments are past due based on the loan's original contract terms.

Table 4.9 - Amortized Cost Basis of Held -for-Investment Loans by Payment Status

	June 30, 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		$1,635,356		$23,630		$32,285		$47,381		$1,738,652		$37,452		$493
15-year amortizing fixed-rate	256,539		2,060		2,932		3,228		264,759		2,649		6
Adjustable-rate	30,623		403		641		862		32,529		711		5
Alt-A, interest-only, and option ARM	10,110		518		549		1,099		12,276		571		103
Total single-family	1,932,628		26,611		36,407		52,570		2,048,216		41,383		607
Total multifamily(3)	20,143		—		—		—		20,143		—		—
Total single-family and multifamily		$1,952,771		$26,611		$36,407		$52,570		$2,068,359		$41,383		$607

Freddie Mac 2Q 2020 Form 10-Q 93

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

	December 31, 2019
(In millions)	Current		One Month Past Due		Two Months Past Due		Three Months or More Past Due, or in Foreclosure(1)		Total		Non-accrual
Single-family:
20- and 30-year or more, amortizing fixed-rate		$1,653,113		$15,481		$3,326		$5,348		$1,677,268		$5,822
15-year amortizing fixed-rate	242,177		1,131		175		240		243,723		252
Adjustable-rate	36,537		238		45		89		36,909		104
Alt-A, interest-only, and option ARM	12,690		489		161		417		13,757		205
Total single-family	1,944,517		17,339		3,707		6,094		1,971,657		6,383
Total multifamily	17,489		—		—		—		17,489		13
Total single-family and multifamily		$1,962,006		$17,339		$3,707		$6,094		$1,989,146		$6,396

(1) Includes $1.4 billion and $1.8 billion of single-family loans that were in the process of foreclosure as of June 30, 2020 and December 31, 2019, respectively.

(2) Loans with no allowance 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.

(3) As of June 30, 2020, includes $0.7 billion of multifamily loans in forbearance that are reported as current.

FHFA requires us to purchase single-family loans from securities if they are delinquent for 120 days, and we have the option to purchase sooner under certain circumstances (e.g., imminent default and seller breaches of representations and warranties). We generally have been purchasing loans from securities when the loans have been delinquent for 120 days or more. In April 2020, we announced that FHFA has instructed us to maintain loans in payment forbearance plans (including COVID-19 payment forbearance plans) in mortgage-backed security pools for at least the duration of the forbearance plan. Once the forbearance period expires, the loan will remain in the related securities pool while (i) an offer to reinstate the loan or enter into either a payment deferral solution, repayment plan or a trial period plan pursuant to a loan modification remains outstanding; (ii) the loan is in an active repayment plan or trial period plan; or (iii) a payment deferral solution is in effect.

Troubled Debt Restructurings

A modification to the contractual terms of a loan that results in granting a concession to a borrower experiencing financial difficulties is considered a TDR. A concession is deemed granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the original contractual interest rate. As appropriate, we also consider other qualitative factors in determining whether a concession is deemed granted, including whether the borrower's modified interest rate is consistent with that of a non-troubled borrower. We do not consider restructurings that result in an insignificant delay in payment to be a concession. We generally consider a delay in monthly amortizing payments of three months or less to be insignificant. A concession typically includes one or more of the following being granted to the borrower:

n A trial period where the expected permanent modification will change our expectation of collecting all amounts due at the original contract rate;

n A delay in payment that is more than insignificant;

n A reduction in the contractual interest rate;

n Interest forbearance for a period of time that is more than insignificant or forgiveness of accrued but uncollected interest amounts;

n Principal forbearance that is more than insignificant; and

n Discharge of the borrower's obligation in Chapter 7 bankruptcy.

The assessment as to whether a multifamily loan restructuring is considered a TDR contemplates the unique facts and circumstances of each loan. This assessment considers qualitative factors such as whether the borrower's modified interest rate is consistent with that of a non-troubled borrower having a similar credit profile at the time of modification. In certain cases, for maturing loans we may provide short-term loan extensions of up to one year with no changes to the effective borrowing rate. In other cases, we may make more significant modifications of terms for borrowers experiencing financial difficulty, such as reducing the interest rate, extending the maturity for longer than one year, providing principal forbearance, or some combination of these terms.

Section 4013 of the CARES Act provides temporary relief from the accounting and reporting requirements for TDRs for certain loan modifications related to COVID-19. Specifically, the CARES Act provides that a qualifying financial institution may elect to suspend (1) the requirements under U.S. GAAP for certain loan modifications that would otherwise be categorized as a TDR, and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Section 4013 of the CARES Act applies to any modification related to an economic hardship as a result

Freddie Mac 2Q 2020 Form 10-Q 94

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

of the COVID-19 pandemic, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest, that occurs during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or the date that is 60 days after the declaration of the national emergency related to the COVID-19 pandemic ends for a loan that was not more than 30 days past due as of December 31, 2019. We have elected to suspend TDR accounting for eligible modifications under Section 4013 of the CARES Act.

In addition, Section 4022 and Section 4023 of the CARES Act require us to offer forbearance to certain single-family and multifamily borrowers, respectively, with an economic hardship related to COVID-19. Recent guidance issued by federal banking regulators and endorsed by the FASB staff has indicated that government-mandated modification or deferral programs related to COVID-19 should not be accounted for as TDRs as the lender did not choose to grant a concession to the borrower. We have concluded that the forbearance programs we are offering under Section 4022 and Section 4023 of the CARES Act are government-mandated deferral programs related to COVID-19, and therefore we will not account for such modifications as TDRs.

We recognize an allowance for credit losses on TDRs as discussed in the Allowance for Credit Losses section above. We recognize interest income at the modified interest rate, subject to our non-accrual policy as discussed in the Interest Income section above, with all other changes in the present value of expected future cash flows being recognized as a component of benefit (provision) for credit losses on our condensed consolidated statements of comprehensive income (loss).

Of the single-family loans with modifications that were classified as TDRs during 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019, respectively:

n 15%, 8%, 15%, and 8% involved interest rate reductions and, in certain cases, term extensions;

n 18%, 24%, 19%, and 24% involved principal forbearance in addition to interest rate reductions and, in certain cases, term extensions;

n The average term extension was 187, 183, 187, and 173 months; and

n The average interest rate reduction was 0.3%, 0.1%, 0.3%, and 0.1%.

Substantially all of our completed single-family loan modifications classified as a TDR during 2Q 2020, 2Q 2019, YTD 2020, and YTD 2019 resulted in a modified loan with a fixed interest rate.

The table below presents the volume of single-family and multifamily loans that were newly classified as TDRs, based on the original product category of the loan before the loan was classified as a TDR. 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

	2Q 2020			2Q 2019			YTD 2020			YTD 2019
(Dollars in millions)	Number of  Loans	Post-TDR Amortized Cost Basis		Number of  Loans	Post-TDR Amortized Cost Basis		Number of  Loans	Post-TDR Amortized Cost Basis		Number of  Loans	Post-TDR Amortized Cost Basis
Single-family:(1)
20- and 30-year or more, amortizing fixed-rate	5,309		$943	6,301		$1,064	11,741		$2,070	13,760		$2,264
15-year amortizing fixed-rate	590	61		725	69		1,319	133		1,671	161
Adjustable-rate	88	15		118	17		185	32		275	42
Alt-A, interest-only, and option ARM	135	19		717	92		301	43		1,046	145
Total single-family	6,122	1,038		7,861	1,242		13,546	2,278		16,752	2,612
Multifamily	—	—		—	—		—	—		—	—

(1) The pre-TDR amortized cost basis for single-family loans initially classified as TDR during 2Q 2020 and YTD 2020 was $1.0 billion and $2.3 billion, respectively, compared to $1.2 billion and $2.6 billion during 2Q 2019 and YTD 2019, respectively.

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. The table presents loans based on their original product category before modification and includes loans that were reclassified from held-for-investment to held-for-sale after TDR modifications.

Freddie Mac 2Q 2020 Form 10-Q 95

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

Table 4.11 - Payment Defaults of Completed TDR Modifications

	2Q 2020			2Q 2019			YTD 2020		YTD 2019
(Dollars in millions)	Number of Loans	Post-TDR Amortized Cost Basis		Number of Loans	Post-TDR Amortized Cost Basis		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	4,116		$791	3,421		$421	6,620	1,218	7,277		$830
15-year amortizing fixed-rate	197	26		108	8		316	40	233	15
Adjustable-rate	59	10		28	4		88	14	62	7
Alt-A, interest-only, and option ARM	349	72		199	28		513	104	509	72
Total single-family	4,721	899		3,756	461		7,537	1,376	8,081	924
Multifamily	—	—		—	—		—	—	—	—

In addition to modifications, loans may be classified as TDRs as a result of other loss mitigation activities (i.e., repayment plans, forbearance agreements, or loans in modification trial periods). During YTD 2020 and YTD 2019, 1,936 and 2,818, respectively, of such loans (with a post-TDR amortized cost basis of $0.3 billion during both periods) experienced a payment default within a year after the loss mitigation activity occurred.

Prior Period Allowance for Credit Losses and Related Information

Under the previous incurred loss impairment methodology that was effective prior to January 1, 2020, we assessed loan impairment on a collective basis unless we considered the loan to be impaired. We assessed loan impairment on an individual basis when, based on current information, it was probable that we would not receive all amounts due (including both principal and interest) in accordance with the contractual terms of the original loan agreement. For additional information, see our 2019 Annual Report.

The table below presents our allowance for loan losses and our recorded investment in loans held-for-investment by impairment evaluation methodology.

Table 4.12 - Net Investment in Loans

	December 31, 2019
(In millions)	Single-family			Multifamily			Total
Recorded investment:
Collectively evaluated		$1,936,208			$17,408			$1,953,616
Individually evaluated	35,449			81			35,530
Total recorded investment	1,971,657			17,489			1,989,146
Ending balance of the allowance for loan losses:
Collectively evaluated	(1,350		)	(12		)	(1,362		)
Individually evaluated	(2,872		)	—			(2,872		)
Total ending balance of the allowance	(4,222		)	(12		)	(4,234		)
Net investment in loans		$1,967,435			$17,477			$1,984,912

Freddie Mac 2Q 2020 Form 10-Q 96

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

The table below presents the UPB, recorded investment, related allowance for loan losses, average recorded investment, and interest income recognized for individually impaired loans.

Table 4.13 - Individually Impaired Loans

	December 31, 2019
(In millions)	UPB		Recorded Investment		Associated Allowance
Single-family:
With no allowance recorded: (1)
20- and 30-year or more, amortizing fixed-rate		$2,431		$1,927	N/A
15-year amortizing fixed-rate	21		20		N/A
Adjustable-rate	169		169		N/A
Alt-A, interest-only, and option ARM	847		727		N/A
Total with no allowance recorded	3,468		2,843		N/A
With an allowance recorded: (2)
20- and 30-year or more, amortizing fixed-rate	28,824		28,667			($2,416	)
15-year amortizing fixed-rate	616		625		(13		)
Adjustable-rate	131		130		(7		)
Alt-A, interest-only, and option ARM	3,315		3,184		(436		)
Total with an allowance recorded	32,886		32,606		(2,872		)
Combined single-family:
20- and 30-year or more, amortizing fixed-rate	31,255		30,594		(2,416		)
15-year amortizing fixed-rate	637		645		(13		)
Adjustable-rate	300		299		(7		)
Alt-A, interest-only, and option ARM	4,162		3,911		(436		)
Total single-family	36,354		35,449		(2,872		)
Multifamily:
With no allowance recorded (1)	86		81		N/A
With an allowance recorded	—		—		—
Total multifamily	86		81		—
Total single-family and multifamily		$36,440		$35,530		($2,872	)

Referenced footnotes are included after the last table in the Impaired Loans section.

	2Q 2019						YTD 2019
(In millions)	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized On Cash Basis(3)		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized On Cash Basis(3)
Single-family:
With no allowance recorded: (1)
20- and 30-year or more, amortizing fixed-rate		$2,582		$75		$1		$2,634		$148		$5
15-year amortizing fixed-rate	19		—		—		20		—		—
Adjustable-rate	212		3		—		218		6		—
Alt-A, interest-only, and option ARM	934		18		—		958		36		1
Total with no allowance recorded	3,747		96		1		3,830		190		6
With an allowance recorded: (2)
20- and 30-year or more, amortizing fixed-rate	34,196		498		34		34,767		982		91
15-year amortizing fixed-rate	669		6		1		677		12		2
Adjustable-rate	141		2		—		144		3		1
Alt-A, interest-only, and option ARM	4,101		63		2		4,213		125		9
Total with an allowance recorded	39,107		569		37		39,801		1,122		103
Combined single-family:
20- and 30-year or more, amortizing fixed-rate	36,778		573		35		37,401		1,130		96
15-year amortizing fixed-rate	688		6		1		697		12		2
Adjustable-rate	353		5		—		362		9		1
Alt-A, interest-only, and option ARM	5,035		81		2		5,171		161		10
Total single-family	42,854		665		38		43,631		1,312		109
Multifamily:
With no allowance recorded (1)	66		1		—		66		2		—
With an allowance recorded	17		—		—		16		—		—
Total multifamily	83		1		—		82		2		—
Total single-family and multifamily		$42,937		$666		$38		$43,713		$1,314		$109

(1) Individually impaired loans with no allowance primarily represent those loans for which the collateral value is sufficiently in excess of the loan balance to result in recovery of the entire recorded investment if the property were foreclosed upon or otherwise subject to disposition.

(2) Consists primarily of loans classified as TDRs.

(3) Consists of income recognized during the period related to loans on non-accrual status.

Freddie Mac 2Q 2020 Form 10-Q 97

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 4

The table below summarizes the delinquency rates of loans within our single-family credit guarantee and multifamily mortgage portfolios.

Table 4.14 - Delinquency Rates

(Dollars in millions)	December 31, 2019
Single-family:
Non-credit-enhanced portfolio
Serious delinquency rate	0.70		%
Total number of seriously delinquent loans	42,485
Credit-enhanced portfolio:(1)
Primary mortgage insurance:
Serious delinquency rate	0.79		%
Total number of seriously delinquent loans	15,261
Other credit protection:(2)
Serious delinquency rate	0.40		%
Total number of seriously delinquent loans	18,143
Total single-family:
Serious delinquency rate	0.63		%
Total number of seriously delinquent loans	70,162
Multifamily: (3)
Non-credit-enhanced portfolio:
Delinquency rate	—		%
UPB of delinquent loans		$2
Credit-enhanced portfolio:
Delinquency rate	0.09		%
UPB of delinquent loans		$244
Total multifamily:
Delinquency rate	0.08		%
UPB of delinquent loans		$246

(1) The credit-enhanced categories are not mutually exclusive, as a single loan may be covered by both primary mortgage insurance and other credit protection.

(2) Consists of single-family loans covered by financial arrangements (other than primary mortgage insurance) that are designed to reduce our credit risk exposure. See Note 6 for additional information on our credit enhancements.

(3) Multifamily delinquency performance is based on the UPB of loans that are two monthly payments or more past due or those in the process of foreclosure.

Non-Cash Investing and Financing Activities

During YTD 2020 and YTD 2019, we acquired $162.4 billion and $91.0 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 $44.3 billion and $15.5 billion of loans from sellers in guarantor swap transactions and $0.8 billion and $1.3 billion of loans from sellers in cash execution transactions during YTD 2020 and YTD 2019, respectively, to satisfy advances to lenders that were recorded in other assets on our condensed consolidated balance sheets.

Freddie Mac 2Q 2020 Form 10-Q 98

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 6 for additional information on our credit enhancements.

Table 5.1 - Financial Guarantees

	June 30, 2020					December 31, 2019
(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		$26,889		$345	39		$26,818		$361	40
Other mortgage-related guarantees	8,722		194		30	7,492		182		30
Total single-family		$35,611		$539			$34,310		$543
Multifamily:
Securitization activity guarantees		$258,739		$3,361	39		$252,167		$3,333	39
Other mortgage-related guarantees	10,706		450		34	9,989		416		34
Total multifamily		$269,445		$3,811			$262,156		$3,749
Other guarantees measured at fair value		$29,075		$421	30		$24,965		$253	30
Fannie Mae securities backing Freddie Mac resecuritization products	54,287		—		30	27,408		—		30

(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, including possible recoveries under credit enhancements. For other guarantees measured at fair value, this amount represents the notional value if it relates to our market value guarantees or guarantees of third-party derivative instruments or the UPB if it relates to a guarantee of a mortgage-related asset. For certain of our other guarantees measured at fair value, our exposure may be unlimited and, as a result, the notional value is included. We generally reduce our exposure to these guarantees with unlimited 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 measured at fair value, this amount represents the fair value of the contract.

Freddie Mac 2Q 2020 Form 10-Q 99

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 5

The tables below show 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

	June 30, 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		$32,634		$2,515		$2,854		$1,486		$39,489
Multifamily(2)	309,240		148		95		262		309,745
Total		$341,874		$2,663		$2,949		$1,748		$349,234

	December 31, 2019
(In millions)	Current		One Month Past Due		Two Months Past Due		Three Months or More Past Due, or in Foreclosure		Total(1)
Single-family		$33,855		$2,264		$760		$840		$37,719
Multifamily	301,428		13		76		198		301,715
Total		$335,283		$2,277		$836		$1,038		$339,434

(1) Loan-level payment status is not available for certain guarantees totaling $1.2 billion and $1.6 billion as of June 30, 2020 and December 31, 2019, respectively, and therefore is not included in the tables above.

(2) As of June 30, 2020, includes $7.5 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, unfunded lending arrangements, and other commitments. These agreements may require us to transfer cash before or upon settlement of our contractual obligation. The total notional value of these other off-balance sheet credit exposures was $19.2 billion and $17.1 billion at June 30, 2020 and December 31, 2019, respectively.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Upon adoption of CECL on January 1, 2020, we began recognizing an allowance for credit losses on off-balance sheet credit exposures for our guarantees that are not measured at fair value and other off-balance sheet arrangements based on expected credit losses over the contractual period in which we are exposed to credit risk via a present contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. We include this allowance for credit losses on off-balance sheet credit exposures within other liabilities on our condensed consolidated balance sheets, with changes recognized through benefit (provision) for credit losses on our condensed consolidated statements of comprehensive income (loss).

Our methodologies for estimating the allowance for credit losses on off-balance sheet credit exposures for our single-family and multifamily guarantees are generally consistent with our methodologies for estimating the allowance for credit losses for single-family mortgage loans and multifamily mortgage loans, respectively. Many of our guarantees have credit enhancement provided by subordination that exceeds the amount of expected credit losses. See Note 4 for additional information on our allowance for credit losses methodologies and Note 6 for additional information on our guarantee credit enhancements. We have not recorded an allowance for credit losses on our guarantees of Fannie Mae securities due to the support provided to Fannie Mae by the U.S. government, the importance of Fannie Mae to the liquidity and stability of the U.S. housing market, and the long history of zero credit losses on Fannie Mae securities.

Freddie Mac 2Q 2020 Form 10-Q 100

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 5

The table below summarizes changes in our allowance for credit losses on off-balance sheet credit exposures.

Table 5.3 - Details of the Allowance for Credit Losses on off Balance Sheet Credit Exposures

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Beginning balance(1)		$107			$51			$81			$51
(Benefit) provision for credit losses	42			1			71			2
Charge-offs	(2		)	(1		)	(5		)	(2		)
Ending balance		$147			$51			$147			$51
Components of ending balance of allowance for credit losses on off-balance sheet credit exposures:
Single-family		$54			$46
Multifamily	93			5
Total		$147			$51

(1) Includes transition adjustments recognized due to the adoption of CECL on January 1, 2020. See Note 1 for more information on transition adjustments.

Freddie Mac 2Q 2020 Form 10-Q 101

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 6

NOTE 6

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.

Our adoption of CECL on January 1, 2020 did not result in significant changes to our accounting policies for credit enhancements. Upon adoption of CECL, we continue to consider expected recoveries from attached credit enhancements in measuring the allowance for credit losses, resulting in a reduction in the recognized provision for credit losses by the amount of the expected recoveries. We also continue to recognize expected recoveries from freestanding credit enhancements separately in other assets on our condensed consolidated balance sheets, with an offsetting reduction to non-interest expense, at the same time that we recognize an allowance for credit losses on the covered loans, measured on the same basis as the allowance for credit losses on the covered loans. See Note 6 in our 2019 Annual Report for additional information on our significant accounting policies for credit enhancements.

Adoption of CECL resulted in an increase of $0.3 billion in our expected recovery receivable balance as the amount of expected recoveries from freestanding credit enhancements increased in conjunction with the increase in expected losses on the covered mortgage loans. Our freestanding credit enhancements expected recovery receivable was $1.1 billion and $0.1 billion as of June 30, 2020 and December 31, 2019, respectively. Upon adoption of CECL, we measure credit losses on our expected recovery receivables based on our estimate of current expected credit losses over the contractual term of the contract. For information about counterparty credit risk associated with mortgage insurers and other credit enhancement providers, see Note 14.

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 6.1 - Single-Family Credit Enhancements

		June 30, 2020				December 31, 2019
(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		$426,954		$108,100		$421,870		$107,690
STACR: (2)
Trust notes	Freestanding	346,363		11,378		288,323		9,739
Debt notes	Debt	480,336		13,500		536,036		15,373
Insurance/reinsurance (3)	Freestanding	843,713		9,567		863,149		10,157
Subordination:(4)
Non-consolidated VIEs	Attached	25,805		4,696		25,443		4,545
Consolidated VIEs	Debt	14,678		665		19,498		854
Lender risk-sharing	Freestanding	11,731		5,328		24,078		5,657
Other	Primarily attached	761		756		1,056		1,051
Total single-family credit enhancements					$153,990				$155,066

(1) Underlying loans may be covered by more than one form of credit enhancement.

(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 June 30, 2020 and December 31, 2019, 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 2Q 2020 Form 10-Q 102

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 6

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 6.2 - Multifamily Credit Enhancements

		June 30, 2020				December 31, 2019
(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	Attached		$258,179		$40,898		$251,008		$40,262
Consolidated VIEs	Debt	1,800		200		1,800		200
Lender risk-sharing(3)	Freestanding	2,072		377		2,529		381
Insurance/reinsurance(4)	Freestanding	2,758		126		2,769		127
SCR debt notes(5)	Debt	2,291		115		2,470		123
Other(3)	Attached	389		389		467		467
Total multifamily credit enhancements					$42,105				$41,560

(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 June 30, 2020 and December 31, 2019, 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 credit enhancements are excluded from the table above.

Freddie Mac 2Q 2020 Form 10-Q 103

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

NOTE 7

Investment Securities

The table below summarizes the fair values of our investments in debt securities by classification.

Table 7.1 - Investment Securities

(In millions)	June 30, 2020		December 31, 2019
Trading securities		$53,942		$49,537
Available-for-sale securities	23,960		26,174
Total fair value of investment securities		$77,902		$75,711

As of June 30, 2020 and December 31, 2019, we did not classify any securities as held-to-maturity, although we may elect to do so in the future.

Allowance for Credit Losses

On January 1, 2020, we adopted CECL, which changes the accounting for credit losses on available-for-sale debt securities from the other-than-temporary impairment methodology to a new methodology that uses an allowance for credit losses.

We evaluate available-for-sale securities in an unrealized loss position as of the end of each quarter to determine whether the decline in value is from a credit loss or other factors. An unrealized loss exists when the fair value of an individual lot is less than its amortized cost basis.

When qualitative factors indicate that a credit loss may exist, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. We recognize an allowance for credit losses measured as the difference between the present value of expected cash flows and the amortized cost basis of the security, limited by the amount that the security’s fair value is less than its amortized cost basis. The present value of cash flows expected to be collected represents our best estimate of future contractual cash flows that we expect to collect, discounted at the security's implicit effective interest rate.

If we intend to sell the security or we believe it is more likely than not we will be required to sell the security before recovery of its amortized cost basis, we charge-off any allowance for credit losses by writing down the security’s amortized basis to its fair value. Subsequently, increases in fair value are recognized through AOCI. However, if there are significant increases in the cash flows expected to be collected or if actual cash flows are significantly greater than cash flows previously expected, we recognize those changes as a prospective adjustment to the yield of the security.

The evaluation of whether unrealized losses on available-for-sale securities indicate a credit loss exists requires significant management judgment and assumptions and consideration of numerous factors. We perform an evaluation on a security lot basis considering all available information. The relative importance of this information varies based on the facts and circumstances surrounding each security, as well as the economic environment at the time of assessment.

We present accrued interest receivable separately on our condensed consolidated balance sheets and accrued interest receivable is excluded for the purposes of disclosure of the amortized cost basis of available-for-sale securities. When collection of interest in full is not reasonably assured, we charge-off outstanding accrued interest receivable through interest income on our condensed consolidated statements of comprehensive income (loss) and therefore do not recognize an allowance for credit losses on accrued interest receivable. As of June 30, 2020, no accrued interest receivable was charged-off.

Agency MBS

Substantially all of our available-for-sale securities are agency MBS issued by us, Fannie Mae, or Ginnie Mae. The principal and interest on these securities are guaranteed by the issuing agency. We believe that the guarantee provided by the issuing agency, the support provided to the agencies by the U.S. government, the importance of the agencies to the liquidity and stability of the U.S. housing market, and the long history of zero credit losses on agency MBS are all indicators that credit losses on these securities do not exist, even if the security is in an unrealized loss position. In addition, we generally hold these securities that are in an unrealized loss position to recovery. As a result, unless we intend to sell the security, we do not recognize an allowance for credit losses on agency MBS.

Non-Agency Residential MBS

We believe the unrealized losses on the non-agency RMBS we hold are mainly attributable to poor underlying collateral performance, limited liquidity, and risk premiums. In evaluating securities for credit losses, we use management judgment and historical information in considering the credit performance of the underlying collateral and incorporate assumptions about the economic environment. As of June 30, 2020, substantially all of our non-agency residential MBS were in an unrealized gain

Freddie Mac 2Q 2020 Form 10-Q 104

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

position. As a result, we have not recognized an allowance for credit losses on these securities.

Trading Securities

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 7.2 - Trading Securities

(In millions)	June 30, 2020		December 31, 2019
Mortgage-related securities:
Agency		$21,654		$22,481
Non-agency	1		1
Total mortgage-related securities	21,655		22,482
Non-mortgage-related securities	32,287		27,055
Total fair value of trading securities		$53,942		$49,537

For trading securities held at June 30, 2020, we recorded net unrealized gains (losses) of $120 million and $638 million during 2Q 2020 and YTD 2020, respectively. For trading securities held at June 30, 2019, we recorded net unrealized gains (losses) of $373 million and $412 million during 2Q 2019 and YTD 2019, respectively.

Available-for-Sale Securities

At both June 30, 2020 and December 31, 2019, all available-for-sale securities were mortgage-related securities.

The tables below provide details of the securities classified as available-for-sale on our condensed consolidated balance sheets.

Table 7.3 - Available-for-Sale Securities

	June 30, 2020
	Amortized Cost Basis		Allowance for Credit Losses		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		$21,516		$—		$1,344		($7	)		$22,853		$59
Non-agency and other	914		—		193		—			1,107		4
Total available-for-sale securities		$22,430		$—		$1,537		($7	)		$23,960		$63

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses					Fair Value
(In millions)					Other-Than-Temporary Impairment(1)		Temporary Impairment(2)
Available-for-sale securities:
Agency		$24,390		$571		$—		($74	)		$24,887
Non-agency and other	1,004		283		—		—			1,287
Total available-for-sale securities		$25,394		$854		$—		($74	)		$26,174

(1) Represents the gross unrealized losses for securities for which we have previously recognized other-than-temporary impairment in earnings.

(2) Represents the gross unrealized losses for securities for which we have not previously recognized other-than-temporary impairment in earnings.

The fair value of our available-for-sale securities held at June 30, 2020 scheduled to contractually mature after ten years was $19.9 billion, with an additional $3.3 billion scheduled to contractually mature after five years through ten years.

Freddie Mac 2Q 2020 Form 10-Q 105

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 7

Available-for-Sale Securities in a Gross Unrealized Loss Position

The tables below present 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 7.4 - Available-for-Sale Securities in a Gross Unrealized Loss Position

	June 30, 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		$317		($2	)		$498		($5	)
Non-agency and other	21		—			1		—
Total available-for-sale securities in a gross unrealized loss position		$338		($2	)		$499		($5	)

	December 31, 2019
	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		$5,778		($27	)		$2,934		($47	)
Non-agency and other	1		—			—		—
Total available-for-sale securities in a gross unrealized loss position		$5,779		($27	)		$2,934		($47	)

At June 30, 2020, the gross unrealized losses relate to 66 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 7.5 - Gross Realized Gains and Gross Realized Losses from Sales of Available-for-Sale Securities

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Gross realized gains		$44			$38			$77			$101
Gross realized losses	(37		)	(5		)	(60		)	(34		)
Net realized gains (losses)		$7			$33			$17			$67

Non-Cash Investing and Financing Activities

During YTD 2020, we recognized $12.7 billion 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.

During 2Q 2020, we purchased $0.3 billion of non-mortgage-related securities that were traded, but not settled at June 30, 2020. We settled our purchase obligation during the third quarter of 2020.

Freddie Mac 2Q 2020 Form 10-Q 106

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 8

NOTE 8

Debt

The table below summarizes the balances of total debt per our condensed consolidated balance sheets and the interest expense per our condensed consolidated statements of comprehensive income (loss).

Table 8.1 - Total Debt

	Balance				Interest Expense
(In millions)	June 30, 2020		December 31, 2019		2Q 2020		2Q 2019		YTD 2020		YTD 2019
Debt securities of consolidated trusts held by third parties		$2,020,866		$1,898,355		$11,975		$13,696		$25,422		$27,677
Other debt:
Short-term debt	78,134		101,034		130		484		560		920
Long-term debt	209,301		170,296		735		1,355		1,665		2,771
Total other debt	287,435		271,330		865		1,839		2,225		3,691
Total debt		$2,308,301		$2,169,685		$12,840		$15,535		$27,647		$31,368

As of June 30, 2020, our aggregate indebtedness was $289.3 billion, which was below the $300.0 billion debt cap limit imposed by the Purchase Agreement. Our aggregate indebtedness calculation primarily includes the par value of other 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 8.2 - Debt Securities of Consolidated Trusts Held by Third Parties

	June 30, 2020							December 31, 2019
(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	2020 - 2057		$1,606,560		$1,651,436	3.49	%	2020 - 2057		$1,516,550		$1,554,095	3.63	%
20-year fixed-rate	2020 - 2040	78,199		80,268		3.23		2020 - 2040	70,901		72,558		3.37
15-year fixed-rate	2020 - 2035	242,746		247,281		2.77		2020 - 2035	225,501		229,133		2.87
Adjustable-rate	2020 - 2050	27,125		27,661		3.11		2020 - 2050	30,183		30,756		3.25
Interest-only	2026 - 2041	4,164		4,238		3.97		2026 - 2041	4,244		4,307		4.55
FHA/VA	2020 - 2050	633		647		4.53		2020 - 2049	633		647		4.68
Total single-family		1,959,427		2,011,531					1,848,012		1,891,496
Multifamily	2021-2050	9,236		9,335		2.75		2021 - 2049	6,790		6,859		3.29
Total debt of consolidated trusts held by third parties			$1,968,663		$2,020,866					$1,854,802		$1,898,355

(1) Includes $206 million and $209 million at June 30, 2020 and December 31, 2019, respectively, of debt securities of consolidated trusts that represents the fair value of debt with the fair value option elected.

(2) The effective interest rate for debt securities of consolidated trusts held by third parties was 2.29% and 2.79% as of June 30, 2020 and December 31, 2019, respectively.

Freddie Mac 2Q 2020 Form 10-Q 107

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 8

Other Debt

The table below summarizes the balances and effective interest rates for other debt.

Table 8.3 - Total Other Debt

	June 30, 2020						December 31, 2019
(Dollars in millions)	Par Value		Carrying Amount(1)		Weighted Average Effective Rate(2)		Par Value		Carrying Amount(1)		Weighted Average Effective Rate(2)
Other short-term debt:
Discount notes and Reference Bills		$56,954		$56,925	0.45	%		$60,830		$60,629	1.67	%
Medium-term notes	21,211		21,209		1.87		40,407		40,405		2.31
Securities sold under agreements to repurchase (3)	8,664		8,664		0.04		9,843		9,843		1.46
Total other short-term debt	86,829		86,798		0.75		111,080		110,877		1.89
Other long-term debt:
Original maturities on or before December 31,
2020	16,360		16,359		1.94		45,133		45,127		1.76
2021	45,939		45,934		0.97		30,069		30,072		1.89
2022	46,242		46,279		1.03		23,185		23,166		2.20
2023	37,090		37,040		0.91		13,413		13,393		2.22
2024	13,303		13,274		1.74		26,966		26,924		2.22
Thereafter	38,430		36,170		2.81		17,615		15,294		5.13
STACR and SCR debt(4)	13,615		13,311		4.21		15,496		15,652		5.64
Hedging-related basis adjustments	N/A		934				N/A		668
Total other long-term debt	210,979		209,301		1.62		171,877		170,296		2.61
Total other debt(5)		$297,808		$296,099				$282,957		$281,173

(1) Represents par value, net of associated discounts or premiums and issuance cost. Includes $2.9 billion and $3.7 billion at June 30, 2020 and December 31, 2019, respectively, of other long-term debt that represents the fair value of debt with the fair value option elected.

(2) Based on carrying amount.

(3) Beginning January 1, 2020, we elected to 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 debts 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 other debt includes callable debt of $86.7 billion and $95.1 billion at June 30, 2020 and December 31, 2019, respectively.

Non-Cash Investing and Financing Activities

During 2Q 2020, we issued $0.6 billion of other debt in exchange for cash collateral that was previously pledged by sellers. These debt issuances represent non-cash transactions.

Freddie Mac 2Q 2020 Form 10-Q 108

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

NOTE 9

Derivatives

Use of 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 on a daily basis 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.

Types of 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.

Hedge Accounting

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. If a hedge relationship qualifies for fair value hedge accounting, all changes in fair value of the derivative hedging instrument, including interest accruals, are recognized in the same condensed consolidated statements of comprehensive income (loss) line item used to present the earnings effect of the hedged item. Therefore, changes in the fair value of the hedged item, mortgage loans and debt, attributable to the risk being hedged are recognized in interest income - mortgage loans and interest expense, respectively, along with the changes in the fair value of the respective derivative hedging instruments.

Freddie Mac 2Q 2020 Form 10-Q 109

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

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 9.1 - Derivative Assets and Liabilities at Fair Value

	June 30, 2020								December 31, 2019
	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 swaps:
Receive-fixed		$258,034		$3,161			$—			$230,926		$1,990			($6	)
Pay-fixed	313,717		—			(8,337		)	251,392		10			(4,162		)
Basis (floating to floating)	5,924		1			—			5,924		—			—
Total interest-rate swaps	577,675		3,162			(8,337		)	488,242		2,000			(4,168		)
Option-based:
Call swaptions
Purchased	74,275		5,773			—			75,325		2,717			—
Written	3,650		—			(287		)	3,375		—			(42		)
Put swaptions
Purchased(1)	83,035		870			—			67,155		835			—
Written	7,955		—			(49		)	7,275		—			(88		)
Options on futures	91,705		15			—			—		—			—
Other option-based derivatives(2)	10,271		789			—			10,334		646			—
Total option-based	270,891		7,447			(336		)	163,464		4,198			(130		)
Futures	239,462		—			—			210,305		—			—
Commitments	188,487		353			(528		)	93,960		61			(126		)
CRT-related derivatives	15,708		60			(72		)	12,362		15			(116		)
Other	9,370		1			(16		)	5,984		1			(28		)
Total derivatives not designated as hedges	1,301,593		11,023			(9,289		)	974,317		6,275			(4,568		)
Designated as fair value hedges
Interest-rate swaps:
Receive-fixed	109,605		320			(4		)	104,459		104			(75		)
Pay-fixed	52,645		—			(696		)	87,907		—			(639		)
Total derivatives designated as fair value hedges	162,250		320			(700		)	192,366		104			(714		)
Derivative interest and other receivable (payable)(3)			629			(582		)			887			(724		)
Netting adjustments(4)			(10,570		)	9,732					(6,422		)	5,634
Total derivative portfolio, net		$1,463,843		$1,402			($839	)		$1,166,683		$844			($372	)

(1) Includes swaptions on credit indices with a notional or contractual amount of $3.6 billion and $11.4 billion at June 30, 2020 and December 31, 2019, respectively, and a fair value of $7.0 million and $3.0 million at June 30, 2020 and December 31, 2019, respectively.

(2) Primarily consists of purchased interest-rate caps and floors.

(3) Includes other derivative receivables and payables.

(4) Represents counterparty netting and cash collateral netting.

See Note 10 for information related to our derivative counterparties and collateral held and posted.

Freddie Mac 2Q 2020 Form 10-Q 110

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

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 gain (losses), net.

Table 9.2 - Gains and Losses on Derivatives

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Not designated as hedges
Interest-rate swaps:
Receive-fixed		$1,722			$3,683			$15,617			$5,520
Pay-fixed	(732		)	(5,398		)	(19,473		)	(8,286		)
Basis (floating to floating)	10			6			(7		)	10
Total interest-rate swaps	1,000			(1,709		)	(3,863		)	(2,756		)
Option-based:
Call swaptions
Purchased	(641		)	1,129			4,266			1,583
Written	38			(178		)	(392		)	(234		)
Put swaptions
Purchased	(95		)	(425		)	(622		)	(1,051		)
Written	17			48			127			64
Options on futures	1			—			(6		)	—
Other option-based derivatives(1)	(25		)	74			144			99
Total option-based	(705		)	648			3,517			461
Other:
Futures	(120		)	(779		)	(2,448		)	(1,021		)
Commitments	(396		)	(216		)	(1,122		)	(312		)
CRT-related derivatives	43			2			121			1
Other	6			7			37			28
Total other	(467		)	(986		)	(3,412		)	(1,304		)
Accrual of periodic cash settlements:
Receive-fixed interest-rate swaps	594			(20		)	829			(71		)
Pay-fixed interest-rate swaps	(966		)	(58		)	(1,438		)	(94		)
Other(2)	43			36			104			69
Total accrual of periodic cash settlements	(329		)	(42		)	(505		)	(96		)
Total		($501	)		($2,089	)		($4,263	)		($3,695	)

(1) Primarily consists of purchased interest-rate caps and floors.

(2) Includes interest on variation margin on cleared interest-rate swaps.

Freddie Mac 2Q 2020 Form 10-Q 111

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Fair Value Hedges

The tables below present the effects of fair value hedge accounting by condensed consolidated statements of comprehensive income (loss) line, 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 9.3 - Gains and Losses on Fair Value Hedges

	2Q 2020						2Q 2019
(In millions)	Interest Income - Mortgage Loans			Interest Expense			Interest Income - Mortgage Loans			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:		$15,026			($12,840	)		$17,358			($15,535	)
Interest contracts on mortgage loans held-for-investment:
Gain (loss) on fair value hedging relationships:
Hedged items	670			—			2,851			—
Derivatives designated as hedging instruments	(474		)	—			(2,778		)	—
Interest accruals on hedging instruments	(122		)	—			6			—
Discontinued hedge-related basis adjustments amortization	(695		)	—			(47		)	—
Interest contracts on debt:
Gain (loss) on fair value hedging relationships:
Hedged items	—			37			—			(600		)
Derivatives designated as hedging instruments	—			(81		)	—			651
Interest accruals on hedging instruments	—			187			—			(87		)
Discontinued hedge-related basis adjustments amortization	—			17			—			16

	YTD 2020						YTD 2019
(In millions)	Interest Income - Mortgage Loans			Interest Expense			Interest Income - Mortgage Loans			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:		$31,658			($27,647	)		$35,304			($31,368	)
Interest contracts on mortgage loans held-for-investment:
Gain (loss) on fair value hedging relationships:
Hedged items	5,563			—			4,393			—
Derivatives designated as hedging instruments	(5,554		)	—			(4,021		)	—
Interest accruals on hedging instruments	(185		)	—			44			—
Discontinued hedge-related basis adjustments amortization	(948		)	—			(19		)	—
Interest contracts on debt:
Gain (loss) on fair value hedging relationships:
Hedged items	—			(468		)	—			(1,105		)
Derivatives designated as hedging instruments	—			473			—			1,197
Interest accruals on hedging instruments	—			287			—			(212		)
Discontinued hedge-related basis adjustments amortization	—			37			—			25

Freddie Mac 2Q 2020 Form 10-Q 112

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 9

Cumulative Basis Adjustments Due to Fair Value Hedging

The tables below present the hedged item cumulative basis adjustments due to qualifying fair value hedging and the related hedged item carrying amounts by their respective balance sheet line item.

Table 9.4 - Cumulative Basis Adjustments Due to Fair Value Hedging

	June 30, 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		$392,674			$7,502			$540			$6,962			$275,001		$21,259
Debt	(123,651		)	(934		)	—			(60		)	—		—
	December 31, 2019
	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		$470,889			$2,886			($943	)		$3,829			$273,346		$22,747
Debt	(122,746		)	(668		)	—			(93		)	—		—

Freddie Mac 2Q 2020 Form 10-Q 113

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

NOTE 10

Collateralized Agreements and Offsetting Arrangements

Derivative Portfolio

Our use of cleared derivatives, exchange-traded derivatives, and OTC derivatives exposes us to counterparty credit risk. Our use of interest-rate swaps and option-based derivatives is subject to internal credit and legal reviews. On an ongoing basis, we review the credit fundamentals of all of our derivative counterparties, clearinghouses, and clearing members to confirm that they continue to meet our internal risk management standards.

Over-the-Counter Derivatives

We use master netting and collateral agreements to reduce our credit risk exposure to our OTC derivative counterparties. In the event that all of our counterparties for OTC derivatives were to default simultaneously on June 30, 2020, our maximum loss for accounting purposes after applying netting agreements and collateral on an individual counterparty basis would have been approximately $13 million.

Cleared and Exchange-Traded Derivatives

The majority of our interest-rate swaps are subject to the central clearing requirement of the Dodd-Frank Act. A reduction in our credit ratings could cause the clearinghouses or clearing members we use for our cleared and exchange-traded derivatives to demand additional collateral.

Other Derivatives

We also execute forward purchase and sale commitments of loans and mortgage-related securities, including dollar roll transactions, that are treated as derivatives for accounting purposes. The total net exposure on our forward purchase and sale commitments, which are treated as derivatives, was $353 million and $61 million at June 30, 2020 and December 31, 2019, respectively.

Many of our transactions involving forward purchase and sale commitments of mortgage-related securities utilize the Mortgage Backed Securities Division of the Fixed Income Clearing Corporation ("MBSD/FICC") as a clearinghouse. As a clearing member of the clearinghouse, we post margin to the MBSD/FICC and are exposed to the counterparty credit risk of the organization (including its clearing members).

Securities Purchased Under Agreements to Resell

As an investor, we enter into arrangements to purchase securities under agreements to subsequently resell the identical or substantially the same securities to our counterparty. Our counterparties to these transactions are required to pledge the purchased securities as collateral for their obligation to repurchase those securities at a later date. While such transactions involve the legal transfer of securities, they are accounted for as secured financings because the transferor does not relinquish effective control over the securities transferred. These agreements may allow us to repledge all or a portion of the collateral pledged to us, and we may repledge such collateral periodically, although it is not typically our practice to repledge collateral that has been pledged to us.

We consider the types of securities being pledged to us as collateral when determining how much we lend in transactions involving securities purchased under agreements to resell. Additionally, we regularly review the market values of these securities compared to amounts loaned in an effort to manage our exposure to losses, and our counterparties are typically required under contract to adjust the amount of collateral based on changes in the fair value of the collateral. As of June 30, 2020 and December 31, 2019, all of our securities purchased under agreements to resell were fully collateralized and we expect our counterparties to continue to replenish the collateral as necessary to meet the requirements of the contract. Therefore, as of June 30, 2020, we did not recognize an allowance for credit losses on our securities purchased under agreements to resell nor have we recognized any charge-offs of accrued interest receivable. We present accrued interest receivable separately on our condensed consolidated balance sheets. As of June 30, 2020 and December 31, 2019, we recognized accrued interest receivable for securities purchased under agreements to resell of $4 million and $18 million, respectively.

Freddie Mac 2Q 2020 Form 10-Q 114

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are effectively collateralized borrowings where we sell securities with an agreement to repurchase such securities at a future date. We are required to pledge the sold securities to the counterparties to these transactions as collateral for our repurchase obligation. Similar to the securities purchased under agreements to resell transactions, these transactions involve the legal transfer of securities. However, they are accounted for as secured financings because they require the identical or substantially the same securities to be subsequently repurchased. These agreements may allow our counterparties to repledge all or a portion of the collateral.

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. Beginning January 1, 2020, we elected to 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. Certain amounts in prior periods' condensed consolidated financial statements have been reclassified to conform to the current presentation.

The tables below display 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 10.1 - Offsetting and Collateral Information of Financial Assets and Liabilities

	June 30, 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		$11,427			($7,005	)		($3,700	)		$722			($709	)		$13
Cleared and exchange-traded derivatives	131			(1		)	136			266			—			266
Commitments	353			—			—			353			—			353
Other	61			—			—			61			—			61
Total derivatives	11,972			(7,006		)	(3,564		)	1,402			(709		)	693
Securities purchased under agreements to resell	109,189			(8,664		)	—			100,525			(100,525		)	—
Total		$121,161			($15,670	)		($3,564	)		$101,927			($101,234	)		$693
Liabilities:
Derivatives:
OTC derivatives		($9,951	)		$7,004			$2,724			($223	)		$—			($223	)
Cleared and exchange-traded derivatives	(4		)	1			3			—			—			—
Commitments	(528		)	—			—			(528		)	—			(528		)
Other	(88		)	—			—			(88		)	—			(88		)
Total derivatives	(10,571		)	7,005			2,727			(839		)	—			(839		)
Securities sold under agreements to repurchase	(8,664		)	8,664			—			—			—			—
Total		($19,235	)		$15,669			$2,727			($839	)		$—			($839	)

Referenced footnotes are included after the next table.

Freddie Mac 2Q 2020 Form 10-Q 115

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

	December 31, 2019
	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		$7,045			($4,465	)		($2,075	)		$505			($485	)		$20
Cleared and exchange-traded derivatives	144			(5		)	123			262			—			262
Commitments	61			—			—			61			—			61
Other	16			—			—			16			—			16
Total derivatives	7,266			(4,470		)	(1,952		)	844			(485		)	359
Securities purchased under agreements to resell	66,114			(9,843		)	—			56,271			(56,271		)	—
Total		$73,380			($14,313	)		($1,952	)		$57,115			($56,756	)		$359
Liabilities:
Derivatives:
OTC derivatives		($5,731	)		$4,465			$1,164			($102	)		$—			($102	)
Cleared and exchange-traded derivatives	(5		)	5			—			—			—			—
Commitments	(126		)	—			—			(126		)	—			(126		)
Other	(144		)	—			—			(144		)	—			(144		)
Total derivatives	(6,006		)	4,470			1,164			(372		)	—			(372		)
Securities sold under agreements to repurchase	(9,843		)	9,843			—			—			—			—
Total		($15,849	)		$14,313			$1,164			($372	)		$—			($372	)

(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. For cleared and exchange-traded derivatives, does not include non-cash collateral posted by us as initial margin with an aggregate fair value of $3.6 billion and $3.5 billion as of June 30, 2020 and December 31, 2019, respectively. For commitments and securities purchased under agreements to resell, does not include cash and non-cash collateral deposited totaling $0.4 billion and $1.5 billion, respectively, as of June 30, 2020, and $0.2 billion and $0.3 billion, respectively, as of December 31, 2019.

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 June 30, 2020, and December 31, 2019, we had $92.6 billion and $52.4 billion, respectively, of securities pledged to us in these transactions. In addition, at June 30, 2020 and December 31, 2019, we had $0.8 billion and $2.4 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. At June 30, 2020, we repledged collateral with a fair value of $0.1 billion.

Freddie Mac 2Q 2020 Form 10-Q 116

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 10

Collateral Pledged

Collateral Pledged to Freddie Mac

We have cash pledged to us as collateral primarily related to OTC derivative transactions. We had $5.1 billion and $2.6 billion pledged to us as collateral that was invested as part of our liquidity and contingency operating portfolio as of June 30, 2020 and December 31, 2019, respectively.

Collateral Pledged by Freddie Mac

The tables below summarize 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 10.2 - Collateral in the Form of Securities Pledged

	June 30, 2020
(In millions)	Derivatives		Securities Sold Under Agreements to Repurchase		Other(2)		Total
Cash equivalents		$—		$950		$—		$950
Debt securities of consolidated trusts(1)	638		—		73		711
Available-for-sale securities	51		—		466		517
Trading securities	2,906		7,102		956		10,964
Total securities pledged		$3,595		$8,052		$1,495		$13,142

	December 31, 2019
(In millions)	Derivatives		Securities Sold Under Agreements to Repurchase		Other(2)		Total
Debt securities of consolidated trusts(1)		$562		$—		$280		$842
Trading securities	2,894		9,346		49		12,289
Total securities pledged		$3,456		$9,346		$329		$13,131

(1) Represents debt securities of consolidated trusts held by us in our Capital Markets segment mortgage investments portfolio which are recorded as a reduction to debt securities of consolidated trusts held by third parties on our condensed consolidated balance sheets.

(2) 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 10.3 - Underlying Collateral Pledged

	June 30, 2020
(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		$1,953		$3,302		$2,797		$—		$8,052

Non-Cash Investing and Financing Activities

During 2Q 2020, we recognized securities purchased under agreements to resell of $0.1 billion as a result of entering into a transaction that did not settle in the current period. 

Freddie Mac 2Q 2020 Form 10-Q 117

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

NOTE 11

Stockholders' Equity and Earnings Per Share

Accumulated Other Comprehensive Income

The tables below present 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 11.1 - Changes in AOCI by Component, Net of Taxes

	2Q 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		$1,056			($231	)		$62			$887
Other comprehensive income before reclassifications	160			—			—			160
Amounts reclassified from accumulated other comprehensive income	(6		)	11			(4		)	1
Changes in AOCI by component	154			11			(4		)	161
Ending balance		$1,210			($220	)		$58			$1,048

	YTD 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	606			—			2			608
Amounts reclassified from accumulated other comprehensive income	(14		)	24			(8		)	2
Changes in AOCI by component	592			24			(6		)	610
Ending balance		$1,210			($220	)		$58			$1,048

	2Q 2019
(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		$329			($297	)		$91			$123
Other comprehensive income before reclassifications	330			—			—			330
Amounts reclassified from accumulated other comprehensive income	(26		)	20			(4		)	(10		)
Changes in AOCI by component	304			20			(4		)	320
Ending balance		$633			($277	)		$87			$443

	YTD 2019
(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		$83			($315	)		$97			($135	)
Other comprehensive income before reclassifications	603			—			(2		)	601
Amounts reclassified from accumulated other comprehensive income	(53		)	38			(8		)	(23		)
Changes in AOCI by component	550			38			(10		)	578
Ending balance		$633			($277	)		$87			$443

Freddie Mac 2Q 2020 Form 10-Q 118

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

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 11.2 - Reclassifications from AOCI to Net Income

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
AOCI related to available-for-sale securities
Affected line items on the condensed consolidated statements of comprehensive income (loss):
Investment gains (losses), net		$7			$33			$17			$67
Income tax (expense) benefit	(1		)	(7		)	(3		)	(14		)
Net of tax	6			26			14			53
AOCI related to cash flow hedge relationships
Affected line items on the condensed consolidated statements of comprehensive income (loss):
Interest expense	(14		)	(25		)	(30		)	(48		)
Income tax (expense) benefit	3			5			6			10
Net of tax	(11		)	(20		)	(24		)	(38		)
AOCI related to defined benefit plans
Affected line items on the condensed consolidated statements of comprehensive income (loss):
Salaries and employee benefits	5			5			10			10
Income tax (expense) benefit	(1		)	(1		)	(2		)	(2		)
Net of tax	4			4			8			8
Total reclassifications in the period net of tax		($1	)		$10			($2	)		$23

Senior Preferred Stock

Pursuant to the September 2019 Letter Agreement, for each dividend period from July 1, 2019 and thereafter, the applicable Capital Reserve Amount used in determining the dividend payable to Treasury will be $20.0 billion, rather than $3.0 billion as previously provided. As a result of this change, we did not have a dividend requirement to Treasury in June 2020, as our Net Worth Amount of $9.5 billion as of March 31, 2020 was lower than the $20.0 billion applicable Capital Reserve Amount.

As of June 30, 2020, our assets exceeded our liabilities under GAAP; therefore, no draw is being requested from Treasury under the Purchase Agreement. Based on our Net Worth Amount of $11.4 billion as of June 30, 2020 and the applicable Capital Reserve Amount of $20.0 billion, we will not have a dividend requirement to Treasury in September 2020. See Note 2 for additional information. Our cumulative senior preferred stock dividend payments remain at $119.7 billion as of June 30, 2020.

The aggregate liquidation preference of the senior preferred stock owned by Treasury was $81.8 billion as of March 31, 2020. Pursuant to the September 2019 Letter Agreement, the liquidation preference of the senior preferred stock will be increased, at the end of each fiscal quarter, beginning on September 30, 2019, by an amount equal to the increase in the Net Worth Amount, if any, during the immediately prior fiscal quarter, until the liquidation preference has increased by $17.0 billion. During 1Q 2020, our Net Worth Amount increased by $0.4 billion. As a result, the liquidation preference of the senior preferred stock increased to $82.2 billion on June 30, 2020, and will increase to $84.1 billion on September 30, 2020 based on the $1.9 billion increase in our Net Worth Amount during 2Q 2020.

Freddie Mac 2Q 2020 Form 10-Q 119

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

The table below provides a summary of our senior preferred stock outstanding at June 30, 2020.

Table 11.3 - 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
Total non-draw adjustments	1.00	1.00	1.00				10,504
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				$82,152

Stock Issuances and Repurchases

We did not repurchase or issue any of our common shares or non-cumulative preferred stock during 2Q 2020, except for issuances of treasury stock relating to stock-based compensation granted prior to Conservatorship. During 2Q 2020, the deferral period lapsed on 351 RSUs. At June 30, 2020, 351 RSUs remained outstanding.

Earnings Per Share

We have participating securities related to RSUs with dividend equivalent rights that receive dividends as declared on an equal basis with common shares but are not obligated to participate in undistributed net losses. These participating securities consist of vested RSUs that earn dividend equivalents at the same rate when and as declared on common stock.

Consequently, in accordance with accounting guidance, we use the "two-class" method of computing earnings per common share. The "two-class" method is an earnings allocation formula that determines earnings per share for common stock and participating securities based on dividends declared and participation rights in undistributed earnings.

Basic earnings per common share is computed as net income attributable to common stockholders divided by the weighted average common shares outstanding for the period. The weighted average common shares outstanding for the period includes the weighted average number of shares that are associated with the warrant for our common stock issued to Treasury pursuant to the Purchase Agreement. These shares are included since the warrant is unconditionally exercisable by the holder at a minimal cost.

Diluted earnings per common share is computed as net income attributable to common stockholders divided by the weighted average common shares outstanding during the period adjusted for the dilutive effect of common equivalent shares outstanding. For periods with net income attributable to common stockholders, the calculation includes the effect of the weighted-average of RSUs.

Freddie Mac 2Q 2020 Form 10-Q 120

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 11

During periods in which a net loss attributable to common stockholders has been incurred, potential common equivalent shares outstanding are not included in the calculation because it would have an antidilutive effect.

Dividends and Dividend Restrictions

No common dividends were declared during YTD 2020. As a result of the increase in the applicable Capital Reserve Amount pursuant to the September 2019 Letter Agreement, we did not declare or pay a dividend on the senior preferred stock during YTD 2020. We also did not declare or pay dividends on any other series of Freddie Mac preferred stock outstanding during YTD 2020.

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 as described in Note 11 in our 2019 Annual Report.

Freddie Mac 2Q 2020 Form 10-Q 121

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 12

NOTE 12

Income Taxes

Income Tax Expense

For 2Q 2020 and 2Q 2019, we reported income tax expense of $458 million and $392 million, respectively, resulting in effective tax rates of 20.5% and 20.7%, respectively. For YTD 2020 and YTD 2019, we reported income tax expense of $503 million and $750 million, respectively, resulting in an effective tax rate of 20.5% for both periods. Our effective tax rate differed from the statutory tax rate of 21% in these periods primarily due to our recognition of low income housing tax credits and tax-exempt interest income.

Deferred Tax Assets, Net

We had net deferred tax assets of $5.7 billion and $5.9 billion as of June 30, 2020 and December 31, 2019, respectively. At June 30, 2020, our net deferred tax assets consisted primarily of basis differences related to derivative instruments and deferred fees.

Based on all positive and negative evidence available at June 30, 2020, we determined that it is more likely than not that our net deferred tax assets, except for a portion of the deferred tax asset related to our capital loss carryforward, will be realized. As of June 30, 2020, we have a $37 million valuation allowance recorded against our capital loss carryforward deferred tax asset.

Unrecognized Tax Benefits

We evaluated all income tax positions and determined that there were no uncertain tax positions that required reserves as of June 30, 2020.

We are under IRS examination for tax years 2013 through 2016 related to the carryback of 2016 capital losses to the prior three years.

Freddie Mac 2Q 2020 Form 10-Q 122

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

NOTE 13

Segment Reporting

We have three reportable segments, which are based on the type of business activities each performs - Single-family Guarantee, Multifamily, and Capital Markets. Material corporate-level activities that are infrequent in nature and based on decisions outside the control of the management of our reportable segments are included in the All Other category. For more information, see our 2019 Annual Report.

Segment Earnings

We present Segment Earnings by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on our GAAP condensed consolidated statements of comprehensive income (loss) and allocating certain revenues and expenses, including certain returns on assets, funding and hedging costs, and administrative expenses, to our three reportable segments.

We do not consider our assets by segment when evaluating segment performance or allocating resources. We operate our business in the United States 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 United States and its territories.

We evaluate segment performance and allocate resources based on a Segment Earnings approach, subject to the conduct of our business under the direction of the Conservator. See Note 2 for information about the conservatorship.

The table below presents Segment Earnings by segment.

Table 13.1 - Segment Earnings

(In millions)	2Q 2020		2Q 2019		YTD 2020			YTD 2019
Segment Earnings (Loss), net of taxes:
Single-family Guarantee		$753		$955		$1,341			$1,695
Multifamily	1,005		383		767			713
Capital Markets	19		168		(158		)	505
All Other	—		—		—			—
Total Segment Earnings (Loss), net of taxes		$1,777		$1,506		$1,950			$2,913
Net income (loss) per condensed consolidated statements of comprehensive income (loss)		$1,777		$1,506		$1,950			$2,913
Comprehensive income (loss) of segments:
Single-family Guarantee		$751		$953		$1,337			$1,689
Multifamily	1,063		440		889			835
Capital Markets	124		433		334			967
All Other	—		—		—			—
Comprehensive income (loss) of segments		$1,938		$1,826		$2,560			$3,491
Comprehensive income (loss) per condensed consolidated statements of comprehensive income (loss)		$1,938		$1,826		$2,560			$3,491

Freddie Mac 2Q 2020 Form 10-Q 123

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

The tables below present detailed reconciliations between our GAAP condensed consolidated statements of comprehensive income (loss) and Segment Earnings for our reportable segments and All Other.

Table 13.2 - Segment Earnings and Reconciliations to GAAP Condensed Consolidated Statements of Comprehensive Income (Loss)

	2Q 2020
	Single-family Guarantee			Multifamily			Capital Markets			All Other		Total Segment Earnings (Loss)			Reclassifications			Total per Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net interest income		$—			$228			$152			$—		$380			$2,496			$2,876
Guarantee fee income	2,528			442			—			—		2,970			(2,501		)	469
Investment gains (losses), net	21			761			206			—		988			(318		)	670
Other income (loss)	(83		)	51			(234		)	—		(266		)	400			134
Benefit (provision) for credit losses	(752		)	(81		)	—			—		(833		)	128			(705		)
Administrative expense	(379		)	(124		)	(98		)	—		(601		)	—			(601		)
Credit enhancement expense	(399		)	(5		)	—			—		(404		)	171			(233		)
Expected credit enhancement recoveries	219			2			—			—		221			—			221
REO operations expense	(14		)	—			—			—		(14		)	—			(14		)
Other expense	(195		)	(9		)	(2		)	—		(206		)	(376		)	(582		)
Income tax (expense) benefit	(193		)	(260		)	(5		)	—		(458		)	—			(458		)
Net income (loss)	753			1,005			19			—		1,777			—			1,777
Changes in unrealized gains (losses) related to available-for-sale securities	—			59			95			—		154			—			154
Changes in unrealized gains (losses) related to cash flow hedge relationships	—			—			11			—		11			—			11
Changes in defined benefit plans	(2		)	(1		)	(1		)	—		(4		)	—			(4		)
Total other comprehensive income (loss), net of taxes	(2		)	58			105			—		161			—			161
Comprehensive income (loss)		$751			$1,063			$124			$—		$1,938			$—			$1,938
	YTD 2020
	Single-family Guarantee			Multifamily			Capital Markets			All Other		Total Segment Earnings (Loss)			Reclassifications			Total per Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net interest income		$—			$497			$661			$—		$1,158			$4,503			$5,661
Guarantee fee income	4,621			855			—			—		5,476			(4,630		)	846
Investment gains (losses), net	458			(90		)	(221		)	—		147			(312		)	(165		)
Other income (loss)	(68		)	88			(435		)	—		(415		)	644			229
Benefit (provision) for credit losses	(1,974		)	(148		)	—			—		(2,122		)	184			(1,938		)
Administrative expense	(751		)	(244		)	(193		)	—		(1,188		)	—			(1,188		)
Credit enhancement expense	(810		)	(9		)	—			—		(819		)	355			(464		)
Expected credit enhancement recoveries	658			30			—			—		688			—			688
REO operations expense	(101		)	—			—			—		(101		)	2			(99		)
Other expense	(346		)	(14		)	(11		)	—		(371		)	(746		)	(1,117		)
Income tax (expense) benefit	(346		)	(198		)	41			—		(503		)	—			(503		)
Net income (loss)	1,341			767			(158		)	—		1,950			—			1,950
Changes in unrealized gains (losses) related to available-for-sale securities	—			123			469			—		592			—			592
Changes in unrealized gains (losses) related to cash flow hedge relationships	—			—			24			—		24			—			24
Changes in defined benefit plans	(4		)	(1		)	(1		)	—		(6		)	—			(6		)
Total other comprehensive income (loss), net of taxes	(4		)	122			492			—		610			—			610
Comprehensive income (loss)		$1,337			$889			$334			$—		$2,560			$—			$2,560

Freddie Mac 2Q 2020 Form 10-Q 124

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 13

	2Q 2019
	Single-family Guarantee			Multifamily			Capital Markets			All Other		Total Segment Earnings (Loss)			Reclassifications			Total per Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net interest income		$—			$266			$747			$—		$1,013			$1,914			$2,927
Guarantee fee income	1,875			293			—			—		2,168			(1,888		)	280
Investment gains (losses), net	256			27			(259		)	—		24			(162		)	(138		)
Other income (loss)	58			28			(172		)	—		(86		)	229			143
Benefit (provision) for credit losses	88			(1		)	—			—		87			73			160
Administrative expense	(400		)	(120		)	(99		)	—		(619		)	—			(619		)
Credit enhancement expense	(349		)	(3		)	—			—		(352		)	175			(177		)
Expected credit enhancement recoveries	38			—			—			—		38			—			38
REO operations expense	(86		)	—			—			—		(86		)	5			(81		)
Other expense	(277		)	(7		)	(5		)	—		(289		)	(346		)	(635		)
Income tax (expense) benefit	(248		)	(100		)	(44		)	—		(392		)	—			(392		)
Net income (loss)	955			383			168			—		1,506			—			1,506
Changes in unrealized gains (losses) related to available-for-sale securities	—			58			246			—		304			—			304
Changes in unrealized gains (losses) related to cash flow hedge relationships	—			—			20			—		20			—			20
Changes in defined benefit plans	(2		)	(1		)	(1		)	—		(4		)	—			(4		)
Total other comprehensive income (loss), net of taxes	(2		)	57			265			—		320			—			320
Comprehensive income (loss)		$953			$440			$433			$—		$1,826			$—			$1,826
	YTD 2019
	Single-family Guarantee			Multifamily			Capital Markets			All Other		Total Segment Earnings (Loss)			Reclassifications			Total per Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net interest income		$—			$513			$1,505			$—		$2,018			$4,062			$6,080
Guarantee fee income	3,510			580			—			—		4,090			(3,520		)	570
Investment gains (losses), net	262			1			(295		)	—		(32		)	(619		)	(651		)
Other income (loss)	170			57			(378		)	—		(151		)	277			126
Benefit (provision) for credit losses	159			(2		)	—			—		157			138			295
Administrative expense	(774		)	(232		)	(191		)	—		(1,197		)	—			(1,197		)
Credit enhancement expense	(669		)	(7		)	—			—		(676		)	337			(339		)
Expected credit enhancement recoveries	42			—			—			—		42			—			42
REO operations expense	(124		)	—			—			—		(124		)	10			(114		)
Other expense	(445		)	(13		)	(6		)	—		(464		)	(685		)	(1,149		)
Income tax (expense) benefit	(436		)	(184		)	(130		)	—		(750		)	—			(750		)
Net income (loss)	1,695			713			505			—		2,913			—			2,913
Changes in unrealized gains (losses) related to available-for-sale securities	—			124			426			—		550			—			550
Changes in unrealized gains (losses) related to cash flow hedge relationships	—			—			38			—		38			—			38
Changes in defined benefit plans	(6		)	(2		)	(2		)	—		(10		)	—			(10		)
Total other comprehensive income (loss), net of taxes	(6		)	122			462			—		578			—			578
Comprehensive income (loss)		$1,689			$835			$967			$—		$3,491			$—			$3,491

Freddie Mac 2Q 2020 Form 10-Q 125

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

NOTE 14

Concentration of Credit and Other Risks

Single-Family Credit Guarantee Portfolio

The table below summarizes the concentration by loan portfolio and geographic area of the approximately $2.1 trillion and $2.0 trillion UPB of our single-family credit guarantee portfolio as of June 30, 2020 and December 31, 2019. See Note 4 and Note 7 for more information about credit risk associated with loans and mortgage-related securities that we hold or guarantee.

Table 14.1 - Concentration of Credit Risk of Our Single-Family Credit Guarantee Portfolio

	June 30, 2020				December 31, 2019				Percent of Credit Losses
	Percentage  of Portfolio		Serious Delinquency Rate		Percentage  of Portfolio		Serious Delinquency Rate		YTD 2020		YTD 2019
Core single-family loan portfolio	87	%	1.95	%	85	%	0.26	%	34	%	13	%
Legacy and relief refinance single-family loan portfolio	13		4.44		15		1.84		66		87
Total	100	%	2.48		100	%	0.63		100	%	100	%
Region(1)
West	30	%	2.29		30	%	0.36		6	%	13	%
Northeast	24		3.16		24		0.87		38		39
North Central	16		1.86		16		0.61		27		18
Southeast	16		2.77		16		0.73		20		24
Southwest	14		2.27		14		0.54		9		6
Total	100	%	2.48		100	%	0.63		100	%	100	%
State(2)
Illinois	4	%	2.61		4	%	0.85		14	%	10	%
Florida	6		3.53		6		0.77		11		16
New York	5		4.95		5		1.21		10		12
New Jersey	3		4.48		3		1.08		9		10
Ohio	3		1.86		3		0.69		5		3
All other	79		2.21		79		0.54		51		49
Total	100	%	2.48		100	%	0.63		100	%	100	%

(1) 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).

(2) States presented based on those with the highest percentage of credit losses during YTD 2020.

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.

Freddie Mac 2Q 2020 Form 10-Q 126

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Although we do not categorize single-family loans we purchase or guarantee as prime or subprime, we recognize that there are 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. The CARES Act requires our servicers to report to credit bureaus that loans in mortgage relief programs, such as forbearance plans, repayment plans, and loan modification programs, are current as long as the loans were current prior to entering into the mortgage relief programs and the borrowers remain in compliance with the programs. This credit reporting requirement applies to all mortgage relief programs entered into between January 31, 2020 and July 25, 2020.

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 credit guarantee portfolio. The table includes a presentation of 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 14.2 - Certain Higher Risk Categories in Our Single-Family Credit Guarantee Portfolio

	Percentage of Portfolio(1)				Serious Delinquency Rate(1)
(Percentage of portfolio based on UPB)	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Interest-only	—	%	1	%	6.51	%	2.72	%
Alt-A	1		1		7.70		3.75
Original LTV ratio greater than 90%(2)	17		18		3.58		0.96
Lower credit scores at origination (less than 620)	2		2		8.86		4.52

(1) Excludes loans underlying certain other securitization products for which data was not available.

(2) Includes HARP loans, which we purchased as part of our participation in the MHA Program.

Sellers and Servicers

We are exposed to counterparty credit risk arising from the potential insolvency or non-performance by our sellers and servicers of their obligations to repurchase loans or (at our option) indemnify us in the event of breaches of the representations and warranties they made when they sold the loans to us or failure to comply with our servicing requirements.

The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase obligations may be significantly less than the amount of our estimates of potential exposure to losses. Our exposure to seller/servicers for their repurchase obligations is considered in our allowance for credit losses. See Note 4 for further information.

Sellers

We acquire a significant portion of our single-family and multifamily loan purchase volume from several large sellers. The tables below summarize the concentration of single-family and multifamily sellers who provided 10% or more of our purchase volume during YTD 2020 or YTD 2019.

Table 14.3 - Seller Concentration

Single-family Sellers(1)	YTD 2020		YTD 2019
JPMorgan Chase Bank, N.A.	7	%	16	%
United Shore Financial Services, LLC	7		10
Other top 10 sellers	32		31
Top 10 single-family sellers	46	%	57	%
Multifamily Sellers(1)	YTD 2020		YTD 2019
Berkadia Commercial Mortgage LLC	15	%	15	%
CBRE Capital Markets, Inc.	14		19
Other top 10 sellers	48		46
Top 10 multifamily sellers	77	%	80	%

(1) Sellers presented based on those with the highest percentage of purchase volume during YTD 2020.

In recent years, there has been a shift in our single-family purchase volume from depository institutions to non-depository and smaller depository financial institutions. Some of these non-depository sellers have grown in recent years, and we purchase a significant share of our loans from them. Our top five non-depository sellers provided approximately 24% and 27% of our single-family purchase volume during YTD 2020 and YTD 2019, respectively.

Freddie Mac 2Q 2020 Form 10-Q 127

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

Servicers

Significant portions of our single-family and multifamily loans are serviced by several large servicers. The tables below summarize the concentration of single-family and multifamily servicers who serviced 10% or more of our single-family credit guarantee portfolio and multifamily mortgage portfolio as of June 30, 2020 or December 31, 2019.

Table 14.4 - Servicer Concentration

Single-family Servicers(1)	June 30, 2020(2)		December 31, 2019(2)
Wells Fargo Bank, N.A.	14	%	15	%
JPMorgan Chase Bank, N.A.	9		10
Other top 10 servicers	31		32
Top 10 single-family servicers	54	%	57	%

Multifamily Servicers(1)(3)	June 30, 2020		December 31, 2019
CBRE Capital Markets, Inc.	17	%	17	%
Berkadia Commercial Mortgage LLC	13		13
Other top 10 servicers	46		46
Top 10 multifamily servicers	76	%	76	%

(1) Servicers presented based on those with the highest percentage of servicing volume as of June 30, 2020.

(2) Percentage of servicing volume is based on the total single-family credit guarantee 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 credit guarantee portfolio.

(3) Represents multifamily primary servicers.

In recent years, there has been a shift in our single-family servicing from depository institutions to 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 June 30, 2020 and December 31, 2019, approximately 18% of our single-family credit guarantee portfolio, excluding loans where 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.

For our mortgage-backed securities, we guarantee the payment of principal and interest, and when the underlying borrowers do not pay their mortgages, our Guide generally requires single-family servicers to advance the missed mortgage interest payments for up to 120 days. After this time, Freddie Mac will make the missed mortgage principal and interest payments to security holders until the mortgages are no longer held by the securitization trust. At the instruction of FHFA, we generally have been purchasing loans from securities when the loans have been delinquent for 120 days or more. After the outbreak of COVID-19, FHFA further instructed us to maintain loans in COVID-19 payment forbearance plans in the securitization trusts for at least the duration of the forbearance. Once the forbearance period expires, the loan will remain in the related securities pool while (i) an offer to reinstate the loan or enter into either a payment deferral solution, repayment plan or a trial period plan pursuant to a loan modification remains outstanding; (ii) the loan is in an active repayment plan or trial period plan; or (iii) a payment deferral solution is in effect.

In addition to principal and interest payments, borrowers are also responsible for other expenses such as property taxes and homeowner's insurance premiums. When borrowers do not pay these expenses, our Guide generally requires single-family servicers to advance the funds for these expenses in order to protect or preserve our interest in or legal right to the properties. These advances are ultimately collectible from the borrowers. If the borrowers reperform through loan workout activities, the missed payments and incurred expenses will be collected from the borrowers. If the borrowers ultimately default, we will reimburse the servicers for the advanced amounts upon foreclosure or a foreclosure alternative.

In March 2020, as the COVID-19 pandemic evolved rapidly, liquidity concerns primarily regarding non-depository financial institutions arose as market conditions changed and borrowers affected by COVID-19 were offered widespread forbearance, including forbearance on loans purchased and securitized by Freddie Mac. The increase in delinquency volume and the obligation for single-family servicers to continue to advance funds during the forbearance period as discussed above may increase liquidity pressures on certain of our counterparties. In response to these potential liquidity concerns, we have heightened our monitoring and review of the financial stability of our non-depository institutional counterparties.

Multifamily primary servicers included in the table above present potential operational risk and impact to the borrowers if the servicing needs to be moved 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 the majority of our primary multifamily securitizations, we utilize one of three large financial depository institutions, except for small balance loan securitizations where we serve as master servicer. In instances where payment shortfalls occur, the master servicer is required to make advances as long as such advances have not been deemed non-recoverable. 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.

Freddie Mac 2Q 2020 Form 10-Q 128

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

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.

In March 2019, we implemented a set of revised Private Mortgage Insurer Eligibility Requirements (PMIERs) with enhancements to the risk-based capital requirements for mortgage insurers. In addition, we revised master policies with mortgage insurers which provide contract certainty and improve our ability to collect claims for mortgage insurance obligations. These policies were approved by FHFA and became effective on March 1, 2020.

We evaluate the expected recovery and collectability from mortgage insurers as part of the estimate of our allowance for credit losses. See Note 4 for additional information. As of June 30, 2020, mortgage insurers provided coverage with maximum loss limits of $108.1 billion, for $427.0 billion of UPB, in connection with our single-family credit guarantee 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. announced that it had entered into an agreement to be acquired by China Oceanwide Holdings Group Co., Ltd. Because Genworth Mortgage Insurance Corporation, a subsidiary of Genworth Financial, Inc., is an approved mortgage insurer, Freddie Mac evaluated the planned acquisition and approved China Oceanwide Holdings Group's control of Genworth Mortgage Insurance Corporation. In January 2020, Freddie Mac reapproved the acquisition. Regulatory and other approvals of the acquisition are still pending.

Table 14.5 - Mortgage Insurer Concentration

		Mortgage Insurance Coverage(2)
Mortgage Insurer	Credit Rating(1)	June 30, 2020		December 31, 2019
Arch Mortgage Insurance Company	A-	21	%	22	%
Radian Guaranty Inc.	BBB+	19		20
Mortgage Guaranty Insurance Corporation	BBB+	18		17
Genworth Mortgage Insurance Corporation	BB+	16		15
Essent Guaranty, Inc.	BBB+	15		15
Total		89	%	89	%

(1) Ratings are for the corporate entity to which we have the greatest exposure. Latest rating available as of June 30, 2020. Represents the lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.

(2) Coverage amounts may include coverage provided by affiliates and subsidiaries of the counterparty.

During both YTD 2020 and YTD 2019, we received proceeds of $0.1 billion from our mortgage insurance policies for recovery of losses on our single-family loans. We had outstanding receivables from mortgage insurers of $0.1 billion (excluding deferred payment obligations associated with unpaid claim amounts) as of both June 30, 2020 and December 31, 2019. The balance of these receivables, net of associated reserves, was approximately $0.1 billion at both June 30, 2020 and December 31, 2019.

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 June 30, 2020 and December 31, 2019, we had cumulative unpaid deferred payment obligations of $0.4 billion and $0.5 billion, respectively, 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.

Freddie Mac 2Q 2020 Form 10-Q 129

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 14

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 June 30, 2020 and December 31, 2019, including amounts related to our consolidated VIEs, the balance in our other investments was $155.6 billion and $103.6 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 June 30, 2020 and December 31, 2019, $0.8 billion and $2.4 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.

Freddie Mac 2Q 2020 Form 10-Q 130

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

NOTE 15

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.

Fair Value Measurements

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.

Freddie Mac 2Q 2020 Form 10-Q 131

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present 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 15.1 - Assets and Liabilities Measured at Fair Value on a Recurring Basis

	June 30, 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		$—		$22,039		$814		$—			$22,853
Non-agency and other	—		1		1,106		—			1,107
Total available-for-sale securities, at fair value	—		22,040		1,920		—			23,960
Trading, at fair value:
Mortgage-related securities:
Agency	—		18,602		3,052		—			21,654
Non-agency	—		—		1		—			1
Total mortgage-related securities	—		18,602		3,053		—			21,655
Non-mortgage-related securities	29,838		2,449		—		—			32,287
Total trading securities, at fair value	29,838		21,051		3,053		—			53,942
Total investments in securities	29,838		43,091		4,973		—			77,902
Mortgage loans:
Held-for-sale, at fair value	—		17,526		—		—			17,526
Derivative assets, net:
Interest-rate swaps	—		3,482		—		—			3,482
Option-based derivatives	15		7,432		—		—			7,447
Other	—		353		61		—			414
Subtotal, before netting adjustments	15		11,267		61		—			11,343
Netting adjustments(1)	—		—		—		(9,941		)	(9,941		)
Total derivative assets, net	15		11,267		61		(9,941		)	1,402
Other assets:
Guarantee asset, at fair value	—		—		4,824		—			4,824
Non-derivative held-for-sale purchase commitments, at fair value	—		203		—		—			203
All other, at fair value	—		—		114		—			114
Total other assets	—		203		4,938		—			5,141
Total assets carried at fair value on a recurring basis		$29,853		$72,087		$9,972		($9,941	)		$101,971
Liabilities:
Debt securities of consolidated trusts held by third parties, at fair value		$—		$4		$202		$—			$206
Other debt, at fair value	—		2,757		123		—			2,880
Derivative liabilities, net:
Interest-rate swaps	—		9,037		—		—			9,037
Option-based derivatives	—		336		—		—			336
Other	—		600		16		—			616
Subtotal, before netting adjustments	—		9,973		16		—			9,989
Netting adjustments(1)	—		—		—		(9,150		)	(9,150		)
Total derivative liabilities, net	—		9,973		16		(9,150		)	839
Other liabilities:
Non-derivative held-for-sale purchase commitments, at fair value	—		1		—		—			1
All other, at fair value	—		—		1		—			1
Total other liabilities	—		1		1		—			2
Total liabilities carried at fair value on a recurring basis		$—		$12,735		$342		($9,150	)		$3,927

Referenced footnote is included after the next table.

Freddie Mac 2Q 2020 Form 10-Q 132

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

	December 31, 2019
(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		$—		$22,927		$1,960		$—			$24,887
Non-agency and other	—		20		1,267		—			1,287
Total available-for-sale securities, at fair value	—		22,947		3,227		—			26,174
Trading, at fair value:
Mortgage-related securities:
Agency	—		19,772		2,709		—			22,481
Non-agency	—		—		1		—			1
Total mortgage-related securities	—		19,772		2,710		—			22,482
Non-mortgage-related securities	25,108		1,947		—		—			27,055
Total trading securities, at fair value	25,108		21,719		2,710		—			49,537
Total investment securities	25,108		44,666		5,937		—			75,711
Mortgage loans:
Held-for-sale, at fair value	—		15,035		—		—			15,035
Derivative assets, net:
Interest-rate swaps	—		2,104		—		—			2,104
Option-based derivatives	—		4,198		—		—			4,198
Other	—		61		16		—			77
Subtotal, before netting adjustments	—		6,363		16		—			6,379
Netting adjustments(1)	—		—		—		(5,535		)	(5,535		)
Total derivative assets, net	—		6,363		16		(5,535		)	844
Other assets:
Guarantee asset, at fair value	—		—		4,426		—			4,426
Non-derivative held-for-sale purchase commitments, at fair value	—		81		—		—			81
All other, at fair value	—		—		120		—			120
Total other assets	—		81		4,546		—			4,627
Total assets carried at fair value on a recurring basis		$25,108		$66,145		$10,499		($5,535	)		$96,217
Liabilities:
Debt securities of consolidated trusts held by third parties, at fair value		$—		$6		$203		$—			$209
Other debt, at fair value	—		3,600		129		—			3,729
Derivative liabilities, net:
Interest-rate swaps	—		4,882		—		—			4,882
Option-based derivatives	—		130		—		—			130
Other	—		233		37		—			270
Subtotal, before netting adjustments	—		5,245		37		—			5,282
Netting adjustments(1)	—		—		—		(4,910		)	(4,910		)
Total derivative liabilities, net	—		5,245		37		(4,910		)	372
Other liabilities:
Non-derivative held-for-sale purchase commitments, at fair value	—		7		—		—			7
All other, at fair value	—		—		1		—			1
Total other liabilities	—		7		1		—			8
Total liabilities carried at fair value on a recurring basis		$—		$8,858		$370		($4,910	)		$4,318

(1) Represents counterparty netting, cash collateral netting, and net derivative interest receivable or payable.

Freddie Mac 2Q 2020 Form 10-Q 133

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Level 3 Fair Value Measurements

The tables below present 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 tables also present 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 15.2 - Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs

	2Q 2020
	Balance, April 1, 2020			Total Realized/Unrealized Gains (Losses)					Purchases			Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2020			Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(3)			Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2020
(In millions)				Included in Earnings			Included in Other Comprehensive Income
Assets
Investment securities:
Available-for-sale, at fair value:
Mortgage-related securities:
Agency		$650			$—			$8		$197			$—		($10	)		($31	)		$—		$—			$814			$—			$6
Non-agency and other	1,101			4			41		—			—		—			(40		)	—		—			1,106			4			32
Total available-for-sale mortgage-related securities	1,751			4			49		197			—		(10		)	(71		)	—		—			1,920			4			38
Trading, at fair value:
Mortgage-related securities:
Agency	2,544			(53		)	—		742			—		(170		)	(11		)	—		—			3,052			(49		)	—
Non-agency	1			—			—		—			—		—			—			—		—			1			—			—
Total trading mortgage-related securities	2,545			(53		)	—		742			—		(170		)	(11		)	—		—			3,053			(49		)	—
Other assets:
Guarantee asset	4,565			163			—		—			289		—			(193		)	—		—			4,824			163			—
All other, at fair value	106			(3		)	—		(6		)	6		—			11			—		—			114			(3		)	—
Total other assets	4,671			160			—		(6		)	295		—			(182		)	—		—			4,938			160			—
	Balance, April 1, 2020			Total Realized/Unrealized (Gains) Losses					Purchases			Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2020			Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(3)			Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2020
				Included in Earnings			Included in Other Comprehensive Income
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value		$199			$3			$—		$—			$—		$—			$—			$—		$—			$202			$3			$—
Other debt, at fair value	151			1			—		—			1		—			(7		)	—		(23		)	123			1			—
Net derivatives(2)	(39		)	(4		)	—		—			—		—			(2		)	—		—			(45		)	(79		)	—
All other, at fair value	1			—			—		—			—		—			—			—		—			1			—			—

Referenced footnotes are included after the prior period table.

Freddie Mac 2Q 2020 Form 10-Q 134

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

	YTD 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, June 30, 2020			Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(3)			Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 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			$46			$197			$—		($218	)		($88	)		$—		($1,095	)		$814			$—			$4
Non-agency and other	1,267		7			(86		)	—			—		—			(82		)	—		—				$1,106		7			(68		)
Total available-for-sale mortgage-related securities	3,227		19			(40		)	197			—		(218		)	(170		)	—		(1,095		)	1,920			7			(64		)
Trading, at fair value:
Mortgage-related securities:
Agency	2,709		(37		)	—			923			—		(104		)	(42		)	—		(397		)	3,052			(44		)	—
Non-agency	1		—			—			—			—		—			—			—		—			1			—			—
Total trading mortgage-related securities	2,710		(37		)	—			923			—		(104		)	(42		)	—		(397		)	3,053			(44		)	—
Other assets:
Guarantee asset	4,426		262			—			—			512		—			(376		)	—		—			4,824			262			—
All other, at fair value	120		(11		)	—			(6		)	12		(8		)	7			—		—			114			(11		)	—
Total other assets	4,546		251			—			(6		)	524		(8		)	(369		)	—		—			4,938			251			—
	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, June 30, 2020			Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2020(3)			Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2020
			Included in Earnings			Included in Other Comprehensive Income
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value		$203		($1	)		$—			$—			$—		$—			$—			$—		$—			$202			($1	)		$—
Other debt, at fair value	129		—			—			—			2		—			(8		)	—		—			123			—			—
Net derivatives(2)	21		(59		)	—			—			1		—			(8		)	—		—			(45		)	(66		)	—
All other, at fair value	1		—			—			—			—		—			—			—		—			1			—			—

Freddie Mac 2Q 2020 Form 10-Q 135

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

	2Q 2019
	Balance, April 1, 2019		Total Realized/Unrealized Gains (Losses)						Purchases		Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2019		Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2019(3)			Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2019
(In millions)			Included in Earnings			Included in Other Comprehensive Income
Assets
Investment securities:
Available-for-sale, at fair value:
Mortgage-related securities:
Agency		$3,599		$8			$23			$—		$—		($707	)		($91	)		$—		($52	)		$2,780	—				$21
Non-agency and other	1,633		22			(15		)	—		—		(88		)	(58		)	—		—				$1,494	4			8
Total available-for-sale mortgage-related securities	5,232		30			8			—		—		(795		)	(149		)	—		(52		)	4,274		4			29
Trading, at fair value:
Mortgage-related securities:
Agency	3,058		(15		)	—			360		—		(511		)	162			—		(21		)	3,033		15			—
Non-agency	1		—			—			—		—		—			—			—		—			1		—			—
Total trading mortgage-related securities	3,059		(15		)	—			360		—		(511		)	162			—		(21		)	3,034		15			—
Other assets:
Guarantee asset	3,795		24			—			—		284		—			(162		)	—		—			3,941		24			—
All other, at fair value	150		(10		)	—			—		8		(20		)	(2		)	—		—			126		(15		)	—
Total other assets	3,945		14			—			—		292		(20		)	(164		)	—		—			4,067		9			—
	Balance, April 1, 2019		Total Realized/Unrealized (Gains) Losses						Purchases		Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2019		Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2019(3)			Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2019
			Included in Earnings			Included in Other Comprehensive Income
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value		$730		$3			$—			$—		$—		$—			$—			$—		$—			$733		$3			$—
Other debt, at fair value	214		—			—			—		1		—			(5		)	—		(81		)	129		—			—
Net derivatives(2)	48		(6		)	—			—		—		—			(2		)	—		—			40		(11		)	—
All other, at fair value	1		(1		)	—			—		—		—			—			—		—			—		—			—

Freddie Mac 2Q 2020 Form 10-Q 136

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

	YTD 2019
	Balance, January 1, 2019		Total Realized/Unrealized Gains (Losses)					Purchases		Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2019		Change in Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2019(3)			Change in Unrealized Gains (Losses), Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2019
(In millions)			Included in Earnings			Included in Other Comprehensive Income
Assets
Investment securities:
Available-for-sale, at fair value:
Mortgage-related securities:
Agency		$4,135		($10	)		$96		$—		$—		($1,193	)		($190	)		$—		($58	)		$2,780		($1	)		$75
Non-agency and other	1,640		26			35		—		—		(87		)	(120		)	—		—			1,494		8			48
Total available-for-sale mortgage-related securities	5,775		16			131		—		—		(1,280		)	(310		)	—		—			4,274		7			123
Trading, at fair value:
Mortgage-related securities:
Agency	3,293		(73		)	—		372		—		(517		)	138			—		(180		)	3,033		(39		)	—
Non-agency	1		—			—		—		—		—			—			—		—			1		—			—
Total trading mortgage-related securities	3,294		(73		)	—		372		—		(517		)	138			—		(180		)	3,034		(39		)	—
Other assets:
Guarantee asset	3,633		60			—		—		565		—			(317		)	—		—			3,941		60			—
All other, at fair value	137		(43		)	—		51		17		(32		)	(4		)	—		—			126		(48		)	—
Total other assets	3,770		17			—		51		582		(32		)	(321		)	—		—			4,067		12			—
	Balance, January 1, 2019		Total Realized/Unrealized (Gains) Losses					Purchases		Issues		Sales			Settlements, Net			Transfers into Level 3(1)		Transfers out of Level 3(1)			Balance, June 30, 2019		Change in Unrealized (Gains) Losses Included in Net Income Related to Assets and Liabilities Still Held as of June 30, 2019(3)			Change in Unrealized (Gains) Losses, Net of Tax, Included in OCI Related to Assets and Liabilities Still Held as of June 30, 2019
			Included in Earnings			Included in Other Comprehensive Income
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value		$728		$5			$—		$—		$—		$—			$—			$—		$—			$733		$5			$—
Other debt, at fair value	134		—			—		—		1		—			(6		)	—		—			129		—			—
Net derivatives(2)	91		(42		)	—		—		—		—			(9		)	—		—			40		(52		)	—
All other, at fair value	—		(3		)	—		3		—		—			—			—		—			—		—			—

(1) Transfers out of Level 3 during 2Q 2020 and YTD 2020 and 2Q 2019 and YTD 2019 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 2Q 2020 and YTD 2020 and 2Q 2019 and YTD 2019 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) Amounts are the net of derivative assets and liabilities prior to counterparty netting, cash collateral netting, net trade/settle receivable or payable, and net derivative interest receivable or payable.

(3) 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 June 30, 2020 and June 30, 2019, respectively. This amount includes any allowance for credit losses recorded on available-for-sale securities and amortization of basis adjustments.

Freddie Mac 2Q 2020 Form 10-Q 137

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

The tables below provide 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 15.3 - Quantitative Information about Recurring Level 3 Fair Value Measurements

	June 30, 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		$651	Discounted cash flows	OAS	37 - 93 bps	79 bps
	163		Other
Non-agency and other	923		Median of external sources	External pricing sources	$62.6 - $76.2		$69.5
	183		Other
Trading, at fair value
Mortgage-related securities
Agency	2,055		Single external source	External pricing sources	$0.0 - $8,476.8		$900.7
	997		Discounted cash flows	OAS	85 - 1,646 bps	615 bps
Guarantee asset, at fair value	4,548		Discounted cash flows	OAS	17 - 186 bps	41 bps
	276		Other
Insignificant Level 3 assets(1)	176
Total level 3 assets		$9,972
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value	202		Single external source	External pricing sources	$93.6 - $106.9		$101.2
Insignificant Level 3 liabilities(1)	140
Total level 3 liabilities		$342

Referenced footnote is included after the next table.

Freddie Mac 2Q 2020 Form 10-Q 138

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

	December 31, 2019
	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		$1,960	Discounted cash flows	OAS	30 - 261 bps	80 bps
Non-agency and other	886		Median of external sources	External pricing sources	$71.9 - $78.2		$75.0
	381		Other
Trading, at fair value
Mortgage-related securities
Agency	1,948		Single external source	External pricing sources	$0.0 - $100.7		$36.6
	761		Discounted cash flows	OAS	(1,201) - 8,095 bps	611 bps
Guarantee asset, at fair value	4,141		Discounted cash flows	OAS	17 - 186 bps	40 bps
	285		Other
Insignificant Level 3 assets(1)	137
Total level 3 assets		$10,499
Liabilities
Debt securities of consolidated trusts held by third parties, at fair value		$203	Single external source	External pricing sources	$99.4 - $103.6		$101.4
Insignificant Level 3 liabilities(1)	167
Total level 3 liabilities		$370

(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 2Q 2020 Form 10-Q 139

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

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 15.4 - Assets Measured at Fair Value on a Non-Recurring Basis

June 30, 2020

December 31, 2019

(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)

$—

$789

$5,781

$6,570

$—

$22

$4,059

$4,081

(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 tables below provide 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 15.5 - Quantitative Information About Non-Recurring Level 3 Fair Value Measurements

	June 30, 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
Non-recurring fair value measurements
Mortgage loans		$5,781
			Internal model	Historical sales proceeds	$3,097 - $700,000	$180,921
			Internal model	Housing sales index	53 - 417 bps	113 bps
			Median of external sources	External pricing sources	$54.8 - $101.0	$89.7
	December 31, 2019
	Level 3 Fair Value		Predominant Valuation Technique(s)	Unobservable Inputs
(Dollars in millions, except for certain unobservable inputs as shown)				Type	Range	Weighted Average
Non-recurring fair value measurements
Mortgage loans		$4,059
			Internal model	Historical sales proceeds	$3,000 - $765,000	$186,234
			Internal model	Housing sales index	46 - 420 bps	112 bps
			Median of external sources	External pricing sources	$66.5 - $105.4	$95.0

Freddie Mac 2Q 2020 Form 10-Q 140

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Fair Value of Financial Instruments

The tables below present 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 15.6 - Fair Value of Financial Instruments

		June 30, 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		$7,605		$7,605		$—		$—		$—			$7,605
Securities purchased under agreements to resell	Amortized cost	100,525		—		109,189		—		(8,664		)	100,525
Investment securities:
Available-for-sale, at fair value	FV - OCI	23,960		—		22,040		1,920		—			23,960
Trading, at fair value	FV - NI	53,942		29,838		21,051		3,053		—			53,942
Total investment securities		77,902		29,838		43,091		4,973		—			77,902
Mortgage loans:
Loans held by consolidated trusts		2,000,649		—		1,773,169		305,974		—			2,079,143
Loans held by Freddie Mac		99,991		—		59,018		42,845		—			101,863
Total mortgage loans	Various(3)	2,100,640		—		1,832,187		348,819		—			2,181,006
Derivative assets, net	FV - NI	1,402		15		11,267		61		(9,941		)	1,402
Guarantee asset	FV - NI	4,824		—		—		4,831		—			4,831
Non-derivative purchase commitments	Various	203		—		284		—		—			284
Secured lending and other	Amortized cost	5,415		—		1,680		3,557		—			5,237
Total financial assets			$2,298,516		$37,458		$1,997,698		$362,241		($18,605	)		$2,378,792
Financial Liabilities
Debt:
Debt securities of consolidated trusts held by third parties			$2,020,866		$—		$2,101,807		$1,023		$—			$2,102,830
Other debt		287,435		—		298,055		4,105		(8,664		)	293,496
Total debt	Various(4)	2,308,301		—		2,399,862		5,128		(8,664		)	2,396,326
Derivative liabilities, net	FV - NI	839		—		9,973		16		(9,150		)	839
Guarantee obligation	Amortized cost	4,350		—		—		4,905		—			4,905
Non-derivative purchase commitments	Various	24		—		1		218		—			219
Total financial liabilities			$2,313,514		$—		$2,409,836		$10,267		($17,814	)		$2,402,289

(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 June 30, 2020, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value, and FV - NI were $2.1 trillion, $21.4 billion, and $17.5 billion, respectively.

(4) As of June 30, 2020, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.3 trillion and $3.1 billion, respectively.

Freddie Mac 2Q 2020 Form 10-Q 141

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

		December 31, 2019
	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		$5,189		$5,189		$—		$—		$—			$5,189
Securities purchased under agreements to resell	Amortized cost	56,271		—		66,114		—		(9,843		)	56,271
Investment securities:
Available-for-sale, at fair value	FV - OCI	26,174		—		22,947		3,227		—			26,174
Trading, at fair value	FV - NI	49,537		25,108		21,719		2,710		—			49,537
Total investment securities		75,711		25,108		44,666		5,937		—			75,711
Mortgage loans:
Loans held by consolidated trusts		1,940,523		—		1,732,434		244,500		—			1,976,934
Loans held by Freddie Mac		79,677		—		38,100		45,588		—			83,688
Total mortgage loans	Various(3)	2,020,200		—		1,770,534		290,088		—			2,060,622
Derivative assets, net	FV - NI	844		—		6,363		16		(5,535		)	844
Guarantee asset	FV - NI	4,426		—		—		4,433		—			4,433
Non-derivative purchase commitments	Various	81		—		90		72		—			162
Secured lending and other	Amortized cost	4,186		—		1,874		2,131		—			4,005
Total financial assets			$2,166,908		$30,297		$1,889,641		$302,677		($15,378	)		$2,207,237
Financial Liabilities
Debt:
Debt securities of consolidated trusts held by third parties			$1,898,355		$—		$1,931,473		$1,277		$—			$1,932,750
Other debt		271,330		—		282,431		3,619		(9,843		)	276,207
Total debt	Various(4)	2,169,685		—		2,213,904		4,896		(9,843		)	2,208,957
Derivative liabilities, net	FV - NI	372		—		5,245		37		(4,910		)	372
Guarantee obligation	Amortized cost	4,292		—		—		4,527		—			4,527
Non-derivative purchase commitments	Various	7		—		7		67		—			74
Total financial liabilities			$2,174,356		$—		$2,219,156		$9,527		($14,753	)		$2,213,930

(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, 2019, the GAAP carrying amounts measured at amortized cost, lower-of-cost-or-fair-value, and FV - NI were $2.0 trillion, $20.3 billion, and $15.0 billion, respectively.

(4) As of December 31, 2019, the GAAP carrying amounts measured at amortized cost and FV - NI were $2.2 trillion and $3.9 billion, respectively.

Fair Value Option

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 other debt held by third parties with a fair value of $153 million and $146 million and multifamily held-for-sale loan purchase commitments with a net fair value of $202 million and $74 million, as of June 30, 2020 and December 31, 2019, respectively.

Freddie Mac 2Q 2020 Form 10-Q 142

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 15

Table 15.7 - Difference between Fair Value and UPB for Certain Financial Instruments with Fair Value Option Elected

	June 30, 2020							December 31, 2019
(In millions)	Multifamily Held-For-Sale  Loans		Other Debt - Long Term			Debt Securities of Consolidated Trusts Held by Third Parties		Multifamily Held-For-Sale  Loans		Other Debt - Long Term		Debt Securities of Consolidated Trusts Held by Third Parties
Fair value		$17,526		$2,731			$202		$15,035		$3,589		$203
UPB	16,200		2,886			200		14,444		3,329		200
Difference		$1,326		($155	)		$2		$591		$260		$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 15.8 - Changes in Fair Value Under the Fair Value Option Election

	2Q 2020			2Q 2019			YTD 2020		YTD 2019
(In millions)	Gains (Losses)						Gains (Losses)
Multifamily held-for-sale loans		$313			$477			$951		$818
Multifamily held-for-sale loan purchase commitments	650			613			1,182		1,003
Other debt - long term	(70		)	69			478		67
Debt securities of consolidated trusts held by third parties	—			(3		)	4		(5		)

Changes in fair value attributable to instrument-specific credit risk were not material for 2Q 2020 and YTD 2020 and for 2Q 2019 and YTD 2019 for any assets or liabilities for which we elected the fair value option.

Freddie Mac 2Q 2020 Form 10-Q 143

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

NOTE 16

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 Court of Appeals 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 Court of Appeals denied plaintiff's petition for leave to appeal that decision.

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: pre-trial litigation is inherently uncertain; while the District Court denied plaintiff's motion for class certification, this denial may be appealed upon the entry of final judgment; and the District Court has not yet ruled upon motions for summary judgment. In particular, 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.

LIBOR Lawsuit

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 remanded the case to the District Court for consideration of whether, among other things, the plaintiffs are "efficient enforcers" of the antitrust laws.

Freddie Mac 2Q 2020 Form 10-Q 144

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

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 Court of Appeals affirmed dismissal of all 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

Freddie Mac 2Q 2020 Form 10-Q 145

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

claims. On July 17, 2017, the Court of Appeals 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 Court of Appeals 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.

Angel vs. The Federal Home Loan Mortgage Corporation et al. This case was filed pro se on May 21, 2018 against Freddie Mac, Fannie Mae, certain current and former directors of Freddie Mac and Fannie Mae, and FHFA as a nominal defendant. The original complaint alleges, among other things, breach of contract, breach of the implied covenant of good faith and fair dealing, and that defendants aided and abetted the government's "avoidance" of plaintiff's dividend rights. On March 6, 2019, the U.S. District Court for the District of Columbia granted the defendants' motion to dismiss the case. On March 18, 2019, Mr. Angel filed a motion seeking to alter or amend the judgment and for leave to file an amended complaint. On May 24, 2019, the District Court denied Mr. Angel's motion, and on June 19, 2019, Mr. Angel filed a notice of appeal to the U.S. Court of Appeals for the District of Columbia Circuit. On April 24, 2020, the DC Circuit affirmed the District Court's dismissal of the case.

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 motion to dismiss on May 8, 2020 and granted plaintiffs' motion to certify the decisions for interlocutory appeal on June 11, 2020.

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 its property or damages for the illegal exaction;

Freddie Mac 2Q 2020 Form 10-Q 146

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 16

damages for the government's breach of fiduciary duties; and damages for the government's breach of the alleged implied-in-fact contracts. The proceedings have been stayed pending the appeals in the Fairholme Funds matter.

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 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 2Q 2020 Form 10-Q 147

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 17

NOTE 17

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. The table below summarizes our minimum capital requirements and deficits and net worth.

Table 17.1 - Net Worth and Minimum Capital

(In millions)	June 30, 2020			December 31, 2019
GAAP net worth (deficit)		$11,442			$9,122
Core capital (deficit)(1)(2)	(62,254		)	(63,964		)
Less: Minimum capital requirement(1)	20,230			19,123
Minimum capital surplus (deficit)(1)		($82,484	)		($83,087	)

(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 newly-developed risk-based CCF, a capital system with detailed formulae provided by FHFA. We use the CCF to measure risk for making economically effective decisions. We are required to submit quarterly reports to FHFA related to the CCF requirements.

In May 2020, FHFA released its re-proposed Enterprise Capital Rule for comment. FHFA’s re-proposed Enterprise Capital Rule, if adopted, would significantly increase our capital requirements and, as a result, would significantly lower our returns on capital. Until FHFA issues a final Enterprise Capital Rule, we will continue to use the CCF to evaluate business decisions and ensure the company makes such decisions prudently when pricing transactions and managing its businesses.

Freddie Mac 2Q 2020 Form 10-Q 148

Financial Statements Notes to the Condensed Consolidated Financial Statements | Note 18

NOTE 18

Selected Financial Statement Line Items

The table below presents the significant components of investment gains (losses), net on our condensed consolidated statements of comprehensive income (loss).

Table 18.1 - Significant Components of Investment Gains (Losses), Net

(In millions)	2Q 2020			2Q 2019			YTD 2020			YTD 2019
Investment gains (losses), net:
Mortgage loans gains (losses)		$1,046			$1,544			$2,218			$2,478
Investment securities gains (losses)	65			358			1,120			502
Debt gains (losses)	60			49			760			64
Derivative gains (losses)	(501		)	(2,089		)	(4,263		)	(3,695		)
Investment gains (losses), net		$670			($138	)		($165	)		($651	)

The table below presents the significant components of other assets and other liabilities on our condensed consolidated balance sheets.

Table 18.2 - Significant Components of Other Assets and Other Liabilities

(In millions)	June 30, 2020		December 31, 2019
Other assets:
Real estate owned, net		$322		$555
Accounts and other receivables(1)	20,996		10,780
Guarantee asset	4,824		4,426
Secured lending and other	6,465		5,158
All other	2,144		1,880
Total other assets		$34,751		$22,799
Other liabilities:
Guarantee obligation		$4,350		$4,292
All other	4,477		3,750
Total other liabilities		$8,827		$8,042

(1) Primarily consists of servicer receivables and other non-interest receivables.

END OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES

Freddie Mac 2Q 2020 Form 10-Q 149

Other Information

Other Information

LEGAL PROCEEDINGS

We are involved as a party to a variety of legal proceedings. For more information, see Note 16 in this Form 10-Q, our 2019 Annual Report, and our Form 10-Q for the first quarter of 2020.

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 2019 Annual Report. One such case was filed in the U.S. Court of Federal Claims. On May 15, 2020, the Court of Federal Claims dismissed this case. On June 29, 2020, plaintiffs appealed to the U.S. Court of Appeals for the Federal Circuit. Another such case, filed in the U.S. District Court for the Southern District of Texas, was appealed to the U.S. Court of Appeals for the Fifth Circuit. On September 6, 2019, the Fifth Circuit, en banc, held that the plaintiffs plausibly alleged that FHFA exceeded its conservator powers by transferring Freddie Mac's future value (i.e., profits via the net worth sweep) to a single shareholder, Treasury, and remanded that cause of action to the District Court. The Fifth Circuit also held that the "for cause" removal provision for the director of FHFA was unconstitutional, and that the provision should be struck from the statute. The plaintiffs and defendants filed separate petitions for writ of certiorari to the U.S. Supreme Court seeking review of the Fifth Circuit’s decision, which the Supreme Court granted on July 9, 2020. In addition, on June 12, 2020, a class action lawsuit was filed in the U.S. Court of Federal Claims against the United States. This new lawsuit seeks damages from the United States as a result of Treasury's involvement in the alleged taking of funds from Freddie Mac via the Third Amendment. The complaint asserts causes of action for breach of contract and the implied covenant of good faith and fair dealing based on the alleged disregard by Treasury of an implicit guarantee of dividend payments to stockholders. Freddie Mac is not a party to any of these lawsuits.

RISK FACTORS

This Form 10-Q should be read together with the Other Information - Risk Factors section of our Form 10-Q for the quarter ended March 31, 2020 and the Risk Factors section in our 2019 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 notes is available at crt.freddiemac.com and mf.freddiemac.com/investors, respectively.

Freddie Mac 2Q 2020 Form 10-Q 150

Other Information

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. From this address, 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 segments, 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.

Freddie Mac 2Q 2020 Form 10-Q 151

Controls and Procedures

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 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 Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2020. As a result of management's evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2020, 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 2Q 2020

We evaluated the changes in our internal control over financial reporting that occurred during 2Q 2020 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 June 30, 2020 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, 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 2Q 2020 have been prepared in conformity with GAAP.

Freddie Mac 2Q 2020 Form 10-Q 152

Exhibit Index

Exhibit Index

Exhibit	Description*
31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)
31.2	Certification of Executive Vice President and Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2	Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema
101. CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Label
101. PRE	XBRL Taxonomy Extension Presentation
104	Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
* The SEC file numbers for the Registrant’s Registration Statement on Form 10, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K are 000-53330 and 001-34139.

Freddie Mac 2Q 2020 Form 10-Q 153

Signatures

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federal Home Loan Mortgage Corporation
By:	/s/ David M. Brickman
	David M. Brickman
	Chief Executive Officer

Date: July 30, 2020

By:	/s/ Christian M. Lown
	Christian M. Lown
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

Date: July 30, 2020

Freddie Mac 2Q 2020 Form 10-Q 154

Form 10-Q Index

Form 10-Q Index

Item Number		Page(s)
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	74 - 149
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1 - 73
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57 - 59
Item 4.	Controls and Procedures	152
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	150
Item 1A.	Risk Factors	150
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	150
Item 6.	Exhibits	151
Exhibit Index		153
Signatures		154

Freddie Mac 2Q 2020 Form 10-Q 155