Freddie Mac STACR 101. March 2018

Transcription

1 Freddie Mac STACR 101 March 2018

2 Disclaimer Notice to all Investors: This presentation ( Presentation ) is not an offer to sell any Freddie Mac securities. Offers for any given security are made only through applicable offering circulars and any related supplements, which incorporate Freddie Mac's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 15, 2018, and all documents that Freddie Mac files with the SEC pursuant to Section 13(a), 13(c) or 14 of the Exchange Act, excluding any information "furnished" to the SEC on Form 8-K. Content in this Presentation is not reflective of current markets/spreads and is not indicative of any future Freddie Mac offerings. Please use this Presentation for informational purposes only. Notice to United Kingdom Investors: This Presentation is only being distributed to and is directed at: (a) investment professionals falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "FPO"); (b) high net worth entities falling within Article 49 of the FPO; and (c) other persons in respect of whom exemptions under the FPO are available. The investments to which this Presentation relates are available only to, and any agreement to acquire such investments, will be made only with, such persons. Any other person should not act or rely on this Presentation or any of its contents. This Presentation is not intended to be an offer of transferable securities to the public in the United Kingdom or any European Union jurisdiction, in accordance with the Prospectus Directive (2003/71/EC, as amended). In any event, this Presentation is made available only in circumstances in which a prospectus requirement under such Directive does not apply, including but not limited to the distribution of this Presentation to qualified investors only. Notice to Canadian Investors: This Presentation is confidential and may not be reproduced or transferred, in whole or in part, to any other party that is not an employee, officer, director, or authorized agent of the recipient without the express written consent of Freddie Mac. Each person accepting these materials agrees to return them promptly upon request. The material provided herein is for informational purposes only and delivered solely as reference material with respect to Freddie Mac. The Presentation does not constitute an offer to sell or a solicitation of an offer to buy any securities of Freddie Mac. Any offering of securities of Freddie Mac will occur only in accordance with the terms and conditions set forth in an offering circular ( Offering Circular ). Investors are strongly urged to carefully review the Offering Circular (including the risk factors described therein) and to discuss any prospective investment in Freddie Mac with their legal and tax advisers in order to make an independent determination of the suitability and consequences of an investment. No person has been authorized to give any information or to make any representation, warranty, statement or assurance not contained in the Offering Circular and, if given or made, such other information or representation, warranty, statement or assurance must not be relied upon. Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and any applicable taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any securities of Freddie Mac. Targets shown in this Presentation are objectives and should not be construed as providing any assurance or guarantee as to the results that may be realized in the future from investment in any asset or asset class described in the Presentation. Please be advised that any targets shown in the Presentation are subject to change at any time and are current as of the date of this Presentation only. In addition, the information contained herein includes observations and/or assumptions and involves significant elements of subjective judgment and analysis. No representations are made as to the accuracy of such observations and assumptions and there can be no assurances that actual events will not differ materially from those assumed. In the event any of the assumptions used in the Presentation do not prove to be true, results are likely to vary substantially from those discussed therein. Notice to Spain Investors: No action has been or will be taken by Freddie Mac that would permit a public offering of the STACR securities in Spain. Neither the STACR securities nor the offering have been or will be registered or approved by the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores) and, therefore, no prospectus has been or will be registered or approved by the CNMV for the purposes of this offering. A prospective investor in securities of Freddie Mac must conduct its own independent review and due diligence to make its own assessment of the merits and risks of making an investment in, perform its own legal, accounting and tax analysis and conclude that the investment in the securities of Freddie Mac (i) is fully consistent with the investor s financial requirements and financial condition, investment objectives and risk tolerance; (ii) complies and is fully consistent with all investment policies, guidelines and restrictions applicable to the investor; and (iii) is a fit, proper and suitable investment for the investor. Freddie Mac 2

3 A Better Freddie Mac and a better housing finance system For families...innovating to improve the liquidity, stability and affordability of mortgage markets For customers...competing to earn their business For investors...producing attractive mortgage interest rate and credit risk investments For taxpayers...reducing their exposure to mortgage risks We now have a fully competitive company that is executing on its mission, protecting taxpayers and helping to build a better housing finance system for the nation. Don Layton, CEO Freddie Mac 3

4 Agenda 1. Freddie Mac Overview 5 2. Credit Guarantee Business Macro Economics Risk Management Framework Credit Risk Transfer (CRT) Overview STACR Overview STACR SPI Overview Collateral Performance Data Resources 59 Freddie Mac 4

5 Freddie Mac Overview Freddie Mac 5

6 Freddie Mac s Role in US Housing Finance Freddie Mac 6

7 Conservatorship We continue to operate under the conservatorship that commenced on September 6, 2008, under the direction of the Federal Housing Finance Agency (FHFA) as our Conservator. FHFA as our Conservator:» Assumed all powers of the Board, management and shareholders» Has directed and will continue to direct certain of our business activities and strategies» Delegated certain authority to our Board of Directors to oversee, and to management to conduct, day-to-day operations Our ability to access funds from the Treasury under the Purchase Agreement is critical to keeping us solvent. There is significant uncertainty as to whether or when we will emerge from conservatorship, as it has no specified termination date. Our future structure and role will be determined by the Administration and Congress, and it is possible, and perhaps likely, that there will be significant changes beyond the near term. Freddie Mac 7

8 FHFA Strategic Plan Fiscal Years On January 29, 2018, FHFA released the FHFA Strategic Plan: Fiscal Years , which reflects the Agency s priorities as regulator and conservator of Fannie Mae and Freddie Mac (the Enterprises). FHFA s Strategic Plan sets forth three goals for the Agency:» Ensure safe and sound regulated entities» Ensure liquidity, stability and access in housing finance» Manage the enterprises ongoing conservatorships FHFA, acting as conservator and regulator, must follow the mandates assigned to it by statute and oversee the missions assigned to the Enterprises by their charters until such time as Congress revises those mandates and missions. Freddie Mac 8

9 Amended Purchase Agreement On August 17, 2012, the Conservator, acting on our behalf, and Treasury entered into a third amendment to the Purchase Agreement. The principal changes include:» Replacement of the fixed dividend rate with a net worth sweep dividend beginning in the first quarter of 2013» Accelerated wind-down of the retained portfolio» Submission of annual risk management plan to Treasury» Suspension of periodic commitment fee Freddie Mac 9

10 Treasury Draw Requests and Dividend Payments Treasury draw requests and dividend payments $ Billions $112.4 $91.0 $71.3 $ $5.5 $5.0 $ Cumulative Total Draw Requests from Treasury Dividend Payments to Treasury Note: Totals may not add due to rounding. Freddie Mac 10

11 2017 Letter Agreement On December 21, 2017, the Conservator, acting on our behalf, ended into a Letter Agreement with Treasury. The principal changes pursuant to the Letter Agreement are as follows:» The senior preferred stock dividend for the dividend period from October 1, 2017 through and including December 31, 2017 was reduced to $2.25 billion.» The applicable Capital Reserve Amount from January 1, 2018 and thereafter will be $3.0 billion, rather than zero as previously provided. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period, the applicable Capital Reserve Amount would thereafter be zero.» The liquidation preference of the senior preferred stock increased by $3.0 billion, to $75.3 billion, on December 31, Freddie Mac 11

12 2018 Conservatorship Scorecard Strategic Goal Weight Scorecard Objective Increase access to single-family mortgage credit for creditworthy borrowers, including underserved segments of the market. Finalize post-crisis loss mitigation activities. Continue to responsibly support the Neighborhood Stabilization Initiative. Maintain 40% Assess the current mortgage servicing business model and develop plans to support ongoing liquidity in the mortgage servicing market. Single-Family Rental Strategies: continue to gather and report to FHFA information needed to inform policy decisions regarding singlefamily rentals and assist FHFA in assessing single-family rental strategies. Develop plans to further support liquidity in the multifamily workforce housing market and consider market cost differences. Manage the dollar volume of new multifamily business to remain at or below $35 billion for each enterprise. (affordable and underserved market segments are to be excluded from the $35 billion cap). Single-family Credit Risk Transfers: Transfer a meaningful portion of credit risk on at least 90% of the UPB of newly acquired single-family mortgages in loan categories targeted for risk transfer. Report to FHFA the actual amount of underlying mortgage credit risk transferred Reduce 30% Multifamily Credit Risk Transfers: Transfer a meaningful portion of credit risk on newly acquired mortgages, subject to FHFA target adjustments as may be necessary to reflect market conditions and economic considerations. Retained Portfolio: Execute FHFA-approved retained portfolio plans that meet, even under adverse conditions, the annual PSPA requirements and the $250 billion PSPA cap by December 31, Private Mortgage Insurer Eligibility Requirements (PMIERs 2.0): Evaluate existing PMIERs and whether changes or updates are appropriate. Build 30% Common Securitization Platform (CSP) and Single Security Initiative: Continue working with FHFA, each other, and CSS to implement the Single Security Initiative on the CSP for both Enterprises. Focus on the functions necessary for current Enterprise single-family securitization activities; include the development of operational and system capabilities necessary for CSP to facilitate the issuance and administration of a common, single security for the enterprises; and allow for the integration of additional market participants in the future. Continue to work with each other and CSS to obtain and use input from the Single Security/CSP Industry Advisory Group. Work proactively with the industry to help market participants prepare for implementation of the Single Security Initiative. Provide active support for Mortgage Data standardization initiatives. Source: FHFA Freddie Mac 12

13 Market Presence MBS Issuance Volume $ Trillions $2.0 $1.9 $1.2 $1.7 $1.4 $1.2 $1.7 $1.6 $1.0 $1.3 $1.5 $ Freddie Mac Fannie Mae Ginnie Mae Private Label Enterprises & Ginnie Mae 44% 62% 95% 97% 96% 98% 99% 98% 95% 95% 97% 96% Private Label 56% 38% 5% 3% 4% 2% 1% 2% 5% 5% 3% 4% Source: Inside MBS & ABS. Freddie Mac 13

14 Housing Market Support Number of families Freddie Mac helped to own or rent a home 2 In Thousands Number of single-family loan workouts 3 In Thousands 2,458 2,237 2,421 2, ,555 1, Multifamily rental units Purchase borrowers Refinance borrowers Loan modifications⁵ 4 Repayment plans⁵ 4 Home Retention Actions Forbearance agreements⁵ 4 Short sales and deed-in-lieu of foreclosure transactions⁵ 4 Foreclosure Alternatives Note: Totals may not add due to rounding. Freddie Mac 14

15 Credit Guarantee Business Freddie Mac 15

16 Total Mortgage Portfolio $ Billions $1,827 $2,103 $2,207 $2,251 $2,165 $2,075 $1,956 $1,915 $1,910 $1,942 $2,011 $2,098 $2,098 $1,842 $1,977 $256 $135 $ YTD 2018 Outstanding Freddie Mac Mortgage-Related Securities and Other Mortgage-Related Guarantees Mortgage-Related Investments Portfolio (PCs, REMICs and Other Securitization Products) Mortgage-Related Investments Portfolio (Non-Freddie Mac Mortgage-Related Securities & Mortgage Loans) * *Data as of January 31, Note: Totals may not add due to rounding. Freddie Mac 16

17 Freddie Mac s GSE Market Share Freddie Mac Share of PC/MBS Issuances Percent (%) 41% 43% 41% 42% 37% 38% 38% 35% 35% Source: Freddie Mac and Fannie Mae Monthly Volume Summaries. Freddie Mac 17

18 Single-family Financial Highlights and Key Metrics Single-family segment earnings $ Millions New funding volume $ Billions Guarantee fees charged on new acquisitions (bps) $117 $86 $71 $73 $47 $28 $87 36 $98 $30 $41 $46 $39 $45 $57 $57 4Q16 1Q17 2Q17 3Q17 4Q17 Purchase UPB Refinance UPB Credit guarantee portfolio $ Billions +4% Serious delinquency rates $1,755 $1,779 $1,784 $1,800 $1,829 $480 $462 $441 $423 $405 $1,275 $1,317 $1,343 $1,377 $1,424 (73%) (74%) (75%) (77%) (78%) (73%) (74%) (75%) (77%) (71%) 4Q16 1Q17 2Q17 3Q17 4Q17 Note: Totals may not add due to rounding. Freddie Mac 18

19 Macro Economic Indicators Freddie Mac 19

20 Macro Economy and Consumer Debt (Quarterly as of 12/31/2017) Consumer debt level is increasing Unemployment rate at lowest point in the last 18 years Student loan and Auto loan delinquencies are increasing Decline in Mortgage and HELOC delinquencies Source: Unemployment and GDP Data from economy.com. Consumer Debt from FRBNY Consumer Credit Panel/Equifax. Data as of 3Q Freddie Mac 20

21 U.S. Mortgage Debt (Quarterly as of 12/31/2017) Housing stock above pre-crisis levels, LTVs are reducing Decrease in first mortgage originations Freddie SDQ continues to outperform total mortgage market Freddie SDQ stands at 0.86% Source: Housing Stock is from Federal Reserve Z1 Release with data as of 3Q17. Loans origination and serious delinquency rate is from Equifax Credit Trends Report 3Q17. Freddie Mac 21

22 Home Sales and Affordability (Quarterly as of 12/31/2017) Home Sales declined slightly in Q3 from Q2 and inventory of homes available for sales remains low. Months supply of homes continues to be low as compared to the peak. Interest rates remained below 4% in Q3. Housing would remain affordable even if interest rate rose to 5% or 6%. Price-to-income ratio is trending upward since Source: Home sales and affordability data from economy.com. Data as of 3Q Freddie Mac 22

23 Economic and Housing Market Outlook Major Economic Indicators Indicator Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Real GDP Growth (%) Consumer Prices (%) a Unemployment Rate (%) b Year Fixed Mtg. Rate (%) b /1 Hybrid Treas. Indexed ARM Rate (%) b Year Const. Mat. Treas. Rate (%) b Year Const. Mat. Treas. Rate (%) b Housing and Mortgage Markets Housing Starts c Total Home Sales (Incl. Condos) d FMHPI House Price Appreciation (%) e Family Mortgage Originations f Conventional ($) ,651 1,423 1,339 1,372 FHA & VA ($) Total ($) ,125 1,850 1,740 1,780 Refinancing Share - Originations (%) g Residential Mortgage Debt (%) h Note: Quarterly and annual forecasts (or estimates) are shown in shaded areas; totals may not add due to rounding; annual forecast data are averages of quarterly values; annual historical data is reported as Q4 over Q4. a. Calculations based on quarterly averages of monthly index levels; index levels based on the seasonally-adjusted, all-urban consumer price index; reported as an annual rate. b. Quarterly average of monthly unemployment rates (seasonally-adjusted); Quarterly average of monthly interest rates (not seasonally-adjusted); reported as an annual rate. c. Millions of housing units; quarterly averages of monthly, seasonally-adjusted levels (reported at an annual rate). d. Millions of housing units; total sales are the sum of new and existing detached single-family homes; quarterly averages of monthly, seasonally-adjusted levels (reported at an annual rate). e. Quarterly growth rate of Freddie Mac's House Price Index; seasonally-adjusted; annual rates for yearly data. f. Billions of dollars (not seasonally-adjusted). g. Home Mortgage Disclosure Act for all single-family mortgages (not seasonally-adjusted); Annual share is dollar-weighted average of quarterly shares. h. Federal Reserve Board; growth rate of residential mortgage debt, the sum of single-family and multifamily mortgages (not seasonally-adjusted, reported as Q4 over Q4). Prepared by Office of the Economic & Housing Research group as of February 16, 2018; Send comments and questions to chief_economist@freddiemac.com. Freddie Mac 23

24 Risk Management Framework Freddie Mac 24

25 Mortgage Credit Risk Management Optimized 3-pronged risk management infrastructure ensures high quality loans and transparent data are passed on to credit risk investors. Credit Risk Management Toolset Seller / Servicer Management Underwriting Loan Quality Control Seller In-House Quality Control Seller Servicer Approval Standards Loan Servicer Performance Monitoring and Scorecard CORE Reviews Documentation Standards and Credit Eligibility Requirements Delegated Underwriting Guidelines Seller Representations and Warranties Post-Close Credit Review Quality Assurance Compliance Review Performing Loan Quality Control Review Non-Performing Loan Quality Control Review Underwriting Defects Repurchase Process Post-Crisis Enhancements Following the crisis, 100% of the loans Freddie Mac purchases are required to have full documentation, naturally constraining the type of pre-crisis fraud experienced during We are prohibited from purchasing loans where the borrower has no documented assets or income. Freddie Mac is also subject to and enforcing appraisal independence rules, which insulate the appraiser from influence by other parties involved in processing or originating the loan. Data Enhancements: Expanded mortgage data collection, with enhanced quality and standardization enables Freddie Mac to identify anomalous activity more quickly and effectively. Freddie Mac 25

26 Credit Policy & Underwriting Standards Reducing risk through high-quality underwriting standards, data and innovative tools Credit Freddie Mac s automated underwriting system, Loan Product Advisor, provides lenders with access to credit requirements and generates an assessment of a loan s eligibility for sale to Freddie Mac. Corporate credit policy pillars: i) Minimum credit score requirements, ii) Maximum debt-to-income ratio limits, iii) Maximum loan-to-value and total-loan-to-value ratio limits, iv) Elimination of risky products such as interest-only loans, pay option ARMs, reduced documentation, and balloons. Capacity Loans sold to Freddie Mac must have documented evidence of the mortgagor s ability to repay and of the value of the property. Collateral Vast majority of the loans sold to Freddie Mac require an appraisal. We have recently developed innovative tools leveraging algorithms and big data advanced analytics to streamline appraisal requirements for certain loans. Freddie Mac can evaluate the quality of the appraisal and provide feedback to the lender, allowing focus on appraisals with the highest risk. Reps & Warrants (R&Ws) Require the seller-servicer to repurchase the loan if there is a material underwriting defect discovered, subject to certain limits. In lieu of repurchase, an alternative remedy (such as indemnification) can be mutually agreed or Freddie Mac can elect to waive the enforcement of a remedy. Freddie Mac 26

27 Quality Control (QC) Program Losses are mitigated through a comprehensive QC program across performing / non-performing loans, including third-party QC processes by lenders Performing Loan QC Regularly perform QC on a random and targeted basis to test the quality of recently purchased loans, including added focus on key elements of particular interest or concern (e.g., loan attributes or sellers). Freddie Mac benchmarks every loan we purchase against our valuation model and evaluates the appraisals within our automated system, Loan Collateral Advisor for instantaneous feedback to the originator. Non- Performing Loan QC Freddie Mac also reviews 100% of mortgage loans that default within the first few years after purchase or guarantee. Seller In-House QC Each loan seller must have an in-house QC program that has written procedures and operates independently of the sellers origination and underwriting functions. Freddie Mac reviews, monitors, and provides feedback on sellers QC and origination practices, including performing on-site reviews of its largest sellers. Freddie Mac 27

28 13DN01 13DN02 14DN01 14DN02 14DN03 14HQ01 14HQ02 14DN04 14HQ03 15DN01 15HQ01 15DNA1 15HQ02 15DNA2 15HQA1 15DNA3 15HQA2 16DNA1 16HQA1 16DNA2 16HQA2 16DNA3 16HQA3 16DNA4 16HQA4 17DNA1 17HQA1 17DNA2 17HQA2 17DNA3 17HQA3 18DNA1 Freddie Mac and Independent Quality Control Defect Rate 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Random FRE QC STACR Defect Rate Random Independent QC STACR Defect Rate Freddie Mac 28

29 Credit Risk Transfer (CRT) Overview Freddie Mac 29

30 CRT Product Evolution 2011 & 2012 Inception: - Freddie Mac establishes team to pioneer CRT concepts - FHFA publishes strategic plan for CRT and guidelines governing GSE risk sharing 2014 Building Tools: - Introduced STACR HQ series covering >80% LTV collateral - Selling risk higher up the capital structure increased subordination level from BBB to A 2016 Expanding Offerings: - First Deep MI CRT transaction offering a frontend forward credit risk transfer structure - First CRT transaction associated 15yr collateral (ACIS Standalone) Future Continued Expansion - STACR CLN/Trust - STACR REMIC 2013 Establish the Market: - Historical loan level data released to develop investor demand - First STACR transaction (debt) kickstarted the CRT market - Focused on 60-80% LTV fixed rate collateral - First ACIS transaction (reinsurance) 2015 Achieve Scale & Depth: - New CRT tools added Seller Risk Retention, Whole Loan Securities (WLS) - Enhanced all CRT programs to transfer actual loss - Begin transferring first loss risk 2017 Further Development: - New Seller Facing Forward Risk Transaction - HARP Historical Data release - Inaugural STACR SPI transaction - Inaugural STACR HRP SHRP transaction. - Introduced ACIS Forward transactions AFRM Freddie Mac 30

31 Freddie Mac s CRT Program CRT benefits the housing finance system Reduces risk to taxpayers Expands mortgage credit investor base Reduces concentration of mortgage risk Minimizes volatility through economic cycles Maintains borrower access to credit Key Statistics of CRT Program: 77 CRT Transactions to Date $33.9 Billion Issued in Securitization and Insurance Coverage Over 220 Unique Investors Reinsurance 26% CRT Investor Distribution Hedge Fund 20% Bank / Credit Union 1% Insurance 5% REIT 5% Money Manager 41% Sovereign Fund 2% Freddie Mac 31

32 CRT Market Offerings Credit Risk Transfer (CRT) has become a fundamental component of Freddie Mac s operating model while enabling us to address new strategic objectives. Freddie Mac s CRT Market Offerings and Access to Diversified Investor Markets STACR *STACR SPI SM ACIS Deep Mortgage Insurance CRT ACIS AFRM Seller Facing Forward Risk Transfer SCRT/SLST Issuance Type Debt Notes Cash Securitization/ REMIC Reinsurance Policy Forward Mortgage Insurance Reinsurance Policy Debt Notes/ Other Cash Securitization/ REMIC Primary Investor Base Money Managers, Hedge Funds, Sovereign Funds & Insurance Companies Money Managers, Hedge Funds, REITS Sovereign Funds & Insurance Companies Reinsurance/ Insurance Private Mortgage Insurers Reinsurance Seller/ Servicers Money Managers, Hedge Funds, REITs, Banks & Insurance Companies Offerings (Multi Class) Investment Grade Non-Investment Grade Not Rated Front end pool level coverage (Multi Class) Front end Insurance Policy Front end risk sharing (Multi Class) Guaranteed & Non- Guaranteed Non-Investment Grade Not Rated Freddie Mac 32

33 Single-family Credit Risk Transfer STACR / ACIS Total Single-family credit guarantee portfolio with transferred credit risk $ Billions Cumulative Single-family transferred credit risk based on outstanding balance at period end $ Billions Outstanding reference pool UPB as a percentage of total Singlefamily portfolio Freddie Mac 33

34 2018 STACR Issuance Calendar Expected Issuance Window January February 2018 March April 2018 May June 2018 August September 2018 September October 2018 Source: Freddie Mac retains sole discretion over whether or not the STACR issuances come to market and the timing thereof, which may be impacted by market conditions. As such, the information contained in this document does not guarantee the timing of any future Freddie Mac offerings or the amount of such offerings. This document may be amended, superseded or replaced. Please use this STACR issuance calendar for informational purposes only. This document is not an offer to sell any Freddie Mac securities. Freddie Mac 34

35 STACR Overview (DNA, HQA, and HRP) Freddie Mac 35

36 STACR Structure Illustration (On the run transactions- Example Purposes Only) Hypothetical Allocations of Principal Payments Specified Credit Events and Modification Events Reference Pool Offered at Closing Class A-H (Reference Tranche Only) STACR Issued Notes Retained Credit Risk Represents Class M-1 Notes Class M-1 (Note and Corresponding Reference Tranche) Class M-1H (Reference Tranche Only) Freddie Mac pays coupon on Notes, and its obligation to pay interest on the Notes and to repay principal on the Notes is reduced for Credit Events and/or Modification Events on the Reference Pool based on an actual loss approach. Represents Class M-2 Notes Represents Class B-1 Notes Class M-2A* (Note and Corresponding Reference Tranche) Class M-2B* (Note and Corresponding Reference Tranche) Class B-1 (Note and Corresponding Reference Tranche) Class M-2AH (Reference Tranche Only) Class M-2BH (Reference Tranche Only) Class B-1H (Reference Tranche Only) Class B-2H (Reference Tranche Only) * The Class M-2A and Class M-2B Notes and corresponding Reference Tranches relate to the Class M-2 Notes, which Class M-2A and Class M-2B Notes are exchangeable for the Class M-2 Notes, and vice versa. Freddie Mac may transfer a portion of the retained credit risk, but has agreed not to transfer or hedge more than a 95% pro rata share of the credit risk on any of (i) the Class A-H Reference Tranche, (ii) the Class M-1 and Class M-1H Reference Tranches (in the aggregate), (iii) the Class M-2A and Class M-2AH Reference Tranches (in the aggregate), (iv) the Class M-2B and Class M- 2BH Reference Tranches (in the aggregate), (v) the Class B-1 and Class B-1H Reference Tranches (in the aggregate) or (vi) the Class B-2H Reference Tranche. Additionally, Freddie Mac does not intend, through this transaction or any subsequent transactions, to enter into agreements that transfer or hedge more than a 25% share of the credit risk on the Class B-2H Reference Tranche. For illustration purposes only Freddie Mac 36

37 STACR Allocation of Principal Scheduled principal: Pro rata between senior and subordinate. Sequential pay among subordinate classes. Unscheduled principal: Pro rata between senior and subordinate if all triggers pass. Sequential pay among subordinate classes. Sequential between senior and subordinate if any trigger fails. Sequential pay among subordinate classes. Allocation of Principal Payment Among Subordinate Classes First M1 and M-1H Reference Tranche Principal payment Second M2 and M-2H Reference Tranche (MACR Option Available) Principal payment Third B1 and B1-H Reference Tranche Principal payment Fourth B2-H Reference Tranche Principal payment Freddie Mac 37

38 STACR Actual Loss Waterfall Freddie Mac will utilize the below waterfalls to allocate actual losses Allocation of Loss on Dispositions First - Class B-2H Reference Tranche Write-down Second - Class B-1 and Class B-1H Reference Tranches, pro rata Write-down Third - Class M-2B and Class M-2BH Reference Tranches, pro rata Write-down Fourth - Class M-2A and Class M-2AH Reference Tranches, pro rata Write-down Fifth - Class M-1 and Class M-1H Reference Tranches, pro rata Write-down Sixth - Class A-H Reference Tranche Write-down Allocation of Modification Loss Amounts First - Class B-2H Reference Tranche Interest Amount Second - Class B-2H Reference Tranche Write-down Third - Class B-1 and Class B-1H Reference Tranches, pro rata Interest Amount Fourth - Class B-1 and Class B-1H Reference Tranches, pro rata Write-down Fifth - Class M-2B and Class M-2BH Reference Tranches, pro rata Interest Amount Sixth - Class M-2A and Class M-2AH Reference Tranches, pro rata Interest Amount Seventh - Class M-2B and Class M-2BH Reference Tranches, pro rata Write down Eighth - Class M-2A Class M-2AH Reference Tranches, pro rata Write-down Ninth - Class M-1 and Class M-1H Reference Tranches, pro rata Interest Amount Tenth - Class M-1 and Class M-1H Reference Tranches, pro rata Write-down Modification Loss Amount = Modification Shortfall minus Modification Excess» Modification Shortfall / Excess 1/12* (original interest rate - 35 bps) * Current Actual UPB - 1/12*(current interest rate -35 bps) * Current Interest Bearing UPB Freddie Mac 38

39 STACR Actual Loss Calculation Calculation for Actual Loss 1 (+) UPB at time of removal from the Reference Pool (including prior principal forgiveness) 2 (-) Net Sales Proceeds 3 (+) Delinquent Accrued Interest (Non-Capitalized) Interest Bearing UPB * min(note Rate 35bps, Accounting Net Yield) * (# of Months Delinquent/12) 4 (+) Taxes and Insurance Losses at Disposition 5 (+) Legal Costs 6 (+) Maintenance and Preservation Costs e.g. Property Inspection, Homeowner s Association, Utilities, Rental Receipts, REO Management, etc. 7 (-) 8 (+) 9 (-) MI Proceeds Total Claim Amount * Coverage % Miscellaneous Expenses e.g. BPO, other sales expenses not included in item 2 above Miscellaneous Credits e.g. Positive Escrow, Insurance Refunds, Hazard Claim Proceeds, Make Whole Events, etc. Losses at Modification 10 (+) 11 (+) Modification Costs e.g. Interest Short Fall (Passed to investors on a monthly basis included in modification loss amount) Bankruptcy Cramdown Costs (Passed to investors on a monthly basis included in write down loss amount) Freddie Mac 39

40 STACR 2018-DNA1 Capital Structure Overview STACR 2018-DNA1 Tranche Expected Ratings Balance ($) Coupon WAL (yrs.)* Principal Window* Loss Coverage Fitch KBRA 10% CPR 5% CPR 10% CPR 5% CPR Attach Detach M-1 BBB- BBB+ 230,000,000 1mL % % 4.00% M-2 B BB- 540,000,000 1mL % % 3.10% B-1 NR NR 130,000,000 1mL % % 1.00% Total 900,000,000 April 1, 2017 July 31, 2017 acquisitions Reference Pool is based on a pool of loans with a UPB of $34.7bn, LTV range: 60% < LTV <= 80% Min C/E Test: 4.50% Cumulative Net Loss % Threshold: Year 1: 0.10%, with 0.10% step-ups each year Delinquency Test: 50% of subordinate balance Minimum Denomination: $10,000 and QIB requirement *Calculated Weighted Average Life ( WAL ) and Principal Window assuming either 5 CPR or 10 CPR and 0 CDR. WAL (years) and Principal Window are to Early Redemption Date. Freddie Mac 40

41 STACR 2018-DNA1 Initial Cohort Pool to Reference Pool Key Reference Pool Characteristics:» 100% Never Delinquent» 100% fully amortizing, fixed-rate, one-to-four unit, first lien mortgage loans with original terms of 241 to 360 months» No loans originated under Relief Refinance program (including HARP)» No government guaranteed loans» No IOs or Balloons» No LTV > 80% or <=60% Category Aggregate Original Loan Balance ($ Billion) All non-harp loans funded between April 1, 2017 and July 31, Non-HARP loans, fixed 93.7 Non-HARP loans, fixed 241 to 360 months term 78.9 Non-HARP loans, fixed 241 to 360 months term, 60% < LTV <= 80% 39.9 Non-HARP loans, fixed 241 to 360 months term, 60% < LTV <= 80% & other filters (1) 38.6 Category Loan Count Aggregate Original Loan Balance ($) Average Original Loan Balance ($) Non-Zero Weighted Average Original Credit Score Weighted Average Original LTV Ratio (%) Non-Zero Weighted Average Original DTI (%) Initial Cohort Pool 159,240 38,635,375, , less loans that were removed due to incomplete data reconciliation or corrected 3, ,556, , data (2) less loans that were repurchased or removed by quality control process (3) ,732, , less loans that were paid in full 5,695 1,612,310, , less loans that were removed due to having failed delinquency criteria or the borrower 3, ,243, , having filed for bankruptcy (4) Reference Pool 146,937 35,265,534, , ) Other filters include: government guaranteed loans, IO only, balloons, etc. 2) Loans removed because reconciliation with the related sellers regarding certain data they provided has not yet been completed or loans removed because data corrections or certain pilot programs made the loans ineligible. 3,198 of the 3,200 loans removed were already subject to credit enhancement. 3) Includes loans removed as a result of the findings of the Third-Party Diligence Provider, if applicable. Also includes Mortgage Loans repurchased by the seller/servicer as a result of their internal quality control process and/or voluntarily repurchased by the seller/servicer. 4) Out of the 3,138 loans that were excluded from the Reference Pool due to failing delinquency criteria or having filed for bankruptcy, 1,733 of those loans were reported to be currently performing as of November 30, Freddie Mac 41

42 Class B-1 Tax Considerations The Class B-1 Notes should be treated as derivatives for U.S. federal income tax purposes Freddie Mac will treat the Class B-1 Notes as notional principal contracts ( NPC ) (except with respect to Non-U.S. Beneficial Owners for purposes of U.S. federal withholding tax) and will bind investors to such treatment Freddie Mac (and holders) agree to treat the NPC as a deemed loan (equal to the initial payment for the Class B-1 Notes) and an on-market swap pursuant to the NPC accounting rules (tax accounting guidance will be provided in the Offering Circular) The Class B-1 Notes will be issued as DTC Eligible Notes Freddie Mac intends to withhold on Non-U.S. Beneficial Owners of Class B-1 Notes with respect to non-principal Class B-1 payments. However, depending on the residence of a Non-U.S. Beneficial Owner, Treaty rates may apply to reduce the withholding rate Sample Treaty rates:» United Kingdom: 0% for Business Profits, 0% for Other Income» Spain: 0% for Business Profits, 0% for Other Income» Luxembourg: 0% for Business Profits, 0% for Other Income Freddie Mac 42

43 STACR Investor Participation STACR DNA3 32% M-1 M-2 B-1/B B-2 5% 63% 39% 17% 44% 42% 14% 43% Not Offered STACR DNA1 8% 11% 81% 30% 70% 8% 4% 88% Not Offered 13% 15% 4% STACR HQA2 12% 75% 49% 36% 48% 48% Not Offered 3% 18% STACR HQA3 97% 38% 44% 58% 42% Not Offered STACR SPI1 20% 15% 37% 50% 32% N/A 64% 13% 68% Sovereign Fund REIT Money Manager Insurance Hedge Fund Bank / Credit Union Note: Institution type is our best estimate based on information provided to Freddie Mac from the underwriting syndicate as some institutions may be involved in multiple lines of business. Percentages may not add up to 100% due to rounding. Freddie Mac 43

44 STACR Evolution Freddie Mac has issued 34 STACR transactions to date: July 26, 2013 $500,000,000 Transaction #6 Inaugural STACR Transaction STACR 2014-HQ1 August 11, 2014 $460,000,000 New Series HQ (80%-95% LTV Collateral) Transaction #1 Transaction #7 STACR 2013-DN1 STACR 2014-HQ2 September 15, 2014 $770,000,000 Seasoned Deal Transaction #12 STACR 2015-DNA1 April 28, 2015 $1,010,000,000 New series DNA actual loss Seasoned Collateral Transaction #20 STACR 2016-DNA2 May 10, 2016 $916,000,000 Introduced new M-3 MAC Notes Transaction #34 Transaction #25 STACR 2018-DNA1 STACR 2016-HQA4 January 30, 2018 October 25, 2016 $900,000,000 $478,000,000 Minimum Denominations reduced Up to 97% LTV collateral to $10k, Offering limited to QIBs Loans not backing PCs eligible Transaction #26 STACR 2017-DNA1 February 7, 2017 $802,000,000 Decrease Detachment Point New M-1, M-2, B-1, and B-2 Structure New MAC Notes Transaction #32 Transaction #3 STACR 2014-DN1 February 12, 2014 $1,008,000,000 Introduced 3 M Bond Structure Transaction #10 STACR 2015-DN1 February 3, 2015 $880,000,000 Introduced B Bond M-3 Now Rated Transaction #15 STACR 2015-HQA1 September 28, 2015 $872,000,000 New Series HQA Actual Loss (80%-95% LTV Collateral) STACR 2017-SPI1 October 2017 $50,088,878 Inaugural SPI transaction Transaction #33 STACR 2017-HRP1 December 2017 $200,000,000 Inaugural STACR HRP SHRP Freddie Mac 44

45 STACR SPI Overview Freddie Mac 45

46 STACR SPI - Summary Structure allows for issuance of regular PCs using existing PC processes/systems while transferring credit risk via a cash securitization Unguaranteed certificates and PCs will be backed by participation interests in loans (in lieu of loans). The STACR SPI trust will issue only unguaranteed credit certificates. This structure allows for the buy-out of collateral from PC trusts (in accordance with the PC Master Agreement) while preserving the credit risk protection afforded by the sale of unguaranteed certificates. Key to the STACR SPI structure is Freddie Mac s willingness/ability to advance funds for the repurchase of assets from the related PC trusts (as it does in the existing PC process). These advances are certificated within the SPI trust and accrue interest; and such certificates have principal and interest payment priority over subordinate bonds. The creation of, and principal payment priority to, these certificates effectively creates a loan level trigger, enabling the elimination of deal level triggers. Improves upon pricing execution of WLS, the initial CRT using a cash securitization structure. Freddie Mac 46

47 STACR SPI Illustration (Example Purposes Only) Freddie Mac deposits into a trust recently originated Mortgage Loans sold and serviced pursuant to the Freddie Mac Seller/Servicer Guide; Freddie Mac oversees and monitors the servicers who are required to service in accordance with the Servicing Requirements. Mortgage Loans PC Trust PC Trust issues PCs Freddie Mac PCs (Backed by Participation Interests) 96.00% PI Trust PC Participation Interests (96.00%) * For each Mortgage Loan deposited, PI Trust issues to Freddie Mac a PC Participation Interest and a Credit Participation Interest. Pro rata allocation of principal between PC and Credit Participation Interests Credit Participation Interests (4.00%) SPI Trust * The SPI Trust will commit to acquire any PC Participation Interests that the PC Administrator repurchases from the PC Trust due to LIA** SPI Trust issues non-guaranteed certificates Class X Certificate 0.00% Class M-1 Certificates 1.65% Class M-2 Certificates 1.35% Class B Certificates 1.00% Class X balance increases by balance of any PC Participation Interests deposited into the SPI Trust. The Certificates are sold without benefit of a Freddie Mac guarantee. The Class M-1 and Class M-2 Certificates are expected to be rated by Moody s. ** LIA (Loan in Acceleration) is a term used by Freddie Mac for loans repurchased from PC trusts due to imminent default, delinquency or foreclosure On the Closing Date, Freddie Mac plans to retain the Class X Certificate and approximately 5% of each of the Class M- 1, Class M-2 and Class B Certificates Note: All numbers referenced are illustrative and subject to change. Freddie Mac 47

48 STACR SPI - Principal & Interest Allocation Principal & Interest Payments on non- Constructive Default Loans (pre-lia) scheduled P&I advanced through LIA date Pro Rata between Participation Interests Participation Certificates Sequential within SPI Trust Upon Constructive Default: PC is paid down; Class X written up by equal amount Principal & Interest Payments and Liquidation Proceeds on Constructive Default Loans Sequential within SPI Trust M-1 Certificates M-2 Certificates Class X is at top of SPI Trust waterfall B Certificates Constructive Default mechanism acts as a loan level trigger, locking out the subordinate certificates from principal allocations until the balance of the Class X Certificate is reduced to zero. There are no deal level delinquency, cumulative loss or credit enhancement triggers in the SPI Trust structure. Freddie Mac 48

49 STACR 2017-SPI1 Capital Structure Class Expected Rating (Moody s) Initial Class Principal Amount ($) Freddie Mac Structured Agency Credit Risk, Series 2017-SPI1 Approximate Initial Class Coupon (%) WAL (Years) (4) Principal Window (Months) (4) Final Scheduled Distribution Date Initial Credit Enhancement (%) Class Type X (1) NR $0 (2) N/A N/A Sept % Non-Guaranteed M-1 Baa3 (sf) $20,661, % (3) Sept % Subordinate, Non-Guaranteed M-2 B2 (sf) $16,905, % (3) Sept % Subordinate, Non-Guaranteed B NR $12,522, % (3) Sept % Subordinate, Non-Guaranteed R (5) NR $ % N/A N/A N/A N/A Residual, Non-Guaranteed (1) The Certificate Principal Amount of the Class X Certificate will initially be zero, but will increase by the PC Investor Balance (as defined herein) of PC Participation Interests, if any, deposited into the SPI Trust by Freddie Mac after the Closing Date. (2) The Class Coupon of the Class X Certificate will be a per annum rate equal to the sum of the Net WAC for the related Distribution Date and the Master Servicing Fee Rate. (3) The Class Coupon of the Class M-1, Class M-2 and Class B Certificates will be a per annum rate equal to the Net WAC for the related Distribution Date. The initial Class Coupon of the Class M-1, Class M-2 and Class B Certificates with respect to the first Distribution Date will be approximately 3.992% per annum. (4) Weighted average lives and principal windows with respect to the certificates are based on certain modeling assumptions, including: (i) prepayments occur at the pricing speed of 15% CPR, calculated from the Closing Date, (ii) the Optional Termination right is exercised on the first Distribution Date on which it is eligible to be exercised, and (iii) distributions on the certificates occur on the 25th day of each calendar month beginning in November (5) The Class R Certificate does not have a Class Principal Amount and is not entitled to distributions of interest or principal. Freddie Mac 49

50 Structural Comparison of STACR SPI to STACR DNA/HQA Structural Comparison STACR SPI STACR DNA/HQA Guaranteed No Same Default Loan Disposition Event Liquidation/Actual Loss Same Typical Secondary Trade Settle T+2 Same Factor Date 25 th Same Payment Day 25 th Same Rating Rated and Unrated Classes Same MI Rescission/Counterparty Risk Borne by Freddie Mac Same (applies to HQA only) Representations & Warranties Investors receive no direct R+Ws from Freddie Mac, however, they benefit from R&Ws provided by Same underlying sellers to Freddie Mac under the Guide Collateral Participation Interests in Mortgage Loans Synthetic/Reference Pool Coupon / Pricing Fixed, subject to Net WAC drift; results in non-par pricing Floating; all bonds priced at par Tax Status REMIC/Good REIT Asset Debt for Tax/Derivative for Tax Delinquency Advancing Priority within Credit Classes Triggers While PCPI is in related PC (generally to D120); Once CDL, advancing limited to less than D60 Sequential (Class X Certificates have priority over subordinate certificates) Constructive Default/Class X mechanism is effectively a loan level trigger; no deal level triggers Debt service payment which references a mortgage pool Sequential Minimum Credit Enhancement Test, Delinquency Test and Cumulative Loss Test Triggers Legal Final ~ 30 years (latest maturity date of Mortgage Loans) 12.5 Years Optional Termination Yes, 10% Subordinate Certificates bond factor Yes, earlier of 10% collateral factor or 10 years Modification Principal Forborne UPB treated as Realized Loss at time of modification; forgiven principal advanced by Master Servicer STACR SPIs are similar in many ways to Freddie Mac s STACR DNA and HQA debt notes, though certain differences exist. Investors take losses on forborne UPB through the Modification Loss Amount waterfall; principal forgiven is treated as unscheduled principal Modification Interest Forgone interest (in excess of Class B accrued interest) due to rate modifications funded out of certain principal payments with corresponding losses allocated to Class B Forgone interest (in excess of Class B accrued interest) due to rate modifications treated as loss to Class B notes. Remaining amounts allocated to interest and principal in reverse sequential order ERISA Eligibility Yes, the Class M1 is ERISA eligible All notes are ERISA eligible Freddie Mac 50

51 Collateral Performance Freddie Mac 51

52 2018 Returns Summary: CRT vs. Other Sectors (1) (2) Total Returns CRT IG CRT Non-IG IG Bonds HY Bonds HY Loans Agency MBS Legacy RMBS CMBS BBB- SFR BBB- S&P % 18.0% 15.3% 13.0% 10.9% 8.0% 3.0% 2.0% 0.4% 2.8% 0.6% 6.2% 2.3% 7.6% 1.2% 4.2% 2.4% 1.8% 7.8% 5.5% 1.0% 4.8% 4.9% -2.0% -0.2% 2018 YTD Returns 2017 Returns Historical Spreads March-17 June-17 September-17 December-17 March-18 CRT Non IG (2) CMBS BBB- Legacy RMBS HY Bonds HY Loans SFR BBB- (1) CRT IG total returns calculated from a 2015 index of A-rated bonds. (2) CRT Non-IG total returns and historical spreads calculated from a 2015 index of BB/B-rated bonds. Source: J.P. Morgan Research as of March 8, Note: Indexes use bond rating at origination. Freddie Mac 52

53 Credit Quality of Portfolio Serious Delinquencies Performance of 2009 and 2010 vintages is dramatically better despite falling house prices in their early years 3.0% Ever D90 by Vintage Fundings from 2009 onwards and 2002, 2007 vintages 2007 (1) 2.5% % 1.5% % 0.5% 0.0% Source: Data included in tables were derived from Freddie Mac s Single Family Loan Level Dataset (SF LLD) as of December 2017 refresh: Originations 1999-December 31, Performance data: 1999-June 30, 2016, losses reported for loans liquidated as of 1Q2017. (1) 2007 reaches 17% by month 90. Freddie Mac 53

54 13-DN01 13-DN02 14-DN01 14-DN02 14-DN03 14-DN04 15-DN01 15-DNA1 15-HQ01 15-DNA2 15-DNA3 16-DNA1 16-DNA2 16-DNA3 16-DNA4 17-DNA1 17-DNA2 17-DNA3 STACR Delinquency Performance 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 0.25% 90+ Days Delinquent (% by Current Balance) Days Delinquent (% by Current Balance) (1) 2007 (1)(2) 13DN01 13DN02 14DN01 14DN02 14DN03 14DN04 15DN01 15DNA1 15DNA2 15DNA3 16DNA1 16DNA2 16DNA3 16DNA4 17DNA1 0.20% 0.15% 0.10% 0.05% % Source: Freddie Mac monthly remittance data as of August (1) Not a STACR transaction but consists of collateral comparable to that included in the STACR reference pool loans with an LTV between 60 and 80 that are 7 months seasoned with no delinquency. (2) 2007 reaches 1.25% by month 17. Freddie Mac 54