Federal Home Loan Mortgage Corporation (FMCC) Business

You should read this Executive Summary in conjunction with our MD&A and consolidated financial statements and related notes for the year ended December 31, 2014.

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 mortgages originated by mortgage lenders. In most instances, we package these mortgage loans into mortgage-related securities, which are guaranteed by us and sold in the global capital markets. We also invest in mortgage loans and mortgage-related securities. We do not originate mortgage loans or lend money directly to consumers.

We support the U.S. housing market and the overall economy by: (a) providing America’s families with access to mortgage funding at lower rates; (b) helping distressed borrowers keep their homes and avoid foreclosure; and (c) providing consistent liquidity to the multifamily mortgage market, which includes providing financing for affordable rental housing. We are also working with FHFA, our customers and the industry to build a stronger housing finance system for the nation.

Since September 2008, we have been operating in conservatorship, with FHFA acting 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.

Our Purchase Agreement with Treasury and the terms of the senior preferred stock we issued to Treasury constrain our business activities. We are dependent upon the continued support of Treasury and FHFA in order to continue operating our business. We cannot retain capital from the earnings generated by our business operations or return capital to stockholders other than Treasury. For more information on the conservatorship and government support for our business, see “Conservatorship and Related Matters.”

Comprehensive income was $9.4 billion for 2014 compared to $51.6 billion for 2013. Comprehensive income for 2014 consisted of $7.7 billion of net income and $1.7 billion of other comprehensive income. The main drivers of our results for 2014 include: (a) net interest income; (b) declines in the fair value of our derivatives; and (c) income from settlements of lawsuits regarding our investments in certain non-agency mortgage-related securities. Our net income for 2013 was substantially higher than in 2014 primarily because in 2013 we recorded a benefit for federal income taxes of $23.3 billion from the release of the valuation allowance against our deferred tax assets. Our 2013 results also benefited from larger home price appreciation.

Our total equity was $2.7 billion at December 31, 2014. Because our net worth was positive at December 31, 2014, we are not requesting a draw from Treasury under the Purchase Agreement for the fourth quarter of 2014. Through December 31, 2014, we have received aggregate funding of $71.3 billion from Treasury under the Purchase Agreement, and have paid $91.0 billion in aggregate cash dividends to Treasury.

The level of our earnings in 2013 and 2014 is not sustainable over the long term. Our 2013 financial results included a very large benefit related to the release of the valuation allowance against our deferred tax assets. Our 2013 and 2014 financial results included large amounts of income from settlements of representation and warranty claims arising out of our loan purchases and settlements of non-agency mortgage-related securities litigation. We do not expect any future settlements of representation and warranty claims related to our pre-conservatorship loan purchases to have a significant effect on our financial results. Our 2013 financial results, particularly the level of loan loss provisioning, benefited from a high level of home price appreciation. In addition, declines in the size of our mortgage-related investments portfolio, as required by FHFA and the Purchase Agreement, will reduce our earnings over the long term.

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Our financial results are subject to significant earnings and net worth variability from period to period. This variability can be driven by changes in interest rates, the yield curve, implied volatility, home prices, and mortgage spreads, as well as other factors. For example, while derivatives are an important aspect of our strategy to manage interest-rate risk, they increase the volatility of reported comprehensive income because fair value changes on derivatives are included in comprehensive income, while fair value changes associated with several of the types of assets and liabilities being economically hedged are not. As a result, there can be timing mismatches affecting current period earnings, which may not be reflective of the underlying economics of our business.

Our primary business objectives are:

• to support U.S. homeowners and renters by maintaining mortgage availability even when other sources of financing are scarce and by providing struggling homeowners with alternatives that allow them to stay in their homes or avoid foreclosure;

• to reduce taxpayer exposure to losses by increasing the role of private capital in the mortgage market and reducing our overall risk profile;

• to build a commercially strong and efficient business enterprise to succeed in a to-be-determined “future state;” and

• to support and improve the secondary mortgage market.

Our business objectives reflect direction that we have received from the Conservator, including the 2014 and 2015 Conservatorship Scorecards. For information on the Scorecards and the related 2014 Strategic Plan, see “Regulation and Supervision — Legislative and Regulatory Developments — FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships.”

Supporting U.S. Homeowners and Renters

Maintaining Mortgage Availability

We maintain a consistent presence in the secondary mortgage market, and we are available to purchase mortgages even when other sources of financing are scarce. By providing this consistent source of liquidity for mortgages, we help provide our customers with confidence to continue lending even in difficult environments. In 2014, we purchased, or issued other guarantee commitments for, $255.3 billion in UPB of single-family conforming mortgage loans (representing approximately 1.2 million homes), compared to $422.7 billion in 2013 (representing approximately 2.1 million homes). Origination volumes in the U.S. residential mortgage market declined significantly during 2014, as compared to 2013, driven by a significant decline in the volume of refinance mortgages. We estimate that we, Fannie Mae, and Ginnie Mae collectively guaranteed more than 90% of the single-family conforming mortgages originated in 2014.

During 2014, our total multifamily new business activity was $28.3 billion in UPB, which provided financing for nearly 1,800 multifamily properties (representing approximately 413,000 apartment units). Approximately 90% of the units were affordable to families earning at or below the median income in their area. In 2013, our total multifamily new business activity was $25.9 billion in UPB, which provided financing for nearly 1,600 multifamily properties (representing approximately 388,000 apartment units).

Providing Struggling Homeowners with Alternatives that Allow Them to Stay in Their Homes or Avoid Foreclosure

We use a variety of borrower-assistance programs (such as HARP and HAMP) designed to provide struggling borrowers with alternatives to help them stay in their homes. We establish guidelines for our servicers to follow and provide them with default management programs to use in determining which type of borrower-assistance program (i.e., one of our loan workout activities or our relief refinance initiative) would be expected to enable us to manage our exposure to credit losses.

Our relief refinance initiative is a key program used to keep families in their homes. Our relief refinance initiative includes HARP, which is the portion of the initiative for loans with LTV ratios above 80%. In 2014, we purchased or guaranteed $27.3 billion in UPB of relief refinance loans, including $14.1 billion of HARP loans. In 2013, we purchased or guaranteed $99.2 billion in UPB of relief refinance loans, including $62.5 billion of HARP loans. We have purchased HARP loans provided to more than 1.3 million borrowers since the initiative began in 2009, including approximately 82,000 borrowers during 2014. See “Table 49 — Single-Family Relief Refinance Loans” for more information about the volume of relief refinance loans we have purchased.

When a refinancing of a loan is not practicable, we require our servicer first to evaluate the loan for a repayment plan, forbearance agreement, or loan modification, because the level of recovery on a loan that reperforms is often much higher than for a loan that proceeds to a foreclosure or foreclosure alternative. Our servicers contact borrowers experiencing hardship with a goal of helping them to stay in their homes or otherwise to avoid foreclosure. Across all of our modification programs, we modified $12.8 billion in UPB of loans during 2014, compared to $17.4 billion in 2013. Since 2009, we have helped approximately 1,073,000 borrowers experiencing hardship to complete a loan workout under these programs. When a home retention solution is not practicable, we require our servicers to pursue foreclosure alternatives, such as short sales, before initiating foreclosure.

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The table below presents our completed workout activities for loans within our single-family credit guarantee portfolio for the last five years.

(1) Excludes modification, repayment, and forbearance activities that have not been made effective, such as loans in modification trial periods. As of December 31, 2014, approximately 24,000 borrowers were in modification trial periods. These categories are not mutually exclusive and a loan in one category may also be included in another category in the same period.

As shown in the table above, the volume of our workout programs declined in recent years (totaling approximately 120,000 in 2014, compared to 169,000 in 2012 and 275,000 in 2010). We attribute this decline to overall improvements in the economy and mortgage market, including rising home prices, declining unemployment rates, and declining serious delinquency rates. While we believe our borrower-assistance programs have been largely successful, many borrowers still need assistance. See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile — Managing Problem Loans" for more information about loss mitigation activities and our efforts to keep families in their homes. We continue our efforts relating to: (a) encouraging eligible borrowers to refinance their mortgages under HARP; (b) assessing and developing additional plans for loss mitigation strategies; and (c) developing and implementing a neighborhood stabilization initiative. In 2014:

• We participated with FHFA and Fannie Mae in open forum meetings in certain cities to inform community leaders about HARP eligibility criteria and benefits.

• We worked with FHFA and Fannie Mae to develop neighborhood stabilization plans in certain cities. These plans involve short sales and REO sales, including expanded auctions of properties. In these areas we also expanded: (a) our efforts with locally-based private entities to facilitate REO dispositions; and (b) our first look opportunities, which provide an initial period for REO properties to be purchased by owner occupants and non-profits dedicated to neighborhood stabilization before we consider offers from investors.

• We continued to work with FHFA and Fannie Mae to assess or pilot new strategies for loss mitigation, including implementing a new temporary modification initiative targeted to assist troubled borrowers in certain cities.

Reducing Taxpayer Exposure to Losses

We are working diligently with FHFA to reduce the taxpayers' exposure to losses. We are reducing our credit risk by:

• managing the performance of our servicers through our contracts with them;

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• transferring to private investors part of the credit risk of our New single-family book and our Multifamily mortgage portfolio;

• improving our returns on short sales and REO sales;

• protecting our contractual rights with sellers;

• pursuing our rights against mortgage insurers;

• recovering losses on non-agency mortgage-related securities; and

• reducing our mortgage-related investments portfolio over time.

As discussed above, many of our borrower-assistance programs, such as loan modifications, also help reduce our risk of credit losses.

Managing the Performance of Our Servicers

We continue to face challenges in managing our mortgage credit risk. In 2014, the serious delinquency rate of our single-family credit guarantee portfolio continued the trend of improvement of the past several years, declining to 1.88% as of December 31, 2014 (which is the lowest level since January 2009) from 2.39% as of December 31, 2013. Despite this improvement, we still have a large number of seriously delinquent loans. We continue to face challenges in resolving these loans, including general constraints on servicer capacity and court backlogs in states that require a judicial foreclosure process. These situations generally extend the time it takes for seriously delinquent loans to be modified, foreclosed upon, or otherwise resolved. The longer a loan remains delinquent, the more costs we incur. As of December 31, 2014, approximately half of our seriously delinquent single-family loans had been delinquent for more than one year.

The financial institutions that service our single-family loans (we refer to these institutions as "servicers") are required to service loans on our behalf in accordance with our standards. If a servicer fails to do so, we have certain contractual remedies, including the ability to require the servicer to pay us compensatory or other fees, repurchase a loan at its current UPB, and/or reimburse us for the losses we realize on the loan. We also issue notices of defect to our servicers for certain violations of our servicing standards. As of December 31, 2014, we had: (a) $0.4 billion of outstanding repurchase requests for servicing related violations; and (b) an additional $0.2 billion of outstanding notices of defect, based on the UPB of the related loans. We also recognized $335 million of compensatory fees in 2014, mostly for failures to complete a foreclosure within our timelines.

During 2014, approximately $9.7 billion in UPB of our single-family loans were transferred from our primary servicers to specialty servicers that specialize in workouts of problem loans. (This figure excludes transfers between affiliated companies and assignments of servicing for newly originated loans.) A majority of the transfers were facilitated by us as part of our efforts to assist troubled borrowers, increase problem loan workouts, and mitigate our credit losses.

Transferring Credit Risk

We believe that using credit risk transfer transactions is a prudent way for us to manage our mortgage credit risk. We are continuing to reduce our exposure to credit risk in our New single-family book through the use of STACR debt note and ACIS (re)insurance transactions. In 2014, we completed seven STACR debt note transactions and three ACIS (re)insurance transactions. These transactions transferred a portion of credit losses that could occur under adverse home price scenarios (through a mezzanine credit loss position) on certain groups of loans in the New single-family book from us to third-party investors. In 2014, we also completed 17 K Certificate transactions in which we transferred the first loss position associated with the underlying multifamily loans to third-party investors. In February 2015, we completed our first STACR debt note transaction that transfers a portion of the first loss position in addition to mezzanine loss positions associated with the reference pool. We expect to complete additional such STACR transactions in 2015.

Improving Our Returns on Short Sales and REO Sales

We use several strategies to mitigate our credit losses and improve our returns on short sale transactions and sales of REO properties. When a seriously delinquent single-family loan cannot be resolved through a home retention solution (e.g., a loan modification), we typically seek to pursue a short sale transaction. A short sale is preferable to a foreclosure primarily because we: (a) avoid the costs we would otherwise incur to complete the foreclosure; and (b) reduce the time needed to dispose of the property, reducing our exposure to maintenance, property taxes, and other expenses. However, some of our seriously delinquent loans ultimately proceed to foreclosure. In a foreclosure, we typically acquire the underlying property (which we refer to as real estate owned, or REO), and later sell it, using the proceeds of the sale to reduce our losses.

We implemented a number of changes in the past several years to increase the use of short sales and increase the proceeds from REO sales. These changes include: (a) an initiative to repair a significant portion of our REO properties prior to listing them for sale; and (b) changes to our process for evaluating the market value of the properties underlying our impaired loans and for determining listing prices for our REO properties.

Protecting Our Contractual Rights with Sellers

We purchase mortgage loans from financial institutions that originate the loans (we refer to these institutions as "sellers"). When we purchase loans, the sellers represent and warrant that the loans have been originated in accordance with our

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underwriting standards. If we subsequently discover that these standards were not followed, we can exercise certain contractual remedies to mitigate our actual or potential credit losses. These remedies may include requiring the seller to repurchase the loan at its current UPB and/or to reimburse us for the losses we realized on the loan. As of December 31, 2014 and 2013, we had $0.3 billion and $1.6 billion, respectively, of outstanding repurchase requests with sellers, based on the UPB of the loans.

We seek remedies from both sellers and servicers in the normal course of business related to breaches of representations and warranties for loans they sold to us or service for us. At times, this may include entering into settlement agreements to resolve repurchase requests. In 2014, we recovered amounts with respect to $2.0 billion in UPB of loans subject to our repurchase requests for selling and servicing violations, including $0.4 billion in UPB related to settlement agreements.

Pursuing Our Rights Against Mortgage Insurers

We continue to pursue claims for coverage under mortgage insurance policies, a form of credit enhancement we use to mitigate our credit loss exposure. Primary mortgage insurance is generally required for mortgages with LTV ratios greater than 80%.

We received payments under primary and other mortgage insurance policies of $1.1 billion and $2.0 billion during 2014 and 2013, respectively. Although the financial condition of certain of our mortgage insurers has improved in recent years, some have failed to fully meet their obligations and there remains a significant risk that others may fail to do so. We expect to receive substantially less than full payment of our claims from two of our mortgage insurance counterparties, as they are only permitted to make partial payments under orders from their respective regulators.

Our ability to manage our exposure to mortgage insurers is limited. While our mortgage insurers are operating below our eligibility thresholds, we generally cannot revoke a mortgage insurer's status as an eligible insurer without FHFA approval. In addition, we do not select the insurer that will provide the insurance on a specific loan. Instead, the selection is made by the lender at the time the loan is originated.

Recovering Losses on Non-Agency Mortgage-Related Securities

We incurred substantial losses on our investments in non-agency mortgage-related securities in prior years. We are working, in some cases in conjunction with other investors, to mitigate or recover our losses. In 2014, we and FHFA reached settlements with a number of institutions which resulted in our recognition of $6.1 billion of income. Lawsuits against other institutions are currently pending. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for more information about our recent agreements with institutions that issued certain non-agency mortgage-related securities.

Reducing Our Mortgage-Related Investments Portfolio Over Time

We are required to reduce the size of our mortgage-related investments portfolio over time pursuant to the Purchase Agreement and FHFA regulation. We are particularly focused on reducing the balance of less liquid assets in this portfolio. In 2014, the size of our mortgage-related investments portfolio declined by 11% or $52.6 billion, to $408.4 billion. Our less liquid assets accounted for $47.0 billion of this decline. Our less liquid assets are reduced through: (a) liquidations (including scheduled repayments along with prepayments); (b) sales (including sales related to settlements of non-agency mortgage-related securities litigation); and (c) securitizations.

In July 2014, pursuant to the 2014 Conservatorship Scorecard, we submitted a plan to FHFA to meet (even under adverse market conditions) the portfolio reduction requirements of the Purchase Agreement. In October 2014, FHFA requested that we revise the plan to provide that we would manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90% of the annual cap established by the Purchase Agreement. Under the revised plan approved by FHFA, we may seek permission from FHFA to increase the plan's limit on the UPB of the mortgage-related investments portfolio to 95% of the Purchase Agreement annual cap. FHFA has indicated that any portfolio sales should be commercially reasonable transactions that consider impacts to the market, borrowers and neighborhood stability.

For additional information, see “Limits on Investment Activity and Our Mortgage-Related Investments Portfolio.”

Building a Commercially Strong and Efficient Business Enterprise to Succeed in a To-Be-Determined “Future State”

We continue to take steps to build a stronger, profitable business model. Our goal is to strengthen the business model so we can run our business efficiently and effectively in support of homeowners and taxpayers and, if required as part of a future state for the enterprise, be ready to return to private sector ownership.

Our Single-family Guarantee segment is focused on strengthening our business model by:

• Better serving our customers: Our customers are our sellers, servicers, and investors/dealers. Based on feedback from our customers, we are enhancing our processes and programs to improve their experience when doing business with us. This includes providing seller/servicers with greater certainty that the loans they sell to us or service for us meet our requirements, thereby reducing the number of repurchase requests we make to them and the amount of compensatory fees they pay to us. We are providing greater certainty by enhancing the tools we make available to our customers (including Loan Prospector, Loan Quality Advisor, and Home Value Explorer), and expanding and leveraging the data standards of the Uniform Mortgage Data Program.

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• Providing market leadership and innovation: We continue to develop innovative programs and services that benefit our customers and leverage our existing capabilities and product offerings to better meet the needs of an evolving mortgage market. We are doing this primarily by: (a) expanding access to credit for credit-worthy borrowers, such as the recently announced initiative for loans with LTV ratios up to 97%; (b) continuing to execute our credit risk transfer transactions and seeking to expand and refine our offerings of these transactions; and (c) continuing to work with FHFA and Fannie Mae on enhancing the secondary mortgage market, including the development of a new common securitization platform and a single (common) security. We completed ten credit risk transfer transactions in 2014 and three in 2013. Our 2014 transactions consisted of: (a) seven STACR debt note transactions that transferred $4.9 billion in mezzanine credit risk to third parties associated with $147.5 billion in principal of loans in our New single-family book; and (b) three ACIS transactions that transferred $0.7 billion in mezzanine credit risk to third parties. The 2015 Conservatorship Scorecard sets a goal for us to complete credit risk transfer transactions for at least $120 billion in UPB using at least two transaction types.

• Managing the credit risk of the single-family credit guarantee portfolio: We are managing our credit risk by setting our underwriting standards at a level commensurate with the long-term credit risk appetite of the company. We made various changes to our credit policies in the last several years, including changes to improve our underwriting standards, have purchased fewer loans with higher risk characteristics, and have assisted in improving our mortgage insurers’ and lenders’ underwriting practices. The credit quality of the New single-family book reflects the impact of these changes, as measured by original LTV ratios, credit scores, delinquency rates, credit losses, and the proportion of loans underwritten with full documentation. However, in 2014 and 2013, as refinancing volumes have declined, the composition of our loan purchase activity has been shifting to a higher proportion of home purchase loans, which generally have higher original LTV ratios than loans sold to us during 2010 through 2012.

• Reducing our credit losses: We continue to develop and implement plans intended to reduce our credit losses and identify and address emerging mortgage credit risks. As part of our loss mitigation strategy, we sold certain seriously delinquent loans during 2014. We also facilitated the transfer of servicing for certain groups of loans that were delinquent or deemed to be at risk of default to servicers that we believe have the capabilities and resources necessary to improve loss mitigation for those loans. We expect to execute similar loan sales and servicing transfers in 2015. Our portfolio includes several types of mortgage products that contain terms which may result in scheduled increases in monthly payments after specified initial periods (e.g., HAMP loans). A significant number of these will experience payment changes in 2015. To help address this risk, we implemented a new principal reduction incentive for our HAMP loans in January 2015.

• Optimizing the economics of our single-family business: We seek to achieve strong economic returns on our single-family credit guarantee portfolio while considering and balancing our: (a) housing mission and goals; (b) seller diversification; and (c) security price performance (i.e., the trading value of our PCs relative to comparable Fannie Mae securities in the market). However, economic returns on our guarantee activities are limited by, and subject to, FHFA's oversight.

We are investing in the company, in particular our infrastructure and operations, by:

• Improving our infrastructure: We continue to make strategic investments to maintain and improve our ability to operate the company for the foreseeable future in conservatorship, and potentially afterwards. We are improving our information technology to provide the necessary capabilities to meet our needs, the needs of the Conservator, and the mortgage industry. We are investing to continuously address risk, especially in the information security area and the recently deployed out-of-region disaster recovery capability. We are actively striving to operate our information technology at world class levels by investing in capabilities that will support the future mortgage market while also acting as good stewards of our technology assets by maintaining, standardizing and simplifying our existing technology portfolio.

• Strengthening our operations: We continue to strengthen and streamline our operations. We are conducting a multi-year project focused on eliminating redundant control activities. We are also conducting detailed operational control design reviews to identify ways to simplify our controls structure. We are improving our risk management capabilities by further enhancing our three-lines-of-defense risk management framework. As part of this effort, we have moved or are moving several key functions within the organization to better align business decision-making with the first line of defense. We believe these enhancements will improve our risk management effectiveness. Our enhanced framework is designed to balance ownership of the risk by our business units with corporate oversight and independent assessment. See “MD&A — RISK MANAGEMENT” for more information.

To Support and Improve the Secondary Mortgage Market

Under the direction of FHFA, we continue various efforts to build the infrastructure for a future housing finance system, including the following:

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• Common Securitization Platform: We continue to work with FHFA, Fannie Mae, and Common Securitization Solutions, LLC (or CSS) on the development of a new common securitization platform. CSS is equally owned by us and Fannie Mae, and was formed to build and operate the platform. We and FHFA expect this will be a multi-year effort. In November 2014, we and Fannie Mae announced that a chief executive officer had been named for CSS. Additionally, we and Fannie Mae each appointed two executives to the CSS Board of Managers and signed governance and operating agreements for CSS.

• Single-Security Initiative: FHFA is seeking ways to improve the liquidity of mortgage-backed securities issued by us and Fannie Mae and reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgage-backed securities. Part of this effort is the proposed single (common) security, which would be issued and guaranteed by either Freddie Mac or Fannie Mae. The proposed single security would use the features of the current Fannie Mae mortgage-backed security and the disclosure framework of the current Freddie Mac PC. One of the goals for the proposed single security is for Freddie Mac PCs and Fannie Mae mortgage-backed securities to be fungible with the single security to facilitate trading in a single TBA market for these securities. In August 2014, FHFA requested public input on the single security project as further discussed in "Regulation and Supervision — Legislative and Regulatory Developments — FHFA Request for Input on Proposed Single Security Structure." We continue to work on a detailed implementation plan, and we expect that the implementation will be a multi-year effort.

• Uniform Mortgage Data Program: We and Fannie Mae continue to collaborate with the industry to develop and implement uniform data standards for single-family mortgages. This includes active support for the following mortgage data standardization initiatives: (a) the Uniform Closing Disclosure Dataset; and (b) the Uniform Loan Application Dataset. We have also made improvements to the Uniform Collateral Data Portal, which provides standardized appraisal data for loans we purchase and provides our sellers with real-time feedback that is intended to help them evaluate the quality of property appraisals.

• Improve mortgage industry standards: We continue to: (a) develop approaches to reduce borrower costs for lender placed insurance; (b) align mortgage insurer eligibility requirements; and (c) enhance our representation and warranty framework that governs our contractual obligations with our seller/servicers. We announced changes in servicing standards for situations in which servicers obtain property hazard insurance on properties securing single-family loans we own or guarantee. As a result, beginning in June 2014, our seller/servicers may not receive compensation or other payment from insurance carriers nor may they use their own or affiliated entities to insure or reinsure a property. During 2014, we continued to develop counterparty risk management standards for mortgage insurers, including: (a) revised eligibility requirements that include financial requirements under a risk-based framework; and (b) revised master policies that provide greater certainty of coverage and facilitate timely claims processing. The revised standards are designed to promote the ability of mortgage insurers to fulfill their intended role of providing private capital to the mortgage market even under a stressful economic scenario. The revised master policies were implemented in October 2014. FHFA published draft insurer eligibility requirements for public input during a comment period that concluded in September 2014. We expect to publish new eligibility requirements in early 2015.

• Improve the underwriting processes with our single-family sellers: We continued our initiative for enhanced early-risk assessment by sellers through the use of Loan Prospector and Loan Quality Advisor, our automated tools for use in evaluating the credit and product eligibility of loans and identifying non-compliance issues. We implemented requirements for our sellers and servicers in response to certain final rules from the CFPB. We also used our loan sampling strategy, appeal requirements, alternative remedies for resolving repurchase obligations, and our recently implemented standard timelines for reviews and appeals as part of our efforts to enhance post-delivery quality control practices and our representation and warranty framework.

Our charter forms the framework for our business activities. Our statutory mission as defined in our charter is to:

• provide stability in the secondary market for residential mortgages;

• respond appropriately to the private capital market;

• provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages for low- and moderate-income families, involving a reasonable economic return that may be less than the return earned on other activities); and

• promote access to mortgage credit throughout the U.S. (including central cities, rural areas, and other underserved areas).

Our charter does not permit us to originate mortgage loans or lend money directly to consumers in the primary mortgage market. Our charter limits our purchase of single-family loans to the conforming loan market. Conforming loans are loans originated with UPBs at or below limits determined annually based on changes in FHFA’s housing price index. Since 2006, the base conforming loan limit for a one-family residence has been set at $417,000, and higher limits have been established in

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certain “high-cost” areas (currently, up to $625,500 for a one-family residence). Higher limits also apply to two- to four-family residences and to mortgages secured by properties in Alaska, Guam, Hawaii, and the U.S. Virgin Islands.

Our charter permits us to purchase first-lien single-family mortgages with LTV ratios at the time of our purchase of less than or equal to 80%. Our charter also permits us to purchase first-lien single-family mortgages that do not meet this criterion if we have one of the following credit protections:

• mortgage insurance on the portion of the UPB of the mortgage that exceeds 80%;

• a seller’s agreement to repurchase or replace any mortgage that has defaulted; or

• retention by the seller of at least a 10% participation interest in the mortgage.

This charter requirement does not apply to multifamily mortgages or to mortgages that have the benefit of any guarantee, insurance or other obligation by the U.S. or any of its agencies or instrumentalities (e.g., the FHA, the VA or the USDA Rural Development). Additionally, as part of HARP, we purchase single-family mortgages that refinance mortgages we currently own or guarantee without obtaining additional credit enhancement in excess of that already in place for any such loan, even when the LTV ratio of the new loan is above 80%.

Mortgage securitization is an integral part of our business activities. Mortgage securitization is a process where we purchase mortgage loans that lenders originate, and then pool these loans into mortgage-related securities that can be sold in global capital markets. Our primary single-family mortgage securitization and guarantee process involves the issuance of single-class PCs and our primary multifamily mortgage securitization and guarantee process involves the issuance of K Certificates. We also resecuritize mortgage-related securities that are issued by us, other GSEs, HFAs, or private (non-agency) entities, and issue other single-class and multiclass mortgage-related securities to third-party investors.

The following diagram illustrates how we support mortgage market liquidity when we create PCs through mortgage securitizations. PCs can be sold to investors or held by us or our lender customers.

For single-family loans, our securitization and guarantee process generally works as follows: (a) a lender originates a mortgage loan to a borrower purchasing a home or refinancing an existing mortgage loan; (b) we purchase the loan from the lender and place it with other mortgages into a security (this process is referred to as “pooling”); (c) we provide a credit guarantee (for a fee) to those who invest in the security; (d) the borrower’s monthly payment of mortgage principal and interest (net of a servicing fee and our management and guarantee fee) is passed through to the investors; and (e) if the borrower stops making monthly payments, we make the applicable payments to the investors pursuant to our guarantee.

The terms of single-family mortgage loans that we purchase allow borrowers to prepay them, thereby allowing borrowers to refinance their loans. Because of the nature of long-term, fixed-rate mortgage loans, borrowers with these loans are protected against rising interest rates, but are able to take advantage of declining rates through refinancing. When a borrower prepays a mortgage loan that we have securitized, the outstanding balance of the security owned by investors is reduced by the amount of the prepayment.

We issue mortgage-related securities in the form of PCs, REMICs and Other Structured Securities, and Other Guarantee Transactions. Each of these types of mortgage-related securities is discussed below.

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PCs

Our PCs are single-class pass-through securities that represent undivided beneficial interests in trusts that hold pools of mortgages. For the fixed-rate PCs we currently issue, we guarantee the timely payment of principal and interest. For our ARM PCs, we guarantee the timely payment of the weighted average coupon interest rate for the underlying mortgage loans. We also guarantee the full and final payment of principal, but not the timely payment of principal, on ARM PCs.

We guarantee our PCs in exchange for compensation, which consists primarily of a combination of management and guarantee fees paid on a monthly basis as a percentage of the UPB of the underlying loans (referred to as base fees), and initial upfront payments (referred to as delivery fees). We may also make upfront payments to buy-up the monthly management and guarantee fee rate ("buy-up"), or receive upfront payments to buy-down the monthly management and guarantee fee rate. These upfront payments are paid in conjunction with the formation of a PC to provide for a uniform coupon rate for the mortgage pool underlying the PC.

We issue most of our PCs in transactions in which our customers provide us with mortgage loans in exchange for PCs. We refer to these transactions as guarantor swaps. The following diagram illustrates a guarantor swap transaction.

We also issue PCs in transactions in which we purchase mortgage loans for cash and securitize them for retention in our mortgage-related investments portfolio or to sell them to third parties. We may sell these PCs in a “cash auction," as illustrated in the following diagram.

From time to time we undertake a variety of actions in an effort to support the liquidity and price performance of our PCs relative to comparable Fannie Mae securities. These actions may include: (a) resecuritizing PCs into REMICs and Other Structured Securities; (b) encouraging sellers to pool mortgages that they deliver to us into PC pools with a larger and more diverse population of mortgages; (c) influencing the volume and characteristics of mortgages delivered to us by tailoring our loan eligibility guidelines and by other means; and (d) engaging in portfolio purchase and sale activities. See “Investments Segment — Market Presence and PC Support Activities” and “RISK FACTORS — Competitive and Market Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume and/or profitability of our new single-family guarantee business. The profitability of our multifamily business could be adversely affected by a significant decrease in demand for K Certificates.” for additional information about our efforts to support the liquidity and relative price performance of our PCs.

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REMICs and Other Structured Securities

Our REMICs and Other Structured Securities represent beneficial interests in pools of PCs and certain other types of mortgage-related assets. We create these securities (which can be either single-class or multiclass) primarily by using PCs or previously issued REMICs and Other Structured Securities as the underlying collateral.

Single-class securities involve the straight pass-through of all of the cash flows of the underlying collateral to holders of the beneficial interests. Multiclass securities divide all of the cash flows of the underlying collateral into two or more classes with varying maturities, payment priorities and coupons. Our primary multiclass securities qualify for tax treatment as REMICs. We believe our issuance of these securities expands the range of investors in our mortgage-related securities to include those seeking specific security attributes.

Similar to our PCs, we guarantee the payment of principal and interest to the holders of tranches of our REMICs and Other Structured Securities. We do not charge a management and guarantee fee for these securities if the underlying collateral is already guaranteed by us since no additional credit risk is introduced. The collateral underlying nearly all of our single-family REMICs and Other Structured Securities consists of other mortgage-related securities that we guarantee. All of the cash flows from the collateral underlying our single-family REMICs and Other Structured Securities are generally passed through to investors in these securities. We do not issue tranches of securities in these transactions that have concentrations of credit risk beyond those embedded in the underlying assets. The following diagram provides a general example of how we create REMICs and Other Structured Securities.

We issue many of our REMICs and Other Structured Securities in transactions in which securities dealers or investors sell us mortgage-related assets or we exchange our own mortgage-related assets (e.g., PCs and REMICs and Other Structured Securities) for the REMICs and Other Structured Securities. For REMICs and Other Structured Securities that we issue to third parties, we typically receive a transaction, or resecuritization, fee. This transaction fee is compensation for facilitating the transaction, as well as future administrative responsibilities.

Other Guarantee Transactions

We also issue mortgage-related securities to third parties in exchange for non-Freddie Mac mortgage-related securities. We refer to these as Other Guarantee Transactions. The non-Freddie Mac mortgage-related securities are transferred to trusts that are specifically created for the purpose of issuing securities, or certificates, in the Other Guarantee Transactions.

Other Guarantee Transactions are generally of two different types. In one type, we purchase only senior tranches from a non-Freddie Mac senior-subordinated securitization, place the senior tranches into securitization trusts, and issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. In this type of transaction, our credit risk is reduced by the structural credit protections from the related subordinated tranches, which we do not issue or guarantee. In the second type, we purchase single-class pass-through securities, place them in securitization trusts, and issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. Our Other Guarantee Transactions backed by single-class pass-through securities do not benefit from structural or other credit enhancement protections. In exchange for providing our guarantee on Other Guarantee Transactions, we receive a management and guarantee fee and/or other delivery fees. Although Other Guarantee Transactions generally have underlying mortgage loans with varying risk characteristics, we do not issue tranches that have concentrations of credit risk beyond those embedded in the underlying assets. All of the cash flows from the underlying collateral are passed through to the investors in the securities, so there are no economic residual interests in the related securitization trusts.

Our primary Other Guarantee Transactions are multifamily K Certificates. In substantially all of these transactions, we guarantee only the most senior tranches of the securities. The expected credit risk associated with these loans is sold in subordinated tranches to third-party investors. We do not issue or guarantee the subordinated tranches, which are considered

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CMBS. However, we may purchase a portion of either the guaranteed certificates or the unguaranteed CMBS, based on market conditions.

The following diagram provides an example of our K Certificate transactions.

In 2009 and 2010, we entered into transactions under Treasury’s NIBP with HFAs, which are classified as Other Guarantee Transactions. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Housing Finance Agency Initiative” for further information.

We have three reportable segments, which are based on the type of business activities each performs: Single-family Guarantee, Investments, and Multifamily. Certain activities that are not part of a reportable segment are included in the All Other category. We evaluate segment performance and allocate resources based on a Segment Earnings approach.

For more information on our segments, including financial information, see “MD&A — CONSOLIDATED RESULTS OF OPERATIONS — Segment Earnings” and “NOTE 13: SEGMENT REPORTING.”

We operate our business solely in the United States and its territories, and therefore we generate no revenue from and have no long-lived assets in geographic locations outside the United States and its territories.

Single-Family Guarantee Segment

In our Single-family Guarantee segment, we purchase and guarantee single-family mortgage loans originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization process to package the mortgage loans into guaranteed mortgage-related securities. We guarantee the payment of principal and interest on the mortgage-related securities in exchange for management and guarantee fees.

Single-Family Mortgage Market

The U.S. residential mortgage market consists of a primary mortgage market that links homebuyers and lenders (i.e., our sellers) and a secondary mortgage market that links lenders and investors. We participate only in the secondary mortgage market. We do this primarily by purchasing mortgage loans and mortgage-related securities and by issuing guaranteed mortgage-related securities. In the Single-family Guarantee segment, we purchase and securitize “single-family mortgages,” which are mortgages that are secured by one- to four-family properties.

The size of the U.S. residential mortgage market is affected by many factors, including changes in interest rates, home ownership rates, home prices, the supply of housing, lender preferences regarding credit risk, and borrower preferences regarding mortgage debt. The amount of residential mortgage debt available for us to purchase and the mix of available loan products are also affected by several factors, including the volume of mortgages meeting the requirements of our charter, our own preference for credit risk reflected in our purchase standards, and the mortgage purchase and securitization activity of other financial institutions.

Our Customers

Our customers in the Single-family Guarantee segment are predominantly: (a) lenders that originate mortgages for homeowners and sell them to us; and (b) financial institutions that service these loans for us. These companies include mortgage banking companies, commercial banks, community banks, credit unions, other non-depository financial institutions, HFAs, and thrift institutions. Many of these companies are both sellers and servicers for us. In addition, we view investors and dealers in our guaranteed mortgage-related securities and investors and counterparties in risk transfer transactions as customers.

We acquire a significant portion of our mortgages from several lenders that are among the largest mortgage loan originators in the U.S. Our top ten single-family sellers provided approximately 50% of our single-family purchase volume

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during 2014. Wells Fargo Bank, N.A. accounted for 13% of our single-family mortgage purchase volume and was the only single-family seller that comprised 10% or more of our purchase volume during 2014.

A significant portion of our single-family mortgage loans is serviced by several large servicers. Our top two single-family loan servicers, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A., serviced approximately 22% and 12%, respectively, of our single-family mortgage loans as of December 31, 2014 and were the only servicers that serviced more than 10% of our loans at that date. For additional information about servicer concentration risk and our relationships with our seller/servicer customers, see “MD&A — RISK MANAGEMENT — Credit Risk Overview — Institutional Credit Risk Profile — Single-Family Mortgage Seller/Servicers.”

Our Competition

The principal competitors of our Single-family Guarantee segment are Fannie Mae, Ginnie Mae (with FHA/VA), and other financial institutions that retain or securitize mortgages, such as commercial and investment banks, dealers, and thrift institutions. We compete on the basis of price, products, the structure of our securities, and service. Competition to acquire single-family mortgages can also be significantly affected by changes in our credit standards. The conservatorship, including direction provided to us by our Conservator, may affect our ability to compete. For more information, see “RISK FACTORS — Conservatorship and Related Matters — Competition from banking and non-banking companies may harm our business."

Guarantee Fees and Contractual Arrangements

We enter into mortgage loan purchase volume agreements with many of our single-family customers that outline the terms under which we agree to purchase loans from them. For the majority of the mortgages we purchase, the management and guarantee fees are not specified contractually. Instead, we bid for some or all of the lender's mortgage loan volume on a monthly basis at a management and guarantee fee rate that we specify. Our mortgage loan purchase volumes from individual customers can fluctuate significantly.

We seek to issue guarantees with fee terms that we believe are commensurate with the risks assumed and that will, over the long-term: (a) provide management and guarantee fee income that exceeds our anticipated credit-related and administrative expenses on the underlying loans; and (b) provide a return on the capital that would be needed to support the related credit risk. However, we must obtain FHFA’s approval to implement across-the-board increases in our guarantee fees. We do not have the ability to fully price for our credit risk at the loan level as our base fee does not differentiate by LTV ratio and credit score. To compensate us for higher levels of risk in some mortgage products, we charge upfront delivery fees above our base fees, which are calculated based on credit risk factors such as the mortgage product type, loan purpose, LTV ratio and credit score. While we vary our guarantee and delivery fee pricing for different customers, mortgage products, and mortgage or borrower underwriting characteristics based on our assessment of credit risk, the seller may elect to buy, or originate, and then retain loans with better credit characteristics. The sellers' decisions for loan retention, or sale to us, could result in our portfolio purchases having a more adverse credit profile.

We implemented two across-the-board increases in guarantee fees in 2012. Effective April 1, 2012, at the direction of FHFA, we and Fannie Mae increased the guarantee fee on single-family residential mortgages sold to us by 10 basis points. Under the Temporary Payroll Tax Cut Continuation Act of 2011, the proceeds from this increase are being remitted to Treasury on a quarterly basis to fund the payroll tax cut. We refer to this fee increase as the legislated 10 basis point increase in guarantee fees. In the fourth quarter of 2012, at the direction of FHFA, we and Fannie Mae implemented a further increase in guarantee fees on single-family mortgages of an average of 10 basis points.

Securitization Activities

Our securitization activities primarily involve PCs, and REMICs and Other Structured Securities. We have not completed an Other Guarantee Transaction in our Single-family Guarantee segment in several years. In order to expand our alternatives for the transfer of mortgage credit risk to third party investors, we may resume issuing Other Guarantee Transactions in our Single-family Guarantee segment in 2015. See "Our Business — Overview of the Mortgage Securitization and Guarantee Process” for additional information about our securitization activities.

Single-Family PC Trust Documents

We establish trusts for all of our issued PCs pursuant to our PC master trust agreement. We use PC trusts to hold the underlying mortgage loans separate and apart from our corporate assets. In accordance with the terms of our PC trust documents, we have the option, and in some instances the requirement, to remove specified mortgage loans from the applicable trust. To remove these loans, we pay the trust an amount equal to the current UPB of the mortgage loan, less any outstanding advances of principal that have been distributed to PC holders. Our payments to the trust are distributed to the PC holders at the next scheduled payment date.

We have the option to remove a mortgage loan from a PC trust under certain circumstances to resolve an existing or impending delinquency or default. Our practice generally has been to remove substantially all single-family mortgage loans that are 120 days or more delinquent from our issued PCs. From time to time, we reevaluate our practice of removing delinquent loans from PCs and alter it if circumstances warrant.

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The To Be Announced Market

Single-family fixed-rate PCs generally trade on a “generic” basis, also referred to as trading in the TBA market. A TBA trade is a contract for the purchase or sale of PCs to be delivered at a future date; however, the specific PCs that will be delivered are not known (i.e., “announced”) until shortly before the trade is settled. The use of the TBA market increases the liquidity of mortgage investments and improves the distribution of investment capital available for residential mortgage financing, thereby helping us to accomplish our statutory mission. The Securities Industry and Financial Markets Association publishes guidelines pertaining to the types of mortgages that are eligible for TBA trades. Certain of our PC securities are not eligible for TBA trades, such as those backed by relief refinance mortgages with LTV ratios greater than 105%.

Other Guarantee Commitments

In certain circumstances, we provide a guarantee on mortgage-related assets held by third parties, in exchange for a management and guarantee fee, without securitizing those assets. For example, we provide long-term standby commitments to certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are covered by those commitments. From time to time, we have consented to the termination of our long-term standby commitments and simultaneously entered into guarantor swap transactions with the same counterparty, issuing PCs backed by many of the same mortgage loans.

Underwriting Requirements, Quality Control Standards, and the Representation and Warranty Framework

We use a process of delegated underwriting for the single-family mortgage loans we purchase or securitize. In this process, our contracts with sellers describe mortgage eligibility and underwriting standards, and the sellers represent and warrant to us that the mortgage loans sold to us meet these standards. In our contracts with individual sellers, we may waive or modify selected underwriting standards. Through our delegated underwriting process, mortgage loans and the borrowers’ ability to repay the loans are evaluated using a number of critical risk characteristics, including, but not limited to: (a) the credit profile of the borrower (e.g., credit score, credit history, and monthly income relative to debt payments); (b) the documentation level; (c) the number of borrowers; (d) the features of the mortgage itself; (e) the purpose of the mortgage; (f) occupancy type; (g) the property type and market value; and (h) LTV ratio. Our single-family loans are generally underwritten with a requirement for a maximum original LTV ratio of 95%. We prescribe maximum LTV ratio limits of 80% for cash-out refinance loans and 90% for jumbo conforming mortgages, but no maximum for fixed-rate HARP mortgages. In December 2014, we announced guidelines for mortgages with LTV ratios up to 97% to serve a targeted segment of creditworthy borrowers. We expect to begin our purchase and guarantee of mortgages under this initiative in March 2015.

The majority of our single-family mortgage purchase volume is evaluated using our proprietary automated underwriting software (Loan Prospector), the sellers’ own software, or Fannie Mae’s proprietary software. We use underwriting software and available data to help us identify loans with potential underwriting defects. The percentage of our single-family mortgage purchase volume (acquired under purchase volume agreements and excluding HARP and other relief refinance loans) evaluated by the loan originator using Loan Prospector prior to being purchased by us was 47% and 45% during 2014 and 2013, respectively. We monitor the performance of loans delivered to us that were underwritten using underwriting software other than Loan Prospector to determine whether their performance is in line with our risk tolerance.

We review a sample of the loans we purchase to validate compliance with our underwriting standards. In addition, we review many delinquent loans and loans that have resulted in credit losses, such as through foreclosure or short sale. Beginning with loans delivered in 2013, in conjunction with our revised representation and warranty framework discussed below, we began to make changes to reduce the time it takes to complete our quality control review after the loan is delivered to us. We have implemented tools, such as our proprietary Quality Control Information Manager, to provide greater transparency into our customer quality control reviews. We have also implemented a process of targeted quality control sampling of loans with certain characteristics. We expect that further enhancements to these systems and processes will continue in 2015.

If we discover that representations and warranties were breached (i.e., that contractual standards were not followed), we can exercise certain contractual remedies to mitigate our actual or potential credit losses. These contractual remedies may include the ability to require the seller/servicer to repurchase the loan at its current UPB, reimburse us for losses realized with respect to the loan after consideration of any other recoveries, and/or indemnify us.

At the direction of FHFA, we and Fannie Mae revised our representation and warranty framework for conventional loans purchased by the GSEs on or after January 1, 2013. Under this revised framework, sellers are relieved of certain repurchase obligations for loans that meet specific payment requirements. This includes, subject to certain exclusions, loans with 36 months (12 months for relief refinance mortgages) of consecutive, on-time payments after we purchase them. At the direction of FHFA, we announced certain additional changes to our representation and warranty framework during 2014. These changes include providing repurchase relief on loans that: (a) have established an acceptable payment history (i.e., no more than two 30-day delinquencies and no 60-day delinquencies in a 36 month period); or (b) satisfactorily completed a review in our quality control process. We also made changes that provided additional clarity around life-of-loan exclusions from repurchase relief. These changes are generally designed to provide sellers with a higher degree of certainty and clarity regarding their repurchase

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exposure and liability on future sales of loans to us. It is possible that FHFA will require us to make further changes to the framework.

We do not have our own mortgage loan servicing operation. Instead, our customers perform the primary servicing function on our behalf. Our servicers are required to service loans in accordance with our standards. Under these standards, we pay various incentives to servicers for completing workouts of problem loans. We also assess compensatory fees if servicers do not achieve certain benchmarks with respect to servicing delinquent loans. Similar to seller violations, we can require servicers to repurchase loans or provide alternative remedies in the case of servicing violations. For certain servicing violations, we typically first issue a notice of defect and allow the servicer a period of time to correct the problem. If the servicing violation is not corrected, we may issue a repurchase request. For breaches of servicing violations related to loans that have proceeded through foreclosure and REO sale or other workouts (e.g., short sales), we will accept reimbursement for realized credit losses in lieu of repurchase.

For more information, see “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile,” “ — Institutional Credit Risk Profile — Single-Family Mortgage Seller/Servicers” and “RISK FACTORS —Competitive and Market Risks — We face significant risks related to our delegated underwriting process for single-family mortgages, including risks related to data accuracy and fraud. Recent changes to the process could increase our risks.”

Credit Enhancements

Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by specified credit enhancements or participation interests. Primary mortgage insurance is the most prevalent type of credit enhancement protecting our single-family credit guarantee portfolio, and is typically provided on a loan-level basis. Generally, an insured loan must be in default and the borrower’s interest in the underlying property must have been extinguished, such as through a short sale or foreclosure, before a claim can be filed under a primary mortgage insurance policy. The mortgage insurer has a prescribed period of time within which to process a claim and make a determination as to its validity and amount.

For some mortgage loans, we transfer a portion of the credit risk to various third parties in STACR and ACIS transactions, or other credit enhancements, including:

• lender recourse, where we may require a lender to repurchase a loan upon default;

• indemnification agreements, where we may require a lender to reimburse us for realized credit losses; and

• collateral pledged by lenders, and subordinated security structures.

Lender recourse and indemnification agreements are typically entered into contemporaneously with the purchase of a mortgage loan as an alternative to requiring primary mortgage insurance or in exchange for a lower guarantee fee.

STACR and ACIS transactions are new types of credit risk transfer transactions we introduced in 2013. We have used these risk transfer transactions to transfer a portion of credit losses that could occur under adverse home price scenarios (through a mezzanine credit loss position) on certain groups of loans in our New single-family book from us to third-party investors. In the STACR debt note transactions, we issue unsecured debt securities that reduce our exposure to credit risk, as illustrated below:

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Risk Transfer - STACR® (Debt Issuance)

In a STACR debt note transaction, we create a reference pool consisting of recently acquired single-family mortgage loans. We then create a hypothetical securitization structure with notional credit risk positions, or tranches (e.g., first loss, mezzanine, and senior positions). The notional amounts of all positions are reduced based on scheduled principal payments that occur in the reference pool. Unscheduled principal payments that occur in the reference pool are allocated to the senior position only, unless certain specified events have occurred, in which case unscheduled principal payments are also allocated to the mezzanine and/or first loss positions.

We issue STACR debt notes (which relate to the mezzanine loss position) to investors. We are obligated to make payments of principal and interest on the STACR debt notes. The principal balance of the STACR debt notes is reduced (based on a fixed severity schedule) when certain specified credit events (such as a loan becoming 180 days delinquent) occur on the loans in the reference pool. Principal reductions for the specified credit events will initially occur on the first loss position (which is retained by us) until it is fully reduced before the STACR debt notes begin participating in reductions to their principal balances relating to those events. The interest rate on STACR debt is generally higher than on our other unsecured debt securities due to the potential for reductions to its principal balance. In 2014 and 2013, we only issued STACR debt notes related to mezzanine loss positions with credit event reductions based on fixed severity schedules. In 2015, we began issuing STACR debt notes that will transfer some of the credit risk related to the first loss positions in addition to the mezzanine loss position, and expect to complete transactions that provide reductions for credit events based on actual losses rather than fixed amounts.

In an ACIS transaction, we purchase one or more insurance policies (typically underwritten by a panel of insurers and reinsurers) that obligate the counterparties to reimburse us for specified credit events (on a fixed severity schedule) that occur on our non-issued mezzanine loss position of a STACR debt transaction. Under each insurance policy, we pay monthly premiums that are determined based on the outstanding balance of the STACR debt reference pool. We receive compensation from the insurance policy up to an aggregate limit when specified credit events (such as a loan becoming 180 days delinquent) occur. In 2015, we expect to enter into such contracts for reimbursement of our actual credit losses rather than fixed or scheduled amounts.

Our use of certain types of credit enhancements to reduce our exposure to mortgage credit risk generally increases our exposure to institutional credit risk. See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Institutional Credit Risk Profile” for information about our counterparties that provide credit enhancement on loans in our single-family credit guarantee portfolio, including our mortgage loan insurers.

Single-Family Loan Workouts and the MHA Program

Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled assets and lowering credit losses. Our loan workouts include:

• Forbearance agreements, where reduced or no payments are required during a defined period, generally less than one year. These agreements provide additional time for the borrower to return to compliance with the original terms of the

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mortgage or to implement another loan workout. During 2014, the average time period granted for completed short-term forbearance agreements was between two and three months.

• Repayment plans, which are contractual plans to make up past due amounts. These plans assist borrowers in returning to compliance with the original terms of their mortgages. During 2014, the average time period granted for completed repayment plans was approximately four months.

• Loan modifications, which may involve changing the terms of the loan, or adding outstanding indebtedness, such as delinquent interest, to the UPB of the loan, or a combination of both. We have used principal forbearance but have not used principal forgiveness for our loan modifications. Principal forbearance is a change to a loan’s terms to designate a portion of the principal as non-interest-bearing and non-amortizing.

• Foreclosure alternatives, which are short sale and deed in lieu of foreclosure transactions.

We participate in the MHA Program, which is designed to help in the housing recovery, promote liquidity and housing affordability, expand foreclosure prevention efforts, and set market standards. Through our participation in this program, we help borrowers maintain home ownership. Some of the key initiatives of this program include HAMP and HARP, which are discussed below. We also maintain our non-HAMP standard loan modification and streamlined modification initiatives discussed below. See “MD&A — RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile — Managing Problem Loans" for additional information about our loan workout activities, as well as HARP and our relief refinance initiative.

HAMP and Non-HAMP Modifications

Our primary loan modification programs are HAMP and our non-HAMP standard loan modification. Under these programs, we offer loan modifications to struggling homeowners that reduce the monthly principal and interest payments on their mortgages. Under HAMP, the goal is to reduce the borrower’s monthly mortgage payments to 31% of gross monthly income. Both programs require that the borrower complete a trial period of at least three months prior to receiving the modification. During the trial period, the borrower makes monthly payments based on the estimated amount of the modification payments. If a borrower fails to complete the trial period, the loan is considered for our other workout activities. HAMP is available for loans originated on or before January 1, 2009. The program is currently scheduled to end with trial period plan effective dates on or before March 1, 2016 and modification effective dates on or before September 1, 2016.

In July 2013, we implemented a streamlined modification initiative, which provides an additional modification opportunity to certain borrowers. This modification requires a three-month trial period and offers eligible borrowers the same mortgage terms as the non-HAMP standard modification, including an extension of the loan’s term to 480 months and a fixed interest rate.

Under HAMP, borrowers receive monthly incentive payments (in the form of credits) to reduce the principal balance of their loans by up to $1,000 per year, for five years, as long as they are making timely payments under the modified loan terms. Servicers are paid incentive fees for each completed HAMP modification and non-HAMP modification. Unlike HAMP modifications, our non-HAMP standard and streamlined modifications do not provide for borrower incentive payments. We bear the costs of these borrower incentive payments and servicer incentive fees, and are not reimbursed by Treasury.

In January 2015, at the instruction of FHFA, we implemented a new $5,000 principal reduction incentive payable to eligible borrowers who remain in good standing on their HAMP modified loans through the sixth anniversary of their modification. In addition, we will require our servicers to offer such borrowers the opportunity to modify their loan by reamortizing the unpaid principal balance over the remaining term of the loan, which could lower the borrowers’ monthly principal and interest payments and would further reduce the risk of borrower default. Treasury will pay the $5,000 incentive for certain of our eligible HAMP modified loans, and we will pay the $5,000 incentive on our other eligible HAMP modified loans. We expect to begin paying these incentives in late 2015. Our payment of these incentives is not expected to have a significant effect on our earnings.

A borrower may only receive one HAMP modification. A loan may generally be modified twice (although only once during a 12 month period) under our standard loan modification program or once under our streamlined modification program.

We are the compliance agent for Treasury for certain foreclosure avoidance activities under HAMP. Among other duties, as the program compliance agent, we conduct examinations and review servicer compliance with the published requirements for the program.

Relief Refinance Mortgage Initiative and the Home Affordable Refinance Program

Our relief refinance initiative (which includes HARP, the portion of our relief refinance initiative for loans with LTV ratios above 80%) is a significant part of our effort to keep families in their homes. This initiative is designed to provide eligible homeowners with loans already guaranteed by us an opportunity to refinance their mortgages on more favorable terms, without obtaining new mortgage insurance in excess of what was already in place. Our relief refinance initiative allows us to assist homeowners by employing one or more of the following: (a) a reduction in payment; (b) a reduction in interest rate;

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(c) movement to a more stable mortgage product type (i.e., from an adjustable-rate mortgage to a fixed-rate mortgage); or (d) a reduction in amortization term.

The relief refinance initiative (including HARP) was implemented in 2009 and originally permitted eligible borrowers with Freddie Mac mortgages having LTV ratios up to 125% to refinance their mortgages. We subsequently implemented a number of changes to the initiative including: (a) removing the 125% LTV ratio ceiling for fixed-rate mortgages; and (b) relieving the lenders of certain representations and warranties on the original mortgage being refinanced. Our relief refinance initiative (including HARP) is scheduled to end in December 2015.

Relief refinance mortgages (including HARP loans) generally present higher risk to us than other refinance loans we have purchased since 2009 since: (a) underwriting procedures on these loans are more limited than other refinance loans; (b) many of the loans have high LTV ratios; and (c) the new loan will generally have limited representations and warranties compared to the original loan. However, relief refinance mortgages (including HARP loans) generally have performed better than loans with similar characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009.

Investments Segment

The Investments segment reflects results from three primary activities: (a) managing the company’s mortgage-related investments portfolio, excluding Multifamily segment investments and single-family seriously delinquent loans; (b) managing the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire company.

Our Investments segment is focused on:

• Maintaining a presence in the agency mortgage-related securities market: Our activities in this market may include outright purchases and sales, dollar roll transactions, and structuring activities (e.g., resecuritizing existing agency securities into REMICs and selling some or all of the REMIC tranches).

• Maintaining a portfolio of liquid mortgage assets consistent with our liquidity management guidelines: We evaluate the liquidity of our investments based on two categories: (a) single-class and multiclass agency securities (excluding certain structured agency securities collateralized by non-agency mortgage-related securities); and (b) assets that are less liquid than the agency securities noted above (e.g., mortgage loans and non-agency mortgage-related securities). We are focusing our efforts on reducing the balance of less liquid assets in the mortgage-related investments portfolio. Our less liquid assets collectively represented $239.3 billion and $286.3 billion, or approximately 59% and 62% of the UPB of the portfolio, at December 31, 2014 and 2013, respectively.

• Managing the single-family performing loans obtained through our cash purchase program: In conjunction with the single-family business, we purchase loans from lenders for cash and securitize the majority of them into Freddie Mac agency securities. These agency securities may be sold to dealers or investors, or retained in our Investments segment mortgage investments portfolio.

• Managing single-family delinquent loans along with the single-family business: This includes removing seriously delinquent loans from PC pools and selling loans, and could include other disposition strategies in the future.

• Managing single-family reperforming loans and performing modified loans: This includes securitizing loans, structuring the resulting securities and selling some or all of the tranches, and could include selling loans or other disposition strategies in the future.

• Reducing the balance of our non-agency mortgage-related securities through liquidations and sales, subject to a variety of constraints, including market conditions.

• Managing the treasury function for the entire company, including funding and liquidity, through the issuance of short-term and long-term unsecured debt: We maintain a liquidity and contingency operating portfolio of cash and non-mortgage investments for short-term liquidity management.

• Managing the interest-rate risk for the entire company through the use of derivatives and unsecured debt.

Our Customers

Our unsecured debt securities and structured mortgage-related securities are initially purchased by dealers and redistributed to their customers. The customers for our unsecured debt securities generally include insurance companies, money managers, central banks, depository institutions, and pension funds. Our customers under our mortgage loan cash purchase program are a variety of lenders, as discussed in “Single-Family Guarantee Segment — Our Customers.”

Our Competition

Our competitors are firms that invest in mortgage loans and mortgage-related assets, and issue corporate debt. As a result, we have a variety of principal competitors, including Fannie Mae, REITs, supranationals (international institutions that provide development financing for member countries), commercial and investment banks, dealers, thrift institutions, insurance companies, and the FHLBs.

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Market Presence and PC Support Activities

From time to time, we may undertake various activities in an effort to support: (a) our presence in the agency securities market; or (b) the liquidity and price performance of our PCs relative to comparable Fannie Mae securities. These activities may include the purchase and sale of agency securities, purchases of loans, dollar roll transactions, and the issuance of REMICs and Other Structured Securities. Depending upon market conditions, there may be substantial variability in any period in the total amount of securities we purchase or sell. In some cases, purchasing or selling agency securities could adversely affect the price performance of our PCs relative to comparable Fannie Mae securities. While we may employ a variety of strategies in an effort to support the liquidity and price performance of our PCs and may consider additional strategies, we may cease such activities if deemed appropriate. For more information about our efforts to support the liquidity and relative price performance for PCs, see “Our Business — Overview of the Mortgage Securitization and Guarantee Process.”

We incur costs in connection with our efforts to support our presence in the agency securities market or the liquidity and price performance of our PCs, including by engaging in transactions that yield less than our target rate of return. For more information, see “RISK FACTORS — Competitive and Market Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume and/or profitability of our new single-family guarantee business. The profitability of our multifamily business could be adversely affected by a significant decrease in demand for K Certificates.”

Multifamily Segment

Our Multifamily segment provides liquidity to the multifamily market and supports a consistent supply of affordable rental housing by purchasing and securitizing mortgage loans secured by properties with five or more units. The Multifamily segment reflects results from our investment (both purchases and sales), securitization, and guarantee activities in multifamily mortgage loans and securities. Our primary business model is to purchase multifamily mortgage loans for aggregation and then securitization through issuance of multifamily K Certificates, which generally allows us to transfer the expected credit risk of the loans to third-party investors.

Our Multifamily segment is focused on:

• Continuing to provide stability to the multifamily mortgage market, particularly the market for affordable housing, while meeting FHFA's Scorecard requirements relating to our new business volumes.

• Maintaining a strong credit and capital management discipline.

The multifamily property market is affected by local and regional economic factors, such as employment rates, construction cycles, preferences for homeownership versus renting, and relative affordability of single-family home prices, all of which influence the supply and demand for multifamily properties and pricing for apartment rentals. Our multifamily loan volume is largely sourced through established institutional channels where we are generally providing post-construction financing to larger apartment project operators with established performance records.

Multifamily mortgages generally are without recourse to the borrower (i.e., the borrower is not liable for any deficiency remaining after foreclosure and sale of the property), except in the event of fraud or certain other specified types of default. Therefore, repayment of the mortgage depends on the ability of the underlying property to generate cash flows sufficient to cover the related debt obligations. That, in turn, depends on conditions in the local rental market, local and regional economic conditions, the physical condition of the property, the quality of property management, and the level of operating expenses.

Our Customers

We acquire our multifamily mortgage loans from a network of approved sellers. A significant portion of our multifamily mortgage loans are serviced by several of our large customers. Our top two multifamily sellers, CBRE Capital Markets, Inc. and Berkadia Commercial Mortgage LLC, accounted for 20% and 15%, respectively, of our multifamily new business volume for 2014. Our top ten multifamily sellers represented an aggregate of approximately 84% of our multifamily new business volume for 2014.

Our Competition

In the Multifamily segment, we compete on the basis of: (a) price; (b) products, including our use of certain securitization structures; and (c) service. Our principal competitors are Fannie Mae, FHA, commercial and investment banks, CMBS conduits, dealers, thrift institutions, and life insurance companies.

Underwriting Requirements and Quality Control Standards

Our process and standards for underwriting multifamily mortgages differ from those used for single-family mortgages as we use a prior approval underwriting approach. With this approach, we maintain our credit discipline by completing our own underwriting and credit review for each newly-originated multifamily loan prior to purchasing or guaranteeing it. This process includes review of third-party appraisals and cash flow analysis. Our underwriting standards focus on loan quality measurement based, in part, on the LTV ratio and DSCR. The DSCR estimates a multifamily borrower’s ability to service its mortgage obligation (both principal and interest) using the secured property’s cash flow, after deducting non-mortgage expenses from income. The higher the DSCR, the more likely a multifamily borrower will be able to continue servicing its mortgage

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obligation. Our standards for multifamily loans specify a maximum original LTV ratio and a minimum DSCR that vary based on the loan characteristics, such as loan type (new acquisition or supplemental financing), loan term (intermediate or longer-term), and loan features (interest-only or amortizing, fixed- or variable-rate). Our multifamily loans are generally underwritten with requirements for a maximum original LTV ratio of 80% and a DSCR of greater than 1.25 (which for interest-only and partial interest-only loans is based on an assumed monthly payment that reflects amortization of principal). In certain circumstances, our standards for multifamily loans allow for certain types of loans to have an original LTV ratio over 80% and/or a DSCR of less than 1.25, typically where this will serve our mission and contribute to achieving our affordable housing goals. In addition to DSCR and LTV ratio, we consider other qualitative factors, such as borrower experience and the strength of the local market, in the credit decision we make on each loan.

Multifamily sellers make representations and warranties to us about the mortgage and about certain information submitted to us in the underwriting process. We have the right to require that a seller repurchase a multifamily mortgage for which there has been a breach of representation or warranty. However, because of our evaluation of underwriting information for most multifamily properties prior to purchase, repurchases have been rare.

We generally require multifamily sellers to service mortgage loans they have sold to us to mitigate potential losses. This includes property monitoring tasks beyond those typically performed by single-family servicers. We are the master servicer for loans in our multifamily mortgage portfolio. In our securitizations (e.g., K Certificates), we typically transfer the master servicing responsibilities for securitized loans to the trustees on behalf of the bondholders in accordance with the securitization and trust documents. For unsecuritized loans over $1 million in our portfolio, servicers must generally submit an annual assessment of the mortgaged property to us based on the servicer’s analysis of the property as well as the borrower’s quarterly financial statements. In situations where a borrower or property is in distress, the frequency of communications with the borrower may be increased. Because the activities of multifamily seller/servicers are an important part of our loss mitigation process, we rate their performance regularly and may conduct on-site reviews of their servicing operations in an effort to confirm compliance with our standards.

Loss Mitigation Activities

As discussed above, we primarily use subordination, such as in K Certificate transactions, to mitigate credit losses on the loans we purchase or guarantee. For unsecuritized loans (for which we are the master servicer), we may offer a workout option to a borrower in distress. For example, we may modify the terms of a multifamily mortgage loan (e.g., providing a short-term loan extension of up to 12 months), which gives the borrower an opportunity to bring the loan current and retain ownership of the property. These arrangements are made with the expectation that we will recover our initial investment or minimize our losses. We do not enter into these arrangements in situations where we believe we would experience a loss in the future that is greater than or equal to the loss we would experience if we foreclosed on the property at the time of the agreement. For many of our unsecuritized loans, we use other types of credit enhancements that also help mitigate potential losses in the event of default.

Securitization Activities

We primarily securitize multifamily mortgage loans through Other Guarantee Transactions (i.e., K Certificates). To a lesser extent, we provide guarantees of the payment of principal and interest on tax-exempt multifamily pass-through certificates backed by multifamily housing revenue bonds. These housing revenue bonds are collateralized by mortgage loans on low- and moderate-income multifamily housing developments. We refer to these transactions as Other Structured Securities. In 2014, in order to expand our securitization activities for a broader number of investors, we entered into other types of securitization transactions, including issuing PCs backed by multifamily mortgage loans. See “Our Business — Overview of the Mortgage Securitization and Guarantee Process” for additional information about our securitization activities.

From time to time, we may undertake various activities in an effort to support the liquidity of our K Certificates. These activities are similar to those described above in “Investments Segment — Market Presence and PC Support Activities.”

Other Guarantee Commitments

In certain circumstances, we provide our guarantee on mortgage-related assets held by third parties, in exchange for a management and guarantee fee, without securitizing those assets. For example, we guarantee the payment of principal and interest on certain tax-exempt multifamily housing revenue bonds secured by low- and moderate-income multifamily mortgage loans. In addition, we have issued guarantees under the TCLFP on securities backed by HFA bonds as part of the HFA Initiative (certain of which are still outstanding). See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Housing Finance Agency Initiative” for further information.

Since September 2008, we have been operating in conservatorship, with FHFA acting as our Conservator. The conservatorship and related matters continue to have wide-ranging effects on us, including our management, business activities, financial condition and results of operations.

In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury. Under the Purchase Agreement, we issued to Treasury both senior preferred stock and a warrant to purchase common stock. We refer to

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the Purchase Agreement and the warrant as the “Treasury Agreements.” The Treasury Agreements and the senior preferred stock will continue to exist even if the conservatorship ends. The conservatorship, the Treasury Agreements and the senior preferred stock materially limit the rights of our common and preferred stockholders (other than Treasury as holder of the senior preferred stock) and have otherwise materially and adversely affected our common and preferred stockholders. For more information, see “RISK FACTORS — Conservatorship and Related Matters.”

In May 2014, FHFA issued its 2014 Strategic Plan, which updated FHFA's vision for implementing its obligations as Conservator of Freddie Mac and Fannie Mae and established three reformulated strategic goals. FHFA has also issued its Conservatorship Scorecards for 2014 and 2015. The Conservatorship Scorecards establish objectives and performance targets and measures for Freddie Mac and Fannie Mae related to the strategic goals set forth in the Strategic Plan. For more information, see “Regulation and Supervision — Legislative and Regulatory Developments — FHFA's Strategic Plan for Freddie Mac and Fannie Mae Conservatorships.”

We receive substantial support from Treasury and FHFA, and are dependent upon their continued support in order to continue operating our business. This support includes our ability to access funds from Treasury under the Purchase Agreement, which is critical to: (a) keeping us solvent; (b) allowing us to focus on our primary business objectives under conservatorship; and (c) avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. In recent years, the Federal Reserve has purchased significant amounts of mortgage-related securities issued by us, Fannie Mae, and Ginnie Mae.

FHFA has broad powers when acting as our Conservator, as discussed below under “Powers of the Conservator.” In addition, under conservatorship, we are subject to heightened supervision and direction from FHFA, in its capacity as our regulator.

The Conservator has delegated certain authority to the Board of Directors to oversee, and to management to conduct, business operations so that the company can continue to operate in the ordinary course. The directors serve on behalf of, and exercise authority as directed by, the Conservator. The Conservator retains the authority to withdraw or revise its delegations of authority at any time. The Conservator also retains certain significant authorities for itself, and has not delegated them to the Board. For more information on limitations on the Board’s authority during conservatorship, see “DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE — Authority of the Board and Board Committees.”

We conduct our business subject to the direction of FHFA as our Conservator. The conservatorship has benefited us through, for example, enabling us to maintain access to the debt markets because of the support we receive from Treasury. However, the Purchase Agreement and the terms of the senior preferred stock we issued to Treasury constrain our business activities.

The Conservator continues to determine, and direct the efforts of the Board of Directors and management to address, the strategic direction for the company. While the Conservator has delegated certain authority to management to conduct business operations, many management decisions are subject to review and approval by FHFA and Treasury. In addition, management frequently receives directions from FHFA on various matters involving day-to-day operations.

Our current business objectives reflect direction we received from the Conservator (including the Conservatorship Scorecards). At the direction of the Conservator, we have made changes to certain business practices that are designed to provide support for the mortgage market in a manner that serves our public mission and other non-financial objectives but may not contribute to our profitability. Certain of these objectives are intended to help homeowners and the mortgage market and may help to mitigate future credit losses. Some of these initiatives impact our near- and long-term financial results. Given our public mission and the important role the Administration and our Conservator have placed on Freddie Mac in addressing housing and mortgage market conditions, we may be required to take actions that could have a negative impact on our business, operating results or financial condition, and thus contribute to a need for additional draws under the Purchase Agreement.

For more information on the impact of conservatorship and our current business objectives, see "Executive Summary —Our Primary Business Objectives," "RISK FACTORS — Conservatorship and Related Matters — We are under the control of FHFA, and our business activities are subject to significant restrictions. We may be required to take actions that materially adversely affect our business and financial results," and "NOTE 2: CONSERVATORSHIP AND RELATED MATTERS."

Our mortgage-related investments portfolio consists of agency securities, single-family non-agency mortgage-related securities, CMBS, housing revenue bonds, other multifamily securities, and single-family and multifamily unsecuritized mortgage loans. Our ability to acquire and sell mortgage assets is significantly constrained by limitations under the Purchase Agreement and those imposed by FHFA.

Under the Purchase Agreement and FHFA regulation, the UPB of our mortgage-related investments portfolio is subject to a cap that decreases by 15% each year until the cap reaches $250 billion. As a result, the UPB of our mortgage-related investments portfolio could not exceed $470 billion as of December 31, 2014 and may not exceed $399 billion as of December

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31, 2015. Our 2014 Retained Portfolio Plan provides for us to manage the UPB of the mortgage-related investments portfolio so that it does not exceed 90% of the annual cap established by the Purchase Agreement, subject to certain exceptions. For more information on the plan, see “Executive Summary — Our Primary Business Objectives — Reducing Taxpayer Exposure to Losses — Reducing Our Mortgage-Related Investments Portfolio Over Time.” The reduction in the mortgage-related investments portfolio will result in a decline in income from this portfolio over time.

The table below presents the UPB of our mortgage-related investments portfolio, for purposes of the limit imposed by the Purchase Agreement and FHFA regulation. See "Table 21 — Composition of Segment Mortgage Portfolios and Credit Risk Portfolios" for more information on the composition of the table below.

December 31, 2014 December 31, 2013 More Liquid Less Liquid Total More Liquid Less Liquid Total (in millions) Investments segment — Mortgage investments portfolio: Single-family unsecuritized mortgage loans $ — $ 82,778 $ 82,778 $ — $ 84,411 $ 84,411 Freddie Mac mortgage-related securities 150,852 7,363 158,215 156,438 8,809 165,247 Non-agency mortgage-related securities — 44,230 44,230 — 64,524 64,524 Non-Freddie Mac agency mortgage-related securities 16,341 — 16,341 16,889 — 16,889 Total Investments segment — Mortgage investments portfolio 167,193 134,371 301,564 173,327 157,744 331,071 Single-family Guarantee segment — Single-family unsecuritized seriously delinquent mortgage loans — 28,738 28,738 — 37,726 37,726 Multifamily segment — Mortgage investments portfolio 1,911 76,201 78,112 1,411 90,816 92,227 Total mortgage-related investments portfolio $ 169,104 $ 239,310 $ 408,414 $ 174,738 $ 286,286 $ 461,024 Percentage of total mortgage-related investments portfolio 41 % 59 % 100 % 38 % 62 % 100 % Mortgage-related investments portfolio cap $ 469,625 $ 552,500

We evaluate the liquidity of the assets in our mortgage-related investments portfolio based on two categories: (a) single-class and multiclass agency securities (excluding certain structured agency securities collateralized by non-agency mortgage-related securities); and (b) assets that are less liquid than the agency securities noted above. Assets that we consider to be less liquid than agency securities include unsecuritized single-family and multifamily mortgage loans, certain structured agency securities collateralized with non-agency mortgage-related securities, and our investments in non-agency mortgage-related securities.

The UPB of our mortgage-related investments portfolio was $408.4 billion at December 31, 2014, a decline of $52.6 billion (or 11%) compared to $461.0 billion at December 31, 2013. Our less liquid assets accounted for $47.0 billion of this decline, primarily due to liquidations and our efforts to reduce these assets. We sold $16.5 billion of less liquid assets in 2014 (including sales related to settlements of non-agency mortgage-related securities litigation). In addition, we securitized $7.0 billion of single-family reperforming and modified loans in 2014. These amounts do not include sales of mortgage loans we purchased for cash and subsequently securitized. The sales of less liquid assets noted above included a pilot transaction in which we sold approximately $0.6 billion in UPB of seriously delinquent unsecuritized single-family loans. In January 2015, we received FHFA approval to execute additional such sales. We plan to continue reducing the balance of our less liquid assets, although we also continue to add certain of these assets to our mortgage-related investments portfolio as part of our business strategies (e.g., removal of seriously delinquent loans from PC pools and acquisitions of mortgage loans purchased for cash).

Upon its appointment, the Conservator immediately succeeded to all rights, titles, powers and privileges of Freddie Mac, and of any stockholder, officer or director of Freddie Mac with respect to Freddie Mac 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.

Under the GSE Act, the Conservator may take any actions it determines are necessary to put us in a safe and solvent condition and appropriate to carry on our business and preserve and conserve our assets and property. The Conservator’s powers include the ability to transfer or sell any of our assets or liabilities (subject to certain limitations and post-transfer notice provisions) without any approval, assignment of rights or consent of any party. The GSE Act, however, provides that mortgage loans and mortgage-related assets that have been transferred to a Freddie Mac securitization trust must be held by the Conservator for the beneficial owners of the trust and cannot be used to satisfy our general creditors. For more information on the GSE Act, see "Regulation and Supervision."

Treasury entered into several agreements with us in connection with our entry into conservatorship, as described below.

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Purchase Agreement

On September 7, 2008, we, through FHFA, in its capacity as Conservator, entered into the Purchase Agreement with Treasury. The Purchase Agreement was subsequently amended and restated on September 26, 2008, and further amended on May 6, 2009, December 24, 2009, and August 17, 2012. Pursuant to the Purchase Agreement, we issued to Treasury: (a) one million shares of Variable Liquidation Preference Senior Preferred Stock (with an initial liquidation preference of $1 billion), which we refer to as the senior preferred stock; and (b) a warrant to purchase, for a nominal price, shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding. The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. The terms of the senior preferred stock and warrant are summarized in separate sections below. We did not receive any cash proceeds from Treasury as a result of issuing the senior preferred stock or the warrant. However, deficits in our net worth have made it necessary for us to make substantial draws on Treasury’s funding commitment under the Purchase Agreement. As a result, the aggregate liquidation preference of the senior preferred stock has increased to $72.3 billion at December 31, 2014. Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited and we will not be able to do so for the foreseeable future, if at all. As of December 31, 2014, the amount of available funding remaining under the Purchase Agreement was $140.5 billion. This amount will be reduced by any future draws.

The Purchase Agreement provides for us to pay a quarterly commitment fee to Treasury. However, pursuant to the August 2012 amendment to the Purchase Agreement, as long as the net worth sweep dividend provisions described below under "Senior Preferred Stock" remain in form and content substantially the same, no periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. Treasury had previously waived the fee for all prior quarters.

The Purchase Agreement provides that, on a quarterly basis, we generally may draw funds up to the amount, if any, by which our total liabilities exceed our total assets, as reflected on our GAAP balance sheet for the applicable fiscal quarter (referred to as the deficiency amount), provided that the aggregate amount funded under the Purchase Agreement may not exceed Treasury’s commitment. The Purchase Agreement provides that the deficiency amount will be calculated differently if we become subject to receivership or other liquidation process. The deficiency amount may be increased above the otherwise applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA determines that the Director will be mandated by law to appoint a receiver for us unless our capital is increased by receiving funds under the commitment in an amount up to the deficiency amount (subject to the maximum amount that may be funded under the agreement), then FHFA, in its capacity as our Conservator, may request that Treasury provide funds to us in such amount. The Purchase Agreement also provides that, if we have a deficiency amount as of the date of completion of the liquidation of our assets, we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum amount that may be funded under the agreement). Any amounts that we draw under the Purchase Agreement will be added to the liquidation preference of the senior preferred stock. No additional shares of senior preferred stock are required to be issued under the Purchase Agreement.

The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include the end of the conservatorship. Treasury's consent is required for a termination of the conservatorship other than in connection with receivership. For more information on the Purchase Agreement, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Purchase Agreement and Warrant — Termination Provisions,” “— Waivers and Amendments” and “— Third-party Enforcement Rights.”

Senior Preferred Stock

Shares of the senior preferred stock have a liquidation preference that is subject to adjustment. Dividends that are not paid in cash for any dividend period will accrue and be added to the liquidation preference. In addition, any amounts we draw under the Purchase Agreement are added to the liquidation preference.

Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as and if declared by our Board of Directors. Under the August 2012 amendment to the Purchase Agreement, our dividend obligation 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. For more information regarding our net worth sweep dividend, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”

The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment under the Purchase Agreement. For more information on the senior preferred stock, including the limited circumstances under which we may make payments to reduce the liquidation preference, see “NOTE 11: STOCKHOLDERS’ EQUITY — Issuance of Senior Preferred Stock.”

Common Stock Warrant

The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in whole or in part at any time on or before September 7, 2028.

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Covenants Under the Treasury Agreements

The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. For example, the Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without the prior written consent of Treasury:

• pay dividends on or repurchase our equity securities (other than the senior preferred stock or warrant);

• issue any additional equity securities (except in limited instances);

• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value in limited circumstances including: (a) if the transaction is in the ordinary course of business, consistent with past practice, or (b) in one transaction or a series of related transactions if the assets have a fair market value individually or in the aggregate of less than $250 million; and

• issue any subordinated debt.

The Purchase Agreement also requires us to reduce the amount of mortgage assets we own, as described in "Limits on Investment Activity and our Mortgage-Related Investments Portfolio." Under the Purchase Agreement, we also may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar year.

In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase amounts or benefits payable under existing compensation arrangements of any named executive officer or other executive officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.

For more information on the covenants in the Purchase Agreement and the warrant, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Purchase Agreement and Warrant — Purchase Agreement Covenants” and “— Warrant Covenants.”

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. We are also subject to certain regulation by other government agencies.

FHFA is an independent agency of the federal government responsible for oversight of the operations of Freddie Mac, Fannie Mae and the FHLBs.

Under the GSE Act, FHFA has safety and soundness authority that is comparable to, and in some respects, broader than that of the federal banking agencies. FHFA is responsible for implementing the various provisions of the GSE Act that were added by the Reform Act.

Receivership

Under the GSE Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than our obligations for a period of 60 days. FHFA notified us that the measurement period for any mandatory receivership determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for our quarterly or annual financial statements and would continue for 60 calendar days after that date. FHFA also advised us that, if, during that 60-day period, we receive funds from Treasury in an amount at least equal to the deficiency amount under the Purchase Agreement, the Director of FHFA will not make a mandatory receivership determination. In addition, we could be put into receivership at the discretion of the Director of FHFA at any time for other reasons set forth in the GSE Act.

Certain aspects of conservatorship and receivership operations of Freddie Mac, Fannie Mae and the FHLBs are addressed in an FHFA rule. Among other provisions, the rule indicates that FHFA generally will not permit payment of securities litigation claims during conservatorship and that claims by current or former shareholders arising as a result of their status as shareholders would receive the lowest priority of claim in receivership. In addition, the rule indicates that administrative expenses of the conservatorship will also be deemed to be administrative expenses of a subsequent receivership and that capital distributions may not be made during conservatorship, except as specified in the rule.

Capital Standards

FHFA suspended capital classification of us during conservatorship in light of the Purchase Agreement. The existing statutory and FHFA-directed regulatory capital requirements are not binding during the conservatorship. These capital standards are described in "NOTE 18: REGULATORY CAPITAL." Under the GSE Act, FHFA has the authority to increase our minimum capital levels or to establish additional capital and reserve requirements for particular purposes.

Pursuant to an FHFA rule, FHFA-regulated entities are required to conduct annual stress tests to determine whether such companies have sufficient capital to absorb losses as a result of adverse economic conditions. Under the rule, Freddie Mac is required to: (a) conduct annual stress tests using scenarios specified by FHFA that reflect a minimum of three sets of economic

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and financial conditions (baseline, adverse, and severely adverse); and (b) publicly disclose the results of the stress test under the “severely adverse” scenario. In April 2014, we disclosed the results of the first annual stress test.

For additional information, see “MD&A — LIQUIDITY AND CAPITAL RESOURCES — Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred Stock.”

New Products

The GSE Act requires the enterprises to obtain the approval of FHFA before initially offering any product (including new mortgage products), subject to certain exceptions. The GSE Act also requires us to provide FHFA with written notice of any new activity that we consider not to be a product. While FHFA has published an interim final rule on prior approval of new products, it has stated that permitting us to engage in new products is inconsistent with the goals of conservatorship and instructed us not to submit such requests under the interim final rule. This could have an adverse effect on our business and profitability in future periods.

Affordable Housing Goals

We are subject to annual affordable housing goals. We view the purchase of mortgage loans that are eligible to count toward our affordable housing goals to be a principal part of our mission and business, and we are committed to facilitating the financing of affordable housing for low- and moderate-income families. In light of these goals, we may make adjustments to our mortgage loan sourcing and purchase strategies, which could potentially increase our credit losses. These strategies could include entering into purchase and securitization transactions with lower expected economic returns than our typical transactions. In February 2010, FHFA stated that it does not intend for us to undertake uneconomic or high risk activities in support of the housing goals nor does it intend for the state of conservatorship to be a justification for withdrawing our support from these market segments.

If the Director of FHFA finds that we failed to meet a housing goal and that achievement of the housing goal was feasible, the Director may require the submission of a housing plan with respect to the housing goal. The housing plan must describe the actions we would take to achieve the unmet goal in the future. FHFA has the authority to take actions against us, including issuing a cease and desist order or assessing civil money penalties, if we: (a) fail to submit a required housing plan or fail to make a good faith effort to comply with a plan approved by FHFA; or (b) fail to submit certain mortgage purchase data, information or reports as required by law. See “RISK FACTORS — Legal and Regulatory Risks — We may make certain changes to our business in an attempt to meet our housing goals and subgoals.”

FHFA has established four goals and one subgoal for single-family owner-occupied housing, one multifamily affordable housing goal, and one multifamily affordable housing subgoal. Three of the single-family housing goals and the subgoal target purchase money mortgages for: (a) low-income families; (b) very low-income families; and/or (c) families that reside in low-income areas. The single-family housing goals also include one that targets refinancing mortgages for low-income families. The multifamily affordable housing goal targets multifamily rental housing affordable to low-income families. The multifamily affordable housing subgoal targets multifamily rental housing affordable to very low-income families.

The single-family goals are expressed as a percentage of the total number of eligible mortgages underlying our total single-family mortgage purchases. The multifamily goals are expressed in terms of minimum numbers of units financed.

The single-family goals are measured by comparing our performance with: (a) the actual share of the market that meets the criteria for each goal; and (b) a benchmark level established by FHFA. If our performance on a single-family goal falls short of the benchmark, we still could achieve the goal if our performance meets or exceeds the actual share of the market that meets the criteria for the goal for that year.

Affordable Housing Goals for 2014

FHFA’s affordable housing goals for Freddie Mac for 2014 are set forth below.

Goals for 2014 Single -family purchase money goals (benchmark levels): Low-income 23 % Very low-income 7 % Low-income areas(1) 18 % Low-income areas subgoal 11 % Single -family refinance low-income goal (benchmark level) 20 % Multifamily low-income goal (in units) 200,000 Multifamily low-income subgoal (in units) 40,000

(1) FHFA annually sets the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the three most recent years for which such data are available. For 2014, FHFA set the benchmark level at 18%.

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We expect to report our performance with respect to the 2014 affordable housing goals in March 2015. At this time, based on preliminary information, we believe we met three of our single-family goals and both multifamily goals for 2014, but believe we failed to meet the FHFA benchmark level for the other single-family goals. In such cases, FHFA regulations allow us to achieve a goal if our qualifying share matches that of the market, as measured by the Home Mortgage Disclosure Act. Because the Home Mortgage Disclosure Act data for 2014 will not be released until September 2015, FHFA will not be able to make a final determination on our performance until that time. If we fail to meet both the FHFA benchmark level and the market level, we may enter into discussions with FHFA concerning whether these goals were infeasible under the terms of the GSE Act, due to market and economic conditions and our financial condition.

Affordable Housing Goals for 2015 to 2017

In August 2014, FHFA issued a proposed rule that would establish housing goals for Freddie Mac and Fannie Mae for 2015 through 2017. FHFA requested comment on all aspects of the proposed rule. Under FHFA’s proposal: (a) the benchmark levels for our single-family goals could increase; (b) the number of units for both of our multifamily goals would increase; and (c) FHFA would establish a new subgoal related to small multifamily properties affordable to low-income families. We cannot predict the content of any final rule concerning affordable housing goals, or the impact any such final rule would have on our business or operations.

Affordable Housing Goals and Results for 2013 and 2012

FHFA has determined that we achieved two of our five single-family affordable housing goals and both multifamily goals in 2013, and did not achieve the other three single-family goals. We achieved all of our housing goals for 2012. Our performance on the goals, as determined by FHFA, is set forth below.

Goals for 2013 Market Level for 2013 Results for 2013 Goals for 2012 Market Level for 2012 Results for 2012 Single-family purchase money goals (benchmark levels): Low-income 23 % 24.0 % 21.8 % 23 % 26.6 % 24.4 % Very low-income 7 % 6.3 % 5.5 % 7 % 7.7 % 7.1 % Low-income areas(1) 21 % 22.1 % 20.0 % 20 % 20.5 % 20.6 % Low-income areas subgoal 11 % 14.2 % 12.3 % 11 % 13.6 % 11.4 % Single-family refinance low-income goal (benchmark level) 20 % 24.3 % 24.1 % 20 % 22.3 % 22.4 % Multifamily low-income goal (in units) 215,000 N/A 254,628 225,000 N/A 298,529 Multifamily low-income subgoal (in units) 50,000 N/A 56,752 59,000 N/A 60,084

(1) FHFA annually sets the benchmark level for the low-income areas goal based on the benchmark level for the low-income areas subgoal, plus an adjustment factor reflecting the additional incremental share of mortgages for low- and moderate-income families in designated disaster areas in the three most recent years for which such data are available. For 2013 and 2012, FHFA set the benchmark level at 21% and 20%, respectively.

FHFA did not require us to submit a housing plan for the goals we did not achieve in 2013.

Affordable Housing 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 the UPB of total new business purchases, and allocate or transfer such amount to: (a) HUD to fund a Housing Trust Fund established and managed by HUD; and (b) a Capital Magnet Fund established and managed by Treasury. FHFA has the authority to suspend our allocation upon finding that the payment would contribute to our financial instability, cause us to be classified as undercapitalized or prevent us from successfully completing a capital restoration plan. In November 2008, FHFA suspended the requirement to set aside or allocate funds for the Housing Trust Fund and the Capital Magnet Fund. In December 2014, FHFA terminated the suspension and directed us to begin making contributions to the funds, in accordance with the following terms and conditions:

• The amount we will set aside each fiscal year, commencing with fiscal year 2015, will be based on our total new business purchases during such fiscal year; and

• Within 60 days after the end of each fiscal year commencing with fiscal year 2015, we will allocate or otherwise transfer the amount set aside. However, if we have made a draw under the Purchase Agreement during that fiscal year or if such allocation or transfer will cause us to have to make a draw, then we will not make an allocation or transfer and the amount set aside for that fiscal year will be reversed.

We are prohibited from passing through the costs of the allocations (e.g., through increased charges or fees) to the originators of the mortgages that we purchase.

Prudential Management and Operations Standards

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FHFA has established prudential standards relating to the management and operations of Freddie Mac, Fannie Mae, and the FHLBs. The standards address a number of business, controls, and risk management areas. The standards specify the possible consequences for any entity that fails to meet any of the standards or otherwise fails to comply (including submission of a corrective plan, limits on asset growth, increases in capital, limits on dividends and stock redemptions or repurchases, a minimum level of retained earnings or any other action that the FHFA Director determines will contribute to bringing the entity into compliance with the standards). A failure to meet any standard also may constitute an unsafe or unsound practice, which may form the basis for FHFA to initiate an administrative enforcement action. On a periodic basis, we conduct self-assessments of our compliance with these standards. Issues identified in previous self-assessments have either been remediated or are in process of remediation.

Portfolio Activities

The GSE Act provides FHFA with power to regulate the size and content of our mortgage-related investments portfolio. The GSE Act requires FHFA to establish, by regulation, criteria governing portfolio holdings to ensure the holdings are backed by sufficient capital and consistent with the enterprises’ mission and safe and sound operations. FHFA has adopted the portfolio holdings criteria established in the Purchase Agreement, as it may be amended from time to time, for so long as we remain subject to the Purchase Agreement.

See “Conservatorship and Related Matters — Limits on Investment Activity and Our Mortgage-Related Investments Portfolio” for additional information on restrictions on our portfolio activities.

Anti-Predatory Lending

Predatory lending practices are in direct opposition to our mission, goals, and practices. We instituted anti-predatory lending policies intended to prevent the purchase or assignment of mortgage loans with unacceptable terms or conditions or resulting from unacceptable practices. These policies include processes related to the origination, delivery and quality control sampling of loans sold to us. In addition to the purchase policies we instituted, we promote consumer education and financial literacy efforts to help borrowers avoid abusive lending practices and we provide competitive mortgage products to reputable mortgage originators so that borrowers have a greater choice of financing options.

Subordinated Debt

FHFA directed us to continue to make interest and principal payments on our subordinated debt, even if we fail to maintain required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of interest under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable. See “NOTE 18: REGULATORY CAPITAL — Subordinated Debt Commitment” for more information regarding subordinated debt.

Risk Retention

In October 2014, six agencies, including FHFA, issued a rule that generally requires a securitizer of asset-backed securities to retain no less than five percent of the credit risk of the assets underlying such securities. A provision in the rule indicates that our fully guaranteed securitizations generally will satisfy the risk retention requirements for so long as we are in conservatorship or receivership and receiving federal financial support. However, this provision will not apply to our securitization structures that are not fully guaranteed, and we will have to meet the rule’s requirements with respect to such structures using other compliance options. The requirements of the final risk retention rule will apply to: (a) new residential mortgage securitizations issued beginning in December 2015; and (b) new multifamily securitizations issued beginning in December 2016.

Proposed Financial Eligibility Requirements for Seller/Servicers

In January 2015, FHFA proposed new minimum financial eligibility requirements for seller/servicers of Freddie Mac and Fannie Mae. FHFA stated that the proposed minimum financial requirements will ensure the safe and sound operation of us and Fannie Mae and further FHFA’s goal of fostering liquid, efficient, competitive and resilient national housing finance markets. FHFA will engage with servicing industry participants, regulators and other stakeholders to obtain their feedback on, and improve their understanding of, the proposed requirements. FHFA stated that it anticipates finalizing the requirements in the second quarter of 2015, and anticipates that the requirements will be effective six months after they are finalized.

HUD has regulatory authority over Freddie Mac with respect to fair lending. Our mortgage purchase activities are subject to federal anti-discrimination laws. In addition, the GSE Act prohibits discriminatory practices in our mortgage purchase activities, requires us to submit data to HUD to assist in its fair lending investigations of primary market lenders with which we do business, and requires us to undertake remedial actions against such lenders found to have engaged in discriminatory lending practices. In addition, HUD periodically reviews and comments on our underwriting and appraisal guidelines for consistency with the Fair Housing Act and the anti-discrimination provisions of the GSE Act.

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Treasury has significant rights and powers with respect to our company as a result of the Purchase Agreement. In addition, under our charter, the Secretary of the Treasury has approval authority over our issuances of notes, debentures and substantially identical types of unsecured debt obligations (including the interest rates and maturities of these securities), as well as new types of mortgage-related securities issued subsequent to the enactment of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The Secretary of the Treasury has performed this debt securities approval function by coordinating GSE debt offerings with Treasury funding activities. In addition, our charter authorizes Treasury to purchase Freddie Mac debt obligations not exceeding $2.25 billion in aggregate principal amount at any time.

The CFPB regulates consumer financial products and services. The CFPB adopted a number of final rules in early 2013 relating to mortgage origination, finance, and servicing practices. The rules generally went into effect in January 2014. The rules include an ability-to-repay rule, which requires mortgage originators to make a reasonable and good faith determination that a borrower has a reasonable ability to repay the loan according to its terms. This rule provides certain protection from liability for originators making loans that satisfy the definition of a qualified mortgage. The ability-to-repay rule applies to most loans acquired by Freddie Mac, and for such loans covered by the rule, FHFA has directed us and Fannie Mae to limit our single-family acquisitions to loans that generally would constitute qualified mortgages under applicable CFPB regulations. The directive generally restricts us and Fannie Mae from acquiring loans that are: (a) not fully amortizing; (b) have a term greater than 30 years; or (c) have points and fees in excess of 3% of the total loan amount.

We are subject to the reporting requirements applicable to registrants under the Exchange Act, including the requirement to file with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Although our common stock is required to be registered under the Exchange Act, we continue to be exempt from certain federal securities law requirements, including the following:

• Securities we issue or guarantee are “exempted securities” and may be sold without registration under the Securities Act;

• We are excluded from the definitions of “government securities broker” and “government securities dealer” under the Exchange Act;

• The Trust Indenture Act of 1939 does not apply to securities issued by us; and

• We are exempt from the Investment Company Act of 1940 and the Investment Advisers Act of 1940, as we are an “agency, authority or instrumentality” of the U.S. for purposes of such Acts.

We discuss certain significant legislative and regulatory developments below. For more information regarding these and other legislative and regulatory developments that could affect our business, see “RISK FACTORS — Conservatorship and Related Matters” and “— Legal and Regulatory Risks.”

Legislation Related to Freddie Mac and its Future Status

Our future structure and role will be determined by the Administration and Congress, and there are likely to be significant changes beyond the near-term.

Congress held hearings and considered legislation on the future state of Freddie Mac, Fannie Mae and the housing finance system during 2014. A number of bills were introduced in Congress in 2014 relating to the future status of Freddie Mac, Fannie Mae, and the secondary mortgage market. None of the bills was considered by the full Senate or the full House of Representatives, although one of them (the “Housing Finance Reform and Taxpayer Protection Act of 2014,” also known as the Johnson-Crapo bill) was approved by the Senate Banking Committee in May 2014. Several of the bills considered by Congress (including the Johnson-Crapo bill) would have placed us into receivership and materially affected our business prior to our eventual liquidation.

Since these bills were not enacted prior to the adjournment of the 113th Congress, they would need to be reintroduced in the 114th Congress that began in January 2015 in order to be considered further. We do not know whether that will occur. However, it is likely that similar or new bills related to Freddie Mac, Fannie Mae and the future of the mortgage finance system will be introduced and considered in the 114th Congress. We cannot predict whether any of such bills will be enacted.

On January 27, 2015, the “Pay Back the Taxpayers Act of 2015” was introduced in the House Financial Services Committee. This bill would prohibit contributions by us and Fannie Mae to the Housing Trust Fund and the Capital Market Fund while we are in conservatorship or receivership. For more information, see “Federal Housing Finance Agency — Affordable Housing Allocations.”

For more information, see “RISK FACTORS — Conservatorship and Related Matters — The future status and role of Freddie Mac are uncertain.”

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FHFA’s Strategic Plan for Freddie Mac and Fannie Mae Conservatorships

In May 2014, FHFA issued its 2014 Strategic Plan and the 2014 Conservatorship Scorecard. The 2014 Strategic Plan updated FHFA's vision for implementing its obligations as Conservator of Freddie Mac and Fannie Mae (the “Enterprises”). The 2014 Conservatorship Scorecard established objectives and performance targets and measures for 2014 for the Enterprises related to the strategic goals set forth in the 2014 Strategic Plan. On January 14, 2015, FHFA issued the 2015 Conservatorship Scorecard, which establishes objectives and performance targets and measures for 2015 for the Enterprises related to the strategic goals set forth in the 2014 Strategic Plan.

The 2014 Strategic Plan established three reformulated strategic goals for the conservatorships of Freddie Mac and Fannie Mae:

• Maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.

• Reduce taxpayer risk through increasing the role of private capital in the mortgage market.

• Build a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future.

As part of the first goal, the 2014 Strategic Plan describes various steps related to increasing access to mortgage credit for credit-worthy borrowers. The 2014 Strategic Plan provides for the Enterprises to continue to play an ongoing role in supporting multifamily housing needs, particularly for low-income households. The plan states that FHFA will continue to impose a production cap on Freddie Mac’s and Fannie Mae’s multifamily businesses.

The second goal focuses on ways to transfer risk to private market participants and away from the Enterprises in a responsible way that does not reduce liquidity or adversely impact the availability of mortgage credit. The second goal provides for us to increase the use of single-family credit risk transfer transactions, continue using credit risk transfer transactions in the multifamily business and continue shrinking our mortgage-related investments portfolio consistent with the requirements in the Purchase Agreement, with a focus on selling less liquid assets.

The third goal includes the continued development of the Common Securitization Platform. FHFA refined the scope of this project to focus on making the new shared system operational for Freddie Mac’s and Fannie Mae’s existing single-family securitization activities. The third goal also provides for the Enterprises to work towards the development of a single (common) security.

We continue to align our resources and internal business plans to meet the goals and objectives provided to us by FHFA.

For information about the 2014 Conservatorship Scorecard, and our performance with respect to it, see “EXECUTIVE COMPENSATION — Compensation Discussion and Analysis.” For information about the 2015 Conservatorship Scorecard, see our current report on Form 8-K filed on January 15, 2015.

FHFA Request for Input on Proposed Single Security Structure

In August 2014, FHFA published a request for input on the proposed structure for a single security that would be issued and guaranteed by Freddie Mac or Fannie Mae. FHFA requested comment on all aspects of the proposed structure. Under FHFA’s proposal, the single security would leverage the enterprises’ existing security structures, and would encompass many of the pooling features of the current Fannie Mae mortgage backed security and most of the disclosure framework of the current Freddie Mac PC. FHFA stated that its goal for the proposed single security structure is for legacy Freddie Mac PCs and legacy Fannie Mae mortgage backed securities to be fungible with the single security for purposes of fulfilling TBA contracts. FHFA also stated that the development of the single security will be a multi-year effort, and that FHFA, Freddie Mac and Fannie Mae will continue to seek input and work with stakeholders throughout the process to achieve the goal of improving overall secondary mortgage market liquidity while mitigating any risk of market disruption.

FHFA Request for Input on Guarantee Fees

In June 2014, FHFA published a request for input on the guarantee fees that we and Fannie Mae charge lenders. FHFA’s request for input included questions related to guarantee fee policy and implementation regarding the optimum level of guarantee fees required to protect taxpayers and implications for mortgage credit availability. We cannot predict what changes, if any, FHFA will require us to make to our guarantee fees as a result of this request.

FHFA Advisory Bulletin

In April 2012, FHFA issued Advisory Bulletin AB 2012-02, “Framework for Adversely Classifying Loans, Other Real Estate Owned, and Other Assets and Listing Assets for Special Mention” (the “Advisory Bulletin”), which is applicable to Fannie Mae, Freddie Mac and the FHLBs. The Advisory Bulletin establishes guidelines for adverse classification and identification of specified single-family and multifamily assets and off-balance sheet credit exposures. The Advisory Bulletin indicates that this regulatory guidance considers and is generally consistent with the Uniform Retail Credit Classification and Account Management Policy issued by the federal banking regulators in June 2000.

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Among other requirements, the Advisory Bulletin requires that we classify the portion of an outstanding single-family loan balance in excess of the fair value of the underlying property, less costs to sell and adjusted for any credit enhancements, as a “loss” no later than when the loan becomes 180 days delinquent, except in certain specified circumstances (where our servicers are actively working with the borrowers on alternatives to allow them to stay in their homes and our data supports that the loans are not yet uncollectible). The Advisory Bulletin also requires us to charge off the portion of the loan classified as a “loss.” Prior to our adoption of the charge-off provisions of the Advisory Bulletin, we deemed a loan uncollectible at the time of foreclosure or other liquidation event (such as a deed-in-lieu of foreclosure or a short sale).

In May 2013, FHFA issued an additional Advisory Bulletin clarifying the implementation timeline for AB 2012-02, requiring that: (a) the asset classification provisions of AB 2012-02 should be implemented by January 1, 2014; and (b) the charge-off provisions of AB 2012-02 should be implemented no later than January 1, 2015. Effective January 1, 2014, we implemented the asset classification provisions of AB 2012-02, and we provide FHFA with this information on a quarterly basis. Effective January 1, 2015, we implemented the charge-off provisions.

Our adoption of the Advisory Bulletin did not have a material effect on our financial position or results of operations. As a result of our implementation of the Advisory Bulletin as of January 2015, our allowance for loan losses on the affected loans was eliminated and the corresponding recorded investment was reduced by the amount charged off.

At February 5, 2015, we had 4,957 full-time and 50 part-time employees. Our principal offices are located in McLean, Virginia.

We file reports and other information with the SEC. In view of the Conservator’s succession to all of the voting power of our stockholders, we have not prepared or provided proxy statements for the solicitation of proxies from stockholders since we entered into conservatorship, and do not expect to do so while we remain in conservatorship. 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, or furnish it to, the SEC. In addition, materials that we file with the SEC are available for review and copying at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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 are providing our website addresses and the website address of the SEC here or elsewhere in this Form 10-K solely for your information. Information appearing on our website or on the SEC’s website is not incorporated into this Form 10-K.

Pursuant to SEC regulations, public companies are required to disclose certain information when they incur a material direct financial obligation or become directly or contingently liable for a material obligation under an off-balance sheet arrangement. The disclosure must be made in a current report on Form 8-K under Item 2.03 or, if the obligation is incurred in connection with certain types of securities offerings, in prospectuses for that offering that are filed with the SEC.

Freddie Mac’s securities offerings are exempted from SEC registration requirements. As a result, we do not file registration statements or prospectuses with the SEC with respect to our securities offerings. To comply with the disclosure requirements of Form 8-K relating to the incurrence of material financial obligations, we report these types of obligations either in offering circulars (or supplements thereto) that we post on our website or in a current report on Form 8-K, in accordance with a “no-action” letter we received from the SEC staff. In cases where the information is disclosed in an offering circular posted on our website, the document will be posted within the same time period that a prospectus for a non-exempt securities offering would be required to be filed with the SEC.

The website address for disclosure about our debt securities is 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 debt securities is available at www.freddiemac.com/creditriskofferings.

Disclosure about the mortgage-related securities we issue, some of which are off-balance sheet obligations, can be found at www.freddiemac.com/mbs. From this address, investors can access information and documents about our mortgage-related securities, including offering circulars and related offering circular supplements.

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-K, contain “forward-looking statements.” Examples of forward-looking statements include, but are not limited to, statements pertaining to

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the conservatorship, our current expectations and objectives for our single-family, multifamily, and investment businesses, our loan workout initiatives and other efforts to assist the housing market, our liquidity and capital management, economic and market conditions and trends, our market share, the effect of legislative and regulatory developments and new accounting guidance, the credit quality of loans we own or guarantee, 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 “objective,” “expect,” “possible,” “trend,” “forecast,” “anticipate,” “believe,” “intend,” “could,” “future,” “may,” “will,” 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 “RISK FACTORS” section of this Form 10-K, and:

• the actions the U.S. government (including FHFA, Treasury, and Congress) may take, or require us to take, including to further support the housing recovery or to implement FHFA’s Conservatorship Scorecards and other objectives for us and Fannie Mae;

• the effect of the restrictions on our business due to the conservatorship and the Purchase Agreement, including our dividend obligation on the senior preferred stock;

• our ability to maintain adequate liquidity to fund our operations;

• changes in our charter or in applicable legislative or regulatory requirements (including any legislation affecting the future status of our company);

• changes in the fiscal and monetary policies of the Federal Reserve, including any changes to its policy of maintaining sizable holdings of mortgage-related securities and any future sales of such securities;

• the success of our efforts to mitigate our losses on our Legacy single-family books and our investments in non-agency mortgage-related securities;

• the success of our strategy to transfer mortgage credit risk through STACR debt note, ACIS and other credit risk transfer transactions;

• our ability to maintain the security of our operating systems and infrastructure (e.g., against cyber attacks);

• changes in economic and market conditions, including changes in employment rates, interest rates, yield curves, mortgage and debt spreads, and home prices;

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

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

• the adequacy of our risk management framework;

• our ability to manage mortgage credit risks, including the effect of changes in underwriting and servicing practices;

• our ability to manage interest-rate and other market risks, including the availability of derivative financial instruments needed for risk management purposes;

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

• changes in investor demand for our debt or mortgage-related securities (e.g., single-family PCs and multifamily K Certificates);

• changes in the practices of loan originators, investors and other participants in the secondary mortgage market; and

• other factors and assumptions described in this Form 10-K, including in the “MD&A” section.

Forward-looking statements speak only as of the date they are made, 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-K.