Freddie Mac · OTC:FMCC
Freddie Mac — Q3 2007 Earnings Presentation
26 slides from Freddie Mac's earnings presentation, Nov 20, 2007
Slide 1: Freddie Mac's Third Quarter 2007 Financial Results
Freddie Mac’s Third Quarter 2007 Financial Results November 20, 2007
Slide 2: Overview
Overview Recent market has proven difficult Continued to focus on advancing our mission, tightening credit standards and enhancing our long-term profitability Credit position remains among the strongest in the industry Considering a variety of options to manage to the mandatory target capita
Slide 3: Third quarter 2007 financial summary
Third quarter 2007 financial summary 3Q 2007 vs ($ Millions, except line 6 in $ billions) 3Q 2007 2Q 2007 2Q 2007 1 Net interest income $ 987 $ 973 $ 14 2 Management and guarantee income 520 474 46 3 Mark-to-market losses on interest-rate related items (1,484) 1,102 (2,586) 4 Provision for credit lo
Slide 4: Analysis of credit-related items
Analysis of credit-related items Included in Credit- related Adjusted Adjusted 1 2 2 ($ Millions) 3Q 2007 YTD 2007 Costs Provision Reserves 1 Provision for credit losses $ 1,197 $ 1,696 $ 494 $ 2,190 $ 2,558 Credit Mark-to-Market Costs 2 Losses on loans purchased $ 483 $ 858 3 3 PC residual 1,082 1,
Slide 5: 2006 and 2007 book year contributions to reserves, charge-offs and delinquencies
2006 and 2007 book year contributions to reserves, charge-offs and delinquencies YTD ($ Millions) 2007 1 Charge-offs, net of recoveries $ 182 2 Percentage from 2006 / 2007 vintages 19% 1 3 Total serious delinquencies 51 bps 4 Percentage from 2006 / 2007 vintages 23% 5 Adjusted reserve $ 2,558 6 Perc
Slide 6: Single-family current portfolio credit losses through 2009
Single-family current portfolio credit losses through 2009 Total ($ Millions) 3Q 2007 4Q 2007E 2007E 2008E 2009E 4Q 2007 - 2009E 1 Charge-offs, net of recoveries $ 72 $ 178 $ 357 $ 1,100 $ 1,600 $ 2,878 2 REO operations expense 50 56 136 400 500 956 3 Total credit losses $ 122 $ 234 $ 493 $ 1,500 $
Slide 7: Seriously delinquent loans purchased from pools
Seriously delinquent loans purchased from pools Average market price of loans purchased Q4 2006 Q1 2007 Q2 2007 Q3 2007 Average market price of loans purchased 93% 87% 83% 72% Status of loans purchased (based on loan count) Year loans purchased from PCs 2003 2004 2005 2006 1 1 Cured 65% 62% 58% 56%
Slide 8: Retained portfolio growth
Retained portfolio growth Retained portfolio Retained portfolio purchase Mortgage-to-Debt OAS1 commitments, net UPB Basis Points $ Billions 70 80 $72 70 60 60 $48 50 50 $43 40 $35 40 30 $21 20 30 10 20 0 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 1 As market cond
Slide 9: Single-family credit guarantee portfolio characteristics
Single-family credit guarantee portfolio characteristics FICO<620 Total Portfolio as of Option Original LTV and Original Attribute September 30, 2007 1 Alt-A IO ARM FICO<620 >90% LTV>90% 1 Balance (UPB $ Billions) $1,655 $131 $149 $15 $66 $114 $12 2 Share of Total Portfolio 100% 8% 9% 1% 4% 7% 1% 3
Slide 10: Single-family credit guarantee portfolio characteristics
Single-family credit guarantee portfolio characteristics FICO<620 Total Portfolio as of Option Original LTV and Original Attribute September 30, 2007 1 Alt-A IO ARM FICO<620 >90% LTV>90% 1 Balance (UPB $ Billions) $1,655 $131 $149 $15 $66 $114 $12 2 Share of Total Portfolio 100% 8% 9% 1% 4% 7% 1% 3
Slide 11: Retained portfolio: Single-family non-agency securities backed by subprime and Alt-A
Retained portfolio: Single-family non-agency securities backed by subprime and Alt-A Subprime 1 Alt-A 2 UPB Average Credit UPB Average Credit Year of Purchase ($ Billions) Enhancement ($ Billions) Enhancement 2007 $31.0 29% $8.4 16% 2006 $44.0 29% $16.1 19% 2005 $27.8 50% $15.2 19% 2004 and Prior $2
Slide 12: Appendix
=| We make home possible™ Appendix
Slide 13: GAAP financial results
GAAP financial results 3Q 2007 3Q 2007 vs vs ($ Millions) 1Q 2007 2Q 2007 3Q 2007 3Q 2006 3Q 2006 2Q 2007 1 Net interest income $ 978 $ 973 $ 987 $ 959 $ 28 $ 14 2 Management and guarantee income 460 474 520 427 93 46 3 Non-interest income (loss) - mark-to-market (1,061) 813 (2,679) (1,462) (1,217)
Slide 14: Mark-to-market items
Mark-to-market items 3Q 2007 3Q 2007 vs vs ($ Millions) 1Q 2007 2Q 2007 3Q 2007 3Q 2006 3Q 2006 2Q 2007 Losses on derivatives excluding accrual of periodic 1 settlements and foreign-currency swaps $ (765) $ (145) $ (1,417) $ (822) $ (595) $ (1,272) 2 Mark-to-market on Guarantee asset (98) 1,076 (67)
Slide 15: Fair value attributable to common stockholders
Fair value attributable to common stockholders 3Q 2007 3Q 2007 vs vs ($ Billions) 1Q 2007 2Q 2007 3Q 2007 3Q 2006 3Q 2006 2Q 2007 1 Investment activities $ 0.4 $ (0.8) $ (5.9) $ 0.5 $ (6.4) $ (5.1) 2 Impact of OAS (0.3) (1.4) (8.0) - (8.0) (6.6) 3 Guarantee activities (1.2) 1.8 (6.4) (0.4) (6.0) (8.
Slide 16: Net interest income (NII) and net interest yield (NIY)
Net interest income (NII) and net interest yield (NIY) ($ Millions) 3Q 2007 3Q 2006 Change $ % $ % $ % 1 Contractual amounts of NII $ 1,689 $ 1,983 $ (294) 2 Debt and mortgage and mortgage-related amortization, net (369) (618) 249 3 NII (excluding effect of derivatives) $ 1,320 0.69% $ 1,365 0.71% $
Slide 17: Detail of change in net interest yield
Detail of change in net interest yield 1 NIY (FTE) - Third quarter 2006 0.55% Estimated impact of: 2 Retained portfolio asset spread compression mainly due to replacement of long-term debt (0.17%) 3 Retained portfolio asset spread improvement mainly due to a decline in amortization expense 0.09% 4 E
Slide 18: Guarantee fee analysis
Guarantee fee analysis ($ Millions, Rates in Basis Points) 3Q 2007 Rate 3Q 2006 Rate 1 Contractual management and guarantee fees $ 503 16.0 bps $ 406 15.3 bps 2 Amortization of pre-2003 deferred fees 17 0.6 21 0.8 3 Total (Line 1 + Line 2) $ 520 16.6 bps $ 427 16.1 bps 4 Amortization of deferred fee
Slide 19: Annualized quarterly house price growth
Annualized quarterly house price growth Pacific United States: -2.2% New England -5.8% Middle -3.6% Mountain West North East North Atlantic Central Central 0.4% -0.9% -0.8% -3.8% East South > 5% Central 0 to 5% West South Central -0.1% South Atlantic -5 to 0% 4.9% -2.7% < -5% 18 Source: Freddie Mac
Slide 20: Single-family delinquency rates by region
Single-family delinquency rates by region (In Basis Points) 1Q 2007 2Q 2007 3Q 2007 1 Non-credit enhanced delinquency rates North Central 31 33 39 Northeast 24 25 31 Southeast 29 33 43 Southwest 25 23 27 West 14 17 26 2 Total single-family delinquency rate California 15 20 31 Florida 35 47 75 Total
Slide 21: Delinquencies are low relative to the industry
Delinquencies are low relative to the industry 90-day or more delinquencies Basis Points (bps) 120 98 100 80 60 51 40 20 0 2003 2004 2005 2006 1Q 2007 2Q 2007 3Q 2007 MBA Prime Conventional Mortgage Delinquencies 1 Freddie Mac Total Single-Family 90-day or More Delinquencies 1 Excludes structured tr
Slide 22: Asset quality is high
Asset quality is high Total mortgage portfolio As of September 30, 2007 $1.7 Trillion Option ARM 1% IO 9% Variable Rate & Other Fixed-rate 10% 80% Note: Excludes non-Freddie Mac mortgage-related securities held in our retained portfolio, but includes those that underlie Freddie Mac Structured Securi
Slide 23: Retained portfolio composition
Retained portfolio composition Retained portfolio Mortgage Agency Loans 7% 10% ($48B) ($73 B) Non-Agency Backed by Subprime Loans 15% PC and Structured ($105 B) Securities 50% Non-Agency ($356 B) Backed by Alt-A Loans 7% ($53 B) Other Non-Agency 11% ($78 B) Note: Non-agency mortgage-related securiti
Slide 24: Regulatory capital adequacy
Regulatory capital adequacy $ Billions 40 35 $34.6 Excess Surplus $0.6 30 $8.5 Estimated Minimum Capital Surplus 25 20 15 $26.2 Total Minimum Capital Requirement 10 5 0 September 30, 2007 Estimate Note: Amounts may not calculate due to rounding. 23 Source: Freddie Mac.
Slide 25: Safe Harbor Statements
Safe Harbor Statements Freddie Mac obligations Freddie Mac’s securities are obligations of Freddie Mac only. The securities, including any interest or return of discount on the securities, are not guaranteed by and are not debts or obligations of the United States or any federal agency or instrument
Slide 26: Freddie Mac
Freddie Mac We make home possible“ a