FEDERAL HOME LOAN MORTGAGE CORP filed this 10-Q on 08/01/2017
FEDERAL HOME LOAN MORTGAGE CORP (Form: 10-Q, Received: 08/01/2017 08:05:42)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                                        to
Commission File Number: 001-34139
Federal Home Loan Mortgage Corporation
(Exact name of registrant as specified in its charter)
Freddie Mac
 
Federally chartered 
corporation
 
8200 Jones Branch Drive
McLean, Virginia 
22102-3110
 
52-0904874
 
(703) 903-2000
(State or other jurisdiction of incorporation or organization)
 
(Address of principal executive offices, including zip code)
 
(I.R.S. Employer Identification No.)
 
(Registrant’s telephone 
number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.     ý  Yes     ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ý  Yes     ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   ý
 
 
 
Accelerated filer  ¨
 
Non-accelerated filer (Do not check if a smaller reporting company)   ¨
 
Smaller reporting company   ¨
 
Emerging growth company   ¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
As of July 18, 2017 , there were 650,054,731 shares of the registrant’s common stock outstanding.




Table of Contents
 
 

TABLE OF CONTENTS
 
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
KEY ECONOMIC INDICATORS
CONSOLIDATED RESULTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS ANALYSIS
OUR BUSINESS SEGMENTS
RISK MANAGEMENT
LIQUIDITY AND CAPITAL RESOURCES
CONSERVATORSHIP AND RELATED MATTERS
REGULATION AND SUPERVISION
OFF-BALANCE SHEET ARRANGEMENTS
FORWARD-LOOKING STATEMENTS
FINANCIAL STATEMENTS
OTHER INFORMATION
CONTROLS AND PROCEDURES
SIGNATURES
GLOSSARY
FORM 10-Q INDEX
EXHIBIT INDEX

Freddie Mac Form 10-Q
 
i



Management's Discussion and Analysis
 
Introduction

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes forward-looking statements that are based on current expectations and are subject to significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-Q. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q. Actual results might differ significantly from those described in or implied by such statements due to various factors and uncertainties, including those described in the “Forward-Looking Statements” sections of this Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2016, or 2016 Annual Report, and our Quarterly Report on Form 10-Q for the first quarter of 2017, and the “Business” and “Risk Factors” sections of our 2016 Annual Report.
Throughout this Form 10-Q, we use certain acronyms and terms that are defined in the “Glossary” sections of this Form 10-Q and our 2016 Annual Report.
You should read the following MD&A in conjunction with our 2016 Annual Report and our condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2017 included in “Financial Statements.” Throughout this Form 10-Q, we refer to the three months ended June 30, 2017, the three months ended March 31, 2017, the three months ended December 31, 2016, the three months ended June 30, 2016, and the three months ended December 31, 2015 as “2Q 2017,” “1Q 2017,” “4Q 2016,” “2Q 2016,” and “4Q 2015,” respectively. We refer to the six months ended June 30, 2017 and the six months ended June 30, 2016 as “YTD 2017” and “YTD 2016,” respectively.
INTRODUCTION
Freddie Mac is a GSE chartered by Congress in 1970. Our public mission is to provide liquidity, stability, and affordability to the U.S. housing market. We do this primarily by purchasing residential mortgage loans originated by lenders. In most instances, we package these loans into 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 loans or lend money directly to mortgage borrowers.
We support the U.S. housing market and the overall economy by enabling America’s families to access mortgage loan funding with better terms and by providing consistent liquidity to the multifamily mortgage market. We have helped many distressed borrowers keep their homes or avoid foreclosure. We are working with FHFA, our customers and the industry to build a better housing finance system for the nation.

Freddie Mac Form 10-Q
 
1



Management's Discussion and Analysis
 
Introduction

BUSINESS RESULTS
PORTFOLIO BALANCES

Guarantee Portfolios (1)  
A20172Q10Q_CHART-27063.JPG
(1) Excludes multifamily unsecuritized mortgage loans held-
for-sale.
 
Investments Portfolios A20172Q10Q_CHART-29052.JPG



Our total guarantee portfolio grew to $1,958 billion at June 30, 2017 from $1,855 billion at June 30, 2016, an increase of approximately 6%, primarily driven by high single-family refinance activity and a growing home purchase market as interest and unemployment rates remained low as well as new business volume due to the strong demand for multifamily loan products.
Our total investments portfolio declined $43 billion, or 11%, from June 30, 2016 to June 30, 2017 as we continued to reduce the mortgage-related investments portfolio as required by the Purchase Agreement and FHFA.

Freddie Mac Form 10-Q
 
2



Management's Discussion and Analysis
 
Introduction

CONSOLIDATED FINANCIAL RESULTS
Comprehensive income (loss) was $2.0 billion in 2Q 2017, compared to $1.1 billion in 2Q 2016, driven by the continued solid business environment and our growing guarantee businesses. The change in comprehensive income was primarily driven by:
Net interest income attributable to guarantee fee income of $844 million in 2Q 2017 compared to $680 million in 2Q 2016 primarily driven by an increase in the size of the single-family loan portfolio combined with higher average contractual guarantee fee rates. Average contractual guarantee fee rates are generally higher on mortgage loans in our Core single-family loan portfolio compared to those in our Legacy single-family loan portfolio. In addition, guarantee fee income increased due to higher average multifamily guarantee portfolio balances;
Gain of $314 million recognized from price improvements on reperforming loans reclassified from held-for-investment to held-for-sale during the 2017 periods compared to a $267 million loss recognized on seriously delinquent loans reclassified from held-for-investment to held-for-sale during the 2016 periods;
Estimated interest-rate related fair value loss of $0.1 billion (after-tax) in 2Q 2017 compared to a $0.4 billion (after-tax) estimated fair value loss in 2Q 2016. The decrease in fair value losses was due to the implementation of fair value hedge accounting in 1Q 2017 coupled with smaller declines in long-term interest rates in 2Q 2017 compared to 2Q 2016; and
Estimated spread-related gain of $0.1 billion (after-tax) in 2Q 2017 resulting from market spreads tightening, compared to an estimated $0.1 billion (after-tax) loss in 2Q 2016 resulting from market spreads widening.
Our total equity was $2.6 billion at June 30, 2017 . Because our net worth was positive, we are not requesting a draw from Treasury under the Purchase Agreement for 2Q 2017. Our cumulative senior preferred stock dividend payments totaled $108.2 billion as of June 30, 2017. Under the Purchase Agreement, the payment of dividends does not reduce the outstanding liquidation preference of the senior preferred stock, which remains $72.3 billion. The amount of available funding remaining under the Purchase Agreement is $140.5 billion and would be reduced by any future draws.
CONSERVATORSHIP AND GOVERNMENT SUPPORT FOR OUR BUSINESS
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. Our ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the appointment of a receiver by FHFA under statutory mandatory receivership provisions. We believe that the support provided by Treasury pursuant

Freddie Mac Form 10-Q
 
3



Management's Discussion and Analysis
 
Introduction

to the Purchase Agreement currently enables us to have adequate liquidity to conduct our normal business activities.
Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as and if declared by the Conservator, acting as successor to the rights, titles, powers and privileges of our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared by, and paid at the direction of, the Conservator.
Under the August 2012 amendment to the Purchase Agreement, our dividend requirement each quarter is the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. The Capital Reserve Amount is $600 million in 2017 and will decrease to zero in 2018. If for any reason we were not to pay the amount of our dividend requirement on the senior preferred stock in full, the unpaid amount would be added to the liquidation preference, but this would not affect our ability to draw funds from Treasury under the Purchase Agreement.
Based on our Net Worth Amount of $2.6 billion as of June 30, 2017 and the Capital Reserve Amount of $600 million in 2017, our dividend requirement to Treasury in September 2017 will be $2.0 billion. If the Conservator declares a senior preferred stock dividend equal to our dividend requirement and directs us to pay it before September 30, 2017, we would expect to pay a dividend of $2.0 billion by September 30, 2017. The declining capital reserve required under the terms of the Purchase Agreement (ultimately reaching zero in 2018) increases the risk of our having negative net worth and thus being required to draw from Treasury.



Freddie Mac Form 10-Q
 
4



Management's Discussion and Analysis
 
Key Economic Indicators | Single-Family Home Prices


KEY ECONOMIC INDICATORS
The following graphs and related discussions present certain macroeconomic indicators that can significantly affect our business and financial results.
SINGLE-FAMILY HOME PRICES
NATIONAL HOME PRICES
A20172Q10Q_CHART-27358.JPG
(December 2000 = 100)
COMMENTARY
Home prices continued to appreciate, increasing by 3.9% from 1Q 2017 to 2Q 2017 and 6.0% from 4Q 2016 to 2Q 2017, compared to an increase of 3.7% and 5.6%, respectively, from 1Q 2016 to 2Q 2016 and from 4Q 2015 to 2Q 2016, based on our own non-seasonally adjusted price index of single-family homes funded by loans owned or guaranteed by us or Fannie Mae.
National home prices at June 30, 2017 exceeded their pre-financial crisis peak level of 168 reached in June 2006, based on our index.
Increases in home prices typically result in lower delinquency rates. Fewer loan delinquencies, loan workouts and foreclosure transfers may reduce our expected credit losses and thereby reduce our provision for credit losses.


Freddie Mac Form 10-Q
 
5



Management's Discussion and Analysis
 
Key Economic Indicators | Interest Rates

INTEREST RATES
KEY MARKET INTEREST RATES
A20172Q10Q_CHART-27298.JPG A20172Q10Q_CHART-30390.JPG
COMMENTARY
The quarterly ending and quarterly average 30-year Primary Mortgage Market Survey (“PMMS”) interest rates were higher at June 30, 2017 compared to June 30, 2016. Increases in the PMMS rate typically result in decreases in refinance activity and originations.
The 10-year LIBOR and 2-year LIBOR interest rates had smaller fluctuations during the 2017 periods than in the 2016 periods. The changes in the 10-year and 2-year LIBOR interest rates affect the fair value of certain of our assets and liabilities, including derivatives, measured at fair value. A smaller interest rate fluctuation from period to period may result in smaller fair value gains and losses, while a larger fluctuation in interest rates may result in larger fair value gains and losses.

Freddie Mac Form 10-Q
 
6



Management's Discussion and Analysis
 
Key Economic Indicators | Interest Rates

The Federal Reserve raised short-term interest rates during 2Q 2017. The quarterly ending and quarterly average short-term interest rates, as indicated by the 3-month LIBOR rate, were higher at June 30, 2017 compared to June 30, 2016. The increase in short-term interest rates may increase the interest earned on our short-term investments and interest expense on our short-term funding.
For additional information on the effect of LIBOR rates on our financial results, see “Our Business Segments - Capital Markets - Market Conditions.”





Freddie Mac Form 10-Q
 
7



Management's Discussion and Analysis
 
Key Economic Indicators | Unemployment Rate

UNEMPLOYMENT RATE
UNEMPLOYMENT RATE AND JOB CREATION
A20172Q10Q_CHART-27055.JPG
Source: U.S. Bureau of Labor Statistics

COMMENTARY
Average monthly net new jobs increased during 2Q 2017 compared to 2Q 2016.
The unemployment rate declined in 2Q 2017 compared to 2Q 2016.
Changes in the unemployment rate can affect several market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies.
Decreases in the unemployment rate typically result in lower levels of delinquencies, which may result in a decrease in expected credit losses on our total mortgage portfolio.

Freddie Mac Form 10-Q
 
8



Management's Discussion and Analysis
 
Consolidated Results of Operations


CONSOLIDATED RESULTS OF OPERATIONS
You should read this discussion of our consolidated results of operations in conjunction with our condensed consolidated financial statements and accompanying notes.
The table below compares our consolidated results of operations for 2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016.
 
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in millions)
 
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Net interest income
 

$3,379

 

$3,443

 

($64
)
 
(2
)%
 

$7,174

 

$6,848

 

$326

 
5
 %
Benefit (provision) for credit losses
 
422

 
775

 
(353
)
 
(46
)%
 
538

 
1,242

 
(704
)
 
(57
)%
Net interest income after benefit (provision) for credit losses
 
3,801

 
4,218

 
(417
)
 
(10
)%
 
7,712

 
8,090

 
(378
)
 
(5
)%
Non-interest income (loss):
 
 
 
 
 


 


 
 
 
 
 


 


Gains (losses) on extinguishment of debt
 
50

 
(119
)
 
169

 
142
 %
 
268

 
(174
)
 
442

 
254
 %
Derivative gains (losses)
 
(1,096
)
 
(2,058
)
 
962

 
47
 %
 
(1,398
)
 
(6,619
)
 
5,221

 
79
 %
Net impairment of available-for-sale securities recognized in earnings
 
(3
)
 
(72
)
 
69

 
96
 %
 
(16
)
 
(129
)
 
113

 
88
 %
Other gains on investment securities recognized in earnings
 
61

 
450

 
(389
)
 
(86
)%
 
117

 
753

 
(636
)
 
(84
)%
Other income (loss)
 
694

 
(25
)
 
719

 
2,876
 %
 
1,109

 
922

 
187

 
20
 %
Total non-interest income (loss)
 
(294
)
 
(1,824
)
 
1,530

 
84
 %
 
80

 
(5,247
)
 
5,327

 
102
 %
Non-interest expense:
 
 
 
 
 


 


 
 
 
 
 


 


Administrative expense
 
(513
)
 
(475
)
 
(38
)
 
(8
)%
 
(1,024
)
 
(923
)
 
(101
)
 
(11
)%
REO operations expense
 
(37
)
 
(29
)
 
(8
)
 
(28
)%
 
(93
)
 
(113
)
 
20

 
18
 %
Temporary Payroll Tax Cut Continuation Act of 2011 expense
 
(330
)
 
(280
)
 
(50
)
 
(18
)%
 
(651
)
 
(552
)
 
(99
)
 
(18
)%
Other expense
 
(126
)
 
(151
)
 
25

 
17
 %
 
(202
)
 
(304
)
 
102

 
34
 %
Total non-interest expense
 
(1,006
)
 
(935
)
 
(71
)
 
(8
)%
 
(1,970
)
 
(1,892
)
 
(78
)
 
(4
)%
Income (loss) before income tax (expense) benefit
 
2,501

 
1,459

 
1,042

 
71
 %
 
5,822

 
951

 
4,871

 
512
 %
Income tax (expense) benefit
 
(837
)
 
(466
)
 
(371
)
 
(80
)%
 
(1,947
)
 
(312
)
 
(1,635
)
 
(524
)%
Net income (loss)
 
1,664

 
993

 
671

 
68
 %
 
3,875

 
639

 
3,236

 
506
 %
Total other comprehensive income (loss), net of taxes and reclassification adjustments
 
322

 
140

 
182

 
130
 %
 
345

 
294

 
51

 
17
 %
Comprehensive income (loss)
 

$1,986

 

$1,133

 

$853

 
75
 %
 

$4,220

 

$933

 

$3,287

 
352
 %

Freddie Mac Form 10-Q
 
9



Management's Discussion and Analysis
 
Consolidated Results of Operations | Net Interest Income


NET INTEREST INCOME
NET INTEREST YIELD ANALYSIS
The tables below present an analysis of interest-earning assets and interest-bearing liabilities.
 
 
2Q 2017
 
2Q 2016
 
(Dollars in millions)
Average
Balance
 
Interest
Income
(Expense) (1)
 
Average
Rate
 
Average
Balance
 
Interest
Income
(Expense) (1)
 
Average
Rate
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$12,135

 

$15

 
0.51
 %
 

$14,948

 

$9

 
0.23
%
 
Securities purchased under agreements to resell
56,196

 
132

 
0.93

 
52,291

 
45

 
0.35

 
Advances to lenders
532

 
3

 
2.30

 
352

 
2

 
2.02

 
Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related securities
170,864

 
1,651

 
3.87

 
193,637

 
1,851

 
3.82

 
Extinguishment of PCs held by Freddie Mac
(89,913
)
 
(825
)
 
(3.67
)
 
(96,002
)
 
(890
)
 
(3.71
)
 
Total mortgage-related securities, net
80,951

 
826

 
4.08

 
97,635

 
961

 
3.94

 
Non-mortgage-related securities
17,957

 
76

 
1.68

 
12,726

 
17

 
0.53

 
Loans held by consolidated trusts (1)
1,723,103

 
14,594

 
3.39

 
1,638,057

 
13,872

 
3.39

 
Loans held by Freddie Mac (1)
118,012

 
1,254

 
4.25

 
138,469

 
1,366

 
3.95

 
Total interest-earning assets

$2,008,886

 

$16,900

 
3.36

 

$1,954,478

 

$16,272

 
3.34

 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities of consolidated trusts including PCs held by Freddie Mac

$1,746,474

 

($12,819
)
 
(2.94
)
 

$1,662,187

 

($12,139
)
 
(2.92
)
 
Extinguishment of PCs held by Freddie Mac
(89,913
)
 
825

 
3.67

 
(96,002
)
 
890

 
3.71

 
Total debt securities of consolidated trusts held by third parties
1,656,561

 
(11,994
)
 
(2.90
)
 
1,566,185

 
(11,249
)
 
(2.87
)
 
Other debt:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
74,540

 
(145
)
 
(0.77
)
 
76,057

 
(82
)
 
(0.42
)
 
Long-term debt
272,160

 
(1,340
)
 
(1.96
)
 
303,088

 
(1,450
)
 
(1.91
)
 
Total other debt
346,700

 
(1,485
)
 
(1.71
)
 
379,145

 
(1,532
)
 
(1.61
)
 
Total interest-bearing liabilities
2,003,261

 
(13,479
)
 
(2.69
)
 
1,945,330

 
(12,781
)
 
(2.63
)
 
Expense related to derivatives

 
(42
)
 
(0.01
)
 

 
(48
)
 
(0.01
)
 
Impact of net non-interest-bearing funding
5,625

 

 
0.01

 
9,148

 

 
0.01

 
Total funding of interest-earning assets

$2,008,886

 

($13,521
)
 
(2.69
)
 

$1,954,478

 

($12,829
)
 
(2.63
)
 
Net interest income/yield
 
 

$3,379

 
0.67

 
 
 

$3,443

 
0.71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Loan fees, primarily consisting of amortization of delivery fees, included in interest income were $583 million and $634 million for loans held by consolidated trusts and $33 million and $50 million for loans held by Freddie Mac during 2Q 2017 and 2Q 2016, respectively.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Freddie Mac Form 10-Q
 
10



Management's Discussion and Analysis
 
Consolidated Results of Operations | Net Interest Income


 
YTD 2017
 
YTD 2016
(Dollars in millions)
Average
Balance
 
Interest
Income
(Expense) (1)
 
Average
Rate
 
Average
Balance
 
Interest
Income
(Expense) (1)
 
Average
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$12,094

 

$24

 
0.40
 %
 

$13,337

 

$16

 
0.24
%
Securities purchased under agreements to resell
55,301

 
220

 
0.79

 
54,979

 
93

 
0.34

Advances to Lenders
574

 
7

 
2.36

 
303

 
4

 
2.61

Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related securities
173,410

 
3,314

 
3.82

 
197,620

 
3,767

 
3.81

Extinguishment of PCs held by Freddie Mac
(89,226
)
 
(1,645
)
 
(3.69
)
 
(100,549
)
 
(1,850
)
 
(3.68
)
Total mortgage-related securities, net
84,184

 
1,669

 
3.97

 
97,071

 
1,917

 
3.95

Non-mortgage-related securities
19,509

 
147

 
1.51

 
13,494

 
30

 
0.44

Loans held by consolidated trusts (1)
1,715,571

 
29,193

 
3.40

 
1,634,351

 
28,133

 
3.44

Loans held by Freddie Mac (1)
121,115

 
2,620

 
4.33

 
142,000

 
2,923

 
4.12

Total interest-earning assets

$2,008,348

 

$33,880

 
3.37

 

$1,955,535

 

$33,116

 
3.39

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Debt securities of consolidated trusts including PCs held by Freddie Mac

$1,738,601

 

($25,360
)
 
(2.92
)
 

$1,657,645

 

($24,890
)
 
(3.00
)
Extinguishment of PCs held by Freddie Mac
(89,226
)
 
1,645

 
3.69

 
(100,549
)
 
1,850

 
3.68

Total debt securities of consolidated trusts held by third parties
1,649,375

 
(23,715
)
 
(2.88
)
 
1,557,096

 
(23,040
)
 
(2.96
)
Other debt:
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
74,003

 
(241
)
 
(0.65
)
 
88,464

 
(175
)
 
(0.39
)
Long-term debt
275,840

 
(2,665
)
 
(1.93
)
 
301,655

 
(2,954
)
 
(1.95
)
Total other debt
349,843

 
(2,906
)
 
(1.66
)
 
390,119

 
(3,129
)
 
(1.60
)
Total interest-bearing liabilities
1,999,218

 
(26,621
)
 
(2.66
)
 
1,947,215

 
(26,169
)
 
(2.69
)
Expense related to derivatives

 
(85
)
 
(0.01
)
 

 
(99
)
 
(0.01
)
Impact of net non-interest-bearing funding
9,130

 

 
0.01

 
8,320

 

 
0.01

Total funding of interest-earning assets

$2,008,348

 

($26,706
)
 
(2.66
)
 

$1,955,535

 

($26,268
)
 
(2.69
)
Net interest income/yield
 
 

$7,174

 
0.71

 
 
 

$6,848

 
0.70

 
 
 
 
 
 
 
 
 
 
 
 
(1) Loan fees, primarily consisting of amortization of delivery fees, included in interest income were $1.1 billion for loans held by consolidated trusts during both YTD 2017 and YTD 2016, and were $95 million and $131 million for loans held by Freddie Mac during YTD 2017 and YTD 2016, respectively.



Freddie Mac Form 10-Q
 
11



Management's Discussion and Analysis
 
Consolidated Results of Operations | Net Interest Income


COMPONENTS OF NET INTEREST INCOME
The table below presents the components of net interest income.
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in millions)
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Contractual net interest income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guarantee fee income

$844

 

$680

 

$164

 
24
 %
 

$1,687

 

$1,390

 

$297

 
21
 %
Guarantee fee income related to the Temporary Payroll Tax Cut Continuation Act of 2011
325

 
279

 
46

 
16
 %
 
641

 
546

 
95

 
17
 %
Other contractual net interest income
1,588

 
1,744

 
(156
)
 
(9
)%
 
3,296

 
3,584

 
(288
)
 
(8
)%
Total contractual net interest income
2,757

 
2,703

 
54

 
2
 %
 
5,624

 
5,520

 
104

 
2
 %
Net amortization - loans and debt securities of consolidated trusts
667

 
774

 
(107
)
 
(14
)%
 
1,620

 
1,307

 
313

 
24
 %
Net amortization - other assets and debt
(3
)
 
14

 
(17
)
 
(121
)%
 
15

 
120

 
(105
)
 
(88
)%
Expense related to derivatives
(42
)
 
(48
)
 
6

 
13
 %
 
(85
)
 
(99
)
 
14

 
14
 %
Net interest income

$3,379

 

$3,443

 

($64
)
 
(2
)%
 

$7,174

 

$6,848

 

$326

 
5
 %

Key Drivers:
Guarantee fee income
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - increased primarily due to higher average contractual guarantee fee rates and the continued growth in the size of the Core single-family loan portfolio. Average contractual guarantee fee rates are generally higher on mortgage loans in our Core single-family loan portfolio compared to those in our Legacy single-family loan portfolio. In addition, guarantee fee income increased due to higher average multifamily guarantee portfolio balances.
Other contractual net interest income
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - decreased primarily due to the continued reduction in the balance of our mortgage-related investments portfolio pursuant to the portfolio limits established by the Purchase Agreement and FHFA. See "Conservatorship and Related Matters - Reducing Our Mortgage-Related Investments Portfolio Over Time" for a discussion of the key drivers of the decline in our mortgage-related investments portfolio.
Net amortization of loans and debt securities of consolidated trusts
2Q 2017 vs. 2Q 2016 - decreased during 2Q 2017 primarily due to a decrease in amortization income from debt securities of consolidated trusts due to a decrease in prepayments.
YTD 2017 vs. YTD 2016 - increased during YTD 2017 primarily due to a decrease in amortization expense on mortgage loans held by consolidated trusts due to a decrease in prepayments. In addition, amortization income increased driven by higher unamortized balances on our debt securities of consolidated trusts and higher mortgage loan upfront delivery fee balances.


Freddie Mac Form 10-Q
 
12



Management's Discussion and Analysis
 
Consolidated Results of Operations | Provision for Credit Losses


BENEFIT (PROVISION) FOR CREDIT LOSSES
The benefit (provision) for credit losses predominantly relates to single-family loans and includes components for both collectively and individually impaired loans.
The table below presents the components of our benefit (provision) for credit losses.
 
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in billions)
 
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Benefit (provision) for newly impaired loans
 

($0.2
)
 

($0.2
)
 

$—

 
 %
 

($0.3
)
 

($0.4
)
 

$0.1

 
25
 %
Amortization of interest rate concessions
 
0.2

 
0.2

 

 
 %
 
0.4

 
0.5

 
(0.1
)
 
(20
)%
Reclassifications of held-for-investment loans to held-for-sale loans
 
0.3

 
0.5

 
(0.2
)
 
(40
)%
 
0.3

 
0.6

 
(0.3
)
 
(50
)%
Other, including changes in estimated default probability and loss severity
 
0.1

 
0.3

 
(0.2
)
 
(67
)%
 
0.1

 
0.5

 
(0.4
)
 
(80
)%
Benefit (provision) for credit losses
 

$0.4

 

$0.8

 

($0.4
)
 
(50
)%
 

$0.5

 

$1.2

 

($0.7
)
 
(58
)%
Key Drivers:
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - Benefit for credit losses decreased primarily due to smaller improvements in probability of default and estimated loss severity in the 2017 periods, compared to larger improvements in probability of default and estimated loss severity in the 2016 periods.


Freddie Mac Form 10-Q
 
13



Management's Discussion and Analysis
 
Consolidated Results of Operations | Derivative Gains (Losses)


DERIVATIVE GAINS (LOSSES)
We continue to align our derivative portfolio with the changing duration of our economically hedged assets and liabilities. We manage our exposure to interest-rate risk on an economic basis to a low level as measured by our models. We believe the impact of derivatives on our GAAP financial results should be considered in the context of our overall interest-rate risk profile, including our PMVS and duration gap results. For more information about our interest-rate risk management activities and the sensitivity of reported earnings to those activities, see “Risk Management - Market Risk.”
On February 2, 2017, we began using fair value hedge accounting for certain single-family mortgage loans, which is intended to reduce our GAAP earnings volatility due to large interest-rate movements. Changes in the fair value of the derivatives while in fair value hedge relationships are recognized in other income (loss) on our condensed consolidated statements of comprehensive income. See Note 7 for further information on fair value hedge accounting.
The table below presents the gains and losses on derivatives while not designated in fair value hedge relationships and the accrual of periodic cash settlements on all derivatives.
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
 
(Dollars in millions)
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
 
Fair value change in interest-rate swaps

($580
)
 

($2,364
)
 

$1,784

 
75
 %
 

$93

 

($8,054
)
 

$8,147

 
101
 %
 
Fair value change in option-based derivatives
109

 
1,141

 
(1,032
)
 
(90
)%
 
(321
)
 
3,076

 
(3,397
)
 
(110
)%
 
Fair value change in other derivatives
(196
)
 
(415
)
 
219

 
53
 %
 
(274
)
 
(731
)
 
457

 
63
 %
 
Accrual of periodic cash settlements
(429
)
 
(420
)
 
(9
)
 
(2
)%
 
(896
)
 
(910
)
 
14

 
2
 %
 
Derivative gains (losses)

($1,096
)
 

($2,058
)
 

$962

 
47
 %
 

($1,398
)
 

($6,619
)
 

$5,221

 
79
 %
 

Key Drivers:
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - Losses declined as long-term interest rates decreased less during the 2017 periods compared to the 2016 periods. The 10-year par swap rate decreased 12 and 5 basis points during 2Q 2017 and YTD 2017, respectively, and declined 26 and 80 basis points during 2Q 2016 and YTD 2016, respectively. Interest rate decreases resulted in fair value losses in our pay-fixed interest rate swaps and forward commitments to issue PCs, partially offset by fair value gains in our receive-fixed swaps and certain option-based derivatives. In addition, we implemented hedge accounting in 1Q 2017 which reduced the losses that otherwise would have been included in Derivative gains (losses) by $365 million and $300 million for 2Q 2017 and YTD 2017, respectively.


Freddie Mac Form 10-Q
 
14



Management's Discussion and Analysis
 
Consolidated Results of Operations | Other Income (Loss)


OTHER INCOME (LOSS)
The table below presents the components of other income (loss).
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in millions)
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Other income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) on loans

$193

 

($481
)
 

$674

 
140
 %
 

$207

 

($3
)
 

$210

 
7,000
 %
Gains (losses) on held-for-sale loan purchase commitments
331

 
207

 
124

 
60
 %
 
555

 
244

 
311

 
127
 %
(Losses) gains on debt where we elected the fair value option
(102
)
 
(108
)
 
6

 
6
 %
 
(191
)
 
(94
)
 
(97
)
 
(103
)%
All other
245

 
357

 
(112
)
 
(31
)%
 
472

 
775

 
(303
)
 
(39
)%
 Fair value hedge accounting
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Change in fair value of derivatives in qualifying hedge relationships
(365
)
 

 
(365
)
 
N/A

 
(300
)
 

 
(300
)
 
N/A

Change in fair value of hedged items in qualifying hedge relationships
392

 

 
392

 
N/A

 
366

 

 
366

 
N/A

Ineffectiveness related to fair value hedge accounting
27

 

 
27

 
N/A

 
66

 

 
66

 
N/A

Total other income (loss)

$694

 

($25
)
 

$719

 
2,876
 %
 

$1,109

 

$922

 

$187

 
20
 %
Key Drivers:
Gains (losses) on loans
2Q 2017 vs. 2Q 2016 - increased primarily due to gains on loans driven by price improvements on the reperforming loans we sold in 2Q 2017 compared to losses driven by the lower-of-cost-or-fair-value adjustments on seriously delinquent loans we reclassified from held-for-investment to held-for-sale in 2Q 2016.
YTD 2017 vs. YTD 2016 - increased primarily due to gains on loans driven by price improvements on the reperforming loans we sold in YTD 2017 compared to the losses driven by the lower-of-cost-or-fair-value adjustments on seriously delinquent loans we reclassified from held-for-investment to held-for-sale in YTD 2016. This was partially offset by a decline in gains in YTD 2017 related to multifamily loans for which we elected the fair value option, as long-term rates declined slightly in YTD 2017, while these loans benefited significantly in YTD 2016 from a large decline in interest rates.
Gains (losses) on held-for-sale loan purchase commitments
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - increased due to gains on multifamily held-for-sale purchase commitments in the 2017 periods. K Certificate spreads tightened from improved pricing and market movements, compared to spreads widening in the 2016 periods. In addition, there were higher gains in the 2017 periods driven by a higher outstanding balance of commitments at the end of the period due to a continued strong demand for multifamily products compared to the end of the 2016 period.
(Losses) gains on debt where we elected fair value option
YTD 2017 vs. YTD 2016 - losses declined primarily driven by tightening spreads between STACR yields and LIBOR during YTD 2017 compared to YTD 2016 when spreads were relatively unchanged.

Freddie Mac Form 10-Q
 
15



Management's Discussion and Analysis
 
Consolidated Results of Operations | Other Income (Loss)


All other
YTD 2017 vs. YTD 2016 - declined primarily due to the recognition of settlement proceeds related to the TBW bankruptcy during YTD 2016.

Freddie Mac Form 10-Q
 
16



Management's Discussion and Analysis
 
Consolidated Results of Operations | Other Comprehensive Income

OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the attribution of the other comprehensive income (loss) reported in our condensed consolidated statements of comprehensive income.
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in millions)
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Other comprehensive income, excluding certain items

$423

 

$391

 

$32

 
8
%
 

$586

 

$612

 

($26
)
 
(4
)%
Excluded items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
(49
)
 
(79
)
 
30

 
38
%
 
(103
)
 
(169
)
 
66

 
39
 %
Realized (gains) losses reclassified from AOCI
(52
)
 
(172
)
 
120

 
70
%
 
(138
)
 
(149
)
 
11

 
7
 %
Total excluded items
(101
)

(251
)

150


60
%

(241
)

(318
)

77


24
 %
Total other comprehensive income (loss)

$322

 

$140

 

$182

 
130
%
 

$345

 

$294

 

$51

 
17
 %
Key Drivers:
Other comprehensive income, excluding certain items
2Q 2017 vs. 2Q 2016 - increased primarily due to more market spread tightening on non-agency mortgage-related securities during 2Q 2017 compared to 2Q 2016, resulting in greater spread-related gains, partially offset by smaller interest rate-related gains as long-term interest rates decreased less during 2Q 2017 compared to 2Q 2016.
YTD 2017 vs. YTD 2016 - decreased primarily due to smaller declines in long-term interest rates during YTD 2017 compared to YTD 2016, resulting in lower gains, partially offset by gains from market spreads tightening on agency and non-agency mortgage-related securities during YTD 2017 compared to spreads widening on non-agency mortgage-related securities during YTD 2016.
Excluded items
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - decreased primarily due to a decline in the population of impaired securities as a result of our active dispositions of these securities.
Realized (gains) losses reclassified from AOCI
2Q 2017 vs. 2Q 2016 and YTD 2017 vs YTD 2016 - reflected smaller amounts of reclassified gains during the 2017 periods compared to the 2016 periods, due to fewer sales of non-agency mortgage-related securities.

Freddie Mac Form 10-Q
 
17



Management's Discussion and Analysis
Consolidated Results of Operations | Other Key Drivers

OTHER KEY DRIVERS
Key drivers of other line items for 2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 include:
Gains (losses) on extinguishment of debt
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - improved primarily due to an increase in the amount of gains recognized from the extinguishment of certain fixed-rate debt securities of consolidated trusts, as market interest rates increased between the time of issuance and repurchase. The amount of extinguishment gains or losses may vary, as the type and amount of PCs selected for repurchase are based on our investment and funding strategies, including our efforts to support the liquidity and price performance of our PCs.
Other gains on investment securities recognized in earnings
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - decreased primarily due to the recognition of smaller fair value gains on our mortgage and non-mortgage related securities classified as trading as long-term interest rates decreased less during the 2017 periods compared to the 2016 periods, partially offset by larger fair value gains due to more market spread tightening on our agency mortgage-related securities. In addition, there was a decrease in the sales volume of our available-for-sale non-agency mortgage-related securities during the 2017 periods.


    

Freddie Mac Form 10-Q
 
18



Management's Discussion and Analysis
Consolidated Results of Operations | Items Affecting Multiple Lines


ITEM AFFECTING MULTIPLE LINES
The following item affected multiple line items on our consolidated results of operations.
SINGLE-FAMILY LOAN RECLASSIFICATIONS
During 2Q 2017 and 2Q 2016, we reclassified $11.1 billion and $3.1 billion in UPB of seasoned single-family mortgage loans, respectively, from held-for-investment to held-for-sale, as we continue to focus on reducing the balance of our less liquid assets. During YTD 2017 and YTD 2016, we reclassified $12.8 billion and $3.5 billion in UPB of seasoned single-family mortgage loans, respectively, from held-for-investment to held-for-sale. Seasoned single-family mortgage loans include seriously delinquent loans and reperforming loans. On January 1, 2017, we elected a new accounting policy for reclassifications from held-for-investment to held-for-sale. Under the new policy, when we reclassify (transfer) a loan from held-for-investment to held-for-sale, we charge off the entire difference between the loan’s recorded investment and its fair value if the loan has a history of credit-related issues. Expenses related to property taxes and insurance are included as part of the charge-off. If the charge-off amount exceeds the existing loan loss reserve amount, an additional provision for credit losses is recorded. If the charge-off amount is less than the existing loan loss reserve amount, a benefit for credit losses is recorded. Any declines in loan fair value after the date of transfer will be recognized as a valuation allowance, with an offset recorded to other income (loss).
This new policy election was applied prospectively, as it was not practical to apply it retrospectively.
Beginning in 1Q 2017, benefit (provision) for credit losses is the only line item affected by the loan reclassifications from held-for-investment to held-for-sale. Prior to this change (including 2Q 2016 and YTD 2016 as presented below), the reclassifications from held-for-investment to held-for-sale affected several line items on our consolidated results of operations.
 
 
2Q 2017
 
2Q 2016
 
Change
 
YTD 2017
 
YTD 2016
 
Change
(Dollars in millions)
 
 
 
 
 
$
 
%
 
 
 
 
 
$
 
%
Benefit (provision) for credit losses
 

$314

 

$509

 

($195
)
 
(38
)%
 

$300

 

$573

 

($273
)
 
(48
)%
Other income (loss) - lower-of-cost-or-fair-value adjustment
 

 
(667
)
 
667

 
100
 %
 

 
(734
)
 
734

 
100
 %
Other expense - property taxes and insurance associated with these loans
 

 
(109
)
 
109

 
100
 %
 

 
(140
)
 
140

 
100
 %
Effect on income before income tax (expense) benefit
 

$314

 

($267
)
 
581

 
218
 %
 

$300

 

($301
)
 
601

 
200
 %

Key Drivers:
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - Effect on income changed to a gain recognized from price improvements on reperforming loans reclassified from held-for-investment to held-for-sale during the 2017 periods compared to a loss recognized on seriously delinquent loans reclassified from held-for-investment to held-for-sale during the 2016 periods.


Freddie Mac Form 10-Q
 
19



Management's Discussion and Analysis
 
Consolidated Balance Sheets Analysis


CONSOLIDATED BALANCE SHEETS ANALYSIS
The table below compares our summarized consolidated balance sheets.
 
 
June 30, 2017
 
December 31, 2016
 
Change
(Dollars in millions)
 
 
 
 
 
$
 
%
Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 

$6,666

 

$12,369

 

($5,703
)
 
(46
)%
Restricted cash and cash equivalents
 
4,464

 
9,851

 
(5,387
)
 
(55
)%
Securities purchased under agreements to resell
 
47,791

 
51,548

 
(3,757
)
 
(7
)%
Subtotal
 
58,921

 
73,768

 
(14,847
)
 
(20
)%
Investments in securities, at fair value
 
98,799

 
111,547

 
(12,748
)
 
(11
)%
Mortgage loans, net
 
1,832,142

 
1,803,003

 
29,139

 
2
 %
Accrued interest receivable
 
6,237

 
6,135

 
102

 
2
 %
Derivative assets, net
 
951

 
747

 
204

 
27
 %
Deferred tax assets, net
 
14,751

 
15,818

 
(1,067
)
 
(7
)%
Other assets
 
10,956

 
12,358

 
(1,402
)
 
(11
)%
Total assets
 

$2,022,757

 

$2,023,376

 

($619
)
 
 %
 
 
 
 
 
 
 
 
 
Liabilities and Equity:
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Accrued interest payable
 

$6,090

 

$6,015

 

$75

 
1
 %
Debt, net
 
2,009,166

 
2,002,004

 
7,162

 
 %
Derivative liabilities, net
 
298

 
795

 
(497
)
 
(63
)%
Other liabilities
 
4,617

 
9,487

 
(4,870
)
 
(51
)%
Total liabilities
 
2,020,171

 
2,018,301

 
1,870

 
 %
Total equity
 
2,586

 
5,075

 
(2,489
)
 
(49
)%
Total liabilities and equity
 

$2,022,757

 

$2,023,376

 

($619
)
 
 %
Key Drivers:
As of June 30, 2017 compared to December 31, 2016:
Cash and cash equivalents , restricted cash and cash equivalents , and securities purchased under agreements to resell affect one another, so the changes in the balances should be viewed together. The combined balance as of June 30, 2017 declined primarily due to lower near term cash needs for lower upcoming maturities and anticipated calls of other debt and a decrease in prepayment proceeds received by the custodial account driven by increased interest rates as of June 30, 2017 compared to December 31, 2016.
Investments in securities, at fair value decreased as we continued to reduce the mortgage-related investments portfolio during 2017 as required by the Purchase Agreement and FHFA.
Other assets declined primarily because of decreased receivables from servicers and a lower current income tax receivable. Higher mortgage interest rates during 2Q 2017 caused a decline in prepayments, and thus a decrease in receivables from servicers. When a borrower prepays, there is a brief delay before the servicer remits the payoff proceeds to us. In addition, the current income tax receivable decreased primarily due to the accrual of current period tax expense and a reduction of receivables related to prior years.
Other liabilities decreased primarily due to the elimination of liabilities related to our purchases of

Freddie Mac Form 10-Q
 
20



Management's Discussion and Analysis
 
Consolidated Balance Sheets Analysis


non-mortgage-related securities that traded during 4Q 2016 but were settled in 2017.
Total equity decreased as a result of lower comprehensive income in 2Q 2017 than in 4Q 2016 coupled with additional dividends paid related to the $600 million decline in the Capital Reserve Amount in 2017.

Freddie Mac Form 10-Q
 
21



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


OUR BUSINESS SEGMENTS
We have three reportable segments, which are based on the way we manage our business. Certain activities that are not part of a reportable segment are included in the All Other category.
Single-family Guarantee - reflects results from our purchase, securitization, and guarantee of single-family loans and the management of single-family credit risk.
Multifamily - reflects results from our purchase, securitization, and guarantee of multifamily loans and securities, our investments in those loans and securities, and the management of multifamily credit risk and market spread risk.
Capital Markets (previously reported as the Investments segment) - reflects results from managing the company’s mortgage-related investments portfolio (excluding multifamily investments, single-family seriously delinquent loans, and the credit risk of single-family performing and reperforming loans), treasury function, and interest-rate risk.
The All Other category consists of material corporate-level activities that are infrequent in nature and based on decisions outside the control of the management of our reportable segments.
SEGMENT EARNINGS
During 1Q 2017, we changed how we calculate certain components of our Segment Earnings for our Capital Markets segment. Prior period results have been revised to conform to the current period presentation. For more information on this change and on our segment reclassifications, see Note 11.

Freddie Mac Form 10-Q
 
22



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


SEGMENT COMPREHENSIVE INCOME
The graphs below show our comprehensive income by segment, including the All Other category.
A20172Q10Q_CHART-27076.JPG
A20172Q10Q_CHART-27435.JPG


Freddie Mac Form 10-Q
 
23



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


SINGLE-FAMILY GUARANTEE
MARKET CONDITIONS

The following graphs and related discussion present certain market indicators that can significantly affect the business and financial results of our Single-family Guarantee segment.
U.S. Single-Family Originations
A20172Q10Q_CHART-27095.JPG
Source: Inside Mortgage Finance dated May 19, 2017 (latest available IMF purchase/refinance information).

 
Single-Family Serious Delinquency Rates
A20172Q10Q_CHART-28810.JPG
Source: National Delinquency Survey from the Mortgage Bankers Association. Data as of May 16, 2017 (latest available NDS information).

Commentary

Single-family loan origination volumes decreased to $455 billion in 2Q 2017 compared to $520 billion in 2Q 2016. Mortgage origination data is from Inside Mortgage Finance as of July 28, 2017. Freddie Mac's single-family loan purchase volumes typically follow similar trends.
Single-family serious delinquency (SDQ) rates in the U.S. generally continued to decline on a year-over-year basis due to macroeconomic factors, such as a low unemployment rate and continued home price appreciation. Freddie Mac's delinquency rates followed similar trends resulting in fewer loan workouts and foreclosure transfers and as a result, reduced our provision for credit losses.

Freddie Mac Form 10-Q
 
24



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


BUSINESS RESULTS

The following tables, graphs and related discussion present the business results of our Single-family Guarantee segment.
New Business Activity
UPB of Single-Family Loan Purchases and Guarantees by Loan Purpose

(In billions)
A20172Q10Q_CHART-27044.JPG A20172Q10Q_CHART-28418.JPG
Percentage of Single-Family Loan Purchases and Guarantees by Loan Purpose

A20172Q10Q_CHART-30025.JPG

Freddie Mac Form 10-Q
 
25



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


Commentary
Our loan purchase and guarantee activity:
2Q 2017 vs. 2Q 2016 - decreased due to lower refinance volume driven by higher rates in early 2017 compared to 2016.
YTD 2017 vs. YTD 2016 - remained relatively unchanged as a decline in refinance activity was offset by higher home purchase loan volume as interest and unemployment rates remained low.

Freddie Mac Form 10-Q
 
26



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


Single-Family Credit Guarantee Portfolio
Single-Family Credit Guarantee Portfolio
A20172Q10Q_CHART-27083.JPG
Commentary
The single-family credit guarantee portfolio grew to $1,784 billion at June 30, 2017 from $1,755 billion at December 31, 2016, an increase of approximately 2%. We had 10.7 million and 10.6 million loans in our single-family credit guarantee portfolio at June 30, 2017 and December 31, 2016 , respectively.
The Core single-family loan portfolio grew to 75% of the single-family credit guarantee portfolio at June 30, 2017 compared to 73% at December 31, 2016 , primarily driven by high refinance activity and a growing home purchase market as interest and unemployment rates remained low.
The Legacy and relief refinance single-family loan portfolio declined to 25% of the single-family credit guarantee portfolio at June 30, 2017 compared to 27% at December 31, 2016, driven primarily by liquidations.

Freddie Mac Form 10-Q
 
27



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


Guarantee Fees
The average portfolio Segment Earnings guarantee fee rate consists of the contractual guarantee fee that we receive over the life of the loans and upfront delivery fee income that we amortize over the contractual life of the related loans (usually 30 years). If the related loans prepay, the remaining upfront delivery fee income is recognized immediately. In addition, the average portfolio Segment Earnings guarantee fee rate reflects an average of our total single-family credit guarantee portfolio and is not limited to purchases in the applicable period.
The average guarantee fee rate charged on new acquisitions consists of the contractual guarantee fee that we receive over the life of the loans and upfront delivery fee income that we recognize over the estimated life of the related loans using our expectations of prepayments and other liquidations.
Average Portfolio Segment Earnings Guarantee Fee Rate (1) A20172Q10Q_CHART-26977.JPG
 
Average Guarantee Fee Rate Charged on New Acquisitions (1)
A20172Q10Q_CHART-28197.JPG

(1) Excludes the legislated 10 basis point increase in guarantee fees.
Commentary
Average portfolio Segment Earnings guarantee fee rates:
2Q 2017 vs. 2Q 2016 - decreased slightly due to a decline in the recognition of amortized fees driven by lower prepayments.
YTD 2017 vs. YTD 2016 - remained stable due to higher average contractual guarantee fees, offset by a decline in the recognition of amortized fees.
Average guarantee fee rate charged on new acquisitions:
2Q 2017 vs. 2Q 2016 and YTD 2017 vs. YTD 2016 - decreased due to competitive pricing, partially offset by lower market-adjusted pricing costs based on the price performance of our PCs relative to Fannie Mae securities.

Freddie Mac Form 10-Q
 
28



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


Credit Risk Transfer (CRT) Activity
Since 2013, STACR debt note and ACIS transactions have been our principal methods of transferring a small portion of the expected credit losses and a significant portion of credit losses in a stressed economic environment in our Core single-family loan portfolio. The following charts present the issuance amounts for the STACR and ACIS transactions that occurred during 2Q 2017 and the cumulative issuance amount of all STACR and ACIS transactions as of June 30, 2017 by loss position and the party holding each loss position.
New STACR Debt Note and ACIS Transactions during 2Q 2017 (1)
 
 
(In billions)
 
 
Senior
 
Freddie Mac


$98.8
 
Reference Pool

$102.4
 
 
 
 
 
 
 
 
 
 
Mezzanine
 
Freddie Mac


$0.4
 
ACIS



$0.5






 
STACR Debt Notes


$1.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First
Loss
 
Freddie Mac

$0.5
 
ACIS

$0.1
 
STACR Debt Notes
$0.4
 
 
Cumulative STACR Debt Note and ACIS
Transactions as of June 30, 2017 (1)(2)  
 
 
(In billions)
 
 
Senior
 
Freddie Mac


$725.5
 
Reference Pool

$760.8