

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

~~NET INTEREST INCOME~~Net Interest Income

~~NET INTEREST YIELD ANALYSIS~~Net Interest Yield Analysis

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

3Q 2017 3Q 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
$10,064

$14
0.53 %
$21,664

$15
0.28 %
Securities purchased under agreements to resell 57,107
166
1.16
62,086
56
0.36
Advances to lenders and other secured lending 804
5
2.51
649
3
2.06
Mortgage-related securities:
Mortgage-related securities 159,640
1,572
3.94
185,235
1,779
3.84
Extinguishment of PCs held by Freddie Mac (85,198 ) (811 ) (3.81 ) (88,066 ) (829 ) (3.76 )
Total mortgage-related securities, net 74,442
761
4.09
97,169
950
3.91
Non-mortgage-related securities 15,127
60
1.62
15,671
26
0.67

Loans held by consolidated trusts⁽¹⁾
1,731,577
14,617
3.38
1,654,288
13,602
3.29

Loans held by Freddie Mac⁽¹⁾
117,298
1,250
4.26
131,945
1,395
4.23
Total interest-earning assets
$2,006,419

$16,873
3.37

$1,983,472

$16,047
3.24
Interest-bearing liabilities:
Debt securities of consolidated trusts including PCs held by Freddie Mac
$1,755,578

($12,663 ) (2.89 )
$1,680,388

($11,716 ) (2.79 )
Extinguishment of PCs held by Freddie Mac (85,198 ) 811
3.81
(88,066 ) 829
3.76
Total debt securities of consolidated trusts held by third parties 1,670,380
(11,852 ) (2.84 ) 1,592,322
(10,887 ) (2.73 )
Other debt:
Short-term debt 68,868
(173 ) (0.99 ) 81,057
(83 ) (0.40 )
Long-term debt 259,075
(1,319 ) (2.02 ) 302,062
(1,384 ) (1.82 )
Total other debt 327,943
(1,492 ) (1.80 ) 383,119
(1,467 ) (1.53 )
Total interest-bearing liabilities 1,998,323
(13,344 ) (2.67 ) 1,975,441
(12,354 ) (2.50 )
Expense related to derivatives —
(40 ) (0.01 ) —
(47 ) (0.01 )
Impact of net non-interest-bearing funding 8,096
—
0.01
8,031
—
0.01
Total funding of interest-earning assets
$2,006,419

($13,384 ) (2.67 )
$1,983,472

($12,401 ) (2.50 )
Net interest income/yield
$3,489
0.70

$3,646
0.74

(1) Loan fees, primarily consisting of amortization of delivery fees, included in interest income were $634 million and $737 million for loans held by consolidated trusts and $37 million and $53 million for loans held by Freddie Mac during 3Q 2017 and 3Q 2016, respectively.



	2Q 2018								2Q 2017
(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		$6,620			$13		0.79	%		$12,135			$15		0.51	%
Securities purchased under agreements to resell	43,084			205			1.91		56,196			132			0.93
Advances to lenders and other secured lending	1,403			10			2.68		532			3			2.30
Mortgage-related securities:
Mortgage-related securities	144,517			1,495			4.14		170,864			1,651			3.87
Extinguishment of PCs held by Freddie Mac	(88,792		)	(849		)	(3.83	)	(89,913		)	(825		)	(3.67	)
Total mortgage-related securities, net	55,725			646			4.64		80,951			826			4.08
Non-mortgage-related securities	14,476			84			2.32		17,957			76			1.68
Loans held by consolidated trusts⁽¹⁾	1,787,242			15,290			3.42		1,723,103			14,594			3.39
Loans held by Freddie Mac⁽¹⁾	100,239			1,054			4.20		118,012			1,254			4.25
Total interest-earning assets	2,008,789			17,302			3.45		2,008,886			16,900			3.36
Interest-bearing liabilities:
Debt securities of consolidated trusts including PCs held by Freddie Mac	1,814,861			(13,504		)	(2.98	)	1,746,474			(12,819		)	(2.94	)
Extinguishment of PCs held by Freddie Mac	(88,792		)	849			3.83		(89,913		)	825			3.67
Total debt securities of consolidated trusts held by third parties	1,726,069			(12,655		)	(2.93	)	1,656,561			(11,994		)	(2.90	)
Other debt:
Short-term debt	53,323			(242		)	(1.80	)	74,540			(145		)	(0.77	)
Long-term debt	221,222			(1,402		)	(2.53	)	272,160			(1,382		)	(2.02	)
Total other debt	274,545			(1,644		)	(2.38	)	346,700			(1,527		)	(1.76	)
Total interest-bearing liabilities	2,000,614			(14,299		)	(2.86	)	2,003,261			(13,521		)	(2.70	)
Impact of net non-interest-bearing funding	8,175			—			0.01		5,625			—			0.01
Total funding of interest-earning assets		$2,008,789			($14,299	)	(2.85	)%		$2,008,886			($13,521	)	(2.69	)%
Net interest income/yield					$3,003		0.60	%					$3,379		0.67	%

(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $627 million and $583 million for loans held by consolidated trusts and $23 million and $33 million for loans held by Freddie Mac during 2Q 2018 and 2Q 2017, respectively.



Freddie Mac Form 10-Q		10



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






	YTD 2017								YTD 2016									YTD 2018								YTD 2017
(Dollars in millions)	Average Balance			Interest Income (Expense)⁽¹⁾			Average Rate		Average Balance			Interest Income (Expense)⁽¹⁾			Average Rate			Average Balance			Interest Income (Expense)⁽¹⁾			Average Rate		Average Balance			Interest Income (Expense)⁽¹⁾			Average Rate
Interest-earning assets:
Cash and cash equivalents		$11,417			$38		0.44	%		$16,112			$31		0.26	%			$6,818			$24		0.69	%		$12,094			$24		0.40	%
Securities purchased under agreements to resell	55,903			386			0.92		57,348			149			0.35			47,408			403			1.70		55,301			220			0.79
Advances to lenders and other secured lending	651			12			2.42		419			7			2.33			1,197			16			2.65		574			7			2.36
Mortgage-related securities:
Mortgage-related securities	168,819			4,886			3.86		193,492			5,546			3.82			147,391			3,074			4.17		173,410			3,314			3.82
Extinguishment of PCs held by Freddie Mac	(87,883		)	(2,456		)	(3.73	)	(96,388		)	(2,679		)	(3.71	)		(89,803		)	(1,692		)	(3.77	)	(89,226		)	(1,645		)	(3.69	)
Total mortgage-related securities, net	80,936			2,430			4.00		97,104			2,867			3.94			57,588			1,382			4.80		84,184			1,669			3.97
Non-mortgage-related securities	18,049			207			1.54		14,219			56			0.53			14,626			157			2.14		19,509			147			1.51
Loans held by consolidated trusts⁽¹⁾	1,720,906			43,810			3.39		1,640,997			41,735			3.39			1,781,975			30,149			3.38		1,715,571			29,193			3.40
Loans held by Freddie Mac⁽¹⁾	119,843			3,870			4.31		138,648			4,318			4.15			101,845			2,146			4.21		121,115			2,620			4.33
Total interest-earning assets		$2,007,705			$50,753		3.37			$1,964,847			$49,163		3.33			2,011,457			34,277			3.41		2,008,348			33,880			3.37
Interest-bearing liabilities:
Debt securities of consolidated trusts including PCs held by Freddie Mac		$1,744,260			($38,023	)	(2.91	)		$1,665,226			($36,606	)	(2.93	)		1,808,992			(26,861		)	(2.97	)	1,738,601			(25,360		)	(2.92	)
Extinguishment of PCs held by Freddie Mac	(87,883		)	2,456			3.73		(96,388		)	2,679			3.71			(89,803		)	1,692			3.77		(89,226		)	1,645			3.69
Total debt securities of consolidated trusts held by third parties	1,656,377			(35,567		)	(2.86	)	1,568,838			(33,927		)	(2.88	)		1,719,189			(25,169		)	(2.93	)	1,649,375			(23,715		)	(2.88	)
Other debt:
Short-term debt	72,292			(414		)	(0.76	)	85,995			(258		)	(0.39	)		60,647			(471		)	(1.55	)	74,003			(241		)	(0.65	)
Long-term debt	270,251			(3,984		)	(1.96	)	301,791			(4,338		)	(1.91	)		225,101			(2,616		)	(2.32	)	275,840			(2,750		)	(1.99	)
Total other debt	342,543			(4,398		)	(1.71	)	387,786			(4,596		)	(1.58	)		285,748			(3,087		)	(2.16	)	349,843			(2,991		)	(1.71	)
Total interest-bearing liabilities	1,998,920			(39,965		)	(2.66	)	1,956,624			(38,523		)	(2.62	)		2,004,937			(28,256		)	(2.82	)	1,999,218			(26,706		)	(2.67	)
Expense related to derivatives	—			(125		)	(0.01	)	—			(146		)	(0.01	)
Impact of net non-interest-bearing funding	8,785			—			0.01		8,223			—			0.01			6,520			—			0.01		9,130			—			0.01
Total funding of interest-earning assets		$2,007,705			($40,090	)	(2.66	)		$1,964,847			($38,669	)	(2.62	)			$2,011,457			($28,256	)	(2.81	)%		$2,008,348			($26,706	)	(2.66	)%
Net interest income/yield					$10,663		0.71						$10,494		0.71							$6,021		0.60	%					$7,174		0.71	%

(1) Loan fees, primarily consisting of amortization of delivery fees, included in interest income were $1.7 billion and $1.9 billion for loans held by consolidated trusts and $132 million and $184 million for loans held by Freddie Mac during YTD 2017 and YTD 2016, respectively.
(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $1.2 billion and $1.1 billion for loans held by consolidated trusts and $45 million and $95 million for loans held by Freddie Mac during YTD 2018 and YTD 2017, respectively.																	(1) Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $1.2 billion and $1.1 billion for loans held by consolidated trusts and $45 million and $95 million for loans held by Freddie Mac during YTD 2018 and YTD 2017, respectively.



Freddie Mac Form 10-Q		11



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

Components of Net Interest Income

~~COMPONENTS OF NET INTEREST INCOME~~

The table below presents the components of net interest income.


	3Q 2017			3Q 2016			Change					YTD 2017			YTD 2016			Change											Change											Change
(Dollars in millions)							$			%								$			%		2Q 2018			2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Contractual net interest income:
Guarantee fee income		$808			$822			($14	)	(2	)%		$2,495			$2,212			$283		13	%		$858			$795			$63		8	%		$1,692			$1,587			$105		7	%
Guarantee fee income related to the Temporary Payroll Tax Cut Continuation Act of 2011	333			292			41			14	%	974			838			136			16	%	356			325			31			10		703			641			62			10
Other contractual net interest income	1,604			1,635			(31		)	(2	)%	4,900			5,219			(319		)	(6	)%	1,386			1,637			(251		)	(15	)	2,843			3,396			(553		)	(16	)
Total contractual net interest income	2,745			2,749			(4		)	—	%	8,369			8,269			100			1	%	2,600			2,757			(157		)	(6	)	5,238			5,624			(386		)	(7	)
Net amortization - loans and debt securities of consolidated trusts	822			884			(62		)	(7	)%	2,442			2,191			251			11	%	701			667			34			5		1,449			1,620			(171		)	(11	)
Net amortization - other assets and debt	(38		)	60			(98		)	(163	)%	(23		)	180			(203		)	(113	)%	(84		)	(3		)	(81		)	(2,700	)	(79		)	15			(94		)	(627	)
Expense related to derivatives	(40		)	(47		)	7			15	%	(125		)	(146		)	21			14	%
Hedge accounting impact																							(214		)	(42		)	(172		)	(410	)	(587		)	(85		)	(502		)	(591	)
Net interest income		$3,489			$3,646			($157	)	(4	)%		$10,663			$10,494			$169		2	%		$3,003			$3,379			($376	)	(11	)%		$6,021			$7,174			($1,153	)	(16	)%

Key Drivers:

~~Guarantee fee income~~


◦n	Guarantee fee income

2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 ~~vs. YTD 2016~~ -- increased primarily due to ~~higher average contractual guarantee fee rates in our total single-family loan portfolio as well as~~ 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 and relief refinance single-family loan portfolio.

~~Other contractual net interest income~~


◦n	Other contractual net interest income

2Q 2018 vs. 2Q 2017 and YTD 2018 vs. 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~~Conservatorship and Related Matters - Reducing Our Mortgage-Related Investments Portfolio Over ~~Time"~~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~~


◦n	Net amortization of loans and debt securities of consolidated trusts


l	3Q2Q 2018 vs. 2Q 2017 - remained relatively flat.


l	YTD 2018 vs. ~~3Q 2016~~ YTD 2017-- decreased primarily due to a decrease in amortization of debt securities of consolidated trusts driven by a decrease in prepayments ~~which resulted~~as a result of higher interest rates, partially offset by an increase in ~~reduced~~ amortization ~~income~~from higher upfront fees on mortgage ~~loan upfront delivery fees.~~loans.


◦n	~~YTD 2017 vs. YTD 2016~~ ~~- increased primarily due to higher unamortized balances on our~~Net amortization of other assets and debt securities of consolidated trusts and higher mortgage loan upfront delivery fee balances, coupled with a decrease in amortization expense on mortgage loans held by consolidated trusts due to a decrease in prepayments.

~~Net amortization of other assets and debt~~

◦l

3Q2Q 2018 vs. 2Q 2017 ~~vs. 3Q 2016~~ and YTD ~~2017~~2018 vs. YTD ~~2016~~2017- ~~- decreased~~losses increased primarily due to less accretion of previously recognized other-than-temporary ~~impairment~~impairments on non-agency mortgage-related securities. The decrease in accretion iswas due to a decline in the population of impaired securities as a result of our active disposition of these ~~securities.~~securities and a decline in new other-than-temporary impairments recognized.



Freddie Mac Form 10-Q		12



Management's Discussion and Analysis		Consolidated Results of Operations \| ~~Provision for Credit Losses~~Net Interest Income

~~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.~~

3Q 2017 3Q 2016 Change YTD 2017 YTD 2016 Change
(Dollars in billions) $ % $ %
Benefit (provision) for newly impaired loans
($0.2 )
($0.2 )
$—
— %
($0.5 )
($0.6 )
$0.1
17 %
Amortization of interest rate concessions 0.1
0.2
(0.1 ) (50 )% 0.5
0.7
(0.2 ) (29 )%
Reclassifications of held-for-investment loans to held-for-sale loans —
—
—
N/A
0.3
0.6
(0.3 ) (50 )%
Other, including changes in estimated default probability and loss severity (0.6 ) (0.1 ) (0.5 ) (500 )% (0.5 ) 0.4
(0.9 ) (225 )%
Benefit (provision) for credit losses
($0.7 )
($0.1 )
($0.6 ) (600 )%
($0.2 )
$1.1

($1.3 ) (118 )%

~~Key Drivers:~~

~~3Q 2017 vs. 3Q 2016~~


n	Hedge Accounting Impact

2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 -losses increased primarily due to the inclusion of fair value hedge accounting results within net interest income during the 2018 periods. This activity was included in other income and derivative gains (losses) until the adoption of the amended hedge accounting guidance in 4Q 2017.- increase in provision for credit losses due to estimated losses of $0.9 billion (pre-tax) related to Hurricanes Harvey, Irma and Maria, which included approximately $0.6 billion related to $2.3 billion in UPB of mortgage loans in Puerto Rico. This increase was partially offset by improvements in our estimated loss severity.

~~YTD 2017 vs. YTD 2016~~ - change from benefit to provision for credit losses, driven by estimated losses of $0.9 billion (pre-tax) related to Hurricanes Harvey, Irma and Maria, which included approximately $0.6 billion related to $2.3 billion in UPB of mortgage loans in Puerto Rico. The change from benefit to provision for credit losses was partially offset by the policy change that was elected on January 1, 2017 for loan reclassifications from held-for-investment to held-for-sale. See Note 4 for further information about this change.

Our estimated provision for credit losses related to the hurricanes is based on assumptions about a number of factors, including the probability of borrower default and the severity of property damage. Given the hurricanes occurred late in 3Q 2017, we have limited information available to us at this time related to trends in borrower delinquencies and the severity of property damage in the impacted areas, especially for Puerto Rico. As a result, our estimates will likely change in the future as additional information becomes available.



Freddie Mac Form 10-Q		13



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

~~DERIVATIVE GAINS (LOSSES)~~Derivative Gains (Losses)

Components of Derivative Gains (Losses)

We continue to align our derivative portfolio with the changing duration of our ~~economically hedged~~ assets and ~~liabilities.~~liabilities so as to economically hedge their interest-rate risk. 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~~ 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. Changes in~~Derivative gains (losses) includes 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~~changes and the accrual of periodic cash settlements for derivatives while not designated in qualifying hedge relationships. In addition, prior to our adoption of amended hedge accounting guidance in 4Q 2017, we included the accrual of periodic cash settlements on ~~all derivatives.~~derivatives in qualifying hedge relationships in derivatives gains (losses).

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


	3Q 2017			3Q 2016			Change					YTD 2017			YTD 2016			Change											Change											Change
(Dollars in millions)							$			%								$			%		2Q 2018			2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Fair value change in interest-rate swaps		$23			$541			($518	)	(96	)%		$116			($7,513	)		$7,629		102	%		$583			($580	)		$1,163		201	%		$2,097			$93			$2,004		2,155	%
Fair value change in option-based derivatives	(198		)	(235		)	37			16	%	(519		)	2,841			(3,360		)	(118	)%	(259		)	109			(368		)	(338	)	(714		)	(321		)	(393		)	(122	)
Fair value change in other derivatives	(105		)	74			(179		)	(242	)%	(379		)	(657		)	278			42	%	135			(196		)	331			169		1,051			(274		)	1,325			484
Accrual of periodic cash settlements	(398		)	(416		)	18			4	%	(1,294		)	(1,326		)	32			2	%	(43		)	(429		)	386			90		(188		)	(896		)	708			79
Derivative gains (losses)		($678	)		($36	)		($642	)	(1,783	)%		($2,076	)		($6,655	)		$4,579		69	%		$416			($1,096	)		$1,512		138	%		$2,246			($1,398	)		$3,644		261	%

Key Drivers:

~~3Q 2017 vs. 3Q 2016~~

2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 - During the 2018 periods, increases in long-term rates resulted in derivative fair value gains compared to derivative fair value losses during the 2017 periods. The 10-year par swap rate increased 15 and 54 basis points during 2Q 2018 and YTD 2018, respectively, and declined 12 and 5 basis points during 2Q 2017 and YTD 2017, respectively. The interest rate increase during the 2018 periods resulted in fair value gains in our pay-fixed interest rate swaps, forward commitments to issue PCs, and futures, partially offset by fair value losses in our receive-fixed swaps.- Losses increased as long-term interest rates were relatively unchanged during 3Q 2017 but increased slightly during 3Q 2016. The 10-year par swap rate increased 1 basis point during 3Q 2017 and increased 6 basis points during 3Q 2016. The 3Q 2017 interest rate change had minimal effect on Derivative gains (losses), compared to the 3Q 2016 interest rate increase which resulted in fair value gains in our pay-fixed interest rate swaps, partially offset by fair value losses in our receive-fixed swaps and certain option-based derivatives. In addition, we implemented hedge accounting in 1Q 2017, but the effect on Derivative gains (losses) during 3Q 2017 was relatively minor as the change in interest rates was relatively small.

~~YTD 2017 vs. YTD 2016~~ - Losses decreased as long-term interest rates decreased less during YTD 2017. The 10-year par swap rate decreased 4 basis points during YTD 2017 and decreased 74 basis points during YTD 2016. The smaller interest rate decrease during YTD 2017 resulted in reduced fair value losses in our pay-fixed interest rate swaps, partially offset by reduced fair value gains in our receive-fixed swaps and certain option-based derivatives. In addition, hedge accounting reduced the losses that otherwise would have been included in Derivative gains (losses) during YTD 2017 by $215 million.



Freddie Mac Form 10-Q		14



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

~~OTHER INCOME (LOSS)~~Other Income (Loss)

Components of Other Income (Loss)

The table below presents the components of other income (loss).

3Q 2017 3Q 2016 Change YTD 2017 YTD 2016 Change
(Dollars in millions) $ % $ %
Other income (loss)
Non-agency mortgage-related securities settlements
$4,525

$—

$4,525
N/A

$4,525

$—

$4,525
N/A
Gains (losses) on loans 203
139

$64
46 % 410
136
274
201 %
Gains (losses) on held-for-sale loan purchase commitments 271
391
(120 ) (31 )% 826
635
191
30 %
(Losses) gains on debt where we elected the fair value option 62
(174 ) 236
136 % (129 ) (268 ) 139
52 %
All other 272
249
23
9 % 744
1,024
(280 ) (27 )%
Fair value hedge accounting

Change in fair value of derivatives in qualifying hedge relationships 85
—
85
N/A
(215 ) —
(215 ) N/A
Change in fair value of hedged items in qualifying hedge relationships (15 ) —
(15 ) N/A
351
—
351
N/A
Ineffectiveness related to fair value hedge accounting 70
—
70
N/A
136
—
136
N/A
Total other income (loss)
$5,403

$605

$4,798
793 %
$6,512

$1,527

$4,985
326 %

~~Key Drivers:~~

~~Non-agency mortgage-related securities settlements~~



						Change											Change
(Dollars in millions)	2Q 2018		2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Other income (loss)
Non-agency mortgage-related securities settlements and judgments		$334		$—			$334		N/A			$334			$3			$331		11,033	%
Gains (losses) on loans⁽¹⁾	162		193			(31		)	(16	)	(158		)	207			(365		)	(176	)
Gains (losses) on held-for-sale loan purchase commitments⁽¹⁾	192		331			(139		)	(42	)	297			555			(258		)	(46	)
Gains (losses) on debt⁽¹⁾	19		(102		)	121			119		30			(191		)	221			116
All other	304		245			59			24		629			469			160			34
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
Total other income (loss)		$1,011		$694			$317		46	%		$1,132			$1,109			$23		2	%


◦(1)	~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016 -~~ increased due to the income recognition of proceeds received from the RBS settlement during 3Q 2017. No significant settlements occurred during the 2016 periods. See Note 12 for additional information on the RBS settlement.

~~Gains (losses) on loans~~


◦	~~YTD 2017 vs. YTD 2016~~ - Gains increased due to fewer losses recognized on the reclassification of seriously delinquent loans from held-for-investment to held-for-sale in YTD 2017, partially offset by less interest rate-related gains on multifamily loans in YTD 2017 as a result of smaller decreases in interest rates compared to YTD 2016.

~~Gains (losses) on held-for-sale loan purchase commitments~~


◦	~~3Q 2017 vs. 3Q 2016 -~~ ~~Gains decreased primarily due to less spread tightening and the resulting~~Includes fair value ~~impact~~gains (losses) on ~~multifamily~~loans, held-for-sale loan purchase commitments ~~during 3Q 2017.~~ and debt for which we have elected the fair value option.

◦

~~YTD 2017 vs. YTD 2016 -~~ Gains increased primarily due to a higher outstanding balance of commitments at September 30, 2017, partially offset by smaller gains as a result of less spread tightening. The outstanding commitment balance was higher at September 30, 2017 as a result of stronger demand for multifamily products due to an elevated number of new apartment completions, strong multifamily market fundamentals and low

Key Drivers:

n 2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017-Other income (loss) increased primarily driven by:

l Recognition of a $0.3 billion gain from the Nomura judgment during 2Q 2018. See Note 14 for additional information on the Nomura judgment.

l Small fair value gains on STACR debt notes in the 2018 periods compared to fair value losses in the 2017 periods as a result of market spreads between STACR yields and LIBOR remaining relatively unchanged in the 2018 periods, while spreads tightened during the 2017 periods.

l Adoption of amended hedge accounting guidance in 4Q 2017, which resulted in fair value changes for derivatives and hedged items in qualifying hedge relationships no longer being recognized in other income (loss). See Note 9 for more information.

This increase was partially offset by:

l Greater interest rate-related fair value losses on multifamily mortgage loans and commitments for which we have elected the fair value option due to a larger increase in long-term interest rates.



Freddie Mac Form 10-Q		15



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

Other Comprehensive Income (Loss)

~~(Losses) gains on debt where we elected fair value option~~


◦	~~3Q 2017 vs. 3Q 2016~~ Explanation of Key Drivers of Other Comprehensive Income (Loss)- Gains in 3Q 2017 compared to losses in 3Q 2016 primarily driven by gains recognized on STACR debt notes from widening of spreads between STACR yields and LIBOR during 3Q 2017 compared to 3Q 2016 when spreads tightened.


◦	~~YTD 2017 vs. YTD 2016~~ ~~- Losses decreased on STACR debt notes as spreads tightened less between STACR yields and LIBOR during the 2017 periods.~~

~~All other~~


◦	~~YTD 2017 vs. YTD 2016~~ ~~- declined primarily due to the income recognition of settlement proceeds related to the TBW bankruptcy during YTD 2016.~~

~~Ineffectiveness related to fair value hedge accounting~~


◦	~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016~~ - During 1Q 2017, we adopted fair value hedge accounting. Hedge ineffectiveness related to fair value hedge accounting is recognized in other income (loss). See Note 7 for additional information on hedge ineffectiveness.



~~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 total other comprehensive income (loss), net of taxes and reclassification adjustments reported in our condensed consolidated statements of comprehensive income.


	3Q 2017			3Q 2016			Change					YTD 2017			YTD 2016			Change											Change											Change
(Dollars in millions)							$			%								$			%		2Q 2018			2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Other comprehensive income, excluding certain items		$504			$336			$168		50	%		$1,090			$948			$142		15	%
Other comprehensive income (loss), excluding certain items																								($93	)		$423			($516	)	(122	)%		($495	)		$586			($1,081	)	(184	)%
Excluded items:
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities	(34		)	(66		)	32			48	%	(137		)	(235		)	98			42	%	(20		)	(49		)	29			59		(108		)	(103		)	(5		)	(5	)
Realized (gains) losses reclassified from AOCI	(491		)	(289		)	(202		)	(70	)%	(629		)	(438		)	(191		)	(44	)%	45			(52		)	97			187		(241		)	(138		)	(103		)	(75	)
Total excluded items	(525		)	(355		)	(170		)	(48	)%	(766		)	(673		)	(93		)	(14	)%	25			(101		)	126			125		(349		)	(241		)	(108		)	(45	)
Total other comprehensive income (loss)		($21	)		($19	)		($2	)	(11	)%		$324			$275			$49		18	%		($68	)		$322			($390	)	(121	)%		($844	)		$345			($1,189	)	(345	)%

Key Drivers:

n Other comprehensive income, excluding certain items

◦l

3Q2Q 2018 vs. 2Q 2017 and YTD 2018 vs. ~~3Q 2016~~ YTD 2017 -~~- increased~~ decreased primarily due to ~~lower interest rate related~~higher fair value losses ~~on our available-for-sale securities as interest rates were relatively unchanged during 3Q 2017 but increased slightly during 3Q 2016, coupled with larger market spread related~~compared to fair value gains ~~during 3Q 2017 as market spreads~~ on agency and non-agency mortgage-related securities ~~tightened~~classified as available-for-sale as long-term interest rates increased more during ~~3Q 2017.~~the 2018 periods, coupled with smaller fair value gains from less market spread tightening on our non-agency mortgage-related securities.

Excluded items:

n Realized (gains) losses reclassified from AOCI


l	2Q 2018 vs. 2Q 2017 - reflected reclassified losses during 2Q 2018 compared to reclassified gains during 2Q 2017 due to sales of non-agency mortgage-related securities in an unrealized loss position during 2Q 2018.


◦l	YTD ~~2017~~2018 vs. YTD ~~2016~~ 2017 -- increased primarily due to larger market spread related gains as market spreads on agency and non-agency mortgage-related securities tightened more during YTD 2017. This was partially offset by smaller interest rate related gains due to smaller declines in long-term interest rates during YTD 2017.

~~Excluded items~~


◦	~~Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities~~


▪	~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016~~ ~~- decreased primarily due to a decline in the population of impaired non-agency mortgage-related securities as a result of our active dispositions of these securities.~~


◦	~~Realized (gains) losses reclassified from AOCI~~


▪	~~3Q 2017 vs. 3Q 2016~~ - reflected larger amounts of reclassified gains during 3Q 2017 due to a greater volume of sales of non-agency mortgage-related securities and higher unrealized gains on our agency and non-agency mortgage-related securities sold, as a result of additional spread tightening.


▪	~~YTD 2017 vs. YTD 2016~~ - reflected larger amounts of reclassified gains during YTD ~~2017~~2018 due to ~~higher unrealized gains~~spread tightening on ~~our agency and~~sales of non-agency mortgage-related securities ~~sold,~~classified as ~~a result of additional spread tightening, partially offset by a decline in the volume of sales of agency securities.~~available-for-sale.



Freddie Mac Form 10-Q		1716



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

~~OTHER KEY DRIVERS~~Other Key Drivers

Explanation of Other Key Drivers

Key ~~drivers of other line items~~Drivers:

n Benefit (provision) for ~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016 include:~~credit losses


l	2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 - decreased primarily due to the impact of loan reclassifications between held-for-investment and held-for-sale.

n Gains (losses) on extinguishment of debt

◦l

3Q2Q 2018 vs. 2Q 2017 ~~vs. 3Q 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 (i.e., PCs), as market ~~interest~~ rates increased between the time of issuance and ~~repurchase.~~repurchase, combined with an increase in the amount of debt securities of consolidated trusts repurchased. 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.


l	YTD 2018 vs. YTD 2017 -remained relatively flat.

n Other gains (losses) on investment securities recognized in earnings

◦l

3Q2Q 2018 vs. 2Q 2017 and YTD 2018 vs. ~~3Q 2016~~ YTD 2017 -~~- increased~~ decreased primarily ~~due to additional spread tightening coupled with a greater volume of our non-agency mortgage-related securities sold during 3Q 2017. In addition, we recognized smaller~~driven by larger fair value losses on our mortgage and non-mortgage-related securities classified as trading as ~~long-term interest rates were relatively unchanged during 3Q 2017 compared to 3Q 2016 when long-term~~ interest rates increased ~~slightly.~~

◦

~~YTD 2017 vs. YTD 2016- decreased primarily due to~~more during the ~~recognition of smaller~~2018 periods, partially offset by lower fair value gains ~~on our mortgage and non-mortgage-related securities classified as trading as long-term interest rates decreased~~driven by less ~~during YTD 2017, partially offset by larger gains due to additional~~ spread tightening ~~during YTD 2017~~ on ~~our~~ sales of ~~agency and~~our available-for-sale non-agency mortgage-related securities.

n Other expense


l	2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 - increased primarily due to recoveries in the 2017 periods of amounts previously recognized in other expense. This activity did not repeat in the 2018 periods.

n Income tax (expense) benefit


l	2Q 2018 vs. 2Q 2017 and YTD 2018 vs. YTD 2017 - decreased due to the lower statutory corporate income tax rate in the 2018 periods.



Freddie Mac Form 10-Q		17



Management's Discussion and Analysis		Consolidated Balance Sheets Analysis

CONSOLIDATED BALANCE SHEETS ANALYSIS

The table below compares our summarized consolidated balance sheets.



						Change
(Dollars in millions)	6/30/2018		12/31/2017			$			%
Assets:
Cash and cash equivalents⁽¹⁾		$6,752		$9,811			($3,059	)	(31	)%
Securities purchased under agreements to resell	41,769		55,903			(14,134		)	(25	)
Subtotal	48,521		65,714			(17,193		)	(26	)
Investments in securities, at fair value	77,710		84,318			(6,608		)	(8	)
Mortgage loans, net	1,884,851		1,871,217			13,634			1
Accrued interest receivable	6,470		6,355			115			2
Derivative assets, net	391		375			16			4
Deferred tax assets, net	8,299		8,107			192			2
Other assets	15,490		13,690			1,800			13
Total assets		$2,041,732		$2,049,776			($8,044	)	—	%

Liabilities and Equity:
Liabilities:
Accrued interest payable		$6,377		$6,221			$156		3	%
Debt, net	2,021,162		2,034,630			(13,468		)	(1	)
Derivative liabilities, net	409		269			140			52
Other liabilities	9,199		8,968			231			3
Total liabilities	2,037,147		2,050,088			(12,941		)	(1	)
Total equity	4,585		(312		)	4,897			1,570
Total liabilities and equity		$2,041,732		$2,049,776			($8,044	)	—	%

(1) The current and prior period presentation has been modified to include restricted cash and cash equivalents due to recently adopted accounting guidance.

Key Drivers:

As of June 30, 2018 compared to December 31, 2017:

Cash and cash equivalents and securities purchased under agreements to resellaffect one another and changes in the balances should be viewed together (e.g., cash and cash equivalents can be invested in securities purchased under agreements to resell or other investments). The decrease in the combined balance was primarily due to lower near term cash needs for fewer upcoming maturities and anticipated calls of other debt.

n Investments in securities, at fair valuedecreased as we continued to reduce the mortgage-related investments portfolio during 2018 as required by the Purchase Agreement and FHFA.

n Other Assets increased primarily due to the recognition of receivables on sales of securities which had traded but not settled as of June 30, 2018.

n Total equity increased primarily as a result of higher comprehensive income in 2Q 2018 compared to 4Q 2017, combined with our ability to retain equity as a result of an increase in the applicable Capital Reserve Amount, which is $3.0 billion as of January 1, 2018.



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 3Q 2017 and 3Q 2016, we reclassified $7.2 billion and $0.3 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 $20.0 billion and $3.8 billion in UPB of such mortgage loans, respectively. Seasoned single-family mortgage loans include seriously delinquent 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.~~

The table below presents the effect of single-family loan reclassifications on income before income tax (expense) benefit. 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 3Q 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.

3Q 2017 3Q 2016 Change YTD 2017 YTD 2016 Change
(Dollars in millions) $ % $ %
Benefit (provision) for credit losses
$52

$59

($7 ) (12 )%
$352

$632

($280 ) (44 )%
Other income (loss) - lower-of-cost-or-fair-value adjustment —
(65 ) 65
100 % —
(799 ) 799
100 %
Other expense - property taxes and insurance associated with these loans —
(10 ) 10
100 % —
(150 ) 150
100 %
Effect on income before income tax (expense) benefit
$52

($16 )
$68
425 %
$352

($317 )
$669
211 %

~~Key Drivers:~~

~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016~~ - Effect on income changed to a gain as a result of price improvements on a higher volume of primarily reperforming loans reclassified from held-for-investment to held-for-sale during the 2017 periods compared to a loss recognized primarily 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.~~

September 30, 2017 December 31, 2016 Change
(Dollars in millions) $ %
Assets:
Cash and cash equivalents
$8,183

$12,369

($4,186 ) (34 )%
Restricted cash and cash equivalents 7,684
9,851
(2,167 ) (22 )%
Securities purchased under agreements to resell 47,202
51,548
(4,346 ) (8 )%
Subtotal 63,069
73,768
(10,699 ) (15 )%
Investments in securities, at fair value 87,148
111,547
(24,399 ) (22 )%
Mortgage loans, net 1,844,892
1,803,003
41,889
2 %
Accrued interest receivable 6,268
6,135
133
2 %
Derivative assets, net 705
747
(42 ) (6 )%
Deferred tax assets, net 14,576
15,818
(1,242 ) (8 )%
Other assets 13,998
12,358
1,640
13 %
Total assets
$2,030,656

$2,023,376

$7,280
— %

Liabilities and Equity:
Liabilities:
Accrued interest payable
$5,990

$6,015

($25 ) — %
Debt, net 2,009,578
2,002,004
7,574
— %
Derivative liabilities, net 212
795
(583 ) (73 )%
Other liabilities 9,626
9,487
139
1 %
Total liabilities 2,025,406
2,018,301
7,105
— %
Total equity 5,250
5,075
175
3 %
Total liabilities and equity
$2,030,656

$2,023,376

$7,280
— %

~~Key Drivers:~~

~~As of September 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 September 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 September 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~~ ~~increased primarily due to the recognition of short-term receivables from sales or maturities of trading or available-for-sale securities.~~

~~Derivative liabilities, net~~ ~~decreased due to changes in interest rates which were mostly offset by cash collateral received by our derivative counterparties.~~

~~Total equity~~ increased as a result of higher comprehensive income during YTD 2017 compared to 4Q 2016, partially offset by additional dividends paid related to the $600 million decline in the Capital Reserve Amount in 2017.



~~Freddie Mac Form 10-Q~~		20



~~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.

Single-family Guarantee - reflects results from our purchase, securitization and guarantee of single-family loans and the management of single-family mortgage 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~~ - 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, single-family securitization activities and interest-rate risk.


n	Multifamily - reflects results from our purchase, sale, securitization and guarantee of multifamily loans and securities, our investments in those loans and securities and the management of multifamily mortgage credit risk and market spread risk.


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

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

~~SEGMENT EARNINGS~~Segment Earnings

~~During 1Q 2017, we changed how we calculate certain components of our~~We present Segment Earnings ~~for~~by reclassifying certain credit guarantee-related activities and investment-related activities between various line items on our ~~Capital Markets segment. Prior period results have been revised~~GAAP condensed consolidated statements of comprehensive income and allocating certain revenues and expenses to ~~conform to the current period presentation.~~our three reportable segments. For more information ~~on this change and~~ on our segment reclassifications, see Note ~~11.~~13.



Freddie Mac Form 10-Q		2119



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

~~SEGMENT COMPREHENSIVE INCOME~~Segment Comprehensive Income

The ~~graphs~~graph below ~~show~~shows our comprehensive income by segment.

(In ~~billions)~~millions)



Freddie Mac Form 10-Q		2220



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

~~SINGLE-FAMILY GUARANTEE~~Single-Family Guarantee

~~MARKET CONDITIONS~~Market Conditions

The ~~following~~ graphs and related discussion below present certain market indicators that can significantly affect the business and financial results of our Single-family Guarantee segment.

U.S. Single-Family Originations

Source: Inside Mortgage Finance dated ~~August~~May 18, ~~2017~~2018 (latest available IMF purchase/refinance information).

Single-Family Serious Delinquency Rates

Source: National Delinquency Survey from the Mortgage Bankers Association. Data as of ~~August 24, 2017~~May 16, 2018 (latest available NDS information).

Commentary

n U.S. single-family loan origination ~~volumes~~volume decreased to ~~495~~$445 billion in ~~3Q 2017~~2Q 2018 from ~~$585~~$455 billion in ~~3Q 2016,~~2Q 2017, driven by lower refinance volume as a result of higher mortgage interest rates in ~~3Q 2017.~~2Q 2018. Mortgage origination data is from Inside Mortgage Finance as of ~~October~~July 27, ~~2017.~~2018.

~~In 2018, we~~n We expect continued growth in ~~U.S~~U.S. single-family home purchase volume due to a gradual increase in housing supply and ~~lower refinance volume driven by~~home price appreciation, while a moderate increase in mortgage interest ~~rates.~~rates is expected to result in a lower refinance volume. Freddie Mac's single-family ~~home~~loan purchase ~~and refinance~~ volumes typically follow a similar trend.

~~Single-family~~nThe single-family serious delinquency ~~(SDQ) rates~~rate in the U.S. ~~generally~~decreased during 1Q 2018 as the impacts from the hurricanes in 3Q 2017 subsided and the general economy continued to ~~decline on a year-over-year basis due to macroeconomic factors, such as a low unemployment rate and continued home price appreciation.~~improve. Freddie Mac's serious delinquency ~~rates~~rate typically ~~follow~~follows a similar ~~trend resulting in~~trend.



Freddie Mac Form 10-Q		2321



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

~~fewer loan workouts and foreclosure transfers, which generally reduces our expected credit losses on our total single-family mortgage portfolio.~~



~~Freddie Mac Form 10-Q~~		24



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

~~BUSINESS RESULTS~~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)



Freddie Mac Form 10-Q		22



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

Percentage of Single-Family Loan Purchases and Guarantees by Loan Purpose

Commentary

n Our loan purchase and guarantee activity increased during 2Q 2018 compared to 2Q 2017 due to higher home purchase volume, primarily driven by an improving economy and a lower unemployment rate. However, the activity decreased during YTD 2018 primarily due to a decline in refinance activity as a result of higher average mortgage interest rates, partially offset by higher home purchase volume.

n Freddie Mac purchases loans originated by lenders using Fannie Mae's Automated Underwriting System (AUS). Fannie Mae announced changes to its AUS in July 2017, which led to an increase in eligibility for purchase of new loans with debt-to-income ratios between 45% and 50% (high DTI). These loans have minimal impact on our overall single-family credit guarantee portfolio, but we are monitoring the overall credit quality and performance of these loans. Although the purchase of these high DTI loans may increase over time, we expect to purchase fewer loans with high DTI ratios that have other high-risk characteristics.



Freddie Mac Form 10-Q		23



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

Single-Family Credit Guarantee Portfolio

Commentary


n	The single-family credit guarantee portfolio increased at an annualized rate of approximately 3% from December 31, 2017 to June 30, 2018, driven by an increase in U.S. single-family mortgage debt outstanding as a result of continued home price appreciation. New business acquisitions had a higher average loan size compared to older vintages that continued to run off.


n	The Core single-family loan portfolio grew to 80% of the single-family credit guarantee portfolio at June 30, 2018, compared to 78% at December 31, 2017.


n	The Legacy and relief refinance single-family loan portfolio declined to 20% of the single-family credit guarantee portfolio at June 30, 2018, compared to 22% at December 31, 2017, driven primarily by liquidations.



Freddie Mac Form 10-Q		24



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

Guarantee Fees

We receive fees for guaranteeing the payment of principal and interest to investors in our mortgage-related securities. These fees consist primarily of a combination of base contractual guarantee fees paid on a monthly basis and initial upfront payments. The average portfolio Segment Earnings guarantee fee rate recognizes upfront fee income over the contractual life of the related loans (usually 30 years). If the related loans prepay, the remaining upfront fee income is recognized immediately. In contrast, the average guarantee fee rate charged on new acquisitions recognizes upfront fee income over the estimated life of the related loans using our expectations of prepayments and other liquidations. See MD&A - Our Business Segments - Single-family Guarantee - Business Overview - Guarantee Fees in our 2017 Annual Report for more information on our guarantee fees.

Average Portfolio Segment Earnings Guarantee Fee Rate⁽¹⁾⁽²⁾

(In bps)

Referenced footnotes are included after the next chart.



Freddie Mac Form 10-Q		25



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

Average Guarantee Fee Rate⁽¹⁾Charged on New Acquisitions

(In bps)

(1) Excludes the legislated 10 basis point increase in guarantee fees.

(2) Reflects an average rate for our total single-family credit guarantee portfolio and is not limited to purchases in the applicable period.

Commentary

~~Our loan purchase and guarantee activity:~~


◦n	3QWhile the average portfolio Segment Earnings guarantee fee rate remained relatively unchanged during 2Q 2018 compared to 2Q 2017, ~~vs. 3Q 2016 -~~ ~~decreased~~the rate increased slightly during YTD 2018 compared to YTD 2017 due to ~~lower refinance volume driven~~older vintages being replaced by new loan acquisitions with higher ~~mortgage rates.~~ guarantee fees.

◦n

~~YTD~~The average guarantee fee rate charged on new acquisitions decreased during the 2018 periods compared to the 2017 ~~vs. YTD 2016 -~~ ~~decreased~~periods due to ~~lower refinance volume partially offset~~pricing competition pressures, while maintaining a minimum return threshold established by ~~an increase in home purchase loan volume as interest and unemployment rates remained low.~~

FHFA.

~~While Hurricanes Harvey, Irma and Maria did not have an impact on our 3Q 2017 new business volume, we are currently assessing the potential impacts of these events on future new business volume.~~



Freddie Mac Form 10-Q		26



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

~~Single-Family Credit Guarantee Portfolio~~

~~Commentary~~

The single-family credit guarantee portfolio increased during YTD 2017 by approximately 3%, driven by increased single-family origination volume. Our market share of U.S. single-family origination volume remained stable amid growth in total U.S. single-family mortgage debt outstanding resulting from continued improvement in macroeconomic conditions, such as a low unemployment rate and home price appreciation. In addition, new business acquisitions had a higher average loan size compared to older vintages that continue to run off.

~~The Core single-family loan portfolio grew to 77% of the single-family credit guarantee portfolio at September 30, 2017 compared to 73% at December 31, 2016.~~

The Legacy and relief refinance single-family loan portfolio declined to 23% of the single-family credit guarantee portfolio at September 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 reflects an average rate for our total single-family credit guarantee portfolio and is not limited to purchases in the applicable period. This rate consists primarily of:

~~Contractual guarantee fees 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.

~~The average guarantee fee rate charged on new acquisitions consists primarily of:~~

~~Contractual guarantee fees 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⁾

~~Average Guarantee Fee Rate Charged on New Acquisitions~~⁽¹⁾

~~(1) Excludes the legislated 10 basis point increase in guarantee fees.~~

~~Commentary~~

~~Average portfolio Segment Earnings guarantee fee rates:~~


◦	~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016 -~~ decreased slightly due to a decline in the recognition of amortized fees driven by lower prepayments that resulted from higher mortgage rates in the 2017 periods. This decrease was partially offset by an increase in contractual guarantee fees as older vintages were replaced by new loan acquisitions with higher contractual guarantee fees.



~~Freddie Mac Form 10-Q~~		28



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

~~Average guarantee fee rate charged on new acquisitions:~~


◦	~~3Q 2017 vs. 3Q 2016 and YTD 2017 vs. YTD 2016 -~~ decreased due to competitive pricing to maintain market share of U.S. single-family origination volume, partially offset by lower market-adjusted pricing costs based on the improved price performance of our PCs relative to Fannie Mae securities.



~~Freddie Mac Form 10-Q~~		29



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

Credit Risk Transfer (CRT) ~~Activity~~Activities

~~In 2013, we began transferring~~We transfer credit risk on a portion of our ~~Core~~ single-family ~~loan~~credit guarantee portfolio to the private market, which reduces the risk of future losses to us and taxpayers when borrowers go into default. Our ~~principal methods of credit risk transfer~~primary CRT activities are our STACR debt note and ACIS transactions, ~~where we generally transfer a small portion of the expected credit losses and a significant portion of credit losses~~ in ~~a stressed economic environment. In these transactions,~~which we pay interest ~~and premiums~~ to investors or premiums to insurers ~~respectively,~~ in exchange for their taking on a portion of the credit risk on the mortgage loans in the related reference pool. These payments effectively reduce our guarantee fee income from the PCs ofbacked by the mortgage loans in the related reference pools. See ~~“MD&A~~ MD&A - Our Business Segments - Single-Family Guarantee- Business Overview - Credit Risk Transfer ~~Transactions”~~Transactions in our ~~2016~~2017 Annual Report for more information on our CRT transactions.

The following ~~chart presents~~charts present the issuance amounts for the CRT transactions that occurred during 2Q 2018 and the cumulative issuance ~~amount~~amounts for ~~the STACR debt note and ACIS~~all CRT transactions as of ~~September~~June 30, ~~2017~~2018 by loss position and the party holding each loss ~~position.~~position, excluding senior subordinate securitization structures.

New CRT Transactions during 2Q 2018⁽¹⁾

(In billions)

Senior

Freddie Mac

$96.2

Reference Pool

$99.8

Mezzanine

Freddie Mac

$0.3

ACIS⁽³⁾

$0.7

Other CRT

$1.2

First

Loss⁽⁴⁾

Freddie Mac

$0.6

ACIS

$0.1

Other CRT

$0.7

Cumulative ~~STACR Debt Note and ACIS~~CRT Transactions as of ~~September~~June 30, ~~2017~~2018⁽¹⁾⁽²⁾



	(In billions)
Senior	Freddie Mac $~~725.5~~996.3				Reference Pool $~~760.8~~1,042.2

Mezzanine	Freddie Mac $~~1.6~~2.6	ACIS⁽³⁾ $~~6.8~~ 8.8	STACR Debt Notes $23.6	Other CRT $~~20.4~~ 1.2
Mezzanine	Freddie Mac $~~1.6~~2.6	ACIS⁽³⁾ $~~6.8~~ 8.8	STACR Debt Notes $23.6	Other CRT $~~20.4~~ 1.2

First Loss⁽⁴⁾	Freddie Mac $~~4.2~~5.7	ACIS $~~0.8~~1.1	STACR Debt ~~Notes~~Notes$2.2	Other CRT $~~1.5~~0.7


~~(1)~~	~~The amounts represent the UPB upon issuance of STACR debt notes and execution of ACIS transactions.~~

(1) The amounts represent the UPB upon issuance of CRT transactions.


(2)	For the current outstanding coverage provided by our CRT transactions, see Credit Enhancements.

(3) Starting in 2Q 2018, ACIS transactions include Deep MI CRT transactions which were previously disclosed separately. The 2Q 2018 and Cumulative presentations have been modified to reflect this change.

(4) First loss includes all B tranches in our STACR debt notes and their equivalent in ACIS and Other CRT transactions.

Commentary


n	During YTD 2018, we transferred a portion of credit risk associated with $192.3 billion in UPB of loans in our single-family credit guarantee portfolio through STACR debt note, ACIS, senior subordinate securitization structures and ~~ACIS transactions, see Note 4.~~other CRT transactions.

~~Commentary~~

During YTD 2017, we transferred a portion of the credit losses associated with $175.9 billion in UPB of loans in our single-family loan portfolio primarily through STACR debt note, ACIS, whole loan security, senior subordinate securitization structure, and deep mortgage insurance CRT transactions.

During 3Q 2017, we did not have any new STACR debt note or ACIS transactions. However, we completed $1.0 billion of ACIS transactions related to reference pools in transactions executed in prior periods.


n	As of June 30, 2018, we had cumulatively transferred a portion of credit risk on more than $1 trillion of our single-family mortgages, based upon the UPB at issuance of the CRT transactions.



Freddie Mac Form 10-Q		3027



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

Our expected guarantee fee income on the PCs related to the STACR and ACIS reference pools has been effectively reduced by approximately 31%, on average, for all transactions executed through September 30, 2017.

Due to differences in accounting, there could be a significant time lag between when we recognize a provision for credit losses on the mortgage loans in the reference pools and when we recognize the related recovery for the majority of our STACR debt note transactions. A credit expense on a loan in a reference pool related to these transactions is recorded when it is probable that we have incurred a loss, while a benefit is recorded when an actual loss event occurs.

As of September 30, 2017, there has not been a significant number of loans in our STACR debt note and ACIS reference pools that have experienced a credit event. As a result, we experienced minimal write-downs on our STACR debt notes and filed minimal claims for reimbursement of losses under our ACIS transactions. We expect losses may increase on loans in the reference pools in our existing CRT transactions from Hurricanes Harvey and Irma.

~~As of September 30, 2017, we have transferred a portion of the credit risk on nearly 32% of the total outstanding single-family credit guarantee portfolio.~~


l	For originations in the twelve months ended June 30, 2017, FHFA's Conservatorship Capital Framework (CCF) capital required for credit risk was reduced approximately 60% by CRT transactions; we plan similar risk reduction transactions for this quarter's originations.

The reduction in the amount of CCF capital required for credit risk on new originations is calculated as modeled conservatorship credit capital released from the underlying single-family CRT transaction reference pool divided by total modeled conservatorship credit capital on new originations at the time of purchase. For more information on the CCF and the calculation of modeled conservatorship capital required, see Risk Management - Conservatorship Capital Framework and Risk Management - Conservatorship Capital Framework - Return on Modeled Conservatorship Capital Required.


n	Our expected guarantee fee income on the PCs related to the STACR debt note, ACIS and other CRT transaction reference pool UPB has been effectively reduced by approximately 28%, on average, for all transactions executed through June 30, 2018.


n	As of June 30, 2018, we had experienced minimal write-downs on our STACR debt notes and have filed minimal claims for reimbursement of losses under our ACIS transactions.

We continue to evaluate our credit risk transfer strategy and to make changes depending on market conditions and our business strategy. The aggregate cost of our credit risk transfer activity will continue to increase as we continue to transfer credit risk on new originations.



Freddie Mac Form 10-Q		3128



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

Credit Enhancements

The table below provides information on the total current and protected UPB and maximum coverage associated with credit enhanced loans in our single-family credit guarantee portfolio as of June 30, 2018 and December 31, 2017, respectively. The table includes all types of single-family credit enhancements. See Note 6 for additional information about our single-family credit enhancements.



	June 30, 2018					December 31, 2017
(In millions)	Total Current and Protected UPB⁽¹⁾			Maximum Coverage⁽²⁾		Total Current and Protected UPB⁽¹⁾			Maximum Coverage⁽²⁾
Primary mortgage insurance		$351,776			$90,085		$334,189			$85,429
STACR debt note	641,850			18,670		604,356			17,788
ACIS transactions⁽³⁾	698,012			7,873		625,082			6,933
Senior subordinate securitization structures	24,684			2,860		12,283			1,913
Other⁽³⁾⁽⁴⁾	88,554			8,173		8,623			6,282
Less: UPB with more than one type of credit enhancement	(866,047		)	—		(775,751		)	—
Single-family credit guarantee portfolio with credit enhancement	938,829			127,661		808,782			118,345
Single-family credit guarantee portfolio without credit enhancement	916,618			—		1,020,098			—
Total		$1,855,447			$127,661		$1,828,880			$118,345

(1)

Except for the majority of our STACR debt notes and ACIS transactions, our credit enhancements generally provide protection for the first, or initial, credit losses associated with the related loans. For STACR debt notes and ACIS transactions, total current and protected UPB represents the UPB of the assets included in the reference pool. For senior subordinate securitization structures, total current and protected UPB represents the UPB of the guaranteed securities.

(2)

Except for senior subordinate securitization structures, this represents the remaining amount of loss recovery that is available subject to the terms of counterparty agreements. Specifically, for STACR debt notes, this represents the outstanding balance of STACR debt notes held by third parties, and for ACIS transactions, this represents the remaining aggregate limit of insurance purchased from third parties. For senior subordinate securitization structures, this represents the UPB of the securities that are subordinate to our guarantee and held by third parties, which could provide protection by absorbing first losses.


(3)	Starting in 2Q 2018, ACIS transactions include Deep MI CRT transactions which were previously disclosed under "Other" transactions. The current and prior period presentation has been modified to reflect this change.


(4)	Includes seller indemnification, lender recourse and indemnification agreements, pool insurance, HFA indemnification and other credit enhancements.

Commentary

n We had coverage remaining of $127.7 billion and $118.3 billion on our single-family credit guarantee portfolio as of June 30, 2018 and December 31, 2017, respectively. Credit risk transfer transactions provided 24.5% and 22.4% of the coverage remaining at those dates, respectively.



Freddie Mac Form 10-Q		29



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

Mortgage Loan Credit Risk

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


	September 30, 2017																		June 30, 2018
	CLTV ≤ 80				CLTV > 80 to 100				CLTV > 100				All Loans						CLTV ≤ 80				CLTV > 80 to 100				CLTV > 100				All Loans
(Credit score)	% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Modified		% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Portfolio		SDQ Rate⁽¹⁾		% Modified
Core single-family loan portfolio:
< 620	0.3	%	1.89	%	—	%	NM		—	%	NM		0.3	%	2.11	%	3.3	%	0.3	%	2.23	%	—	%	NM		—	%	NM		0.3	%	2.39	%	3.5	%
620 to 659	1.7		0.98	%	0.4		1.11	%	—		NM		2.1		1.00	%	1.4	%	2.0		1.21		0.3		1.36	%	—		NM		2.3		1.23		1.7
≥ 660	64.8		0.15	%	9.4		0.21	%	—		NM		74.2		0.16	%	0.2	%	68.2		0.2		9.0		0.28		—		NM		77.2		0.21		0.3
Not available	—		NM		—		NM		—		NM		—		NM		3.7	%	0.1		1.74		—		NM		—		NM		0.1		3.25		3.6
Total	66.8	%	0.18	%	9.8	%	0.25	%	—	%	NM		76.6	%	0.19	%	0.3	%	70.6	%	0.24	%	9.3	%	0.35	%	—	%	NM		79.9	%	0.25	%	0.3	%

Legacy and relief refinance single-family loan portfolio:
< 620	1.2	%	4.46	%	0.3	%	8.49	%	0.2	%	14.35	%	1.7	%	5.55	%	24.2	%	1.2	%	4.44	%	0.2	%	8.77	%	0.1	%	14.67	%	1.5	%	5.32	%	23.4	%
620 to 659	2.0		3.32	%	0.5		6.65	%	0.2		12.07	%	2.7		4.18	%	20.8	%	1.9		3.41		0.3		7.13		0.2		12.01		2.4		4.07		20.3
≥ 660	15.5		1.16	%	2.5		3.37	%	0.9		5.87	%	18.9		1.49	%	7.5	%	14.0		1.25		1.6		3.83		0.5		6.25		16.1		1.51		7.4
Not available	0.1		4.85	%	—		NM		—		NM		0.1		5.32	%	17.5	%	0.1		4.87		—		NM		—		NM		0.1		5.21		18.9
Total	18.8	%	1.66	%	3.3	%	4.42	%	1.3	%	7.97	%	23.4	%	2.14	%	10.3	%	17.2	%	1.76	%	2.1	%	4.93	%	0.8	%	8.46	%	20.1	%	2.14	%	10.2	%


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



Freddie Mac Form 10-Q		3230



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

Alt-A and Subprime Loans

W~~hile~~

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

Participants in the mortgage market have characterized single-family loans based upon their overall credit quality at the time of origination, including as prime or subprime. While we have not historically characterized the loans in our single-family credit guarantee portfolio as either prime or subprime, we monitor the amount of loans we have guaranteed with characteristics that indicate a higher degree of credit risk. In addition, we estimate that approximately ~~$1.1~~$0.9 billion and ~~$1.3~~$1.1 billion of security collateral underlying our other securitization products at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, were identified as subprime based on information provided to us when we entered into these transactions.

Mortgage market participants have classified single-family loans as Alt-A if these loans have credit characteristics that range between the prime and subprime categories, if they are underwritten with lower or alternative income or asset documentation requirements compared to a full documentation loan, or both. Although we have discontinued new purchases of loans with lower documentation standards, we continue to purchase certain amounts of such loans in cases where the loan was either purchased pursuant to a previously issued guarantee, as part of our relief refinance initiative, or as part of another refinance loan initiative and the pre-existing loan was originated under less than full documentation standards. In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A, such refinance loan may no longer be categorized or reported as an Alt-A loan in this Form 10-Q and our other financial reports because the new refinance loan replacing the original loan would not be identified by the seller/servicer as an Alt-A loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such refinancing not occurred. From the time the relief refinance initiative began in 2009 to ~~September~~June 30, ~~2017,~~2018, we have purchased approximately ~~$36.0~~$36.2 billion of relief refinance loans that were previously categorized as Alt-A loans in our portfolio, including ~~$0.3~~$0.1 billion in ~~3Q 2017.~~2Q 2018.

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


	September 30, 2017								December 31, 2016								June 30, 2018								December 31, 2017
(Dollars in billions)	UPB		CLTV		% Modified		SDQ Rate		UPB		CLTV		% Modified		SDQ Rate		UPB		CLTV		% Modified		SDQ Rate		UPB		CLTV		% Modified		SDQ Rate
Alt-A		$28.2	68	%	25.8	%	5.00	%		$32.6	72	%	25.9	%	5.21	%		$25.3	64	%	24.1	%	4.83	%		$27.1	67	%	24.1	%	5.62	%

The UPB of Alt-A loans in our single-family credit guarantee portfolio declined during YTD ~~2017~~2018 primarily due to borrowers refinancing into other mortgage products, foreclosure ~~transfers,~~sales and other liquidation events. Significant portions of the Alt-A loans in our portfolio are concentrated in Arizona, California, Florida and Nevada.



Freddie Mac Form 10-Q		3331



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

Single-Family Loan Performance

Serious Delinquency Rates

Delinquency Rates for Loans One Month and Two Months Past Due

Commentary

Total serious delinquency rate on our single-family credit guarantee portfolio was lower as of June 30, 2018 compared to June 30, 2017 due to our continued loss mitigation efforts, sales of certain seriously delinquent loans from our legacy and relief refinance single-family portfolio, home price appreciation and a low unemployment rate, partially offset by the impact of the hurricanes in 3Q 2017. This improvement was also driven by the continued shift in the single-family credit guarantee portfolio mix, as the Legacy and relief refinance single-family loan portfolio runs off and we add higher credit quality loans to our Core single-family loan portfolio. Delinquency rates for both loans one month past due and loans two months past due were similarly affected.



Freddie Mac Form 10-Q		32



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

~~Single-Family Loan~~Credit Performance

~~Serious Delinquency Rates~~

~~Commentary~~

~~Serious delinquency rates were lower as of September 30, 2017 compared to September 30, 2016 on~~The table below contains certain credit performance metrics for our single-family credit guarantee ~~portfolio due to home price appreciation and a low unemployment rate, combined with our continued loss mitigation efforts and sales of certain seriously delinquent loans.~~portfolio.



(Dollars in millions)	2Q 2018			2Q 2017			YTD 2018			YTD 2017
Charge-offs, gross		$599			$2,153			$971			$2,893
Recoveries	(126		)	(85		)	(222		)	(182		)
Charge-offs, net	473			2,068			749			2,711
REO operations expense	15			37			49			93
Total credit losses		$488			$2,105			$798			$2,804

Total credit losses (in bps)	10.5			46.7			8.6			31.2

The ~~total delinquency rate increased to 1.52%~~table below summarizes the carrying value for individually impaired single-family loans ~~one month past due as~~on our condensed consolidated balance sheets for which we have recorded an allowance determined on an individual basis.



	June 30, 2018					June 30, 2017
(Dollars in millions)	Loan Count		Amount			Loan Count		Amount
TDRs, at January 1	364,704			$54,415		485,709			$78,869
New additions	36,796		5,819			20,641		2,851
Repayments and reclassifications to held-for-sale	(27,650	)	(4,532		)	(72,254	)	(14,776		)
Foreclosure sales and foreclosure alternatives	(4,203	)	(566		)	(5,514	)	(751		)
TDRs, at June 30	369,647		55,136			428,582		66,193
Loans impaired upon purchase	4,031		265			6,615		443
Total impaired loans with an allowance recorded	373,678		55,401			435,197		66,636
Allowance for loan losses			(6,592		)			(8,846		)
Net investment, at June 30				$48,809					$57,790

The tables below present information about the UPB of ~~September 30, 2017 due to recent hurricane events, compared to 1.23%~~single-family TDRs and ~~1.30% as of June 30, 2017 and September 30, 2016, respectively. The total delinquency rate for~~non-accrual loans ~~two months past due was 0.38% as of September 30, 2017 compared to 0.33% and 0.39% as of June 30, 2017 and September 30, 2016, respectively.~~on our condensed consolidated balance sheets.



(In millions)	June 30, 2018		December 31, 2017
TDRs on accrual status		$54,406		$51,644
Non-accrual loans	13,301		17,748
Total TDRs and non-accrual loans		$67,707		$69,392

Allowance for loan losses associated with:
TDRs on accrual status		$5,393		$5,257
Non-accrual loans	1,510		1,883
Total		$6,903		$7,140

(In millions)	YTD 2018		YTD 2017
Foregone interest income on TDRs and non-accrual loans⁽¹⁾		$742		$988


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



Freddie Mac Form 10-Q		33



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

Commentary


n	As of June 30, 2018, 52% of the allowance for loan losses for single-family mortgage loans related to interest rate concessions provided to borrowers as part of loan modifications.


n	Most of our modified single-family loans, including TDRs, were current and performing at June 30, 2018.


n	We expect our allowance for loan losses associated with existing single-family TDRs to decline over time as we continue to sell reperforming loans. In addition, the allowance for loan losses will decline as borrowers continue to make monthly payments under the modified terms and interest rate concessions are amortized into earnings.


n	SeeNote 4for information on our single-family allowance for loan losses.



Freddie Mac Form 10-Q		34



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

~~Credit Performance~~Loss Mitigation Activities

~~The table below contains certain credit performance metrics~~Loan Workout Activity⁽¹⁾

(UPB in billions, number of ~~our single-family credit guarantee portfolio. On January 1, 2017, we elected a new accounting policy for~~ loan reclassifications from held-for-investment to held-for-sale that increased the amount of charge-offs recognized during YTD 2017. 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. See Note 4 for further information about this change.workouts in thousands)

(Dollars in millions) 3Q 2017 3Q 2016 YTD 2017 YTD 2016
Charge-offs, gross⁽¹⁾

$1,140

$461

$4,033

$1,516
Recoveries (145 ) (115 ) (327 ) (395 )
Charge-offs, net 995
346
3,706
1,121
REO operations expense 35
56
128
169
Total credit losses
$1,030

$402

$3,834

$1,290

Total credit losses⁽¹⁾ (in bps)
22.7
9.2
28.4
9.9


~~(1)~~ (1)	Foreclosure alternatives consist of short sales and deeds in lieu of foreclosure. Home retention actions consist of forbearance agreements, repayment plans and loan modifications.

Commentary


n	Our loan workout activity increased in the 2018 periods, driven by the impact of the hurricanes in 3Q ~~2016 and YTD 2016 do not include lower-of-cost-or-fair-value adjustments~~2017.

We continue our loss mitigation efforts through our relief refinance, modification and other expenses related to property taxes and insurance recognized when we transfer loans from held-for-investment to held-for-sale, which totaled $75 million and $949 million, respectively. 3Q 2017 and YTD 2017 include charge-offs of $0.8 billion and $3.0 billion, respectively, related to the transfer of loans from held-for-investment to held-for-sale.initiatives.

~~The table below summarizes the carrying value for individually impaired single-family loans on our condensed consolidated balance sheets for which we have recorded a specific reserve.~~

September 30, 2017 September 30, 2016
(Dollars in millions) Loan Count Amount Loan Count Amount
TDRs, at January 1 485,709

$78,869
512,253

$85,960
New additions 29,867
4,130
32,581
4,482
Repayments and reclassifications to held-for-sale (113,933 ) (21,828 ) (45,334 ) (8,863 )
Foreclosure transfers and foreclosure alternatives (8,169 ) (1,122 ) (8,856 ) (1,261 )
TDRs, at September 30 393,474
60,049
490,644
80,318
Loans impaired upon purchase 5,782
380
8,266
583
Total impaired loans with specific reserve 399,256
60,429
498,910
80,901
Allowance for loan losses (7,706 ) (11,910 )
Net investment, at September 30
$52,723

$68,991



Freddie Mac Form 10-Q		35



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

REO Activity

The ~~tables~~table below ~~present information about the UPB~~presents a summary of our single-family ~~TDRs and non-accrual loans on our condensed consolidated balance sheets.~~

REO activity.

(In millions) September 30, 2017 December 31, 2016
TDRs on accrual status
$58,065

$77,122
Non-accrual loans 13,899
16,164
Total TDRs and non-accrual loans
$71,964

$93,286

Loan loss reserves associated with:
TDRs on accrual status
$6,326

$10,295
Non-accrual loans 1,830
2,290
Total
$8,156

$12,585

(In millions) YTD 2017 YTD 2016
Foregone interest income on TDRs and non-accrual loans⁽¹⁾

$1,325

$1,720



	2Q 2018					2Q 2017					YTD 2018					YTD 2017
(Dollars in millions)	Number of Properties		Amount			Number of Properties		Amount			Number of Properties		Amount			Number of Properties		Amount
Beginning balance — REO	7,718			$840		10,938			$1,162		8,299			$900		11,418			$1,215
Additions	2,744		266			3,299		321			5,364		512			6,844		667
Dispositions	(3,327	)	(329		)	(4,322	)	(437		)	(6,528	)	(635		)	(8,347	)	(836		)
Ending balance — REO	7,135		777			9,915		1,046			7,135		777			9,915		1,046
Beginning balance, valuation allowance			(9		)			(19		)			(14		)			(17		)
Change in valuation allowance			3					9					8					7
Ending balance, valuation allowance			(6		)			(10		)			(6		)			(10		)
Ending balance — REO, net				$771					$1,036					$771					$1,036

Commentary

~~(1)~~n

~~Represents~~Our REO ending inventory declined in the ~~amount~~2018 periods primarily due to a decrease in REO acquisitions driven by fewer loans in foreclosure and a large proportion of ~~interest income that we would have recognized for loans outstanding~~property sales to third parties at ~~the end of each period, had the loans performed according to their original contractual terms.~~foreclosure.

~~Commentary~~

~~As of September 30, 2017, 51% of the loan loss reserves for single-family mortgage loans related to interest rate concessions provided to borrowers as part of loan modifications.~~

~~Most of our modified single-family loans, including TDRs, were current and performing at September 30, 2017.~~

We expect our loan loss reserves associated with existing single-family TDRs to decline over time as we continue to sell reperforming loans. In addition, these loan loss reserves will decline as borrowers continue to make monthly payments under the modified terms and interest-rate concessions are amortized into earnings.

~~See Note 4 for information on our single-family loan loss reserves.~~

Net charge-offs were higher in the 2017 periods compared to the 2016 periods primarily due to the policy change for loan reclassifications from held-for-investment to held-for-sale. See Note 4 for further information about this change.



Freddie Mac Form 10-Q		36



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

~~Loss Mitigation Activities~~Financial Results

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

~~(UPB~~



							Change											Change
(Dollars in millions)	2Q 2018			2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Guarantee fee income		$1,571			$1,506			$65		4	%		$3,084			$2,924			$160		5	%
Benefit (provision) for credit losses	103			12			91			758		131			51			80			157
Other non-interest income (loss)	119			359			(240		)	(67	)	213			678			(465		)	(69	)
Administrative expense	(363		)	(332		)	(31		)	(9	)	(699		)	(665		)	(34		)	(5	)
REO operations expense	(20		)	(41		)	21			51		(59		)	(100		)	41			41
Other non-interest expense	(400		)	(335		)	(65		)	(19	)	(779		)	(653		)	(126		)	(19	)
Segment Earnings before income tax expense	1,010			1,169			(159		)	(14	)	1,891			2,235			(344		)	(15	)
Income tax expense	(207		)	(391		)	184			47		(386		)	(747		)	361			48
Segment Earnings, net of taxes	803			778			25			3		1,505			1,488			17			1
Total other comprehensive income (loss), net of tax	(2		)	—			(2		)	N/A		(6		)	(2		)	(4		)	(200	)
Total comprehensive income		$801			$778			$23		3	%		$1,499			$1,486			$13		1	%

Key Business Drivers:

n 2Q 2018 vs. 2Q 2017and YTD 2018 vs. YTD 2017

l Continued growth in ~~billions, number of loan workouts in thousands)~~

~~Commentary~~

~~Our loan workout activity declined during the 2017 periods compared to the 2016 periods consistent with the decline in the number of delinquent loans in the~~our single-family credit guarantee portfolio and higher upfront fee amortization income resulted in increased guarantee fee income.

l Benefit for credit losses remained relatively unchanged.

l Losses in the 2018 periods compared to gains in the 2017 periods on single-family seasoned loan reclassifications between held-for-investment and held-for-sale.

l Small fair value gains on STACR debt notes in the 2018 periods compared to fair value losses in the 2017 periods as a result of market spreads between STACR yields and LIBOR remaining relatively unchanged in the ~~economy continued to improve.~~2018 periods, while spreads tightened during the 2017 periods.

~~We continue our loss mitigation efforts through our relief refinance, modification, and other initiatives.~~



Freddie Mac Form 10-Q		37



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

~~REO Activity~~

~~The table below presents a summary of our single-family REO activity.~~

3Q 2017 3Q 2016 YTD 2017 YTD 2016
(Dollars in millions) Number of Properties Amount Number of Properties Amount Number of Properties Amount Number of Properties Amount
Beginning balance — REO 9,915

$1,046
13,284

$1,394
11,418

$1,215
17,004

$1,774
Additions 2,853
282
3,986
397
9,697
949
12,770
1,229
Dispositions (3,622 ) (348 ) (5,085 ) (503 ) (11,969 ) (1,184 ) (17,589 ) (1,715 )
Ending balance — REO 9,146
980
12,185
1,288
9,146
980
12,185
1,288
Beginning balance, valuation allowance (10 ) (17 ) (17 ) (52 )
Change in valuation allowance (4 ) 1
3
36
Ending balance, valuation allowance

(14 )

(16 ) (14 )

(16 )
Ending balance — REO, net

$966

$1,272

$966

$1,272

~~Commentary~~

Our REO ending inventory declined in the 2017 periods compared to the 2016 periods primarily due to a decrease in REO acquisitions driven by fewer loans in foreclosure and a large proportion of property sales to third parties at foreclosure.



~~Freddie Mac Form 10-Q~~		38



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

~~FINANCIAL RESULTS~~

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

3Q 2017 3Q 2016 Change YTD 2017 YTD 2016 Change
(Dollars in millions) $ % $ %
Guarantee fee income
$1,581

$1,641

($60 ) (4 )%
$4,505

$4,427

$78
2 %
Benefit (provision) for credit losses (826 ) (297 ) (529 ) (178 )% (775 ) 113
(888 ) (786 )%
Other non-interest income (loss) 403
6
397
6,617 % 1,081
131
950
725 %
Administrative expense (353 ) (330 ) (23 ) (7 )% (1,018 ) (939 ) (79 ) (8 )%
REO operations expense (38 ) (59 ) 21
36 % (138 ) (177 ) 39
22 %
Other non-interest expense (348 ) (311 ) (37 ) (12 )% (1,001 ) (832 ) (169 ) (20 )%
Segment Earnings before income tax expense 419
650
(231 ) (36 )% 2,654
2,723
(69 ) (3 )%
Income tax expense (164 ) (153 ) (11 ) (7 )% (911 ) (833 ) (78 ) (9 )%
Segment Earnings, net of taxes 255
497
(242 ) (49 )% 1,743
1,890
(147 ) (8 )%
Total other comprehensive income (loss), net of tax —
(1 ) 1
100 % (2 ) (1 ) (1 ) (100 )%
Total comprehensive income
$255

$496

($241 ) (49 )%
$1,741

$1,889

($148 ) (8 )%

~~Key Drivers:~~

~~3Q 2017 vs. 3Q 2016~~ ~~- Total comprehensive income decreased primarily driven by:~~


◦	$0.9 billion (pre-tax) increase in provision for credit losses in 3Q 2017 attributable to estimated losses related to Hurricanes Harvey, Irma and Maria, which included approximately $0.6 billion related to $2.3 billion in UPB of mortgage loans in Puerto Rico.

~~This decrease was partially offset by:~~


◦	~~Decrease in provision for credit losses in 3Q 2017 due to improvements in our estimated loss severity.~~


◦	~~Gains recognized on STACR debt notes from widening of spreads between the STACR yields and LIBOR during 3Q 2017 compared to losses recognized in 3Q 2016 when spreads tightened.~~


◦	Gains recognized on a higher volume of primarily reperforming loans reclassified from held-for-investment to held-for-sale during 3Q 2017 compared to losses recognized on seriously delinquent loans during 3Q 2016.


◦	~~Gains recognized from price improvements primarily on reperforming loans that were sold into senior subordinate securitization structures during 3Q 2017.~~

~~YTD 2017 vs. YTD 2016~~ ~~- Total comprehensive income decreased primarily driven by:~~


◦	$0.9 billion (pre-tax) increase in provision for credit losses in 3Q 2017 attributable to estimated losses related to Hurricanes Harvey, Irma and Maria, which included approximately $0.6 billion related to $2.3 billion in UPB of mortgage loans in Puerto Rico.



~~Freddie Mac Form 10-Q~~		39



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

~~This decrease was partially offset by:~~


◦	Gains recognized on a higher volume of primarily reperforming loans reclassified from held-for-investment to held-for-sale during YTD 2017 compared to losses recognized primarily on seriously delinquent loans during YTD 2016.


◦	~~Gains recognized from price improvements primarily on reperforming loans that were sold into senior subordinate securitization structures during YTD 2017.~~



~~Freddie Mac Form 10-Q~~		40



~~Management's Discussion and Analysis~~		~~Our Business Segments \| Multifamily~~

~~MULTIFAMILY~~Multifamily

~~MARKET CONDITIONS~~Market Conditions

The graphs and related discussion below present certain multifamily market indicators that can significantly affect the business and financial results of our Multifamily segment.

Change in Effective Rents

Source: REIS, Inc.

Apartment Vacancy Rates

Source: REIS, Inc.

Commentary

~~While vacancy rates rose slightly during 3Q 2017 compared to 2Q 2017, effective rents continued to increase, although more moderately compared to 2Q 2017,~~

Growth in effective rent (i.e., the average rent paid by the tenant over the term of the lease, adjusted for concessions by the landlord and costs borne by the tenant) for 2Q 2018 remained strong relative to the long-term average, primarily due to ~~lower than expected new apartment completions, coupled with~~ an increase in potential renters driven by healthy employment, higher single-family home prices and a growing demand for rental housing due to lifestyle changes and demographic trends.


n	While vacancy rates rose slightly during 2Q 2018 compared to 1Q 2018, these rates remain well below the long-term average. Net absorptions continued to lag new apartment completions in 2Q 2018. Although we expect continued strong demand, it may take longer to absorb new units compared to prior quarters.


n	Our financial results for 2Q 2018 were not significantly affected by these relatively stable market conditions.



Freddie Mac Form 10-Q		38



Management's Discussion and Analysis		Our Business Segments \| Multifamily

K Certificate Benchmark Spreads

Source: Independent dealers

Commentary

The valuation of our securitization pipeline and the profitability of our primary risk transfer securitization product, the K Certificate,are affected by both changes in K Certificate benchmark spreads and deal-specific attributes, such as tranche size, risk distribution and collateral characteristics (loan term, coupon type, prepayment restrictions and underlying property type). These market spread movements and deal-specific attributes contribute to our earnings volatility, which we manage by controlling the size of our securitization pipeline and by entering into certain spread-related derivatives. Spread tightening generally results in fair value gains, while spread widening generally results in fair value losses.


n	K Certificate benchmark spreads are market-quoted spreads over the U.S. swap curve. The 10-year fixed-rate spread represents the spread for the largest guaranteed class of a typical fixed-rate K Certificate, while the 7-year floating-rate spread represents the spread for the largest guaranteed class of a typical floating-rate K Certificate.



Freddie Mac Form 10-Q		39



Management's Discussion and Analysis		Our Business Segments \| Multifamily

Business Results

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

New Business Activity

Multifamily New Business Activity

(UPB in ~~potential renters from healthy employment growth and higher single family home prices.~~billions)

As new apartment completions are expected to continue to increase and slightly outpace net absorption, we expect vacancy rates to continue to increase slowly in the upcoming quarters. While increasing vacancy rates will moderate effective rent growth, we expect effective rents for the remainder of the year to be in line with the 2016 rates and the long-term average. Furthermore, we do not expect our financial results for the remainder of the year to be significantly affected by either of these market conditions.

We are continuing to assess the impacts of Hurricanes Harvey, Irma and Maria on the multifamily markets located in the affected areas. However, based on estimates of the number of displaced single family homeowners requiring temporary housing, we expect effective rents may increase and vacancy rates may decrease in the areas affected by Hurricane Harvey.

Commentary

The 2018 Conservatorship Scorecard annual production cap was $35.0 billion, unchanged from 1Q 2018. The production cap is subject to reassessment throughout the year by FHFA to determine whether an increase in the cap is appropriate based on a stronger than expected overall market. Reclassifications between new business activity subject to the production cap and new business activity not subject to the production cap may occur during 2018.


n	Outstanding purchase commitments were $20.9 billion and $19.0 billion as of June 30, 2018 and June 30, 2017, respectively. Both periods include purchase commitments for which we have elected the fair value option.



Freddie Mac Form 10-Q		40



Management's Discussion and Analysis		Our Business Segments \| Multifamily


n	Our new business activity and outstanding purchase commitments were higher for the 2018 periods than the 2017 periods due to continued strong demand for multifamily loan products and our strategic pricing efforts.


n	Approximately 32% and 39% of our multifamily new business activity during 2Q 2018 and YTD 2018, respectively, counted towards the 2018 Conservatorship Scorecard production cap, while the remaining 68% and 61% was considered uncapped.


n	Our uncapped new business activity increased during the 2018 periods compared to the 2017 periods as we continued our efforts to support borrowers in certain property types and communities that meet the criteria for affordability and Green Advantage loans.


n	Approximately 92% of our 2Q 2018 new business activity compared to 91% of our 2Q 2017 new business activity was intended for our securitization pipeline. Combined with market demand for our securities, our 2Q 2018 new business activity will be a driver for securitizations in the second half of 2018.



Freddie Mac Form 10-Q		41



Management's Discussion and Analysis		Our Business Segments \| Multifamily

~~K Certificate Benchmark Spreads~~

~~Source: Independent dealers~~

~~Commentary~~Multifamily Portfolio and Market Support

Total Multifamily Portfolio

Multifamily Mortgage Investments Portfolio

Multifamily Market Support

The ~~profitability~~following table summarizes our support of ~~our K Certificate transactions (as measured by gains and losses on sales of mortgage loans) and~~ the valuation of our securitization pipeline of held-for-sale loans are affected by the overall market spread movements (generally reflected in K Certificate benchmark spreads) as well as deal specific attributes, such as tranche size, risk distribution and collateral characteristics (loan term, coupon type, prepayment restrictions and underlying property type). These market spread movements and deal specific attributes contribute to our earnings volatility, which we manage by controlling the size of our securitization pipeline of held-for-sale mortgage loans and by entering into certain spread-related derivatives.multifamily market.

K Certificate benchmark spreads remained relatively stable during the 2017 periods, tightening slightly by the end of 3Q 2017. By comparison, our K Certificate benchmark spreads were more volatile during 1Q 2016 and 2Q 2016 and tightened during 3Q 2016.



(UPB in millions)	June 30, 2018			December 31, 2017
Unsecuritized mortgage loans held-for-sale		$16,752			$20,537
Unsecuritized mortgage loans held-for-investment	14,531			17,702
Unsecuritized non-mortgage loans⁽¹⁾	564			473
Mortgage-related securities⁽²⁾	7,214			7,451
Guarantee portfolio	220,212			203,074
Total multifamily portfolio	259,273			249,237
Add: Unguaranteed securities⁽³⁾	33,475			30,890
Less: Acquired mortgage-related securities⁽⁴⁾	(6,957		)	(7,109		)
Total multifamily market support		$285,791			$273,018


(1)	Reflects the UPB of financing provided to investment funds.


(2)	Includes mortgage-related securities acquired by us from our securitizations. We have not invested in unguaranteed securities that are in a first loss position.


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


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



Freddie Mac Form 10-Q		42



Management's Discussion and Analysis		Our Business Segments \| Multifamily

~~BUSINESS RESULTS~~

Commentary

The financial results of the Multifamily business are largely driven by our securitization-related activities, primarily through the issuance of K Certificates and SB Certificates. The profitability of these activities is influenced by several factors, including the:

~~Interest we receive on the mortgage loans prior to their securitization;~~

~~Price we receive upon securitization of the mortgage loans; and~~

~~Ongoing guarantee fee we receive in exchange for providing our guarantee of the issued mortgage-related securities.~~

~~We evaluate the above factors collectively when assessing the profitability of any given transaction.~~

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

~~New Business Activity~~

~~Multifamily New Business Activity~~

~~(UPB in billions)~~


n	Our total multifamily portfolio increased during YTD 2018 primarily due to new loan purchases. The vast majority of the growth in our guarantee portfolio was associated with ongoing securitizations, primarily K Certificates and SB Certificates.


n	At June 30, 2018, the UPB of our unsecuritized held-for-sale loans, which are measured at fair value or lower-of-cost-or-fair-value, decreased from December 31, 2017. The decrease was primarily driven by ongoing securitizations, partially offset by new held-for-sale loan purchases.


n	At June 30, 2018, approximately 71% of our held-for-sale loans and held-for sale loan commitments were fixed-rate, while the remaining 29% were floating rate.


n	We expect our guarantee portfolio to continue to grow as a result of ongoing securitizations, which we expect to be driven by continued strong new business activity.



Freddie Mac Form 10-Q		43



Management's Discussion and Analysis		Our Business Segments \| Multifamily

Net Interest Yield and Weighted Average Portfolio Balance

Net Interest Yield Earned

(Weighted average balance in billions)

Commentary

The 2017 FHFA Scorecard production cap remains at $36.5 billion. Business activity associated with loans for targeted properties or properties with certain attributes is considered uncapped for purposes of determining the dollar volume of multifamily new business. Reclassifications between new business activity subject to the production cap and new business activity not subject to the production cap may occur during 2017.

Outstanding loan purchase commitments were $21.6 billion and $14.2 billion as of September 30, 2017 and September 30, 2016, respectively. Both periods include loan purchase commitments for which we have elected the fair value option.

New business activity and outstanding purchase commitments for the 2017 periods were higher than the 2016 periods because of stronger demand for multifamily loan products due to an elevated number of new apartment completions, strong multifamily market fundamentals and low interest rates. Multifamily market fundamentals are driven primarily by a healthy job market, continued growth in households, high propensity to rent among young adults, and rising single-family home prices. We expect our full year 2017 new business volume to be higher than our full year 2016 volume.

Approximately 87% of our 3Q 2017 new business volume was designated for securitization and included in our securitization pipeline. The holding period for loans in our securitization pipeline generally ranges between three and six months, as we aggregate sufficient loan products with similar term and risk characteristics to securitize in our K Certificate and SB Certificate transactions. Combined with market demand for our securities, our 3Q 2017 new business volume will be the primary driver of our 4Q 2017 and 1Q 2018 K Certificate and SB Certificate issuances.

During the 2017 periods, we increased our uncapped new business volume as part of our effort to support borrowers in certain property types and communities that meet the criteria for affordability and to support the overall growth of the multifamily market. This increase was primarily driven by the growth in new business volume related to our Green Advantage initiative, which we expanded in 3Q 2016. Under this initiative, Freddie Mac offers borrowers more affordable financing for the installation of green technologies that reduce energy and water consumption.

Approximately 42% and 46% of our multifamily new business activity during 3Q 2017 and YTD 2017, respectively, counted towards the 2017 FHFA Scorecard production cap, while the remaining 58% and 54% for the same periods were not subject to the production cap.

While Hurricanes Harvey, Irma and Maria did not have a significant impact on our 3Q 2017 new business volume and commitments, we are currently assessing the potential impacts of these events on future new business volume and commitments.


n	Net interest yieldincreased during the 2018 periods compared to the 2017 periods primarily due to higher prepayment income received from interest-only securities, coupled with an increase in our interest-only security holdings which generally have higher yields relative to our non-interest-only securities.


n	The weighted average portfolio balance of interest-earning assets decreased during the 2018 periods due to the run-off of our legacy held-for-investment loans.



Freddie Mac Form 10-Q		44



Management's Discussion and Analysis		Our Business Segments \| Multifamily

~~Multifamily Portfolio and Market Support~~

Credit Risk Transfer Activity

~~Total Multifamily Portfolio~~

~~Multifamily Mortgage Investments Portfolio~~

~~Multifamily Market Support~~

Credit Risk Transfer Activity and New Business Activity

~~The following table summarizes our support of the multifamily market.~~(UPB in billions)

(UPB in millions) September 30, 2017 December 31, 2016
Unsecuritized mortgage loans held-for-sale
$19,118

$16,544
Unsecuritized mortgage loans held-for-investment 20,019
25,874
Unsecuritized non-mortgage loans 303
—
Mortgage-related securities 9,172
12,517
Guarantee portfolio 184,200
157,992
Total multifamily portfolio 232,812
212,927
Add: Unguaranteed securities⁽¹⁾
28,376
24,573
Less: Acquired mortgage-related securities⁽²⁾
(5,413 ) (5,793 )
Total multifamily market support
$255,775

$231,707


~~(1)~~	~~Reflects the UPB of unguaranteed securities issued as part of our securitization products.~~


~~(2)~~	Reflects the UPB of mortgage-related securities acquired from our securitization products. This UPB must be removed to avoid a double-count, as it is already reflected within the guarantee portfolio and/or unguaranteed securities.



Freddie Mac Form 10-Q		45



Management's Discussion and Analysis		Our Business Segments \| Multifamily

Credit Risk Transfer Activity⁽¹⁾

(UPB in billions)


(1)	The amounts disclosed in the bar graph above represent the UPB of credit risk transferred to third parties.

Commentary

Our Multifamily segment provides liquidity and support to the multifamily market through a combination of activities that include the purchase, guarantee and/or securitization of multifamily mortgage loans and mortgage-related securities. At times, we invest in certain guaranteed senior securities and unguaranteed mezzanine securities related to our K Certificate and SB Certificate issuances. We have not invested in unguaranteed securities that are in a first loss position.

Our total multifamily portfolio increased during YTD 2017 primarily due to a 17% growth in our guarantee portfolio, coupled with an increase in our securitization pipeline of held-for-sale loans as a result of the growth in our new business volume.

At September 30, 2017, the UPB of our held-for-sale loans and mortgage-related securities, which are measured at fair value or lower-of-cost-or-fair-value, declined slightly from December 31, 2016. The decline, which was attributable to the runoff of our CMBS portfolio, was largely offset by an increase in the balance of our securitization pipeline of held-for-sale loans due to the growth of our new business activity and the reclassification of certain loans from held-for-investment to held-for-sale during 3Q 2017.

~~Our multifamily delinquency rate at September 30, 2017 was 2 basis points and continues to remain low compared to other industry participants.~~


n	The structures for credit risk transfer transactions, primarily the K Certificate and SB Certificate structures, vary by deal. Structural deal features such as term, type of underlying loan product, and subordination levels generally influence the deal's size and risk profile, which ultimately affect the guarantee fee rate set by Freddie Mac, as Guarantor, at the time of securitization.

We executed $14.2 billion in UPB of credit risk transfer transactions during 2Q 2018 and $278.9 billion in UPB since 2009. Through these transactions, we transferred a large majority of the expected and stress credit risk of the underlying assets, primarily by issuing unguaranteed subordinated securities, as part of our K Certificate and SB Certificate transactions. Also, we began selling certain of our loans to investment funds in 3Q 2017, resulting in the transfer of the associated credit risk of those loans to third parties.



Freddie Mac Form 10-Q		46



Management's Discussion and Analysis		Our Business Segments \| Multifamily


n	The UPB of ourcredit risk transfer transactions was higher during 2Q 2018 compared to 2Q 2017, primarily due to a larger average balance in our securitization pipeline, which was driven by strong new loan purchase activity during the latter part of 2017.


n	As of June 30, 2018, we had cumulatively transferred a large majority of credit risk on the multifamily guarantee portfolio.


l	For originations in the twelve months ended June 30, 2017, CCF capital required for credit risk was reduced approximately 90% by CRT transactions; we plan similar risk reduction transactions for this quarter's originations.

The reduction in the amount of CCF capital required for credit risk on new originations is calculated as modeled conservatorship credit capital released from CRT transactions (primarily through K Certificates and SB Certificates) divided by total modeled conservatorship credit capital on new originations at the time of purchase. For more information on the CCF and the calculation of modeled conservatorship capital required, see Risk Management - Conservatorship Capital Framework and Risk Management - Conservatorship Capital Framework - Return on Modeled Conservatorship Capital Required.


n	In addition to transferring a large majority of the expected and stress credit risk, nearly all of our credit risk transfer transactions also shifted certain non-credit risks associated with the underlying assets, such as interest-rate risk and liquidity risk, away from Freddie Mac to third-party investors.


n	Based on the strength of our new business activity and our outstanding purchase commitments for YTD 2018, we expect our credit risk transfer activity for the full year 2018 to exceed our full year 2017 activity.


n	While our K Certificate and SB Certificate issuances continue to be our primary mechanism to transfer multifamily mortgage credit and certain non-credit risk, we expect to continue to develop new risk transfer initiatives throughout 2018.

~~Credit Risk Transfer Activity~~

~~New K Certificate and SB Certificate Issuances~~

~~(UPB in billions)~~

~~Commentary~~

K Certificate and SB Certificate structures vary by deal. Structural deal features such as term, type of underlying loan product, and subordination levels generally influence the deal's size (UPB) and its risk profile, which ultimately affects the guarantee fee rate set by Freddie Mac, as Guarantor, at the time of securitization.

~~The volume of our K Certificate and SB Certificate issuances is generally influenced by the size of our securitization pipeline, along with market demand for multifamily securities.~~

The average guarantee fee rate on newly issued K Certificate and SB Certificate issuances decreased during the 2017 periods compared to the 2016 periods, primarily due to greater securitization of underlying loan products that by their nature and design have less risk and for which we therefore set a lower guarantee fee rate.

The volume of our K Certificate and SB Certificate issuances was higher during the 2017 periods compared to the 2016 periods, primarily due to a larger average balance in our securitization pipeline. As our 3Q 2017 new business volume exceeded our 3Q 2016 new business volume, we expect our full year 2017 K Certificate and SB Certificate issuance volume to exceed the issuance volume for the full year 2016.



Freddie Mac Form 10-Q		47



Management's Discussion and Analysis		Our Business Segments \| Multifamily

Financial Guarantee Activity

~~Guarantee Assets~~

~~(In millions)~~

Unearned Guarantee Fees on New Guarantee Contracts

(Dollars in millions)

Remaining Unearned Guarantee Fees



Freddie Mac Form 10-Q		48



Management's Discussion and Analysis		Our Business Segments \| Multifamily

Commentary

We earn guarantee fees in exchange for providing our guarantee of some or all of the securities we issue as part of our securitization products. Each time we enter into a financial guarantee contract, we initially recognize unearned guarantee fees on our balance sheet, which represent the present value of future guarantee fees we expect to receive in cash. We recognize these fees in segment earnings over the expected remaining guarantee term. While we expect to collect these future fees based on historical performance, the actual amount collected will depend on the performance of the underlying collateral subject to our financial guarantee.

We generally recognize a guarantee asset on our condensed consolidated balance sheets each time we enter into a financial guarantee contract. This asset represents the present value of guarantee fees we expect to receive in the future from those guarantee transactions. We will recognize these fees in segment earnings over the expected remaining guarantee term. While we expect to collect these future fees based on historical performance, the actual amount collected will depend on the performance of the underlying collateral subject to our financial guarantee.

~~The balance of~~n New unearned guarantee fees increased during ~~YTD~~the 2018 periods compared to the 2017 periods primarily due to an increase in the ~~continued growth~~UPB of our ~~multifamily guarantee business, as new securitization volume continued to be strong, significantly outpacing runoff.~~

~~New~~securitizations, offset by lower average guarantee fee ~~assets:~~rates due to underlying loan products that, by their nature and design, have less risk and for which we therefore set a lower guarantee fee rate.

◦n

~~3Q 2017 vs. 3Q 2016 and~~The remaining balance of unearned guarantee fees increased slightly during YTD ~~2017 vs. YTD 2016~~ ~~- increased primarily~~2018, as the increase attributable to the growth of our securitization volume outpaced the decrease due to ~~higher volumes~~seasoning and run-off of ~~K Certificate and SB Certificate issuances, partially offset by lower average guarantee fee rates on the 2017 period issuances compared to the 2016 period issuances.~~

prior securitizations.



Freddie Mac Form 10-Q		49



Management's Discussion and Analysis		Our Business Segments \| Multifamily

~~FINANCIAL RESULTS~~Financial Results

The table below presents the components of Segment Earnings and comprehensive income for our Multifamily segment. As we use derivatives to economically hedge interest rate-related fair value changes of most of our assets measured at fair value, interest rates have a minimal net impact on our total comprehensive income.

3Q 2017 3Q 2016 Change YTD 2017 YTD 2016 Change
(Dollars in millions) $ % $ %
Net interest income
$342

$255

$87
34 %
$905

$791

$114
14 %
Guarantee fee income 170
134
36
27 % 483
366
117
32 %
Benefit (provision) for credit losses (22 ) 8
(30 ) (375 )% (10 ) 19
(29 ) (153 )%
Gains (losses) on loans and other non-interest income 183
551
(368 ) (67 )% 831
1,666
(835 ) (50 )%
Derivative gains (losses) 22
205
(183 ) (89 )% (31 ) (878 ) 847
96 %
Administrative expense (98 ) (89 ) (9 ) (10 )% (288 ) (255 ) (33 ) (13 )%
Other non-interest expense (11 ) (10 ) (1 ) (10 )% (44 ) (43 ) (1 ) (2 )%
Segment Earnings before income tax (expense) benefit 586
1,054
(468 ) (44 )% 1,846
1,666
180
11 %
Income tax (expense) benefit (212 ) (310 ) 98
32 % (634 ) (510 ) (124 ) (24 )%
Segment Earnings, net of taxes 374
744
(370 ) (50 )% 1,212
1,156
56
5 %
Total other comprehensive income (loss), net of tax (4 ) 46
(50 ) (109 )% 65
56
9
16 %
Total comprehensive income (loss)
$370

$790

($420 ) (53 )%
$1,277

$1,212

$65
5 %

While certain multifamily properties underlying our loans and financial guarantees were damaged by Hurricanes Harvey, Irma and Maria, such events did not significantly affect our 3Q 2017 segment financial results.



							Change											Change
(Dollars in millions)	2Q 2018			2Q 2017			$			%		YTD 2018			YTD 2017			$			%
Net interest income		$293			$292			$1		—	%		$564			$563			$1		—	%
Guarantee fee income	204			162			42			26		399			313			86			27
Benefit (provision) for credit losses	2			6			(4		)	(67	)	18			12			6			50
Gains (losses) on loans and other non-interest income	75			412			(337		)	(82	)	(355		)	648			(1,003		)	(155	)
Derivative gains (losses)	224			(180		)	404			224		879			(53		)	932			1,758
Administrative expense	(106		)	(95		)	(11		)	(12	)	(206		)	(190		)	(16		)	(8	)
Other non-interest expense	(4		)	(12		)	8			67		(18		)	(33		)	15			45
Segment Earnings before income tax expense	688			585			103			18		1,281			1,260			21			2
Income tax expense	(140		)	(196		)	56			29		(261		)	(422		)	161			38
Segment Earnings, net of taxes	548			389			159			41		1,020			838			182			22
Total other comprehensive income (loss), net of tax	(24		)	73			(97		)	(133	)	(92		)	69			(161		)	(233	)
Total comprehensive income (loss)		$524			$462			$62		13	%		$928			$907			$21		2	%

Key Business Drivers:

•~~3Q 2017 vs. 3Q 2016~~ ~~- Total comprehensive income decreased primarily driven by:~~


◦n	~~Less market spread tightening on our mortgage loans~~2Q 2018 vs. 2Q 2017 and ~~mortgage-related securities measured at fair value.~~

~~This decrease was partially offset by:~~


◦	~~Higher average multifamily guarantee portfolio balances as a result of ongoing issuances of K Certificates and SB Certificates, resulting in greater guarantee fee income; and~~YTD 2018 vs. YTD 2017


◦l	~~Increased prepayment income received from interest-only securities held~~Higher net interest yields, offset by a decline in our ~~Multifamily mortgage investments portfolio.~~

~~YTD 2017 vs. YTD 2016 -~~ ~~Total comprehensive income increased primarily driven by:~~


◦	~~Higher~~weighted average ~~multifamily guarantee~~ portfolio ~~balances as a result~~balance of ~~ongoing issuances of K Certificates and SB Certificates, resulting~~interest-earning assets, resulted in ~~greater guarantee fee income; and~~relatively flat net interest income.


◦l	~~Increased prepayment income received from interest-only securities held~~Continued growth in our ~~Multifamily mortgage investments portfolio.~~multifamily guarantee portfolio resulted in increased guarantee fee income.


l	Derivative gains (losses) are largely offset by interest rate-related fair value changes on the loans and investment securities being economically hedged, resulting in interest rate changes having a minimal net impact on total comprehensive income.


l	Spread widening on non-agency CMBS, coupled with the effects of strategic pricing, resulted in lower fair value gains for our securitization pipeline and investment securities.



Freddie Mac Form 10-Q		50



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

~~CAPITAL MARKETS~~Capital Markets

~~MARKET CONDITIONS~~Market Conditions

The following graphs and related discussion present the par swap rate curves as of the end of each comparative period. Changes in par swap rates can significantly affect the fair value of our debt, derivatives and mortgage and non-mortgage-related securities. ~~As a result,~~However, the majority of these fair value changes recorded in ~~par swap rates will affect~~ the ~~business and~~ financial ~~results of~~statements are offset by our ~~Capital Markets segment.~~hedge accounting programs.

Par Swap Rate Curves

~~Rate (%)~~

Source: BlackRock

Commentary

Long-term interest rates were relatively unchanged during 3Q 2017, while they increased slightly during 3Q 2016. During YTD 2017, long-term interest rates decreased, but by smaller amounts compared to YTD 2016. This resulted in lower fair value losses for our pay-fixed interest rate swaps and lower fair value gains for our receive-fixed interest rate swaps, certain of our option contracts, and the majority of our investments in securities during YTD 2017.

The par swap curve flattened during 2018 as short-term interest rates increased more than long-term interest rates. Long-term interest rates increased during the 2018 periods compared to small decreases during the 2017 periods. The increases resulted in larger fair value gains for our pay-fixed interest rate swaps, forward commitments to issue PCs, and futures, partially offset by larger fair value losses for our receive-fixed interest rate swaps and the vast majority of our investments in securities. The net amount of these changes in fair value was mostly offset by the change in fair value of the hedged items attributable to interest-rate risk in our hedge accounting programs.



Freddie Mac Form 10-Q		51



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

~~BUSINESS RESULTS~~

Business Results

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

Investing Activity

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

Investments Portfolio

Mortgage Investments Portfolio

Commentary

We continue to reduce the size of our mortgage investments portfolio in order to comply with the mortgage-related investments portfolio year-end limits. The balance of our mortgage investments portfolio declined 10.1% from December 31, 2016 to September 30, 2017.

~~The balance of our other investments and cash portfolio declined by 15.0% primarily due to reduced near term cash needs as of September 30, 2017 compared to December 31, 2016.~~

The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid assets decreased at a faster pace than the overall decline of our mortgage investments portfolio. The percentage of less liquid assets relative to our total mortgage investments portfolio declined from 34.4% at December 31, 2016 to 31.1% at September 30, 2017, primarily due to repayments and sales of our less liquid assets. We continued to actively reduce the size of our less liquid assets during YTD 2017 by selling $7.8 billion of non-agency mortgage-related securities and $3.8 billion of reperforming loans. Our sales of reperforming loans involved securitization of the loans using senior subordinate structures.


n	We continue to reduce the size of our mortgage investments portfolio in order to comply with the mortgage-related investments portfolio year-end limits. The balance of our mortgage investments portfolio declined 3.8% from December 31, 2017 to June 30, 2018.

The balance of our other investments and cash portfolio declined by 18.0%, primarily due to reduced near term cash needs as of June 30, 2018 compared to December 31, 2017. As part of our secured lending activities, in 2Q 2018, we began providing secured term financing through revolving lines of credit collateralized by the value of contractual mortgage servicing rights on certain mortgages we own.

The percentage of less liquid assets relative to our total mortgage investments portfolio declined from 28.4% at December 31, 2017 to 27.2% at June 30, 2018, primarily due to our active disposition of less liquid assets and repayments. We continued to actively reduce our holdings of less liquid assets during YTD 2018 by selling $3.9 billion of reperforming loans and $1.7 billion of non-agency mortgage-related securities. Our sales of reperforming loans involved securitization of the loans using senior subordinate structures.



Freddie Mac Form 10-Q		52



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


n	The overall liquidity of our mortgage investments portfolio continued to improve as our less liquid assets decreased at a faster pace than the overall decline of our mortgage investments portfolio.



Freddie Mac Form 10-Q		53



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

Net Interest Yield and Average Balances

Net Interest Yield & Average Investments Portfolio Balances

(UPB in billions)

Commentary

~~Net Interest Yield~~

◦n

~~3Q 2017 vs. 3Q 2016~~Net interest yield increased 26 and 16 basis points during 2Q 2018 and YTD ~~2017 vs. YTD 2016~~ ~~- remained relatively flat.~~

2018, respectively, primarily due to changes in our investment mix as we reduced our less liquid assets and our other investments and cash portfolio, coupled with an increase in the yield on our newly acquired mortgage-related assets and other investments and cash portfolio as interest rates increased. These increased yields were partially offset by an increase in our funding costs.

n Capital Markets segment net interest yield in the graph above is not affected by our hedge accounting programs. See Note 13 in our 2017 Annual Report for more information.



Freddie Mac Form 10-Q		5354



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



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



	Large accelerated filerý				Accelerated filer ¨
	Non-accelerated filer (Do not check if a smaller reporting company) ¨				Smaller reporting company¨
	Emerging growth company¨



	Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
~~INTRODUCTION~~ n Introduction	1
~~KEY ECONOMIC INDICATORS~~ n Key Economic Indicators	5
~~CONSOLIDATED RESULTS OF OPERATIONS~~ n Consolidated Results of Operations	9
~~CONSOLIDATED BALANCE SHEETS ANALYSIS~~ n Consolidated Balance Sheets Analysis	2018
~~OUR BUSINESS SEGMENTS~~ n Our Business Segments	2119
~~RISK MANAGEMENT~~ n Risk Management	5657
~~LIQUIDITY AND CAPITAL RESOURCES~~ n Liquidity and Capital Resources	6264
~~CONSERVATORSHIP AND RELATED MATTERS~~ n Conservatorship and Related Matters	6972
~~REGULATION AND SUPERVISION~~ n Regulation and Supervision	7174
~~OFF-BALANCE SHEET ARRANGEMENTS~~ n Off-Balance Sheet Arrangements	7377
~~FORWARD-LOOKING STATEMENTS~~ n Forward-Looking Statements	7478
FINANCIAL STATEMENTS	7680
OTHER INFORMATION	~~155~~157
CONTROLS AND PROCEDURES	~~157~~160
EXHIBIT INDEX	~~159~~162
SIGNATURES	~~160~~163
FORM 10-Q INDEX	~~161~~164



(Dollars in billions)	2Q 2018	2Q 2017	YTD 2018	YTD 2017
GAAP comprehensive income	$2.4	$2.0	$4.6	$4.2
Significant items:
Non-agency mortgage-related securities judgment ⁽¹⁾	(0.3)	—	(0.3)	—
Tax effect related to judgment ⁽¹⁾	0.1	—	0.1	—
Total significant items	(0.2)	—	(0.2)	—
Comprehensive income, excluding significant items	$2.2	$2.0	$4.4	$4.2
CCF capital required (average)	$53.1	$61.6	$54.3	$62.8
Return on CCF capital required, based on GAAP comprehensive income	18.3%	12.9%	16.9%	13.4%
Adjusted return on CCF capital required, based on comprehensive income excluding significant items	16.4%	12.9%	15.9%	13.4%



	June 30, 2018									December 31, 2017
	PMVS-YC			PMVS-L						PMVS-YC			PMVS-L
(In millions)	25 bps			50 bps			100 bps			25 bps			50 bps			100 bps
Assuming shifts of the LIBOR yield curve, (gains) losses on:⁽¹⁾
Assets		($513	)		($5,590	)		($11,003	)		$463			$5,587			$11,446
Liabilities	(156		)	2,176			4,234			185			(2,377		)	(4,968		)
Derivatives	684			3,443			6,863			(646		)	(3,200		)	(6,477		)
Total		$15			$29			$94			$2			$10			$1

PMVS		$15			$29			$94			$2			$10			$1



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



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


◦n	Our total guarantee portfolio grew $117 billion, or 6%, from June 30, 2017 to June 30, 2018, driven by a 4% increase in our single-family credit guarantee portfolio and a 26% increase in our multifamily guarantee portfolio.


◦n	~~The increase in our multifamily guarantee~~Our total investments portfolio ~~was~~declined $56 billion, or 15%, from June 30, 2017 to June 30, 2018, primarily due to ~~growth in new multifamily business volume, driven~~repayments and the active disposition of less liquid assets.


l	We continue to reduce the mortgage-related investments portfolio as required by ~~stronger demand for our loan products due to an elevated number of new apartment completions, strong market fundamentals~~the Purchase Agreement and ~~low interest rates.~~FHFA.


n	Net interest income declined, primarily driven by the continued reduction in the balance of our mortgage-related investments portfolio, partially offset by continued growth in our single-family credit guarantee portfolio.


n	Benefit for credit losses declined, primarily due to the impact of reclassifications of single-family seasoned mortgage loans between held-for-investment and held-for-sale.


n	Gain from final judgment against Nomura Holding America, Inc. in litigation involving certain of our non-agency mortgage-related securities (Nomura judgment) resulted in an increase in other income. We did not have any significant judgments or settlements in 2Q 2017.


n	Reduction in the statutory corporate income tax rate resulted in lower income tax expense.



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



Table of Contents


n	Home prices continued to appreciate, increasing by 3.0% and 3.7% during 2Q 2018 and 2Q 2017, respectively, and by 5.6% and 6.0% during YTD 2018 and YTD 2017, respectively, based on our own non-seasonally adjusted price index of single-family homes funded by loans owned or guaranteed by us or Fannie Mae.


n	We expect the rate of home price growth in the second half of 2018 to moderate, driven by a gradual increase in housing supply and higher mortgage interest rates.


n	Increases in home prices typically result in lower delinquency rates and lower loss severity, which generally reduce estimated credit losses on our total mortgage portfolio.


n	Higher single-family home prices may also contribute to an increase in potential multifamily renters.



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


n	The quarterly ending and quarterly average 30-year Primary Mortgage Market Survey ("PMMS") interest rates were higher at June 30, 2018 than June 30, 2017. Increases in the PMMS rate typically result in decreases in refinance activity and U.S. single-family loan originations.


n	For additional information on the effect of LIBOR rates on our financial results, see Our Business Segments - Capital Markets - Market Conditions.



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


~~(1)~~n	~~Excludes Puerto Rico~~Average monthly net new jobs (non-farm) were higher in 2Q 2018 than 2Q 2017.


n	The national unemployment rate was lower in 2Q 2018 than 2Q 2017.


n	Changes in monthly net new jobs and the ~~U.S. Virgin Islands.~~national unemployment rate can affect several market factors, including the demand for both single-family and multifamily housing and the level of loan delinquencies.


n	Decreases in the national unemployment rate typically result in lower levels of delinquencies, which generally result in a decrease in estimated credit losses on our total mortgage portfolio.



Management's Discussion and Analysis		Consolidated Results of Operations



	September 30, 2017					September 30, 2016
(Dollars in millions)	Loan Count		Amount			Loan Count		Amount
TDRs, at January 1	485,709			$78,869		512,253			$85,960
New additions	29,867		4,130			32,581		4,482
Repayments and reclassifications to held-for-sale	(113,933	)	(21,828		)	(45,334	)	(8,863		)
Foreclosure transfers and foreclosure alternatives	(8,169	)	(1,122		)	(8,856	)	(1,261		)
TDRs, at September 30	393,474		60,049			490,644		80,318
Loans impaired upon purchase	5,782		380			8,266		583
Total impaired loans with specific reserve	399,256		60,429			498,910		80,901
Allowance for loan losses			(7,706		)			(11,910		)
Net investment, at September 30				$52,723					$68,991


◦n	~~Recognition of $4.5 billion in proceeds received from the RBS settlement during the~~2Q 2018 vs. 2Q 2017 ~~periods related to certain of our non-agency mortgage-related securities. For more information on this settlement, see Note 12.~~and YTD 2018 vs. YTD 2017



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


◦	~~Overall, greater market spread tightening during the 2017 periods on our agency and non-agency mortgage-related securities, resulting in larger fair value gains.~~


◦	Gains recognized from the extinguishment of certain fixed-rate debt securities of consolidated trusts during the 2017 periods, as market interest rates increased between the time of issuance and repurchase, compared to losses during the 2016 periods when market interest rates decreased between the time of issuance and repurchase.


◦	~~Price improvements on single-family reperforming loans that were sold into senior subordinate securitization structures.~~


l	Decreased spread related gains during the 2018 periods compared to the 2017 periods due to lower non-agency mortgage-related securities balances and less spread tightening.