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Subordinated Debt (Freddie SUBS®)

In October 2000, Freddie Mac announced its voluntary adoption of a series of commitments designed to enhance market discipline, liquidity and capital. On September 1, 2005, Freddie Mac entered into an agreement with OFHEO, the Federal Housing Finance Agency's predecessor, that updated those commitments and transformed the voluntary nature of those commitments into a formal regulatory process enforceable by OFHEO. Under the terms of the agreement, beginning in January 2006, Freddie Mac issued subordinated debt, which it refers to as Freddie SUBS® securities, pursuant to bi-annual plans reviewed by OFHEO. Freddie Mac issued subordinated debt for public secondary market trading and rated by no less than two nationally recognized statistical rating organizations.

Historical Freddie SUBS Securities Issuance Activity

As part of the agreement with OFHEO, Freddie Mac committed to issue its Freddie SUBS securities in a quantity such that the sum of total capital (core capital plus general allowance for losses) plus the outstanding balance of qualifying subordinated debt will equal or exceed the sum of outstanding net mortgage-backed securities times 0.45 percent and total on-balance sheet assets times 4 percent. In addition, Freddie Mac committed to take reasonable steps to maintain outstanding Freddie SUBS of sufficient size to promote liquidity and reliable market quotes and to submit a subordinated debt management plan for review by OFHEO every six months beginning January 1, 2006. The Freddie SUBS program is in addition to the subordinated debt issued prior to October 2000. Past and future issuances of Freddie SUBS securities will not change Freddie Mac's commitment to issue large, liquid senior Reference Notes® securities according to the published financing calendar.

During 2001 and 2002, Freddie Mac completed four offerings of Freddie SUBS securities that provided approximately $5.5 billion in net proceeds. From 2003-2005, Freddie Mac did not issue any Freddie SUBS securities. In 2006, Freddie Mac resumed SUBS issuance and completed two additional offerings of Freddie SUBS securities, the first such offerings since February 2002.

Deferral of Interest Requirement

An important feature of Freddie SUBS securities was the interest deferral provision. Although Freddie Mac has not deferred the interest payment on any outstanding issues of Freddie SUBS securities, under the terms of the agreement, Freddie Mac was required to defer the payment of interest for up to five years on all outstanding Freddie SUBS securities if:

  1. Freddie Mac's "core capital" fell below 125% of its "critical capital" requirement, OR
  2. Freddie Mac's "core capital" fell below its "minimum capital" requirement, and pursuant to the corporation's request, the Secretary of the Treasury exercised discretionary authority to purchase Freddie Mac's obligations under Section 306(c) of the Freddie Mac Charter Act

FHFA Appointment as Freddie Mac Conservator

On September 6, 2008, the Board of Directors of Freddie Mac adopted a resolution consenting to the appointment of the Federal Housing Finance Agency ("FHFA") as conservator of Freddie Mac. On September 6, 2008, the Director of FHFA (the "Director") appointed FHFA as conservator of Freddie Mac in accordance with the Federal Housing Finance Reform Act of 2008 (the "Reform Act") and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. See Freddie Mac's Form 8-K filed on September 11, 2008.

In a September 23, 2008 statement concerning the conservatorship, the Director of FHFA stated that Freddie Mac would continue to make interest and principal payments on Freddie Mac’s subordinated debt, even if Freddie Mac fails to maintain required capital levels. As a result, the terms of any Freddie Mac subordinated debt that provide for Freddie Mac to defer payments of interest under certain circumstances, including its failure to maintain specified capital levels, are no longer applicable. See Freddie Mac's Form 8-K filed on September 26, 2008. On October 9, 2008, the Director of FHFA announced that capital classifications for Freddie Mac would be suspended during the conservatorship. See Freddie Mac's Form 8-K filed on October 15, 2008.

No Acceleration Right

Freddie SUBS securities do not permit the holders to accelerate the maturity of the securities upon default or the occurrence of any other event.

No Warranties; Limitation of Liability

Although Freddie Mac attempts to provide useful information, Freddie Mac does not guarantee that the information posted on or linked to any Freddie Mac Web site is accurate, current or suitable for any particular purpose. Freddie Mac assumes no obligation to update or continue to post or link to the information. Freddie Mac does not guarantee that access to any Freddie Mac Web site will be uninterrupted, or that a Freddie Mac Web site cannot be tampered with by third parties. While Freddie Mac has implemented security measures designed to protect most information sent to the Freddie Mac Web sites, Freddie Mac does not guarantee that information sent to a Freddie Mac Web site will not be obtained, reviewed, disclosed or tampered with by third parties.

No Offer or Solicitation of Securities. Freddie Mac operates several Web sites, any one of which may include information related to, or referenced in the offering documentation for, certain Freddie Mac securities, including offering circulars and related supplements and agreements. Freddie Mac securities may not be eligible for offer or sale in certain jurisdictions or to certain persons. The Information is provided for your general information only, is current only as of its specified date and does not constitute an offer to sell or a solicitation of an offer to buy securities. All Information regarding or relating to Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. Investors should review the relevant offering circular and any related supplements before making a decision with respect to the purchase or sale of any security. In addition, before purchasing any security, please consult your legal and financial advisors for information about and analysis of the security, its risks and its suitability as an investment in your particular circumstances.

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