FREDDIE MAC REPORTS 2005 FINANCIAL RESULTS

Company Reports Market Share Growth and Continued Solid Risk Management Performance

McLean, VA – Freddie Mac (NYSE:FRE) today reported GAAP net income of $2.1 billion for 2005.

The decline in net income from $2.9 billion for 2004 was due primarily to approximately $600 million of costs associated with the recent agreement to settle the securities class action and shareholder derivative litigation, charges related to Hurricane Katrina and the net impact of certain accounting changes. Freddie Mac's regulatory core capital is estimated to have grown to $36.0 billion at December 31, 2005, with an estimated $3.5 billion in excess of the 30-percent target surplus. The company's interest-rate and credit risks remain near historic lows.

"Freddie Mac made continued progress throughout 2005, delivering long-term value to the nation's homeowners and to our stockholders as we've strived to fulfill our mission and solidify business execution," said Chairman and CEO Richard F. Syron. "We provided more support for low- and moderate-income homebuyers, increased our market share, streamlined our business operations and added key talent to our senior management team. With the release today of our 2005 results, we are positioned to initiate the capital management activities we announced last year."

In 2005, Freddie Mac financed homes for more than four million families. In addition, while the final determination will be made by the Secretary of HUD, we reported that we met all of our regulatory affordable housing goals for 2005. We estimate our share of government-sponsored enterprise mortgage securitizations was 45 percent in 2005, compared to 41 percent in 2004, as we improved service quality and products and forged new and stronger relationships with mortgage lenders and other key business partners.

"2005 was a year of continued investment in the business capabilities, infrastructure and management team here at Freddie Mac," said Eugene M. McQuade, president and chief operating officer. "These investments position our company to achieve our long-term growth and return objectives, and to deliver long-term value to the market and our stockholders. As we execute on our 2006 priorities, we have a strong capital position, growing business momentum and a determination to resolve remaining financial infrastructure challenges. Dick and I feel very good about the long-term prospects of this franchise."

2005 RESULTS

GAAP Financial Results

Net income was $2.1 billion for 2005, down from $2.9 billion for 2004. Diluted earnings per common share were $2.75 for 2005, down from $3.94 for 2004. GAAP return on common equity was 7.72 percent for 2005, down from 10.16 percent for 2004. Consistent with management's previous guidance, year-over-year total revenue was lower in 2005 as a result of lower net interest income from narrowing spreads on fixed-rate assets and a greater proportion of floating-rate assets purchased in 2005.

2005 net income also was adversely affected by approximately $600 million as a result of the following:

• The agreement to settle securities class action and shareholder derivative litigation of approximately $220 million,
• Charges related to Hurricane Katrina of approximately $133 million, and
• The cumulative impact of a change in accounting principle and significant changes in estimate adopted in 2005 totaling approximately $265 million.

Net income was $226 million, $340 million, $880 million and $684 million for the first, second, third and fourth quarters of 2005, respectively, compared to $1,312 million, $2,754 million, ($1,506) million and $377 million for the comparable quarters of 2004. Our quarterly results reflect the impact of accounting corrections and changes (e.g., the new valuation methodology for guarantee assets and obligations) and subsequent events (e.g., the recent litigation settlement) occurring after our initial release of first and second quarter information in August 2005. Going forward, as interest rates change, our period-to-period results are likely to continue to exhibit earnings volatility primarily as a result of the asymmetric mark-to-market accounting treatment of certain assets and liabilities on our balance sheet that is reflected in our income statement.

Regulatory core capital was $36.0 billion at December 31, 2005, with a regulatory minimum capital surplus estimated at $11.0 billion, and an estimated $3.5 billion in excess of the 30-percent target surplus set by the Office of Federal Housing Enterprise Oversight (OFHEO), as reported in our amended capital report filed with OFHEO in conjunction with the issuance of this earnings release.

Fair Value Results 

During 2005, the fair value of net assets attributable to common stockholders, before capital transactions, increased by $0.9 billion, which represents a return on the average fair value of net assets attributable to common stockholders of approximately 3.3 percent. The fair value of net assets attributable to common stockholders as of December 31, 2005 was $26.7 billion, a $0.1 billion decrease from December 31, 2004.

The primary drivers of our fair value results during 2005 were income from the retained portfolio (defined as the net revenue resulting from the option-adjusted spread (OAS) between mortgage-related investments and debt) and fee-based income (including guarantee fees and credit fees related to our guaranteed mortgage-related securities), substantially offset by a decrease from wider mortgage-to-debt OAS, which we estimate reduced fair value by approximately $1.4 billion (after-tax). We believe disclosing the estimated impact of changes in OAS on the fair value of net assets is helpful to understanding our current-period fair value results in the context of management's long-term fair value return expectations. A more complete discussion of how we derived our estimates of OAS impacts and the limitations that apply to their use are included in the Information Statement Supplement dated as of today and available on our Web site.

Our fair value results also were affected by the cumulative net effect of valuation methodology changes implemented as of the first quarter 2005, which we estimate reduced fair value by approximately $0.5 billion (after-tax). This includes the net effect of changes in our improved methodology for valuing guarantee assets and obligations, which we estimate reduced fair value by approximately $0.8 billion (after-tax). As part of our process for producing 2005 financial reports, we improved our fair value estimation methodologies, including implementing a new market-based methodology that uses more direct capital markets information for determining the estimated fair values of our guarantee assets and guarantee obligations. A more complete discussion of the methodology changes is included in the Information Statement Supplement dated as of today and available on our Web site.

In addition, our fair value results were affected by the agreement to settle securities class action and shareholder derivative litigation, the effect of which reduced fair value by approximately $0.2 billion (after-tax), and the effect of charges related to Hurricane Katrina, which we estimate reduced fair value by approximately $0.2 billion (after-tax).

Looking beyond 2005, management continues to believe the company will achieve long-term returns on the average fair value of net assets attributable to common stockholders, before capital transactions, in the low- to mid-teens, although period-to-period returns may fluctuate substantially due to market conditions.

2005 AND YEAR-TO-DATE 2006 BUSINESS RESULTS

Portfolio Growth

We continue to deliver on our charter responsibility to be a provider of secondary mortgage market liquidity through both investment and securitization activities. The unpaid principal balance (UPB) of our retained portfolio grew 8.7 percent in 2005, to $710 billion, and grew to $724 billion as of April 30, 2006, an annualized growth rate of approximately 5.8 percent. The UPB of our portfolio of PCs and structured mortgage securities issued grew 10.5 percent in 2005, to approximately $1,336 billion, and grew to $1,390 billion as of April 30, 2006, an annualized growth rate of approximately 12.1 percent. The growth in 2005 was due in part to the company's successful efforts to increase market share. We estimate our share of government-sponsored enterprise mortgage securitizations was 45 percent in 2005, compared to 41 percent in 2004 and 46 percent year-to-date through March. As a result of these activities, during 2005 and continuing through the first quarter of 2006, we believe that we have increased our penetration of the total conventional conforming mortgage market. This increase was largely a result of our improvement in GSE market share and retained portfolio purchases of non-agency mortgage-related securities.

Interest-Rate Risk Management

The company's interest-rate risk remains low. For 2005 and the first four months of 2006, Portfolio Market Value Sensitivity (PMVS) and duration gap have averaged one percent and zero months, respectively.  

Credit-Risk Management 

The company's credit risk also remains low. As of March 31, 2006, the total single-family delinquency rate was 59 basis points, compared to 69 basis points as of December 31, 2005 and 73 basis points as of December 31, 2004.

Expenses

Non-interest expense was $3.0 billion in 2005, up from $2.4 billion in 2004, primarily due to the agreement to settle the securities class action and shareholder derivative litigation and charges related to Hurricane Katrina. We met our objective in 2005 of keeping administrative expenses, which are the most controllable component of non-interest expense, flat compared to 2004, at approximately $1.5 billion. Going forward, our intent is to manage administrative expenses as a declining percentage of our total mortgage portfolio while at the same time providing the resources needed to support our internal control and financial reporting infrastructure initiatives.

FINANCIAL REPORTING UPDATE

During 2006, the company will provide quarterly market updates that will include estimates of net income derived from capital reports submitted to OFHEO, information and analysis on key drivers of current financial and business performance, and updates to the market on our business outlook and progress on financial infrastructure and control remediation initiatives. Our objective is to return to quarterly reporting, and file timely, GAAP-compliant capital reports with OFHEO, with our release of full-year 2006 results. After we resume regular quarterly reporting, we will begin the process of registering the company's common stock with the Securities and Exchange Commission.

INTERNAL CONTROLS UPDATE

Improving internal control over financial reporting and addressing the risks of material weaknesses and other control deficiencies have been priorities for us and will continue to be so in 2006. The company is pursuing a series of initiatives to improve our financial reporting infrastructure and remediate material weaknesses and other deficiencies in our internal control environment. Most significantly, these initiatives include an end-to-end assessment of the design and effectiveness of the company's internal control over financial reporting, and an initiative to improve information technology-related controls, together with remedial actions needed to address any issues identified in the course of these reviews. Additionally, we are scheduled to implement several planned system enhancements later in the year. A more complete discussion of the status of our remediation efforts is included in the Information Statement Supplement dated as of today and available on our Web site.

Despite our ongoing challenges in these areas, we believe our interest-rate and credit risks remain well managed, as demonstrated by our reported risk metrics and results.  

Additional Information

For more information, see the Consolidated Financial Statements accompanying this release, and the company's Information Statement Supplement, including Core Tables, dated May 30, 2006, available on the Investor Relations page of our Web site at www.FreddieMac.com/investors.
           
Additional information about Freddie Mac and our business is also set forth in the company's Information Statement dated June 14, 2005 and related Information Statement Supplements, available on the Investor Relations page of the company's Web site at www.FreddieMac.com/investors. We encourage all investors and interested members of the public to review these materials for a more complete understanding of our financial results and related company disclosures.

Announcement of Conference Call and Webcast

Management will host a conference call discussing today's announcement at 5:00 p.m. Eastern Time today. Domestic investors should call 1-800-230-1074 and international investors can access the call at 612-234-9960. The conference call will be webcast live on the company's Web site. During the call, Freddie Mac's President and Chief Operating Officer, Eugene M. McQuade, will be referring to a slide presentation posted on the company's Web site. You can find a link to these slides at the end of the press release on the company's Web site. We encourage you to have this presentation available so that you can better follow Mr. McQuade's remarks during the call. A telephone recording of this conference call will be available continuously beginning at approximately 10:00 p.m. Eastern Time on May 30, 2006 until midnight on June 13, 2006. To access this recording in the United States, call 1-800-475-6701 and use access code 831166. Outside of the United States, call 320-365-3844 and use access code 831166.

The information in this press release and accompanying Consolidated Financial Statements and Core Tables will be included in the company's Information Statement Supplement dated May 30, 2006, which will be posted on the Investor Relations page of the company's Web site.

• Consolidated Financial Statements [PDF 20K]
• Core Tables [PDF 86K]
• Investor Conference Call Presentation [PDF 152K]
• Information Statement Supplement [PDF 459K]

This press release contains forward-looking statements pertaining to management's current expectations as to the company's future business plans, results of operations and/or financial condition. Management's expectations for the company's future necessarily involve a number of assumptions and estimates, and various factors could cause actual results to differ materially from these expectations. These assumptions and factors are discussed in the company's Information Statement dated June 14, 2005, and our Information Statement Supplements dated August 31, 2005, October 4, 2005, November 8, 2005, December 1, 2005, March 31, 2006, April 20, 2006, and May 30, 2006, which are available on the Investor Relations page of the company's Web site at www.FreddieMac.com/investors.

Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than four million renters in America.

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