FREDDIE MAC REPORTS 2006 FINANCIAL RESULTS

Net Income for 2006 Increases to $2.2 Billion
Company Announces Plan to Repurchase $1 Billion in Common Stock

2006 Highlights

Net income increases to $2.2 billion and fair value increases by $2.5 billion. Diluted earnings per common share up $0.09, to $2.84. Guarantee volumes show strong growth, up 10.6%, despite challenging year for housing and mortgage finance. Company returned $3.3 billion to common stockholders, the most in Freddie Mac history. Continuing to build shareholder value and manage capital prudently, company announces plan to repurchase additional $1 billion in common stock and issue $1 billion in preferred stock. 2006 Annual Report issued today.

McLean, VA – Freddie Mac (NYSE:FRE) today reported net income of $2.2 billion for 2006, up 4 percent compared to $2.1 billion in 2005. The company also reported an increase in the fair value of net assets attributable to common stockholders, before capital transactions, of approximately $2.5 billion for 2006, compared to an increase of $1.0 billion in 2005. Freddie Mac's regulatory core capital is estimated at $36.2 billion at December 31, 2006, with an estimated $2.6 billion in excess of the 30-percent mandatory target capital surplus set by the Office of Federal Housing Enterprise Oversight (OFHEO).

During 2006, the company increased its common dividend payout by 22 percent to $1.3 billion or $2.00 per share on an annualized basis and returned $2.0 billion of capital to common stockholders in a preferred-for-common restructuring. All told, the company returned some $3.3 billion to common stockholders last year, the most in Freddie Mac history.

Also, the company announced today that it plans to repurchase up to an additional $1 billion in common stock in conjunction with the issuance of up to $1 billion in preferred stock from time to time depending on market conditions.

Freddie Mac grew its business, strengthened its franchise and improved long-term value for its shareholders, despite a challenging year for housing and mortgage finance," said Richard F. Syron, chairman and chief executive officer. "In 2006, both net income and fair value return before capital transactions exceeded $2 billion, as we grew our guarantee business. We also maintained our low credit and interest-rate risk profiles, leaving us well-positioned to deal with a broad range of interest rate conditions, and with the value of our shareholders' equity well protected."

"Freddie Mac also continued to fulfill its important public mission, marking a major milestone in its history by making a decent, affordable home possible for the 50 millionth time," Syron said. "All of us at Freddie Mac are proud to have been a part of that achievement and are focused unwaveringly on serving our next 50 million families."

"Our plan to repurchase an additional $1 billion in common stock and our significant return of capital to common stockholders in 2006 demonstrate Freddie Mac's progress in improving our capital structure," said Buddy Piszel, chief financial officer. "We've also made progress in our remediation efforts, as demonstrated by today's release of our 2006 annual report. We continue to make good strides towards returning to quarterly reporting later this year."

2006 RESULTS

Net Income

The $0.09 increase in diluted earnings per common share for 2006 reflects the net effects of the increase in net income and the reduction in the diluted weighted average number of common shares outstanding, arising from the repurchase of approximately 32.7 million common shares during 2006, partially offset by an increase in preferred dividends associated with the company's issuance of $1.5 billion in new preferred stock. Pre-tax income declined by $0.5 billion to $2.1 billion in 2006 from $2.6 billion in 2005.

Net interest income declined by $1.2 billion. During 2006, the unpaid principal balance (UPB) of the company's retained portfolio declined slightly to approximately $704 billion, as relatively tight mortgage-to-debt option-adjusted spreads (OAS) generally limited attractive investment opportunities and the company began managing the portfolio under a voluntary growth limit announced in August 2006.

While the retained portfolio declined slightly year-over-year, the average balance of interest-earning assets increased, as did average yields. Notwithstanding this improvement, net interest income declined as the company replaced, at higher contractual interest rates, approximately $129 billion in long-term debt, which either matured or was repurchased during 2006. The company's average funding levels remained significantly below the London Interbank Offered Rate (LIBOR), with spreads relative to LIBOR improving during the year by 2 to 5 basis points along the interest-rate curve for its Reference Notes® securities.

Other non-interest income (loss) includes another component of the company’s investment returns, interest received or paid on interest-rate swaps. During 2006, the company recognized $92 million of interest income, versus $337 million of interest expense during 2005, an improvement of $429 million. This change primarily resulted from the impact of rising short-term interest rates, partially offsetting the above-mentioned reduction in net interest income.

Management and guarantee income on PCs held by third parties increased to $1.7 billion in 2006 from $1.5 billion in 2005, as the contractual guarantee fee rate in basis points declined modestly and the average balance of outstanding PCs held by third parties increased by roughly 15 percent to $1,045 billion from $909 billion.

During 2006, the company's total credit guarantee portfolio increased by 10.6 percent to approximately $1.5 trillion. The company estimates that its share of government-sponsored enterprise (GSE) mortgage securitizations for 2006 was approximately 43 percent, compared to about 45 percent in 2005 and about 41 percent in 2004. All-in, Freddie Mac's 2006 activities provided mortgage funds for approximately 3.3 million families.

Total expenses were largely unchanged year-over-year at $3.0 billion. Administrative expenses increased slightly to $1.6 billion in 2006 from $1.5 billion in 2005 primarily due to higher professional services costs related to improving technology and internal control over financial reporting. The company benefited during 2006, as administrative expenses declined as a percent of the average total mortgage portfolio to 9.3 basis points from 9.7 basis points in 2005.

Credit-related expenses were down slightly to $275 million from $291 million in 2005. In 2005, the company recorded an additional provision for credit losses due to Hurricane Katrina of $128 million. During 2006, the company reduced that provision by $82 million.

In 2006, Freddie Mac experienced a slight credit deterioration in its portfolio of loans not impacted by the hurricane as more loans transitioned through delinquency to foreclosure and the expected severity of losses on a per-property basis increased. As a result, the company recorded in 2006 a $297 million provision for credit losses as well as real estate owned expense of $60 million.

During 2006, Freddie Mac recorded a tax benefit of $0.1 billion, compared to a tax expense of $0.4 billion in 2005, due to a reduction in the company’s tax reserves as a result of a favorable U.S. Tax Court decision and a separate Internal Revenue Service settlement, a decline in pre-tax income and a favorable tax impact from certain low-income housing activities.

Capital Management

Estimated regulatory core capital was $36.2 billion at December 31, 2006, with an estimated regulatory minimum capital surplus of $10.3 billion, and an estimated $2.6 billion in excess of the 30-percent mandatory target capital surplus set by OFHEO. During 2006, the company completed the repurchase of approximately $2.0 billion of outstanding shares of common stock (approximately 32.7 million shares) at an average price of $61.06 per share and issued non-cumulative, perpetual preferred stock in the amount of $1.5 billion.

During the first quarter of 2007, the company issued $1.1 billion of non-cumulative, perpetual preferred stock and redeemed $0.6 billion of higher-cost non-cumulative, perpetual preferred stock. These transactions effectively reduced the company's cost of capital. The company announced today its plan to repurchase up to $1 billion of common stock in conjunction with the issuance of preferred stock from time to time depending on market conditions.

Fair Value Results

During 2006, the fair value of net assets attributable to common stockholders, before capital transactions, increased by $2.5 billion, resulting in a return on the average fair value of net assets attributable to common stockholders of approximately 9.5 percent, compared to a $1.0 billion increase, or 3.7 percent return, in 2005. Payment of common dividends and the repurchase of common shares reduced total fair value by $3.3 billion. Taken together, these items resulted in fair value of net assets attributable to common stockholders as of December 31, 2006 of $26.0 billion, compared to $26.8 billion as of December 31, 2005.

Attribution of changes in fair value relies on models, assumptions, and other measurement techniques that evolve over time. The following attribution is management's current estimate of the items presented (on a pre-tax basis) and excludes the effect of returns on capital and administrative expenses.

Investment activities contributed to the increase in fair value by an estimated $1.3 billion in 2006. This estimate includes reductions in fair value of approximately $0.9 billion attributable to mortgage-to-debt OAS widening. In 2006, other market conditions and asset-liability management returns did not meaningfully add to core spread on the retained portfolio, which remained generally consistent with 2005 levels.

In 2005, investment activities increased fair value by an estimated $0.5 billion. This estimate includes reductions in fair value of approximately $2.7 billion attributable to mortgage-to-debt OAS widening. In 2005, asset-liability management returns and other market conditions added significantly to core spread results.

Guarantee activities increased fair value by an estimated $1.9 billion in 2006, including a $0.3 billion increase attributable to reduced estimates of the impact of Hurricane Katrina. During 2005, guarantee activities increased fair value by an estimated $1.1 billion, which included a reduction in fair value of approximately $1.2 billion related to the change in valuation methodology on the company's guarantee asset and guarantee obligation and a $0.4 billion decrease attributable to 2005 estimates of the impact of Hurricane Katrina.   

During 2006, the company recognized a more significant mark-to-market decline in its existing book of business due to the effect of a deteriorating market view of credit and increased market risk premiums related to the company's guarantee obligation. In addition, the company estimates that the fair value of new business booked in 2006 was lower than the fair value of new business booked in 2005.

Fourth Quarter 2006 Results

As a result of the interest-rate movements in the last quarter, Freddie Mac reported a net loss of $480 million in the fourth quarter of 2006, as realized losses and mark-to-market impacts on the company's credit guarantee portfolio, derivatives and administrative expenses more than offset net interest income and management and guarantee income.

Freddie Mac also reported a decrease in the fair value of net assets attributable to common stockholders, before capital transactions, in the fourth quarter of 2006 of approximately $0.2 billion as the impact of OAS widening, the effect of credit deterioration on the guarantee obligation and administrative expenses more than offset the positive contributions from the company's investment and guarantee activities.

Interest-Rate Risk Management

Managing the company's interest-rate risk is essential to maintaining a strong and durable capital base and continuous access to debt and equity markets. Consistent with its longstanding record, the company's interest-rate risk remained low. During 2006, the company reported that portfolio market value sensitivity (PMVS) and duration gap averaged one percent and zero months, respectively, unchanged from the prior year.  

Credit Risk Management

The company's mortgage credit risk, as measured by the current loan-to-value ratio (LTV) of its credit guarantee portfolio and other credit characteristics, remained low. The company estimates that the credit guarantee portfolio had a LTV of 57 percent as of December 31, 2006, compared with 56 percent for 2005, and the portfolio remains geographically well diversified. Long-term, fixed-rate mortgages constituted 82 percent of the credit guarantee portfolio, despite an increase in the purchase of variable-rate products, including non-traditional mortgage products, during 2006.

At December 31, 2006, the company's $704 billion retained portfolio included $238 billion of non-agency mortgage-related securities, 96 percent of which were rated AAA or equivalent. Included in this amount were $124 billion of non-agency mortgage-related securities backed by subprime loans, of which more than 99.9 percent were AAA rated.

Mission, Affordable Housing Goals and Legislation

In 2006, Freddie Mac's affordable housing performance overall was its strongest ever. Nearly 56 percent of the homes financed by the company were affordable to low- or moderate-income families. Freddie Mac served 300,000 first-time homebuyers and in another strong year for the multifamily business, the company financed almost half a million affordable apartment homes. In mid-March, the company submitted its goal performance to the Secretary of HUD and reported that it met its three affordable housing goals for 2006.

With respect to the home purchase subgoals, the company reported that it met the low- and moderate-income subgoal and the underserved areas subgoal, but that the result for the special-affordable subgoal was 16.93 percent as compared with the subgoal of 17.0 percent. HUD will evaluate the company's performance with respect to 2006 and make a final determination as to the company's achievement of its affordable housing goals.

Freddie Mac views the purchase of mortgage loans benefiting low- and moderate-income families and neighborhoods as a principal part of its mission and business, and is committed to fulfilling the needs of these borrowers and markets. As previously disclosed, meeting these increasingly difficult affordable housing goals and subgoals is challenging and there can be no assurances that the company will do so.

Freddie Mac faces a highly uncertain regulatory environment in light of GSE oversight legislation currently under consideration in Congress. A bill was recently introduced in the U.S. House of Representatives that includes provisions that could have a material adverse effect on the company's business and financial results. Freddie Mac believes appropriate GSE oversight legislation would strengthen market confidence and promote the company's mission, but cannot predict the prospects for the enactment, timing or content of any final legislation.

Internal Controls

The company is continuing to make progress on the series of initiatives to improve its financial reporting infrastructure and remediate material weaknesses and other deficiencies in its internal controls. These activities are part of Freddie Mac's comprehensive plan for returning to quarterly financial reporting. The comprehensive plan includes mitigation and remediation of identified material weaknesses and significant deficiencies; strengthening of the financial close process; implementing critical systems initiatives; and completion of a review of the company's system of internal controls related to the processing and recording of the company's financial transactions.

Additional Information

For more information, see the Consolidated Financial Statements accompanying this release, the company's Information Statement Supplement, including Core Tables, dated March 23, 2007, and slide presentation which will be available on the Investor Relations page of the company's Web site at www.FreddieMac.com/investors.

• Consolidated Financial Statements [PDF 24K]
• Core Tables [PDF 80K]
• Investor Slide Presentation [PDF 187K]

Additional information about Freddie Mac and its business is also set forth in the company's Information Statement and Annual Report dated March 23, 2007, available on the Investor Relations page of the company's Web site at www.FreddieMac.com/investors. Printed copies of these documents may be obtained free of charge upon request from the company's Investor Relations department by writing or calling the company at shareholder@freddiemac.com, (571) 382-4732 or (800) 373-3343. Freddie Mac encourages all investors and interested members of the public to review these materials for a more complete understanding of the company's financial results and related company disclosures.

Announcement of Conference Call and Webcast

Management will host a conference call discussing today's announcement at 8:30 a.m. Eastern Time today. Domestic investors should call 1-800-230-1085 and international investors can access the call at 612-234-9960. The conference call will be webcast live on the company's Web site. A telephone recording of this conference call will be available continuously beginning at approximately 12:00 p.m. Eastern Time on March 23, 2007 until midnight on April 6, 2007. To access this recording in the United States, call 1-800-475-6701 and use access code 867017. Outside of the United States, call 320-365-3844 and use access code 867017.

This press release contains forward-looking statements pertaining to management's current expectations as to the company's future business plans, remediation initiatives, and results of operations and/or financial condition on a GAAP or fair value basis. 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 March 23, 2007, which is 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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