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April 14, 2014

Euromoney Recognizes STACR as 'Deal of the Year' As Freddie Mac Risk Sharing Activities Accelerate

Donna Corley
Donna Corley, SVP Single-Family Chief Risk Officer

Freddie Mac's innovative credit risk sharing initiatives are not only getting traction with investors but have received significant praise from an influential and respected publication, Euromoney. Our inaugural Structured Agency Credit Risk (STACR®) debt notes recently earned Euromoney's Global Structured Deal of the Year for 2013. This is the premier award for structured capital transactions in the global capital markets.

The Euromoney comments about STACR were extremely positive:

"It is not often that a structured-finance transaction attracts almost universal praise from competitors across the market, but Freddie Mac's Structured Agency Credit Risk (STACR) did just this in June last year. And in many ways its impact is far greater than that of the much more discussed Twitter deal."

The first STACR deal "established a structural model as well as secondary liquidity for this groundbreaking process."

To date, our risk-sharing products like STACR, Agency Credit Insurance Structure (ACIS) and Multifamily K-Deals have been well-received by a diverse spectrum of investors like banks, insurance companies, sovereign wealth funds and hedge funds. We are sharing with private investors the risk of some losses that occur if borrowers don't repay their mortgages. Through these initiatives, we have transformed ourselves from a company that buys mortgages and holds the risk of losses, to one that buys mortgages and efficiently distributes a portion of the loss risk to investors.

To increase our investor base, we recently co-hosted with Aon Benfield our first (Re)Insurer Industry Day attended by more than 40 individuals representing 13 companies. They spent the day at Freddie Mac's Virginia campus to learn how we manage our single-family business risk, including underwriting, loan servicing, fraud prevention and quality control processes. Reinsurance companies are a promising new source of capital for sharing credit risk.

Through ACIS, global reinsurers cover a portion of the risk on the loans in the reference pools associated with each STACR debt notes offering. Our goal is to have insurers who regularly work with us insure a portion of potential losses. Our first ACIS occurred in November 2013 and covered up to $77.4 million in credit losses.

We also are pleased with the markets' appetite for STACR, with more than 75 investors participating in our recent offering. We've now brought four offerings to market since last July, all of which were well-received and traded well.

STACR debt notes are unsecured bonds issued by Freddie Mac in which principal payments are determined by the delinquency and principal payment experience on a STACR Reference Pool. Through STACR and ACIS, Freddie Mac has laid off substantial credit risk on more than $85 billion in qualifying Single-Family mortgages. This provides protection to taxpayers for a catastrophic risk or a severe economic downturn.

Freddie Mac also supports affordable rental housing by securitizing loans backed by multifamily apartment properties nationwide. Through Multifamily K-Deals, which include guaranteed senior and interest-only bonds, and unguaranteed junior bonds, we sell the overwhelming majority of the credit risk to private investors. We've issued $75 billion of these securities since 2009. Last week, we announced our fourth Multifamily K-Deal this year.

Freddie Mac continues to innovate and is exploring additional risk transfer structures and collateral types that may be used in the future.

We are proud of our role in introducing innovative ways to attract new sources of capital and reduce taxpayer risk. At the same time we're bringing more private capital into the market and demonstrating the viability of multiple types of risk transfer transactions involving single-family and multifamily mortgages. And that's good for our business, the markets and the nation's taxpayers.

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