Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Commission File Number: 001-34139
primarylogo.jpg
Federal Home Loan Mortgage Corporation
(Exact name of registrant as specified in its charter)
Federally chartered
 
52-0904874
 
8200 Jones Branch Drive
 
22102-3110
 
(703) 903-2000
corporation
 
 
McLean, Virginia
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock, no par value per share (OTCQB: FMCC)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCI)
5% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCG)
5.1% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCH)
5.79% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCK)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCL)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCM)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCN)
5.81% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCO)
6% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCP)
Variable Rate, Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCCJ)
5.7% Non-Cumulative Preferred Stock, par value $1.00 per share (OTCQB: FMCKP)
Variable Rate, Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCS)
6.42% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCCT)
5.9% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKO)
5.57% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKM)
5.66% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKN)
6.02% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKL)
6.55% Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKI)
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, par value $1.00 per share (OTCQB: FMCKJ)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. x  Yes  ¨ No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x  Yes  ¨ No  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer  x
 
 
 
Accelerated filer   ¨
 
 
Non-accelerated filer  ¨
 
Smaller reporting company   ¨
 
 
Emerging growth company  ¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x
The aggregate market value of the common stock held by non-affiliates computed by reference to the price at which the common equity was last sold on June 29, 2018 (the last business day of the registrant's most recently completed second fiscal quarter) was $1.0 billion.
As of February 1, 2019, there were 650,058,775 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None

Table of Contents
 


Table of Contents
n    About Freddie Mac
n    Our Business
n    Forward-Looking Statements
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
n    Key Economic Indicators
n    Consolidated Results of Operations
n    Consolidated Balance Sheets Analysis
n    Our Business Segments
n    Risk Management
l    Credit Risk
l    Operational Risk
l    Market Risk
n    Liquidity and Capital Resources
n    Conservatorship and Related Matters
n    Regulation and Supervision
n    Contractual Obligations
n    Off-Balance Sheet Arrangements
n    Critical Accounting Policies and Estimates
RISK FACTORS
LEGAL PROCEEDINGS
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY SELECTED FINANCIAL DATA
CONTROLS AND PROCEDURES
DIRECTORS, CORPORATE GOVERNANCE, AND EXECUTIVE OFFICERS
n    Directors
n    Corporate Governance
n    Executive Officers
EXECUTIVE COMPENSATION
n    Compensation Discussion and Analysis
n    Compensation and Risk
n    CEO Pay Ratio
n    2018 Compensation Information for NEOs
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PRINCIPAL ACCOUNTING FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
GLOSSARY
EXHIBIT INDEX
SIGNATURES
FORM 10-K INDEX

FREDDIE MAC  | 2018 Form 10-K
 
i
Table of Contents
MD&A Table Index


MD&A TABLE INDEX
Table
Description
Page
1
Selected Financial Data

2
 Summary of Consolidated Statements of Comprehensive Income (Loss)
3
Components of Net Interest Income
4
Analysis of Net Interest Yield
5
Net Interest Income Rate / Volume Analysis
6
Components of Mortgage Loans Gains (Losses)
7
Components of Investment Securities Gains (Losses)
8
Components of Debt Gains (Losses)
9
Components of Derivative Gains (Losses)
10
Other Comprehensive Income (Loss)
11
Summarized Consolidated Balance Sheets
12
Single-Family Credit Guarantee Portfolio CRT Issuance
13
Single-Family Guarantee Segment Financial Results
14
Multifamily Market Support
15
Multifamily Segment Financial Results
16
Capital Markets Segment Financial Results
17
Capital Markets Segment Interest Rate-Related and Market Spread-Related Fair Value Changes, Net of Tax
18
All Other Category Comprehensive Income
19
Single-Family New Business Activity
20
Relief Refinance Loan Purchases
21
Details of Credit Enhanced Loans in Our Single-Family Credit Guarantee Portfolio
22
Non-Credit-Enhanced and Credit-Enhanced Loans in Our Single-Family Credit Guarantee Portfolio
23
Single-Family Guarantee Portfolio Credit Risk Transfer Sensitivity Analysis
24
Credit Quality Characteristics of Our Single-Family Credit Guarantee Portfolio
25
Characteristics of the Loans in Our Single-Family Credit Guarantee Portfolio
26
Single-Family Credit Guarantee Portfolio Higher Risk Loan Data
27
Single-Family Credit Guarantee Portfolio Attribute Combinations for Higher Risk Loans
28
Higher Risk Single-Family Loan Credit Characteristics
29
Timing of Scheduled Payment Changes for Certain Single-Family Loan Types
30
Alt-A Loans in Our Single-Family Credit Guarantee Portfolio
31
Geographic Concentration in Our Single-Family Credit Guarantee Portfolio
32
Single-Family Charge-Offs and Recoveries by Region
33
Concentration of Single-Family Loans in Each Region by CLTV Ratio
34
Single-Family Credit Guarantee Portfolio Credit Performance Metrics
35
Credit Characteristics of Certain Single-Family Loan Categories
36
Single-Family Allowance for Credit Losses Activity
37
Single-Family Individually Impaired Loans with an Allowance Recorded
38
Single-Family TDR and Non-Accrual Loans
39
Single-Family Relief Refinance Loans
40
Credit Characteristics of Single-Family Modified Loans
41
Payment Performance of Single-Family Modified Loans
42
Seriously Delinquent Single-Family Loans By Jurisdiction
43
Average Length of Foreclosure Process for Single-Family Loans
44
Single-Family REO Activity
45
Single-Family Severity Ratios
46
Multifamily Segment New Business Activity by Product Term

FREDDIE MAC  | 2018 Form 10-K
 
ii
Table of Contents
MD&A Table Index


47
Non-Credit-Enhanced and Credit-Enhanced Loans Underlying Our Multifamily Mortgage Portfolio
48
Multifamily Mortgage Portfolio Attributes
49
Single-Family Credit Guarantee Portfolio Non-Depository Servicers
50
Single-Family Mortgage Insurers
51
Derivative Counterparty Credit Exposure
52
PMVS-YC and PMVS-L Results Assuming Shifts of the LIBOR Yield Curve
53
Duration Gap and PMVS Results
54
PMVS-L Results Before Derivatives and After Derivatives
55
Estimated Net Interest Rate Effect on Comprehensive Income (Loss)
56
GAAP Adverse Scenario Before and After Hedge Accounting
57
Estimated Spread Effect on Comprehensive Income (Loss)
58
Sources of Liquidity
59
Other Investments Portfolio
60
Funding Sources
61
Other Debt Activity
62
Other Short-Term Debt
63
Activity for Debt Securities of Consolidated Trusts Held by Third Parties
64
Debt Securities of Consolidated Trusts Held by Third Parties
65
Freddie Mac Credit Ratings
66
Sources of Capital
67
Net Worth Activity
68
Returns on Conservatorship Capital
69
Mortgage-Related Investments Portfolio Details
70
2017 and 2016 Affordable Housing Goals Results
71
2018-2020 Affordable Housing Goals
72
Contractual Obligations
73
Quarterly Selected Financial Data
74
Board Compensation Levels
75
Director Compensation
76
2018 Target TDC
77
2018 Deferred Salary
78
CEO Pay Ratio
79
Compensation Summary
80
Grants of Plan-Based Awards
81
SERP and SERP II Benefits
82
Compensation and Benefits if NEO Terminated Employment as of December 31, 2018
83
Stock Ownership
84
5% Holders
85
Auditor Fees

FREDDIE MAC  | 2018 Form 10-K
 
iii
Introduction
About Freddie Mac

Introduction
This Annual Report on Form 10-K includes forward-looking statements that are based on current expectations and are subject to significant risks and uncertainties. These forward-looking statements are made as of the date of this Form 10-K. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-K. Actual results might differ significantly from those described in or implied by such statements due to various factors and uncertainties, including those described in the Forward-Looking Statements and Risk Factors sections of this Form 10-K.
Throughout this Form 10-K, we use certain acronyms and terms that are defined in the Glossary. In addition, throughout this Form 10-K, we refer to the three months ended December 31, 2018, the three months ended September 30, 2018, the three months ended June 30, 2018, the three months ended March 31, 2018, the three months ended December 31, 2017, the three months ended September 30, 2017, the three months ended June 30, 2017, the three months ended March 31, 2017, and the three months ended December 31, 2016 as "4Q 2018," "3Q 2018," "2Q 2018," "1Q 2018," "4Q 2017," "3Q 2017," "2Q 2017," "1Q 2017," and "4Q 2016," respectively.
ABOUT FREDDIE MAC
Freddie Mac is a GSE chartered by Congress in 1970. Our public mission is to provide liquidity, stability, and affordability to the U.S. housing market. We do this primarily by purchasing residential mortgage loans originated by lenders. In most instances, we package these loans into mortgage-related securities, which are guaranteed by us and sold in the global capital markets. In addition, we transfer mortgage credit risk exposure to private investors through our credit risk transfer programs, which include securities- and insurance-based offerings. We also invest in mortgage loans and mortgage-related securities. We do not originate loans or lend money directly to mortgage borrowers.
We support the U.S. housing market and the overall economy by enabling America's families to access mortgage loan funding with better terms and by providing consistent liquidity to the multifamily mortgage market. We have helped many distressed borrowers keep their homes or avoid foreclosure. We are working with FHFA, our customers, and the industry to build a better housing finance system for the nation.
Conservatorship and Government Support for Our Business
Since September 2008, we have been operating in conservatorship, with FHFA as our Conservator. The conservatorship and related matters significantly affect our management, business activities, financial condition, and results of operations. Our future is uncertain, and the conservatorship has no specified termination date. We do not know what changes may occur to our business model during or following conservatorship, including whether we will continue to exist.
Our Purchase Agreement with Treasury and the terms of the senior preferred stock we issued to Treasury also affect our business activities. Our ability to access funds from Treasury under the Purchase Agreement is critical to keeping us solvent and avoiding the appointment of a receiver by FHFA under

FREDDIE MAC  | 2018 Form 10-K
 
1
Introduction
About Freddie Mac

statutory mandatory receivership provisions. We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables us to have adequate liquidity to conduct normal business activities.
In connection with our entry into conservatorship, we entered into the Purchase Agreement with Treasury. Under the Purchase Agreement, we issued to Treasury both senior preferred stock and a warrant to purchase common stock. The senior preferred stock and warrant were issued as an initial commitment fee in consideration of Treasury's commitment to provide funding to us under the Purchase Agreement. Treasury, as the holder of the senior preferred stock, is entitled to receive cumulative quarterly cash dividends, when, as, and if declared by the Conservator, acting as successor to the rights, titles, powers, and privileges of our Board of Directors. The dividends we have paid to Treasury on the senior preferred stock have been declared by, and paid at the direction of, the Conservator.
Under the August 2012 amendment to the Purchase Agreement, our cash dividend requirement each quarter is the amount, if any, by which our Net Worth Amount at the end of the immediately preceding fiscal quarter, less the applicable Capital Reserve Amount, exceeds zero. Pursuant to the December 2017 Letter Agreement, the applicable Capital Reserve Amount is $3.0 billion. If for any reason we were not to pay our dividend requirement on the senior preferred stock in full in any future period, the unpaid amount would be added to the liquidation preference and the applicable Capital Reserve Amount would thereafter be zero, but this would not affect our ability to draw funds from Treasury under the Purchase Agreement.
The graph below shows our cumulative draws from Treasury and cumulative dividend payments to Treasury. The Treasury draw amounts shown are the total draws requested based on our quarterly net deficits for the periods presented. Draw requests are funded in the quarter subsequent to any net deficit. Under the Purchase Agreement, the payment of dividends does not reduce the outstanding liquidation preference of the senior preferred stock. The amount of available funding remaining under the Purchase Agreement was $140.2 billion at December 31, 2018, and will be reduced by any future draws. For more information on the conservatorship and government support for our business, see MD&A - Conservatorship and Related Matters and Note 2.
Draw Requests From and Dividend Payments To Treasury
chart-f8596ba10cbb5428af5.jpg


FREDDIE MAC  | 2018 Form 10-K
 
2
Introduction
About Freddie Mac

Business Results
Portfolio Balances
Guarantee Portfolios

chart-459f1b84e7075c4daf7.jpg
 
Investments Portfolios

chart-92f6e37e126b50e69a6.jpg
Total Guarantee Portfolio
n
2018 vs. 2017 and 2017 vs. 2016 - The total guarantee portfolio grew $101 billion, or 5%, in 2018, driven by a 4% increase in our single-family credit guarantee portfolio and a 17% increase in our multifamily guarantee portfolio. The total guarantee portfolio grew $119 billion, or 6%, in 2017, driven by a 4% increase in our single-family credit guarantee portfolio and a 28% increase in our multifamily guarantee portfolio.
l
The growth in our single-family credit guarantee portfolio in both 2018 and 2017 was driven by increases 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.

FREDDIE MAC  | 2018 Form 10-K
 
3
Introduction
About Freddie Mac

l The growth in our multifamily guarantee portfolio in both 2018 and 2017 was primarily driven by strong loan purchase and securitization activity, which was attributable to healthy multifamily market fundamentals and strong demand for certain of our securitization products.
Total Investments Portfolio
n
2018 vs. 2017 and 2017 vs. 2016 - The total investments portfolio declined $62 billion, or 18%, and $51 billion, or 13%, in 2018 and 2017, respectively, primarily due to repayments and the active disposition of less liquid assets. We have reduced the mortgage-related investments portfolio as required by the Purchase Agreement and FHFA.
Consolidated Financial Results
Comprehensive Income
chart-c92aca9a404e5fc8a5a.jpg
Key Drivers:
n
2018 vs. 2017
l
Comprehensive income was $8.6 billion for 2018, an increase of 55% compared to comprehensive income of $5.6 billion for 2017. The increase in comprehensive income primarily reflects two significant items in 2017: a non-cash charge of $5.4 billion due to the enactment of tax reform legislation and a $4.5 billion, or $2.9 billion after-tax, benefit from a litigation settlement related to non-agency mortgage-related securities in which the company no longer invests.
l
Other key drivers of comprehensive income for 2018 include:

FREDDIE MAC  | 2018 Form 10-K
 
4
Introduction
About Freddie Mac

— Solid business revenues driven by continued growth in our guarantee portfolios, partially offset by lower net interest income driven by a reduction in the balance of our mortgage-related investments portfolio;
— Strong credit quality resulting in a higher benefit for credit losses in 2018, primarily driven by estimated losses from the hurricanes in 2017;
— Ongoing modest impacts from market-related items, despite significant volatility in the financial markets, especially in 4Q 2018; and
— Lower income tax expense due to the reduction in the statutory corporate income tax rate in 2018.
n
2017 vs. 2016
l
Comprehensive income was $5.6 billion for 2017, a decrease of 22% compared to comprehensive income of $7.1 billion for 2016, primarily due to the two significant items that occurred in 2017.
l
Other key drivers of comprehensive income for 2017 include:
— Solid business revenues driven by continued growth in our guarantee portfolios, partially offset by lower net interest income driven by a reduction in the balance of our mortgage-related investments portfolio;
— Ongoing modest impacts from market-related items, driven by gains from spread tightening and single-family legacy asset dispositions; and
— Lower benefit for credit losses, as 2017 was negatively affected by the hurricanes.






FREDDIE MAC  | 2018 Form 10-K
 
5
Introduction
Our Business

OUR BUSINESS
Primary Business Strategies
Our primary business strategies describe how we plan to pursue our Charter Mission through at least 2021. The underlying assumption for these strategies is that the conservatorship will continue with no material changes during that period. FHFA or Congress could take actions that alter this assumption.
Charter Mission
We are a GSE with a specific and limited corporate purpose (i.e., Charter Mission) to support the liquidity, stability, and affordability of U.S. housing markets as a participant in the secondary mortgage market, while operating as a commercial enterprise earning an appropriate return. Everything we do must be done within the constraints of our Charter Mission.
Our Twin Goals
We have established overarching twin goals to enable us to reach our Charter Mission:
n
A Better Freddie Mac and
n
A Better Housing Finance System
Our Key Strategies
A Better Freddie Mac
We are focused on operating as a very well-run large financial institution by:
n
Achieving superior economic value of the company through strong risk, capital, and financial management;
n
Being an effective operating organization; and
n
Being a market leader through customer focus and innovation.
A Better Housing Finance System
We are focused on providing leadership, through innovation and constructive forward-looking engagement with FHFA, to improve the liquidity, stability, and affordability of the U.S. housing markets by:
n
Modernizing and improving the efficiency of the mortgage markets, including reducing costs to lenders and borrowers;
n
Developing greater responsible access to mortgage credit; and
n
Reducing taxpayer exposure to our risks and subsidy to our returns.
For further information on our goals and detailed strategies for each of our business segments, see MD&A — Our Business Segments.

FREDDIE MAC  | 2018 Form 10-K
 
6
Introduction
Our Business

Our Charter
Our Charter forms the framework for our business activities. Our Charter Mission is to:
n
Provide stability in the secondary mortgage market for residential loans;
n
Respond appropriately to the private capital market;
n
Provide ongoing assistance to the secondary mortgage market for residential loans (including activities relating to loans for low- and moderate-income families, involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and
n
Promote access to mortgage loan credit throughout the United States (including central cities, rural areas, and other underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing.
Our Charter permits us to purchase first-lien single-family loans with LTV ratios at the time of our purchase of less than or equal to 80%. Our Charter also permits us to purchase first-lien single-family loans that do not meet this criterion if we have certain specified credit protections, which include mortgage insurance from a qualified insurer on the portion of the UPB of the loan that exceeds an 80% LTV ratio, a seller's agreement to repurchase or replace a defaulted loan, or the retention by the seller of at least a 10% participation interest in the loan.
This Charter requirement does not apply to multifamily loans or to loans that have the benefit of any guarantee, insurance, or other obligation by the United States or any of its agencies or instrumentalities (e.g., the FHA, VA, or USDA Rural Development). Additionally, as part of HARP and our Enhanced Relief RefinanceSM program, we purchase single-family refinanced loans we currently own or guarantee without obtaining additional credit enhancement in excess of that already in place for any such loan, even when the LTV ratio of the new loan is above 80%.
Our Charter does not permit us to originate loans or lend money directly to mortgage borrowers in the primary mortgage market. Our Charter limits our purchase of single-family loans to the conforming loan market, which consists of loans originated with UPBs at or below limits determined annually based on changes in FHFA's housing price index. In most of the United States, the maximum conforming loan limit for a one-family residence has been set at $484,350 for 2019, an increase from $453,100 for 2018, $424,100 for 2017, and $417,000 from 2006 to 2016. Higher limits have been established in certain "high-cost" areas (for 2019, up to $726,525 for a one-family residence). Higher limits also apply to two- to four-family residences and to one- to four-family residences in Alaska, Guam, Hawaii, and the U.S. Virgin Islands.
Business Segments
We have three reportable segments: Single-family Guarantee, Multifamily, and Capital Markets. Certain activities that are not part of a reportable segment are included in the All Other category. For more information on our segments, see MD&A - Our Business Segments and Note 13.

FREDDIE MAC  | 2018 Form 10-K
 
7
Introduction
Our Business

Employees
At February 1, 2019, we had 6,600 full-time and 42 part-time employees.
Properties
Our principal offices consist of four office buildings we own in McLean, Virginia, comprising approximately 1.3 million square feet. We operate our business in the United States and its territories, and accordingly, we generate no revenue from and have no long-lived assets, other than financial instruments, in geographic locations other than the United States and its territories.
Available Information
We file reports and other information with the SEC. In view of the Conservator's succession to all of the voting power of our stockholders, we have not prepared or provided proxy statements for the solicitation of proxies from stockholders since we entered into conservatorship, and do not expect to do so while we remain in conservatorship. Pursuant to SEC rules, our annual reports on Form 10-K contain certain information typically provided in an annual proxy statement.
We make available, free of charge through our website at www.freddiemac.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all other SEC reports and amendments to those reports as soon as reasonably practicable after we electronically file the material with the SEC. The SEC also maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding companies that file electronically with the SEC.
We are providing our website addresses and the website address of the SEC here and elsewhere in this Form 10-K solely for your information. Information appearing on our website or on the SEC's website is not incorporated into this Form 10-K.
We provide disclosure about our debt securities on our website at www.freddiemac.com/debt. From this address, investors can access the offering circular and related supplements for debt securities offerings under Freddie Mac's global debt facility, including pricing supplements for individual issuances of debt securities. Similar information about our STACR® transactions and SCR notes is available at crt.freddiemac.com and mf.freddiemac.com/investors, respectively.
We provide disclosure about our mortgage-related securities, some of which are off-balance sheet obligations (e.g., K Certificates and SB Certificates), on our website at www.freddiemac.com/mbs. From this address, investors can access information and documents, including offering circulars and offering circular supplements, for mortgage-related securities offerings.
We provide additional information, including product descriptions, investor presentations, securities issuance calendars, transaction volumes and details, redemption notices, Freddie Mac research, and material developments or other events that may be important to investors, in each case as applicable, on the websites for our business segments, which can be found at www.freddiemac.com/singlefamily, mf.freddiemac.com, and www.freddiemac.com/capital-markets.


FREDDIE MAC  | 2018 Form 10-K
 
8
Introduction
Forward-Looking Statements


FORWARD-LOOKING STATEMENTS
We regularly communicate information concerning our business activities to investors, the news media, securities analysts, and others as part of our normal operations. Some of these communications, including this Form 10-K, contain "forward-looking statements." Examples of forward-looking statements include, but are not limited to, statements pertaining to the conservatorship, our current expectations and objectives for the Single-family Guarantee, Multifamily, and Capital Markets segments of our business, our efforts to assist the housing market, our liquidity and capital management, economic and market conditions and trends, our market share, the effect of legislative and regulatory developments and new accounting guidance, the credit quality of loans we own or guarantee, the costs and benefits of our credit risk transfer transactions, and our results of operations and financial condition on a GAAP, Segment Earnings, and fair value basis. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control. Forward-looking statements are often accompanied by, and identified with, terms such as "could," "may," "will," "believe," "expect," "anticipate," "forecast," and similar phrases. These statements are not historical facts, but rather represent our expectations based on current information, plans, judgments, assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such forward-looking statements due to various factors and uncertainties, including those described in the Risk Factors section of this Form 10-K and:
n
The actions the U.S. government (including FHFA, Treasury, and Congress) may take, or require us to take, including to support the housing markets or to implement FHFA's Conservatorship Scorecards and other objectives for us;
n
The effect of the restrictions on our business due to the conservatorship and the Purchase Agreement, including our dividend requirement on the senior preferred stock;
n
Changes in our Charter or in applicable legislative or regulatory requirements (including any legislation affecting the future status of our company);
n
Changes in the fiscal and monetary policies of the Federal Reserve, including the balance sheet normalization program to reduce the Federal Reserve's holdings of mortgage-related securities;
n
Changes in tax laws;
n
Changes in accounting policies, practices, or guidance (e.g., FASB's accounting standards update related to the measurement of credit losses of financial instruments);
n
Changes in economic and market conditions, including changes in employment rates, interest rates, spreads, and home prices;
n
Changes in the U.S. residential mortgage market, including changes in the supply and type of loan products (e.g., refinance vs. purchase and fixed-rate vs. ARM);
n
The success of our efforts to mitigate our losses on our legacy and relief refinance single-family loan portfolio;
n
The success of our strategy to transfer mortgage credit risk through STACR debt note, STACR Trust, ACIS®, K Certificate, SB Certificate, and other credit risk transfer transactions;
n
Our ability to maintain adequate liquidity to fund our operations;
n
Our ability to maintain the security and resiliency of our operational systems and infrastructure, including against cyberattacks;
n
Our ability to effectively execute our business strategies, implement new initiatives, and improve

FREDDIE MAC  | 2018 Form 10-K
 
9
Introduction
Forward-Looking Statements


efficiency;
n
The adequacy of our risk management framework, including the adequacy of the CCF and our internal capital methodologies for measuring risk;
n
Our ability to manage mortgage credit risk, including the effect of changes in underwriting and servicing practices;
n
Our ability to limit or manage our economic exposure and GAAP earnings exposure to interest-rate volatility and spread volatility, including the availability of derivative financial instruments needed for interest-rate risk management purposes;
n
Our operational ability to issue new securities, make timely and correct payments on securities, and provide initial and ongoing disclosures;
n
Our reliance on CSS and the CSP for the operation of the majority of our single-family securitization activities;
n
Changes or errors in the methodologies, models, assumptions, and estimates we use to prepare our financial statements, make business decisions, and manage risks;
n
Changes in investor demand for our debt or mortgage-related securities;
n
Changes in the practices of loan originators, servicers, investors, and other participants in the secondary mortgage market;
n
The occurrence of a major natural or other disaster in areas in which our offices or significant portions of our total mortgage portfolio are located; and
n Other factors and assumptions described in this Form 10-K, including in the MD&A section.
Forward-looking statements are made only as of the date of this Form 10-K, and we undertake no obligation to update any forward-looking statements we make to reflect events or circumstances occurring after the date of this Form 10-K.

FREDDIE MAC  | 2018 Form 10-K
 
10
Selected Financial Data

Selected Financial Data
The selected financial data presented below should be reviewed in conjunction with MD&A and our consolidated financial statements and accompanying notes.
Table 1 - Selected Financial Data
 
 
As of or For the Year Ended December 31,
(Dollars in millions, except share-related amounts)
 
2018
2017
2016
2015
2014
 
 
 
 
 
 
 
Statements of Comprehensive Income Data
 
 
 
 
 
 
Net interest income
 

$12,021


$14,164


$14,379


$14,946


$14,263

Benefit (provision) for credit losses
 
736

84

803

2,665

(58
)
Non-interest income (loss)
 
3,544

6,869

500

(3,599
)
(113
)
Non-interest expense
 
(4,827
)
(4,283
)
(4,043
)
(4,738
)
(3,090
)
Income tax (expense) benefit
 
(2,239
)
(11,209
)
(3,824
)
(2,898
)
(3,312
)
Net income
 
9,235

5,625

7,815

6,376

7,690

Comprehensive income
 
8,622

5,558

7,118

5,799

9,426

Net income (loss) attributable to common stockholders
 
3,612

(3,244
)
97

(23
)
(2,336
)
Net income (loss) per common share - basic and diluted
 
1.12

(1.00
)
0.03

(0.01
)
(0.72
)
Cash dividends per common share
 
—

—

—

—

—

 
 
 
 
 
 
 
Balance Sheets Data
 
 
 
 
 
 
Loans held-for-investment, at amortized cost by consolidated trusts (net of allowances for loan losses)
 

$1,842,850


$1,774,286


$1,690,218


$1,625,184


$1,558,094

Total assets
 
2,063,060

2,049,776

2,023,376

1,985,892

1,945,360

Debt securities of consolidated trusts held by third parties
 
1,792,677

1,720,996

1,648,683

1,556,121

1,479,473

Other debt
 
252,273

313,634

353,321

414,148

449,890

All other liabilities
 
13,633

15,458

16,297

12,683

13,346

Total stockholders' equity
 
4,477

(312
)
5,075

2,940

2,651

 
 
 
 
 
 
 
Portfolio Balances - UPB
 
 
 
 
 
 
Total guarantee portfolio
 

$2,133,510


$2,031,955


$1,912,717


$1,821,896


$1,756,283

Mortgage-related investments portfolio
 
218,080

253,455

298,426

346,911

408,414

Other investments portfolio
 
62,917

89,955

95,041

100,913

78,037

TDRs on accrual status
 
41,914

51,720

77,399

82,347

82,908

Non-accrual loans
 
11,217

17,817

16,272

22,649

33,130

 
 
 
 
 
 
 
Ratios
 
 
 
 
 
 
Return on average assets
 
0.4
%
0.3
%
0.4
%
0.3
%
0.4
%
Allowance for loan losses as percentage of loans, held-for-investment
 
0.3

0.5

0.7

0.9

1.3



FREDDIE MAC  | 2018 Form 10-K
 
11
Management's Discussion and Analysis
Key Economic Indicators

Management's Discussion and Analysis of Financial Condition and Results of Operations
KEY ECONOMIC INDICATORS
The following graphs and related discussion present certain macroeconomic indicators that can significantly affect our business and financial results.
Single-Family Home Prices
National Home Prices
chart-00d8802c24895a49b9a.jpg
n
Changes in home prices affect the amount of equity that borrowers have in their homes. Borrowers with less equity typically have higher delinquency rates. As home prices decline, the severity of losses we incur on defaulted loans that we hold or guarantee increases because the amount we can recover from the property securing the loan decreases.
n
Home prices continued to appreciate during 2018, increasing 4.7%, compared to an increase of 7.2% during 2017. We expect home price growth will continue in 2019, although at a slower pace than in 2018, due to increased supply and higher mortgage interest rates.
n
Home price appreciation continued to drive growth in mortgage debt outstanding and declines in single-family serious delinquency rates in the U.S. mortgage markets during 2018.

FREDDIE MAC  | 2018 Form 10-K
 
12
Management's Discussion and Analysis
Key Economic Indicators

Interest Rates
Key Market Interest Rates

chart-b40d180162a0592a916.jpg
 
chart-cca9643595875d0e9df.jpg
n
The 30-year Primary Mortgage Market Survey (PMMS) interest rate is indicative of what a consumer could expect to be offered on a first-lien prime conventional conforming home purchase or refinance mortgage with an LTV of 80%. Increases (decreases) in the PMMS rate typically result in decreases (increases) in refinancing activity and originations.
n
Higher average mortgage interest rates drove a decline in origination volumes, especially refinance volume, during 2018.
n
Changes in the 10-year and 2-year LIBOR interest rates affect the fair value of certain of our assets and liabilities, including derivatives, measured at fair value. Changes in the 3-month LIBOR rate affect the interest earned on our short-term investments and interest expense on our short-term funding. For additional information on the effect of LIBOR rates on our financial results, see Our Business Segments - Capital Markets - Market Conditions.

FREDDIE MAC  | 2018 Form 10-K
 
13
Management's Discussion and Analysis
Key Economic Indicators

Unemployment Rate
Unemployment Rate and Job Creation(1) 
chart-d378ed560fdf5745999.jpg
Source: U.S. Bureau of Labor Statistics
(1) Excludes Puerto Rico and the U.S. Virgin Islands.
n
Changes in the 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
Continued job growth, a declining unemployment rate, and generally favorable economic conditions resulted in strong credit quality and declining serious delinquency rates in 2018.




FREDDIE MAC  | 2018 Form 10-K
 
14
Management's Discussion and Analysis
Consolidated Results of Operations

CONSOLIDATED RESULTS OF OPERATIONS
You should read this discussion of our consolidated results of operations in conjunction with our consolidated financial statements and accompanying notes.
The table below compares our consolidated results of operations for the past three years.
Table 2 - Summary of Consolidated Statements of Comprehensive Income (Loss)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Net interest income
 

$12,021


$14,164


$14,379

 

($2,143
)
(15
)%
 

($215
)
(1
)%
Benefit (provision) for credit losses
 
736

84

803

 
652

776

 
(719
)
(90
)
Net interest income after benefit (provision) for credit losses
 
12,757

14,248

15,182

 
(1,491
)
(10
)
 
(934
)
(6
)
Non-interest income (loss):
 
 
 
 
 




 




Guarantee fee income
 
811

662

513

 
149

23

 
149

29

Mortgage loans gains (losses)
 
724

2,026

200

 
(1,302
)
(64
)
 
1,826

913

Investment securities gains (losses)
 
(695
)
1,036

(269
)
 
(1,731
)
(167
)
 
1,305

485

Debt gains (losses)
 
720

151

(473
)
 
569

377

 
624

132

Derivative gains (losses)
 
1,270

(1,988
)
(274
)
 
3,258

164

 
(1,714
)
(626
)
Other income (loss)
 
714

4,982

803

 
(4,268
)
(86
)
 
4,179

520

Total non-interest income (loss)
 
3,544

6,869

500

 
(3,325
)
(48
)
 
6,369

1,274

Non-interest expense:
 
 
 
 
 




 




Administrative expense
 
(2,293
)
(2,106
)
(2,005
)
 
(187
)
(9
)
 
(101
)
(5
)
Real estate owned operations expense
 
(169
)
(189
)
(287
)
 
20

11

 
98

34

Temporary Payroll Tax Cut Continuation Act of 2011 expense
 
(1,484
)
(1,340
)
(1,152
)
 
(144
)
(11
)
 
(188
)
(16
)
Other expense
 
(881
)
(648
)
(599
)
 
(233
)
(36
)
 
(49
)
(8
)
Total non-interest expense
 
(4,827
)
(4,283
)
(4,043
)
 
(544
)
(13
)
 
(240
)
(6
)
Income before income tax (expense) benefit
 
11,474

16,834

11,639

 
(5,360
)
(32
)
 
5,195

45

Income tax (expense) benefit
 
(2,239
)
(11,209
)
(3,824
)
 
8,970

80

 
(7,385
)
(193
)
Net income (loss)
 
9,235

5,625

7,815

 
3,610

64

 
(2,190
)
(28
)
Total other comprehensive income (loss), net of taxes and reclassification adjustments
 
(613
)
(67
)
(697
)
 
(546
)
(815
)
 
630

90

Comprehensive income (loss)
 

$8,622


$5,558


$7,118

 

$3,064

55
 %
 

($1,560
)
(22
)%
See Critical Accounting Policies and Estimates for information concerning certain significant accounting policies and estimates applied in determining our reported results of operations and Note 1 for information on our accounting policies and a summary of other significant accounting policies and the related notes in which information about them can be found.

FREDDIE MAC  | 2018 Form 10-K
 
15
Management's Discussion and Analysis
Consolidated Results of Operations

Net Interest Income
Net interest income consists of several primary components:
n
Contractual net interest income - consists of two components:
l
Guarantee fees on debt securities issued by consolidated trusts. We record interest income on loans held by consolidated trusts and interest expense on the debt securities issued by the trusts. The difference between the interest income on the loans and the interest expense on the debt represents the guarantee fee income we receive as compensation for our guarantee of the principal and interest payments of the issued debt securities. This difference includes the legislated 10 basis point increase in guarantee fees that is remitted to Treasury as part of the Temporary Payroll Tax Cut Continuation Act of 2011 and
l
The difference between the interest income earned on all other interest-earning assets, excluding loans held by consolidated trusts, and the interest expense incurred on the liabilities used to fund those assets.
Contractual net interest income is driven by the volume of assets in the mortgage-related investments portfolio and the interest rate differential between those interest-earning assets and the related interest-bearing liabilities.
n
Amortization of cost basis adjustments - consists of cost basis adjustments, such as premiums and discounts on loans, investment securities, and debt, that are amortized into interest income or interest expense based on the effective yield over the contractual life of the associated financial instrument.
The largest portion of our total net amortization relates to loans and debt securities of consolidated trusts and includes amortization of the upfront fees we receive when we acquire a loan. Amortization related to other assets, including investment securities and unsecuritized mortgage loans, and other debt makes up a smaller portion.
The net amortization of loans and debt securities of consolidated trusts is primarily driven by actual prepayments on the underlying loans. Increases in actual prepayments result in higher net amortization, while decreases in actual prepayments result in lower net amortization. The timing of amortization of loans may differ from the timing of amortization of the securities backed by the loans, as the proceeds from the loans backing these securities are remitted to the security holders at a date subsequent to the date these proceeds are received by us.
n
Hedge accounting impact - consists of two components:
l
Deferred gains and losses on closed cash flow hedges related to forecasted debt issuances that are reclassified from AOCI to net interest income when the related forecasted transaction affects net interest income and
l
Fair value changes for the hedging instrument, including the accrual of periodic cash settlements, and fair value changes for the hedged item attributable to the risk being hedged for qualifying fair value hedge relationships, due to the adoption of amended hedge accounting guidance in 4Q 2017. See Note 9 for additional detail on this change.


FREDDIE MAC  | 2018 Form 10-K
 
16
Management's Discussion and Analysis
Consolidated Results of Operations

The table below presents the components of net interest income.
Table 3 - Components of Net Interest Income
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Contractual net interest income:
 
 
 
 
 
 
 
 
 
 
Guarantee fee income
 

$3,457


$3,270


$2,997

 

$187

6
 %
 

$273

9
 %
Guarantee fee income related to the Temporary Payroll Tax Cut Continuation Act of 2011
 
1,438

1,314

1,142

 
124

9

 
172

15

Other contractual net interest income
 
5,472

6,400

6,896

 
(928
)
(15
)
 
(496
)
(7
)
Total contractual net interest income
 
10,367

10,984

11,035

 
(617
)
(6
)
 
(51
)
—

Net amortization - loans and debt securities of consolidated trusts
 
2,900

3,258

3,333

 
(358
)
(11
)
 
(75
)
(2
)
Net amortization - other assets and other debt
 
(315
)
(85
)
202

 
(230
)
(271
)
 
(287
)
(142
)
Hedge accounting impact
 
(931
)
7

(191
)
 
(938
)
(13,400
)
 
198

104

Net interest income
 

$12,021


$14,164


$14,379

 

($2,143
)
(15
)%
 

($215
)
(1
)%
Key Drivers:
n
Guarantee fee income
l
2018 vs. 2017 - Increased primarily due to the continued growth of the core single-family loan portfolio.
l
2017 vs. 2016 - Increased as a result of higher average contractual guarantee fee rates, as well as the continued growth in the size of the core single-family loan portfolio. Average contractual guarantee fees 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.
n
Other contractual net interest income
l
2018 vs. 2017 and 2017 vs. 2016 - Decreased during both comparative periods 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 and Related Matters - Limits on Our Mortgage-Related Investments Portfolio and Indebtedness for additional discussion of the limits on the mortgage-related investments portfolio.
n
Net amortization of loans and debt securities of consolidated trusts
l
2018 vs. 2017 - Decreased primarily driven by lower prepayments as a result of higher interest rates, partially offset by an increase in amortization from higher upfront fees on mortgage loans.
n
Net amortization of other assets and other debt
l
2018 vs. 2017 - Increased primarily due to lower accretion related to unsecuritized mortgage loans, as certain of those loans were reclassified from held-for-investment to held-for-sale and ceased amortizing, and previously recognized other-than-temporary impairments, due to a decline in the population of impaired securities.

FREDDIE MAC  | 2018 Form 10-K
 
17
Management's Discussion and Analysis
Consolidated Results of Operations

l
2017 vs. 2016 - decreased due to lower accretion related to previously recognized other-than-temporary impairments due to a decline in the population of impaired securities.
n
Hedge accounting impact
l
2018 vs. 2017 and 2017 vs. 2016 - affected both comparative periods primarily due to the inclusion of fair value hedge accounting results within net interest income beginning in 4Q 2017, due to the adoption of amended hedge accounting guidance. In prior periods, this activity was included in other income and derivative gains (losses).

FREDDIE MAC  | 2018 Form 10-K
 
18
Management's Discussion and Analysis
Consolidated Results of Operations

Net Interest Yield Analysis
The table below presents an analysis of interest-earning assets and interest-bearing liabilities. To calculate the average balances, we generally use a daily weighted average of amortized cost. When daily average balance information is not available, such as for mortgage loans, we use monthly averages. Mortgage loans on non-accrual status, where interest income is generally recognized when collected, are included in the average balances.
Table 4 - Analysis of Net Interest Yield
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
(Dollars in millions)
 
Average
Balance
Interest
Income
(Expense)
Average
Rate
 
Average
Balance
Interest
Income
(Expense)
Average
Rate
 
Average
Balance
Interest
Income
(Expense)
Average
Rate
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 

$7,189


$67

0.93
 %
 

$10,965


$48

0.44
 %
 

$16,932


$42

0.25
 %
Securities purchased under agreements to resell
 
45,360

880

1.94

 
57,883

588

1.02

 
59,639

217

0.36

Secured lending
 
1,350

35

2.58

 
859

21

2.42

 
484

11

2.28

Mortgage-related securities:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-related securities
 
143,424

6,026

4.20

 
164,663

6,402

3.89

 
189,982

7,262

3.82

Extinguishment of PCs held by Freddie Mac
 
(88,757
)
(3,437
)
(3.87
)
 
(87,665
)
(3,264
)
(3.72
)
 
(94,624
)
(3,509
)
(3.71
)
Total mortgage-related securities, net
 
54,667

2,589

4.74

 
76,998

3,138

4.08

 
95,358

3,753

3.94

Non-mortgage-related securities
 
18,955

446

2.35

 
17,558

277

1.58

 
15,734

102

0.65

Loans held by consolidated trusts(1)
 
1,799,122

61,883

3.44

 
1,730,000

58,746

3.40

 
1,649,727

55,417

3.36

Loans held by Freddie Mac(1)
 
98,005

4,154

4.24

 
117,043

4,989

4.26

 
135,882

5,623

4.14

Total interest-earning assets
 
2,024,648

70,054

3.46

 
2,011,306

67,807

3.37

 
1,973,756

65,165

3.30

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities of consolidated trusts including PCs held by Freddie Mac
 
1,826,429

(54,966
)
(3.01
)
 
1,753,983

(50,920
)
(2.90
)
 
1,674,474

(48,108
)
(2.87
)
Extinguishment of PCs held by Freddie Mac
 
(88,757
)
3,437

3.87

 
(87,665
)
3,264

3.72

 
(94,624
)
3,509

3.71

Total debt securities of consolidated trusts held by third parties
 
1,737,672

(51,529
)
(2.97
)
 
1,666,318

(47,656
)
(2.86
)
 
1,579,850

(44,599
)
(2.82
)
Other debt:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
 
62,893

(1,193
)
(1.90
)
 
72,071

(615
)
(0.85
)
 
86,284

(350
)
(0.41
)
Long-term debt
 
216,484

(5,311
)
(2.45
)
 
264,354

(5,372
)
(2.03
)
 
298,040

(5,837
)
(1.96
)
Total other debt
 
279,377

(6,504
)
(2.33
)
 
336,425

(5,987
)
(1.78
)
 
384,324

(6,187
)
(1.61
)
Total interest-bearing liabilities
 
2,017,049

(58,033
)
(2.88
)
 
2,002,743

(53,643
)
(2.68
)
 
1,964,174

(50,786
)
(2.58
)
Impact of net non-interest-bearing funding
 
7,599

—

0.01

 
8,563

—

0.01

 
9,582

—

0.01

Total funding of interest-earning assets
 

$2,024,648


($58,033
)
(2.87
)%
 

$2,011,306


($53,643
)
(2.67
)%
 

$1,973,756


($50,786
)
(2.57
)%
Net interest income/yield
 
 

$12,021

0.59
 %
 
 

$14,164

0.70
 %
 
 

$14,379

0.73
 %
(1)
Loan fees, primarily consisting of amortization of upfront fees, included in interest income were $2.6 billion, $2.4 billion, and $2.6 billion for loans held by consolidated trusts and $104 million, $162 million, and $215 million for loans held by Freddie Mac during 2018, 2017, and 2016, respectively.

FREDDIE MAC  | 2018 Form 10-K
 
19
Management's Discussion and Analysis
Consolidated Results of Operations

Net Interest Income Rate / Volume Analysis
The table below presents a rate and volume analysis of our net interest income. Our net interest income reflects the reversal of interest income accrued, net of interest received on a cash basis, related to mortgage loans that are on non-accrual status.
Table 5 - Net Interest Income Rate / Volume Analysis
 
 
Variance Analysis
 
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
Rate
Volume
Total Change
 
Rate
Volume
Total Change
Interest-earning assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 

$45


($26
)

$19

 

$8


($2
)

$6

Securities purchased under agreements to resell
 
443

(151
)
292

 
380

(9
)
371

Secured lending
 
1

13

14

 
1

9

10

Mortgage-related securities:
 
 
 
 
 
 
 
 
Mortgage-related securities
 
491

(867
)
(376
)
 
123

(983
)
(860
)
Extinguishment of PCs held by Freddie Mac
 
(132
)
(41
)
(173
)
 
(14
)
259

245

Total mortgage-related securities, net
 
359

(908
)
(549
)
 
109

(724
)
(615
)
Non-mortgage-related securities
 
146

23

169

 
161

14

175

Loans held by consolidated trusts
 
767

2,370

3,137

 
609

2,720

3,329

Loans held by Freddie Mac
 
(28
)
(807
)
(835
)
 
165

(799
)
(634
)
Total interest-earning assets
 
1,733

514

2,247

 
1,433

1,209

2,642

Interest-bearing liabilities:
 
 
 
 
 
 
 
 
Debt securities of consolidated trusts including PCs held by Freddie Mac
 
(1,902
)
(2,144
)
(4,046
)
 
(508
)
(2,304
)
(2,812
)
Extinguishment of PCs held by Freddie Mac
 
132

41

173

 
14

(259
)
(245
)
Total debt securities of consolidated trusts held by third parties
 
(1,770
)
(2,103
)
(3,873
)
 
(494
)
(2,563
)
(3,057
)
Other debt:
 
 
 
 
 
 
 
 
Short-term debt
 
(665
)
87

(578
)
 
(331
)
66

(265
)
Long-term debt
 
(1,005
)
1,066

61

 
(214
)
679

465

Total other debt
 
(1,670
)
1,153

(517
)
 
(545
)
745

200

Total interest-bearing liabilities
 
(3,440
)
(950
)
(4,390
)
 
(1,039
)
(1,818
)
(2,857
)
Net interest income
 

($1,707
)

($436
)

($2,143
)


$394


($609
)

($215
)
Benefit (Provision) for Credit Losses
n
2018 vs. 2017 - Increased benefit for credit losses during 2018, primarily driven by estimated losses from the hurricanes in 2017.
n
2017 vs. 2016 - Decline in benefit for credit losses in 2017 compared to 2016 primarily driven by:
l
The negative effects of the hurricanes in 2017;
l
Decrease in the accretion of TDR concessions due to a significant increase in the reclassification of reperforming loans from held-for-investment to held-for-sale; and
l
Change in accounting policy that was elected on January 1, 2017 for loan reclassification from held-for-investment to held-for-sale. See Note 4 for further information about this change.
The decline was partially offset by improvement in our estimated loss severity.

FREDDIE MAC  | 2018 Form 10-K
 
20
Management's Discussion and Analysis
Consolidated Results of Operations

Guarantee Fee Income
Guarantee fee income consists of guarantee fees earned from guarantees to third parties and securitization trusts that we do not consolidate, and relates primarily to multifamily securitizations. For additional details, see Our Business Segments - Multifamily - Securitization, Guarantee, and Other Risk Transfer Products.
n
2018 vs. 2017 and 2017 vs. 2016 - Increased due to the continued growth in the multifamily guarantee portfolio.
Mortgage Loans Gains (Losses)
Mortgage loans gains (losses) consists of the following:
n
Gains (losses) on certain mortgage loan purchase commitments - represents the change in fair value between the commitment date and settlement date for certain multifamily loan purchase commitments for which we have elected the fair value option.
n
Gains (losses) on mortgage loans - includes changes in fair value on held-for-sale loans, and loans for which we have elected the fair value option while held in our mortgage-related investments portfolio, as well as any gains and losses on the sales of these loans.
Mortgage loans gains (losses) are affected by a number of factors, including:
n
Volume of held-for-sale single-family seasoned mortgage loans;
n
Volume of multifamily loan purchase commitments and mortgage loans for which we have elected the fair value option; and
n
Changes in interest rates and market spreads.
The table below presents the components of mortgage loans gains (losses).
Table 6 - Components of Mortgage Loans Gains (Losses)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Gains (losses) on certain loan purchase commitments
 

$777


$1,098


$663

 

($321
)
(29
)%
 

$435

66
%
Gains (losses) on mortgage loans
 
(53
)
928

(463
)
 
(981
)
(106
)
 
1,391

300

Mortgage loans gains (losses)
 

$724


$2,026


$200

 

($1,302
)
(64
)%
 

$1,826

913
%
Key Drivers:
n 2018 vs. 2017 - Gains decreased due to fair value losses on multifamily mortgage loans and commitments as a result of spread widening, coupled with higher fair value losses on single-family seasoned loans.
n 2017 vs. 2016 - Gains increased due to:
l
Higher average balances of multifamily held-for-sale commitments driven by strong demand for multifamily loan products;
l
Higher volume of single-family reperforming loan sales; and
l
Lower losses recognized on the reclassification of seriously delinquent loans from held-for-investment to held-for-sale as a result of an accounting policy change. See Note 4 for more information.

FREDDIE MAC  | 2018 Form 10-K
 
21
Management's Discussion and Analysis
Consolidated Results of Operations

Investment Securities Gains (Losses)
Investment securities gains (losses) consists of the following:
n
Net impairment of available-for-sale-securities recognized in earnings - includes the portion of other-than-temporary impairment on available-for-sale securities recognized in earnings.
n
Other gains (losses) on investment securities recognized in earnings - includes fair value gains and losses recognized on trading securities and the realized gains and losses on the sale of available-for-sale securities.
Investment securities gains (losses) are affected by a number of factors, including:
n
Volume of sales of our available-for-sale securities;
n
Volume of available-for-sale securities deemed to be other-than-temporarily impaired and the amount of the impairment; and
n
Changes in interest rates and market spreads.
The table below presents the components of investment securities gains (losses).
Table 7 - Components of Investment Securities Gains (Losses)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Net impairment of available-for-sale securities recognized in earnings
 

($12
)

($18
)

($191
)
 

$6

33
 %
 

$173

91
%
Other gains (losses) on investment securities recognized in earnings
 
(683
)
1,054

(78
)
 
(1,737
)
(165
)
 
1,132

1,451

Investment securities gains (losses)
 

($695
)

$1,036


($269
)
 

($1,731
)
(167
)%
 

$1,305

485
%
Key Drivers:
n 2018 vs. 2017 - Shifted to losses during 2018 from gains during 2017 primarily driven by higher losses on trading securities due to increasing interest rates and spread widening during 2018, combined with lower volume of sales at gains of non-agency mortgage-related securities.
n 2017 vs. 2016 - Improved primarily due to:
l
Lower losses on trading securities as long-term interest rates increased less during 2017 than during 2016;
l
Larger gains on sales of available-for-sale securities due to additional spread tightening during 2017; and
l
Lower losses on impaired securities primarily due to a decline in the population of non-agency mortgage-related securities.
Debt Gains (Losses)
Debt gains (losses) consists of the following:
n
Fair value changes - includes the gains and losses on debt for which we have elected the fair value option, primarily certain STACR debt notes.
n
Gains (losses) on extinguishment of debt - represents the difference between the consideration paid and the debt carrying value when we purchase debt securities of consolidated trusts (i.e., PCs)

FREDDIE MAC  | 2018 Form 10-K
 
22
Management's Discussion and Analysis
Consolidated Results of Operations

as investments in our mortgage-related investments portfolio and when we repurchase or call other debt.
Debt gains (losses) are affected by a number of factors, including:
n
Changes in the market spreads between debt yields and benchmark interest rates and
n
Amount and type of debt selected for repurchase based on our investment and funding strategies, including our efforts to support the liquidity and price performance of our PCs.
The table below presents the components of debt gains (losses).
Table 8 - Components of Debt Gains (Losses)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Fair value changes
 

$142


($190
)

($262
)
 

$332

175
%
 

$72

27
%
Gains (losses) on extinguishment of debt
 
578

341

(211
)
 
237

70

 
552

262

Debt gains (losses)
 

$720


$151


($473
)
 

$569

377
%
 

$624

132
%
Key Drivers:
n 2018 vs. 2017 - Improved primarily due to an increase in gains from the extinguishment of fixed-rate PCs, as market interest rates increased between the time of issuance and repurchase, coupled with fair value gains on STACR debt notes as a result of spread widening during 2018.
n 2017 vs. 2016 - Improved primarily due to an increase in gains from the extinguishment of fixed-rate PCs, as market interest rates increased between the time of issuance and repurchase, coupled with smaller fair value losses on STACR debt notes, as spreads tightened less during 2017 than during 2016.
Derivative Gains (Losses)
Derivative instruments are a key component of our interest-rate risk management strategy. We use derivatives to economically hedge our interest-rate risk exposure. We primarily use interest-rate swaps, futures, and option-based derivatives, such as swaptions, to manage our exposure to changes in interest-rates. We consider the cost of derivatives used in interest-rate risk management to be an inherent part of the cost of funding our mortgage-related investments portfolio.
In addition, we routinely enter into commitments to purchase and sell loans and mortgage-related securities. The majority of these commitments are accounted for as derivative instruments.
We continue to align our derivative portfolio with the changing duration of our assets and liabilities so as to economically hedge them. 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 GAAP earnings to those activities, see Risk Management - Market Risk.
Derivative gains (losses) consists of the following:
n
Fair value changes - represents changes in the fair value of our derivatives while not designated in hedging relationships based on market conditions at the end of the period or at the time the

FREDDIE MAC  | 2018 Form 10-K
 
23
Management's Discussion and Analysis
Consolidated Results of Operations

derivative instrument is terminated. These amounts may or may not be realized over time, depending on future changes in market conditions and the terms of our derivative instruments.
n
Accrual of periodic cash settlements - consists of the net amount we accrue during a period for interest-rate swap payments that we will make or receive for derivatives while not designated in hedging relationships. This accrual represents the ongoing cost of our hedging activities, and is economically equivalent to interest expense.
We apply fair value hedge accounting to certain single-family mortgage loans and long-term debt to reduce our GAAP earnings volatility. For the first three quarters of 2017, we included gains and losses on derivatives designated in qualifying hedge relationships in other income and the accrual of periodic cash settlements on derivatives in qualifying hedge relationships in derivatives gains (losses). Beginning in 4Q 2017, due to the adoption of amended hedge accounting guidance, we include gains and losses and the accrual of periodic cash settlements on derivatives designated in qualifying hedge relationships in the same line used to present the earnings effect of the hedged item. See Note 9 for more information on hedge accounting and the adoption of amended hedge accounting guidance during 2017.
Derivative gains (losses) are affected by a number of factors, including:
n
Changes in interest rates - Our primary derivative instruments are interest-rate swaps, including pay-fixed and receive-fixed interest-rate swaps. With a pay-fixed interest-rate swap, we pay a fixed rate of interest and receive a variable rate of interest based on a specified notional balance (the notional balance is for calculation purposes only). As interest rates decline, we recognize derivative losses, as the amount of interest we pay remains fixed, and the amount of interest we receive declines. As rates rise, we recognize derivative gains, as the amount of interest we pay remains fixed, but the amount of interest we receive increases. With a receive-fixed interest-rate swap, the opposite results occur.
n
Implied volatility - Many of our assets and liabilities have embedded prepayment options. We use option-based derivatives, including swaptions, to economically hedge the prepayment options embedded in our mortgage assets and callable debt. Fair value gains and losses on swaptions are sensitive to changes in both interest rates and implied volatility, which reflects the market's expectation of future changes in interest rates. Assuming all other factors are unchanged, including interest rates, purchased swaptions generally become more valuable as implied volatility increases and less valuable as implied volatility decreases, with the opposite being true for written swaptions.
n
Changes in the shape of the yield curve - We own assets and have outstanding debt with different cash flows along the yield curve. We use derivatives to hedge the yield exposure of assets and debt, resulting in derivatives with different maturities. As a result, changes in the shape of the yield curve will affect our derivative gains (losses).
n
Changes in the composition of our derivative portfolio - The mix and balance of our derivative portfolio changes from period to period as we enter into or terminate derivative instruments to respond to changes in interest rates and changes in the balances and modeled characteristics of our assets and liabilities. Changes in the composition of our derivative portfolio will affect the derivative gains and losses we recognize in a given period, thereby affecting the volatility of comprehensive income.

FREDDIE MAC  | 2018 Form 10-K
 
24
Management's Discussion and Analysis
Consolidated Results of Operations

The table below presents the components of derivative gains (losses).
Table 9 - Components of Derivative Gains (Losses)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Fair value change in interest-rate swaps
 

$1,422


$626


$178

 

$796

127
%
 

$448

252
 %
Fair value change in option-based derivatives
 
(630
)
(1,041
)
421

 
411

39

 
(1,462
)
(347
)
Fair value change in other derivatives
 
619

17

887

 
602

3,541

 
(870
)
(98
)
Accrual of periodic cash settlements
 
(141
)
(1,590
)
(1,760
)
 
1,449

91

 
170

10

Derivative gains (losses)
 

$1,270


($1,988
)

($274
)
 

$3,258

164
%
 

($1,714
)
(626
)%
Key Drivers:
n
2018 vs. 2017 - Increases in long-term rates during 2018 resulted in derivative fair value gains compared to derivative fair value losses during 2017. The interest rate increases during 2018 resulted in fair value gains on our pay-fixed interest rate swaps, forward commitments to issue PCs, and futures, partially offset by fair value losses on our receive-fixed swaps and certain of our option-based derivatives. As a result of the adoption of amended hedge accounting guidance in 4Q 2017, fair value changes on derivatives in qualifying hedge relationships have been recorded within net interest income.
n
2017 vs. 2016 - Increased losses driven by lower levels of volatility during 2017, resulting in larger losses in our options portfolio, coupled with lower fair value gains on our pay-fixed interest rate swaps as long-term interest rates increased less during 2017 than during 2016. This was partially offset by reduced fair value losses on our receive-fixed interest rate swaps.
Other Income
n
2018 vs. 2017 and 2017 vs. 2016 - Primarily reflected the recognition of a $0.3 billion gain during 2018 from a judgment in litigation against Nomura Holding America, Inc. (Nomura) and $4.5 billion in proceeds received during 2017 from a litigation settlement with the Royal Bank of Scotland Group plc (RBS) related to certain of our non-agency mortgage related securities. We did not have any significant judgments or settlements during 2016. See Note 14 for additional information on the Nomura judgment and RBS settlement.
Income Tax Expense
n
2018 vs. 2017 - Decreased due to the impact of the Tax Cuts and Jobs Act enacted in December 2017, which lowered the statutory corporate income tax rate from 35% in 2017 to 21% in 2018 and required us to measure our net deferred tax asset using the reduced rate and recognize a charge to income tax expense of $5.4 billion in 2017.
n
2017 vs. 2016 - Increased primarily due to the $5.4 billion charge to income tax expense resulting from the enactment of the Tax Cuts and Jobs Act.
Other Comprehensive Income (Loss)
Our investments in securities classified as available-for-sale are measured at fair value on our consolidated balance sheets. The fair value of these securities is primarily affected by changes in

FREDDIE MAC  | 2018 Form 10-K
 
25
Management's Discussion and Analysis
Consolidated Results of Operations

interest rates, market spreads, and the movement of these securities towards maturity. All unrealized gains and losses on these securities are excluded from earnings and reported in other comprehensive income until realized. We reclassify our unrealized gains and losses from AOCI to earnings upon the sale of the securities or if the securities are determined to be other-than-temporarily impaired.
If, subsequent to the recognition of other-than-temporary impairment, our expectation of the cash flows we will receive on a previously impaired security has significantly increased, we will accrete that increase in cash flows into earnings. The accretion into earnings will generally reduce the amount of unrealized gains that we would have otherwise recognized if not for the accretion.
The following table presents the attribution of the other comprehensive income (loss) reported on our consolidated statements of comprehensive income.
Table 10 - Other Comprehensive Income (Loss)
 
 
 
 
 
 
Year Over Year Change
 
 
Year Ended December 31,
 
2018 vs. 2017
 
2017 vs. 2016
(Dollars in millions)
 
2018
2017
2016
 
$
%
 
$
%
Other comprehensive income (loss), excluding certain items
 

($345
)

$1,084


($29
)
 

($1,429
)
(132
)%
 

$1,113

3,838
 %
Excluded items
 
 
 
 
 
 
 
 
 
 
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
 
(120
)
(164
)
(299
)
 
44

27

 
135

45

Realized (gains) losses reclassified from AOCI
 
(148
)
(987
)
(369
)
 
839

85

 
(618
)
(167
)
Total excluded items
 
(268
)
(1,151
)
(668
)
 
883

77

 
(483
)
(72
)
Total other comprehensive income (loss)
 

($613
)

($67
)

($697
)
 

($546
)
(815
)%
 

$630

90
 %
Key Drivers:
n
Other comprehensive income (loss), excluding certain items
l
2018 vs. 2017 - Shifted to losses in 2018 from income in 2017 primarily due to higher fair value losses due to increasing long-term interest rates during 2018, coupled with smaller spread-related fair value gains driven by lower balances of non-agency mortgage-related securities.
l
2017 vs. 2016 - Increased primarily due to market spread related gains as market spreads tightened more during 2017, coupled with smaller interest rate-related losses due to smaller increases in long-term interest rates during 2017.
Excluded items:
n
Accretion due to significant increases in expected cash flows on previously impaired available-for-sale securities
l
2018 vs. 2017 and 2017 vs. 2016 - Decreased during both comparative periods primarily due to a decline in the population of impaired securities.
n
Realized (gains) losses reclassified from AOCI
l
2018 vs. 2017 - Reflected smaller amounts of reclassified gains during 2018 due to lower sales of non-agency mortgage-related securities.
l
2017 vs. 2016 - Reflected larger amounts of reclassified gains during 2017 due to additional spread tightening and an increase in sales of non-agency mortgage-related securities.

FREDDIE MAC  | 2018 Form 10-K
 
26
Management's Discussion and Analysis
Consolidated Balance Sheets Analysis


CONSOLIDATED BALANCE SHEETS ANALYSIS
The table below compares our summarized consolidated balance sheets.
Table 11 - Summarized Consolidated Balance Sheets
 
 
As of December 31,
 
Year Over Year Change
(Dollars in millions)
 
2018
2017
 
$
%
Assets:
 
 
 
 
 
 
Cash and cash equivalents(1)
 

$7,273


$9,811

 

($2,538
)
(26
)%
Securities purchased under agreements to resell
 
34,771

55,903

 
(21,132
)
(38
)
Subtotal
 
42,044

65,714

 
(23,670
)
(36
)
Investments in securities, at fair value
 
69,111

84,318

 
(15,207
)
(18
)
Mortgage loans, net
 
1,926,978

1,871,217

 
55,761

3

Accrued interest receivable
 
6,728

6,355

 
373

6

Derivative assets, net
 
335

375

 
(40
)
(11
)
Deferred tax assets, net
 
6,888

8,107

 
(1,219
)
(15
)
Other assets
 
10,976

13,690

 
(2,714
)
(20
)
Total assets
 

$2,063,060


$2,049,776

 

$13,284

1
 %
 
 
 
 
 
 


Liabilities and Equity:
 
 
 
 
 


Liabilities:
 
 
 
 
 


Accrued interest payable
 

$6,652


$6,221

 

$431

7
 %
Debt, net
 
2,044,950

2,034,630

 
10,320

1

Derivative liabilities, net
 
583

269

 
314

117

Other liabilities
 
6,398

8,968

 
(2,570
)
(29
)
Total liabilities
 
2,058,583

2,050,088

 
8,495

—

Total equity
 
4,477

(312
)
 
4,789

1,535

Total liabilities and equity
 

$2,063,060


$2,049,776

 

$13,284

1
 %
(1) The current and prior period presentation has been modified to include restricted cash and cash equivalents in this line item due to recently adopted accounting guidance.
Key Drivers:
As of December 31, 2018 compared to December 31, 2017:
n
Cash and cash equivalents and securities purchased under agreements to resell declined on a combined basis primarily due to lower near-term cash needs for fewer upcoming maturities and anticipated calls of other debt.
n Investments in securities, at fair value decreased as we continued to reduce the mortgage-related investments portfolio during 2018 as required by the Purchase Agreement and FHFA.
n Deferred tax assets, net decreased primarily due to an increase in long-term interest rates during 2018, which caused the difference between the GAAP and tax basis of assets held for investment and derivative instruments to decline.
n
Total equity increased primarily as a result of higher comprehensive income, combined with our ability to retain equity as a result of an increase in the applicable Capital Reserve Amount, which was $3.0 billion as of January 1, 2018.

FREDDIE MAC  | 2018 Form 10-K
 
27
Management's Discussion and Analysis
Our Business Segments | Segment Earnings

OUR BUSINESS SEGMENTS
As shown in the table below, we have three reportable segments, which are based on the way we manage our business. Certain activities that are not part of a reportable segment are included in the All Other category.
Segment/Category
Description
Primary Revenue Drivers
Primary Expense Drivers
Single-family Guarantee
Reflects results from our purchase, securitization, and guarantee of single-family loans and the management of single-family mortgage credit risk
•
Guarantee fee income
•
Credit-related expenses
•
Administrative expenses
•
Credit risk transfer expenses
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
•
Net interest income
•
Losses on loans


•
Guarantee fee income
•
Investment losses
•
Gains on loans
•
Derivative losses
•
Investment gains
•
Administrative expenses
•
Derivative gains
•
Credit-related expenses
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), treasury function, single-family securitization activities, and interest-rate risk
•
Net interest income
•
Investment losses
•
Investment gains
•
Derivative losses
•
Derivative gains
•
Administrative expenses
All Other
Consists of material corporate-level activities that are infrequent in nature and based on decisions outside the control of the management of our reportable segments
 
N/A
 
N/A
Segment Earnings
We evaluate segment performance and allocate resources based on a Segment Earnings approach:
n
We make significant reclassifications among certain line items in our GAAP financial statements to reflect measures of guarantee fee income on guarantees, net interest income on investments, and benefit (provision) for credit losses on loans that are in line with how we manage our business.
n
We allocate certain revenues and expenses, including certain returns on assets, funding and hedging costs, and all administrative expenses to our three reportable segments.
n
The sum of Segment Earnings for each segment and the All Other category equals GAAP net income (loss). Likewise, the sum of comprehensive income (loss) for each segment and the All Other category equals GAAP comprehensive income (loss).
During 4Q 2018, we changed how we calculate certain components of our Segment Earnings for our Single-family Guarantee and Capital Markets segments. Prior period results have been revised to conform to the current period presentation. For more information on these changes and our segment reclassifications, see Note 13.
Segment Earnings differs significantly from, and should not be used as a substitute for, net income (loss) as determined in accordance with GAAP. Our definition of Segment Earnings may differ from similar measures used by other companies. We believe that Segment Earnings provides us with meaningful metrics to assess the financial performance of each segment and our company as a whole. See Note 13 for additional details on Segment Earnings, including additional financial information for our

FREDDIE MAC  | 2018 Form 10-K
 
28
Management's Discussion and Analysis
Our Business Segments | Segment Earnings

segments.
Segment Comprehensive Income
The graph below shows our comprehensive income by segment.
chart-fc174afb51c458548d5.jpg


FREDDIE MAC  | 2018 Form 10-K
 
29
Management's Discussion and Analysis
Our Business Segments | Single-Family Guarantee

Single-Family Guarantee
Business Overview
Our Single-family Guarantee segment supports our primary business strategies by creating:
A Better Freddie Mac:
n
Providing market leadership by delivering quality offerings, programs, and services to an increasingly diversified customer base and an evolving mortgage market;
n
Improving the customer experience through continued enhancement of our products, programs, processes, and technology;
n
Establishing effective risk management activities, including credit risk transfer transactions, that are appropriate for the level of risk;
n
Developing innovative technology platforms to provide sellers and servicers and Freddie Mac with better methods of assessing and managing single-family mortgage credit risk;
n
Providing quality risk-adjusted returns; and
n
Offering third-party investors new and innovative ways to share in the credit risk of the single-family credit guarantee portfolio.
A Better Housing Finance System:
n
Developing and implementing initiatives to cost-effectively reduce taxpayer exposure to our risks;
n
Expanding access to affordable housing in a responsible manner to support our Charter Mission as well as to meet specific mandated goals;
n
Working with FHFA, Fannie Mae, and CSS on the development of a new common securitization platform and implementing the Single Security initiative for Freddie Mac and Fannie Mae. The Single Security initiative is intended to increase the liquidity of the TBA market and to reduce the disparities in trading value between our PCs and Fannie Mae's single-class mortgage-related securities; and
n
Leveraging technology and big data to improve the mortgage process for all stakeholders, including reducing costs for lenders and borrowers and making the loan process more efficient and effective.