Portfolio Pricing and Capital Markets2019 Optigo℠ TAH Workshop

PRESENTERS

DirectorMultifamily Securitization

Capital Markets

Peter Lillestolen

Senior DirectorPortfolio Pricing Capital

Markets

David Senft

Key Takeaways

▪ Capital Markets Recap

▪ Impact of the Capital Markets on Loan Pricing

▪ How is our pricing determined?

▪ How to get the best pricing?

2018 Capital Markets Recap

Financing Affordable Units93 percent of the eligible units we financed in 2018 supported low and moderate income

households earning at or below 120 percent of the area median income (AMI).

Multifamily Securitization Program Volume(2009 –2018)

Investors Overview 1 Data reflects Senior bond allocations YTD for deals closed through 12/31/2018

▪ Since the K-Deal program’s

inception in 2009, the investor base

has grown significantly

» 546 investors historically, with 241

participating in 2018

» Average of 29 different accounts per

transaction historically, 25 per

transaction in 2018

» 50 subordinate investors historically,

with 18 participating in 2018

Multifamily Delinquency Rates

0

10

20

30

40

50

60

70

80

90

BA

SIS

PO

INT

S

GSE Delinquency RatesFREDDIE MAC (60+ DAY)

FANNIE MAE (60+ DAY)

Our disciplined credit practices are one of the main drivers of the continued strong performance of our offerings

Notes: Freddie Mac does not report modified or forbearance loans in delinquency rates if the borrower is less than two monthly payments past due. Fannie Mae reports forbearance loans in their delinquency rates.Sources: Freddie Mac, Fannie Mae, American Council of Life Insurers (ACLI) Quarterly Investment Bulletin, FDIC Quarterly Banking Profile, TREPP (CMBS multifamily 60+ delinquency rate, excluding REOs) for periods prior to 3Q17, Wells Fargo CMBS research for 4Q17-4Q18 CMBS delinquency rates

0100200300400500600700800900

1,0001,1001,2001,3001,400

BA

SIS

PO

INT

S

Delinquency Rates

FREDDIE MAC (60+ DAY)

FANNIE MAE (60+ DAY)

MF CMBS MARKET (60+ DAY)

ACLI (60+ DAY)

FDIC Insured Institutions

LIHTC Performance

▪ Within the multifamily space,

LIHTC properties exhibited a

lower foreclosure rate than

conventional multifamily

properties

Impact of the Capital

Markets on Loan Pricing

Sample K-Deal Subordination

Source: Freddie Mac. The additional information can be accessed at mf.freddiemac.com/investors/presentations

Capital Markets Update▪ 2018 K- & SB-Deal issuance totaled $67.2B

▪ 2019 securitization volume is forecasted to remain flat

▪ A2 spreads on our most recent fixed rate deal, K-91, traded at 56 in April, tighter than K-90.

▪ Floating rate spreads remained relatively flat into the beginning of the year. KF60 A class traded at 49 in March

30

25 19 2123

3440 39

51 50 49

15

20

25

30

35

40

45

50

55

Dec

-17

Feb

-18

Mar

-18

May

-18

Jun

-18

Au

g-1

8

Sep

-18

No

v-1

8

Dec

-18

Feb

-19

Mar

-19

KF41 KF42 KF44 KF45 KF47 KF49 KF51 KF53 KF55 KF58 KF60

DM

(b

ps)

7 Yr Floating Guaranteed ClassesClass A

34

24 22 22

29

4248 56

54 5453

202530354045505560

Dec-17 Mar-18 May-18 May-18 Jul-18 Oct-18 Dec-18 Dec-18 Feb-19 Mar-19 May-19

KF40 KF43 KF46 KF46 KF48 KF52 KF54 KF56 KF57 KF59 KF61D

M (

bp

s)

10 Yr Floating Guaranteed ClassesClass A

38 40 39 39 3943

46 4650

53

51 50 49 50 5052

55 54 54 52

5963 63 65

6763

59 59 6056

59

6360 60 60

6569 69

7173

6966 66

67

62

30

35

40

45

50

55

60

65

70

75

80

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

Oct

-18

No

v-1

8

No

v-1

8

Dec

-18

Dec

-18

Jan

-19

Mar

-19

Mar

-19

Ap

r-1

9

Ap

r-1

9

K77 K78 K79 K80 K81 K82 K83 K84 K85 K86 K87 K88 K89 K90 K91

Spre

ad (

bp

s)

10 Yr Fixed Guaranteed Classes

A1 A2 AM

Capital Markets Update

20

30

40

50

60

70

80

90

100

110

120

5/1/2017 8/1/2017 11/1/2017 2/1/2018 5/1/2018 8/1/2018 11/1/2018 2/1/2019 5/1/2019

CMBS 10yr AAAs, Freddie 10yr A2s and DUS 10/9.5s

10Yr CMBS AAAs FNMA 10/9.5s FRE 10Yr A2s

How Can You Follow

The Market?

Conventional vs. TAHAverage TAH loan spread vs conventional loan spread

1.00%

1.10%

1.20%

1.30%

1.40%

1.50%

1.60%

1.70%

1.80%

1.90%

2.00%

10 Yr Conventional vs. TAH Loan Spreads

Conventional Loan Spreads (1.35x/70%) TAH (1.35x/70%)

Loan Spread Movement

40

45

50

55

60

65

70

75

1.40%

1.50%

1.60%

1.70%

1.80%

1.90%

2.00%

10 Yr A2 Spreads vs 10 Yr Loan Spreads

Loan Spread A2 Spread

Index Lock

Source: Bloomberg

2.00%

2.20%

2.40%

2.60%

2.80%

3.00%

3.20%

3.40%

3/22/2018 5/22/2018 7/22/2018 9/22/2018 11/22/2018 1/22/2019 3/22/2019

10-Year TSY

Treasury Floor Update

▪ Effective As Of March 11th:

» The note rate will be equal to the Net Spread + Servicing + Greater of (i) the

“live” Treasury Rate or (ii) the Treasury Floor.

Type in how our pricing is determined?

Polling Question

Three Major Influences

Senior Management

Guide

Profitability CompetitionPRICING

Senior Management Guidance

Active involvement and longer term strategies

Profitability Targets: gain-on-sale & ROE thresholds

Goals: VLI, duty-to-serve and uncapped volume

Risk appetite & best means of transferring risk

Profitability

Fiduciary responsibility = can’t lose money

Better execution leads to better pricing

ProfitabilityInvestor Spread: required returns on our securities

Securitization successes – K-Deal, PC and ML

Credit Risk Transfer: costs of laying off risk

Utilizing other forms of CRT like SCR & reinsurance

GFee: our compensation for taking credit risk

Improved understanding of “true” risks

Decompositionof whole loan spreads

Decompositionof whole loan spreads

Competition

▪ Examine observable market trades

▪ Constantly analyzing win-loss data

▪ On the lookout for new products

▪ Deal & levels must make sense

» Want to win, but we have fiduciary duty

» Sometimes we should be wide, e.g. neg carry

» Sometimes competition is desperate, e.g. CRA

How to get the best

pricing?

How Can You Help?

▪ Fewer Deal Iterations

» Let’s start with our best foot forward on what the likely borrower

preference will be

▪ All Loan Level/Pool Level Details Up Front

» The more information we have up front, the quicker we can include all

parties and get pricing returned

How Can You Help?

▪ Competitive intel & where we need to be

▪ Good story as we believe in our mission

▪ Calling out risks & mitigates early on

▪ Being deliberate versus seeing what sticks

▪ Providing lead on potential exit investor

▪ Relationship that leads to more business

This product overview is not an offer to sell or a solicitation of an offer to buy any Freddie Mac securities. Offers forany given security are made only through applicable offering circulars and related supplements, which incorporateFreddie Mac’s Annual Report on Form 10-K and certain other reports filed with the Securities and ExchangeCommission. This document contains information related to, or referenced in the offering documentation for, certainFreddie Mac mortgage securities. This information is provided for your general information only, is current only as ofits date and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information does notconstitute a sufficient basis for making a decision with respect to the purchase and sale of any security and is directedonly at, and is intended for distribution to and use by, qualified persons or entities in jurisdictions where suchdistribution and use is permitted and would not be contrary to law or regulation. All information regarding or relatingto Freddie Mac securities is qualified in its entirety by the relevant offering circular and any related supplements. Youshould review the relevant offering circular and any related supplements before making a decision with respect to thepurchase or sale of any security. In addition, before purchasing any security, please consult your legal and financialadvisors for information about and analysis of the security, its risks and its suitability as an investment in yourparticular circumstances. The examples set forth above are for illustrative purposes only. Opinions contained in thisdocument are those of Freddie Mac currently and are subject to change without notice. Please visitwww.mf.FreddieMac.com for more information.