Using the Secondary Mortgage Market to Better Serve Members September 2003

1. Using the Secondary Mortgage Market to Better Serve MembersSeptember 2003

2. Today’s Agenda • Using the secondary mortgage market to bring homeownership opportunities to more members • Keep members with you • Reaching out, expanding the market • Leverage the secondary market to enhance your portfolio and address your balance sheet needs • Life after the refinance wave • Products, technology and options • Online education tools

3. Using the secondary mortgage market to bring homeownership opportunities to more members

4. Risk Management • The secondary mortgage market is a critical tool for risk management. • Mortgages have risk – credit risk, interest rate risk, duration/average life risk. • Secondary market allows you to offload the risk while serving and retaining the member.

5. Dump the risk, Keep the member • Originate the specific mortgage to meet member’s unique needs. • Transfer the credit risk and interest rate risk by selling the mortgage in the secondary market. • Use proceeds of the sale to originate more loans – recycle! • Retain the servicing and the member relationship.

6. Serving members’ needs • Access the right mortgage products quickly. • Sometimes “vanilla” isn’t good enough. • Low-down-payment mortgages. • Product offerings and execution strategy will define your company to your members. • Options for rising interest rate environments. • Special mortgages for low- and moderate-income members. • Past credit challenges

7. Looking Ahead • Minority share of the US population is projected to increase from 28% in 1998 to 32% in 2010 • The minority population is younger • Hispanics, Asians and African-Americans are expected to account for 65% of new household growth through 2020.

8. Increasing Homeownership – We can help • Expand homeownership opportunities for your members by reducing barriers and lowering costs • We will continue to introduce new lending approaches for emerging and underserved market segments • Focus on outreach and education to help increase the homeownership rate for immigrants, minorities and other underserved groups

9. 2003 REFI MIX 80% 2001 REFI MIX 60% 2003 Production $3.3 Trillion 2001 Production $1.8 Trillion 2002 Production $2.4 Trillion 2002 REFI MIX 70%

10. Life After Refi’s

11. Yield Comparison Price Yield Spread/T Average Life Product 5/30 6/30 8/29 5/30 6/30 8/29 5/30 6/30 8/29 5/30 6/30 8/29 30yr 5% 102-20 101-19 96-21 4.14 4.65 5.52 221 198 109 4.0 6.0 10.0 20yr 5% 103-07 102-13 98-10 3.80 4.39 5.31 212 198 136 3.3 4.9 7.5 15yr 4.5% 102-17 102-03 98-06 3.73 4.00 4.88 183 157 124 3.9 4.9 6.0 7ybal 4.5% 102-24 102-30 100-24 3.40 3.63 4.31 187 164 106 2.8 3.8 4.6 5/1 4.5% 103-08 102-28 100-06 3.32 3.44 4.31 151 156 179 1.2 2.5 2.7 3/1 4% -- -- 101-00 -- -- 3.45 -- -- 122 1.8 2.0 2.2 Secondary Market – Relative Value Overview

12. Life After Refi’s Opportunity: “I saw a lower rate in the paper.” Solution: ARMs or Balloon/Resets 1 YR Treasury, 3/1, 5/1, 7/1, 10/1 ARMS -Treasury or LIBOR index products 5 year & 7 year Balloon/Resets

13. Life After Refi’s How to Lower the Rate/Payment: $150,000 Mortgage

14. Life After Refi’s Opportunity: “I have the income & credit, but no cash.” • Solution: ALT 97 • No Borrower funds required • Broadest “Source of Funds” • No Income Limits

15. Life After Refi’s Opportunity: “My income is low, I don’t have much savings, and I don’t have enough credit.” • Solution: Affordable Gold 97 • Flexible underwriting • Expanded total debt-to-income ratio • 30% MI vs. 35% with Alt 97 • Non-traditional credit acceptable • Credit Scores recommended – not required

16. Life After Refi’s Opportunity: “I am self-employed & don’t care to disclose all of my financials.” • Solution: Alternative Stated Income • 1040’s Not Required

17. Life After Refi’s Opportunity: “My credit is less than perfect.” • Solution: A-Minus or Affordable Merit Rate • A-MinusRate vs. Other High Cost Options • 7.25% +1 Pts vs. 10-12% + 4-6 Pts • Borrower benefits from good performance and eliminating need for refinance • Lender benefits from servicing retention

18. Life After Refi’s Opportunity: “I want to raise my family in the country. Can I find affordable mortgage financing in rural areas?” • Solution: Guaranteed Rural Housing • No Down Payment Program for Rural Areas • Offer a lower rate alternative

19. Leverage the Secondary Mortgage Market to Manage Your Mortgage Loan Portfolio • Put Your institution in a Position to Proactively Manage Mortgage Assets: • Make an illiquid asset liquid • Gain an understanding of the types of loans and loan products in your portfolio and how the secondary market views these assets • Know what the loans/securities are worth NOWand in the FUTURE • Know what extension/duration risk is carried in the loan portfolio • Understand your execution options • Create a Strategy and Process for Your Institution to: • Leverage the right support systems for loan pooling, stratification, file preparation, and delivery • Understand and manage Interest Rate, Duration and Extension Risk • Optimize the value of the asset before it prepays through securitization and opportunistic asset sales • Gain credit relief, capital relief, and enhanced liquidity through securitization

20. Portfolio Characteristics

21. Portfolio Characteristics (continued)

22. Portfolio Characteristics (continued)

24. Online Education Tools

28. The mechanics of selling loans Servicing Released Servicing Retained Gold Cash Xtra Gold Cash Xtra Best Efforts Gold Cash Xtra Gold Cash Mandatory

30. How can we help you? • Call your Freddie Mac Account Manager for more detailed information on ways to improve your service to members. • Thank you for your interest in Freddie Mac. • We truly appreciate your past business and look forward to winning your future business.