Operator: Good morning, ladies and gentlemen. Welcome to the Freddie Mac First Quarter 2016 Results Media Call. Today’s call is being recorded. I would now like to turn the call over to Ms. Sharon McHale, VP, Corporate Communications. Please go ahead.

Sharon McHale: Thank you. Good morning, everyone, and thank you for joining us, as we discuss Freddie Mac’s first quarter 2016 financial results. We are joined today by the company’s Chief Executive Officer, Don Layton; Chief Financial Officer, Jim Mackey; and our General Counsel, Bill McDavid. Before we begin, we’d like to point out that during this call, Freddie Mac’s executives may make forward-looking statements, which are based upon a set of assumptions about the company’s key business drivers and other factors. Changes in these factors could cause the company’s actual results to vary materially from its expectations. A description of these factors can be found in the company’s 10-K report filed today. Freddie Mac’s executives may also discuss non-GAAP financial measure. For more information about these measures including reconciliations to the most directly comparable GAAP financial measures please see our Earnings Press Release, Form 10-Q and related materials which are posted on the Investor Relations section of our website freddiemac.com. As a company in conservative shift, Freddie Mac’s commentary will be limited to business and market topics. As you know, we are not able to comment on the development of public policy or legislation concerning Freddie Mac. As a reminder, this is a call for the media and only they will have the ability to ask questions, this call is being recorded and a replay will be made available on Freddie Mac’s website later today. With that, I'll now turn the call over to our CEO, Don Layton.

Donald Layton: Good morning, and thank you for joining us. My comments this morning will focus on two areas: First, I’ll discuss the quarter's financial results. And second, I’ll highlight our progress and improving our business and through it strengthening the nation’s housing finance system. First up, financial results. This morning, Freddie Mac reported on a comprehensive income basis, a loss of $200 million for the first quarter of 2016 and on a net income basis, a loss of $354 million. As you will recall, we emphasize the comprehensive income basis results as it ties directly into the treasuries agreeing to support us. We ended the quarter with a net worth of $1 billion so, we will not be requesting a drop from the treasury. As we have said for over a year now, our quarterly financial results are significantly affected by market related items specifically movements of interest rates and of spreads, which combine create significant earnings volatility. The volatility mostly results from the use of - our use of derivatives to hedge interest rate risk on an economic basis down to a low level as measured by our models. By contrast and generally speaking, they’ll be an accounting loss, if rates decline and an accounting gain, if rates increase. As you know, global markets were under great stress in the early part of the quarter and a strong flight to quality resulted 10 year LIBOR rates moving down in unusually large 54 basis points. This decline in interest rates resulted in a $1.4 billion reduction in earnings on a GAAP basis. However, as I've explained previously, this loss was due to the accounting timing mismatch and does not represent an actual economic loss. In addition, the interest rate movements, the second market related item, widening of spreads resulted in a $600 million fair value loss. Turning to our operating results more broadly in order to better explain them. Going forward from this quarter, I will be focusing on what is called total segment earnings. A reporting measure, we are now including in the press release. Total segment earnings net income and total segment comprehensive income are the exact same as GAAP net income and comprehensive income. There is no difference in the bottom-line. What is different is that our segment presentation changes the geographic location of certain line items on the income statement all to better align with how we view the economics of the business and simply to make the numbers more understandable to the public. We believe these measures while technically non-GAAP provide enhanced insights into how we generate our revenues and better reflect how we evaluate performance insights that can sometimes be lost under the income statement geography required by formal GAAP accounting. Let me share a few of those highlights again all in the segment basis. Total net interest income was 882 million in the first quarter, down from 981 million in the fourth quarter, primarily reflecting lower amortization income. As you know, as we continue to wind down the retained portfolio, which is required by the government, such net interest income is becoming a smaller source of revenue for us. In addition, it will also move up and down on a quarterly basis due to the premiums and discounts, which occur when we buy securities anything other than par being amortized in over the life of our mortgage assets, which in turn vary as mortgage prepayments vary usually response to interest rate moves. In this quarter, this amortization was lower than the previous quarter. Total management guarantee income generated mainly from what the industry calls G fees was 1.4 billion in the first quarter, up slightly from the prior quarter, this has been a growing source of revenue for the company as the increased G fees of recent years works its ways into the total portfolio. In fact, management guarantee income has increased by more than one-third over the last two years. In the single family business, first quarter guarantee income remains steady from the fourth quarter. This reflects the long-term trends towards higher levels to buying with some quarterly volatility, in this case, a bit lower as amortization of frontend type G fees revenues changes in a fashion similar to I described for net interest income. In multi-family, guarantee income increased by 8% in the first quarter, simply due to a higher volume of loans being purchased and then securitized. To summarize then, while market related items had a negative impact on our first quarter GAAP earnings, our businesses continue to perform well as is clear in the segment revenue measures that I just discussed. I’d like to make a few more comments about our financial results before I move on. First, we are very conscious of the PSPA capital buffer declining and how that interacts with the market related volatility of our GAAP-based earnings. We are actively engaged in addressing this issue and will make announcements of action taken to do so when and if appropriate. In the meantime, of course, we closely monitor our interest rate sensitivity as measure on a GAAP accounting basis to complement the economic measures we use. As you would expect, the GAAP-based measure is declining, which you can see in our 10-Q Form filed today. Second, I want to remind you that our comprehensive income-based loss in the first quarter was only a small fraction specifically, one-sixth of what would be required to request the drop from the treasury and of course, we continue to have 140.5 billion available funding under the preferred stock purchase agreement. Let me now turn to our work in building a better company, a better Freddie Mac and in turn a better housing finance system. We continue to make marked progress against these twin goals and today, I want to highlight our work across our three business segments. I'll start with the largest, the single family business. In the first quarter, we funded more than 300,000 single family loans. At the same time, we helped another 19,000 struggling borrowers avoid for closure. The first quarter is typically a slower market in terms of single family originations and the recent global markets turmoil exacerbated things this year. But overall, our economists are still predicting a sold year for the housing market, possibly the best in the decade. And our focuses on helping our customers that's the mortgage lending and banking companies throughout the country do business better in several ways. First, I am happy to report that our work in recent years to give lenders greater certainty through the enhanced representation warranty framework is now producing results. We currently expect more than 2 million loans to receive weapon warranty relief in 2016, including those that qualify through the early weapon warranty relief requirement of 36 months of continuous borrower payments. That's a major reduction in risk to our lending customers versus the previous approach to weapon warranty relief. This is a significant win for our industry and Freddie Mac has planned to do even more on this, front through better technology. At the crust of this effort is a Loan Advisor Suite, that's the brand for the end-to-end technology solution that we are designing and implementing in partnership with many of our customers and which we announced recently. In addition to helping customer deliver high quality loans and acquire earlier insight into weapon warranty relief, we believe Loan Advisor Suite known here as LAS will significantly change how loans are manufactured by our customers and thereby reduce lender cost. We're already hearing from many customers that they are eager to adopt the LAS when it goes live this summer. We are also hopeful Loan Advisor Suite will help lenders expand access to affordable credit. In addition, we're offering our customers product specific solutions to help them responsibly reach underserved borrowers and more fully utilize our credit box. For example, we've continued to refine our 3% down Home Possible Advantage Mortgage. Our goal is to make Home Possible more attractive, but still meet our credit criteria. While a niche product, Home Possible Advantage is an important component of our affordable lending efforts and fills the gap we have previously been unable to address. This product is particularly effective in helping us reach certain first-time homebuyers. A critical segment of the current market. Of course, increasing access to credit is a holistic effort. So we are working closely with many of the parties included in the affordable housing ecosystem, everyone from lenders to state housing finance agencies to various real estate professionals. As two examples, first, self-help, a community development lender and Bank of America together recently announced the program through which they are partnering with Freddie Mac to use Home Possible Advantage to responsibly reach low and moderate income borrowers. And two, before the partnership with the organization called Hope Loan Port, a national non-profit, a potential homeowner through the use of technologies that link housing counselors with borrowers and lenders. Taking together our efforts are working as an example, our percentage of purchases of loans to first-time homebuyers in a 10 year high in the first quarter at over 40%. At the same time, we are working responsibly to increase access to mortgage credit, we're also transferring to the private capital sources, a growing portion of the credit risk underlying the mortgages we purchased. That reduces the exposure of the tax payer to mortgage risk. I'm proud to say that we transferred credit risk on nearly 440 billion in single-family mortgages since they started - we started doing this in 2013. Innovation is at the heart of these efforts and we are the market leader in the space with a growing and evolving program that enables us to reach an expanding and diverse investor base, reduce risk transfer cost and weather dynamic market and economic conditions. In fact, our credit risk transfer program was put to the test in the [indiscernible] global capital markets early in the first quarter. In response to concerns about issuing a large volume of credit risk transfer securities in the midst of a weak and highly volatile bond market, we quickly adjust the mix between our STACR debt bond offerings and our ACIS reinsurance product. Since the reinsurance markets were under less stressed during the quarter. As a result, we were able to successfully transfer our targeted volume of credit risk in a weak market at still reasonable cost. Due to these and other efforts including improvements in customer service, the fundamentals of our single-family business continue to improve and perhaps most importantly, credit quality still continue to get better. The burden of the legacy single-family book is simply getting a smaller percentage or a business. The strong and profitable core single-family book of business that's loans done after 2008, now makes up more than 68% of the single-family portfolio. At an additional 17% consisting of harp and other relief refinance loans and that's 85% in total leaving just 15% for pre-2009 legacy loans. The series delinquency rate are on entire single-family book in fact that's legacy and new loans was 1.20% at the end of the first quarter. That's down 53 basis points from the first quarter last year, which is a 31% drop. It is now that's lowest level in more than seven years. In short, credit quality is improving very nicely. Now let me quickly turn to the multifamily business. The multifamily market continues to be very strong. As evidenced by our funding volume in the first quarter, which grew nearly 33% from the fourth quarter levels to $18 billion. This enabled us to fund almost 210,000 units of rental housing nearly 85% of which are affordable to families earning area median or lower incomes. While there has been some slowdown in the multifamily market from its recent record high, we still continue to see healthy rent growth and stable vacancy rates in the majority of markets where we land. While rent growth is likely to moderate. We believe that we remain positive as supply comes out and demand does seem to be remaining strong. Importantly, there has been no deterioration in credit fundamentals and our multi-family delinquency rates still remains near zero. In addition, 95% of the multi-family loans we purchased in the first quarter were designated for securitization to our well-known K-deal bonds which lay off the vast majority of non-catastrophic credit risk to the private capital markets. We continue to evolve this successful program of multi-risk transfer. Importantly, as I already stated, nearly 85% of the business we're funding is affordable and this includes many underserved markets such as senior's housing and manufactured housing communities. Worthy of special mention is our small balanced loan program, which continues to gain traction having been started just over a year ago. We are growing our specialty network of small balance loan lenders. In fact, about one-third of our conventional lender base are now additionally improved small balance loan lenders and we're aggressively marketing the program to reach smaller property landlords and important source of workforce housing. Finally, a few words about our investment business and marking lean efforts to reduce the retained portfolio. As I said the remaining single legacy, single family portfolio declined to 16% of the credit guaranteed portfolio to 15% in the first quarter, due in part to our focus on reducing less liquid assets through sales sometimes combined with value added structuring and not just waiting for run-off. We believe that the sale of many of these loans provides better economic returns than continuing the hold depth. And we always remain mindful of our community mission. Working with the FHFA, our regulator, we recently enhanced our NPL sales requirements to further improve borrower outcomes and stabilize communities. In short, our business has performed well in the first quarter and the entire management team here continues to feel good about the progress we're making both within the walls of Freddie Mac and more broadly through that the nation's mortgage and capital markets. Thank you again for joining us this morning. And I'll now open it up to your questions.

Operator: Thank you. [Operator Instructions]. We'll go first to Joe Light, Wall Street Journal.

Joe Light: Hi. Thanks for taking the question. So yeah if you guys ever found yourselves in a position where you need or wanted to change the hedging methods and accounting driven loss. How would go about doing that, are you able to do that kind of adjustment quarter and do that quickly. Or can you give us some of kind of take us through that process and how fast it can happen?

Donald Layton: Well first, thanks for joining us Joe. I'm not going to do a tutorial on how to manage the economics versus accounting of hedging. And we're not going to talk too many details which are not particularly public information. But I will tell you is there are - we are driven primarily by economics because we believe that is in the best interest of the taxpayer that benefit. We are very mindful as I said of the decline PSPA. And therefore our ability to absorb this accounting volatility is declining. And we are doing we have done some things and we will do more things to reduce the accounting volatility. We're not sure how far that will go but so far it's working well. I will again will point to our reporting of interest rate sensitivity on a GAAP basis which is in the 10-Q. it shows for example on the last quarter that number went down about 13% to indicate that the national shrinkage of our book plus the things we're doing quietly are ensuring that we're not having undue accounting volatility versus what is needed for drawn.

Joe Light: Thank you.

Donald Layton: Thanks.

Operator: We'll take our next question from Denny [ph] with Market News International.

Unidentified Analyst: Hi, there. Do you see any effect at all from the principal reductions this year, is that's going to amount anything?

Donald Layton: The program has been announced it will take a little time to implement. And the FHFA's announcement of the program indicated its very targeted size. Although I believe they referenced the eligible loans from both companies in aggregate. When you do your math of what our share might be, what take up rate might be, we do not think that there will be any material impact on our financials in 2016.

Unidentified Analyst: Thanks.

Operator: We'll take our next question from Carissa [ph] with Inside Mortgage Finance.

Unidentified Analyst: Yes, I wanted to ask have you guys calculated how much capital you have left versus your total book business and outstanding guarantees. And also wanted to find out if you worried about 2018 when the capital declines to zero.

Donald Layton: Let me do a reverse order. The system by which the capital buffer goes to zero is one that is imposed on us by the government. So it's not question of worrying about it. We take it as it is we are managing to it as much as we recently can and it's just the fact of life. In terms of the markets willingness to deal with us as a premium triple A type credit. They are clearly look have and continue to look not at the capital on our books. But that the unused amount of the PSPA which add $140.5 billion is a large number if you compare it to our book of business or our disclosed stress losses which we require to do for the Dodd Frank purposes. Sometimes CCAR in the banking system, which is disclosed once a year. It is a very large number. The market sees that and gets great comfort from it.

Unidentified Analyst: Okay. Thank you.

Operator: We’ll take our next question from Bonnie [ph] with Source Media.

Unidentified Analyst: Hi. I'm with National Mortgage News. And I wondered - hi, wondered if you could give me a sense of sort of risk sharing media percentage figure, how it compares with the new risk sharing instruments as opposed to how it was just with MI. And how does that look as it flows through he earnings.

Donald Layton: Okay. I can't give you a very exact numbers on the top of my head. The we disclosed there are two key items which we disclosed and then I'll talk more qualitatively. We disclosed the amount of UPB, which has significant risk sharing done on it. I don't remember the number that's several hundred billion dollars, $400 billion since we started. The others what's called risk enforced this is like the principal amount of the bonds, stack of bonds or the policy if it's reinsurance. This is the actual amount of loss we would not have to absorb. If the losses got to the various points with these things are triggered that is a little over $18 billion that is more useful number to you.

Unidentified Analyst: That's $18 billion or trillion.

Donald Layton: Billion.

Unidentified Analyst: Yeah.

Donald Layton: Number three, we have stated and I believe this is already out there that over half of what we think is the stress loss on new flow mortgages this year and last year has been lead off to private capital. And other than that we don't issue specific measures, because there is no standards out there exactly how to measure this. So we don't know we're trying to tie into and that it's historically and this is what I'm calling the non-MI related risk transfers. Traditional MI of course is regarding differently because it was we're not allow to take the risk of the over 80, we it's kind of it was a range that ahead of time for us to not have it. Although we didn't have to look to the floor is insurers to get reimbursement of the loss. If I have to do the numbers in my head. The work we have done to eliminate risk has not yet caught up with traditional MI. that's because traditional MI will represent the entire portfolio in our current books. And the credit risk transfer has only been done on the last few years’ work. So if you however take on a going forward basis and as soon we continue to company credit was transferred it will quickly pass by the amount of MI traditional MI done. Do you see my point there?

Unidentified Analyst: Yes.

Donald Layton: Seven to 10 years we book the turnover so, the amount done by creditors percentage not a new flow but the entire book is growing rapidly. In terms of the cost of credit risk transfer, it shows up a negative looking what line item it shows.

Jim Mackey: Part of NII.

Donald Layton: Part of NII, okay. It is currently part of NII.

Unidentified Analyst: Sorry, what was that?

Donald Layton: It is currently part of net interest income although will be (multiple speaker) probably should be more part of the management guarantee income at some point when it becomes very large.

Unidentified Analyst: Okay, thank you.

Operator: We’ll take our next question from John Pare [ph] with Political.

Jim Mackey: Yes, at what level would the 140.5 billion withdrawn.

Donald Layton: Excuse me, your phone connection is very bad. Can you try that again?

Unidentified Analyst: Can you hear me now?

Donald Layton: That’s a little better.

Unidentified Analyst: Okay, thanks. Sorry about that. So at what level would be 140.5 billion [indiscernible] drop in treasury would have to decline before you feel the market will start to worry about dealing the [indiscernible] driven?

Donald Layton: That is an impossible question to answer. I run into people who watch it carefully, I have also run to other market participants who say and this is a rough quote. There was no agreement last time and they saved you and other is an agreement I just figure they'll save you even more, if you ran out. So we have all sorts of views in the marketplace. It is so far away from being there we do not overly focus on it.

Jim Mackey: We run Dodd Frank stress test and in some very severe markets worse than the financial downturn, we have significant of excess capital.

Donald Layton: The disclosed Dodd Frank stress test, a loss in the severely adverse number less than one half of the unused and that is a year-old number on Dodd-Frank because it is as of September yearend six months ago.

Unidentified Analyst: OK. Thanks.

Operator: [Operator Instructions]. With no additional questions in the queue. At this time, I’d like to turn the conference back over to our speakers for any additional or closing remarks.

Donald Layton: Thank you very much for calling in. Our financials are more complicated than I would like them to be for a variety of reasons, but I think we've done a good job of explaining what is going on and what is the underlying business, how well it is doing. We are very proud of that and we will be working away through the accounting over the next several quarters. Good morning.

Operator: That concludes today’s conference. We appreciate your participation.