Operator: Good day ladies and gentlemen and welcome to Freddie Mac Third Quarter 2018 Financial Results Media Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer and instructions will be given at that time. [Operator Instructions] As a remainder this call is being recorded. I will like to turn the call over to Jeffrey Markowitz, Senior Vice President of External Relations and Corporate Communications. Please go ahead.

Jeffrey Markowitz: Thank you and good morning everyone and thank you for joining us for a discussion of Freddie Mac's third quarter 2018 financial results. We're joined today by the Company's Chief Executive Officer, Don Layton; President, David Brickman; CFO, Jim MacKey; CAO, Jerry Weiss; and EVP and Senior Legal Advisor, Ricardo Anzaldua. Before we begin, we'd like to point out that during the call, Freddie Mac's executives may make forward-looking statements, which are based upon 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 quarterly Form 10-Q filed today. Freddie Mac's executives may also discuss non-GAAP financial measures. For more information about these measures, please see our earnings results press release and related materials which are posted on the Investor Relations section of our website at freddiemac.com. Our commentary today 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 can ask questions. This call is being recorded, and a replay will be made available on Freddie Mac's website shortly. We ask that this call not be rebroadcasted or transcribed. With that, I will now turn the call over to Freddie Mac's CEO, Don Layton, Freddie Mac's CEO.

Donald Layton: Good morning. Thank you for joining us to discuss our third quarter financial business results. We always look forward to walking through our results with you and answering your questions. The third quarter marked another very good quarter our company. The take away, Freddie Mac is performing exceptionally well. Our company's financial performance is very strong and we're fully supporting our mission to create liquidity, stability and affordability in primary US mortgage markets. We're also protecting taxpayer by efficiently transferring increasing amounts of credit risk to the private sector. This morning I like to speak to you about the performance of our company in two areas. First, our financial track record, we are in a growing number of sequential quarters, we have stable earnings, strong returns and nicely growing guarantee book and a declining amount of model capital needed to support our risks. It's a great track record. Second, I like to discuss Freddie Mac's broad transformation in the context of the recent 10 year anniversary of the conservatorship of the GSE's. We are a long way from where we were 10 years ago and now stand as a transform company that is playing a key role to reform and transform the housing finance system. Let me start by discussing the quarter we had and some of the impressive numbers that illustrate the continued high quality of our financial performance. First, net income of $2.7 billion, our comprehensive income which is the number we most focus on in conservatorship was 2.6 billion. The quarter's continued strong earnings were primarily driven as they should be by adjusted guarantee fee income from the single-family and multifamily lines of business. In addition, earnings in the capital markets business continues to be relatively stable at a good work. Our results also include several specific items that increased profit approximately by $0.4 billion after tax. These were $0.2 billion net benefit from single payment legacy asset dispositions and another $0.2 dollar benefit reducing the write down of the net differed tax asset tax reform legislation enacted in the fourth quarter 2017. In addition, changes to interest rates and market spreads which can sometimes materially impact our earnings netted out to close to zero. Our adoption of hedge accounting seven quarters ago is healthier. If we had not implemented hedge accounting, our earnings would have actually been $285 million higher this quarter. In future quarters of course the absence of hedge accounting would increase or decrease earnings depending upon interest rate moves . The growth of our guarantee book continues to be strong with 6% growth over the prior year's quarter to $2.1trillion. This was driven by a 4% increase for single-family and a 23% increase for multifamily. In addition, let me also mention that we are disclosing for the second quarter in row a return on model capital as calculated under the conservatorship capital framework, which I regard is a proxy for return equity. This FHFA provided by framework also known as CCF capital serves as a tool for making our routine risk versus reward decisions here. It also forms the core of FHFA's proposed rulemaking for a new minimum regulatory capital requirement that could apply it the GSE's were at conservatorship. This quarter our return on CCF capital was 19.7%. Obviously, this is higher than it would be due to the $0.4 billion of additional profit earned on the items I listed earlier, which do not reflect our routine business success. I do want to point out we believe that our returns would likely be below these levels; everything else being equal, should the company exit conservatorship. First, upcoming schedule changes to CCF will raise our capital requirements on. Second, because post conservatorship we expect to hold a buffer of capital totally above the minimum required by regulation. And third, we anticipate that our returns would be reduced by fees that we would likely be required to pay to the federal government for federal government support for our guarantees. The Corniche weighted of capital to thirty one point nine billion dollars down twelve percent from a year ago and continue the trend going on for many years of our deliberate taxpayer's exposure to our risks. This quarter's shrinkage of CCF capital to $51.9 billion down 12% from a year ago continues to trend going after many years of our reducing the taxpayers exposure to our risks. This reflects home price growth, our efficient disposition of legacy assets and of course our increasing credit risk transfer activity. In fact, with CRT as it's known on average our single-family business reduces the amount of CCF capital needed for credit risk by approximately 60% on new originations. And in September we introduced an enhanced CRT structure that will increase this to approximately 80% and which were form the basis for most future CRT activities. In multifamily the higher business model for nearly a decade has been based upon high levels of CRT. On average it reduces the CCF capital needed for multifamily credit risk by approximately 90% on new originations. Finally, we continue to deliver on our mission in both our single-family and multifamily lines of business. Year-to-date we provided approximately $286 billion in liquidity to the primary mortgage market, funding more than 992,000 single-family loans and over 550,000 multifamily rental units. I'm particularly pleased that as a proof point of our work to responsibly increase access to credit, first time home buyers represented more than 46% of our new owner occupied loan purchases this quarter. And our commitment to work towards housing in multi-family is demonstrated by 94% of the eligible multifamily rental units we financed this quarter, being affordable to families earning up to 120% of area median income. Our track record of strong and stable financial performance is as we intend becoming pretty routine. In fact, some might say it's a bit boring. In this context I say boring is good. It demonstrates the strength and stability of our business thus becoming a hallmark of our financial success. Now, let me turn to the transformation of our company and through it the housing finance system. This past September marked the passage of 10 years since Freddie Mac was placed into conservatorship. This is not an anniversary that we celebrate, but it is an opportunity to reflect on where we were and how far we've come since then. The past decade has seen a dramatic transformation in our business and business model that in turn has driven fundamental changes in the overall housing finance system. First, let me give you some top line numbers. Over the past decade, we have made home possible for over 22 million homebuyers and renters and we have done so while returning about $114 billion to taxpayers. The dividend we announced with this quarter would push that to nearly $117 billion, is more than 60% above what we have received from the US Treasury. Today we are a highly competitive company that is focused on our mission of serving borrowers, renters, lenders and investors and we're doing so with the better business model that increases our stability, provides a good return on the risk we take and protects the American taxpayer. Our financial results this quarter underscores this fact as a result the mortgage system we have today is fundamentally better than the one we had 10 years ago. It is more safe and sound, more efficient, serves families better and does a far better job of protecting taxpayers. I'll now focus on some specifics if Freddie Mac's transformation over the past 10 years. We spent much of that time addressing the GSE's business models major historic weaknesses. These were, one, the large subsided investment portfolios; two, the bias towards large lenders; three, the inadequate capital regime and four, the amounts of concentration in mortgage credit risk in just two companies. We made fundamental changes that address those weaknesses. For example, first, we downsized our retained portfolio by more than 70% and its peak Freddie Mac's retail portfolio exceeded $800 billion. Today, it is under $250 billion and we've repurposed it solely support our guarantee businesses and our mission rather than to separately generate profits on this discretionary investments. Second, we leveled the playing field for community banks and other small lenders, leveled GEP's through dedicated investments in technology and customer service and through a robust cash window that enable small lenders to access the global capital markets. This has contributed to the growing share business coming from outside our 10 largest lenders. Currently and are over 50% where it was below 20% a decade ago. Third, as I mentioned we created a modern capital framework consistent with SIFI concepts to enhance safety and soundness and ensure our financial decision making is in the better interest of taxpayers while we are in conservatorship. Freddie Mac dissolved the SIFI consistent and modernized GSE risk based capital system in 2012 and 2013. In 2017, the FHFA's conservator implemented its own version of such a system based upon the same underlying concepts, so our adoption of it was fairly easy. This capital framework is now out for comment as part of an official regulatory rule making. And finally, we created entirely new market to efficiently and effectively off load most of the credit risk of both single-family and multifamily mortgage guarantees on to private capital markets. The creation of the credit risk transfer markets is arguably the single most important development in the housing finance system over the past decade. It has also created a greatly improved business model for Freddie Mac, reducing risk at a cost that is low relative to the amount of risk reduction. It is also improving the mortgage system, putting a large and growing amount of private capital at the heart of the mortgage finance system and the head of taxpayers with the additional benefit of significantly reducing systemic risk. We've achieved all these reforms in the system while also properly managing credit risk quality here. For example the single-family book of business has a serious delinquency rate that peaked in the early years of conservatorship at over 4%, 400 basis points. As of this quarter it was down 2.73%, 73 basis points, the lowest level in more than a decade. We did this by responsibly managing our single-family credit box, making it the consumer mortgage equivalent of investment grade. In the family business, the credit quality of our guarantee book of business is extraordinary. Its delinquency rate this quarter was just one basis point an extraordinarily low level. In addition to the changes we have made to our company Freddie Mac and FHFA have undertaken a number of efforts to help improve the efficiency in safety and soundness of the housing finance system more broadly. This was the result of conscious choice by the FHFA which we fully support, not to pursue a status cope conservatorship, but instead to pursue an active reforming one two improve the US housing finance system. As two examples that were part of this active pasture, FHFA made major reforms to the representation in warrant to requirements for lenders and a standardized mortgage market data paving the way for new digital innovations to promote efficiency. Similarly, Freddie Mac initiated its own competitive innovations all across our businesses such as our loan advisor tool kit, a set of integrated software applications that are designed to substantially increase efficiencies for lenders and thereby can reduce their cost by up to $100,000 per loan. And of course Freddie Mac leads the development of CRT both at the transactional level and as a new and improved business model, which by itself has dramatically increased the safety and soundness of the mortgage system. But regardless of the source of these reforms, the ultimate beneficiaries are borrowers and renters who are enjoying cost savings and taxpayers who are protected by a safer and sounder system. Thank you for joining me to discuss the third quarter financials. We had another strong stable quarter, building on an impressive decade long record of progress in serving our mission and fundamentally reforming the housing finance system. I look forward to your questions. Thank you.

Operator: [Operator Instructions] Our first question comes from Bonnie Sinnock of SourceMedia. Your line is open.

Bonnie Sinnock: Hi, thank you for taking my question. You had mentioned, it sounded like a little short cut at all, but there were some developments involving capital levels in September. I wondered if you could run through those again.

Donald Layton: I made several references to capital, when you say developments. The two developments, one was at the company level and one is the FHFA level. At the company level the second quarter we have disclosed the CCF capital to calculate use again the FHFA formulas that we use as a measure of risk and return on it. The second is at the FHFA level, they have taken that as the core and produced a proposed rulemaking which is out in the public for comment right now.

Bonnie Sinnock: Fair, okay and then on the single - the serious delinquency rate, it seems like that's still going down even with the hurricanes - the latest hurricanes, is there any anticipation that might temporarily pick up at some point?

Donald Layton: Actually if you go back say, the last two years or quarters - if you go back several years you'll see a steady pattern down, that steady pattern down had a slight upward lift with the two mainland hurricanes and then the Puerto Rican hurricane, this is now what a year ago, little a year ago less hurricane season. It popped up a bit then started to come down. We just had the hurricane that hit the Panhandle of Florida. That happened in the fourth quarter and so that number I would expect might pop it up again slightly, but that would not show up until next quarter.

Bonnie Sinnock: Okay, thank you.

Operator: [Operator Instructions] There are no further questions. I'd like to turn the call over to Don Layton, CEO for any closing remarks.

Donald Layton: Thank you everyone for joining us. Just I again highlight the summary, very much a company performing very well, stable, strong returns, good capital management on behalf of the taxpayer and really working hard with the FHFA to make the housing finance system work better for the taxpayer and for homeowners and renters. Thank you, good morning.

Operator: Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.