Executives: Jeff Markowitz - SVP, ER & CC David Brickman - CEO Jim Mackey - CFO Jerry Weiss - CAO Ricardo Anzaldua - GC

Analysts: Bonnie Sinnock - SourceMedia

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Freddie Mac Third Quarter 2019 financial results conference call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Jeff Markowitz, Senior Vice President, External Relations and Corporate Communications for Freddie Mac. Thank you and please go ahead, Sir.

Jeff Markowitz: Good morning and thank you for joining us for discussion at Freddie Mac's third quarter 2019 financial results. We’re joined today by the company’s CEO, David Brickman; CFO, Jim Mackey; CAO, Jerry Weiss and General Council, Ricardo Anzaldua. Before we begin, we’d like to point out that during this call, Freddie Mac executives may make forward-looking statements, which are based on 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 quarterly report on Form 10-Q filed earlier today. Freddie Mac executives also may discuss non-GAAP financial measures. For more information about those measures, please see our earnings press release and related materials, which are posted on the Investor Relations section of freddiemac.com. Our commentary today will be limited to business and market topics. As you know, we cannot comment on public policy or legislation concerning Freddie Mac. As a reminder, this call is for the media and only they can ask questions. It is being recorded and a replay will soon be available on freddiemac.com. We ask that this call not be rebroadcasted or transcribed. And with that, I will turn the call over to Freddie Mac CEO, David Brickman.

David Brickman: Thank you, Jeff. Good morning and welcome to our third quarter earnings conference call. I'm looking forward to walking through our solid and consistent financial performance today and discussing our significant progress in serving our mission. Following that, I'm happy to answer any questions you may have. I want to start today's discussion with the recent events that are probably top of mind for many of you. Even then so the potential that significantly change our business and the housing finance system itself. And just be clear I'm not talking about the national's victory last night in Houston and that doesn't add further consideration. On September 5th, the treasury department released its plan for forming the nation's housing finance system. It continues nearly 50 legislative and administrative recommendations many of which have received significant attention in the media and on Capitol Hill. But we have question the most important among these for Freddie Mac but wait for the proposal to end conservatorship. Many of you've heard FHFA director Calabria say that ending the conservatorship will help move us forward move us toward a mortgage finance system that meets the housing needs of American families protects the American tax payer and support financial stability. From our perspective, exiting conservatorship would put Freddie Mac in a position to do a better job of providing liquidity, stability, and affordability to the single family and multi family housing markets. And will allow us to combine our industry expertise with the competitiveness of a private company to bring down costs for borrowers, create more opportunities for renters and better serve lenders and investors. In short, it will allow us to fill our mission, expand opportunities for families and help to ensure the United States housing market remains a critical driver of the economy. Earlier this week, the Federal Housing Finance Agency published our 2020 scorecard and strategic plan. Which instructs us to work with the agency in developing a roadmap with milestones to facilitate our end from conservatorship. Those milestones went through full raise in capital and further enhancing our overall risk and management framework. Let me be clear, our top strategic priority will be meeting those milestones. We will remain steadfastly focused on doing so quickly and responsibly. We've already taken an important first step. Late in September, FHFA and treasury agreed to permit the GSEs to begin building capital beyond their existing $3 million capital reserves. In Freddie Mac's case, the agreement will allow Freddie Mac to retain capital up to $20 million. With our third quarter earnings, we now have more $6 million in equity. I want to forecast when we will reach a point where we have sufficient capital to exit conservatorship but I will tell you it will be as soon as we responsibly can. Until then, our speed to exit will remain in top of mind. Another important milestone will be the finalization of FHFA's capital rule for Freddie Mac. We look forward to seeing that rule and better understanding the specific capitalization target we will need to hit to exit conservatorship and start our next chapter. Now, let me turn to our solid financial performance for the third quarter. Today's comprehensive income of $1.8 million is substantially unchanged from the prior quarter. Although the declining interest rate environment in the third quarter resulted in market related losses of $0.3 million as higher fair value losses were recognized on our derivative portfolio primarily those used to hedge singe family upfront fees. In losses, we're more than offset by strong business revenues. In spite with continued market volatility, our business model still produced strong returns. Our total guarantee portfolio grew a $120 million or 6% year-over-year driven by increases in both the single family and multi family portfolios. Additionally, we continue to reduce risk through our credit risk transfer activities and our credit quality remains strong. This consistent business performance should help us achieve our top priority of exiting conservatorship more quickly. Finally, I would like to provide an update on our progress to serving our mission. I'm proud to say that we help finance homes for 810,000 families this quarter injecting a $173 million of liquidity into the U.S. finance system. Approximately 45% of the homes we financed this quarter was for first-time home buyers. And at the rental units we financed, 95% were affordable to families making less than a 120$ of the area meeting income. We once again serve over 900 financial institutions the majority of which are smaller lenders including community banks. Across Freddie Mac, we continue to focus on building a more resilient more efficient company that will help confront the growing affordable housing crisis. As I have said many times in many forums this is a broad problem that goes well beyond access to credit. In fact, issued a limited housing supply and the rising cost of home building are leading contributors to this crisis. We believe exiting conservatorship will help us identify new opportunities to lower the cost of building, preserving and financing housing and provide economic incentives for private capital to invest in affordable housing solutions. Regardless of what comes next, we are committed to the score. We'll close by saying that more still than any time in the past 11 years, we at Freddie Mace believe our state is in our own hands. Director Calabria has made clear that FHFA will set out the milestones. That how fast we achieve them is up to us. Freddie Mac employees are committed to ensuring we achieve them and achieve them quickly serving our mission demand it. That concludes my prepared remarks. I think you very much for listening and will be happy to take any questions.

Operator: [Operator Instructions] And our first question comes from the line of Bonnie Sinnock with SourceMedia. Your line is now open/

Bonnie Sinnock: Hi, thank you for taking my question. I wondered if you could walk me through the return on conservatorship capital numbers and what their significance is and how we show with the both.

David Brickman: Certainly. And I mean it's now we've been reporting for some time and is effectively our income divided by the capital that will be implied by the existing conservatorship capital framework from the FHFA. I know that is not actual capital that is the framework as published in the rule of FHFA published some period ago. And well it represents the ratio of those two things. I think the simplest way to put it is in fact that conservatorship capital framework was the actual capital we were holding, it would represent our return on equity.

Bonnie Sinnock: Okay, thank you. Is there any sort of new thought we should give to that now that there is this possible exit from conservatorship on the horizon?

David Brickman: I mean, hesitate to give you any thought or guidance how you should think about it other than that it is just over it is a reflection of our return relative to again the capital days that the may per that previous rule we would otherwise be holding. And obviously over time when can look at that movements in that number obviously will going up being a positive development either in terms of increasing income or reduced risk or capital requirement.

Bonnie Sinnock: Okay, thank you. And I have one more question if you have time for it.

David Brickman: Yes, certainly.

Jim Mackey: Happy, Bonnie.

Bonnie Sinnock: So, I wondered if it was possible to talk you know you talked about how an exit from conservatorship could be helpful in some ways. Is there any example of in addressing the affordable mission are working with, are your lender partners of one way that that existing conservatorship might help you. So, become more flexible, more serve your mission?

David Brickman: I think I'd just comment more generally that I believe an exit from conservatorship did enable us to continue to drive innovation and new solutions and raise additional capital that would be directed towards affordable housing broadly towards other housing issues related to supply and cost.

Bonnie Sinnock: Okay, thank you.

David Brickman: You're welcome.

Operator: Thank you. And that concludes today's question and answer session. I would now like to turn the call back to Jeff Markowitz for any further remarks.

Jeff Markowitz: Alright, thank you for your time. We appreciate your question, Bonnie. And again the transcript will be posted on freddiemac.com later today.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.