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FREDDIE MAC ANNOUNCES RECORD EARNINGS FOR FIRST QUARTER 1994; NET INCOME UP 15 PERCENT OVER 1993 FIRST QUARTER

 MCLEAN, Va., April 18 /PRNewswire/ -- Freddie Mac (NYSE: FRE) today announced record net income of $233 million for the first quarter of 1994, a 15 percent increase over first quarter 1993 net income of $202 million. Fourth quarter 1993 net income was $204 million.
 Earnings per common share for the first quarter of 1994 were $1.20, a 13 percent increase over first quarter 1993 earnings per common share of $1.06. Fourth quarter earnings per common share were $1.04.
 Included in the above results are the effect of several actions taken by management to strengthen the corporation's financial position in the first quarter. The net effect of these actions was a non- recurring reduction in first quarter after-tax net income of $28 million, or $0.16 per share.
 "Freddie Mac's strong first quarter results demonstrate the effectiveness of our business systems and strategies in a changing economic and business environment," said Leland C. Brendsel, Freddie Mac's chairman and CEO. "We continued to generate solid growth in high- quality assets and earnings, and provided mortgage financing for half a million families. In addition, we capitalized on opportunities to strengthen the long-term profitability of the company."
 Freddie Mac's revenues reached $582 million in the first quarter of 1994, an increase of $105 million, or 22 percent, over $477 million in pro forma revenues in the first quarter of 1993. Pro forma revenues were $495 million in the fourth quarter of 1993.
 In the first quarter, the corporation changed the way it reports uncollectible interest on single-family mortgages to be more consistent with industry practices. Previously, accrued but uncollected interest was reflected as a charge-off against mortgage loss reserves. Under the new method, uncollectible interest is charged directly against interest income. For comparative purposes, 1993 results are presented on a pro forma basis, as if the new method had been in effect last year. As a result of the change, loss provisions, charge-offs and net interest margin are reduced by approximately equal amounts, with no material effect on net income.
 Revenue Performance
 John Gibbons, acting chief financial officer, said the $105 million increase in revenues in the first quarter of 1994 as compared to pro forma first quarter 1993 resulted from:
 -- A $97 million, or 49 percent, increase in the net return on the retained mortgage and investment portfolios, which totaled $297 million in first quarter 1994, compared with $200 million in the first quarter of 1993. The increase was primarily due to a 61 percent increase in the average retained mortgage and investment portfolio balances. The effect of higher balances was partly offset by a 17 basis point decrease in spread that resulted primarily from lengthening the average maturity of debt financing the retained portfolio. Retained mortgage and investment portfolio income was $305 million in the fourth quarter of 1993.
 -- A $15 million increase in other income, net, which totaled $36 million in first quarter 1994, reflecting higher REMIC volumes. Other income, net was $36 million in the fourth quarter of 1993.
 -- A $15 million, or 6 percent, increase in management and guarantee fee income, which totaled $272 million in first quarter 1994, compared with $257 million in the first quarter of 1993. This increase primarily reflects an 8 percent rise in the average balance of the sold portfolio, partly offset by a modest decline in spreads. Management and guarantee fee income was $261 million in the fourth quarter of 1993.
 -- A $22 million increase in net float loss to $23 million in the first quarter of 1994, compared to a net float loss of $1 million in the first quarter of 1993. The larger float loss was due to higher levels of prepayments offset by slightly higher short-term reinvestment rates. The first quarter 1994 net float loss represented an $84 million improvement over the $107 million float loss in fourth quarter 1993.
 "First quarter revenues reflect substantial growth in Freddie Mac's servicing portfolio that began late in 1993, as well as a modest benefit from the reduction in refinancings from record fourth quarter 1993 volumes," Gibbons noted.
 Credit Performance
 In the first quarter of 1994, total mortgage charge-offs were $47 million, compared to pro forma charge-offs of $53 million in fourth quarter 1993 and $64 million in first quarter 1993.
 In the first quarter of 1994, single-family charge-offs were $40 million, compared to pro forma charge-offs of $40 million in fourth quarter 1993 and $34 million in first quarter 1993. The increase in charge-offs from first quarter 1993 resulted primarily from weak economic conditions in California.
 As a percentage of the number of mortgages serviced, Freddie Mac's single-family delinquency rate (90 days or greater) rose slightly to 0.62 percent at February 28, 1994, from 0.61 percent at December 31, 1993, but declined from 0.63 percent at March 31, 1993.
 Single-family REO balances increased to $663 million at March 31, 1994, from $623 million at December 31, 1993 and $444 million at March 31, 1993.
 In the first quarter of 1994, multifamily charge-offs were $7 million, compared to $13 million in the fourth quarter of 1993 and $30 million in the first quarter of 1993.
 As a percentage of the unpaid principal balance of multifamily mortgages serviced, Freddie Mac's multifamily delinquencies (60 days or greater) increased to 4.19 percent at February 28, 1994, from 3.46 percent at December 31, 1993 and 4.01 percent at March 31, 1993. Delinquent multifamily balances increased to $289 million at February 28, 1994 from $247 million at December 31, 1993 primarily due to loans to two borrowers in the Northeast. Multifamily REO balances decreased to $364 million at March 31, 1994, from $370 million at December 31, 1993 and $402 million at March 31, 1993.
 First quarter total credit-related expenses, consisting of the provision for mortgage losses and REO operations expense, were $105 million, compared to pro forma credit-related expenses of $105 million in the fourth quarter of 1993 and $94 million in the first quarter of 1993.
 Non-recurring Items
 In the first quarter, the corporation retired high-cost debt, generating $28 million, or $0.16 per share of after-tax extraordinary losses.
 On March 15, 1994, the corporation received from the Internal Revenue Service a Revenue Agent Report for its 1985 and 1986 federal income tax returns. In anticipation that this report would assert a deficiency, management had previously established reserves for additional taxes and related interest as prudent reserves against contingencies.
 Positions taken by the IRS resolved several open issues, including hedging issues that were treated in a manner consistent with regulations issued by the IRS last October. This has allowed the corporation to reduce its existing reserves for contingent taxes and thus report a one- time reduction in its first quarter provision for income taxes and also to reduce its reserves for related contingent interest. This reduction in reserves had no net effect on first quarter net income, because at the same time management took several actions, including the following, to enhance the value of the corporation and the sustainability of its earnings:
 -- In conjunction with the change in the reporting of uncollectible interest on single-family mortgages, the corporation wrote off $120 million of accrued but uncollected interest, that had previously been provided for in mortgage loss reserves. Since this was accomplished without simultaneously reducing mortgage loss reserves and these reserves will now be used to absorb only charge-offs of principal, the corporation's reserve coverage is strengthened.
 -- The corporation retired high-cost debt, in addition to the debt retirements described previously, generating an additional $16 million of after-tax extraordinary losses.
 Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to provide a continuous flow of funds to mortgage lenders. By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities, Freddie Mac sustains a stable mortgage credit system and reduces the mortgage rate paid by home buyers. Over the years, the corporation has helped finance one in six American homes.
 FEDERAL HOME LOAN MORTGAGE CORPORATION
 CONSOLIDATED BALANCE SHEETS
 (unaudited)
 (dollars in millions)
 March 31, Dec. 31, March 31,
 1994 1993 1993
 Assets
 Mortgages:
 Retained mortgage portfolio $ 57,678 $ 54,554 $ 34,011
 Mortgages financed by
 multiclass debt securities 821 922 1,410
 Total 58,499 55,476 35,421
 Unamortized purchase premiums,
 discounts and fees 415 462 135
 Reserve for losses on retained
 mortgages (222) (206) (142)
 Total mortgages, net 58,692 55,732 35,414
 Cash and cash equivalents 9,884 3,216 11,293
 Investments 5,533 14,025 5,894
 Mortgage securities purchased
 under agreements to resell 5,712 4,198 2,634
 Accounts receivable and
 other assets 3,881 5,051 5,664
 Real estate owned, net 1,027 993 846
 Unamortized mortgage sales
 discount, premium and fees 557 665 824
 Total $ 85,286 $ 83,880 $ 62,569
 Liabilities and Stockholders' Equity
 Debt securities, net:
 Notes and bonds payable:
 Due within one year $ 24,967 $ 17,871 $ 20,282
 Due after one year 35,529 29,583 17,828
 Total 60,496 47,454 38,110
 Multiclass debt securities:
 Due within one year 126 128 231
 Due after one year 854 928 1,368
 Total 980 1,056 1,599
 Total debt securities, net 61,476 48,510 39,709
 Principal and interest due
 to Mortgage Participation
 Certificate (PC) investors 15,811 27,584 15,843
 Other liabilities 1,420 1,312 1,193
 Total 78,707 77,406 56,745
 Reserve for losses on
 sold mortgages 541 554 632
 Contingencies:
 Single-class Mortgage
 Participation Certificates 134,833 174,907 196,585
 Multiclass Mortgage
 Participation Certificates 322,744 264,122 224,348
 Less -- Underlying
 mortgages sold (457,577) (439,029) (420,933)
 -- -- --
 Subordinated borrowings 1,432 1,483 1,474
 Stockholders' equity 4,606 4,437 3,718
 Total $ 85,286 $ 83,880 $ 62,569
 FEDERAL HOME LOAN MORTGAGE CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME
 (unaudited)
 (dollars in millions, except per share amounts)
 Quarter Ended
 March 31, Dec. 31, March 31,
 1994 1993 1993
 Interest and discount on mortgages:
 Retained mortgage portfolio $ 985 $ 941 $ 632
 Mortgages financed by multiclass
 debt securities 23 24 46
 Total 1,008 965 678
 Interest on investments and mortgage
 securities purchased under agreements
 to resell 294 358 225
 Management and guarantee income 272 268 262
 Total 1,574 1,591 1,165
 Interest expense on debt securities:
 Short-term notes and bonds (294) (273) (182)
 Long-term notes and bonds (495) (455) (306)
 Multiclass debt securities (28) (30) (42)
 Total (817) (758) (530)
 Interest expense due
 to security program cycles (211) (348) (152)
 Total (1,028) (1,106) (682)
 Net interest margin on portfolio 546 485 483
 Provision for mortgage losses (50) (75) (75)
 Net interest margin after provision
 for mortgage losses 496 410 408
 Other income, net 36 36 21
 Administrative expenses (92) (91) (89)
 REO operations expense (55) (56) (46)
 Income before income taxes,
 extraordinary item and cumulative
 effect of change in accounting principle 385 299 294
 Provision for income taxes (108) (95) (92)
 Income before extraordinary item,
 net of taxes, and cumulative effect
 of change in accounting principle 277 204 202
 Extraordinary loss on retirement of debt,
 net of taxes (44) -- (20)
 Cumulative effect of change
 in accounting principle -- -- 20
 Net income $ 233 $ 204 $ 202
 Preferred stock dividends (16) (16) (11)
 Net income available
 to common stockholders $ 217 $ 188 $ 191
 Earnings per common share $ 1.20 $ 1.04 $ 1.06
 Weighted average common shares
 outstanding (thousands) 180,556 180,515 180,313
 -0- 4/18/94
 /CONTACT: Doug Robinson of Freddie Mac, 703-903-2423/
 (FRE)


CO: Freddie Mac ST: Virginia IN: FIN SU: ERN

DC-KW -- DC007 -- 7597 04/18/94 09:56 EDT
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Date:Apr 18, 1994
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