Freddie Mac Passes Its Interim Capital Stress Test Initiates New Credit Risk Sensitivity Disclosure
March 26, 2001
Announcement Marks the Implementation of the Fourth and Fifth Components of the Six Voluntary Commitments Regarding Risk Management, Capital and Disclosure Practices
McLean, VA ? Freddie Mac (NYSE:FRE) today announced that it passed its interim risk-based capital stress test and introduced a new forward-looking measure of its credit risk. Both disclosures demonstrate Freddie Mac's financial capacity to withstand an economic downturn and its risk management expertise. With this announcement, Freddie Mac has implemented five of six voluntary commitments it made in October.
"Freddie Mac is committed to remaining at the vanguard of financial management practices," said Freddie Mac Chairman and CEO Leland C. Brendsel. "We made these commitments to leave no doubt that we will be able to finance housing for America's families for generations to come."
In keeping with the pledge the corporation made last October in a joint announcement with House Financial Services Subcommittee Chairman Richard Baker (R-LA), Ranking Member Paul Kanjorski (D-PA) and other Committee members, Freddie Mac will disclose the results of the stress test and the results of the new forward-looking credit risk measure on a quarterly basis.
Freddie Mac's interim risk-based capital stress test simulates the corporation's financial performance under ten years of extreme economic conditions. Freddie Mac will release the results quarterly, pending implementation by the Office of Federal Housing Enterprise Oversight of its final regulatory risk-based capital standard.
Freddie Mac's new credit risk sensitivity measure estimates the expected financial impact of an immediate 5 percent decline in house prices nationwide. A nationwide downturn of this severity has not occurred since Freddie Mac began tracking house prices. Most credit risk disclosure focuses on charge-offs and loans that already are delinquent. This additional disclosure is forward-looking; it predicts exposure to a worsening economy.
Additional information on both announcements and other aspects of Freddie Mac's implementation of the voluntary commitments can be found in the corporation's Information Statement dated March 26, 2001.
Source: Freddie Mac