Richard F. Syron's Speech to the Freddie Mac Annual Shareholder Meeting on November 4, 2004

Prepared Remarks by Richard F. Syron
Chairman & Chief Executive Officer, Freddie Mac

Freddie Mac Annual Shareholder Meeting
McLean, Virginia
November 4, 2004

I'm pleased to be with you at Freddie Mac's second annual shareholder meeting in seven months. This is getting to be a cottage industry. Fortunately, it means we are catching up.

We came in with a lot of work to do. And much still remains to be done.

But we have accomplished a lot in just ten months' time. I'd like briefly to review our progress before turning to the future.

When I came here, I found terrific employees. The senior management ranks, however, obviously had been decimated.

So my first priority was to put in place the strongest possible new senior management team. I'm very pleased with our success in this area.

Our line-up includes a real All-Star in Gene McQuade, who joined us in September as President and Chief Operating Officer, after a distinguished career at FleetBoston Financial and Bank of America. He brings a wealth of operating and financial reporting experience to Freddie Mac. I also recruited Patti Cook, a highly-regarded 25-year Wall Street veteran of the fixed income markets, to serve as our Executive Vice President of Investments. She guides our retained portfolio operations, reporting directly to me.

Gene and Patti, please stand.

We've added a number of other strong players. I won't recite all their names. The point is, they're on the job and doing it well.

We have made important advances in corporate governance. These include adopting high standards for Board and Audit Committee independence; strengthening our codes of conduct; implementing whistleblower protections; initiating a comprehensive review of our internal controls; and appointing a Chief Compliance Officer, a Chief Risk Officer, and a new head of Internal Audit.

We have also conducted, this year, an orderly transition of about half of our elected Board. Our ability to attract impressive, diverse and seasoned new Board candidates is a very positive sign. Here I will mention names. Barbara Alexander. Geoff Boisi. Richard Goeltz. Tom Johnson. Bill Lewis. Their willingness to join our Board confirms that Freddie Mac is not just striding forward with a top-notch senior management team, but top-notch Board leadership as well.

Another important achievement has been meeting our self-imposed financial reporting deadlines. The 2002 and 2003 financial statements were completed as promised. And just this past Monday, Gene, Patti, CFO Marty Baumann and I took part in a conference call with analysts that covered a lot of ground, in a very transparent way, about our financial reporting plans and business outlook. We have been forthcoming about our finances and we will continue to tell investors everything we can, as soon as we responsibly can.

We have also taken a sound and proactive position toward regulatory reform. Reform is necessary and we embrace it. We look forward to working with the Administration and the Congress to put to rest any doubts that our regulator has all that it needs and all that it takes to do the job right. Our aim is a bill next year that improves the regulatory environment and keeps America's family-friendly system of housing finance the best in the world.

We have brought new emphasis and focus to our vital public mission. Our statutory mission has three parts: providing the U.S. housing finance system with liquidity, stability, and affordability. We've done well on the first two. But on affordability, we need to do more.

To jump-start us on mission, we are developing a number of initiatives that you'll be hearing more about in the months to come. One example is Project Greenlight – a name that tells you, we want to green light more loans. As a result of this effort, you'll see Freddie Mac rolling out new products and services for lenders that will help lift more families out of the subprime market. We will also expand lender access to our affordable products.

Managing credit risk is something we do very well, and that will continue. We also need to look at new ways of credit enhancement and risk-spreading so that we can expand our efforts to buy more non-traditional loans while still protecting our shareholders' interests.

This is a necessary and smart approach to the business of our mission. Because the numbers and demographics make it plain: That's where the growth is.

Clearly, we have lots to do in pursuing our ambitious goals for this company. And if we are to achieve them, then change must become a way of life at Freddie Mac.

We intend to hold ourselves to high standards and continually strive to improve. As we do, here are some of the key ways in which I will be measuring our progress.

First, we have to complete Freddie Mac's return to timely financial reporting. During Monday's investor call – and in a press release available at the back of the room and on our Website – we laid out a detailed timeline for getting current, and for producing a supplementary non-GAAP earnings measure.

We remain on track to provide our full-year 2004 results at the end of the first quarter of 2005. We'll then catch up in our reporting during the course of next year. And we are working toward providing a supplemental non-GAAP performance measure that will make our results more transparent and understandable for our investors.

The second area in which I want to see steady progress is how we're serving our customers. This is a big priority for us as a secondary market institution.

We are striving to be focused on and responsive to our customers. This means being more flexible, more nimble, and more innovative. It means strengthening our customer relationships at every opportunity. It means competing for every loan and striving for a representative mix of our lenders' business.

Already, a number of lenders have told us, and said publicly, that they have noticed these differences in our attitude and approach. They've seen more flexibility. More willingness to experiment. In their own words, they have seen Freddie Mac not just talking the talk about mission and customer service, but walking the walk.

At major recent conventions and meetings, customers have been interested to hear more about the new products and services we've got in the pipeline. Lenders want to make sure they can achieve an appropriate balance in their secondary market business.

All this lender interaction and feedback is obviously music to our ears. We want to build customer relationships and a customer base that is broad and deep.

If we can do that, we'll clearly be on the right track. This is an area where Gene and Patti bring us terrific instincts and proven track records of customer service.

Third, I want to see us achieve our affordable housing goals. This will be a bigger deal than it may seem. Let me tell you why.

Our HUD goals are tough and they are getting much tougher. Last year our low-moderate goal was effectively 47 percent. Meeting it was a major accomplishment.

This year, the bar is set even higher: our low-mod goal this year is 50 percent. I'm confident we're going to meet this goal. But this is an achievement that can't be taken for granted.

For 2005 and 2006, our proposed low-moderate goal rises to 52 and then 53 percent. These are very demanding performance standards. Given the immense loan volumes we're talking about, meeting these goals is going to take a massive, concerted effort.

We're going to do everything possible to accomplish these goals. But in doing so, we cannot tolerate predatory lending or neglect our other congressionally mandated objectives.

That's not our statutory mission. In solving today's problems, we must not create tomorrow's. We have to lead responsibly.

Let me just add that, regarding this week's announcement about the adjusted goals, we are pleased HUD has taken a step in the right direction. I believe Secretary Jackson has the right objectives in mind and we look forward to working with him on the specifics.

A fourth dimension on which we should be judged is providing responsible leadership. You heard me mention this a moment ago. Let me explain.

In the whole area of affordable housing and the underserved, everyone in the mortgage industry has to balance some difficult decisions. Given today's low rates and the appreciation in home values, we have to remember that our goal is to help people buy homes – and keep them. We don't want to look back and find that in our zeal to help families, we actually hurt them and their neighborhoods.

That is why Freddie Mac has taken a leadership role in combating predatory lending. We can't forget that a huge benefit of the American mortgage – the long-term, fixed rate, prepayable mortgage enabled by the GSEs – is that it allows families of modest means to leverage a small down-payment and build wealth. We are not doing our job if we think about these families only up until the moment their loan closes.

Make no mistake. “Responsible leadership” is not an excuse for failing to lead on our mission. It is an acknowledgement that even an aggressive leader must retain the ability to say No if it is for the right, principled reasons.

This kind of leadership doesn't mean going after the flashiest short-term numbers. It means doing the right thing, over the long haul, for the families we serve. That's what our mission-driven employees are motivated to do. And that's what our shareholders have told us they want: long-term thinking and long-term value creation.

So those are four of the key areas that I'll be tracking in judging this company's success. Are we getting current on our financials? Are we focused on our customers? Are we meeting our mission, including affordability? And are we providing responsible leadership?

Freddie Mac stock is not a short term play. It is an investment for shareholders who understand that we build long-term value by fulfilling our public mission. And that our mission is not in conflict with shareholder value; rather, our mission and our charter are sources of shareholder value.

Amid all the changes we are making to this company, rest assured that one thing about Freddie Mac will remain constant. That is our safety and soundness. Even during all of last year's turmoil, this company's fundamental financial and economic strength and soundness never wavered. That will remain true throughout my tenure. And long after I am gone.

When you look at the U.S. economy, housing has been a consistent source of strength and consumer confidence. Last year, in fact, about a third of the growth in personal consumption was housing-related. Without all this activity, the U.S. economy would have been much weaker last year – and might well still be in recession.

What is clear to me – as an economist, former regulator, and lifelong student of public policy – is that it makes no sense to gamble with America's system of housing finance in this way. As I said, we welcome GSE regulatory reform. But let's make sure it is reform that truly strengthens our system and builds confidence.

So for Freddie Mac, providing responsible leadership should extend to the public debates about the value and regulation of the GSEs. That's in the interest of a sound, fact-based policy debate. And it is in the interest of our shareholders, as well.

Freddie Mac and all of our employees are proud to be a source of economic strength and stability for this nation. And we are grateful to you for being the owners of this company.

Your ownership of our stock makes home possible for more Americans. And that is a good investment in more ways than one.

Thank you for listening.

And now, Fred, if you could please report the results of the vote. After which I will take questions.