Freddie Mac
Multiclass CertiÑcates
REMIC CertiÑcates
V
MACR CertiÑcates
The CertiÑcates
Freddie Mac issues and guarantees Multiclass CertiÑcates, including REMIC CertiÑcates and
MACR CertiÑcates. The CertiÑcates are securities that represent interests in pools of assets that are
backed by residential mortgages.
REMIC CertiÑcates include:
‚ Multiclass PCs, which receive their payments from Freddie Mac PCs.
‚ Multiclass Securities, which receive their payments from GNMA CertiÑcates.
MACR CertiÑcates receive their payments from related REMIC CertiÑcates.
Freddie Mac's Guarantee
We guarantee the payment of interest and principal on the CertiÑcates as described in this OÅering
Circular. We alone are responsible for making payments on our guarantee. Principal and interest
payments on the CertiÑcates are not guaranteed by and are not debts or obligations of the United
States or any federal agency or instrumentality other than Freddie Mac.
Freddie Mac Will Provide More Information for Each OÅering
This OÅering Circular describes the general characteristics of the CertiÑcates. For each oÅering, we
prepare an oÅering circular supplement. The supplement will describe more speciÑcally the
particular CertiÑcates included in that oÅering.
Tax Status and Securities Law Exemptions
The CertiÑcates are not tax-exempt. Because of applicable securities law exemptions, we have not
registered the CertiÑcates with any federal or state securities commission. No securities commission
has reviewed this OÅering Circular.
The CertiÑcates may not be suitable investments for you. You should consider carefully the risks
of investing in them. The Risk Factors section on pages 7 and 8 highlights some of these risks.
OÅering Circular dated June 1, 2003
If you intend to purchase CertiÑcates, you should rely only on the information in this OÅering
Circular and in the related oÅering circular supplement (""Supplement''), including the information
in any disclosure documents that we incorporate by reference. We have not authorized anyone to
provide you with diÅerent information.
This OÅering Circular, the related Supplement and any incorporated documents may not be
correct after their dates.
We are not oÅering the CertiÑcates in any jurisdiction that prohibits their oÅer.
TABLE OF CONTENTS
Description
Freddie Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SummaryÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk Factors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Description of CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏ
REMIC Pool Structures ÏÏÏÏÏÏÏÏÏ
REMIC Pool Assets ÏÏÏÏÏÏÏÏÏÏÏÏ
Payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Form, Holders and Payment
ProceduresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
MACR CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepayment, Yield and Suitability
ConsiderationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepayments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
YieldsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Suitability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tabular Information in
Supplements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
The AgreementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Transfer of Assets to REMIC
Pool ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Various Matters Regarding Freddie
Mac ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Events of Default ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Rights Upon Event of Default ÏÏÏÏ
Voting Under Any Underlying
AgreementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amendment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Governing Law ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Certain Federal Income Tax
Consequences ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
General ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
REMIC Election ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page
Description
3
3
4
7
9
9
10
13
Status of REMIC CertiÑcates ÏÏÏÏ
Taxation of Regular Classes ÏÏÏÏÏÏ
Taxation of Residual Classes ÏÏÏÏÏ
Sale or Exchange of REMIC
CertiÑcates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Transfers of Interests in a Residual
Class ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Treatment of Servicing
Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxation of MACR Classes ÏÏÏÏÏÏ
Exchanges of MACR Classes and
Regular Classes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Taxation of Certain Foreign
Investors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Backup Withholding ÏÏÏÏÏÏÏÏÏÏÏÏ
Reporting and Administrative
Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ERISA Considerations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Legal Investment Considerations ÏÏÏÏÏÏ
Plan of Distribution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in Size ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Appendix I Ì Index of Terms ÏÏÏÏÏÏÏÏ
Appendix II Ì Standard DeÑnitions
and Abbreviations for ClassesÏÏÏÏÏÏÏ
Appendix III Ì MACR CertiÑcate
Exchanges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Appendix IV Ì Retail Class Principal
Payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Appendix V Ì Interest Rate Indices ÏÏÏ
Appendix VI Ì Guaranteed Maturity
and Call Classes; Redemption and
Exchange Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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Page
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I-1
II-1
III-1
IV-1
V-1
VI-1
Appendix I shows the page numbers where deÑnitions of capitalized terms appear. Appendix II
contains our standard deÑnitions and abbreviations for various types of CertiÑcates.
2
FREDDIE MAC
Freddie Mac was chartered in 1970 under the Federal Home Loan Mortgage Corporation Act
(the ""Freddie Mac Act''). Freddie Mac's statutory purposes are:
‚ To provide stability in the secondary market for residential mortgages.
‚ To respond appropriately to the private capital markets.
‚ To provide ongoing assistance to the secondary market for residential mortgages, including
mortgages on housing for low- and moderate-income families.
‚ To promote access to mortgage credit throughout the United States (including central cities,
rural areas and underserved areas) by increasing the liquidity of mortgage investments and
improving the distribution of investment capital available for residential mortgage Ñnancing.
We fulÑll these statutory purposes by purchasing residential mortgages and mortgage-related
securities from mortgage lenders, other mortgage sellers and securities dealers. We Ñnance our
purchases by issuing guaranteed mortgage securities, debt securities, other liabilities and equity
capital.
ADDITIONAL INFORMATION
We prepare an annual Information Statement that describes our business and operations and
contains our audited Ñnancial statements. We prepare quarterly Information Statement Supplements that include unaudited Ñnancial data and other information concerning our business and
operations.
We also prepare oÅering circulars for our Mortgage Participation CertiÑcates (the ""PC
OÅering Circular'') and our Giant, Stripped Giant and Callable Pass-Through CertiÑcates (the
""Giant OÅering Circular'').
You can obtain any of these documents, as well as the disclosure documents and current
information for any securities we issue, from:
Freddie Mac - Investor Inquiry
1551 Park Run Drive, Mailstop D5B
McLean, Virginia 22102-3110
Telephone: 1-800-336-FMPC
(571-382-4000 within Washington, D.C. area)
E-mail: Investor Inquiry@freddiemac.com
Internet Web-Site: http://www.freddiemac.com*
* We are providing this Internet address solely for the information of prospective investors. We do not intend this Internet address to be
an active link and are not using reference to this address to incorporate additional information into this OÅering Circular or any
OÅering Circular Supplement.
3
SUMMARY
This summary highlights selected information about the CertiÑcates. Before buying CertiÑcates, you should read the remainder of this OÅering Circular and the Supplement for the
particular oÅering. You should rely on the information in the Supplement if it is diÅerent from the
information in this OÅering Circular.
Issuer and Guarantor ÏÏÏÏÏÏÏ Federal Home Loan Mortgage Corporation, or ""Freddie Mac,'' a
shareholder-owned government-sponsored enterprise.
REMIC CertiÑcates ÏÏÏÏÏÏÏÏ ""REMIC CertiÑcates'' represent beneÑcial ownership interests in
""REMIC Pools,'' which are pools of assets that we form. We
issue REMIC CertiÑcates in series (""Series''), each consisting
of two or more ""REMIC Classes.''
""Multiclass PCs'' are REMIC CertiÑcates backed directly or
indirectly by Freddie Mac PCs. ""Multiclass Securities'' are
REMIC CertiÑcates backed directly or indirectly by GNMA
CertiÑcates.
MACR CertiÑcates ÏÏÏÏÏÏÏÏÏ Some Series include Classes (""MACR Classes'') of ModiÑable
and Combinable REMIC CertiÑcates (""MACR CertiÑcates'').
In a Series with MACR Classes, the Holders of speciÑed
REMIC Classes can exchange all or part of those Classes for
proportionate interests in related MACR Classes and vice versa.
The MACR Classes receive payments from their related
REMIC Classes.
Appendix III describes MACR CertiÑcates and exchange procedures and fees.
""CertiÑcates'' and
""Classes'' ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ In this OÅering Circular and related Supplements, we use the
term ""CertiÑcates'' to include REMIC CertiÑcates and MACR
CertiÑcates, and the term ""Classes'' to include REMIC Classes
and MACR Classes.
Assets and Mortgages ÏÏÏÏÏÏÏ The assets in each REMIC Pool (the ""Assets'') include Freddie
Mac PCs, GNMA CertiÑcates or other securities we have
created or acquired. The Assets are backed by residential
mortgages that we have purchased (the ""Mortgages''). The
Mortgages may be secured by single-family or multifamily
residential properties, and may have either Ñxed or adjustable
interest rates.
4
Payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We pay principal and interest due on a Class monthly on the
applicable Payment Date. Payment Dates fall on or about:
‚ The 15th of each month, for Classes backed by PCs.
‚ The 17th or 20th of each month, as applicable, for Classes
backed by GNMA CertiÑcates.
‚ Interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We pay interest on each Class at its applicable per annum interest
rate (""Class Coupon''). Interest payable on a Payment Date
accrues during the monthly periods speciÑed in the related
Supplement. However, interest on Accrual Classes and Partial
Accrual Classes is paid only to the extent described in the
related Supplements. Principal Only Classes have a Class Coupon of 0% and do not receive interest.
‚ Principal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We pay principal on the CertiÑcates of each Series on each
Payment Date as described in the related Supplement. The
Holders of any Class that receives principal payments receive
those payments on a pro rata basis, subject to any special
allocation procedures that may apply to Retail Classes.
Notional Classes receive interest payments but not principal
payments. They have notional principal amounts on which we
calculate their interest.
Retail Classes ÏÏÏÏÏÏÏÏÏÏÏÏÏ Some Series include Retail Classes, which are designed primarily
for individual investors. We typically issue and pay Retail
Classes in $1,000 increments, or ""Retail Class Units.'' Appendix IV describes principal payments on most Retail Classes.
GMC Classes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Some Series include Guaranteed Maturity Classes and related
Call Classes. Guaranteed Maturity Classes have a Final Payment Date earlier than the latest date by which these Classes
could be retired by payment on their underlying Assets. Appendix VI describes Guaranteed Maturity Classes, Call Classes and
redemption and exchange procedures for these Classes.
REMIC Election and Tax
Status of the CertiÑcates ÏÏ We will elect to treat each REMIC Pool as a real estate mortgage
investment conduit (""REMIC'') under the Internal Revenue
Code of 1986 (the ""Code''). ""Regular Classes'' constitute
""regular interests'' in their related REMIC Pools and each
""Residual Class'' constitutes the ""residual interest'' in its related REMIC Pool.
In general, Regular Classes are taxed as debt instruments, but
Residual Classes are not. Special tax rules apply to Residual
Classes. These rules often impose tax liabilities on Residual
Classes that exceed any payments they receive. You should not
purchase a Residual Class before consulting your tax advisor.
5
The arrangements under which MACR Classes are created
(""MACR Pools'') will be classiÑed as grantor trusts for federal
income tax purposes.
Form of CertiÑcates ÏÏÏÏÏÏÏÏ Each Supplement will specify the form of the CertiÑcates oÅered
by that Supplement.
‚ Non-Retail Regular and MACR Classes in most cases are
issued, held and transferable on the book-entry system of the
Federal Reserve Banks (the ""Fed System'').
‚ Retail Classes and some other Regular and MACR Classes are
issued, held and transferable on the book-entry system (the
""DTC System'') of The Depository Trust Company or its
successor (""DTC'').
‚ We issue some Classes, including all Residual and Call Classes,
in registered certiÑcated form. They are transferable at our
oÇce, in our capacity as registrar, or at the oÇce of any
successor registrar we designate (the ""Registrar''). You may
contact Freddie Mac as Registrar through our Investor Inquiry
Department or at:
Freddie Mac Ì OÇce of Registrar
1551 Park Run Drive, MS D5B
McLean, VA 22102
Holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ As an investor in CertiÑcates, you are not necessarily the Holder
of those CertiÑcates. You ordinarily must hold your CertiÑcates
through one or more Ñnancial intermediaries. You may exercise
your rights as an investor only through the Holder of your
CertiÑcates, and we may treat the Holder as the absolute owner
of your CertiÑcates. The term ""Holder'' means:
‚ For a Class held on the Fed System, any entity that appears on
the records of a Federal Reserve Bank as a holder of that Class.
‚ For a Class held on the DTC System, DTC or its nominee.
‚ For a certiÑcated Class, any entity or individual that appears on
the records of the Registrar as a registered holder of that Class.
6
RISK FACTORS
Although we guarantee the payments on the CertiÑcates, and so bear the associated credit risk,
as an investor you will bear the other risks of owning mortgage securities. This section highlights
some of these risks. Prepayment, Yield and Suitability Considerations discusses them in more detail.
The CertiÑcates May Not be Suitable Investments for You. The CertiÑcates are complex
securities. You need to understand the risks of your investment, and you need to be able to analyze
the information in the related oÅering documents as well as the economic and other factors that may
aÅect your investment. If you require a deÑnite payment stream, or a single payment on a speciÑc
date, the CertiÑcates are not suitable investments for you. If you purchase CertiÑcates, you need to
have enough Ñnancial resources to bear all of the risks related to your CertiÑcates.
Principal Payment Rates are Uncertain. Principal payment rates on the CertiÑcates will
depend on the rates of principal payments on the underlying Mortgages. Mortgage principal
payments include scheduled payments and prepayments. Prepayment rates Öuctuate continuously
and (in some market conditions) substantially. In general, prepayments tend to increase when
current interest rates decline, as more borrowers choose to reÑnance their existing mortgages. As
current interest rates increase, reÑnancings and prepayments generally decline.
Prepayments Can Reduce Your Yield. Your yield on a Class of CertiÑcates will depend on its
price, the rate of prepayments on its underlying Mortgages and the actual characteristics of those
Mortgages. The Mortgages may be prepaid at any time, in most cases without penalty. The yield on
your Class could be lower than you expect if:
‚ You buy your Class at a discount to its principal amount and principal payments are slower
than you expect.
‚ You buy your Class at a premium over its principal amount and principal payments are faster
than you expect.
If you buy an Interest Only Class or any other Class at a signiÑcant premium and prepayments are
fast, you may not even recover your investment.
Callable Classes are Subject to Redemption Risks. If you own a Callable Class, a redemption
of the underlying Assets will be similar in its principal payment eÅect to a full prepayment of all the
related Mortgages. After a Callable Class becomes redeemable, its value is not likely to exceed, and
may be lower than, its redemption price.
Reinvestment of Principal Payments May Produce Lower Yields. Mortgages tend to prepay
fastest when current interest rates are low. When you receive principal payments in a low interest
rate environment, you may not be able to reinvest them in comparable securities with as high a yield
as your CertiÑcates.
Index Levels Can Reduce Your Yield if You Own a Floating Rate or Inverse Floating Rate
Class. The yield on your Class could be lower than you expect if:
‚ You own a Floating Rate Class and the levels of the applicable Index are lower than you
expect.
‚ You own an Inverse Floating Rate Class and the levels of the applicable Index are
higher than you expect.
7
If you buy an Interest Only Floating Rate Class, you may not even recover your investment if the
level of the applicable Index is low or prepayments are fast. If you buy an Interest Only Inverse
Floating Rate Class, you may not even recover your investment if the level of the applicable Index is
high or prepayments are fast.
Classes That Support Other Classes are More Sensitive to Prepayment Rates. If you own a
Class, such as a Support Class, that supports the principal payment stability of other Classes, your
Class is likely to be more sensitive to prepayment rates than are any Classes it supports. You may
not receive principal payments on your Class for extended periods of time, and you may receive
principal payments that change signiÑcantly from period to period. The same may be true if the
Assets underlying your CertiÑcates include a previously issued Class that supports other Classes in
its own Series.
Classes May Not Adhere to Their Principal Payment Schedules. If you own a Class, such as
a PAC, TAC or Scheduled Class, that was structured to receive principal payments in accordance
with a schedule, we cannot assure you that your Class will adhere to that schedule. Your Class will
become more sensitive to Mortgage prepayments after its own supporting Classes are retired.
Moreover, your Class may support other Classes. The same may be true if the Assets underlying
your CertiÑcates include a previously issued Class that was structured to receive principal payments
in accordance with a schedule in its own Series.
The CertiÑcates are Subject to Market Risks. The market value of your CertiÑcates will vary
over time, primarily in response to changes in prevailing interest rates. If you sell your CertiÑcates
when their market value is low, you may experience signiÑcant losses. A secondary market for some
CertiÑcates may not develop. Even if a market does develop, it may not be liquid enough to allow
you to sell your CertiÑcates easily or at your desired price. Moreover, you may not be able to sell
very small or very large amounts of CertiÑcates at prices available to other investors.
Your Ability to Exchange REMIC CertiÑcates and MACR CertiÑcates May be Limited. You must own the right Classes in the right proportions to enter into an exchange involving
MACR CertiÑcates. If you do not own the right Classes, you may not be able to obtain them
because:
‚ The owner of a Class that you need for an exchange may refuse or be unable to sell that
Class to you at a reasonable price or at any price.
‚ Some Classes may be unavailable because they have been placed into other Ñnancial
structures, including other REMIC Pools.
‚ Principal payments and prepayments over time will decrease the amounts available for
exchange.
You May Not be Allowed to Buy Some CertiÑcates. If you are subject to legal investment
laws and regulations or to review by regulatory authorities, you may not be allowed to invest in some
types of CertiÑcates or in CertiÑcates generally. See Legal Investment Considerations.
8
DESCRIPTION OF CERTIFICATES
REMIC POOL STRUCTURES
Each Series may be either a ""Single-Tier Series'' or a ""Double-Tier Series.''
The REMIC CertiÑcates of a Single-Tier Series represent beneÑcial ownership interests in a
single REMIC Pool. The REMIC CertiÑcates of a Double-Tier Series represent beneÑcial
ownership interests in an ""Upper-Tier REMIC Pool'' and one or more ""Lower-Tier REMIC
Pools.''
In a Double-Tier Series:
‚ The Classes issued from each Lower-Tier REMIC Pool (the ""Lower-Tier Classes'')
represent beneÑcial ownership interests in that Pool.
‚ One or more Lower-Tier Classes are included in the Upper-Tier REMIC Pool, where
they will constitute the ""Mortgage Securities'' of that Pool.
‚ The Classes issued from the Upper-Tier REMIC Pool (the ""Upper-Tier Classes'')
represent beneÑcial ownership interests in that Pool.
The REMIC CertiÑcates oÅered in a Double-Tier Series usually include all of the Upper-Tier
Classes plus the Residual Class of each Lower-Tier REMIC Pool.
The following diagrams illustrate the structures for typical Single-Tier and Double-Tier Series.
Any particular Series may have a diÅerent structure, as described in the related Supplement.
Double-Tier Series sometimes include more than one Lower-Tier REMIC Pool. Series with
Guaranteed Maturity Classes include additional REMIC Pools, as described in the related
Supplements.
Single-Tier
Double-Tier
Holders of REMIC CertiÑcates
o
Holders of REMIC CertiÑcates
o
Regular Classes
o
Residual Class
Regular Classes of
Upper-Tier REMIC Pool
o
Residual Class of
Upper-Tier REMIC Pool
Upper-Tier REMIC Pool
REMIC Pool
o
o
Mortgage Securities
(Regular Interests in
Lower-Tier REMIC Pool)
Assets (e.g., PCs or
GNMA CertiÑcates)
o
Lower-Tier REMIC Pool
o
Mortgages
Assets (e.g., PCs or
GNMA CertiÑcates)
o
Mortgages
9
o
Residual Class of
Lower-Tier REMIC Pool
The Classes of CertiÑcates fall into diÅerent descriptive categories. Each Supplement will
identify the categories applicable to each Class by using standard abbreviations. These abbreviations and their deÑnitions appear in Appendix II.
REMIC POOL ASSETS
General
Each REMIC Pool includes any one or more of the following Assets:
‚ PCs, including Freddie Mac Mortgage Participation CertiÑcates and Freddie Mac
Giant PCs.
‚ GNMA-Related Securities, including GNMA CertiÑcates and Freddie Mac Giant
Securities.
‚ Previously issued REMIC or MACR Classes.
‚ Freddie Mac Stripped Giant CertiÑcates.
‚ A Callable Class of a Series of Freddie Mac Callable Pass-Through CertiÑcates
(""CPCs'').
‚ Any other types of securities that are eligible for inclusion in a REMIC and that receive
payments from PCs or GNMA CertiÑcates.
Each REMIC Pool may also include cash or other eligible assets. See The Agreement Ì Transfer
of Assets to REMIC Pool. In Series with Retail Classes, REMIC Pools usually include non-interest
bearing cash deposits in amounts speciÑed in the related Supplement (""Retail Rounding Accounts'') to be applied as described in Appendix IV.
In any Series, the underlying Assets may be divided into two or more groups (""Asset
Groups''). The Supplement for each Series will contain more speciÑc information regarding the
Assets for the Series.
The remainder of this section describes the general characteristics of PCs and GNMA-Related
CertiÑcates, which directly or indirectly back all CertiÑcates.
PCs
""PCs'' include Freddie Mac Mortgage Participation CertiÑcates and Freddie Mac Giant PCs.
Our PC OÅering Circular and Giant OÅering Circular describe the characteristics of the various
types of PCs. Supplements for CertiÑcates backed by PCs will incorporate by reference the current
PC and Giant OÅering Circulars.
Mortgage Participation CertiÑcates
Mortgage Participation CertiÑcates are single-class securities, guaranteed by us, that represent
undivided interests in pools of Mortgages. Nearly all Mortgages that back Mortgage Participation
CertiÑcates are conventional mortgages, which means that neither the United States nor any federal
agency or instrumentality guarantees or insures them.
10
If the underlying Mortgages have Ñxed rates of interest, the Mortgage Participation CertiÑcates
may be either ""Gold PCs'' or ""Original PCs.'' If the underlying Mortgages have adjustable rates of
interest (""ARMs''), the related Mortgage Participation CertiÑcates are called ""ARM PCs.''
For Gold PCs, there is a delay of approximately 45 days between the time interest begins to
accrue and the time the investor receives the interest payment. This time period is a ""Payment
Delay.'' Original PCs and ARM PCs have a Payment Delay of approximately 75 days.
Giant PCs
""Giant PCs'' are Freddie Mac Giant CertiÑcates that represent pass-through interests in
Mortgage Participation CertiÑcates. Giant PCs have names Ì ""Gold Giant PCs,'' ""Original Giant
PCs'' and ""ARM Giant PCs'' Ì that identify their underlying assets and the applicable Payment
Delay.
Non-Standard Mortgages
Some PCs represent interests in special types of Mortgages, such as relocation mortgages,
cooperative share mortgages, extended buydown mortgages, biweekly mortgages, newly originated
assumable mortgages or prepayment protection mortgages. These types of mortgages may prepay
diÅerently than standard mortgages. If any one of these types of PCs represents more than 10%, or if
any two or more of them represent more than 15%, of the original principal balance of a REMIC
Pool, the applicable Supplement will say so.
GNMA-Related Securities
""GNMA-Related Securities'' may be either GNMA CertiÑcates or Freddie Mac Giant
Securities.
GNMA CertiÑcates
""GNMA CertiÑcates'' are mortgage-backed securities that the Government National Mortgage Association (""GNMA'') guarantees. GNMA is a corporate instrumentality of the United
States within the Department of Housing and Urban Development (""HUD''). GNMA guarantees
the timely payment of principal and interest on certiÑcates that are backed by pools of mortgages
insured or guaranteed by the Federal Housing Administration, the Department of Veterans AÅairs,
the Rural Housing Service or HUD.
Investors in GNMA CertiÑcates receive monthly payments of interest and scheduled principal,
even if the borrowers on the underlying mortgages have not made their monthly payments.
GNMA's guarantee obligations, unlike Freddie Mac's, are backed by the full faith and credit of the
United States.
Mortgage banking companies and other Ñnancial concerns approved by GNMA issue and
service GNMA CertiÑcates. GNMA guarantees securities under its GNMA I program (""GNMA I
CertiÑcates'') and GNMA II program (""GNMA II CertiÑcates''). Holders of GNMA I CertiÑcates and GNMA II CertiÑcates have substantially similar rights, although a few diÅerences do
exist.
Under the GNMA I program, a single GNMA issuer assembles a pool of mortgages and issues
and markets GNMA I CertiÑcates that are backed by that pool. The origination date of mortgages
11
in the pool must be within two years of the date that the related GNMA I CertiÑcates are issued.
All mortgages underlying a particular GNMA I CertiÑcate must be of the same type (for example,
all single-family, level payment mortgages) and have the same Ñxed interest rate. The pass-through
rate on each GNMA I CertiÑcate is 50 basis points less than the interest rate on the mortgages
included in the pool. Holders of GNMA I CertiÑcates receive payments on or about the 15th of
each month. GNMA I CertiÑcates have a Payment Delay of approximately 45 days.
Under the GNMA II program, a pool may consist of mortgages submitted by more than one
GNMA issuer. The resulting pool backs a single issue of GNMA II CertiÑcates, which each
participating issuer markets to the extent that it contributed mortgages to the pool. Each GNMA II
CertiÑcate issued from a multiple issuer pool, however, represents an interest in the entire pool, not
just in mortgages contributed to the pool by a particular GNMA issuer. GNMA II CertiÑcates also
may be backed by a custom pool of Ñxed-rate mortgages formed by a single issuer. Holders of
GNMA II CertiÑcates receive payments on or about the 20th of each month. GNMA II
CertiÑcates have a Payment Delay of approximately 50 days.
Each GNMA II CertiÑcate pool consists entirely of Ñxed-rate mortgages or entirely of ARMs.
Fixed-rate mortgages underlying any particular GNMA II CertiÑcate must be of the same type, but
may have annual interest rates that vary from each other by up to 100 basis points. The pass-through
rate on each Ñxed-rate GNMA II CertiÑcate will be 50 to 150 basis points less than the annual
interest rate on any mortgage included in the pool.
ARMs underlying any particular GNMA II CertiÑcate will have interest rates that adjust
annually based on the one-year Treasury index. GNMA pooling speciÑcations require that all
ARMs in a given pool have an identical Ñrst adjustment date, annual adjustment date, index
reference date and means of adjustment. All of the ARMs underlying a particular GNMA II
CertiÑcate must have interest rates that are 50 to 150 basis points above the interest rate of the
GNMA II CertiÑcate. In addition, the mortgage margin for any given ARM must be 50 to 150 basis
points greater than the margin for the related GNMA II CertiÑcate. The ARMs and GNMA II
CertiÑcates have an annual adjustment cap of P1% and lifetime cap of P5% above or below the
initial interest rate. Thirty days after each annual adjustment date, the payment amount of an ARM
resets so that its remaining principal balance would fully amortize in equal monthly payments over
its remaining term to maturity, assuming its interest rate were to remain constant at the new rate.
Under its ""Platinum'' program, GNMA guarantees certiÑcates that represent pass-through
interests in pools of GNMA I CertiÑcates or GNMA II CertiÑcates. The terms ""GNMA I
CertiÑcates'' and ""GNMA II CertiÑcates'' include certiÑcates guaranteed under the Platinum
program.
Giant Securities
""Giant Securities'' are Freddie Mac Giant CertiÑcates that represent pass-through interests in
GNMA CertiÑcates. Our Giant OÅering Circular describes the characteristics of Giant Securities.
Supplements for CertiÑcates backed by GNMA-Related Securities will incorporate by reference the
current Giant OÅering Circular.
12
PAYMENTS
Class Factors
General
For each month, we calculate and make available (including on our Internet Web-Site) the
Class Factor for each Class of CertiÑcates having a principal amount.
The ""Class Factor'' for any Class for any month is a truncated eight-digit decimal that, when
multiplied by the original principal amount of a CertiÑcate of that Class, will equal its remaining
principal amount. The Class Factor for any month reÖects payments of principal (or, in the case of
Accrual and Partial Accrual Classes, additions to principal) to be made on the Payment Date:
‚ In the same month, for Classes backed by Gold PCs or GNMA CertiÑcates.
‚ In the following month, for Classes backed by Original PCs or ARM PCs.
Class Factors will be available on or about:
‚ The Ñfth business day of each month, for Classes backed by PCs.
‚ The tenth business day of each month, for Classes backed by GNMA CertiÑcates.
A Class Factor for a Notional Class reÖects the remaining notional principal amount of a
CertiÑcate of that Class in the same manner. The Class Factor for a Retail Class applies to that
Class as a whole, not to individual Retail Class Units, and disregards any rounding of principal
payments.
For Component Classes, we also make available ""Component Factors'' for each Component.
The Component Factor for a Component is analogous to the Class Factor for a Class. You can
obtain Component Factors from our Investor Inquiry Department.
We calculate the Class Factors for MACR Classes and REMIC Classes that are exchangeable
for MACR Classes assuming that the maximum possible amount of each Class is outstanding at all
times, without regard to any exchanges that may occur.
The Class Factor for each Class for the month of its issuance is 1.00000000.
Class Factors for Multiclass Securities
We calculate Class Factors for Multiclass Securities and related MACR Classes by using
GNMA CertiÑcate factors reported each month. Currently, the reported factors that we use are
preliminary and subject to revision. In addition, there may not be reported factors for some GNMA
CertiÑcates. If a factor has not been reported, we will estimate it on the basis of assumed Mortgage
amortization schedules. Our estimate will reÖect payment factor information previously reported
and estimated subsequent scheduled amortization (but not prepayments) on the related Mortgages.
Because GNMA factors may be preliminary, and we must estimate factors when reported
factors are not available, there may be variances between the principal payments we receive on the
GNMA CertiÑcates in any month and the amounts we pay on the related CertiÑcates, as reÖected
by their Class Factors for that month. However, the Class Factors for any month will reconcile any
variances that occurred in the preceding month. Our determination of the Class Factors in the
manner described above will be Ñnal.
13
Payment Dates
We make payments to the Holders of CertiÑcates on each applicable Payment Date. A
""Payment Date'' is:
‚ For Classes backed by PCs, the 15th of each month or, if the 15th is not a Business Day,
the next Business Day.
‚ For Classes backed entirely by GNMA I CertiÑcates, the 17th of each month or, if the
17th is not a Business Day, the next Business Day.
‚ For Classes backed entirely or partly by GNMA II CertiÑcates, the 20th of each month
or, if the 20th is not a Business Day, the next Business Day.
For this purpose, ""Business Day'' means a day other than:
‚ A Saturday or Sunday.
‚ A day when the oÇces of the federal government in the District of Columbia generally
are closed.
‚ A day when Freddie Mac is closed.
‚ For Classes on the Fed System, a day when the Federal Reserve Bank of New York (or
other agent acting as Freddie Mac's Ñscal agent) is closed or, as to any Holder, a day
when the Federal Reserve Bank that maintains the Holder's account is closed.
‚ For Classes on the DTC System, a day when DTC is closed.
Payments of Principal
On each Payment Date, we pay principal to the Holders of each Class on which principal is
then due, as described in the related Supplement.
For any Payment Date, the total amount of principal payments to be made on the Classes of
any Series equals the sum of:
‚ Any interest that has accrued on any Accrual or Partial Accrual Classes of that Series
during the applicable Accrual Period and is not payable as interest on that Payment
Date.
‚ The amount of principal payments required to be made in the same month on the
underlying Assets. For Multiclass Securities, we calculate this amount as described
under Class Factors Ì Class Factors for Multiclass Securities above.
Subject to special allocation procedures that may apply to a Retail Class, the Holders of CertiÑcates
of any Class entitled to receive principal payments on any Payment Date receive those payments on
a pro rata basis. Appendix IV describes how we typically make principal payments on Retail Classes.
For convenience in describing payments on it, each Component Class is deemed to consist of
two or more ""Components.'' These Components, together, constitute a single Class and are not
separately issued or transferable. However, discussions in this OÅering Circular and in Supplements
regarding the payment characteristics of the various categories of Classes also apply to Components
within the same categories.
14
Payments of Interest
Interest accrues on each CertiÑcate during each Accrual Period at the applicable Class
Coupon, if any, described in the related Supplement. We compute interest on the basis of a 360-day
year of twelve 30-day months. Interest accrued on an Accrual or Partial Accrual Class is payable to
the extent provided in the related Supplement, and the amount of any interest accrued and not paid
as interest is added to the principal amount of that Class. Any accrued interest so added will also
accrue interest. No interest at all will be paid on any Class (including any Retail Class Unit) after
its balance has been reduced to zero.
Each Residual Class receives interest on each Payment Date either (a) at its Class Coupon, if
any, or (b) in an amount equal to the interest payments received on the Assets in the related
REMIC Pool on that Payment Date in excess of the total amount of interest payable on (or added
to) the related Regular Classes on that Payment Date. In most cases, any such excess is
insigniÑcant.
The ""Accrual Period'' relating to any Payment Date is:
‚ For a Fixed Rate, Ascending Rate, Descending Rate or Delay Class backed by Gold
PCs or GNMA CertiÑcates, the calendar month preceding the Payment Date.
‚ For a Fixed Rate, Ascending Rate, Descending Rate or Delay Class backed by Original
PCs or ARM PCs, either the period:
‚‚ From the 15th of the second month preceding the Payment Date to the 15th of the
month preceding the Payment Date.
‚‚ The second calendar month preceding the Payment Date.
‚ For a Floating Rate or Inverse Floating Rate Class (other than a Delay Class) backed
by PCs, the period from the 15th of the month preceding the Payment Date to the 15th of the
month of the Payment Date.
‚ For a Floating Rate or Inverse Floating Rate Class (other than a Delay Class) backed
by GNMA CertiÑcates, the period:
‚‚ From the 17th of the month preceding the Payment Date to the 17th of the month
of the Payment Date (for Classes backed entirely by GNMA I CertiÑcates).
‚‚ From the 20th of the month preceding the Payment Date to the 20th of the month
of the Payment Date (for Classes backed in whole or in part by GNMA II
CertiÑcates).
Interest Rate Indices
Each Floating Rate or Inverse Floating Rate Class bears interest during each Accrual Period by
reference to one of the following indices (each, an ""Index''), as described in the related
Supplement:
‚ ""LIBOR,'' the arithmetic mean of the London interbank oÅered quotations for Eurodollar deposits with a maturity of one month, three months, one year or some other
maturity, as described in the related Supplement.
15
‚ ""COFI,'' the weighted average cost of funds for member savings institutions of the
Eleventh Federal Home Loan Bank District.
‚ A ""Treasury Index,'' the auction average (investment) yield on three-month or sixmonth U.S. Treasury bills or the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one, three, Ñve, seven, ten or thirty years or to some
other constant maturity, as speciÑed in the related Supplement.
‚ The ""Prime Rate,'' the prime or base lending rate of major banks as published in The
Wall Street Journal.
Classes bearing interest based on these Indices are called ""LIBOR Classes,'' ""COFI Classes,''
""Treasury Index Classes'' and ""Prime Rate Classes,'' as applicable.
Appendix V describes how we determine these Indices for each Accrual Period. Absent clear
error, our determination of the applicable Index levels and our calculation of the Class Coupons for
Floating Rate and Inverse Floating Rate Classes for each Accrual Period will be Ñnal and binding.
You can get the Class Coupons for the current and all preceding Accrual Periods from our Internet
Web-Site or from our Investor Inquiry Department.
Residual Classes
Holders of each Residual Class are entitled to receive:
‚ On each Payment Date, any payments of principal and interest described in the related
Supplement.
‚ Upon surrender of their CertiÑcates to the Registrar, the proceeds of any remaining
Assets of the related REMIC Pool after we have made all required principal and
interest payments on all Classes issued from that REMIC Pool.
Residual Classes are subject to transfer restrictions, including restrictions on ownership by
foreign persons. See Certain Federal Income Tax Consequences Ì Transfers of Interests in a
Residual Class.
We will provide Holders of Residual Classes information to enable them to prepare reports
required under the Code or applicable Treasury regulations. Because we do not intend to hold any
Residual Class, applicable law may not allow us to perform tax administrative functions for the
REMIC Pools. Therefore, if you own a Residual Class, you may have certain tax administrative
obligations, for which we will act as your attorney-in-fact and agent. See Certain Federal Income
Tax Consequences.
Record Dates
We make payments on each Payment Date to Holders as of the related Record Date. The
""Record Date'' for any Payment Date is the close of business on:
‚ The last day of the preceding month, for a Class backed by Gold PCs or GNMA
CertiÑcates.
‚ Either the 14th of the preceding month or the last day of the second preceding month,
for a Class backed by Original PCs or ARM PCs.
16
Final Payment Dates
General
The ""Final Payment Date'' for each Class is the latest date by which it will be paid in full and
will retire. Except in the case of a Guaranteed Maturity Class, we calculate Final Payment Dates
using highly conservative assumptions, and the actual retirement of any Class could occur
signiÑcantly earlier than its Final Payment Date.
Guaranteed Maturity Classes
The amount we pay to each Guaranteed Maturity Class on its Final Payment Date will equal:
‚ The outstanding principal amount, if any, of that Class, based on its Class Factor
published:
‚‚ For a Guaranteed Maturity Class backed by Gold PCs or GNMA CertiÑcates, in
the month prior to its Final Payment Date (the Class Factor published in the month
of its Final Payment Date will be zero).
‚‚ For a Guaranteed Maturity Class backed by ARM PCs or Original PCs, in the
second month prior to its Final Payment Date (the Class Factor published in the
month prior to its Final Payment Date will be zero).
plus
‚ 30 days' interest on its outstanding principal or notional principal amount, accrued
during the Accrual Period for its Final Payment Date.
Unless the related Underlying REMIC Class retires before the Final Payment Date for a
Guaranteed Maturity Class, we will make the Ñnal payment on that Class from (a) the proceeds
from the exercise of the Call Right by the related Call Class Holder or (b) the principal and interest
payments received on the related Underlying REMIC Class on the applicable Final Payment Date
plus the net proceeds from a sale of that Underlying REMIC Class. If necessary, we will pay any
additional amount pursuant to our guarantee. If the amount described in (b) exceeds the amount
required for payment on the applicable Guaranteed Maturity Class or Classes, we will pay that
excess to the related Residual Class.
See Appendix VI for a description of Guaranteed Maturity Classes, Underlying REMIC
Classes and Call Classes.
Guarantees
We guarantee to each Holder of a CertiÑcate:
‚ The timely payment of interest at its Class Coupon.
‚ The payment of its principal amount as described in the related Supplement, including
payment in full by its Final Payment Date.
We also guarantee:
‚ For all of our Mortgage Participation CertiÑcates, the timely payment of interest and
the full and Ñnal payment of principal on the underlying Mortgages.
17
‚ For our Gold PCs only, the timely payment of scheduled principal on the underlying
Mortgages, calculated as described in the PC OÅering Circular.
‚ For our Giant CertiÑcates, the timely payment of interest and the payment of principal
as described in the Giant OÅering Circular.
1% Clean-up Call
We will have the right (a ""1% Clean-up Call Right'') to redeem all the remaining Classes of
any Series or, in the case of a Double-Tier Series, all the remaining Classes of any Lower-Tier
REMIC Pool, on any Payment Date when their aggregate remaining principal amount would be less
than 1% of their aggregate original principal amount. The aggregate remaining principal amount
gives eÅect to any principal payments that would be made on that Payment Date in the absence of a
redemption.
We will give notice of any exercise of our 1% Clean-up Call Right to the aÅected Holders 30 to
60 days before the redemption date. For each redemption, we will pay a redemption price equal to
100% of the unpaid principal amount of the Classes redeemed, plus interest for the related Accrual
Period. In the case of a Double-Tier Series, this price will be applied to retire the related Upper-Tier
Classes. An exercise of our 1% Clean-up Call Right will result in the retirement of all outstanding
related Classes, including any MACR Classes.
If a REMIC Pool includes a Callable Class of CPCs, we will not exercise our 1% Clean-up Call
Right if that Callable Class is to be redeemed.
For each optional redemption, we will adopt a liquidation plan that meets the requirements of a
""qualiÑed liquidation'' under Section 860F(a)(4) of the Code. This plan will allow us to liquidate
all of the Assets in the REMIC Pool, or the applicable Lower-Tier REMIC Pool in the case of a
Double-Tier Series, at fair market value as we determine, and apply the net proceeds of that
liquidation to pay the redemption price. If the proceeds are not suÇcient to pay the redemption
price, we will contribute the necessary funds. After any redemption, we will distribute any remaining
proceeds from the liquidation, net of expenses, to the Holders of the related Residual Class, upon
surrender of their CertiÑcates to the Registrar.
All decisions regarding the exercise of our 1% Clean-up Call Right, including its timing, will be
at our discretion. We will be under no obligation to any Holder to make or not make an optional
redemption, even if it would be in that Holder's interest. PCs and GNMA-Related Securities are
not redeemable.
Redemption of Callable Class Held by REMIC Pool
If the Assets of a REMIC Pool include a Callable Class of CPCs, we will adopt a liquidation
plan for that REMIC Pool if the Callable Class is redeemed. This plan will meet the requirements
of Section 860F(a)(4) of the Code, and will govern the liquidation of the REMIC Pool as a result
of the redemption of the Callable Class.
FORM, HOLDERS AND PAYMENT PROCEDURES
Form and Denominations
Fed System. Investors who own CertiÑcates held on the Fed System typically are not the
Holders of those CertiÑcates. Only banks and other entities eligible to maintain book-entry accounts
18
with a Federal Reserve Bank (""Fed Participants'') may be Holders of CertiÑcates held on the Fed
System.
CertiÑcates held on the Fed System are subject to the HUD regulations governing Freddie
Mac's book-entry securities (24 C.F.R. Part 81, Subpart H) and any procedures that Freddie Mac
and a Federal Reserve Bank may agree to. These regulations and procedures relate to the issuance
and recordation of, and transfers of interests (including security interests) in, all of Freddie Mac's
book-entry securities held on the Fed System, regardless of when the securities were issued. Fed
Participants' individual accounts are governed by operating circulars and letters of the Federal
Reserve Banks.
DTC System. DTC is a New York-chartered limited purpose trust company that performs
services for its participants (""DTC Participants''), mostly brokerage Ñrms and other Ñnancial
institutions. CertiÑcates held on the DTC System are registered in the name of DTC or its nominee.
Therefore, DTC or its nominee is the Holder of CertiÑcates held on the DTC System.
CertiÑcated Classes. CertiÑcated Classes, including Residual and Call Classes, are transferable only at the oÇce of the Registrar. A Holder may have to pay a service charge to the Registrar for
any registration of transfer of a certiÑcated Class, and will have to pay any transfer taxes or other
governmental charges.
CUSIP Number. Each Class of CertiÑcates has a unique nine-character designation, known
as a ""CUSIP Number,'' used to identify that Class.
Denominations. All Classes other than Retail, Call and Residual Classes are issued, held and
transferred in minimum original principal or notional principal amounts shown in the following table
and additional increments of $1. If a Class is of more than one type, its minimum is the greater of
the applicable minimum amounts shown.
Minimum Original
Principal or Notional
Principal Amount
Type of Class
Interest Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Principal Only ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-Sticky or Sticky Jump ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shifting Payment Percentage ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$100,000
100,000
50,000
50,000
1,000
A Holder of a CertiÑcate on the Fed System also has to comply with any Federal Reserve Bank
minimum wire transfer requirements. DTC holds each Retail Class in $1,000 Retail Class Units.
A Residual Class without an original principal amount or notional principal amount is issued in
minimum percentage interests of 1%. Other Residual Classes are issued in minimum original
principal or notional principal amounts of $1,000 and additional increments of $1.
Holders
A Holder of a CertiÑcate is not necessarily its beneÑcial owner. BeneÑcial owners ordinarily will
hold CertiÑcates through one or more Ñnancial intermediaries, such as banks, brokerage Ñrms and
securities clearing organizations. For example, as an investor, you may hold a CertiÑcate through a
brokerage Ñrm which, in turn, holds through a Fed Participant. In that case, you would be the
beneÑcial owner and the Fed Participant would be the Holder.
19
If your Class is held on the DTC System, your ownership will be recorded on the records of the
brokerage Ñrm, bank or other Ñnancial intermediary where you maintain an account for that
purpose. In turn, the Ñnancial intermediary's interest in the Class will be recorded on the records of
DTC (or of a DTC Participant that acts as agent for the Ñnancial intermediary, if the intermediary
is not itself a DTC Participant).
A Holder that is not also the beneÑcial owner of a CertiÑcate, and each other Ñnancial
intermediary in the chain between the Holder and the beneÑcial owner, will be responsible for
establishing and maintaining accounts for their customers. Freddie Mac and any Federal Reserve
Bank will not have a direct obligation to a beneÑcial owner of a CertiÑcate that is not also the
Holder. A Federal Reserve Bank or DTC will act only upon the instructions of the Fed Participant
or DTC Participant, as applicable, in recording transfers of a Class.
Freddie Mac, the Registrar, the Federal Reserve Banks and DTC may treat the Holder as the
absolute owner of a CertiÑcate for the purpose of receiving payments and for all other purposes,
regardless of any notice to the contrary. Your rights as a beneÑcial owner of a CertiÑcate may be
exercised only through the Holder.
Payment Procedures
Federal Reserve Banks credit payments on Classes held on the Fed System to the appropriate
Fed Participants.
We make payments on Classes held on the DTC System in immediately available funds to
DTC. DTC is responsible for crediting the payment to the accounts of the appropriate DTC
Participants in accordance with its normal procedures.
Each Holder of a certiÑcated Class may choose to have the Registrar make payments either by
check mailed to the address of the Holder shown on the Registrar's records or by electronic transfer
of funds to a bank account designated by the Holder. However, a Holder will receive the Ñnal
payment on a certiÑcated Class only upon presentation and surrender of the Holder's CertiÑcate to
the Registrar.
Each Holder and each other Ñnancial intermediary will be responsible for remitting payments
to the beneÑcial owners of a Class that it represents.
If a principal or interest payment error occurs, we may correct it by adjusting payments to be
made on later Payment Dates or in any other manner we consider appropriate.
MACR CERTIFICATES
In each Series that includes MACR CertiÑcates, we will issue the REMIC Classes shown on
the front cover of the related Supplement on the Closing Date. Some of those Classes may be
exchanged, in whole or in part, for MACR Classes at any time on or after the Closing Date. The
related Supplement will describe the characteristics of the MACR Classes and the available
""Combinations'' of REMIC CertiÑcates and MACR CertiÑcates.
The speciÑc Classes of REMIC CertiÑcates and MACR CertiÑcates that are outstanding at
any given time, and the outstanding principal or notional principal amounts of those Classes, will
depend on payments on those Classes and any exchanges that have occurred. Exchanges of REMIC
CertiÑcates for MACR CertiÑcates, and vice versa, may occur repeatedly. The total outstanding
20
principal amount of all the REMIC Classes and MACR Classes that are backed by the same
Assets, not including any notional principal amount, will always equal the total remaining principal
amount of the underlying Assets.
MACR CertiÑcates receive interest payments from their related REMIC CertiÑcates at their
applicable Class Coupons. On each Payment Date when MACR CertiÑcates entitled to principal
are outstanding, we allocate principal payments from the applicable REMIC CertiÑcates to the
related MACR CertiÑcates that are entitled to principal. If there are two or more outstanding
MACR Classes of the same Combination entitled to principal, they receive principal payments pro
rata. If the applicable REMIC CertiÑcates include an Accrual or Partial Accrual Class and a related
Accretion Directed Class, we allocate the net reduction in their aggregate principal amount to the
related MACR CertiÑcates.
Appendix III describes MACR CertiÑcates and exchange procedures and fees.
PREPAYMENT, YIELD AND SUITABILITY CONSIDERATIONS
PREPAYMENTS
General
The rates of principal payments on the Assets and the CertiÑcates will depend on the rates of
principal payments on the related Mortgages. Mortgage principal payments may be in the form of
scheduled amortization or partial or full prepayments. Prepayments include:
‚ Prepayments by the borrower.
‚ Liquidations resulting from default, casualty or condemnation.
‚ Payments made by Freddie Mac or GNMA under their guarantees of principal (other
than payments of scheduled amortization).
The Mortgages may be prepaid at any time, in most cases without penalty. We cannot make any
representation regarding the likely prepayment experience of the Mortgages underlying any REMIC
Pool.
Mortgage prepayment rates are likely to Öuctuate signiÑcantly over time. Prepayment rates are
inÖuenced by many factors, especially mortgage interest rates. In general, as mortgage interest rates
decline, borrowers tend to reÑnance their current mortgages, which results in faster prepayment
rates on a mortgage pool. On the other hand, as mortgage interest rates increase, borrowers tend not
to reÑnance their mortgages, which results in slower prepayment rates on a mortgage pool. Either of
these scenarios can aÅect the yield of your investment in a CertiÑcate, as discussed in more detail
below.
Transfers of mortgaged properties also inÖuence prepayment rates. The Mortgages underlying
Ñxed-rate PCs generally include ""due-on-transfer'' clauses which provide that the holder of the
Mortgage may demand full payment of the Mortgage upon the transfer of the mortgaged property.
Freddie Mac, in most cases, requires mortgage servicers to enforce these clauses where permitted by
applicable law. The PC OÅering Circular discusses this further. ARMs and Mortgages underlying
GNMA CertiÑcates generally do not include due-on-transfer clauses.
21
Our pooling criteria for PCs also may aÅect prepayment rates, as discussed in the PC OÅering
Circular. We use mortgage information available to us to determine which Mortgages we will
purchase, the prices we will pay for Mortgages, how to pool the Mortgages we purchase and which
Mortgages we will retain in our own portfolio. The information we use varies over time, and may
include, among other things, loan-to-value ratios, loan size and age, geographic distribution,
weighted average interest rate, purpose or source of origination, borrower median income and credit
scoring. We have discretion to determine whether the Mortgages we purchase will be securitized or
held in our portfolio.
The rate of principal payments on a PC may Öuctuate signiÑcantly from month to month as a
result of Öuctuations in the principal payment rates of its underlying Mortgages. A PC may
experience payment behavior that is similar to or diÅerent from that experienced by other PCs
backed by similar Mortgages. In addition, a PC could experience payment behavior that is
signiÑcantly diÅerent from other PCs, particularly if it is backed by a relatively small number of
Mortgages or Mortgages from only one originator, or if its pool has been formed speciÑcally to
emphasize one or more speciÑc loan characteristics, such as borrower income, credit rating or loan
size. We can make no representation concerning the particular eÅect that any factor may have on
Mortgage prepayment behavior, or the prepayment rates for any type of Mortgage as compared to
other kinds of Mortgages.
GNMA CertiÑcates are subject to prepayment uncertainty similar to that discussed above for
PCs.
Principal Payment Stability of Classes
The Mortgages and the CertiÑcates are subject to principal prepayment uncertainty. As we
describe in Supplements, some Classes of CertiÑcates, such as PAC Classes and other Classes that
receive principal payments in accordance with schedules, are expected to have a lower level of
prepayment uncertainty than their underlying Mortgages. These Classes have a degree of ""stability.'' Stability in one Class or group of Classes is always oÅset by instability in other Classes, such as
Support Classes. These types of Classes ""support'' the more stable Classes.
YIELDS
General
In general, your yield on any Class of CertiÑcates will depend on several variables, including:
‚ The price you paid for that Class.
‚ The rate of principal payments on the underlying Mortgages and Assets.
‚ The actual characteristics of the underlying Mortgages.
‚ In the case of a Floating Rate or Inverse Floating Rate Class, the levels of the
applicable Index.
‚ The payment priorities of your Class and the related Classes in the same Series.
‚ The Payment Delay of your Class.
‚ In the case of a Class backed by previously issued CertiÑcates, the payment priorities of
the Classes in the underlying Series.
22
‚ In the case of a Callable Class, whether a redemption of the underlying Asset occurs.
You should carefully consider the yield risks associated with the CertiÑcates, including these:
‚ If you purchase a Class at a discount to its principal amount and the rate of principal
payments on the underlying Assets is slower than you expect, you will receive payments
over a longer period than you expect, so the yield on your investment will be lower than
you expect. This is especially true for a Principal Only Class.
‚ If you purchase a Class at a premium over its principal amount and the rate of principal
payments on the underlying Assets is faster than you expect, you will receive payments
over a shorter period than you expect, so the yield on your investment will be lower than
you expect.
‚ If you purchase an Interest Only Class or any other Class at a signiÑcant premium over
its principal amount and there are fast principal payments on the underlying Assets, you
may not even recover your investment in that Class.
‚ If you purchase a Class that is backed by previously issued CertiÑcates, your yield will
be aÅected by the manner in which we allocate payments both in your own Series and in
the underlying Series.
‚ In general, the rate of Mortgage principal payments early in your investment has the
greatest eÅect on your yield to maturity. As a result, a negative eÅect on your yield
produced by principal payments at a higher (or lower) rate than you expect in the
period immediately following your purchase of a CertiÑcate is not likely to be oÅset by
an equivalent reduction (or increase) in that rate in later periods.
‚ Mortgages tend to prepay fastest when prevailing interest rates are low. When this
happens, you may not be able to reinvest your principal payments in comparable
securities at as high a yield.
Floating Rate and Inverse Floating Rate Classes
If you invest in a Floating Rate or Inverse Floating Rate Class, you should consider the
following additional risks:
‚ If you own a Floating Rate Class, Index levels lower than you expect could result in
yields lower than you expected, especially if the Class Coupon varies based on a
multiple of the Index. Also, the Class Coupon of your Class can never be higher than its
stated maximum rate, regardless of the level of the Index. If you own an Interest Only
Floating Rate Class, you may not even recover your investment if the level of the
applicable Index is low or Mortgage prepayments are fast.
‚ If you own an Inverse Floating Rate Class, Index levels higher than you expect could
result in yields lower than you expected, especially if the Class Coupon varies based on a
multiple of the Index. The Class Coupons of most Inverse Floating Rate Classes can fall
as low as 0%. If you own an Interest Only Inverse Floating Rate Class, you may not
even recover your investment if the level of the applicable Index is high or Mortgage
prepayment rates are fast.
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‚ When mortgage interest rates are generally low, which usually results in faster
prepayments, the applicable Index value may be high. On the other hand, when
mortgage interest rates are generally high, which usually results in slower prepayments,
the applicable Index value could be low. Either of these scenarios could result in a lower
than expected yield on your CertiÑcates.
‚ No Index will remain constant at any value. Even if the average value of an Index is
consistent with what you expect, the timing of any changes in that value may aÅect your
actual yield. In general, the earlier a change in the value of the applicable Index, the
greater the eÅect on your yield. As a result, a negative eÅect on your yield produced by
an Index value that is higher (or lower) than you expect early in your investment is not
likely to be oÅset by an equivalent reduction (or increase) in that value in later periods.
If you invest in a Floating Rate Class that is backed by ARMs, you should also consider the
following:
‚ If the Index levels used to adjust the interest rates of the ARMs are lower than you
expect, the yield on your investment could be lower than you expect.
‚ The interest rates on ARMs usually are subject to limits on the amount they can adjust
on each adjustment date. The total amount that an ARM can adjust may also be limited
by lifetime ceilings and, in some cases, lifetime Öoors.
‚ Interest rates for ARM PCs and ARM Giant PCs generally adjust monthly, based on a
weighted average of the interest rates on the underlying ARMs. The interest rates on the
underlying ARMs may adjust monthly, semi-annually, annually or at other intervals.
Moreover, there is a gap of several months from the publication of an applicable Index
value until the interest rate of an ARM PC or ARM Giant PC reÖects that value. As a
result, the interest rates of the ARM PCs and ARM Giant PCs in a REMIC Pool may
not fully reÖect current interest rates.
‚ Disproportionate principal payments, including prepayments, on ARMs that have
relatively low and high interest rates compared to the other ARMs in the same pool will
aÅect the level of the interest rates on the related ARM PCs and ARM Giant PCs, even
if the interest rates on those ARMs remain unchanged.
Callable Classes
If you invest in a Callable Class of CertiÑcates, you should consider the following additional
risks:
‚ A redemption of the underlying Callable Class of CPCs will be similar in its principal
payment eÅect to a full prepayment of all the related Mortgages.
‚ After your Callable Class becomes redeemable, its value is not likely to exceed, and
may be lower than, its redemption price.
‚ A redemption is most likely to occur when prevailing interest rates are low. In this
scenario, you may not be able to reinvest the redem
