Mike May's Speech at the MBA Commercial Real Estate Finance Conference on February 5, 2007

Prepared Remarks for Mike May
Senior Vice President of Multifamily Sourcing

MBA Commercial Real Estate Finance Conference
Freddie Mac Session
San Diego, California
February 5, 2007

Good morning and welcome to the Freddie Mac session.

It's great to see so many familiar faces. There is a lot of competition for your time, so I'm glad you could join us. I hope everyone has recovered from the Super Bowl party last night. If not, I understand why you're sitting in the back. I won't take it personally.

Let me shift the focus from the football field to the marketplace. I'll talk for about 15 minutes. We'll have quick updates from Mitch Kiffe, Mike McRoberts and Kim Griffith. But we want to leave time for the best part - our annual awards ceremony.

Let me open things up by talking about 2006, and what we have in store this year.

2006 was my first year operating without a net, without Adrian Corbiere. He handed me a business that was coming off a record year in 2005. And continuing that high level of performance could have been intimidating.

But our staff really elevated their game, and we produced some great results. In 2006, we once again purchased record volumes - 10 percent more. We purchased $14 billion in mortgages and bonds, and the same in CMBS.

We made strong contributions to affordable housing. Through surveys, you said we did a much better job at the transaction level. And we introduced new products such as high-leverage loans.

All throughout, we kept our portfolio quality high, and risk exposure low.

Together, we proved that when you satisfy the customer, good things follow. In fact, I'm privileged to work with such a great group of professionals, both inside and outside Freddie Mac. And you have my thanks for a great year.

With all these good results, you might wonder if the year ahead will be more of the same. Actually, the answer is "no."

We're facing even greater expectations, both by the market and by Freddie. Freddie's management has told us to grow the Multifamily business, and grow it a lot.

The message from the market is equally clear. Our traditional business is mature and near capacity. Growth is coming from segments and processes where conduits are more competitive - areas like higher-risk, higher-leverage loans.

Clearly, the market is moving, and we need to move with it. Add to that even tougher affordable housing goals, and we have one heck of a year ahead.

And that's why we cannot stand still.

Many of you have heard me talk about our game plan for growth: Build a securitization model that complements the excellent capabilities we have in portfolio funding.

That means developing alternate executions to penetrate new segments. And it means shoring up our competitiveness in the traditional business. We cannot choose to do one or the other - we need to do both. We must evolve into new areas, not merely enhance what we already have.

Accordingly, we have begun to implement a series of initiatives. We have paired up with other capital providers to expand our credit bucket. We have experimented with credit sales to develop capital-market capabilities. And in some cases, we have delegated standard underwriting to customers.

These are all key components in our move to alternate executions. And last year, we purchased $2.5 billion in these alternate executions.

Progress, yes - but not enough. By now, I had hoped we'd be through a transition, but that isn't the case.

At the end of the day, we need to be a fully functioning capital markets operation…one that manages a much wider range of risks…easily executes whichever funding path works best…captures a greater share of the market…and satisfies the customer as never before.

But at a time when we should be swimming laps, we are still in the baby pool. So we have a lot of practicing to do.

To move us along faster, we have taken action. Most visible among them: Creating a new organizational structure. To date, our structure had relied too heavily on single-points of support across all areas of the business. This approach had several weaknesses.

It limited how well we supported current customers. It built in capacity constraints. It kept us in a reactionary mode, with no long-term planning. And it made us conservative, raising barriers to credit expansion.

Put another way, our structure limited our ability to grow. Our new structure aims to change all that.

By separating key functions - such as production, underwriting and product development - we are now better positioned for success. Rather than giving customers a single person who is a generalist to support your needs, now we're giving you an entire team of specialists.

This is a model that works in many areas of business and competition.

For instance, take the world's best athlete in the decathlon, Roman Sebrle. He is outstanding in all 10 events. But his 100-meter is 10 percent slower than the record holder. His discus throw is only 2/3 of the world champion. And his pole vault is a full meter below the record holder there.

So Roman proves that specialists - working together as a team - can and will produce better results than a single outstanding individual. And that is what we are going to do at Freddie Mac.

We're organizing into three major areas: transactions, strategy, and business management. And we aim to deliver better results in all three.

We now have Transaction specialists in Sales, affordable and underwriting - all of whom are more available to you, and as advocates for your needs. We have Strategy folks who can help both of us. They can better anticipate where the market is going, and then build products for success.

And we have Business Managers who will provide world-class management of our daily operations, assets and processes. What's more, we're aligning with Freddie's capital-markets operation, so we can leverage that power for your benefit.

I'm confident that our approach will lift our performance across the board.

If it's turn-around times you're looking for, they will be faster. If it's product variety you value, you'll have more of it. If it's new markets you want to enter, we'll have solutions for you.

With the organizational issue resolved, we now have a clear eye on the year ahead and beyond. 2007 sets up to be a critical year for us.

It is a year when we need to further improve the Program Plus model. You'll see us speed turn-around times, automate more processes, and eliminate non-valued added work.

It is also a year when we must expand our product suite.

Lastly, 2007 is a year when we must make sizeable gains in alternate executions. Partnering with more third-party sources of capital. Supporting more market segments such as small loans. Mitch, Mike and Kim will have more to say in these areas.

And at the end of the year, volumes might turn out to be about the same. But if we execute on our plan, we'll be in a stronger position for the long run.

So we have a big year in store for you. And I'm upbeat about our chances. We've got the right plan - to expand our business model. We have the right people - the Freddie Mac staff. And we definitely have the right customers - each one of you.

Will we have roadblocks along the way? I'm sure we will. After all, Freddie still needs to complete work on financial reporting and controls. And that work limits the speed at which we can move in Multifamily.

But solving problems, removing roadblocks…that's what makes this job great. Because when our staff makes things better for a customer, I go home at night with a big smile. Fortunately, I had lots of those days last year. And I'm looking forward to even more this year.

Thanks for your business, and thanks for listening.