Litigation Release No. 20304 / September 27, 2007

Accounting and Auditing Enforcement Release No. 2728 / September 27, 2007

SEC v. Federal Home Loan Mortgage Corporation, et al., Case No. 07-CV-1728 (U.S.D.C., D.D.C) (filed September 27, 2007)

Freddie Mac and Four Former Executives Settle SEC Enforcement Action in Connection With Multi-Billion Dollar Accounting Fraud

On September 27, 2007, the Securities and Exchange Commission filed a settled enforcement action charging the Federal Home Loan Mortgage Corporation ("Freddie Mac"), a shareholder-owned government-sponsored enterprise, with securities fraud in connection with improper earnings management that occurred from at least the second quarter of 1998 through and including the third quarter of 2002. The SEC's settled action also charged the following former Freddie Mac executives: David W. Glenn ("Glenn"), its former President, Chief Operating Officer, and Vice-Chairman of the Board; Vaughn A. Clarke ("Clarke"), its former CFO; Robert C. Dean ("Dean"), a former Senior Vice President; and Nazir G. Dossani ("Dossani"), a former Senior Vice President.

The SEC's Complaint alleges that Freddie Mac engaged in a fraudulent scheme that deceived investors about its true performance, profitability, and growth trends, and that in 2000, 2001 and 2002 the Company misreported its net income in each of those years by 30.5%, 23.9% and 42.9%, respectively. As outlined in the Commission's Complaint, Freddie Mac's senior management exerted consistent pressure to have the Company report smooth and dependable earnings growth and to present investors with the image of a company that would continue to generate predictable and growing earnings. The Company's violations were the direct result of this corporate culture that placed great emphasis on steady earnings, and a senior management that fostered a corporate image that was touted as "Steady Freddie" to the marketplace

Among the violative conduct alleged in the Complaint was the use of certain transactions to nullify the transitional effects of the Company's implementation of accounting standard SFAS 133(which relates to accounting for derivative instruments and hedging activities); the improper change in valuing the Company's "swaptions" portfolio at year-end 2000; the improper use of derivatives to shift earnings between periods; the improper use of a reserve in connection with the Company's application of SFAS 91 (which relates to accounting for loan origination costs); the use of certain transactions to nullify the effects of an accounting pronouncement known as Emerging Issues Task Force Issue 99-20; and the maintenance and reporting of a reserves for losses on loans materially in excess of probable losses.

In its settlement with the Commission, Freddie Mac agreed, without admitting or denying the allegations, to the entry of a final judgment that permanently enjoins the Company from violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act, which are anti-fraud provisions of the federal securities laws. Freddie Mac also agreed to pay a $50 million civil penalty, which is expected to be distributed to injured investors through a Fair Fund. Without admitting or denying the allegations in the Commission's Complaint, Glenn, Clarke, and Dossani agreed to the entry of a final judgment that permanently enjoins them from violating Sections 17(a)(2) and (3) of the Securities Act. In a separate proceeding, Dean consented to the entry of a Commission Order requiring the he cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act. Additionally, Glenn, Clarke, Dossani and Dean agreed to respectively pay civil penalties of $250,000, $125,000, $75,000, and $65,000, as well as $150,000, $29,227, $61, 663, and $34,658 in disgorgement.

SEC Complaint in this matter; Administrative Proceeding 33-8850