Exchange Basics

  1. What is the Freddie Mac Gold PC Exchange?

    Freddie Mac will offer holders of 45-day, TBA-eligible and non-TBA-eligible Gold PCs and Giants the option to exchange their eligible 45-day securities for 55-day Freddie Mac securities and float compensation. For the TBA-eligible security exchanges, the 55-day corresponding security will be a Uniform Mortgage-Backed Security (UMBSTM) or Supers, while for non-TBA eligible exchanges, the corresponding security will be a 55-day Freddie Mac MBS or Giant MBS.

    Most elements of the new 55-day security received upon exchange will exactly match those of the PC or Giant being exchanged – most fundamentally, the cash flows of the 55-day security will ultimately be backed by the same loans as the original PC or Giant. Each new 55-day security will mostly have the same characteristics as the corresponding PC such as unpaid principal balance, pool factor, and weighted average coupon. The 55-day security will have a new CUSIP, prefix, pool number, and issuance date.

  2. Does Freddie Mac have more detailed information on exchanges that I can review?

    Yes, more details regarding exchange are available on the Gold PC Exchange webpage.

  3. Why is Freddie Mac offering an exchange?

    Freddie Mac is offering the exchange to promote liquidity in the 55-day TBA-eligible market. The exchange of non-TBA eligible securities for 55-day Freddie Mac MBS or Giant MBS will help provide greater consistency across Freddie Mac’s fixed-rate securities population. After the Single Security Initiative’s implementation, all new issue Freddie Mac Single Family fixed-rate securities will have a 55-day payment delay.

  4. Does an investor have to hold an entire 45-day Gold PC CUSIP to exchange?

    No, investors who exchange portions of a Gold PC will receive portions of the corresponding 55-day security in return. Each investor can decide to exchange his or her portion independently of other holders of the same PC. Investors can also exchange pieces of the same CUSIP over time – it is not necessary to exchange all at once.

  5. Does an investor need to exchange?

    No. Exchange transactions will be initiated at the option of investors and are not mandatory.

  6. How will an investor exchange?

    Freddie Mac plans to offer holders of exchange-eligible Gold PCs and Giant PCs the ability to choose between two exchange paths:

    • The Dealer-facilitated exchange path – Authorized exchange dealers submit exchange requests on behalf of investors, or for their own proprietary holdings, through Freddie Mac’s Dealer Direct® portal. The Dealer-facilitated path is expected to stay open for the foreseeable future.
    • The Direct-to-Freddie Mac exchange path – Investors exchange directly with Freddie Mac using Tradeweb to facilitate the exchange booking. Investors will be able to enter exchange transactions directly into Tradeweb’s interface or through their order management systems’ integration with Tradeweb. The Direct-to-Freddie Mac path is expected to be open for 3-5 years.
  7. Will an investor receive compensation for the difference in payment delay between the 45-day security and the new 55-day security?

    Yes, investors will receive a one-time payment that will be the approximate fair value compensation for the additional 10 days’ delay of the bond’s payment, or float compensation. For the Direct-to-Freddie Mac exchange path, this compensation will be paid through a one-time cash payment. For the Dealer-facilitated path, we anticipate the dealer will likely net the float compensation payment from the buy-back price of the 55-day security.

Preparing for Exchange

  1. When can an investor start exchanging? How long will the exchange offer be available?

    The exchange offer is expected to open broadly in May 2019, the month prior to the Single Security Initiative go-live.  May 7 will be the first day that exchanges can be booked, and the first exchange settlement will be May 17. Freddie Mac is conducting some small, controlled exchanges with its retained portfolio and with dealers prior to May to help make sure the exchange process is working smoothly.

    The Dealer-facilitated path is expected to stay open for the foreseeable future, while the Direct-to-Freddie Mac exchange path is expected to stay open for 3-5 years.

  2. What are ‘mirror’ securities?

    To facilitate exchanges, Freddie Mac is creating 55-day mirror securities on a one-for-one basis for all exchange-eligible 45-day PCs and Giants. The list of exchange-eligible 45-day securities can be found on the Cumulative 45-day to 55-day Exchange Activity File. These mirror securities, which are included in Freddie Mac’s Daily New Issue File as they are issued, will not be available for exchange until the official opening of the exchange offer in May 2019.

    Issuing mirror securities on a one-for-one basis for every exchange-eligible 45-day security may improve the speed and efficiency of exchange transactions, as well as maintain a consistent, one-to-one relationship between the eligible 45-day CUSIPs and their corresponding 55-day CUSIPs. Most security characteristics of the new 55-day securities will mirror their corresponding 45-day securities (e.g., issuance UPB and current factor). However, the mirror securities will have a new CUSIP, prefix, pool number, and issuance date. The 55-day security will ultimately be backed by the same collateral that backs the exchanged 45-day security. 

  3. How will an investor know what is available for exchange?

    As of May 2018, there were approximately 70,000 exchange-eligible CUSIPs. All non-ARM, 45-day PCs and Giants that are not 100% committed to a resecuritization can be exchanged. Freddie Mac will continue to issue 55-day mirror securities for Gold PCs as they are created until go-live, when Freddie Mac will cease issuing new Gold PCs. After Go-Live, Freddie Mac will continue to allow formation of 45-day Giants from existing 45-day PCs and Giants. In these instances, a new mirror will be issued for the new 45-day Giant.  Details on mirror securities and their corresponding 45-day Gold securities can be found in the Cumulative 45-day to 55-day Exchange Activity file.

  4. How will the market know what has been exchanged?

    Freddie Mac publishes several new exchange disclosures to facilitate tracking the outstanding supply across 45- and 55-day cohorts. These new disclosures are contained in three new reports – a Daily Exchange Activity report, a Cumulative Exchange Activity report and a Daily Level 1 (L1) report. Freddie Mac also provides tie-out tables so that market participants can verify their supply calculations against Freddie Mac’s disclosures. These disclosure reports can be found on the Exchange Data Files webpage.

  5. Will there be testing of the exchange processes before exchange launches?

    Yes, for the Dealer-facilitated exchange path, Freddie Mac is currently running the Dealer Direct Customer Test Environment. Please contact [email protected] to be included in the exchange dealer certification process.

    For the Direct-to-Freddie Mac path, Tradeweb opened customer testing in mid-March.

  6. Will Freddie Mac allow any early exchanges (before May 7)?

    Freddie Mac began “testing the pipes” in late March with a small number of controlled exchange transactions by our retained portfolio and after, by dealers. These transactions test the exchange-eligible product types and operational paths. Freddie Mac is reporting the results of these exchanges to the market. Further, the exchange disclosure reports reflect these transactions.

  7. Who should a stakeholder contact for support regarding exchange?

    Please direct general  questions related to exchange to Freddie Mac via email at [email protected] or via phone over the Freddie Mac Single Security Hotline at (800) 336-3672, option 1 (business partner), then option 2 (Single Security and/or exchange).  Once the exchange opens in May, questions about specific exchange transactions should be directed to [email protected].

  8. How will an exchange be treated for accounting and tax purposes?

    The Enterprises have received guidance from the SEC that it does not object to treatment of an exchange as a minor modification of the existing security. By concluding that the exchange is a minor modification, we believe that holders of the security will carry over the basis of their 45-day securities and recognize the cash compensation received for the 10-day delay in payment cycle as a basis adjustment on the 55-day Freddie Mac security they received. The Enterprises posted the SEC confirmation letter and companion document on their websites.

    The IRS published its Revenue Ruling 2018-24 regarding certain tax treatment of the Gold PC exchange. According to the ruling, the exchange of 45-day Gold PC securities for 55-day Freddie Mac mortgage-backed securities will not be taxable. The IRS did not rule on the taxability of the associated float compensation payment and is not expected to provide additional guidance on this topic.

    Investors must rely on their own tax and accounting advisors to determine the best course of action.

  9. Has Freddie Mac determined how it will treat the float compensation associated with the exchange offer? Should Gold PC holders who choose to exchange treat the float compensation payment the same way as Freddie Mac?

    Freddie Mac will treat the float compensation payment as a tax-free adjustment to the security basis. As such, for those investors that execute their exchange through the Direct-to-Freddie Mac path, Freddie Mac does not intend to report the payment as taxable income to the investor or to the IRS. However, Freddie Mac is not dictating to investors how they must treat the payment. Some investors may conclude, after consulting with their tax advisors, that the float compensation is taxable income when received.

    The tax treatment outlined above does not constitute tax advice. Each Gold PC holder who decides to exchange should make their own decision. Freddie Mac expects each counterparty to consult with their tax advisor as to how they should handle this transaction.

  10. Will Freddie Mac provide any tax reporting with regard to the float compensation payment?

    Because Freddie Mac will be treating this payment as a tax-free adjustment to the basis of the security price, we do not intend to report the payment as taxable income to the investor or to the IRS.

  11. Will Freddie Mac require the counterparty to provide IRS forms W-8 or W-9 during the exchange set-up approval process?

    Yes, Freddie Mac must have a valid W-8 or W-9 on file for each counterparty with whom we exchange – either a dealer or an investor. For the Direct-to-Freddie Mac path, a completed W-8 or W-9 will be collected by Freddie Mac as part of the customer setup process. Since dealers performing exchange via the Dealer-facilitated path are in most cases already approved to do business with Freddie Mac, they will not be required to re-submit W-8 and W-9 forms.

  12. Isn’t the W-8/W-9 used to determine tax withholding? Why does Freddie Mac require these forms if Freddie Mac is not withholding tax on the float compensation payment?

    Under applicable law, Freddie Mac is required to collect a W-8/W-9 on all counterparties with whom it does business.

  13. How will Freddie Mac receive the IRS Form W-8 / W-9?

    For the Direct-to-Freddie Mac path, Tradeweb will collect the appropriate tax documents as part of the Know Your Customer (KYC) and onboarding process.

    For the Dealer-facilitated path, a Dealer who is not already a Freddie Mac-authorized Dealer will submit their W-8 or W-9 as part of the approval and setup process.

  14. Can counterparties begin exchanging securities while the KYC and tax documents are being reviewed?

    No, the counterparty cannot enter into an exchange transaction until it has been approved to do business with Freddie Mac.

  15. How long will the approval process for the Direct-to-Freddie Mac path take?

    We anticipate that the process to obtain approval to use the Direct-to-Freddie Mac path should take approximately two to three weeks. Counterparties should plan accordingly.

  16. When can counterparties begin applying to use the Direct-to-Freddie Mac path through Tradeweb?

    The customer setup process through Tradeweb has begun; interested investors can contact Tradeweb at [email protected].

  17. Do investors have to be a Tradeweb customer to use the Tradeweb path?

    Investors do not have to be a Tradeweb customer to use the Tradeweb exchange path. Tradeweb will not charge investors a fee for conducting exchanges through the Tradeweb exchange path for the first three years of the exchange.

  18. What if an investor wants to exchange a 15-year 45-day Gold PC that is backed entirely by 10-year collateral?

    Concurrent with the opening of exchange, Freddie Mac will begin offering a 10-year TBA-eligible mortgage security, matching Fannie Mae. 45-day, 15-year, TBA-eligible Gold and Giant PCs that are 100% backed by 10-year collateral will be eligible for exchange into a 10-Year TBA Uniform Mortgage-Backed Security (UMBS, CN prefix). Please refer to the Freddie Mac 45-day Exchange-Eligible 15-year Securities xls listing for the 45-day securities that meet this eligibility criteria.

  19. How can a 55-day security be identified as a mirror security?

    Mirror securities are distinguished by pool numbers beginning with ‘Z’, along with the “SCR” designation in the Seller/Servicer disclosure field. Most characteristics of the new 55-day securities will mirror their corresponding 45-day securities (e.g., issuance UPB and current factor). However, the mirror securities will have a new CUSIP, prefix, pool number, and issuance date.

  20. Is there a list of CUSIPs for the 45-day securities that can be exchanged?

    A list of previously issued mirror securities and their corresponding Gold PCs can be retrieved through the Cumulative 45-day to 55-day Exchange Activity report on the Freddie Mac website. Enter today’s date to view and download the most recent report.

  21. When will Freddie Mac issue mirror securities?

    The initial mirror security issuance period was completed in October 2018. Exchange-eligible 45-day securities issued between the initial mirror security issuance period and the Single Security Initiative go-live are being  mirrored prior to go-live. Until the exchange offer commences, all mirror securities will be held in a Freddie Mac account at the New York Federal Reserve bank.  Freddie Mac will continue to issue mirrors as needed after the Single Security go-live.  Mirrors issued after June 3, 2019, will correspond to Giant PCs that may be formed after June 3 from existing 45-day Gold PCs.

  22. What do investors need to do to prepare for exchange of a 45-day security for a 55-day security?

    First, investors should understand the features and benefits of both exchange paths, determine which path(s) they prefer to use, and complete the setup for the selected path(s).

    For the Dealer-facilitated path, investors need to ensure they have the appropriate agreements in place, with the dealer as the counterparty and all required Know Your Customer information completed. Investors will need to make sure exchanges can be appropriately identified by their systems and their custodian’s systems. Investors are strongly encouraged to use SWIFT tags to flag the transactions as exchanges so that the appropriate accounting and tax processes will run correctly.
    For the Direct-to Freddie Mac path, investors are required to establish Freddie Mac as a counterparty, supply appropriate KYC documentation to Tradeweb as needed (Tradeweb will perform KYC on Freddie Mac’s behalf), and provide a settlement contact to Freddie Mac. As in the dealer path, investors need to make sure exchanges can be appropriately identified by their systems, their custodiansand by their accounting and tax systems.

Executing an Exchange

  1. How many exchanges can Freddie Mac handle in a day? Is there a limit to the number of exchanges that can be completed in a day?

    Freddie Mac expects the maximum available capacity on a given day will be 50,000 exchanges for the Dealer-facilitated and Direct-to-Freddie Mac exchange paths, combined. Some additional capacity may be made available if necessary. For capacity purposes, an “exchange” is an individual CUSIP or piece of a CUSIP. Par amounts greater than $50 million will take up more than one unit of capacity, per Fedwire limits. When exchange begins, Freddie Mac has planned for a 3-6 month transition period to allow all market participants to ensure the exchange operates smoothly. During this time, exchange capacity will be less than 50,000, and will actively be monitored to determine when and how quickly volume can be increased.

  2. Will there be blackout dates for exchanges?

    Yes, there will be blackout dates for settlement: the first 5 business days of each month, Reg A Settlement day, Reg B Settlement day, the REMIC collateral delivery day (EOM-2), and standard bank holidays. In the Tradeweb path, no exchanges can be booked for the first 4 business days of the month or the last business day of the month.

  3. How will investors know which dealers they can work with to exchange?

    Freddie Mac has published lists of dealers approved to do various transactions with us, including exchanges.

  4. What should dealers do to be able to perform exchanges?

    Complete the certification process. Dealers may begin that process by emailing [email protected] to opt in. They will receive Freddie Mac’s dealer exchange agreement and information about obtaining credentials and testing.

  5. How will the Direct-to-Freddie Mac path work?

    Investors will initiate the exchange transaction in their order management system (OMS) or directly in Tradeweb. Once submitted, Tradeweb will provide exchange data, including the settlement date and float compensation to be paid, in their “List Trade” format for the investor to review. Once the investor agrees to the exchange transaction details, Tradeweb will confirm the exchange transaction, which will be free delivery, with Freddie Mac, and send a confirmation back to the investor in a standard FIX message format. Freddie Mac will perform the settlement and wire the float compensation payment to the investor on the settlement day.

    Additional details regarding the exchange path can be found in the Market Adoption Playbook. Stakeholders may also contact Tradeweb directly with questions at [email protected].

  6. Can investors exchange some Gold PCs or Giants via the Direct-to-Freddie Mac path and others via the Dealer-facilitated path?

    Yes, both exchange paths will be open for all exchange-eligible securities.

  7. Can investors exchange TBA-eligible and non-TBA-eligible securities?

    Yes, all Freddie Mac fixed-rate 45-day PCs and Giants not 100% committed to a resecuritization may be exchanged. Holders of TBA-eligible securities will receive 55-day UMBS or Supers in the exchange, while holders of non-TBA-eligible securities will receive a Freddie Mac 55-day non-TBA-eligible MBS or Giant MBS.

  8. Can investors exchange a Giant PC?

    Yes. Please refer to the list of exchange-eligible securities to determine if the specific security is eligible to be exchanged.

  9. Can investors exchange ARM PCs, ARM Giant PCs, or REMIC classes?

    No, these securities are not exchange eligible.

  10. Will Fannie Mae have an exchange offer?

    No, Fannie Mae TBA-eligible-securities will not need to be exchanged. The Fannie Mae TBA-eligible MBS will be fungible with UMBS.

  11. Will Freddie Mac charge an exchange fee?

    No, Freddie Mac will not charge a fee for exchanges.

  12. Will dealers charge an exchange fee?

    Some dealers have said they don’t expect to charge a fee to execute an exchange; however, investors should consult their dealer(s) to understand any costs or fees associated with exchanging through them.

  13. Where are exchange disclosures located?

    The disclosure reports, along with their descriptions,  can be found on the Exchange Data Files webpage. The disclosure files include the Cumulative 45-day to 55-day Exchange Activity file, Daily 45-day to 55-day Exchange Activity file and the Aggregate Level 1 Collateral Exchange Activity File.  Freddie Mac will soon begin posting an Outstanding Supply Report.

  14. How long does it take to exchange? Is this a T+1 transaction or longer? Will there be a transition period?

    Freddie Mac has built the exchange process to support T+1 settlements, and that will be the standard timing. However, when the exchange window opens in May 2019 and for a period of perhaps 3-6 months following, exchanges will settle T+2. Freddie Mac’s goal is to ensure a smooth transition for all exchange stakeholders, so we will moderate the timing and volume of exchange transactions for several months. This will allow the market and Freddie Mac to prepare and become accustomed to the exchange process.

  15. How far in advance can investors book an exchange?

    Through the Dealer-facilitated path, exchange settlements may be booked for the current or following month. Investors using the Direct-to-Freddie Mac path will be able to book for the current month only.

  16. What if investors decide to cancel an exchange after it has been booked?

    For both exchange paths, exchanges can be cancelled if needed until noon on the business day prior to settlement date. There will be no charge or penalty for cancelled exchanges.

  17. Can investors make changes to an exchange transaction after it has been booked?

    For the Dealer-facilitated path, dealers will be allowed to make any of the following modifications after an exchange transaction has been agreed to (and before noon on the business day prior to settlement date):

    • Change the settlement date
    • Cancel the transaction
    • Remove exchange line items from a transaction

    In the Dealer-facilitated path, cancelled full or partial exchange transactions can be automatically rebooked for the next available settlement day.

    For the Direct-to-Freddie Mac path, investors will only be able to cancel exchange transactions after they have been agreed to (and before noon on the business day prior to settlement date). If investors wish to change the settlement date or remove collateral from a booked exchange transaction in this path, they will need to cancel the entire list trade and begin the exchange transaction anew.

  18. What will happen on settlement day?

    All eligible PCs and Giant PCs to be exchanged must be delivered to Freddie Mac by noon Eastern time on settlement day. Freddie Mac will process all eligible exchanges, up to the pre-confirmed daily capacity, as they come in, and return the corresponding 55-day securities promptly, usually within minutes. If collateral is delivered after noon Eastern time, Freddie Mac will use best efforts to settle the exchanges. Freddie Mac cannot process any exchanges for collateral delivered after 1 pm Eastern time. Freddie Mac expects that cash wires for float compensation will be sent to the dealer or investor, depending on the path selected, between 4-6 pm on settlement day.

  19. What happens if a portion of the exchange transaction fails?

    For the Dealer-facilitated path, if any portion of the exchange transaction fails on the settlement date, only the part of the transaction that corresponds with that line item will fail. The failed line item will automatically be rebooked by Dealer Direct to the next business day with available capacity, no less than two days out.

    For the Direct-to-Freddie Mac path, each exchange/transaction will succeed or fail on an individual basis; there are no partial fails permitted in this path There is no auto-rebooking of failed exchanged transactions on settlement day. If the exchange transaction fails, the investor should book a new exchange transaction if they still wish to exchange.

  20. Can an exchange transaction be reversed once it has been settled?

    No, exchanges are not reversible.

  21. Can investors roll a 45-day position into a 55-day UMBS without exchanging? How will Fannie Mae MBS trades be impacted?

    Absent an exchange of their 45-day security, holders of Freddie Mac Gold PC rolls that wish to roll the position into Freddie Mac 55-day UMBS will need to close the position, by either pairing off the position, or taking delivery of the 45-day Freddie Mac PCs, or roll the position by selling Freddie TBA and buying UMBS TBA. Note that the decision to roll from 45-day into 55-day UMBS must be worked out with the trade counterparty. If investors wish to continue rolling their Gold PC positions, they may do so as long as there is a market for them.

    Based on conversations with market participants, Freddie Mac does not expect there to be different haircuts for the 45-day security and the 55-day security. Investors that need to roll Fannie Mae MBS positions from May to June should have no problems doing so; Fannie Mae MBS will be fungible with UMBS at go-live.

    See the following chart for more details.

    Trade Type

    Transaction Date

    To Close Position

    To Roll Position

    FNCL Sale - Fannie Mae MBS

    Before Implementation (March 2019 trade, April 2019 settle)

    Pair off position or deliver Fannie Mae MBS

    May 2019 TBA 01F

    Before Implementation (April 2019 trade, May 2019 Settle)

    Pair off position or deliver Fannie Mae MBS

    Roll position by selling May 2019 Fannie Mae 01F TBA and buying June 2019 01F UMBS TBA*

    FNCL Sale - UMBS*

    During Implementation
    (May 2019 trade, June 2019 settle)

    Pair off position or deliver UMBS

    Roll position with UMBS TBA* (Sell June 2019 UMBS TBA – buy July 2019 UMBS TBA)

    After Implementation
    (June 2019 trade, July 2019 settle)

    Pair off position or deliver UMBS*

    Roll position with UMBS TBA* (Sell July 2019 TBA – buy Aug 2019 TBA)

    FGLMC Sale – Freddie Mac PCs

    Before Implementation
    (March 2019 Trade, April 2019 settle)

    Pair off position or deliver 45-day Freddie Mac PCs

    Roll short position with Freddie Mac TBA 02R

    Before Implementation
    (April 2019 Trade, May 2019 settle)

    Pair off position or deliver 45-day Freddie Mac PCs

    Roll position by selling May 2019 02R  Freddie TBA and buying June 2019 UMBS TBA 01F*

    During Implementation
    (May 02R 2019 trade, June 2019 01F settle) *

    Pair off position or deliver 45-day Freddie Mac PCs

    Roll position by selling June 2019 01F TBA – buy July 01F 2019 TBA

    After Implementation
    (June 2019 01F trade, July 2019 01F settle)

    Pair off position or deliver 45-day Freddie Mac PCs

    Roll position by selling July 2019 01F TBA – buy August 01F 2019 TBA

    * UMBS TBA contracts may be satisfied by delivery of existing Fannie Mae MBS or new Fannie Mae-issued UMBS, legacy Freddie Mac PCs that have been exchanged for their 55-day mirror securities, new issue 55-day Freddie Mac-issued UMBS, and single-issuer or commingled Supers issued by either Enterprise. These securities trading groupings may be impacted by SIFMA decisions regarding TBA fungibility.

  22. Can investors exchange their Gold PCs if they are on repo?

    Investors must have the securities in their possession to exchange them. For securities on repo, investors may need to substitute the pledged collateral to retrieve the securities/CUSIPs to exchange. 

  23. Can an investor exchange multiple Gold PCs for a Supers in one transaction?

    No, an investor cannot perform an exchange with multiple PCs and create a Supers in one transaction. The investor could exchange their Gold PCs for corresponding UMBS; this may occur over multiple transactions based on the number of PCs to be exchanged. Then the investor could resecuritize these UMBS into a Supers in a separate transaction.

  24. How much time is needed to exchange and then form a Supers or a REMIC?

    Investors who want to exchange their collateral before delivery into a Supers or Giant MBS should allow a minimum of one extra day in their timeline – and two extra days during the initial market transition period. Investors will need to complete the exchange and then redeliver the 55-day security into the Supers or Giant MBS. For a REMIC, investors will need to allow a minimum of two extra days to their schedule, and three extra days during the market transition period. Investors will complete the exchange and then redeliver the 55-day security for the REMIC (T+2).

Float Compensation

  1. How will Freddie Mac calculate the float compensation payment?

    Freddie Mac will provide a one-time cash payment for the 10 days’ delay in payment when an investor exchanges 45-day securities for 55-day securities. Freddie Mac expects to offer a schedule of float compensation payment rates that will be informed by fair value, with at least one payment rate for every term and coupon combination. Freddie Mac will generally calculate float compensation rates using a constant OAS methodology and may leverage a combination of internal and third-party models. Payment rates will be expressed in ticks, with the cash payment calculated as the payment rate multiplied by the UPB of the exchanged securities. Payments offered to market participants could differ from model values and Freddie Mac reserves the right to change payment rates at any time, in its discretion.

    At times Freddie Mac mayoffer payment adjustments (pay-ups) to the float compensation rate for pools that have certain characteristics that may have a material impact on the value of the exchange float compensation payment. We expect these pay-ups will be added to the base compensation rate based on the term and coupon of the security to determine the final payment rate for the security. These adjustments could result in an increase or a decrease in float compensation payment rates.

  2. How will the float compensation payment be received?

    The exchange float compensation payment will be provided through a one-time cash payment on the exchange settlement day. For the Dealer-facilitated path, because it is a DVP transaction between the dealer and the investor, Freddie Mac believes most dealers will net the float compensation payment from the buy-back price of the 55-day security. For the direct-to-Freddie Mac path, Freddie Mac will make the float compensation payment to the investors.

  3. Where can investors find the amount of float compensation they would receive?

    Freddie Mac regularly publishes indicative price grids for exchanges. These can be found here in several file formats. Freddie Mac also has a Float Compensation Calculator that displays the float compensation to be paid based on specific CUSIPs entered in the tool and the most current price grid. The exact value of the float compensation payable to an investor in any specific exchange transaction will be communicated to the investor as part of the applicable exchange confirmation.

  4. The price grid shows a column for incentives – will Freddie Mac pay to encourage more exchanges?

    At this time, Freddie Mac does not intend to make any incentive payments to promote exchanges.

Exchange in the Market

  1. Are exchanges TRACE reportable?

    FINRA has stated that a member’s facilitation of an exchange of a 45-day Freddie Mac PC or Giant PC for a 55-day security is not reportable under Rule 6730 as long as the prices of the 45-day and 55-day securities used in the exchange only reflect and pass through the float compensation provided by Freddie Mac. For more information, reference the FINRA TRADE FAQ page, specifically question 3.112.

  2. How does Freddie Mac expect exchanged securities to trade?

    Freddie Mac expects its mirror securities, received upon an exchange, to trade at similar prices to comparable Fannie Mae-issued UMBS.

Exchange Market Transition

  1. How will Freddie Mac ensure that the exchange process works smoothly?

    For the first 3 to 6 months of the exchange offering, Freddie Mac will only allow T+2 settlements for exchange. Also, Freddie Mac will limit the daily exchange volume to make sure all transactions can be executed in the allotted time. Freddie Mac plans to ramp up the daily volume gradually as the market gains experience with the process. We want to ensure that both operational paths are working as expected, and that all parties – investors, dealers, custodians, and Freddie Mac – are able to effectively manage exchanges.

  2. How will the market know when the transition period is over?

    Freddie Mac will closely monitor exchange activity during the transition period.  We expect to report out to the market on how the transition is progressing and will publicly announce the end of the transition period well in advance.  Once we complete the transition period, we will move to the T+1 settlement schedule and the full allowable volume of 50,000 exchanges per settlement day.

This is not an offer to buy or sell any Freddie Mac securities. Offers for any given security are made only through applicable offering circulars and related supplements, which incorporate Freddie Mac’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC); all other reports Freddie Mac files with the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act), excluding any information "furnished" to the SEC on Form 8-K; and all documents that Freddie Mac files with the SEC pursuant to Sections 13(a), 13(c) or 14 of the Exchange Act, excluding any information “furnished” to the SEC on Form 8-K.

The financial and other information contained in this FAQ document and in the documents that may be accessed through this FAQ document speaks only as of the date of those documents. The information could be out of date and no longer accurate. Freddie Mac undertakes no obligation, and disclaims any duty, to update any of the information in those documents.

These materials may contain forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond the company’s control. Management’s expectations for the company’s future necessarily involve a number of assumptions, judgments and estimates, and various factors could cause actual results to differ materially from the expectations expressed in these and other forward-looking statements. These assumptions, judgments, estimates and factors are discussed in the company’s Annual Report on Form 10-K, and its reports on Form 10-Q and Form 8-K, which are available on the Investor Relations page of the company’s Web site at and the SEC’s website at The company undertakes no obligation to update forward-looking statements it makes to reflect events or circumstances occurring after the date of this FAQ document.