Price to Public (1) % $99,765,625

Transcription

1 OFFERING CIRCULAR SUPPLEMENT (to Offering Circular Dated September 13, 1995) $100,000,000 Federal Home Loan Mortgage Corporation 6.65% Fixed Rate Debentures Due 2003 Redeemable in accordance with amortization procedures, commencing April 28, 1996 The 6.65% Fixed Rate Debentures Due 2003 (the "Debentures") are unsecured general obligations of the Federal Home Loan Mortgage Corporation ("Freddie Mac") offered pursuant to Freddie Mac's Debentures, Medium-Term Notes and Discount Notes Offering Circular dated September 13, 1995 (the "Offering Circular"). The Debentures will have the terms and characteristics set forth in the Offering Circular and in this Offering Circular Supplement. Capitalized terms used herein and not otherwise defined herein have the meanings given them in the Offering Circular. This Offering Circular Supplement should be read in conjunction with the Offering Circular and Freddie Mac's Mortgage Participation Certificates Offering Circular dated September 1, 1995, and with Freddie Mac's Information Statement dated March 31, 1995, its Information Statement Supplements dated May 18, 1995, August 15, 1995, November 15, 1995 and January 31, 1996 and any other supplements to such Information Statement. See "Availability of Information and Incorporation by Reference" in the Offering Circular. The Debentures will be subject to redemption, prior to their Maturity Date, in whole or in part, on the 28th day of each month, commencing April 28, 1996, (each, a "Payment Date") on the basis of the Amortization Reference Rate set forth in the Amortization Determination Table, each as described under "Redemption" herein. Pursuant to the amortization procedures, on each monthly Amortization Determination Date (as defined herein), the Amortization Reference Rate will be derived from the One-Month PSA Rate (as defined herein) for the aggregate outstanding 30-year Freddie Mac Gold 8% Mortgage Participation Certificates issued in 1992 (the "Reference Pool A003"). See "Redemption" and "Certain Investment Considerations" herein. Per Debenture Total Price to Public (1) % $99,765,625 (1) Plus accrued interest, if any, from March 28, (2) Before deducting expenses payable by Freddie Mac estimated at $5,000. Underwriting Discount.125% $125,000 Proceeds to Freddie Mac (1)(2) % $99,640,625 THE DEBENTURES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN PARTICULAR, NO INVESTOR SHOULD PURCHASE THE DEBENTURES UNLESS THE INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT AND REINVESTMENT RISK ASSOCIATED WITH MORTGAGE SECURITIES AS WELL AS THE ASSOCIATED REDEMPTION, MARKET, LIQUIDITY AND YIELD RISKS OF AN INVESTMENT IN THE DEBENTURES. VARIATIONS IN THE RATE OF REDEMPTION OF THE DEBENTURES MAY BE SIGNIFICANT AND MAY HAVE A SIGNIFICANT EFFECT ON THE WEIGHTED AVERAGE LIFE OF THE DEBENTURES. SEE "CERTAIN INVESTMENT CONSIDERATIONS" IN THIS OFFERING CIRCULAR SUPPLEMENT AND IN THE OFFERING CIRCULAR. THE DEBENTURES ARE OBLIGATIONS OF FREDDIE MAC ONLY. THE DEBENTURES, INCLUDING ANY INTEREST THEREON, ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE DEBTS OR OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES OTHER THAN FREDDIE MAC. INCOME ON THE DEBENTURES HAS NO EXEMPTION UNDER FEDERAL LAW FROM FEDERAL, STATE OR LOCAL TAXATION. THE DEBENTURES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE EXEMPTED SECURITIES WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF Lehman Brothers Offering Circular Supplement Dated March 21, 1996

2 2 DESCRIPTION OF THE DEBENTURES Principal Amount: $100,000,000 Issue Date: March 28, 1996 Latest Maturity Date: March 28, 2003 Interest Rate: Payment of Interest: 6.65% per annum Monthly, in arrears, on the 28th day of each month, commencing April 28, 1996, on the principal amount of the Debentures outstanding as of the close of business on the preceding Payment Date, computed on the basis of a 360- day year consisting of twelve 30-day months, in accordance with the Business Day Convention (as described herein) Redemption: On any Payment Date beginning April 28, 1996, Freddie Mac will, upon notice of 10 Business Days, redeem the Debentures, in whole or in part, on the basis of the Amortization Reference Rate set forth in the Amortization Determination Table, each as described under "Redemption" herein and will redeem the Debentures in whole if less than 10% of the original principal amount of the Debentures would be outstanding on the applicable Payment Date after giving effect to the principal payment made on such Payment Date. Pursuant to the amortization procedures, on each monthly Amortization Determination Date, Freddie Mac will determine an Amortization Reference Rate on the basis of the One-Month PSA Rate applicable to Reference Pool A003 Reference Pool A003: Payment of Principal: As set forth in "Redemption" herein, on any Amortization Determination Date, Freddie Mac will refer to information set forth on Bloomberg page FMAC A003 regarding Reference Pool A003 At maturity, subject to prior redemption as described herein Minimum Principal Amounts: Debentures will be issued and must be maintained and transferred in minimum original principal amounts of $5,000 and additional increments thereof CUSIP Number: 3134A0ZM7

3 3 INTEREST PAYMENT TERMS The Debentures will bear interest at the fixed rate specified above. Interest will be paid monthly, in arrears, on the 28th day of each month, commencing April 28, Interest will be calculated based upon the amount of principal of the Debentures outstanding as of the close of business on the preceding Payment Date. No interest on the principal of the Debentures will accrue on or after the Payment Date. on which such principal is redeemed. The Debentures will bear interest from and including the most recent Payment Date or, if no interest has been paid in respect of the Debentures, from and including the Issue Date of the Debentures to but excluding the applicable Payment Date, (each such period, an "Interest Period"). Interest on the Debentures will be computed on the basis of a 360-day year consisting of twelve 30-day months. Business Day Convention In any case in which a Payment Date is not a Business Day, payment of any interest on or the principal of the Debentures will not be made on such date but will be made on the next Business Day with the same force and effect as if made on such Payment Date. No interest on such payment will accrue for the period from and after such Payment Date to the date of such payment. As used herein, "Business Day" means any day other than (a) a Saturday, (b) a Sunday, (c) a day on which the Federal Reserve Bank of New York is authorized or obligated by law or executive order to remain closed or (d) as to any Holder, a day on which the Federal Reserve Bank at which such Holder's account is maintained is authorized or obligated by law or executive order to remain closed. REDEMPTION Amortization Procedures The Debentures will be subject to redemption, prior to their Maturity Date, in whole, or from time to time, in part, on any Payment Date on or after April 28, The principal amount which will be redeemed on any Payment Date will be an amount determined by reference to the procedures set forth below. In the case of a partial redemption of the Debentures, the Debentures will be redeemed pro rata. Freddie Mac will redeem the principal of the Debentures on the applicable Payment Date as follows: On each Amortization Determination Date (as defined below) Freddie Mac will determine the One-Month PSA Rate for the current month and the Amortization Reference Rate (each term, as defined below). The aggregate amount of principal of the Debentures redeemed on the applicable Payment Date will be an amount equal to the product of (i) the remaining principal amount of the Debentures outstanding on the applicable Amortization Determination Date and (ii) the Amortization Reference Rate (as defined below) as determined by Freddie Mac in accordance with the procedures set forth below. The Amortization Determination Date will be 10 Business Days prior to the applicable Payment Date. The One-Month PSA Rate for the current month will be the rate that appears on Bloomberg ("Bloomberg") page FMAC A003 >GO<, titled "Reference Collateral 30-Year Gold 8.00, Issued in 1992", under the column titled "1 MO," on the

4 4 line that begins "PSA," for the month of the applicable Amortization Determination Date. The Amortization Reference Rate is the rate which appears in the Amortization Determination Table attached hereto as Appendix I, under the column titled "Amortization Reference Rate" on the line that begins with the applicable One-Month PSA Rate, determined as set forth above, under the column titled "One-Month PSA Rate." As indicated in the Amortization Determination Table, in general, the Amortization Reference Rate rises as the One-Month PSA Rate rises. If on any Amortization Determination Date the One-Month PSA Rate determined as described above is 100% or less, then the Amortization Reference Rate will be 0% and, consequently, no principal of the Debentures will be redeemed on the applicable Payment Date. If on any Amortization Determination Date the One-Month PSA Rate is 450% or more, then the Amortization Reference Rate will be 7.5% and, consequently, 7.5% of the aggregate remaining principal amount of the Debentures will be redeemed on the applicable Payment Date. Thus, certain prepayment behavior experienced by the Gold PC Pools related to Reference Pool A003 may not result in a corresponding redemption of the Debentures. To illustrate the calculation methodology for redemption of principal of the Debentures, assume that (a) on the applicable Amortization Determination Date, the One-Month PSA Rate for the current month on Bloomberg page FMAC A003 is 175% and (b) the aggregate remaining principal amount of the Debentures outstanding is $90,000,000. The applicable Amortization Reference Rate would be 1.960%. Consequently, the aggregate amount of principal of the Debentures redeemed on the applicable Payment Date would be $1,764,000. Assume further that (a) on the next applicable Amortization Determination Date, the One-Month PSA Rate for the current month is 150% and (b) the aggregate remaining principal amount of the Debentures outstanding is $88,236,000. The applicable Amortization Reference Rate would be 0.9%. Consequently, the aggregate amount of principal of the Debentures redeemed on the applicable Payment Date would be $794,124 If on any applicable Amortization Determination Date Bloomberg page FMAC A003 or such other page as may replace that page on that service is not available, then the One-Month PSA Rate will be a rate determined by Freddie Mac in accordance with the procedures established by Freddie Mac for compiling information on Reference Pool A003, as defined below. The applicable One-Month PSA Rate may be obtained by calling Investor Inquiry at Freddie Mac (outside Washington, D.C. metropolitan area, phone 800/ ; within Washington, D.C. metropolitan area, phone 703/ ). If on any applicable Amortization Determination Date the One-Month PSA Rate is not available on Bloomberg and is not determined by Freddie Mac in accordance with the procedures for compiling information on Reference Pool A003, then the One-Month PSA Rate will be the arithmetic mean of estimates received upon request by Freddie Mac from at least two leading U.S. government securities dealers for the One-Month PSA Rate. If on any applicable Amortization Determination Date the One-Month PSA Rate is not available on Bloomberg, is not determined by Freddie Mac in accordance with the procedures for compiling information on Reference Pool A003 and Freddie Mac is unable to obtain two estimates for the One-Month PSA Rate from at least two leading government securities dealers, then the One-Month PSA Rate will be the One-Month PSA Rate for the immediately preceding Amortization Determination Date. As set forth above, the One-Month PSA Rate is determined by reference to the PSA rate which appears on Bloomberg page FMAC A003. The information contained on that page is compiled by and obtained from Freddie Mac and is updated on or about the first Business Day of each month. To produce the information, Freddie Mac compiles data on all Gold PC Pools issued by Freddie Mac during 1992 with a coupon of 8%. The compilation of information is set forth as information regarding a reference pool ("Reference Pool A003"). Freddie Mac determines

5 5 the PSA rate set forth on Bloomberg page FMAC A003 using the Uniform Practices of the Public Securities Association. The PSA rate is based upon the principal payments experienced by the Gold PC Pools which are represented by Reference Pool A003 and the One-Month PSA Rate is based upon the principal payments to be made on the Gold PC Pools in the same month. A Gold PC is a mortgage pass-through security issued and guaranteed by Freddie Mac that represents an undivided interest in a pool of mortgages purchased by Freddie Mac. Payments of principal and interest by borrowers on the mortgages in a Gold PC Pool are passed through monthly by Freddie Mac. For further information concerning Gold PCs, see Freddie Mac's Mortgage Participation Certificates Offering Circular dated September 1, Freddie Mac will redeem the Debentures in whole on any Payment Date when the outstanding principal amount, after giving effect to principal payments to be made on such Payment Date, would be less than 10% of the original principal amount of the Debentures. Any redemption of the Debentures by Freddie Mac will be at a redemption price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest for the Interest Period relating to the applicable Payment Date. The determination of the One-Month PSA Rate and the Amortization Reference Rate by Freddie Mac on any applicable Amortization Determination Date shall, absent manifest error, be final and binding on all parties. Current Factor Freddie Mac will make available a current factor ("Current Factor") for the Debentures on any Amortization Determination Date on which Freddie Mac determines that it will redeem principal of the Debentures on the applicable Payment Date. Until any portion of the principal amount of the Debentures has been redeemed, the Current Factor will be On any Payment Date, the aggregate remaining principal amount of the Debentures, after giving effect to the redemption to be made on such Payment Date, will correspond to (a) the original principal amount of the Debentures multiplied by (b) the Current Factor made available on the applicable Amortization Determination Date. PSA Rate Prepayments on pools of mortgages are commonly measured relative to a variety of prepayment models. One model referred to in this Offering Circular Supplement is the Public Securities Association's standard prepayment model, or "PSA." This model assumes that mortgages will prepay at an annual rate of 0.2% in the first month after origination, that the prepayment rate increases at an annual rate of 0.2% per month up to the 30th month after origination and that the prepayment rate is constant at 6% per annum in the 30th and later months (this assumption is called "100% PSA"). For example, at 100% PSA, mortgages with a loan age of three months (i.e., mortgages in their fourth month after origination) are assumed to prepay at an annual rate of 0.8%, and mortgages with a loan age of more than 30 months (such as those underlying the Gold PCs for Reference Pool A003) are assumed to prepay at a constant annual rate of 6.0%. "0% PSA" assumes no prepayments; "50% PSA" assumes prepayment rates equal to 0.50 times 100% PSA; "200% PSA" assumes prepayment rates equal to 2.00 times 100% PSA; and so forth. PSA is not a description of historical prepayment experience or a prediction of the rate of prepayment of the mortgages.

6 6 Weighted Average Life The weighted average life of a security refers to the average amount of time that will elapse from the date of its issuance until each dollar of principal has been repaid to the investor. The weighted average life of the Debentures will depend primarily on the rate at which principal is paid on the mortgages. The table below shows the weighted average life of the Debentures under various constant mortgage prepayment assumptions. Weighted Average Life Table (in years) PSA Prepayment Assumption 100% (and below) 150% 175% 275% 450% (and above) CERTAIN INVESTMENT CONSIDERATIONS Mortgage Prepayments The level of the One-Month PSA Rate, which determines the rate of principal redemptions of the Debentures, will depend primarily on the rate of principal prepayments on the Gold PC Pools represented by Reference Pool A003. The rate of principal payments on PCs depends primarily on the rate of principal payments on the underlying mortgages. Each borrower has the option, at any time during the term of a mortgage, to pay principal in an amount greater than the scheduled payment, resulting in a curtailment, or to prepay the entire principal balance, resulting in a full prepayment. Any given Gold PC Pool may experience payment behavior that is similar to or different from that experienced by other Gold PC Pools consisting of similar mortgages. The rate of payments on any given Gold PC Pool may fluctuate significantly from month to month. Prepayments generally are affected by a variety of factors such as the age, geographic distribution and payment terms of the mortgages; characteristics of the borrowers and their equity positions in their houses; the use of special financing arrangements, including, for example, buydown plans or other provisions that cause the effective interest rate to the borrower to increase during the term of the mortgage; changes in local industry and population migration as they affect housing turnover and activity of lenders in soliciting refinancing, including refinancing without transaction costs to the borrower. Freddie Mac makes no representation concerning the particular effect that any of these factors may have on prepayment behavior. Freddie Mac believes that, in a fluctuating interest rate environment, the predominant factor affecting the payment rate on a large, geographically diverse, concurrently originated group of mortgages underwritten on a consistent basis is the difference between the interest rates of the mortgages in that group (giving consideration to the cost of any secondary financing) and prevailing mortgage interest rates generally available during the terms to maturity of such mortgages. In general, prepayment rates are inversely correlated with changes in prevailing mortgage interest rates. Accordingly, in an environment of rising mortgage interest rates, mortgage prepayment rates tend to decline. Conversely, in an environment of falling mortgage interest rates, prepayment rates tend to increase.

7 7 The number of defaults on mortgages in a Gold PC Pool and the number of repurchases of mortgages from a Gold PC Pool also will affect the prepayment behavior attributed to that Gold PC Pool. Periods of declining property values, increasing use of secondary financing, and other factors that erode borrowers' equity may increase the frequency of defaults. In addition, servicing decisions regarding the mortgages, including negotiation of alternatives to foreclosure, may have an impact upon the prepayment behavior of particular Gold PC Pools. In approving alternatives to foreclosure and in determining whether mortgages should be repurchased from a Gold PC Pool, Freddie Mac considers a variety of factors, including whether such steps will reduce Freddie Mac's administrative costs or its possible exposure under its guarantees. Under certain circumstances. Freddie Mac may require a seller or servicer to repurchase all or substantially all of the mortgages in a Gold PC Pool. Reference Pool A003 An investor in the Debentures should consider that the interest rates applicable to the mortgages underlying the Gold PC Pools upon which Freddie Mac compiles information for Reference Pool A003 are likely to be somewhat higher than prevailing mortgage interest rates generally available currently. The prepayment rate for the mortgages underlying the Gold PC Pools for Reference Pool A003, and thus the rate of redemption of the Debentures, may be expected to be somewhat higher than if the interest rates applicable to the mortgages were more similar to prevailing mortgage interest rates. However, Freddie Mac makes no representation about the prepayment rates of the mortgages or the rate of redemption of the Debentures. On Bloomberg page FMAC A003, Freddie Mac sets forth information on Reference Pool A003. The weighted average coupon ("WAC"), the weighted average remaining term to maturity (in months) ("WARM") and the weighted average loan age (in months) ("WALA") of the mortgages underlying the Gold PCs upon which Freddie Mac compiles information for Reference Pool A003 is set forth on Bloomberg page FMAC A003. The WAC, WARM and WALA published for Reference Pool A003 for March 1996 were 8.537%, 297 months and 47 months, respectively. On Bloomberg page FMAC A003, Freddie Mac also sets forth a factor for Reference Pool A003. The factor is a six-digit decimal calculated by Freddie Mac for each month for Reference Pool A003 that, when multiplied by the original principal amount of the pool ($17 billion), equals the remaining principal amount of the pool. The factor published for Reference Pool A003 for March 1996 was Weighted Average Life The Debentures may receive principal redemption amounts that vary widely from period to period or may receive no redemption amounts in any or all periods (except at maturity). Relatively fast mortgage prepayment rates may significantly shorten the weighted average life of the Debentures, and relatively slow mortgage prepayment rates may significantly extend the weighted average life of the Debentures. See "Redemption --Weighted Average Life," above. Principal Payment Stability Mortgages and mortgage-related securities are subject to prepayment uncertainty. Because principal redemptions on the Debentures are tied to prepayment rates on certain Freddie Mac mortgage securities, the Debentures are subject to corresponding prepayment uncertainty. The rate of principal redemptions of the Debentures will depend, in part, on the rate of principal prepayments on the mortgages underlying the Gold PCs for Reference Pool A003. Effect of Amortization Determination Table The Amortization Determination Table will have a significant effect in determining the rate of redemption of the Debentures. As set forth in the Amortization Determination Table, if the Amortization Reference Rate for any month is equal to or less than 100%, then the Amortization Reference Rate for such month will be 0% and, accordingly, no principal

8 8 of the Debentures will be redeemed on the applicable Payment Date. At One-Month PSA Rates of greater than 100%, in general, the corresponding Amortization Reference Rate will increase. If the One-Month PSA Rate for any month is equal to or greater than 450%, then the Amortization Reference Rate for such month will be 7.5% and, accordingly, 7.5% of the aggregate remaining principal amount of the Debentures will be redeemed on the applicable Payment Date. Thus, certain prepayment behavior experienced by the Gold PC Pools related to Reference Pool A003 may not result in a corresponding redemption of the Debentures. Suitability The Debentures are not suitable investments for all investors. The Debentures are not appropriate investments for any investor that requires a single lump sum payment on a predetermined date or an otherwise certain payment stream. The market value of the Debentures is likely to fluctuate; such fluctuations may be significant and could result in significant losses to investors. The secondary markets for mortgage-related securities have experienced periods of illiquidity and can be expected to do so in the future. Because principal redemptions on the Debentures are tied to prepayment rates on certain Freddie Mac mortgage securities, the Debentures could experience corresponding illiquidity. Illiquidity can have a severely adverse effect on the prices of securities that are especially sensitive to prepayment risk or that have been structured to meet the investment requirements of limited categories of investors. Investors should have the financial status and, either alone or with a financial advisor, the knowledge and experience in financial and business matters sufficient to evaluate the merits and to bear the risks of investing in the Debentures in light of each investor's particular circumstances. No investor should purchase the Debentures unless the investor understands and is able to bear the prepayment and reinvestment risk associated with mortgage securities as well as the redemption, yield, liquidity and market risks associated with the Debentures. Prospective investors should also consult their own tax and legal advisors as to the tax consequences of holding, owning and disposing of the Debentures, and whether and to what extent the Debentures constitute legal investments for such investors. See "Certain Federal Tax Consequences" and "Legal Investment Considerations" in the Offering Circular. Yield Considerations An investor seeking to maximize yield should make a decision whether to invest in the Debentures based on the anticipated yield of the Debentures resulting from their purchase price and the investor's own projection of mortgage prepayment rates under a variety of scenarios. Freddie Mac makes no representation regarding mortgage prepayment rates or the yield of the Debentures. Prepayments: Effect on Yields The yields to investors will be sensitive to the rate of mortgage prepayments. In the case of any of the Debentures purchased at a premium over their principal amounts, faster than anticipated rates of mortgage prepayments could result in actual yields to investors that are lower than the anticipated yields. Investors in Debentures purchased at a premium to par should also consider the risk that rapid rates of mortgage prepayments could result in the failure of investors to fully recover their investments. In the case of any Debentures purchased at a discount to their principal amounts, slower than anticipated rates of mortgage prepayments could result in actual yields to investors that are lower than the anticipated yields. Rapid rates of prepayments on the mortgages are likely to coincide with periods of low prevailing interest rates. During such periods, the yields at which an investor may be able to reinvest amounts received as principal redemptions on such investor's Debentures may be lower than the yield on those Debentures. Conversely, slow rates of prepayments on the mortgages are likely to coincide with periods of high prevailing interest rates. During such periods, the amount of principal redemptions available to an investor for reinvestment at such high rates may be relatively low.

9 9 The timing of prepayments may also affect the actual yield to an investor, even if the average rate of prepayments is consistent with the investor's expectation. In general, the earlier a prepayment occurs, the greater the effect on an investor's yield. As a result, the effect on an investor's yield of prepayment rates that are higher (or lower) than the rates anticipated by the investor during earlier periods is not likely to be offset by a later equivalent decrease (or increase) in such rates. PLAN OF DISTRIBUTION Subject to the terms and conditions set forth in the Underwriting Agreement between Freddie Mac and Lehman Brothers Inc. (the "Underwriter"), Freddie Mac has agreed to sell, and the Underwriter has agreed to purchase, all of the Debentures offered hereby, if any are sold and purchased. Freddie Mac has been advised by the Underwriter that it proposes initially to offer the Debentures to the public at the offering price set forth on the cover page of this Offering Circular Supplement. After the initial public offering, the public offering price may be changed by the Underwriter. CAPITALIZATION Freddie Mac's capitalization as of December 31, 1995 is set forth in a capitalization table in Freddie Mac's Information Statement Supplement dated January 31, 1996 to its Information Statement dated March 31, See "Capitalization" in the Offering Circular. LEGAL MATTERS Certain legal matters relating to the Debentures will be passed upon for Freddie Mac by Maud Mater, Esq., Senior Vice President - General Counsel and Secretary of Freddie Mac, and for the Underwriter by Brown & Wood. See "Legal Matters" in the Offering Circular.