Managing Uncertainty: How Risk Management Helps Us Make Home Possible

In the housing finance industry, managing risk amid uncertainty poses a significant challenge. Fundamental changes in the macroeconomic environment, ongoing volatility in markets, legal and regulatory changes, and increasing frequency and severity of natural disasters and cybersecurity events impact the financial and operational performance of Freddie Mac and the housing finance system broadly. Managing through these events is a core competency of risk management practices at Freddie Mac, and it's central to helping us achieve our mission of providing liquidity, stability and affordability to the U.S. housing market in a safe and sound manner.

Over my 35 years working across the financial services sector, I have faced several challenges, including the COVID-19 pandemic and the 2008 financial crisis. But the period between 2006 and 2009 was the most defining for me, both professionally and personally. My learnings during those years were indelible as I encountered virtually all points of failure in risk management systems and controls in a large financial institution and the broader financial system. I witnessed, at close quarters, consequential impacts - not only on the economy but, more importantly, on individuals and families.

Freddie Mac's work is critically important to the U.S. housing market, and we remain a steward of the housing finance system. My goal as the chief risk officer is to leverage the lessons I've learned throughout my career to effectively manage risk. I believe a collaborative approach, where every part of the company is unified in identifying and mitigating potential risks, is an essential ingredient of a strong risk culture.

In my role, I act with senior management as the connective tissue, working across the company to make sure the enterprise-wide system of risk and controls is designed and operating effectively. We provide our teams with the necessary risk management skills and tools, challenging ourselves to adopt industry best practices and align our work with regulatory expectations. This effort helps us navigate a dynamic and rapidly changing economy and housing market to both reach underserved borrowers and ensure the safety and soundness of our company and the housing finance system. In addition, skills developed in risk management can unlock opportunities in new tools and technologies such as artificial intelligence and machine learning.

We constantly analyze market dynamics, such as mortgage rates and housing prices and their impact on affordability, to develop credit solutions that increase homeownership. As a result of this work, more than half of the loans our Single-Family division financed in 2023 supported first-time homebuyers, a Freddie Mac record, and this trend continues into 2024.

Our approach to risk management is increasingly focused on interrelated risks, such as the impact of cybersecurity events on our servicers or managing model processes and use to make safe and fair decisions. Senior management, working with our risk management teams, continues to advance our governance, processes and controls to help senior leadership manage risks and respond in a timely manner. This was exemplified in 2023 when, amid several regional bank failures, Freddie Mac acted decisively to make sure liquidity and stability remained in the market.

When Freddie Mac is functioning well and serving its mission - particularly in the face of high interest rates, affordability challenges, elevated cyber threats and rising climate concerns - it is a testament to our risk management efforts. In fact, if we are engaging broadly and deeply to listen and learn, gaining outside perspective, challenging ourselves and collaborating well to manage uncertainty, the proof is in what you don't hear about: the quiet, behind-the-scenes work that keeps the housing financing system safe and sound.