Freddie Limits B&C Exposure.

McLean, VA -- Freddie Mac here revealed that nearly one-fifth of its retained portfolio consists of securities backed by subprime mortgages, but since those securities are credit enhanced to a AAA rating, the company believes its credit exposure is limited.

Freddie Mac disclosed that it held $124 billion of securities backed by subprime home loans at the end of last year, though virtually all were AAA-rated tranches from mortgage securities deals. That comprised about 18% of Freddie Mac's $704 billion retained portfolio.

In total, non-agency MBS accounted for $238 billion of the retained portfolio, consisting of both prime and subprime credits, and 96% of the non-agency mortgage securities were rated AAA, Freddie Mac said. Even though credit costs rose last year, Freddie Mac said that by most measures, its credit risk exposure remains low. The company's entire book of guaranteed loans and loans in portfolio had a loan-to-value ratio of 57% at the end of 2006, and 82% of the company's guarantee portfolio consisted of fixed-rate loans.

Only 14% of its loans have credit scores below 660. And only 4% of its loans have loan-to-value ratios above 90%, the company said. Nonetheless, Freddie Mac once again advised that its credit losses on its entire guaranteed portfolio are rising from their historic lows of recent years. In 2007, credit losses remained below two basis points of the portfolio, company executives said in a conference call with investors and analysts. In a table released with its earnings, Freddie Mac said that the annualized rate of loss on its total mortgage portfolio last year was 1.4 basis points, up from 1.1 basis points in 2005.

In the conference, Freddie's CEO, Richard Syron, said that Freddie Mac has used its strong capital position to support growth in its single-family loan guarantee business.

He said that last year's housing market was characterized by low single-digit appreciation for the full ...