Risk at Freddie Mac Harvard Case Solution & Analysis

At the end of 2003, total mortgage portfolio of Freddie Mac were the general principle of $ 1.4 trillion. The U.S. government has not explicitly backed Freddie Mac, a shareholder-owned organization, but investors were told to take some degree of implicit government support. After its success in 1990, Freddie Mac did maintain stable revenue growth in the mid teens explicit goal by managing interest rate risk. To smooth earnings in a changing interest rate, Freddie Mac was proud, modeling, measurement and management of credit and interest rate risk. Considerable resources have been directed towards the development of complex, quantitative risk modeling and solutions. Interest rate risk has been reduced mainly through the use of interest rate swaps and swaptions. The motivation to smooth income was a culture of Freddie Mac and caused business problems: operations (eg, accounting, audit, etc.) organizations were not well maintained, executive compensation was tied to meeting earnings estimates, and the staff involved in the development creative solutions to control of income considered to be "first class." January 22, 2003, Freddie Mac announced it would restate earnings for 2002, 2001 and possibly 2000. Next June, the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator Freddie Mac, began the study of culture Freddie Mac and the events leading to a recount. OFHEO found that Freddie Mac forgot operations risk management in the management of interest rate risk and income, leaving room for the accounting and disclosure issues. As investors see the events leading up to the $ 5 billion restatement and Freddie Mac to control interest rate risk and the risk of the surgery? "Hide
by Darrell Duffy, Erin Yurday Source: Stanford Graduate School of Business 30 pages. Publication Date: December 1, 2004. Prod. #: F270-PDF-ENG

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