Freddie Mac 2004 Annual Report Download - page 131

Table 61 presents the distribution of unsecuritized whole mortgage loans held in our Retained portfolio.
Table 61 Ì Mortgage Loans Held in the Retained Portfolio(1)
December 31,
2004 2003
(dollars in millions)
Single-family:
Conventional
Fixed-rate(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $21,409 $24,902
Adjustable-rate(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 990 1,245
Seconds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1
Total ConventionalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22,399 26,148
FHA/VA Ì Fixed-rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 344 513
RHS and other federal guarantee loans ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 646 613
Total single-family ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23,389 $27,274
Multifamily Mortgages:
ConventionalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,968 $32,993
FHA/RHS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 3
Total multifamily ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 37,971 32,996
Total mortgagesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $61,360 $60,270
(1) Based on unpaid principal balances. Excludes mortgage loans traded, but not yet settled.
(2) We reclassiÑed $374 million of mortgage loans from Single-family Conventional Fixed-rate to Single-family Conventional
Adjustable-rate for the year ended December 31, 2003 to conform with the 2004 presentation.
Product mix aÅects the credit risk proÑle of our Total mortgage portfolio. In general, 15-year Ñxed-rate
mortgages exhibit the lowest default rate among the types of single-family mortgage loans we securitize and
purchase, due to the accelerated rate of principal amortization on these mortgages and the credit proÑles of
borrowers who seek and qualify for them. The next lowest rate of default is associated with 30-year Ñxed-rate
mortgages. Balloon/reset mortgages and ARMs typically default at a higher rate than Ñxed-rate mortgages,
although default rates for diÅerent types of ARMs may vary. While ARMs are typically originated with
interest rates that are initially lower than those available for Ñxed-rate mortgages, their interest rates also
change over time based on changes in an index or reference interest rate. As a result, the borrower's payments
may rise or fall, within limits, as interest rates change. As payment amounts increase, the risk of default also
increases. In the low interest rate environment experienced during 2002, 2003 and 2004, this trend was
reversed with ARMs exhibiting lower default rates than Ñxed-rate mortgages.
During 2004, there was a rapid proliferation of alternative product types, including initial interest-only
loans (loans where the borrower pays only interest for a period of time before the loan begins to amortize),
negative amortization loans (loans where the borrower's payment is capped and as a result the loan balance
may actually increase due to the diÅerence between the capped payment and the fully indexed payment), and
Alternative A products (primarily loans originated based on stated income or asset information or where the
borrower provides no supporting documentation of income, assets or employment). While each of these
products has been on the market for some time, their prevalence increased in 2004. These products are
designed to address a variety of borrower needs, including aÅordability issues and documentation issues. Each
of these products is expected to default more often than our traditional product types. To date, we have
purchased a limited amount of these products through our securitization programs, although we expect our
participation in these products to grow over the coming years. We will monitor the growth of these products in
our portfolio, and if appropriate, may seek credit enhancements to manage the incremental risk.
The subprime segment of the mortgage market primarily serves borrowers with lower quality credit
payment histories. These mortgages typically carry a higher risk of default. Our participation in this market
helps to increase the availability of mortgage credit and reduce the costs of homeownership for a broader
spectrum of borrowers.
We participate in the subprime market segment in two ways. First, our Retained portfolio makes
investments in non-Freddie Mac mortgage-related securities that were originated in this market segment.
Substantially all of these securities were rated ""AAA'' by one or more rating agencies at the time of purchase.
Freddie Mac
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