Freddie Mac 2006 Annual Report Download - page 84

loans with foreclosure alternatives increased as forbearance agreements were extended to single-family borrowers aÅected
by Hurricane Katrina in an eÅort to mitigate the risk of default and foreclosure and assist impacted borrowers. In 2006, the
number of loans with foreclosure alternatives declined slightly as loans previously subject to forbearance either resumed
payments, paid-oÅ or defaulted. However, the number of loans with foreclosure alternatives in the North Central region of
the U.S., which has been adversely aÅected by a downturn in the automotive industry, increased.
We require multifamily seller/servicers to closely manage mortgage loans they have sold us in order to mitigate
potential losses. For loans over $1 million, servicers must generally submit an annual assessment of the mortgaged property
to us based on the servicer's analysis of Ñnancial and other information about the property and, except for certain higher
performing loans, an inspection of the property. We evaluate these assessments internally and may direct the servicer to
take speciÑc actions to reduce the likelihood of delinquency or default. If a loan defaults despite this intervention, we may
oÅer a foreclosure alternative to the borrower. For example, we may modify the terms of a multifamily mortgage loan,
which gives the borrower an opportunity to bring the loan current and retain ownership of the property. Because multifamily
seller/servicers are an important part of our loss mitigation process, we rate their performance regularly and conduct on-site
reviews of their servicing operations to conÑrm compliance with our standards.
Within our Total mortgage portfolio, our pricing reÖects our expectation that some mortgage loans will become non-
performing due to changes in general economic conditions, the Ñnancial status of individual borrowers or other factors.
Table 39 summarizes our non-performing assets.
Table 39 Ì Non-Performing Assets
Based on unpaid principal balance
December 31,
2006 2005 2004 2003 2002
(in millions)
Troubled debt restructuring:
Reperforming or less than 90 days delinquent(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,633 $2,108 $1,807 $ 1,874 $1,776
Serious delinquencies(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 470 497 490 496 388
Total troubled debt restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,103 2,605 2,297 2,370 2,164
Other serious delinquencies(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,700 6,438 6,318 7,470 6,830
Non-accrual multifamily loans(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1 27 21 47
Subtotal(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,803 9,044 8,642 9,861 9,041
REO, net(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 743 629 741 795 594
TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $9,546 $9,673 $9,383 $10,656 $9,635
Detail of other serious delinquencies:(7)
Retained and repurchased mortgage loans(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,982 $2,889
Loans underlying outstanding PCs and Structured Securities(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,721 2,100
Loans underlying outstanding Structured Transactions(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 997 1,449
Total serious delinquencies(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $5,700 $6,438
(1) Includes previously delinquent loans whose terms have been modiÑed.
(2) Includes single-family loans 90 days or more delinquent. We fully reserve current period accruals for mortgages greater than 120 days delinquent. For
serious delinquencies in restructurings, we also fully reserve all uncollected interest after a mortgage becomes 90 days delinquent.
(3) Includes single-family loans 90 days or more delinquent and not in troubled debt restructurings. For multifamily loans, the population includes all loans
60 days or more delinquent but less than 90 days delinquent. Also included are multifamily loans greater than 90 days past due but where principal and
interest are being paid to us under the terms of a credit enhancement agreement. For more information about delinquency rates, see ""Table 6.3 Ì
Delinquency Performance'' in ""NOTE 6: LOAN LOSS RESERVES'' to our consolidated Ñnancial statements.
(4) Non-accrual mortgage loans are loans for which interest income is recognized only on a cash basis and only include multifamily loans that are 90 days
or more delinquent. No single-family mortgage loans in our Retained portfolio are classiÑed as non-accrual, since we generally begin establishing
reserves for current accruals after 90 days delinquency.
(5) For the year ended December 31, 2006, $481 million was included in Net interest income and Management and guarantee income related to these
mortgage loans. The amount of forgone net interest income and additional management and guarantee income that we would have recorded had these
loans been current is $34 million for the year ended December 31, 2006.
(6) For more information about REO balances, see ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' and ""NOTE 7: REAL
ESTATE OWNED'' to our consolidated Ñnancial statements.
(7) Detail of other serious delinquencies is not available for 2004, 2003 and 2002.
(8) Includes mortgages greater than 90 days, but generally less than 120 days, delinquent. Once a loan is delinquent for 120 days it is generally repurchased
out of the security and becomes part of our Retained portfolio.
(9) Consists of mortgages 90 days or more delinquent that underlie the non-agency securities that back our Structured Transactions.
Total non-performing assets declined during 2006 as many of the mortgages aÅected by Hurricane Katrina in 2005 have
resumed payments following the forbearance period we oÅered and others were modiÑed from their original terms to help
borrowers avoid foreclosure. Many of these loans were reported as serious delinquencies at the end of 2005, but have been
reclassiÑed to troubled debt restructuring in 2006, as a result of loss mitigation activities. In addition, the increase in the
REO balance is attributable to lower turnover caused by slower disposition of properties in the North Central region as well
as an increase in market values of the new REO inventory due to appreciation in all regions over the last few years. The
increase in troubled debt restructurings and serious delinquencies from 2004 to 2005 was in part a result of the eÅects of
Hurricane Katrina as well as increases in the North Central region.
72 Freddie Mac