Freddie Mac 2009 Annual Report Download - page 100

The delinquency rate on our single-family credit guarantee portfolio increased to 3.87% as of December 31, 2009 from
1.72% as of December 31, 2008. Increases in delinquency rates occurred in all product types in 2009. Increases in
delinquency rates have been more severe in California, Florida, Nevada and Arizona. We expect our delinquency rates may
continue to rise in 2010.
Charge-offs, gross, associated with single-family loans increased to $9.7 billion in 2009 compared to $3.4 billion in
2008 and $0.5 billion in 2007, primarily due to an increase in the volume of REO properties we acquired through foreclosure
transfers. The effect of declining home prices during 2007 and 2008 resulted in higher charge-offs, on a per property basis,
during 2009, and we expect growth in charge-offs to continue in 2010. See “RISK MANAGEMENT — Credit Risks —
Table 73 — Single-Family Credit Loss Concentration Analysis” for additional credit loss information.
Single-family Guarantee REO operations expense decreased during 2009, compared to 2008, as a result of lower
disposition losses and increased recoveries of holding period write-downs on our inventory in 2009. During 2009 and 2008,
we experienced significant increases in REO activity in all regions of the U.S., particularly in California, Florida, Nevada
and Arizona. Single-family Guarantee REO operations expense significantly increased in 2008, as compared to 2007. During
2008, we experienced significant increases in delinquency rates and REO activity in all regions of the U.S., particularly in
California, Florida, Nevada and Arizona, which combined with home price declines caused higher writedowns of REO
properties as compared to 2007. See “RISK MANAGEMENT — Credit Risks — Portfolio Management Activities — Credit
Performance” for further information on delinquency charge-offs and REO activity.
Declines in home prices contributed to the increase in the weighted average estimated current LTV ratio for loans
underlying our single-family credit guarantee portfolio to 77% at December 31, 2009, from 72% and 63% at December 31,
2008 and 2007, respectively. Approximately 28% of loans in our single-family credit guarantee portfolio had estimated
current LTV ratios above 90%, excluding second liens held by third parties, at December 31, 2009 as compared to 23% and
10% at December 31, 2008 and 2007, respectively. In general, higher total LTV ratios indicate that the borrower has less
equity in the home and would thus be more likely to default in the event of a financial hardship. We expect that declines in
home prices combined with the deterioration in rates of unemployment and other factors may result in higher credit losses
for our Single-family Guarantee segment during 2010.
Our suspension or delay of foreclosure transfers, capacity constraints on our servicers, and any imposed delay in
foreclosures by regulatory or governmental agencies causes a delay in our recognition of credit losses, and could cause our
loan loss reserves to increase. The implementation of any governmental actions or programs that expand the ability of
delinquent borrowers to obtain modifications with concessions of past due principal or interest amounts, including proposed
changes to bankruptcy laws, could lead to higher charge-offs.
Multifamily
Through our Multifamily segment, we guarantee, securitize and invest in multifamily mortgages and CMBS. We also
securitize and guarantee the payment of principal and interest on multifamily mortgage-related securities and mortgages
underlying multifamily housing revenue bonds. Our multifamily mortgage products, services and initiatives primarily finance
rental housing for low- and moderate-income families.
Prior to 2008, we purchased and held multifamily loans for investment purposes. In 2008, we began purchasing certain
multifamily mortgages and designating them as held-for-sale, as part of our expansion of multifamily security products. In
2009, we increased our issuance of multifamily Structured Transactions, which totaled $2.4 billion in unpaid principal
balance. We expect to continue our purchases of multifamily loans and designating them held-for-sale as part of our further
expansion of multifamily securitization transactions in 2010. We may also sell multifamily loans from time to time.
Our Multifamily segment also includes certain investments in LIHTC partnerships formed for the purpose of providing
equity funding for affordable multifamily rental properties. In these investments, we provide equity contributions, as a
limited partner, to partnerships designed to sponsor the development and ongoing operations for low- and moderate-income
multifamily apartments and we planned to realize a return on our investment through reductions in income tax expense that
result from federal income tax credits and the deductibility of operating losses generated by the partnerships. However, we
are no longer investing in these partnerships to support the low- and moderate-income rental markets, because we do not
expect to be able to use the underlying federal income tax credits or the operating losses generated from the partnerships as a
reduction to our taxable income because of our inability to generate sufficient taxable income.
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