Freddie Mac 2009 Annual Report Download - page 118

Loans Purchased Under Financial Guarantees
Due to our loan modification initiatives for loss mitigation on delinquent single-family mortgage loans, our net
investment in loans purchased under our financial guarantees, at our option, with deteriorated credit quality increased
approximately 48% in 2009. We purchased approximately $10.8 billion and $5.6 billion in unpaid principal balances of these
loans with a fair value at acquisition of $4.2 billion and $3.3 billion during 2009 and 2008, respectively. Loans acquired in
2009 and 2008, respectively, added approximately $6.6 billion and $2.3 billion of purchase discount, which is comprised of
$1.8 billion and $0.7 billion that was previously recorded on our consolidated balance sheets as loan loss reserve or
guarantee obligation and $4.8 billion and $1.6 billion of losses on loans purchased. We purchased approximately 57,000 and
31,200 loans from PC pools during 2009 and 2008, respectively. We expect purchases of loans from pools to increase in
2010 because the volume of our loan modifications is expected to significantly increase. In addition, see “CONSOLIDATED
RESULTS OF OPERATIONS — Losses on Loans Purchased” for information on our delinquent loan purchase practices and
our February 10, 2010 announcement that we will purchase substantially all single-family mortgage loans that are 120 days
or more delinquent from our PCs and Structured Securities.
As securities administrator, we are required to purchase a mortgage loan from a mortgage pool under certain
circumstances at the direction of a court of competent jurisdiction or a federal government agency. Additionally, we are
required to repurchase all convertible ARMs when the borrower exercises the option to convert the interest rate from an
adjustable rate to a fixed rate; and in the case of balloon/reset loans, shortly before the mortgage reaches its scheduled
balloon reset date. In 2009 and 2008, we purchased $1.3 billion and $2.0 billion, respectively, of such convertible ARMs and
balloon/reset loans out of PC pools.
As guarantor, we also have the right to purchase mortgages that back our PCs and Structured Securities (other than
Structured Transactions) from the underlying loan pools when they are significantly past due or when we determine that loss
of the property is likely or default by the borrower is imminent due to borrower incapacity, death or other extraordinary
circumstances that make future payments unlikely or impossible. This right to repurchase mortgages or assets is known as
our repurchase option. We record loans that we purchase using our repurchase option in connection with our performance
under our financial guarantees, at fair value and record losses on loans purchased on our consolidated statements of
operations in order to reduce our net investment in acquired loans to their fair value. Commencing January 1, 2010, we no
longer recognize losses on loans purchased from PC pools related to our single-family PC trusts and certain Structured
Transactions due to adoption of the amendments to the accounting standards for transfers of financial assets and
consolidation of VIEs. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently Issued
Accounting Standards, Not Yet Adopted Within These Consolidated Financial Statements” to our consolidated financial
statements for further information about the impact of adoption of these amendments.
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