Freddie Mac 2009 Annual Report Download - page 152

Table 57 — Single-Family Mortgage Credit Performance Comparison
12/31/2009 09/30/2009 06/30/2009 03/31/2009 12/31/2008
As of
Delinquency rate:
Freddie Mac’s single-family mortgage portfolio
(1)
...................... 3.87% 3.33% 2.78% 2.29% 1.72%
Industry — prime loans
(2)
...................................... 7.01 6.26 5.44 4.70 3.74
Industry — subprime loans
(2)
.................................... 30.56 28.68 26.52 24.88 23.11
12/31/2009 09/30/2009 06/30/2009 03/31/2009 12/31/2008
For the Three Months Ended
Foreclosures starts ratio:
(3)
Freddie Mac’s single-family mortgage portfolio
(1)
...................... 0.57% 0.59% 0.62% 0.61% 0.41%
Industry — prime loans
(2)
...................................... 0.86 1.14 1.01 0.94 0.68
Industry — subprime loans
(2)
.................................... 3.66 3.76 4.13 4.65 3.96
(1) Based on the number of loans 90 days or more past due, as well as those in the process of foreclosure. Our temporary suspensions of foreclosure sales
on occupied homes beginning in the fourth quarter of 2008 and our participation in the MHA Program, resulted in more loans remaining delinquent and
lower foreclosures than without this suspension. See “Portfolio Management Activities — Credit Performance — Delinquencies” for further information
on the delinquency rates of our single-family mortgage portfolio and our temporary suspension of foreclosure transfers.
(2) Source: Mortgage Bankers Association’s National Delinquency Survey representing the total of first lien single-family loans in the survey categorized as
prime or subprime, respectively. Excludes FHA and VA loans.
(3) Represents the ratio of the number of loans that entered the foreclosure process during the respective quarter divided by the number of loans in the
portfolio at the end of the quarter. Excludes Structured Transactions and mortgages covered under long-term standby commitment agreements.
Single-Family Underwriting Requirements and Quality Control Standards
We use a process of delegated underwriting for the single-family mortgages we purchase or securitize. In this process,
our contracts with seller/servicers describe mortgage underwriting standards and, except to the extent we waive or modify
these standards, the seller/servicers represent and warrant to us that the mortgages sold to us meet these requirements. In
selected cases, underwriting standards are tailored under contracts with individual customers. We subsequently review a
sample of these loans and, if we determine that any loan is not in compliance with our contractual standards, we may require
the seller/servicer to repurchase that mortgage or make us whole in the event of a default. In 2009, we expanded our review
of the underwriting of loans that we own or guarantee that default in order to assess the sellers’ compliance with the
representations and warranties under our purchase contracts. We provide originators with written standards and/or automated
underwriting software to assist them in comparing loans to our standards. We use other quantitative credit risk management
tools that are designed to evaluate single-family mortgages and monitor the related mortgage credit risk for loans we may
purchase. These statistically based risk assessment tools increase our ability to distinguish among single-family loans based
on their expected risk, return and importance to our mission. The percentage of our single-family mortgage purchase volume
evaluated by loan originators using Loan Prospector, our automated underwriting software tool, prior to being purchased by
us was 45%, 42% and 41% during 2009, 2008 and 2007, respectively. A significant portion of the mortgages we purchase
are underwritten by our seller/servicers using alternative automated underwriting systems or agreed-upon underwriting
standards that differ from our system or guidelines, which has increased our credit risk.
In response to the changes in the residential mortgage market during the last several years, we made several changes to
our underwriting requirements in 2008, and many of these took effect in early 2009, or as our customers’ contracts
permitted. While some of these changes will not apply to mortgages purchased under the refinancing initiative of the MHA
Program, we believe that they improved the credit profile of many of the mortgages we purchased in 2009 and that they will
continue to positively affect our purchases going forward. These changes include reducing purchases of mortgages with LTV
ratios over 95%, and limiting combinations of higher risk characteristics in loans we purchase, including those with reduced
documentation. There was a shift in the composition of our new mortgage purchases during 2008 and 2009 to a greater
proportion of fixed-rate mortgages with relatively higher average FICO scores and lower original LTV ratios, and a reduction
in our purchases of interest-only and Alt-A mortgage loans.
Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by one
of the following: (a) mortgage insurance for mortgage amounts above the 80% threshold; (b) a seller’s agreement to
repurchase or replace any mortgage upon default; or (c) retention by the seller of at least a 10% participation interest in the
mortgage. In addition, we employ other types of credit enhancements to manage credit risk, including pool insurance,
indemnification agreements, collateral pledged by lenders and subordinated security structures. In conjunction with the
announcement of the MHA Program, FHFA has determined that consistent with our charter, until June 2010, we may
purchase mortgages that refinance borrowers whose mortgages we currently own or guarantee, without obtaining additional
credit enhancement in excess of that already in place for that loan.
In April 2009, we began purchasing mortgages originated pursuant to the refinancing initiative under the MHA
Program. We may continue to purchase and guarantee a significant amount of these loans during 2010. The Freddie Mac
Relief Refinance Mortgage
SM
is our implementation of this program for our loans. These mortgages allow for refinancing of
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