Freddie Mac 2009 Annual Report Download - page 158

backed by Alt-A and other mortgage loans and 31% and 79%, respectively, of these securities were investment grade. For
more information on our exposure to Alt-A mortgage loans through our investments in non-agency mortgage-related
securities see “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities.”
Higher Risk Loans in the Single-Family Mortgage Portfolio
Although we generally do not categorize loans in our single-family mortgage portfolio as prime or subprime, there are
loan categories we recognize as having higher risk characteristics. Table 60 presents information about certain categories of
single-family mortgage loans within our single-family mortgage portfolio that we believe have certain higher risk
characteristics. These loans include categories based on product type and loan categories based on the borrower
characteristics present at origination. The table includes a presentation of each higher risk category in isolation. A single
loan may fall within more than one category (for example, an interest-only loan may also have an original LTV ratio greater
than 90%).
Table 60 — Credit Performance of Certain Higher Risk
(1)
Categories in the Single-Family Mortgage Portfolio
Unpaid
Principal
Balance
Estimated
Current LTV
(2)
Percentage
Modified
(3)
Delinquency
Rate
(4)
As of December 31, 2009
(dollars in billions)
Loans with one or more specified characteristics . ............................. $413.3 97% 2.7% 10.8%
Categories (individual characteristics):
Alt-A . ...................................................... 147.9 94% 2.2% 12.3%
Interest-only loans . .............................................. 129.9 106% 0.2% 17.6%
Option ARM loans
(5)
............................................. 10.8 111% N/A 17.9%
Underwriting characteristics:
Original LTV ratio greater than 90%
(6)
................................. 144.4 104% 3.0% 9.1%
Lower original FICO scores (less than 620)
(6)
............................ 67.7 87% 6.0% 14.9%
Unpaid
Principal
Balance
Estimated
Current LTV
(2)
Percentage
Modified
(3)
Delinquency
Rate
(4)
As of December 31, 2008
(dollars in billions)
Loans with one or more specified characteristics . ............................. $473.6 88% 1.3% 5.0%
Categories (individual characteristics):
Alt-A . ...................................................... 184.9 85% 0.7% 5.6%
Interest-only loans . .............................................. 160.6 95% 0.1% 7.6%
Option ARM loans
(5)
............................................. 12.2 103% N/A 8.7%
Underwriting characteristics:
Original LTV ratio greater than 90%
(6)
................................. 146.6 97% 1.7% 4.8%
Lower original FICO scores (less than 620)
(6)
............................ 74.2 80% 3.3% 7.8%
(1) Categories are not additive and a single loan may be included in multiple categories if more than one characteristic is associated with the loan. Loans
with a combination of these characteristics will have an even higher risk of default than those with an individual characteristic. Includes single-family
loans held on our consolidated balance sheets as well as those underlying our issued PCs, Structured Securities and other mortgage-related financial
guarantees. Prior year amounts have been revised to conform with current year presentation.
(2) Based on our first lien exposure on the property and excludes secondary financing by third parties, if applicable. For refinancing mortgages, the original
LTV ratios are based on third-party appraisals used in loan origination, whereas new purchase mortgages are based on the property sales price.
(3) Represents the percentage of loans based on loan count in our single-family mortgage portfolio that have been modified under agreement with the
borrower, including those with no changes in the interest rate or maturity date, but where past due amounts are added to the outstanding principal
balance of the loan. Excludes loans underlying our Structured Transactions for which we do not have servicing rights nor available data.
(4) Based on the number of mortgages 90 days or more delinquent or in foreclosure. See “Portfolio Management Activities — Credit Performance —
Delinquencies” for further information about our reported delinquency rates.
(5) Option ARM loans in our single-family mortgage portfolio back certain Structured Transactions and Structured Securities for which we do not retain
the servicing rights and the loan modification data is not currently available to us.
(6) See endnotes (2) and (4) to “Table 58 — Characteristics of the Single-Family Mortgage Portfolio” for information on our calculation of original LTV
ratios and our use of FICO scores, respectively.
Loans with one or more of the above attributes comprised approximately 22% and 26% of our single-family mortgage
portfolio as of December 31, 2009 and 2008, respectively. The total of loans in our single-family mortgage portfolio with
one or more of these characteristics declined approximately 13%, from $473.6 billion as of December 31, 2008 to
$413.3 billion as of December 31, 2009, and was principally due to liquidations resulting from repayments, payoffs,
refinancing activity and other principal curtailments as well as those resulting from foreclosure events. However, the
delinquency rates associated with these loans increased from 5.0% as of December 31, 2008 to 10.8% as of December 31,
2009.
Certain combinations of loan characteristics often can also indicate a higher degree of credit risk. For example, single-
family mortgages with both high LTV ratios and borrowers who have lower credit scores typically experience higher rates of
delinquency and default. However, our participation in these categories contributes to our performance under our affordable
housing goals. Certain mortgage product types, such as interest-only or option ARM loans, that have additional higher risk
characteristics, such as lower credit scores or higher LTV ratios, will also have a higher risk of default than those same
155 Freddie Mac