Freddie Mac 2009 Annual Report Download - page 167

purpose, LTV ratio and/or borrower credit scores. Although we implemented limited increases in delivery fees during 2009,
we have been experiencing competitive pressure on our contractual management and guarantee fees, which reduced our
ability to increase those fees as customers renew their contracts. Due to these competitive and other pressures, we do not
have the ability to raise our contractual management and guarantee fees for our new business to offset the increased
provision for credit losses on existing business.
We also entered into credit derivatives on specified mortgage-related assets that in most cases are intended to limit our
exposure to credit default losses. The fair value of these credit derivatives was not material at either December 31, 2009 or
2008. See “NOTE 13: DERIVATIVES” to our consolidated financial statements for further discussion.
Loss Mitigation Activities
Loss mitigation activities are a key component of our strategy for managing and resolving troubled assets and lowering
credit losses. Our single-family loss mitigation strategy emphasizes early intervention in delinquent mortgages and providing
alternatives to foreclosure. Other single-family loss mitigation activities include providing our single-family servicers with
default management tools designed to help them manage non-performing loans more effectively and to assist borrowers in
retaining home ownership where possible, or facilitate foreclosure alternatives when homeownership is not an option.
Foreclosure alternatives are intended to reduce the number of delinquent mortgages that proceed to foreclosure and,
ultimately, mitigate our total credit losses by reducing or eliminating a portion of the costs related to foreclosed properties
and avoiding the credit losses in REO.
Our foreclosure alternatives include:
• Repayment plans, which are contractual plans to make up past due amounts. They mitigate our credit losses because
they assist borrowers in returning to compliance with the original terms of their mortgages.
• Loan modifications, which involve adding outstanding indebtedness, such as delinquent interest, to the unpaid
principal balance of the loan or changing other terms of a mortgage are an alternative to foreclosure. We typically
examine the borrower’s capacity to make payments under the new terms by reviewing the borrower’s qualifications,
including income. Loan modifications include either: (a) those that result in a concession to the borrower, which are
situations in which we do not expect to recover the full original principal or interest due under the original loan
terms, or (b) those that do not result in a concession to the borrower, such as those which add the past due amounts to
the balance of the loan, extend the term or a combination of both. Many of our loan modifications completed during
2009 were those in which we agreed to add the past due amounts to the balance of the loan and did not make a
concession to the borrower with respect to the outstanding balance of the loan. However, the percentage of
modifications with concessions to the borrower increased in 2009 and will likely continue to increase in 2010.
• Forbearance agreements, where reduced payments or no payments are required during a defined period. They provide
a temporary suspension of the foreclosure process to allow additional time for the borrower to return to compliance
with the original terms of the borrower’s mortgage or to implement another foreclosure alternative.
• Pre-foreclosure sales, in which the borrower, working with the servicer, sells the home and pays off all or part of the
outstanding loan, accrued interest and other expenses from the sale proceeds.
We are currently focusing our loan modification efforts on HAMP. If a borrower is not eligible for a HAMP
modification, the borrower is considered for modification under our other loan modification programs. If the borrower is not
eligible for any such programs, the borrower is considered for other foreclosure alternatives, such as a pre-foreclosure sale.
For more information on HAMP, including new guidelines issued by Treasury in 2010, see “MHA PROGRAM AND
OTHER EFFORTS TO ASSIST THE U.S. HOUSING MARKET.”
We are working to enforce investor rights on non-agency mortgage-related securities holdings, and are engaged in
efforts to potentially mitigate losses on our own investments in non-agency mortgage-related securities. Our Conservator
directed us to work with Fannie Mae to enforce investor rights in securitization trusts in which we both have interests.
Enforcement of investor rights in non-agency mortgage-related securities faces many obstacles, including the fact that we
frequently do not have any direct right of enforcement and that we and the other entities involved often have competing
financial interests. As a result, the effectiveness of our efforts may be difficult to predict and also may not be known for
some time. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities” for information on our
investments in non-agency mortgage-related securities.
164 Freddie Mac