Freddie Mac 2009 Annual Report Download - page 176

Credit Loss Performance
Many loans that are delinquent or in foreclosure result in credit losses. Table 71 provides detail on our credit loss
performance associated with mortgage loans underlying our issued PCs and Structured Securities as well as mortgage loans
recognized on our consolidated balance sheets.
Table 71 — Credit Loss Performance
2009 2008 2007
December 31,
(dollars in millions)
REO
REO balances, net:
Single-family . . . . .............................................................. $4,661 $3,208 $1,736
Multifamily. . . . . . .............................................................. 31 47 —
Total. . . . . . . . . .............................................................. $4,692 $3,255 $1,736
REO operations expense:
Single-family . . . . .............................................................. $ 287 $1,097 $ 205
Multifamily. . . . . . .............................................................. 20 — 1
Total. . . . . . . . . .............................................................. $ 307 $1,097 $ 206
CHARGE-OFFS
Single-family:
Charge-offs, gross
(1)
(including $9.4 billion, $3.1 billion and $0.4 billion relating to loan loss reserves,
respectively) . . . .............................................................. $9,661 $3,441 $ 528
Recoveries
(2)
................................................................... (2,088) (779) (238)
Single-family, net .............................................................. 7,573 2,662 290
Multifamily:
Charge-offs, gross
(1)
(including $21 million, $8 million and $4 million relating to loan loss reserves,
respectively) . . . .............................................................. 21 8 4
Recoveries
(2)
................................................................... — — (1)
Multifamily, net . .............................................................. 21 8 3
Total Charge-offs:
Charge-offs, gross
(1)
(including $9.4 billion, $3.1 billion and $0.4 billion relating to loan loss reserves,
respectively) . . . .............................................................. 9,682 3,449 532
Recoveries
(2)
.................................................................. (2,088) (779) (239)
Total Charge-offs, net . ........................................................ $7,594 $2,670 $ 293
CREDIT LOSSES
(3)
Single-family . . . . .............................................................. $7,860 $3,759 $ 495
Multifamily. . . . . . .............................................................. 41 8 4
Total . . . . . . . .............................................................. $7,901 $3,767 $ 499
Total in basis points
(4)
(annualized) . . . ................................................. 40.8 20.1 3.0
(1) Represent the amount of the unpaid principal balance of a loan that has been discharged in order to remove the loan from our consolidated balance
sheets at the time of resolution, regardless of when the impact of the credit loss was recorded on our consolidated statements of operations through the
provision for credit losses or losses on loans purchased. The amount of charge-offs for credit loss performance is generally calculated as the contractual
balance of a loan at the date it is discharged less the estimated value in final disposition.
(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where a share of default risk has been assumed
by mortgage insurers, servicers, or other third parties through credit enhancements.
(3) Equal to REO operations expense plus charge-offs, net. Excludes interest foregone on nonperforming loans, which reduces our net interest income but is
not reflected in our total credit losses. In addition, excludes other market-based credit losses (a) incurred on our investments in mortgage loans and
mortgage-related securities and (b) recognized in our consolidated statements of operations, including losses on loans purchased and losses on certain
credit guarantees.
(4) Calculated as annualized credit losses divided by the average balance of mortgage loans recognized on our consolidated balance sheets and mortgage
loans underlying our PCs and Structured Securities, excluding that portion of Structured Securities that is backed by Ginnie Mae Certificates.
Our credit loss performance presented in the table above measures losses at the conclusion of the loan and related
collateral resolution process. There is a significant lag in time from the implementation of loss mitigation activities to the
final resolution of delinquent mortgage loans as well as the disposition of non-performing assets. Our credit loss
performance measure is based on charge-offs and REO expenses and differs from our provision for credit losses and losses
on loans purchased. We expect our credit losses to increase in 2010, as our REO acquisition volume will likely remain high
and market conditions, such as home prices and the rate of home sales, continue to remain weak, which may keep sales
prices for REO properties depressed and thus cause our loss severity rates to remain relatively high.
As discussed in “MHA PROGRAM AND OTHER EFFORTS TO ASSIST THE U.S. HOUSING MARKET” and “Loss
Mitigation Activities,” we have implemented several suspensions in foreclosure transfers of owner-occupied homes that
affected our charge-off and REO operations expenses. Further suspension or delay of foreclosure transfers and any imposed
delay in the foreclosure process by regulatory or governmental agencies will cause a delay in our recognition of credit
losses. The implementation of any governmental actions or programs that expand the ability of delinquent borrowers to
173 Freddie Mac