Freddie Mac 2009 Annual Report Download - page 263

information reported by our servicers to the MHA Program administrator, more than 129,000 loans that we own or guarantee
were in the trial period of the HAMP process and approximately 14,000 modifications were completed and effective as of
December 31, 2009. FHFA reported approximately 152,000 of our loans were in active trial periods as of December 31,
2009, which included loans in the trial period regardless of the first payment date. FHFA also reported 19,500 permanent
modifications of our loans were completed under HAMP as of December 31, 2009, which included modifications that are
pending the borrower’s acceptance. Except for certain Structured Transactions and loans underlying our long-term stand-by
agreements, we bear the full cost of the monthly payment reductions related to modifications of loans we own or guarantee,
and all servicer and borrower incentive fees, and we do not receive a reimbursement of these costs from Treasury. We incur
incentive fees to the servicer and borrower associated with each HAMP loan once the modification is completed and
reported to the MHA Program administrator, and we paid $11 million of such fees in 2009. As discussed above, we also
incur up to $8,000 of additional servicer incentive fees and borrower incentive fees per modification as long as the borrower
remains current on a loan modified under HAMP. We accrued $106 million in 2009 for both initial fees and recurring
incentive fees not yet due. We expect that non-GSE mortgages modified under HAMP will include mortgages backing our
investments in non-agency mortgage-related securities. Such modifications will reduce the monthly payments due from
affected borrowers, and thus could reduce the payments we receive on these securities. Incentive payments from Treasury
passed through to us as a holder of the applicable securities may partially offset such reductions. The success of
modifications under HAMP is uncertain and dependent on many factors, including borrower awareness of the process and
the employment status and financial condition of the borrower.
NOTE 8: REAL ESTATE OWNED
We obtain REO properties when we are the highest bidder at foreclosure sales of properties that collateralize non-
performing single-family and multifamily mortgage loans owned by us or when a delinquent borrower chooses to transfer
the mortgaged property to us in lieu of going through the foreclosure process. Upon acquiring single-family properties, we
establish a marketing plan to sell the property as soon as practicable by either listing it with a sales broker or by other
means, such as arranging a real estate auction. Upon acquiring multifamily properties, we may operate them with third-party
property-management firms for a period to stabilize value and then sell the properties through commercial real estate
brokers. For each of the years ended December 31, 2009, 2008 and 2007, the weighted average holding period for our
disposed REO properties was less than one year. Table 8.1 provides a summary of our REO activity.
Table 8.1 — Real Estate Owned
REO,
Gross
Valuation
Allowance
(1)
REO,
Net
(in millions)
Balance, December 31, 2007 . . . ..................................................... $2,067 $ (331) $ 1,736
Additions. . . . ................................................................ 6,991 (428) 6,563
Dispositions and valuation allowance assessment ......................................... (4,842) (202) (5,044)
Balance, December 31, 2008 . . . ..................................................... 4,216 (961) 3,255
Additions. . . . ................................................................ 9,420 (611) 8,809
Dispositions and valuation allowance assessment ......................................... (8,511) 1,139 (7,372)
Balance, December 31, 2009 . . . ..................................................... $5,125 $ (433) $ 4,692
(1) The release of our holding period, or valuation, allowance substantially offset the impact of our REO disposition losses during 2009.
The REO balance, net at December 31, 2009 and 2008 associated with single-family properties was $4.7 billion and
$3.2 billion, respectively, and the balance associated with multifamily properties was $31 million and $47 million,
respectively. The number of REO additions, which was primarily single-family properties, increased by 68% in 2009
compared to 2008. Increases in our single-family REO additions have been most significant in the West and Southeast
regions. The West region represented approximately 35% and 30% of the additions in 2009 and 2008, respectively, based on
the number of units, and the highest concentration in the West region is in California. At December 31, 2009, our REO
inventory in California represented approximately 25% of our total REO inventory based on REO value at the time of
acquisition and 16% based on number of units. Our REO inventory consisted of 45,052 units and 29,346 units at
December 31, 2009 and 2008, respectively.
Our REO operations expenses include REO property expenses, net losses incurred on disposition of REO properties,
adjustments to the holding period allowance associated with REO properties to record them at the lower of their carrying
amount or fair value less the estimated costs to sell, and insurance reimbursements and other credit enhancement recoveries.
An allowance for estimated declines in the REO fair value during the period properties are held reduces the carrying value
of REO property. During 2009, our REO property carrying values and disposition values were more closely aligned due to
more stable national home prices in the period. The table below presents the components of our REO operations expense for
the years ended December 31, 2009, 2008 and 2007.
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