Freddie Mac 2009 Annual Report Download - page 264

Table 8.2 — REO Operations Expense
2009 2008 2007
(dollars in millions)
Single-family:
REO property expenses
(1)
.......................................................... $ 708 $ 372 $ 136
Disposition (gains) losses
(2)
........................................................ 749 682 120
Change in holding period allowance
(3)
................................................. (612) 495 129
Recoveries .................................................................... (558) (452) (180)
Total single-family REO operations expense ............................................... 287 1,097 205
Multifamily REO operations expense . . . ................................................. 20 — 1
Total REO operations expense ........................................................ $ 307 $ 1,097 $ 206
REO inventory (units), at December 31, . ................................................. 45,052 29,346 14,394
REO property dispositions (units), for the year ended December 31, . .............................. 69,406 35,579 17,231
(1) Consists of costs incurred to maintain and protect a property after foreclosure acquisition, such as legal fees, insurance, taxes, cleaning and other
maintenance charges.
(2) Represents the difference between the disposition proceeds, net of selling expenses, and the fair value of the property on the date of the foreclosure
transfer. Excludes holding period writedowns while in REO inventory.
(3) Includes both the increase (decrease) in the holding period allowance for properties that remain in inventory at the end of the year as well as any
reductions associated with dispositions during the year. The release of our holding period, or valuation, allowance substantially offset the impact of our
REO disposition losses during 2009.
We temporarily suspended all foreclosure transfers of occupied homes from November 26, 2008 through January 31,
2009 and from February 14, 2009 through March 6, 2009. Beginning March 7, 2009, we began suspension of foreclosure
transfers of owner-occupied homes where the borrower may be eligible to receive a loan modification under the MHA
Program. We continued to pursue loss mitigation options with delinquent borrowers during these temporary suspension
periods; and, we also continued to proceed with initiation and other pre-closing steps in the foreclosure process.
Our method of recording cash flows associated with REO acquisitions changed significantly as a long-term effect of our
December 2007 operational change where we no longer automatically purchase mortgages out of our PCs when they become
120 days delinquent. During 2007, the majority of our REO acquisitions resulted from transfers from our mortgage loans
held on our consolidated balance sheets and we reported $3.1 billion in such non-cash transfers in our consolidated statement
of cash flows for that period. In contrast, the majority of our REO acquisitions during 2008 and 2009 resulted from cash
payment for extinguishments of mortgage loans within PC pools at the time of their conversion to REO. These cash outlays
are included in net payments of mortgage insurance and acquisitions and dispositions of REO in our consolidated statements
of cash flows. The amount of non-cash acquisitions of REO properties during the years ended December 31, 2009 and 2008
was $1.2 billion and $2.3 billion, respectively.
NOTE 9: DEBT SECURITIES AND SUBORDINATED BORROWINGS
Debt securities are classified as either short-term (due within one year) or long-term (due after one year) based on their
remaining contractual maturity.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that
would result in the par value of our aggregate indebtedness exceeding:
• through and including December 30, 2010, 120% of the amount of mortgage assets we are permitted to own under
the Purchase Agreement on December 31, 2009; and
• beginning on December 31, 2010, and through and including December 30, 2011, and each year thereafter, 120% of
the amount of mortgage assets we are permitted to own under the Purchase Agreement on December 31 of the
immediately preceding calendar year.
Under the Purchase Agreement, the amount of our “indebtedness” is determined without giving effect to any change in
the accounting standards related to transfers of financial assets and consolidation of VIEs or any similar accounting standard.
We also cannot become liable for any subordinated indebtedness, without the prior consent of Treasury.
As of December 31, 2009, we estimate that the par value of our aggregate indebtedness totaled $805.1 billion, which
was approximately $274.9 billion below the applicable limit of $1.08 trillion. Our aggregate indebtedness calculation, which
has not been confirmed by Treasury, includes the combined balance of our senior and subordinated debt. Because of the debt
limit, we may be restricted in the amount of debt we are allowed to issue to fund our operations.
261 Freddie Mac