Freddie Mac 2009 Annual Report Download - page 314

Table 19.2 summarizes the attribute concentration of multi-family mortgages that are held by us or that underlie our
issued PCs, Structured Securities and other mortgage guarantees.
Table 19.2 — Concentration of Credit Risk — Multifamily Loans
Amount
(1)
Delinquency
Rate
(2)
Amount
(1)
Delinquency
Rate
(2)
2009 2008
December 31,
(dollars in millions)
Original Loan-to-Value (OLTV)
OLTV ⬍75%....................................................... $63,362 0.05% $53,210 0.00%
75%to80%........................................................ 28,514 0.07 27,318 0.00
OLTV ⬎80%....................................................... 6,676 1.48 7,002 0.18
$98,552 0.15% $87,530 0.01%
Original Debt Service Coverage Ratio
Below 1.10 . . . . . . . . . . . . . . . . . . ....................................... $ 3,508 1.61% $ 3,643 0.34%
1.10 to 1.25 . . . . . . . . . . . . . . . . . ....................................... 13,254 0.32 12,022 0.00
Above 1.25. . . . . . . . . . . . . . . . . . ....................................... 81,790 0.06 71,865 0.00
$98,552 0.15% $87,530 0.01%
Original Loan Size Distribution
⬍$5 million . . . . . . . . . . . . . . . . ....................................... $ 7,658 0.07% $ 7,493 0.00%
$5 million to $25 million . . . . . . . . ....................................... 54,798 0.26 50,418 0.02
⬎$25 million . . . . . . . . . . . . . . . . ....................................... 36,096 0.00 29,619 0.00
$98,552 0.15% $87,530 0.01%
(1) Based on the unpaid principal balance of multifamily mortgage loans held by us and those underlying our issued PCs and Structured Securities
excluding Structured Transactions and other mortgage guarantees, including those of HFA bonds.
(2) Based on the net carrying value of multifamily mortgages 90 days or more delinquent or in foreclosure, excluding Structured Transactions and other
mortgage guarantees of HFA bonds.
One indicator of risk for mortgage loans in our multifamily mortgage portfolio is the amount of a borrower’s equity in
the underlying property. A borrower’s equity in a property decreases as the LTV ratio increases. Higher LTV ratios
negatively affect a borrower’s ability to refinance or sell a property for an amount at or above the balance of the outstanding
mortgage. The DSCR is another indicator of future credit performance. The DSCR estimates a multifamily borrower’s ability
to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from
income. The higher the DSCR, the more likely a multifamily borrower is to continue servicing its mortgage obligation. Loan
size at origination does not generally indicate the degree of a loan’s risk; however, it does indicate our potential exposure to
a credit event. Credit enhancement reduces our exposure to an eventual credit loss. The majority of multifamily loans
included in our delinquency rates are credit-enhanced for which we believe the credit enhancement will mitigate our
expected losses on those loans.
Credit Performance of Certain Higher Risk Single-Family Loan Categories
There are several residential loan products that are designed to offer borrowers greater choices in their payment terms.
For example, interest-only mortgages allow the borrower to pay only interest for a fixed period of time before the loan
begins to amortize. Option ARM loans permit a variety of repayment options, which include minimum, interest-only, fully
amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows
the borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest,
known as negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance.
Participants in the mortgage market often characterize single-family loans based upon their overall credit quality at the
time of origination, generally considering them to be prime or subprime. Many mortgage market participants classify single-
family loans with credit characteristics that range between their prime and subprime categories as Alt-A because these loans
have a combination of characteristics of each category, or they may be underwritten with lower or alternative income or
asset documentation requirements compared to a full documentation mortgage loan or both. However, there is no universally
accepted definition of subprime or Alt-A. In determining our exposure on loans underlying our single-family mortgage
portfolio, we have classified mortgage loans as Alt-A if the lender that delivers them to us has classified the loans as Alt-A,
or if the loans had reduced documentation requirements, as well as a combination of certain credit attributes and expected
performance characteristics at acquisition which, when compared to full documentation loans in our portfolio, indicate that
the loan should be classified as Alt-A. There are circumstances where loans with reduced documentation are not classified as
Alt-A because we already own the credit risk on the loans or the loans fall within various programs which we believe
support not classifying the loans as Alt-A. For our non-agency mortgage-related securities that are backed by Alt-A loans,
we classified securities as Alt-A if the securities were labeled as Alt-A when sold to us.
311 Freddie Mac