Freddie Mac 2009 Annual Report Download - page 65

family PC trusts and certain Structured Transactions. Therefore, effective January 1, 2010, we consolidated on our balance
sheet the assets and liabilities of these trusts at their unpaid principal balances. As such, we will prospectively recognize on
our consolidated balance sheets the mortgage loans underlying our issued single-family PCs and certain Structured
Transactions as mortgage loans held-for-investment by consolidated trusts, at amortized cost. Correspondingly, we will also
prospectively recognize single-family PCs and certain Structured Transactions held by third parties on our consolidated
balance sheets as debt securities of consolidated trusts held by third parties.
The cumulative effect of these changes in accounting principles as of January 1, 2010 is a net decrease of approximately
$11.7 billion to total equity (deficit), which includes the changes to the opening balances of AOCI and retained earnings
(accumulated deficit).
See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently Issued Accounting Standards,
Not Yet Adopted Within These Consolidated Financial Statements — Accounting for Transfers of Financial Assets and
Consolidation of VIEs” to our consolidated financial statements for additional information regarding these changes and a
description of how these changes are expected to impact our results and financial statement presentation.
Housing and Economic Conditions and Impact on 2009 Results
During 2009, both the U.S. economy and the U.S. residential mortgage market remained weak. The combined effect of
increased unemployment rates and declines in home values that began in 2006, contributed to increases in residential
mortgage delinquency rates. Adverse market developments have been the principal drivers of our large credit losses in 2009
and we expect the residential mortgage market will continue to remain weak in 2010.
We estimate that home prices decreased nationwide by approximately 0.8% during 2009, based on our own index of our
single-family mortgage portfolio, compared to an estimated decrease of 11.7% during 2008. We attribute the relative stability
of home prices in 2009 to:
• increased demand for housing due to the first-time homebuyer tax credit combined with historically low mortgage
rates;
• increased housing affordability due to the home price declines that began in 2006; and
• decreased supply of housing due to declines in new construction and the slowdown in foreclosures due to foreclosure
suspensions.
We estimate that there was a national decline in home prices from June 2006 through December 2009 of approximately
18%, based on our own index. Other indices of home price changes may have different results, as they are determined using
different pools of mortgage loans and calculated under different conventions than our own. The cumulative decline and
volatility in home prices that began in 2006 was particularly large in California, Florida, Arizona and Nevada, which
comprised approximately 25% of the loans in our single-family mortgage portfolio as of December 31 2009. We estimate
that home prices, as measured by our index, increased (declined) by 4.6%, (5.1)%, (8.1)% and (13.2)% in California, Florida,
Arizona and Nevada, respectively, during 2009 and declined by approximately 26%, 26%, 26% and 32% during 2008.
Unemployment rates worsened significantly during 2009, reaching 10.0% at the national level as of December 31, 2009.
The U.S. Bureau of Labor Statistics reported unemployment rates in California, Florida, Arizona and Nevada of 12.4%,
11.8%, 9.1% and 13.0% as of December 31, 2009, respectively.
We experienced a substantial increase in the number of delinquent loans in our single-family mortgage portfolio during
2009. We also observed a significant increase in market-reported delinquency rates for mortgages serviced by financial
institutions during 2009, not only for subprime and Alt-A loans, but also for prime loans. This delinquency data suggests that
continuing home price declines and growing unemployment significantly affected behavior over a broader segment of
mortgage borrowers, increasing numbers of whom are “underwater,” or owing more on their mortgage loans than their homes
are currently worth. Our loan loss severities, or the average amount of recognized losses per loan, increased during 2009,
especially in California, Florida, Arizona and Nevada, where we have significant concentrations of mortgage loans with
higher average loan balances than in other states. As a result of these and other factors, we experienced substantial single-
family credit losses in 2009, and significantly increased our loan loss reserves.
Our multifamily mortgage portfolio was negatively impacted by higher rates of unemployment and further deterioration
in multifamily market fundamentals such as higher property vacancy rates and declines in the average monthly apartment
rental rates, which adversely affected our multifamily borrowers.
The market conditions during 2009 led to deterioration in the performance of the non-agency mortgage-related securities
we own. Furthermore, the mortgage-related securities backed by subprime, Alt-A and option ARM loans have concentrations
in the states that are undergoing the greatest economic stress, including California, Florida, Arizona and Nevada. As a result
of these and other factors, we recognized substantial impairments of available-for-sale securities in our earnings during 2009.
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