Freddie Mac 2009 Annual Report Download - page 72

Table 7 — Credit Statistics, Single-Family Mortgage Portfolio
(1)
12/31/2009 09/30/2009 06/30/2009 03/31/2009 12/31/2008
As of
Delinquency rate
(2)
............................................ 3.87% 3.33% 2.78% 2.29% 1.72%
Non-performing assets, on balance sheet (in millions)
(3)
................... $19,451 $17,334 $14,981 $13,445 $11,241
Non-performing assets, off-balance sheet (in millions)
(3)
................... $85,395 $74,313 $61,936 $49,881 $36,718
Single-family loan loss reserve, as previously reported (in millions) . .......... $ N/A $29,174 $24,867 $22,403 $15,341
Single-family loan loss reserve, as adjusted (in millions)
(4)
................. $33,026 $30,160 $25,457 $22,527 $15,341
REO inventory (in units). ........................................ 45,047 41,133 34,699 29,145 29,340
12/31/2009 09/30/2009 06/30/2009 03/31/2009 12/31/2008
For the Three Months Ended
(in units, unless noted)
Loan modifications
(5)
........................................... 15,805 9,013 15,603 24,623 17,695
REO acquisitions . . . . . . ........................................ 24,749 24,373 21,997 13,988 12,296
REO disposition severity ratios
(6)
California . . . . . . . . . ........................................ 43.3% 45.0% 45.6% 42.2% 36.7%
Florida . . . . . . . . . . . ........................................ 51.4% 50.7% 50.9% 47.9% 41.5%
Arizona . . . . . . . . . . ........................................ 43.2% 42.7% 45.5% 41.9% 35.9%
Nevada................................................... 50.1% 48.8% 47.5% 38.9% 33.4%
Total U.S. . . . . . . . . . ........................................ 38.5% 39.2% 39.8% 36.7% 32.8%
Single-family credit losses (in millions)
(7)
............................. $ 2,498 $ 2,138 $ 1,906 $ 1,318 $ 1,151
(1) See “OUR PORTFOLIOS” and “GLOSSARY” for information about our portfolios.
(2) Single-family delinquency rate information is based on the number of loans that are 90 days or more past due and those in the process of foreclosure,
excluding Structured Transactions. Mortgage loans whose contractual terms have been modified under agreement with the borrower are not included if
the borrower is less than 90 days delinquent under the modified terms. Our delinquency rates for our single-family mortgage portfolio including
Structured Transactions were 3.98% and 1.83% at December 31, 2009 and 2008, respectively. See “RISK MANAGEMENT — Credit Risks — Portfolio
Management Activities — Credit Performance — Delinquencies” for further information.
(3) Consists of delinquent loans in our single-family mortgage portfolio, based on unpaid principal balances, that have undergone a troubled debt
restructuring or that are past due for 90 days or more or in foreclosure. Non-performing assets, on balance sheet include REO assets.
(4) During the fourth quarter of 2009, we identified two errors in loss severity rate inputs used by our models to estimate our single-family loan loss
reserves. These errors affected amounts previously reported. We have concluded that while these errors are not material to our previously issued
consolidated financial statements for the first three quarters of 2009 or to our consolidated financial statements for the full year 2009, the cumulative
impact of correcting these errors in the fourth quarter would have been material to the fourth quarter of 2009. We revised our previously reported results
for the first three quarters of 2009 to correct these errors in the appropriate quarterly period. These revisions resulted in a cumulative net increase to our
loan loss reserves in the amounts of $124 million, $590 million and $986 million for the first, second and third quarters of 2009, respectively. We will
appropriately revise the 2009 results in each of our quarterly filings on Form 10-Q when next presented throughout 2010.
(5) Represents the number of modifications under agreement with the borrower during the quarter. Excludes forbearance agreements, under which reduced
or no payments are required during a defined period, repayment plans, which are separate agreements with the borrower to repay past due amounts and
return to compliance with the original mortgage terms, and loans in the trial period under HAMP.
(6) Calculated as the aggregate amount of our losses recorded on disposition of REO properties during the respective quarterly period divided by the
aggregate unpaid principal balances of the related loans with the borrowers. The amount of losses recognized on disposition of the properties is equalto
the amount by which the unpaid principal balance of the loans exceeds the amount of net sales proceeds from disposition of the properties. Excludes
other related expenses, such as property maintenance and costs, as well as related recoveries from credit enhancements, such as mortgage insurance.
(7) See footnote (3) of “Table 71 — Credit Loss Performance” for information on the composition of our credit losses.
As the table above illustrates, we experienced continued deterioration in the performance of our single-family mortgage
portfolio during 2009 due to several factors, including the following:
• the housing and economic downturn affected a broader group of borrowers. The unemployment rate in the U.S. rose
from 7.4% at December 31, 2008 to 10.0% as of December 31, 2009 and we experienced a significant increase in the
delinquency rate of fixed-rate amortizing loans, which is a more traditional mortgage product. The delinquency rate
for single-family 30-year fixed-rate amortizing loans increased to 4.0% at December 31, 2009 as compared to 1.7% at
December 31, 2008; and
• certain loan groups within the single-family mortgage portfolio, such as those underwritten with certain lower
documentation standards and interest-only loans, as well as 2006 and 2007 vintage loans, continue to be larger
contributors to our worsening credit statistics than other loan groups. These loans have been more affected by declines
in home prices that began in 2006, which resulted in erosion in the borrower’s equity. These loans are also
concentrated in the West region. The West region comprised 27% of the unpaid principal balances of our single-
family mortgage portfolio as of December 31, 2009, but accounted for 46% of our REO acquisitions in 2009, based
on the related loan amount prior to our acquisition. In addition, states in the West region (especially California,
Arizona and Nevada) and Florida tend to have higher average loan balances than the rest of the U.S. and were most
affected by the steep home price declines during the last three years. California and Florida were the states with the
highest credit losses in 2009, comprising 47% of our single-family credit losses on a combined basis.
The delinquency rates in our single-family mortgage portfolio increased throughout 2009, due in part to a slowing of the
foreclosure process, due to HAMP and other loss mitigation programs, as well as extended foreclosure timelines in many
states and servicer capacity constraints. A continuation of this trend, the eventual resolution of this large volume of loans
(many of which we will ultimately foreclose upon) and the potential that home prices will remain under pressure increase the
likelihood that our credit losses will remain high in 2010.
69 Freddie Mac