Freddie Mac 2009 Annual Report Download - page 73

We believe the credit quality of the single-family loans we acquired in 2009 improved, as compared to loans acquired in
recent years, as measured by original LTV ratios and FICO scores. We believe this improvement was the result of:
(i) changes in underwriting guidelines we implemented during 2008 and into 2009; (ii) an increase in the relative amount of
refinance mortgages we acquired in 2009; (iii) more of the loans originated in 2009 that had higher risk characteristics were
insured by FHA and securitized through Ginnie Mae; and (iv) changes in mortgage insurers’ underwriting practices.
Multifamily Loan and Guarantee Portfolios
The following statistics show certain trends in our multifamily loan and guarantee portfolios, which consist of loans
held by us on our consolidated balance sheets as well as those underlying PCs, Structured Securities and other financial
guarantees, but excludes our guarantees of HFA bonds.
Table 8 — Credit Statistics, Multifamily Loan and Guarantee Portfolios
12/31/2009 09/30/2009 06/30/2009 03/31/2009 12/31/2008
As of
Delinquency rate — 60 days or more (in bps)
(1)
......................... 19 14 15 10 3
Delinquency rate — 90 days or more (in bps)
(1)
......................... 15 11 11 9 1
Non-performing assets, on balance sheet (in millions)
(2)
................... $524 $380 $297 $309 $320
Non-performing assets, off-balance sheet (in millions)
(2)
................... $218 $198 $154 $108 $ 63
Multifamily loan loss reserve (in millions) ............................ $831 $404 $330 $275 $277
(1) Based on the net carrying value of mortgages 60, or 90 days or more delinquent, respectively, and excludes multifamily Structured Transactions. The
90-day delinquency rate for multifamily loans, including Structured Transactions, was 16 bps and 3 bps as of December 31, 2009 and 2008,
respectively.
(2) Consists of loans that; (a) have undergone a troubled debt restructuring, (b) are more than 90 days past due, or (c) are deemed credit-impaired basedon
management’s judgment and are at least 30 days delinquent. Non-performing assets, on balance sheet include REO assets.
Due to a weakening employment market in the U.S. and other factors, apartment market fundamentals continued to
deteriorate in 2009, as reflected by increased property vacancy rates and declining average monthly rental rates. This led to a
decrease in net operating income of borrowers and a decline in market values of multifamily properties, which led to an
increase in current LTV ratios and lower DSCRs. Given the significant weakness currently being experienced in the U.S.
economy, it is likely that apartment fundamentals will continue to deteriorate during 2010, which could increase
delinquencies and cause us to incur additional credit losses. Multifamily capital market conditions also deteriorated in 2009,
with a significant decline in available credit and more strict underwriting requirements by investors. We were very active in
the multifamily market in 2009 through our purchase or guarantee of new loans; however, we expect to have lower activity
in 2010 since we believe loan volumes in the multifamily market will remain low or decline from 2009 levels.
The delinquency rate for multifamily loans on our consolidated balance sheets and underlying our PCs, Structured
Securities and other mortgage guarantees, excluding Structured Transactions, on a combined basis, was 0.15% and 0.01% as
of December 31, 2009 and 2008, respectively. Market fundamentals for multifamily properties we monitor have experienced
the greatest deterioration during 2009 in Florida, Georgia, Texas and California. 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.
Loss Mitigation
We have taken steps during 2009 designed to support homeowners and mitigate the growth of our non-performing
assets. We continue to expand our efforts by increasing our use of foreclosure alternatives, increasing our staff and engaging
certain vendors to assist our seller/servicers in completing loan modifications and initiating other outreach programs with the
objective of keeping more borrowers in their homes. Currently, we are primarily focusing on initiatives that support the
MHA Program. We also serve as the compliance agent under the MHA Program for certain foreclosure prevention activities,
and we advise and consult with Treasury about the design, results and future improvement of the MHA Program.
Certain of the loss mitigation activities we implemented in 2008 and 2009 created fluctuations in our credit statistics.
For example, our temporary suspensions of foreclosure transfers of occupied homes temporarily slowed the rate of growth of
our REO inventory and of charge-offs, a component of our credit losses, during 2009, but caused our reserve for guarantee
losses to rise. In addition, the implementation of HAMP in the second quarter of 2009 contributed to a temporary decrease in
the number of completed loan modifications in the remainder of 2009. HAMP requires borrowers to enter into a trial period
before these modifications become effective. Trial periods are required to last for at least three months. Borrowers did not
begin entering into trial periods under HAMP in significant numbers until early in the third quarter and, in many cases, trial
periods were extended beyond the initial three month period as HAMP guidelines were modified. These efforts also created
an increase in the number of delinquent loans that remain in our single-family mortgage portfolio, which results in higher
reported delinquency rates than would have occurred without the HAMP efforts or our temporary suspension of foreclosure
transfers.
70 Freddie Mac