Freddie Mac 2009 Annual Report Download - page 92

2009, as compared to the deterioration observed in the first half of 2009. However, we expect national home prices are likely
to decline in the near term, which may result in continued increases in single-family mortgage delinquencies and loss
severities. The level of our provision for credit losses in 2010 will depend on a number of factors, including the actual level
of mortgage defaults, impact of the MHA Program on our loss mitigation efforts, changes in property values, regional
economic conditions, including unemployment rates, third-party mortgage insurance coverage and recoveries and the realized
rate of seller/servicer repurchases.
The amount of our loan loss reserve associated with multifamily properties was $831 million and $277 million as of
December 31, 2009 and 2008, respectively. Significant factors contributing to the higher multifamily loan loss reserve were
the continued 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. Our multifamily delinquency
rate was 0.15% and 0.01% as of December 31, 2009 and 2008, respectively. 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. In 2009, we observed an increase in delinquencies related to our multifamily properties in Georgia and Texas.
Market fundamentals for multifamily properties we monitor experienced the greatest deterioration during 2009 in Florida,
Georgia, Texas and California. If multifamily market fundamentals remain under pressure, then we expect our multifamily
credit losses and delinquencies could continue to increase during 2010. See “Table 8 — Credit Statistics, Multifamily Loan
and Guarantee Portfolios” for quarterly trends in multifamily credit statistics.
REO Operations Expense
The decrease in REO operations expense in 2009, as compared to 2008, was primarily due to a stabilization in single-
family home prices during 2009, which mitigated holding period writedowns and disposition losses. The increase in REO
operations expense in 2008, as compared to 2007, was primarily due to the significant increase in our single-family REO
property inventory in 2008 and declining REO property values. The decline in home prices during 2008 and 2007 combined
with our higher single-family REO inventory balances, resulted in increased market-based write-downs of REO in those
years.
The table below presents the components of our REO operations expense for 2009, 2008 and 2007.
Table 20 — 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) ...................................................... 69,406 35,579 17,231
(1) Consists of costs incurred to maintain or 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.
We expect REO operations expense to increase during 2010, as we expect our single-family and multifamily REO
volumes to continue to rise as more properties transition to foreclosure and property values continue to remain weak.
Losses on Loans Purchased
Our losses on loans purchased were $4.8 billion during 2009 compared to $1.6 billion during 2008. The increase in
losses on loans purchased is attributed both to the increase in volume of our optional repurchases of delinquent and modified
loans underlying our guarantees as well as a decline in market valuations for these loans as compared to 2008. We purchased
approximately 57,000 and 31,200 single-family loans under our financial guarantees during 2009 and 2008, respectively.
During 2009, fair values of modified and delinquent loans declined in the first half of the year and then stabilized without
significant changes for the second half of the year. Commencing January 1, 2010, we no longer recognize losses on loans
purchased from PC pools related to our single-family PC trusts and certain Structured Transactions due to adoption of the
amendments to the accounting standards for transfers of financial assets and consolidation of VIEs. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently Issued Accounting Standards, Not Yet Adopted
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