Freddie Mac 2009 Annual Report Download - page 98

Table 22 presents the Segment Earnings of our Single-family Guarantee segment.
Table 22 — Segment Earnings and Key Metrics — Single-Family Guarantee
2009 2008 2007
Year Ended December 31,
(in millions)
Segment Earnings:
Net interest income
(1)
............................................................ $ 123 $ 209 $ 703
Non-interest income:
Management and guarantee income................................................. 3,670 3,729 2,889
Other non-interest income
(1)
..................................................... 334 385 117
Total non-interest income . . . . .................................................. 4,004 4,114 3,006
Non-interest expense:
Administrative expenses ........................................................ (867) (812) (806)
Provision for credit losses ....................................................... (30,273) (16,657) (3,014)
REO operations expense ........................................................ (287) (1,097) (205)
Other non-interest expense....................................................... (132) (92) (78)
Total non-interest expense . . . .................................................. (31,559) (18,658) (4,103)
Segment Earnings (loss) before income tax . ............................................ (27,432) (14,335) (394)
Income tax (expense) benefit ....................................................... 9,601 5,017 138
Segment Earnings (loss), net of taxes . . . ............................................ (17,831) (9,318) (256)
Reconciliation to GAAP net income (loss):
Credit guarantee-related adjustments.................................................. 2,408 (3,936) (3,270)
Tax-related adjustments
(2)
......................................................... (8,265) (9,059) 1,144
Total reconciling items, net of taxes . . . . ............................................ (5,857) (12,995) (2,126)
GAAP net income (loss) ........................................................ $(23,688) $(22,313) $ (2,382)
Key metrics — Single-family Guarantee:
Balances and Growth (in billions, except rate):
Average securitized balance of single-family credit guarantee portfolio
(3)
......................... $ 1,799 $ 1,771 $ 1,584
Issuance — Single-family credit guarantees
(3)
........................................... $ 472 $ 353 $ 467
Fixed-rate products — Percentage of purchases
(4)
......................................... 99% 92% 83%
Liquidation rate — Single-family credit guarantees (annualized rate)
(5)
.......................... 24% 16% 14%
Credit:
Delinquency rate
(6)
............................................................. 3.87% 1.72% 0.65%
Delinquency transition rate
(7)
....................................................... 16.4% 25.5% 15.9%
REO inventory (number of units) . . .................................................. 45,047 29,340 14,394
Single-family credit losses, in basis points (annualized) . . . . . . ............................... 42.7 20.9 3.1
Market:
Single-family mortgage debt outstanding (total U.S. market, in billions)
(8)
........................ $10,292 $ 10,571 $10,540
30-year fixed mortgage rate
(9)
...................................................... 5.1% 5.1% 6.2%
(1) In connection with the use of securitization trusts for the underlying assets of our PCs and Structured Securities in December 2007, we began recording
trust management income in non-interest income. Trust management income represents the fees we earn as master servicer, issuer, administrator, and
trustee. Previously, the benefit derived from interest earned on principal and interest cash flows between the time they were remitted to us by servicers
and the date of distribution to our PCs and Structured Securities holders was recorded to net interest income.
(2) 2009 and 2008 includes an allocation of the non-cash charge related to the establishment of the partial valuation allowance against our deferred tax
assets, net that are not included in Segment Earnings.
(3) Based on unpaid principal balance.
(4) Excludes Structured Transactions, but includes interest-only mortgages with fixed interest rates.
(5) Includes termination of long-term standby commitments.
(6) Represents the percentage of single-family loans in our single-family credit guarantee portfolio, based on loan count, which are 90 days or more past
due or in foreclosure, at period end and excluding loans underlying Structured Transactions. See “RISK MANAGEMENT — Credit Risks — Mortgage
Credit Risk” for a description of delinquency rates and our Structured Transactions.
(7) Represents the percentage of loans that have been reported as 90 days or more delinquent or in foreclosure, during the prior year’s fourth quarter, which
subsequently transitioned to REO within 12 months of the date of delinquency. The rate does not reflect pre-foreclosure sale transactions.
(8) U.S. single-family mortgage debt outstanding as of September 30, 2009 for 2009. Source: Federal Reserve Flow of Funds Accounts of the United States
of America dated December 10, 2009.
(9) Based on Freddie Mac’s PMMS for the last week of each year, which represents the national average mortgage commitment rate to a qualified borrower
exclusive of the fees and points required by the lender. This commitment rate applies only to conventional financing on conforming mortgages with
LTV ratios of 80% or less.
During 2009, 2008 and 2007, Segment Earnings (loss) for our Single-family Guarantee segment was $(17.8) billion,
$(9.3) billion and $(256) million, respectively. Segment earnings (loss) increased in 2009 compared to 2008 primarily due to
an increase in credit-related expenses due to higher delinquency rates, higher volumes of foreclosure transfers and a higher
severity of losses on a per-property basis. The decline in Segment Earnings management and guarantee income for 2009 is
primarily due to lower average contractual management and guarantee fee rates, partially offset by higher average balances
of the single-family credit guarantee portfolio as compared to 2008. The decline in Segment Earnings during 2008, as
compared to 2007, was primarily due to higher Segment Earnings provision for credit losses, that was partially offset by
higher Segment Earnings management and guarantee income. Segment Earnings management and guarantee income was
higher in 2008 than in 2007 due to higher average balances of the single-family credit guarantee portfolio during 2008 as
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