Freddie Mac 2010 Annual Report Download - page 145

process of eviction. During the period when the borrower may reclaim the property, or we are completing the eviction
process, we are not able to market the property. As of December 31, 2010, 2009 and 2008, approximately 28%, 35% and
23%, respectively, of our REO property inventory were not marketable due to the above conditions. For these and other
reasons, the average holding period of our REO property varies significantly in different geographical areas. As of
December 31, 2010 and 2009, the percentage of our single-family REO property inventory that had been held for sale longer
than one year was 3.4% and 1.6%, respectively.
Although the composition of interest-only and Alt-A loans in our single-family credit guarantee portfolio, based on
UPB, was approximately 5% and 6%, respectively, at December 31, 2010, the percentage of our REO acquisitions in 2010
that had been secured by either of these loan types represented approximately 39% of our total REO acquisitions, based on
loan amount prior to acquisition.
We expanded our methods for REO sales during 2010, including the expanded use of REO auctions and bulk sale
transactions of properties in certain geographical areas. In addition, in certain locations we have offered REO properties for
purchase by Neighborhood Stabilization Program grant recipients prior to listing the properties for sale to the general public.
For the first 15 days following listing, we also offer most of our REO properties exclusively to Neighborhood Stabilization
Program grant recipients and purchasers who intend to occupy the properties.
Loan Loss Reserves
We maintain mortgage-related loan loss reserves at levels we deem adequate to absorb probable incurred losses on
mortgage loans held-for-investment on our consolidated balance sheets and those underlying Freddie Mac mortgage-related
securities and other guarantee commitments. Determining the loan loss reserves is complex and requires significant
management judgment about matters that involve a high degree of subjectivity. See “CRITICAL ACCOUNTING POLICIES
AND ESTIMATES — Allowance for Loan Losses and Reserve for Guarantee Losses” and “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” for further information.
Table 56 summarizes our loan loss reserves activity for held-for-investment mortgage loans recognized on our
consolidated balance sheets and underlying Freddie Mac mortgage-related securities and other guarantee commitments, in
total.
Table 56 — Loan Loss Reserves Activity
(1)
2010 2009 2008 2007 2006
Year Ended December 31,
(dollars in millions)
Total loan loss reserves:
Beginning balance. . . . . . . . . . ......................................... $33,857 $15,618 $ 2,822 $ 619 $ 548
Adjustments to beginning balance
(2)
..................................... (186) — — — —
Provision for credit losses . . . ......................................... 17,218 29,530 16,432 2,854 296
Charge-offs, gross
(3)
................................................ (16,322) (9,402) (3,072) (376) (313)
Recoveries
(3)
..................................................... 3,363 2,088 779 239 166
Transfers, net
(4)
................................................... 1,996 (3,977) (1,343) (514) (78)
Ending balance ..................................................... $39,926 $33,857 $15,618 $2,822 $ 619
Components of Loan Loss Reserves:
Single-family . . . . . . . . . . . ......................................... $39,098 $33,026 $15,341 $2,760 $ 592
Multifamily ..................................................... $ 828 $ 831 $ 277 $ 62 $ 27
Total loan loss reserve, as a percentage of the total mortgage portfolio, excluding non-
Freddie Mac securities . . . . . ......................................... 2.03% 1.69% 0.81% 0.16% 0.04%
(1) Consists of reserves for loans held-for-investment and those underlying Freddie Mac mortgage-related securities and other guarantee commitments.
(2) Adjustments relate to the adoption of accounting standards for transfers of financial assets and consolidation of VIEs. See “NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES” for further information.
(3) Charge-offs represent the amount of the UPB of a loan that has been discharged to remove the loan from our consolidated balance sheet due to either
foreclosure transfer or a short sale or deed-in-lieu transaction. Charge-offs exclude $528 million, $280 million, $377 million, and $156 million for the
years ended December 31, 2010, 2009, 2008, and 2007, respectively, related to certain loans purchased under financial guarantees and reflected within
losses on loans purchased on our consolidated statements of operations. Recoveries of charge-offs primarily result from foreclosure alternatives and
REO acquisitions on loans where a share of default risk has been assumed by mortgage insurers, servicers or other third parties through credit
enhancements.
(4) Consist primarily of: (a) amounts related to agreements with seller/servicers where the transfer represents recoveries received under these agreements to
compensate us for previously incurred and recognized losses; (b) the transfer of a proportional amount of the recognized reserves for guarantee losses
associated with loans purchased from non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments; and (c) net amounts
attributable to recapitalization of past due interest on modified mortgage loans. See “Institutional Credit Risk — Mortgage Seller/Servicers” for more
information about our agreements with our seller/servicers in 2010, including GMAC Mortgage, LLC, Bank of America, N.A., and certain of their
affiliates.
See “CONSOLIDATED RESULTS OF OPERATIONS — Provision for Credit Losses,” for a discussion of our provision
for credit losses.
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