Freddie Mac 2010 Annual Report Download - page 146

Credit Loss Performance
Many loans that are seriously delinquent or in foreclosure result in credit losses. Table 57 provides detail on our credit
loss performance associated with mortgage loans and REO assets on our consolidated balance sheets and underlying our non-
consolidated mortgage-related financial guarantees.
Table 57 — Credit Loss Performance
2010 2009 2008
December 31,
(dollars in millions)
REO
REO balances, net:
Single-family .................................................................. $ 6,961 $ 4,661 $3,208
Multifamily ................................................................... 107 31 47
Total . . .................................................................... $ 7,068 $ 4,692 $3,255
REO operations (income) expense:
Single-family .................................................................. $ 676 $ 287 $1,097
Multifamily ................................................................... (3) 20 —
Total . . .................................................................... $ 673 $ 307 $1,097
Charge-offs
Single-family:
Charge-offs, gross
(1)
(including $16.2 billion, $9.4 billion and $3.1 billion relating to loan loss reserves,
respectively) ................................................................. $16,746 $ 9,661 $3,441
Recoveries
(2)
.................................................................. (3,362) (2,088) (779)
Single-family, net ............................................................. 13,384 7,573 2,662
Multifamily:
Charge-offs, gross
(1)
(including $104 million, $21 million and $8 million relating to loan loss reserves,
respectively) ................................................................. 104 21 8
Recoveries
(2)
.................................................................. (1) — —
Multifamily, net . ............................................................. 103 21 8
Total Charge-offs:
Charge-offs, gross
(1)
(including $16.3 billion, $9.4 billion and $3.1 billion relating to loan loss reserves,
respectively) ................................................................. 16,850 9,682 3,449
Recoveries
(2)
.................................................................. (3,363) (2,088) (779)
Total Charge-offs, net . . ....................................................... $13,487 $ 7,594 $2,670
Credit losses
(3)
Single-family .................................................................. $14,060 $ 7,860 $3,759
Multifamily ................................................................... 100 41 8
Total .................................................................... $14,160 $ 7,901 $3,767
Total (in bps)
(4)
................................................................. 72.7 40.8 20.1
(1) Represent the amount of the UPB of a loan that has been discharged in order to remove the loan from our consolidated balance sheets at the time of
resolution, regardless of when the impact of the credit loss was recorded on our consolidated statements of operations through the provision for credit
losses or losses on loans purchased. Charge-offs primarily result from foreclosure transfers and short sales and are generally calculated as the contractual
balance of a loan at the date it is discharged less the estimated value in final disposition or actual net sales in a short sale.
(2) Recoveries of charge-offs primarily result from foreclosure transfers and short sales on loans where a share of default risk has been assumed by
mortgage insurers, servicers, or other third parties through credit enhancements.
(3) Equal to REO operations expense plus charge-offs, net. Excludes foregone interest on non-performing loans, which reduces our net interest income but
is not reflected in our total credit losses. In addition, excludes other market-based credit losses: (a) incurred on our investments in mortgage loans and
mortgage-related securities; and (b) recognized in our consolidated statements of operations.
(4) Calculated as credit losses divided by the average balance of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities and
that portion of REMICs and Other Structured Securities that are backed by Ginnie Mae Certificates.
Our credit loss performance metric generally measures losses at the conclusion of the loan and related collateral
resolution process. There is a significant lag in time from the implementation of problem loan workout activities until the
final resolution of seriously delinquent mortgage loans and REO assets. Our credit loss performance is based on our charge-
offs and REO expenses. We record charge-offs at the time we take ownership of a property through foreclosure, and any
delays in the foreclosure process could reduce the rate at which seriously delinquent loans proceed to foreclosure, and would
delay our recognition of charge-offs. We expect our credit losses to increase in 2011, as our short sale and REO acquisition
volumes will likely remain high, because the level of seriously delinquent loans and pending foreclosures remains elevated
and market conditions, such as home prices and the rate of home sales, continue to remain weak. However, our realization of
credit losses could be delayed due to the concerns about deficiencies in foreclosure documentation practices.
As discussed in “Loan Workout Activities,” we implemented several suspensions in foreclosure transfers of owner-
occupied homes during certain periods of 2008 and 2009, and some servicers implemented suspensions in 2010, all of which
affected our charge-off and REO operations expenses. Any suspension or delays of foreclosure transfers, including as a result
143 Freddie Mac