Freddie Mac 2010 Annual Report Download - page 147

of concerns about foreclosure documentation practices, and any imposed delays in the foreclosure process by regulatory or
governmental agencies will cause a delay in our recognition of credit losses.
Table 58 provides detail by region for charge-offs. Regional charge-off trends generally follow a pattern that is similar
to, but lags, that of regional serious delinquency trends.
Table 58 — Single-Family Charge-offs and Recoveries by Region
(1)
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
2010 2009 2008
Year Ended December 31,
(in millions)
Northeast . . . . . . $ 1,367 $ (318) $ 1,049 $ 854 $ (194) $ 660 $ 353 $ (86) $ 267
Southeast . . . . . . 4,311 (1,005) 3,306 2,124 (557) 1,567 693 (193) 500
North Central . . . 2,638 (694) 1,944 1,502 (393) 1,109 689 (191) 498
Southwest . . . . . . 761 (288) 473 484 (169) 315 234 (82) 152
West . . . . . . . . . 7,669 (1,057) 6,612 4,697 (775) 3,922 1,472 (227) 1,245
Total . . . . . . . . . $16,746 $(3,362) $13,384 $9,661 $(2,088) $7,573 $3,441 $(779) $2,662
(1) See endnote (8) to “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.
(2) Recoveries of charge-offs primarily result from foreclosure alternatives and foreclosure transfers on loans where a share of default risk has been
assumed by mortgage insurers, servicers or other third parties through credit enhancements. Recoveries of charge-offs through credit enhancements are
limited in many instances to amounts less than the full amount of the loss.
Single-family charge-offs, gross, for 2010 increased to $16.7 billion compared to $9.7 billion for 2009, primarily due to
an increase in the volume of foreclosure transfers and short sales and continued weakness of residential real estate markets.
The severity of charge-offs increased slightly in 2010 due to overall declines in housing markets resulting in higher per-
property losses, but was more stable than we experienced in 2009. Our per-property loss severity during 2010 continued to
be greatest in those states that experienced significant increases in property values during 2000 through 2006, such as
California, Florida, Nevada and Arizona. California also accounted for 16% of loans in our single-family credit guarantee
portfolio as of December 31, 2010, and comprised approximately 26% of our total credit losses in 2010. In addition,
although Alt-A loans comprised approximately 6% and 8% of our single-family credit guarantee portfolio as of
December 31, 2010 and 2009, respectively, these loans accounted for approximately 37% and 44% of our credit losses
during 2010 and 2009, respectively. See “Table 3 — Credit Statistics, Single-Family Credit Guarantee Portfolio” for
information on severity rates, and see “NOTE 19: CONCENTRATION OF CREDIT AND OTHER RISKS” for additional
information about our credit losses.
Credit Risk Sensitivity
Under a 2005 agreement with FHFA, then OFHEO, we are required to disclose the estimated increase in the NPV of
future expected credit losses for our single-family credit guarantee portfolio over a ten year period as the result of an
immediate 5% decline in home prices nationwide, followed by a stabilization period and return to the base case. Since the
real estate market has already experienced significant home price declines since 2006 and we experienced significant growth
in actual credit losses during 2009 and 2010, our portfolio’s market value has been less sensitive to additional 5% declines in
home prices during 2010 for purposes of this analysis. As shown in the analysis below, the NPV impact of expected credit
losses resulting from a 5% home price shock declined significantly in the first half of 2010, primarily due to the impacts of a
decline in interest rates and actual losses realized during that period. This sensitivity analysis is hypothetical and may not be
indicative of our actual results. We do not use this analysis for determination of our reported results under GAAP. Our
quarterly credit risk sensitivity estimates are as follows:
144 Freddie Mac