Freddie Mac 2010 Annual Report Download - page 211

the borrower’s ability to refinance or to sell the property for an amount at or above the balance of the outstanding mortgage
loan. If a borrower has an estimated current LTV ratio greater than 100%, the borrower is “underwater” and is more likely to
default than other borrowers. Table 5.2 presents information on the estimated current LTV ratios of single-family loans held-
for-investment on our consolidated balance sheets. Our current LTV ratio estimates are based on available data through
December 31, 2010.
Table 5.2 — Recorded Investment of Held-for-Investment Mortgage Loans, by LTV Ratio
⬍= 80 81 – 100 ⬎100
(2)
Total
Estimated Current LTV Ratio
(1)
As of December 31, 2010
(in millions)
Single-family loans:
20 and 30-year or more, amortizing fixed-rate . . . ........................... $ 704,882 $393,853 $216,388 $1,315,123
15-year amortizing fixed-rate . . ........................................ 233,422 16,432 2,523 252,377
Adjustable-rate
(3)
.................................................. 34,252 13,273 9,149 56,674
Alt-A, interest-only, and option ARM
(4)
................................... 45,068 44,540 85,213 174,821
Total single-family loans .............................................. $1,017,624 $468,098 $313,273 $1,798,995
Multifamily loans . . . . ............................................... 79,178
Total recorded investment of held-for-investment loans .......................... $1,878,173
(1) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of
the property at origination based on changes in the market value of homes in the same geographical area since that time. The value of a property at
origination is based on the sales price for purchase mortgages and third-party appraisal for refinance mortgages. Estimates of the current LTV ratio
include the credit-enhanced portion of the loan and exclude any secondary financing by third parties.
(2) The serious delinquency rate for the total of single-family mortgage loans with estimated current LTV ratios in excess of 100% was 14.9% as of
December 31, 2010.
(3) Includes balloon/reset mortgage loans and excludes option ARMs.
(4) We discontinued purchases of Alt-A loans on March 1, 2009 (or later, as customers’ contracts permitted), and interest-only loans effective September 1,
2010. Modified loans within the Alt-A category remain as such, even though the borrower may have provided full documentation of assets and income
to complete the modification. Modified loans within the option ARM category remain as such even though the modified loan no longer provides for
optional payment provisions.
For information about the payment status of single-family and multifamily mortgage loans, including the amount of
such loans we deem impaired, see “NOTE 6: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS.” For a
discussion of certain indicators of credit quality for the multifamily loans on our consolidated balance sheets, see “NOTE 19:
CONCENTRATION OF CREDIT AND OTHER RISKS — Mortgages and Mortgage-Related Securities.”
Allowance for Loan Losses and Reserve for Guarantee Losses, or Loan Loss Reserve
We maintain an allowance for loan losses on mortgage loans that we classify as held-for-investment on our consolidated
balance sheets. Prior to consolidation of certain of our securitization trusts, we also maintained a reserve for guarantee losses
for mortgage loans held by these trusts. In 2010, our reserve for guarantee losses is associated with Freddie Mac mortgage-
related securities backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee
commitments, for which we have incremental credit risk, and this reserve is included within other liabilities on our
consolidated balance sheets.
During the second quarter of 2010, we identified a backlog related to the processing of loan workouts reported to us by
our servicers, principally loan modifications and short sales. This backlog in processing loan modifications and short sales
resulted in erroneous loan data within our loan reporting systems, thereby impacting our financial accounting and reporting
systems. The resulting error impacted our provision for credit losses and allowance for loan losses and affected our
previously reported financial statements for the interim period ended March 31, 2010 and the interim 2009 periods and full
year ended December 31, 2009. For additional information, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES — Basis of Presentation — Out-of-Period Accounting Adjustment.”
208 Freddie Mac