Freddie Mac 2010 Annual Report Download - page 213

Table 5.4 presents our loan losses and our recorded investment in mortgage loans by impairment evaluation
methodology.
Table 5.4 — Net Investment in Mortgage Loans
Single-family Multifamily Total Single-family Multifamily Total
December 31, 2010 December 31, 2009
(in millions)
Recorded investment:
Collectively evaluated .......................... $1,762,490 $76,541 $1,839,031 $20,885 $79,664 $100,549
Individually evaluated .......................... 36,505 2,637 39,142 11,036 1,421 12,457
Total recorded investment ...................... 1,798,995 79,178 1,878,173 31,921 81,085 113,006
Ending balance of the allowance:
Collectively evaluated .......................... $ (30,477) $ (382) $ (30,859) $ (550) $ (512) $ (1,062)
Individually evaluated .......................... (8,484) (348) (8,832) (143) (236) (379)
Total ending balance of the allowance ............. (38,961) (730) (39,691) (693) (748) (1,441)
Net investment in mortgage loans .................... $1,760,034 $78,448 $1,838,482 $31,228 $80,337 $111,565
Credit Protection and Other Forms of Credit Enhancement
In connection with our mortgage loans, held-for-investment and other mortgage-related guarantees, we have credit
protection in the form of primary mortgage insurance, pool insurance, recourse to lenders, and other forms of credit
enhancements. Prior to January 1, 2010, credit protection was viewed under GAAP as part of the total consideration received
for providing our credit guarantee and was therefore included within our guarantee obligation and in other assets. A separate
asset was recognized and subsequently amortized into earnings as other non-interest expense under the static effective yield
method in the same manner as our recognized guarantee obligation.
Commencing January 1, 2010, credit protection, including primary mortgage insurance, is no longer recognized as a
separate asset to the extent it is received in connection with a consolidated guarantor swap and fully paid for by the lender;
in those situations, the economic effect of credit protection is included in our estimation of the allowance for loan losses. In
all other situations, credit protection continues to be recognized as a separate asset and subsequently amortized into earnings.
At December 31, 2010 and 2009, respectively, we recorded $151 million and $597 million within other assets on our
consolidated balance sheets for these credit enhancements.
Table 5.5 presents the UPB of loans in our consolidated balance sheets and underlying our financial guarantees with
credit protection and the maximum amounts of potential loss recovery by type of credit protection.
Table 5.5 — Recourse and Other Forms of Credit Protection
(1)
December 31, 2010 December 31, 2009 December 31, 2010 December 31, 2009
UPB at Maximum Coverage at
(in millions)
Single-family:
Primary mortgage insurance ......................... $217,133 $239,339 $52,899 $58,226
Lender recourse and indemnifications . .................. 10,064 12,169 9,566 11,083
Pool insurance. . . . . . . . . . ......................... 37,868 50,721 3,299 3,649
HFA indemnification
(2)
............................. 9,322 3,915 3,263 1,370
Subordination
(3)
.................................. 4,112 4,527 622 784
Other credit enhancements . ......................... 223 563 214 271
Total . . . . . . . . . . . . . . ......................... $278,722 $311,234 $69,863 $75,383
Multifamily:
HFA indemnification
(2)
............................. $ 1,551 $ 405 $ 543 $ 142
Subordination
(3)
.................................. 12,252 6,646 1,414 641
Other credit enhancements . ......................... 9,004 6,972 2,930 2,633
Total . . . . . . . . . . . . . . ......................... $ 22,807 $ 14,023 $ 4,887 $ 3,416
(1) Includes the credit protection associated with unsecuritized mortgage loans, loans held by our consolidated trusts as well as our non-consolidated
mortgage guarantees and excludes FHA/VA and USDA loans. Except for subordination coverage, these amounts exclude credit protection associated
with $19.8 billion and $20.8 billion in UPB of single-family loans underlying Other Guarantee Transactions as of December 31, 2010 and 2009,
respectively, for which the information was not available.
(2) Represents the amount of potential reimbursement of losses on securities we have guaranteed that are backed by state and local HFA bonds, under
which Treasury bears initial losses on these securities up to 35% of those issued under the HFA initiative on a combined basis. Treasury will also bear
losses of unpaid interest.
(3) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding those backed by HFA bonds. At December 31, 2010
and 2009, the average serious delinquency rate on loans underlying our single-family Freddie Mac issued mortgage-related securities with subordination
coverage was 21.1% and 24.1%, respectively.
Primary mortgage insurance is the most prevalent type of credit enhancement within our single-family credit guarantee
portfolio, and is typically provided on a loan-level basis. Pool insurance contracts generally provide insurance on a group, or
pool, of mortgage loans up to a stated aggregate loss limit. As shown in the table above, the UPB of single-family loans
covered by pool insurance declined during 2010, primarily due to loan payoffs and other liquidation events, which reduced
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