Freddie Mac 2010 Annual Report Download - page 262

Table 19.2 — Concentration of Credit Risk — Multifamily Mortgage Portfolio
UPB
Delinquency
Rate
(1)
UPB
Delinquency
Rate
(1)
December 31, 2010 December 31, 2009
(dollars in billions)
By State
California. . . . . . . . ..................................................... $ 19.4 0.06% $ 18.2 —%
Texas . . . . . . . . . . ..................................................... 12.8 0.52 11.7 0.26
NewYork ............................................................ 9.2 — 9.0 —
Florida . . . . . . . . . ..................................................... 6.4 0.56 5.6 0.42
Virginia . . . . . . . . . ..................................................... 5.6 — 5.6 —
Georgia . . . . . . . . . ..................................................... 5.5 0.98 5.3 0.65
All other states . . . . ..................................................... 49.8 0.24 45.9 0.24
Total $108.7 0.26% $101.3 0.20%
By Region
(2)
West................................................................ $ 28.4 0.07% $ 26.5 0.10%
North Central . . . . . ..................................................... 9.7 0.30 9.0 0.19
Northeast . . . . . . . . ..................................................... 31.0 — 29.5 —
Southeast . . . . . . . . ..................................................... 19.2 0.59 17.4 0.52
Southwest . . . . . . . ..................................................... 20.4 0.61 18.9 0.35
Total . . . . . . . . . ..................................................... $108.7 0.26% $101.3 0.20%
By Category
(3)
Original LTV ratio ⬎80%................................................. $ 6.8 2.30% $ 6.8 1.63%
Original DSCR below 1.10 ................................................. $ 3.3 1.22% $ 3.5 1.78%
Non-credit enhanced loans ................................................. $ 87.5 0.12% $ 87.6 0.07%
(1) Based on the UPB of multifamily mortgages two monthly payments or more delinquent or in foreclosure.
(2) See endnote (4) to “Table 19.1 — Concentration of Credit Risk — Single-family Credit Guarantee Portfolio” for a description of these regions.
(3) These categories are not mutually exclusive and a loan in one category may also be included within another.
One indicator of risk for mortgage loans in our multifamily mortgage portfolio is the amount of a borrower’s equity in
the underlying property. A borrower’s equity in a property decreases as the LTV ratio increases. Higher LTV ratios
negatively affect a borrower’s ability to refinance or sell a property for an amount at or above the balance of the outstanding
mortgage. The DSCR is another indicator of future credit performance. The DSCR estimates a multifamily borrower’s ability
to service its mortgage obligation using the secured property’s cash flow, after deducting non-mortgage expenses from
income. The higher the DSCR, the more likely a multifamily borrower will be able to continue servicing its mortgage
obligation. Credit enhancement reduces our exposure to a potential credit loss. As of December 31, 2010, over one-half of
the multifamily loans, measured both in terms of number of loans and on a UPB basis, that were two monthly payments or
more past due had credit enhancements that we currently believe will mitigate our expected losses on those loans.
We estimate that the percentage of loans in our multifamily mortgage portfolio with a current LTV ratio of greater than
100% was approximately 8% and our estimate of the current average DSCR for these loans was 1.1 as of December 31,
2010. We estimate that the percentage of loans in our multifamily mortgage portfolio with a current DSCR less than 1.0 was
7% as of December 31, 2010, and the average current LTV ratio of these loans was 108%. Our multifamily mortgage
portfolio includes certain loans for which we have credit enhancement. Our estimates of current DSCRs are based on the
latest available income information for these properties and our assessments of market conditions. Our estimates of the
current LTV ratios for multifamily loans are based on values we receive from a third-party service provider as well as our
internal estimates of property value, for which we may use changes in tax assessments, market vacancy rates, rent growth
and comparable property sales in local areas as well as third-party appraisals for a portion of the portfolio. We periodically
perform our own valuations or obtain third-party appraisals in cases where a significant deterioration in a borrower’s
financial condition has occurred, the borrower has applied for refinancing, or in certain other circumstances where we deem
it appropriate to reassess the property value. Our internal estimates of property valuation are derived using techniques that
include income capitalization, discounted cash flows, sales comparables, or replacement costs.
Credit Performance of Certain Higher Risk Single-Family Loan Categories
There are several residential loan products that are designed to offer borrowers greater choices in their payment terms.
For example, interest-only mortgages allow the borrower to pay only interest for a fixed period of time before the loan
begins to amortize. Option ARM loans permit a variety of repayment options, which include minimum, interest-only, fully
amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative for option ARM loans allows
the borrower to make monthly payments that may be less than the interest accrued for the period. The unpaid interest, known
as negative amortization, is added to the principal balance of the loan, which increases the outstanding loan balance. We
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