Freddie Mac 2010 Annual Report Download - page 306

The table below presents the performance measures and management’s assessment of our achievement against those
performance measures.
Table 72 — Achievement of Performance Measures for the Performance-Based Portion of Deferred Base Salary
Performance Measure Weighting Key Factors Impacting Achievement Assessment
Mission
• Support the Obama Administration’s
Making Home Affordable Program;
• Meet 2010 affordable goals and
subgoals (if feasible, as determined by
FHFA); and
• Complete the buildout of the Making
Home Affordable — Compliance
function.
35% • Modified over 160,000 mortgages in support of MHA, significantly exceeding the
target range of 70,000 – 120,000. However, the primary servicers reporting
had only contacted 45% of obligated parties for occupied properties on which
the loans were 60 or more days delinquent, below the target of 75% or more.
• Based on preliminary information, we believe we did not achieve the 2010 Single-
family Low-Income Areas Purchase goal and the related Low-Income Areas sub-
goal, and we also believe we may not have achieved the 2010 Multifamily Low-
Income goal. We are discussing with FHFA whether these goals were infeasible
under the terms of the GSE Act due to market and other factors. See “Table 5 —
Affordable Housing Goals for 2010 and 2011” for more information about these
goals.
• Completed buildout of MHA-Compliance function.
Financial Execution
Meet targets for:
• Segment Earnings;
• Return on Assets (ROA) on new
single-family and multifamily
purchases;
• Underwriting quality on new single-
family and multifamily purchases;
• Option-Adjusted Spread (OAS) on new
investments purchases;
• Retained portfolio balance;
• Conservation of assets; and
• Efficiency/administrative expenses.
35% • Single-family segment loss of $16.3 billion for 2010 was within the target range.
Multifamily segment earnings of $1.0 billion for 2010 exceeded the target.
Investment segment earnings of $1.3 billion were below target due to the inclusion
in earnings of mark-to-market (MTM) losses without the offsetting MTM gains
recorded in AOCI, which is the section of the balance sheet that includes MTM
changes on AFS securities.
• We exceeded the objectives related to return on assets (ROA) for single-family and
multifamily purchases. 2010 single-family ROA benefited from improved PC price
performance during the first half of the year, which reduced the compensation we
provided to customers for the difference in price between our PCs and comparable
Fannie Mae securities. 2010 Multifamily ROA benefited from gains on
securitization activity under our CME initiative.
• For the underwriting quality on new purchases:
– Single-Family: The estimated default costs for the worst quintile of new
purchases was 11 bps, significantly less than the target of 40 to 50 bps
– Multifamily: The weighted average DSCR for the lowest 10% of newly
purchased multifamily conventional loans, based on origination DSCR, was
1.25x the debt payment, which achieved the target of 1.23x or greater.
• The OAS on new purchases for the investment portfolio was below target due to
transactions entered into to improve security performance. We would have achieved
the OAS target had these transactions been excluded.
• The year-end unpaid principal balance of the retained portfolio was $697 billion,
well below the $810 billion limit prescribed in the Senior Preferred Stock Purchase
Agreement.
• With regard to conservation of assets:
– Draws from Treasury of $13.0 billion for 2010, which include the
$500 million draw request that FHFA will submit to Treasury to eliminate our
net worth deficit at December 31, 2010, were within the target range;
– 2010 credit losses of $14.2 billion were just under the low end of the target
range. See “RISK MANAGEMENT — Portfolio Management Activities —
Credit Loss Performance” for more information; and
– Net accounting savings on foreclosure alternatives over the estimated costs had
the loans gone to REO of $1.6 billion exceeded the high end of the target
range of $1.0 to $1.5 billion.
• We met the objective of limiting 2010 administrative expenses, excluding non-
recurring items such as the costs associated with special policy and housing
initiatives such as the MHA program, to no more than $1.509 billion. 2010
administrative expenses measured on this basis totaled $1.4 billion.
Accounting and Controls
• Execute the 2010 internal audit plan;
• Complete the implementation of
accounting standards relating to
transfers of financial assets and
consolidation of variable interest
entities; and
• Complete Sarbanes-Oxley Section 404
work to support the 2009 financial
year certification.
10% • Successfully executed the annual internal audit plan.
• Implemented new accounting standards relating to transfers of financial assets and
consolidation of variable interest entities.
• Successfully completed work necessary to support certification under Section 404
of the Sarbanes-Oxley Act for the 2009 financial year.
Business Infrastructure
• Complete the 2010 elements of our
business infrastructure plan.
20% • Achieved milestones for nine of the 10 business infrastructure workstreams and
revised the timetable for one of the multifamily infrastructure workstreams.
For certain of the performance measures, we have chosen not to disclose the specific target or both the target and actual
results because we believe such disclosure would cause us competitive harm, as the disclosures would provide our
competitors and customers with proprietary information on how we determine our pricing for the mortgages we purchase or
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