Freddie Mac 2010 Annual Report Download - page 70

Serious delinquency rates on single-family loans declined during 2010, but remain at historically high levels for all
major product types. The MBA reported in its National Delinquency Survey that delinquency rates on all single-family loans
in their survey dipped to 8.6% as of December 31, 2010, down from the record 9.7% at year-end 2009. Residential loan
performance was generally better in areas with lower unemployment rates and where property prices have fallen slightly or
not declined at all in the last two years. In its survey, the MBA presents delinquency rates both for mortgages it classifies as
subprime and for mortgages it classifies as prime conventional. The delinquency rates of subprime mortgages are markedly
higher than those of prime conventional loan products in the MBA survey; however, the delinquency experience in prime
conventional mortgage loans during the last two years has been significantly worse than in any year since the 1930s.
Based on data from the Federal Reserve’s Flow of Funds Accounts, there was a sustained and significant increase in
single-family mortgage debt outstanding from 2001 to 2006. This increase in mortgage debt was driven by increasing sales
of new and existing single-family homes during this same period. As reported by FHFA in its Conservator’s Report on the
Enterprises’ Financial Condition, dated August 26, 2010, the market share of mortgage-backed securities issued by the GSEs
and Ginnie Mae declined significantly from 2001 to 2006 while the market share of non-GSE securities peaked. Non-
traditional mortgage types, such as interest-only, Alt-A, and option ARMs, also increased in market share during these years,
which we believe introduced greater risk into the market. We believe these shifts in market activity, in part, help explain the
significant differentiation in delinquency performance of securitized non-GSE and GSE mortgage loans as discussed below.
We estimate that we owned or guaranteed approximately one-fourth of the outstanding single-family mortgages in the
U.S. at December 31, 2010. At December 31, 2010, we held or guaranteed approximately 462,000 seriously delinquent
single-family loans, representing approximately one-tenth of the seriously delinquent single-family mortgages in the market
as of December 31, 2010. We estimate that loans backing non-GSE securities comprised approximately one-tenth of the
single-family mortgages in the U.S. and represented approximately one-fourth of the seriously delinquent single-family
mortgages at December 31, 2010. As of December 31, 2010, we held non-GSE securities with a UPB of $158.4 billion as
investments.
Concerns Regarding Deficiencies in Foreclosure Documentation Practices
In the fall of 2010, several large seller/servicers announced issues relating to the improper preparation and execution of
certain documents used in foreclosure proceedings, including affidavits. These announcements raised various concerns
relating to foreclosure practices. A number of our seller/servicers, including several of our largest ones, temporarily
suspended foreclosure proceedings in certain states in which they do business while they evaluated and addressed these
issues. A number of these companies continue to address these issues, and certain of these suspensions remain in effect. We
temporarily suspended certain foreclosure proceedings, and certain REO sales and eviction proceedings for REO properties
for certain servicers during the fourth quarter of 2010 while we evaluated the impact of these issues. We resumed REO sales
in November 2010.
In November 2010, we terminated the eligibility of one law firm to serve as counsel in foreclosures of Freddie Mac
mortgages, due to issues with respect to the firm’s foreclosure practices. That firm had been responsible for handling a
significant number of foreclosures for our servicers in Florida.
We expect that these issues and the related foreclosure suspensions could prolong the foreclosure process in many states
and may delay sales of our REO properties.
On October 13, 2010, FHFA made public a four-point policy framework detailing FHFA’s plan to address these issues,
including guidance for consistent remediation of identified foreclosure process deficiencies, and directed Freddie Mac and
Fannie Mae to implement this plan.
We have incurred, and will continue to incur, expenses related to these deficiencies in foreclosure documentation
practices and the costs of remediating them, which may be significant. For more information regarding how these
deficiencies in foreclosure documentation practices could impact our business, see “RISK FACTORS — Operational Risks —
Our expenses could increase and we may otherwise be adversely affected by deficiencies in foreclosure practices, as well as
related delays in the foreclosure process” and “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —
Mortgage Seller/Servicers.” Throughout this Form 10-K, we generally refer to these matters as the concerns about
foreclosure documentation practices.
Issues have also been raised with respect to the MERS System. For more information, see “RISK FACTORS —
Operational Risks — Issues related to mortgages recorded through MERS could delay or disrupt foreclosure activities and
have an adverse effect on our business.”
Multifamily Housing Market
Major national multifamily market fundamentals improved during 2010 with several consecutive quarters’ apartment
statistics reflecting positive trends. Vacancy rates, which had climbed to record levels in early 2010, improved, and effective
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