Freddie Mac 2010 Annual Report Download - page 87

Single-Family Guarantee
Table 18 presents the Segment Earnings of our Single-family Guarantee segment.
Table 18 — Segment Earnings and Key Metrics — Single-Family Guarantee
(1)
2010 2009 2008
Year Ended December 31,
(dollars in millions)
Segment Earnings:
Net interest income. ............................................................ $ 72 $ 307 $ 280
Provision for credit losses . . ...................................................... (18,785) (29,102) (16,325)
Non-interest income:
Management and guarantee income . ............................................... 3,635 3,448 3,615
Other non-interest income ...................................................... 1,351 721 880
Total non-interest income ..................................................... 4,986 4,169 4,495
Non-interest expense:
Administrative expenses . . ...................................................... (879) (915) (826)
REO operations expense . ...................................................... (676) (287) (1,097)
Other non-interest expense ...................................................... (629) (4,888) (1,730)
Total non-interest expense ..................................................... (2,184) (6,090) (3,653)
Segment adjustments
(2)
.......................................................... (953) — —
Segment Earnings (loss) before income tax benefit (expense) ................................ (16,864) (30,716) (15,203)
Income tax benefit (expense) ...................................................... 608 3,573 (5,146)
Segment Earnings (loss), net of taxes ............................................... (16,256) (27,143) (20,349)
Reconciliation to GAAP net income (loss):
Credit guarantee-related adjustments
(3)
............................................... — 5,941 (2,871)
Tax-related adjustments .......................................................... — (2,080) 1,005
Total reconciling items, net of taxes . ............................................... — 3,861 (1,866)
Net income (loss) attributable to Freddie Mac . . ......................................... $(16,256) $(23,282) $(22,215)
Key metrics — Single-family Guarantee:
Balances and Growth (in billions, except rate):
Average securitized balance of single-family credit guarantee portfolio
(4)
........................ $ 1,728 $ 1,799 $ 1,771
Issuance — Single-family credit guarantees
(4)
........................................... $ 385 $ 472 $ 353
Fixed-rate products — Percentage of purchases
(5)
........................................ 95% 99% 92%
Liquidation rate — Single-family credit guarantees
(6)
...................................... 29% 24% 16%
Management and Guarantee Fee Rate (in bps):
Contractual management and guarantee fees . . . ......................................... 13.5 13.9 15.3
Amortization of delivery fees ...................................................... 6.1 4.8 4.8
Segment Earnings management and guarantee income . . . . ................................. 19.6 18.7 20.1
Credit:
Serious delinquency rate, at end of period ............................................. 3.84% 3.98% 1.83%
REO inventory, at end of period (number of units) ....................................... 72,079 45,047 29,340
Single-family credit losses, in bps
(7)
................................................. 76.2 42.7 20.9
Market:
Single-family mortgage debt outstanding (total U.S. market, in billions)
(8)
....................... $10,612 $ 10,861 $ 11,072
30-year fixed mortgage rate
(9)
..................................................... 4.9% 5.1% 5.1%
(1) Beginning January 1, 2010, under our revised method, Segment Earnings for the Single-family Guarantee segment equals GAAP net income (loss)
attributable to Freddie Mac for the Single-family Guarantee segment. For reconciliations of Segment Earnings for the Single-family Guarantee segment
in 2010, 2009 and 2008 and the Segment Earnings line items to the comparable line items in our consolidated financial statements prepared in
accordance with GAAP, see “NOTE 17: SEGMENT REPORTING — Table 17.2 — Segment Earnings and Reconciliation to GAAP Results.”
(2) For a description of our segment adjustments see “NOTE 17: SEGMENT REPORTING — Segment Earnings — Segment Adjustments.”
(3) Consists primarily of amortization and valuation adjustments pertaining to the guarantee obligation and guarantee asset which were excluded from
Segment Earnings and cash compensation exchanged at the time of securitization, excluding buy-up and buy-down fees, which were amortized into
earnings. These reconciling items existed in periods prior to 2010 as the amendment to the accounting standards for transfers of financial assets and
consolidation of VIEs was applied prospectively on January 1, 2010.
(4) Based on UPB.
(5) Excludes Other Guarantee Transactions, and includes purchases of interest-only mortgages with fixed interest rates.
(6) Includes our purchases of delinquent loans from PCs. On February 10, 2010, we announced that we would begin purchasing substantially all 120 days
or more delinquent mortgages from our PC pools. See “NOTE 6: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for more
information.
(7) Credit losses are equal to REO operations expenses plus charge-offs, net of recoveries, associated with single-family mortgage loans. Calculated as the
amount of credit losses divided by the average balance of our single-family credit guarantee portfolio.
(8) Source: Federal Reserve Flow of Funds Accounts of the United States of America dated December 9, 2010. The outstanding amount for 2010 reflects
the balance as of September 30, 2010, which is the latest available information.
(9) Based on Freddie Mac’s Primary Mortgage Market Survey rate for the last week in the year, which represents the national average mortgage
commitment rate to a qualified borrower exclusive of any fees and points required by the lender. This commitment rate applies only to financing on
conforming mortgages with LTV ratios of 80%.
During 2010, 2009 and 2008, Segment Earnings (loss) for our Single-family Guarantee segment was $(16.3) billion,
$(27.1) billion and $(20.3) billion, respectively. Segment Earnings (loss) improved in 2010, compared to 2009, primarily due
to a decline in credit-related expenses. Credit-related expenses consist of our provision for credit losses and REO operations
84 Freddie Mac