Freddie Mac 2010 Annual Report Download - page 88

expense. The increase in Segment Earnings (loss) during 2009, as compared to 2008, was primarily due to higher Segment
Earnings provision for credit losses and, to a lesser extent, higher losses on loans purchased.
Table 19 provides summary information about the composition of Segment Earnings (loss) for this segment in 2010.
Segment Earnings management and guarantee income consists of contractual amounts due to us related to our management
and guarantee fees as well as amortization of delivery fees.
Table 19 — Segment Earnings Composition — Single-Family Guarantee Segment
Amount
Average
Rate Amount
Average
Rate
(3)
Net Amount
(4)
Segment Earnings
Management and
Guarantee Income
(1)
Credit Expenses
(2)
Year Ended December 31, 2010
(dollars in millions, rates in bps)
Year of origination
(5)
:
2010. . . ...................................................... $ 418 23.8 $ (109) 6.2 $ 309
2009. . . ...................................................... 837 19.3 (367) 8.4 470
2008. . . ...................................................... 554 29.5 (2,151) 114.3 (1,597)
2007. . . ...................................................... 493 21.2 (7,170) 307.2 (6,677)
2006. . . ...................................................... 289 16.5 (5,847) 332.6 (5,558)
2005. . . ...................................................... 313 15.8 (2,644) 132.8 (2,331)
2004 and prior . . ................................................ 731 16.3 (1,173) 26.1 (442)
Total . . ...................................................... $3,635 19.6 $(19,461) 104.7 (15,826)
Administrative expenses . ......................................... (879)
Net interest income ............................................. 72
Income tax benefit and other non-interest income and (expense), net
(6)
.......... 377
Segment Earnings (loss), net of taxes ................................. $(16,256)
(1) Includes amortization of delivery fees of $1.1 billion for the year ended December 31, 2010.
(2) Consists of the aggregate of the Segment Earnings provision for credit losses and Segment Earnings REO operations expense.
(3) Based on the average securitized balance of the single-family credit guarantee portfolio. Historical rates of average credit expenses may not be
representative of future results.
(4) Calculated as Segment Earnings management and guarantee income less credit expenses.
(5) Segment Earnings management and guarantee income is presented by year of guarantee origination, whereas credit expenses are presented based on year
of loan origination.
(6) Includes segment adjustments.
During 2010, we raised our management and guarantee fee rates with certain of our seller/servicers; however, these
increased rates are still lower than the average rates of the PCs that were liquidated during 2010. We implemented delivery
fee increases in 2009 for mortgages with certain combinations of LTV ratios and other higher-risk loan characteristics,
subject to certain maximum limits. We currently believe the increase in management and guarantee fee rates we implemented
in 2009 and 2010, when coupled with the higher credit quality of the mortgages within our new PC issuances in 2009 and
2010, will provide management and guarantee fee income, over the long term, that exceeds our anticipated credit-related and
administrative expenses associated with the underlying loans. However, the increase in management and guarantee fees
associated with 2009 and 2010 originated business will not be sufficient to offset the future expenses associated with our
2005 to 2008 PC issuances since the management and guarantee fees associated with those securities do not change.
Consequently, we expect to continue to report a net loss for the Single-family Guarantee segment in 2011.
Segment Earnings management and guarantee income increased slightly in 2010 compared to 2009, primarily due to an
increase in the amortization of delivery fees. Increased amortization of delivery fees in 2010, compared to 2009, reflects the
impact of higher delivery fees associated with loans purchased in the last two years combined with higher prepayment rates
on guaranteed mortgages in 2010 as mortgage rates declined and refinancing activity increased. Segment Earnings
management and guarantee income was lower in 2009 than in 2008 primarily due to lower average fee rates in 2009.
The UPB of the Single-family Guarantee managed loan portfolio was $1.78 trillion at December 31, 2010 compared to
$1.86 trillion at December 31, 2009. The decline in this portfolio was primarily attributable to liquidations of Freddie Mac
mortgage-related securities, partially offset by increased purchases of seriously delinquent mortgages out of PC pools. The
liquidation rate on our securitized single-family credit guarantees increased to 29% for 2010, compared to 24% and 16% in
2009 and 2008, respectively.
Our single-family mortgage purchases in 2010 decreased by 19% to $386.4 billion, as compared to $475.4 billion in
2009. Single-family mortgage purchase volumes from individual customers can fluctuate significantly. Our mortgage
purchase volumes are impacted by several factors, including origination volumes, the price performance of our PCs,
mortgage product and underwriting trends, competition, customer-specific behavior, contract terms, and governmental
initiatives concerning our business activities. Origination volumes can be affected by government programs, such as the
increase in refinance loan volume during 2010 and 2009 associated with our relief refinance initiative. Ginnie Mae, which
85 Freddie Mac