Freddie Mac 2010 Annual Report Download - page 89

has become a more significant competitor since 2008, guarantees the timely payment of principal and interest on mortgage-
related securities backed by federally insured or guaranteed loans, primarily those insured by FHA or guaranteed by VA.
Ginnie Mae increased its share of the securitization market in 2010, in large part due to favorable pricing of loans insured by
FHA, the increase in the FHA loan limit and the availability, through FHA, of a mortgage product for borrowers seeking
greater than 80% financing who could not otherwise qualify for a conventional mortgage.
Refinance volumes continued to be high due to continued low interest rates, and represented 80% of our single-family
mortgage purchase volume during 2010. Relief refinance mortgages represented 28% of our single-family mortgage purchase
volume during 2010. We believe the combination of high refinance activity (excluding relief refinance mortgages), changes
in underwriting standards and fewer purchases of loans with higher-risk characteristics resulted in overall improvement in the
credit quality associated with our single-family mortgage purchases in 2009 and 2010 as compared to purchases from 2005
through 2008 as measured by original LTV ratios, FICO credit scores, and income documentation standards.
During 2010, 2009 and 2008, our Segment Earnings provision for credit losses for the Single-family Guarantee segment
was $18.8 billion, $29.1 billion and $16.3 billion, respectively. Segment Earnings provision for credit losses decreased in
2010, compared to 2009, primarily due to a substantial slow down in the rate of growth in non-performing single-family
loans, as well as a less significant increase in loss severity, but was partially offset by an increase in the number of single-
family loans subject to individual impairment resulting from an increase in modifications classified as TDRs during 2010.
Our estimates of allowance for loan losses associated with loans classified as TDRs generally result in an increase in the
allowance for loan losses as compared to non-TDR loans evaluated on an aggregate basis. Our Segment Earnings provision
for credit losses for the segment was higher in 2009, compared to 2008, due to increased credit deterioration in our single-
family credit guarantee portfolio, primarily related to loans with higher-risk characteristics and loans originated in 2007 and
2006. Our Segment Earnings provision for loan losses is generally higher than that recorded under GAAP primarily due to
recognized provision associated with forgone interest income on non-performing loans, which is not recognized under GAAP
since the loans are placed on non-accrual status.
The serious delinquency rate on our single-family credit guarantee portfolio decreased slightly to 3.84% as of
December 31, 2010 from 3.98% as of December 31, 2009 due to a higher volume of loan modifications and foreclosure
transfers, as well as a slowdown in new serious delinquencies. As of December 31, 2010, more than one-third of our single-
family credit guarantee portfolio is comprised of mortgage loans originated during 2009 and 2010. These new vintages
reflect the combination of changes in underwriting practices and other factors discussed in “BUSINESS — EXECUTIVE
SUMMARY — Our Primary Business Objectives” and are replacing the older vintages that have a higher composition of
loans with higher-risk characteristics. We currently expect that, over time, this should positively impact the serious
delinquency rates and credit losses of our single-family credit guarantee portfolio. Although the volume of new serious
delinquencies declined in each quarter of 2010, our serious delinquency rate remains high, reflecting continued stress in the
housing and labor markets.
Charge-offs associated with single-family loans increased to $16.7 billion in 2010, compared to $9.7 billion in 2009 and
$3.4 billion in 2008, primarily due to an increase in the volume of foreclosure transfers and short sales. See “RISK
MANAGEMENT — Credit Risk — Mortgage Credit Risk” for further information on our single-family credit guarantee
portfolio, including credit performance, charge-offs, and growth in the balance of our non-performing assets.
Segment Earnings non-interest income was $5.0 billion, $4.2 billion, and $4.5 billion in 2010, 2009, and 2008,
respectively. The increase in 2010, compared to 2009 was primarily due to higher management and guarantee fees, discussed
above, and higher recoveries on loans impaired upon purchase. In 2010, increased recoveries on loans impaired upon
purchase resulted from a higher volume of short sales and foreclosure transfers, compared to 2009, combined with
improvements in home prices in certain geographical areas.
Segment Earnings non-interest expense was $2.2 billion, $6.1 billion, and $3.7 billion in 2010, 2009 and 2008,
respectively. The decline in non-interest expense in 2010, compared to 2009, was primarily due to a decline in losses on
loans purchased that resulted from changes in accounting standards adopted on January 1, 2010. Single-family Guarantee
REO operations expense increased during 2010, compared to 2009, as a result of higher property expenses and holding
period write-downs that were partially offset by lower disposition losses and increased recoveries. Single-family Guarantee
REO operations expense decreased during 2009, compared to 2008, primarily due to stabilization of single-family home
prices in 2009, which mitigated holding period writedowns and disposition losses. During 2010 and 2009, we experienced
significant increases in REO activity in all regions of the U.S., particularly in California, Florida, Nevada and Arizona. See
“RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Portfolio Management Activities — Credit Performance”
for further information on serious delinquency rates and REO activity.
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