Freddie Mac 2014 Annual Report Download - page 103

98 Freddie Mac
Monitoring Loan Performance
A number of factors influence loan performance and single-family mortgage credit risk, including loan and borrower
characteristics (such as those described in “Monitoring the Characteristics of the Loans that We Purchase or Guarantee”) and
local and regional economic conditions (such as home prices and unemployment rates).
We monitor the performance of our single-family credit guarantee portfolio using a variety of metrics, including
delinquency statistics and estimated current LTV ratios. Our single-family business unit reviews performance, in conjunction
with housing market and economic conditions, to determine if our pricing and loan eligibility standards reflect the risk
associated with the loans we purchase and guarantee. We also review the payment performance of our loans in order to help
identify potential problem loans early and inform our loss mitigation strategies. We periodically make changes to our seller/
servicer guidelines if warranted.
We review additional performance metrics within certain groupings of loan and product types that may expose us to
concentrations of risk. As a result of our review, we fully discontinued purchases of Alt-A (effective March 1, 2009), interest-
only (effective September 1, 2010), and option ARM (since 2007) loans.
Risk Profile
A higher estimated current LTV ratio can indicate that the borrower’s equity in the home has declined. Based on our
historical experience, there is an increase in borrower default risk and in severity of losses as LTV ratios increase. The
percentage of mortgages in our single-family credit guarantee portfolio with estimated current LTV ratios greater than 100%
was 6% and 10% at December 31, 2014 and 2013, respectively, and the serious delinquency rate for these loans was 9.06% and
9.94%, respectively. Loans with current LTV ratios greater than 100% comprised approximately 61% and 68% of our credit
losses recognized in 2014 and 2013, respectively. The portion of our single-family credit guarantee portfolio with current LTV
ratios greater than 100% declined in 2014 primarily due to foreclosures, short sales, and improving home prices in many
geographic areas.
Improvement in home prices in many areas of the U.S. during 2014 generally led to improved estimated current LTV
ratios of the loans in our portfolio as of December 31, 2014. For the loans in our single-family credit guarantee portfolio with
estimated current LTV ratios greater than 80%, the borrowers had a weighted average credit score at origination of 721 and 722
at December 31, 2014 and 2013, respectively. We continue to purchase non-HARP mortgage loans with original LTV ratios
greater than 80% if they are covered by credit enhancements for the UPB in excess of 80%.
The table below provides characteristics of single-family mortgage loans in our single-family credit guarantee portfolio at
December 31, 2014, 2013, and 2012, based on UPB.
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