Freddie Mac 2014 Annual Report Download - page 157

152 Freddie Mac
payment of principal and interest such that the loan becomes less than three monthly payments past due. For multifamily loans,
the collectability of principal and interest is considered reasonably assured based on a quantitative and qualitative analysis of
the factors specific to the loan being assessed. Upon a loan’s return to accrual status, all previously reversed interest income is
recognized and amortization of any basis adjustments into interest income is resumed.
Allowance for Loan Losses and Reserve for Guarantee Losses
The allowance for loan losses and the reserve for guarantee losses represent estimates of probable incurred credit losses.
The allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our
consolidated balance sheets whereas the reserve for guarantee losses relates to single-family and multifamily loans underlying
our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. Total held-for-investment
mortgage loans, net are shown net of the allowance for loan losses on our consolidated balance sheets. The reserve for
guarantee losses is included within other liabilities on our consolidated balance sheets. Collectively, we refer to our allowance
for loan losses and our reserve for guarantee losses as our loan loss reserves. We recognize probable incurred losses by
recording a charge to the provision for credit losses in our consolidated statements of comprehensive income. Determining the
appropriateness of the loan loss reserves is a complex process that is subject to numerous estimates and assumptions requiring
significant judgment about matters that involve a high degree of subjectivity.
We estimate credit losses related to homogeneous pools of loans in accordance with the accounting guidance for
contingencies. Accordingly, we maintain an allowance for loan losses on mortgage loans held-for-investment when it is
probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Loans that we evaluate for
individual impairment are measured in accordance with the accounting guidance for receivables. For more information, refer to
“Impaired Loans” below.
For both the single-family and multifamily portfolios, we charge off (in full or in part) our recorded investment in a loan
in the period it is determined that the loan (or a portion thereof) is uncollectible, which generally occurs at final disposition of
the loan through foreclosure or other loss event. However, if losses are evident prior to final disposition, earlier recognition of a
charge-off is required by our policies. A charge-off is also recorded if we realize a specific credit loss upon the modification of
a loan in a TDR. We do not have any established threshold in terms of days past due beyond which we partially or fully charge-
off loans.
Single-Family Loans
We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on
individually impaired single-family loans, refer to “Impaired Loans” below.
We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that
evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are determined
based on common underlying characteristics, including estimated current LTV ratios, trends in home prices, loan product type,
and geographic region. In determining the loan loss reserves for single-family loans at the balance sheet date, we evaluate key
inputs and factors including, but not limited to:
• estimated current LTV ratios and historical trends in home prices;
• loan product type;
• delinquency/default status and history;
• actual and estimated rates of collateral loss severity for similar loans;
• geographic location;
• loan age;
• sourcing channel;
• occupancy type;
• UPB at origination;
• expected ability to partially mitigate losses through loan modification or other alternatives to foreclosure;
• expected proceeds from mortgage insurance contracts that are contractually attached to a loan or other credit
enhancements that were entered into contemporaneously with and in contemplation of a guarantee or loan purchase
transaction;
• expected repurchases of mortgage loans by seller/servicers;
• counterparty credit of mortgage insurers and seller/servicers;
• pre-foreclosure real estate taxes and insurance;
• estimated selling costs should the underlying property ultimately be sold; and
• trends in the timing of foreclosures.
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