Freddie Mac 2014 Annual Report Download - page 159

154 Freddie Mac
data to those vintages based upon available economic data related to multifamily real estate, including apartment vacancy and
rental rates.
Impaired Loans
We consider a loan to be impaired when it is probable, based on current information, that we will not receive all amounts
due (including both principal and interest) in accordance with the contractual terms of the original loan agreement. Delays in
the timing of our expected receipt of these amounts that are more than insignificant are considered in making this assessment.
Single-Family Loans
Individually impaired single-family loans primarily include loans that have undergone a TDR. These loans are measured
individually for impairment as discussed below in "Troubled Debt Restructurings." If we determine that foreclosure on the
underlying collateral is probable, we measure impairment based upon the fair value of the collateral, as reduced by estimated
disposition costs and adjusted for estimated proceeds from insurance and similar sources.
Multifamily Loans
Multifamily impaired loans include TDRs, loans three monthly payments or more past due, and loans that are deemed
impaired based on management judgment. Factors considered by management in determining whether a loan is impaired
include, but are not limited to, the underlying property’s operating performance as represented by its current DSCR, available
credit enhancements, estimated current LTV ratio, management of the underlying property, and the property’s geographic
location.
Multifamily loans are generally measured individually for impairment based on the fair value of the underlying
collateral, as reduced by estimated disposition costs, as the repayment of these loans is generally provided from the cash flows
of the underlying collateral and any associated credit-enhancement. Except for cases of fraud and certain other types of
borrower defaults, most multifamily loans are non-recourse to the borrower. As a result, the cash flows of the underlying
property (including any associated credit enhancements) serve as the source of funds for repayment of the loan. Interest income
recognition on multifamily impaired loans is subject to our non-accrual policy as discussed in “Mortgage Loans — Non-
Accrual Loans.”
Troubled Debt Restructurings
Single-family and multifamily loans which experience a modification to their contractual terms which results in a
concession being granted to a borrower experiencing financial difficulties are considered TDRs. A concession is deemed
granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest accrued, at the
original contractual interest rate. As appropriate, we also consider other qualitative factors in determining whether a concession
is deemed granted, including whether the borrower’s modified interest rate is consistent with that of a non-troubled borrower.
We do not consider restructurings that result in a delay in payment that is insignificant to be a concession. We generally
consider a delay in monthly amortizing payments of three months or less to be insignificant. We generally consider all other
delays to be more than insignificant. A concession typically includes one or more of the following being granted to the
borrower: (a) a trial period where the expected permanent modification will change our expectation of collecting all amounts
due at the original contract rate; (b) a delay in payment that is more than insignificant; (c) a reduction in the contractual interest
rate; (d) interest forbearance for a period of time that is not insignificant or forgiveness of accrued but uncollected interest
amounts; (e) principal forbearance that is more than insignificant or a reduction in the principal amount of the loan; and
(f) discharge of the borrower’s obligation in Chapter 7 bankruptcy.
Impairment of a loan having undergone a TDR is generally measured as the excess of our recorded investment in the loan
over the present value of the expected future cash flows, discounted at the loan’s original effective interest rate for fixed-rate
loans or at the loan’s effective interest rate prior to the restructuring for ARM loans. Our expectation of future cash flows
incorporates, among other items, an estimated probability of default which is based on a number of market factors as well as
the characteristics of the loan, such as past due status. Subsequent to the restructuring date, interest income is recognized at the
modified interest rate, subject to our non-accrual policy as discussed in “Mortgage Loans — Non-Accrual Loans” above, with
all other changes in the present value of expected future cash flows being recognized as a component of the provision for credit
losses in our consolidated statements of comprehensive income.
Investments in Securities
Investments in securities consist primarily of mortgage-related securities. We classify securities as “available-for-sale” or
“trading.” As of December 31, 2014 and 2013, we did not classify any securities as “held-to-maturity,” although we may elect
to do so in the future. Securities classified as available-for-sale and trading are reported at fair value with changes in fair value
included in AOCI and other gains (losses) on investment securities recognized in earnings, respectively. See “NOTE 16: FAIR
VALUE DISCLOSURES” for more information on how we determine the fair value of securities.
We elected the fair value option for certain available-for-sale mortgage-related securities, including investments in
securities that: (a) can contractually be prepaid or otherwise settled in such a way that we may not recover substantially all of
our initial recorded investment; or (b) are not of high credit quality at the acquisition date and are identified as within the scope
Table of Contents