Freddie Mac 2014 Annual Report Download - page 173

168 Freddie Mac
additional information regarding the fair value of our loans classified as held-for-sale, see "NOTE 16: FAIR VALUE
DISCLOSURES."
Credit Quality of Mortgage Loans
We evaluate the credit quality of single-family loans using different criteria than the criteria we use to evaluate
multifamily loans. The current LTV ratio is one key factor we consider when estimating our loan loss reserves for single-family
loans. As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively affects the
borrower’s ability to refinance (outside of HARP) or to sell the property for an amount at or above the balance of the
outstanding mortgage loan. A second-lien mortgage also reduces the borrower’s equity in the home, and has a similar negative
effect on the borrower’s ability to refinance or sell the property for an amount at or above the combined balances of the first
and second mortgages. As of both December 31, 2014 and 2013, based on data collected by us at loan delivery, approximately
14% of loans in our single-family credit guarantee portfolio had second-lien financing by third parties at origination of the first
mortgage. However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive
notification when a borrower does so. Therefore, it is likely that additional borrowers have post-origination second-lien
mortgages. For further information about concentrations of risk associated with our single-family and multifamily mortgage
loans, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.”
We have discontinued our purchases of Alt-A, interest-only, and option ARM loans. For reporting purposes: (a) loans
within the Alt-A category continue to be presented in that category following modification, even though the borrower may have
provided full documentation of assets and income to complete the modification; and (b) loans within the option ARM category
continue to be presented in that category following modification, even though the modified loan no longer provides for optional
payment provisions.
The table below presents information on the estimated current LTV ratios of single-family held-for-investment loans on
our consolidated balance sheets. Our current LTV ratio estimates are based on available data through the end of each respective
period presented.
Table 4.2 — Recorded Investment of Held-For-Investment Mortgage Loans, by LTV Ratio
As of December 31, 2014 As of December 31, 2013
Estimated Current LTV Ratio(1) Estimated Current LTV Ratio(1)
> 80 to 100 > 100(2) Total > 80 to 100 > 100(2) Total
(in millions)
Single-family loans:
20 and 30-year or more, amortizing
fixed-rate(3) $ 911,071 $ 258,126 $ 85,398 $ 1,254,595 $ 819,509 $ 269,110 $ 124,491 $ 1,213,110
15-year amortizing fixed-rate(3) 265,098 14,101 3,338 282,537 270,211 19,658 5,748 295,617
Adjustable-rate 60,463 6,701 709 67,873 56,208 6,714 1,578 64,500
Alt-A, interest-only, and option
ARM 28,935 18,232 16,448 63,615 29,927 21,564 25,089 76,580
Total single-family loans $1,265,567 $ 297,160 $ 105,893 1,668,620 $1,175,855 $ 317,046 $ 156,906 1,649,807
Multifamily loans 41,353 50,874
Total recorded investment of held-for-
investment loans $ 1,709,973 $ 1,700,681
(1) The current LTV ratios are management estimates, which are updated on a monthly basis. Market values are estimated by adjusting the value of the
property at origination based on changes in the market value of homes in the same geographic area since that time. Changes in market value are derived
from our internal index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie
Mae single-family mortgage acquisitions, including foreclosure sales. Estimates of the current LTV ratio include the credit-enhanced portion of the loan
and exclude any secondary financing by third parties.
(2) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with estimated current LTV ratios in excess of 100% was
9.01% and 9.89% as of December 31, 2014 and 2013, respectively.
(3) The majority of our loan modifications result in new terms that include fixed interest rates after modification. As of December 31, 2014 and 2013, we
have categorized UPB of approximately $42.3 billion and $43.8 billion, respectively, of modified loans as fixed-rate loans (instead of as adjustable rate
loans), even though the modified loans have rate adjustment provisions. In these cases, while the terms of the modified loans provide for the interest
rate to adjust in the future, such future rates are determined at the time of modification rather than at a subsequent date.
For information about the payment status of single-family and multifamily mortgage loans, including the amount of such
loans we deem impaired, see “NOTE 5: IMPAIRED LOANS.” For a discussion of certain indicators of credit quality for the
multifamily loans on our consolidated balance sheets, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER
RISKS — Multifamily Mortgage Portfolio.”
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