Freddie Mac 2014 Annual Report Download - page 176

171 Freddie Mac
(3) Excludes $48.3 billion in UPB at December 31, 2014 where the related loans are also covered by primary mortgage insurance. Maximum coverage
amounts presented represent the outstanding balance of STACR debt securities held by third parties as well as the remaining aggregate limit of
insurance purchased from third parties in ACIS transactions.
(4) Excludes approximately $0.9 billion and $1.8 billion in UPB at December 31, 2014 and 2013, respectively, where the related loans are also covered by
primary mortgage insurance.
(5) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding multifamily K Certificates and those securities
backed by state and local HFA bonds related to the HFA initiative.
Primary mortgage insurance is the most prevalent type of credit enhancement protecting our single-family credit
guarantee portfolio, and is provided on a loan-level basis. Pool insurance contracts provide insurance on a group of mortgage
loans up to a stated aggregate loss limit. We have not purchased pool insurance on single-family loans since March 2008. For
information about counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND
OTHER RISKS — Mortgage Insurers.”
Our credit risk transfer transactions include structured agency credit risk (STACR) debt note transactions and agency
credit insurance structures (ACIS), and provide credit enhancement by transferring a portion of credit losses on single-family
loans that could occur under adverse home price scenarios. In a STACR debt note transaction, we create a reference pool
consisting of a large group of recently acquired single-family mortgage loans. We then create a hypothetical securitization
structure with notional credit risk positions, or tranches (e.g., first loss, mezzanine, and senior). We issue STACR debt notes
that relate to the mezzanine tranches, though the notes are not backed or collateralized by mortgage loans in the reference pool.
The principal balance of the STACR debt notes is reduced (based on a fixed severity schedule) when certain specified credit
events (such as a loan becoming 180 days delinquent) occur on the loans in the reference pool. In turn, this may reduce the total
amount of payments we ultimately make on the STACR debt notes. We retained the first loss position for loans covered by
STACR transactions completed in 2014 and 2013. We executed seven and two STACR debt note transactions in 2014 and
2013, respectively.
In an ACIS transaction, we purchase one or more insurance policies (typically underwritten by a panel of insurers and
reinsurers) that obligate the counterparties to reimburse us for specified credit events (based on a fixed severity schedule up to
an aggregate limit) that are incurred on our mezzanine loss positions associated with STACR debt note transactions in exchange
for our payment of periodic premiums. We executed three and one ACIS transactions during 2014 and 2013, respectively.
We also have credit enhancements protecting our multifamily mortgage portfolio. Subordination, primarily through our
K Certificates, is the most prevalent type, whereby we mitigate our credit risk exposure by structuring our securities to sell the
expected credit risk to private investors who purchase the subordinate tranches.
We also have credit protection for certain mortgage loans on our consolidated balance sheets that are covered by
insurance or partial guarantees issued by federal agencies (such as FHA, VA, and USDA). The total UPB of these loans was
$3.6 billion and $3.9 billion as of December 31, 2014 and 2013, respectively.
Non-Cash Investing and Financing Activities
During the years ended December 31, 2014, 2013, and 2012, we acquired $187.1 billion, $340.9 billion, and $358.1
billion, respectively, of mortgage loans held-for-investment in exchange for the issuance of debt securities of consolidated
trusts.
NOTE 5: IMPAIRED LOANS
Individually Impaired Loans
Individually impaired single-family loans include TDRs, as well as loans acquired under our financial guarantees with
deteriorated credit quality. Individually impaired multifamily loans include TDRs, loans three monthly payments or more past
due, and loans that are impaired based on management judgment. For a discussion of our significant accounting policies
regarding impaired and non-accrual mortgage loans, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES.”
Total loan loss reserves consist of a specific valuation allowance related to individually impaired mortgage loans, and a
general reserve for other probable incurred losses. Our recorded investment in individually impaired mortgage loans and the
related specific valuation allowance are summarized in the table below by product class (for single-family loans).
Table of Contents