Freddie Mac 2014 Annual Report Download - page 186

181 Freddie Mac
Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities
December 31, 2014
Alt-A
Subprime Option ARM Fixed Rate Variable Rate Hybrid Rate
(dollars in millions)
Issuance Date
2004 and prior:
UPB $ 534 $ 38 $ 335 $ 258 $ 189
Weighted average collateral defaults(1) 33% 19 % 13 % 30 % 15 %
Weighted average collateral severities(2) 61% 46 % 45 % 42 % 38 %
Weighted average voluntary prepayment rates(3) 7% 11 % 13 % 8 % 10 %
Average credit enhancements(4) 31% — % 14 % 11 % 13 %
2005:
UPB $ 2,667 $ 1,743 $ 479 $ 374 $ 1,107
Weighted average collateral defaults(1) 43% 26 % 18 % 37 % 21 %
Weighted average collateral severities(2) 63% 47 % 45 % 52 % 41 %
Weighted average voluntary prepayment rates(3) 4% 10 % 12 % 8 % 11 %
Average credit enhancements(4) 48% 1 % (1)% 17 % 2 %
2006:
UPB $ 11,204 $ 4,063 $ 226 $ 418 $ 422
Weighted average collateral defaults(1) 49% 35 % 25 % 38 % 30 %
Weighted average collateral severities(2) 63% 47 % 44 % 48 % 41 %
Weighted average voluntary prepayment rates(3) 3% 8 % 10 % 8 % 10 %
Average credit enhancements(4) 7% (3)% (2)% 1 % (4)%
2007:
UPB $ 13,277 $ 2,443 $ 118 $ 458 $ 165
Weighted average collateral defaults(1) 49% 34 % 40 % 38 % 29 %
Weighted average collateral severities(2) 63% 48 % 51 % 49 % 43 %
Weighted average voluntary prepayment rates(3) 3% 8 % 7 % 8 % 10 %
Average credit enhancements(4) 1% 3 % (1)% (19)% — %
Total:
UPB $ 27,682 $ 8,287 $ 1,158 $ 1,508 $ 1,883
Weighted average collateral defaults(1) 48% 33 % 20 % 36 % 23 %
Weighted average collateral severities(2) 63% 47 % 46 % 48 % 41 %
Weighted average voluntary prepayment rates(3) 3% 8 % 12 % 8 % 11 %
Average credit enhancements(4) 9% — % 3 % 1 % 2 %
(1) The expected cumulative default rate is expressed as a percentage of the current collateral UPB.
(2) The expected average loss given default is calculated as the ratio of cumulative loss over cumulative default for each security.
(3) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding UPB.
(4) Positive values reflect the amount of subordination and other financial support (excluding credit enhancement provided by bond insurance) that will
incur losses in the securitization structure before any losses are allocated to securities that we own. Percentage generally calculated based on: (a) the
total UPB of securities subordinate to the securities we own; divided by (b) the total UPB of all of the securities issued by the trust (excluding notional
balances). Negative values are shown when unallocated collateral losses will be allocated to the securities that we own in excess of current remaining
credit enhancement, if any. The unallocated collateral losses have been considered in our assessment of other-than-temporary impairment.
In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans for
other-than-temporary impairment, we noted that the percentage of securities that were AAA-rated and the percentage that were
investment grade declined significantly since acquisition. While these ratings have declined, the ratings themselves are not
determinative that a loss is more or less likely. While we may consider credit ratings in our analysis, we believe that our
detailed security-by-security analyses provide a more comprehensive view of the ultimate collectability of contractual amounts
due to us.
Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, prepayments, and
other factors becomes available. While it is possible that, under certain conditions, collateral losses on our remaining available-
for-sale securities for which we have not recorded an impairment charge could exceed our credit enhancement levels and a
principal or interest loss could occur, we do not believe that those conditions were likely as of December 31, 2014.
Commercial Mortgage-Backed Securities
CMBS are exposed to stresses in the commercial real estate market. We use an external model to identify securities that
may have an increased risk of failing to make their contractual payments. We then perform an analysis of the underlying
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