Freddie Mac 2014 Annual Report Download - page 22

17 Freddie Mac
(c) movement to a more stable mortgage product type (i.e., from an adjustable-rate mortgage to a fixed-rate mortgage); or (d) a
reduction in amortization term.
The relief refinance initiative (including HARP) was implemented in 2009 and originally permitted eligible borrowers
with Freddie Mac mortgages having LTV ratios up to 125% to refinance their mortgages. We subsequently implemented a
number of changes to the initiative including: (a) removing the 125% LTV ratio ceiling for fixed-rate mortgages; and (b)
relieving the lenders of certain representations and warranties on the original mortgage being refinanced. Our relief refinance
initiative (including HARP) is scheduled to end in December 2015.
Relief refinance mortgages (including HARP loans) generally present higher risk to us than other refinance loans we have
purchased since 2009 since: (a) underwriting procedures on these loans are more limited than other refinance loans; (b) many
of the loans have high LTV ratios; and (c) the new loan will generally have limited representations and warranties compared to
the original loan. However, relief refinance mortgages (including HARP loans) generally have performed better than loans with
similar characteristics remaining in our single-family credit guarantee portfolio that were originated prior to 2009.
Investments Segment
The Investments segment reflects results from three primary activities: (a) managing the company’s mortgage-related
investments portfolio, excluding Multifamily segment investments and single-family seriously delinquent loans; (b) managing
the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire
company.
Our Investments segment is focused on:
• Maintaining a presence in the agency mortgage-related securities market: Our activities in this market may include
outright purchases and sales, dollar roll transactions, and structuring activities (e.g., resecuritizing existing agency
securities into REMICs and selling some or all of the REMIC tranches).
• Maintaining a portfolio of liquid mortgage assets consistent with our liquidity management guidelines: We evaluate
the liquidity of our investments based on two categories: (a) single-class and multiclass agency securities (excluding
certain structured agency securities collateralized by non-agency mortgage-related securities); and (b) assets that are
less liquid than the agency securities noted above (e.g., mortgage loans and non-agency mortgage-related securities).
We are focusing our efforts on reducing the balance of less liquid assets in the mortgage-related investments portfolio.
Our less liquid assets collectively represented $239.3 billion and $286.3 billion, or approximately 59% and 62% of the
UPB of the portfolio, at December 31, 2014 and 2013, respectively.
• Managing the single-family performing loans obtained through our cash purchase program: In conjunction with the
single-family business, we purchase loans from lenders for cash and securitize the majority of them into Freddie Mac
agency securities. These agency securities may be sold to dealers or investors, or retained in our Investments segment
mortgage investments portfolio.
• Managing single-family delinquent loans along with the single-family business: This includes removing seriously
delinquent loans from PC pools and selling loans, and could include other disposition strategies in the future.
• Managing single-family reperforming loans and performing modified loans: This includes securitizing loans,
structuring the resulting securities and selling some or all of the tranches, and could include selling loans or other
disposition strategies in the future.
• Reducing the balance of our non-agency mortgage-related securities through liquidations and sales, subject to a variety
of constraints, including market conditions.
• Managing the treasury function for the entire company, including funding and liquidity, through the issuance of short-
term and long-term unsecured debt: We maintain a liquidity and contingency operating portfolio of cash and non-
mortgage investments for short-term liquidity management.
• Managing the interest-rate risk for the entire company through the use of derivatives and unsecured debt.
Our Customers
Our unsecured debt securities and structured mortgage-related securities are initially purchased by dealers and
redistributed to their customers. The customers for our unsecured debt securities generally include insurance companies, money
managers, central banks, depository institutions, and pension funds. Our customers under our mortgage loan cash purchase
program are a variety of lenders, as discussed in “Single-Family Guarantee Segment — Our Customers.”
Our Competition
Our competitors are firms that invest in mortgage loans and mortgage-related assets, and issue corporate debt. As a result,
we have a variety of principal competitors, including Fannie Mae, REITs, supranationals (international institutions that provide
development financing for member countries), commercial and investment banks, dealers, thrift institutions, insurance
companies, and the FHLBs.
Table of Contents