Freddie Mac 2014 Annual Report Download - page 58

53 Freddie Mac
that we held or guaranteed approximately 10% of the seriously delinquent single-family mortgages in the market as of that
date.
Multifamily Housing Market
The multifamily market continued to experience solid fundamentals during 2014. Recent data reported by Reis, Inc.
indicated that the national apartment vacancy rate was 4.2% in 2014 and 4.1% in 2013 and remains low compared to the
cyclical peak of 8% reached at the end of 2009. In addition, Reis, Inc. reported that effective rents (i.e., the average rent paid by
the tenant over the term of the lease adjusted for concessions by the landlord and costs borne by the tenant) grew by 3.6%
during 2014. Vacancy rates and effective rents are important to loan performance because multifamily loans are generally
repaid from the cash flows generated by the underlying property and these factors significantly influence those cash flows.
Outlook
Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control.
These statements are not historical facts, but represent our expectations based on current information, plans, judgments,
assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied by such
forward-looking statements due to various factors and uncertainties. For example, a number of factors could cause the actual
performance of the housing and mortgage markets and the U.S. economy in the near term to be significantly worse than we
expect, including adverse changes in national or international economic conditions and changes in the federal government’s
fiscal or monetary policies. See “FORWARD-LOOKING STATEMENTS” for additional information.
National home prices have increased in recent years; however, home prices at December 31, 2014 remained
approximately 11% below their June 2006 peak levels (based on our market index). Declines in the market’s inventory of
vacant housing have supported stabilization and increases in home prices in a number of metropolitan areas. We believe that
home price growth rates will continue to moderate gradually during the near term and will return towards growth rates that are
consistent with long-term historical averages (approximately 2 to 5 percent per year).
Single-Family
We continue to expect that key macroeconomic drivers of the economy, such as income growth, employment, and
inflation, will affect the performance of the housing and mortgage markets during the near term. We expect that economic
growth will continue and mortgage interest rates will remain relatively low compared to historical levels, although interest rates
are expected to begin trending slowly upward. As a result, we believe that housing affordability for potential home buyers will
remain relatively high in most metropolitan housing markets in the near term. We expect that the volume of home sales in 2015
will likely be slightly higher than in 2014. We believe that the relatively high unemployment rate in certain areas and relatively
modest family income growth are important factors that will continue to have a negative effect on single-family housing
demand.
We believe that total mortgage origination volume in the market in 2014 was at its lowest level since 2000. As a result,
our loan purchase activity in 2014 declined to $255.3 billion in UPB compared to $422.7 billion in UPB during 2013. We
expect total mortgage origination volume in the market in 2015 will be at a level similar to 2014. Consequently, we expect our
purchase volume in 2015 will be at a level similar to 2014. During 2014, refinancings, including HARP, comprised
approximately 48% of our single-family purchase and issuance volume compared with 73% in 2013. We expect HARP activity
to continue to remain low during 2015 since the pool of borrowers eligible to participate in the program has declined.
Our guarantee fee rate charged on new acquisitions reflects two across-the-board increases in guarantee fees implemented
in 2012. In June 2014, FHFA released a request for input on the guarantee fees that we and Fannie Mae charge lenders. We
cannot predict what changes, if any, FHFA will require us to make to our guarantee fees as a result of the input received from
this request.
Our charge-offs declined significantly during 2014 compared to 2013. We expect our charge-offs and credit losses to
continue to be lower than the levels we experienced prior to 2014, but to remain elevated in the near term in part due to the
substantial number of delinquent and underwater mortgage loans in our single-family credit guarantee portfolio that will likely
be resolved. For the near term, we also expect:
• REO disposition and short sale severity ratios to remain high; and
• The number of seriously delinquent loans and the volume of our loan workouts to continue to decline.
Multifamily
We expect that the new supply of multifamily housing, at the national level, will be absorbed by market demand in the
near term, driven by continued improvements in the economy and favorable demographics. However, new supply may outpace
demand in certain local markets, which would be evidenced by excess supply and rising vacancy rates. As multifamily market
fundamentals improved in recent years, other market participants, particularly banking institutions, increased their activities in
the multifamily market. We expect that our new multifamily business activity will increase in 2015 compared to 2014, but will
be below the cap of $30.0 billion in UPB as specified by the 2015 Conservatorship Scorecard.
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