Freddie Mac 2014 Annual Report Download - page 76

71 Freddie Mac
and/or profitability of our new single-family guarantee business. The profitability of our multifamily business could be
adversely affected by a significant decrease in demand for K Certificates” for additional information.
We met the 2014 Conservatorship Scorecard goal for us to complete credit risk transfer transactions for at least $90
billion in UPB using at least one transaction type in addition to STACR debt note transactions. In 2014, we executed ten
transactions that transfer a portion of the mezzanine credit loss position on certain groups of loans in our New single-family
book from us to third-party investors. The transactions consisted of: (a) seven STACR debt note transactions; and (b) three
ACIS transactions. These transactions transferred a portion of the credit losses that could occur under adverse home price
scenarios associated with $147.5 billion in principal of loans in our New single-family book. The 2015 Conservatorship
Scorecard sets a goal for us to complete credit risk transfer transactions for at least $120 billion in UPB using at least two
transaction types. We will continue to seek to expand and refine our offerings of credit risk transfer transactions in the future.
For more information, see "BUSINESS — Our Business — Our Business Segments — Single-Family Guarantee Segment —
Credit Enhancements" and "RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk
Framework and Profile — Transferring a Portion of our Mortgage Credit Risk."
Segment Earnings (provision) benefit for credit losses for the Single-family Guarantee segment was $(1.0) billion, $1.4
billion, and $(3.2) billion in 2014, 2013, and 2012, respectively. The provision for credit losses in 2014 reflects an increase in
our loan loss reserve for newly impaired single-family loans. The (provision) benefit for credit losses in 2013 and 2012 reflect:
(a) declines in the volume of newly delinquent single-family loans; and (b) lower estimates of incurred losses due to the
positive effect of an increase in national home prices. The benefit for credit losses in 2013 also reflects $1.7 billion related to
settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for one-
time cash payments primarily associated with our Legacy single-family books. Assuming that all other factors remain the same,
an increase in home prices may reduce the likelihood that loans will default and may also reduce the amount of credit losses on
the loans that do default.
Segment Earnings other non-interest income was $0.7 billion in 2014, compared to $1.2 billion in 2013 and $0.9 billion
in 2012. Other non-interest income includes resecuritization fees, compensatory fees assessed on servicers that failed to meet
foreclosure timelines and gains or losses related to certain assets that are carried at fair value. The decrease in 2014 was
primarily due to losses in 2014 on certain assets carried at fair value due to a decline in interest rates during the year, compared
to gains on certain of these assets in 2013 due to an increase in interest rates during that year. In 2014, we also charged fewer
compensatory fees to servicers that failed to meet our loan foreclosure timelines. The increase in 2013 from 2012 was primarily
due to higher compensatory fees assessed on servicers that failed to meet our loan foreclosure timelines.
The serious delinquency rate on our single-family credit guarantee portfolio was 1.88%, 2.39%, and 3.25% at
December 31, 2014, 2013, and 2012, respectively. In 2014, our serious delinquency rate continued the decline that began in
2010, primarily due to lower volumes of single-family loans becoming seriously delinquent and continued loss mitigation and
foreclosure activities for loans in the Legacy single-family books. Our loss mitigation efforts in 2014 included the sale of
certain seriously delinquent unsecuritized single-family loans (with an aggregate UPB of $0.6 billion) in a pilot transaction
completed in the third quarter of 2014. In January 2015, we received FHFA approval to execute additional such sales, which
would further reduce our serious delinquency rate. For more information on this transaction, see "NOTE 4: MORTGAGE
LOANS AND LOAN LOSS RESERVES."
Charge-offs, net of recoveries, associated with single-family loans were $3.7 billion, $4.9 billion, and $11.6 billion in
2014, 2013, and 2012, respectively. Our recoveries in 2014, 2013, and 2012 included approximately $0.5 billion, $2.8 billion,
and $0.7 billion, respectively, related to repurchase requests made to our seller/servicers (including amounts related to
settlement agreements with certain sellers to release specified loans from certain repurchase obligations in exchange for one-
time cash payments). See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk
Framework and Profile” and "(Provision) Benefit for Credit Losses" for further information on our single-family credit
guarantee portfolio, including credit performance, serious delinquency rates, charge-offs, REO assets and non-accrual loans.
Administrative expense for the Single-family Guarantee segment increased 14% and 15% in 2014 and 2013, respectively,
compared to the level in the prior year. These increases result, in part, from our efforts to meet Conservatorship Scorecard
initiatives, including development of the common securitization platform, as well as other infrastructure improvement projects.
We expect this trend to continue in 2015.
REO operations (expense) income for the Single-family Guarantee segment was $(205) million in 2014, compared to
$124 million in 2013 and $(62) million in 2012. The change from REO operations income in 2013 to REO operations expense
in 2014 was primarily due to lower gains on the disposition of REO properties associated with a lower volume of REO sales.
The improvement in 2013 compared to 2012 was primarily due to: (a) a decline in REO property expenses associated with a
lower number of REO properties; and (b) improving home prices in certain geographic areas with significant REO activity.
Our single-family REO inventory (measured in number of properties) declined 46% and 4% in 2014 and 2013,
respectively. Our REO acquisition activity has declined in recent periods as a result of: (a) our loss mitigation efforts; (b) a
larger proportion of property sales to third parties at foreclosure; and (c) a declining number of new seriously delinquent loans.
See “RISK MANAGEMENT — Credit Risk Overview — Single-Family Mortgage Credit Risk Framework and Profile —
Table of Contents