Freddie Mac 2014 Annual Report Download - page 91

86 Freddie Mac
(7) Excludes credit enhancement coverage occurring subsequent to our purchase or guarantee, such as through STACR debt notes or other risk transfer
transactions (e.g., K Certificate transactions).
Our single-family purchase activity declined in 2014 compared to 2013 primarily due to reduced refinancing volume. In
2014, refinancings comprised approximately 48% of our single-family purchase and issuance volume, compared with 73% in
2013. We attribute this decline to higher average mortgage interest rates in 2014 compared to 2013. Many borrowers have
already refinanced their loans in recent years at relatively low interest rates, and thus may be less likely to do so in the future.
See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Table 15.2 — Certain Higher-Risk
Categories in the Single-Family Credit Guarantee Portfolio” for information about certain mortgage loans in our single-family
credit guarantee portfolio that, we believe, have higher-risk characteristics.
Derivative Assets and Liabilities, Net
The composition of our derivative portfolio changes from period to period as a result of purchases and terminations of
derivatives, assignments of derivatives prior to their contractual maturity, and expiration of derivatives at their contractual
maturity.
At December 31, 2014, the net fair value of our total derivative portfolio was $(1.1) billion compared to $883 million at
December 31, 2013. See “NOTE 9: DERIVATIVES” for information regarding our derivatives, and the notional or contractual
amounts and related fair values of our total derivative portfolio by product type at December 31, 2014 and 2013, as well as
“NOTE 10: COLLATERAL AND OFFSETTING OF ASSETS AND LIABILITIES — Collateral Pledged” for information
about derivative collateral held and posted.
See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Gains (Losses)” for
a description of gains (losses) on our derivative positions.
REO, Net
We typically acquire properties as a result of borrower defaults (and subsequent foreclosures) on mortgage loans that we
own or guarantee. These properties are recorded as REO assets on our consolidated balance sheets. The balance of our REO,
net, declined to $2.6 billion at December 31, 2014 from $4.6 billion at December 31, 2013. The volume of our single-family
REO acquisitions has been significantly affected by: (a) the length of the foreclosure process, which extends the time it takes
for loans to be foreclosed upon and the underlying properties to transition to REO; (b) the volume of our foreclosure
alternatives, which result in fewer loans proceeding to foreclosures, and thus fewer properties transitioning to REO; and (c) a
large proportion of property sales to third parties at foreclosure. We expect that the length of the foreclosure process will
continue to remain above historical levels and may increase further. Additionally, we expect our REO dispositions to remain at
elevated levels in the near term, as we have a large REO inventory and a significant number of seriously delinquent loans that
are in the process of foreclosure.
The table below provides detail by region for REO activity. Our REO activity consists almost entirely of single-family
residential properties.
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