Freddie Mac 2015 Annual Report Download - page 101

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 99
Characteristic Description Impact on Credit Quality
LTV Ratio Ratio of the UPB of the loan to the
value of the underlying property
collateralizing the loan. Original LTV
ratio is at loan origination, while current
LTV ratio is based on the current UPB
to the estimated current property value.
• Measures ability of the underlying
property to cover our exposure on the
loans
•Higher LTV ratios indicate higher risk, as
proceeds from sale of the property may
not cover our exposure on the loans
Credit Score Statistically-derived number used by
lenders to assess a borrower’s
likelihood to repay debt. We primarily
use FICO scores, which are currently
the most commonly used credit scores.
• Borrowers with higher credit scores are
generally more likely to repay or have the
ability to refinance than those with lower
scores
• Credit scores presented in this Form 10-K
are at the time of origination and may not
be indicative of the borrowers’ current
creditworthiness
Loan Purpose Indicates how the borrower intends to
use the proceeds from a loan (i.e.,
purchase, cash-out refinance, or other
refinance)
• Cash-out refinancings generally have had
a higher risk of default than loans
originated in purchase or other refinance
transactions
Property Type Indicates whether the property is a
detached single-family house,
townhouse, condominium, or co-op
• Detached single-family houses and
townhouses are the predominant type of
single-family property
• Condominiums historically have
experienced greater volatility in home
prices than detached single-family
houses, which may expose us to more
risk
Occupancy Type Indicates whether the borrower intends
to use the property as a primary
residence, second home, or investment
property
• Loans on primary residence properties
tend to have lower credit risk than loans
on second homes or investment
properties
Product Type Indicates the type of loan based on key
loan terms, such as the contractual
maturity, type of interest rate, and
payment characteristics of the loan
• Loan products that contain terms which
result in scheduled changes in monthly
payments may result in higher risk
• Shorter loan terms result in faster
repayment of principal and may indicate
lower risk
Second Liens Indicates whether the underlying
property has more than one loan • Second liens can increase the risk of default
• Borrowers are free to obtain second-lien
financing after origination, and we are not
entitled to receive notification when a
borrower does so