Freddie Mac 2015 Annual Report Download - page 118

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 116
Severity Ratios
Severity ratios are the percentages of our realized losses when loans are resolved by the completion of
foreclosures (and subsequent third-party sales or REO dispositions) or foreclosure alternatives (e.g.,
short sales). Severity ratios are calculated as the amount of our recognized losses divided by the
aggregate UPB of the related loans. The amount of recognized losses is equal to the amount by which
the UPB of the loans exceeds the amount of sales proceeds from disposition of the properties, net of
capitalized repair and selling expenses, if applicable.
The table below presents single-family severity ratios.
Year Ended December 31,
2015 2014 2013
REO dispositions and third-party foreclosure sales 34.3%34.2%36.1%
Short sales 30.1%31.6%36.0%
Our severity ratios have remained relatively stable during 2015 compared to 2014. These severity ratios
are influenced by several factors, including the geographic location of the property and the related selling
expenses for REO dispositions and short sales.
REO Property Status
A significant portion of our REO properties are unable to be marketed at any given time because the
properties are occupied, under repair, or subject to a redemption period, which is a post-foreclosure
period during which borrowers may reclaim a foreclosed property. Redemption periods can increase the
average holding period of our inventory, and have done so in recent years. As of December 31, 2015,
approximately 50% of our REO properties were unable to be marketed because the properties were
occupied, under repair, or located in states with a redemption period, and 12% of the properties were
being evaluated for listing and determination of our sales or disposition strategy. As of December 31,
2015, approximately 25% of our REO properties were listed and available for sale, and 13% of our
inventory was pending the settlement of sales. Though it varied significantly in different states, the
average holding period of our single-family REO properties, excluding any redemption period, was 255
days and 226 days for our REO dispositions during 2015 and 2014, respectively.