Freddie Mac 2015 Annual Report Download - page 126

Management's Discussion and Analysis Risk Management | MRS Credit Risk
Freddie Mac 2015 Form 10-K 124
Trading Securities
December 31,
(in millions) 2015 2014 2013
Trading mortgage-related securities:
Freddie Mac $ 15,513 $17,469 $9,349
Fannie Mae 6,438 6,099 7,180
Ginnie Mae 30 16 98
Other 146 171 141
Total trading mortgage-related securities $ 22,127 $23,755 $16,768
Risk Management Activities - Non-Agency Mortgage-Related Securities
We manage our exposure to the credit risk of our non-agency mortgage-related securities using the
following principal strategies:
• Selling or securitizing certain assets; and
• Pursuing litigation and other loss recovery efforts.
For information on litigation related to certain of our non-agency mortgage-related securities, see Note 13.
Our investments in non-agency mortgage-related securities declined in recent years, as we continue our
efforts to dispose of certain non-agency mortgage-related securities in an economically sensible manner.
However, we still have a significant portfolio of non-agency mortgage-related securities. While the credit
performance of loans underlying our holdings of single-family non-agency mortgage-related securities
stabilized in recent periods, it remains weak and is susceptible to changes in economic conditions, such
as home prices, mortgage interest rates, and unemployment rates. See "Key Economic Indicators" for a
discussion of how these conditions influence the performance of our securities.
We discuss the credit risk associated with our non-agency mortgage-related securities in the following
sections.
Higher Risk Components of Our Investments in Non-Agency Mortgage-Related Securities
We have exposure to subprime, option ARM, interest-only, Alt-A and other loans through our investments
in non-agency mortgage-related securities and certain Freddie Mac other securitization products. We
categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A
if the securities were identified as such based on information provided to us when we entered into these
transactions. We have not categorized option ARM, CMBS, obligations of states and political
subdivisions, and manufactured housing securities as either subprime or Alt-A securities.
While approximately 86% of our investments in CMBS (by UPB) are investment grade or above, 96% of
our investments in subprime, option ARM, and Alt-A securities are below investment grade as of
December 31, 2015. As a result, we have identified our investments in securities backed by subprime,
option ARM, and Alt-A loans as having the highest credit risk exposure.