Freddie Mac 2015 Annual Report Download - page 183

Risk Factors Credit Risks
Freddie Mac 2015 Form 10-K 181
For more information regarding these risks, see “MD&A - Risk Management - Credit Risk - Mortgage-
Related Securities Credit Risk,” "Single-Family Mortgage Credit Risk," and "Institutional Credit Risk -
Other Counterparties - Mortgage related-security issuers and servicers."
Declines in U.S. home prices or other adverse changes in the U.S. housing market could
negatively impact our business and financial results.
Our financial results and business volumes can be negatively affected by declines in home prices and
other adverse changes in the housing market. This could:
• Increase our losses on dispositions of REO properties;
• Cause us to incorrectly hedge prepayment risk;
• Reduce our actual return on new single-family guarantee business, as actual default rates could be
higher than we expected when we issued the guarantee;
• Result in declines in net worth due to fair value declines on our investments in non-agency mortgage-
related securities; or
• Negatively affect loan pricing, which could cause us to change our disposition strategies for our
single-family unsecuritized loans.
For more information regarding these risks, see “MD&A - Risk Management - Credit Risk - Mortgage-
Related Securities Credit Risk.”
Our loan purchases and guarantee issuances are closely tied to the rate of growth in total outstanding
U.S. residential mortgage loan debt, the size of the U.S. residential mortgage market, and the amount of
new mortgage loan originations. Total residential mortgage loan debt increased approximately 0.7% in the
first nine months of 2015 (the most recent data available) and less than 0.1% in 2014.
The proportion of our refinance loan purchases to total loan purchases could decrease if mortgage
interest rates increase. This could increase our exposure to mortgage credit risk, as refinance loans
(particularly those that do not involve a "cash-out") generally present less credit risk than purchase loans.
Some of our seller/servicer counterparties are highly dependent on refinance loan volumes. A decrease in
refinance loan volumes could adversely affect these counterparties, which could increase our exposure to
institutional credit risk.
While the multifamily market has experienced strong rent growth and occupancy trends in the past
several years, these trends are not likely to continue at their current pace. New supply of multifamily
housing has been increasing in recent periods and could potentially outpace demand, which could result
in excess supply and rising vacancy rates. Any softening of multifamily markets could cause
delinquencies and credit losses relating to our multifamily activities to increase beyond our current
expectations.
We are exposed to institutional credit risk with respect to our business counterparties. Our
financial results may be adversely affected if one or more of our counterparties fail to meet their
obligations to us.
We depend on our institutional counterparties to provide services that are critical to our business. We face
the risk that one or more of our institutional counterparties may fail to meet their contractual obligations to
us. Our important institutional counterparties include seller/servicers, mortgage and bond insurers,
insurers and reinsurers in ACIS transactions, and counterparties to derivatives and short-term lending and