Freddie Mac 2015 Annual Report Download - page 187

Risk Factors Credit Risks
Freddie Mac 2015 Form 10-K 185
borrowers will default.
The type of loss mitigation activities we pursue could affect prepayments on our PCs and REMICs, which
could affect the value of these securities or the earnings from mortgage-related assets in our Investments
segment mortgage investments portfolio. In addition, loss mitigation activities may adversely affect our
ability to securitize, resecuritize and sell the loans subject to those activities (e.g., investors may not be
willing to purchase PCs backed by modified single-family loans).
The effect of HARP and other refinance initiatives of the GSEs on prepayment expectations is difficult to
estimate, and we could experience declines in the fair values of certain agency security investments and
lower net interest yields over time on other mortgage-related investments. The difficulty in estimating the
effect of prepayments could also adversely affect our ability to hedge our mortgage-related investments.
We have devoted significant resources to the MHA Program and other borrower assistance initiatives.
The size and scope of these efforts may also limit our ability to pursue other business opportunities or
corporate initiatives.
For more information on our loss mitigation activities, see “MD&A - Our Business Segments - Single-
Family Guarantee - Loss Mitigation Activities” and “MD&A - Risk Management - Credit Risk - Single-
Family Mortgage Credit Risk - Engaging in Loss Mitigation Activities.”
We have been, and will continue to be, adversely affected by delays and deficiencies in the single-
family foreclosure process.
The average length of time for foreclosure of a Freddie Mac loan has significantly increased since 2008,
particularly in states that require a judicial foreclosure process, and may further increase. Delays in the
foreclosure process could:
• Cause our expenses to increase. For example, properties awaiting foreclosure could deteriorate until
we acquire them, resulting in increased expenses to repair and maintain the properties;
• Adversely affect the values of, and our losses on, the non-agency mortgage-related securities we
hold; and
• Adversely affect trends in home prices regionally or nationally, which could adversely affect our
financial results.
It is possible that mortgage insurance claims could be reduced or denied if servicers do not follow proper
procedures in addressing seriously delinquent borrowers, such as not completing foreclosures within
required timelines.
We may experience further losses relating to our assets that could materially adversely affect our
financial results, liquidity and net worth.
We may experience additional losses relating to our assets, including those that are currently AAA-rated,
and the fair values of our assets may decline in the future. This could adversely affect our financial
results, liquidity, and net worth. We may decide to pursue certain mortgage-related investments portfolio
strategies that could result in the immediate recognition of losses, such as paying a premium to
repurchase debt, increasing the amount of non-agency mortgage-related securities we intend to sell, or
engaging in certain asset structuring activities that result in the write-off of premiums.