Freddie Mac 2015 Annual Report Download - page 235

Financial Statements Notes to the Consolidated Financial Statements | Note 4
Freddie Mac 2015 Form 10-K 233
During 2015 and 2014, we purchased $346.5 billion and $252.7 billion, respectively, in UPB of single-
family loans, and $4.4 billion and $2.4 billion, respectively, in UPB of multifamily loans that were classified
as held-for-investment.
Our sales of multifamily loans occur primarily through the issuance of multifamily K Certificates. During
2015 and 2014, we sold $36.1 billion and $21.3 billion, respectively, of held-for-sale multifamily loans. See
Note 3 for more information on our issuances of K Certificates.
In connection with our efforts to sell certain of our single-family loans, we reclassified $13.6 billion and
$0.7 billion in UPB of loans from held-for-investment to held-for-sale in 2015 and 2014, respectively. We
also reclassified $2.1 billion and $0.2 billion of multifamily loans from held-for-investment to held-for-sale
in 2015 and 2014, respectively. For additional information regarding the fair value of our loans classified
as held-for-sale, see Note 14.
INTEREST INCOME
We recognize interest income on an accrual basis except when we believe the collection of principal and
interest in full is not reasonably assured, which generally occurs when a loan is three monthly payments
past due, unless the loan is well secured and in the process of collection based upon an individual loan
assessment. A loan is considered past due if a full payment of principal and interest is not received within
one month of its due date.
Cost basis adjustments on held-for-investment loans are amortized into interest income over the
contractual lives of the loans using the effective interest method.
A non-accrual loan may be returned to accrual status when the collectability of principal and interest in full
is reasonably assured. For single-family loans, we determine that collectability is reasonably assured
when we have received payment of principal and interest such that the loan becomes less than three
monthly payments past due. For multifamily loans, the collectability of principal and interest is considered
reasonably assured based on an analysis of the factors specific to the loan being assessed. Upon a
loan’s return to accrual status, all previously reversed interest income is recognized and amortization of
any basis adjustments into interest income is resumed.
CREDIT QUALITY
The current LTV ratio is one key factor we consider when estimating our loan loss reserves for single-
family loans. As current LTV ratios increase, the borrower’s equity in the home decreases, which
negatively affects the borrower’s ability to refinance (outside of HARP) or to sell the property for an
amount at or above the balance of the outstanding loan. A second-lien loan also reduces the borrower’s
equity in the home, and has a similar negative effect on the borrower’s ability to refinance or sell the
property for an amount at or above the combined balances of the first and second loans. As of
December 31, 2015 and 2014, based on data collected by us at loan delivery, approximately 13% and
14%, respectively, of loans in our single-family credit guarantee portfolio had second-lien financing by
third parties at origination of the first loan. However, borrowers are free to obtain second-lien financing
after origination, and we are not entitled to receive notification when a borrower does so. For further
information about concentrations of risk associated with our single-family and multifamily loans, see
Note 13.