Freddie Mac 2015 Annual Report Download - page 295

Financial Statements Notes to the Consolidated Financial Statements | Note 13
Freddie Mac 2015 Form 10-K 293
CREDIT PERFORMANCE OF CERTAIN HIGHER RISK SINGLE-FAMILY LOAN
CATEGORIES
Participants in the mortgage market often characterize single-family loans based upon their overall credit
quality at the time of origination, generally considering them to be prime or subprime. Many mortgage
market participants classify single-family loans with credit characteristics that range between their prime
and subprime categories as Alt-A. Although we discontinued new purchases of loans with lower
documentation standards beginning March 1, 2009, we continued to purchase certain amounts of these
loans in cases where the loan was either:
• Purchased pursuant to a previously issued other mortgage-related guarantee;
• Part of our relief refinance initiative; or
• In another refinance loan initiative and the pre-existing loan (including Alt-A loans) was originated
under less than full documentation standards.
In the event we purchase a refinance loan and the original loan had been previously identified as Alt-A,
such refinance loan may no longer be categorized or reported as Alt-A in the table below because the
new refinance loan replacing the original loan would not be identified by the seller/servicer as an Alt-A
loan. As a result, our reported Alt-A balances may be lower than would otherwise be the case had such
refinancing not occurred.
Although we do not categorize single-family loans we purchase or guarantee as prime or subprime, we
recognize that there are a number of loan types with certain characteristics that indicate a higher degree
of credit risk.
For example, a borrower’s credit score is a useful measure for assessing the credit quality of the
borrower. Statistically, borrowers with higher credit scores are more likely to repay or have the ability to
refinance than those with lower scores.
Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based
on characteristics of the loan at origination) of single-family loans in our single-family credit guarantee
portfolio based on UPB. The table includes a presentation of each higher-risk category in isolation. A
single loan may fall within more than one category (for example, an interest-only loan may also have an
original LTV ratio greater than 90%). Loans with a combination of these attributes will have an even
higher risk of delinquency than those with an individual attribute.
Percentage of Portfolio(1) Serious Delinquency Rate(1)
December 31, 2015 December 31, 2014 December 31, 2015 December 31, 2014
Interest-only 1% 2% 6.02%9.36%
Option ARM(2) —% —% 8.01%9.87%
Alt-A 2% 3% 6.32%8.53%
Original LTV ratio greater than 90%(3) 16% 16% 2.01%2.58%
Lower credit scores at origination (less than 620) 2% 3% 6.67%8.57%
(1) Excludes loans underlying certain other securitization products for which data was not available.
(2) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification,
even though the modified loan no longer provides for optional payment provisions.
(3) Includes HARP loans, which we purchase as part of our participation in the MHA Program.