Freddie Mac 2015 Annual Report Download - page 56

Management's Discussion and Analysis Our Business Segments | Multifamily
Freddie Mac 2015 Form 10-K 54
MULTIFAMILY
BUSINESS OVERVIEW
The Multifamily segment provides liquidity to the multifamily market and supports a consistent supply of
workforce housing by purchasing and securitizing loans secured by properties with five or more units. The
Multifamily segment reflects results from our investment, securitization, and guarantee activities in
multifamily loans and securities and the management of multifamily mortgage credit risk. The Multifamily
segment supports our primary business strategies by creating:
A Better Freddie Mac:
• Continuing to provide financing to the multifamily mortgage market and expanding our market
presence for workforce housing in line with our mission;
• Improving our risk-adjusted returns by leveraging private capital in our credit risk transfer
transactions; and
• Maintaining strong credit and capital management discipline.
A Better Housing Finance System:
• Operating in a customer focused manner, in an effort to build value and support the creation of a
strong, long-lasting rental housing system;
• Identifying new opportunities beyond our existing K Certificate transactions to transfer credit risk to
third parties and reduce taxpayer exposure; and
• Fostering innovation of products that expand the availability of workforce housing in the marketplace.
We use a prior-approval underwriting approach for multifamily loans, in contrast to the delegated
underwriting approach used in our Single-family Guarantee segment. Under this approach, we maintain
credit discipline by completing our own underwriting and credit review for each new loan prior to issuance
of a loan commitment, including review of third-party appraisals and cash flow analysis.
Multifamily loans are typically without recourse to the borrower, making repayment dependent on cash
flows generated by the underlying property. Cash flows generated by a property are significantly
influenced by vacancy and rental rates, as well as conditions in the local rental market, the physical
condition of the property, the quality of property management, and the level of operating expenses.
Multifamily property markets are affected by local and regional economic factors, such as employment
rates, construction cycles, preferences for homeownership versus renting, and relative affordability of
single-family home prices, all of which influence the supply and demand for multifamily properties and
pricing for apartment rentals.
Products and Activities
Securitization and Guarantee Products
In our Multifamily segment, we primarily issue the following types of securitization and guarantee products
which make up our guarantee portfolio: