Freddie Mac 2006 Annual Report Download - page 161

NOTE 17: CONCENTRATION OF CREDIT AND OTHER RISKS
Mortgages and Mortgage-Related Securities
Table 17.1 summarizes the geographical concentration of mortgages and mortgage-related securities that are held by us
or that are collateral for PCs and Structured Securities, excluding:
‚ $1,510 million and $2,021 million of mortgage-related securities issued by Ginnie Mae that back Structured
Securities at December 31, 2006 and 2005, respectively, because these securities do not expose us to meaningful
amounts of credit risk;
‚ $45,385 million and $44,626 million of agency mortgage-related securities at December 31, 2006 and 2005,
respectively, because these securities do not expose us to meaningful amounts of credit risk; and
‚ $238,465 million and $242,915 million of non-agency mortgage-related securities held in the Retained portfolio at
December 31, 2006 and 2005, respectively, because geographic information regarding these securities is not available.
With respect to these securities, we look to third party credit enhancements (e.g., bond insurance) or other credit
enhancements resulting from the securitization structure supporting such securities (e.g., subordination levels) as a
primary means of managing credit risk.
See ""NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' for more information
about the securities we hold.
Table 17.1 Ì Concentration of Credit Risk
December 31,
2006 2005
Amount(1) Percentage Amount(2) Percentage
(dollars in millions)
By Region(3)
Northeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 375,844 24% $ 340,821 24%
West ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 366,492 24 327,029 23
North Central ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 324,255 21 304,288 22
Southeast ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 279,984 18 247,484 18
SouthwestÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 194,785 13 175,362 13
$1,541,360 100% $1,394,984 100%
By State
California ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 195,964 13% $ 182,267 13%
Florida ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 101,901 7 86,916 6
IllinoisÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 80,130 5 72,952 5
New York ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 77,614 5 71,961 5
All Others ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,085,751 70 980,888 71
$1,541,360 100% $1,394,984 100%
(1) Calculated as Total mortgage portfolio less Structured Securities backed by Ginnie Mae CertiÑcates and agency and non-agency mortgage-related
securities held in the Retained portfolio.
(2) 2005 data has been revised to conform to the current year presentation.
(3) Region Designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI,
VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest
(AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).
Mortgage Lenders and Insurers
A signiÑcant portion of our single-family mortgage purchase volume is generated from several key mortgage lenders that
have entered into business arrangements with us. These arrangements generally involve a lender's commitment to sell a high
proportion of its conforming mortgage origination volume to us. During 2006, three mortgage lenders each accounted for
10 percent or more of our mortgage purchase volume. These lenders collectively accounted for approximately 51 percent of
this volume. In addition, in 2006, our top ten lenders represented approximately 76 percent of our mortgage purchase
volume. These top lenders are among the largest mortgage loan originators in the U.S. We are exposed to the risk that we
could lose purchase volume to the extent these arrangements are terminated or modiÑed without replacement from other
lenders.
We have institutional credit risk relating to the potential insolvency or non-performance of mortgage insurers that insure
mortgages we purchase or guarantee. Approximately 99 percent of all mortgage insurers providing primary mortgage
insurance and pool insurance coverage on single-family mortgages we purchased during 2006 were rated ""AA'' or better by
S&P. Excluding insurers of our non-agency mortgage-related securities portfolio at December 31, 2006, there were seven
mortgage insurers that each provided more than 7 percent of our total mortgage insurance coverage (including primary
mortgage insurance and pool insurance) and together accounted for approximately 99 percent of our overall coverage. In
February 2007, two of these mortgage insurance companies announced an agreement to merge, with one acquiring the other.
149 Freddie Mac