Freddie Mac 2008 Annual Report Download - page 155

declines have been combined with increased rates of unemployment and weakness in home sales. We experienced significant
increases in delinquency rates throughout 2008, which have been most severe in the West and Southeast regions, particularly
in the states of California, Florida, Nevada and Arizona. For example, as of December 31, 2008, single-family loans in the
state of Florida comprised 7% of our single-family mortgage portfolio based on unpaid principal balances; however, this state
made up approximately 21% of the delinquent loans in our single-family mortgage portfolio, based on unpaid principal
balances. To assist the greater numbers of borrowers becoming past due on their loans, we substantially increased our use of
loan modifications during 2008, which improves our delinquency rates to the extent that the borrowers remain current under
the modified terms. However, as the decline in economic conditions has been protracted, we have also experienced an
increased incidence of redefault during 2008 on loans that have been modified. If economic conditions do not improve, we
expect these trends to continue in 2009.
In addition to rising levels of home ownership in the U.S., our single-family mortgage portfolio has been affected by the
heavy refinance volumes that occurred during the last three years. Consequently, many of the loans in the portfolio were
originated during that period. At December 31, 2008, approximately 49% of our single-family mortgage portfolio consisted
of mortgage loans originated in 2008, 2007 or 2006, which have experienced higher rates of delinquency in the earlier years
of their terms as compared to our historical experience. We attribute this increase to a number of factors, including: (a) an
environment of decreasing home sales and broadly declining home prices, (b) the expansion of credit terms under which
loans were underwritten during 2006 and 2007, and (c) an increase in the origination and our purchase of interest-only and
Alt-A mortgage products that have higher inherent credit risk than traditional fixed-rate mortgage products. In addition, the
delinquency rates for our mortgage loans originated in 2008 remain relatively high due to deteriorating home prices and
increasing unemployment rates, despite having a greater proportion of higher quality, fixed-rate mortgages. Table 61 presents
delinquency information for our single-family mortgage portfolio based on year of origination.
Table 61 — Single-Family Mortgages by Year of Origination
Year of
Origination
Percent of
Single-Family
Unpaid Principal
Balance
Total
Delinquency
Rate
(1)
Non-Credit-
Enhanced
Delinquency
Rate
(1)
Percent of
Single-Family
Unpaid Principal
Balance
Total
Delinquency
Rate
(1)
Non-Credit-
Enhanced
Delinquency
Rate
(1)
Percent of
Single-Family
Unpaid Principal
Balance
Total
Delinquency
Rate
(1)
Non-Credit-
Enhanced
Delinquency
Rate
(1)
2008 2007 2006
December 31,
Pre-2000. . . . 2% 1.53% 1.04% 3% 0.99% 0.64% 4% 0.96% 0.58%
2000 ...... G1 3.95 2.60 G1 2.66 1.63 G1 2.97 1.83
2001 ...... 2 1.56 1.00 2 1.01 0.60 3 1.05 0.60
2002 ...... 5 0.95 0.62 6 0.61 0.37 9 0.56 0.32
2003 ...... 16 0.58 0.40 20 0.32 0.20 26 0.25 0.15
2004 ...... 11 1.10 0.75 13 0.57 0.35 16 0.39 0.22
2005 ...... 15 1.93 1.40 18 0.77 0.51 23 0.31 0.19
2006 ...... 15 3.48 3.12 18 1.05 0.89 19 0.12 0.09
2007 ...... 19 3.46 2.65 20 0.45 0.35 — — —
2008 ...... 15 0.56 0.28 — — — — — —
Total
(2)
..... 100% 1.72 1.26 100% 0.65 0.45 100% 0.42 0.25
(1) Based on the number of mortgage loans in our single-family mortgage portfolio and excluding certain Structured Transactions and that portion of
Structured Securities that is backed by Ginnie Mae Certificates.
(2) Our delinquency rates for the single-family mortgage portfolio including Structured Transactions were 1.83%, 0.76% and 0.54% at December 31, 2008,
2007 and 2006, respectively.
In support of our servicers who are increasing their efforts to assist troubled borrowers avoid foreclosure, we announced
in July 2008 that we have extended the timeframe for completion of the foreclosure process in certain states. In addition,
many states, including Florida, already have relatively long foreclosure processes. As more fully discussed in “Loss
Mitigation Activities” below, we announced a Streamlined Modification Program and suspended all foreclosure sales on
occupied homes from November 26, 2008 through January 31, 2009 and from February 14, 2009 through March 6, 2009.
These modification and suspension actions as well as the longer foreclosure process timeframes of certain states experiencing
significant home price declines have, in part, caused our delinquency rates to increase more rapidly in 2008, as loans that
would have been foreclosed have instead remained in delinquent status. Until economic conditions moderate and
fundamentals of the housing market improve, we expect our delinquency rates to continue to rise. In general, our suspension
or delays of foreclosure sales and any imposed delays in foreclosure by regulatory or governmental agencies will cause our
delinquency rates to rise more rapidly. The net effect on our results from implementation of broad-based loan modification
programs, such as the Streamlined Modification Program and initiatives under the HASP, or the implementation of
governmental actions or programs that expand the ability of delinquent borrowers to refinance into more affordable loans is
uncertain. These modification efforts may not reduce our eventual credit losses.
Increases in delinquency rates occurred in all product types during 2008, but were most significant for interest-only and
adjustable-rate mortgage loans as well as all products underwritten with lower documentation standards that we categorize as
152 Freddie Mac