Freddie Mac 2008 Annual Report Download - page 158

financial guarantee that have returned to current status, or have been paid off, divided by the total loans purchased from PCs
under our financial guarantee. Our cure rates for loans purchased out of PCs during 2008 are not directly comparable to prior
year rates due to the impact of our operational changes for purchasing delinquent loans made in December 2007. As a result
of these operational changes, we have principally purchased loans that have undergone significant loss mitigation efforts,
including those that have been modified. Consequently, we began purchasing an increasing number of foreclosed single-
family properties directly out of PC pools during 2008 as compared to the same period in 2007. Although our operational
change decreased the number of loans we would have otherwise purchased, it had no effect on our loss mitigation efforts nor
does it change the ultimate credit losses upon resolution of the loan. However, this operational change will continue to have
a significant impact on our cure rate statistics for the loans we purchase under financial guarantees in 2009, because
delinquent loans, that prior to the operational change would have been purchased from the pools will now generally remain
in the pools until they are modified, foreclosed or cure within the PC pool. Those mortgages that remained in the pools, and
reperformed or proceeded to foreclosure during 2008 are not included in these cure rate statistics. During 2008 and 2009,
past due loans that remain delinquent are purchased from the pools at dates generally later than before the operational
change.
Table 64 shows the status of delinquent single-family loans purchased under financial guarantees during each period.
Table 64 — Status of Delinquent Single-Family Loans Purchased Under Financial Guarantees
(1)
Q4 Q3 Q2 Q1 2008
(2)
2007
(2)
2006
(2)
2008
Status as of December 31, 2008
Cured, with modifications
(2)
................................... 63% 64% 61% 59% 62% 8% 9%
Cured, without modifications:
Returned to less than 90 days past due . . . ....................... 5334 41619
Loans repaid in full or repurchased by lenders..................... — 1 2 2 1 16 27
Total cured . . . . . . . . . . .................................... 68 68 66 65 67 40 55
90 days or more delinquent ................................... 32 31 30 31 31 17 10
REO/foreclosure alternatives
(3)
................................. — 1 4 4 2 43 35
Total . . . . . . . . . . . . . . .................................... 100% 100% 100% 100% 100% 100% 100%
Q4 Q3 Q2 Q1 2008
(2)
2007
(2)
2006
(2)
2008
Status as of the End of Each Respective Period
Cured, with modifications
(2)
................................... 63% 65% 63% 72% 62% 5% 6%
Cured, without modifications:
Returned to less than 90 days past due . . . ....................... 5 5 7 10 4 20 25
Loans repaid in full or repurchased by lenders..................... — 1 1 — 1 9 14
Total cured . . . . . . . . . . .................................... 68 71 71 82 67 34 45
90 days or more delinquent ................................... 32 29 29 18 31 43 38
REO/foreclosure alternatives
(3)
................................. ———— 2 23 17
Total . . . . . . . . . . . . . . .................................... 100% 100% 100% 100% 100% 100% 100%
Number of delinquent or modified loans purchased
(4)
................. 16,800 7,100 4,500 2,800 31,200 58,900 42,000
(1) Percentages are based on number of single-family delinquent or modified loans purchased under our guarantee and reduced to fair value in accordance
with SOP 03-3 during each respective period.
(2) Consists of loans that are less than 90 days past due under modified terms.
(3) Consists of foreclosures, pre-foreclosure sales, sales of real estate owned to third parties, and deeds in lieu of foreclosure.
(4) Rounded to hundreds of units.
As of December 31, 2008, the status of 2008 loans purchased under our financial guarantees above reflects an increase
in the cure rate and a significant decrease in the percentage of those loans with REO and foreclosure alternative outcomes
when compared to the status of 2007 delinquent loan purchases. The increase in cure rate and decline in the percentage of
those loans proceeding to foreclosure or foreclosure alternatives reflect the change in our operational practice with respect to
purchases of delinquent loans discussed above. We believe that the percentage of delinquent loans purchased during 2008
that remain delinquent should decline during 2009 since these cure rates do not fully reflect our current modification efforts
due to the significant time required to complete the loan resolution process. We believe that a quarterly and annual
presentation of these cure rate statistics is important to illustrate both the lag effect of the resolution process inherent in
delinquent loans as well as the poorer performance of delinquent loans that we purchased out of PC pools and modified
during 2008 as compared to prior years. We have increased our mitigation activity, including modifications where we agree
to reduce the interest rate of the loan and to add delinquent amounts to the balance of the loan to bring the borrower current.
However, during 2008 we also experienced an increased incidence of loans returning to delinquent status, or that redefault,
on loans that have been modified. This is shown in the table above by comparing the cure rates as of the end of each
respective period (bottom half of the table) with the cure rates as of December 31, 2008. We expect that continued
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