Freddie Mac 2008 Annual Report Download - page 159

deterioration in home prices and home sales activity during 2009 will continue to negatively impact our cure rates and
redefault rates on modified loans.
Loss Mitigation Activities
Loss mitigation activities are a key component of our strategy for managing and resolving troubled assets and lowering
credit losses. Our single-family loss mitigation strategy emphasizes early intervention in delinquent mortgages and providing
alternatives to foreclosure. Other single-family loss mitigation activities include providing our single-family servicers with
default management tools designed to help them manage non-performing loans more effectively and support fulfillment of
our mission by assisting borrowers in retaining homeownership. Our seller/servicers have a key role in the success of our
loss mitigation activities. The significant increases in delinquent loan volume and the deteriorating conditions of the
mortgage market during 2008 placed a strain on the loss mitigation resources of many of our seller/servicers. A decline in
the performance of any seller/servicers in loss mitigation efforts could result in missed opportunities for modifications and an
increase in our credit losses. Foreclosure alternatives are intended to reduce the number of delinquent mortgages that proceed
to foreclosure and, ultimately, mitigate our total credit losses by reducing or eliminating a portion of the costs related to
foreclosed properties.
Our foreclosure alternatives include:
• Repayment plans, which are contractual plans to make up past due amounts. They mitigate our credit losses because
they assist borrowers in returning to compliance with the original terms of their mortgages.
• Loan modifications, which involve adding outstanding indebtedness, such as delinquent interest, to the unpaid
principal balance of the loan or changing other terms of a mortgage as an alternative to foreclosure. We typically
examine the borrower’s capacity to make payments under the new terms by reviewing the borrower’s qualifications,
including income and other indebtedness. Loan modifications include either: (a) those that result in a concession to
the borrower, which are situations in which we do not expect to recover the full original principal or interest due
under the original loan terms, or (b) those that do not result in a concession to the borrower, such as those which add
the past due amounts to the balance of the loan, extend the term or a combination of both. The majority of our loan
modifications completed during 2008 were those in which we agreed to add the past due amounts to the balance of
the loan and did not make a concession to the borrower with respect to the outstanding balance of the loan. However,
the percentage of modifications with concessions to the borrower increased in 2008 and will likely continue to
increase in 2009.
• Forbearance agreements, under which reduced payments or no payments are required during a defined period. They
provide a temporary suspension of the foreclosure process to allow additional time for the borrower to return to
compliance with the original terms of the borrower’s mortgage or to implement another foreclosure alternative.
• Pre-foreclosure sales, in which the borrower, working with the servicer, sells the home and pays off all or part of the
outstanding loan, accrued interest and other expenses from the sale proceeds.
Table 65 presents the number of loans with foreclosure alternatives for 2008, 2007 and 2006.
Table 65 — Single-Family Foreclosure Alternatives
(1)
2008 2007 2006
December 31,
(number of loans)
Repayment plans . . . ................................................................. 42,062 38,809 36,996
Loan modifications. . ................................................................. 35,084 8,105 9,348
Forbearance agreements ............................................................... 4,192 3,108 11,152
Pre-foreclosure sales . ................................................................. 6,369 2,009 1,575
Foreclosure alternatives . . . ........................................................... 87,707 52,031 59,071
(1) Based on our single-family mortgage portfolio, excluding Structured Transactions, and that portion of Structured Securities that is backed by Ginnie
Mae Certificates.
Due to the higher rates of delinquency in our single-family mortgage portfolio in 2008, we significantly increased our
use of loan modifications and repayment plans as compared to 2007. In August 2008, we implemented a plan designed to
increase the efforts of our servicers to execute foreclosure alternatives that included: (a) an increase in fee compensation paid
to servicers for each repayment plan, loan modification or pre-foreclosure sale executed, (b) extending the time period for
foreclosures in order to increase our ability to negotiate repayment plans and loan modifications in states with relatively fast
foreclosure processes, and (c) expanding our guidelines on the types of loans eligible and conditions required for loan
modification, thereby making this alternative available for a larger number of loans, including those previously modified.
Also during the third quarter of 2008, in order to accelerate our loss mitigation efforts, we implemented a trial program to
proactively offer modifications on some of the delinquent loans underlying our PCs that we identified using certain criteria
that indicate they are more likely to proceed to foreclosure. This trial modification program did not follow our typical
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