Freddie Mac 2008 Annual Report Download - page 161

based on the servicer’s analysis of financial and other information about the property. If a loan defaults, we may offer a
foreclosure alternative to the borrower. For example, we may modify the terms of a multifamily mortgage loan, which gives
the borrower an opportunity to bring the loan current and retain ownership of the property. Because the activities of
multifamily seller/servicers are an important part of our loss mitigation process, we rate their performance regularly and
conduct on-site reviews of their servicing operations to confirm compliance with our standards.
Non-Performing Assets
We classify loans in our single-family mortgage portfolio that are past due for 90 days or more (seriously delinquent) or
whose contractual terms have been modified due to the financial difficulties of the borrower as non-performing assets.
Similarly, we classify multifamily loans as non-performing assets if they are 90 days or more past due, if collectibility of
principal and interest is not reasonably assured based on an individual loan level assessment, or if their contractual terms
have been modified due to financial difficulties of the borrower. Table 66 provides detail on non-performing loans and REO
assets on our consolidated balance sheets and nonperforming loans underlying our PCs, Structured Securities and long-term
standby agreements.
Table 66 — Non-Performing Assets
(1)
2008 2007 2006 2005
December 31,
(in millions)
Non-performing mortgage loans — on balance sheet:
Single-family troubled debt restructurings:
Reperforming or less than 90 days delinquent . . .................................... $ 2,280 $ 2,690 $2,219 $2,108
90 days or more delinquent . ................................................. 838 609 470 497
Multifamily troubled debt restructurings
(2)
.......................................... 238 271 362 —
Total troubled debt restructurings . . . . . . .......................................... 3,356 3,570 3,051 2,605
Other single-family non-performing loans
(3)
......................................... 4,915 5,300 2,952 2,889
Other multifamily non-performing loans . .......................................... 78 3 — 1
Total non-performing mortgage loans — on balance sheet . . . ........................... 8,349 8,873 6,003 5,495
Non-performing mortgage loans — within PCs and Structured Securities:
(4)
Single-family loans
(5)
........................................................ 36,718 7,786 2,718 3,549
Multifamily loans ........................................................... 63 51 82 —
Total Non-performing mortgage loans — within PCs and Structured Securities ................ 36,781 7,837 2,800 3,549
Real estate owned, net
(6)
..................................................... 3,255 1,736 743 629
Total nonperforming assets. . . . ................................................. $48,385 $18,446 $9,546 $9,673
(1) Nonperforming assets consist of loans that have undergone a troubled debt restructuring, loans that are more than 90 days past due, and REO assets, net.
Troubled debt restructurings include loans whereby the contractual terms have been modified that result in concessions to borrowers that are
experiencing financial difficulties. Mortgage loan amounts are based on unpaid principal balances and REO, net is based on carrying values.
(2) Includes multifamily loans 90 days or more delinquent where principal and interest are being paid to us under the terms of a credit enhancement
agreement.
(3) Represent those loans held by us in our mortgage-related investments portfolio, including loans purchased from the mortgage pools underlying ourPCs,
Structured Securities or long-term standby agreements due to the borrower’s delinquency. Once we purchase a loan under our financial guarantee, it is
placed on non-accrual status as long as it remains greater than 90 days past due.
(4) Includes loans more than 90 days past due that underlie all our issued PCs and Structured Securities, regardless of whether such securities are heldin
our mortgage-related investments portfolio or held by third parties.
(5) Includes mortgages that underlie our Structured Transactions. Beginning December 2007, we changed our operational practice for purchasing loans from
PC pools, which effectively delayed our purchase of nonperforming loans into our mortgage-related investments portfolio. This change, combined with
higher delinquency rates, caused an increase in nonperforming loans underlying PCs and Structured Securities during 2008. See “BUSINESS — Our
Business and Statutory Mission — Our Business Segments — Single-Family Guarantee Segment — PC Trust Documents” for further information.
(6) For more information about REO balances, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 7: REAL ESTATE
OWNED” to our consolidated financial statements.
The amount of nonperforming assets increased to approximately $48.4 billion as of December 31, 2008, from
$18.4 billion at December 31, 2007, due to the continued deterioration in single-family housing market fundamentals which
has resulted in higher delinquency transition rates in 2008. The increase in delinquency transition rates, as compared to our
historical experience, has been progressively greater for loans originated in 2006 and 2007. We believe this trend is, in part,
due to greater origination volume of Alt-A and interest-only mortgages, as well as an increase in estimated current and total
LTV ratios for mortgage loans originated in those years. In addition, the average size of the unpaid principal balance of non-
performing assets in our portfolio rose in 2008. Until nationwide home prices stop declining and regional and national
economies improve, we expect to continue to experience higher delinquency transition rates than those experienced in 2007
and an increase in our non-performing assets.
Credit Loss Performance
Many of the loans that are delinquent or in foreclosure result in credit losses. Table 67 provides detail on our credit loss
performance associated with mortgage loans underlying our issued PCs and Structured Securities as well as mortgage loans
in our mortgage-related investments portfolio.
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