Freddie Mac 2008 Annual Report Download - page 163

Table 68 and Table 69 provide detail by region for two credit performance statistics: REO activity and charge-offs.
Regional REO acquisition and charge-off trends generally follow a pattern that is similar to, but lags, that of regional
delinquency trends.
Table 68 — REO Activity by Region
(1)
2008 2007 2006
December 31,
(number of properties)
REO Inventory
Beginning property inventory ........................................................ 14,394 8,785 8,070
Properties acquired by region:
Northeast . . . . . ............................................................... 5,125 2,336 1,253
Southeast . . . . . ............................................................... 10,725 4,942 3,970
North Central . . ............................................................... 13,678 9,175 7,236
Southwest . . . . . ............................................................... 5,686 3,977 3,498
West ....................................................................... 15,317 2,410 430
Total properties acquired ........................................................ 50,531 22,840 16,387
Properties disposed by region:
Northeast . . . . . ............................................................... (3,846) (1,484) (1,260)
Southeast . . . . . ............................................................... (8,239) (4,009) (4,132)
North Central . . ............................................................... (10,548) (7,520) (6,294)
Southwest . . . . . ............................................................... (5,155) (3,488) (3,441)
West ....................................................................... (7,791) (730) (545)
Total properties disposed ........................................................ (35,579) (17,231) (15,672)
Ending property inventory . ......................................................... 29,346 14,394 8,785
(1) See “Table 60 — Single-Family — Delinquency Rates, Excluding Structured Transactions — By Region” for a description of these regions.
Our REO property inventories more than doubled during 2008 reflecting the impact of the weakening single-family
housing market, particularly in the North Central, West and Southeast regions. The impact of a national decline in single-
family home prices, decreasing home sales activity and tightening credit standards of most financial institutions during 2008
lessened the ability of homeowners exposed to deterioration in their financial condition to refinance their mortgages or sell
the property for an amount above the outstanding indebtedness on the home. Increases in our single-family REO acquisitions
have been most significant in the states of California, Arizona, Michigan, Florida and Nevada. The mortgage loans in West
region states and Florida have had higher average loan balances due to home price appreciation of the last several years,
prior to the most recent decreases in home prices. The West region represents approximately 30% of the new REO
acquisitions during 2008, and based on the number of units, the highest concentration in that region is in the state of
California. California and Florida have accounted for an increasing amount of our credit losses and comprised approximately
41% of our total credit losses in 2008. As discussed in “Loss Mitigation Activities”, we implemented the Streamlined
Modification Program in late 2008 and announced several periods of suspensions in foreclosure sales of occupied homes.
Our suspension or delay of foreclosure sales and any imposed delay in foreclosures by regulatory or governmental agencies
will cause a significant temporary decline in REO acquisitions and the rate of growth of REO inventory.
Table 69 — Single-Family Charge-offs and Recoveries by Region
(1)
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
Charge-offs,
gross Recoveries
(2)
Charge-offs,
net
2008 2007 2006
Year Ended December 31,
(in millions)
Northeast . . . . . . $ 353 $ (86) 267 $ 50 $ (21) $ 29 $ 22 $ (9) $ 13
Southeast . . . . . . 693 (193) 500 112 (60) 52 72 (42) 30
North Central . . . 689 (191) 498 219 (92) 127 133 (66) 67
Southwest . . . . . . 234 (82) 152 90 (45) 45 73 (44) 29
West . . . . . . . . . 1,472 (227) 1,245 57 (20) 37 8 (5) 3
Total . . . . . . . . . $3,441 $(779) $2,662 $528 $(238) $290 $308 $(166) $142
(1) See “Table 60 — Single-Family — Delinquency Rates, Excluding Structured Transactions — By Region” for a description of these regions.
(2) Includes recoveries of charge-offs primarily resulting from foreclosure alternatives and REO acquisitions on loans where a share of default risk has been
assumed by mortgage insurers, servicers, or other third parties through credit enhancements. Recoveries of charge-offs through credit enhancements are
limited in some instances to amounts less than the full amount of the loss.
Single-family charge-offs, gross, for 2008 increased to $3.4 billion compared to $528 million for 2007, primarily due to
an increase in the volume of REO properties acquired at foreclosure and continued deterioration of residential real estate
markets. The severity of charge-offs during 2008 has increased due to declines in housing markets resulting in higher per-
property losses. Our per-property loss severity during 2008 has been greatest in those states that experienced significant
increases in property values during 2000 through 2006, such as California, Florida, Nevada and Arizona. Table 70 presents
an analysis of credit loss concentrations in our single-family portfolio as of December 31, 2008 and 2007, respectively.
160 Freddie Mac