Freddie Mac 2008 Annual Report Download - page 176

Description Status
4. Credit Risk Disclosures:
• We will make quarterly assessments of the expected
impact on credit losses from an immediate 5% decline in
single-family home prices for the entire U.S. We will
disclose the impact in present value terms and measure
our estimated losses both before and after receipt of
private mortgage insurance claims and other credit
enhancements.
• Since we do not use this analysis for determination of our
reported results under GAAP, this sensitivity analysis is
hypothetical and may not be indicative of our actual
results. Our quarterly credit risk sensitivity estimates are
as follows:
Before Receipt
of Credit
Enhancements
(1)
After Receipt
of Credit
Enhancements
(2)
Net Present
Value, or NPV
(3)
NPV
Ratio
(4)
NPV
(3)
NPV
Ratio
(4)
(dollars in millions)
At:
12/31/08
(5)
$9,981 54.4 bps $8,591 46.8 bps
09/30/08 $5,948 32.3 bps $5,230 28.4 bps
06/30/08 $5,151 28.3 bps $4,241 23.3 bps
03/31/08 $4,922 27.8 bps $3,914 22.1 bps
12/31/07 $4,036 23.2 bps $3,087 17.8 bps
(1) Assumes that none of the credit enhancements currently covering our
mortgage loans has any mitigating impact on our credit losses.
(2) Assumes we collect amounts due from credit enhancement providers after
giving effect to certain assumptions about counterparty default rates.
(3) Based on single-family total mortgage portfolio, excluding Structured
Securities backed by Ginnie Mae Certificates.
(4) Calculated as the ratio of NPV of the increase in credit losses to the single-
family total mortgage portfolio, defined in footnote (3) above.
(5) The significant increase in our credit risk sensitivity estimates as of
December 31, 2008, was primarily attributable to changes in our assumptions
employed to calculate the credit risk sensitivity disclosure. Given deterioration
in housing fundamentals, at the end of 2008 we modified our assumptions for
forecasted home prices subsequent to the immediate 5% decline. We also
modified our assumptions to reflect the increasing proportion of borrowers
whose homes are currently worth less than the related outstanding
indebtedness.
5. Public Disclosure of Risk Rating:
• We will seek to obtain a rating, that will be continuously
monitored by at least one nationally recognized statistical
rating organization, assessing “risk-to-the-government” or
independent financial strength.
• At March 2, 2009 and December 31, 2008, we no longer
had a “risk-to-the-government” rating from Standard &
Poor’s. On September 7, 2008, S&P lowered our “risk-to-
the-government” rating to “R” (regulatory supervision)
from “A–” and withdrew the rating because of
conservatorship.
• At March 2, 2009 and December 31, 2008, our “Bank
Financial Strength” rating from Moody’s was “E+”. On
September 7, 2008, Moody’s lowered our rating to “E+”
from “D+” following our placement into conservatorship.
The “Bank Financial Strength” rating scale ranges from
“A”, highest, to “E”, lowest.
173 Freddie Mac