Freddie Mac 2008 Annual Report Download - page 268

to its redemption, we consider the liquidation preference to be the most appropriate measure for purposes of the consolidated
fair value balance sheets.
Net Assets Attributable to Preferred Stockholders
To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.
Net Assets Attributable to Common Stockholders
Net assets attributable to common stockholders is equal to the difference between the fair value of total assets and the
sum of total liabilities and minority interests reported on our consolidated fair value balance sheets, less the value of net
assets attributable to senior preferred stockholders and the fair value attributable to preferred stockholders.
NOTE 18: CONCENTRATION OF CREDIT AND OTHER RISKS
Mortgages and Mortgage-Related Securities
Our business activity is to participate in and support the residential mortgage market in the United States, which we
pursue by both issuing guaranteed mortgage securities and investing in mortgage loans and mortgage-related securities.
Table 18.1 summarizes the geographical concentration of mortgages that are held by us or that underlie our issued PCs
and Structured Securities, excluding $1.1 billion and $1.3 billion of mortgage-related securities issued by Ginnie Mae that
back Structured Securities at December 31, 2008 and 2007, respectively, because these securities do not expose us to
meaningful amounts of credit risk. See “NOTE 5: INVESTMENTS IN SECURITIES” and “NOTE 6: MORTGAGE LOANS
AND LOAN LOSS RESERVES” for information about credit concentrations in other mortgage-related securities that we
hold.
Table 18.1 — Concentration of Credit Risk
(1)
Amount Percentage Amount Percentage
2008 2007
December 31,
(dollars in millions)
By Region
(2)
West............................................................ $ 504,779 26% $ 455,051 25%
Northeast ......................................................... 473,348 25 443,813 24
North Central ...................................................... 357,190 18 353,522 19
Southeast ......................................................... 354,767 18 335,386 19
Southwest ........................................................ 247,541 13 231,951 13
$1,937,625 100% $1,819,723 100%
By State
California ........................................................ $ 274,260 14% $ 243,225 13%
Florida . ......................................................... 129,860 7 124,092 7
Texas . . ......................................................... 99,043 5 91,130 5
NewYork ........................................................ 98,186 5 90,686 5
Illinois . ......................................................... 96,460 5 91,835 5
All others ........................................................ 1,239,816 64 1,178,755 65
$1,937,625 100% $1,819,723 100%
(1) Based on mortgage loans held by us and those underlying our issued PCs and Structured Securities less Structured Securities backed by Ginnie Mae
Certificates.
(2) Region Designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA,
WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest (AR, CO, KS, LA,
MO, NE, NM, OK, TX, WY).
Higher-Risk Single-Family Mortgage Loans
There have been several residential loan products originated in recent years that are designed to offer borrowers greater
choices in their payment terms. For example, interest-only mortgages allow the borrower to pay only interest for a fixed
period of time before the loan begins to amortize. Option ARM loans permit a variety of repayment options, which include
minimum, interest-only, fully amortizing 30-year and fully amortizing 15-year payments. The minimum payment alternative
for option ARM loans allows the borrower to make monthly payments that may be less than the interest accrued for the
period. The unpaid interest, known as negative amortization, is added to the principal balance of the loan, which increases
the outstanding loan balance. In addition to these products, there are also types of residential mortgage loans originated in
the market with lower or alternative documentation requirements than full documentation mortgage loans. These reduced
documentation mortgages have been categorized in the mortgage industry as Alt-A loans. We have classified mortgage loans
as Alt-A if the lender that delivers them to us has classified the loans as Alt-A, or if the loans had reduced documentation
requirements that indicate that the loans should be classified as Alt-A.
Participants in the mortgage market often characterize single-family loans based upon their overall credit quality at the
time of origination, generally considering them to be prime or subprime. However, there is no universally accepted definition
of subprime. We own investments in mortgage-related securities that are backed by subprime and Alt-A mortgage loans. See
265 Freddie Mac