Freddie Mac 2008 Annual Report Download - page 65

Credit Overview
The factors affecting all residential mortgage market participants during 2008 adversely impacted our single-family
mortgage portfolio during 2008. The following statistics illustrate the credit deterioration of loans in our single-family
mortgage portfolio, which consists of single-family mortgage loans on our consolidated balance sheets as well as those
backing our guaranteed PCs and Structured Securities.
Table 6 — Credit Statistics, Single-Family Mortgage Portfolio
(1)
12/31/2008 09/30/2008 06/30/2008 03/31/2008 12/31/2007
As of
Delinquency rate
(2)
............................................ 1.72% 1.22% 0.93% 0.77% 0.65%
Non-performing assets (in millions)
(3)
................................ $47,959 $35,497 $27,480 $22,379 $18,121
REO inventory (in units). ........................................ 29,340 28,089 22,029 18,419 14,394
12/31/2008 09/30/2008 06/30/2008 03/31/2008 12/31/2007
For the Three Months Ended
(in units, unless noted)
Loan modifications
(4)
........................................... 17,695 8,456 4,687 4,246 2,272
REO acquisitions . . . . . . ........................................ 12,296 15,880 12,410 9,939 7,284
REO disposition severity ratio
(5)
................................... 32.8% 29.3% 25.2% 21.4% 18.1%
Single-family credit losses (in millions)
(6)
............................. $ 1,151 $ 1,270 $ 810 $ 528 $ 236
(1) Consists of single-family mortgage loans for which we actively manage credit risk, which are those loans held in our mortgage-related investments
portfolio as well as those loans underlying our PCs and Structured Securities and excluding certain Structured Transactions and that portion of our
Structured Securities that are backed by Ginnie Mae Certificates.
(2) We report single-family delinquency rate information based on the number of loans that are 90 days or more past due and those in the process of
foreclosure, excluding Structured Transactions. Mortgage loans whose contractual terms have been modified under agreement with the borrower are not
included if the borrower is less than 90 days delinquent under the modified terms. Our delinquency rates for the single-family mortgage portfolio
including Structured Transactions were 1.83% and 0.76% at December 31, 2008 and 2007, respectively. See “CREDIT RISKS — Mortgage Credit
Risk — Delinquencies” for further information.
(3) Includes those loans in our single-family mortgage portfolio, based on unpaid principal balances, that are past due for 90 days or more or where
contractual terms have been modified as a troubled debt restructuring. Also includes single-family loans purchased under our financial guarantees as
well as REO, which are acquired principally through foreclosure on loans within our single-family mortgage portfolio.
(4) Consist of modifications under agreement with the borrower. Excludes forbearance agreements, which are made in certain circumstances and under
which reduced or no payments are required during a defined period, as well as repayment plans, which are separate agreements with the borrower to
repay past due amounts and return to compliance with the original terms.
(5) Calculated as the aggregate amount of our losses recorded on disposition of REO properties during the respective quarterly period divided by the
aggregate unpaid principal balances of the related loans with the borrowers. The amount of losses recognized on disposition of the properties is equalto
the amount by which the unpaid principal balance of loans exceeds the amount of net sales proceeds from disposition of the properties. Excludes other
related credit losses, such as property maintenance and costs, as well as related recoveries from credit enhancements, such as mortgage insurance.
(6) Consists of single-family REO operations expense plus charge-offs, net of recoveries from third-party insurance and other credit enhancements. See
“CREDIT RISKS — Mortgage Credit Risk — Credit Loss Performance” for further information.
The main contributors to our worsening credit statistics during 2008 were single-family loans originated in 2006 and
2007 as well as certain loan groups, such as Alt-A and interest-only mortgage loans. As of December 31, 2008, loans
originated during 2006 and 2007 represented approximately 34% of the unpaid principal balance of single-family loans
underlying our PCs and Structured Securities and 18% of the unpaid principal balance of single-family loans on our
consolidated balance sheet. Although the credit characteristics of loans underlying our newly issued guarantees during 2008
have progressively improved, we have experienced weak credit performance to date from loans purchased in the first half of
2008, which we attribute to the combination of the timeframe of implementation of new loan underwriting requirements,
which became effective as our customer contracts permitted, and the poor housing and economic conditions during the year.
Sufficient time has not yet elapsed to evaluate the credit performance of loans purchased during the second half of 2008.
The Alt-A and interest-only loan groups have been particularly adversely affected by certain macroeconomic factors,
such as declines in home prices, which have resulted in erosion in the borrower’s equity. Our holdings of loans in these
groups are concentrated in the West region. The West region comprised 26% of the unpaid principal balance of our single-
family mortgage portfolio as of December 31, 2008, but accounted for 30% and 11% of our REO acquisitions, based on
property count during 2008 and 2007, respectively. The West region also accounted for approximately 45% and 8% of our
credit losses during 2008 and 2007, respectively. Alt-A loans, which represented approximately 10% of our single-family
mortgage portfolio as of both December 31, 2008 and 2007, accounted for approximately 50% of our credit losses in 2008
compared to 18% during 2007. In addition, stressed markets in the West region (especially California, Arizona and Nevada)
and Florida tend to have higher average loan balances than the rest of the U.S. and were more affected by the steep home
price declines. If home prices continue to decline in these and other regions, the credit statistics of our single-family
mortgage portfolio will continue to deteriorate in 2009.
As of December 31, 2008, single-family mortgage loans in the state of Florida comprised approximately 7% of our
single-family mortgage portfolio, based on unpaid principal balances; however, the loans in this state made up approximately
21% of the total delinquent loans in our single-family mortgage portfolio, based on unpaid principal balances. Consequently,
Florida remains our leading state for seriously delinquent mortgage loans; however, these have been slow to transition to
REO and be reflected in our recognized credit losses due to the duration of Florida’s foreclosure process and our suspension
62 Freddie Mac