Freddie Mac 2008 Annual Report Download - page 70

• Segment Earnings provision for credit losses for the Single-family Guarantee segment increased to $16.7 billion in
2008 from $3.0 billion in 2007.
• Realized single-family credit losses were 21 basis points of the average single-family credit guarantee portfolio for
2008, compared to 3 basis points for 2007.
• We implemented several delivery fee increases that were effective at varying dates between March and June 2008, or
as our customers’ contracts permitted. We cancelled certain of our planned increases in delivery fees that were to be
implemented in November 2008. Our efforts to provide increased support to the mortgage market under the direction
of our Conservator have affected our guarantee pricing decisions and will likely continue to do so.
• Average rates of management and guarantee fee income for the Single-family Guarantee segment increased to
20.7 basis points during 2008 compared to 18.0 basis points in 2007.
• The average balance of the single-family credit guarantee portfolio increased by 12% during 2008, compared to 14%
during 2007.
Multifamily
Our Multifamily segment activities include purchases of multifamily mortgages for our mortgage-related investments
portfolio, and guarantees of payments of principal and interest on multifamily mortgage-related securities and mortgages
underlying multifamily housing revenue bonds.
Performance comparison for 2008 versus 2007:
• Segment Earnings decreased 9% to $364 million in 2008 versus $398 million in 2007.
• Segment Earnings net interest income was $426 million in 2008, unchanged from 2007. However, we recognized an
increase in interest income on mortgage loans due to higher average balances and purchases of higher yield assets that
was offset by lower yield maintenance fees in 2008.
• Mortgage purchases into our multifamily loan portfolio increased approximately 4% during 2008 to $18.9 billion from
$18.2 billion during 2007.
• Unpaid principal balance of our multifamily loan portfolio increased to $72.7 billion at December 31, 2008 from
$57.6 billion at December 31, 2007 as market fundamentals continued to provide attractive purchase opportunities.
• Unpaid principal balance of our multifamily guarantee portfolio increased 35% to $15.7 billion as of December 31,
2008 as we continued to increase our resecuritization and guarantees of mortgage revenue bonds during 2008 to
support the mortgage market.
• Segment Earnings provision for credit losses for the Multifamily segment totaled $229 million and $38 million during
2008 and 2007, respectively. We increased our reserve estimates in 2008 to reflect the recent deterioration of market
conditions, such as unemployment and vacancy rates, which worsened during the second half of 2008 and resulted in
increased estimated severities of incurred loss.
Capital Management
Our entry into conservatorship resulted in significant changes to the assessment of our capital adequacy and our
management of capital. On October 9, 2008, FHFA announced that it was suspending capital classification of us during
conservatorship in light of the Purchase Agreement. Concurrent with this announcement, FHFA classified us as
undercapitalized as of June 30, 2008 based on discretionary authority provided by statute.
FHFA has directed us to focus our risk and capital management on, among other things, maintaining a positive balance
of GAAP stockholders’ equity in order to reduce the likelihood that we will need to make additional draws on the Purchase
Agreement with Treasury, while returning to long-term profitability. However, as discussed in “BUSINESS —
Conservatorship and Related Developments — Supervision of Our Business During Conservatorship,” certain of the
Conservator’s directives are expected to conflict with these objectives. The Purchase Agreement provides that, if FHFA
determines as of quarter end that our liabilities have exceeded our assets under GAAP, Treasury will contribute funds to us in
an amount equal to the difference between such liabilities and assets, up to the maximum aggregate amount that may be
funded under the Purchase Agreement.
Under the Reform Act, FHFA must place us into receivership if FHFA determines in writing that our assets are less than
our obligations for a period of 60 days. FHFA has notified us that the measurement period for any mandatory receivership
determination with respect to our assets and obligations would commence no earlier than the SEC public filing deadline for
our quarterly or annual financial statements and would continue for 60 calendar days after that date. See “BUSINESS —
Regulation and Supervision — Federal Housing Finance Agency —Receivership” for additional information on mandatory
receivership. At December 31, 2008, our liabilities exceeded our assets under GAAP by $30.6 billion while our stockholders’
equity (deficit) totaled $(30.7) billion. Accordingly, we must obtain funding from Treasury pursuant to its commitment under
the Purchase Agreement in order to avoid being placed into receivership by FHFA. On November 24, 2008, we received
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