Freddie Mac 2009 Annual Report Download - page 153

existing loans guaranteed by us under terms such that we may not have mortgage insurance for some or all of the unpaid
principal balance of the mortgage in excess of 80% of the value of the property for certain of these loans. We allow
refinancing with this product for loans up to a maximum LTV ratio of 125%. Although we discontinued purchases of new
mortgage loans with lower documentation standards for asset and income, beginning March 1, 2009 (or as our customers’
contracts permit), we have continued to purchase certain amounts of such mortgages, primarily in cases where the loan
qualifies as a Freddie Mac Relief Refinance Mortgage
SM
and the pre-existing mortgage was originated under less than full
documentation standards. In the event that Freddie Mac purchases a Freddie Mac Relief Refinance Mortgage that had been
previously identified as Alt-A, these loans may no longer be categorized as Alt-A mortgages presented in our ongoing
reports.
Our charter establishes other requirements for and limitations on the single-family mortgage loans we may purchase,
including an upper limitation, called the “conforming loan limit,” on the original principal balance of the mortgage loans we
purchase. For more information, see “BUSINESS — Our Business and Statutory Mission — Our Business Segments —
Single-Family Guarantee Segment — Loan and Security Purchases.”
We also vary our guarantee and delivery fee pricing relative to different mortgage products and mortgage or borrower
underwriting characteristics. We implemented several increases in delivery fees that were effective in 2009 applicable to
mortgages with certain higher risk loan characteristics. Although we implemented limited increases in delivery fees during
2009, we experienced competitive pressure on our contractual management and guarantee fees, which reduced our ability to
increase those fees as customers renewed their contracts.
In July 2008, the Federal Reserve published a final rule amending Regulation Z (which implements the Truth in
Lending Act). According to the Federal Reserve, one of the goals of the amendments is to protect consumers in the
mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and
sustainable home ownership. The final rule applies four protections to a newly defined category of higher-priced mortgage
loans, or HPMLs, secured by a consumer’s principal dwelling, including a prohibition on lending based on the collateral
without regard to consumers’ ability to repay their obligations from income, or from other sources besides the collateral.
Most of the provisions of the final rule became effective on October 1, 2009. As a result of changes to our underwriting
requirements, our loan purchases in 2009 have not included significant amounts of lower documentation loans and HPMLs.
In July 2009, we issued guidelines to our seller/servicers regarding our purchase criteria for HPMLs, which became effective
October 1, 2009. Although Regulation Z permits prepayment penalties for HPMLs under certain conditions, we will not
purchase HPMLs subject to any prepayment penalty. Likewise, although Regulation Z permits the origination of HPMLs
which adjust or reset during the first seven years after origination subject to specified underwriting criteria, we will not
purchase HPMLs that are subject to any interest or payment adjustment or reset during the first seven years.
Single-Family Mortgage Portfolio Diversification and Characteristics
Portfolio diversification is an important aspect of our strategy to manage mortgage credit risk. We continually monitor a
variety of mortgage loan characteristics that may affect the default experience on our overall mortgage portfolio, such as
product mix, LTV ratios and geographic concentrations.
We vary our guarantee and delivery fee pricing relative to different mortgage products and mortgage or borrower
underwriting characteristics. Our underwriting process evaluates mortgage loans using several critical risk characteristics,
such as credit score, LTV ratio and occupancy type. Table 58 provides characteristics of our single-family new business
purchases in 2009, 2008 and 2007, and of our single-family mortgage portfolio at December 31, 2009, 2008 and 2007.
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