Freddie Mac 2009 Annual Report Download - page 173

We have the option under our PC agreements to purchase mortgage loans from the related PC pools that underlie our
guarantees under certain circumstances to resolve an existing or impending delinquency or default. Our practice is to
purchase the loans from pools when: (a) the loans are modified; (b) foreclosure transfers occur; (c) the loans are delinquent
for 24 months; or (d) the loans are 120 days delinquent and the cost of guarantee payments to PC holders, including
advances of interest at the PC coupon, exceeds the expected cost of holding the non-performing mortgage loan. On
February 10, 2010 we announced that we will purchase substantially all of the single-family mortgage loans that are
120 days or more delinquent from our PCs and Structured Securities, due to the changing economics that result from new
amendments to accounting standards that became effective on January 1, 2010. See “SUBSEQUENT EVENT” for additional
information.
The table below presents delinquency information on our multifamily mortgage portfolio by year of origination.
Table 68 — Multifamily Mortgage Portfolio
(1)
by Year of Loan Origination
Percent of
Portfolio
Delinquency
Rate
(2)
Percent of
Portfolio
Delinquency
Rate
(2)
December 31, 2009 December 31, 2008
Year of Origination
Pre-2005 . . ........................................................ 19% 0.02% 25% —%
2005 ............................................................. 9 — 10 —
2006 ............................................................. 12 0.16 14 —
2007 ............................................................. 21 0.53 24 0.06
2008 ............................................................. 24 0.05 27 —
2009 ............................................................. 15 — — —
Total ............................................................. 100% 0.15% 100% 0.01%
(1) See endnote (1) to “Table 62 — Characteristics of the Multifamily Mortgage Portfolio” for additional information.
(2) Based on the net carrying value of our multifamily loans 90 days or more delinquent or in foreclosure. See “Portfolio Management Activities — Credit
Performance — Delinquencies” for further information about our reported delinquency rates.
Due to deterioration in economic and market fundamentals, our multifamily mortgage portfolio delinquency rate
increased during 2009, rising to 0.15% at December 31, 2009 from 0.01% at December 31, 2008. The majority of
multifamily loans included in our delinquency rates are credit-enhanced for which we believe the credit enhancement will
mitigate our expected losses on those loans. Apartment market fundamentals continued to deteriorate in 2009. Increasing job
losses contributed to declining monthly rental rates and increased vacancy rates for multifamily properties. Our multifamily
portfolio is divided into the following regions, with composition percentages based on unpaid principal balance of the related
loans as of December 31, 2009: Northeast 29%, West 26%, Southwest 19%, Southeast 17% and North Central 9%. Market
fundamentals for multifamily properties we monitor experienced the greatest deterioration during 2009 in Florida, Georgia,
Texas and California. The increase in the delinquency rate for our multifamily loans is principally from loans on properties
in the states of Georgia and Texas.
Non-Performing Assets
We classify loans as non-performing and place them on nonaccrual status when we believe collectibility of interest and
principal on a loan is not reasonably assured. We consider single-family mortgage loans to be non-performing assets if they
are past due for 90 days or more (seriously delinquent) or if their contractual terms have been modified as a troubled debt
restructuring due to the financial difficulties of the borrower. Similarly, we classify multifamily loans as non-performing
assets if: (a) the loans have undergone a troubled debt restructuring; (b) the loans are more than 90 days past due, or (c) the
loans are deemed impaired based on management’s judgment and are at least 30 days delinquent. We classify troubled debt
restructurings as those loans in which we have modified the loan and granted the borrower a concession, which is a
reduction in either outstanding principal or the stated interest-rate due to the borrower’s financial difficulties. Troubled debt
restructurings remain categorized as non-performing throughout the life of the loan regardless of whether the borrower
makes payments which return the loan to a current payment status after modification.
170 Freddie Mac