Freddie Mac 2010 Annual Report Download - page 210

Table 5.1 — Mortgage Loans
Unsecuritized
Held by
Consolidated
Trusts Total Unsecuritized
December 31, 2010 December 31, 2009
(in millions)
Single-family:
(1)
Fixed-rate
Amortizing . . . . . . . . . . . . . ................................. $126,561 $1,493,206 $1,619,767 $ 49,033
Interest-only . . . . . . . . . . . . ................................. 4,161 19,616 23,777 425
Total fixed-rate . . . . . . . . ................................. 130,722 1,512,822 1,643,544 49,458
Adjustable-rate
Amortizing . . . . . . . . . . . . . ................................. 3,625 59,851 63,476 1,250
Interest-only . . . . . . . . . . . . ................................. 13,018 58,792 71,810 1,060
Total adjustable-rate . . . . . ................................. 16,643 118,643 135,286 2,310
Other Guarantee Transactions backed by non-Freddie Mac securities ........ — 15,580 15,580 —
FHA/VA and USDA Rural Development ........................... 1,498 3,348 4,846 3,110
Total single-family . . . . . . . . . . . ................................. 148,863 1,650,393 1,799,256 54,878
Multifamily
(1)
:
Fixed-rate . . . . . . . . . . . . . . . ................................. 72,679 — 72,679 71,936
Adjustable-rate . . . . . . . . . . . . ................................. 13,201 — 13,201 11,999
USDA Rural Development . . . . ................................. 3 — 3 3
Total multifamily . . . . . . . . . . . . ................................. 85,883 — 85,883 83,938
Total UPB of mortgage loans . . . . ................................. 234,746 1,650,393 1,885,139 138,816
Deferred fees, unamortized premiums, discounts and other cost basis
adjustments . . . . . . . . . . . . ................................. (7,665) 7,423 (242) (9,317)
Lower of cost or fair value adjustments on loans held-for-sale
(2)
........... (311) — (311) (188)
Allowance for loan losses on mortgage loans held-for-investment . ......... (28,047) (11,644) (39,691) (1,441)
Total mortgage loans, net . . . . . . ................................. $198,723 $1,646,172 $1,844,895 $127,870
Mortgage loans, net:
Held-for-investment . . . . . . . . ................................. $192,310 $1,646,172 $1,838,482 $111,565
Held-for-sale . . . . . . . . . . . . . ................................. 6,413 — 6,413 16,305
Total mortgage loans, net . . . . . . ................................. $198,723 $1,646,172 $1,844,895 $127,870
(1) Based on principal balances and excluding mortgage loans traded, but not yet settled.
(2) Includes fair value adjustments associated with mortgage loans for which we have made a fair value election.
The decrease in mortgage loans held-for-sale and increase in mortgage loans held-for-investment from December 31,
2009 to December 31, 2010 is primarily due to a change in accounting for the consolidation of VIEs which resulted in our
consolidation of assets underlying approximately $1.8 trillion of our PCs and $21 billion of certain Other Guarantee
Transactions as of January 1, 2010. Upon adoption of the new accounting standards on January 1, 2010, we redesignated all
single-family loans that were held-for-sale as held-for-investment, which totaled $13.5 billion in UPB and resulted in the
recognition of a lower-of-cost-or-fair-value adjustment, which was recorded as an $80 million reduction in the beginning
balance of retained earnings for 2010. As of December 31, 2010, our mortgage loans held-for-sale consist solely of
multifamily mortgage loans that we purchased for securitization. Prior to January 1, 2010, in addition to multifamily loans
purchased for securitization, we also had investments in single-family mortgage loans held-for-sale. See “NOTE 2: CHANGE
IN ACCOUNTING PRINCIPLES” for further information.
We purchased UPB of $380.7 billion of single-family mortgage loans and $3.2 billion of multifamily loans that were
classified as held-for-investment at purchase in the year ended December 31, 2010. As discussed above, prior to January 1,
2010 the majority of our single-family loan purchases were classified as held-for-sale loans. Our sales of mortgage loans
occur primarily through the issuance of multifamily Other Guarantee Transactions. See “NOTE 10: FINANCIAL
GUARANTEES” for more information. We did not sell any held-for-investment loans during the year ended December 31,
2010. We did not have significant reclassifications of mortgage loans into held-for-sale in the year ended December 31,
2010. In 2009, for loans designated as held-for-sale for which we had not elected the fair value option, we evaluated the
lower of cost or fair value for such loans each period by aggregating loans based on the mortgage product type. Beginning in
2010, we elected the fair value option for all of our held-for-sale loans. During 2009, we recognized $679 million of lower
of cost or fair value adjustments on our consolidated statement of operations related to held-for-sale mortgage loans.
Credit Quality of Mortgage Loans
We evaluate the credit quality of single-family loans using different criteria than the criteria we use to evaluate
multifamily loans. The current LTV ratio is one key factor we consider when estimating our loan loss reserves for single-
family loans. As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively affects
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