Freddie Mac 2011 Annual Report Download - page 110

2010, compared to 2009, primarily due to a decline in the rate at which delinquent loans transitioned into serious
delinquency, partially offset by a higher volume of loan modifications that were classified as TDRs in 2010.
We adopted an amendment to the accounting guidance on the classification of loans as TDRs in 2011, which
significantly increases the population of loans we account for and disclose as TDRs. The impact of this change in
guidance on our financial results for 2011 was not significant. We expect that the number of loans that newly qualify as
TDRs in 2012 will remain high, primarily because we anticipate that the majority of our modifications, both completed
and those still in trial periods, will be considered TDRs. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES,” and “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for additional
information on our TDR loans, including our implementation of changes to the accounting guidance on the classification
of loans as TDRs.
Single-family credit losses as a percentage of the average balance of the single-family credit guarantee portfolio and
HFA-related guarantees were 72.0 basis points, 75.8 basis points, and 42.7 basis points for 2011, 2010, and 2009,
respectively. Charge-offs, net of recoveries, associated with single-family loans were $12.4 billion, $13.4 billion, and
$7.6 billion in 2011, 2010, and 2009, respectively. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit
Risk — Single-Family Mortgage Credit Risk” for further information on our single-family credit guarantee portfolio,
including credit performance, charge-offs, and our non-performing assets.
The serious delinquency rate on our single-family credit guarantee portfolio was 3.58%, 3.84%, and 3.98% as of
December 31, 2011, 2010, and 2009, respectively, and declined during 2011 due to a high volume of loan modifications
and foreclosure transfers, as well as a slowdown in new serious delinquencies. Our serious delinquency rate remains high
compared to historical levels, reflecting continued stress in the housing and labor markets and extended foreclosure
timelines. The decline in size of our single-family credit guarantee portfolio in 2011 caused our serious delinquency rate
to be higher than it otherwise would have been because this rate is calculated on a smaller base of loans at year end.
Segment Earnings other non-interest income was $1.2 billion, $1.4 billion, and $0.7 billion in 2011, 2010, and 2009,
respectively. The decline in 2011, compared to 2010, was primarily due to lower recoveries on loans impaired upon
purchase due to a lower volume of foreclosure transfers and loan payoffs associated with these loans. The increase in
Segment Earnings other non-interest income in 2010 compared to 2009 was primarily due to higher recoveries on loans
impaired upon purchase driven by a higher volume of short sales and foreclosure transfers associated with these loans.
Segment Earnings REO operations expense was $0.6 billion, $0.7 billion, and $0.3 billion in 2011, 2010, and 2009,
respectively. The decrease in 2011, compared to 2010, was primarily due to the impact of a less significant decline in
home prices in certain geographical areas with significant REO activity resulting in lower write-downs of single-family
REO inventory during 2011, partially offset by lower recoveries on REO properties during 2011. Lower recoveries on
REO properties in 2011, compared to 2010, are primarily due to reduced recoveries from mortgage insurers, in part due to
the continued deterioration in the financial condition of the mortgage insurance industry, and a decline in reimbursements
of losses from seller/servicers associated with repurchase requests on loans on which we have foreclosed. The increase in
Segment Earnings REO operations expense in 2010, compared to 2009, is primarily a result of higher REO property
expenses and holding period write-downs that were partially offset by lower disposition losses and increased recoveries.
Our REO inventory (measured in number of properties) declined 16% during 2011 due to an increase in the volume
of REO dispositions and slowdowns in REO acquisition volume associated with delays in the foreclosure process.
Dispositions of REO increased 9% in 2011 compared to 2010, based on the number of properties sold. We continued to
experience high REO disposition severity ratios on sales of our REO inventory during 2011. We believe our single-family
REO acquisition volume and single-family credit losses in 2011 have been less than they otherwise would have been due
to delays in the single-family foreclosure process, particularly in states that require a judicial foreclosure process. See
“RISK FACTORS — Operational Risks — We have incurred, and will continue to incur, expenses and we may otherwise
be adversely affected by delays and deficiencies in the foreclosure process” for further information.
Segment Earnings other non-interest expense was $0.3 billion, $0.6 billion, and $4.9 billion in 2011, 2010, and 2009,
respectively. The decline in 2011, compared to 2010, was primarily due to lower expenses associated with transfers and
terminations of mortgage servicing. The decline in 2010, compared to 2009, was primarily due to a decline in losses on
loans purchased that resulted from changes in accounting guidance for consolidation of VIEs we implemented on
January 1, 2010.
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