Freddie Mac 2011 Annual Report Download - page 112

Our purchase and guarantee of multifamily loans, excluding HFA-related guarantees, increased approximately 37% to
$20.3 billion for 2011, compared to $14.8 billion and $16.6 billion during 2010 and 2009, respectively. We completed
Other Guarantee Transactions, excluding HFA-related guarantees, of $11.7 billion, $5.7 billion, and $2.0 billion in UPB of
multifamily loans in 2011, 2010, and 2009, respectively. The UPB of the total multifamily portfolio increased to
$176.7 billion at December 31, 2011 from $169.5 billion at December 31, 2010, primarily due to increased issuance of
Other Guarantee Transactions, partially offset by maturities and other repayments of multifamily held-for-investment
mortgage loans. We expect our purchase and guarantee activity to continue to increase, but at a more moderate pace, in
2012.
Segment Earnings for our Multifamily segment increased to $1.3 billion in 2011, compared to $965 million in 2010,
primarily due to improvement in provision (benefit) for credit losses and lower losses on mortgage loans recorded at fair
value, partially offset by higher security impairments on the CMBS portfolio. Our total comprehensive income for our
Multifamily segment was $2.2 billion in 2011, consisting of: (a) Segment Earnings of $1.3 billion; and (b) $0.9 billion of
total other comprehensive income, which was mainly attributable to changes in fair value of available-for-sale CMBS in
2011.
Segment Earnings (loss) for our Multifamily segment increased to $965 million for 2010 compared to $(511) million
for 2009, primarily due to increased net interest income and lower provision for credit losses in 2010. Our total
comprehensive income for our Multifamily segment was $5.0 billion in 2010, consisting of: (a) Segment Earnings of
$965 million; and (b) $4.1 billion of total other comprehensive income, primarily resulting from improved fair values on
available-for-sale CMBS. Our total comprehensive income for our Multifamily segment was $6.8 billion in 2009,
consisting of: (a) Segment Earnings (loss) of $(0.5) billion; and (b) $7.3 billion of total other comprehensive income.
Segment Earnings net interest income increased to $1.2 billion in 2011 from $1.1 billion in 2010, primarily due to
lower funding costs on allocated debt in 2011. Net interest yield was 83 and 77 basis points in 2011 and 2010,
respectively. Segment Earnings net interest income increased $258 million, or 30%, for 2010 compared to 2009, due to
lower funding costs on allocated debt in 2010, which declined principally due to the removal of the LIHTC investments
from the Multifamily segment in the fourth quarter of 2009. See “NOTE 3: VARIABLE INTEREST ENTITIES” for
further information on our LIHTC investments. Net interest income was also positively impacted in 2010 by an increase
in prepayment fees driven by an increase in refinancing in 2010, as compared to 2009. As a result, net interest yield was
77 basis points in 2010, an improvement of 22 basis points from 2009.
Segment Earnings non-interest income (loss) was $202 million, $248 million, and $(536) million in 2011, 2010, and
2009, respectively. The decline in 2011 was primarily driven by higher security impairments on CMBS, partially offset by
lower losses recognized on mortgage loans recorded at fair value primarily reflecting improving market factors, such as
credit and liquidity. Segment Earnings gains (losses) on mortgage loans recorded at fair value are presented net of changes
in fair value due to changes in interest rates. The improvement in Segment Earnings non-interest income (loss) in 2010,
compared to 2009, was primarily due to the absence of LIHTC partnership losses and higher gains recognized on the sale
of loans through securitization in 2010.
While our Multifamily Segment Earnings management and guarantee income increased 26% in 2011, compared to
2010, the average rate realized on our guarantee portfolio declined to 42 basis points in 2011 from 50 basis points in
2010. The decline in our average rate in 2011 reflects the impact from our increased volume of Other Guarantee
Transactions, which have lower credit risk associated with our guarantee (and thus we charge a lower rate) relative to
other issued guarantees because these transactions contain significant levels of credit enhancement through subordination.
Multifamily credit losses as a percentage of the combined average balance of our multifamily loan and guarantee
portfolios were 6.3, 9.6, and 4.4 basis points in 2011, 2010, and 2009, respectively. Our Multifamily segment recognized a
provision (benefit) for credit losses of $(196) million, $99 million, and $574 million in 2011, 2010, and 2009,
respectively. Our loan loss reserves associated with our multifamily mortgage portfolio were $545 million, $828 million,
and $831 million as of December 31, 2011, 2010, and 2009, respectively. The decline in our loan loss reserves in 2011
was driven by positive trends in vacancy rates and effective rents, as well as stabilizing or improved property values.
The credit quality of the multifamily mortgage portfolio remains strong, as evidenced by low delinquency rates and
credit losses, and we believe reflects prudent underwriting practices. The delinquency rate for loans in the multifamily
mortgage portfolio was 0.22%, 0.26%, and 0.20% as of December 31, 2011, 2010, and 2009, respectively. As of
December 31, 2011, more than half of the multifamily loans that were two or more monthly payments past due, measured
both in terms of number of loans and on a UPB basis, had credit enhancements that we currently believe will mitigate our
expected losses on those loans. We expect our multifamily delinquency rate to remain relatively stable in 2012. See
“RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Multifamily Mortgage Credit Risk” for further
107 Freddie Mac