Freddie Mac 2011 Annual Report Download - page 119

Table 26 — Non-Agency Mortgage-Related Securities Backed by Subprime First Lien, Option ARM, and Alt-A
Loans and Certain Related Credit Statistics
(1)
12/31/2011 9/30/2011 6/30/2011 3/31/2011 12/31/2010
As of
(dollars in millions)
UPB:
Subprime first lien
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,644 $49,794 $51,070 $52,403 $53,756
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,949 14,351 14,778 15,232 15,646
Alt-A
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,260 14,643 15,059 15,487 15,917
Gross unrealized losses, pre-tax:
(4)
Subprime first lien
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,401 $14,132 $13,764 $12,481 $14,026
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,169 3,216 3,099 3,170 3,853
Alt-A
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,612 2,468 2,171 1,941 2,096
Present value of expected future credit losses:
(5)
Subprime first lien
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,746 $ 5,414 $ 6,487 $ 6,612 $ 5,937
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,251 4,434 4,767 4,993 4,850
Alt-A
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,235 2,204 2,310 2,401 2,469
Collateral delinquency rate:
(6)
Subprime first lien
(2)
.......................................... 42% 42% 42% 44% 45%
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 44 44 44 44
Alt-A
(3)
................................................... 25 25 26 26 27
Average credit enhancement:
(7)
Subprime first lien
(2)
.......................................... 21% 22% 23% 24% 25%
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8 10 11 12
Alt-A
(3)
................................................... 7 7 8 8 9
Cumulative collateral loss:
(8)
Subprime first lien
(2)
.......................................... 22% 21% 20% 19% 18%
Option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 16 15 14 13
Alt-A
(3)
................................................... 8 8 7 7 6
(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities.
(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien
may be backed in part by subprime second lien loans, as the underlying loans of these securities were permitted to include a small percentage of
subprime second lien loans.
(3) Excludes non-agency mortgage-related securities backed by other loans, which are primarily comprised of securities backed by home equity lines of
credit.
(4) Represents the aggregate of the amount by which amortized cost, after other-than-temporary impairments, exceeds fair value measured at the
individual lot level.
(5) Represents our estimate of future contractual cash flows that we do not expect to collect, discounted at the effective interest rate implicit in the
security at the date of acquisition. This discount rate is only utilized to analyze the cumulative credit deterioration for securities since acquisition and
may be lower than the discount rate used to measure ongoing other-than-temporary impairment to be recognized in earnings for securities that have
experienced a significant improvement in expected cash flows since the last recognition of other-than-temporary impairment recognized in earnings.
(6) Determined based on the number of loans that are two monthly payments or more past due that underlie the securities using information obtained
from a third-party data provider.
(7) Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the trust before any losses are allocated
to securities that we own. Percentage generally calculated based on: (a) the total UPB of securities subordinate to the securities we own, divided by
(b) the total UPB of all of the securities issued by the trust (excluding notional balances). Only includes credit enhancement provided by
subordinated securities; excludes credit enhancement provided by bond insurance, overcollateralization and other forms of credit enhancement.
(8) Based on the actual losses incurred on the collateral underlying these securities. Actual losses incurred on the securities that we hold are
significantly less than the losses on the underlying collateral as presented in this table, as non-agency mortgage-related securities backed by
subprime, option ARM, and Alt-A loans were structured to include credit enhancements, particularly through subordination and other structural
enhancements.
For purposes of our cumulative credit deterioration analysis, our estimate of the present value of expected future
credit losses on our total portfolio of non-agency mortgage-related securities (which are set forth in “Table 23 —
Characteristics of Mortgage-Related Securities on Our Consolidated Balance Sheets”) decreased to $14.0 billion at
December 31, 2011 from $14.3 billion at December 31, 2010. All of these amounts have been reflected in our net
impairment of available-for-sale securities recognized in earnings in this period or prior periods. The decrease in the
present value of expected future credit losses was primarily due to the impact of lower interest rates in 2011 resulting in a
benefit from expected structural credit enhancements on the securities. The impact of lower interest rates was partially
offset by the impact of declines in forecasted home prices.
114 Freddie Mac