Freddie Mac 2011 Annual Report Download - page 156

loan purpose, LTV ratio and other loan or borrower characteristics. We implemented several increases in delivery fees that
became effective in 2009 applicable to single-family mortgages with certain higher-risk loan characteristics. We
implemented additional delivery fee increases that become effective March 1, 2011 (or later, as outstanding contracts
permitted) for single-family loans with higher LTV ratios. These fee increases do not apply to relief refinance mortgages
with LTV ratios greater than 80% and with settlement dates on or after July 1, 2011. Given the uncertainty of the housing
market in recent years, during 2011 and 2010, we entered into arrangements with certain existing customers at their
renewal dates that allow us to change credit and pricing terms more quickly than in the past. In response to a July 2011
request from FHFA, we have incorporated into our agreements with single-family sellers the ability to change our
management and guarantee fees upon 90 days or less notice to sellers, if directed to do so by FHFA.
On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.
Among its provisions, this new law directs FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by
no less than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed
securities. For more information, see “BUSINESS — Regulation and Supervision — Legislative and Regulatory
Developments —Legislated Increase to Guarantee Fees.”
Single-Family Loan Workouts and the MHA Program
Loan workout activities are a key component of our loss mitigation strategy for managing and resolving troubled
assets and lowering credit losses. Our loan workouts consist of: (a) forbearance agreements; (b) repayment plans; (c) loan
modifications; and (d) foreclosure alternatives (short sales or deed in lieu of foreclosure transactions). Our single-family
loss mitigation strategy emphasizes early intervention by servicers in delinquent mortgages and provides alternatives to
foreclosure. Other single-family loss mitigation activities include providing our single-family servicers with default
management tools designed to help them manage non-performing loans more effectively and to assist borrowers in
retaining home ownership where possible, or facilitate foreclosure alternatives when continued homeownership is not an
option. See “BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Loss Mitigation and Loan
Workout Activities” for a general description of our loan workouts.
Loan workouts are intended to reduce the number of delinquent mortgages that proceed to foreclosure and,
ultimately, mitigate our total credit losses by reducing or eliminating a portion of the costs related to foreclosed properties
and avoiding the additional credit losses that likely would be incurred in a REO sale. While we incur costs in the short
term to execute our loan workout initiatives, we believe that, overall, these initiatives could reduce our ultimate credit
losses over the long term.
HAMP and our new non-HAMP standard loan modification are important components of our loan workout program
and have many similar features, including the initial incentive fees paid to servicers upon completion of a modification.
Both of these loan modification initiatives are intended to provide borrowers the opportunity to obtain more affordable
monthly payments and to reduce the number of delinquent mortgages that proceed to foreclosure and, ultimately, mitigate
our credit losses by reducing or eliminating a portion of the costs related to foreclosed properties. However, we cannot
currently estimate whether, or the extent to which, costs incurred in the near term from HAMP and our new non-HAMP
standard loan modification may be offset, if at all, by the prevention or reduction of potential future costs of serious
delinquencies and foreclosures.
Our seller/servicers have a significant role in servicing loans in our single-family credit guarantee portfolio, which
includes an active role in our loss mitigation efforts. Therefore, a decline in their performance could impact the overall
quality of our credit performance (including through missed opportunities for mortgage modifications), which could
adversely affect our financial condition or results of operations and have significant impacts on our ability to mitigate
credit losses. The risk of such a decline in performance remains high. For more information, see “RISK FACTORS —
Competitive and Market Risks — We face the risk that seller/servicers may fail to perform their obligations to service
loans in our single-family and multifamily mortgage portfolios or that their servicing performance could decline.”
We establish guidelines for our servicers to follow and provide them default management tools to use, in part, in
determining which type of loan workout would be expected to provide the best opportunity for minimizing our credit
losses. We require our single-family seller/servicers to first evaluate problem loans for a repayment or forbearance plan
before considering modification. If a borrower is not eligible for a modification, our seller/servicers pursue other workout
options before considering foreclosure. During 2011, we helped more than 208,000 borrowers either stay in their homes or
sell their properties and avoid foreclosures through our various workout programs, including HAMP, and we completed
approximately 122,000 foreclosures.
151 Freddie Mac