Freddie Mac 2011 Annual Report Download - page 16

Our charter does not permit us to originate mortgage loans or lend money directly to consumers in the primary
mortgage market. We provide liquidity, stability and affordability to the U.S. housing market primarily by providing our
credit guarantee for residential mortgages originated by mortgage lenders and investing in mortgage loans and mortgage-
related securities. We use mortgage securitization as an integral part of our activities. Mortgage securitization is a process
by which we purchase mortgage loans that lenders originate, and pool these loans into guaranteed mortgage securities that
are sold in global capital markets, generating proceeds that support future loan origination activity by lenders. The
primary Freddie Mac guaranteed mortgage-related security is the single-class PC. We also aggregate and resecuritize
mortgage-related securities that are issued by us, other GSEs, HFAs, or private (non-agency) entities, and issue other
single-class and multiclass mortgage-related securities to third-party investors. We also enter into certain other guarantee
commitments for mortgage loans, HFA bonds under the HFA initiative, and multifamily housing revenue bonds held by
third parties.
Our charter limits our purchases of single-family loans to the conforming loan market. The conforming loan market
is defined by loans originated with UPBs at or below limits determined annually based on changes in FHFA’s housing
price index, a method established and maintained by FHFA for determining the national average single-family home price.
Since 2006, the base conforming loan limit for a one-family residence has been set at $417,000, and higher limits have
been established in certain “high-cost” areas (currently, up to $625,500 for a one-family residence). Higher limits also
apply to two- to four-family residences and for mortgages secured by properties in Alaska, Guam, Hawaii, and the
U.S. Virgin Islands.
Beginning in 2008, pursuant to a series of laws, our loan limits in certain high-cost areas were increased temporarily
above the limits that otherwise would have been applicable (up to $729,750 for a one-family residence). The latest of
these increases expired on September 30, 2011. We refer to loans that we have purchased with UPB exceeding the base
conforming loan limit (i.e., $417,000) as conforming jumbo loans.
Our charter generally prohibits us from purchasing first-lien single-family mortgages if the outstanding UPB of the
mortgage at the time of our purchase exceeds 80% of the value of the property securing the mortgage unless we have one
of the following credit protections:
• mortgage insurance from a mortgage insurer that we determine is qualified on the portion of the UPB of the
mortgage that exceeds 80%;
• a seller’s agreement to repurchase or replace any mortgage that has defaulted; or
• retention by the seller of at least a 10% participation interest in the mortgage.
Under our charter, our mortgage purchase operations are confined, so far as practicable, to mortgages that we deem
to be of such quality, type and class as to meet generally the purchase standards of other private institutional mortgage
investors. This is a general marketability standard.
Our charter requirement for credit protection on mortgages with LTV ratios greater than 80% does not apply to
multifamily mortgages or to mortgages that have the benefit of any guarantee, insurance or other obligation by the U.S. or
any of its agencies or instrumentalities (e.g., the FHA, the VA or the USDA Rural Development).
As part of HARP under the MHA Program, we may purchase single-family mortgages that refinance borrowers
whose mortgages we currently own or guarantee without obtaining additional credit enhancement in excess of that already
in place for any such loan, even if the LTV ratio of the new loan is above 80%.
Our Business Segments
Our operations consist of three reportable segments, which are based on the type of business activities each
performs — Single-family Guarantee, Investments, and Multifamily. Certain activities that are not part of a reportable
segment are included in the All Other category.
We evaluate segment performance and allocate resources based on a Segment Earnings approach. Beginning
January 1, 2010, we revised our method for presenting Segment Earnings to reflect changes in how management measures
and assesses the financial performance of each segment and the company as a whole. For more information on our
segments, including financial information, see “MD&A — CONSOLIDATED RESULTS OF OPERATIONS — Segment
Earnings” and “NOTE 14: SEGMENT REPORTING.”
Single-Family Guarantee Segment
The Single-family Guarantee segment reflects results from our single-family credit guarantee activities. In our Single-
family Guarantee segment, we purchase single-family mortgage loans originated by our seller/servicers in the primary
11 Freddie Mac