Freddie Mac 2011 Annual Report Download - page 173

Our single-family REO acquisitions in 2011 were most significant in the states of California, Michigan, Georgia,
Florida, and Arizona, which collectively represented 43% of total REO acquisitions based on the number of properties.
These states collectively represented 48% of total REO acquisitions in 2010. The states with the most properties in our
REO inventory as of December 31, 2011 were Michigan and California. At December 31, 2011, our REO inventory in
Michigan and California comprised 12% and 10%, respectively, of total REO property inventory, based on the number of
properties.
We are limited in our REO disposition efforts by the capacity of the market to absorb large numbers of foreclosed
properties. An increasing portion of our REO acquisitions are: (a) located in jurisdictions that require a period of time
after foreclosure during which the borrower may reclaim the property; or (b) occupied and we have either retained the
tenant under an existing lease or begun the process of eviction. All of these factors resulted in an increase in the aging of
our inventory. During the period when the borrower may reclaim the property, or we are completing the eviction process,
we are not able to market the property. As of December 31, 2011, 2010, and 2009, approximately 33%, 28%, and 35%,
respectively, of our REO properties were not marketable due to the above conditions. Our temporary suspension of certain
REO sales during the fourth quarter of 2010 (for up to three months) due to concerns about deficiencies in foreclosure
documentation practices also caused the average holding period to increase. Primarily for these reasons, the average
holding period of our REO properties increased in the last two years, though it varies significantly in different states.
Excluding any post-foreclosure period during which borrowers may reclaim a foreclosed property, the average holding
period associated with our REO dispositions during the years ended December 31, 2011 and 2010 was 197 days and
155 days, respectively. As of December 31, 2011 and 2010, the percentage of our single-family REO property inventory
that had been held for sale longer than one year was 7.1% and 3.4%, respectively. We continue to actively market these
properties through our established initiatives.
The percentage of interest-only and Alt-A loans in our single-family credit guarantee portfolio, based on UPB, was
approximately 4% and 5%, respectively, at December 31, 2011 and was 8% on a combined basis. The percentage of our
REO acquisitions in 2011 that had been financed by either of these loan types represented approximately 30% of our total
REO acquisitions, based on loan amount prior to acquisition.
We began to expand our methods for REO sales during 2010, including the expanded use of REO auctions and bulk
sale transactions of properties in certain geographical areas. Although auction and bulk sales are potentially available for
use in all geographical areas, these methods of REO disposition have to date only been used for our more difficult to sell
or highly distressed inventory. As a result, in 2011, auction and bulk sales represented an insignificant portion of our REO
dispositions. In addition, in certain locations we have offered REO properties for purchase by Neighborhood Stabilization
Program grant recipients prior to listing the properties for sale to the general public. For the first 15 days following
listing, we also offer most of our REO properties exclusively to Neighborhood Stabilization Program grant recipients and
purchasers who intend to occupy the properties.
On August 10, 2011, FHFA, in consultation with Treasury and HUD, announced a request for information seeking
input on new options for sales and rentals of single-family REO properties held by Freddie Mac, Fannie Mae and FHA.
According to the announcement, the objective of the request for information was to help address current and future REO
inventory. The request for information solicited alternatives for maximizing value to taxpayers and increasing private
investment in the housing market, including approaches that support rental and affordable housing needs. We are
participating in discussions with FHFA and other agencies with respect to this initiative. It is too early to determine the
impact this initiative may have on the levels of our REO property inventory, the process for disposing of REO property or
our REO operations expense.
Credit Loss Performance
Many loans that are seriously delinquent, or in foreclosure, result in credit losses. The table below provides detail on
our credit loss performance associated with mortgage loans and REO assets on our consolidated balance sheets and
underlying our non-consolidated mortgage-related financial guarantees.
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