Freddie Mac 2011 Annual Report Download - page 176

We adopted an amendment to the accounting guidance related to the classification of loans as TDRs in the third
quarter of 2011, which significantly increases the population of problem loans subject to our workout activities that we
account for and disclose as TDRs. The impact of this change in guidance on our financial results for 2011 was not
significant because the loan loss reserve associated with those loans determined on a collective basis prior to their
classification as TDRs was not materially different from the loan loss reserve of the loans determined on an individual
basis upon classification as TDRs at the time of the adoption of this amendment. See “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES,” and “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING
LOANS” for additional information on our accounting policies for loan loss reserves and TDR loans, including our
implementation of changes to the accounting guidance related to the classification of loans as TDRs.
The table below summarizes our allowance for loan loss activity for individually impaired single-family mortgage
loans on our consolidated balance sheets for which we have recorded a specific reserve.
Table 65 — Single-Family Impaired Loans with Specific Reserve Recorded
# of Loans Amount
As of December 31, 2011
(in millions)
TDRs (recorded investment):
December 31, 2010 balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,241 $ 28,440
New additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,316 27,791
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,655) (1,243)
Loss events
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,607) (1,537)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 43
December 31, 2011 balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,749 53,494
Other (recorded investment)
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,565 2,433
December 31, 2011 balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,314 55,927
Total single-family impaired loans-allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,100)
Net investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,827
(1) Consists of foreclosure transfer or foreclosures alternative, such as a deed in lieu of foreclosure or short sale transaction.
(2) Consists of loans impaired upon purchase which experienced further deterioration in borrower credit.
See “CONSOLIDATED RESULTS OF OPERATIONS — Provision for Credit Losses,” for a discussion of our
provision for credit losses and charge-off activity.
Credit Risk Sensitivity
Under a 2005 agreement with FHFA, then OFHEO, we are required to disclose the estimated increase in the NPV of
future expected credit losses for our single-family credit guarantee portfolio over a ten year period as the result of an
immediate 5% decline in home prices nationwide, followed by a stabilization period and return to the base case. This
sensitivity analysis is hypothetical and may not be indicative of our actual results. We do not use this analysis for
determination of our reported results under GAAP. As shown in the table below, our credit loss sensitivity declined in the
last half of 2011, primarily due to the effects of a decline in mortgage interest rates, which affected recent and future
expectations of refinancing activity.
Table 66 — Single-Family Credit Loss Sensitivity
NPV
(3)
NPV Ratio
(4)
NPV
(3)
NPV Ratio
(4)
Before Receipt of
Credit Enhancements
(1)
After Receipt of
Credit Enhancements
(2)
(dollars in millions)
At:
December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,328 47.7 bps $7,842 44.9 bps
September 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,824 49.5 bps $8,229 46.1 bps
June 30, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,203 56.5 bps $9,417 52.2 bps
March 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,832 54.2 bps $8,999 49.6 bps
December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,926 54.9 bps $9,053 50.0 bps
(1) Assumes that none of the credit enhancements currently covering our mortgage loans has any mitigating impact on our credit losses.
(2) Assumes we collect amounts due from credit enhancement providers after giving effect to certain assumptions about counterparty default rates.
(3) Based on the single-family credit guarantee portfolio, excluding REMICs and Other Structured Securities backed by Ginnie Mae Certificates.
(4) Calculated as the ratio of NPV of increase in credit losses to the single-family credit guarantee portfolio, defined in note (3) above.
Interest Rate and Other Market Risks
For a discussion of our interest rate and other market risks, see “QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.”
171 Freddie Mac