Freddie Mac 2011 Annual Report Download - page 217

Single-Family Loans
We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on
individually impaired single-family loans, refer to “Impaired Loans” below.
We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that
evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are
determined based on common underlying characteristics, including current LTV ratios and trends in home prices, loan
product type and geographic region. In determining the loan loss reserves for single-family loans at the balance sheet date,
we evaluate key inputs and factors including, but not limited to:
• current LTV ratios and historical trends in home prices;
• loan product type;
• delinquency/default status and history;
• actual and estimated rates of collateral loss severity for similar loans;
• geographic location;
• loan age;
• sourcing channel;
• occupancy type;
• UPB at origination;
• expected ability to partially mitigate losses through loan modification or other alternatives to foreclosure;
• expected proceeds from mortgage insurance contracts that are contractually attached to a loan or other credit
enhancements that were entered into contemporaneous with and in contemplation of a guarantee or loan purchase
transaction;
• expected repurchases of mortgage loans by sellers under their obligations to repurchase loans that are inconsistent
with certain representations and warranties made at the time of sale;
• counterparty credit of mortgage insurers and seller/servicers;
• pre-foreclosure real estate taxes and insurance;
• estimated selling costs should the underlying property ultimately be sold; and
• trends in the timing of foreclosures.
Freddie Mac relies upon third-parties to provide primary servicing for the performing and non-performing loan
portfolio. At loan delivery, the seller provides us with the loan data, which includes loan characteristics and underwriting
information. Each month, the servicers provide us with monthly loan level servicing data, including delinquency and loss
information.
Certain loan servicing data is reported to us on a real-time basis, such as loan pay-offs and foreclosure events.
However, certain monthly servicing data, including delinquency status, is delivered on a one-month delay. For example,
December loan delinquency data delivered to Freddie Mac at the end of December or beginning of January reflects the
loan delinquency status related to the December 1 payment cycle. We incorporate the delinquency status data into our
allowance for loan loss calculation generally without adjustment for the one month delay.
Our single-family loan loss reserve default models are estimated based on the most recent 12 months of actual
borrower behavior reflected in status and delinquency data reported by our servicers. The data provides a loan level
history of delinquency, foreclosures, foreclosure alternatives, modifications, and repurchases. Our single-family loan loss
reserve severity is estimated from the most recent three months of sales experience realized on our distressed property
dispositions and the most recent six months of mortgage insurance recoveries and pre-foreclosure expenses on our
distressed properties including REO, short sales, and third-party sales. We use historical trends in home prices in our
single-family loan loss reserve process, primarily through the use of estimated current total LTV ratios in our default
models and through the use of recent home price sales experience in our severity estimate. However, we do not use a
forecast of trends in home prices in our single-family loan loss reserve process.
Our loan loss reserves reflect our best current estimates of incurred losses. Our loan loss reserve estimate includes
projections related to strategic loss mitigation activities, including loan modifications for troubled borrowers, and
projections of recoveries through repurchases by seller/servicers of defaulted loans due to failure to follow contractual
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