Freddie Mac 2011 Annual Report Download - page 248

rate is consistent with that of a borrower having a similar credit profile at the time of modification. In certain cases, for
maturing loans we may provide short-term loan extensions of up to 12 months with no changes to the effective borrowing
rate. In other cases we may make more significant modifications of terms for borrowers experiencing financial difficulty,
such as reducing the interest rate or extending the maturity for longer than 12 months. In cases where we do modify the
contractual terms of the loan, the changes in terms may be similar to those of single-family loans, such as an extension of
the term, reduction of contractual rate, principal forbearance, or some combination of these features.
TDR Activity and Performance
The table below provides additional information about both our single-family and multifamily TDR activity during
the year ended December 31, 2011, based on the original category of the loan before modification. Our presentation of
TDR activity includes all loans that were newly classified as a TDR during the respective periods. Prior to classification
as a TDR, these loans were previously evaluated for impairment, including our estimation for loan losses, on a collective
basis. Loans classified as a TDR in one period may be subject to further action (such as a modification or remodification)
in a subsequent period. In such cases, the subsequent activity would not be reflected in the table below since the loan
would already have been classified as a TDR.
Table 5.5 — TDR Activity, by Segment
# of Loans
Post-TDR
Recorded
Investment
Year Ended
December 31, 2011
(in millions, except for
number of loans)
Single-family
20 and 30-year or more, amortizing fixed-rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,948 $19,263
15-year amortizing fixed-rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,529 651
Adjustable-rate
(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,287 657
Alt-A, interest-only, and option ARM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,094 8,355
Total Single-family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,858 28,926
Multifamily .......................................................................... 23 254
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,881 $29,180
(1) Includes balloon/reset mortgage loans.
The aggregate recorded investment of single-family loans classified as TDRs during 2011 was higher post-
modification (as shown in the table above) than the aggregate recorded investment of the pre-modified loans (as shown in
Table 5.4 — Single-Family TDRs, by Type) since past due amounts are added to the principal balance at the time of
restructuring.
The measurement of impairment for TDRs is based on the excess of our recorded investment in the loans over the
present value of the loans’ expected future cash flows. Generally, restructurings that are TDRs have a higher allowance for
loan losses than restructurings that are not considered TDRs because TDRs involve a concession being granted to the
borrower. Our process for determining the appropriate allowance for loan losses for both single-family and multifamily
loans considers the impact that our loss mitigation activities, such as loan restructurings, have on probabilities of default.
For single-family loans evaluated individually and collectively for impairment that have been modified, the probability of
default is adversely impacted by the incidence of redefault that we have experienced on similar loans that have completed
a modification. For multifamily loans, the incidence of redefault on loans that have been modified does not directly
impact the allowance for loan losses as our multifamily loans are generally evaluated individually for impairment which is
based on the fair value of the underlying collateral and contemplates the unique facts and circumstances of the loan. The
process for determining the appropriate allowance for loan losses for multifamily loans evaluated collectively for
impairment considers the incidence of redefault on loans that have completed a modification.
The table below presents the performance of our TDR modifications based on the original category of the loan
before restructuring. Modified loans within the Alt-A category continue to remain in that category, even though the
borrower may have provided full documentation of assets and income before completing the modification. Modified loans
within the option ARM category continue to remain in that category even though the modified loan no longer provides for
optional payment provisions. Substantially all of our completed single-family loan modifications classified as a TDR
during 2011 resulted in a modified loan with a fixed interest rate or one that is fixed below market for five years and then
gradually adjusts to a market rate (determined at the time of modification) and remains fixed at that new rate for the
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