Freddie Mac 2011 Annual Report Download - page 254

The table below presents the modeled default rates and severities, without regard to subordination, that are used to
determine whether our senior interests in certain available-for-sale non-agency mortgage-related securities will experience
a cash shortfall. Our proprietary default model incorporates assumptions about future home prices, as defaults and
severities are modeled at the loan level and then aggregated. The model uses projections of future home prices at the state
level. Assumptions about voluntary prepayment rates are also an input to the model and are discussed below.
Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related
Securities
Subprime First Lien
(2)
Option ARM Fixed Rate Variable Rate Hybrid Rate
Alt-A
(1)
December 31, 2011
(dollars in millions)
Issuance Date
2004 and prior:
UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,218 $ 117 $ 867 $ 512 $2,195
Weighted average collateral defaults
(3)
................ 36% 33% 8% 43% 24%
Weighted average collateral severities
(4)
............... 56% 55% 47% 52% 41%
Weighted average voluntary prepayment rates
(5)
. . . . . . . . . . 6% 7% 19% 7% 8%
Average credit enhancement
(6)
..................... 43% 15% 14% 18% 15%
2005:
UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,293 $ 2,882 $1,206 $ 840 $3,944
Weighted average collateral defaults
(3)
................ 55% 51% 24% 53% 38%
Weighted average collateral severities
(4)
............... 67% 63% 55% 59% 50%
Weighted average voluntary prepayment rates
(5)
. . . . . . . . . . 4% 6% 14% 7% 8%
Average credit enhancement
(6)
..................... 52% 12% 3% 26% 5%
2006:
UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,823 $ 6,661 $ 549 $1,127 $1,183
Weighted average collateral defaults
(3)
................ 65% 63% 37% 61% 50%
Weighted average collateral severities
(4)
............... 72% 69% 61% 68% 57%
Weighted average voluntary prepayment rates
(5)
. . . . . . . . . . 7% 6% 13% 9% 8%
Average credit enhancement
(6)
. . . . . . . . . . . . . . . . . . . . . 15% 3% 7% (1)% 1%
2007:
UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,310 $ 4,289 $ 159 $1,354 $ 324
Weighted average collateral defaults
(3)
................ 62% 58% 53% 60% 60%
Weighted average collateral severities
(4)
............... 73% 69% 69% 67% 67%
Weighted average voluntary prepayment rates
(5)
. . . . . . . . . . 7% 7% 11% 9% 8%
Average credit enhancement
(6)
. . . . . . . . . . . . . . . . . . . . . 17% 11% 11% (7)% —%
Total:
UPB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,644 $13,949 $2,781 $3,833 $7,646
Weighted average collateral defaults
(3)
................ 61% 59% 24% 56% 37%
Weighted average collateral severities
(4)
............... 72% 68% 58% 64% 51%
Weighted average voluntary prepayment rates
(5)
. . . . . . . . . . 6% 6% 15% 8% 8%
Average credit enhancement
(6)
..................... 21% 7% 8% 5% 7%
(1) Excludes non-agency mortgage-related securities backed by other loans, which are primarily comprised of securities backed by home equity lines of
credit.
(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien
may be backed in part by subprime second lien loans, as the underlying loans of these securities were permitted to include a small percentage of
subprime second lien loans.
(3) The expected cumulative default rate expressed as a percentage of the current collateral UPB.
(4) The expected average loss given default calculated as the ratio of cumulative loss over cumulative default for each security.
(5) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding
UPB.
(6) Reflects the ratio of the current principal amount of the securities issued by a trust that will absorb losses in the trust before any losses are allocated
to securities that we own. Percentage generally calculated based on: (a) the total UPB of securities subordinate to the securities we own, divided by
(b) the total UPB of all of the securities issued by the trust (excluding notional balances). Only includes credit enhancement provided by
subordinated securities; excludes credit enhancement provided by bond insurance, overcollateralization and other forms of credit enhancement.
Negative values are shown when collateral losses that have yet to be applied to the tranches exceed the remaining credit enhancement, if any.
In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other
loans for other-than-temporary impairment, we noted that the percentage of securities that were AAA-rated and the
percentage that were investment grade declined significantly since acquisition. While these ratings have declined, the
ratings themselves are not determinative that a loss is more or less likely. While we consider credit ratings in our analysis,
we believe that our detailed security-by-security analyses provide a more consistent view of the ultimate collectability of
contractual amounts due to us. As such, we have impaired securities with current ratings ranging from CCC to AAA and
have determined that other securities within the same ratings were not other-than-temporarily impaired. However, we
carefully consider individual ratings, especially those below investment grade, including changes since December 31,
2011.
249 Freddie Mac