Freddie Mac 2011 Annual Report Download - page 99

Recoveries on Loans Impaired upon Purchase
Recoveries on loans impaired upon purchase represent the recapture into income of previously recognized losses
associated with purchases of delinquent loans from our PCs in conjunction with our guarantee activities. Recoveries occur
when a non-performing loan is repaid in full or when at the time of foreclosure the estimated fair value of the acquired
property, less costs to sell, exceeds the carrying value of the loan. For impaired loans where the borrower has made
required payments that return the loan to less than three months past due, the recovery amounts are instead recognized as
interest income over time as periodic payments are received.
During 2011, 2010, and 2009, we recognized recoveries on loans impaired upon purchase of $473 million,
$806 million and $379 million, respectively. Our recoveries on loans impaired upon purchase declined in 2011, compared
to 2010, due to a lower volume of foreclosure transfers and payoffs associated with loans impaired upon purchase.
Recoveries on impaired loans increased in 2010, compared to 2009, due to a higher volume of short sales and foreclosure
transfers, combined with improvements in home prices in certain geographical areas during 2010.
Commencing January 1, 2010, we no longer recognize losses on loans purchased from PC pools related to our single-
family PC trusts and certain Other Guarantee Transactions due to adoption of the amendments to the accounting guidance
for transfers of financial assets and consolidation of VIEs. Our recoveries in 2011 and 2010 principally relate to impaired
loans purchased prior to January 1, 2010, due to the change in accounting guidance effective on that date. Consequently,
our recoveries on loans impaired upon purchase will generally continue to decline over time. See “NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES” for further information about the impact of adoption of these accounting
changes.
All Other
All other income declined to $608 million during the year ended December 31, 2011, compared to $819 million
during the year ended December 31, 2010, primarily due to: (a) gains recognized in 2010 due to the recognition of
income related to mortgage-servicing rights associated with TBW, one of our former seller/servicers; and (b) the
correction in 2011 of certain prior period accounting errors not material to our financial statements.
All other income increased to $819 million in 2010 from $222 million in 2009, primarily due to the recognition of
income related to mortgage-servicing rights associated with TBW, and penalties and other fees on single-family seller
servicers, including penalties arising from failures to complete foreclosures within required time periods, and to a lesser
extent, recognition of expected loss recoveries from certain legal claims.
Non-Interest Expense
The table below summarizes the components of non-interest expense.
Table 14 — Non-Interest Expense
2011 2010 2009
Year Ended December 31,
(in millions)
Administrative expenses:
(1)
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 832 $ 895 $ 912
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 297 344
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 64 68
Other administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 341 361
Total administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,506 1,597 1,685
REO operations expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585 673 307
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392 662 5,203
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,483 $2,932 $7,195
(1) Commencing in the first quarter of 2011, we reclassified certain expenses from other expenses to professional services expense. Prior period
amounts have been reclassified to conform to the current presentation.
Administrative Expenses
Administrative expenses decreased in 2011 compared to 2010, largely due to a reduction in the number of employees
as part of our ongoing focus on cost reduction measures. Administrative expenses decreased in 2010 compared to 2009, in
part due to our focus on cost reduction measures in 2010, particularly on professional services costs. We do not expect
that our general and administrative expenses for 2012 will continue to decline, in part due to the continually changing
mortgage market, an environment in which we are subject to increased regulatory oversight and mandates and strategic
94 Freddie Mac