Freddie Mac 2012 Annual Report Download - page 101

Table 15 — REO Operations Expense, REO Inventory, and REO Dispositions
Year Ended December 31,
2012 2011 2010
(dollars in millions)
REO operations expense:
Single-family:
REO property expenses(1) ........................................................... $ 1,203 $ 1,205 $ 1,163
Disposition (gains) losses, net(2) ....................................................... (682) 179 102
Change in holding period allowance, dispositions .......................................... (108) (456) (286)
Change in holding period allowance, inventory(3) .......................................... (9) 302 497
Recoveries(4) ..................................................................... (342) (634) (800)
Total single-family REO operations expense ............................................... 62 596 676
Multifamily REO operations (income) expense ............................................. (3) (11) (3)
Total REO operations expense ........................................................... $ 59 $ 585 $ 673
REO inventory (in properties), at December 31:
Single-family ..................................................................... 49,071 60,535 72,079
Multifamily ....................................................................... 6 20 14
Total ............................................................................. 49,077 60,555 72,093
REO property dispositions (in properties):
Single-family ..................................................................... 94,276 110,175 101,206
Multifamily ....................................................................... 20 19 9
Total ............................................................................. 94,296 110,194 101,215
(1) Consists of costs incurred to maintain or protect a property after it is acquired in a foreclosure transfer, such as legal fees, insurance, taxes, and cleaning
and other maintenance charges.
(2) Represents the difference between the disposition proceeds, net of selling expenses, and the fair value of the property on the date of the foreclosure
transfer.
(3) Represents the (increase) decrease in the estimated fair value of properties that were in inventory during the period.
(4) Includes recoveries from primary mortgage insurance, pool insurance and seller/servicer repurchases.
REO operations expense was $59 million in 2012, as compared to $585 million in 2011 and $673 million in 2010. The
decline in REO operations expense in 2012, compared to 2011, was primarily due to improving home prices in certain
geographical areas with significant REO activity, which resulted in gains on disposition of properties, partially offset by
lower recoveries on REO properties during 2012 . Recoveries on REO properties were lower in 2012, compared to 2011,
primarily due to reduced recoveries from mortgage insurers and a decline in reimbursements of losses from seller/servicers
associated with repurchase requests. The decline in REO operations expense in 2011, compared to 2010, was primarily due
to the impact of a less significant decline in home prices in certain geographical areas with significant REO activity resulting
in lower write-downs of single-family REO inventory during 2011, partially offset by lower recoveries on REO properties
during 2011.
We believe the volume of our single-family REO acquisitions in recent years was less than it otherwise would have
been due to several factors, including the length of the foreclosure process and increased volume of foreclosure alternatives.
Lower acquisitions, coupled with high disposition levels, led to lower REO property inventory levels in both 2012 and 2011,
compared to the respective prior year. We expect that the length of the foreclosure process will continue to remain above
historical levels. Additionally, we expect our REO activity to remain at elevated levels, as we have a large inventory of
seriously delinquent loans in our single-family credit guarantee portfolio. See “RISK MANAGEMENT — Credit Risk —
Mortgage Credit Risk —Non-Performing Assets” for additional information about our REO activity.
Other Expenses
Other expenses were $573 million, $392 million, and $662 million in 2012, 2011, and 2010, respectively. Other
expenses include HAMP servicer incentive fees, costs related to terminations and transfers of mortgage servicing, and other
miscellaneous expenses. Other expenses in 2012 also included $108 million related to amounts paid and due to Treasury for
the legislated 10 basis point increase in guarantee fees, which was implemented in April 2012.
Other expenses were higher in 2012 compared to 2011, primarily due to the expense related to the legislated 10 basis
point increase in guarantee fees and expenses recorded in 2012 to establish reserves related to pending litigation. Other
expenses were lower in 2011 compared to 2010, primarily due to lower expenses associated with transfers and terminations
of mortgage servicing, primarily related to TBW, partially offset by higher servicer incentive fees associated with HAMP
during 2011.
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