Freddie Mac 2012 Annual Report Download - page 114

Segment Earnings for our Multifamily segment increased to $2.1 billion in 2012, compared to $1.3 billion in 2011. The
improvement in 2012 was primarily due to gains on mortgage loans recorded at fair value in 2012 compared to losses in
2011. Segment Earnings were also higher in 2012 compared to 2011 due to lower impairments of available-for-sale securities
and higher other non-interest income during 2012. Segment Earnings for our Multifamily segment increased to $1.3 billion in
2011, compared to $965 million in 2010, primarily due to improvement in provision (benefit) for credit losses and lower
losses on mortgage loans recorded at fair value, partially offset by higher security impairments on the CMBS portfolio.
Comprehensive income for our Multifamily segment was $4.1 billion for 2012, consisting of: (a) Segment Earnings of
$2.1 billion; and (b) total other comprehensive income, which was mainly attributable to an increase in the fair value of
available-for-sale CMBS during 2012. This increase was driven by favorable non-interest rate-related market spread
movements in 2012. Comprehensive income for our Multifamily segment was $2.2 billion in 2011, consisting of:
(a) Segment Earnings of $1.3 billion; and (b) total other comprehensive income of $0.9 billion, which was mainly
attributable to non-interest rate-related increases in the fair value of available-for-sale CMBS in 2011.
Our multifamily loan purchases and other guarantee commitment issuance volume increased 42% to $28.8 billion for
2012 compared to $20.3 billion for 2011 and $14.8 billion for 2010. There was strong demand for multifamily financing in
2012 as historically low interest rates combined with positive multifamily market fundamentals encouraged borrower
interest. We issued guarantees on K Certificates of $17.9 billion in UPB in 2012, compared to $11.7 billion in 2011 and
$5.7 billion in 2010. The UPB of the total multifamily portfolio increased 2% to $180.2 billion at December 31, 2012 from
$176.7 billion at December 31, 2011. During 2012, the increase in new business volume was partially offset by higher
liquidations of our multifamily investment securities and multifamily loan portfolios.
Segment Earnings net interest income increased by 8%, to $1.3 billion, in 2012 from $1.2 billion in 2011, and $1.1
billion in 2010. The increase in both 2012 and 2011, compared to the respective prior year, was primarily due to the
cumulative effect of new business volumes since 2008, which have higher yields relative to allocated funding costs compared
to pre-2008 volumes. Net interest yield was 95, 83, and 77 basis points for 2012, 2011, and 2010, respectively.
Segment Earnings non-interest income was $1.1 billion, $202 million, and $248 million in 2012, 2011, and 2010,
respectively. We recognize changes in fair value on multifamily mortgage loans we purchase for securitization as gains
(losses) on mortgage loans recorded at fair value while we hold them on our consolidated balance sheets. In the period we
sell these loans (e.g., through securitization), we recognize a gain or loss on sale of mortgage loans based on proceeds of the
sale. Together, these amounts represent the holding period gains or losses associated with the loans. Favorable market spread
movements and higher balances of multifamily loans on our consolidated balance sheets during both 2012 and 2011 resulted
in higher total gains in those years compared to the respective prior year. Segment Earnings gains (losses) on mortgage loans
recorded at fair value are presented net of changes in fair value due to changes in interest rates. Segment Earnings non-
interest income also benefitted in 2012 from improved market pricing and overall improvement in the market for CMBS,
which resulted in gains on the disposition of certain previously-impaired available-for-sale securities and lower impairments
on available-for-sale securities. The decline in non-interest income in 2011, compared to 2010, was primarily driven by
higher security impairments on CMBS.
Multifamily Segment Earnings management and guarantee income increased 19% in 2012, compared to 2011, and
increased 26% in 2011, compared to 2010, reflecting an increased issuance of K Certificates in both years. However, the
average management and guarantee fee rate on our guarantee portfolio declined to 36 basis points in 2012 from 42 basis
points in 2011, and was 50 basis points in 2010. These declines primarily reflect an increased issuance volume of K
Certificates, which have lower fees than our other guarantee activities. The lower fees reflect our reduced credit risk
exposure due to the use of subordination. The amount of subordination employed in our K Certificates is based on our
expectations of potential future credit losses associated with these transactions.
Multifamily Segment Earnings (provision) benefit for credit losses was $123 million, $196 million, and $(99) million in
2012, 2011, and 2010, respectively. Our loan loss reserves associated with our multifamily mortgage portfolio were $382
million, $545 million, and $828 million as of December 31, 2012, 2011, and 2010, respectively. The decline in loan loss
reserves for multifamily loans in 2012 and 2011 was primarily driven by an improvement in the expected performance of the
underlying loans.
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