Freddie Mac 2012 Annual Report Download - page 123

related securities we hold will be significantly less than the fair value declines experienced on these securities. As noted
above, at December 31, 2012, our estimate of the present value of expected future credit losses was $13.2 billion.
The investments in non-agency mortgage-related securities we hold backed by subprime, option ARM, and Alt-A loans
were generally structured to include credit enhancements, particularly through subordination and other structural
enhancements. Bond insurance is an additional credit enhancement covering some of the non-agency mortgage-related
securities. These credit enhancements are the primary reason we expect our actual losses, through principal or interest
shortfalls, to be less than the underlying collateral losses in the aggregate. During 2012, we continued to experience the
erosion of structural credit enhancements on many securities backed by subprime, option ARM, and Alt-A loans due to poor
performance of the underlying collateral. For more information on bond insurance coverage, see “RISK MANAGEMENT —
Credit Risk — Institutional Credit Risk — Bond Insurers.”
The table below provides principal repayment and cash shortfall information for our investments in non-agency
mortgage-related securities backed by subprime, option ARM, Alt-A and other loans.
Table 27 — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans(1)
Three Months Ended
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
(in millions)
Principal repayments and cash shortfalls:(2)
Subprime:
Principal repayments .............................................. $1,106 $1,149 $1,180 $1,175 $1,159
Principal cash shortfalls ........................................... 7 4 7 6 7
Option ARM:
Principal repayments .............................................. $ 239 $ 269 $ 300 $ 272 $ 298
Principal cash shortfalls ........................................... 226 211 234 169 103
Alt-A and other:
Principal repayments .............................................. $ 423 $ 393 $ 405 $ 374 $ 385
Principal cash shortfalls ........................................... 81 101 106 97 80
(1) See “Ratings of Non-Agency Mortgage-Related Securities” for additional information about these securities.
(2) In addition to the contractual interest payments, we receive monthly remittances of principal repayments from both the recoveries from liquidated loans
and, to a lesser extent, voluntary repayments of the underlying collateral of these securities representing a partial return of our investment in these
securities.
We and FHFA, as Conservator, are involved in efforts to mitigate our losses as an investor with respect to certain of the
non-agency mortgage-related securities we hold. See “RISK MANAGEMENT — Credit Risk — Institutional Credit Risk —
Non-Agency Mortgage-Related Security Issuers” for more information.
Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities
The table below provides information about the mortgage-related securities for which we recognized other-than-
temporary impairments in earnings.
118 Freddie Mac