Freddie Mac 2012 Annual Report Download - page 127

Mortgage Loans
The UPB of mortgage loans on our consolidated balance sheets declined to $1.7 trillion as of December 31, 2012, from
$1.8 trillion as of December 31, 2011. This decline reflects that the amount of single-family loan liquidations during the
period exceeded new loan purchase and guarantee activity, which we believe is due, in part, to declines in the amount of
single-family mortgage debt outstanding in the market and a decline in our single-family competitive position compared to
other market participants (primarily Fannie Mae and Ginnie Mae). See “RISK FACTORS — Competitive and Market
Risks — A significant decline in the price performance of or demand for our PCs could have an adverse effect on the volume
and/or profitability of our new single-family guarantee business” for further information on our competitive position in the
single-family mortgage market. Most of the loans on our consolidated balance sheets are securitized (e.g., held in PC trusts).
The unsecuritized loans on our consolidated balance sheets generally consist of loans held for investment purposes, loans that
are awaiting securitization, or delinquent or modified loans that we removed from PC trusts.
The UPB of unsecuritized single-family mortgage loans declined by $27.0 billion to $144.7 billion at December 31,
2012, from $171.7 billion at December 31, 2011, primarily due to: (a) loan prepayments, foreclosure transfers, and
foreclosure alternative activities; and (b) securitizations of loans through our PC cash auction process.
Based on the amount of the recorded investment of single-family loans on our consolidated balance sheets,
approximately $59.8 billion, or 3.6%, of these loans were seriously delinquent as of December 31, 2012, as compared to
$72.4 billion, or 4.2%, as of December 31, 2011. This decline was primarily due to a slowdown in new serious delinquencies
(largely due to a decline in the portion of our single-family loans that were originated in 2005 through 2008), and the impact
of our loss mitigation efforts, including short sales. The majority of these seriously delinquent loans are unsecuritized, and
were removed by us from our PC trusts. As guarantor, we have the right to remove mortgages that back our PCs from the
underlying loan pools under certain circumstances. See “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-
PERFORMING LOANS” for more information on our removal of single-family loans from PC trusts.
The UPB of unsecuritized multifamily mortgage loans was $76.6 billion at December 31, 2012 and $82.3 billion at
December 31, 2011. This decline is primarily the result of principal repayments on our loans held for investment during the
period, which were partially offset by an increase in the balance of loans held-for-sale or securitization. Our principal
multifamily business activity involves purchasing and aggregating loans for securitization. We expect to continue our
securitization activity since it provides liquidity for the multifamily market, supports affordability for multifamily rental
housing, and helps us to manage credit risk.
We maintain an allowance for loan losses on mortgage loans that we classify as held-for-investment on our consolidated
balance sheets. We also maintain a reserve for guarantee losses that is associated with Freddie Mac mortgage-related
securities backed by multifamily loans, certain single-family Other Guarantee Transactions, and other guarantee
commitments for which we have incremental credit risk. Collectively, we refer to our allowance for loan losses and our
reserve for guarantee losses as our loan loss reserves. Our loan loss reserves were $30.9 billion and $39.5 billion at
December 31, 2012 and 2011, respectively, including $30.5 billion and $38.9 billion, respectively, related to single-family
loans. At December 31, 2012 and 2011, our loan loss reserves, as a percentage of our total mortgage portfolio, excluding
non-Freddie Mac securities, were 1.7% and 2.1%, respectively, and as a percentage of the UPB associated with our non-
performing loans were 23.5% and 32.0%, respectively. Our loan loss reserves declined during 2012 primarily due to
continued high levels of charge-offs that exceeded the amount of our provision for credit losses during the period. See “RISK
MANAGEMENT — Credit Risk — Mortgage Credit Risk” and “NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES” for further detail about the mortgage loans and associated allowance for loan losses recorded on our
consolidated balance sheets.
The table below summarizes the amount of mortgages we purchased and the amount of guarantees we issued in the
applicable periods. The activity presented in the table consists of: (a) mortgage loans underlying consolidated single-family
PCs issued in the period (regardless of whether such securities are held by us or third parties); (b) single-family and
multifamily mortgage loans purchased, but not securitized, in the period; and (c) mortgage loans underlying our mortgage-
related financial guarantees issued in the period, which are not consolidated on our balance sheets.
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