Freddie Mac 2012 Annual Report Download - page 137

loans are generally underwritten with a requirement for a maximum original LTV ratio of 95% (excluding jumbo
conforming, cash-out refinance, and HARP mortgages). We prescribe maximum LTV ratio limits of 80% and 90% for cash-
out refinancing and jumbo conforming mortgages, respectively. For more information on the underwriting process, see
“BUSINESS — Our Business Segments — Single-Family Guarantee Segment — Underwriting Requirements and Quality
Control Standards.”
We were significantly adversely affected by deteriorating conditions in the single-family housing and mortgage markets
during 2008 and 2009. During 2005 to 2007, financial institutions substantially increased origination and securitization of
certain higher risk mortgage loans, such as subprime, option ARM, interest-only and Alt-A, and these loans comprised a
much larger proportion of origination and securitization issuance volumes during 2006 and 2007, and to a lesser extent in
2005, as compared to prior or subsequent years. During this time, we increased our participation in the market for these
products through our purchases of non-agency mortgage-related securities and through our loan securitization and guarantee
activities. Our expanded participation in these products was driven by a combination of competing objectives and pressures,
including meeting our affordable housing goals, competition, the desire to maintain or increase market share, and generating
returns for investors. The mortgage market has changed considerably since 2007. Financial institutions have tightened their
underwriting standards and the mortgage origination market is predominately comprised of fixed-rate amortizing loans.
During 2012, conditions in the mortgage market improved in most geographical areas, but continued to remain
challenging. Many single-family mortgage loans, especially those originated from 2005 through 2008, have been affected by
the compounding pressures on household wealth caused by significant declines in home values that began in 2006 and the
ongoing weak employment environment in many areas. Our serious delinquency rate remained high in 2012 compared to the
rates we experienced in years prior to 2009, as discussed in “Credit Performance — Delinquencies.” The UPB of our single-
family non-performing loans also remained at high levels during 2012.
The table below presents certain credit information about loans in our single-family credit guarantee portfolio by year of
origination as of December 31, 2012 and for the year then ended.
Table 39 — Single-Family Credit Guarantee Portfolio Data by Year of Origination(1)
At December 31, 2012
Year Ended
December 31, 2012
Percent of
Portfolio
Average
Credit
Score(2)
Original
LTV Ratio(3)
Current
LTV Ratio(4)
Current
LTV Ratio
>100%(4)(5)
Serious
Delinquency
Rate(6)
Percent of Credit
Losses
Year of Origination
2012 .................................. 22% 755 78% 76% 13% 0.05% <1%
2011 .................................. 14 753 72 67 4 0.26 <1
2010 .................................. 15 751 72 68 4 0.53 2
2009 .................................. 12 750 70 69 4 0.88 2
Combined-2009 to 2012 .................. 63 753 74 71 7 0.39 4
2008 .................................. 6 719 74 88 28 6.80 9
2007 .................................. 7 700 77 107 55 12.37 36
2006 .................................. 5 705 75 104 50 11.37 25
2005 .................................. 6 712 73 89 32 7.20 17
Combined-2005 to 2008 .................. 24 708 75 98 42 9.56 87
2004 and prior ........................... 13 715 72 56 6 3.20 9
Total .................................. 100% 737 74 75 15 3.25 100%
(1) Based on the loans remaining in the portfolio at December 31, 2012, which totaled $1.6 trillion, rather than all loans originally guaranteed by us and
originated in the respective year. Includes loans acquired under our relief refinance initiative, which began in 2009.
(2) Based on FICO score of the borrower as of the date of loan origination and may not be indicative of the borrowers’ creditworthiness at December 31,
2012. Excludes less than 1% of loans in the portfolio because the FICO scores at origination were not available.
(3) See endnote (2) to “Table 40 — Characteristics of Purchases for the Single-Family Credit Guarantee Portfolio” for information on our calculation of
original LTV ratios.
(4) We estimate current market values by adjusting the value of the property at origination based on changes in the market value of homes in the same
geographical area since origination.
(5) Calculated as a percentage of the aggregate UPB of loans with LTV ratios greater than 100% in relation to the total UPB of loans in the category.
(6) See “Delinquencies” for further information about our reported serious delinquency rates.
Gains in home prices in many areas of the U.S. during 2012 led to improved current LTV ratios of the loans in our
portfolio as of December 31, 2012. We estimate that as of December 31, 2012 and 2011, approximately 42% and 48%,
respectively, of the loans originated in 2005 through 2008 that remained in our single-family credit guarantee portfolio as of
132 Freddie Mac