Freddie Mac 2012 Annual Report Download - page 143

years since we no longer purchase them and many of these borrowers have completed foreclosure transfers, refinanced or
received loan modifications into an amortizing loan product (and thus these loans are no longer classified as interest-only
loans).
The table below presents information for single-family mortgage loans in our single-family credit guarantee portfolio,
excluding Other Guarantee Transactions, at December 31, 2012 that contain interest-only payment terms. The reported
balances in the table below are aggregated by interest-only loan product type and categorized by the year in which the loan
begins to require payments of principal. At December 31, 2012, approximately 6% of these interest-only loans are scheduled
to begin requiring payments of principal in 2013 or 2014. The timing of the actual change in payment terms may differ from
those presented due to a number of factors, including refinancing.
Table 42 — Single-Family Loans Scheduled Payment Change to Include Principal by Year at December 31, 2012(1)
2012 and Prior 2013 2014 2015 2016 2017 Thereafter Total
(in millions)
ARM/interest-only ............................. $13,113 $1,922 $978 $3,412 $5,500 $ 9,184 $4,804 $38,913
Fixed/interest-only ............................. — <1 13 281 1,475 7,544 2,006 11,319
Total ..................................... $13,113 $1,922 $991 $3,693 $6,975 $16,728 $6,810 $50,232
(1) Based on the UPBs of mortgage products that contain interest-only provisions and that begin amortization of principal in each of the years shown. These
reported balances are based on the UPB of the underlying mortgage loans and do not reflect the publicly-available security balances we use to report the
composition of our PCs and REMICs and Other Structured Securities. Excludes: (a) mortgage loans underlying Other Guarantee Transactions since the
payment change information is not available to us for these loans; and (b) any mortgage loans which completed a modification before the end of the
respective period and for which the terms of the loan were changed to an amortizing loan product.
The table below presents the trend of serious delinquency information for single-family interest-only mortgage loans in
our single-family credit guarantee portfolio, excluding Other Guarantee Transactions, categorized by the year in which the
loan begins to require payments of principal. Loans where the year of payment change is 2012 or prior have already changed
to require payments of principal as of December 31, 2012; loans where the year of payment change is 2013 or later still
require only payments of interest as of December 31, 2012 and will not require payments of principal until a future period.
Table 43 — Serious Delinquency Rates by Year of Payment Change to Include Principal(1)
As of December 31,
Year of payment change: 2012 2011 2010
2010 and prior ............................................................................. 7.97% 9.42% 11.53%
2011 ..................................................................................... 14.92 18.96 19.65
2012 ..................................................................................... 19.35 20.98 19.02
2013 and after ............................................................................. 17.70 18.43 19.11
(1) Based on loans remaining in the single-family guarantee portfolio as of December 31, 2012, 2011, and 2010, rather than all loans guaranteed by us and
originated in the respective year. Excludes mortgage loans which completed a modification before the end of the respective period and for which the
terms of the loan were changed to an amortizing loan product.
In recent years, interest-only loans experienced high serious delinquency rates well before reaching the dates at which
the loans begin to require amortization of principal. We believe that interest-only loan performance during the last three
years was more adversely affected by changes in employment, home prices, and other regional and macro-economic
conditions, than by the increase in the borrower’s monthly payment (when the loans begin to require payments of principal).
In addition, a number of these loans were categorized as Alt-A, due to reduced documentation standards at the time of loan
origination. The overall serious delinquency rate for all interest-only loans in our single-family credit guarantee portfolio was
16.3% as of December 31, 2012. Approximately 74% of all interest-only loans in our single-family credit guarantee portfolio
had not yet begun amortization of principal and 60% of all interest-only loans in our single-family credit guarantee portfolio
had current LTV ratios greater than 100% as of December 31, 2012. Since a substantial portion of these loans were
originated in 2005 through 2008 and are located in geographical areas that have been most impacted by declines in home
prices since 2006, we believe that the serious delinquency rate for interest-only loans will remain high in 2013.
Option ARM Loans
Most option ARM loans have initial periods during which the borrower has various options as to the amount of each
monthly payment, until a specified date, when the terms are recast. At both December 31, 2012 and 2011, option ARM loans
represented less than 1% of the UPB of our single-family credit guarantee portfolio. Included in this exposure was
$6.3 billion and $7.3 billion of option ARM securities underlying certain of our Other Guarantee Transactions at
138 Freddie Mac