Freddie Mac 2012 Annual Report Download - page 163

billion as of December 31, 2011, and the UPB of loans categorized as TDRs also increased at December 31, 2012 as
compared to December 31, 2011. These increases were primarily due to a change in the treatment of single-family loans
discharged in Chapter 7 bankruptcy to classify these loans as TDRs (unless they were already classified as a TDR for other
reasons), regardless of the borrowers’ payment status. Except for this change in classification, which resulted in
approximately $19.5 billion in UPB of loans being newly classified as TDRs in the third quarter of 2012, the balance of our
non-performing loans would have declined in 2012 due to a combination of improved borrower payment performance and
the continued high levels of foreclosure transfers, short sales, and REO dispositions during 2012. TDRs include HAMP and
non-HAMP loan modifications, as well as loans in modification trial periods and certain other loss mitigation actions. See
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 5: INDIVIDUALLY IMPAIRED
AND NON-PERFORMING LOANS” for information about TDRs, including our implementation of an amendment to the
accounting guidance on classification of loans as TDRs in 2011. We expect our non-performing assets, including loans
deemed to be TDRs, to remain at elevated levels for 2013.
The table below provides detail by region for REO activity. Our REO activity consists almost entirely of single-family
residential properties. See “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for
information about regional serious delinquency rates.
Table 56 — REO Activity by Region(1)
December 31,
2012 2011 2010
(number of properties)
REO Inventory
Beginning property inventory ........................................................... 60,555 72,093 45,052
Adjustment to beginning balance(2) ....................................................... — — 1,340
Properties acquired by region:
Northeast ....................................................................... 7,353 6,970 11,022
Southeast ....................................................................... 23,907 23,195 35,409
North Central .................................................................... 27,586 26,259 29,550
Southwest ....................................................................... 10,199 12,861 14,092
West ........................................................................... 13,773 29,371 36,843
Total properties acquired .......................................................... 82,818 98,656 126,916
Properties disposed by region:
Northeast ....................................................................... (7,545) (8,883) (8,490)
Southeast ....................................................................... (25,813) (28,310) (26,082)
North Central .................................................................... (28,140) (25,971) (22,349)
Southwest ....................................................................... (12,138) (13,099) (11,044)
West ........................................................................... (20,660) (33,931) (33,250)
Total properties disposed .......................................................... (94,296) (110,194) (101,215)
Ending property inventory ............................................................. 49,077 60,555 72,093
(1) See endnote (8) to “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.
(2) Represents REO assets associated with previously non-consolidated mortgage trusts recognized upon adoption of the amendment to the accounting
guidance for consolidation of VIEs on January 1, 2010.
Our REO inventory (measured in number of properties) declined 19% and 16% in 2012 and 2011 as compared to the
inventory balance in the preceding year, respectively, as the volume of our single-family REO dispositions exceeded the
volume of single-family REO acquisitions in both 2012 and 2011. We believe our single-family REO acquisition volume
during 2012 and 2011 was less than it otherwise would have been due to the length of the single-family foreclosure timeline,
particularly in states that require a judicial foreclosure process. Foreclosures generally take longer to complete in states
where judicial foreclosures (those conducted under the supervision of a court) are required than in states where non-judicial
foreclosures are permitted. We also believe that resource constraints on foreclosure activities for five larger servicers
involved in a February 2012 settlement with a coalition of state attorneys general and federal agencies further limited our
REO acquisition volume in 2012. In addition, our expanded loss mitigation efforts, including short sales, are providing
borrowers with viable alternatives to foreclosure. As a result of increasing short sales and a declining amount of problem
loans during 2012, fewer of our loans proceeded to foreclosure and subsequent REO sale.
The average length of time for foreclosure of a Freddie Mac loan has significantly increased in recent years, and may
further increase, due to temporary suspensions, delays, legislative and regulatory developments, changes in servicing
practices, and other factors. During 2012 and 2011, respectively, the nationwide average for completion of a foreclosure (as
measured from the date of the last scheduled payment made by the borrower) on our single-family delinquent loans,
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