Freddie Mac 2012 Annual Report Download - page 166

Table 58 — Credit Loss Performance
December 31,
2012 2011 2010
(dollars in millions)
REO
REO balances, net:
Single-family ..................................................................... $ 4,314 $ 5,548 $ 6,961
Multifamily ....................................................................... 64 132 107
Total .......................................................................... $ 4,378 $ 5,680 $ 7,068
REO operations (income) expense:
Single-family ..................................................................... $ 62 $ 596 $ 676
Multifamily ....................................................................... (3) (11) (3)
Total .......................................................................... $ 59 $ 585 $ 673
Charge-offs
Single-family:
Charge-offs, gross(1) (including $13.5 billion, $14.7 billion, and $16.2 billion relating to loan loss reserves,
respectively) .................................................................... $13,825 $15,149 $16,746
Recoveries(2) ...................................................................... (2,262) (2,764) (3,362)
Single-family, net ................................................................ $11,563 $12,385 $13,384
Multifamily:
Charge-offs, gross(1) (including $36 million, $75 million, and $104 million relating to loan loss reserves,
respectively) .................................................................... $ 39 $ 83 $ 104
Recoveries(2) ...................................................................... (2) (1) (1)
Multifamily, net .................................................................. $ 37 $ 82 $ 103
Total Charge-offs:
Charge-offs, gross(1) (including $13.6 billion, $14.8 billion, and $16.3 billion relating to loan loss reserves,
respectively) .................................................................... $13,864 $15,232 $16,850
Recoveries(2) ...................................................................... (2,264) (2,765) (3,363)
Total Charge-offs, net ............................................................. $11,600 $12,467 $13,487
Credit Losses(3)
Single-family ..................................................................... $11,625 $12,981 $14,060
Multifamily ....................................................................... 34 71 100
Total .......................................................................... $11,659 $13,052 $14,160
Total (in bps)(4) ..................................................................... 63.8 68.1 72.2
(1) Represent the carrying amount of a loan that has been discharged in order to remove the loan from our consolidated balance sheet at the time of
resolution, regardless of when the impact of the credit loss was recorded on our consolidated statements of comprehensive income through the provision
for credit losses or losses on loans purchased. Charge-offs primarily result from foreclosure transfers and short sales and are generally calculated as the
recorded investment of a loan at the date it is discharged less the estimated value in final disposition or actual net sales in a short sale.
(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where: (a) a share of default risk has been
assumed by mortgage insurers, servicers, or other third parties through credit enhancements; or (b) we received a reimbursement of our losses from a
seller/servicer associated with a repurchase request on a loan that experienced a foreclosure transfer or a foreclosure alternative. Includes $0.7 billion,
$1.0 billion, and $1.3 billion in 2012, 2011, and 2010, respectively, related to repurchase requests from our seller/servicers.
(3) Excludes foregone interest on non-performing loans, which reduces our net interest income but is not reflected in our total credit losses. In addition,
excludes other market-based credit losses: (a) incurred on our investments in mortgage loans and mortgage-related securities; and (b) recognized in our
consolidated statements of comprehensive income.
(4) Calculated as credit losses divided by the average carrying value of our total mortgage portfolio, excluding non-Freddie Mac mortgage-related securities
and that portion of REMICs and Other Structured Securities that are backed by Ginnie Mae Certificates.
Our credit loss performance metric generally measures losses at the conclusion of the loan and related collateral
resolution process. There is a significant lag in time from the start of loan workout activities by our servicers on problem
loans (e.g., seriously delinquent loans) to the final resolution of those loans by the completion of foreclosures (and
subsequent REO sales) and foreclosure alternatives. Most of our expenses associated with home retention actions (e.g., loan
modifications) are not reflected in our credit loss metric. Our credit loss performance is based on our charge-offs, REO
expenses, and recoveries of loss from credit enhancement and seller/servicer repurchases. We primarily record charge-offs at
the time we take ownership of a property through foreclosure and at the time of settlement of foreclosure alternatives (e.g.,
short sales). Single-family charge-offs, gross, for 2012 and 2011 were $13.8 billion and $15.1 billion, respectively, and were
associated with approximately $28.1 billion and $31.5 billion in UPB of loans for 2012 and 2011, respectively. Our charge-
offs and credit losses in 2012 and 2011 remained elevated, but were less than they otherwise would have been because of the
suppression of loan and collateral resolution activity due to the length of the foreclosure timeline, particularly in states that
require a judicial foreclosure process. Our recoveries have declined in recent years primarily due to: (a) declining volumes of
foreclosures on which we may recover losses; and (b) declines in repurchase recoveries due to negotiated agreements and
counterparties that
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