Freddie Mac 2012 Annual Report Download - page 167

are insolvent or for which we otherwise have limited or no recourse. We expect our charge-offs and credit losses to continue
to remain elevated in 2013 due to the large number of single-family non-performing loans that will likely be resolved and
because of the cumulative declines in home prices that occurred since 2006 in many areas.
Our credit losses during 2012 continued to be disproportionately high in those states that experienced significant
declines in property values since 2006, such as California, Florida, Nevada, and Arizona, which collectively comprised
approximately 54% of our total credit losses in 2012. Loans originated in 2005 through 2008 comprised approximately 24%
of our single-family credit guarantee portfolio, based on UPB at December 31, 2012, however, these loans accounted for
approximately 87% of our credit losses during 2012. Due to declines in property values since 2006, we continued to
experience high REO disposition severity ratios on sales of our REO inventory and similarly high rates of loss associated
with short sale transactions. In addition, although Alt-A loans comprised approximately 5% of our single-family credit
guarantee portfolio at both December 31, 2012 and 2011, respectively, these loans accounted for approximately 23% and
28% of our credit losses during 2012 and 2011, respectively. As of both December 31, 2012 and 2011, loans in states with a
judicial foreclosure process comprised 47% of our single-family credit guarantee portfolio, based on UPB, while loans in
these states contributed to approximately 41% and 29% of our credit losses recognized in 2012 and 2011, respectively. See
“Table 3 — Credit Statistics, Single-Family Credit Guarantee Portfolio” for information on REO disposition severity ratios,
and see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for additional information about our credit
losses.
The table below provides detail by region for charge-offs.
Table 59 — Single-Family Charge-offs and Recoveries by Region(1)
Year Ended December 31,
2012 2011 2010
Charge-offs,
gross Recoveries(2)
Charge-offs,
net
Charge-offs,
gross Recoveries(2)
Charge-offs,
net
Charge-offs,
gross Recoveries(2)
Charge-offs,
net
(in millions)
Northeast ......... $ 1,180 $ (249) $ 931 $ 1,033 $ (226) $ 807 $ 1,367 $ (318) $ 1,049
Southeast ......... 3,530 (694) 2,836 3,210 (693) 2,517 4,311 (1,005) 3,306
North Central ...... 2,726 (526) 2,200 2,502 (615) 1,887 2,638 (694) 1,944
Southwest ......... 647 (160) 487 777 (243) 534 761 (288) 473
West ............. 5,742 (633) 5,109 7,627 (987) 6,640 7,669 (1,057) 6,612
Total ............. $13,825 $(2,262) $11,563 $15,149 $(2,764) $12,385 $16,746 $(3,362) $13,384
(1) See endnote (8) to “Table 52 — Single-Family Credit Guarantee Portfolio by Attribute Combinations” for a description of these regions.
(2) Recoveries of charge-offs primarily result from foreclosure alternatives and REO acquisitions on loans where a share of default risk has been assumed
by mortgage insurers, servicers, or other third parties through credit enhancements.
As shown in the table above, our charge-offs improved during 2012 compared to 2011 in the West and Southwest
regions of the U.S., but our charge-offs increased in all other regions. Our foreclosure activity in the North Central region has
remained high relative to historical experience and some of the states in this region have experienced significant cumulative
declines in home prices since 2006, including Illinois, Michigan, and Minnesota.
Loan Loss Reserves
We maintain mortgage-related loan loss reserves at levels we believe appropriate to absorb probable incurred losses on
mortgage loans held-for-investment on our consolidated balance sheets and those underlying Freddie Mac mortgage-related
securities and other guarantee commitments. Determining the loan loss reserves is complex and requires significant
management judgment about matters that involve a high degree of subjectivity. See “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” for additional information on our accounting policies for loan loss reserves and
impaired loans.
The table below summarizes our loan loss reserves activity for held-for-investment mortgage loans recognized on our
consolidated balance sheets and underlying Freddie Mac mortgage-related securities and other guarantee commitments, in
total.
162 Freddie Mac