Freddie Mac 2012 Annual Report Download - page 168

Table 60 — Loan Loss Reserves Activity(1)
Year ended December 31,
2012 2011 2010 2009 2008
(dollars in millions)
Total loan loss reserves:
Beginning balance ................................................... $39,461 $ 39,926 $ 33,857 $15,618 $ 2,822
Adjustments to beginning balance(2) ..................................... — — (186) — —
Provision for credit losses ............................................ 1,890 10,702 17,218 29,530 16,432
Charge-offs, gross(3) ................................................. (13,556) (14,810) (16,322) (9,402) (3,072)
Recoveries(4) ...................................................... 2,264 2,765 3,363 2,088 779
Transfers, net(5) .................................................... 831 878 1,996 (3,977) (1,343)
Ending balance ...................................................... $30,890 $ 39,461 $ 39,926 $33,857 $15,618
Components of loan loss reserves:
Single-family ..................................................... $30,508 $ 38,916 $ 39,098 $33,026 $15,341
Multifamily ...................................................... $ 382 $ 545 $ 828 $ 831 $ 277
Total loan loss reserve, as a percentage of the total mortgage portfolio, excluding non-
Freddie Mac securities ............................................... 1.71% 2.08% 2.03% 1.69% 0.81%
(1) Consists of reserves for loans held-for-investment and those underlying Freddie Mac mortgage-related securities and other guarantee commitments.
(2) Adjustments relate to the adoption of amendments to the accounting guidance for transfers of financial assets and consolidation of VIEs. See “NOTE1:
SUMMARY OF SIGNFICANT ACCOUNTING POLICIES — Recently Adopted Accounting Guidance” for further information.
(3) Charge-offs related to loan loss reserves represent the amount of a loan that has been discharged to remove the loan from our consolidated balance sheet
due to either foreclosure transfer or a short sale or deed in lieu of foreclosure transaction. Charge-offs exclude $307 million, $422 million, $528 million,
$280 million, and $377 million for the years ended December 31, 2012, 2011, 2010, 2009, and 2008, respectively, related to certain loans purchased
under financial guarantees and reflected within losses on loans purchased on our consolidated statements of comprehensive income.
(4) 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.
(5) Consist primarily of: (a) amounts related to agreements with seller/servicers where the transfer relates to recoveries received under these agreements to
compensate us for previously incurred and recognized losses; (b) the transfer of a proportional amount of the recognized reserves for guarantee losses
associated with loans purchased from non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments; and (c) net amounts
attributable to recapitalization of past due interest on modified mortgage loans.
Our loan loss reserves declined in 2012, which reflects improvement in both borrower payment performance and lower
severity ratios for both REO dispositions and short sale transactions due to the improvements in home prices in most areas
during the year. In 2012, the portion of our loan loss reserves attributable to individually impaired loans has increased while
the portion of our loan loss reserves determined on a collective basis has declined. As of December 31, 2012 and 2011, the
recorded investment of individually impaired single-family mortgage loans was $89.3 billion and $60.0 billion, respectively,
and the loan loss reserves associated with these loans were $17.9 billion and $15.1 billion, respectively. See “NOTE 5:
INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for additional information about our impaired loans.
See “CONSOLIDATED RESULTS OF OPERATIONS — Provision for Credit Losses,” for a discussion of our provision for
credit losses and charge-off activity.
The table below summarizes our allowance for loan loss activity for individually impaired single-family mortgage loans
on our consolidated balance sheets for which we have recorded a specific reserve.
163 Freddie Mac