Freddie Mac 2012 Annual Report Download - page 222

unemployment and employment dislocation trends, the effects of changes in government policies and programs, consumer
credit statistics and the extent of third party insurance. We consider our assessment of these factors in determining our loan
loss reserves.
We apply proceeds from primary mortgage insurance that is contractually attached to a loan and other credit
enhancements, including repurchase recoveries, entered into contemporaneously with and in contemplation of a guarantee or
loan purchase transaction, as a recovery of our recorded investment in a charged-off loan, up to the amount of loss
recognized as a charge-off. Proceeds from credit enhancements received in excess of our recorded investment in charged-off
loans are recorded as a decrease to REO operations expense in our consolidated statements of comprehensive income when
received. We record receivables for proceeds from primary mortgage insurance and other credit enhancements, including
repurchase recoveries, when the proceeds are estimable and collectability is reasonably assured. We generally accrue
receivables for primary mortgage insurance, pool insurance, and most other types of credit enhancements as we have a
history of collection of these types of recoveries and the amounts are estimable based on the contractual terms of the
agreements. However, due to the uncertainty of the timing and amount of collections of repurchase recoveries, we generally
do not accrue receivables for repurchase recoveries and instead record repurchase recoveries received on a cash basis.
Multifamily Loans
For multifamily loans identified as impaired, we individually determine the specific loan loss reserves. Refer to
“Impaired Loans” below for further discussion on individually impaired multifamily loans. Multifamily loans evaluated
collectively for impairment are aggregated into book year vintages and measured by benchmarking published historical
commercial mortgage data to those vintages based upon available economic data related to multifamily real estate, including
apartment vacancy and rental rates.
Non-Performing Loans
Non-performing loans consist of single-family and multifamily loans that have undergone a TDR, single-family
seriously delinquent loans, multifamily loans that are three or more payments past due or in the process of foreclosure, and
multifamily loans that are deemed impaired based upon management judgment. We place mortgage loans on non-accrual
status when we believe collectability of principal and interest in full is not reasonably assured, which generally occurs when
a loan is three monthly payments past due, unless the loan is well secured and in the process of collection based upon an
individual loan assessment. A loan is considered past due if a full payment of principal and interest is not received within one
month of its due date. When a loan is placed on non-accrual status, any interest income accrued but uncollected is reversed.
Thereafter, interest income is recognized only upon receipt of cash payments.
A non-accrual mortgage loan may be returned to accrual status when the collectability of principal and interest in full is
reasonably assured. For single-family loans, we determine that collectability is reasonably assured when we have received
payment of principal and interest such that the loan becomes less than three monthly payments past due. For multifamily
loans, the collectability of principal and interest is considered reasonably assured based on a quantitative and qualitative
analysis of the factors specific to the loan being assessed. Upon a loan’s return to accrual status, all previously reversed
interest income is recognized and amortization of any basis adjustments into interest income is resumed.
Impaired Loans
We consider a loan to be impaired when it is probable, based on current information, that we will not receive all
amounts due (including both principal and interest) in accordance with the contractual terms of the original loan agreement.
Delays in the timing of our expected receipt of these amounts that are more than insignificant are considered in making this
assessment.
Single-Family
Individually impaired single-family loans include loans that have undergone a TDR. Impairment and interest income
recognition are discussed separately in the paragraphs that follow. All other single-family loans are aggregated and measured
collectively for impairment based on similar risk characteristics. Collective impairment is measured as described above in the
“Allowance for Loan Losses and Reserve for Guarantee Losses — Single-Family Loans” section of this note. If we
determine that foreclosure on the underlying collateral is probable, we measure impairment based upon the fair value of the
collateral, as reduced by estimated disposition costs and adjusted for estimated proceeds from insurance and similar sources.
217 Freddie Mac