Freddie Mac 2012 Annual Report Download - page 253

Table 6.1 — REO(1)
Year Ended December 31,
2012 2011 2010
(in millions)
Beginning balance — REO ............................................................... $5,827 $ 7,368 $ 4,787
Adjustment to beginning balance(2) ........................................................ — — 147
Additions .......................................................................... 7,029 8,970 12,304
Dispositions ........................................................................ (8,449) (10,511) (9,870)
Ending balance — REO ................................................................. 4,407 5,827 7,368
Beginning balance, valuation allowance ...................................................... (147) (300) (95)
Change in valuation allowance .......................................................... 118 153 (205)
Ending balance, valuation allowance ........................................................ (29) (147) (300)
Ending balance — REO, net .............................................................. $4,378 $ 5,680 $ 7,068
(1) In the fourth quarter of 2012, we revised our presentation of REO activity to include the initial estimated costs to sell within REO activities rather than
within the change in valuation allowance. Prior period amounts have been revised to conform to current period presentation.
(2) Adjustment to the beginning balance related to the adoption of new accounting guidance for transfers of financial assets and consolidation of VIEs. See
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further information.
The REO balance, net at December 31, 2012 and 2011 associated with single-family properties was $4.3 billion and
$5.5 billion, respectively, and the balance associated with multifamily properties was $64 million and $133 million,
respectively. The North Central region represented approximately 33% and 27% of our single-family REO additions during
2012 and 2011, respectively, based on the number of properties, and the Southeast region represented approximately 29%
and 24% of our single-family REO additions during 2012 and 2011. Our single-family REO inventory consisted of 49,071
properties and 60,535 properties at December 31, 2012 and 2011, respectively. In recent years, the foreclosure process has
been significantly slowed in many geographical areas due to lengthening of the foreclosure process, particularly in states that
require a judicial foreclosure process. See “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS” for
additional information about regional concentrations in our portfolio.
Our REO operations expenses include: (a) REO property expenses; (b) net gains or losses incurred on disposition of
REO properties; (c) adjustments to the holding period allowance associated with REO properties to record them at the lower
of their carrying amount or fair value less the estimated costs to sell; and (d) recoveries from insurance and other credit
enhancements. An allowance for estimated declines in the REO fair value during the period properties are held reduces the
carrying value of REO property. Excluding holding period valuation adjustments, we recognized gains (losses) of $693
million, $(165) million, and $(93) million on REO dispositions during 2012, 2011, and 2010, respectively. We increased
(decreased) our valuation allowance for properties in our REO inventory by $(7) million, $304 million, and $498 million in
2012, 2011, and 2010, respectively.
REO property acquisitions that result from extinguishment of our mortgage loans held on our consolidated balance
sheets are treated as non-cash transfers. The amount of non-cash acquisitions of REO properties during the years ended
December 31, 2012, 2011, and 2010 was $6.8 billion, $8.7 billion, and $12.3 billion respectively.
NOTE 7: INVESTMENTS IN SECURITIES
The table below summarizes amortized cost, estimated fair values, and corresponding gross unrealized gains and gross
unrealized losses for available-for-sale securities by major security type. At December 31, 2012 and 2011, all available-for-
sale securities are mortgage-related securities.
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