Freddie Mac 2012 Annual Report Download - page 257

consider loan level information including estimated current LTV ratios, FICO scores, and other loan level characteristics. For
additional information regarding bond insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS —
Bond Insurers.”
The table below presents the modeled attributes, including default rates, prepayment rates, and severities, without regard
to subordination, that are used to determine whether our interests in certain available-for-sale non-agency mortgage-related
securities will experience a cash shortfall.
Table 7.3 — Significant Modeled Attributes for Certain Available-For-Sale Non-Agency Mortgage-Related Securities
December 31, 2012
Subprime First
Lien(2)
Alt-A(1)
Option ARM Fixed Rate Variable Rate Hybrid Rate
(dollars in millions)
Issuance Date
2004 and prior:
UPB ................................................. $ 1,112 $ 106 $ 715 $ 446 $2,008
Weighted average collateral defaults(3) ......................... 45% 41% 17% 40% 23%
Weighted average collateral severities(4) ....................... 68% 57% 46% 55% 47%
Weighted average voluntary prepayment rates(5) .................. 6% 6% 12% 5% 7%
Average credit enhancement(6) .............................. 40% 9% 14% 17% 14%
2005:
UPB ................................................. $ 5,033 $ 2,511 $1,028 $ 740 $3,614
Weighted average collateral defaults(3) ......................... 58% 52% 30% 56% 27%
Weighted average collateral severities(4) ....................... 73% 65% 58% 66% 53%
Weighted average voluntary prepayment rates(5) .................. 3% 5% 9% 4% 6%
Average credit enhancement(6) .............................. 49% 6% 1% 23% 3%
2006:
UPB ................................................. $18,137 $ 5,655 $ 468 $ 955 $1,041
Weighted average collateral defaults(3) ......................... 67% 64% 41% 59% 34%
Weighted average collateral severities(4) ....................... 75% 66% 59% 67% 57%
Weighted average voluntary prepayment rates(5) .................. 2% 4% 7% 4% 6%
Average credit enhancement(6) .............................. 9% (2)% 3% (5)% (2)%
2007:
UPB ................................................. $19,784 $ 3,740 $ 148 $1,207 $ 264
Weighted average collateral defaults(3) ......................... 66% 63% 59% 56% 52%
Weighted average collateral severities(4) ....................... 73% 64% 58% 62% 65%
Weighted average voluntary prepayment rates(5) .................. 2% 4% 4% 4% 5%
Average credit enhancement(6) .............................. 10% 8% 5% (14)% — %
Total:
UPB ................................................. $44,066 $12,012 $2,359 $3,348 $6,927
Weighted average collateral defaults(3) ......................... 65% 61% 30% 54% 28%
Weighted average collateral severities(4) ....................... 74% 65% 54% 64% 53%
Weighted average voluntary prepayment rates(5) .................. 3% 4% 9% 4% 6%
Average credit enhancement(6) .............................. 15% 3% 6% 1% 5%
(1) Excludes non-agency mortgage-related securities backed by other loans, which are primarily comprised of securities backed by home equity lines of
credit.
(2) Excludes non-agency mortgage-related securities backed exclusively by subprime second liens. Certain securities identified as subprime first lien may be
backed in part by subprime second-lien loans, as the underlying loans of these securities were permitted to include a small percentage of subprime
second-lien loans.
(3) The expected cumulative default rate is expressed as a percentage of the current collateral UPB.
(4) The expected average loss given default is calculated as the ratio of cumulative loss over cumulative default for each security.
(5) The security’s voluntary prepayment rate represents the average of the monthly voluntary prepayment rate weighted by the security’s outstanding UPB.
(6) Reflects the amount of subordination and other financial support (excluding credit enhancement provided by bond insurance) that will incur losses in the
securitization structure before any losses are allocated to securities that we own. Percentage generally calculated based on: (a) the total UPB of securities
subordinate to the securities we own; divided by (b) the total UPB of all of the securities issued by the trust (excluding notional balances). Negative
values are shown when collateral losses that have yet to be applied to the tranches exceed the remaining credit enhancement, if any. The level of credit
enhancement, including those securities with negative values, has been considered in our assessment of other-than temporary impairment.
In evaluating the non-agency mortgage-related securities backed by subprime, option ARM, and Alt-A and other loans
for other-than-temporary impairment, we noted that the percentage of securities that were AAA-rated and the percentage that
were investment grade declined significantly since acquisition. While these ratings have declined, the ratings themselves are
not determinative that a loss is more or less likely. While we consider credit ratings in our analysis, we believe that our
detailed security-by-security analyses provide a more consistent view of the ultimate collectability of contractual amounts
due to us.
Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, prepayments, and
other factors becomes available. While it is reasonably possible that, under certain conditions, collateral losses on our
remaining available-for-sale securities for which we have not recorded an impairment charge could exceed our credit
252 Freddie Mac