Freddie Mac 2012 Annual Report Download - page 291

Although we do not categorize single-family mortgage loans we purchase or guarantee as prime or subprime, we
recognize that there are a number of mortgage loan types with certain characteristics that indicate a higher degree of credit
risk. For example, a borrower’s credit score is a useful measure for assessing the credit quality of the borrower. Statistically,
borrowers with higher credit scores are more likely to repay or have the ability to refinance than those with lower scores.
Presented below is a summary of the serious delinquency rates of certain higher-risk categories (based on characteristics
of the loan at origination) of single-family loans in our single-family credit guarantee portfolio. The table includes a
presentation of each higher risk category in isolation. A single loan may fall within more than one category (for example, an
interest-only loan may also have an original LTV ratio greater than 90%). Loans with a combination of these attributes will
have an even higher risk of delinquency than those with an individual attribute.
Table 15.2 — Certain Higher-Risk Categories in the Single-Family Credit Guarantee Portfolio (1)
Percentage of Portfolio (1) Serious Delinquency Rate
December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011
Interest-only ......................................... 3% 4% 16.3% 17.6%
Option ARM(2) ........................................ <1 <1 16.3 20.5
Alt-A(3) ............................................. 5 5 11.4 11.9
Original LTV ratio greater than 90%(4) ...................... 13 10 4.8 6.7
Lower FICO scores at origination (less than 620) .............. 3 3 12.2 12.9
(1) Based on UPB.
(2) For reporting purposes, loans within the option ARM category continue to be reported in that category following modification, even though the modified
loan no longer provides for optional payment provisions.
(3) Alt-A loans may not include those loans that were previously classified as Alt-A and that have been refinanced as either a relief refinance mortgageorin
another refinance mortgage initiative.
(4) Based on our first lien exposure on the property. The LTV ratio considers the credit-enhanced portion of the loan and excludes any secondary financing
by third parties. The existence of a second lien reduces the borrower’s equity in the property and, therefore, increases the risk of default. Includes HARP
loans, which we are required to purchase as part of our participation in the MHA Program.
The percentage of borrowers in our single-family credit guarantee portfolio, based on UPB, with estimated current LTV
ratios greater than 100% was 15% and 20% at December 31, 2012 and 2011, respectively. As estimated current LTV ratios
increase, the borrower’s equity in the home decreases, which negatively affects the borrower’s ability to refinance or to sell
the property for an amount at or above the balance of the outstanding mortgage loan. The serious delinquency rate for single-
family loans with estimated current LTV ratios greater than 100% was 12.7% and 12.8% as of December 31, 2012 and 2011,
respectively. Loans originated in 2005 through 2008 have been more affected by declines in home prices since 2006 than
loans originated in other years. Loans originated in 2005 through 2008 comprised approximately 24% of our single-family
credit guarantee portfolio, based on UPB at December 31, 2012, and these loans accounted for approximately 87% and 90%
of our credit losses during 2012 and 2011, respectively.
We categorize our investments in non-agency mortgage-related securities as subprime, option ARM, or Alt-A if the
securities were identified as such based on information provided to us when we entered into these transactions. We have not
identified option ARM, CMBS, obligations of states and political subdivisions, and manufactured housing securities as either
subprime or Alt-A securities. See “NOTE 7: INVESTMENTS IN SECURITIES” for further information on these categories
and other concentrations in our investments in securities.
Multifamily Mortgage Portfolio
The table below summarizes the concentration of multifamily mortgages in our multifamily mortgage portfolio by
certain attributes. Information presented for multifamily mortgage loans includes certain categories based on loan or
borrower characteristics present at origination. The table includes a presentation of each category in isolation. A single loan
may fall within more than one category (for example, a non-credit enhanced loan may also have an original DSCR
below 1.10).
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