Freddie Mac 2012 Annual Report Download - page 90

for mortgages it classifies as subprime and for mortgages it classifies as prime conventional. The delinquency rates of
subprime mortgages are markedly higher than those of prime conventional loan products in the Mortgage Bankers
Association survey; however, the delinquency experience in prime conventional mortgage loans during the last five years has
been significantly worse than in any year since the 1930s.
Based on data from the Federal Reserve’s Flow of Funds Accounts, there was a sustained and significant increase in
single-family mortgage debt outstanding from 2001 to 2006. This increase in mortgage debt was driven by increasing sales of
new and existing single-family homes during this same period. As reported by FHFA in its Conservator’s Report on the
Enterprises’ Financial Condition, dated June 13, 2011, the market share of mortgage-backed securities issued by the GSEs
and Ginnie Mae declined significantly from 2001 to 2006 while the market share of non-GSE securities peaked. Non-
traditional mortgage types, such as interest-only, Alt-A, and option ARMs, also increased in market share during these years,
which we believe introduced greater risk into the market. We believe these shifts in market activity, in part, help explain the
significant differentiation in delinquency performance of securitized non-GSE and GSE mortgage loans as discussed below.
Based on the National Delinquency Survey’s data, we estimate that we owned or guaranteed approximately 23% of the
outstanding single-family mortgages in the U.S. at December 31, 2012, based on number of loans. At December 31, 2012, we
held or guaranteed approximately 353,000 seriously delinquent single-family loans, representing approximately 11% of the
seriously delinquent single-family mortgages in the market as of that date. We estimate that loans backing non-GSE
securities comprised approximately 8% of the single-family mortgages in the U.S. and represented approximately 26% of the
seriously delinquent single-family mortgages at September 30, 2012 (based on the latest information available). As of
December 31, 2012, we held non-GSE single-family mortgage-related securities with a UPB of $71.2 billion as investments.
The foreclosure process has lengthened significantly in recent years, due to a number of factors, but particularly in states
that require a judicial foreclosure process. A number of legislative and regulatory developments in recent periods have
resulted in significant changes to mortgage servicing and foreclosure practices that could adversely affect our business. For
information on these matters, see “RISK FACTORS — Operational Risks — We have incurred, and will continue to incur,
expenses and we may otherwise be adversely affected by delays and deficiencies in the foreclosure process” and
“BUSINESS — Legislative and Regulatory Developments — Developments Concerning Single-Family Servicing Practices.”
Multifamily Housing Market
Multifamily market fundamentals continued to improve on a national level during 2012, although at a slower pace as
compared to 2011. As reported by REIS, Inc., the national apartment vacancy rate was 4.5% and 5.2% at the end of 2012 and
2011, respectively, and remained at the lowest levels since 2001. The multifamily sector continued to experience strong
investor interest and continued to outperform other commercial real estate sectors. Vacancy rates and effective rents are
important to loan performance because multifamily loans are generally repaid from the cash flows generated by the
underlying property and these factors significantly influence those cash flows. We believe positive market fundamentals,
such as low vacancy rates and increasing effective rents, as well as optimism about demand for multifamily housing have
contributed to improvement in property values in most markets during 2012.
Outlook
Forward-looking statements involve known and unknown risks and uncertainties, some of which are beyond our control.
These statements are not historical facts, but rather represent our expectations based on current information, plans,
judgments, assumptions, estimates, and projections. Actual results may differ significantly from those described in or implied
by such forward-looking statements due to various factors and uncertainties. For example, a number of factors could
adversely impact the performance of the housing and mortgage markets and the U.S. economy in the near term, including
adverse changes in national or international economic conditions and changes in the federal government’s fiscal or monetary
policies. See “FORWARD-LOOKING STATEMENTS” for additional information.
Overview
We continue to expect key macroeconomic drivers of the economy, such as income growth, employment, and inflation,
to affect the performance of the housing and mortgage markets in 2013. Since we expect that economic growth will continue
and mortgage interest rates will remain low in 2013, we believe that housing affordability will remain relatively high in 2013
for potential home buyers. We also expect that the volume of home sales will likely increase in 2013, but still remain
relatively low compared to historical levels. Important factors that we believe will continue to negatively affect single-family
housing demand are the relatively high unemployment rate and relatively low consumer confidence measures. Consumer
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