Freddie Mac 2015 Annual Report Download - page 116

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 114
channels, and partnering with locally-based entities to facilitate dispositions.
In recent years, the volume of REO acquisitions has been significantly affected by the length of the
foreclosure process, which extends the time it takes for loans to be foreclosed upon and the underlying
properties to transition to REO. As of December 31, 2015 and 2014, the percentage of seriously
delinquent loans that have been delinquent for more than six months was 64% and 69%, respectively.
Delays in Foreclosure Process and Average Foreclosure Completion Timelines
Our serious delinquency rates and credit losses continue to be adversely affected by delays in the
foreclosure process in states where a judicial foreclosure is required. Foreclosures generally take longer
to complete in such states, resulting in concentrations of delinquent loans in those states, as shown in the
table below. At December 31, 2015, loans in states with a judicial foreclosure process comprised 39% of
our single-family credit guarantee portfolio.
The table below presents the length of time our loans have been seriously delinquent, by jurisdiction type.
As of December 31,
2015 2014 2013
Loan Count Percent Loan Count Percent Loan Count Percent
Aging, by locality:
Judicial states:
<= 1 year 40,265 29% 50,138 25% 59,129 23%
> 1 year and <= 2 years 16,199 12 21,919 11 30,604 12
> 2 years 28,265 20 48,984 25 65,154 26
Non-judicial states:
<= 1 year 38,010 27 49,657 25 60,175 24
> 1 year and <= 2 years 8,660 612,989 717,968 7
> 2 years 8,322 614,379 719,731 8
Combined:
<= 1 year 78,275 56 99,795 50 119,304 47
> 1 year and <= 2 years 24,859 18 34,908 18 48,572 19
> 2 years 36,587 26 63,363 32 84,885 34
Total 139,721 100% 198,066 100% 252,761 100%
The longer a loan remains delinquent, the greater the associated costs we incur. Loans that remain
delinquent for more than one year are more challenging to resolve as many of these borrowers may not
be in contact with the servicer, may not be eligible for loan modifications, or may determine that it is not
economically beneficial for them to enter into a loan modification due to the amount of costs incurred on
their behalf while the loan was delinquent. We expect the portion of our credit losses related to loans in
states with judicial foreclosure processes will remain high in the near term as the substantial backlog of
loans awaiting court proceedings in those states transitions to REO or other loss events. The number of
our single-family loans delinquent for more than one year declined 37% during 2015.
Our servicing guidelines do not allow initiation of the foreclosure process on a primary residence until a
loan is at least 121 days delinquent, regardless of where the property is located. However, we evaluate