e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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For the
quarterly period ended June 30, 2011
or
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o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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For the transition period
from
to
Commission File Number: 000-53330
Federal Home Loan Mortgage
Corporation
(Exact name of registrant as
specified in its charter)
Freddie Mac
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Federally chartered corporation
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52-0904874
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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8200 Jones Branch Drive, McLean, Virginia
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22102-3110
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(Address of principal executive
offices)
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(Zip Code)
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(703) 903-2000
(Registrants telephone
number, including area code)
Indicate by check mark whether the
registrant: (1) has filed all reports required
to be filed by Section 13 or
15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been
subject to such filing requirements for the past
90 days. x Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). x Yes o No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer (Do not check if a smaller
reporting
company) o
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Smaller
reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes x No
As of July 22, 2011, there were 649,709,893 shares of
the registrants common stock outstanding.
TABLE OF
CONTENTS
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E-1
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MD&A
TABLE REFERENCE
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Table
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Description
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12
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46
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27
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47
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28
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47
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53
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30
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54
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32
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59
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62
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34
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64
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35
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65
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69
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39
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71
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40
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72
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98
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FINANCIAL
STATEMENTS
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Page
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102
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PART
I FINANCIAL INFORMATION
We continue to operate under the conservatorship that
commenced on September 6, 2008, under the direction of FHFA
as our Conservator. The Conservator succeeded to all rights,
titles, powers and privileges of Freddie Mac, and of any
shareholder, officer or director thereof, with respect to the
company and its assets. The Conservator has delegated certain
authority to our Board of Directors to oversee, and management
to conduct, day-to-day operations. The directors serve on behalf
of, and exercise authority as directed by, the Conservator. See
BUSINESS Conservatorship and Related
Matters in our Annual Report on
Form 10-K
for the year ended December 31, 2010, or 2010 Annual
Report, for information on the terms of the conservatorship, the
powers of the Conservator, and related matters, including the
terms of our Purchase Agreement with Treasury.
This Quarterly Report on
Form 10-Q
includes forward-looking statements that are based on current
expectations and are subject to significant risks and
uncertainties. These forward-looking statements are made as of
the date of this
Form 10-Q
and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date of
this
Form 10-Q.
Actual results might differ significantly from those described
in or implied by such statements due to various factors and
uncertainties, including those described in:
(a) MD&A FORWARD-LOOKING
STATEMENTS, and RISK FACTORS in this
Form 10-Q
and in the comparably captioned sections of our 2010 Annual
Report and our Quarterly Report on
Form 10-Q
for the first quarter of 2011; and (b) the
BUSINESS section of our 2010 Annual Report.
Throughout this
Form 10-Q,
we use certain acronyms and terms which are defined in the
Glossary.
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
You should read this MD&A in conjunction with our
consolidated financial statements and related notes for the
three and six months ended June 30, 2011 included in
FINANCIAL STATEMENTS, and our 2010 Annual Report.
EXECUTIVE
SUMMARY
Overview
Freddie Mac is a GSE chartered by Congress in 1970 with a public
mission to provide liquidity, stability, and affordability to
the U.S. housing market. We have maintained a consistent
market presence since our inception, providing mortgage
liquidity in a wide range of economic environments. During the
worst housing and financial crisis since the Great Depression,
we are working to support the recovery of the housing market and
the nations economy by providing essential liquidity to
the mortgage market and helping to stem the rate of
foreclosures. We believe our actions are helping communities
across the country by providing Americas families with
access to mortgage funding at low rates while helping distressed
borrowers keep their homes and avoid foreclosure.
Summary
of Financial Results
Our financial performance in the second quarter of 2011 was
impacted by the ongoing weakness in the economy, including the
mortgage market. Our total comprehensive income (loss) was
$(1.1) billion and $(430) million for the second
quarters of 2011 and 2010, respectively, consisting of:
(a) $(2.1) billion and $(4.7) billion of net
income (loss), respectively; and (b) $1.0 billion and
$4.3 billion of total other comprehensive income,
respectively.
Our total equity (deficit) was $(1.5) billion at
June 30, 2011, resulting from several contributing factors
including our dividend payment of $1.6 billion on our
senior preferred stock on June 30, 2011 and our total
comprehensive income (loss) of $(1.1) billion for the
second quarter of 2011. To address our deficit in net worth,
FHFA, as Conservator, will submit a draw request on our behalf
to Treasury under the Purchase Agreement for $1.5 billion.
Following receipt of the draw, the aggregate liquidation
preference on the senior preferred stock owned by Treasury will
increase to $66.2 billion.
Our
Primary Business Objectives
Under conservatorship, we are focused on: (a) meeting the
needs of the U.S. residential mortgage market by making home
ownership and rental housing more affordable by providing
liquidity to mortgage originators and, indirectly, to mortgage
borrowers; (b) working to reduce the number of foreclosures
and helping to keep families in their homes, including through
our role in the MHA Program initiatives, including HAMP and
HARP, and through our non-HAMP workout initiatives;
(c) minimizing our credit losses; (d) maintaining the
credit quality of the loans we purchase and guarantee; and
(e) strengthening our infrastructure and improving overall
efficiency. Our business objectives reflect, in part, direction
we have received from the Conservator. We also have a variety of
different, and potentially competing,
objectives based on our charter, public statements from Treasury
and FHFA officials, and other guidance and directives from our
Conservator. For more information, see
BUSINESS Conservatorship and Related
Matters Impact of Conservatorship and Related
Actions on Our Business in our 2010 Annual Report.
Providing
Mortgage Liquidity and Conforming Loan
Availability
We provide liquidity and support to the U.S. mortgage market in
a number of important ways:
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Our support enables borrowers to have access to a variety of
conforming mortgage products, including the prepayable
30-year
fixed-rate mortgage which historically has represented the
foundation of the mortgage market.
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Our support provides lenders with a constant source of
liquidity. We estimate that we, Fannie Mae, and Ginnie Mae
collectively guaranteed more than 90% of the single-family
conforming mortgages originated during the second quarter of
2011.
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Our consistent market presence provides assurance to our
customers that there will be a buyer for their conforming loans
that meet our credit standards. We believe this provides our
customers with confidence to continue lending in difficult
environments.
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We are an important counter-cyclical influence as we stay in the
market even when other sources of capital have pulled out, as
evidenced by the events of the last three years.
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During the three and six months ended June 30, 2011, we
guaranteed $62.2 billion and $157.9 billion in UPB of
single-family conforming mortgage loans, respectively,
representing more than 275,000 and 709,000 borrowers,
respectively, who purchased homes or refinanced their mortgages.
Borrowers typically pay a lower interest rate on loans acquired
or guaranteed by Freddie Mac, Fannie Mae, or Ginnie Mae.
Mortgage originators are generally able to offer homebuyers and
homeowners lower mortgage rates on conforming loan products,
including ours, in part because of the value investors place on
GSE-guaranteed mortgage-related securities. Prior to 2007,
mortgage markets were less volatile, home values were stable or
rising, and there were many sources of mortgage funds. We
estimate that prior to 2007 the average effective interest rates
on conforming single-family mortgage loans were about
30 basis points lower than on non-conforming loans. Since
2007, we estimate that interest rates on conforming loans,
excluding conforming jumbo loans, have been lower than those on
non-conforming loans by as much as 184 basis points. In
June 2011, we estimate that borrowers were paying an average of
48 basis points less on these conforming loans than on
non-conforming loans. These estimates are based on data provided
by HSH Associates, a third-party provider of mortgage market
data.
Reducing
Foreclosures and Keeping Families in Homes
We are focused on reducing the number of foreclosures and
helping to keep families in their homes. In addition to our
participation in HAMP, we introduced several new initiatives
during the last few years to help eligible borrowers keep their
homes or avoid foreclosure, including our relief refinance
mortgage initiative, which is our implementation of HARP. In the
first half of 2011, we helped more than 116,000 borrowers
either stay in their homes or sell their properties and avoid
foreclosure through HAMP and our various other workout
initiatives. Table 1 presents our recent single-family loan
workout activities.
Table 1
Total Single-Family Loan Workout
Volumes(1)
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For the Three Months Ended
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06/30/2011
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03/31/2011
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12/31/2010
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09/30/2010
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06/30/2010
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(number of loans)
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Loan modifications
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31,049
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35,158
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37,203
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39,284
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49,562
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Repayment plans
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7,981
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9,099
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7,964
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7,030
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7,455
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Forbearance
agreements(2)
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3,709
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7,678
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5,945
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6,976
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12,815
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Short sales and
deed-in-lieu
transactions
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11,038
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10,706
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12,097
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10,472
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9,542
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Total single-family loan workouts
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53,777
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62,641
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63,209
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63,762
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79,374
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(1)
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Based on actions completed with borrowers for loans within our
single-family credit guarantee portfolio. Excludes those
modification, repayment, and forbearance activities for which
the borrower has started the required process, but the actions
have not been made permanent, or effective, such as loans in the
trial period under HAMP. Also excludes certain loan workouts
where our single-family seller/servicers have executed
agreements in the current or prior periods, but these have not
been incorporated into certain of our operational systems, due
to delays in processing. These categories are not mutually
exclusive and a loan in one category may also be included within
another category in the same period.
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(2)
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Excludes loans with long-term forbearance under a completed loan
modification. Many borrowers complete a short-term forbearance
agreement before another loan workout is pursued or completed.
We only report forbearance activity for a single loan once
during each quarterly period; however, a single loan may be
included under separate forbearance agreements in separate
periods.
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We continue to execute a high volume of loan workouts.
Highlights of these efforts include the following:
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We completed 53,777 single-family loan workouts during the
second quarter of 2011, including 31,049 loan modifications
and 11,038 short sales and deed-in-lieu transactions.
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Based on information provided by the MHA Program administrator,
our servicers had completed 134,282 loan modifications
under HAMP from the introduction of the initiative in 2009
through June 30, 2011 and, as of June 30, 2011,
16,106 loans were in HAMP trial periods (this figure only
includes borrowers who made at least their first payment under
the trial period).
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We continue to directly assist troubled borrowers through
outreach and other efforts. In addition, on April 28, 2011,
FHFA announced a new set of aligned standards for servicing by
Freddie Mac and Fannie Mae. This servicing alignment initiative
will result in consistent processes for both HAMP and non-HAMP
workout solutions, and will be implemented over the course of
2011 and into 2012. As part of this initiative, we will
implement a new non-HAMP loan modification process that, similar
to the HAMP process, will require borrowers to complete a three
month trial period. We believe that the servicing alignment
initiative, which will establish a uniform framework and
requirements for servicing non-performing loans owned or
guaranteed by us and Fannie Mae, will ultimately change the way
servicers communicate and work with troubled borrowers, bring
greater consistency and accountability to the servicing
industry, and help more distressed homeowners avoid foreclosure.
For information on changes to mortgage servicing and foreclosure
practices that could adversely affect our business, see
LEGISLATIVE AND REGULATORY MATTERS
Developments Concerning Single-Family Servicing Practices.
For more information about HAMP, other loan workout programs,
our relief refinance mortgage initiative, and other initiatives
to help eligible borrowers keep their homes or avoid
foreclosure, see RISK MANAGEMENT Credit
Risk Mortgage Credit Risk
Single-Family Mortgage Credit Risk MHA
Program and Single-Family Loan
Workouts.
Minimizing
Credit Losses
We establish guidelines for our servicers to follow and provide
them default management tools to use, in part, in determining
which type of loan workout would be expected to provide the best
opportunity for minimizing our credit losses. We require our
single-family seller/servicers to first evaluate problem loans
for a repayment or forbearance plan before considering
modification. If a borrower is not eligible for a modification,
our seller/servicers pursue other workout options before
considering foreclosure.
To help minimize the credit losses related to our guarantee
activities, we are focused on:
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pursuing a variety of loan workouts, including foreclosure
alternatives, in an effort to reduce the severity of losses we
experience over time;
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managing foreclosure timelines to the extent possible, given the
increasingly lengthy foreclosure process in many states;
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managing our inventory of foreclosed properties to reduce costs
and maximize proceeds; and
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pursuing contractual remedies against originators, lenders,
servicers, and insurers, as appropriate.
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We have contractual arrangements with our seller/servicers under
which they agree to provide us with mortgage loans that have
been originated under specified underwriting standards. If we
subsequently discover that contractual standards were not
followed, we can exercise certain contractual remedies to
mitigate our credit losses. These contractual remedies include
requiring the seller/servicer to repurchase the loan at its
current UPB or make us whole for any credit losses realized with
respect to the loan. As of June 30, 2011, the UPB of loans
subject to repurchase requests issued to our single-family
seller/servicers was approximately $3.1 billion, and
approximately 43% of these requests were outstanding for more
than four months since issuance of our initial repurchase
request. The amount we expect to collect on the outstanding
requests is significantly less than the UPB amount primarily
because many of these requests will likely be satisfied by
reimbursement of our realized losses by seller/servicers, or may
be rescinded in the course of the contractual appeals process.
We continue to review loans and pursue our rights to issue
repurchase requests to our counterparties, as appropriate. See
RISK MANAGEMENT Credit Risk
Institutional Credit Risk Mortgage
Seller/Servicers for further information on our
agreements with our seller/servicers.
Our credit loss exposure is also partially mitigated by mortgage
insurance, which is a form of credit enhancement. Primary
mortgage insurance is required to be purchased, at the
borrowers expense, for certain mortgages with higher LTV
ratios. We received payments under primary and other mortgage
insurance of $0.7 billion and $1.3 billion in the
three and six months ended June 30, 2011, respectively,
which helped to mitigate our credit losses. We believe that in
addition to Triad Guaranty Insurance Corp., or Triad (as
discussed below), certain of our other mortgage insurance
counterparties
may lack sufficient ability to fully meet all of their expected
lifetime claims paying obligations to us over the long term as
such claims emerge. However, we evaluate the near term recovery
from insurance policies for mortgage loans that we hold on our
consolidated balance sheet as well as loans underlying our
non-consolidated Freddie Mac mortgage-related securities and
covered by other guarantee commitments as part of the estimate
of our loan loss reserves. Based upon currently available
information, we believe that all of our mortgage insurance
counterparties, except for Triad, have the capacity to pay all
claims as they become due in the normal course for the near term.
Maintaining
the Credit Quality of New Loan Purchases and
Guarantees
We continue to focus on maintaining credit policies, including
our underwriting guidelines, that allow us to purchase and
guarantee loans made to qualified borrowers that we believe will
provide management and guarantee fee income, over the long-term,
that exceeds our expected credit-related and administrative
expenses on such loans.
As of June 30, 2011 and December 31, 2010,
approximately 46% and 39%, respectively, of our single-family
credit guarantee portfolio consisted of mortgage loans
originated after 2008. Loans in our single-family credit
guarantee portfolio originated after 2008 have experienced lower
serious delinquency trends in the early years of their terms
than loans originated in 2005 through 2008.
The credit quality of the single-family loans we acquired in the
first half of 2011 (excluding relief refinance mortgages, which
represented approximately 28% of our single family purchase
volume during the first half of 2011) is significantly better
than that of loans we acquired from 2005 through 2008, as
measured by original LTV ratios, FICO scores, and the proportion
of loans underwritten with fully documented income. The
improvement in credit quality of loans we have purchased since
2008 is primarily the result of the combination of:
(a) changes in our credit policies, including changes in
our underwriting guidelines; (b) fewer purchases of loans
with higher risk characteristics; and (c) changes in
mortgage insurers and lenders underwriting practices.
Approximately 93% of our single-family purchase volume in the
first half of 2011 consisted of fixed-rate amortizing mortgages.
Approximately 70% and 79% of our single-family purchase volume
in the three and six months ended June 30, 2011,
respectively, was refinance mortgages, including approximately
26% and 28%, respectively, that were relief refinance mortgages,
based on UPB. Relief refinance mortgages with LTV ratios above
80% may not perform as well as other refinance mortgages over
time due, in part, to the continued high LTV ratios of these
loans. Approximately 14% of our single-family purchase volume in
the first half of 2011 was relief refinance mortgages with LTV
ratios above 80%. Relief refinance mortgages comprised
approximately 10% and 7% of the UPB in our total single-family
credit guarantee portfolio at June 30, 2011 and
December 31, 2010, respectively.
Table 2 presents the composition, loan characteristics, and
serious delinquency rates of loans in our single-family credit
guarantee portfolio, by year of origination at June 30,
2011.
Table 2
Single-Family Credit Guarantee Portfolio Data by Year of
Origination(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Serious
|
|
|
|
% of
|
|
|
Average
|
|
|
Original
|
|
|
Current
|
|
|
LTV Ratio
|
|
|
Delinquency
|
|
|
|
Portfolio
|
|
|
Credit
Score(2)(3)
|
|
|
LTV
Ratio(3)
|
|
|
LTV
Ratio(3)(4)
|
|
|
>100%
|
|
|
Rate(3)(5)
|
|
|
Year of Origination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
6
|
%
|
|
|
751
|
|
|
|
71
|
%
|
|
|
70
|
%
|
|
|
5
|
%
|
|
|
0.01
|
%
|
2010
|
|
|
20
|
|
|
|
755
|
|
|
|
70
|
|
|
|
71
|
|
|
|
5
|
|
|
|
0.12
|
|
2009
|
|
|
20
|
|
|
|
755
|
|
|
|
68
|
|
|
|
72
|
|
|
|
5
|
|
|
|
0.34
|
|
2008
|
|
|
8
|
|
|
|
727
|
|
|
|
74
|
|
|
|
90
|
|
|
|
32
|
|
|
|
4.94
|
|
2007
|
|
|
10
|
|
|
|
706
|
|
|
|
77
|
|
|
|
110
|
|
|
|
58
|
|
|
|
11.04
|
|
2006
|
|
|
8
|
|
|
|
711
|
|
|
|
75
|
|
|
|
109
|
|
|
|
54
|
|
|
|
10.28
|
|
2005
|
|
|
9
|
|
|
|
717
|
|
|
|
73
|
|
|
|
95
|
|
|
|
36
|
|
|
|
6.01
|
|
2004 and prior
|
|
|
19
|
|
|
|
721
|
|
|
|
71
|
|
|
|
60
|
|
|
|
9
|
|
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
734
|
|
|
|
71
|
|
|
|
79
|
|
|
|
20
|
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on the single-family credit guarantee portfolio, which
totaled $1,805 billion at June 30, 2011, and includes
relief refinance mortgage loans.
|
(2)
|
Based on FICO credit score of the borrower as of the date of
loan origination and may not be indicative of the
borrowers creditworthiness at June 30, 2011. Excludes
$11 billion in UPB of loans where the FICO scores at
origination were not available at June 30, 2011.
|
(3)
|
Calculated based on the loans remaining in the portfolio as of
June 30, 2011, rather than all loans originally guaranteed
by us and originated in the respective year.
|
(4)
|
We estimate current market values by adjusting the value of the
property at origination based on changes in the market value of
homes in the same geographical area since origination.
|
(5)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Single-family Mortgage
Credit Risk Delinquencies for further
information about our reported serious delinquency rates.
|
Mortgages originated after 2008 represent an increasingly large
proportion of our single-family credit guarantee portfolio, as
the amount of older vintages in the portfolio, which have a
higher composition of loans with higher-risk
characteristics, continues to decline due to liquidations, which
include payoffs, repayments, refinancing activity, and
foreclosures. We currently expect that, over time, the
replacement of older vintages should positively impact the
serious delinquency rates and credit-related expenses of our
single-family credit guarantee portfolio. However, the rate at
which this replacement occurs has slowed in recent quarterly
periods, due to a decline in the volume of home purchase
mortgage originations and an increase in the proportion of
relief refinance mortgage activity. See
Table 14 Segment Earnings
Composition Single-Family Guarantee Segment
for an analysis of the contribution to Segment Earnings (loss)
by loan origination year.
Strengthening
Our Infrastructure and Improving Overall
Efficiency
We are working with our Conservator to both enhance the value of
our infrastructure and improve our efficiency in order to
preserve the taxpayers investment. As such, we are
investing considerable resources in an effort to improve our
existing systems infrastructure. This effort will likely take
several years to fully implement and focuses on making
significant improvements to our systems infrastructure in order
to: (a) comply with FHFA- and regulatory-mandated
initiatives; (b) improve risk management; (c) enhance
the service we provide to our customers; and (d) improve
operational efficiency. At the end of this effort, we expect to
have an infrastructure in place that is more efficient, flexible
and well-controlled, which will assist us in our continued
efforts to serve the mortgage market and reduce administrative
expenses and other costs.
We continue to actively monitor our general and administrative
expenses, while also continuing to focus on retaining key
talent. Our general and administrative expenses declined in the
first half of 2011 compared to the first half of 2010.
Single-Family
Credit Guarantee Portfolio
In discussing our credit performance, we often use the terms
credit losses and credit-related
expenses. These terms are significantly different. Our
credit losses consist of charge-offs, and REO
operations income (expense), net of recoveries, and our
credit-related expenses consist of our provision for
credit losses and REO operations income (expense).
Since the beginning of 2008, on an aggregate basis, we have
recorded provision for credit losses associated with
single-family loans of approximately $66.9 billion, and
have recorded an additional $4.5 billion in losses on loans
purchased from PC trusts, net of recoveries. The majority of
these losses are associated with loans originated in 2005
through 2008. While loans originated in 2005 through 2008 will
give rise to additional credit losses that have not yet been
incurred and, thus have not been provisioned for, we believe
that, as of June 30, 2011, we have reserved for or
charged-off the majority of the total expected credit losses for
these loans. Nevertheless, various factors, such as continued
high unemployment rates or further declines in home prices,
could require us to provide for losses on these loans beyond our
current expectations.
The UPB of our single-family credit guarantee portfolio declined
slightly during the first half of 2011, since the amount of
liquidations exceeded new loan purchase and guarantee activity.
Table 3 provides certain credit statistics for our
single-family credit guarantee portfolio.
Table 3
Credit Statistics, Single-Family Credit Guarantee
Portfolio
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
06/30/2011
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
Payment status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One month past due
|
|
|
1.92
|
%
|
|
|
1.75
|
%
|
|
|
2.07
|
%
|
|
|
2.11
|
%
|
|
|
2.02
|
%
|
Two months past due
|
|
|
0.67
|
%
|
|
|
0.65
|
%
|
|
|
0.78
|
%
|
|
|
0.80
|
%
|
|
|
0.77
|
%
|
Seriously
delinquent(1)
|
|
|
3.50
|
%
|
|
|
3.63
|
%
|
|
|
3.84
|
%
|
|
|
3.80
|
%
|
|
|
3.96
|
%
|
Non-performing loans (in
millions)(2)
|
|
$
|
114,819
|
|
|
$
|
115,083
|
|
|
$
|
115,478
|
|
|
$
|
112,746
|
|
|
$
|
111,758
|
|
Single-family loan loss reserve (in
millions)(3)
|
|
$
|
38,390
|
|
|
$
|
38,558
|
|
|
$
|
39,098
|
|
|
$
|
37,665
|
|
|
$
|
37,384
|
|
REO inventory (in properties)
|
|
|
60,599
|
|
|
|
65,159
|
|
|
|
72,079
|
|
|
|
74,897
|
|
|
|
62,178
|
|
REO assets, net carrying value (in millions)
|
|
$
|
5,834
|
|
|
$
|
6,261
|
|
|
$
|
6,961
|
|
|
$
|
7,420
|
|
|
$
|
6,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
06/30/2011
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
|
(in units, unless noted)
|
|
Seriously delinquent loan
additions(1)
|
|
|
87,813
|
|
|
|
97,646
|
|
|
|
113,235
|
|
|
|
115,359
|
|
|
|
123,175
|
|
Loan
modifications(4)
|
|
|
31,049
|
|
|
|
35,158
|
|
|
|
37,203
|
|
|
|
39,284
|
|
|
|
49,562
|
|
Foreclosure starts
ratio(5)
|
|
|
0.55
|
%
|
|
|
0.58
|
%
|
|
|
0.73
|
%
|
|
|
0.75
|
%
|
|
|
0.61
|
%
|
REO acquisitions
|
|
|
24,788
|
|
|
|
24,707
|
|
|
|
23,771
|
|
|
|
39,053
|
|
|
|
34,662
|
|
REO disposition severity
ratio:(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
44.9
|
%
|
|
|
44.5
|
%
|
|
|
43.9
|
%
|
|
|
41.9
|
%
|
|
|
42.0
|
%
|
Arizona
|
|
|
51.3
|
%
|
|
|
50.8
|
%
|
|
|
49.5
|
%
|
|
|
46.6
|
%
|
|
|
44.3
|
%
|
Florida
|
|
|
52.7
|
%
|
|
|
54.8
|
%
|
|
|
53.0
|
%
|
|
|
54.9
|
%
|
|
|
53.8
|
%
|
Nevada
|
|
|
55.4
|
%
|
|
|
53.1
|
%
|
|
|
53.1
|
%
|
|
|
51.6
|
%
|
|
|
49.4
|
%
|
Michigan
|
|
|
48.5
|
%
|
|
|
48.3
|
%
|
|
|
49.7
|
%
|
|
|
49.2
|
%
|
|
|
47.2
|
%
|
Total U.S.
|
|
|
41.7
|
%
|
|
|
43.0
|
%
|
|
|
41.3
|
%
|
|
|
41.5
|
%
|
|
|
39.2
|
%
|
Single-family credit losses (in millions)
|
|
$
|
3,106
|
|
|
$
|
3,226
|
|
|
$
|
3,086
|
|
|
$
|
4,216
|
|
|
$
|
3,851
|
|
|
|
(1)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Single-family Mortgage
Credit Risk Delinquencies for further
information about our reported serious delinquency rates.
|
(2)
|
Consists of the UPB of loans in our single-family credit
guarantee portfolio that have undergone a TDR or that are
seriously delinquent. As of June 30, 2011 and
December 31, 2010, approximately $36.2 billion and
$26.6 billion in UPB of TDR loans, respectively, were no
longer seriously delinquent.
|
(3)
|
Consists of the combination of: (a) our allowance for loan
losses on mortgage loans held for investment; and (b) our
reserve for guarantee losses associated with non-consolidated
single-family mortgage securitization trusts and other guarantee
commitments.
|
(4)
|
Represents the number of completed modifications under agreement
with the borrower during the quarter. Excludes forbearance
agreements, repayment plans, and loans in the trial period under
HAMP.
|
(5)
|
Represents the ratio of the number of loans that entered the
foreclosure process during the respective quarter divided by the
number of loans in the single-family credit guarantee portfolio
at the end of the quarter. Excludes Other Guarantee Transactions
and mortgages covered under other guarantee commitments.
|
(6)
|
Calculated as the amount of our losses recorded on disposition
of REO properties during the respective quarterly period,
excluding those subject to repurchase requests made to our
seller/servicers, divided by the aggregate UPB of the related
loans. The amount of losses recognized on disposition of the
properties is equal to the amount by which the UPB of the loans
exceeds the amount of sales proceeds from disposition of the
properties. Excludes sales commissions and other expenses, such
as property maintenance and costs, as well as applicable
recoveries from credit enhancements, such as mortgage insurance.
|
The number of seriously delinquent loan additions has continued
to decline; however, our single-family credit guarantee
portfolio continued to experience a high level of serious
delinquencies and foreclosures in the first half of 2011 as
compared to our historical experience. Several factors,
including delays in foreclosure due to concerns about the
foreclosure process, have resulted in loans remaining in serious
delinquency for longer periods than prior to 2008, particularly
in states that require a judicial foreclosure process. As of
June 30, 2011 and December 31, 2010, the percentage of
seriously delinquent loans that have been delinquent for more
than six months was 72% and 66%, respectively. The UPB of our
non-performing loans declined in the first half of 2011.
However, the credit losses and loan loss reserve associated with
our single-family credit guarantee portfolio remained elevated
in the first half of 2011, due in part to:
|
|
|
|
|
Losses associated with the continued high volume of foreclosures
and foreclosure alternatives. These actions relate to our
continued efforts to resolve our large inventory of seriously
delinquent loans. Due to the length of time necessary for
servicers either to complete the foreclosure process or pursue
foreclosure alternatives on seriously delinquent loans in our
portfolio, we expect our credit losses will continue to remain
high even if the volume of new serious delinquencies continues
to decline.
|
|
|
|
|
|
Continued negative impact of certain loan groups within the
single-family credit guarantee portfolio, such as those
underwritten with certain lower documentation standards and
interest-only loans, as well as other 2005 through 2008 vintage
loans. These groups continue to be large contributors to our
credit losses.
|
|
|
|
Cumulative declines in national home prices during the last five
years, based on our own index, which resulted in continued high
REO disposition severity ratios on our dispositions of REO
inventory.
|
Our REO inventory (measured in number of properties) declined in
each of the last three quarters due to an increase in the volume
of REO dispositions and temporary slowdowns in REO acquisition
volume. Dispositions of REO increased 26% in the first half of
2011 compared to the first half of 2010, based on the number of
properties sold. We believe our single-family REO acquisition
volume and single-family credit losses beginning in the fourth
quarter of 2010 have been less than they otherwise would have
been due to delays in the single-family foreclosure process. See
Mortgage Market and Economic Conditions
Delays in the Foreclosure Process for Single-Family
Mortgages for further information.
Conservatorship
and Government Support for our Business
We have been operating under conservatorship, with FHFA acting
as our conservator, since September 6, 2008. The
conservatorship and related matters have had a wide-ranging
impact on us, including our regulatory supervision, management,
business, financial condition, and results of operations.
We are dependent upon the continued support of Treasury and FHFA
in order to continue operating our business. Our ability to
access funds from Treasury under the Purchase Agreement is
critical to keeping us solvent and avoiding the appointment of a
receiver by FHFA under statutory mandatory receivership
provisions.
While the conservatorship has benefited us, we are subject to
certain constraints on our business activities imposed by
Treasury due to the terms of, and Treasurys rights under,
the Purchase Agreement and by FHFA, as our Conservator.
To address our net worth deficit of $1.5 billion at
June 30, 2011, FHFA, as Conservator, will submit a draw
request on our behalf to Treasury under the Purchase Agreement
in the amount of $1.5 billion. FHFA will request that we
receive these funds by September 30, 2011. Upon funding of
the draw request: (a) our aggregate liquidation preference
on the senior preferred stock owned by Treasury will increase to
$66.2 billion; and (b) the corresponding annual cash
dividend owed to Treasury will increase to $6.6 billion.
We pay cash dividends to Treasury at an annual rate of 10%.
Through June 30, 2011, we paid aggregate cash dividends to
Treasury of $13.2 billion, an amount equal to 21% of our
aggregate draws received under the Purchase Agreement. As of
June 30, 2011, our annual cash dividend obligation to
Treasury on the senior preferred stock exceeded our annual
historical earnings in all but one period. As a result, we
expect to make additional draws in future periods, even if our
operating performance generates net income or comprehensive
income.
Under the Purchase Agreement, Treasury made a commitment to
provide funding, under certain conditions, to eliminate deficits
in our net worth. The $200 billion cap on Treasurys
funding commitment will increase as necessary to eliminate any
net worth deficits we may have during 2010, 2011, and 2012. We
believe that the support provided by Treasury pursuant to the
Purchase Agreement currently enables us to maintain our access
to the debt markets and to have adequate liquidity to conduct
our normal business activities, although the costs of our debt
funding could vary.
On August 5, 2011, S&P lowered the long-term credit
rating of the U.S. government to AA+ from
AAA and assigned a negative outlook to the rating.
On August 8, 2011, S&P lowered our senior long-term
debt credit rating to AA+ from AAA and
assigned a negative outlook to the rating. This could adversely
affect our liquidity and the supply and cost of debt financing
available to us. For more information, see LIQUIDITY AND
CAPITAL RESOURCES Liquidity Other
Debt Securities Credit Ratings.
Neither the U.S. government nor any other agency or
instrumentality of the U.S. government is obligated to fund our
mortgage purchase or financing activities or to guarantee our
securities or other obligations.
For information on conservatorship, the Purchase Agreement, and
the impact of credit ratings, see BUSINESS
Conservatorship and Related Matters in our 2010 Annual
Report and RISK FACTORS A downgrade in the
credit ratings of our debt could adversely affect our liquidity
and other aspects of our business. Our business could also be
adversely affected if there is a downgrade in the credit ratings
of the U.S. government or a payment default by the U.S.
government and If Treasury is unable to
provide us with funding requested under the Purchase Agreement
to address a deficit in our net worth, FHFA could be required to
place us into receivership.
Consolidated
Financial Results
Net loss was $(2.1) billion and $(4.7) billion for the
second quarters of 2011 and 2010, respectively. Key highlights
of our financial results include:
|
|
|
|
|
Net interest income for the second quarter of 2011 increased to
$4.6 billion from $4.1 billion in the second quarter
of 2010, mainly due to lower funding costs, partially offset by
a decline in the average balances of mortgage-related securities.
|
|
|
|
Provision for credit losses for the second quarter of 2011
decreased to $2.5 billion, compared to $5.0 billion
for the second quarter of 2010. The provision for credit losses
in the second quarter of 2011 primarily reflects a decline in
the rate at which delinquent loans transition into serious
delinquency. The provision for credit losses in the second
quarter of 2010 reflected a higher volume of seriously
delinquent loan additions and loan modifications that were
classified as TDRs.
|
|
|
|
Non-interest income (loss) was $(3.9) billion for the
second quarter of 2011, compared to $(3.6) billion for the
second quarter of 2010 largely due to derivative losses in both
periods.
|
|
|
|
Non-interest expense was $546 million and $479 million
in the second quarters of 2011 and 2010, respectively, and
reflects increased REO operations expense, partially offset by a
decline in administrative expenses in the second quarter of
2011, compared to the second quarter of 2010.
|
|
|
|
Total comprehensive income (loss) was $(1.1) billion for
the second quarter of 2011 compared to $(430) million for
the second quarter of 2010. Total comprehensive income (loss)
for the second quarter of 2011 reflects the $(2.1) billion
net loss, partially offset by the $1.0 billion total other
comprehensive income, primarily resulting from improved fair
values on available-for-sale securities.
|
Mortgage
Market and Economic Conditions
Overview
The housing market experienced continued challenges during the
second quarter of 2011 due primarily to continued weakness in
the employment market and a large number of distressed property
sales. The U.S. real gross domestic product rose by 1.3% on an
annualized basis during the second quarter of 2011, compared to
0.4% during the first quarter of 2011, according to the Bureau
of Economic Analysis estimates. The national unemployment rate
rose to 9.2% in June 2011, compared to 8.8% in March 2011,
based on data from the U.S. Bureau of Labor Statistics.
Single-Family
Housing Market
We believe the overall number of potential home buyers in the
market combined with the volume of homes offered for sale will
determine the direction of home prices. Within the industry,
existing home sales are important for assessing the rate at
which the mortgage market might absorb the inventory of listed,
but unsold, homes in the U.S. (including listed REO
properties). Additionally, we believe new home sales can be an
indicator of certain economic trends, such as the potential for
growth in gross domestic product and total U.S. mortgage
debt outstanding. Sales of existing homes in the second quarter
of 2011 averaged 4.86 million (at a seasonally adjusted
annual rate), a decline of 5% from an average seasonally
adjusted annual rate of 5.14 million in the first quarter
of 2011. New home sales in the second quarter of 2011 averaged
315,000 homes (at a seasonally adjusted annual rate) increasing
approximately 5% from an average seasonally adjusted annual rate
of approximately 300,000 homes in the first quarter of 2011.
We estimate that home prices (on a non-seasonally adjusted
basis) decreased 0.2% nationwide during the first half of 2011,
which includes a 2.1% increase in the second quarter of 2011.
Seasonal factors typically result in stronger house-price
appreciation during the second quarter. We estimate that
seasonally adjusted home prices were approximately flat during
the second quarter. These estimates are based on our own index
of mortgage loans in our single-family credit guarantee
portfolio. Other indexes of home prices may have different
results, as they are determined using different pools of
mortgage loans and calculated under different conventions than
our own.
Multifamily
Housing Market
Multifamily market fundamentals continued to improve on a
national level during the second quarter of 2011. This
improvement continues a trend of favorable movements in key
indicators such as vacancy rates and effective rents. 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. These improving
fundamentals and perceived optimism about demand for multifamily
housing have helped improve property
values in most markets. However, the broader economy continues
to be challenged by persistently high unemployment, which has
delayed a more complete economic recovery.
Delays
in the Foreclosure Process for Single-Family
Mortgages
In the fall of 2010, several large single-family
seller/servicers announced issues relating to the improper
preparation and execution of certain documents used in
foreclosure proceedings, including affidavits. As a result, a
number of our seller/servicers, including several of our largest
ones, temporarily suspended foreclosure proceedings in the
latter part of 2010 in certain states in which they do business,
and we temporarily suspended certain REO sales in November 2010.
During the first quarter of 2011, we fully resumed marketing and
sales of REO properties. While the larger servicers generally
resumed foreclosure proceedings in the first quarter of 2011, we
have continued to experience significant delays in the
foreclosure process for single-family mortgages in the second
quarter of 2011, as compared to before these issues arose,
particularly in states that require a judicial foreclosure
process. More recently, regulatory developments impacting
mortgage servicing and foreclosure practices have contributed to
these delays. These delays have caused the volume of our
single-family REO acquisitions in the first half of 2011 to be
less than it otherwise would have been. We expect these delays
in the foreclosure process will likely continue at least through
the remainder of 2011. We generally refer to these issues as the
concerns about the foreclosure process. For information on
recent regulatory developments affecting foreclosures, see
LEGISLATIVE AND REGULATORY MATTERS
Developments Concerning Single-Family Servicing Practices.
Mortgage
Market and Business 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 cause the
actual performance of the housing and mortgage markets and the
U.S. economy during the remainder of 2011 to be
significantly worse than we expect, including adverse changes in
consumer confidence, national or international economic
conditions and changes in the federal governments fiscal
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 will affect the performance of the housing
and mortgage markets in the remainder of 2011. The economy is
expected to continue to generate new jobs and rising incomes,
which will help in continuing the gradual recovery in housing
activity. However, the weak payroll employment growth during the
second quarter and accompanying rise in the unemployment rate
weakens near-term demand for housing. Further, consumer
confidence measures, while up from recession lows, remain below
long-term averages and suggest that households will likely be
more cautious in home buying. We also expect rates on fixed-rate
single-family mortgages to be slightly higher in the second half
of 2011, as stronger GDP growth and labor market improvements
generate higher demand for credit and mitigate deflationary
pressures. Lastly, many large financial institutions experienced
temporary delays in the foreclosure process for single-family
loans late in 2010 and early in 2011. To the extent a large
inventory of loans completes the foreclosure process, such an
increase in REO inventory could have a negative impact on the
housing market.
Our expectation for home prices, based on our own index, is that
national average home prices will continue to remain volatile
and will likely decline over the near term before a long-term
recovery in housing begins, due to, among other factors:
(a) our expectation for a sustained volume of distressed
sales, which include short sales and sales by financial
institutions of their REO properties; and (b) the
likelihood that unemployment rates will remain high.
Single-Family
We expect our credit losses will likely remain elevated in the
second half of 2011. This is in part due to the substantial
number of mortgage loans in our single-family credit guarantee
portfolio on which borrowers owe more than their home is
currently worth, as well as the substantial inventory of
seriously delinquent loans. For the near term, we also expect:
|
|
|
|
|
REO disposition severity ratios to remain relatively high, as
market conditions, such as home prices and the rate of home
sales, continue to remain weak;
|
|
|
|
non-performing assets, which include loans deemed TDRs, to
continue to remain high;
|
|
|
|
|
|
the volume of loan workouts to remain high; and
|
|
|
|
continued high volume of loans in the foreclosure process as
well as prolonged foreclosure timelines, which may result in a
continued high loan loss reserve balance in the near term and
increases in charge-offs in future periods.
|
Multifamily
The most recent data available continues to reflect improving
national apartment fundamentals, including vacancy rates and
effective rents. However, some geographic areas in which we have
investments in multifamily loans, including the states of
Arizona, Georgia, and Nevada, continue to exhibit weaker than
average fundamentals that increase our risk of future losses. We
own or guarantee many nonperforming loans, and loans that we
believe are at risk of default, in these states. Our delinquency
rates have historically been a lagging indicator and, as a
result, we expect to continue to experience delinquencies in the
remainder of 2011, consistent with our experience in the first
half of 2011.
In addition, as more market participants re-emerged in the
multifamily market during the first half of 2011, increased
competition from other institutional investors could negatively
impact our future purchase volumes as well as the pricing and
credit quality of newly originated loans for the remainder of
2011.
Long-Term
Financial Sustainability
We expect to request additional draws under the Purchase
Agreement in future periods. Over time, our dividend obligation
to Treasury will increasingly drive future draws. Although we
may experience period-to-period variability in earnings and
comprehensive income, it is unlikely that we will regularly
generate net income or comprehensive income in excess of our
annual dividends payable to Treasury over the long term. In
addition, we are required under the Purchase Agreement to pay a
quarterly commitment fee to Treasury, which could contribute to
future draws if the fee is not waived in the future. Treasury
waived the fee for the first three quarters of 2011, but it has
indicated that it remains committed to protecting taxpayers and
ensuring that our future positive earnings are returned to
taxpayers as compensation for their investment. The amount of
the quarterly commitment fee has not yet been established and
could be substantial. As a result of these factors, there is
uncertainty as to our long-term financial sustainability.
There continues to be significant uncertainty in the current
mortgage market environment, and continued high levels of
unemployment, weakness in home prices, adverse changes in
interest rates, mortgage security prices, spreads and other
factors could lead to additional draws. For discussion of other
factors that could result in additional draws, see
LIQUIDITY AND CAPITAL RESOURCES Capital
Resources.
There is also significant uncertainty as to whether or when we
will emerge from conservatorship, as it has no specified
termination date, and as to what changes may occur to our
business structure during or following conservatorship,
including whether we will continue to exist. We are not aware of
any current plans of our Conservator to significantly change our
business model or capital structure in the near-term. Our future
structure and role will be determined by the Obama
Administration and Congress, and there are likely to be
significant changes beyond the near-term. We have no ability to
predict the outcome of these deliberations. As discussed below
in Legislative and Regulatory Developments, on
February 11, 2011, the Obama Administration delivered a
report to Congress that lays out the Administrations plan
to reform the U.S. housing finance market.
Limits on
Mortgage-Related Investments Portfolio
Under the terms of the Purchase Agreement and FHFA regulation,
our mortgage-related investments portfolio is subject to a cap
that decreases by 10% each year until the portfolio reaches
$250 billion. As a result, the UPB of our mortgage-related
investments portfolio could not exceed $810 billion as of
December 31, 2010 and may not exceed $729 billion as
of December 31, 2011. FHFA has stated that we will not be a
substantial buyer or seller of mortgages for our
mortgage-related investments portfolio, except for purchases of
delinquent mortgages out of PC trusts. FHFA has also indicated
that the portfolio reduction targets under the Purchase
Agreement and FHFA regulation should be viewed as minimum
reductions and has encouraged us to reduce the mortgage-related
investments portfolio at a faster rate than required, consistent
with FHFA guidance, safety and soundness and the goal of
conserving and preserving assets.
Table 4 presents the UPB of our mortgage-related
investments portfolio, for purposes of the limit imposed by the
Purchase Agreement and FHFA regulation.
Table
4 Mortgage-Related Investments
Portfolio(1)
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|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Investments segment Mortgage investments portfolio
|
|
$
|
477,196
|
|
|
$
|
481,677
|
|
Single-family Guarantee segment Single-family
unsecuritized mortgage
loans(2)
|
|
|
64,744
|
|
|
|
69,766
|
|
Multifamily segment Mortgage investments portfolio
|
|
|
143,093
|
|
|
|
145,431
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related investments portfolio
|
|
$
|
685,033
|
|
|
$
|
696,874
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB and excludes mortgage loans and mortgage-related
securities traded, but not yet settled.
|
(2)
|
Represents unsecuritized non-performing single-family loans
managed by the Single-family Guarantee segment.
|
The UPB of our mortgage-related investments portfolio declined
from December 31, 2010 to June 30, 2011, primarily due
to liquidations, partially offset by the purchase of
$25.2 billion of seriously delinquent loans from PC trusts.
Our mortgage-related investments portfolio includes assets that
are less liquid than agency securities, including unsecuritized
performing single-family mortgage loans, multifamily mortgage
loans, CMBS, and housing revenue bonds. Our less liquid assets
collectively represented approximately 35% of the UPB of the
portfolio at June 30, 2011. Our mortgage-related
investments portfolio also includes illiquid assets, including
unsecuritized seriously delinquent and modified single-family
mortgage loans, which we purchased from PC trusts, and our
investments in non-agency mortgage-related securities backed by
subprime, option ARM, and
Alt-A and
other loans. Our illiquid assets collectively represented
approximately 22% of the UPB of the portfolio at June 30,
2011.
We disclose our mortgage assets on the basis used to determine
the cap under the caption Mortgage-Related Investments
Portfolio Ending Balance in our Monthly Volume
Summary reports, which are available on our web site at
www.freddiemac.com and in current reports on
Form 8-K
we file with the SEC.
We are providing our web site addresses here and elsewhere in
this
Form 10-Q
solely for your information. Information appearing on our web
site is not incorporated into this
Form 10-Q.
Legislative
and Regulatory Developments
A number of bills have been introduced in Congress that would
bring about changes in Freddie Mac and Fannie Maes
business model. In addition, on February 11, 2011, the
Obama Administration delivered a report to Congress that lays
out the Administrations plan to reform the
U.S. housing finance market, including options for
structuring the governments long-term role in a housing
finance system in which the private sector is the dominant
provider of mortgage credit. The report recommends winding down
Freddie Mac and Fannie Mae, and states that the Obama
Administration will work with FHFA to determine the best way to
responsibly reduce the role of Freddie Mac and Fannie Mae in the
market and ultimately wind down both institutions. The report
states that these efforts must be undertaken at a deliberate
pace, which takes into account the impact that these changes
will have on borrowers and the housing market.
See LEGISLATIVE AND REGULATORY MATTERS for
information on the Obama Administrations February 2011
report, recent developments in GSE reform legislation, recently
initiated rulemakings under the Dodd-Frank Act, and other
regulatory developments.
SELECTED
FINANCIAL
DATA(1)
The selected financial data presented below should be reviewed
in conjunction with MD&A and our consolidated financial
statements and related notes for the three and six months ended
June 30, 2011.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
(dollars in millions, except share-related amounts)
|
|
Statements of Income and Comprehensive Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
4,561
|
|
|
$
|
4,136
|
|
|
$
|
9,101
|
|
|
$
|
8,261
|
|
Provision for credit losses
|
|
|
(2,529
|
)
|
|
|
(5,029
|
)
|
|
|
(4,518
|
)
|
|
|
(10,425
|
)
|
Non-interest income (loss)
|
|
|
(3,857
|
)
|
|
|
(3,627
|
)
|
|
|
(5,109
|
)
|
|
|
(8,481
|
)
|
Non-interest expense
|
|
|
(546
|
)
|
|
|
(479
|
)
|
|
|
(1,243
|
)
|
|
|
(1,146
|
)
|
Net loss attributable to Freddie Mac
|
|
|
(2,139
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
|
|
(11,401
|
)
|
Total comprehensive income (loss) attributable to Freddie Mac
|
|
|
(1,100
|
)
|
|
|
(430
|
)
|
|
|
1,640
|
|
|
|
(2,310
|
)
|
Net loss attributable to common stockholders
|
|
|
(3,756
|
)
|
|
|
(6,009
|
)
|
|
|
(4,685
|
)
|
|
|
(13,989
|
)
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(1.16
|
)
|
|
|
(1.85
|
)
|
|
|
(1.44
|
)
|
|
|
(4.30
|
)
|
Diluted
|
|
|
(1.16
|
)
|
|
|
(1.85
|
)
|
|
|
(1.44
|
)
|
|
|
(4.30
|
)
|
Cash dividends per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in
thousands):(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
Diluted
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
(dollars in millions)
|
|
Balance Sheets Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held-for-investment, at amortized cost by
consolidated trusts (net of allowances for loan losses)
|
|
|
|
|
|
|
|
|
|
$
|
1,634,773
|
|
|
$
|
1,646,172
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
2,195,795
|
|
|
|
2,261,780
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
|
|
|
|
|
|
|
|
1,499,036
|
|
|
|
1,528,648
|
|
Other debt
|
|
|
|
|
|
|
|
|
|
|
681,087
|
|
|
|
713,940
|
|
All other liabilities
|
|
|
|
|
|
|
|
|
|
|
17,150
|
|
|
|
19,593
|
|
Total stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
(1,478
|
)
|
|
|
(401
|
)
|
Portfolio
Balances(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related investments portfolio
|
|
|
|
|
|
|
|
|
|
$
|
685,033
|
|
|
$
|
696,874
|
|
Total Freddie Mac Mortgage-Related
Securities(4)
|
|
|
|
|
|
|
|
|
|
|
1,681,985
|
|
|
|
1,712,918
|
|
Total mortgage
portfolio(5)
|
|
|
|
|
|
|
|
|
|
|
2,128,659
|
|
|
|
2,164,859
|
|
Non-performing
assets(6)
|
|
|
|
|
|
|
|
|
|
|
123,861
|
|
|
|
125,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
Ratios(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets(8)(11)
|
|
|
(0.4
|
)%
|
|
|
(0.8
|
)%
|
|
|
(0.1
|
)%
|
|
|
(1.0
|
)%
|
Non-performing assets
ratio(9)
|
|
|
6.4
|
|
|
|
6.0
|
|
|
|
6.4
|
|
|
|
6.0
|
|
Equity to assets
ratio(10)(11)
|
|
|
0.0
|
|
|
|
(0.3
|
)
|
|
|
0.0
|
|
|
|
(0.2
|
)
|
|
|
(1)
|
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report for information
regarding our accounting policies.
|
(2)
|
Includes the weighted average number of shares that are
associated with the warrant for our common stock issued to
Treasury as part of the Purchase Agreement. This warrant is
included in basic loss per share, because it is unconditionally
exercisable by the holder at a cost of $0.00001 per share.
|
(3)
|
Represents the UPB and excludes mortgage loans and
mortgage-related securities traded, but not yet settled.
|
(4)
|
See Table 26 Freddie Mac Mortgage-Related
Securities for the composition of this line item.
|
(5)
|
See Table 11 Segment Mortgage Portfolio
Composition for the composition of our total mortgage
portfolio.
|
(6)
|
See Table 43 Non-Performing Assets
for a description of our non-performing assets.
|
(7)
|
The return on common equity ratio is not presented because the
simple average of the beginning and ending balances of total
Freddie Mac stockholders equity (deficit), net of
preferred stock (at redemption value), is less than zero for all
periods presented. The dividend payout ratio on common stock is
not presented because we are reporting a net loss attributable
to common stockholders for all periods presented.
|
(8)
|
Ratio computed as annualized net income (loss) attributable to
Freddie Mac divided by the simple average of the beginning and
ending balances of total assets.
|
(9)
|
Ratio computed as non-performing assets divided by the ending
UPB of our total mortgage portfolio, excluding non-Freddie Mac
mortgage-related securities.
|
(10)
|
Ratio computed as the simple average of the beginning and ending
balances of total Freddie Mac stockholders equity
(deficit) divided by the simple average of the beginning and
ending balances of total assets.
|
(11)
|
To calculate the simple averages for the six months ended
June 30, 2010, the beginning balances of total assets, and
total Freddie Mac stockholders equity are based on the
January 1, 2010 balances included in NOTE 2:
CHANGE IN ACCOUNTING PRINCIPLES
Table 2.1 Impact of the Change in Accounting
for Transfers of Financial Assets and Consolidation of Variable
Interest Entities on Our Consolidated Balance Sheet in our
2010 Annual Report, so that both the beginning and ending
balances reflect changes in accounting principles.
|
CONSOLIDATED
RESULTS OF OPERATIONS
The following discussion of our consolidated results of
operations should be read in conjunction with our consolidated
financial statements, including the accompanying notes. Also see
CRITICAL ACCOUNTING POLICIES AND ESTIMATES for
information concerning certain significant accounting policies
and estimates applied in determining our reported results of
operations.
Table
5 Summary Consolidated Statements of Income and
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Net interest income
|
|
$
|
4,561
|
|
|
$
|
4,136
|
|
|
$
|
9,101
|
|
|
$
|
8,261
|
|
Provision for credit losses
|
|
|
(2,529
|
)
|
|
|
(5,029
|
)
|
|
|
(4,518
|
)
|
|
|
(10,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for credit losses
|
|
|
2,032
|
|
|
|
(893
|
)
|
|
|
4,583
|
|
|
|
(2,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on extinguishment of debt securities of
consolidated trusts
|
|
|
(125
|
)
|
|
|
4
|
|
|
|
98
|
|
|
|
(94
|
)
|
Gains (losses) on retirement of other debt
|
|
|
3
|
|
|
|
(141
|
)
|
|
|
15
|
|
|
|
(179
|
)
|
Gains (losses) on debt recorded at fair value
|
|
|
(37
|
)
|
|
|
544
|
|
|
|
(118
|
)
|
|
|
891
|
|
Derivative gains (losses)
|
|
|
(3,807
|
)
|
|
|
(3,838
|
)
|
|
|
(4,234
|
)
|
|
|
(8,523
|
)
|
Impairment of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment of available-for-sale
securities
|
|
|
(230
|
)
|
|
|
(114
|
)
|
|
|
(1,284
|
)
|
|
|
(531
|
)
|
Portion of other-than-temporary impairment recognized in AOCI
|
|
|
(122
|
)
|
|
|
(314
|
)
|
|
|
(261
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(352
|
)
|
|
|
(428
|
)
|
|
|
(1,545
|
)
|
|
|
(938
|
)
|
Other gains (losses) on investment securities recognized in
earnings
|
|
|
209
|
|
|
|
(257
|
)
|
|
|
89
|
|
|
|
(673
|
)
|
Other income
|
|
|
252
|
|
|
|
489
|
|
|
|
586
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(3,857
|
)
|
|
|
(3,627
|
)
|
|
|
(5,109
|
)
|
|
|
(8,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(384
|
)
|
|
|
(404
|
)
|
|
|
(745
|
)
|
|
|
(809
|
)
|
REO operations (expense) income
|
|
|
(27
|
)
|
|
|
40
|
|
|
|
(284
|
)
|
|
|
(119
|
)
|
Other expenses
|
|
|
(135
|
)
|
|
|
(115
|
)
|
|
|
(214
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(546
|
)
|
|
|
(479
|
)
|
|
|
(1,243
|
)
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(2,371
|
)
|
|
|
(4,999
|
)
|
|
|
(1,769
|
)
|
|
|
(11,791
|
)
|
Income tax benefit
|
|
|
232
|
|
|
|
286
|
|
|
|
306
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,139
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
|
|
(11,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes and reclassification
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to
available-for-sale securities
|
|
|
903
|
|
|
|
4,097
|
|
|
|
2,844
|
|
|
|
8,743
|
|
Changes in unrealized gains (losses) related to cash flow hedge
relationships
|
|
|
135
|
|
|
|
184
|
|
|
|
267
|
|
|
|
356
|
|
Changes in defined benefit plans
|
|
|
1
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of taxes and
reclassification adjustments
|
|
|
1,039
|
|
|
|
4,283
|
|
|
|
3,103
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(1,100
|
)
|
|
|
(430
|
)
|
|
|
1,640
|
|
|
|
(2,311
|
)
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to Freddie Mac
|
|
$
|
(1,100
|
)
|
|
$
|
(430
|
)
|
|
$
|
1,640
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
Table 6 presents an analysis of net interest income,
including average balances and related yields earned on assets
and incurred on liabilities.
Table 6
Net Interest Income/Yield and Average Balance Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
|
Balance(1)(2)
|
|
|
(Expense)(1)
|
|
|
Rate
|
|
|
Balance(1)(2)
|
|
|
(Expense)(1)
|
|
|
Rate
|
|
|
|
(dollars in millions)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,660
|
|
|
$
|
10
|
|
|
|
0.12
|
%
|
|
$
|
45,879
|
|
|
$
|
18
|
|
|
|
0.15
|
%
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
32,227
|
|
|
|
8
|
|
|
|
0.09
|
|
|
|
37,238
|
|
|
|
16
|
|
|
|
0.18
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(3)
|
|
|
450,575
|
|
|
|
5,215
|
|
|
|
4.63
|
|
|
|
540,380
|
|
|
|
6,432
|
|
|
|
4.76
|
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(166,318
|
)
|
|
|
(1,966
|
)
|
|
|
(4.73
|
)
|
|
|
(220,350
|
)
|
|
|
(2,913
|
)
|
|
|
(5.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities, net
|
|
|
284,257
|
|
|
|
3,249
|
|
|
|
4.57
|
|
|
|
320,030
|
|
|
|
3,519
|
|
|
|
4.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related
securities(3)
|
|
|
26,078
|
|
|
|
26
|
|
|
|
0.39
|
|
|
|
32,571
|
|
|
|
55
|
|
|
|
0.67
|
|
Mortgage loans held by consolidated
trusts(4)
|
|
|
1,643,680
|
|
|
|
19,782
|
|
|
|
4.81
|
|
|
|
1,729,618
|
|
|
|
22,114
|
|
|
|
5.11
|
|
Unsecuritized mortgage
loans(4)
|
|
|
242,471
|
|
|
|
2,274
|
|
|
|
3.75
|
|
|
|
212,919
|
|
|
|
2,179
|
|
|
|
4.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,262,373
|
|
|
$
|
25,349
|
|
|
|
4.48
|
|
|
$
|
2,378,255
|
|
|
$
|
27,901
|
|
|
|
4.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts including PCs held by
Freddie Mac
|
|
$
|
1,656,150
|
|
|
$
|
(19,227
|
)
|
|
|
(4.64
|
)
|
|
$
|
1,739,519
|
|
|
$
|
(21,961
|
)
|
|
|
(5.05
|
)
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(166,318
|
)
|
|
|
1,966
|
|
|
|
4.73
|
|
|
|
(220,350
|
)
|
|
|
2,913
|
|
|
|
5.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities of consolidated trusts held by third
parties
|
|
|
1,489,832
|
|
|
|
(17,261
|
)
|
|
|
(4.63
|
)
|
|
|
1,519,169
|
|
|
|
(19,048
|
)
|
|
|
(5.02
|
)
|
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
194,153
|
|
|
|
(95
|
)
|
|
|
(0.19
|
)
|
|
|
226,624
|
|
|
|
(137
|
)
|
|
|
(0.24
|
)
|
Long-term
debt(5)
|
|
|
500,587
|
|
|
|
(3,238
|
)
|
|
|
(2.59
|
)
|
|
|
561,353
|
|
|
|
(4,331
|
)
|
|
|
(3.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
694,740
|
|
|
|
(3,333
|
)
|
|
|
(1.92
|
)
|
|
|
787,977
|
|
|
|
(4,468
|
)
|
|
|
(2.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,184,572
|
|
|
|
(20,594
|
)
|
|
|
(3.77
|
)
|
|
|
2,307,146
|
|
|
|
(23,516
|
)
|
|
|
(4.08
|
)
|
Income (expense) related to
derivatives(6)
|
|
|
|
|
|
|
(194
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
(249
|
)
|
|
|
(0.04
|
)
|
Impact of net non-interest-bearing funding
|
|
|
77,801
|
|
|
|
|
|
|
|
0.13
|
|
|
|
71,109
|
|
|
|
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding of interest-earning assets
|
|
$
|
2,262,373
|
|
|
$
|
(20,788
|
)
|
|
|
(3.67
|
)
|
|
$
|
2,378,255
|
|
|
$
|
(23,765
|
)
|
|
|
(3.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/yield
|
|
|
|
|
|
$
|
4,561
|
|
|
|
0.81
|
|
|
|
|
|
|
$
|
4,136
|
|
|
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
Average
|
|
|
Income
|
|
|
Average
|
|
|
|
Balance(1)(2)
|
|
|
(Expense)(1)
|
|
|
Rate
|
|
|
Balance(1)(2)
|
|
|
(Expense)(1)
|
|
|
Rate
|
|
|
|
(dollars in millions)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,611
|
|
|
$
|
26
|
|
|
|
0.14
|
%
|
|
$
|
56,426
|
|
|
$
|
35
|
|
|
|
0.12
|
%
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
40,044
|
|
|
|
26
|
|
|
|
0.13
|
|
|
|
44,441
|
|
|
|
32
|
|
|
|
0.14
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(3)
|
|
|
453,773
|
|
|
|
10,531
|
|
|
|
4.64
|
|
|
|
566,946
|
|
|
|
13,711
|
|
|
|
4.84
|
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(166,923
|
)
|
|
|
(4,029
|
)
|
|
|
(4.83
|
)
|
|
|
(238,651
|
)
|
|
|
(6,354
|
)
|
|
|
(5.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities, net
|
|
|
286,850
|
|
|
|
6,502
|
|
|
|
4.53
|
|
|
|
328,295
|
|
|
|
7,357
|
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related
securities(3)
|
|
|
27,694
|
|
|
|
56
|
|
|
|
0.40
|
|
|
|
26,380
|
|
|
|
116
|
|
|
|
0.88
|
|
Mortgage loans held by consolidated
trusts(4)
|
|
|
1,647,123
|
|
|
|
39,846
|
|
|
|
4.84
|
|
|
|
1,758,473
|
|
|
|
44,846
|
|
|
|
5.10
|
|
Unsecuritized mortgage
loans(4)
|
|
|
241,514
|
|
|
|
4,608
|
|
|
|
3.82
|
|
|
|
186,350
|
|
|
|
4,140
|
|
|
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,278,836
|
|
|
$
|
51,064
|
|
|
|
4.48
|
|
|
$
|
2,400,365
|
|
|
$
|
56,526
|
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts including PCs held by
Freddie Mac
|
|
$
|
1,660,879
|
|
|
$
|
(38,693
|
)
|
|
|
(4.66
|
)
|
|
$
|
1,770,522
|
|
|
$
|
(45,045
|
)
|
|
|
(5.09
|
)
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(166,923
|
)
|
|
|
4,029
|
|
|
|
4.83
|
|
|
|
(238,651
|
)
|
|
|
6,354
|
|
|
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities of consolidated trusts held by third
parties
|
|
|
1,493,956
|
|
|
|
(34,664
|
)
|
|
|
(4.64
|
)
|
|
|
1,531,871
|
|
|
|
(38,691
|
)
|
|
|
(5.05
|
)
|
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
194,488
|
|
|
|
(210
|
)
|
|
|
(0.21
|
)
|
|
|
234,781
|
|
|
|
(278
|
)
|
|
|
(0.24
|
)
|
Long-term
debt(5)
|
|
|
509,310
|
|
|
|
(6,688
|
)
|
|
|
(2.63
|
)
|
|
|
559,130
|
|
|
|
(8,789
|
)
|
|
|
(3.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
703,798
|
|
|
|
(6,898
|
)
|
|
|
(1.96
|
)
|
|
|
793,911
|
|
|
|
(9,067
|
)
|
|
|
(2.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,197,754
|
|
|
|
(41,562
|
)
|
|
|
(3.78
|
)
|
|
|
2,325,782
|
|
|
|
(47,758
|
)
|
|
|
(4.11
|
)
|
Income (expense) related to
derivatives(6)
|
|
|
|
|
|
|
(401
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(507
|
)
|
|
|
(0.04
|
)
|
Impact of net non-interest-bearing funding
|
|
|
81,082
|
|
|
|
|
|
|
|
0.14
|
|
|
|
74,583
|
|
|
|
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding of interest-earning assets
|
|
$
|
2,278,836
|
|
|
$
|
(41,963
|
)
|
|
|
(3.68
|
)
|
|
$
|
2,400,365
|
|
|
$
|
(48,265
|
)
|
|
|
(4.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/yield
|
|
|
|
|
|
$
|
9,101
|
|
|
|
0.80
|
|
|
|
|
|
|
$
|
8,261
|
|
|
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes mortgage loans and mortgage-related securities traded,
but not yet settled.
|
(2)
|
We calculate average balances based on amortized cost.
|
(3)
|
Interest income (expense) includes accretion of the portion of
impairment charges recognized in earnings expected to be
recovered.
|
(4)
|
Non-performing loans, where interest income is generally
recognized when collected, are included in average balances.
|
(5)
|
Includes current portion of long-term debt.
|
(6)
|
Represents changes in fair value of derivatives in cash flow
hedge relationships that were previously deferred in AOCI and
have been reclassified to earnings as the associated hedged
forecasted issuance of debt affects earnings.
|
Net interest income increased $425 million and
$840 million during the three and six months ended
June 30, 2011, respectively, compared to the three and six
months ended June 30, 2010. Net interest yield increased
11 basis points during both the three and six months ended
June 30, 2011, compared to the three and six months ended
June 30, 2010. The primary driver underlying the increases
was lower funding costs from the replacement of debt at lower
rates. In addition, the increases in net interest income and net
interest yield for the six months ended June 30, 2011
compared to the six months ended June 30, 2010 were
partially driven by the impact of a change in practice announced
in February 2010 to purchase substantially all 120 day
delinquent loans from PC trusts, as the average funding rate of
the other debt used to purchase such loans from PC trusts is
significantly less than the average funding rate of the debt
securities of consolidated trusts held by third parties. These
factors were partially offset by the reduction in the average
balance of higher-yielding mortgage-related assets due to
continued liquidations and limited purchase activity.
Interest income that we did not recognize related to
non-performing loans, which we refer to as foregone interest
income, includes interest income not recognized due to interest
rate concessions granted on certain modified loans. Foregone
interest income and reversals of previously recognized interest
income, net of cash received, related to non-performing loans
was $1.0 billion and $2.0 billion during the three and
six months ended June 30, 2011, respectively, compared to
$1.3 billion and $2.4 billion during the three and six
months ended June 30, 2010, respectively, primarily due to
the decreased volume of non-performing loans on nonaccrual
status.
During the three and six months ended June 30, 2011,
spreads on our debt and our access to the debt markets remained
favorable relative to historical levels. For more information,
see LIQUIDITY AND CAPITAL RESOURCES
Liquidity.
Provision
for Credit Losses
Since the beginning of 2008, on an aggregate basis, we have
recorded provision for credit losses associated with
single-family loans of approximately $66.9 billion, and
have recorded an additional $4.5 billion in losses on loans
purchased from our PCs, net of recoveries. The majority of these
losses are associated with loans originated in 2005 through
2008. While loans originated in 2005 through 2008 will give rise
to additional credit losses that have not yet been incurred, and
thus have not been provisioned for, we believe that, as of
June 30, 2011, we have reserved for or charged-off the
majority of the total expected credit losses for these loans.
Nevertheless, various factors, such as continued high
unemployment rates or further declines in home prices, could
require us to provide for losses on these loans beyond our
current expectations. See Table 3 Credit
Statistics, Single-Family Credit Guarantee Portfolio for
certain quarterly credit statistics for our single-family credit
guarantee portfolio.
Our provision for credit losses was $2.5 billion for the
second quarter of 2011 compared to $5.0 billion for the second
quarter of 2010, and was $4.5 billion in the first half of
2011 compared to $10.4 billion in the first half of 2010.
The decrease in the provision for credit losses in the second
quarter and first half of 2011 primarily reflects a decline in
the rate at which delinquent loans transition into serious
delinquency. The provision for credit losses in the second
quarter and first half of 2010 reflected a higher volume of
seriously delinquent loan additions and loan modifications that
were classified as TDRs.
During the three and six months ended June 30, 2011, our
charge-offs for single-family loans exceeded the amount of our
provision for credit losses. We believe the level of our
charge-offs will continue to remain high in 2011 and may
increase in 2012 due to the large number of single-family
non-performing loans that will likely be resolved as our
servicers work through their foreclosure-related issues. As of
June 30, 2011 and December 31, 2010, the UPB of our
single-family non-performing loans was $114.8 billion and
$115.5 billion, respectively. These amounts include
$36.2 billion and $26.6 billion, respectively, of
single-family TDRs that are reperforming, or less than three
months past due. See RISK MANAGEMENT Credit
Risk Mortgage Credit Risk for further
information on our single-family credit guarantee portfolio,
including credit performance, charge-offs, and our
non-performing assets.
We continued to experience a high volume of loan modifications
involving concessions to borrowers, which are considered TDRs,
during the first half of 2011, but the volume of such
modifications was less than the volume in the first half of
2010. Impairment analysis for TDRs requires giving recognition
in the provision for credit losses to the excess of our recorded
investment in the loan over the present value of the expected
future cash flows. This generally results in a higher allowance
for loan losses for loan modifications that are TDRs than for
loan modifications that are not TDRs. We expect the percentage
of modifications that qualify as TDRs in 2011 will remain high,
primarily since the majority of our modifications are
anticipated to include a significant reduction in the
contractual interest rate, which represents a concession to the
borrower. In addition, the FASB issued an amendment to the
accounting guidance for receivables to clarify when a
restructuring such as a loan modification is considered a TDR,
which will become effective in the third
quarter of 2011. As a result of this amendment, the population
of loan modifications we account for and disclose as TDRs will
likely increase.
The total number of seriously delinquent loans declined
approximately 10% during the first half of 2011, but has
remained high compared to historical levels due to the continued
weakness in home prices, persistently high unemployment,
extended foreclosure timelines and foreclosure suspensions in
many states, and continued challenges faced by servicers
processing large volumes of problem loans. Our seller/servicers
have an active role in our loan workout activities, including
under the MHA Program, and a decline in their performance could
result in a failure to realize the anticipated benefits of our
loss mitigation plans. In an effort to help mitigate such risk,
we made significant investments in systems and personnel in the
last months of 2010 to help our seller/servicers manage their
loss mitigation efforts. In addition, we believe that the
servicing alignment initiative, which will establish a uniform
framework and requirements for servicing non-performing loans
owned or guaranteed by us and Fannie Mae, will ultimately change
the way servicers communicate and work with troubled borrowers,
bring greater consistency and accountability to the servicing
industry, and help more distressed homeowners avoid foreclosure.
Our provision (benefit) for credit losses associated with our
multifamily mortgage portfolio was $(13) million and
$119 million for the second quarters of 2011 and 2010,
respectively, and was $(73) million in the first half of
2011 compared to $148 million in the first half of 2010.
Our loan loss reserves associated with our multifamily mortgage
portfolio were $705 million and $828 million as of
June 30, 2011 and December 31, 2010, respectively. The
decline in loan loss reserves for multifamily loans was driven
primarily by positive market trends in vacancy rates and
effective rents reflected over the past several consecutive
quarters, as well as stabilizing or improved property values.
However, some states in which we have substantial investments in
multifamily mortgage loans, including Nevada, Arizona, and
Georgia, continue to exhibit weaker than average fundamentals.
Non-Interest
Income (Loss)
Gains
(Losses) on Extinguishment of Debt Securities of Consolidated
Trusts
When we purchase PCs that have been issued by consolidated PC
trusts, we extinguish a pro rata portion of the outstanding debt
securities of the related consolidated trust. We recognize a
gain (loss) on extinguishment of the debt securities to the
extent the amount paid to extinguish the debt security differs
from its carrying value. For the three months ended
June 30, 2011 and 2010, we extinguished debt securities of
consolidated trusts with a UPB of $22.2 billion and
$0.4 billion, respectively (representing our purchase of
single-family PCs with a corresponding UPB amount), and our
gains (losses) on extinguishment of these debt securities of
consolidated trusts were $(125) million and
$4 million, respectively. The losses during the second
quarter of 2011 were primarily due to the repurchase of our debt
securities at larger net premiums driven by the decrease in
interest rates during the period. For the six months ended
June 30, 2011 and 2010, we extinguished debt securities of
consolidated trusts with a UPB of $47.0 billion and
$2.5 billion, respectively (representing our purchase of
single-family PCs with a corresponding UPB amount), and our
gains (losses) on extinguishment of these debt securities of
consolidated trusts were $98 million and
$(94) million, respectively. The decreased volume of the
extinguishment of debt securities in the 2010 periods was due to
a change in practice announced in February 2010 that we would
purchase substantially all single-family mortgage loans that are
120 days or more delinquent from our PC trusts. As a
result, the increased purchases of delinquent loans limited our
capacity to repurchase debt securities into our mortgage-related
investments portfolio due to limits on the portfolio under the
Purchase Agreement and FHFA regulation. The gains for the six
months ended June 30, 2011 were due to the repurchases of
our debt securities at a net discount during the first quarter
of 2011 driven by an increase in interest rates during the first
quarter of 2011. See Table 18 Total
Mortgage-Related Securities Purchase Activity for
additional information regarding purchases of mortgage-related
securities, including those issued by consolidated PC trusts.
Gains
(Losses) on Retirement of Other Debt
Gains (losses) on retirement of other debt were $3 million
and $(141) million during the three months ended
June 30, 2011 and 2010, respectively. Gains (losses) on
retirement of other debt were $15 million and
$(179) million during the six months ended June 30,
2011 and 2010, respectively. We recognized gains on debt
retirements for the second quarter and first half of 2011,
compared to losses for the second quarter and first half of
2010, driven by a decrease in the related write-off of
unamortized net discounts on the retired other debt during the
second quarter and the first half of 2011.
Gains
(Losses) on Debt Recorded at Fair Value
Gains (losses) on debt recorded at fair value primarily relates
to changes in the fair value of our foreign-currency denominated
debt. For the three and six months ended June 30, 2011, we
recognized losses on debt recorded at fair value
of $37 million and $118 million, respectively,
primarily due to the U.S. dollar weakening relative to the
Euro. For the three and six months ended June 30, 2010, we
recognized gains on debt recorded at fair value of
$544 million and $891 million, respectively, primarily
due to the U.S. dollar strengthening relative to the Euro.
We mitigate changes in the fair value of our foreign-currency
denominated debt by using foreign currency swaps and
foreign-currency denominated interest-rate swaps.
Derivative
Gains (Losses)
Table 7 presents derivative gains (losses) reported in our
consolidated statements of income and comprehensive income. See
NOTE 11: DERIVATIVES Table
11.2 Gains and Losses on Derivatives for
information about gains and losses related to specific
categories of derivatives. Changes in fair value and interest
accruals on derivatives not in hedge accounting relationships
are recorded as derivative gains (losses) in our consolidated
statements of income and comprehensive income. At June 30,
2011 and December 31, 2010, we did not have any derivatives
in hedge accounting relationships; however, there are amounts
recorded in AOCI related to discontinued cash flow hedges.
Amounts recorded in AOCI associated with these closed cash flow
hedges are reclassified to earnings when the forecasted
transactions affect earnings. If it is probable that the
forecasted transaction will not occur, then the deferred gain or
loss associated with the forecasted transaction is reclassified
into earnings immediately.
While derivatives are an important aspect of our management of
interest-rate risk, they generally increase the volatility of
reported net income (loss), because, while fair value changes in
derivatives affect net income, fair value changes in several of
the types of assets and liabilities being hedged do not affect
net income.
Table 7
Derivative Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Gains (Losses)
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Interest-rate swaps
|
|
$
|
(3,749
|
)
|
|
$
|
(7,938
|
)
|
|
$
|
(2,026
|
)
|
|
$
|
(10,272
|
)
|
Option-based
derivatives(1)
|
|
|
1,602
|
|
|
|
5,864
|
|
|
|
795
|
|
|
|
5,282
|
|
Other
derivatives(2)
|
|
|
(308
|
)
|
|
|
(553
|
)
|
|
|
(402
|
)
|
|
|
(973
|
)
|
Accrual of periodic
settlements(3)
|
|
|
(1,352
|
)
|
|
|
(1,211
|
)
|
|
|
(2,601
|
)
|
|
|
(2,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,807
|
)
|
|
$
|
(3,838
|
)
|
|
$
|
(4,234
|
)
|
|
$
|
(8,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Primarily includes purchased call and put swaptions and
purchased interest rate caps and floors.
|
(2)
|
Includes futures, foreign currency swaps, commitments, swap
guarantee derivatives, and credit derivatives. Foreign-currency
swaps are defined as swaps in which net settlement is based on
one leg calculated in a foreign-currency and the other leg
calculated in U.S. dollars. Commitments include: (a) our
commitments to purchase and sell investments in securities;
(b) our commitments to purchase mortgage loans; and
(c) our commitments to purchase and extinguish or issue
debt securities of our consolidated trusts.
|
(3)
|
Includes imputed interest on zero-coupon swaps.
|
Gains (losses) on derivatives not accounted for in hedge
accounting relationships are principally driven by changes in:
(a) swap and forward interest rates and implied volatility;
and (b) the mix and volume of derivatives in our
derivatives portfolio.
During the three and six months ended June 30, 2011, we
recognized losses on derivatives of $3.8 billion and
$4.2 billion, respectively, primarily due to declines in
interest rates in the second quarter. Specifically, during the
three months and six months ended June 30, 2011, we
recognized fair value losses on our pay-fixed swap positions of
$7.3 billion and $3.3 billion, respectively, partially
offset by fair value gains on our receive-fixed swaps of
$3.6 billion and $1.3 billion, respectively. We also
recognized fair value gains of $1.6 billion and
$0.8 billion, respectively, on our option-based
derivatives, resulting from gains on our purchased call
swaptions as interest rates decreased during these periods.
Additionally, we recognized losses related to the accrual of
periodic settlements during the three and six months ended
June 30, 2011 due to our net pay-fixed swap position in the
current interest rate environment.
During the three and six months ended June 30, 2010, the
yield curve flattened, with declining longer-term swap interest
rates, resulting in a loss on derivatives of $3.8 billion
and $8.5 billion, respectively. Also contributing to these
losses was a decline in implied volatility on our options
portfolio during the six months ended June 30, 2010.
Specifically, for the three and six months ended June 30,
2010, the decrease in longer-term swap interest rates resulted
in fair value losses on our pay-fixed swaps of
$18.6 billion and $23.4 billion, respectively,
partially offset by fair value gains on our receive-fixed swaps
of $10.7 billion and $13.0 billion, respectively. We
recognized fair value gains for the three and six months ended
June 30, 2010 of $5.9 billion and $5.3 billion,
respectively, on our option-based derivatives, resulting from
gains on our purchased call swaptions primarily due to the
declines in interest rates during these periods.
Investment
Securities-Related Activities
Impairments
of Available-For-Sale Securities
We recorded net impairments of available-for-sale securities
recognized in earnings, which was related to non-agency
mortgage-related securities, of $352 million and
$1.5 billion during the three and six months ended
June 30, 2011, respectively, compared to $428 million
and $938 million during the three and six months ended
June 30, 2010, respectively. See CONSOLIDATED BALANCE
SHEETS ANALYSIS Investments in
Securities Mortgage-Related
Securities Other-Than-Temporary Impairments on
Available-For-Sale Mortgage-Related Securities and
NOTE 7: INVESTMENTS IN SECURITIES for
information regarding the accounting principles for investments
in debt and equity securities and the other-than-temporary
impairments recorded during the three and six months ended
June 30, 2011 and 2010.
Other
Gains (Losses) on Investment Securities Recognized in
Earnings
Other gains (losses) on investment securities recognized in
earnings primarily consists of gains (losses) on trading
securities. We recognized $274 million and $74 million
related to gains (losses) on trading securities during the three
and six months ended June 30, 2011, respectively, compared
to $(277) million and $(694) million related to gains
(losses) on trading securities during the three and six months
ended June 30, 2010, respectively.
During the three and six months ended June 30, 2011 the
gains on trading securities were primarily due to a decline in
interest rates coupled with a tightening of OAS levels on agency
securities.
During the three and six months ended June 30, 2010, the
losses on trading securities were primarily due to the movement
of securities with unrealized gains towards maturity, partially
offset by fair value gains due to a decline in interest rates.
Other
Income
Table 8 summarizes the significant components of other income.
Table 8
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee-related income
|
|
$
|
81
|
|
|
$
|
60
|
|
|
$
|
135
|
|
|
$
|
119
|
|
Gains on sale of mortgage loans
|
|
|
161
|
|
|
|
121
|
|
|
|
256
|
|
|
|
216
|
|
Gains on mortgage loans recorded at fair value
|
|
|
136
|
|
|
|
5
|
|
|
|
103
|
|
|
|
26
|
|
Recoveries on loans impaired upon purchase
|
|
|
132
|
|
|
|
227
|
|
|
|
257
|
|
|
|
396
|
|
All other
|
|
|
(258
|
)
|
|
|
76
|
|
|
|
(165
|
)
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$
|
252
|
|
|
$
|
489
|
|
|
$
|
586
|
|
|
$
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income declined during the three and six months ended
June 30, 2011, compared to the same periods in 2010,
primarily due to certain prior period accounting errors not
material to our financial statements recorded in the second
quarter of 2011 partially offset by increased gains on mortgage
loans recorded at fair value.
During the second quarter of 2011, our largest correction
related to an error associated with the accrual of interest
income for certain impaired mortgage-related securities during
2010 and 2009, which reduced other income in 2011 by
approximately $293 million.
During the second quarters of 2011 and 2010, recoveries on loans
impaired upon purchase were $132 million and
$227 million, respectively, and were $257 million in
the first half of 2011, compared to $396 million in the
first half of 2010. The declines in the 2011 periods were due to
a lower volume of foreclosure transfers associated with loans
impaired upon purchase. We principally recognize recoveries on
impaired loans purchased prior to January 1, 2010, due to a
change in accounting guidance effective on that date.
Consequently, our recoveries on loans impaired upon purchase
will generally decline over time.
Non-Interest
Expense
Table 9 summarizes the components of non-interest expense.
Table 9
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Administrative
expenses(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
219
|
|
|
$
|
230
|
|
|
$
|
426
|
|
|
$
|
464
|
|
Professional services
|
|
|
64
|
|
|
|
67
|
|
|
|
120
|
|
|
|
148
|
|
Occupancy expense
|
|
|
15
|
|
|
|
15
|
|
|
|
30
|
|
|
|
31
|
|
Other administrative expense
|
|
|
86
|
|
|
|
92
|
|
|
|
169
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total administrative expenses
|
|
|
384
|
|
|
|
404
|
|
|
|
745
|
|
|
|
809
|
|
REO operations expense (income)
|
|
|
27
|
|
|
|
(40
|
)
|
|
|
284
|
|
|
|
119
|
|
Other expenses
|
|
|
135
|
|
|
|
115
|
|
|
|
214
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
546
|
|
|
$
|
479
|
|
|
$
|
1,243
|
|
|
$
|
1,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Commencing in the first quarter of 2011, we reclassified certain
expenses from other expenses to professional services expense.
Prior period amounts have been reclassified to conform to the
current presentation.
|
Administrative
Expenses
Administrative expenses decreased for the three and six months
ended June 30, 2011, compared to the three and six months
ended June 30, 2010, due in part to our ongoing focus on
cost reduction measures, particularly with regard to salaries
and employee benefits and professional services costs. We expect
our administrative expenses will decline for the full year of
2011 when compared to 2010.
REO
Operations Expense (Income)
The table below presents the components of our REO operations
expense (income), and REO inventory and disposition information.
Table
10 REO Operations Expense (Income), REO Inventory,
and REO Dispositions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
REO operations expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO property
expenses(1)
|
|
$
|
300
|
|
|
$
|
252
|
|
|
$
|
608
|
|
|
$
|
484
|
|
Disposition (gains) losses,
net(2)(3)
|
|
|
56
|
|
|
|
(39
|
)
|
|
|
182
|
|
|
|
(26
|
)
|
Change in holding period allowance, dispositions
|
|
|
(129
|
)
|
|
|
(60
|
)
|
|
|
(284
|
)
|
|
|
(127
|
)
|
Change in holding period allowance,
inventory(4)
|
|
|
5
|
|
|
|
(20
|
)
|
|
|
156
|
|
|
|
117
|
|
Recoveries(5)
|
|
|
(197
|
)
|
|
|
(174
|
)
|
|
|
(370
|
)
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family REO operations expense (income)
|
|
|
35
|
|
|
|
(41
|
)
|
|
|
292
|
|
|
|
115
|
|
Multifamily REO operations expense (income)
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO operations expense (income)
|
|
$
|
27
|
|
|
$
|
(40
|
)
|
|
$
|
284
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO inventory (in properties), at June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
60,599
|
|
|
|
62,178
|
|
|
|
60,599
|
|
|
|
62,178
|
|
Multifamily
|
|
|
19
|
|
|
|
12
|
|
|
|
19
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
60,618
|
|
|
|
62,190
|
|
|
|
60,618
|
|
|
|
62,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO property dispositions (in properties)
|
|
|
29,355
|
|
|
|
26,316
|
|
|
|
60,983
|
|
|
|
48,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of costs incurred to acquire, maintain or protect a
property after it is acquired in a foreclosure transfer, such as
legal fees, insurance, taxes, and cleaning and other maintenance
charges.
|
(2)
|
Represents the difference between the disposition proceeds, net
of selling expenses, and the fair value of the property on the
date of the foreclosure transfer.
|
(3)
|
We have reclassified expenses related to the disposition of REO
underlying Other Guarantee Transactions from REO property
expense to disposition (gains) losses, net. Prior periods have
been revised to conform to the current presentation.
|
(4)
|
Represents the (increase) decrease in the estimated fair value
of properties that were in inventory during the period.
|
(5)
|
Includes recoveries from primary mortgage insurance, pool
insurance and seller/servicer repurchases.
|
REO operations expense (income) was $27 million for the
second quarter of 2011, as compared to $(40) million during
the second quarter of 2010 and was $284 million in the
first half of 2011 compared to $119 million for the first
half of 2010. These increases were primarily due to higher
single-family property expenses in the 2011 periods. We recorded
net disposition losses during the 2011 periods as we completed a
higher volume of property dispositions and
home prices remained weak. We recorded net disposition gains
during the 2010 periods due to the relative stabilization in
national home prices in the first half of 2010 that included
slight improvements in many geographic areas. We expect REO
property expenses to continue to remain high in the remainder of
2011 due to expected continued high levels of single-family REO
acquisitions and inventory.
In recent periods, the volume of our single-family REO
acquisitions has been less than it otherwise would have been due
to delays caused by concerns about the foreclosure process,
including deficiencies in foreclosure documentation practices,
particularly in states that require a judicial foreclosure
process. The acquisition slowdown, coupled with high disposition
levels, led to an approximate 16% reduction in REO property
inventory from December 31, 2010 to June 30, 2011. We
expect these delays in the foreclosure process will likely
continue at least through the remainder of 2011. For more
information on how concerns about foreclosure documentation
practices could adversely affect our REO operations expense
(income), see RISK FACTORS Operational
Risks We have incurred and will continue to incur
expenses and we may otherwise be adversely affected by
deficiencies in foreclosure practices, as well as related delays
in the foreclosure process in our 2010 Annual Report.
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Non-Performing
Assets for additional information about our REO
activity.
Other
Expenses
Other expenses consist primarily of HAMP servicer incentive
fees, costs related to terminations and transfers of mortgage
servicing, and other miscellaneous expenses. Other expenses were
lower in the first half of 2011 compared to the first half of
2010, primarily due to lower losses on purchases of impaired
loans, which were partially offset by increased expenses
associated with transfers and terminations of mortgage servicing
in the first half of 2011.
Income
Tax Benefit
For the three months ended June 30, 2011 and 2010, we
reported an income tax benefit of $232 million and
$286 million, respectively. For the six months ended
June 30, 2011 and 2010 we reported an income tax benefit of
$306 million and $389 million, respectively. See
NOTE 13: INCOME TAXES for additional
information.
Total
Comprehensive Income (Loss)
Our total comprehensive income (loss) was $(1.1) billion
and $(430) million for the three months ended June 30,
2011 and 2010, respectively, consisting of: (a) a net
income (loss) of $(2.1) billion and $(4.7) billion,
respectively; and (b) $1.0 billion and
$4.3 billion of total other comprehensive income (loss),
respectively.
Our total comprehensive income (loss) was $1.6 billion and
$(2.3) billion for the six months ended June 30, 2011
and 2010, respectively, consisting of: (a) a net income
(loss) of $(1.5) billion and $(11.4) billion,
respectively; and (b) $3.1 billion and
$9.1 billion of total other comprehensive income (loss),
respectively. See CONSOLIDATED BALANCE SHEETS
ANALYSIS Total Equity (Deficit) for additional
information regarding total other comprehensive income (loss).
Segment
Earnings
Our operations consist of three reportable segments, which are
based on the type of business activities each
performs Investments, Single-family Guarantee, and
Multifamily. Certain activities that are not part of a
reportable segment are included in the All Other category.
The Investments segment reflects results from our investment,
funding and hedging activities. In our Investments segment, we
invest principally in mortgage-related securities and
single-family performing mortgage loans funded by other debt
issuances and hedged using derivatives. Segment Earnings for
this segment consist primarily of the returns on these
investments, less the related funding, hedging, and
administrative expenses. The Investments segment also reflects
the impact of changes in fair value of CMBS and multifamily
held-for-sale loans associated with changes in interest rates.
The Single-family Guarantee segment reflects results from our
single-family credit guarantee activities. In our Single-family
Guarantee segment, we purchase single-family mortgage loans
originated by our seller/servicers in the primary mortgage
market. In most instances, we use the mortgage securitization
process to package the purchased mortgage loans into guaranteed
mortgage-related securities. We guarantee the payment of
principal and interest on the mortgage-related securities in
exchange for management and guarantee fees. Segment Earnings for
this segment consist primarily of management and guarantee fee
revenues, including amortization of upfront fees, less the
related credit costs (i.e., provision for credit losses),
administrative expenses, allocated funding costs, and amounts
related to net float benefits or expenses.
The Multifamily segment reflects results from our investment
(both purchases and sales), securitization, and guarantee
activities in multifamily mortgage loans and securities.
Although we hold multifamily mortgage loans that we purchased
for investment, we have not purchased significant amounts of
these loans for investment since 2010. Currently, our primary
strategy is to purchase multifamily mortgage loans for purposes
of aggregation and then securitization. We guarantee the senior
tranches of these securitizations. Although we hold CMBS that we
purchased for investment, we have not purchased significant
amounts of non-agency CMBS for investment since 2008. The
Multifamily segment does not issue REMIC securities but does
issue Other Structured Securities, Other Guarantee Transactions,
and other guarantee commitments. Segment Earnings for this
segment consist primarily of the interest earned on assets
related to multifamily investment activities and management and
guarantee fee income, less allocated funding costs, the related
credit costs (i.e. provision (benefit) for credit
losses), and administrative expenses. In addition, the
Multifamily segment reflects gains on sale of mortgages and the
impact of changes in fair value of CMBS and held-for-sale loans
associated only with factors other than changes in interest
rates, such as liquidity and credit.
We evaluate segment performance and allocate resources based on
a Segment Earnings approach, subject to the conduct of our
business under the direction of the Conservator. The financial
performance of our segments is measured based on each
segments contribution to GAAP net income (loss). In
addition, our Investments segment is measured on its
contribution to GAAP total comprehensive income (loss). The sum
of Segment Earnings for each segment and the All Other category
equals GAAP net income (loss) attributable to Freddie Mac.
Likewise, the sum of total comprehensive income (loss) for each
segment and the All Other category equals GAAP total
comprehensive income (loss) attributable to Freddie Mac.
The All Other category consists of material corporate level
expenses that are: (a) infrequent in nature; and
(b) based on management decisions outside the control of
the management of our reportable segments. By recording these
types of activities to the All Other category, we believe the
financial results of our three reportable segments reflect the
decisions and strategies that are executed within the reportable
segments and provide greater comparability across time periods.
The All Other category includes the deferred tax asset valuation
allowance associated with previously recognized income tax
credits carried forward.
In presenting Segment Earnings, we make significant
reclassifications to certain financial statement line items in
order to reflect a measure of net interest income on
investments, and a measure of management and guarantee income on
guarantees, that is in line with how we manage our business. We
present Segment Earnings by: (a) reclassifying certain
investment-related activities and credit guarantee-related
activities between various line items on our GAAP consolidated
statements of income and comprehensive income; and
(b) allocating certain revenues and expenses, including
certain returns on assets and funding costs, and all
administrative expenses to our three reportable segments.
As a result of these reclassifications and allocations, Segment
Earnings for our reportable segments differs significantly from,
and should not be used as a substitute for, net income (loss) as
determined in accordance with GAAP. Our definition of Segment
Earnings may differ from similar measures used by other
companies. However, we believe that Segment Earnings provides us
with meaningful metrics to assess the financial performance of
each segment and our company as a whole.
See NOTE 17: SEGMENT REPORTING in our 2010
Annual Report for further information regarding our segments,
including the descriptions and activities of the segments and
the reclassifications and allocations used to present Segment
Earnings.
Table 11 provides information about our various segment
mortgage portfolios at June 30, 2011 and December 31,
2010. For a discussion of each segments portfolios, see
Segment Earnings Results.
Table
11 Segment Mortgage Portfolio
Composition(1)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Segment portfolios:
|
|
|
|
|
|
|
|
|
Investments Mortgage investments portfolio:
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(2)
|
|
$
|
93,404
|
|
|
$
|
79,097
|
|
Freddie Mac mortgage-related securities
|
|
|
256,190
|
|
|
|
263,152
|
|
Non-agency mortgage-related securities
|
|
|
91,735
|
|
|
|
99,639
|
|
Non-Freddie Mac agency mortgage-related securities
|
|
|
35,867
|
|
|
|
39,789
|
|
|
|
|
|
|
|
|
|
|
Total Investments Mortgage investments
portfolio
|
|
|
477,196
|
|
|
|
481,677
|
|
|
|
|
|
|
|
|
|
|
Single-family Guarantee Managed loan
portfolio:(3)
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(4)
|
|
|
64,744
|
|
|
|
69,766
|
|
Single-family Freddie Mac mortgage-related securities held by us
|
|
|
256,190
|
|
|
|
261,508
|
|
Single-family Freddie Mac mortgage-related securities held by
third parties
|
|
|
1,405,372
|
|
|
|
1,437,399
|
|
Single-family other guarantee
commitments(5)
|
|
|
10,442
|
|
|
|
8,632
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Guarantee Managed loan
portfolio
|
|
|
1,736,748
|
|
|
|
1,777,305
|
|
|
|
|
|
|
|
|
|
|
Multifamily Guarantee
portfolio:(3)
|
|
|
|
|
|
|
|
|
Multifamily Freddie Mac mortgage-related securities held by us
|
|
|
2,578
|
|
|
|
2,095
|
|
Multifamily Freddie Mac mortgage-related securities held by
third parties
|
|
|
17,845
|
|
|
|
11,916
|
|
Multifamily other guarantee
commitments(5)
|
|
|
9,967
|
|
|
|
10,038
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Guarantee portfolio
|
|
|
30,390
|
|
|
|
24,049
|
|
|
|
|
|
|
|
|
|
|
Multifamily Mortgage investments
portfolio:(3)
|
|
|
|
|
|
|
|
|
Multifamily investment securities portfolio
|
|
|
61,291
|
|
|
|
59,548
|
|
Multifamily loan portfolio
|
|
|
81,802
|
|
|
|
85,883
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Mortgage investments
portfolio
|
|
|
143,093
|
|
|
|
145,431
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily portfolio
|
|
|
173,483
|
|
|
|
169,480
|
|
|
|
|
|
|
|
|
|
|
Less: Freddie Mac single-family and multifamily
securities(6)
|
|
|
(258,768
|
)
|
|
|
(263,603
|
)
|
|
|
|
|
|
|
|
|
|
Total mortgage portfolio
|
|
$
|
2,128,659
|
|
|
$
|
2,164,859
|
|
|
|
|
|
|
|
|
|
|
Credit risk
portfolios:(7)
|
|
|
|
|
|
|
|
|
Single-family credit guarantee portfolio:
|
|
|
|
|
|
|
|
|
Single-family mortgage loans, on-balance sheet
|
|
$
|
1,793,769
|
|
|
$
|
1,799,256
|
|
Non-consolidated Freddie Mac mortgage-related securities
|
|
|
11,034
|
|
|
|
11,268
|
|
Other guarantee commitments
|
|
|
10,442
|
|
|
|
8,632
|
|
Less: HFA-related
guarantees(8)
|
|
|
(9,057
|
)
|
|
|
(9,322
|
)
|
Less: Freddie Mac mortgage-related securities backed by Ginnie
Mae
certificates(8)
|
|
|
(852
|
)
|
|
|
(857
|
)
|
|
|
|
|
|
|
|
|
|
Total single-family credit guarantee portfolio:
|
|
$
|
1,805,336
|
|
|
$
|
1,808,977
|
|
|
|
|
|
|
|
|
|
|
Multifamily mortgage portfolio:
|
|
|
|
|
|
|
|
|
Multifamily mortgage loans, on-balance sheet
|
|
$
|
81,802
|
|
|
$
|
85,883
|
|
Non-consolidated Freddie Mac mortgage-related securities
|
|
|
20,422
|
|
|
|
14,011
|
|
Other guarantee commitments
|
|
|
9,967
|
|
|
|
10,038
|
|
Less: HFA-related
guarantees(8)
|
|
|
(1,468
|
)
|
|
|
(1,551
|
)
|
|
|
|
|
|
|
|
|
|
Total multifamily mortgage portfolio:
|
|
$
|
110,723
|
|
|
$
|
108,381
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB and excludes mortgage loans and mortgage-related
securities traded, but not yet settled.
|
(2)
|
Excludes unsecuritized non-performing single-family loans
managed by the Single-family Guarantee segment. However, the
Single-family Guarantee segment continues to earn management and
guarantee fees associated with unsecuritized single-family loans
in the Investments segment.
|
(3)
|
The balances of the mortgage-related securities in these
portfolios are based on the UPB of the security, whereas the
balances of our single-family credit guarantee and multifamily
mortgage portfolios presented in this report are based on the
UPB of the mortgage loans underlying the related security. The
differences in the loan and security balances result from the
timing of remittances to security holders, which is typically 45
or 75 days after the mortgage payment cycle of fixed-rate
and ARM PCs, respectively.
|
(4)
|
Represents unsecuritized non-performing single-family loans
managed by the Single-family Guarantee segment.
|
(5)
|
Represents the UPB of mortgage-related assets held by third
parties for which we provide our guarantee without our
securitization of the related assets.
|
(6)
|
Freddie Mac single-family mortgage-related securities held by us
are included in both our Investments segments mortgage
investments portfolio and our Single-family Guarantee
segments managed loan portfolio, and Freddie Mac
multifamily mortgage-related securities held by us are included
in both the multifamily investment securities portfolio and the
multifamily guarantee portfolio. Therefore, these amounts are
deducted in order to reconcile to our total mortgage portfolio.
|
(7)
|
Represents the UPB of loans for which we present
characteristics, delinquency data, and other statistics in this
report. See GLOSSARY for further description.
|
(8)
|
We exclude HFA-related guarantees and our resecuritizations of
Ginnie Mae certificates from our credit risk portfolios because
these guarantees do not expose us to meaningful amounts of
credit risk due to the credit enhancement provided on these by
the U.S. government.
|
Segment
Earnings Results
Investments
Table 12 presents the Segment Earnings of our Investments
segment.
Table 12
Segment Earnings and Key Metrics
Investments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,826
|
|
|
$
|
1,509
|
|
|
$
|
3,479
|
|
|
$
|
2,820
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities
|
|
|
(139
|
)
|
|
|
(327
|
)
|
|
|
(1,168
|
)
|
|
|
(703
|
)
|
Derivative gains (losses)
|
|
|
(2,156
|
)
|
|
|
(2,193
|
)
|
|
|
(1,053
|
)
|
|
|
(4,895
|
)
|
Other non-interest income (loss)
|
|
|
243
|
|
|
|
294
|
|
|
|
479
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(2,052
|
)
|
|
|
(2,226
|
)
|
|
|
(1,742
|
)
|
|
|
(5,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(101
|
)
|
|
|
(111
|
)
|
|
|
(196
|
)
|
|
|
(233
|
)
|
Other non-interest expense
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(102
|
)
|
|
|
(117
|
)
|
|
|
(197
|
)
|
|
|
(246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
126
|
|
|
|
294
|
|
|
|
329
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss) before income tax benefit
|
|
|
(202
|
)
|
|
|
(540
|
)
|
|
|
1,869
|
|
|
|
(1,948
|
)
|
Income tax benefit
|
|
|
212
|
|
|
|
129
|
|
|
|
278
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes, including noncontrolling
interest
|
|
|
10
|
|
|
|
(411
|
)
|
|
|
2,147
|
|
|
|
(1,722
|
)
|
Less: Net (income) loss noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
10
|
|
|
|
(411
|
)
|
|
|
2,147
|
|
|
|
(1,724
|
)
|
Total other comprehensive income, net of taxes
|
|
|
633
|
|
|
|
3,614
|
|
|
|
1,759
|
|
|
|
6,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
643
|
|
|
$
|
3,203
|
|
|
$
|
3,906
|
|
|
$
|
5,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key metrics Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balances of interest-earning
assets:(3)(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(6)
|
|
$
|
393,361
|
|
|
$
|
478,043
|
|
|
$
|
396,238
|
|
|
$
|
504,454
|
|
Non-mortgage-related
investments(7)
|
|
|
91,965
|
|
|
|
115,688
|
|
|
|
103,348
|
|
|
|
127,247
|
|
Unsecuritized single-family loans
|
|
|
92,339
|
|
|
|
53,183
|
|
|
|
88,927
|
|
|
|
48,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average balances of interest-earning assets
|
|
$
|
577,665
|
|
|
$
|
646,914
|
|
|
$
|
588,513
|
|
|
$
|
680,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
1.26%
|
|
|
|
0.93%
|
|
|
|
1.18%
|
|
|
|
0.83%
|
|
|
|
(1)
|
For reconciliations of the Segment Earnings line items to the
comparable line items in our consolidated financial statements
prepared in accordance with GAAP, see NOTE 15:
SEGMENT REPORTING Table 15.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
For a description of our segment adjustments, see
NOTE 15: SEGMENT REPORTING Segment
Earnings.
|
(3)
|
Excludes mortgage loans and mortgage-related securities traded,
but not yet settled.
|
(4)
|
Excludes non-performing single-family mortgage loans.
|
(5)
|
We calculate average balances based on amortized cost.
|
(6)
|
Includes our investments in single-family PCs and certain Other
Guarantee Transactions, which have been consolidated under GAAP
on our consolidated balance sheet since January 1, 2010.
|
(7)
|
Includes the average balances of interest-earning cash and cash
equivalents, non-mortgage-related securities, and federal funds
sold and securities purchased under agreements to resell.
|
Our total comprehensive income for our Investments segment was
$643 million and $3.9 billion for the three and six
months ended June 30, 2011, respectively, consisting of:
(a) Segment Earnings of $10 million and
$2.1 billion, respectively; and (b) $633 million
and $1.8 billion of total other comprehensive income,
respectively.
Our total comprehensive income for our Investments segment was
$3.2 billion and $5.0 billion for the three and six
months ended June 30, 2010, respectively, consisting of:
(a) Segment Earnings (loss) of $(411) million and
$(1.7) billion, respectively; and
(b) $3.6 billion and $6.7 billion of total other
comprehensive income, respectively.
During the three and six months ended June 30, 2011, the
UPB of the Investments segment mortgage investments portfolio
decreased at an annualized rate of 0.2% and 1.9%, respectively,
compared to a decrease at an annualized rate of 21.2% and 25.0%
for the three and six months ended June 30, 2010,
respectively. The larger decrease in our Investments segment
mortgage investments portfolio during the three and six months
ended June 30, 2010 was primarily due to a higher volume of
purchases of delinquent and modified loans from the mortgage
pools underlying both our PCs and other agency securities. We
announced a change in practice in February 2010 to purchase
substantially all 120 day delinquent loans from PC trusts.
As a result, the increased purchases of delinquent loans limited
our capacity to purchase investments into our mortgage-related
investments portfolio due to limits on the portfolio under the
Purchase Agreement and FHFA regulation. We report the loans that
formerly collateralized our PCs in the Single-family Guarantee
segment. The UPB of
the Investments segment mortgage investments portfolio declined
to $477.2 billion at June 30, 2011 from
$481.7 billion at December 31, 2010.
We held $292.1 billion of agency securities and
$91.7 billion of non-agency mortgage-related securities as
of June 30, 2011 compared to $302.9 billion of agency
securities and $99.6 billion of non-agency mortgage-related
securities as of December 31, 2010. The decline in UPB of
agency securities is due mainly to liquidations, including
prepayments and selected sales. The decline in UPB of non-agency
mortgage-related securities is due mainly to the receipt of
monthly remittances of principal repayments from both the
recoveries of liquidated loans and, to a lesser extent,
voluntary repayments of the underlying collateral, representing
a partial return of our investments in these securities. See
CONSOLIDATED BALANCE SHEETS ANALYSIS
Investments in Securities for additional information
regarding our mortgage-related securities.
Segment Earnings net interest income increased $317 million
and $659 million, and Segment Earnings net interest yield
increased 33 basis points and 35 basis points during
the three and six months ended June 30, 2011, respectively,
compared to the three and six months ended June 30, 2010.
The primary driver was lower funding costs, primarily due to the
replacement of debt at lower rates. These lower funding costs
were partially offset by the reduction in the average balance of
higher-yielding mortgage-related assets due to continued
liquidations.
Segment Earnings non-interest income (loss) was
$(2.1) billion for the three months ended June 30,
2011 compared to $(2.2) billion for the three months ended
June 30, 2010. This decrease in non-interest loss was
primarily attributable to increased gains on trading securities
and decreased impairments of available-for-sale securities
during the three months ended June 30, 2011, compared to
the three months ended June 30, 2010. Segment Earnings
non-interest income (loss) was $(1.7) billion for the six
months ended June 30, 2011 compared to $(5.3) billion
for the six months ended June 30, 2010. This decrease in
non-interest loss was mainly due to decreased derivative losses
and increased gains on trading securities, partially offset by
increased impairments of available-for-sale securities during
the six months ended June 30, 2011, compared to the six
months ended June 30, 2010.
Impairments recorded in our Investments segment decreased by
$188 million during the three months ended June 30,
2011, compared to the three months ended June 30, 2010, and
increased by $465 million during the six months ended
June 30, 2011, compared to the six months ended
June 30, 2010. See CONSOLIDATED BALANCE SHEETS
ANALYSIS Investments in Securities
Mortgage-Related Securities Other-Than-Temporary
Impairments on Available-For-Sale Mortgage-Related
Securities for additional information on our
impairments.
We recorded derivative gains (losses) for this segment of
$(2.2) billion and $(1.1) billion during the three and
six months ended June 30, 2011, respectively, compared to
$(2.2) billion and $(4.9) billion during the three and
six months ended June 30, 2010. While derivatives are an
important aspect of our management of interest-rate risk, they
generally increase the volatility of reported Segment Earnings,
because while fair value changes in derivatives affect Segment
Earnings, fair value changes in several of the types of assets
and liabilities being hedged do not affect Segment Earnings.
During the three and six months ended June 30, 2011 and the
three and six months ended June 30, 2010, longer-term swap
interest rates decreased, resulting in fair value losses on our
pay-fixed swaps that were partially offset by fair value gains
on our receive-fixed swaps and purchased call swaptions. See
Non-Interest Income (Loss) Derivative Gains
(Losses) for additional information on our derivatives.
Our Investments segments total other comprehensive income
was $633 million and $1.8 billion for the three and
six months ended June 30, 2011, respectively, compared to
$3.6 billion and $6.7 billion during the three and six
months ended June 30, 2010, respectively. Net unrealized
losses in AOCI on our available-for-sale securities decreased by
$498 million and $1.5 billion during the three and six
months ended June 30, 2011, respectively, primarily
attributable to fair value gains related to the movement of
non-agency mortgage-related securities with unrealized losses
towards maturity, the impact of declining interest rates on our
agency securities, and the recognition in earnings of
other-than-temporary impairments on our non-agency
mortgage-related securities, partially offset by the impact of
widening of OAS levels on our non-agency mortgage-related
securities. Net unrealized losses in AOCI on our
available-for-sale securities decreased by $3.4 billion and
$6.4 billion during the three and six months ended
June 30, 2010, respectively, primarily attributable to fair
value gains related to the movement of securities with
unrealized losses towards maturity and a net decrease in
interest rates.
The objectives set forth for us under our charter and
conservatorship, restrictions set forth in the Purchase
Agreement and restrictions imposed by FHFA have negatively
impacted, and will continue to negatively impact, our
Investments segment results. For example, our mortgage-related
investments portfolio is subject to a cap that decreases by 10%
each year until the portfolio reaches $250 billion. This
will likely cause a corresponding reduction in our net interest
income from these assets and therefore negatively affect our
Investments segment results. FHFA also stated that we will not
be a
substantial buyer of mortgages for our mortgage-related
investments portfolio, except for purchases of seriously
delinquent mortgages out of PC trusts. FHFA has also indicated
that the portfolio reduction targets under the Purchase
Agreement and FHFA regulation should be viewed as minimum
reductions and has encouraged us to reduce the mortgage-related
investments portfolio at a faster rate than required, consistent
with FHFA guidance, safety and soundness and the goal of
conserving and preserving assets. We are also subject to limits
on the amount of mortgage assets we can sell in any calendar
month without review and approval by FHFA and, if FHFA so
determines, Treasury.
For information on the impact of the requirement to reduce the
mortgage-related investments portfolio limit by 10% annually,
see NOTE 2: CONSERVATORSHIP AND RELATED
MATTERS Impact of the Purchase Agreement and FHFA
Regulation on the Mortgage-Related Investments Portfolio.
Single-Family
Guarantee
Table 13 presents the Segment Earnings of our Single-family
Guarantee segment.
Table
13 Segment Earnings and Key Metrics
Single-Family
Guarantee(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(30
|
)
|
|
$
|
51
|
|
|
$
|
70
|
|
|
$
|
110
|
|
Provision for credit losses
|
|
|
(2,886
|
)
|
|
|
(5,294
|
)
|
|
|
(5,170
|
)
|
|
|
(11,335
|
)
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
848
|
|
|
|
865
|
|
|
|
1,718
|
|
|
|
1,713
|
|
Other non-interest income
|
|
|
208
|
|
|
|
268
|
|
|
|
419
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,056
|
|
|
|
1,133
|
|
|
|
2,137
|
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(228
|
)
|
|
|
(242
|
)
|
|
|
(443
|
)
|
|
|
(471
|
)
|
REO operations (expense) income
|
|
|
(35
|
)
|
|
|
41
|
|
|
|
(292
|
)
|
|
|
(115
|
)
|
Other non-interest expense
|
|
|
(106
|
)
|
|
|
(90
|
)
|
|
|
(172
|
)
|
|
|
(169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(369
|
)
|
|
|
(291
|
)
|
|
|
(907
|
)
|
|
|
(755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
(143
|
)
|
|
|
(208
|
)
|
|
|
(328
|
)
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss) before income tax (expense) benefit
|
|
|
(2,372
|
)
|
|
|
(4,609
|
)
|
|
|
(4,198
|
)
|
|
|
(10,210
|
)
|
Income tax (expense) benefit
|
|
|
(14
|
)
|
|
|
104
|
|
|
|
(8
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
(2,386
|
)
|
|
|
(4,505
|
)
|
|
|
(4,206
|
)
|
|
|
(10,101
|
)
|
Total other comprehensive income (loss), net of taxes
|
|
|
1
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(2,385
|
)
|
|
$
|
(4,504
|
)
|
|
$
|
(4,209
|
)
|
|
$
|
(10,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key metrics Single-family Guarantee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances and Growth (in billions, except rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance of single-family credit guarantee portfolio
|
|
$
|
1,816
|
|
|
$
|
1,877
|
|
|
$
|
1,817
|
|
|
$
|
1,880
|
|
Issuance Single-family credit
guarantees(3)
|
|
$
|
62
|
|
|
$
|
76
|
|
|
$
|
158
|
|
|
$
|
170
|
|
Fixed-rate products Percentage of
purchases(4)
|
|
|
90.3
|
%
|
|
|
94.2
|
%
|
|
|
92.6
|
%
|
|
|
96.0
|
%
|
Liquidation rate Single-family credit guarantees
(annualized)(5)
|
|
|
17.4
|
%
|
|
|
21.7
|
%
|
|
|
22.7
|
%
|
|
|
27.8
|
%
|
Management and Guarantee Fee Rate (in bps, annualized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual management and guarantee fees
|
|
|
13.7
|
|
|
|
13.5
|
|
|
|
13.6
|
|
|
|
13.4
|
|
Amortization of delivery fees
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
5.3
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings management and guarantee income
|
|
|
18.7
|
|
|
|
18.4
|
|
|
|
18.9
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serious delinquency rate, at end of period
|
|
|
3.50
|
%
|
|
|
3.96
|
%
|
|
|
3.50
|
%
|
|
|
3.96
|
%
|
REO inventory, at end of period (number of properties)
|
|
|
60,599
|
|
|
|
62,178
|
|
|
|
60,599
|
|
|
|
62,178
|
|
Single-family credit losses, in bps
(annualized)(6)
|
|
|
68.4
|
|
|
|
82.4
|
|
|
|
69.7
|
|
|
|
72.2
|
|
Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family mortgage debt outstanding (total U.S. market,
in billions)(7)
|
|
$
|
9,970
|
|
|
$
|
10,150
|
|
|
$
|
9,970
|
|
|
$
|
10,150
|
|
30-year
fixed mortgage
rate(8)
|
|
|
4.5
|
%
|
|
|
4.6
|
%
|
|
|
4.5
|
%
|
|
|
4.6
|
%
|
|
|
(1)
|
For reconciliations of the Segment Earnings line items to the
comparable line items in our consolidated financial statements
prepared in accordance with GAAP, see NOTE 15:
SEGMENT REPORTING Table 15.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
For a description of our segment adjustments, see
NOTE 15: SEGMENT REPORTING Segment
Earnings.
|
(3)
|
Based on UPB.
|
(4)
|
Excludes Other Guarantee Transactions.
|
(5)
|
Includes our purchases of delinquent loans from PCs. On
February 10, 2010, we announced that we would begin
purchasing substantially all 120 days or more delinquent
mortgages from our PC trusts. See NOTE 5:
INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS for more
information.
|
(6)
|
Calculated as the amount of single-family credit losses divided
by the sum of the average carrying value of our single-family
credit guarantee portfolio and the average balance of our
single-family HFA initiative guarantees.
|
(7)
|
Source: Federal Reserve Flow of Funds Accounts of the United
States of America dated June 9, 2011. The outstanding
amount for June 30, 2011 reflects the balance as of
March 31, 2011, which is the latest available information.
|
(8)
|
Based on Freddie Macs Primary Mortgage Market Survey rate
for the last week in the period, which represents the national
average mortgage commitment rate to a qualified borrower
exclusive of any fees and points required by the lender. This
commitment rate applies only to financing on conforming
mortgages with LTV ratios of 80%.
|
Financial
Results
For the three and six months ended June 30, 2011, Segment
Earnings (loss) for our Single-family Guarantee segment was
$(2.4) billion and $(4.2) billion, respectively,
compared to $(4.5) billion and $(10.1) billion for the
three and six months ended June 30, 2010, respectively.
Segment Earnings (loss) for our Single-family segment improved
for the three and six months ended June 30, 2011, as
compared to the corresponding 2010 periods primarily due to a
decline in provision for credit losses.
During the three and six months ended June 30, 2011, our
provision for credit losses for the Single-family Guarantee
segment was $2.9 billion and $5.2 billion,
respectively, compared to $5.3 billion and
$11.3 billion during the three and six
months ended June 30, 2010, respectively. Segment Earnings
provision for credit losses decreased in the three and six
months ended June 30, 2011, as compared to the
corresponding periods in 2010, primarily due to a decline in the
rate at which delinquent loans transition into serious
delinquency.
Segment Earnings management and guarantee income consists of
contractual amounts due to us related to our management and
guarantee fees as well as amortization of delivery fees. Segment
Earnings management and guarantee income increased slightly in
the six months ended June 30, 2011, as compared to the
first half of 2010, primarily due to an increase in the
amortization of delivery fees. Increased amortization of
delivery fees reflects the impact of higher delivery fees
associated with loans purchased after 2008 combined with
continued high prepayment rates on guaranteed mortgages in the
first half of 2011 as mortgage rates remained low and
refinancing activity remained high. This increase was partially
offset by a decline in contractual management and guarantee
income due to lower average balances of the single-family credit
guarantee portfolio during the first half of 2011. Segment
Earnings management and guarantee income decreased approximately
2% in the three months ended June 30, 2011, as compared to
the second quarter of 2010, primarily due to lower average
balances of the single-family credit guarantee portfolio.
Table 14 provides summary information about the composition
of Segment Earnings (loss) for this segment in the three and six
months ended June 30, 2011.
Table 14
Segment Earnings Composition Single-Family Guarantee
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
Segment Earnings
|
|
|
|
|
|
|
|
|
|
Management and
|
|
|
|
|
|
|
|
|
|
Guarantee
Income(1)
|
|
|
Credit
Expenses(2)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Net
Amount(4)
|
|
|
|
(dollars in millions, rates in bps)
|
|
|
Year of
origination(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
65
|
|
|
|
18.9
|
|
|
$
|
(12
|
)
|
|
|
4.5
|
|
|
$
|
53
|
|
2010
|
|
|
185
|
|
|
|
21.1
|
|
|
|
(60
|
)
|
|
|
6.6
|
|
|
|
125
|
|
2009
|
|
|
152
|
|
|
|
17.0
|
|
|
|
(64
|
)
|
|
|
6.9
|
|
|
|
88
|
|
2008
|
|
|
93
|
|
|
|
22.2
|
|
|
|
(202
|
)
|
|
|
57.7
|
|
|
|
(109
|
)
|
2007
|
|
|
95
|
|
|
|
18.7
|
|
|
|
(1,010
|
)
|
|
|
216.5
|
|
|
|
(915
|
)
|
2006
|
|
|
56
|
|
|
|
17.0
|
|
|
|
(729
|
)
|
|
|
209.4
|
|
|
|
(673
|
)
|
2005
|
|
|
62
|
|
|
|
16.4
|
|
|
|
(491
|
)
|
|
|
122.7
|
|
|
|
(429
|
)
|
2004 and prior
|
|
|
140
|
|
|
|
17.6
|
|
|
|
(353
|
)
|
|
|
40.2
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
848
|
|
|
|
18.7
|
|
|
$
|
(2,921
|
)
|
|
|
64.4
|
|
|
$
|
(2,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228
|
)
|
Net interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Other non-interest income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
Segment Earnings
|
|
|
|
|
|
|
|
|
|
Management and
|
|
|
|
|
|
|
|
|
|
Guarantee
Income(1)
|
|
|
Credit
Expenses(2)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Net
Amount(4)
|
|
|
|
(dollars in millions, rates in bps)
|
|
|
Year of
origination(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
91
|
|
|
|
17.6
|
|
|
$
|
(15
|
)
|
|
|
4.1
|
|
|
$
|
76
|
|
2010
|
|
|
369
|
|
|
|
20.9
|
|
|
|
(114
|
)
|
|
|
6.2
|
|
|
|
255
|
|
2009
|
|
|
322
|
|
|
|
17.8
|
|
|
|
(114
|
)
|
|
|
6.1
|
|
|
|
208
|
|
2008
|
|
|
203
|
|
|
|
23.5
|
|
|
|
(413
|
)
|
|
|
57.3
|
|
|
|
(210
|
)
|
2007
|
|
|
196
|
|
|
|
18.8
|
|
|
|
(1,894
|
)
|
|
|
198.0
|
|
|
|
(1,698
|
)
|
2006
|
|
|
115
|
|
|
|
17.0
|
|
|
|
(1,492
|
)
|
|
|
208.8
|
|
|
|
(1,377
|
)
|
2005
|
|
|
128
|
|
|
|
16.5
|
|
|
|
(894
|
)
|
|
|
109.4
|
|
|
|
(766
|
)
|
2004 and prior
|
|
|
294
|
|
|
|
18.0
|
|
|
|
(526
|
)
|
|
|
29.2
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,718
|
|
|
|
18.9
|
|
|
$
|
(5,462
|
)
|
|
|
60.2
|
|
|
$
|
(3,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443
|
)
|
Net interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Other non-interest income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amortization of delivery fees of $224 and
$476 million for the three and six months ended
June 30, 2011, respectively.
|
(2)
|
Consists of the aggregate of the Segment Earnings provision for
credit losses and Segment Earnings REO operations expense.
Historical rates of average credit expenses may not be
representative of future results.
|
(3)
|
Calculated as the annualized amount of Segment Earnings
management and guarantee income or credit expenses, respectively
divided by the sum of the average carrying values of the
single-family credit guarantee portfolio and the average balance
of our single-family HFA initiative guarantees.
|
(4)
|
Calculated as Segment Earnings management and guarantee income
less credit expenses.
|
(5)
|
Segment Earnings management and guarantee income is presented by
year of guarantee origination, whereas credit expenses are
presented based on year of loan origination.
|
During the first half of 2011, the guarantee-related revenue
from mortgage guarantees we issued after 2008 exceeded the
credit-related and administrative expenses associated with these
guarantees. We currently believe our management and guarantee
fee rates for guarantee issuances after 2008, when coupled with
the higher credit quality of the mortgages within our new
guarantee issuances, will provide management and guarantee fee
income, over the long term, that exceeds our expected
credit-related and administrative expenses associated with the
underlying loans. However, our management and guarantee fee
rates associated with guarantee issuances in 2005 through 2008
have not been adequate to provide income to cover the credit and
administrative expenses associated with such loans, primarily
due to the high rate of defaults on the loans originated in
those years coupled with a high volume of refinancing since
2008. High levels of refinancing since 2008 have significantly
reduced the balance of performing loans from those years that
remain in our portfolio and consequently reduced management and
guarantee income associated with loans originated in those
years. We also believe that the management and guarantee fees
associated with originations after 2008 will not be sufficient
to offset
the future expenses associated with our 2005 to 2008 guarantee
issuances. Consequently, we expect to continue reporting net
losses for the Single-family Guarantee segment at least through
2011.
Key
Metrics
The UPB of the Single-family Guarantee managed loan portfolio
declined to $1.7 trillion at June 30, 2011 from
$1.8 trillion at December 31, 2010. The decline in UPB
of the Single-family Guarantee managed loan portfolio during
2011 reflects that the amount of liquidations has exceeded new
loan purchase and guarantee activity, which we believe is due in
part, to declines in the amount of single-family mortgage debt
outstanding in the market. During the three and six months ended
June 30, 2011 our annualized liquidation rate on our
securitized single-family credit guarantees was 17% and 23%,
respectively.
Refinance volumes continued to be high due to continued low
interest rates, and, based on UPB, represented 70% and 79% of
our single-family mortgage purchase volume during the three and
six months ended June 30, 2011, respectively, compared to
71% and 75% of our single-family mortgage purchase volume during
the three and six months ended June 30, 2010, respectively.
Relief refinance mortgages comprised approximately 40% and 34%
of our total refinance volume during the six months ended
June 30, 2011 and 2010, respectively, based on number of
loans. Relief refinance mortgages with LTV ratios above 80%
represented approximately 14% and 12% of our single-family
mortgage purchase volume during the six months ended
June 30, 2011 and 2010, respectively, based on UPB.
The serious delinquency rate on our single-family credit
guarantee portfolio declined to 3.50% as of June 30, 2011
from 3.84% as of December 31, 2010 due to a high volume of
loan modifications and foreclosure transfers, as well as a
slowdown in new serious delinquencies. Although the volume of
new serious delinquencies has continued to decline, our serious
delinquency rate remains high compared to historical levels,
reflecting continued stress in the housing and labor markets. As
of June 30, 2011 and December 31, 2010, approximately
46% and 39%, respectively, of our single-family credit guarantee
portfolio is comprised of mortgage loans originated after 2008.
Excluding relief refinance mortgages, these new vintages reflect
a combination of changes in underwriting practices and improved
borrower and loan characteristics, and represent an increasingly
large proportion of our single-family credit guarantee
portfolio. The proportion of the portfolio represented by 2005
through 2008 vintages, which have a higher composition of loans
with higher-risk characteristics, continues to decline
principally due to liquidations resulting from repayments,
payoffs, and refinancing activity as well as liquidations
resulting from foreclosure events and foreclosure alternatives.
We currently expect that, over time, the replacement of older
vintages should positively impact the serious delinquency rates
and credit-related expenses of our single-family credit
guarantee portfolio. However, the rate at which this replacement
occurs has slowed in recent quarterly periods, due to a decline
in the volume of home purchase mortgage originations and an
increase in the proportion of relief refinance mortgage
activity. Relief refinance mortgages with LTV ratios above 80%
may not perform as well as other refinance mortgages over time
due, in part, to the continued high LTV ratios of these loans.
Single-family credit losses as a percentage of the average
balance of the single-family credit guarantee portfolio and
HFA-related guarantees was 68.4 basis points in the second
quarter of 2011, compared to 82.4 basis points for the
second quarter of 2010, and was 69.7 basis points for the
first half of 2011, compared to 72.2 basis points for the
first half of 2010. Charge-offs, net of recoveries, associated
with the single-family loans declined to $3.1 billion in
the second quarter of 2011, from $3.9 billion for the
second quarter of 2010. Charge-offs, net of recoveries, were
$6.0 billion and $6.6 billion in the first half of
2011 and 2010, respectively. Our net charge-offs in the three
and six months ended June 30, 2011 remained elevated, but
reflect suppression of activity due to delays in foreclosures
caused by concerns about the foreclosure process. We believe
that the level of our charge-offs will remain high in 2011 and
may increase in 2012 due to the large number of single-family
non-performing loans that will likely be resolved as our
servicers work through their foreclosure-related issues. See
RISK MANAGEMENT Credit Risk
Mortgage Credit Risk for further information on our
single-family credit guarantee portfolio, including credit
performance, charge-offs, and our non-performing assets.
Multifamily
Table 15 presents the Segment Earnings of our Multifamily
segment.
Table
15 Segment Earnings and Key Metrics
Multifamily(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
304
|
|
|
$
|
278
|
|
|
$
|
583
|
|
|
$
|
516
|
|
(Provision) benefit for credit losses
|
|
|
13
|
|
|
|
(119
|
)
|
|
|
73
|
|
|
|
(148
|
)
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
30
|
|
|
|
25
|
|
|
|
58
|
|
|
|
49
|
|
Net impairment of available-for-sale securities
|
|
|
(182
|
)
|
|
|
(17
|
)
|
|
|
(317
|
)
|
|
|
(72
|
)
|
Derivative gains (losses)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
4
|
|
Other non-interest income
|
|
|
111
|
|
|
|
55
|
|
|
|
298
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(39
|
)
|
|
|
62
|
|
|
|
43
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(55
|
)
|
|
|
(51
|
)
|
|
|
(106
|
)
|
|
|
(105
|
)
|
REO operations income (expense)
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
(4
|
)
|
Other non-interest expense
|
|
|
(28
|
)
|
|
|
(19
|
)
|
|
|
(41
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(75
|
)
|
|
|
(71
|
)
|
|
|
(139
|
)
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings before income tax benefit
|
|
|
203
|
|
|
|
150
|
|
|
|
560
|
|
|
|
367
|
|
Income tax benefit (expense)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes, including noncontrolling interest
|
|
|
200
|
|
|
|
150
|
|
|
|
559
|
|
|
|
368
|
|
Less: Net (income) loss noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes
|
|
|
200
|
|
|
|
150
|
|
|
|
559
|
|
|
|
371
|
|
Total other comprehensive income, net of taxes
|
|
|
405
|
|
|
|
668
|
|
|
|
1,347
|
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
605
|
|
|
$
|
818
|
|
|
$
|
1,906
|
|
|
$
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key metrics Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances and Growth:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance of Multifamily loan portfolio
|
|
$
|
83,718
|
|
|
$
|
82,107
|
|
|
$
|
84,749
|
|
|
$
|
82,782
|
|
Average balance of Multifamily guarantee portfolio
|
|
$
|
29,014
|
|
|
$
|
21,723
|
|
|
$
|
27,163
|
|
|
$
|
20,594
|
|
Average balance of Multifamily investment securities portfolio
|
|
$
|
61,909
|
|
|
$
|
62,017
|
|
|
$
|
62,376
|
|
|
$
|
62,259
|
|
Liquidation rate Multifamily loan portfolio
(annualized)
|
|
|
10.1
|
%
|
|
|
4.8
|
%
|
|
|
7.9
|
%
|
|
|
3.6
|
%
|
Growth rate (annualized)
|
|
|
4.6
|
%
|
|
|
4.9
|
%
|
|
|
4.1
|
%
|
|
|
6.6
|
%
|
Yield and Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
0.83
|
%
|
|
|
0.77
|
%
|
|
|
0.79
|
%
|
|
|
0.71
|
%
|
Average Management and guarantee fee rate, in bps
(annualized)(2)
|
|
|
43.0
|
|
|
|
49.6
|
|
|
|
44.7
|
|
|
|
51.1
|
|
Credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency rate, at period
end(3)
|
|
|
0.31
|
%
|
|
|
0.22
|
%
|
|
|
0.31
|
%
|
|
|
0.22
|
%
|
Allowance for loan losses and reserve for guarantee losses, at
period end
|
|
$
|
705
|
|
|
$
|
935
|
|
|
$
|
705
|
|
|
$
|
935
|
|
Allowance for loan losses and reserve for guarantee losses, in
bps
|
|
|
62.8
|
|
|
|
89.4
|
|
|
|
62.8
|
|
|
|
89.4
|
|
Credit losses, in bps
(annualized)(4)
|
|
|
7.6
|
|
|
|
10.3
|
|
|
|
5.9
|
|
|
|
9.2
|
|
|
|
(1)
|
For reconciliations of Segment Earnings line items to the
comparable line items in our consolidated financial statements
prepared in accordance with GAAP, see NOTE 15:
SEGMENT REPORTING Table 15.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
Represents Multifamily Segment Earnings management
and guarantee income, excluding prepayment and certain other
fees, divided by the sum of the average balance of the
multifamily guarantee portfolio and the average balance of
guarantees associated with the HFA initiative, excluding certain
bonds under the NIBP.
|
(3)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Multifamily Mortgage Credit
Risk for information on our reported multifamily
delinquency rate.
|
(4)
|
Calculated as the amount of multifamily credit losses divided by
the sum of the average carrying value of our multifamily loan
portfolio, and the average balance of the multifamily guarantee
portfolio, including multifamily HFA initiative guarantees.
|
Our total comprehensive income for our Multifamily segment was
$605 million and $1.9 billion for the three and six
months ended June 30, 2011 respectively, consisting of:
(a) Segment Earnings of $200 million and
$559 million, respectively; and (b) $405 million
and $1.3 billion, respectively, of total other
comprehensive income, primarily resulting from improved fair
values related to credit risk on available-for-sale CMBS.
Our total comprehensive income for our Multifamily segment was
$818 million and $2.7 billion for the three and six
months ended June 30, 2010, respectively, consisting of:
(a) Segment Earnings of $150 million and
$371 million, respectively; and (b) $668 million
and $2.4 billion, respectively, of total other
comprehensive income, primarily resulting from improved fair
values related to credit risk on available-for-sale CMBS.
Segment Earnings for our Multifamily segment increased to
$200 million for the second quarter of 2011 from
$150 million for the second quarter of 2010 and increased
to $559 million for the first half of 2011 from
$371 million for the first half of 2010. These increases
were primarily due to lower provision for credit losses and
higher other non-interest income, partially offset by higher net
impairments on available-for-sale securities in the three and
six months ended
June 30, 2011, compared to the same periods in 2010. We
currently expect to generate positive Segment Earnings in the
Multifamily segment in the remainder of 2011.
Segment Earnings net interest income increased to
$304 million in the second quarter of 2011 from
$278 million in the second quarter of 2010, and was
$583 million and $516 million in the first half of
2011 and 2010, respectively. These increases were primarily
attributable to growth in the average balance of the multifamily
loan portfolio and higher interest income relative to allocated
funding costs in the first half of 2011.
Segment Earnings non-interest income (loss) was
$(39) million and $62 million for the three months
ended June 30, 2011 and 2010, respectively, and was
$43 million and $144 million for the six months ended
June 30, 2011 and 2010, respectively. Within Segment
Earnings non-interest income, we experienced higher security
impairments on CMBS that were offset primarily by fair value
gains on mortgage loans during the first half of 2011, compared
to the first half of 2010. CMBS impairments during the first
half of 2011 and 2010 totaled $317 million and
$72 million, respectively. During the second quarter of
2011, we sold two of the five impaired CMBS bonds, which had
generated a majority of our Segment Earnings net impairments of
available-for-sale securities recognized during the first half
of 2011. We have the intent to sell the three other impaired
CMBS bonds in the second half of 2011 subject to market
conditions. We also recognized $240 million in gains on
sales of $7.7 billion in UPB of multifamily loans during
the first half of 2011, compared to $205 million of gains
on sales of $4.2 billion in UPB of multifamily loans during
the first half of 2010. Gains on sales of multifamily loans in
the multifamily segment are presented net of changes in fair
value due to changes in interest rates.
The most recent data available continues to reflect improving
national apartment fundamentals, including vacancy rates and
effective rents. However, the broader economy continues to be
challenged by persistently high unemployment, which has delayed
a more complete economic recovery. Some geographic areas in
which we have investments in multifamily loans, including the
states of Arizona, Georgia, and Nevada, continue to exhibit
weaker than average fundamentals that increase our risk of
future losses. We own or guarantee many nonperforming loans, and
loans that we believe are at risk of default, in these states.
Our delinquency rates have historically been a lagging indicator
and, as a result, we expect to continue to experience
delinquencies in the remainder of 2011, consistent with our
experience in the first half of 2011. For further information on
delinquencies, including geographical and other concentrations,
see NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS.
Our Multifamily segment recognized a provision (benefit) for
credit losses of $(13) million and $(73) million for
the three and six months ended June 30, 2011 compared to a
provision for credit losses of $119 million and
$148 million, for the three and six months ended
June 30, 2010, respectively. Our loan loss reserves
associated with our multifamily mortgage portfolio were
$705 million and $828 million as of June 30, 2011
and December 31, 2010, respectively. The decline in our
loan loss reserves in the first half of 2011 was driven by
positive trends in vacancy rates and effective rents, as well as
stabilizing or improved property values. For loans where we
identified deteriorating collateral performance characteristics,
such as estimated current LTV ratio and DSCRs, we evaluate each
individual loan, using estimates of property value, to determine
if a specific loan loss reserve is needed. Although we use the
most recently available results of our multifamily borrowers to
estimate a propertys value, there may be a significant lag
in reporting, which could be six months or more, as they prepare
their results in the normal course of business.
The delinquency rate for loans in the multifamily mortgage
portfolio was 0.31% and 0.26% as of June 30, 2011 and
December 31, 2010, respectively. As of June 30, 2011,
more than one-half of the multifamily loans, measured both in
terms of number of loans and on a UPB basis, that were two or
more monthly payments past due had credit enhancements that we
currently believe will mitigate our expected losses on those
loans. The multifamily delinquency rate of credit-enhanced loans
as of June 30, 2011 and December 31, 2010, was 0.70%
and 0.85%, respectively, while the delinquency rate for
non-credit-enhanced loans was 0.19% and 0.12%, respectively. See
RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Multifamily Mortgage Credit
Risk for further information about our reported
multifamily delinquency rates, including factors that can
positively impact such rates.
Multifamily credit losses as a percentage of the combined
average balance of our multifamily loan and guarantee portfolios
declined from 10.3 basis points in the second quarter of
2010 to 7.6 basis points in the second quarter of 2011,
driven by an improvement in REO operations income (expense) for
the second quarter of 2011. Charge-offs, excluding recoveries,
associated with multifamily loans increased to $29 million
in the second quarter of 2011, compared to $27 million in
the second quarter of 2010, due to an increase in the number of
foreclosures in the 2011 period. Charge-offs, excluding
recoveries, were $41 million and $45 million in the
first half of 2011 and 2010, respectively. We currently expect
that our charge-offs and credit losses in the full-year of 2011
will be consistent with the amount realized in 2010.
The UPB of the total multifamily portfolio increased to
$173.5 billion at June 30, 2011 from
$169.5 billion at December 31, 2010, due primarily to
increased guarantees of non-consolidated securities issued
during the first half of 2011 as well as the transfer in the
first quarter of 2011 of certain housing revenue bonds to the
Multifamily Segment that were previously managed by the
Investments segment. We issued $7.0 billion and
$5.6 billion UPB of Freddie Mac mortgage-related securities
and other guarantee commitments related to multifamily mortgage
loans in the first half of 2011 and 2010, respectively.
Increased competition in certain markets has exerted and may
continue to exert downward pressure on pricing and credit for
new activity in the remainder of 2011, and could negatively
impact our future purchase volumes. Our primary multifamily
business strategy in 2011 is to purchase loans and subsequently
securitize them, which supports liquidity for the multifamily
market and affordability for multifamily rental housing.
CONSOLIDATED
BALANCE SHEETS ANALYSIS
The following discussion of our consolidated balance sheets
should be read in conjunction with our consolidated financial
statements, including the accompanying notes. Also, see
CRITICAL ACCOUNTING POLICIES AND ESTIMATES for
information concerning certain significant accounting policies
and estimates applied in determining our reported financial
position.
Cash and
Cash Equivalents, Federal Funds Sold and Securities Purchased
Under Agreements to Resell
Cash and cash equivalents, federal funds sold and securities
purchased under agreements to resell, and other liquid assets
discussed in Investments in Securities
Non-Mortgage-Related Securities, are important to
our cash flow and asset and liability management, and our
ability to provide liquidity and stability to the mortgage
market. We use these assets to help manage recurring cash flows
and meet our other cash management needs. We consider federal
funds sold to be overnight unsecured trades executed with
commercial banks that are members of the Federal Reserve System.
Securities purchased under agreements to resell principally
consist of short-term contractual agreements such as reverse
repurchase agreements involving Treasury and agency securities.
The short-term assets on our consolidated balance sheets also
include those related to our consolidated VIEs, which are
comprised primarily of restricted cash and cash equivalents and
investments in securities purchased under agreements to resell.
These short-term assets decreased by $21.1 billion from
December 31, 2010 to June 30, 2011, primarily due to a
relative decline in the level of refinancing activity.
Excluding amounts related to our consolidated VIEs, we held
$17.5 billion and $37.0 billion of cash and cash
equivalents, $7.3 billion and $1.4 billion of federal
funds sold, and $12.4 billion and $15.8 billion of
securities purchased under agreements to resell at June 30,
2011 and December 31, 2010, respectively. The aggregate
decrease in these assets was primarily driven by a decline in
funding needs for debt redemptions. In addition, excluding
amounts related to our consolidated VIEs, we held on average
$29.8 billion and $30.9 billion of cash and cash
equivalents and $21.6 billion and $25.1 billion of
federal funds sold and securities purchased under agreements to
resell during the three and six months ended June 30, 2011.
Recently we changed the composition of our portfolio of liquid
assets given the recent market concerns about the potential for
a downgrade in the credit ratings of the U.S. government and the
potential that the U.S. would exhaust its borrowing authority
under the statutory debt limit. For more information, see
LIQUIDITY AND CAPITAL RESOURCES
Liquidity.
Investments
in Securities
Table 16 provides detail regarding our investments in securities
as of June 30, 2011 and December 31, 2010.
Table 16 does not include our holdings of single-family PCs
and certain Other Guarantee Transactions. For information on our
holdings of such securities, see Table 11
Segment Mortgage Portfolio Composition.
Table 16
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
$
|
85,221
|
|
|
$
|
85,689
|
|
Subprime
|
|
|
30,491
|
|
|
|
33,861
|
|
CMBS
|
|
|
57,647
|
|
|
|
58,087
|
|
Option ARM
|
|
|
6,591
|
|
|
|
6,889
|
|
Alt-A and other
|
|
|
12,209
|
|
|
|
13,168
|
|
Fannie Mae
|
|
|
21,011
|
|
|
|
24,370
|
|
Obligations of states and political subdivisions
|
|
|
8,560
|
|
|
|
9,377
|
|
Manufactured housing
|
|
|
844
|
|
|
|
897
|
|
Ginnie Mae
|
|
|
275
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
222,849
|
|
|
|
232,634
|
|
|
|
|
|
|
|
|
|
|
Total investments in available-for-sale securities
|
|
|
222,849
|
|
|
|
232,634
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
|
16,997
|
|
|
|
13,437
|
|
Fannie Mae
|
|
|
17,982
|
|
|
|
18,726
|
|
Ginnie Mae
|
|
|
165
|
|
|
|
172
|
|
Other
|
|
|
82
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
35,226
|
|
|
|
32,366
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
164
|
|
|
|
44
|
|
Treasury bills
|
|
|
250
|
|
|
|
17,289
|
|
Treasury notes
|
|
|
17,497
|
|
|
|
10,122
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
1,627
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
Total trading non-mortgage-related securities
|
|
|
19,538
|
|
|
|
27,896
|
|
|
|
|
|
|
|
|
|
|
Total investments in trading securities
|
|
|
54,764
|
|
|
|
60,262
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
277,613
|
|
|
$
|
292,896
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For information on the types of instruments that are included,
see NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Investments in Securities in our 2010
Annual Report.
|
Non-Mortgage-Related
Securities
Our investments in non-mortgage-related securities provide an
additional source of liquidity for us. We held investments in
non-mortgage-related securities classified as trading of
$19.5 billion and $27.9 billion as of June 30,
2011 and December 31, 2010, respectively. While balances
may fluctuate from period to period, we continue to meet
required liquidity and contingency levels.
Mortgage-Related
Securities
We are primarily a
buy-and-hold
investor in mortgage-related securities, which consist of
securities issued by Fannie Mae, Ginnie Mae, and other financial
institutions. We also invest in our own mortgage-related
securities. However, the single-family PCs and certain Other
Guarantee Transactions we purchase as investments are not
accounted for as investments in securities because we recognize
the underlying mortgage loans on our consolidated balance sheets
through consolidation of the related trusts.
Table 17 provides the UPB of our investments in
mortgage-related securities classified as available-for-sale or
trading on our consolidated balance sheets. Table 17 does
not include our holdings of single-family PCs and certain Other
Guarantee Transactions. For further information on our holdings
of such securities, see Table 11 Segment
Mortgage Portfolio Composition.
Table 17
Characteristics of Mortgage-Related Securities on Our
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
Total
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Freddie Mac mortgage-related
securities:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
79,194
|
|
|
$
|
9,014
|
|
|
$
|
88,208
|
|
|
$
|
79,955
|
|
|
$
|
8,118
|
|
|
$
|
88,073
|
|
Multifamily
|
|
|
780
|
|
|
|
1,798
|
|
|
|
2,578
|
|
|
|
339
|
|
|
|
1,756
|
|
|
|
2,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities
|
|
|
79,974
|
|
|
|
10,812
|
|
|
|
90,786
|
|
|
|
80,294
|
|
|
|
9,874
|
|
|
|
90,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
securities:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
19,838
|
|
|
|
15,645
|
|
|
|
35,483
|
|
|
|
21,238
|
|
|
|
18,139
|
|
|
|
39,377
|
|
Multifamily
|
|
|
70
|
|
|
|
77
|
|
|
|
147
|
|
|
|
228
|
|
|
|
88
|
|
|
|
316
|
|
Ginnie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
273
|
|
|
|
111
|
|
|
|
384
|
|
|
|
296
|
|
|
|
117
|
|
|
|
413
|
|
Multifamily
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
20,208
|
|
|
|
15,833
|
|
|
|
36,041
|
|
|
|
21,789
|
|
|
|
18,344
|
|
|
|
40,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime
|
|
|
344
|
|
|
|
51,147
|
|
|
|
51,491
|
|
|
|
363
|
|
|
|
53,855
|
|
|
|
54,218
|
|
Option ARM
|
|
|
|
|
|
|
14,778
|
|
|
|
14,778
|
|
|
|
|
|
|
|
15,646
|
|
|
|
15,646
|
|
Alt-A and other
|
|
|
2,260
|
|
|
|
15,502
|
|
|
|
17,762
|
|
|
|
2,405
|
|
|
|
16,438
|
|
|
|
18,843
|
|
CMBS
|
|
|
20,574
|
|
|
|
35,817
|
|
|
|
56,391
|
|
|
|
21,401
|
|
|
|
37,327
|
|
|
|
58,728
|
|
Obligations of states and political
subdivisions(5)
|
|
|
8,809
|
|
|
|
24
|
|
|
|
8,833
|
|
|
|
9,851
|
|
|
|
26
|
|
|
|
9,877
|
|
Manufactured housing
|
|
|
879
|
|
|
|
140
|
|
|
|
1,019
|
|
|
|
930
|
|
|
|
150
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency mortgage-related
securities(6)
|
|
|
32,866
|
|
|
|
117,408
|
|
|
|
150,274
|
|
|
|
34,950
|
|
|
|
123,442
|
|
|
|
158,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of mortgage-related securities
|
|
$
|
133,048
|
|
|
$
|
144,053
|
|
|
|
277,101
|
|
|
$
|
137,033
|
|
|
$
|
151,660
|
|
|
|
288,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, discounts, deferred fees, impairments of UPB and other
basis adjustments
|
|
|
|
|
|
|
|
|
|
|
(11,696
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,839
|
)
|
Net unrealized (losses) on mortgage-related securities, pre-tax
|
|
|
|
|
|
|
|
|
|
|
(7,330
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value of mortgage-related securities
|
|
|
|
|
|
|
|
|
|
$
|
258,075
|
|
|
|
|
|
|
|
|
|
|
$
|
265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Variable-rate mortgage-related securities include those with a
contractual coupon rate that, prior to contractual maturity, is
either scheduled to change or is subject to change based on
changes in the composition of the underlying collateral.
|
(2)
|
We are subject to the credit risk associated with the mortgage
loans underlying our Freddie Mac mortgage-related securities.
Mortgage loans underlying our issued single-family PCs and
certain Other Guarantee Transactions are recognized on our
consolidated balance sheets as held-for-investment mortgage
loans, at amortized cost. We do not consolidate our
resecuritization trusts since we are not deemed to be the
primary beneficiary of such trusts. See NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in Securities in our 2010 Annual Report for
further information.
|
(3)
|
Agency securities are generally not separately rated by
nationally recognized statistical rating organizations, but have
historically been viewed as having a level of credit quality at
least equivalent to non-agency mortgage-related securities
AAA-rated or
equivalent.
|
(4)
|
For information about how these securities are rated, see
Table 22 Ratings of Non-Agency
Mortgage-Related Securities Backed by Subprime, Option ARM,
Alt-A and
Other Loans, and CMBS.
|
(5)
|
Consists of housing revenue bonds. Approximately 49% and 50% of
these securities held at June 30, 2011 and
December 31, 2010, respectively, were
AAA-rated as
of those dates, based on the lowest rating available.
|
(6)
|
Credit ratings for most non-agency mortgage-related securities
are designated by no fewer than two nationally recognized
statistical rating organizations. Approximately 22% and 23% of
total non-agency mortgage-related securities held at
June 30, 2011 and December 31, 2010, respectively,
were
AAA-rated as
of those dates, based on the UPB and the lowest rating available.
|
The total UPB of our investments in mortgage-related securities
on our consolidated balance sheets decreased from
$288.7 billion at December 31, 2010 to
$277.1 billion at June 30, 2011 primarily as a result
of liquidations exceeding our purchase activity during the six
months ended June 30, 2011.
Table 18 summarizes our mortgage-related securities purchase
activity for the three and six months ended June 30, 2011
and 2010. The purchase activity includes single-family PCs and
certain Other Guarantee Transactions issued by trusts that we
consolidated. Purchases of single-family PCs and certain Other
Guarantee Transactions issued by trusts that we consolidated are
recorded as an extinguishment of debt securities of consolidated
trusts held by third parties on our consolidated balance sheets.
Table
18 Total Mortgage-Related Securities Purchase
Activity(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Non-Freddie Mac mortgage-related securities purchased for
resecuritization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae Certificates
|
|
$
|
56
|
|
|
$
|
|
|
|
$
|
72
|
|
|
$
|
13
|
|
Non-agency mortgage-related securities purchased for Other
Guarantee
Transactions(2)
|
|
|
3,633
|
|
|
|
2,063
|
|
|
|
6,512
|
|
|
|
7,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased for
resecuritization
|
|
|
3,689
|
|
|
|
2,063
|
|
|
|
6,584
|
|
|
|
7,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities purchased as
investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
2,181
|
|
|
|
|
|
|
|
3,200
|
|
|
|
|
|
Variable-rate
|
|
|
60
|
|
|
|
117
|
|
|
|
228
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
2,241
|
|
|
|
117
|
|
|
|
3,428
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Variable-rate
|
|
|
46
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency mortgage-related securities
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
as investments in securities
|
|
|
2,301
|
|
|
|
117
|
|
|
|
3,488
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
|
|
$
|
5,990
|
|
|
$
|
2,180
|
|
|
$
|
10,072
|
|
|
$
|
7,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac mortgage-related securities purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
$
|
24,304
|
|
|
$
|
1,205
|
|
|
$
|
60,983
|
|
|
$
|
6,045
|
|
Variable-rate
|
|
|
462
|
|
|
|
|
|
|
|
3,004
|
|
|
|
203
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
26
|
|
|
|
160
|
|
|
|
51
|
|
|
|
185
|
|
Variable-rate
|
|
|
65
|
|
|
|
10
|
|
|
|
65
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities purchased
|
|
$
|
24,857
|
|
|
$
|
1,375
|
|
|
$
|
64,103
|
|
|
$
|
6,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB. Excludes mortgage-related securities traded but
not yet settled.
|
(2)
|
Purchases for the six months ended June 30, 2010
include HFA bonds we acquired and resecuritized under the NIBP.
See NOTE 3: CONSERVATORSHIP AND RELATED MATTERS
in our 2010 Annual Report for further information on this
component of the HFA Initiative.
|
During the three and six months ended June 30, 2011, we
engaged in mortgage-related security transactions in which we
entered into an agreement to purchase and subsequently resell
(or sell and subsequently repurchase) agency securities. We
engaged in these transactions primarily to support the market
and pricing of our PC securities. When these transactions
involve our consolidated PC trusts, the purchase and sale
represents an extinguishment and issuance of debt securities,
respectively, and impacts our net interest income and
recognition of gain or loss on the extinguishment of debt on our
consolidated statements of income and comprehensive income.
These transactions can cause short-term fluctuations in the
balance of our mortgage-related investments portfolio. The
increase in our purchases of agency securities in the first half
of 2011 reflected in Table 18 above is attributed primarily to
these transactions.
Unrealized
Losses on Available-For-Sale Mortgage-Related
Securities
At June 30, 2011, our gross unrealized losses, pre-tax, on
available-for-sale mortgage-related securities were
$20.5 billion, compared to $23.1 billion at
December 31, 2010. The improvement in unrealized losses was
primarily due to fair value gains on non-agency mortgage-related
securities related to the movement of these securities with
unrealized losses towards maturity and the impact of a decline
in interest rates, partially offset by the impact of widening
OAS levels on our non-agency mortgage-related securities.
Additionally, net unrealized losses recorded in AOCI decreased
due to the recognition in earnings of other-than-temporary
impairments on our non-agency mortgage-related securities. We
believe the unrealized losses related to these securities at
June 30, 2011 were mainly attributable to poor underlying
collateral performance, limited liquidity and large risk
premiums in the market for residential non-agency
mortgage-related securities. All available-for-sale securities
in an unrealized loss position are evaluated to determine if the
impairment is other-than-temporary. See Total Equity
(Deficit) and NOTE 7: INVESTMENTS IN
SECURITIES for additional information regarding unrealized
losses on our available-for-sale securities.
Higher-Risk
Components of Our Investments in Mortgage-Related
Securities
As discussed below, we have exposure to subprime, option ARM,
interest-only, and
Alt-A and
other loans as part of our investments in mortgage-related
securities as follows:
|
|
|
|
|
Single-family non-agency mortgage-related
securities: We hold non-agency mortgage-related
securities backed by subprime, option ARM, and
Alt-A and
other loans.
|
|
|
|
|
|
Single-family Freddie Mac mortgage-related securities: We
hold certain Other Guarantee Transactions as part of our
investments in securities. There are subprime and option ARM
loans underlying some of these Other Guarantee Transactions. For
more information on single-family loans with certain higher-risk
characteristics underlying our issued securities, see RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk.
|
Non-Agency
Mortgage-Related Securities Backed by Subprime, Option ARM, and
Alt-A
Loans
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. Since the first quarter of 2008, we have not
purchased any non-agency mortgage-related securities backed by
subprime, option ARM, or
Alt-A loans.
Tables 19 and 20 present information about our holdings of
these securities.
Table
19 Non-Agency Mortgage-Related Securities Backed by
Subprime First Lien, Option ARM, and
Alt-A Loans
and Certain Related Credit
Statistics(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
06/30/2011
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
|
(dollars in millions)
|
|
UPB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
51,070
|
|
|
$
|
52,403
|
|
|
$
|
53,756
|
|
|
$
|
55,250
|
|
|
$
|
56,922
|
|
Option ARM
|
|
|
14,778
|
|
|
|
15,232
|
|
|
|
15,646
|
|
|
|
16,104
|
|
|
|
16,603
|
|
Alt-A(2)
|
|
|
15,059
|
|
|
|
15,487
|
|
|
|
15,917
|
|
|
|
16,406
|
|
|
|
16,909
|
|
Gross unrealized losses,
pre-tax:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
13,764
|
|
|
$
|
12,481
|
|
|
$
|
14,026
|
|
|
$
|
16,446
|
|
|
$
|
17,757
|
|
Option ARM
|
|
|
3,099
|
|
|
|
3,170
|
|
|
|
3,853
|
|
|
|
4,815
|
|
|
|
5,770
|
|
Alt-A(2)
|
|
|
2,171
|
|
|
|
1,941
|
|
|
|
2,096
|
|
|
|
2,542
|
|
|
|
3,335
|
|
Present value of expected credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
6,487
|
|
|
$
|
6,612
|
|
|
$
|
5,937
|
|
|
$
|
4,364
|
|
|
$
|
3,311
|
|
Option ARM
|
|
|
4,767
|
|
|
|
4,993
|
|
|
|
4,850
|
|
|
|
4,208
|
|
|
|
3,534
|
|
Alt-A(2)
|
|
|
2,310
|
|
|
|
2,401
|
|
|
|
2,469
|
|
|
|
2,101
|
|
|
|
1,653
|
|
Collateral delinquency
rate:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
42
|
%
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
46
|
%
|
Option ARM
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
45
|
|
Alt-A(2)
|
|
|
26
|
|
|
|
26
|
|
|
|
27
|
|
|
|
26
|
|
|
|
26
|
|
Cumulative collateral
loss:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
20
|
%
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
17
|
%
|
|
|
16
|
%
|
Option ARM
|
|
|
15
|
|
|
|
14
|
|
|
|
13
|
|
|
|
11
|
|
|
|
10
|
|
Alt-A(2)
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
Average credit
enhancement:(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
23
|
%
|
|
|
24
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
26
|
%
|
Option ARM
|
|
|
10
|
|
|
|
11
|
|
|
|
12
|
|
|
|
12
|
|
|
|
13
|
|
Alt-A(2)
|
|
|
8
|
|
|
|
8
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
(1)
|
See Ratings of Non-Agency Mortgage-Related
Securities for additional information about these
securities.
|
(2)
|
Excludes non-agency mortgage-related securities backed by other
loans, which are primarily comprised of securities backed by
home equity lines of credit.
|
(3)
|
Represents the aggregate of the amount by which amortized cost,
after other-than-temporary impairments, exceeds fair value
measured at the individual lot level.
|
(4)
|
Determined based on the number of loans that are two monthly
payments or more past due that underlie the securities using
information obtained from a third-party data provider.
|
(5)
|
Based on the actual losses incurred on the collateral underlying
these securities. Actual losses incurred on the securities that
we hold are significantly less than the losses on the underlying
collateral as presented in this table, as non-agency
mortgage-related securities backed by subprime first lien,
option ARM, and
Alt-A loans
were structured to include credit enhancements, particularly
through subordination and other structural enhancements.
|
(6)
|
Reflects the ratio of the current principal amount of the
securities issued by a trust that will absorb losses in the
trust 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). Only includes credit
enhancement provided by subordinated securities; excludes credit
enhancement provided by monoline bond insurance,
overcollateralization and other forms of credit enhancement.
|
Table
20 Non-Agency Mortgage-Related Securities Backed by
Subprime, Option ARM,
Alt-A and
Other
Loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
06/30/2011
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
|
(in millions)
|
|
Net impairment of available-for-sale securities recognized in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first and second liens
|
|
$
|
70
|
|
|
$
|
734
|
|
|
$
|
1,207
|
|
|
$
|
213
|
|
|
$
|
17
|
|
Option ARM
|
|
|
65
|
|
|
|
281
|
|
|
|
668
|
|
|
|
577
|
|
|
|
48
|
|
Alt-A and other
|
|
|
32
|
|
|
|
40
|
|
|
|
372
|
|
|
|
296
|
|
|
|
333
|
|
Principal repayments and cash
shortfalls:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first and second liens:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
1,341
|
|
|
$
|
1,361
|
|
|
$
|
1,512
|
|
|
$
|
1,685
|
|
|
$
|
2,001
|
|
Principal cash shortfalls
|
|
|
10
|
|
|
|
14
|
|
|
|
6
|
|
|
|
8
|
|
|
|
12
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
331
|
|
|
$
|
315
|
|
|
$
|
347
|
|
|
$
|
377
|
|
|
$
|
435
|
|
Principal cash shortfalls
|
|
|
123
|
|
|
|
100
|
|
|
|
111
|
|
|
|
122
|
|
|
|
80
|
|
Alt-A and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
464
|
|
|
$
|
452
|
|
|
$
|
537
|
|
|
$
|
582
|
|
|
$
|
653
|
|
Principal cash shortfalls
|
|
|
84
|
|
|
|
81
|
|
|
|
62
|
|
|
|
56
|
|
|
|
67
|
|
|
|
(1)
|
See Ratings of Non-Agency Mortgage-Related
Securities for additional information about these
securities.
|
(2)
|
In addition to the contractual interest payments, we receive
monthly remittances of principal repayments from both the
recoveries of liquidated loans and, to a lesser extent,
voluntary repayments of the underlying collateral of these
securities representing a partial return of our investment in
these securities.
|
As discussed below, we recognized impairment in earnings on our
holdings of such securities during the three and six months
ended June 30, 2011 and 2010. See
Table 21 Net Impairment on
Available-For-Sale Mortgage-Related Securities Recognized in
Earnings for more information.
For purposes of our impairment analysis, our estimate of the
present value of expected future credit losses on our portfolio
of non-agency mortgage-related securities decreased to
$14.4 billion at June 30, 2011 from $15.2 billion
at March 31, 2011. All of this amount has been reflected in
our net impairment of available-for-sale securities recognized
in earnings in this period or prior periods. The decrease in our
estimate of the present value of expected future credit losses
resulted primarily from decreasing interest rates in the second
quarter of 2011, offset by a decline in forecasted home prices
on a seasonally adjusted basis.
Since the beginning of 2007, we have incurred actual principal
cash shortfalls of $1.1 billion on impaired non-agency
mortgage-related securities, of which $229 million and
$428 million related to the three and six months ended
June 30, 2011. Many of the trusts that issued non-agency
mortgage-related securities we hold were structured so that
realized collateral losses in excess of structural credit
enhancements are not passed on to investors until the investment
matures. We currently estimate that the future expected
principal and interest shortfalls on non-agency mortgage-related
securities we hold will be significantly less than the fair
value declines experienced on these securities.
The investments in non-agency mortgage-related securities we
hold backed by subprime first lien, option ARM, and
Alt-A loans
were structured to include credit enhancements, particularly
through subordination and other structural enhancements. Bond
insurance is an additional credit enhancement covering some of
the non-agency mortgage-related securities. These credit
enhancements are the primary reason we expect our actual losses,
through principal or interest shortfalls, to be less than the
underlying collateral losses in aggregate. It is difficult to
estimate the point at which structural credit enhancements will
be exhausted and we will incur actual losses. During the three
and six months ended June 30, 2011, we continued to
experience the erosion of structural credit enhancements on many
securities backed by subprime first lien, option ARM, and
Alt-A loans
due to poor performance of the underlying collateral. For more
information, see RISK MANAGEMENT Credit
Risk Institutional Credit Risk Bond
Insurers.
Other-Than-Temporary
Impairments on Available-For-Sale Mortgage-Related
Securities
Table 21 provides information about the mortgage-related
securities for which we recognized other-than-temporary
impairments for the three months ended June 30, 2011 and
2010.
Table
21 Net Impairment on Available-For-Sale
Mortgage-Related Securities Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
Net Impairment of
|
|
|
|
|
|
Net Impairment of
|
|
|
|
|
|
|
Available-For-Sale
|
|
|
|
|
|
Available-For-Sale
|
|
|
|
|
|
|
Securities Recognized
|
|
|
|
|
|
Securities Recognized
|
|
|
|
UPB
|
|
|
in Earnings
|
|
|
UPB
|
|
|
in Earnings
|
|
|
|
(in millions)
|
|
|
Subprime:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007 first lien
|
|
$
|
11,909
|
|
|
$
|
67
|
|
|
$
|
606
|
|
|
$
|
15
|
|
Other years first and second
liens(1)
|
|
|
298
|
|
|
|
3
|
|
|
|
234
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime first and second
liens(1)
|
|
|
12,207
|
|
|
|
70
|
|
|
|
840
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
5,867
|
|
|
|
43
|
|
|
|
1,940
|
|
|
|
34
|
|
Other years
|
|
|
1,235
|
|
|
|
22
|
|
|
|
260
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option ARM
|
|
|
7,102
|
|
|
|
65
|
|
|
|
2,200
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
1,494
|
|
|
|
16
|
|
|
|
2,860
|
|
|
|
37
|
|
Other years
|
|
|
2,126
|
|
|
|
15
|
|
|
|
152
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
|
3,620
|
|
|
|
31
|
|
|
|
3,012
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
80
|
|
|
|
1
|
|
|
|
2,419
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM,
Alt-A and
other loans
|
|
|
23,009
|
|
|
|
167
|
|
|
|
8,471
|
|
|
|
398
|
|
CMBS
|
|
|
918
|
|
|
|
183
|
|
|
|
900
|
|
|
|
17
|
|
Manufactured housing
|
|
|
205
|
|
|
|
2
|
|
|
|
424
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
$
|
24,132
|
|
|
$
|
352
|
|
|
$
|
9,795
|
|
|
$
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes all second liens.
We recorded net impairment of available-for-sale
mortgage-related securities recognized in earnings of
$352 million and $1.5 billion during the three and six
months ended June 30, 2011, respectively, compared to
$428 million and $938 million during the three and six
months ended June 30, 2010, as our estimate of the present
value of expected future credit losses on certain individual
securities increased during the periods. These impairments
include $167 million and $1.2 billion of impairments
related to securities backed by subprime, option ARM, and
Alt-A and
other loans during the three and six months ended June 30,
2011, respectively, compared to $398 million and
$851 million during the three and six months ended
June 30, 2010. In addition, during the three months ended
June 30, 2011, these impairments include recognition of the
unrealized fair value losses related to three investments in
CMBS of $154 million as an impairment charge in earnings,
as we have the intent to sell these securities. For more
information, see NOTE 7: INVESTMENTS IN
SECURITIES Other-Than-Temporary Impairments on
Available-for-Sale Securities.
While it is reasonably possible that collateral losses on our
available-for-sale mortgage-related securities where we have not
recorded an impairment charge in earnings could exceed our
credit enhancement levels, we do not believe that those
conditions were likely at June 30, 2011. Based on our
conclusion that we do not intend to sell our remaining
available-for-sale mortgage-related securities in an unrealized
loss position and it is not more likely than not that we will be
required to sell these securities before a sufficient time to
recover all unrealized losses and our consideration of other
available information, we have concluded that the reduction in
fair value of these securities was temporary at June 30,
2011 and have recorded these fair value losses in AOCI.
The credit performance of loans underlying our holdings of
non-agency mortgage-related securities has declined since 2007.
This decline has been particularly severe for subprime, option
ARM, and
Alt-A and
other loans. Economic factors impacting the performance of our
investments in non-agency mortgage-related securities include
high unemployment, a large inventory of seriously delinquent
mortgage loans and unsold homes, tight credit conditions, and
weak consumer confidence, all of which have contributed to poor
performance during the three and six months ended June 30,
2011 and 2010. In addition, subprime, option ARM, and
Alt-A and
other loans backing the securities we hold have significantly
greater concentrations in the states that are undergoing the
greatest economic stress, such as California and Florida. Loans
in these states undergoing economic stress are more likely to
become seriously delinquent and the credit losses associated
with such loans are likely to be higher than in other states.
We rely on monoline bond insurance, including secondary
coverage, to provide credit protection on some of our
investments in non-agency mortgage-related securities. We have
determined that there is substantial uncertainty
surrounding certain monoline bond insurers ability to pay
our future claims on expected credit losses related to our
non-agency mortgage-related security investments. This
uncertainty contributed to the impairments recognized in
earnings during the three and six months ended June 30,
2011 and 2010. See NOTE 17: CONCENTRATION OF CREDIT
AND OTHER RISKS Bond Insurers for additional
information.
Our assessments concerning other-than-temporary impairment
require significant judgment and the use of models, and are
subject to potentially significant change due to changes in the
performance of the individual securities and in mortgage market
conditions. Depending on the structure of the individual
mortgage-related security and our estimate of collateral losses
relative to the amount of credit support available for the
tranches we own, a change in collateral loss estimates can have
a disproportionate impact on the loss estimate for the security.
Additionally, servicer performance, loan modification programs
and backlogs, bankruptcy reform and other forms of government
intervention in the housing market can significantly affect the
performance of these securities, including the timing of loss
recognition of the underlying loans and thus the timing of
losses we recognize on our securities. Foreclosure processing
suspensions can also affect our losses. For example, while
defaulted loans remain in the trusts prior to completion of the
foreclosure process, the subordinate classes of securities
issued by the securitization trusts may continue to receive
interest payments, rather than absorbing default losses. This
may reduce the amount of funds available for the tranches we
own. Given the extent of the housing and economic downturn, it
is difficult to estimate the future performance of mortgage
loans and mortgage-related securities with high assurance, and
actual results could differ materially from our expectations.
Furthermore, various market participants could arrive at
materially different conclusions regarding estimates of future
cash shortfalls. For more information on how delays in the
foreclosure process, including delays related to concerns about
deficiencies in foreclosure documentation practices, could
adversely affect the values of, and the losses on, the
non-agency mortgage-related securities we hold, see RISK
FACTORS Operational Risks We have
incurred and will continue to incur expenses and we may
otherwise be adversely affected by deficiencies in foreclosure
practices, as well as related delays in the foreclosure
process in our 2010 Annual Report.
Ratings
of Non-Agency Mortgage-Related Securities
Table 22 shows the ratings of non-agency mortgage-related
securities backed by subprime, option ARM,
Alt-A and
other loans, and CMBS held at June 30, 2011 based on their
ratings as of June 30, 2011 as well as those held at
December 31, 2010 based on their ratings as of
December 31, 2010 using the lowest rating available for
each security.
Table 22
Ratings of Non-Agency Mortgage-Related Securities Backed by
Subprime, Option ARM,
Alt-A and
Other Loans, and CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Monoline
|
|
|
|
|
|
|
Percentage
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Insurance
|
|
Credit Ratings as of June 30, 2011
|
|
UPB
|
|
|
of UPB
|
|
|
Cost
|
|
|
Losses
|
|
|
Coverage(1)
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
1,284
|
|
|
|
2
|
%
|
|
$
|
1,284
|
|
|
$
|
(106
|
)
|
|
$
|
23
|
|
Other investment grade
|
|
|
2,934
|
|
|
|
6
|
|
|
|
2,934
|
|
|
|
(395
|
)
|
|
|
394
|
|
Below investment
grade(2)
|
|
|
47,273
|
|
|
|
92
|
|
|
|
40,013
|
|
|
|
(13,271
|
)
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,491
|
|
|
|
100
|
%
|
|
$
|
44,231
|
|
|
$
|
(13,772
|
)
|
|
$
|
2,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other investment grade
|
|
|
100
|
|
|
|
1
|
|
|
|
100
|
|
|
|
(12
|
)
|
|
|
100
|
|
Below investment
grade(2)
|
|
|
14,678
|
|
|
|
99
|
|
|
|
9,561
|
|
|
|
(3,087
|
)
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,778
|
|
|
|
100
|
%
|
|
$
|
9,661
|
|
|
$
|
(3,099
|
)
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A and other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
482
|
|
|
|
3
|
%
|
|
$
|
483
|
|
|
$
|
(25
|
)
|
|
$
|
7
|
|
Other investment grade
|
|
|
2,300
|
|
|
|
13
|
|
|
|
2,323
|
|
|
|
(306
|
)
|
|
|
337
|
|
Below investment
grade(2)
|
|
|
14,980
|
|
|
|
84
|
|
|
|
11,744
|
|
|
|
(2,056
|
)
|
|
|
2,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,762
|
|
|
|
100
|
%
|
|
$
|
14,550
|
|
|
$
|
(2,387
|
)
|
|
$
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
26,407
|
|
|
|
47
|
%
|
|
$
|
26,455
|
|
|
$
|
(29
|
)
|
|
$
|
42
|
|
Other investment grade
|
|
|
26,524
|
|
|
|
47
|
|
|
|
26,496
|
|
|
|
(421
|
)
|
|
|
1,652
|
|
Below investment
grade(2)
|
|
|
3,460
|
|
|
|
6
|
|
|
|
2,990
|
|
|
|
(266
|
)
|
|
|
1,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,391
|
|
|
|
100
|
%
|
|
$
|
55,941
|
|
|
$
|
(716
|
)
|
|
$
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM, Alt-A and other loans, and CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
28,173
|
|
|
|
20
|
%
|
|
$
|
28,222
|
|
|
$
|
(160
|
)
|
|
$
|
72
|
|
Other investment grade
|
|
|
31,858
|
|
|
|
23
|
|
|
|
31,853
|
|
|
|
(1,134
|
)
|
|
|
2,483
|
|
Below investment
grade(2)
|
|
|
80,391
|
|
|
|
57
|
|
|
|
64,308
|
|
|
|
(18,680
|
)
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
140,422
|
|
|
|
100
|
%
|
|
$
|
124,383
|
|
|
$
|
(19,974
|
)
|
|
$
|
8,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in mortgage-related securities
|
|
$
|
277,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of subprime, option ARM,
Alt-A and
other loans, and CMBS of total investments in mortgage-related
securities
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Ratings as of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
2,085
|
|
|
|
4
|
%
|
|
$
|
2,085
|
|
|
$
|
(199
|
)
|
|
$
|
31
|
|
Other investment grade
|
|
|
3,407
|
|
|
|
6
|
|
|
|
3,408
|
|
|
|
(436
|
)
|
|
|
449
|
|
Below investment
grade(2)
|
|
|
48,726
|
|
|
|
90
|
|
|
|
42,423
|
|
|
|
(13,421
|
)
|
|
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,218
|
|
|
|
100
|
%
|
|
$
|
47,916
|
|
|
$
|
(14,056
|
)
|
|
$
|
2,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other investment grade
|
|
|
139
|
|
|
|
1
|
|
|
|
140
|
|
|
|
(18
|
)
|
|
|
129
|
|
Below investment
grade(2)
|
|
|
15,507
|
|
|
|
99
|
|
|
|
10,586
|
|
|
|
(3,835
|
)
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,646
|
|
|
|
100
|
%
|
|
$
|
10,726
|
|
|
$
|
(3,853
|
)
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A and other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
1,293
|
|
|
|
7
|
%
|
|
$
|
1,301
|
|
|
$
|
(87
|
)
|
|
$
|
7
|
|
Other investment grade
|
|
|
2,761
|
|
|
|
15
|
|
|
|
2,765
|
|
|
|
(362
|
)
|
|
|
368
|
|
Below investment
grade(2)
|
|
|
14,789
|
|
|
|
78
|
|
|
|
11,498
|
|
|
|
(2,002
|
)
|
|
|
2,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,843
|
|
|
|
100
|
%
|
|
$
|
15,564
|
|
|
$
|
(2,451
|
)
|
|
$
|
2,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
28,007
|
|
|
|
48
|
%
|
|
$
|
28,071
|
|
|
$
|
(52
|
)
|
|
$
|
42
|
|
Other investment grade
|
|
|
26,777
|
|
|
|
45
|
|
|
|
26,740
|
|
|
|
(676
|
)
|
|
|
1,655
|
|
Below investment
grade(2)
|
|
|
3,944
|
|
|
|
7
|
|
|
|
3,653
|
|
|
|
(1,191
|
)
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,728
|
|
|
|
100
|
%
|
|
$
|
58,464
|
|
|
$
|
(1,919
|
)
|
|
$
|
3,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM, Alt-A and other loans, and CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
31,385
|
|
|
|
21
|
%
|
|
$
|
31,457
|
|
|
$
|
(338
|
)
|
|
$
|
80
|
|
Other investment grade
|
|
|
33,084
|
|
|
|
23
|
|
|
|
33,053
|
|
|
|
(1,492
|
)
|
|
|
2,601
|
|
Below investment
grade(2)
|
|
|
82,966
|
|
|
|
56
|
|
|
|
68,160
|
|
|
|
(20,449
|
)
|
|
|
5,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
147,435
|
|
|
|
100
|
%
|
|
$
|
132,670
|
|
|
$
|
(22,279
|
)
|
|
$
|
8,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in mortgage-related securities
|
|
$
|
288,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of subprime, option ARM,
Alt-A and
other loans, and CMBS of total investments in mortgage-related
securities
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the amount of UPB covered by monoline bond insurance
coverage. This amount does not represent the maximum amount of
losses we could recover, as the monoline insurance also covers
interest.
|
(2)
|
Includes securities with S&P credit ratings below BBB
and certain securities that are no longer rated.
|
Mortgage
Loans
The UPB of mortgage loans on our consolidated balance sheet
declined to $1,876 billion as of June 30, 2011 from
$1,885 billion as of December 31, 2010. See
NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES
for further detail about the mortgage loans on our consolidated
balance sheets.
The UPB of unsecuritized single-family mortgage loans increased
by $9.2 billion, to $158.1 billion at June 30,
2011 from $148.9 billion at December 31, 2010,
primarily due to our continued purchases of seriously delinquent
and modified loans from the mortgage pools underlying our PCs.
Based on the amount of the recorded investment of these loans,
approximately $74.6 billion, or 4.2%, of the single-family
mortgage loans on our consolidated balance sheet as of
June 30, 2011 were seriously delinquent, as compared to
$84.2 billion, or 4.7%, as of December 31, 2010. The
majority of these seriously delinquent loans are unsecuritized,
and were purchased by us from our PC trusts. As guarantor, we
have the right to purchase mortgages that back our PCs from the
underlying loan pools under certain circumstances. See
NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING
LOANS for more information on our purchases of
single-family loans from PC trusts.
The UPB of unsecuritized multifamily mortgage loans was
$81.8 billion at June 30, 2011 and $85.9 billion
at December 31, 2010. Our multifamily loan activity in the
three and six months ended June 30, 2011 primarily
consisted of purchases of loans intended for securitization and
sales of loans through Other Guarantee Transactions. We expect
to continue to purchase and subsequently securitize multifamily
loans, which supports liquidity for the multifamily market and
affordability for multifamily rental housing, as our primary
multifamily business strategy.
Table 23 summarizes our purchase and guarantee activity in
mortgage loans. This activity consists of: (a) mortgage
loans underlying consolidated single-family PCs issued in the
period (regardless of whether such securities are held by us or
third parties); (b) single-family and multifamily mortgage
loans purchased, but not securitized, in the period; and
(c) mortgage loans underlying our mortgage-related
financial guarantees issued in the period, which are not
consolidated on our balance sheets.
Table 23
Mortgage Loan Purchase and Other Guarantee Commitment
Activity(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
UPB
|
|
|
|
|
|
UPB
|
|
|
|
|
|
UPB
|
|
|
|
|
|
UPB
|
|
|
|
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
|
(dollars in millions)
|
|
|
Mortgage loan purchases and guarantee issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more amortizing fixed-rate
|
|
$
|
40,345
|
|
|
|
60
|
%
|
|
$
|
53,661
|
|
|
|
67
|
%
|
|
$
|
103,243
|
|
|
|
61
|
%
|
|
$
|
119,275
|
|
|
|
70
|
%
|
20-year
amortizing fixed-rate
|
|
|
3,315
|
|
|
|
5
|
|
|
|
3,871
|
|
|
|
5
|
|
|
|
10,030
|
|
|
|
6
|
|
|
|
7,229
|
|
|
|
4
|
|
15-year
amortizing fixed-rate
|
|
|
13,001
|
|
|
|
19
|
|
|
|
14,737
|
|
|
|
18
|
|
|
|
35,111
|
|
|
|
21
|
|
|
|
29,851
|
|
|
|
18
|
|
Adjustable-rate(2)
|
|
|
6,125
|
|
|
|
9
|
|
|
|
3,925
|
|
|
|
5
|
|
|
|
11,866
|
|
|
|
7
|
|
|
|
5,783
|
|
|
|
3
|
|
Interest-only(3)
|
|
|
|
|
|
|
|
|
|
|
499
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
|
|
<1
|
|
FHA/VA and other governmental
|
|
|
117
|
|
|
|
<1
|
|
|
|
349
|
|
|
|
<1
|
|
|
|
204
|
|
|
|
<1
|
|
|
|
3,132
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
single-family(4)
|
|
|
62,903
|
|
|
|
93
|
|
|
|
77,042
|
|
|
|
96
|
|
|
|
160,454
|
|
|
|
95
|
|
|
|
166,090
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
4,512
|
|
|
|
7
|
|
|
|
2,954
|
|
|
|
4
|
|
|
|
7,561
|
|
|
|
5
|
|
|
|
5,067
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loan purchases and other guarantee commitment
activity(5)
|
|
$
|
67,415
|
|
|
|
100
|
%
|
|
$
|
79,996
|
|
|
|
100
|
%
|
|
$
|
168,015
|
|
|
|
100
|
%
|
|
$
|
171,157
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of mortgage purchases and other guarantee commitment
activity with credit
enhancements(6)
|
|
|
9
|
%
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
8
|
%
|
|
|
|
|
|
|
11
|
%
|
|
|
|
|
|
|
(1)
|
Based on UPB. Excludes mortgage loans traded but not yet
settled. Excludes additions of seriously delinquent loans and
balloon/reset mortgages purchased out of PC trusts. Includes
other guarantee commitments associated with mortgage loans. See
endnote (5) for further information.
|
(2)
|
Includes amortizing ARMs with 1-, 3-, 5-, 7- and
10-year
initial fixed-rate periods. We did not purchase any option ARM
loans during the first half of 2011 or 2010.
|
(3)
|
Represents loans where the borrower pays interest only for a
period of time before the borrower begins making principal
payments. Includes both fixed-rate and variable-rate
interest-only loans.
|
(4)
|
Includes $13.3 billion and $11.0 billion of mortgage
loans in excess of $417,000, which we refer to as conforming
jumbo mortgages, for the six months ended June 30, 2011 and
2010, respectively.
|
(5)
|
Includes issuances of other guarantee commitments on
single-family loans of $2.5 billion and $3.1 billion
and issuances of other guarantee commitments on multifamily
loans of $0.4 billion and $0.9 billion during the six
months ended June 30, 2011 and 2010, respectively, which
include our unsecuritized guarantees of HFA bonds under the
TCLFP in 2010.
|
(6)
|
See NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES Credit Protection and Other Forms of Credit
Enhancement for further details on credit enhancement of
mortgage loans in our single-family credit guarantee portfolio.
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk and NOTE 17:
CONCENTRATION OF CREDIT AND OTHER RISKS
Table 17.2 Certain Higher-Risk Categories in
the Single-Family Credit Guarantee Portfolio for
information about mortgage loans in our single-family credit
guarantee portfolio that we believe have higher-risk
characteristics.
Derivative
Assets and Liabilities, Net
The composition of our derivative portfolio changes from period
to period as a result of derivative purchases, terminations, or
assignments prior to contractual maturity, and expiration of the
derivatives at their contractual maturity. We also classify net
derivative interest receivable or payable, trade/settle
receivable or payable, and cash collateral held or posted on our
consolidated balance sheets in derivative assets, net and
derivative liabilities, net. See NOTE 11:
DERIVATIVES for additional information regarding our
derivatives.
Table 24 shows the fair value for each derivative type, the
weighted average fixed rate of our pay-fixed and receive-fixed
swaps, and the maturity profile of our derivative positions as
of June 30, 2011. A positive fair value in Table 24
for each derivative type is the estimated amount, prior to
netting by counterparty, that we would be entitled to receive if
the derivatives of that type were terminated. A negative fair
value for a derivative type is the estimated amount, prior to
netting by counterparty, that we would owe if the derivatives of
that type were terminated.
Table 24
Derivative Fair Values and Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Fair
Value(1)
|
|
|
|
Notional or
|
|
|
Total Fair
|
|
|
Less than
|
|
|
1 to 3
|
|
|
Greater than 3
|
|
|
In Excess
|
|
|
|
Contractual
Amount(2)
|
|
|
Value(3)
|
|
|
1 Year
|
|
|
Years
|
|
|
and up to 5 Years
|
|
|
of 5 Years
|
|
|
|
(dollars in millions)
|
|
|
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
199,851
|
|
|
$
|
2,260
|
|
|
$
|
151
|
|
|
$
|
590
|
|
|
$
|
931
|
|
|
$
|
588
|
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
1.31
|
%
|
|
|
1.22
|
%
|
|
|
2.21
|
%
|
|
|
3.60
|
%
|
Forward-starting
swaps(5)
|
|
|
15,907
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
441
|
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.59
|
%
|
|
|
1.09
|
%
|
|
|
4.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receive-fixed
|
|
|
215,758
|
|
|
|
2,700
|
|
|
|
151
|
|
|
|
590
|
|
|
|
930
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis (floating to floating)
|
|
|
3,275
|
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Pay-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
302,831
|
|
|
|
(18,263
|
)
|
|
|
(136
|
)
|
|
|
(1,261
|
)
|
|
|
(4,880
|
)
|
|
|
(11,986
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
2.90
|
%
|
|
|
1.68
|
%
|
|
|
3.28
|
%
|
|
|
4.07
|
%
|
Forward-starting
swaps(5)
|
|
|
19,039
|
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,489
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pay-fixed
|
|
|
321,870
|
|
|
|
(20,752
|
)
|
|
|
(136
|
)
|
|
|
(1,261
|
)
|
|
|
(4,880
|
)
|
|
|
(14,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
|
540,903
|
|
|
|
(18,048
|
)
|
|
|
15
|
|
|
|
(670
|
)
|
|
|
(3,947
|
)
|
|
|
(13,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
103,825
|
|
|
|
8,260
|
|
|
|
4,084
|
|
|
|
2,001
|
|
|
|
816
|
|
|
|
1,359
|
|
Written
|
|
|
23,025
|
|
|
|
(780
|
)
|
|
|
(18
|
)
|
|
|
(694
|
)
|
|
|
(68
|
)
|
|
|
|
|
Put swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
73,475
|
|
|
|
1,714
|
|
|
|
117
|
|
|
|
427
|
|
|
|
484
|
|
|
|
686
|
|
Written
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other option-based
derivatives(6)
|
|
|
41,861
|
|
|
|
1,514
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
|
248,186
|
|
|
|
10,708
|
|
|
|
4,188
|
|
|
|
1,734
|
|
|
|
1,232
|
|
|
|
3,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
105,169
|
|
|
|
(46
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-currency swaps
|
|
|
2,184
|
|
|
|
327
|
|
|
|
101
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
Commitments(7)
|
|
|
34,361
|
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap guarantee derivatives
|
|
|
3,733
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
934,536
|
|
|
|
(7,040
|
)
|
|
$
|
4,313
|
|
|
$
|
1,289
|
|
|
$
|
(2,716
|
)
|
|
$
|
(9,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
11,383
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
945,919
|
|
|
|
(7,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative interest receivable (payable), net
|
|
|
|
|
|
|
(1,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade/settle receivable (payable), net
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative collateral (held) posted, net
|
|
|
|
|
|
|
8,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
945,919
|
|
|
$
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value is categorized based on the period from June 30,
2011 until the contractual maturity of the derivative.
|
(2)
|
Notional or contractual amounts are used to calculate the
periodic settlement amounts to be received or paid and generally
do not represent actual amounts to be exchanged. Notional or
contractual amounts are not recorded as assets or liabilities on
our consolidated balance sheets.
|
(3)
|
The value of derivatives on our consolidated balance sheets is
reported as derivative assets, net and derivative liabilities,
net, and includes derivative interest receivable or (payable),
net, trade/settle receivable or (payable), net and derivative
cash collateral (held) or posted, net.
|
(4)
|
Represents the notional weighted average rate for the fixed leg
of the swaps.
|
(5)
|
Represents interest-rate swap agreements that are scheduled to
begin on future dates ranging from less than one year to fifteen
years.
|
(6)
|
Primarily includes purchased interest rate caps and floors.
|
(7)
|
Commitments include: (a) our commitments to purchase and
sell investments in securities; (b) our commitments to
purchase mortgage loans; and (c) our commitments to
purchase and extinguish or issue debt securities of our
consolidated trusts.
|
At June 30, 2011, the net fair value of our total
derivative portfolio was $(0.2) billion, as compared to
$(1.1) billion at December 31, 2010. During the six
months ended June 30, 2011, the fair value of our total
derivative portfolio increased primarily due to additional cash
collateral we posted to our counterparties during this period,
partially offset by declines in interest rates. See
NOTE 11: DERIVATIVES Table
11.1 Derivative Assets and Liabilities at Fair
Value for our notional or contractual amounts and related
fair values of our total derivative portfolio by product type at
June 30, 2011 and December 31, 2010.
Table 25 summarizes the changes in derivative fair values.
Table 25
Changes in Derivative Fair Values
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,(1)
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Beginning balance, at January 1 Net asset
(liability)
|
|
$
|
(6,560
|
)
|
|
$
|
(2,267
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
Commitments(2)
|
|
|
75
|
|
|
|
(1
|
)
|
Credit derivatives
|
|
|
(9
|
)
|
|
|
(4
|
)
|
Swap guarantee derivatives
|
|
|
|
|
|
|
(1
|
)
|
Other
derivatives:(3)
|
|
|
|
|
|
|
|
|
Changes in fair value
|
|
|
(1,213
|
)
|
|
|
(5,816
|
)
|
Fair value of new contracts entered into during the
period(4)
|
|
|
576
|
|
|
|
(324
|
)
|
Contracts realized or otherwise settled during the period
|
|
|
89
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
Ending balance, at June 30 Net asset (liability)
|
|
$
|
(7,042
|
)
|
|
$
|
(8,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Refer to Table 24 Derivative Fair Values
and Maturities for reconciliation of fair value to the
amounts presented on our consolidated balance sheets as of
June 30, 2011. At June 30, 2011, fair value in this
table excludes derivative interest receivable or (payable), net
of $(791) million, trade/settle receivable or (payable),
net of $17 million, and derivative cash collateral posted,
net of $8.4 billion.
|
(2)
|
Commitments include: (a) our commitments to purchase and
sell investments in securities; (b) our commitments to
purchase mortgage loans; and (c) our commitments to
purchase and extinguish or issue debt securities of our
consolidated trusts.
|
(3)
|
Includes fair value changes for interest-rate swaps,
option-based derivatives, futures, and foreign-currency swaps.
|
(4)
|
Consists primarily of cash premiums paid or received on options.
|
See CONSOLIDATED RESULTS OF OPERATIONS
Non-Interest Income (Loss) Derivative Gains
(Losses) for a description of gains (losses) on our
derivative positions.
REO,
Net
As a result of borrower default on mortgage loans that we own,
or for which we have issued our financial guarantee, we acquire
properties which are recorded as REO assets on our consolidated
balance sheets. The balance of our REO, net, declined to
$5.9 billion at June 30, 2011 from $7.1 billion
at December 31, 2010. In recent periods, the volume of our
single-family REO acquisitions has been less than it otherwise
would have been due to delays caused by concerns about the
foreclosure process. These delays in foreclosures continued in
the first half of 2011, particularly in states that require a
judicial foreclosure process. We expect these delays in the
foreclosure process will likely continue at least through the
remainder of 2011. However, we expect our REO inventory to
remain at elevated levels, as we have a large inventory of
significantly delinquent loans in our single-family credit
guarantee portfolio, many of which will likely complete the
foreclosure process and transition to REO during the next few
quarters as our servicers work through their foreclosure-related
issues. To the extent a large inventory of loans completes the
foreclosure process, such an increase in REO inventory could
have a negative impact on the housing market. See RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Non-Performing Assets for
additional information about our REO activity.
Deferred
Tax Assets, Net
In connection with our entry into conservatorship, we determined
that it was more likely than not that a portion of our net
deferred tax assets would not be realized due to our inability
to generate sufficient taxable income and, therefore, we
recorded a valuation allowance. After evaluating all available
evidence, including our losses, the events and developments
related to our conservatorship, volatility in the economy, and
related difficulty in forecasting future profit levels, we
reached a similar conclusion in all subsequent quarters,
including in the second quarter of 2011. Our valuation allowance
increased by $658 million during the six months ended
June 30, 2011 to $33.9 billion, primarily attributable
to an increase in temporary differences during the period. As of
June 30, 2011, after consideration of the valuation
allowance, we had a net deferred tax asset of $3.9 billion,
primarily representing the tax effect of unrealized losses on
our available-for-sale securities. We believe the deferred tax
asset related to these unrealized losses is more likely than not
to be realized because of our assertion that we have the intent
and ability to hold our available-for-sale securities until any
temporary unrealized losses are recovered.
IRS
Examinations
Prior to 2011, the IRS completed its examinations of tax years
1998 to 2007. We received Statutory Notices from the IRS
assessing $3.0 billion of additional income taxes and
penalties for the 1998 to 2005 tax years. We filed a petition
with the U.S. Tax Court on October 22, 2010 in
response to the Statutory Notices. The principal matter of
controversy involves questions of timing and potential penalties
regarding our tax accounting method for certain hedging
transactions. The IRS responded to our petition with the U.S.
Tax Court on December 21, 2010. On July 6, 2011, the
U.S. Tax Court
issued a Notice Setting Case for Trial and a Standing Pretrial
Order. The trial date set forth in the Notice is
December 12, 2011. We currently believe adequate reserves
have been provided for settlement on reasonable terms. For
additional information, see NOTE 13: INCOME
TAXES.
Other
Assets
Other assets consist of the guarantee asset related to
non-consolidated trusts and other guarantee commitments,
accounts and other receivables, and other miscellaneous assets.
Other assets decreased to $8.4 billion as of June 30,
2011 from $10.9 billion as of December 31, 2010
primarily because of a decrease in servicer receivables
resulting from lower loan liquidations on mortgage loans held by
consolidated trusts. See NOTE 21: SELECTED FINANCIAL
STATEMENT LINE ITEMS for additional information.
Total
Debt, Net
PCs and Other Guarantee Transactions issued by our consolidated
trusts and held by third parties are recognized as debt
securities of consolidated trusts held by third parties on our
consolidated balance sheets. Debt securities of consolidated
trusts held by third parties represents our liability to third
parties that hold beneficial interests in our consolidated
trusts. The debt securities of our consolidated trusts may be
prepaid without penalty at any time.
Other debt consists of unsecured short-term and long-term debt
securities we issue to third parties to fund our business
activities. It is classified as either short-term or long-term
based on the contractual maturity of the debt instrument. See
LIQUIDITY AND CAPITAL RESOURCES for a discussion of
our management activities related to other debt.
Table 26 presents the UPB for Freddie Mac issued
mortgage-related securities by the underlying mortgage product
type based on the UPB of the securities.
Table 26
Freddie Mac Mortgage-Related
Securities(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Issued by
|
|
|
Issued by
|
|
|
|
|
|
Issued by
|
|
|
Issued by
|
|
|
|
|
|
|
Consolidated
|
|
|
Non-Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Non-Consolidated
|
|
|
|
|
|
|
Trusts
|
|
|
Trusts
|
|
|
Total
|
|
|
Trusts
|
|
|
Trusts
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more amortizing fixed-rate
|
|
$
|
1,182,288
|
|
|
$
|
|
|
|
$
|
1,182,288
|
|
|
$
|
1,213,448
|
|
|
$
|
|
|
|
$
|
1,213,448
|
|
20-year
amortizing fixed-rate
|
|
|
67,525
|
|
|
|
|
|
|
|
67,525
|
|
|
|
65,210
|
|
|
|
|
|
|
|
65,210
|
|
15-year
amortizing fixed-rate
|
|
|
251,030
|
|
|
|
|
|
|
|
251,030
|
|
|
|
248,702
|
|
|
|
|
|
|
|
248,702
|
|
Adjustable-rate(3)
|
|
|
64,367
|
|
|
|
|
|
|
|
64,367
|
|
|
|
61,269
|
|
|
|
|
|
|
|
61,269
|
|
Interest-only(4)
|
|
|
67,593
|
|
|
|
|
|
|
|
67,593
|
|
|
|
79,835
|
|
|
|
|
|
|
|
79,835
|
|
FHA/VA and other governmental
|
|
|
3,486
|
|
|
|
|
|
|
|
3,486
|
|
|
|
3,369
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
1,636,289
|
|
|
|
|
|
|
|
1,636,289
|
|
|
|
1,671,833
|
|
|
|
|
|
|
|
1,671,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
|
|
|
|
4,611
|
|
|
|
4,611
|
|
|
|
|
|
|
|
4,603
|
|
|
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
|
1,636,289
|
|
|
|
4,611
|
|
|
|
1,640,900
|
|
|
|
1,671,833
|
|
|
|
4,603
|
|
|
|
1,676,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Guarantee Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HFA
bonds:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
|
|
|
|
6,144
|
|
|
|
6,144
|
|
|
|
|
|
|
|
6,168
|
|
|
|
6,168
|
|
Multifamily
|
|
|
|
|
|
|
1,093
|
|
|
|
1,093
|
|
|
|
|
|
|
|
1,173
|
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HFA bonds
|
|
|
|
|
|
|
7,237
|
|
|
|
7,237
|
|
|
|
|
|
|
|
7,341
|
|
|
|
7,341
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family(6)
|
|
|
14,240
|
|
|
|
4,038
|
|
|
|
18,278
|
|
|
|
15,806
|
|
|
|
4,243
|
|
|
|
20,049
|
|
Multifamily
|
|
|
|
|
|
|
14,718
|
|
|
|
14,718
|
|
|
|
|
|
|
|
8,235
|
|
|
|
8,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Guarantee Transactions
|
|
|
14,240
|
|
|
|
18,756
|
|
|
|
32,996
|
|
|
|
15,806
|
|
|
|
12,478
|
|
|
|
28,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMICs and Other Structured Securities backed by Ginnie Mae
Certificates(7)
|
|
|
|
|
|
|
852
|
|
|
|
852
|
|
|
|
|
|
|
|
857
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac Mortgage-Related Securities
|
|
$
|
1,650,529
|
|
|
$
|
31,456
|
|
|
$
|
1,681,985
|
|
|
$
|
1,687,639
|
|
|
$
|
25,279
|
|
|
$
|
1,712,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Repurchased Freddie Mac Mortgage-Related
Securities(8)
|
|
|
(166,113
|
)
|
|
|
|
|
|
|
|
|
|
|
(170,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of debt securities of consolidated trusts held by
third parties
|
|
$
|
1,484,416
|
|
|
|
|
|
|
|
|
|
|
$
|
1,517,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB of the securities and excludes mortgage-related
debt traded, but not yet settled.
|
(2)
|
Excludes other guarantee commitments for mortgage assets held by
third parties that require us to purchase loans from lenders
when these loans meet certain delinquency criteria.
|
(3)
|
Includes $1.2 billion and $1.3 billion in UPB of
option ARM mortgage loans as of June 30, 2011 and
December 31, 2010, respectively. See endnote (6) for
additional information on option ARM loans that back our Other
Guarantee Transactions.
|
(4)
|
Represents loans where the borrower pays interest only for a
period of time before the borrower begins making principal
payments. Includes both fixed- and variable-rate interest-only
loans.
|
(5)
|
Consists of bonds we acquired and resecuritized under the NIBP.
|
(6)
|
Backed by non-agency mortgage-related securities that include
prime, FHA/VA and subprime mortgage loans and also include
$7.9 billion and $8.4 billion in UPB of securities
backed by option ARM mortgage loans at June 30, 2011 and
December 31, 2010, respectively.
|
(7)
|
Backed by FHA/VA loans.
|
(8)
|
Represents the UPB of repurchased Freddie Mac mortgage-related
securities that are consolidated on our balance sheets and
includes certain remittance amounts associated with our security
trust administration that are payable to third-party
mortgage-related security holders. Our holdings of
non-consolidated Freddie Mac mortgage-related securities are
presented in Table 17 Characteristics of
Mortgage-Related Securities on Our Consolidated Balance
Sheets.
|
Excluding Other Guarantee Transactions, the percentage of
amortizing fixed-rate single-family loans underlying our
consolidated trust securities, based on UPB, was approximately
92% at both June 30, 2011 and December 31, 2010.
Because mortgage interest rates remained relatively low in the
first half of 2011, the majority of newly issued Freddie Mac
single-family mortgage-related securities in 2011 were backed by
refinance mortgages. During the first half of 2011, the UPB of
Freddie Mac mortgage-related securities issued by consolidated
trusts declined approximately 4.4%, on an annualized basis, as
our new issuances have not been sufficient to replace the
liquidations of these securities. The UPB of multifamily Other
Guarantee Transactions, excluding HFA-related securities,
increased to $14.7 billion as of June 30, 2011 from
$8.2 billion as of December 31, 2010, due to increased
multifamily loan securitization activity.
Table 27 presents issuances and extinguishments of debt
securities of our consolidated trusts held by third parties
during the three and six months ended June 30, 2011 and
2010.
Table 27
Issuances and Extinguishments of Debt Securities of Consolidated
Trusts(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Beginning balance of debt securities of consolidated trusts held
by third parties
|
|
$
|
1,497,849
|
|
|
$
|
1,543,062
|
|
|
$
|
1,517,001
|
|
|
$
|
1,564,093
|
|
Issuances to third parties of debt securities of consolidated
trusts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances based on underlying mortgage product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more amortizing fixed-rate
|
|
|
36,517
|
|
|
|
53,603
|
|
|
|
98,308
|
|
|
|
122,027
|
|
20-year
amortizing fixed-rate
|
|
|
3,147
|
|
|
|
4,006
|
|
|
|
9,390
|
|
|
|
6,879
|
|
15-year
amortizing fixed-rate
|
|
|
15,648
|
|
|
|
14,170
|
|
|
|
35,514
|
|
|
|
27,377
|
|
Adjustable-rate
|
|
|
6,216
|
|
|
|
3,835
|
|
|
|
11,862
|
|
|
|
5,605
|
|
Interest-only
|
|
|
|
|
|
|
473
|
|
|
|
152
|
|
|
|
757
|
|
FHA/VA
|
|
|
|
|
|
|
1
|
|
|
|
160
|
|
|
|
1,075
|
|
Debt securities of consolidated trusts retained by us at issuance
|
|
|
(313
|
)
|
|
|
(481
|
)
|
|
|
(6,658
|
)
|
|
|
(2,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuances of debt securities of consolidated trusts
|
|
|
61,215
|
|
|
|
75,607
|
|
|
|
148,728
|
|
|
|
160,929
|
|
Reissuances of debt securities of consolidated trusts previously
held by
us(2)
|
|
|
11,977
|
|
|
|
8,449
|
|
|
|
36,553
|
|
|
|
16,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total issuances to third parties of debt securities of
consolidated trusts
|
|
|
73,192
|
|
|
|
84,056
|
|
|
|
185,281
|
|
|
|
177,289
|
|
Extinguishments,
net(3)
|
|
|
(86,625
|
)
|
|
|
(90,169
|
)
|
|
|
(217,866
|
)
|
|
|
(204,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of debt securities of consolidated trusts held by
third parties
|
|
$
|
1,484,416
|
|
|
$
|
1,536,949
|
|
|
$
|
1,484,416
|
|
|
$
|
1,536,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB.
|
(2)
|
Represents our sales of PCs and certain Other Guarantee
Transactions previously held by us.
|
(3)
|
Represents: (a) UPB of our purchases from third parties of
PCs and Other Guarantee Transactions issued by our consolidated
trusts; (b) principal repayments related to PCs and Other
Guarantee Transactions issued by our consolidated trusts; and
(c) certain remittance amounts associated with our trust
security administration that are payable to third-party
mortgage-related security holders as of June 30, 2011 and
2010.
|
Other
Liabilities
Other liabilities consist of the guarantee obligation, the
reserve for guarantee losses on non-consolidated trusts and
other mortgage-related financial guarantees, servicer
liabilities, accounts payable and accrued expenses, and other
miscellaneous liabilities. Other liabilities decreased to
$7.2 billion as of June 30, 2011 from
$8.1 billion as of December 31, 2010 primarily because
of a decrease in servicer liabilities and accounts payable and
accrued expenses during the first half of 2011. See
NOTE 21: SELECTED FINANCIAL STATEMENT LINE
ITEMS for additional information.
Total
Equity (Deficit)
Table 28 presents the changes in total equity (deficit) and
certain capital-related disclosures.
Table 28
Changes in Total Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
06/30/11
|
|
|
03/31/11
|
|
|
12/31/10
|
|
|
09/30/10
|
|
|
06/30/10
|
|
|
06/30/11
|
|
|
|
(in millions)
|
|
|
Beginning balance
|
|
$
|
1,237
|
|
|
$
|
(401
|
)
|
|
$
|
(58
|
)
|
|
$
|
(1,738
|
)
|
|
$
|
(10,525
|
)
|
|
$
|
(401
|
)
|
Net income (loss)
|
|
|
(2,139
|
)
|
|
|
676
|
|
|
|
(113
|
)
|
|
|
(2,511
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
Other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to
available-for-sale securities
|
|
|
903
|
|
|
|
1,941
|
|
|
|
1,097
|
|
|
|
3,781
|
|
|
|
4,097
|
|
|
|
2,844
|
|
Changes in unrealized gains (losses) related to cash flow hedge
relationships
|
|
|
135
|
|
|
|
132
|
|
|
|
153
|
|
|
|
164
|
|
|
|
184
|
|
|
|
267
|
|
Changes in defined benefit plans
|
|
|
1
|
|
|
|
(9
|
)
|
|
|
19
|
|
|
|
2
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
(1,100
|
)
|
|
|
2,740
|
|
|
|
1,156
|
|
|
|
1,436
|
|
|
|
(430
|
)
|
|
|
1,640
|
|
Capital draw funded by Treasury
|
|
|
|
|
|
|
500
|
|
|
|
100
|
|
|
|
1,800
|
|
|
|
10,600
|
|
|
|
500
|
|
Senior preferred stock dividends declared
|
|
|
(1,617
|
)
|
|
|
(1,605
|
)
|
|
|
(1,603
|
)
|
|
|
(1,561
|
)
|
|
|
(1,293
|
)
|
|
|
(3,222
|
)
|
Other
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
(90
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity (deficit) / Net worth
|
|
$
|
(1,478
|
)
|
|
$
|
1,237
|
|
|
$
|
(401
|
)
|
|
$
|
(58
|
)
|
|
$
|
(1,738
|
)
|
|
$
|
(1,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate draws under the Purchase
Agreement(1)
|
|
$
|
63,700
|
|
|
$
|
63,700
|
|
|
$
|
63,200
|
|
|
$
|
63,100
|
|
|
$
|
61,300
|
|
|
$
|
63,700
|
|
Aggregate senior preferred stock dividends paid to Treasury in
cash
|
|
$
|
13,248
|
|
|
$
|
11,631
|
|
|
$
|
10,026
|
|
|
$
|
8,423
|
|
|
$
|
6,862
|
|
|
$
|
13,248
|
|
Percentage of dividends paid to Treasury in cash to aggregate
draws
|
|
|
21
|
%
|
|
|
18
|
%
|
|
|
16
|
%
|
|
|
13
|
%
|
|
|
11
|
%
|
|
|
21
|
%
|
|
|
(1) |
Does not include the initial $1.0 billion liquidation
preference of senior preferred stock that we issued to Treasury
in September 2008 as an initial commitment fee and for which no
cash was received.
|
Net unrealized losses in AOCI on our available-for-sale
securities decreased by $0.9 billion and $2.8 billion
during the three and six months ended June 30, 2011,
respectively, primarily due to fair value gains related to the
movement of
non-agency mortgage-related securities with unrealized losses
towards maturity and the impact of a decline in interest rates,
partially offset by the impact of widening OAS levels on our
non-agency mortgage-related securities. Additionally, net
unrealized losses recorded in AOCI decreased due to the
recognition in earnings of other-than-temporary impairments on
our non-agency mortgage-related securities. Net unrealized
losses in AOCI on our closed cash flow hedge relationships
decreased by $135 million and $267 million during the
three and six months ended June 30, 2011, respectively,
primarily attributable to the reclassification of losses into
earnings related to our closed cash flow hedges as the
originally forecasted transactions affected earnings.
RISK
MANAGEMENT
Our investment and credit guarantee activities expose us to
three broad categories of risk: (a) credit risk;
(b) interest-rate risk and other market risk; and
(c) operational risk. See RISK FACTORS in our
2010 Annual Report, our Quarterly Report on
Form 10-Q
for the first quarter of 2011, and in this
Form 10-Q
for additional information regarding these and other risks.
Credit
Risk
We are subject primarily to two types of credit risk:
institutional credit risk and mortgage credit risk.
Institutional credit risk is the risk that a counterparty that
has entered into a business contract or arrangement with us will
fail to meet its obligations. Mortgage credit risk is the risk
that a borrower will fail to make timely payments on a mortgage
we own or guarantee. We are exposed to mortgage credit risk on
our total mortgage portfolio because we either hold the mortgage
assets or have guaranteed mortgages in connection with the
issuance of a Freddie Mac mortgage-related security, or other
guarantee commitment.
Institutional
Credit Risk
In recent periods, challenging market conditions adversely
affected the liquidity and financial condition of our
counterparties. The concentration of our exposure to our
counterparties has increased in recent periods due to industry
consolidation and counterparty failures. In addition, previously
highly-rated mortgage insurers have been downgraded in prior
periods due to their weakened financial condition. As a result,
we continue to face challenges in reducing our risk
concentrations with counterparties. Efforts we take to reduce
exposure to financially weakened counterparties could further
increase our exposure to other individual counterparties. The
failure of any of our primary counterparties to meet their
obligations to us could have a material adverse effect on our
results of operations, financial condition, and our ability to
conduct future business.
Our exposure to mortgage seller/servicers remained high during
the six months ended June 30, 2011 with respect to their
repurchase obligations arising from breaches of representations
and warranties made to us for loans they underwrote and sold to
us. We rely on our seller/servicers to perform loan workout
activities as well as foreclosures on loans that they service
for us. Our credit losses could increase to the extent that our
seller/servicers do not fully perform these obligations in a
prudent and timely manner.
Our exposure to derivatives counterparties remains highly
concentrated as compared to historical levels.
Non-Agency
Mortgage-Related Security Issuers
Our investments in securities expose us to institutional credit
risk to the extent that servicers, issuers, guarantors, or third
parties providing credit enhancements become insolvent or do not
perform their obligations. Our investments in non-Freddie Mac
mortgage-related securities include both agency and non-agency
securities. However, agency securities have historically
presented minimal institutional credit risk due to the guarantee
provided by those institutions.
At the direction of our Conservator, we are working to enforce
our rights as an investor with respect to the non-agency
mortgage-related securities we hold, and are engaged in efforts
to mitigate losses on our investments in these securities, in
some cases in conjunction with other investors. The
effectiveness of our efforts is highly uncertain and any
potential recoveries may take significant time to realize.
As previously disclosed, we joined an investor group that
delivered a notice of non-performance in 2010 to The Bank of New
York Mellon, as Trustee, and Countrywide Home Loans Servicing LP
(now known as BAC Home Loans Servicing, LP), related to the
possibility that certain mortgage pools backing certain
mortgage-related securities issued by Countrywide Financial and
related entities include mortgages that may have been ineligible
for inclusion in the pools due to breaches of representations or
warranties.
On June 29, 2011, Bank of America Corporation announced
that it, BAC Home Loans Servicing, LP, Countrywide
Financial Corporation and Countrywide Home Loans, Inc. entered
into a settlement agreement with The Bank of New York Mellon, as
trustee, to resolve all outstanding and potential claims related
to alleged breaches of representations and warranties (including
repurchase claims), substantially all historical loan servicing
claims and certain other historical claims with respect to
530 Countrywide first-lien and second-lien residential
mortgage-related securitization trusts. Bank of America
indicated that the settlement is subject to final court approval
and certain other conditions, including the receipt of a private
letter ruling from the IRS. There can be no assurance that final
court approval of the settlement will be obtained or that all
conditions will be satisfied. Bank of America noted that, given
the number of investors and the complexity of the settlement, it
is not possible to predict whether and to what extent challenges
will be made to the settlement or the timing or ultimate outcome
of the court approval process, which could take a substantial
period of time. We have investments in certain of these
Countrywide securitization trusts and would expect to benefit
from this settlement, if final court approval is obtained.
In connection with the settlement, Bank of America Corporation
entered into an agreement with the investor group. Under this
agreement, the investor group agreed, among other things, to use
reasonable best efforts and to cooperate in good faith to
effectuate the settlement, including to obtain final court
approval. Freddie Mac was not a party to this agreement, but
agreed to retract any previously delivered notices of
non-performance upon final court approval of the settlement.
The court has directed that any objections to the settlement be
filed no later than August 30, 2011. FHFA, after
considering input from us and others, will determine whether or
not to object to the proposed settlement.
On July 27, 2011, FHFA announced that it, as conservator of
Freddie Mac and Fannie Mae, has filed a lawsuit in the federal
district court for the Southern District of New York against UBS
Americas, Inc., and related defendants alleging violations of
federal securities laws in the sale of residential private-label
mortgage-related securities to Freddie Mac and Fannie Mae. FHFA
seeks to recover losses and damages sustained by Freddie Mac and
Fannie Mae as a result of their investments in UBS securities.
See CONSOLIDATED BALANCE SHEETS ANALYSIS
Investments in Securities for additional information on
credit risk associated with our investments in mortgage-related
securities, including higher-risk components and impairment
charges we recognized in the three and six months ended
June 30, 2011 related to these investments. For information
about institutional credit risk associated with our investments
in non-mortgage-related securities, see NOTE 7:
INVESTMENTS IN SECURITIES Table 7.9
Trading Securities as well as Cash and Other
Investments Counterparties below.
Mortgage
Seller/Servicers
We acquire a significant portion of our single-family mortgage
purchase volume from several large lenders, or seller/servicers.
Our top 10 single-family seller/servicers provided
approximately 85% of our single-family purchase volume during
the six months ended June 30, 2011. Wells Fargo
Bank, N.A., JPMorgan Chase Bank, N.A., Bank of
America, N.A. and U.S. Bank, N.A. accounted for 29%, 14%,
11%, and 10% respectively, of our single-family mortgage
purchase volume and were the only single-family seller/servicers
that comprised 10% or more of our purchase volume for the six
months ended June 30, 2011. For the six months ended
June 30, 2011, our top two multifamily lenders, CBRE
Capital Markets, Inc., and Berkadia Commercial
Mortgage LLC accounted for 21% and 13%, respectively, of
our multifamily purchase volume. Our top 10 multifamily
lenders represented an aggregate of approximately 85% of our
multifamily purchase volume for the six months ended
June 30, 2011. In July 2011, FHFA informed us that it
expects us, going forward, to have in our agreements with
sellers the ability to change base guarantee fees upon
90 days notice to sellers, if directed to do so by FHFA.
We have contractual arrangements with our seller/servicers under
which they agree to provide us with mortgage loans that have
been originated under specified underwriting standards. If we
subsequently discover that contractual standards were not
followed, we can exercise certain contractual remedies to
mitigate our credit losses. These contractual remedies include
the ability to require the seller/servicer to repurchase the
loan at its current UPB or make us whole for any credit losses
realized with respect to the loan. In addition, we may enter
into agreements with certain of our seller/servicers to release
specified loans in their servicing portfolios from certain
repurchase obligations in exchange for one-time cash payments or
seek other remedies with our seller/servicers in the future.
We are exposed to institutional credit risk arising from the
potential insolvency or non-performance by our mortgage
seller/servicers, including non-performance of their repurchase
obligations arising from breaches of the representations and
warranties made to us for loans they underwrote and sold to us
or failure to honor their recourse and indemnification
obligations to us. Pursuant to their repurchase obligations, our
seller/servicers are obligated to repurchase mortgages sold to
us when there has been a breach of the representations and
warranties made to us with respect to the mortgages. In lieu of
repurchase, we may choose to allow a seller/servicer to
indemnify us against losses realized on such mortgages or
otherwise compensate us for the risk of continuing to hold the
mortgages. In some cases, the ultimate amounts of recovery
payments we have received from seller/servicers may be
significantly less than the amount of our estimates of potential
exposure to losses related to their obligations. If a
seller/servicer does not satisfy its repurchase or
indemnification obligations with respect to a loan, we will be
subject to the full range of credit risks posed by the loan if
the loan fails to perform, including the risk that a mortgage
insurer may deny or rescind coverage on the loan (if the loan is
insured) and the risk that we will incur credit losses on the
loan through the workout or foreclosure process.
Our contracts require that a seller/servicer repurchase a
mortgage after we issue a repurchase request, unless the
seller/servicer avails itself of an appeals process provided for
in our contracts, in which case the deadline for repurchase is
extended until we decide the appeal. Some of our
seller/servicers have failed to fully perform their repurchase
obligations due to lack of financial capacity, while others,
including many of our larger seller/servicers, have not fully
performed their repurchase obligations in a timely manner. The
UPB of loans subject to repurchase requests issued to our
single-family seller/servicers declined to approximately
$3.1 billion as of June 30, 2011 from
$3.8 billion as of December 31, 2010, primarily
because resolved requests of $6.1 billion exceeded our
issuance of $5.4 billion of new requests for the six months
ended June 30, 2011. As measured by UPB, approximately 43%
and 34% of the repurchase requests outstanding at June 30,
2011 and December 31, 2010, respectively, were outstanding
for four months or more since issuance of the initial request.
The amount we expect to collect on the outstanding requests is
significantly less than the UPB amount because many of these
requests are likely to be satisfied by reimbursement of our
realized losses by seller/servicers, or rescinded in the course
of the contractual appeal process. Based on our historical loss
experience and the fact that many of these loans are covered by
credit enhancement, we expect the actual credit losses
experienced by us should we fail to collect on these repurchase
requests to also be less than the UPB of the loans. As of
June 30, 2011, a significant portion of the repurchase
requests outstanding more than four months relates to requests
made because the mortgage insurer rescinded the mortgage
insurance on the loan or denied the mortgage insurance claim.
Our actual credit losses could increase should the mortgage
insurance coverage not be reinstated and we fail to collect on
these repurchase requests.
During the six months ended June 30, 2011, we recovered
amounts that covered losses with respect to $2.4 billion of
UPB of loans subject to our repurchase requests. At
June 30, 2011 and December 31, 2010, four of our
largest single-family seller/servicers collectively had
approximately 47% and 32%, respectively, of their repurchase
obligations outstanding for more than four months since issuance
of our initial repurchase request, as measured by the UPB of
loans associated with our repurchase requests. During 2010, we
entered into agreements with certain of our seller/servicers to
release specified loans in their servicing portfolios from
certain repurchase obligations in exchange for one-time cash
payments.
In order to resolve outstanding repurchase requests on a more
timely basis with our single-family seller/servicers in the
future, we have begun to require certain of our larger
seller/servicers to commit to plans for completing repurchases,
with financial consequences or with stated remedies for
non-compliance, as part of the annual renewals of our contracts
with them. While these provisions are in place for certain of
our seller/servicers, it is too early to tell if these
provisions will help in resolving future repurchase requests in
a more timely manner or the impact they may have on the size or
timing of our credit losses. In addition, we will implement a
new monitoring process for our seller/servicers in the third
quarter of 2011, which is intended to allow us to better
evaluate our servicers and remediate issues concerning
performance. We continue to review loans and pursue our rights
to issue repurchase requests to our counterparties, as
appropriate.
Our estimate of probable incurred losses for exposures to
seller/servicer repurchase obligations is considered in our
allowance for loan losses as of June 30, 2011 and
December 31, 2010; however, our actual losses may be
different than our estimates. See NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Allowance for Loan
Losses and Reserve for Guarantee Losses in our 2010 Annual
Report for further information.
On August 24, 2009, Taylor, Bean & Whitaker
Mortgage Corp., or TBW, filed for bankruptcy. Prior to that
date, we had terminated TBWs status as a seller/servicer
of our loans. We had exposure to TBW with respect to its loan
repurchase obligations. We also had exposure with respect to
certain borrower funds that TBW held for the benefit of Freddie
Mac. TBW received and processed such funds in its capacity as a
servicer of loans owned or guaranteed by Freddie Mac. TBW
maintained certain bank accounts, primarily at Colonial Bank, to
deposit such borrower funds and to provide remittance to Freddie
Mac. Colonial Bank was placed into receivership by the FDIC in
August 2009.
On or about June 14, 2010, we filed a proof of claim in the
TBW bankruptcy aggregating $1.78 billion. Of this amount,
approximately $1.15 billion related to current and
projected repurchase obligations and approximately
$440 million related to funds deposited with Colonial Bank,
or with the FDIC as its receiver, which are attributable to
mortgage loans owned or guaranteed by us and previously serviced
by TBW. The remaining $190 million represented
miscellaneous costs and expenses incurred in connection with the
termination of TBWs status as a seller/servicer of our
loans.
With the approval of FHFA, as Conservator, we entered into a
proposed settlement with TBW and the creditors committee
appointed in the TBW bankruptcy proceeding to represent the
interests of the unsecured trade creditors of TBW. The
settlement, which is discussed below, was filed with the
Bankruptcy Court for the Middle District of Florida on
June 22, 2011. The court approved the settlement and
confirmed TBWs proposed plan of liquidation on
July 21, 2011.
Under the terms of the settlement, we have been granted an
unsecured claim in the TBW bankruptcy estate in the amount of
$1.022 billion, largely representing our claims to past and
future loan repurchase exposures. We estimate that this claim
may result in a distribution to us of approximately
$40-45 million,
which is based on the plan of liquidation and disclosure
statement filed with the court by TBW, indicating that general
unsecured creditors are likely to receive a distribution of 3.3
to 4.4 cents on the dollar. We are also entitled to
approximately $203 million on deposit in certain TBW bank
accounts relating to our mortgage loans, $150 million of
which we received on June 21, 2011 from the FDIC as
receiver of Colonial Bank. We are required to assign ownership
rights of certain escrow accounts associated with the serviced
loans to TBW and certain of its creditors. The settlement also
allows for our sale of TBW-related mortgage servicing rights and
provides a formula for determining the amount of the proceeds,
if any, to be allocated to third parties that have asserted
interests in those rights. We estimate that during the third
quarter of 2011, we will recognize approximately a
$0.2 billion gain, representing the difference between the
amounts that we assign, or pay, to TBW and their creditors and
the liability recorded on our consolidated balance sheet.
At June 30, 2011, we estimate our uncompensated loss
exposure to TBW to be approximately $0.7 billion. This
estimated exposure largely relates to outstanding repurchase
claims that have already been adjusted in our financial
statements to their net realizable value through our provision
for loan losses. Our ultimate losses could exceed our recorded
estimate. Potential changes in our estimate of uncompensated
loss exposure or the potential for additional claims as
discussed below could cause us to record additional losses in
the future.
We understand that Ocala Funding, LLC, or Ocala, which is a
wholly owned subsidiary of TBW, or its creditors may file an
action to recover certain funds paid to us prior to the TBW
bankruptcy. However, no actions against Freddie Mac related to
Ocala have been initiated in bankruptcy court or elsewhere to
recover assets. Based on court filings and other information, we
understand that Ocala or its creditors may attempt to assert
fraudulent transfer and other possible claims totaling
approximately $840 million against us related to funds that
were allegedly transferred from Ocala to Freddie Mac custodial
accounts. We also understood that Ocala might attempt to make
claims against us asserting ownership of a large number of loans
that we purchased from TBW. The order approving the settlement
provides that nothing in the settlement shall be construed to
limit, waive or release Ocalas claims against Freddie Mac,
except for TBWs claims and claims arising from the
allocation of the loans discussed above to Freddie Mac.
On or about May 14, 2010, certain underwriters at Lloyds,
London and London Market Insurance Companies brought an
adversary proceeding in bankruptcy court against TBW, Freddie
Mac and other parties seeking a declaration rescinding mortgage
bankers bonds insuring against loss resulting from dishonest
acts by TBWs officers, directors, and employees. Freddie
Mac has filed a proof of loss under the bonds, but we are unable
at this time to estimate our potential recovery, if any,
thereunder. Discovery is proceeding.
A significant portion of our single-family mortgage loans are
serviced by several large seller/servicers. Our top five
single-family loan servicers, Wells Fargo Bank N.A., Bank
of America N.A., JPMorgan Chase Bank, N.A.,
Citimortgage, Inc., and U.S. Bank, N.A., together
serviced approximately 67% of our single-family mortgage loans
as of June 30, 2011. Wells Fargo Bank N.A., Bank of
America N.A., and JPMorgan Chase Bank, N.A. serviced
approximately 26%, 14%, and 12%, respectively, of our
single-family mortgage loans, as of June 30, 2011. Since we
do not have our own servicing operation, if our servicers lack
appropriate process controls, experience a failure in their
controls, or experience an operating disruption in their ability
to service mortgage loans, it could have an adverse impact on
our business and financial results.
During the second half of 2010, a number of our single-family
servicers, including several of our largest, announced that they
were evaluating the potential extent of issues relating to the
possible improper execution of documents associated with
foreclosures of loans they service, including those they service
for us. Some of these companies temporarily suspended
foreclosure proceedings in certain states in which they do
business. While these servicers generally
resumed foreclosure proceedings in the first quarter of 2011,
the rate at which they are effecting foreclosures has been
slower than prior to the suspensions. See RISK
FACTORS Operational Risks We have
incurred and will continue to incur expenses and we may
otherwise be adversely affected by deficiencies in foreclosure
practices, as well as related delays in the foreclosure
process in our 2010 Annual Report.
We also are exposed to the risk that seller/servicers might fail
to service mortgages in accordance with our contractual
requirements, resulting in increased credit losses. For example,
our seller/servicers have an active role in our loan workout
efforts, including under the MHA Program and the recent
servicing alignment initiative, and therefore, we also have
exposure to them to the extent a decline in their performance
results in a failure to realize the anticipated benefits of our
loss mitigation plans. During the first half of 2011, there have
been several regulatory developments that have affected and will
continue to significantly impact our single-family mortgage
servicers. For more information on regulatory and other
developments in mortgage servicing, and how these developments
may impact our business, see LEGISLATIVE AND REGULATORY
MATTERS Developments Concerning Single-Family
Servicing Practices.
While we have legal remedies against seller/servicers who fail
to comply with our contractual servicing requirements, we are
exposed to institutional credit risk in the event of their
insolvency or if, for other causes, seller/servicers fail to
perform their obligations to repurchase affected mortgages,
indemnify us for losses resulting from any breach, or pay
damages for any breach. In the event a seller/servicer does not
fulfill its repurchase or other responsibilities, we may seek
partial recovery of amounts owed by the seller/servicer by
transferring the applicable mortgage servicing rights of the
seller/servicer to a different servicer. However, this option
may be difficult to accomplish with respect to our largest
seller/servicers due to the operational and capacity challenges
of transferring a large servicing portfolio.
As of June 30, 2011, our top four multifamily servicers,
Berkadia Commercial Mortgage LLC, Wells Fargo
Bank, N.A., CBRE Capital Markets, Inc., and Deutsche
Bank Berkshire Mortgage, each serviced more than 10% of our
multifamily mortgage portfolio and together serviced
approximately 51% of our multifamily mortgage portfolio.
In our multifamily business, we are exposed to the risk that
multifamily seller/servicers could come under financial
pressure, which could potentially cause degradation in the
quality of servicing they provide to us or, in certain cases,
reduce the likelihood that we could recover losses through
recourse agreements or other credit enhancements, where
applicable. This risk primarily relates to multifamily loans
that we hold on our consolidated balance sheets where we retain
all of the related credit risk. We monitor the status of all our
multifamily seller/servicers in accordance with our counterparty
credit risk management framework.
Mortgage
Insurers
We have institutional credit risk relating to the potential
insolvency of or non-performance by mortgage insurers that
insure single-family mortgages we purchase or guarantee. As a
guarantor, we remain responsible for the payment of principal
and interest if a mortgage insurer fails to meet its obligations
to reimburse us for claims. If any of our mortgage insurers that
provide credit enhancement fail to fulfill their obligation, we
could experience increased credit losses.
Table 29 summarizes our exposure to mortgage insurers as of
June 30, 2011. In the event that a mortgage insurer fails
to perform, the coverage outstanding represents our maximum
exposure to credit losses resulting from such failure. As of
June 30, 2011, most of the coverage outstanding from
mortgage insurance shown in Table 29 is attributed to primary
policies rather than pool insurance policies.
Table 29
Mortgage Insurance by Counterparty
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As of June 30, 2011
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Primary
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Pool
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Coverage
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Counterparty Name
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Credit
Rating(1)
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Credit Rating
Outlook(1)
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Insurance(2)
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Insurance(2)
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Outstanding(3)
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(in billions)
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Mortgage Guaranty Insurance Corporation (MGIC)
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B+
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Negative
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$
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50.9
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$
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31.0
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$
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13.4
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Radian Guaranty Inc.
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B+
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Negative
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37.5
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12.4
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11.0
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Genworth Mortgage Insurance Corporation
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BB−
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Negative
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32.4
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0.9
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8.3
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United Guaranty Residential Insurance Co.
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BBB
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Stable
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28.5
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0.3
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7.0
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PMI Mortgage Insurance Co. (PMI)
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CCC−
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Negative
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26.3
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2.3
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6.6
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Republic Mortgage Insurance Company (RMIC)
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B+
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Negative
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21.8
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2.2
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5.5
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Triad Guaranty
Insurance Corp.(4)
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Not rated
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N/A
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9.4
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1.0
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2.3
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CMG Mortgage Insurance Co.
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BBB
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Negative
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2.9
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0.1
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0.7
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Total
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$
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209.7
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$
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50.2
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$
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54.8
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(1)
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Except for PMI and RMIC, latest rating available as of
July 22, 2011. PMIs and RMICs credit rating and
credit rating outlook reflect a S&P action on
August 4, 2011 and August 1, 2011, respectively.
Represents the lower of S&P and Moodys credit ratings
and outlooks. In this table, the rating and outlook of the legal
entity is stated in terms of the S&P equivalent.
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(2)
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Represents the amount of UPB at the end of the period for our
single-family credit guarantee portfolio covered by the
respective insurance type.
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(3)
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Represents the remaining aggregate contractual limit for
reimbursement of losses under policies of both primary and pool
insurance. These amounts are based on our gross coverage without
regard to netting of coverage that may exist to the extent an
affected mortgage is covered under both types of insurance.
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(4)
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Beginning on June 1, 2009, Triad began paying valid claims
60% in cash and 40% in deferred payment obligations.
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We received proceeds of $1.3 billion and $0.7 billion
during the six months ended June 30, 2011 and 2010,
respectively, from our primary and pool mortgage insurance
policies for recovery of losses on our single-family loans. We
had outstanding receivables from mortgage insurers, net of
associated reserves, of $1.4 billion and $1.5 billion
as of June 30, 2011 and December 31, 2010,
respectively.
The UPB of single-family loans covered by pool insurance
declined approximately 11% during the six months ended
June 30, 2011, primarily due to payoffs and other
liquidation events. We did not purchase pool insurance on
single-family loans during the six months ended June 30,
2011. In recent periods, we also reached the maximum limit of
recovery on certain of these policies.
Based on information we received from MGIC, we understand that
MGIC may challenge our future claims under certain of their pool
insurance policies. We believe that our pool insurance policies
with MGIC provide us with the right to obtain recoveries for
losses up to the aggregate limit indicated in Table 29.
However, MGICs interpretation of these policies would
result in claims coverage approximately $0.5 billion lower
than the coverage outstanding amount set forth in Table 29.
We expect this difference to increase but not to exceed
approximately $0.7 billion.
Four of our mortgage insurers, including RMIC and PMI, have
exceeded risk to capital ratios required by their state
insurance regulators, and others may exceed regulatory limits in
the future. Most, but not all, states have issued waivers to
allow the companies to continue writing new business in their
states, and Freddie Mac has, in certain circumstances, approved
limited purpose affiliates to allow the companies to continue
writing business in those states that have not issued waivers.
Some of those state regulatory waivers are nearing their
expiration dates.
On July 28, 2011, RMIC announced that its waiver of minimum
state regulatory capital requirements will expire on
August 31, 2011, and that it has not yet obtained necessary
approvals to move production of new business to a separately
capitalized subsidiary. RMIC stated that it is probable that its
new business production will cease, at least temporarily, prior
to August 31, 2011. RMIC also stated that, absent approval
to underwrite new production through a separately capitalized
subsidiary, it is most likely that RMICs existing book of
business would be placed into run off operating mode. We
notified RMIC that they were suspended as an approved insurer
for Freddie Mac loans effective August 1, 2011.
We evaluate the near term recovery from insurance policies for
mortgage loans that we hold on our consolidated balance sheet as
well as loans underlying our non-consolidated Freddie Mac
mortgage-related securities and covered by other guarantee
commitments as part of the estimate of our loan loss reserves.
Based upon currently available information, we believe that all
of our mortgage insurance counterparties have the capacity to
pay all claims as they become due in the normal course for the
near term, except for claims obligations of Triad that were
partially deferred beginning June 1, 2009, under order of
Triads state regulator. To date, Triads regulator
has not allowed Triad to begin paying its deferred payment
obligations, and it is uncertain when or if Triad will be
permitted to do so, which would result in the loss of a
significant portion of the coverage provided by Triad and
indicated in Table 29 above. In addition, we believe that
certain of our other mortgage insurance counterparties may lack
sufficient ability to fully meet all of their expected lifetime
claims paying obligations to us over the long term as such
claims emerge.
We believe at least one of our largest servicers entered into
arrangements with two of our mortgage insurance counterparties
for settlement of future rescission activity for certain
mortgage loans. Under such agreements, servicers pay
and/or
indemnify mortgage insurers in exchange for the mortgage
insurers agreeing not to issue mortgage insurance rescissions
and /or denials of coverage related to origination defects on
Freddie Mac-owned mortgages. For loans covered by these
agreements, we may be at risk of additional loss to the extent
we do not independently uncover loan defects and require lender
repurchase for loans that otherwise would have resulted in
mortgage insurance rescission. Additionally, this type of
activity could result in negative financial impacts on our
mortgage insurers ability to pay in some economic
scenarios. In April 2011, we issued an industry letter to our
servicers reminding them that they may not enter into these
types of agreements without our consent. It is unclear how
widespread this type of agreement between our servicers and
mortgage insurers may become or how many loans it may impact.
Bond
Insurers
Most of the non-agency mortgage-related securities we hold rely
primarily on subordinated tranches to provide credit loss
protection. Bond insurance, which may be either primary or
secondary policies, is a credit enhancement covering certain of
the non-agency mortgage-related securities we hold. Primary
policies are acquired by the securitization trust issuing the
securities we purchase, while secondary policies are acquired by
us. Bond insurance exposes us to the risk that the bond insurer
will be unable to satisfy claims.
Table 30 presents our coverage amounts of monoline bond
insurance, including secondary coverage, for the non-agency
mortgage-related securities we hold. In the event a monoline
bond insurer fails to perform, the coverage outstanding
represents our maximum exposure to credit losses related to such
a failure.
Table 30
Monoline Bond Insurance by Counterparty
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June 30, 2011
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Counterparty Name
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Credit
Rating(1)
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Credit Rating
Outlook(1)
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Coverage
Outstanding(2)
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Percent of
Total(2)
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(dollars in billions)
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Ambac Assurance Corporation
(Ambac)(3)
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Not rated
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N/A
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$
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4.4
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43
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%
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Financial Guaranty Insurance Company
(FGIC)(3)
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Not rated
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N/A
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1.9
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19
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MBIA Insurance Corp.
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B
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Negative
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1.4
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14
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Assured Guaranty Municipal Corp.
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AA+
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Stable
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1.2
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12
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National Public Finance Guarantee Corp.
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BBB
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Developing
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1.1
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11
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Syncora Guarantee
Inc.(3)
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Not rated
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N/A
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0.1
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1
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Total
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$
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10.1
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100
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%
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(1)
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Latest ratings available as of July 22, 2011. Represents
the lower of S&P and Moodys credit ratings. In this
table, the rating and outlook of the legal entity is stated in
terms of the S&P equivalent.
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(2)
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Represents the remaining contractual limit for reimbursement of
losses, including lost interest and other expenses, on
non-agency mortgage-related securities.
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(3)
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Neither S&P nor Moodys provide credit ratings for
Ambac, FGIC, or Syncora Guarantee Inc., since these companies
operate under regulatory supervision at June 30, 2011.
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We monitor the financial strength of our bond insurers in
accordance with our risk management policies. We expect to
receive substantially less than full payment of our claims from
FGIC and Ambac due to adverse developments concerning these
companies, both of which are currently not paying any of their
claims. We believe that we will likely receive substantially
less than full payment of our claims from some of our other bond
insurers, because we believe they also lack sufficient ability
to fully meet all of their expected lifetime claims-paying
obligations to us as such claims emerge. In the event one or
more of these bond insurers were to become subject to a
regulatory order or insolvency proceeding, our ability to
recover certain unrealized losses on our mortgage-related
securities would be negatively impacted, which may result in
further impairment losses to be recognized on our investments in
securities. We considered our expectations regarding our bond
insurers ability to meet their obligations, including
those of Ambac and FGIC, in making our impairment determinations
at June 30, 2011 and December 31, 2010. See
NOTE 7: INVESTMENTS IN SECURITIES
Other-Than-Temporary
Impairments on
Available-For-Sale
Securities for additional information regarding impairment
losses on securities covered by bond insurers.
Cash
and Other Investments Counterparties
We are exposed to institutional credit risk arising from the
potential insolvency or non-performance of counterparties of
non-mortgage-related investment agreements and cash equivalent
transactions, including those entered into on behalf of our
securitization trusts. These financial instruments are
investment grade at the time of purchase and primarily
short-term in nature, which mitigates institutional credit risk
for these instruments.
Our cash and other investment counterparties are primarily
financial institutions and the Federal Reserve Bank. As of
June 30, 2011 and December 31, 2010, there were
$53.4 billion and $91.6 billion, respectively, of cash
and other non-
mortgage assets invested in financial instruments with
institutional counterparties or deposited with the Federal
Reserve Bank. As of June 30, 2011, these included:
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$14.4 billion of cash equivalents invested in
32 counterparties that had short-term credit ratings of
A-1 or above
on the S&P or equivalent scale;
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$6.0 billion of federal funds sold with four counterparties
that had short-term S&P ratings of
A-1 or above;
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$1.3 billion of federal funds sold with one counterparty
that had a short-term S&P rating of
A-2;
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$7.1 billion of securities purchased under agreements to
resell with three counterparties that had short-term S&P
ratings of
A-1 or above;
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$19.2 billion of securities purchased under agreements to
resell with eight counterparties that had short-term S&P
ratings of
A-2; and
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$4.9 billion of cash deposited with the Federal Reserve
Bank.
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Derivative
Counterparties
We are exposed to institutional credit risk arising from the
possibility that a derivative counterparty will not be able to
meet its contractual obligations. We are an active user of
exchange-traded products, such as Treasury and Eurodollar
futures, to reduce our overall exposure to derivative
counterparties. Exchange-traded derivatives do not measurably
increase our institutional credit risk because changes in the
value of open exchange-traded contracts are settled daily
through a financial clearinghouse established by each exchange.
OTC derivatives, however, expose us to institutional credit risk
because transactions are executed and settled directly between
us and the counterparty. When our net position with an OTC
counterparty subject to a master netting agreement has a market
value above zero at a given date (i.e., it is an asset
reported as derivative assets, net on our consolidated balance
sheets), then the counterparty could potentially be obligated to
deliver cash, securities, or a combination of both having that
market value necessary to satisfy its net obligation to us under
the derivatives (subject to a threshold).
The Dodd-Frank Act will require that, in the future, many types
of derivatives be centrally cleared and traded on exchanges or
comparable trading facilities. Pursuant to the Dodd-Frank Act,
the U.S. Commodity Futures Trading Commission, or CFTC, is in
the process of determining the types of derivatives that must be
subject to this requirement. See LEGISLATIVE AND
REGULATORY MATTERS Dodd-Frank Act for more
information. In addition, we continue to work with the Chicago
Mercantile Exchange and other parties to implement a central
clearing platform for interest rate derivatives. We will be
exposed to institutional credit risk with respect to the Chicago
Mercantile Exchange or other comparable exchanges or trading
facilities in the future, to the extent we use them to clear and
trade derivatives, and to the members of such clearing
organizations that execute and submit our transactions for
clearing.
We seek to manage our exposure to institutional credit risk
related to our OTC derivative counterparties using several
tools, including:
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review of external rating analyses;
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strict standards for approving new derivative counterparties;
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ongoing monitoring and internal analysis of our positions with,
and credit rating of, each counterparty;
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managing diversification mix among counterparties;
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master netting agreements and collateral agreements; and
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stress-testing to evaluate potential exposure under possible
adverse market scenarios.
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On an ongoing basis, we review the credit fundamentals of all of
our OTC derivative counterparties to confirm that they continue
to meet our internal standards. We assign internal ratings,
credit capital, and exposure limits to each counterparty based
on quantitative and qualitative analysis, which we update and
monitor on a regular basis. We conduct additional reviews when
market conditions dictate or certain events affecting an
individual counterparty occur.
All of our OTC derivative counterparties are major financial
institutions and are experienced participants in the OTC
derivatives market. A large number of OTC derivative
counterparties have credit ratings below AA. We require
such counterparties to post collateral if our net exposure to
them on derivative contracts exceeds $1 million. See
NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS for additional information.
The relative concentration of our derivative exposure among our
primary derivative counterparties remains high. This
concentration has increased significantly since 2008 due to
industry consolidation and the failure of certain
counterparties, and could further increase. Table 31
summarizes our exposure to our derivative counterparties, which
represents the net
positive fair value of derivative contracts, related accrued
interest and collateral held by us from our counterparties,
after netting by counterparty as applicable (i.e., net
amounts due to us under derivative contracts which are recorded
as derivative assets). In addition, we have derivative
liabilities where we post collateral to counterparties. At
June 30, 2011, our collateral posted exceeded our
collateral held. See CONSOLIDATED BALANCE SHEETS
ANALYSIS Derivative Assets and Liabilities,
Net and Table 24 Derivative Fair
Values and Maturities for a reconciliation of fair value
to the amounts presented on our consolidated balance sheets as
of June 30, 2011, which includes both cash collateral held
and posted by us, net.
Table 31
Derivative Counterparty Credit Exposure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Notional or
|
|
|
Total
|
|
|
Exposure,
|
|
|
Contractual
|
|
|
|
|
Number of
|
|
Contractual
|
|
|
Exposure at
|
|
|
Net of
|
|
|
Maturity
|
|
Collateral Posting
|
Rating(1)
|
|
Counterparties(2)
|
|
Amount(3)
|
|
|
Fair
Value(4)
|
|
|
Collateral(5)
|
|
|
(in years)
|
|
Threshold(6)
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
AA
|
|
|
3
|
|
|
$
|
54,831
|
|
|
$
|
|
|
|
$
|
|
|
|
|
5.8
|
|
|
$10 million or less
|
AA
|
|
|
4
|
|
|
|
227,820
|
|
|
|
1,634
|
|
|
|
60
|
|
|
|
6.0
|
|
|
$10 million or less
|
A+
|
|
|
7
|
|
|
|
395,803
|
|
|
|
101
|
|
|
|
40
|
|
|
|
5.3
|
|
|
$1 million or less
|
A
|
|
|
3
|
|
|
|
98,758
|
|
|
|
15
|
|
|
|
13
|
|
|
|
6.0
|
|
|
$1 million or less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal(7)
|
|
|
17
|
|
|
|
777,212
|
|
|
|
1,750
|
|
|
|
113
|
|
|
|
5.6
|
|
|
|
Other
derivatives(8)
|
|
|
|
|
|
|
130,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments(9)
|
|
|
|
|
|
|
34,361
|
|
|
|
121
|
|
|
|
121
|
|
|
|
|
|
|
|
Swap guarantee derivatives
|
|
|
|
|
|
|
3,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives(10)
|
|
|
|
|
|
$
|
945,919
|
|
|
$
|
1,871
|
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Notional or
|
|
|
Total
|
|
|
Exposure,
|
|
|
Contractual
|
|
|
|
|
Number of
|
|
Contractual
|
|
|
Exposure at
|
|
|
Net of
|
|
|
Maturity
|
|
Collateral Posting
|
Rating(1)
|
|
Counterparties(2)
|
|
Amount(3)
|
|
|
Fair
Value(4)
|
|
|
Collateral(5)
|
|
|
(in years)
|
|
Threshold(6)
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
AA
|
|
|
3
|
|
|
$
|
53,975
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6.8
|
|
|
$10 million or less
|
AA−
|
|
|
4
|
|
|
|
270,694
|
|
|
|
1,668
|
|
|
|
29
|
|
|
|
6.4
|
|
|
$10 million or less
|
A+
|
|
|
7
|
|
|
|
441,004
|
|
|
|
460
|
|
|
|
1
|
|
|
|
6.2
|
|
|
$1 million or less
|
A
|
|
|
3
|
|
|
|
177,277
|
|
|
|
16
|
|
|
|
2
|
|
|
|
5.2
|
|
|
$1 million or less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal(7)
|
|
|
17
|
|
|
|
942,950
|
|
|
|
2,144
|
|
|
|
32
|
|
|
|
6.1
|
|
|
|
Other
derivatives(8)
|
|
|
|
|
|
|
244,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments(9)
|
|
|
|
|
|
|
14,292
|
|
|
|
103
|
|
|
|
103
|
|
|
|
|
|
|
|
Swap guarantee derivatives
|
|
|
|
|
|
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
derivatives(10)
|
|
|
|
|
|
$
|
1,205,496
|
|
|
$
|
2,247
|
|
|
$
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
We use the lower of S&P and Moodys ratings to manage
collateral requirements. In this table, the rating of the legal
entity is stated in terms of the S&P equivalent.
|
(2)
|
Based on legal entities. Affiliated legal entities are reported
separately.
|
(3)
|
Notional or contractual amounts are used to calculate the
periodic settlement amounts to be received or paid and generally
do not represent actual amounts to be exchanged.
|
(4)
|
For each counterparty, this amount includes derivatives with a
net positive fair value (recorded as derivative assets, net),
including the related accrued interest receivable/payable (net)
and trade/settle fees.
|
(5)
|
Calculated as Total Exposure at Fair Value less cash collateral
held as determined at the counterparty level. Includes amounts
related to our posting of cash collateral in excess of our
derivative liability as determined at the counterparty level.
|
(6)
|
Counterparties are required to post collateral when their
exposure exceeds
agreed-upon
collateral posting thresholds. These thresholds are typically
based on the counterpartys credit rating and are
individually negotiated.
|
(7)
|
Consists of OTC derivative agreements for interest-rate swaps,
option-based derivatives (excluding certain written options),
foreign-currency swaps, and purchased interest-rate caps.
|
(8)
|
Consists primarily of exchange-traded contracts, certain written
options, and certain credit derivatives. Written options do not
present counterparty credit exposure, because we receive a
one-time up-front premium in exchange for giving the holder the
right to execute a contract under specified terms, which
generally puts us in a liability position.
|
(9)
|
Commitments include: (a) our commitments to purchase and
sell investments in securities; (b) our commitments to
purchase mortgage loans; and (c) our commitments to
purchase and extinguish or issue debt securities of our
consolidated trusts.
|
(10)
|
The difference between the exposure, net of collateral column
above and derivative assets, net on our consolidated balance
sheets primarily represents exchange-traded contracts which are
settled daily through a clearinghouse, and thus, do not present
counterparty credit exposure.
|
Over time, our exposure to individual counterparties for OTC
interest-rate swaps, option-based derivatives, foreign-currency
swaps, and purchased interest rate caps varies depending on
changes in fair values, which are affected by changes in
period-end interest rates, the implied volatility of interest
rates, foreign-currency exchange rates, and the amount of
derivatives held. If all of our counterparties for these
derivatives defaulted simultaneously on June 30, 2011, our
uncollateralized exposure to these counterparties, or our
maximum loss for accounting purposes after applying netting
agreements and collateral, would have been approximately
$113 million. Our uncollateralized exposure as of
December 31, 2010 was $32 million. Four counterparties
each accounted for greater than 10% and collectively accounted
for 94% of our net uncollateralized exposure to derivative
counterparties, excluding commitments, at June 30, 2011.
These
counterparties were Barclays Bank PLC, Deutsche
Bank, A.G., UBS A.G., and Goldman Sachs Bank USA, all
of which were rated A or higher as of July 22, 2011.
As indicated in Table 31, approximately 94% of our
counterparty credit exposure for OTC interest-rate swaps,
option-based derivatives, foreign-currency swaps, and purchased
interest rate caps was collateralized at June 30, 2011. The
uncollateralized exposure was primarily due to exposure amounts
below the applicable counterparty collateral posting threshold,
as well as market movements during the time period between when
a derivative was marked to fair value and the date we received
the related collateral. Collateral is typically transferred
within one business day based on the values of the related
derivatives.
In the event a derivative counterparty defaults, our economic
loss may be higher than the uncollateralized exposure of our
derivatives if we are not able to replace the defaulted
derivatives in a timely and cost-effective fashion. We could
also incur economic loss if the collateral held by us cannot be
liquidated at prices that are sufficient to recover the amount
of such exposure. We monitor the risk that our uncollateralized
exposure to each of our OTC counterparties for interest-rate
swaps, option-based derivatives, foreign-currency swaps, and
purchased interest rate caps will increase under certain adverse
market conditions by performing daily market stress tests. These
tests, which involve significant management judgment, evaluate
the potential additional uncollateralized exposure we would have
to each of these derivative counterparties on OTC derivatives
contracts assuming certain changes in the level and implied
volatility of interest rates and certain changes in foreign
currency exchange rates over a brief time period. Our actual
exposure could vary significantly from amounts forecasted by
these tests.
As indicated in Table 31, the total exposure on our OTC
forward purchase and sale commitments, which are treated as
derivatives for accounting purposes, was $121 million and
$103 million at June 30, 2011 and December 31,
2010, respectively. These commitments are uncollateralized.
Because the typical maturity of our forward purchase and sale
commitments is less than 60 days and they are generally
settled through a clearinghouse, we do not require master
netting and collateral agreements for the counterparties of
these commitments. However, we monitor the credit fundamentals
of the counterparties to our forward purchase and sale
commitments on an ongoing basis in an effort to ensure that they
continue to meet our internal risk-management standards.
Mortgage
Credit Risk
We are exposed to mortgage credit risk on our total mortgage
portfolio because we either hold the mortgage assets or have
guaranteed mortgages in connection with the issuance of a
Freddie Mac mortgage-related security, or other guarantee
commitment. Mortgage credit risk is primarily influenced by the
credit profile of the borrower on the mortgage, the features of
the mortgage itself, the type of property securing the mortgage
and general economic conditions. All mortgages that we purchase
or guarantee have an inherent risk of default.
Single-Family
Mortgage Credit Risk
Through our delegated underwriting process, single-family
mortgage loans and the borrowers ability to repay the
loans are evaluated using several critical risk characteristics,
including but not limited to the borrowers credit score
and credit history, the borrowers monthly income relative
to debt payments, the original LTV ratio, the type of mortgage
product and the occupancy type of the loan. Despite the
improvements in underwriting standards and borrower and loan
credit characteristics in the past two years, our single-family
quality control sampling and review continues to find loans with
underwriting deficiencies. We meet with our seller/servicers
that have higher than average rates of loans with deficiencies
from our sampling to help ensure they make changes appropriate
to their underwriting process. See BUSINESS
Our Business and BUSINESS Our Business
Segments Single-Family Guarantee
Segment Underwriting Requirements and Quality
Control Standards in our 2010 Annual Report for
information about our charter requirements for single-family
loans purchases, delegated underwriting, and our quality control
monitoring.
Conditions in the mortgage market continued to remain
challenging during the six months ended June 30, 2011. All
single-family mortgage loans, especially those originated
between 2005 and 2008, have been affected by the compounding
pressures on household wealth caused by significant declines in
home values that began in 2006 and the ongoing weak employment
environment. Our serious delinquency rates remained high in the
first half of 2011 compared to historical levels, primarily due
to economic factors which adversely affected borrowers. Also
contributing to high serious delinquency rates were:
(a) delays related to servicer processing capacity
constraints; (b) delays associated with the modification
process; and (c) delays caused by concerns about the
foreclosure process and other delays imposed by third parties.
These delays lengthen the period of time in which loans remain
in seriously delinquent status, as the delays extend the time it
takes for seriously delinquent loans to be modified, foreclosed
upon or otherwise resolved and thus transition out of seriously
delinquent status. While still at historically high levels, the
UPB of our single-family non-
performing loans declined during the six months ended
June 30, 2011, and the number of loans that transitioned to
serious delinquency also declined.
Characteristics
of the Single-Family Credit Guarantee Portfolio
The average UPB of loans in our single-family credit guarantee
portfolio was approximately $151,000 and $150,000 at
June 30, 2011 and December 31, 2010, respectively. Our
single-family mortgage purchases and other guarantee commitment
activity in the second quarter of 2011 decreased by 18% to
$62.9 billion, as compared to $77.0 billion in the
second quarter of 2010. Approximately 90% of the single-family
mortgages we purchased in the second quarter of 2011 were
fixed-rate amortizing mortgages, based on UPB. Approximately 70%
and 79% of the single-family mortgages we purchased in the three
and six months ended June 30, 2011 were refinance
mortgages, including approximately 26% and 28%, respectively,
that were relief refinance mortgages, based on UPB.
An important safeguard against credit losses on mortgage loans
in our single-family credit guarantee portfolio is provided by
the borrowers equity in the underlying properties. As
estimated current LTV ratios increase, the borrowers
equity in the home decreases, which negatively affects the
borrowers ability to refinance or sell the property for an
amount at or above the balance of the outstanding mortgage loan.
If a borrower has an estimated current LTV ratio greater than
100%, the borrower is underwater and, based upon
historical information, is more likely to default than other
borrowers. The percentage of borrowers in our single-family
credit guarantee portfolio, based on UPB, with estimated current
LTV ratios greater than 100% was 20% and 18% as of June 30,
2011 and December 31, 2010, respectively. The serious
delinquency rate for single-family loans with estimated current
LTV ratios greater than 100% was 12.7% and 14.9% as of
June 30, 2011 and December 31, 2010, respectively. Due
to declines in home prices since 2006, we estimate that, as of
June 30, 2011, approximately 46% of the loans originated in
2005 through 2008 that remained in our single-family credit
guarantee portfolio as of that date had current LTV ratios
greater than 100%. In addition, as of June 30, 2011 and
December 31, 2010, for the loans in our single-family
credit guarantee portfolio with greater than 80% estimated
current LTV ratios, the borrowers had a weighted average credit
score at origination of 724 and 721, respectively.
A second lien mortgage also reduces the borrowers equity
in the home, and has a similar negative effect on the
borrowers ability to refinance or sell the property for an
amount at or above the combined balances of the first and second
mortgages. As of June 30, 2011 and December 31, 2010,
approximately 15% and 14% of loans in our single-family credit
guarantee portfolio had second lien financing at the time of
origination of the first mortgage, and we estimate that these
loans comprised 18% and 19%, respectively, of our seriously
delinquent loans, based on UPB. However, borrowers are free to
obtain second lien financing after origination and we are not
entitled to receive notification when a borrower does so.
Therefore, it is likely that additional borrowers have
post-origination second lien mortgages.
Table 32 provides additional characteristics of
single-family mortgage loans purchased during the three and six
months ended June 30, 2011 and 2010, and of our
single-family credit guarantee portfolio at June 30, 2011
and December 31, 2010.
Table 32
Characteristics of the Single-Family Credit Guarantee
Portfolio(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases During the
|
|
|
Purchases During the
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Portfolio(2)
at
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
Original LTV Ratio
Range(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60% and below
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
31
|
%
|
|
|
30
|
%
|
|
|
23
|
%
|
|
|
23
|
%
|
Above 60% to 70%
|
|
|
16
|
|
|
|
16
|
|
|
|
17
|
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
Above 70% to 80%
|
|
|
46
|
|
|
|
48
|
|
|
|
44
|
|
|
|
46
|
|
|
|
43
|
|
|
|
43
|
|
Above 80% to 90%
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
9
|
|
|
|
9
|
|
Above 90% to 100%
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
8
|
|
|
|
8
|
|
Above 100%
|
|
|
<1
|
|
|
|
<1
|
|
|
|
<1
|
|
|
|
<1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average original LTV ratio
|
|
|
68
|
%
|
|
|
68
|
%
|
|
|
67
|
%
|
|
|
68
|
%
|
|
|
71
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Current LTV Ratio
Range(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60% and below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
27
|
%
|
Above 60% to 70%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
Above 70% to 80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
Above 80% to 90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
Above 90% to 100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Above 100% to 110%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
6
|
|
Above 110% to 120%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Above 120%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated current LTV ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief refinance
mortgages(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
%
|
|
|
78
|
%
|
All other mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
%
|
|
|
78
|
%
|
Total mortgages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
%
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Score(3)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
740 and above
|
|
|
71
|
%
|
|
|
68
|
%
|
|
|
73
|
%
|
|
|
69
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
700 to 739
|
|
|
19
|
|
|
|
20
|
|
|
|
18
|
|
|
|
19
|
|
|
|
21
|
|
|
|
21
|
|
660 to 699
|
|
|
8
|
|
|
|
9
|
|
|
|
7
|
|
|
|
9
|
|
|
|
14
|
|
|
|
15
|
|
620 to 659
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
7
|
|
Less than 620
|
|
|
<1
|
|
|
|
1
|
|
|
|
<1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
3
|
|
Not available
|
|
|
<1
|
|
|
|
<1
|
|
|
|
<1
|
|
|
|
<1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average credit score:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief refinance
mortgages(6)
|
|
|
738
|
|
|
|
741
|
|
|
|
742
|
|
|
|
742
|
|
|
|
744
|
|
|
|
745
|
|
All other mortgages
|
|
|
755
|
|
|
|
752
|
|
|
|
757
|
|
|
|
753
|
|
|
|
733
|
|
|
|
732
|
|
Total mortgages
|
|
|
751
|
|
|
|
749
|
|
|
|
753
|
|
|
|
750
|
|
|
|
734
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Purpose
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
30
|
%
|
|
|
29
|
%
|
|
|
21
|
%
|
|
|
25
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
Cash-out refinance
|
|
|
19
|
|
|
|
23
|
|
|
|
19
|
|
|
|
23
|
|
|
|
28
|
|
|
|
29
|
|
Other
refinance(8)
|
|
|
51
|
|
|
|
48
|
|
|
|
60
|
|
|
|
52
|
|
|
|
42
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Detached/townhome(9)
|
|
|
93
|
%
|
|
|
93
|
%
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
92
|
%
|
|
|
92
|
%
|
Condo/Co-op
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary residence
|
|
|
89
|
%
|
|
|
91
|
%
|
|
|
91
|
%
|
|
|
92
|
%
|
|
|
91
|
%
|
|
|
91
|
%
|
Second/vacation home
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
Investment
|
|
|
6
|
|
|
|
4
|
|
|
|
5
|
|
|
|
3
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchases and ending balances are based on the UPB of the
single-family credit guarantee portfolio. Other Guarantee
Transactions with ending balances of $2 billion at both
June 30, 2011 and December 31, 2010, are excluded from
portfolio balance data since these securities are backed by non-
Freddie Mac issued securities for which the loan characteristics
data was not available.
|
(2)
|
Includes loans acquired under our relief refinance initiative,
which began in 2009.
|
(3)
|
Purchases columns exclude mortgage loans acquired under our
relief refinance initiative. See Table 35
Single-Family Refinance Loan Volume for further
information on the LTV ratios of these loans.
|
(4)
|
Original LTV ratios are calculated as the amount of the mortgage
we guarantee including the credit-enhanced portion, divided by
the lesser of the appraised value of the property at the time of
mortgage origination or the mortgage borrowers purchase
price. Second liens not owned or guaranteed by us are excluded
from the LTV ratio calculation. The existence of a second lien
mortgage reduces the borrowers equity in the home and,
therefore, can increase the risk of default.
|
(5)
|
Current market values are estimated by adjusting the value of
the property at origination based on changes in the market value
of homes in the same geographical area since origination.
Estimated current LTV ratio range is not applicable to purchase
activity, and excludes any secondary financing by third parties.
|
(6)
|
The ending balances of relief refinance mortgages comprised
approximately 10% and 7% of our single-family credit guarantee
portfolio as of June 30, 2011 and December 31, 2010,
respectively.
|
(7)
|
Credit score data is based on FICO scores. Although we obtain
updated credit information on certain borrowers after the
origination of a mortgage, such as those borrowers seeking a
modification, the scores presented in this table represent only
the credit score of the borrower at the time of loan origination.
|
(8)
|
Other refinance transactions include: (a) refinance
mortgages with no cash-out to the borrower; and
(b) refinance mortgages for which the delivery data
provided was not sufficient for us to determine whether the
mortgage was a cash-out or a no cash-out refinance transaction.
|
(9)
|
Includes manufactured housing and homes within planned unit
development communities. The UPB of manufactured housing
mortgage loans purchased in the six months ended June 30,
2011 and 2010 was $206 million and $179 million,
respectively.
|
Attribute
Combinations
Certain combinations of loan characteristics often can indicate
a higher degree of credit risk. For example, single-family
mortgages with both high LTV ratios and borrowers who have lower
credit scores typically experience higher rates of serious
delinquency and default. We estimate that there were
$11.5 billion and $11.8 billion at June 30, 2011
and December 31, 2010, respectively, of loans in our
single-family credit guarantee portfolio with both original LTV
ratios greater than 90% and FICO scores less than 620 at the
time of loan origination. Certain mortgage product types,
including interest-only or option ARM loans, that have
additional higher risk characteristics, such as lower credit
scores or higher LTV ratios, will also have a higher risk of
default than those same products without these characteristics.
The presence of a second lien mortgage can also increase the
risk that a borrower will default.
Single-Family
Mortgage Product Types
The primary mortgage products in our single-family credit
guarantee portfolio are first lien, fixed-rate mortgage loans.
The majority of our loan modifications result in new terms that
include fixed interest rates after modification. However, our
HAMP loan modifications result in an initial interest rate that
subsequently adjusts to a new rate that is fixed for the
remaining life of the loan. We have classified these loans as
fixed-rate products for presentation within this
Form 10-Q
and elsewhere in our reporting even though they have a one-time
rate adjustment provision, because the change in rate is
determined at the time of modification rather than at a future
date.
The following paragraphs provide information on the
interest-only, option ARM and conforming jumbo loans in our
single-family credit guarantee portfolio. Interest-only and
option ARM loans have experienced significantly higher serious
delinquency rates than fixed-rate amortizing mortgage products.
Interest-Only
Loans
Interest-only loans have an initial period during which the
borrower pays only interest, and at a specified date the monthly
payment changes to begin reflecting repayment of principal until
maturity. At both June 30, 2011 and December 31, 2010,
interest-only loans represented approximately 5% of the UPB of
our single-family credit guarantee portfolio. We discontinued
purchasing interest-only loans on September 1, 2010.
Option
ARM Loans
Most option ARM loans have initial periods during which the
borrower has various options as to the amount of each monthly
payment, until a specified date, when the terms are recast. At
both June 30, 2011 and December 31, 2010, option ARM
loans represented less than 1% of the UPB of our single-family
credit guarantee portfolio. Included in this exposure was
$7.9 billion and $8.4 billion of option ARM securities
underlying certain of our Other Guarantee Transactions at
June 30, 2011 and December 31, 2010, respectively.
While we have not categorized these option ARM securities as
either subprime or
Alt-A
securities for presentation within this Form 10-Q and
elsewhere in our reporting, they could exhibit similar credit
performance to collateral identified as subprime or
Alt-A. We
have not purchased option ARM loans in our single-family credit
guarantee portfolio since 2007. For information on our exposure
to option ARM loans through our holdings of non-agency
mortgage-related securities, see CONSOLIDATED BALANCE
SHEETS ANALYSIS Investments in Securities.
Conforming
Jumbo Loans
We purchased $13.3 billion and $11.0 billion of
conforming jumbo loans during the six months ended June 30,
2011 and 2010, respectively. The UPB of conforming jumbo loans
in our single-family credit guarantee portfolio as of
June 30, 2011 and December 31, 2010 was
$46.7 billion and $37.8 billion, respectively. The
average size of these loans was approximately $548,000 at both
June 30, 2011 and December 31, 2010. Our purchases of
conforming jumbo loans will likely decline beginning in the
fourth quarter of 2011 if the temporary increase in limits on
the size of loans we may purchase expires as scheduled on
September 30, 2011. See LEGISLATIVE AND REGULATORY
MATTERS for further information on the conforming loan
limits.
Other
Categories of Single-Family Mortgage Loans
While we classified certain loans as subprime or
Alt-A for
purposes of the discussion below and elsewhere in this
Form 10-Q,
there is no universally accepted definition of subprime or
Alt-A, and
our classification of such loans may differ from those used by
other companies. For example, some financial institutions may
use FICO credit scores to delineate certain residential
mortgages as subprime. In addition, we do not rely primarily on
these loan classifications to evaluate the credit risk exposure
relating to such loans in our single-family credit guarantee
portfolio.
Subprime
Loans
Participants in the mortgage market may characterize
single-family loans based upon their overall credit quality at
the time of origination, generally considering them to be prime
or subprime. While we have not historically characterized the
loans in our single-family credit guarantee portfolio as either
prime or subprime, we do monitor the amount of loans we have
guaranteed with characteristics that indicate a higher degree of
credit risk (see Higher Risk Loans in the Single-Family
Credit Guarantee Portfolio and
Table 40 Single-Family Credit Guarantee
Portfolio by Attribute Combinations for further
information).
We estimate that approximately $2.4 billion and
$2.5 billion of security collateral underlying our Other
Guarantee Transactions at June 30, 2011 and
December 31, 2010, respectively, were identified as
subprime based on information provided to us when we entered
into these transactions.
We also categorize our investments in non-agency
mortgage-related securities as subprime if they were identified
as such based on information provided to us when we entered into
these transactions. At June 30, 2011 and December 31,
2010, we held $51.5 billion and $54.2 billion,
respectively, in UPB of non-agency mortgage-related securities
backed by subprime loans. These securities were structured to
provide credit enhancements, and 8% and 10% of these securities
were investment grade at June 30, 2011 and
December 31, 2010, respectively. The credit performance of
loans underlying these securities has deteriorated significantly
since the beginning of 2008 and has continued to deteriorate
during the six months ended June 30, 2011. For more
information on our exposure to subprime mortgage loans through
our investments in non-agency mortgage-related securities see
CONSOLIDATED BALANCE SHEETS ANALYSIS
Investments in Securities.
Alt-A
Loans
Although there is no universally accepted definition of
Alt-A, many
mortgage market participants classify single-family loans with
credit characteristics that range between their prime and
subprime categories as
Alt-A
because these loans have a combination of characteristics of
each category, may be underwritten with lower or alternative
income or asset documentation requirements compared to a full
documentation mortgage loan, or both. The UPB of
Alt-A loans
in our single-family credit guarantee portfolio declined to
$104.0 billion as of June 30, 2011 from
$115.5 billion as of December 31, 2010. The UPB of our
Alt-A loans
declined in the first half of 2011 primarily due to refinancing
into other mortgage products, foreclosure transfers, and other
liquidation events. As of June 30, 2011, for
Alt-A loans
in our single-family credit guarantee portfolio, the average
FICO credit score at origination was 719. Although
Alt-A
mortgage loans comprised approximately 6% of our single-family
credit guarantee portfolio as of June 30, 2011, these loans
represented approximately 29% and 30% of our credit losses
during the three and six months ended June 30, 2011,
respectively. During the first quarter of 2011, we identified
approximately $0.6 billion in UPB of single-family loans
underlying certain Other Guarantee Transactions that had been
previously reported in both the
Alt-A and
subprime categories. Commencing March 31, 2011, we no
longer report these loans as
Alt-A (but
continue to report them as subprime) and we revised the prior
periods to conform to the current period presentation.
We did not purchase any new single-family
Alt-A
mortgage loans in our single-family credit guarantee portfolio
during the six months ended June 30, 2011. Although we
discontinued new purchases of mortgage loans with lower
documentation standards for assets or income beginning
March 1, 2009 (or later, as our customers contracts
permitted), we continued to purchase certain amounts of these
mortgages in cases where the loan was either: (a) purchased
pursuant to a previously issued other guarantee commitment;
(b) part of our relief refinance mortgage initiative; or
(c) in another refinance mortgage initiative and the
pre-existing mortgage (including
Alt-A loans)
was originated under less than full documentation standards.
However, in the event we purchase a refinance mortgage in one of
these programs and the original loan had been previously
identified as
Alt-A, such
refinance loan may no longer be categorized or reported as an
Alt-A
mortgage in this
Form 10-Q
and our other financial reports because the new refinance loan
replacing the original loan would not be identified by the
seller/servicer as an
Alt-A loan.
As a result, our reported
Alt-A
balances may be lower than would otherwise be the case had such
refinancing not occurred. From the time the product became
available in 2009 to June 30, 2011, we purchased
approximately $13.4 billion of relief refinance mortgages
that were previously categorized as Alt-A loans in our
portfolio, including $3.2 billion during the six months
ended June 30, 2011.
We also hold investments in non-agency mortgage-related
securities backed by single-family
Alt-A loans.
At June 30, 2011 and December 31, 2010, we held
investments of $17.8 billion and $18.8 billion,
respectively, of non-agency mortgage-related securities backed
by Alt-A and
other mortgage loans and 16% and 22%, respectively, of these
securities were categorized as investment grade. The credit
performance of loans underlying these securities has
deteriorated significantly since the beginning of 2008 and has
continued to deteriorate during the six months ended
June 30, 2011. We categorize our investments in non-agency
mortgage-related securities as
Alt-A if the
securities were identified as such
based on information provided to us when we entered into these
transactions. For more information on our exposure to
Alt-A
mortgage loans through our investments in non-agency
mortgage-related securities see CONSOLIDATED BALANCE
SHEETS ANALYSIS Investments in Securities.
Higher-Risk
Loans in the Single-Family Credit Guarantee Portfolio
Table 33 presents information about certain categories of
single-family mortgage loans within our single-family credit
guarantee portfolio that we believe have certain higher-risk
characteristics. These loans include categories based on product
type and borrower characteristics present at origination. 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%). Mortgage loans with higher LTV
ratios have a higher risk of default, especially during housing
and economic downturns, such as the one the U.S. has experienced
since 2007.
Table
33 Certain
Higher-Risk(1)
Categories in the Single-Family Credit Guarantee
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
|
|
|
|
|
|
Serious
|
|
|
|
|
Estimated
|
|
Percentage
|
|
Delinquency
|
|
|
UPB
|
|
Current
LTV(2)
|
|
Modified(3)
|
|
Rate(4)
|
|
|
(dollars in billions)
|
|
Loans with one or more specified characteristics
|
|
$
|
356.4
|
|
|
|
104
|
%
|
|
|
6.5
|
%
|
|
|
9.3
|
%
|
Categories (individual characteristics):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A(5)
|
|
|
104.0
|
|
|
|
104
|
|
|
|
7.4
|
|
|
|
11.7
|
|
Interest-only(6)
|
|
|
82.1
|
|
|
|
117
|
|
|
|
0.4
|
|
|
|
17.7
|
|
Option
ARM(7)
|
|
|
9.0
|
|
|
|
118
|
|
|
|
3.4
|
|
|
|
21.6
|
|
Original LTV ratio greater than 90%, non-relief refinance
mortgages(8)
|
|
|
112.5
|
|
|
|
108
|
|
|
|
7.4
|
|
|
|
8.3
|
|
Original LTV ratio greater than 90%, relief refinance
mortgages(8)
|
|
|
50.3
|
|
|
|
104
|
|
|
|
0.1
|
|
|
|
0.9
|
|
Lower original FICO scores (less than
620)(8)
|
|
|
58.5
|
|
|
|
92
|
|
|
|
12.2
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
Serious
|
|
|
|
|
Estimated
|
|
Percentage
|
|
Delinquency
|
|
|
UPB
|
|
Current
LTV(2)
|
|
Modified(3)
|
|
Rate(4)
|
|
|
(dollars in billions)
|
|
Loans with one or more specified characteristics
|
|
$
|
368.8
|
|
|
|
100
|
%
|
|
|
5.5
|
%
|
|
|
10.3
|
%
|
Categories (individual characteristics):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A(5)
|
|
|
115.5
|
|
|
|
99
|
|
|
|
5.7
|
|
|
|
12.2
|
|
Interest-only(6)
|
|
|
95.4
|
|
|
|
112
|
|
|
|
0.5
|
|
|
|
18.4
|
|
Option
ARM(7)
|
|
|
9.4
|
|
|
|
115
|
|
|
|
3.1
|
|
|
|
21.2
|
|
Original LTV ratio greater than 90%, non-relief refinance
mortgages(8)
|
|
|
117.8
|
|
|
|
105
|
|
|
|
6.3
|
|
|
|
9.1
|
|
Original LTV ratio greater than 90%, relief refinance
mortgages(8)
|
|
|
36.5
|
|
|
|
101
|
|
|
|
0.1
|
|
|
|
0.7
|
|
Lower original FICO scores (less than
620)(8)
|
|
|
61.2
|
|
|
|
89
|
|
|
|
10.4
|
|
|
|
13.9
|
|
|
|
(1)
|
Categories are not additive and a single loan may be included in
multiple categories if more than one characteristic is
associated with the loan. Loans with a combination of these
characteristics will have an even higher risk of default than
those with an individual characteristic.
|
(2)
|
Based on our first lien exposure on the property and excludes
secondary financing by third parties, if applicable. The
existence of a second lien reduces the borrowers equity in
the property and, therefore, can increase the risk of default.
For refinance mortgages, the original LTV ratios are based on
third-party appraisals used in loan origination, whereas new
purchase mortgages are based on the lower of an appraisal or
property sales price.
|
(3)
|
Represents the percentage of loans based on loan count in our
single-family credit guarantee portfolio that have been modified
under agreement with the borrower, including those with no
changes in the interest rate or maturity date, but where past
due amounts are added to the outstanding principal balance of
the loan. Excludes loans underlying certain Other Guarantee
Transactions for which data was not available.
|
(4)
|
See Delinquencies for further information about our
reported serious delinquency rates.
|
(5)
|
Loans within the
Alt-A
category continue to remain as such following modification, even
though the borrower may have provided full documentation of
assets and income to complete the modification.
|
(6)
|
The percentages of interest-only loans which have been modified
at period end reflect that a number of these loans have not yet
been assigned to their new product category (post modification),
primarily due to delays in processing.
|
(7)
|
Loans within the option ARM category continue to remain as such
following modification, even though the modified loan no longer
provides for optional payment provisions.
|
(8)
|
See endnotes (4) and (7) to
Table 32 Characteristics of the
Single-Family Credit Guarantee Portfolio for information
on our calculation of original LTV ratios and our use of FICO
scores, respectively.
|
Loans with one or more of the above attributes comprised
approximately 20% of our single-family credit guarantee
portfolio as of both June 30, 2011 and December 31,
2010. The total UPB of loans in our single-family credit
guarantee portfolio with one or more of these characteristics
declined approximately 3%, to $356.4 billion as of
June 30, 2011 from $368.8 billion as of
December 31, 2010. This decline was principally due to
liquidations resulting from repayments, payoffs, and refinancing
activity as well as liquidations resulting from foreclosure
events and foreclosure alternatives, but was partially offset by
increases in loans with original LTV ratios greater than 90% due
to our relief refinance mortgage activity in the first half of
2011. The serious delinquency rates associated with these loans
declined to 9.3% as of June 30, 2011 from 10.3% as of
December 31, 2010.
Credit
Enhancements
Our charter requires that single-family mortgages with LTV
ratios above 80% at the time of purchase be covered by specified
credit enhancements or participation interests. However, as
discussed below, under HARP we allow eligible borrowers who have
mortgages with high current LTV ratios to refinance their
mortgages without obtaining new mortgage insurance in excess of
what was already in place. Primary mortgage insurance is the
most prevalent type of credit enhancement protecting our
single-family credit guarantee portfolio, and is typically
provided on a loan-level basis. In addition, for some mortgage
loans, we elect to share the default risk by transferring a
portion of that risk to various third parties through a variety
of other credit enhancements.
At June 30, 2011 and December 31, 2010, our
credit-enhanced mortgages represented 14% and 15%, respectively,
of our single-family credit guarantee portfolio, excluding those
backing Ginnie Mae Certificates and HFA bonds guaranteed by us
under the HFA initiative. Freddie Mac securities backed by
Ginnie Mae Certificates and HFA bonds guaranteed by us under the
HFA initiative are excluded because we consider the incremental
credit risk to which we are exposed to be insignificant. See
CONSOLIDATED BALANCE SHEETS ANALYSIS
Investments in Securities Mortgage-Related
Securities for credit enhancement and other
information about our investments in non-Freddie Mac
mortgage-related securities.
We had recoveries associated with charged-off single-family
loans of $1.5 billion and $1.4 billion during the six
months ended June 30, 2011 and 2010, respectively, under
our primary and pool mortgage insurance policies and other
credit enhancements. During the six months ended June 30,
2011, the credit enhancement coverage for new purchases was
lower than in periods before 2009, primarily as a result of the
high refinance activity during the first half of 2011. Refinance
loans (other than relief refinance mortgages) typically have
lower LTV ratios, and are more likely to have a LTV ratio below
80% and not require credit protection as specified in our
charter. In addition, we have been purchasing significant
amounts of relief refinance mortgages. These mortgages allow for
the refinance of existing loans guaranteed by us under terms
such that we may not have mortgage insurance for some or all of
the UPB of the mortgage in excess of 80% of the value of the
property for certain of these loans.
See NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES for information about credit protection and other
forms of credit enhancements covering loans in our single-family
credit guarantee portfolio as of June 30, 2011 and
December 31, 2010.
Other
Credit Risk Management Activities
To compensate us for higher levels of risk in some mortgage
products, we may charge upfront delivery fees above a base
management and guarantee fee, which are calculated based on
credit risk factors such as the mortgage product type, loan
purpose, LTV ratio and other loan or borrower characteristics.
We announced delivery fee increases in the fourth quarter of
2010 that became effective March 1, 2011 (or later, as
outstanding contracts permit) for loans with higher LTV ratios.
These increased fees do not apply to relief refinance mortgages
with settlement dates on or after July 1, 2011.
MHA
Program
The MHA Program is designed to help in the housing recovery,
promote liquidity and housing affordability, expand foreclosure
prevention efforts and set market standards. Participation in
the MHA Program is an integral part of our mission of providing
stability to the housing market. Through our participation in
this program, we help borrowers maintain home ownership. Some of
the key initiatives of this program include:
Home
Affordable Modification Program
HAMP commits U.S. government, Freddie Mac and Fannie Mae
funds to help eligible homeowners avoid foreclosures and keep
their homes through mortgage modifications, where possible.
Under this program, we offer loan modifications to financially
struggling homeowners with mortgages on their primary residences
that reduce the monthly principal and interest payments on their
mortgages. HAMP applies both to delinquent borrowers and to
current borrowers at risk of imminent default. See
MD&A RISK MANAGEMENT Credit
Risk Mortgage Credit Risks Portfolio
Management Activities MHA Program in our
2010 Annual Report for further information on HAMP.
Table 34 presents the number of single-family loans that
completed modification or were in trial periods under HAMP as of
June 30, 2011 and December 31, 2010.
Table
34 Single-Family Home Affordable Modification
Program
Volume(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
Amount(2)
|
|
Number of Loans
|
|
Amount(2)
|
|
Number of Loans
|
|
|
(dollars in millions)
|
|
Completed HAMP
modifications(3)
|
|
$
|
29,662
|
|
|
|
134,282
|
|
|
$
|
23,635
|
|
|
|
107,073
|
|
Loans in the HAMP trial period
|
|
$
|
3,460
|
|
|
|
16,106
|
|
|
$
|
4,905
|
|
|
|
22,352
|
|
|
|
(1)
|
Based on information reported by our servicers to the MHA
Program administrator.
|
(2)
|
For loans in the HAMP trial period, this reflects the loan
balance prior to modification. For completed HAMP modifications,
the amount represents the balance of loans after modification
under HAMP.
|
(3)
|
Completed HAMP modifications are those where the borrower has
made the last trial period payment, has provided the required
documentation to the servicer and the modification has become
effective. Amounts presented represent completed HAMP
modifications with effective dates since our implementation of
HAMP in 2009 through June 30, 2011 and December 31,
2010, respectively.
|
As of June 30, 2011, the borrowers monthly payment
was reduced on average by an estimated $563, which amounts to an
average of $6,756 per year, and a total of $907 million in
annual reductions for all of our completed HAMP modifications
(these amounts are calculated by multiplying the number of
completed modifications by the average reduction in monthly
payment, and have not been adjusted to reflect the actual
performance of the loans following modification). Except in
limited instances, each borrowers reduced payment will
remain in effect for a minimum of five years, and borrowers
whose payments were adjusted below current market levels will
have their payment gradually increased after the fifth year to a
rate consistent with the market rate at the time of
modification. We bear the cost associated with the
borrowers payment reductions. Although mortgage investors
under the MHA Program are entitled to certain subsidies from
Treasury for reducing the borrowers monthly payments from
38% to 31% of the borrowers income, we do not receive such
subsidies on modified mortgages owned or guaranteed by us.
The number of our loans in the HAMP trial period declined to
16,106 as of June 30, 2011 from 22,352 as of
December 31, 2010. A large number of borrowers entered into
trial period plans when the program was initially introduced in
2009, and significantly fewer new borrowers entered into HAMP
trial period plans after 2009. Consequently, we expect fewer
borrowers will complete a HAMP modification during 2011 than
2010, since a large number of the delinquent borrowers that were
eligible for the program have already completed the trial period
or attempted to do so, but failed. When a borrowers HAMP
trial period is cancelled, the loan is considered for our other
workout activities. For more information on our HAMP
modifications, including redefault rates on these loans, see
Single-Family Loan Workouts.
Home
Affordable Refinance Program
HARP gives eligible homeowners with loans owned or guaranteed by
us or Fannie Mae an opportunity to refinance into loans with
more affordable monthly payments and/or fixed-rate terms and is
available until June 2012. Under HARP, we allow eligible
borrowers who have mortgages with current LTV ratios up to 125%
to refinance their mortgages without obtaining new mortgage
insurance in excess of what is already in place.
The relief refinance initiative is our implementation of HARP.
HARP is targeted at borrowers with current LTV ratios above 80%;
however, our program also allows borrowers with LTV ratios of
80% and below to participate. HARP loans may not perform as well
as other refinance mortgages over time due, in part, to the
continued high LTV ratios of these loans. Through our relief
refinance initiative, we offer this refinancing option only for
qualifying mortgage loans that we hold or guarantee. We continue
to bear the credit risk for refinanced loans under this program,
to the extent that such risk is not covered by existing mortgage
insurance or other existing credit enhancements.
The implementation of the relief refinance mortgage product has
resulted in a higher volume of purchases and increased delivery
fees from the new loans than we would expect in the absence of
the program. However, we believe the net effect of the refinance
activity on our financial results has not been significant.
Table 35 below presents the composition of our purchases of
refinanced single-family loans during the six months ended
June 30, 2011 and 2010.
Table
35 Single-Family Refinance Loan
Volume(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
Amount
|
|
|
Number of Loans
|
|
|
Percent
|
|
|
Amount
|
|
|
Number of Loans
|
|
|
Percent
|
|
|
|
(dollars in millions)
|
|
|
Relief refinance mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above 105% LTV ratio
|
|
$
|
4,638
|
|
|
|
20,072
|
|
|
|
3.3
|
%
|
|
$
|
1,376
|
|
|
|
5,736
|
|
|
|
1.0
|
%
|
Above 80% to 105% LTV ratio
|
|
|
18,431
|
|
|
|
85,328
|
|
|
|
14.1
|
|
|
|
18,998
|
|
|
|
81,913
|
|
|
|
13.8
|
|
80% and below LTV ratio
|
|
|
22,269
|
|
|
|
137,053
|
|
|
|
22.7
|
|
|
|
19,749
|
|
|
|
110,627
|
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total relief refinance mortgages
|
|
$
|
45,338
|
|
|
|
242,453
|
|
|
|
40.1
|
%
|
|
$
|
40,123
|
|
|
|
198,276
|
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total refinance loan
volume(2)
|
|
$
|
125,399
|
|
|
|
604,493
|
|
|
|
100
|
%
|
|
$
|
122,377
|
|
|
|
591,936
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of all single-family refinance mortgage loans that we
either purchased or guaranteed during the period, excluding
those associated with other guarantee commitments and Other
Guarantee Transactions.
|
(2)
|
Consists of relief refinance mortgages and other refinance
mortgages.
|
Relief refinance mortgages comprised approximately 40% and 34%,
based on the number of loans, of our total refinance volume
during the six months ended June 30, 2011 and 2010,
respectively. Relief refinance mortgages with LTV ratios above
80% represented approximately 14% and 12% of our total
single-family credit guarantee portfolio purchases, based on
UPB, during the six months ended June 30, 2011 and 2010,
respectively. Relief refinance mortgages comprised approximately
10% and 7% of the UPB in our total single-family credit
guarantee portfolio at June 30, 2011 and December 31,
2010, respectively.
Home
Affordable Foreclosure Alternatives Program
HAFA is designed to permit borrowers who meet basic HAMP
eligibility requirements to sell their homes in short sales, if
such borrowers did not qualify for or participate in a trial
period, failed to complete their HAMP trial period, or defaulted
on their HAMP modification. HAFA also provides a process for
borrowers to convey title to their homes through a deed in lieu
of foreclosure. HAFA took effect in April 2010 and ends on
December 31, 2012. We began our implementation of this
program in August 2010. We completed a small number of HAFA
transactions on our single-family mortgage loans during the
first half of 2011.
Hardest
Hit Fund
In 2010, the federal government created the Hardest Hit Fund,
which provides funding for state HFAs to create programs to
assist homeowners in those states that have been hit hardest by
the housing crisis and economic downturn. To the extent our
borrowers participate in the HFA unemployment assistance
programs and the full contractual payment is made by an HFA, a
borrowers mortgage delinquency status will remain static
and will not fall into further delinquency. Based on information
provided to us by our seller/servicers, we believe participation
in these programs by our borrowers has been limited through
June 30, 2011.
Impact of
the MHA Program on Freddie Mac
As previously discussed, HAMP is intended to provide borrowers
the opportunity to obtain more affordable monthly payments and
to reduce the number of delinquent mortgages that proceed to
foreclosure and, ultimately, mitigate our credit losses by
reducing or eliminating a portion of the costs related to
foreclosed properties. We believe our overall loss mitigation
programs, including efforts outside of the MHA Program, could
reduce our ultimate credit losses over the long term. However,
we cannot currently estimate whether, or the extent to which,
costs incurred in the near term from HAMP or other MHA Program
efforts may be offset, if at all, by the prevention or reduction
of potential future costs of serious delinquencies and
foreclosures due to these initiatives.
The costs we incur related to loan modifications and other
activities under HAMP have been, and will likely continue to be,
significant for the following reasons:
|
|
|
|
|
Except for certain Other Guarantee Transactions and loans
underlying our other guarantee commitments, we bear the full
cost of the monthly payment reductions related to modifications
of loans we own or guarantee and all servicer and borrower
incentive fees and we will not receive a reimbursement of these
costs from Treasury. We paid $113 million of servicer and
borrower incentive fees during the six months ended
June 30, 2011, as compared to $85 million of such fees
during the six months ended June 30, 2010. We also have the
potential to incur additional servicer incentive fees and
borrower incentive fees as long as the borrower remains current
on a loan
|
|
|
|
|
|
modified under HAMP. As of June 30, 2011, we accrued
$116 million for both initial fees and recurring incentive
fees not yet due.
|
|
|
|
|
|
Under HAMP, we typically provide concessions to borrowers,
including interest rate reductions and forbearance of principal.
To the extent borrowers successfully obtain HAMP modifications,
we will continue to experience high volumes of TDRs, similar to
our experience during 2010 and the six months ended
June 30, 2011.
|
|
|
|
Some borrowers will fail to complete the HAMP trial period and
others will default on their HAMP modified loans. For those
borrowers who redefault or who do not complete the trial period
and do not qualify for another loan workout, HAMP will have
delayed the resolution of the loans through the foreclosure
process. If home prices decline while these events take place,
such delay in the foreclosure process may increase the losses we
recognize on these loans, to the extent the prices we ultimately
receive for the foreclosed properties are less than the prices
we could have received had we foreclosed upon the properties
earlier.
|
|
|
|
Non-GSE mortgages modified under HAMP include mortgages backing
our investments in non-agency mortgage-related securities. Such
modifications reduce the monthly payments due from affected
borrowers, and thus reduce the payments we receive on these
securities (to the extent the payment reductions have not been
absorbed by subordinated investors or by other credit
enhancement).
|
Single-Family
Loan Workouts
Loan workout activities are a key component of our loss
mitigation strategy for managing and resolving troubled assets
and lowering credit losses. Our single-family loss mitigation
strategy emphasizes early intervention in seriously delinquent
mortgages and provides alternatives to foreclosure. Other
single-family loss mitigation activities include providing our
single-family servicers with default management tools designed
to help them manage non-performing loans more effectively and to
assist borrowers in retaining home ownership where possible, or
facilitate foreclosure alternatives when continued homeownership
is not an option. Loan workouts are intended to reduce the
number of seriously delinquent mortgages that proceed to
foreclosure and, ultimately, mitigate our total credit losses by
reducing or eliminating a portion of the costs related to
foreclosed properties and avoiding the additional credit losses
that likely would be incurred in a REO sale. See
BUSINESS Our Business Segments
Single-Family Guarantee Segment Loss Mitigation
and Workout Activities in our 2010 Annual Report for a
general description of our loan workouts.
We require our single-family seller/servicers to first evaluate
problem loans for possible reinstatement, a repayment plan, or a
forbearance agreement before considering a modification under
HAMP. If a borrower is not eligible for a modification under
HAMP, the borrower is considered for modification under our
other loan modification programs. If the borrower is not
eligible for any such programs, the loan is considered for other
workout options. During the six months ended June 30, 2011,
we helped more than 116,000 borrowers either stay in their
homes or sell their properties and avoid foreclosures through
our various workout programs, including HAMP, and we completed
approximately 61,000 foreclosures.
Table 36 presents volumes of single-family workouts, serious
delinquency, and foreclosures for the three and six months ended
June 30, 2011 and 2010.
Table
36 Single-Family Loan Workouts, Serious Delinquency,
and Foreclosure
Volumes(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
Number of
|
|
|
Loan
|
|
|
Number of
|
|
|
Loan
|
|
|
Number of
|
|
|
Loan
|
|
|
Number of
|
|
|
Loan
|
|
|
|
Loans
|
|
|
Balances
|
|
|
Loans
|
|
|
Balances
|
|
|
Loans
|
|
|
Balances
|
|
|
Loans
|
|
|
Balances
|
|
|
|
(dollars in millions)
|
|
|
Home retention actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
modifications(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with no change in
terms(3)
|
|
|
1,058
|
|
|
$
|
190
|
|
|
|
1,212
|
|
|
$
|
205
|
|
|
|
2,323
|
|
|
$
|
409
|
|
|
|
1,949
|
|
|
$
|
321
|
|
with extension of loan terms
|
|
|
4,528
|
|
|
|
836
|
|
|
|
5,494
|
|
|
|
940
|
|
|
|
9,808
|
|
|
|
1,797
|
|
|
|
9,455
|
|
|
|
1,597
|
|
with reduction of contractual interest rate
|
|
|
8,720
|
|
|
|
1,942
|
|
|
|
14,261
|
|
|
|
3,202
|
|
|
|
18,085
|
|
|
|
4,076
|
|
|
|
28,175
|
|
|
|
6,244
|
|
with rate reduction and term extension
|
|
|
11,061
|
|
|
|
2,461
|
|
|
|
19,511
|
|
|
|
4,273
|
|
|
|
24,664
|
|
|
|
5,494
|
|
|
|
35,710
|
|
|
|
7,846
|
|
with rate reduction, term extension and principal forbearance
|
|
|
5,682
|
|
|
|
1,520
|
|
|
|
9,084
|
|
|
|
2,373
|
|
|
|
11,327
|
|
|
|
3,025
|
|
|
|
18,501
|
|
|
|
4,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan
modifications(4)
|
|
|
31,049
|
|
|
|
6,949
|
|
|
|
49,562
|
|
|
|
10,993
|
|
|
|
66,207
|
|
|
|
14,801
|
|
|
|
93,790
|
|
|
|
20,846
|
|
Repayment
plans(5)
|
|
|
7,981
|
|
|
|
1,157
|
|
|
|
7,455
|
|
|
|
1,090
|
|
|
|
17,080
|
|
|
|
2,443
|
|
|
|
16,216
|
|
|
|
2,358
|
|
Forbearance
agreements(6)
|
|
|
3,709
|
|
|
|
703
|
|
|
|
12,815
|
|
|
|
2,695
|
|
|
|
11,387
|
|
|
|
2,229
|
|
|
|
21,673
|
|
|
|
4,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total home retention actions:
|
|
|
42,739
|
|
|
|
8,809
|
|
|
|
69,832
|
|
|
|
14,778
|
|
|
|
94,674
|
|
|
|
19,473
|
|
|
|
131,679
|
|
|
|
27,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosure alternatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short sale
|
|
|
10,894
|
|
|
|
2,515
|
|
|
|
9,450
|
|
|
|
2,240
|
|
|
|
21,515
|
|
|
|
5,003
|
|
|
|
16,407
|
|
|
|
3,849
|
|
Deed-in-lieu
transactions
|
|
|
144
|
|
|
|
25
|
|
|
|
92
|
|
|
|
15
|
|
|
|
229
|
|
|
|
40
|
|
|
|
199
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreclosure alternatives
|
|
|
11,038
|
|
|
|
2,540
|
|
|
|
9,542
|
|
|
|
2,255
|
|
|
|
21,744
|
|
|
|
5,043
|
|
|
|
16,606
|
|
|
|
3,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family loan workouts
|
|
|
53,777
|
|
|
$
|
11,349
|
|
|
|
79,374
|
|
|
$
|
17,033
|
|
|
|
116,418
|
|
|
$
|
24,516
|
|
|
|
148,285
|
|
|
$
|
31,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent loan additions
|
|
|
87,813
|
|
|
|
|
|
|
|
123,175
|
|
|
|
|
|
|
|
185,459
|
|
|
|
|
|
|
|
274,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
foreclosures(7)
|
|
|
30,139
|
|
|
|
|
|
|
|
37,718
|
|
|
|
|
|
|
|
61,226
|
|
|
|
|
|
|
|
70,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquent loans, at period end
|
|
|
417,457
|
|
|
|
|
|
|
|
492,500
|
|
|
|
|
|
|
|
417,457
|
|
|
|
|
|
|
|
492,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on completed actions with borrowers for loans within our
single-family credit guarantee portfolio. Excludes those
modification, repayment and forbearance activities for which the
borrower has started the required process, but the actions have
not been made permanent, or effective, such as loans in the
trial period under HAMP. Also excludes certain loan workouts
where our single-family seller/servicers have executed
agreements in the current or prior periods, but these have not
been incorporated into certain of our operational systems, due
to delays in processing. These categories are not mutually
exclusive and a loan in one category may also be included within
another category in the same period (see endnote 6).
|
(2)
|
Includes approximately 24,000 and 40,000 TDRs during the three
months ended June 30, 2011 and 2010, respectively, and
approximately 51,000 and 67,000 TDRs during the six months ended
June 30, 2011 and 2010, respectively.
|
(3)
|
Under this modification type, past due amounts are added to the
principal balance and reamortized based on the original
contractual loan terms.
|
(4)
|
Includes completed loan modifications under HAMP; however, the
number of such completions differs from that reported by the MHA
Program administrator in part due to differences in the timing
of recognizing the completions by us and the administrator.
|
(5)
|
Represents the number of borrowers as reported by our
seller/servicers that have completed the full term of a
repayment plan for past due amounts. Excludes the number of
borrowers that are actively repaying past due amounts under a
repayment plan, which totaled 20,342 and 22,323 borrowers
as of June 30, 2011 and 2010, respectively.
|
(6)
|
Excludes loans with long-term forbearance under a completed loan
modification. Many borrowers complete a short-term forbearance
agreement before a loan workout is pursued or completed. We only
report forbearance activity for a single loan once during each
quarterly period; however, a single loan may be included under
separate forbearance agreements in separate periods.
|
(7)
|
Represents the number of our single-family loans that complete
foreclosure transfers, including third-party sales at
foreclosure auction in which ownership of the property is
transferred directly to a third-party rather than to us.
|
We experienced declines in home retention actions, particularly
loan modifications, and increases in short sales during the
three and six months ended June 30, 2011, compared to the
three and six months ended June 30, 2010, respectively.
Loan modifications may include the additions of past due amounts
to principal, interest rate reductions, term extensions and
principal forbearance. Although HAMP contemplates that some
servicers will also make use of principal reduction to achieve
reduced payments for borrowers, we only used forbearance in the
first half of 2011 and did not use principal reduction in
modifying our loans. We bear the costs of these activities,
including the cost of any monthly payment reductions.
The UPB of loans in our single-family credit guarantee portfolio
for which we have completed a loan modification increased to
$63 billion as of June 30, 2011 from $52 billion
as of December 31, 2010. The number of modified loans in
our single-family credit guarantee portfolio has been increasing
and such loans comprised approximately 2.6% and 2.1% of our
single-family credit guarantee portfolio as of June 30,
2011 and December 31, 2010, respectively. The estimated
current LTV ratio for all modified loans in our single-family
credit guarantee portfolio was 121% and the serious delinquency
rate on these loans was 16% as of June 30, 2011.
Table 37 presents the reperformance rate of modified
single-family loans in each of the last eight quarterly periods.
Table
37 Reperformance
Rates(1)
of Modified Single-Family Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter of Loan Modification
Completion(2)
|
HAMP loan modifications:
|
|
1Q 2011
|
|
4Q 2010
|
|
3Q 2010
|
|
2Q 2010
|
|
1Q 2010
|
|
4Q 2009
|
|
3Q 2009
|
|
2Q 2009
|
|
Time since modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 to 5 months
|
|
|
95
|
%
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
94
|
%
|
|
|
95
|
%
|
|
|
94
|
%
|
|
|
96
|
%
|
|
|
|
|
6 to 8 months
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
91
|
|
|
|
93
|
|
|
|
93
|
|
|
|
93
|
|
|
|
|
|
9 to 11 months
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
89
|
|
|
|
90
|
|
|
|
90
|
|
|
|
92
|
|
|
|
|
|
12 to 14 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
88
|
|
|
|
88
|
|
|
|
91
|
|
|
|
|
|
15 to 17 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
86
|
|
|
|
89
|
|
|
|
|
|
18 to 20 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
87
|
|
|
|
|
|
21 to 23 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
24 to 26 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter of Loan Modification
Completion(2)
|
Non-HAMP loan modifications:
|
|
1Q 2011
|
|
4Q 2010
|
|
3Q 2010
|
|
2Q 2010
|
|
1Q 2010
|
|
4Q 2009
|
|
3Q 2009
|
|
2Q 2009
|
|
Time since modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 to 5 months
|
|
|
93
|
%
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
93
|
%
|
|
|
94
|
%
|
|
|
90
|
%
|
|
|
88
|
%
|
|
|
73
|
%
|
6 to 8 months
|
|
|
|
|
|
|
89
|
|
|
|
90
|
|
|
|
86
|
|
|
|
87
|
|
|
|
82
|
|
|
|
78
|
|
|
|
64
|
|
9 to 11 months
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
82
|
|
|
|
80
|
|
|
|
75
|
|
|
|
71
|
|
|
|
58
|
|
12 to 14 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
77
|
|
|
|
69
|
|
|
|
66
|
|
|
|
55
|
|
15 to 17 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
66
|
|
|
|
61
|
|
|
|
51
|
|
18 to 20 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
59
|
|
|
|
48
|
|
21 to 23 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
47
|
|
24 to 26 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter of Loan Modification
Completion(2)
|
Total (HAMP and non-HAMP):
|
|
1Q 2011
|
|
4Q 2010
|
|
3Q 2010
|
|
2Q 2010
|
|
1Q 2010
|
|
4Q 2009
|
|
3Q 2009
|
|
2Q 2009
|
|
Time since modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 to 5 months
|
|
|
95
|
%
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
94
|
%
|
|
|
95
|
%
|
|
|
92
|
%
|
|
|
89
|
%
|
|
|
73
|
%
|
6 to 8 months
|
|
|
|
|
|
|
90
|
|
|
|
91
|
|
|
|
90
|
|
|
|
92
|
|
|
|
88
|
|
|
|
79
|
|
|
|
64
|
|
9 to 11 months
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
87
|
|
|
|
88
|
|
|
|
84
|
|
|
|
72
|
|
|
|
58
|
|
12 to 14 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
86
|
|
|
|
80
|
|
|
|
67
|
|
|
|
55
|
|
15 to 17 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
78
|
|
|
|
62
|
|
|
|
51
|
|
18 to 20 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
61
|
|
|
|
48
|
|
21 to 23 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
47
|
|
24 to 26 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
(1)
|
Represents the percentage of loans that are current or less than
three monthly payments past due as well as those paid-in-full or
repurchased. Excludes those loan modification activities for
which the borrower has started the required process, but the
modification has not been made permanent, or effective, such as
loans in the trial period under HAMP.
|
(2)
|
Loan modifications are recognized as completed in the quarterly
period in which the servicer has reported the modification as
effective and the agreement has been accepted by us, which in
certain cases may be delayed by a backlog in servicer processing
of modifications. In the second quarter of 2011, we revised the
calculation of reperformance rates to better account for
remodified loans, or those where a borrower has received a
second modification. The revised calculation reflects the status
of each modification separately. In the case of a remodified
loan where the borrower is performing, the previous modification
would be presented as being in default in the applicable period.
|
The redefault rate is the percentage of our modified loans that
became seriously delinquent, transitioned to REO, or completed a
loss-producing foreclosure alternative, and is the inverse of
the reperformance rate. As of June 30, 2011, the redefault
rate for all of our single-family loan modifications (including
those under HAMP) completed during 2010, 2009, and 2008 was 14%,
46%, and 65%, respectively. Many of the borrowers that received
modifications in 2008 and 2009 were negatively affected by
worsening economic conditions, including high unemployment rates
during the last several years. As of June 30, 2011, the
redefault rate for loans modified under HAMP in 2010 and 2009
was approximately 12% and 15%, respectively. These redefault
rates may not be representative of the future performance of
modified loans, including those modified under HAMP. We believe
the redefault rate for loans modified in 2010, 2009, and 2008,
including those modified under HAMP, is likely to increase,
particularly since the housing and economic environments remain
challenging.
In February 2011, FHFA directed Freddie Mac and Fannie Mae to
develop consistent requirements, policies and processes for the
servicing of non-performing loans. This directive was designed
to create greater consistency in servicing practices and to
build on the best practices of each of the GSEs. In April 2011,
pursuant to this directive, FHFA announced a new set of aligned
standards for servicing non-performing loans owned or guaranteed
by Freddie Mac and Fannie Mae that are designed to help
servicers do a better job of communicating and working with
troubled borrowers and to bring greater accountability to the
servicing industry. These standards will provide for earlier and
more frequent communication with borrowers, consistent
requirements for collecting documents from borrowers, consistent
timelines for responding to borrowers, a consistent approach to
modifications, and consistent timelines for processing
foreclosures. These standards will result in the alignment of
our processes for both HAMP and non-HAMP workouts, and will be
implemented over the course of 2011 and into 2012.
Under these new servicing standards, servicers will be subject
to incentives and compensatory fee assessments with respect to
servicer performance. These incentives will likely result in our
payment of increased fees to our seller/servicers, but these
fees will be at least partially mitigated by compensatory fees
paid to us by our servicers that do not perform as required.
We anticipate implementing the new non-HAMP modification
initiative beginning in the fourth quarter of 2011. This
initiative will require a three month trial period for our new
non-HAMP modifications. Consequently, we expect to experience a
temporary decline in completed modification volume, as many
borrowers will be in the process of completing the trial period
of this non-HAMP modification initiative. This new modification
program is expected to result in a higher volume of
modifications where we partially forbear principal until the
borrower sells the home or refinances or pays off the mortgage.
In addition, the new modification initiative will allow for a
change of contractual interest rates to a current market rate
whereas, our previous initiative allowed for reduction of
contractual interest rates to as low as 2%.
Delinquencies
We report single-family serious delinquency rate information
based on the number of loans that are three monthly payments or
more past due or in the process of foreclosure, as reported by
our seller/servicers. Mortgage loans whose contractual terms
have been modified under agreement with the borrower are not
counted as delinquent as long as the borrower is current under
the modified terms. Single-family loans for which the borrower
has been granted forbearance will continue to reflect the past
due status of the borrower. To the extent our borrowers
participate in the HFA unemployment assistance initiatives and
the full contractual payment is made by an HFA, a
borrowers mortgage delinquency status will remain static
and will not fall into further delinquency.
Our single-family delinquency rates include all single-family
loans that we own, that are collateral for Freddie Mac
securities, and that are covered by our other guarantee
commitments, except financial guarantees that are backed by
either Ginnie Mae Certificates or HFA bonds because these
securities do not expose us to meaningful amounts of credit risk
due to the guarantee or credit enhancements provided on these
securities by the U.S. government.
Some of our loss mitigation activities create fluctuations in
our delinquency statistics. For example, single-family loans
that we report as seriously delinquent before they enter the
HAMP trial period continue to be reported as seriously
delinquent for purposes of our delinquency reporting until the
modifications become effective and the loans are removed from
delinquent status by our servicers. However, under many of our
non-HAMP modifications, the borrower would return to a current
payment status sooner, because these modifications do not have
trial periods. Consequently, the volume, timing, and type of
loan modifications have impacted our reported serious
delinquency rate. As discussed above in Single-Family Loan
Workouts, we anticipate implementing a new non-HAMP loan
modification initiative that will include a trial period
comparable to that of our HAMP modification initiative. In
addition, there may be temporary timing differences, or lags, in
the reporting of payment status and modification completion due
to differing practices of our servicers that can affect our
delinquency reporting.
Temporary actions to suspend foreclosure transfers of occupied
homes, increases in foreclosure process timeframes, process
requirements of HAMP, and general constraints on servicer
capacity caused loans to remain in seriously delinquent status
for longer periods than prior to 2008, before such actions and
delays arose. This has caused our single-family serious
delinquency rates to be higher in recent periods than they
otherwise would have been. Delays in foreclosure relating to the
concerns about the foreclosure process have also had a similar
effect on our single-family serious delinquency rates. As of
June 30, 2011 and December 31, 2010, the percentage of
seriously delinquent loans that have been delinquent for more
than six months was 72% and 66%, respectively.
Table 38 presents delinquency rates for our single-family credit
guarantee portfolio.
Table
38 Single-Family Serious Delinquency Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
Serious
|
|
|
|
|
|
Serious
|
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
|
of Portfolio
|
|
|
Rate
|
|
|
of Portfolio
|
|
|
Rate
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit-enhanced
|
|
|
86
|
%
|
|
|
2.75
|
%
|
|
|
85
|
%
|
|
|
3.01
|
%
|
Credit-enhanced
|
|
|
14
|
|
|
|
7.67
|
|
|
|
15
|
|
|
|
8.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family credit guarantee
portfolio(1)
|
|
|
100
|
%
|
|
|
3.50
|
|
|
|
100
|
%
|
|
|
3.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As of June 30, 2011 and December 31, 2010,
approximately 67% and 61%, respectively, of the single-family
loans reported as seriously delinquent were in the process of
foreclosure.
|
Serious delinquency rates of our single-family credit guarantee
portfolio declined slightly to 3.50% as of June 30, 2011
from 3.84% as of December 31, 2010. Serious delinquency
rates for interest-only and option ARM products, which together
represented approximately 5% of our total single-family credit
guarantee portfolio at June 30, 2011, were 17.7% and 21.6%,
respectively, at June 30, 2011, compared with 18.4% and
21.2%, respectively, at December 31, 2010. Serious
delinquency rates of single-family
30-year,
fixed rate amortizing loans, which is a more traditional
mortgage product, were approximately 3.7% and 4.0% at
June 30, 2011, and December 31, 2010, respectively.
The slight improvement in the single-family serious delinquency
rate during the second quarter of 2011 was primarily due to a
continued high volume of loan modifications, significant volumes
of foreclosure transfers, and a slowdown in new serious
delinquencies. Although the volume of new serious delinquencies
declined in each of the past several quarters, our serious
delinquency rate remains high, reflecting continued stress in
the housing and labor markets.
In certain states our single-family serious delinquency rates
have remained persistently high. As of June 30, 2011,
single-family loans in Arizona, California, Florida, and Nevada
comprised 26% of our single-family credit guarantee portfolio,
and the serious delinquency rate of loans in these states was
6.3%. During the six months ended June 30, 2011, we also
continued to experience high serious delinquency rates on
single-family loans originated between 2005 and 2008. We
purchased significant amounts of loans with higher-risk
characteristics in those years. In addition, those borrowers are
more susceptible to the declines in home prices since 2006 than
those homeowners that have built up equity in their homes over
time.
Table 39 presents credit concentrations for certain loan groups
in our single-family credit guarantee portfolio.
Table 39
Credit Concentrations in the Single-Family Credit Guarantee
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Serious
|
|
|
Alt-A
|
|
Non Alt-A
|
|
|
|
Current LTV
|
|
Percentage
|
|
Delinquency
|
|
|
UPB
|
|
UPB
|
|
Total UPB
|
|
Ratio(1)
|
|
Modified(2)
|
|
Rate
|
|
|
(in billions)
|
|
|
|
|
|
|
|
Geographical distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona, California, Florida, and Nevada
|
|
$
|
43
|
|
|
$
|
416
|
|
|
$
|
459
|
|
|
|
92
|
%
|
|
|
4.1
|
%
|
|
|
6.3
|
%
|
All other states
|
|
|
61
|
|
|
|
1,285
|
|
|
|
1,346
|
|
|
|
75
|
|
|
|
2.2
|
|
|
|
2.7
|
|
Year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
105
|
|
|
|
105
|
|
|
|
70
|
|
|
|
|
|
|
|
<0.1
|
|
2010
|
|
|
|
|
|
|
361
|
|
|
|
361
|
|
|
|
71
|
|
|
|
<0.1
|
|
|
|
0.1
|
|
2009
|
|
|
<1
|
|
|
|
366
|
|
|
|
366
|
|
|
|
72
|
|
|
|
0.1
|
|
|
|
0.3
|
|
2008
|
|
|
9
|
|
|
|
131
|
|
|
|
140
|
|
|
|
90
|
|
|
|
3.4
|
|
|
|
4.9
|
|
2007
|
|
|
32
|
|
|
|
154
|
|
|
|
186
|
|
|
|
110
|
|
|
|
8.5
|
|
|
|
11.0
|
|
2006
|
|
|
28
|
|
|
|
111
|
|
|
|
139
|
|
|
|
109
|
|
|
|
7.7
|
|
|
|
10.3
|
|
2005
|
|
|
19
|
|
|
|
140
|
|
|
|
159
|
|
|
|
95
|
|
|
|
4.2
|
|
|
|
6.0
|
|
2004 and prior
|
|
|
16
|
|
|
|
333
|
|
|
|
349
|
|
|
|
60
|
|
|
|
2.1
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Serious
|
|
|
Alt-A
|
|
Non Alt-A
|
|
|
|
Current LTV
|
|
Percentage
|
|
Delinquency
|
|
|
UPB
|
|
UPB
|
|
Total UPB
|
|
Ratio(1)
|
|
Modified(2)
|
|
Rate
|
|
|
(in billions)
|
|
|
|
|
|
|
|
Geographical distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona, California, Florida, and Nevada
|
|
$
|
53
|
|
|
$
|
421
|
|
|
$
|
474
|
|
|
|
82
|
%
|
|
|
2.3
|
%
|
|
|
7.6
|
%
|
All other states
|
|
|
80
|
|
|
|
1,316
|
|
|
|
1,396
|
|
|
|
70
|
|
|
|
1.4
|
|
|
|
3.0
|
|
Year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
122
|
|
|
|
122
|
|
|
|
68
|
|
|
|
|
|
|
|
<0.1
|
|
2009
|
|
|
<1
|
|
|
|
452
|
|
|
|
452
|
|
|
|
66
|
|
|
|
<0.1
|
|
|
|
0.1
|
|
2008
|
|
|
11
|
|
|
|
188
|
|
|
|
199
|
|
|
|
79
|
|
|
|
1.2
|
|
|
|
4.1
|
|
2007
|
|
|
41
|
|
|
|
200
|
|
|
|
241
|
|
|
|
95
|
|
|
|
4.1
|
|
|
|
11.0
|
|
2006
|
|
|
36
|
|
|
|
146
|
|
|
|
182
|
|
|
|
95
|
|
|
|
3.8
|
|
|
|
9.9
|
|
2005
|
|
|
24
|
|
|
|
183
|
|
|
|
207
|
|
|
|
83
|
|
|
|
2.1
|
|
|
|
5.7
|
|
2004 and prior
|
|
|
21
|
|
|
|
446
|
|
|
|
467
|
|
|
|
54
|
|
|
|
1.2
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
(in millions)
|
|
(in millions)
|
|
Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographical distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arizona, California, Florida, and Nevada
|
|
$
|
1,967
|
|
|
$
|
2,445
|
|
|
$
|
3,951
|
|
|
$
|
4,192
|
|
All other states
|
|
|
1,139
|
|
|
|
1,406
|
|
|
|
2,381
|
|
|
|
2,566
|
|
Year of origination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
35
|
|
|
|
9
|
|
|
|
67
|
|
|
|
14
|
|
2008
|
|
|
233
|
|
|
|
232
|
|
|
|
484
|
|
|
|
389
|
|
2007
|
|
|
1,139
|
|
|
|
1,325
|
|
|
|
2,315
|
|
|
|
2,277
|
|
2006
|
|
|
899
|
|
|
|
1,189
|
|
|
|
1,830
|
|
|
|
2,053
|
|
2005
|
|
|
534
|
|
|
|
767
|
|
|
|
1,104
|
|
|
|
1,419
|
|
2004 and prior
|
|
|
266
|
|
|
|
329
|
|
|
|
532
|
|
|
|
606
|
|
|
|
(1)
|
See endnote (5) to Table 32
Characteristics of the Single-Family Credit Guarantee
Portfolio for information on our calculation of estimated
current LTV ratios.
|
(2)
|
Represents the percentage of loans, based on loan count in our
single-family credit guarantee portfolio, that have been
modified under agreement with the borrower, including those with
no changes in interest rate or maturity date, but where past due
amounts are added to the outstanding principal balance of the
loan.
|
Table 40 presents statistics for combinations of certain
characteristics of the mortgages in our single-family credit
guarantee portfolio as of June 30, 2011 and
December 31, 2010.
Table 40
Single-Family Credit Guarantee Portfolio by Attribute
Combinations
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As of June 30, 2011
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Current LTV
Ratio(1)
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Current LTV
Ratio(1)
£
80
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of
81-100
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Current LTV
Ratio(1)
> 100
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Current LTV
Ratio(1)
All Loans
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Serious
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Serious
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Serious
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Serious
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Percentage
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Delinquency
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Percentage
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Delinquency
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Percentage
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Delinquency
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Percentage
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Percentage
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Delinquency
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of
Portfolio(2)
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Rate
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of
Portfolio(2)
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Rate
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of
Portfolio(2)
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Rate
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of
Portfolio(2)
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Modified(3)
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Rate
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By Product Type
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FICO scores < 620:
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20 and 30- year or more amortizing fixed rate
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0.9
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%
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7.6
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%
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0.8
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%
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12.6
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%
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1.0
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%
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23.3
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%
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2.7
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%
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15.1
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%
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13.6
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%
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15- year amortizing fixed rate
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0.2
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4.2
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<0.1
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10.7
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<0.1
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18.2
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0.2
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1.9
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4.8
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ARMs/adjustable
rate(4)
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0.1
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11.2
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<0.1
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16.9
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<0.1
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25.3
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0.1
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8.9
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15.7
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Interest-only(5)
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<0.1
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16.2
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<0.1
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22.6
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0.1
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36.6
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0.1
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0.7
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31.3
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Other(6)
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<0.1
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3.1
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<0.1
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7.4
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0.1
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11.6
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0.1
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3.7
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4.9
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Total FICO scores < 620
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1.2
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6.7
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0.8
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12.8
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1.2
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23.8
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3.2
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12.2
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12.5
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FICO scores of 620 to 659
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20 and 30- year or more amortizing fixed rate
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2.0
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4.8
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1.6
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8.3
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2.0
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17.6
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5.6
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10.1
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9.5
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15- year amortizing fixed rate
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0.6
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2.5
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<0.1
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6.4
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<0.1
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14.2
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0.6
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1.0
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2.8
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ARMs/adjustable
rate(4)
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0.1
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5.4
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0.1
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11.8
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0.1
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24.0
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0.3
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1.5
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12.9
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Interest-only(5)
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<0.1
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10.1
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0.1
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18.7
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0.3
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32.6
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0.4
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0.7
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27.5
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Other(6)
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<0.1
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2.0
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<0.1
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4.8
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<0.1
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4.9
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<0.1
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1.2
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3.9
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Total FICO scores of 620 to 659
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2.7
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4.1
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1.8
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8.7
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2.4
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18.9
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6.9
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8.0
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9.1
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FICO scores
³
660
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20 and 30- year or more amortizing fixed rate
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34.6
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0.9
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20.8
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2.2
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12.3
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8.9
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67.7
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2.4
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2.6
|
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15- year amortizing fixed rate
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12.6
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0.4
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1.0
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1.1
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0.2
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6.0
|
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13.8
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0.1
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0.5
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ARMs/adjustable
rate(4)
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2.0
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1.3
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0.9
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4.6
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0.8
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15.4
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3.7
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0.4
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5.1
|
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Interest-only(5)
|
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0.5
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3.4
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0.9
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9.2
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2.6
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21.3
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4.0
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0.3
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16.2
|
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Other(6)
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<0.1
|
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1.7
|
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<0.1
|
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1.5
|
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0.1
|
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1.4
|
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0.1
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0.4
|
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1.4
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Total FICO scores
³
660
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49.7
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0.7
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23.6
|
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|
2.5
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16.0
|
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10.7
|
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89.3
|
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1.7
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2.5
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FICO scores not available
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0.3
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4.2
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0.2
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11.1
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0.1
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20.2
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0.6
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4.9
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8.5
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All FICO scores
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20 and 30- year or more amortizing fixed rate
|
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|
37.8
|
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|
1.4
|
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23.2
|
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3.2
|
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15.3
|
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11.1
|
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76.3
|
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3.6
|
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3.7
|
|
15- year amortizing fixed rate
|
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13.3
|
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|
0.6
|
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1.1
|
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1.6
|
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0.2
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7.2
|
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14.6
|
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0.2
|
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|
0.7
|
|
ARMs/adjustable
rate(4)
|
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|
2.2
|
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|
2.0
|
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1.0
|
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5.9
|
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|
1.0
|
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|
17.0
|
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4.2
|
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|
0.8
|
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|
6.0
|
|
Interest-only(5)
|
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|
0.5
|
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|
4.2
|
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|
|
1.0
|
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10.5
|
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|
|
3.0
|
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|
22.9
|
|
|
|
4.5
|
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|
|
0.4
|
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|
17.7
|
|
Other(6)
|
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|
0.1
|
|
|
|
7.7
|
|
|
|
0.1
|
|
|
|
8.5
|
|
|
|
0.2
|
|
|
|
6.5
|
|
|
|
0.4
|
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|
|
6.1
|
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|
|
7.5
|
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|
|
|
|
|
Total Single-family Credit Guarantee
Portfolio(7)
|
|
|
53.9
|
%
|
|
|
1.2
|
%
|
|
|
26.4
|
%
|
|
|
3.4
|
%
|
|
|
19.7
|
%
|
|
|
12.7
|
%
|
|
|
100.0
|
%
|
|
|
2.6
|
%
|
|
|
3.5
|
%
|
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|
By
Region(8)
|
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|
|
|
|
|
|
|
|
FICO scores < 620:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
North Central
|
|
|
0.2
|
%
|
|
|
6.0
|
%
|
|
|
0.2
|
%
|
|
|
11.4
|
%
|
|
|
0.2
|
%
|
|
|
19.4
|
%
|
|
|
0.6
|
%
|
|
|
12.4
|
%
|
|
|
11.7
|
%
|
Northeast
|
|
|
0.4
|
|
|
|
8.7
|
|
|
|
0.2
|
|
|
|
17.5
|
|
|
|
0.3
|
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|
|
27.1
|
|
|
|
0.9
|
|
|
|
12.8
|
|
|
|
13.7
|
|
Southeast
|
|
|
0.2
|
|
|
|
7.4
|
|
|
|
0.2
|
|
|
|
13.2
|
|
|
|
0.3
|
|
|
|
28.7
|
|
|
|
0.7
|
|
|
|
12.6
|
|
|
|
15.2
|
|
Southwest
|
|
|
0.2
|
|
|
|
5.1
|
|
|
|
0.1
|
|
|
|
10.1
|
|
|
|
0.1
|
|
|
|
19.1
|
|
|
|
0.4
|
|
|
|
8.7
|
|
|
|
7.8
|
|
West
|
|
|
0.2
|
|
|
|
4.7
|
|
|
|
0.1
|
|
|
|
10.3
|
|
|
|
0.3
|
|
|
|
21.5
|
|
|
|
0.6
|
|
|
|
14.7
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores < 620
|
|
|
1.2
|
|
|
|
6.7
|
|
|
|
0.8
|
|
|
|
12.8
|
|
|
|
1.2
|
|
|
|
23.8
|
|
|
|
3.2
|
|
|
|
12.2
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores of 620 to 659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
0.4
|
|
|
|
3.7
|
|
|
|
0.4
|
|
|
|
7.9
|
|
|
|
0.5
|
|
|
|
14.3
|
|
|
|
1.3
|
|
|
|
7.8
|
|
|
|
8.1
|
|
Northeast
|
|
|
0.9
|
|
|
|
5.1
|
|
|
|
0.5
|
|
|
|
12.0
|
|
|
|
0.4
|
|
|
|
21.6
|
|
|
|
1.8
|
|
|
|
7.9
|
|
|
|
9.3
|
|
Southeast
|
|
|
0.5
|
|
|
|
4.9
|
|
|
|
0.3
|
|
|
|
9.0
|
|
|
|
0.6
|
|
|
|
23.5
|
|
|
|
1.4
|
|
|
|
8.1
|
|
|
|
11.7
|
|
Southwest
|
|
|
0.5
|
|
|
|
3.0
|
|
|
|
0.3
|
|
|
|
6.6
|
|
|
|
0.1
|
|
|
|
12.3
|
|
|
|
0.9
|
|
|
|
5.3
|
|
|
|
4.9
|
|
West
|
|
|
0.4
|
|
|
|
3.1
|
|
|
|
0.3
|
|
|
|
7.2
|
|
|
|
0.8
|
|
|
|
18.9
|
|
|
|
1.5
|
|
|
|
10.6
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores of 620 to 659
|
|
|
2.7
|
|
|
|
4.1
|
|
|
|
1.8
|
|
|
|
8.7
|
|
|
|
2.4
|
|
|
|
18.9
|
|
|
|
6.9
|
|
|
|
8.0
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores
³
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
8.1
|
|
|
|
0.6
|
|
|
|
5.0
|
|
|
|
2.1
|
|
|
|
3.0
|
|
|
|
6.8
|
|
|
|
16.1
|
|
|
|
1.4
|
|
|
|
1.9
|
|
Northeast
|
|
|
14.7
|
|
|
|
0.9
|
|
|
|
5.8
|
|
|
|
3.7
|
|
|
|
1.9
|
|
|
|
11.6
|
|
|
|
22.4
|
|
|
|
1.4
|
|
|
|
2.1
|
|
Southeast
|
|
|
7.0
|
|
|
|
1.1
|
|
|
|
4.1
|
|
|
|
2.7
|
|
|
|
3.8
|
|
|
|
14.1
|
|
|
|
14.9
|
|
|
|
1.8
|
|
|
|
4.1
|
|
Southwest
|
|
|
7.1
|
|
|
|
0.6
|
|
|
|
3.0
|
|
|
|
1.8
|
|
|
|
0.4
|
|
|
|
5.7
|
|
|
|
10.5
|
|
|
|
0.8
|
|
|
|
1.1
|
|
West
|
|
|
12.8
|
|
|
|
0.5
|
|
|
|
5.7
|
|
|
|
1.9
|
|
|
|
6.9
|
|
|
|
10.9
|
|
|
|
25.4
|
|
|
|
2.6
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores
³
660
|
|
|
49.7
|
|
|
|
0.7
|
|
|
|
23.6
|
|
|
|
2.5
|
|
|
|
16.0
|
|
|
|
10.7
|
|
|
|
89.3
|
|
|
|
1.7
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores not available
|
|
|
0.3
|
|
|
|
4.2
|
|
|
|
0.2
|
|
|
|
11.1
|
|
|
|
0.1
|
|
|
|
20.2
|
|
|
|
0.6
|
|
|
|
4.9
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All FICO scores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
8.7
|
|
|
|
1.0
|
|
|
|
5.6
|
|
|
|
3.0
|
|
|
|
3.8
|
|
|
|
8.8
|
|
|
|
18.1
|
|
|
|
2.4
|
|
|
|
2.8
|
|
Northeast
|
|
|
16.1
|
|
|
|
1.5
|
|
|
|
6.5
|
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
14.5
|
|
|
|
25.1
|
|
|
|
2.4
|
|
|
|
3.1
|
|
Southeast
|
|
|
7.7
|
|
|
|
1.7
|
|
|
|
4.7
|
|
|
|
3.8
|
|
|
|
4.8
|
|
|
|
16.5
|
|
|
|
17.2
|
|
|
|
3.0
|
|
|
|
5.4
|
|
Southwest
|
|
|
7.9
|
|
|
|
1.0
|
|
|
|
3.5
|
|
|
|
2.8
|
|
|
|
0.6
|
|
|
|
8.6
|
|
|
|
12.0
|
|
|
|
1.7
|
|
|
|
1.8
|
|
West
|
|
|
13.5
|
|
|
|
0.7
|
|
|
|
6.1
|
|
|
|
2.4
|
|
|
|
8.0
|
|
|
|
12.2
|
|
|
|
27.6
|
|
|
|
3.4
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Credit Guarantee
Portfolio(7)
|
|
|
53.9
|
%
|
|
|
1.2
|
%
|
|
|
26.4
|
%
|
|
|
3.4
|
%
|
|
|
19.7
|
%
|
|
|
12.7
|
%
|
|
|
100.0
|
%
|
|
|
2.6
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
Current LTV
Ratio(1)
|
|
|
|
|
|
|
|
|
|
Current LTV
Ratio(1)
£
80
|
|
|
of
81-100
|
|
|
Current LTV
Ratio(1)
> 100
|
|
|
Current LTV
Ratio(1)
All Loans
|
|
|
|
|
|
|
Serious
|
|
|
|
|
|
Serious
|
|
|
|
|
|
Serious
|
|
|
|
|
|
|
|
|
Serious
|
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Percentage
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
|
of
Portfolio(2)
|
|
|
Rate
|
|
|
of
Portfolio(2)
|
|
|
Rate
|
|
|
of
Portfolio(2)
|
|
|
Rate
|
|
|
of
Portfolio(2)
|
|
|
Modified(3)
|
|
|
Rate
|
|
|
By Product Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores < 620:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and 30- year or more amortizing fixed rate
|
|
|
1.1
|
%
|
|
|
8.6
|
%
|
|
|
0.8
|
%
|
|
|
15.1
|
%
|
|
|
0.9
|
%
|
|
|
27.5
|
%
|
|
|
2.8
|
%
|
|
|
12.9
|
%
|
|
|
15.1
|
%
|
15- year amortizing fixed rate
|
|
|
0.2
|
|
|
|
4.6
|
|
|
|
<0.1
|
|
|
|
11.8
|
|
|
|
<0.1
|
|
|
|
22.2
|
|
|
|
0.2
|
|
|
|
1.8
|
|
|
|
5.1
|
|
ARMs/adjustable
rate(4)
|
|
|
0.1
|
|
|
|
12.2
|
|
|
|
<0.1
|
|
|
|
18.4
|
|
|
|
<0.1
|
|
|
|
28.6
|
|
|
|
0.1
|
|
|
|
7.6
|
|
|
|
16.9
|
|
Interest-only(5)
|
|
|
<0.1
|
|
|
|
17.6
|
|
|
|
0.1
|
|
|
|
25.3
|
|
|
|
0.1
|
|
|
|
39.9
|
|
|
|
0.2
|
|
|
|
0.9
|
|
|
|
33.3
|
|
Other(6)
|
|
|
<0.1
|
|
|
|
3.7
|
|
|
|
<0.1
|
|
|
|
8.5
|
|
|
|
0.1
|
|
|
|
13.2
|
|
|
|
0.1
|
|
|
|
3.1
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores < 620
|
|
|
1.4
|
|
|
|
7.6
|
|
|
|
0.9
|
|
|
|
15.3
|
|
|
|
1.1
|
|
|
|
27.9
|
|
|
|
3.4
|
|
|
|
10.4
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores of 620 to 659:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and 30- year or more amortizing fixed rate
|
|
|
2.4
|
|
|
|
5.2
|
|
|
|
1.7
|
|
|
|
9.8
|
|
|
|
1.8
|
|
|
|
20.5
|
|
|
|
5.9
|
|
|
|
8.3
|
|
|
|
10.3
|
|
15- year amortizing fixed rate
|
|
|
0.6
|
|
|
|
2.6
|
|
|
|
<0.1
|
|
|
|
7.3
|
|
|
|
<0.1
|
|
|
|
16.6
|
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
3.0
|
|
ARMs/adjustable
rate(4)
|
|
|
0.1
|
|
|
|
6.0
|
|
|
|
0.1
|
|
|
|
13.5
|
|
|
|
0.1
|
|
|
|
25.9
|
|
|
|
0.3
|
|
|
|
1.5
|
|
|
|
13.6
|
|
Interest-only(5)
|
|
|
<0.1
|
|
|
|
10.9
|
|
|
|
0.2
|
|
|
|
20.6
|
|
|
|
0.3
|
|
|
|
35.6
|
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
29.2
|
|
Other(6)
|
|
|
<0.1
|
|
|
|
2.6
|
|
|
|
<0.1
|
|
|
|
5.4
|
|
|
|
<0.1
|
|
|
|
5.3
|
|
|
|
<0.1
|
|
|
|
1.0
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores of 620 to 659
|
|
|
3.1
|
|
|
|
4.5
|
|
|
|
2.0
|
|
|
|
10.3
|
|
|
|
2.2
|
|
|
|
22.0
|
|
|
|
7.3
|
|
|
|
6.5
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores
³
660:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and 30- year or more amortizing fixed rate
|
|
|
36.5
|
|
|
|
1.0
|
|
|
|
20.0
|
|
|
|
2.8
|
|
|
|
10.4
|
|
|
|
10.4
|
|
|
|
66.9
|
|
|
|
1.9
|
|
|
|
2.8
|
|
15- year amortizing fixed rate
|
|
|
12.5
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
1.4
|
|
|
|
0.1
|
|
|
|
7.3
|
|
|
|
13.5
|
|
|
|
0.1
|
|
|
|
0.5
|
|
ARMs/adjustable
rate(4)
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
0.8
|
|
|
|
5.4
|
|
|
|
0.8
|
|
|
|
17.0
|
|
|
|
3.5
|
|
|
|
0.4
|
|
|
|
5.6
|
|
Interest-only(5)
|
|
|
0.7
|
|
|
|
3.7
|
|
|
|
1.2
|
|
|
|
10.3
|
|
|
|
2.8
|
|
|
|
23.1
|
|
|
|
4.7
|
|
|
|
0.4
|
|
|
|
16.7
|
|
Other(6)
|
|
|
<0.1
|
|
|
|
2.1
|
|
|
|
<0.1
|
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores
³
660
|
|
|
51.6
|
|
|
|
0.8
|
|
|
|
22.9
|
|
|
|
3.1
|
|
|
|
14.2
|
|
|
|
12.6
|
|
|
|
88.7
|
|
|
|
1.3
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores not available
|
|
|
0.4
|
|
|
|
4.6
|
|
|
|
0.1
|
|
|
|
11.9
|
|
|
|
0.1
|
|
|
|
23.7
|
|
|
|
0.6
|
|
|
|
4.1
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All FICO scores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and 30- year or more amortizing fixed rate
|
|
|
40.2
|
|
|
|
1.6
|
|
|
|
22.6
|
|
|
|
3.9
|
|
|
|
13.2
|
|
|
|
13.1
|
|
|
|
76.0
|
|
|
|
2.9
|
|
|
|
4.0
|
|
15- year amortizing fixed rate
|
|
|
13.3
|
|
|
|
0.6
|
|
|
|
0.9
|
|
|
|
2.0
|
|
|
|
0.2
|
|
|
|
8.8
|
|
|
|
14.4
|
|
|
|
0.2
|
|
|
|
0.8
|
|
ARMs/adjustable
rate(4)
|
|
|
2.1
|
|
|
|
2.4
|
|
|
|
1.0
|
|
|
|
7.0
|
|
|
|
0.9
|
|
|
|
18.7
|
|
|
|
4.0
|
|
|
|
0.8
|
|
|
|
6.7
|
|
Interest-only(5)
|
|
|
0.7
|
|
|
|
4.5
|
|
|
|
1.3
|
|
|
|
11.7
|
|
|
|
3.2
|
|
|
|
24.9
|
|
|
|
5.2
|
|
|
|
0.5
|
|
|
|
18.4
|
|
Other(6)
|
|
|
0.2
|
|
|
|
9.3
|
|
|
|
0.1
|
|
|
|
8.6
|
|
|
|
0.1
|
|
|
|
7.3
|
|
|
|
0.4
|
|
|
|
5.2
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Credit Guarantee
Portfolio(7)
|
|
|
56.5
|
%
|
|
|
1.4
|
%
|
|
|
25.9
|
%
|
|
|
4.3
|
%
|
|
|
17.6
|
%
|
|
|
14.9
|
%
|
|
|
100.0
|
%
|
|
|
2.1
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By
Region(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores <620:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
0.2
|
%
|
|
|
7.1
|
%
|
|
|
0.2
|
%
|
|
|
13.7
|
%
|
|
|
0.2
|
%
|
|
|
22.5
|
%
|
|
|
0.6
|
%
|
|
|
10.9
|
%
|
|
|
13.0
|
%
|
Northeast
|
|
|
0.5
|
|
|
|
9.4
|
|
|
|
0.3
|
|
|
|
19.9
|
|
|
|
0.2
|
|
|
|
30.5
|
|
|
|
1.0
|
|
|
|
10.7
|
|
|
|
14.5
|
|
Southeast
|
|
|
0.2
|
|
|
|
8.4
|
|
|
|
0.2
|
|
|
|
15.5
|
|
|
|
0.3
|
|
|
|
31.9
|
|
|
|
0.7
|
|
|
|
10.7
|
|
|
|
16.4
|
|
Southwest
|
|
|
0.3
|
|
|
|
5.9
|
|
|
|
0.1
|
|
|
|
12.7
|
|
|
|
0.1
|
|
|
|
24.1
|
|
|
|
0.5
|
|
|
|
7.6
|
|
|
|
9.2
|
|
West
|
|
|
0.2
|
|
|
|
5.6
|
|
|
|
0.1
|
|
|
|
13.5
|
|
|
|
0.3
|
|
|
|
28.0
|
|
|
|
0.6
|
|
|
|
12.3
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores < 620
|
|
|
1.4
|
|
|
|
7.6
|
|
|
|
0.9
|
|
|
|
15.3
|
|
|
|
1.1
|
|
|
|
27.9
|
|
|
|
3.4
|
|
|
|
10.4
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores of 620 to 659:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
0.6
|
|
|
|
4.3
|
|
|
|
0.4
|
|
|
|
9.6
|
|
|
|
0.4
|
|
|
|
16.6
|
|
|
|
1.4
|
|
|
|
6.6
|
|
|
|
8.9
|
|
Northeast
|
|
|
0.9
|
|
|
|
5.4
|
|
|
|
0.6
|
|
|
|
13.7
|
|
|
|
0.3
|
|
|
|
23.2
|
|
|
|
1.8
|
|
|
|
6.4
|
|
|
|
9.6
|
|
Southeast
|
|
|
0.5
|
|
|
|
5.3
|
|
|
|
0.4
|
|
|
|
10.0
|
|
|
|
0.6
|
|
|
|
25.5
|
|
|
|
1.5
|
|
|
|
6.6
|
|
|
|
12.1
|
|
Southwest
|
|
|
0.6
|
|
|
|
3.4
|
|
|
|
0.3
|
|
|
|
8.1
|
|
|
|
0.1
|
|
|
|
15.3
|
|
|
|
1.0
|
|
|
|
4.5
|
|
|
|
5.6
|
|
West
|
|
|
0.5
|
|
|
|
3.5
|
|
|
|
0.3
|
|
|
|
9.6
|
|
|
|
0.8
|
|
|
|
23.7
|
|
|
|
1.6
|
|
|
|
8.5
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores of 620 to 659
|
|
|
3.1
|
|
|
|
4.5
|
|
|
|
2.0
|
|
|
|
10.3
|
|
|
|
2.2
|
|
|
|
22.0
|
|
|
|
7.3
|
|
|
|
6.5
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores
³
660:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
8.9
|
|
|
|
0.7
|
|
|
|
4.9
|
|
|
|
2.8
|
|
|
|
2.3
|
|
|
|
7.9
|
|
|
|
16.1
|
|
|
|
1.2
|
|
|
|
2.1
|
|
Northeast
|
|
|
15.0
|
|
|
|
1.0
|
|
|
|
5.6
|
|
|
|
4.4
|
|
|
|
1.5
|
|
|
|
12.0
|
|
|
|
22.1
|
|
|
|
1.1
|
|
|
|
2.1
|
|
Southeast
|
|
|
7.4
|
|
|
|
1.2
|
|
|
|
4.1
|
|
|
|
3.0
|
|
|
|
3.6
|
|
|
|
15.1
|
|
|
|
15.1
|
|
|
|
1.4
|
|
|
|
4.1
|
|
Southwest
|
|
|
7.3
|
|
|
|
0.7
|
|
|
|
2.9
|
|
|
|
2.3
|
|
|
|
0.3
|
|
|
|
6.8
|
|
|
|
10.5
|
|
|
|
0.7
|
|
|
|
1.2
|
|
West
|
|
|
13.0
|
|
|
|
0.6
|
|
|
|
5.4
|
|
|
|
2.7
|
|
|
|
6.5
|
|
|
|
13.8
|
|
|
|
24.9
|
|
|
|
2.1
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FICO scores
³
660
|
|
|
51.6
|
|
|
|
0.8
|
|
|
|
22.9
|
|
|
|
3.1
|
|
|
|
14.2
|
|
|
|
12.6
|
|
|
|
88.7
|
|
|
|
1.3
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO scores not available
|
|
|
0.4
|
|
|
|
4.6
|
|
|
|
0.1
|
|
|
|
11.9
|
|
|
|
0.1
|
|
|
|
23.7
|
|
|
|
0.6
|
|
|
|
4.1
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All FICO scores:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Central
|
|
|
9.6
|
|
|
|
1.2
|
|
|
|
5.6
|
|
|
|
3.9
|
|
|
|
3.0
|
|
|
|
10.5
|
|
|
|
18.2
|
|
|
|
2.0
|
|
|
|
3.1
|
|
Northeast
|
|
|
16.6
|
|
|
|
1.6
|
|
|
|
6.4
|
|
|
|
6.0
|
|
|
|
2.0
|
|
|
|
15.4
|
|
|
|
25.0
|
|
|
|
1.9
|
|
|
|
3.2
|
|
Southeast
|
|
|
8.2
|
|
|
|
1.9
|
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
4.5
|
|
|
|
17.8
|
|
|
|
17.4
|
|
|
|
2.4
|
|
|
|
5.6
|
|
Southwest
|
|
|
8.2
|
|
|
|
1.2
|
|
|
|
3.4
|
|
|
|
3.6
|
|
|
|
0.5
|
|
|
|
10.9
|
|
|
|
12.1
|
|
|
|
1.5
|
|
|
|
2.1
|
|
West
|
|
|
13.9
|
|
|
|
0.9
|
|
|
|
5.8
|
|
|
|
3.4
|
|
|
|
7.6
|
|
|
|
15.5
|
|
|
|
27.3
|
|
|
|
2.7
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Credit Guarantee
Portfolio(7)
|
|
|
56.5
|
%
|
|
|
1.4
|
%
|
|
|
25.9
|
%
|
|
|
4.3
|
%
|
|
|
17.6
|
%
|
|
|
14.9
|
%
|
|
|
100.0
|
%
|
|
|
2.1
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The current LTV ratios are our estimates. See endnote (5)
to Table 32 Characteristics of the
Single-Family Credit Guarantee Portfolio for further
information.
|
(2)
|
Based on UPB of the single-family credit guarantee portfolio.
|
(3)
|
See endnote (2) to Table 39 Credit
Concentrations in the Single-Family Credit Guarantee
Portfolio.
|
(4)
|
Includes balloon/resets and option ARM mortgage loans.
|
(5)
|
Includes both fixed rate and adjustable rate loans. The
percentages of interest-only loans which have been modified at
period end reflect that a number of these loans have not yet
been assigned to their new product category (post modification),
primarily due to delays in processing.
|
(6)
|
Consist of FHA/VA and other government guaranteed mortgages.
|
(7)
|
The total of all FICO scores categories may not sum due to the
inclusion of loans where FICO scores are not available in the
respective totals for all loans. See endnote (7) to
Table 32 Characteristics of the
Single-Family Credit Guarantee Portfolio for further
information about our use of FICO scores.
|
(8)
|
Presentation with the following regional designation: West (AK,
AZ, CA, GU, HI, ID, MT, NV, OR, UT, WA); Northeast (CT, DE, DC,
MA, ME, MD, NH, NJ, NY, PA, RI, VT, VA, WV); North Central (IL,
IN, IA, MI, MN, ND, OH, SD, WI); Southeast (AL, FL, GA, KY, MS,
NC, PR, SC, TN, VI); and Southwest (AR, CO, KS, LA, MO, NE, NM,
OK, TX, WY).
|
Table 41 presents delinquency and default rate information
for loans in our single-family credit guarantee portfolio based
on year of origination.
Table 41 Single-Family
Credit Guarantee Portfolio by Year of Loan Origination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
Serious
|
|
|
Foreclosure and
|
|
|
|
|
|
Serious
|
|
|
Foreclosure and
|
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Short Sale
|
|
|
Percentage
|
|
|
Delinquency
|
|
|
Short Sale
|
|
Year of Loan Origination
|
|
of Portfolio
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
of Portfolio
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
2011
|
|
|
6
|
%
|
|
|
0.01
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
2010
|
|
|
20
|
|
|
|
0.12
|
|
|
|
0.01
|
|
|
|
18
|
|
|
|
0.05
|
|
|
|
|
|
2009
|
|
|
20
|
|
|
|
0.34
|
|
|
|
0.09
|
|
|
|
21
|
|
|
|
0.26
|
|
|
|
0.04
|
|
2008
|
|
|
8
|
|
|
|
4.94
|
|
|
|
1.72
|
|
|
|
9
|
|
|
|
4.89
|
|
|
|
1.26
|
|
2007
|
|
|
10
|
|
|
|
11.04
|
|
|
|
6.19
|
|
|
|
11
|
|
|
|
11.63
|
|
|
|
4.92
|
|
2006
|
|
|
8
|
|
|
|
10.28
|
|
|
|
5.99
|
|
|
|
9
|
|
|
|
10.46
|
|
|
|
5.00
|
|
2005
|
|
|
9
|
|
|
|
6.01
|
|
|
|
3.51
|
|
|
|
10
|
|
|
|
6.04
|
|
|
|
2.95
|
|
2004 and
prior(2)
|
|
|
19
|
|
|
|
2.49
|
|
|
|
0.96
|
|
|
|
22
|
|
|
|
2.46
|
|
|
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
3.50
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
3.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Calculated for each year of origination as the number of loans
that have proceeded to foreclosure transfer or short sale and
resulted in a credit loss, excluding any subsequent recoveries
during the period from origination to June 30, 2011 and
December 31, 2010, respectively, divided by the number of
loans in our single-family credit guarantee portfolio originated
in that year.
|
(2)
|
The foreclosure and short sale rate for 2004 and
prior represents the rate associated with loans originated
from 2000 to 2004.
|
At June 30, 2011, approximately 35% of our single-family
credit guarantee portfolio consisted of mortgage loans
originated from 2005 through 2008. Loans originated during these
years experienced higher serious delinquency rates in the
earlier years of their terms as compared to our historical
experience. We attribute this serious delinquency performance to
a number of factors, including: (a) the expansion of credit
terms under which loans were underwritten during these years;
(b) an increase in the origination and our purchase of
interest-only and
Alt-A
mortgage products in these years; and (c) an environment of
decreasing home sales and broadly declining home prices in the
period shortly following the loans origination.
Interest-only and
Alt-A
products have higher inherent credit risk than traditional
fixed-rate mortgage products.
The UPB of loans originated after 2008 comprised 46% of our
portfolio as of June 30, 2011. Approximately 93% of the
loans we purchased in our single-family credit guarantee
portfolio during the six months ended June 30, 2011 were
amortizing fixed-rate mortgage products.
Multifamily
Mortgage Credit Risk
Portfolio diversification, particularly by product and
geographical areas, is an important aspect of our strategy to
manage mortgage credit risk for multifamily loans. We monitor a
variety of mortgage loan characteristics that may affect the
default experience on our multifamily mortgage portfolio, such
as the LTV ratio, DSCR, geographic location and loan duration.
See NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS for more information about the loans in our
multifamily mortgage portfolio. We also monitor the performance
and risk concentrations of our multifamily loans and the
underlying properties throughout the life of the loan.
Table 42 provides certain attributes of our multifamily
mortgage portfolio at June 30, 2011 and December 31,
2010.
Table
42 Multifamily Mortgage Portfolio by
Attribute
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB(1)
at
|
|
|
Delinquency
Rate(2)
at
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Original LTV
Ratio(3)
|
|
(dollars in billions)
|
|
|
|
|
|
|
|
|
Below 75%
|
|
$
|
74.7
|
|
|
$
|
72.0
|
|
|
|
0.19
|
%
|
|
|
0.08
|
%
|
75% to 80%
|
|
|
29.5
|
|
|
|
29.8
|
|
|
|
0.15
|
|
|
|
0.24
|
|
Above 80%
|
|
|
6.5
|
|
|
|
6.6
|
|
|
|
2.45
|
|
|
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average LTV ratio at origination
|
|
|
70
|
%
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Dates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
1.0
|
|
|
$
|
2.3
|
|
|
|
2.65
|
%
|
|
|
0.97
|
%
|
2012
|
|
|
3.8
|
|
|
|
4.1
|
|
|
|
0.20
|
|
|
|
0.82
|
|
2013
|
|
|
6.3
|
|
|
|
6.8
|
|
|
|
0.98
|
|
|
|
|
|
2014
|
|
|
8.2
|
|
|
|
8.5
|
|
|
|
0.03
|
|
|
|
0.02
|
|
2015
|
|
|
11.7
|
|
|
|
12.0
|
|
|
|
0.14
|
|
|
|
0.09
|
|
Beyond 2015
|
|
|
79.7
|
|
|
|
74.7
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Acquisition or
Guarantee(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
|
$
|
14.4
|
|
|
$
|
15.9
|
|
|
|
0.33
|
%
|
|
|
0.31
|
%
|
2005
|
|
|
7.6
|
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
11.1
|
|
|
|
11.6
|
|
|
|
0.33
|
|
|
|
0.25
|
|
2007
|
|
|
20.5
|
|
|
|
20.8
|
|
|
|
0.92
|
|
|
|
0.97
|
|
2008
|
|
|
22.1
|
|
|
|
23.0
|
|
|
|
0.33
|
|
|
|
0.03
|
|
2009
|
|
|
14.7
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
13.1
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
7.2
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Loan Size Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Above $25 million
|
|
$
|
39.9
|
|
|
$
|
39.6
|
|
|
|
0.22
|
%
|
|
|
0.07
|
%
|
Above $5 million to $25 million
|
|
|
61.4
|
|
|
|
59.4
|
|
|
|
0.34
|
|
|
|
0.38
|
|
$5 million and below
|
|
|
9.4
|
|
|
|
9.4
|
|
|
|
0.50
|
|
|
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Structure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecuritized loans
|
|
$
|
81.8
|
|
|
$
|
85.9
|
|
|
|
0.18
|
%
|
|
|
0.11
|
%
|
Non-consolidated Freddie Mac mortgage-related securities
|
|
|
19.3
|
|
|
|
12.8
|
|
|
|
0.89
|
|
|
|
1.30
|
|
Other guarantee commitments
|
|
|
9.6
|
|
|
|
9.7
|
|
|
|
0.23
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Enhancement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-enhanced
|
|
$
|
27.2
|
|
|
$
|
20.9
|
|
|
|
0.70
|
%
|
|
|
0.85
|
%
|
Non-credit-enhanced
|
|
|
83.5
|
|
|
|
87.5
|
|
|
|
0.19
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
$
|
108.4
|
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Beginning in the second quarter of 2011, we exclude
non-consolidated mortgage-related securities for which we do not
provide our guarantee. The prior period has been revised to
conform to the current period presentation.
|
(2)
|
See Delinquencies below for more information
about our multifamily delinquency rates.
|
(3)
|
Original LTV ratios are calculated as the UPB of the mortgage,
divided by the lesser of the appraised value of the property at
the time of mortgage origination or, except for refinance loans,
the mortgage borrowers purchase price. Second liens not
owned or guaranteed by us are excluded from the LTV ratio
calculation. The existence of a second lien reduces the
borrowers equity in the property and, therefore, can
increase the risk of default.
|
(4)
|
Based on either: (a) the year of acquisition, for loans
recorded on our consolidated balance sheets; or (b) the
year that we issued our guarantee, for the remaining loans in
our multifamily mortgage portfolio.
|
Our multifamily mortgage portfolio consists of product types
that are categorized based on loan terms. Multifamily loans may
be interest-only or amortizing, fixed or variable rate, or may
switch between fixed and variable rate over time. However, our
multifamily loans generally have balloon maturities ranging from
five to ten years. Amortizing loans reduce our credit exposure
over time because the UPB declines with each mortgage payment.
As of June 30, 2011 and December 31, 2010,
approximately 83% and 85%, respectively, of the multifamily
loans on our consolidated balance sheets had fixed interest
rates while the remaining loans had variable-rates.
Because most multifamily loans require a significant lump sum
payment of unpaid principal at maturity, the inability to
refinance or pay off the loan at maturity is a serious concern
for lenders. Although property values have increased in recent
quarters, in some instances they are still well below the highs
of a few years ago and are lower than when the loans were
originally underwritten, particularly in areas where economic
conditions remain weak. As a result, if property values do not
continue to improve, borrowers may experience significant
difficulty refinancing as their loans approach maturity, which
could increase borrower defaults or increase modification
volumes. As of June 30, 2011, approximately 90% of UPB in
our multifamily mortgage portfolio matures in 2014 and beyond.
In certain cases, we may provide short-term loan extensions of
up to 12 months for certain borrowers. Modifications and
extensions of loans are performed in an effort to minimize our
losses and maximize our returns. During the first half of 2011,
we extended and modified unsecuritized multifamily loans
totaling $170 million in UPB, compared with
$301 million during the six months ended June 30,
2010. Multifamily unsecuritized loan modifications during the
first half of 2011 included: (a) $32 million in UPB
for short-term loan extensions; and (b) $138 million
in UPB for loan modifications. Where we have granted a
concession to borrowers experiencing financial difficulties, we
account for these loans as TDRs. When we execute a modification
classified as a TDR, the loan is then classified as
nonperforming for the life of the loan regardless of its
delinquency status. At June 30, 2011, we had
$988 million of multifamily loan UPB classified as TDRs on
our consolidated balance sheets, all of which were current.
Delinquencies
Our multifamily delinquency rates include all multifamily loans
that we own, that are collateral for Freddie Mac securities, and
that are covered by our other guarantee commitments, except
financial guarantees that are backed by HFA bonds because these
securities do not expose us to meaningful amounts of credit risk
due to the guarantee or credit enhancement provided by the
U.S. government. We report multifamily delinquency rates
based on UPB of mortgage loans that are two monthly payments or
more past due or in the process of foreclosure. Our delinquency
rates for multifamily loans are positively impacted to the
extent we have been successful in working with troubled
borrowers to modify their loans prior to becoming delinquent or
by providing temporary relief through loan modifications,
including short-term extensions. In addition, multifamily loans
are not counted as delinquent if the borrower has entered into a
forbearance agreement and is abiding by the terms of the
agreement. As of both June 30, 2011 and December 31,
2010, approximately $0.1 billion of multifamily loan UPB
had been granted forbearance and were not included in the
delinquency rate statistics. Some geographic areas in which we
have investments in multifamily loans, including the states of
Arizona, Georgia, and Nevada, continue to exhibit weaker than
average fundamentals that increase our risk of future losses. We
own or guarantee many loans in these states that are
non-performing, or we believe are at risk of default. For
further information regarding concentrations in our multifamily
mortgage portfolio, including regional geographic composition,
see NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS.
Our multifamily mortgage portfolio delinquency rate increased to
0.31% at June 30, 2011 from 0.26% at December 31,
2010. Our delinquency rate for credit-enhanced loans was 0.70%
and 0.85% at June 30, 2011 and December 31, 2010,
respectively, and for non-credit-enhanced loans was 0.19% and
0.12% at June 30, 2011 and December 31, 2010,
respectively. As of June 30, 2011, more than one-half of
our multifamily loans, measured both in terms of number of loans
and on a UPB basis, that were two monthly payments or more past
due had credit enhancements that we currently believe will
mitigate our expected losses on those loans. See
NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES
for information about credit protections and other forms of
credit enhancements covering loans in our multifamily mortgage
portfolio as of June 30, 2011 and December 31, 2010.
Non-Performing
Assets
Non-performing assets consist of single-family and multifamily
loans that have undergone a TDR, single-family seriously
delinquent loans, multifamily loans that are three or more
payments past due or in the process of foreclosure, and REO
assets, net. Non-performing assets also include multifamily
loans that are deemed impaired based on management judgment. We
place non-performing loans on non-accrual status when we believe
the collectability of interest and principal on a loan is not
reasonably assured, unless the loan is well secured and in the
process of collection. When a loan is placed on non-accrual
status, any interest income accrued but uncollected is reversed.
Thereafter, interest income is recognized only upon receipt of
cash payments. We did not accrue interest on any loans three
monthly payments or more past due or if the loan is in the
process of foreclosure during the three and six months ended
June 30, 2011.
We classify TDRs as those loans we modified and granted the
borrower a concession. TDRs remain categorized as non-performing
throughout the remaining life of the loan regardless of whether
the borrower makes payments which return the loan to a current
payment status after modification.
Table 43 provides detail on non-performing loans and REO
assets on our consolidated balance sheets and non-performing
loans underlying our financial guarantees.
Table 43
Non-Performing
Assets(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Non-performing mortgage loans on balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family TDRs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reperforming, or less than three monthly payments past due
|
|
$
|
36,243
|
|
|
$
|
26,612
|
|
|
$
|
15,470
|
|
Seriously delinquent
|
|
|
3,884
|
|
|
|
3,144
|
|
|
|
1,836
|
|
Multifamily
TDRs(2)
|
|
|
988
|
|
|
|
911
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
|
41,115
|
|
|
|
30,667
|
|
|
|
17,657
|
|
Other single-family non-performing
loans(3)
|
|
|
73,397
|
|
|
|
84,272
|
|
|
|
92,788
|
|
Other multifamily non-performing
loans(4)
|
|
|
1,901
|
|
|
|
1,750
|
|
|
|
1,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing mortgage loans on balance
sheet
|
|
|
116,413
|
|
|
|
116,689
|
|
|
|
111,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing mortgage loans off-balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family loans
|
|
|
1,295
|
|
|
|
1,450
|
|
|
|
1,664
|
|
Multifamily loans
|
|
|
221
|
|
|
|
198
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing mortgage loans off-balance sheet
|
|
|
1,516
|
|
|
|
1,648
|
|
|
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned, net
|
|
|
5,932
|
|
|
|
7,068
|
|
|
|
6,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
123,861
|
|
|
$
|
125,405
|
|
|
$
|
120,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan loss reserves as a percentage of our non-performing
mortgage loans
|
|
|
33.2
|
%
|
|
|
33.7
|
%
|
|
|
33.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets as a percentage of the total
mortgage portfolio, excluding non-Freddie Mac securities
|
|
|
6.4
|
%
|
|
|
6.4
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mortgage loan amounts are based on UPB and REO, net is based on
carrying values.
|
(2)
|
As of June 30, 2011, all multifamily loans classified as
TDRs were current.
|
(3)
|
Represents loans recognized by us on our consolidated balance
sheets, including loans purchased from PC trusts due to the
borrowers serious delinquency.
|
(4)
|
Of this amount, $1.7 billion, $1.6 billion, and
$1.4 billion of UPB were current at June 30, 2011,
December 31, 2010, and June 30, 2010, respectively.
|
The amount of non-performing assets declined to
$123.9 billion as of June 30, 2011, from
$125.4 billion at December 31, 2010, primarily due to
a decline in the rate at which loans transitioned into serious
delinquency. Although declining, our serious delinquency rate
has remained high compared to historical levels due to the
impact of continued weakness in home prices and persistently
high unemployment, extended foreclosure timelines and
foreclosure suspensions in many states, and challenges faced by
servicers in processing large volumes of problem loans. The UPB
of loans categorized as TDRs increased to $41.1 billion at
June 30, 2011 from $30.7 billion at December 31,
2010, largely due to a continued high volume of loan
modifications during the six months ended June 30, 2011 in
which we decreased the contractual interest rate, deferred the
balance on which contractual interest is computed, or made a
combination of both of these changes. TDRs during the second
quarter of 2011 include HAMP and non-HAMP loan modifications. In
recent periods, our non-HAMP modifications comprised a greater
portion of our loan modification volume and the volume of HAMP
modifications declined. We expect this trend to continue in the
remainder of 2011. We expect our non-performing assets,
including loans deemed to be TDRs, to remain at elevated levels
during the remainder of 2011.
Table 44 provides detail by region for REO activity. Our REO
activity relates almost entirely to single-family residential
properties. Consequently, our regional REO acquisition trends
generally follow a pattern that is similar to, but
lags, that of regional serious delinquency trends of our
single-family credit guarantee portfolio. See
Table 40 Single-Family Credit Guarantee
Portfolio by Attribute Combinations for information about
regional serious delinquency rates.
Table 44
REO Activity by
Region(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(number of properties)
|
|
|
REO Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning property inventory
|
|
|
65,174
|
|
|
|
53,839
|
|
|
|
72,093
|
|
|
|
45,052
|
|
Adjustment to beginning
balance(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,340
|
|
Properties acquired by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast
|
|
|
1,921
|
|
|
|
3,086
|
|
|
|
3,406
|
|
|
|
5,730
|
|
Southeast
|
|
|
5,131
|
|
|
|
9,594
|
|
|
|
9,865
|
|
|
|
17,628
|
|
North Central
|
|
|
6,405
|
|
|
|
8,119
|
|
|
|
12,780
|
|
|
|
15,318
|
|
Southwest
|
|
|
3,388
|
|
|
|
3,601
|
|
|
|
6,501
|
|
|
|
6,691
|
|
West
|
|
|
7,954
|
|
|
|
10,267
|
|
|
|
16,956
|
|
|
|
18,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total properties acquired
|
|
|
24,799
|
|
|
|
34,667
|
|
|
|
49,508
|
|
|
|
64,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties disposed by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast
|
|
|
(2,427
|
)
|
|
|
(2,230
|
)
|
|
|
(5,088
|
)
|
|
|
(4,142
|
)
|
Southeast
|
|
|
(7,540
|
)
|
|
|
(6,874
|
)
|
|
|
(16,754
|
)
|
|
|
(12,136
|
)
|
North Central
|
|
|
(6,801
|
)
|
|
|
(5,938
|
)
|
|
|
(14,093
|
)
|
|
|
(10,835
|
)
|
Southwest
|
|
|
(3,539
|
)
|
|
|
(2,812
|
)
|
|
|
(7,019
|
)
|
|
|
(5,144
|
)
|
West
|
|
|
(9,048
|
)
|
|
|
(8,462
|
)
|
|
|
(18,029
|
)
|
|
|
(16,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total properties disposed
|
|
|
(29,355
|
)
|
|
|
(26,316
|
)
|
|
|
(60,983
|
)
|
|
|
(48,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending property inventory
|
|
|
60,618
|
|
|
|
62,190
|
|
|
|
60,618
|
|
|
|
62,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See endnote (8) to Table 40
Single-Family Credit Guarantee Portfolio by Attribute
Combinations for a description of these regions.
|
(2)
|
Represents REO assets associated with previously
non-consolidated mortgage trusts recognized upon adoption of the
amendment to the accounting guidance for consolidation of VIEs
on January 1, 2010.
|
Our REO property inventory declined 16% from December 31,
2010 to June 30, 2011, primarily due to a decline in the
volume of single-family foreclosures caused by temporary delays
in the foreclosure process, including delays related to concerns
about the foreclosure process, combined with continued strong
levels of REO disposition activity during the period. Due to
temporary suspensions, delays and other factors, the average
length of time for foreclosure of a Freddie Mac loan
significantly increased in recent years. The nationwide average
for completion of a foreclosure (as measured from the date of
the last scheduled payment made by the borrower) on our
single-family delinquent loans, excluding those underlying our
Other Guarantee Transactions, was 498 days and
451 days for foreclosures completed during the three months
ended June 30, 2011 and 2010, respectively.
We expect the pace of our REO acquisitions will continue to be
affected by delays in the foreclosure process in the remainder
of 2011. However, we expect the volume of our REO acquisitions
will likely remain elevated, in part due to the resumption
earlier in the year of foreclosure activity by servicers
following the temporary suspensions over concerns about
documentation practices. We have a large inventory of seriously
delinquent loans in our single-family credit guarantee
portfolio, many of which will likely complete the foreclosure
process and transition to REO during the next few quarters as
our servicers work through their foreclosure-related issues.
This inventory of seriously delinquent loans arose due to
various factors and events that have lengthened the problem loan
resolution process and delayed the transition of such loans to a
workout or foreclosure transfer (and then, to REO). These
factors and events include the effect of HAMP, temporary
suspensions of foreclosure transfers, and the increasingly
lengthy foreclosure process in many states.
Our single-family REO acquisitions during the six months ended
June 30, 2011 were most significant in the states of
California, Michigan, Arizona, Georgia, and Florida. The state
with the most properties in our REO inventory is California. At
June 30, 2011, our REO inventory in California comprised
13% of total REO property inventory, based on the number of
properties.
We are limited in our REO disposition efforts by the capacity of
the market to absorb large numbers of foreclosed properties. An
increasing portion of our REO acquisitions are: (a) located
in jurisdictions that require a period of time after foreclosure
during which the borrower may reclaim the property; or
(b) occupied and we have either retained the tenant under
an existing lease or begun the process of eviction. During the
period when the borrower may reclaim the property, or we are
completing the eviction process, we are not able to market the
property. This generally extends our holding period for up to
three additional months. As of June 30, 2011 and
December 31, 2010, approximately 33% and 28%, respectively,
of our REO property inventory was not marketable due to the
above conditions. Our temporary suspension of certain REO sales
during the fourth quarter of 2010 (for up to three months) due
to concerns about deficiencies in foreclosure documentation
practices also caused the holding period to increase. Primarily
for these reasons,
the average holding period of our REO property increased in
recent periods, though it varies significantly in different
states. Excluding any post-foreclosure period during which
borrowers may reclaim a foreclosed property, the average holding
period associated with our REO dispositions during the six
months ended June 30, 2011 and 2010 was 193 days and
151 days, respectively. As of June 30, 2011 and
December 31, 2010, the percentage of our single-family REO
property inventory that had been held for sale longer than one
year was 6.3% and 3.4%, respectively. We continue to actively
market these properties through our established initiatives. All
of these factors have resulted in an increase in the aging of
our inventory.
The composition of interest-only and
Alt-A loans
in our single-family credit guarantee portfolio, based on UPB,
was approximately 5% and 6%, respectively, at June 30, 2011
and was 9% on a combined basis. The percentage of our REO
acquisitions in the six months ended June 30, 2011 that had
been secured by either of these loan types represented
approximately 32% of our total REO acquisitions, based on loan
amount prior to acquisition.
Credit
Loss Performance
Many loans that are seriously delinquent or in foreclosure
result in credit losses. Table 45 provides detail on our
credit loss performance associated with mortgage loans and REO
assets on our consolidated balance sheets and underlying our
non-consolidated mortgage-related financial guarantees.
Table 45
Credit Loss Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
REO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO balances, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
5,834
|
|
|
$
|
6,228
|
|
|
$
|
5,834
|
|
|
$
|
6,228
|
|
Multifamily
|
|
|
98
|
|
|
|
70
|
|
|
|
98
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,932
|
|
|
$
|
6,298
|
|
|
$
|
5,932
|
|
|
$
|
6,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REO operations (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
35
|
|
|
$
|
(41
|
)
|
|
$
|
292
|
|
|
$
|
115
|
|
Multifamily
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27
|
|
|
$
|
(40
|
)
|
|
$
|
284
|
|
|
$
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs,
gross(1)
(including $3.8 billion, $4.5 billion,
$7.3 billion, and $7.8 billion relating to loan loss
reserves, respectively)
|
|
$
|
3,871
|
|
|
$
|
4,664
|
|
|
$
|
7,524
|
|
|
$
|
8,031
|
|
Recoveries(2)
|
|
|
(800
|
)
|
|
|
(772
|
)
|
|
|
(1,484
|
)
|
|
|
(1,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family, net
|
|
$
|
3,071
|
|
|
$
|
3,892
|
|
|
$
|
6,040
|
|
|
$
|
6,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs,
gross(1)
(including $29 million, $27 million, $41 million,
and $45 million relating to loan loss reserves,
respectively)
|
|
$
|
29
|
|
|
$
|
27
|
|
|
$
|
41
|
|
|
$
|
45
|
|
Recoveries(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily, net
|
|
$
|
29
|
|
|
$
|
27
|
|
|
$
|
41
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs,
gross(1)
(including $3.8 billion, $4.5 billion,
$7.4 billion, and $7.8 billion relating to loan loss
reserves, respectively)
|
|
$
|
3,900
|
|
|
$
|
4,691
|
|
|
$
|
7,565
|
|
|
$
|
8,076
|
|
Recoveries
(2)
|
|
|
(800
|
)
|
|
|
(772
|
)
|
|
|
(1,484
|
)
|
|
|
(1,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs, net
|
|
$
|
3,100
|
|
|
$
|
3,919
|
|
|
$
|
6,081
|
|
|
$
|
6,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
losses(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
3,106
|
|
|
$
|
3,851
|
|
|
$
|
6,332
|
|
|
$
|
6,758
|
|
Multifamily
|
|
|
21
|
|
|
|
28
|
|
|
|
33
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,127
|
|
|
$
|
3,879
|
|
|
$
|
6,365
|
|
|
$
|
6,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (in
bps)(4)
|
|
|
64.9
|
|
|
|
78.6
|
|
|
|
66.0
|
|
|
|
68.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represent the carrying amount of a loan that has been discharged
in order to remove the loan from our consolidated balance sheets
at the time of resolution, regardless of when the impact of the
credit loss was recorded on our consolidated statements of
income and comprehensive income through the provision for credit
losses or losses on loans purchased. Charge-offs primarily
result from foreclosure transfers and short sales and are
generally calculated as the recorded investment of a loan at the
date it is discharged less the estimated value in final
disposition or actual net sales in a short sale.
|
(2)
|
Recoveries of charge-offs primarily result from foreclosure
transfers and short sales on loans where a share of default risk
has been assumed by mortgage insurers, servicers, or other third
parties through credit enhancements.
|
(3)
|
Excludes foregone interest on non-performing loans, which
reduces our net interest income but is not reflected in our
total credit losses. In addition, excludes other market-based
credit losses: (a) incurred on our investments in mortgage
loans and mortgage-related securities; and (b) recognized
in our consolidated statements of income and comprehensive
income.
|
(4)
|
Calculated as credit losses divided by the average carrying
value of our total mortgage portfolio, excluding non-Freddie Mac
mortgage-related securities and that portion of REMICs and Other
Structured Securities that are backed by Ginnie Mae Certificates.
|
Our credit loss performance metric generally measures losses at
the conclusion of the loan and related collateral resolution
process. There is a significant lag in time from the
implementation of problem loan workout activities until the
final resolution of seriously delinquent mortgage loans and REO
assets. Our credit loss performance is based on our charge-offs
and REO expenses. We record charge-offs at the time we take
ownership of a property through foreclosure. We expect our
credit losses to remain elevated in the remainder of 2011, as
our short sale and REO acquisition volumes will likely remain
high, due to high levels of seriously delinquent loans and
pending foreclosures, and because market conditions, such as
home prices and the rate of home sales, continue to remain weak.
Suspensions and delays of foreclosure transfers, including as a
result of concerns about the foreclosure process, and imposed
delays by regulatory or governmental agencies have caused delays
in the timing of our recognition of credit losses and may
continue to do so in the future.
Single-family charge-offs, gross, for the three and six months
ended June 30, 2011 were $3.9 billion and
$7.5 billion, respectively, compared to $4.7 billion
and $8.0 billion for the three and six months ended
June 30, 2010, respectively. Our charge-offs in the three
and six months ended June 30, 2011 remained elevated, but
reflects suppression of activity due to delays in the
foreclosure process. We believe that the level of our
charge-offs will remain high in 2011 and may increase in 2012
due to the large number of single-family non-performing loans
that will likely be resolved as our servicers work through their
foreclosure-related issues. Our credit losses during the three
months ended June 30, 2011 continued to be
disproportionately high in those states that experienced
significant declines in property values since 2006, such as
California, Florida, Nevada and Arizona. California accounted
for 16% of loans in our single-family credit guarantee portfolio
as of June 30, 2011, and comprised approximately 32% of our
total credit losses in both the three and six months ended
June 30, 2011. In addition, although
Alt-A loans
comprised approximately 6% of our single-family credit guarantee
portfolio at both June 30, 2011 and December 31, 2010,
respectively, these loans accounted for approximately 29% and
30% of our credit losses for the three and six months ended
June 30, 2011, respectively. See
Table 3 Credit Statistics, Single-Family
Credit Guarantee Portfolio for information on REO
disposition severity ratios, and see NOTE 17:
CONCENTRATION OF CREDIT AND OTHER RISKS for additional
information about our credit losses.
Credit
Risk Sensitivity
Under a 2005 agreement with FHFA, then OFHEO, we are required to
disclose the estimated increase in the NPV of future expected
credit losses for our single-family credit guarantee portfolio
over a ten year period as the result of an immediate 5% decline
in home prices nationwide, followed by a stabilization period
and return to the base case. This sensitivity analysis is
hypothetical and may not be indicative of our actual results. We
do not use this analysis for determination of our reported
results under GAAP. As shown in Table 46 below, our
quarterly credit risk sensitivity estimates have increased in
recent periods primarily due to declines in home prices during
the last year.
Table
46 Single-Family Credit Loss Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Receipt of
|
|
After Receipt of
|
|
|
Credit
Enhancements(1)
|
|
Credit
Enhancements(2)
|
|
|
NPV(3)
|
|
NPV
Ratio(4)
|
|
NPV(3)
|
|
NPV
Ratio(4)
|
|
|
(dollars in millions)
|
|
At:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
$
|
10,203
|
|
|
|
56.5 bps
|
|
|
$
|
9,417
|
|
|
|
52.2 bps
|
|
March 31, 2011
|
|
$
|
9,832
|
|
|
|
54.2 bps
|
|
|
$
|
8,999
|
|
|
|
49.6 bps
|
|
December 31, 2010
|
|
$
|
9,926
|
|
|
|
54.9 bps
|
|
|
$
|
9,053
|
|
|
|
50.0 bps
|
|
September 30, 2010
|
|
$
|
9,099
|
|
|
|
49.5 bps
|
|
|
$
|
8,187
|
|
|
|
44.6 bps
|
|
June 30, 2010
|
|
$
|
8,327
|
|
|
|
44.5 bps
|
|
|
$
|
7,445
|
|
|
|
39.8 bps
|
|
|
|
(1)
|
Assumes that none of the credit enhancements currently covering
our mortgage loans has any mitigating impact on our credit
losses.
|
(2)
|
Assumes we collect amounts due from credit enhancement providers
after giving effect to certain assumptions about counterparty
default rates.
|
(3)
|
Based on the single-family credit guarantee portfolio, excluding
REMICs and Other Structured Securities backed by Ginnie Mae
Certificates.
|
(4)
|
Calculated as the ratio of NPV of increase in credit losses to
the single-family credit guarantee portfolio, defined in note
(3) above.
|
Interest
Rate and Other Market Risks
For a discussion of our interest rate and other market risks,
see QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Operational
Risks
We may face increased operational risk due to the requirement
that we and Fannie Mae align certain single-family mortgage
servicing practices for non-performing loans. On April 28,
2011, FHFA announced a new set of aligned standards for
servicing by Freddie Mac and Fannie Mae. The large scope of
change required by this alignment will require significant
management effort and attention. See Credit
Risk Mortgage Credit Risk
Single-family Mortgage
Credit Risk Single-Family Loan Workouts
for more information. There also have been a number of other
regulatory developments in recent periods impacting
single-family mortgage servicing and foreclosure practices. The
servicing model for single-family mortgages may face further
significant changes in the future. As a result, we may be
required to make additional significant changes to our
practices, which could further increase our operational risk.
See LEGISLATIVE AND REGULATORY MATTERS
Developments Concerning Single-Family Servicing Practices
for more information.
Our risks related to employee retention are high. We have
experienced elevated levels of voluntary turnover, and expect
this to be the case for the remainder of 2011 as the public
debate regarding the future role of the GSEs continues. This has
led to concerns about staffing inadequacies and management
depth. A number of senior officers left the company in 2011,
including our Chief Operating Officer, our Executive Vice
President Single-Family Credit Guarantee, our
Executive Vice President Investments and Capital
Markets and Treasurer, our Executive Vice President
Multifamily, our Senior Vice President
Operations & Technology, and our Executive Vice
President General Counsel & Corporate
Secretary. In addition, our Executive Vice President
Chief Credit Officer will be leaving the company in October
2011. Because we maintain succession plans for our senior
management positions, we have been able to fill most of these
senior management positions quickly, or have eliminated them
through reorganizations. However, disruptive levels of turnover
at both the executive and employee levels could lead to
breakdowns in any of our operations, affect our execution
capabilities, cause delays in the implementation of critical
technology and other projects, and erode our business, modeling,
internal audit, risk management, financial reporting, and
compliance expertise and capabilities.
We made two significant internal reorganizations during the
second quarter of 2011, as we combined our Single-Family Credit
Guarantee, Single-Family Portfolio Management, and
Operations & Technology divisions, and we merged our
Credit Management division into our Enterprise Risk Management
division. Over time, we expect these changes will improve our
overall risk profile. However, in the near term, these changes
could increase our operational risk.
Management, including the companys Chief Executive Officer
and Chief Financial Officer, concluded that our disclosure
controls and procedures were not effective as of June 30,
2011, at a reasonable level of assurance, because our disclosure
controls and procedures did not adequately ensure the
accumulation and communication to management of information
known to FHFA that is needed to meet our disclosure obligations
under the federal securities laws. We have not been able to
update our disclosure controls and procedures to provide
reasonable assurance that information known by FHFA on an
ongoing basis is communicated from FHFA to Freddie Macs
management in a manner that allows for timely decisions
regarding our required disclosure. For additional information,
see CONTROLS AND PROCEDURES.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Our business activities require that we maintain adequate
liquidity to fund our operations, which may include the need to
make payments of principal and interest on our debt securities,
including securities issued by our consolidated trusts; make
payments upon the maturity, redemption or repurchase of our debt
securities; make net payments on derivative instruments; pay
dividends on our senior preferred stock; purchase
mortgage-related securities and other investments; and purchase
mortgage loans, including modified or seriously delinquent loans
from PC trusts. For more information on our liquidity needs and
liquidity management, see MD&A LIQUIDITY
AND CAPITAL RESOURCES in our 2010 Annual Report.
We fund our cash requirements primarily by issuing short-term
and long-term debt. Other sources of cash include:
|
|
|
|
|
receipts of principal and interest payments on securities or
mortgage loans we hold;
|
|
|
|
other cash flows from operating activities, including the
management and guarantee fees we receive in connection with our
guarantee activities;
|
|
|
|
borrowings against mortgage-related securities and other
investment securities we hold; and
|
|
|
|
sales of securities we hold.
|
We have also received substantial amounts of cash from Treasury
pursuant to draws under the Purchase Agreement, which are made
to address deficits in our net worth, however, no cash was
received from Treasury during the second quarter of 2011 due to
our positive net worth at March 31, 2011.
We believe that the support provided by Treasury pursuant to the
Purchase Agreement currently enables us to maintain our access
to the debt markets and to have adequate liquidity to conduct
our normal business activities, although the costs of our debt
funding could vary.
On August 5, 2011, S&P lowered the long-term credit
rating of the U.S. government to AA+ from
AAA and assigned a negative outlook to the rating.
On August 8, 2011, S&P lowered our senior long-term
debt credit rating to AA+ from AAA and
assigned a negative outlook to the rating. This could adversely
affect our liquidity, and the supply and cost of debt financing
available to us. For more information, see Other Debt
Securities Credit Ratings.
Recently we changed the composition of our portfolio of liquid
assets by decreasing our holdings of short-term Treasury
securities and money funds and increasing our holdings of cash
and overnight investments given the recent market concerns about
the potential for a downgrade in the credit rating of the
U.S. government and the potential that the U.S. would
exhaust its borrowing authority under the statutory debt limit.
For more information, see RISK FACTORS A
downgrade in the credit ratings of our debt could adversely
affect our liquidity and other aspects of our business. Our
business could also be adversely affected if there is a
downgrade in the credit ratings of the U.S. government or a
payment default by the U.S. government.
Liquidity
Management
Maintaining sufficient liquidity is of primary importance and we
continually strive to enhance our liquidity management practices
and policies. Under these practices and policies, we maintain an
amount of cash and cash equivalent reserves in the form of
liquid, high quality short-term investments that is intended to
enable us to meet ongoing cash obligations for an extended
period, in the event we do not have access to the short- or
long-term unsecured debt markets. We also actively manage the
concentration of debt maturities and closely monitor our monthly
maturity profile. In the second quarter of 2011, we revised our
liquidity management practices and policies such that they no
longer require us to maintain a back-up core portfolio of liquid
non-mortgage-related securities with a market value of
$10 billion. This requirement was no longer deemed to be
necessary due to improvements in our ability to forecast cash
flows. Our remaining liquidity management policies remain in
effect, including the requirement to maintain funds sufficient
to cover our maximum cash liquidity needs for at least the
following 35 calendar days. For a discussion of our
liquidity management practices and policies, see
MD&A LIQUIDITY AND CAPITAL
RESOURCES Liquidity Liquidity
Management in our 2010 Annual Report.
Throughout the second quarter of 2011, we complied with all
requirements under our liquidity management policies.
Furthermore, the majority of the funds used to cover our
short-term cash liquidity needs are invested in short-term
assets with a rating of
A-1/P-1 or
AAA or are issued by a counterparty with that rating. In the
event of a downgrade of a position or a counterparty, as
applicable, below minimum rating requirements, our credit
governance policies require us to exit from the position within
a specified period.
We also continue to manage our debt issuances to remain in
compliance with the aggregate indebtedness limits set forth in
the Purchase Agreement.
To facilitate cash management, we forecast cash outflows. These
forecasts help us to manage our liabilities with respect to
asset purchases and runoff, when financial markets are not in
crisis. For further information on our management of
interest-rate risk associated with asset and liability
management, see QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Notwithstanding these practices and policies, our ability to
maintain sufficient liquidity, including by pledging
mortgage-related and other securities as collateral to other
financial institutions, could cease or change rapidly and the
cost of the available funding could increase significantly due
to changes in market confidence and other factors. For more
information, see RISK FACTORS Competitive and
Market Risks Our business may be adversely
affected by limited availability of financing and increased
funding costs in our 2010 Annual Report.
Actions
of Treasury and FHFA
Since our entry into conservatorship, Treasury and FHFA have
taken a number of actions that affect our cash requirements and
ability to fund those requirements. The conservatorship, and the
resulting support we received from Treasury, has enabled us to
access debt funding on terms sufficient for our needs.
Under the Purchase Agreement, Treasury made a commitment to
provide funding, under certain conditions, to eliminate deficits
in our net worth. The Purchase Agreement provides that the
$200 billion maximum amount of the commitment from Treasury
will increase as necessary to accommodate any cumulative
reduction in our net worth during 2010, 2011, and 2012. If we do
not have a capital surplus (i.e., positive net worth) at
the end of 2012, then the amount of funding available after 2012
will be $149.3 billion ($200 billion funding
commitment reduced by cumulative draws for net worth deficits
through December 31, 2009). In the event we have a capital
surplus at the end of 2012, then the amount
of funding available after 2012 will depend on the size of that
surplus relative to cumulative draws needed for deficits during
2010 to 2012, as follows:
|
|
|
|
|
If the year-end 2012 surplus is lower than the cumulative draws
needed for 2010 to 2012, then the amount of available funding is
$149.3 billion less the surplus.
|
|
|
|
If the year-end 2012 surplus exceeds the cumulative draws for
2010 to 2012, then the amount of available funding is
$149.3 billion less the amount of those draws.
|
While we believe that the support provided by Treasury pursuant
to the Purchase Agreement currently enables us to maintain our
access to the debt markets and to have adequate liquidity to
conduct our normal business activities, the costs of our debt
funding could vary due to the uncertainty about the future of
the GSEs and potential investor concerns about the adequacy of
funding available to us under the Purchase Agreement after 2012.
The costs of our debt funding could also increase due to the
downgrades discussed above or in the event of any future
downgrades in our credit ratings or the credit ratings of the
U.S. government. Upon funding of the draw request that FHFA
will submit to eliminate our net worth deficit at June 30,
2011, our aggregate funding received from Treasury under the
Purchase Agreement will increase to $65.2 billion. This
aggregate funding amount does not include the initial
$1.0 billion liquidation preference of senior preferred
stock that we issued to Treasury in September 2008 as an initial
commitment fee and for which no cash was received. Commencing in
the second quarter of 2011, our draw request represents our net
worth deficit at quarter-end rounded up to the nearest
$1 million. In addition, we are required to pay a quarterly
commitment fee to Treasury under the Purchase Agreement, as
discussed below.
For more information on these actions, see
BUSINESS Conservatorship and Related
Matters and Regulation and
Supervision in our 2010 Annual Report and RISK
FACTORS in this
Form 10-Q.
Dividend
Obligation on the Senior Preferred Stock
Following funding of the draw request related to our net worth
deficit at June 30, 2011, our annual cash dividend
obligation to Treasury on the senior preferred stock will
increase from $6.5 billion to $6.6 billion, which
exceeds our annual historical earnings in all but one period.
The senior preferred stock accrues quarterly cumulative
dividends at a rate of 10% per year or 12% per year in any
quarter in which dividends are not paid in cash until all
accrued dividends have been paid in cash. We paid a quarterly
dividend of $1.6 billion in cash on the senior preferred
stock on June 30, 2011 at the direction of our Conservator.
Through June 30, 2011, we paid aggregate cash dividends to
Treasury of $13.2 billion, an amount equal to 21% of our
aggregate draws received under the Purchase Agreement. Continued
cash payment of senior preferred dividends will have an adverse
impact on our future financial condition and net worth and will
increasingly drive future draws. In addition, we are required
under the Purchase Agreement to pay a quarterly commitment fee
to Treasury, which could contribute to future draws if the fee
is not waived in the future. Treasury has waived the fee for the
first three quarters of 2011, but it has indicated that it
remains committed to protecting taxpayers and ensuring that our
future positive earnings are returned to taxpayers as
compensation for their investment. The amount of the fee has not
yet been established and could be substantial.
The payment of dividends on our senior preferred stock in cash
reduces our net worth. For periods in which our earnings and
other changes in equity do not result in positive net worth,
draws under the Purchase Agreement effectively fund the cash
payment of senior preferred dividends to Treasury. Under the
Purchase Agreement, our ability to repay the liquidation
preference of the senior preferred stock is limited and we will
not be able to do so for the foreseeable future, if at all.
As discussed in Capital Resources, we expect to make
additional draws under the Purchase Agreement in future periods.
Further draws will increase the liquidation preference of and
the dividends we owe on the senior preferred stock.
Other
Debt Securities
Spreads on our debt and our access to the debt markets remained
favorable relative to historical levels during the three and six
months ended June 30, 2011, due largely to support from the
U.S. government. As a result, we were able to replace certain
higher cost debt with lower cost debt. Our short-term debt was
28% of outstanding other debt at both June 30, 2011 and
December 31, 2010 as compared to 27% at March 31, 2011.
Because of the debt limit under the Purchase Agreement, we may
be restricted in the amount of debt we are allowed to issue to
fund our operations. Our debt cap under the Purchase Agreement
is $972 billion in 2011. As of June 30, 2011, we estimate
that the par value of our aggregate indebtedness totaled
$695.2 billion, which was approximately $276.8 billion
below the debt cap. As of December 31, 2010, we estimate
that the par value of our aggregate indebtedness totaled
$728.2 billion, which was approximately $351.8 billion
below the then applicable limit of $1.08 trillion. Our
aggregate indebtedness is calculated as the par value of other
debt. We disclose the amount of our indebtedness on this basis
monthly under the caption Other Debt
Activities Total Debt Outstanding in our
Monthly Volume Summary reports, which are available on our web
site at www.freddiemac.com and in current reports on
Form 8-K
we file with the SEC.
Other
Debt Issuance Activities
Table 47 summarizes the par value of other debt securities
we issued, based on settlement dates, during the three and six
months ended June 30, 2011 and 2010.
Table 47
Other Debt Security Issuances by Product, at Par
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Other short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference
Bills®
securities and discount notes
|
|
$
|
104,200
|
|
|
$
|
103,331
|
|
|
$
|
208,046
|
|
|
$
|
256,934
|
|
Medium-term notes
non-callable(2)
|
|
|
250
|
|
|
|
565
|
|
|
|
450
|
|
|
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other short-term debt
|
|
|
104,450
|
|
|
|
103,896
|
|
|
|
208,496
|
|
|
|
257,999
|
|
Other long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes callable
|
|
|
33,246
|
|
|
|
62,975
|
|
|
|
71,047
|
|
|
|
126,696
|
|
Medium-term notes non-callable
|
|
|
18,482
|
|
|
|
23,958
|
|
|
|
47,657
|
|
|
|
51,200
|
|
U.S. dollar Reference
Notes®
securities non-callable
|
|
|
8,000
|
|
|
|
7,000
|
|
|
|
18,000
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term debt
|
|
|
59,728
|
|
|
|
93,933
|
|
|
|
136,704
|
|
|
|
195,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt issued
|
|
$
|
164,178
|
|
|
$
|
197,829
|
|
|
$
|
345,200
|
|
|
$
|
453,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes federal funds purchased and securities sold under
agreements to repurchase and lines of credit. Also excludes debt
securities of consolidated trusts held by third parties.
|
(2)
|
Includes $250 million and $565 million of medium-term
notes non-callable issued for the three months ended
June 30, 2011 and 2010, respectively, which were accounted
for as debt exchanges. For the six months ended June 30,
2011 and 2010, there were $0.5 billion and
$1.1 billion accounted for as debt exchanges, respectively.
|
Other
Debt Retirement Activities
We repurchase, call, or exchange our outstanding medium- and
long-term debt securities from time to time to help support the
liquidity and predictability of the market for our other debt
securities and to manage our mix of liabilities funding our
assets.
Table 48 provides the par value, based on settlement dates,
of other debt securities we repurchased, called, and exchanged
during the three and six months ended June 30, 2011 and
2010.
Table 48
Other Debt Security Repurchases, Calls, and
Exchanges(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
|
(in millions)
|
|
Repurchases of outstanding Reference
Notes®
securities
|
|
$
|
|
|
|
$
|
192
|
|
|
$
|
|
|
|
$
|
262
|
|
Repurchases of outstanding medium-term notes
|
|
|
1,030
|
|
|
|
4,054
|
|
|
|
3,768
|
|
|
|
4,054
|
|
Calls of callable medium-term notes
|
|
|
45,697
|
|
|
|
81,560
|
|
|
|
85,532
|
|
|
|
138,734
|
|
Exchanges of medium-term notes
|
|
|
250
|
|
|
|
565
|
|
|
|
450
|
|
|
|
1,065
|
|
|
|
(1) |
Excludes debt securities of consolidated trusts held by third
parties.
|
Credit
Ratings
Our ability to access the capital markets and other sources of
funding, as well as our cost of funds, is highly dependent upon
our credit ratings. Table 49 indicates our credit ratings
as of August 8, 2011.
Table 49
Freddie Mac Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nationally Recognized Statistical
|
|
|
Rating Organization
|
|
|
S&P
|
|
Moodys
|
|
Fitch
|
|
Senior long-term
debt(1)
|
|
|
AA+/Negative
|
|
|
|
Aaa/Negative
|
|
|
|
AAA
|
|
Short-term
debt(2)
|
|
|
A-1+
|
|
|
|
P-1
|
|
|
|
F1+
|
|
Subordinated
debt(3)
|
|
|
A/Negative
|
|
|
|
Aa2/Negative
|
|
|
|
AA
|
|
Preferred
stock(4)
|
|
|
C
|
|
|
|
Ca
|
|
|
|
C/RR6
|
|
|
|
(1)
|
Consists of medium-term notes, U.S. dollar Reference
Notes®
securities and Reference
Notes®
securities.
|
(2)
|
Consists of Reference
Bills®
securities and discount notes.
|
(3)
|
Consists of Freddie
SUBS®
securities.
|
(4)
|
Does not include senior preferred stock issued to Treasury.
|
Earlier this year, given concerns that the
U.S. governments statutory debt limit would not be
raised in a timely manner as well as uncertainty about
achievement of a credible deficit reduction solution, certain
major credit rating agencies took actions on the
U.S. governments credit ratings. Due to the support
we receive from Treasury, these rating agencies also took
corresponding actions on certain of our credit ratings. On
August 2, 2011, President Obama signed the Budget and
Control Act of 2011 which raised the
U.S. governments statutory debt limit. The raising of
the statutory debt limit and details outlined in the legislation
to reduce the deficit resulted in further rating actions on our
debt ratings and the ratings of the U.S. government.
|
|
|
|
|
On July 15, 2011, S&P placed our senior long-term debt
and short-term debt on CreditWatch with negative implications.
This action followed S&Ps placement of the long-term
and short-term credit ratings of the United States on
CreditWatch with negative implications on July 14, 2011.
S&P subsequently lowered the long-term credit rating of the
United States to AA+ from AAA and
affirmed the short-term rating of
A-1+
on August 5, 2011. S&P removed both the short- and
long-term ratings of the U.S. government from CreditWatch
negative and assigned a negative outlook to the long-term credit
rating. On August 8, 2011, S&P lowered our senior
long-term debt credit rating to AA+ from
AAA and assigned a negative outlook to the rating.
|
|
|
|
On August 2, 2011, Moodys confirmed our senior
long-term debt and subordinated debt ratings and assigned a
negative outlook to the ratings. This action accompanied
Moodys confirmation of the U.S. governments
long-term credit rating and assignment of a negative outlook to
the rating. Our debt ratings, as well as the long-term credit
rating of the U.S. government, had previously been placed
on review for possible downgrade on July 13, 2011.
|
For information about the potential impact of a downgrade in our
credit ratings, see RISK FACTORS A
downgrade in the credit ratings of our debt could adversely
affect our liquidity and other aspects of our business. Our
business could also be adversely affected if there is a
downgrade in the credit ratings of the U.S. government or a
payment default by the U.S. government.
A security rating is not a recommendation to buy, sell or hold
securities. It may be subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be
evaluated independently of any other rating.
Cash
and Cash Equivalents, Federal Funds Sold, Securities Purchased
Under Agreements to Resell, and Non-Mortgage-Related
Securities
Excluding amounts related to our consolidated VIEs, we held
$56.7 billion in the aggregate of cash and cash
equivalents, federal funds sold, securities purchased under
agreements to resell, and non-mortgage-related securities at
June 30, 2011. These investments are important to our cash
flow and asset and liability management and our ability to
provide liquidity and stability to the mortgage market. At
June 30, 2011, our non-mortgage-related securities
primarily consisted of FDIC-guaranteed corporate medium-term
notes, Treasury notes, and Treasury bills that we could sell to
provide us with an additional source of liquidity to fund our
business operations. For additional information on these assets,
see CONSOLIDATED BALANCE SHEETS ANALYSIS Cash
and Cash Equivalents, Federal Funds Sold and Securities
Purchased Under Agreements to Resell and
Investments in Securities
Non-Mortgage-Related Securities.
Mortgage
Loans and Mortgage-Related Securities
We invest principally in mortgage loans and mortgage-related
securities, certain categories of which are largely unencumbered
and highly liquid. Our primary source of liquidity among these
mortgage assets is our holdings of agency securities. In
addition, our unsecuritized performing single-family mortgage
loans are also a potential source of liquidity. Our holdings of
CMBS are less liquid than agency securities. Our holdings of
non-agency mortgage-related securities backed by subprime,
option ARM, and
Alt-A and
other loans are not liquid due to market conditions and the
continued
poor credit quality of the underlying assets. Our holdings of
unsecuritized seriously delinquent and modified single-family
mortgage loans are also illiquid.
We are subject to limits on the amount of mortgage assets we can
sell in any calendar month without review and approval by FHFA
and, if FHFA so determines, Treasury. See CONSOLIDATED
BALANCE SHEETS ANALYSIS Investments in
Securities Mortgage-Related Securities
for more information
Cash
Flows
Our cash and cash equivalents decreased approximately
$19.5 billion to $17.5 billion during the six months
ended June 30, 2011. Cash flows provided by operating
activities during the six months ended June 30, 2011 were
$7.8 billion, primarily driven by net interest income and
net sales of multifamily held-for-sale mortgage loans. Cash
flows provided by investing activities during the six months
ended June 30, 2011 were $181.8 billion, primarily
resulting from net proceeds received as a result of repayments
of single-family held-for-investment mortgage loans. Cash flows
used for financing activities during the six months ended
June 30, 2011 were $209.1 billion, largely
attributable to net repayments of debt securities of
consolidated trusts held by third parties.
Our cash and cash equivalents decreased approximately
$15.0 billion to $49.7 billion during the six months
ended June 30, 2010. Cash flows provided by operating
activities during the six months ended June 30, 2010 were
$6.6 billion, primarily driven by net interest income and
net sales of multifamily held-for-sale mortgage loans. Cash
flows provided by investing activities during the six months
ended June 30, 2010 were $133.9 billion, primarily
resulting from net proceeds received on held-for-investment
mortgage loans as we had more repayments of held-for-investment
mortgage loans compared to purchases. Cash flows used for
financing activities for the six months ended June 30, 2010
were $155.5 billion, largely attributable to repayments of
debt securities of consolidated trusts held by third parties,
net of proceeds from the issuance of debt securities of
consolidated trusts held by third parties.
Capital
Resources
Under the GSE Act, FHFA must place us into receivership if FHFA
determines in writing that our assets are and have been less
than our obligations for a period of 60 days. Obtaining
funding from Treasury pursuant to its commitment under the
Purchase Agreement enables us to avoid being placed into
receivership by FHFA. To address our net worth deficit of
$1.5 billion at June 30, 2011, FHFA will submit a draw
request on our behalf to Treasury under the Purchase Agreement
in the amount of $1.5 billion, and will request that we
receive these funds by September 30, 2011. See
BUSINESS Regulation and
Supervision Federal Housing Finance
Agency Receivership in our 2010 Annual
Report for additional information on mandatory receivership. See
also RISK FACTORS If Treasury is unable to
provide us with funding requested under the Purchase Agreement
to address a deficit in our net worth, FHFA could be required to
place us into receivership.
We expect to make further draws under the Purchase Agreement in
future periods. Given the substantial senior preferred stock
dividend obligation to Treasury, which will increase with
additional draws, senior preferred stock dividend payments will
increasingly drive our future draw requests under the Purchase
Agreement with Treasury.
The size and timing of our future draws will be determined by
our dividend obligation on the senior preferred stock and a
variety of other factors that could adversely affect our net
worth. These other factors include how long and to what extent
the housing market, including home prices, remains weak, which
could increase credit expenses and cause additional
other-than-temporary impairments of the non-agency
mortgage-related securities we hold; foreclosure prevention
efforts and foreclosure processing delays, which could increase
our expenses; adverse changes in interest rates, the yield
curve, implied volatility or mortgage-to-debt OAS, which could
increase realized and unrealized mark-to-fair-value losses
recorded in earnings or AOCI; required reductions in the size of
our mortgage-related investments portfolio and other limitations
on our investment activities that reduce the earnings capacity
of our investment activities; quarterly commitment fees payable
to Treasury; adverse changes to our funding costs and limited
availability of financing; establishment of additional valuation
allowances for our remaining net deferred tax asset; changes in
accounting practices or guidance; the effect of the MHA Program
and other government initiatives; limitations on our ability to
develop new products; the introduction of additional public
mission-related initiatives that may adversely impact our
financial results; or changes in business practices resulting
from legislative and regulatory developments.
For more information on the Purchase Agreement, its effect on
our business and capital management activities, and the
potential impact of making additional draws, see
MD&A LIQUIDITY AND CAPITAL
RESOURCES Liquidity Dividend
Obligation on the Senior Preferred Stock,
BUSINESS Executive Summary
Long-Term Financial Sustainability and Future
Status and RISK FACTORS in our 2010 Annual
Report.
FAIR
VALUE MEASUREMENTS AND ANALYSIS
Fair
Value Measurements
Fair value represents the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
For additional information regarding the fair value hierarchy
and measurements, see MD&A FAIR VALUE
MEASUREMENTS AND ANALYSIS in our 2010 Annual Report.
We categorize assets and liabilities measured and reported at
fair value in our consolidated balance sheets within the fair
value hierarchy based on the valuation process used to derive
their fair values and our judgments regarding the observability
of the related inputs. Those judgments are based on our
knowledge and observations of the markets relevant to the
individual assets and liabilities and may vary due to changes in
market conditions. In making our judgments, we review ranges of
third-party prices and transaction volumes, and hold discussions
with dealers and pricing service vendors to understand and
assess the extent of market benchmarks available and the
judgments or modeling required in their processes. Based on
these factors, we determine whether the inputs are observable
and whether the principal markets are active or inactive.
Our Level 3 fair value measurements (i.e., valued
using significant inputs that are unobservable) primarily
consist of non-agency mortgage-related securities and
multifamily held-for-sale loans. The market for non-agency
mortgage-related securities continued to be illiquid during the
second quarter of 2011, with low transaction volumes, wide
credit spreads, and limited transparency. We value the
non-agency mortgage-related securities we hold based primarily
on prices received from pricing services and dealers. The
techniques used by these pricing services and dealers to develop
the prices generally are either: (a) a comparison to
transactions involving instruments with similar collateral and
risk profiles; or (b) industry standard modeling, such as a
discounted cash flow model. For a large majority of the
securities we value using dealers and pricing services, we
obtain multiple independent prices, which are non-binding both
to us and our counterparties. When multiple prices are received,
we use the median of the prices. The models and related
assumptions used by the dealers and pricing services are owned
and managed by them. However, we have an understanding of the
processes they use to develop the prices provided to us based on
our ongoing due diligence. We periodically have discussions with
our dealers and pricing service vendors to maintain a current
understanding of the processes and inputs they use to develop
prices. We make no adjustments to the individual prices we
receive from third-party pricing services or dealers for
non-agency mortgage-related securities beyond calculating median
prices and discarding certain prices that are determined not to
be valid based on our validation processes. See
MD&A FAIR VALUE MEASUREMENTS AND
ANALYSIS Fair Value Measurements
Controls over Fair Value Measurement in our 2010
Annual Report for information on our validation processes.
Table 50 below summarizes our assets and liabilities
measured at fair value on a recurring basis at June 30,
2011 and December 31, 2010.
Table
50 Summary of Assets and Liabilities at Fair Value
on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Total GAAP
|
|
|
|
|
|
Total GAAP
|
|
|
|
|
|
|
Recurring
|
|
|
Percentage in
|
|
|
Recurring
|
|
|
Percentage in
|
|
|
|
Fair Value
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
Level 3
|
|
|
|
(dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
$
|
222,849
|
|
|
|
29
|
%
|
|
$
|
232,634
|
|
|
|
30
|
%
|
Trading, at fair value
|
|
|
54,764
|
|
|
|
6
|
|
|
|
60,262
|
|
|
|
5
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
|
4,463
|
|
|
|
100
|
|
|
|
6,413
|
|
|
|
100
|
|
Derivative assets,
net(1)
|
|
|
246
|
|
|
|
|
|
|
|
143
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee assets, at fair value
|
|
|
667
|
|
|
|
100
|
|
|
|
541
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets carried at fair value on a recurring
basis(1)
|
|
$
|
282,989
|
|
|
|
24
|
|
|
$
|
299,993
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities recorded at fair value
|
|
$
|
3,998
|
|
|
|
|
%
|
|
$
|
4,443
|
|
|
|
|
%
|
Derivative liabilities,
net(1)
|
|
|
408
|
|
|
|
2
|
|
|
|
1,209
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities carried at fair value on a recurring
basis(1)
|
|
$
|
4,406
|
|
|
|
1
|
|
|
$
|
5,652
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Percentages by level are based on gross fair value of derivative
assets and derivative liabilities before counterparty netting,
cash collateral netting, net trade/settle receivable or payable
and net derivative interest receivable or payable.
|
Changes
in Level 3 Recurring Fair Value Measurements
At June 30, 2011 and December 31, 2010, we measured
and recorded at fair value on a recurring basis
$72.8 billion and $79.8 billion, respectively, or
approximately 24% and 25% of total assets carried at fair value
on a recurring basis, using significant unobservable inputs
(Level 3), before the impact of counterparty and cash
collateral netting. Our Level 3 assets at June 30,
2011 primarily consist of non-agency mortgage-related securities
and multifamily held-for-sale loans. At June 30, 2011 and
December 31, 2010, we also measured and recorded at fair
value on a recurring basis Level 3 derivative liabilities
of $0.4 billion and $0.8 billion, or 1% and 2%,
respectively, of total liabilities carried at fair value on a
recurring basis, before the impact of counterparty and cash
collateral netting.
During the three and six months ended June 30, 2011, the
fair value of our Level 3 assets decreased by
$5.0 billion and $7.0 billion, respectively, mainly
attributable to: (a) monthly remittances of principal
repayments from the underlying collateral of non-agency
mortgage-related securities; and (b) net sales of
multifamily held-for-sale loans. In addition, the fair value of
our investments in non-agency mortgage-related securities also
decreased from the widening of OAS levels on these securities
during the second quarter of 2011. During the three and six
months ended June 30, 2011, we had a net transfer into
Level 3 assets of $12 million and $160 million,
respectively, resulting from a change in valuation method for
certain mortgage-related securities due to a lack of relevant
price quotes from dealers and third-party pricing services.
See NOTE 18: FAIR VALUE DISCLOSURES
Table 18.2 Fair Value Measurements of Assets
and Liabilities Using Significant Unobservable Inputs for
the Level 3 reconciliation. For discussion of types and
characteristics of mortgage loans underlying our
mortgage-related securities, see RISK
MANAGEMENT Credit Risk and
Table 17 Characteristics of
Mortgage-Related Securities on Our Consolidated Balance
Sheets.
Consideration
of Credit Risk in Our Valuation
We consider credit risk in the valuation of our assets and
liabilities through consideration of credit risk of the
counterparty in asset valuations and through consideration of
our own institutional credit risk in liability valuations on our
GAAP consolidated balance sheets.
We consider credit risk in our valuation of investments in
securities based on fair value measurements that are largely the
result of price quotes received from multiple dealers or pricing
services. Some of the key valuation drivers of such fair value
measurements can include the collateral type, collateral
performance, credit quality of the issuer, tranche type,
weighted average life, vintage, coupon, and interest rates. We
also make adjustments for items such as credit enhancements or
other types of subordination and liquidity, where applicable. In
cases where internally developed models are used, we maximize
the use of market-based inputs or calibrate such inputs to
market data.
We also consider credit risk when we evaluate the valuation of
our derivative positions. The fair value of derivative assets
considers the impact of institutional credit risk in the event
that the counterparty does not honor its payment obligation. For
derivatives that are in an asset position, we hold collateral
against those positions in accordance with agreed upon
thresholds. The amount of collateral held depends on the credit
rating of the counterparty and is based on our credit risk
policies. Similarly, for derivatives that are in a liability
position, we post collateral to counterparties in accordance
with agreed upon thresholds. Based on this evaluation, our fair
value of derivatives is not adjusted for credit risk because we
obtain collateral from, or post collateral to, most
counterparties, typically within one business day of the daily
market value calculation, and substantially all of our credit
risk arises from counterparties with investment-grade credit
ratings of A or above. See RISK MANAGEMENT
Credit Risk Institutional Credit Risk
Derivative Counterparties for a discussion of our
counterparty credit risk.
See NOTE 18: FAIR VALUE DISCLOSURES
Valuation Methods and Assumptions Subject to Fair Value
Hierarchy for additional information regarding the
valuation of our assets and liabilities.
Consolidated
Fair Value Balance Sheets Analysis
Our consolidated fair value balance sheets present our estimates
of the fair value of our financial assets and liabilities. See
NOTE 18: FAIR VALUE DISCLOSURES
Table 18.6 Consolidated Fair Value Balance
Sheets for our fair value balance sheets. In conjunction
with the preparation of our consolidated fair value balance
sheets, we use a number of financial models. See
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK Interest-Rate Risk and Other Market Risks
in this
Form 10-Q
and our 2010 Annual Report, and RISK FACTORS and
RISK MANAGEMENT Operational Risks in our
2010 Annual Report for information concerning the risks
associated with these models.
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report and NOTE 18:
FAIR VALUE DISCLOSURES in this
Form 10-Q
for more information on fair values.
Discussion
of Fair Value Results
Table 51 summarizes the change in the fair value of net
assets for the six months ended June 30, 2011 and 2010.
Table
51 Summary of Change in the Fair Value of Net
Assets
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Six Months Ended
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June 30,
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2011
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2010
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(in billions)
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Beginning balance
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$
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(58.6
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)
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$
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(62.5
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)
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Changes in fair value of net assets, before capital transactions
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(1.7
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)
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8.2
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Capital transactions:
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Dividends and share issuances,
net(1)
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(2.7
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)
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8.0
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|
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Ending balance
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$
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(63.0
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)
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$
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(46.3
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)
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(1) |
Includes the funds received from Treasury of $0.5 billion
and $10.6 billion for the six months ended June 30,
2011 and 2010, respectively, under the Purchase Agreement, which
increased the liquidation preference of our senior preferred
stock.
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During the six months ended June 30, 2011, the fair value
of net assets, before capital transactions, decreased by
$1.7 billion, compared to an $8.2 billion increase
during the six months ended June 30, 2010. The decrease in
the fair value of net assets, before capital transactions, was
primarily due to a decrease in the fair value of our
single-family loans due to a decline in forecasted home prices
(on a seasonally adjusted basis) and a continued weak credit
environment, as well as a decrease in the fair value of our
investments in mortgage-related securities from the widening of
OAS levels on our non-agency securities. The decrease in fair
value was partially offset by an increase in fair value from a
tightening of OAS levels on our agency and CMBS securities and
high core spread income.
During the six months ended June 30, 2010, the increase in
the fair value of net assets, before capital transactions, was
primarily due to high core spread income and an increase in the
fair value of our investments in mortgage-related securities
driven by the tightening of the OAS levels of agency
mortgage-related securities and CMBS. The fair value of net
assets was also positively impacted by higher than previously
expected home prices (on a seasonally adjusted basis) and an
increase in prepayment speeds on our PC debt securities. The
increase in fair value was partially offset by a change in the
estimation of a risk premium assumption embedded in our model to
apply credit costs, which led to a decrease in our fair value
measurement of mortgage loans, as well as an increase in the
risk premium related to our single-family loans in the continued
weak credit environment.
When the OAS on a given asset widens, the fair value of that
asset will typically decline, all other market factors being
equal. However, we believe such OAS widening has the effect of
increasing the likelihood that, in future periods, we will
recognize income at a higher spread on this existing asset. The
reverse is true when the OAS on a given asset
tightens current period fair values for that asset
typically increase due to the tightening in OAS, while future
income recognized on the asset is more likely to be earned at a
reduced spread. However, as market conditions change, our
estimate of expected fair value gains and losses from OAS may
also change, and the actual core spread income recognized in
future periods could be significantly different from current
estimates.
OFF-BALANCE
SHEET ARRANGEMENTS
We enter into certain business arrangements that are not
recorded on our consolidated balance sheets or may be recorded
in amounts that differ from the full contract or notional amount
of the transaction. These off-balance sheet arrangements may
expose us to potential losses in excess of the amounts recorded
on our consolidated balance sheets.
Securitization
Activities and Other Guarantee Commitments
We have off-balance sheet arrangements related to our
securitization activities involving guaranteed mortgages and
mortgage-related securities. As of June 30, 2011, our
off-balance sheet arrangements related to these securitization
activities primarily consisted of: (a) Freddie Mac
mortgage-related securities backed by multifamily loans; and
(b) certain single-family Other Guarantee Transactions. We
also have off balance sheet arrangements related to other
guarantee commitments, including long-term standby commitments
and liquidity guarantees.
We guarantee the payment of principal and interest on Freddie
Mac mortgage-related securities we issue and on mortgage loans
covered by our other guarantee commitments. Therefore, our
maximum potential off-balance sheet exposure to credit losses
relating to these securitization activities and the other
guarantee commitments is primarily represented by the UPB of the
underlying loans and securities, which was $51.9 billion
and $43.9 billion at June 30, 2011 and
December 31, 2010, respectively. Our off-balance sheet
arrangements related to securitization activity have been
significantly reduced due to accounting guidance for transfers
of financial assets and the consolidation of VIEs, which we
adopted on January 1, 2010. See NOTE 2: CHANGE
IN ACCOUNTING PRINCIPLES in our 2010 Annual Report and
NOTE 9: FINANCIAL GUARANTEES in this
Form 10-Q
for more information on our off-balance sheet securitization
arrangements.
Our exposure to losses on the transactions described above would
be partially mitigated by the recovery we would receive through
exercising our rights to the collateral backing the underlying
loans and the available credit enhancements, which may include
recourse and primary insurance with third parties. In addition,
we provide for incurred losses each period on these guarantees
within our provision for credit losses.
Other
Agreements
We own an interest in numerous entities that are considered to
be VIEs for which we are not the primary beneficiary and which
we do not consolidate on our balance sheets in accordance with
the accounting guidance for the consolidation of VIEs. These
VIEs relate primarily to our investment activity in
mortgage-related assets and non-mortgage assets, and
include LIHTC partnerships, certain Other Guarantee
Transactions, and certain asset-backed investment trusts. Our
consolidated balance sheets reflect only our investment in the
VIEs, rather than the full amount of the VIEs assets and
liabilities. See NOTE 3: VARIABLE INTEREST
ENTITIES for additional information related to our
variable interests in these VIEs.
As part of our credit guarantee business, we routinely enter
into forward purchase and sale commitments for mortgage loans
and mortgage-related securities. Some of these commitments are
accounted for as derivatives. Their fair values are reported as
either derivative assets, net or derivative liabilities, net on
our consolidated balance sheets. We also have purchase
commitments primarily related to our mortgage purchase flow
business, which we principally fulfill by issuing PCs in swap
transactions, and, to a lesser extent, commitments to purchase
or guarantee multifamily mortgage loans that are not accounted
for as derivatives and are not recorded on our consolidated
balance sheets. These non-derivative commitments totaled
$241.7 billion, and $220.7 billion in notional value
at June 30, 2011 and December 31, 2010, respectively.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP
requires us to make a number of judgments, estimates and
assumptions that affect the reported amounts within our
consolidated financial statements. Certain of our accounting
policies, as well as estimates we make, are critical, as they
are both important to the presentation of our financial
condition and results of operations and require management to
make difficult, complex, or subjective judgments and estimates,
often regarding matters that are inherently uncertain. Actual
results could differ from our estimates and the use of different
judgments and assumptions related to these policies and
estimates could have a material impact on our consolidated
financial statements.
Our critical accounting policies and estimates relate to:
(a) allowances for loan losses and reserve for guarantee
losses; (b) fair value measurements; (c) impairment
recognition on investments in securities; and
(d) realizability of net deferred tax assets. For
additional information about our critical accounting policies
and estimates and other significant accounting policies,
including recently issued accounting pronouncements, see
MD&A CRITICAL ACCOUNTING POLICIES AND
ESTIMATES in our 2010 Annual Report and NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in this
Form 10-Q.
FORWARD-LOOKING
STATEMENTS
We regularly communicate information concerning our business
activities to investors, the news media, securities analysts and
others as part of our normal operations. Some of these
communications, including this
Form 10-Q,
contain forward-looking statements, including
statements pertaining to the conservatorship, our current
expectations and objectives for our efforts under the MHA
Program and other programs to assist the U.S. residential
mortgage market, the servicing alignment initiative, future
business plans, liquidity, capital management, economic and
market conditions and trends, market share, the effect of
legislative and regulatory developments, implementation of new
accounting guidance, credit losses, internal control remediation
efforts, and results of operations and financial condition on a
GAAP, Segment Earnings, and fair value basis. Forward-looking
statements are often accompanied by, and identified with, terms
such as objective, expect,
trend, forecast, anticipate,
believe, intend, could,
future, and similar phrases. These statements are
not historical facts, but rather represent our expectations
based on current information, plans, judgments, assumptions,
estimates, and projections. Forward-looking statements involve
known and unknown risks and uncertainties, some of which are
beyond our control. Actual results may differ significantly from
those described in or implied by such forward-looking statements
due to various factors and uncertainties, including those
described in the RISK FACTORS
sections of this
Form 10-Q,
our 2010 Annual Report, and our Quarterly Report on
Form 10-Q for the first quarter of 2011, and:
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the actions FHFA, Treasury, the Federal Reserve, the Obama
Administration, Congress, and our management may take;
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the impact of the restrictions and other terms of the
conservatorship, the Purchase Agreement, the senior preferred
stock, and the warrant on our business, including our ability to
pay: (a) the dividend on the senior preferred stock;
and (b) any quarterly commitment fee that we are required
to pay to Treasury under the Purchase Agreement;
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our ability to maintain adequate liquidity to fund our
operations, including following any changes in the support
provided to us by Treasury or FHFA, a change in the credit
ratings of our debt securities or a change in the credit rating
of the U.S. government;
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changes in our charter or applicable legislative or regulatory
requirements, including any restructuring or reorganization in
the form of our company, whether we will remain a
stockholder-owned company or continue to exist and whether we
will be wound down or placed under receivership, regulations
under the GSE Act, the Reform Act, or the Dodd-Frank Act,
regulatory or legislative actions taken to implement the Obama
Administrations plan to reform the housing finance system,
changes to affordable housing goals regulation, reinstatement of
regulatory capital requirements, or the exercise or assertion of
additional regulatory or administrative authority;
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changes in the regulation of the mortgage and financial services
industries, including changes caused by the Dodd-Frank Act, or
any other legislative, regulatory, or judicial action at the
federal or state level;
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enforcement actions against mortgage servicers and other
mortgage industry participants by federal or state authorities;
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the extent to which borrowers participate in the MHA Program,
modification efforts under the servicing alignment initiative,
and other initiatives designed to help in the housing recovery
and the impact of such programs on our credit losses, expenses,
and the size and composition of our mortgage-related investments
portfolio;
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the impact of any deficiencies in foreclosure documentation
practices and related delays in the foreclosure process;
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the ability of our financial, accounting, data processing, and
other operating systems or infrastructure, and those of our
vendors to process the complexity and volume of our transactions;
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changes in accounting or tax guidance or in our accounting
policies or estimates, and our ability to effectively implement
any such changes in guidance, policies, or estimates;
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changes in general regional, national, or international
economic, business, or market conditions and competitive
pressures, including changes in employment rates and interest
rates, and changes in the federal governments fiscal and
monetary policy;
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changes in the U.S. residential mortgage market, including
changes in the rate of growth in total outstanding U.S.
residential mortgage debt, the size of the U.S. residential
mortgage market, and home prices;
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our ability to effectively implement our business strategies,
including our efforts to improve the supply and liquidity of,
and demand for, our products, and restrictions on our ability to
offer new products or engage in new activities;
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our ability to recruit and retain executive officers and other
key employees;
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our ability to effectively identify and manage credit,
interest-rate, operational, and other risks in our business,
including changes to the credit environment and the levels and
volatilities of interest rates, as well as the shape and slope
of the yield curves;
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the effects of internal control deficiencies and our ability to
effectively identify, assess, evaluate, manage, mitigate, or
remediate control deficiencies and risks, including material
weaknesses and significant deficiencies, in our internal control
over financial reporting and disclosure controls and procedures;
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incomplete or inaccurate information provided by customers and
counterparties;
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consolidation among, or adverse changes in the financial
condition of, our customers and counterparties;
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the failure of our customers and counterparties to fulfill their
obligations to us, including the failure of seller/servicers to
meet their obligations to repurchase loans sold to us in breach
of their representations and warranties;
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changes in our judgments, assumptions, forecasts, or estimates
regarding the volume of our business and spreads we expect to
earn;
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the availability of options, interest-rate and currency swaps,
and other derivative financial instruments of the types and
quantities, on acceptable terms, and with acceptable
counterparties needed for investment funding and risk management
purposes;
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changes in pricing, valuation or other methodologies, models,
assumptions, judgments, estimates and/or other measurement
techniques, or their respective reliability;
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changes in mortgage-to-debt OAS;
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the potential impact on the market for our securities resulting
from any sales by the Federal Reserve or Treasury of Freddie Mac
debt and mortgage-related securities they have purchased;
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adverse judgments or settlements in connection with legal
proceedings, governmental investigations, and IRS examinations;
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volatility of reported results due to changes in the fair value
of certain instruments or assets;
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the development of different types of mortgage servicing
structures and servicing compensation;
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preferences of originators in selling into the secondary
mortgage market;
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changes to our underwriting or servicing requirements, or
investment standards for mortgage-related products;
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investor preferences for mortgage loans and mortgage-related and
debt securities compared to other investments;
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borrower preferences for fixed-rate mortgages or adjustable-rate
mortgages;
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the occurrence of a major natural or other disaster in
geographic areas in which our offices or portions of our total
mortgage portfolio are concentrated;
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other factors and assumptions described in this
Form 10-Q,
in our 2010 Annual Report, and our Quarterly Report on
Form 10-Q for the first quarter of 2011;
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our assumptions and estimates regarding the foregoing and our
ability to anticipate the foregoing factors and their impacts;
and
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market reactions to the foregoing.
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We undertake no obligation to update any forward-looking
statements we make to reflect events or circumstances occurring
after the date of this
Form 10-Q.
RISK
MANAGEMENT AND DISCLOSURE COMMITMENTS
In October 2000, we announced our adoption of a series of
commitments designed to enhance market discipline, liquidity and
capital. In September 2005, we entered into a written agreement
with FHFA, then OFHEO, that updated these commitments and set
forth a process for implementing them. A copy of the letters
between us and OFHEO dated September 1, 2005 constituting
the written agreement has been filed as an exhibit to our
Registration Statement on Form 10, filed with the SEC on
July 18, 2008, and is available on the Investor Relations
page of our web site at
www.freddiemac.com/investors/sec filings/index.html.
In November 2008, FHFA suspended our periodic issuance of
subordinated debt disclosure commitment during the term of
conservatorship and thereafter until directed otherwise. In
March 2009, FHFA suspended the remaining disclosure commitments
under the September 1, 2005 agreement until further notice,
except that: (a) FHFA will continue to monitor our
adherence to the substance of the liquidity management and
contingency planning commitment through normal supervision
activities; and (b) we will continue to provide
interest-rate risk and credit risk disclosures in our periodic
public reports. For the six months ended June 30, 2011, our
duration gap averaged zero months,
PMVS-L
averaged $433 million and
PMVS-YC
averaged $23 million. Our 2011 monthly average
duration gap, PMVS results and related disclosures are provided
in our Monthly Volume Summary reports, which are available on
our web site, www.freddiemac.com/investors/volsum and in current
reports on
Form 8-K
we file with the SEC. For disclosures concerning credit risk
sensitivity, see RISK MANAGEMENT Credit
Risk Mortgage Credit Risk Credit Risk
Sensitivity.
LEGISLATIVE
AND REGULATORY MATTERS
Obama
Administration Report on Reforming the U.S. Housing Finance
Market
On February 11, 2011, the Obama Administration delivered a
report to Congress that lays out the Administrations plan
to reform the U.S. housing finance market, including
options for structuring the governments long-term role in
a housing finance system in which the private sector is the
dominant provider of mortgage credit. The report recommends
winding down Freddie Mac and Fannie Mae, stating that the Obama
Administration will work with FHFA to determine the best way to
responsibly reduce the role of Freddie Mac and Fannie Mae in the
market and ultimately wind down both institutions. The report
states that these efforts must be undertaken at a deliberate
pace, which takes into account the impact that these changes
will have on borrowers and the housing market.
The report states that the government is committed to ensuring
that Freddie Mac and Fannie Mae have sufficient capital to
perform under any guarantees issued now or in the future and the
ability to meet any of their debt obligations, and further
states that the Obama Administration will not pursue policies or
reforms in a way that would impair the ability of Freddie Mac
and Fannie Mae to honor their obligations. The report states the
Obama Administrations belief that under the
companies senior preferred stock purchase agreements with
Treasury, there is sufficient funding to ensure the orderly and
deliberate wind down of Freddie Mac and Fannie Mae, as described
in the Administrations plan.
The report identifies a number of policy levers that could be
used to wind down Freddie Mac and Fannie Mae, shrink the
governments footprint in housing finance, and help bring
private capital back to the mortgage market, including
increasing guarantee fees, phasing in a 10% down payment
requirement, reducing conforming loan limits, and winding down
Freddie Mac and Fannie Maes investment portfolios,
consistent with the senior preferred stock purchase agreements.
These recommendations, if implemented, would have a material
impact on our business volumes, market share, results of
operations and financial condition. We cannot predict the extent
to which these recommendations will be implemented or when any
actions to implement them may be taken. However, we are not
aware of any current plans of our Conservator to significantly
change our business model or capital structure in the near-term.
Legislation
Related to Reforming Freddie Mac and Fannie Mae
Congress continues to hold hearings and consider legislation on
the future state of Freddie Mac and Fannie Mae. In the Senate, a
comprehensive bill on the future state of Freddie Mac and Fannie
Mae was introduced in March, but has yet to be scheduled for
consideration. Under this bill, 24 months after the date of
enactment, the Director of FHFA would be required to determine
the financial viability of each company, based on standards for
the appointment of a receiver for an enterprise under the GSE
Act. If Freddie Mac or Fannie Mae were determined not to be
financially viable, FHFA would immediately be appointed as
receiver. If Freddie Mac or Fannie Mae were determined to be
financially viable, the companys charter would be revoked
after an additional three-year period and the company would be
wound down over a subsequent ten-year period.
In the House, Congress continues to debate the approach to the
long-term future of housing finance including the role of
Freddie Mac and Fannie Mae. Several bills take a comprehensive
approach that would wind down Freddie Mac and Fannie Mae while
other bills take a more targeted approach that would impact the
companies operations.
The comprehensive bills include the House companion to the
Senate bill, as well as two additional bills that were
introduced in the second quarter of 2011. One bill would wind
down and place Freddie Mac and Fannie Mae into receivership no
later than one year after the time when FHFA has chartered five
or more newly created, privately capitalized, federally
chartered entities. Freddie Mac and Fannie Maes role in
the secondary market would be replaced by these entities which
would, as secondary mortgage market participants, purchase
conventional mortgage loans, issue mortgage-related securities,
and sell the mortgage-related securities in the capital markets.
The other bill would require the Secretary of the Treasury, in
consultation with FHFA, to develop a plan to wind down Freddie
Mac and Fannie Mae within 36 months and establish a Federal
Secondary Market Facility for Residential Mortgages. The
Facility would operate as a government instrumentality of the
federal government but without capital stock.
In addition, the House Financial Services Subcommittee on
Capital Markets and Government Sponsored Enterprises approved a
number of bills affecting Freddie Mac and Fannie Maes
operations that, among other things, would require advance
approval by the Secretary of the Treasury and notice to Congress
for all debt issuances by the companies; require FHFA to direct
the companies to increase guarantee fees; repeal our affordable
housing goals; prohibit the companies from initially offering
new products during conservatorship or receivership; accelerate
reductions in our mortgage-related investments portfolio;
require that Freddie Mac and Fannie Mae mortgages be treated the
same as other mortgages for
purposes of risk retention requirements in the Dodd-Frank Act;
grant the FHFA Inspector General direct access to our records
and employees; place all Freddie Mac and Fannie Mae employees on
the federal government pay scale; authorize FHFA, as receiver,
to revoke the charters of Freddie Mac and Fannie Mae; prevent
the Department of the Treasury from lowering the dividend
payment under the Purchase Agreement; abolish the Affordable
Housing Trust Fund, the Capital Magnet Fund, and the HOPE
Reserve Fund; require disposition of non-mission critical
assets; apply the Freedom of Information Act to Freddie Mac and
Fannie Mae; and set a cap on the funds received under the
Purchase Agreement.
We expect additional legislation relating to Freddie Mac and
Fannie Mae to be introduced and considered by Congress; however,
we cannot predict whether or when any such legislation will be
enacted. Some of the bills discussed above, if enacted, would
materially affect the role of the company, our business model
and our structure, and could have an adverse effect on our
financial results and operations as well as our ability to
retain and recruit management and other valuable employees.
Under several of the bills, our charter would be revoked and/or
we would be wound down or placed into receivership. Such
legislation could impair our ability to issue securities in the
capital markets and therefore our ability to conduct our
business, absent an explicit guarantee of our existing and
ongoing liabilities by the U.S. government. A number of the
other bills would adversely affect our ability to conduct
business under our current business model, including by
subjecting us to new requirements that could increase costs,
reduce revenues and limit or prohibit current business
activities.
Dodd-Frank
Act
The Dodd-Frank Act, which was signed into law on July 21,
2010, significantly changed the regulation of the financial
services industry, including by creating new standards related
to regulatory oversight of systemically important financial
companies, derivatives, capital requirements, asset-backed
securitization, mortgage underwriting, and consumer financial
protection. The Dodd-Frank Act has and will directly affect the
business and operations of Freddie Mac by subjecting us to new
and additional regulatory oversight and standards, including
with respect to our activities and products. We may also be
affected by provisions of the Dodd-Frank Act and implementing
regulations that affect the activities of banks, savings
institutions, insurance companies, securities dealers, and other
regulated entities that are our customers and counterparties.
At this time, it is difficult to assess fully the impact of the
Dodd-Frank Act on Freddie Mac and the financial services
industry. Implementation of the Dodd-Frank Act is being
accomplished through numerous rulemakings, many of which are
still in process. The final effects of the legislation will not
be known with certainty until these rulemakings are complete.
The Dodd-Frank Act also mandates the preparation of studies on a
wide range of issues, which could lead to additional legislation
or regulatory changes.
Developments since the first quarter of 2011 with respect to
rulemakings that may have a significant impact on Freddie Mac
include actions taken by the CFTC and SEC to defer most
Dodd-Frank
Act requirements regulating swaps and security-based swaps that
would otherwise have gone into effect on July 16, 2011.
We continue to review and assess the impact of rulemakings and
other activities under the Dodd-Frank Act. For more information,
see RISK FACTORS Legal and Regulatory
Risks The Dodd-Frank Act and related regulation
may adversely affect our business activities and financial
results in our 2010 Annual Report.
Conforming
Loan Limits
On September 30, 2010, Congress temporarily extended the
current higher loan limits in certain high-cost areas through
September 30, 2011. Actual conforming loan limits are
established by FHFA for each county (or equivalent) and the loan
limits for specific high-cost areas may be lower than the
maximum amounts. The report that the Obama Administration
delivered to Congress on February 11, 2011 recommends that
Congress allow the temporary increase in loan limits to expire
as scheduled on September 30, 2011. If Congress allows the
temporary high-cost area loan limits to expire, the permanent
high-cost area loan limits set out in the Reform Act will apply.
Certain of the bills discussed above in Legislation
Related to Reforming Freddie Mac and Fannie Mae would also
terminate the permanent high-cost area loan limits entirely.
Legislation has been introduced that would extend the current
temporary loan limits.
Prudential
Management and Operations Standards
On June 20, 2011, FHFA published a proposed rule that would
establish prudential standards, in the form of guidelines,
relating to the management and operations of Freddie Mac, Fannie
Mae, and the FHLBs (the Standards). This proposed
rule implements the Housing and Economic Recovery Act amendments
to the GSE Act. The proposed Standards address a number of
business, controls, and risk management areas. The Standards
specify the possible consequences for any entity that fails to
meet any of the Standards or otherwise fails to comply
(including submission of a
corrective plan, limits on asset growth, increases in capital,
limits on dividends and stock redemptions or repurchases, a
minimum level of retained earnings or any other action that the
FHFA Director determines will contribute to bringing the entity
into compliance with the Standards). In addition, a failure to
meet any Standard also may constitute an unsafe or unsound
practice, which may form the basis for FHFA initiating an
administrative enforcement action. Because FHFA proposes to
adopt the Standards as guidelines, as authorized by the Housing
and Economic Recovery Act, FHFA may modify, revoke or add to the
Standards at any time by order.
Conservatorship
and Receivership Rule
On June 20, 2011, FHFA published a final rule that
addresses conservatorship and receivership operations of Freddie
Mac, Fannie Mae and the FHLBs. The final rule establishes a
framework to be used by FHFA when acting as conservator or
receiver, supplementing and clarifying statutory authorities.
Among other provisions, the final rule indicates that FHFA will
not permit payment of securities litigation claims during
conservatorship and that claims by current or former
shareholders arising as a result of their status as shareholders
would receive the lowest priority of claim in receivership. In
addition, the final rule indicates that administrative expenses
of the conservatorship will also be deemed to be administrative
expenses of a subsequent receivership and that capital
distributions may not be made during conservatorship, except as
specified in the final rule.
Developments
Concerning Single-Family Servicing Practices
There have been a number of regulatory developments in recent
periods impacting single-family mortgage servicing and
foreclosure practices, including those discussed below. These
developments have caused delays in the foreclosure process for
single-family mortgages, which have caused the volume of our
single-family REO acquisitions to be less than it otherwise
would have been. It is possible that these developments will
result in significant changes to mortgage servicing and
foreclosure practices that could adversely affect our business.
New compliance requirements placed on servicers as a result of
these developments could expose Freddie Mac to financial risk as
a result of further extensions of foreclosure timelines if home
prices remain weak or decline. We may need to make additional
significant changes to our practices, which could increase our
operational risk. It is difficult to predict other impacts on
our business of these changes, though such changes could
adversely affect our credit losses and costs of servicing, and
make it more difficult for us to transfer mortgage servicing
rights to a successor servicer should we need to do so. The
regulatory developments and changes include the following:
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On April 13, 2011, the OCC, the Federal Reserve, the FDIC,
and the Office of Thrift Supervision entered into consent orders
with 14 large servicers regarding their foreclosure and loss
mitigation practices. These institutions service the majority of
the single-family mortgages we own or guarantee. The consent
orders require the servicers to submit comprehensive action
plans relating to, among other items, use of foreclosure
documentation, staffing of foreclosure and loss mitigation
activities, oversight of third parties, use of the Mortgage
Electronic Registration System, or the MERS System, and
communications with borrowers. We will not be able to assess the
impact of these actions on our business until the
servicers comprehensive action plans are publicly
available.
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On June 30, 2011, the OCC issued Supervisory Guidance
regarding the OCCs expectations for the oversight and
management of mortgage foreclosure activities by national banks.
The Supervisory Guidance contains several elements from the
consent orders with the 14 major servicers that will now be
applied to all national banks. In the Supervisory Guidance, the
OCC directs all national banks to conduct a self-assessment of
foreclosure management practices by September 30, 2011.
Additionally, the Guidance sets forth foreclosure management
standards that mirror the broad categories of the servicing
guidelines contained in the consent orders. During Congressional
testimony on July 7, 2011, an OCC official indicated that
there is an active interagency effort under way to develop
comprehensive, nationally applicable mortgage servicing
standards, and that this effort involves federal bank regulatory
agencies, HUD and FHFA.
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A group consisting of state attorneys general and state bank and
mortgage regulators is in discussions with a number of large
seller/servicers concerning a global settlement of certain
issues related to mortgage servicing practices. It has been
reported that this settlement could include changes to mortgage
servicing practices.
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On April 28, 2011, FHFA announced a new set of aligned
standards for servicing delinquent mortgages owned or guaranteed
by Freddie Mac and Fannie Mae. See RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Single-Family Mortgage Credit
Risk Single-Family Loan Workouts. FHFA has
also directed us and Fannie Mae to work on a joint initiative to
consider alternatives for future mortgage servicing structures
and
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servicing compensation. The development of further alternatives
could impact our ability to conduct current initiatives.
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On July 21, 2011, new MERS membership rules with respect to
the foreclosure of mortgages registered on the MERS System were
adopted. Subject to certain limited exceptions, these rules
require the assignment of a mortgage out of MERS name
prior to the initiation of foreclosure or certain other legal
proceedings. This may further extend Freddie Macs
foreclosure timelines.
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For more information on operational risks related to these
developments in mortgage servicing, see RISK
MANAGEMENT Operational Risks.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest-Rate
Risk and Other Market Risks
Our investments in mortgage loans and mortgage-related
securities expose us to interest-rate risk and other market
risks arising primarily from the uncertainty as to when
borrowers will pay the outstanding principal balance of mortgage
loans and mortgage-related securities, known as prepayment risk,
and the resulting potential mismatch in the timing of our
receipt of cash flows related to our assets versus the timing of
payment of cash flows related to our liabilities used to fund
those assets. See QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK Interest-Rate Risk and Other
Market Risks in our 2010 Annual Report for more
information on our exposure to interest-rate and other market
risks, including our use of derivatives as part of our efforts
to manage certain of these risks.
PMVS
and Duration Gap
Our primary interest-rate risk measures are PMVS and duration
gap.
PMVS is an estimate of the change in the market value of our net
assets and liabilities from an instantaneous 50 basis point
shock to interest rates, assuming no rebalancing actions are
undertaken and assuming the mortgage-to-LIBOR basis does not
change. We do not actively manage overall basis risk, also
referred to as mortgage-to-debt OAS risk or spread risk, arising
from funding mortgage-related assets with our debt securities.
Recently our agency-to-swap basis risk exposure has increased
due to the increased use of floating rate debt. Agency-to-swap
basis risk impacts the debt component of our mortgage-to-debt
OAS risk. PMVS is measured in two ways, one measuring the
estimated sensitivity of our portfolio market value to parallel
movements in interest rates (PMVS-Level or
PMVS-L) and
the other to nonparallel movements
(PMVS-YC).
The 50 basis point shift and 25 basis point change in
slope of the LIBOR yield curve used for our PMVS measures
reflect reasonably possible near-term changes that we believe
provide a meaningful measure of our interest-rate risk
sensitivity. Our PMVS measures assume instantaneous shocks.
Therefore, these PMVS measures do not consider the effects on
fair value of any rebalancing actions that we would typically
expect to take to reduce our risk exposure.
Duration gap measures the difference in price sensitivity to
interest rate changes between our assets and liabilities, and is
expressed in months relative to the market value of assets. For
example, assets with a six-month duration and liabilities with a
five-month duration would result in a positive duration gap of
one month. A duration gap of zero implies that the duration of
our assets approximates the duration of our liabilities.
Multiplying duration gap (expressed as a percentage of a year)
by the fair value of our assets will provide an indication of
the change in the fair value of our equity resulting from a 1%
change in interest rates.
Limitations
of Market Risk Measures
Our PMVS and duration gap estimates are determined using models
that involve our best judgment of interest-rate and prepayment
assumptions. Accordingly, while we believe that PMVS and
duration gap are useful risk management tools, they should be
understood as estimates rather than as precise measurements.
While PMVS and duration gap estimate our exposure to changes in
interest rates, they do not capture the potential impact of
certain other market risks, such as changes in volatility,
basis, and foreign-currency risk.
There are inherent limitations in any methodology used to
estimate exposure to changes in market interest rates. Our
sensitivity analyses for PMVS and duration gap contemplate only
certain movements in interest rates and are performed at a
particular point in time based on the estimated fair value of
our existing portfolio. These sensitivity analyses do not
consider other factors that may have a significant effect on our
financial instruments, most notably business activities and
strategic actions that management may take in the future to
manage interest-rate risk. As such, these analyses are not
intended to provide precise forecasts of the effect a change in
market interest rates would have on the estimated fair value of
our net assets.
In addition, it is more difficult to measure and manage the
interest rate risk related to mortgage assets as risk for
prepayment model error remains high due to uncertainty regarding
foreclosures, loan modification, and the volatility and impact
of home price movements on mortgage durations. Mis-estimation of
prepayments could result in hedging-related losses.
Duration
Gap and PMVS Results
Table 52 provides duration gap, estimated
point-in-time
and minimum and maximum
PMVS-L and
PMVS-YC
results, and an average of the daily values and standard
deviation for the three and six months ended June 30, 2011
and 2010. Table 52 also provides
PMVS-L
estimates assuming an immediate 100 basis point shift in
the LIBOR yield curve.
We do not hedge the entire prepayment risk exposure embedded in
our mortgage assets. The interest rate sensitivity of a mortgage
portfolio varies across a wide range of interest rates.
Therefore, the difference between PMVS at 50 basis points
and 100 basis points is non-linear. Accordingly, as shown
in Table 52, the
PMVS-L
results based on a 100 basis point shift in the LIBOR curve
are disproportionately higher at June 30, 2011, than the
PMVS-L
results based on a 50 basis point shift in the LIBOR curve.
Table 52
PMVS Results
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PMVS-YC
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PMVS-L
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25 bps
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50 bps
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100 bps
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(in millions)
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Assuming shifts of the LIBOR yield curve:
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June 30, 2011
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$
|
35
|
|
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$
|
434
|
|
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$
|
1,607
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December 31, 2010
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$
|
35
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|
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$
|
588
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$
|
1,884
|
|
|
|
|
|
|
|
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|
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|
|
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|
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Three Months Ended June 30,
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2011
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2010
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Duration
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PMVS-YC
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PMVS-L
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Duration
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PMVS-YC
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PMVS-L
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Gap
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25 bps
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50 bps
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Gap
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25 bps
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50 bps
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(in months)
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(dollars in millions)
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(in months)
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(dollars in millions)
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Average
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0.1
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$
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25
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|
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$
|
419
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0.0
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$
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23
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$
|
415
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Minimum
|
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(0.2
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)
|
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$
|
4
|
|
|
$
|
288
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(0.6
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)
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$
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|
|
|
$
|
156
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Maximum
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0.6
|
|
|
$
|
58
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|
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$
|
558
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0.5
|
|
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$
|
64
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|
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$
|
606
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Standard deviation
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0.2
|
|
|
$
|
13
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|
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$
|
62
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|
|
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0.2
|
|
|
$
|
16
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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Six Months Ended June 30,
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2011
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2010
|
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Duration
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PMVS-YC
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PMVS-L
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Duration
|
|
PMVS-YC
|
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PMVS-L
|
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|
Gap
|
|
25 bps
|
|
50 bps
|
|
Gap
|
|
25 bps
|
|
50 bps
|
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(in months)
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(dollars in millions)
|
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(in months)
|
|
(dollars in millions)
|
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Average
|
|
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(0.1
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)
|
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$
|
23
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|
|
$
|
433
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|
|
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0.0
|
|
|
$
|
21
|
|
|
$
|
445
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Minimum
|
|
|
(1.0
|
)
|
|
$
|
|
|
|
$
|
280
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|
|
|
(0.7
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)
|
|
$
|
|
|
|
$
|
156
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Maximum
|
|
|
0.6
|
|
|
$
|
58
|
|
|
$
|
721
|
|
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0.7
|
|
|
$
|
64
|
|
|
$
|
668
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Standard deviation
|
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|
0.3
|
|
|
$
|
13
|
|
|
$
|
84
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|
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0.3
|
|
|
$
|
16
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|
$
|
92
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Derivatives have historically enabled us to keep our
interest-rate risk exposure at consistently low levels in a wide
range of interest-rate environments. Table 53 shows that
the PMVS-L
risk levels for the periods presented would generally have been
higher if we had not used derivatives to manage our
interest-rate risk exposure.
Table 53
Derivative Impact on
PMVS-L
(50 bps)
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|
|
|
|
|
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|
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Before
|
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After
|
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Effect of
|
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Derivatives
|
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Derivatives
|
|
Derivatives
|
|
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(in millions)
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At:
|
|
|
|
|
|
|
|
|
|
|
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June 30, 2011
|
|
$
|
3,688
|
|
|
$
|
434
|
|
|
$
|
(3,254
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)
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December 31, 2010
|
|
$
|
3,614
|
|
|
$
|
588
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|
|
$
|
(3,026
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)
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The disclosure in our Monthly Volume Summary reports, which are
available on our web site at www.freddiemac.com and in current
reports on
Form 8-K
we file with the SEC, reflects the average of the daily
PMVS-L,
PMVS-YC and
duration gap estimates for a given reporting period (a month,
quarter or year).
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that the information
we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC rules and
forms and that such information is accumulated and communicated
to senior management, as appropriate, to allow timely decisions
regarding required disclosure. In designing our disclosure
controls and procedures, we recognize that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and we must apply judgment in implementing
possible controls and procedures.
Management, including the companys Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of
June 30, 2011. As a result of managements evaluation,
our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were not
effective as of June 30, 2011, at a reasonable level of
assurance, because our disclosure controls and procedures did
not adequately ensure the accumulation and communication to
management of information known to FHFA that is needed to meet
our disclosure obligations under the federal securities laws. We
have not been able to update our disclosure controls and
procedures to provide reasonable assurance that information
known by FHFA on an ongoing basis is communicated from FHFA to
Freddie Macs management in a manner that allows for timely
decisions regarding our required disclosure. Based on
discussions with FHFA and the structural nature of this
continued weakness, it is likely that we will not remediate this
weakness in our disclosure controls and procedures while we are
under conservatorship. As noted below, we also consider this
situation to be a continuing material weakness in our internal
control over financial reporting.
Changes
in Internal Control Over Financial Reporting During the Quarter
Ended June 30, 2011
We evaluated the changes in our internal control over financial
reporting that occurred during the quarter ended June 30,
2011 and concluded that the following matters have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
A number of senior officers have left the company since
March 31, 2011, including Donald J. Bisenius,
Executive Vice President Single-Family Credit
Guarantee, Peter J. Federico, Executive Vice
President Investments and Capital Markets and
Treasurer, Michael C. May, Executive Vice
President Multifamily, Joseph A. Rossi, Senior
Vice President Operations & Technology,
and Robert E. Bostrom, Executive Vice President
General Counsel & Corporate Secretary. In addition,
Raymond G. Romano, Executive Vice President
Chief Credit Officer will be leaving the company in October
2011. Because we maintain succession plans for our senior
management positions, we have been able to fill many of these
senior management positions quickly, or have eliminated them
through reorganizations. However, disruptive levels of turnover
at both the executive and employee levels could lead to
breakdowns in any of our operations, affect our execution
capabilities, cause delays in the implementation of critical
technology and other projects, and erode our business, modeling,
internal audit, risk management, financial reporting, and
compliance expertise and capabilities.
We made two significant internal reorganizations during the
second quarter of 2011, as we combined our Single-Family Credit
Guarantee, Single-Family Portfolio Management, and
Operations & Technology divisions, and we merged our
Credit Management division into our Enterprise Risk Management
division. Over time, we expect these changes will improve our
overall risk profile. However, in the near term, these changes
could increase our operational risk.
Mitigating
Actions Related to the Material Weakness in Internal Control
Over Financial Reporting
We have not remediated the material weakness in internal control
over financial reporting related to our disclosure controls and
procedures as of June 30, 2011. Given the structural nature
of this continued weakness, we believe it is likely that we will
not remediate this material weakness while we are under
conservatorship. However, both we and FHFA have continued to
engage in activities and employ procedures and practices
intended to permit accumulation and communication to management
of information needed to meet our disclosure obligations under
the federal securities laws. These include the following:
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FHFA has established the Office of Conservator Affairs, which is
intended to facilitate operation of the company with the
oversight of the Conservator.
|
|
|
|
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We provide drafts of our SEC filings to FHFA personnel for their
review and comment prior to filing. We also provide drafts of
external press releases, statements and speeches to FHFA
personnel for their review and comment prior to release.
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FHFA personnel, including senior officials, review our SEC
filings prior to filing, including this quarterly report on
Form 10-Q,
and engage in discussions regarding issues associated with the
information contained in those filings. Prior to filing this
quarterly report on Form
10-Q, FHFA
provided us with a written acknowledgement that it had reviewed
the quarterly report on
Form 10-Q,
was not aware of any material misstatements or omissions in the
quarterly report on
Form 10-Q,
and had no objection to our filing the quarterly report on
Form 10-Q.
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The Acting Director of FHFA is in frequent communication with
our Chief Executive Officer, typically meeting (in person or by
phone) on a weekly basis.
|
|
|
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FHFA representatives hold frequent meetings, typically weekly,
with various groups within the company to enhance the flow of
information and to provide oversight on a variety of matters,
including accounting, capital markets management, external
communications and legal matters.
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Senior officials within FHFAs accounting group meet
frequently, typically weekly, with our senior financial
executives regarding our accounting policies, practices and
procedures.
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In view of our mitigating actions related to the material
weakness, we believe that our interim consolidated financial
statements for the quarter ended June 30, 2011 have been
prepared in conformity with GAAP.
FREDDIE
MAC
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions,
|
|
|
|
except share-related amounts)
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held by consolidated trusts
|
|
$
|
19,782
|
|
|
$
|
22,114
|
|
|
$
|
39,846
|
|
|
$
|
44,846
|
|
Unsecuritized
|
|
|
2,274
|
|
|
|
2,179
|
|
|
|
4,608
|
|
|
|
4,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
22,056
|
|
|
|
24,293
|
|
|
|
44,454
|
|
|
|
48,986
|
|
Investments in securities
|
|
|
3,275
|
|
|
|
3,574
|
|
|
|
6,558
|
|
|
|
7,473
|
|
Other
|
|
|
18
|
|
|
|
34
|
|
|
|
52
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
25,349
|
|
|
|
27,901
|
|
|
|
51,064
|
|
|
|
56,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts
|
|
|
(17,261
|
)
|
|
|
(19,048
|
)
|
|
|
(34,664
|
)
|
|
|
(38,691
|
)
|
Other debt
|
|
|
(3,333
|
)
|
|
|
(4,468
|
)
|
|
|
(6,898
|
)
|
|
|
(9,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(20,594
|
)
|
|
|
(23,516
|
)
|
|
|
(41,562
|
)
|
|
|
(47,758
|
)
|
Expense related to derivatives
|
|
|
(194
|
)
|
|
|
(249
|
)
|
|
|
(401
|
)
|
|
|
(507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,561
|
|
|
|
4,136
|
|
|
|
9,101
|
|
|
|
8,261
|
|
Provision for credit losses
|
|
|
(2,529
|
)
|
|
|
(5,029
|
)
|
|
|
(4,518
|
)
|
|
|
(10,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for credit
losses
|
|
|
2,032
|
|
|
|
(893
|
)
|
|
|
4,583
|
|
|
|
(2,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on extinguishment of debt securities of
consolidated trusts
|
|
|
(125
|
)
|
|
|
4
|
|
|
|
98
|
|
|
|
(94
|
)
|
Gains (losses) on retirement of other debt
|
|
|
3
|
|
|
|
(141
|
)
|
|
|
15
|
|
|
|
(179
|
)
|
Gains (losses) on debt recorded at fair value
|
|
|
(37
|
)
|
|
|
544
|
|
|
|
(118
|
)
|
|
|
891
|
|
Derivative gains (losses)
|
|
|
(3,807
|
)
|
|
|
(3,838
|
)
|
|
|
(4,234
|
)
|
|
|
(8,523
|
)
|
Impairment of available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment of available-for-sale
securities
|
|
|
(230
|
)
|
|
|
(114
|
)
|
|
|
(1,284
|
)
|
|
|
(531
|
)
|
Portion of other-than-temporary impairment recognized in AOCI
|
|
|
(122
|
)
|
|
|
(314
|
)
|
|
|
(261
|
)
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(352
|
)
|
|
|
(428
|
)
|
|
|
(1,545
|
)
|
|
|
(938
|
)
|
Other gains (losses) on investment securities recognized in
earnings
|
|
|
209
|
|
|
|
(257
|
)
|
|
|
89
|
|
|
|
(673
|
)
|
Other income
|
|
|
252
|
|
|
|
489
|
|
|
|
586
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss)
|
|
|
(3,857
|
)
|
|
|
(3,627
|
)
|
|
|
(5,109
|
)
|
|
|
(8,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
(219
|
)
|
|
|
(230
|
)
|
|
|
(426
|
)
|
|
|
(464
|
)
|
Professional services
|
|
|
(64
|
)
|
|
|
(67
|
)
|
|
|
(120
|
)
|
|
|
(148
|
)
|
Occupancy expense
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
(30
|
)
|
|
|
(31
|
)
|
Other administrative expenses
|
|
|
(86
|
)
|
|
|
(92
|
)
|
|
|
(169
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total administrative expenses
|
|
|
(384
|
)
|
|
|
(404
|
)
|
|
|
(745
|
)
|
|
|
(809
|
)
|
Real estate owned operations (expense) income
|
|
|
(27
|
)
|
|
|
40
|
|
|
|
(284
|
)
|
|
|
(119
|
)
|
Other expenses
|
|
|
(135
|
)
|
|
|
(115
|
)
|
|
|
(214
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
(546
|
)
|
|
|
(479
|
)
|
|
|
(1,243
|
)
|
|
|
(1,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(2,371
|
)
|
|
|
(4,999
|
)
|
|
|
(1,769
|
)
|
|
|
(11,791
|
)
|
Income tax benefit
|
|
|
232
|
|
|
|
286
|
|
|
|
306
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,139
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
|
|
(11,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes and reclassification
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to
available-for-sale securities
|
|
|
903
|
|
|
|
4,097
|
|
|
|
2,844
|
|
|
|
8,743
|
|
Changes in unrealized gains (losses) related to cash flow hedge
relationships
|
|
|
135
|
|
|
|
184
|
|
|
|
267
|
|
|
|
356
|
|
Changes in defined benefit plans
|
|
|
1
|
|
|
|
2
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of taxes and
reclassification adjustments
|
|
|
1,039
|
|
|
|
4,283
|
|
|
|
3,103
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
(1,100
|
)
|
|
|
(430
|
)
|
|
|
1,640
|
|
|
|
(2,311
|
)
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to Freddie
Mac
|
|
$
|
(1,100
|
)
|
|
$
|
(430
|
)
|
|
$
|
1,640
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,139
|
)
|
|
$
|
(4,713
|
)
|
|
$
|
(1,463
|
)
|
|
$
|
(11,402
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Freddie Mac
|
|
|
(2,139
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
|
|
(11,401
|
)
|
Preferred stock dividends
|
|
|
(1,617
|
)
|
|
|
(1,296
|
)
|
|
|
(3,222
|
)
|
|
|
(2,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,756
|
)
|
|
$
|
(6,009
|
)
|
|
$
|
(4,685
|
)
|
|
$
|
(13,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.16
|
)
|
|
$
|
(1.85
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(4.30
|
)
|
Diluted
|
|
$
|
(1.16
|
)
|
|
$
|
(1.85
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(4.30
|
)
|
Weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
Diluted
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
FREDDIE
MAC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions,
|
|
|
|
except share-related amounts)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (includes $1 and $1, respectively,
related to our consolidated VIEs)
|
|
$
|
17,488
|
|
|
$
|
37,012
|
|
Restricted cash and cash equivalents (includes $1,850 and
$7,514, respectively, related to our consolidated VIEs)
|
|
|
2,333
|
|
|
|
8,111
|
|
Federal funds sold and securities purchased under agreements to
resell (includes $13,950 and $29,350, respectively, related to
our consolidated VIEs)
|
|
|
33,609
|
|
|
|
46,524
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value (includes $244 and $817,
respectively, pledged as collateral that may be repledged)
|
|
|
222,849
|
|
|
|
232,634
|
|
Trading, at fair value
|
|
|
54,764
|
|
|
|
60,262
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
277,613
|
|
|
|
292,896
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
Held-for-investment, at amortized cost:
|
|
|
|
|
|
|
|
|
By consolidated trusts (net of allowances for loan losses of
$8,948 and $11,644, respectively)
|
|
|
1,634,773
|
|
|
|
1,646,172
|
|
Unsecuritized (net of allowances for loan losses of $29,919 and
$28,047, respectively)
|
|
|
198,568
|
|
|
|
192,310
|
|
|
|
|
|
|
|
|
|
|
Total held-for-investment mortgage loans, net
|
|
|
1,833,341
|
|
|
|
1,838,482
|
|
Held-for-sale, at lower-of-cost-or-fair-value (includes $4,463
and $6,413 at fair value, respectively)
|
|
|
4,463
|
|
|
|
6,413
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
|
1,837,804
|
|
|
|
1,844,895
|
|
Accrued interest receivable (includes $6,704 and $6,895,
respectively, related to our consolidated VIEs)
|
|
|
8,523
|
|
|
|
8,713
|
|
Derivative assets, net
|
|
|
246
|
|
|
|
143
|
|
Real estate owned, net (includes $83 and $118, respectively,
related to our consolidated VIEs)
|
|
|
5,932
|
|
|
|
7,068
|
|
Deferred tax assets, net
|
|
|
3,866
|
|
|
|
5,543
|
|
Other assets (Note 21) (includes $3,252 and $6,001,
respectively, related to our consolidated VIEs)
|
|
|
8,381
|
|
|
|
10,875
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,195,795
|
|
|
$
|
2,261,780
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
(deficit)
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued interest payable (includes $6,241 and $6,502,
respectively, related to our consolidated VIEs)
|
|
$
|
9,542
|
|
|
$
|
10,286
|
|
Debt, net:
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
1,499,036
|
|
|
|
1,528,648
|
|
Other debt (includes $3,998 and $4,443 at fair value,
respectively)
|
|
|
681,087
|
|
|
|
713,940
|
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
2,180,123
|
|
|
|
2,242,588
|
|
Derivative liabilities, net
|
|
|
408
|
|
|
|
1,209
|
|
Other liabilities (Note 21) (includes $3,821 and $3,851,
respectively, related to our consolidated VIEs)
|
|
|
7,200
|
|
|
|
8,098
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,197,273
|
|
|
|
2,262,181
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 9, 11, and 19)
|
|
|
|
|
|
|
|
|
Equity (deficit)
|
|
|
|
|
|
|
|
|
Senior preferred stock, at redemption value
|
|
|
64,700
|
|
|
|
64,200
|
|
Preferred stock, at redemption value
|
|
|
14,109
|
|
|
|
14,109
|
|
Common stock, $0.00 par value, 4,000,000,000 shares
authorized, 725,863,886 shares issued and
649,706,712 shares and 649,179,789 shares outstanding,
respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
1
|
|
|
|
7
|
|
Retained earnings (accumulated deficit)
|
|
|
(67,449
|
)
|
|
|
(62,733
|
)
|
AOCI, net of taxes, related to:
|
|
|
|
|
|
|
|
|
Available-for-sale securities (includes $10,195 and $10,740,
respectively, net of taxes, of other-than-temporary impairments)
|
|
|
(6,834
|
)
|
|
|
(9,678
|
)
|
Cash flow hedge relationships
|
|
|
(1,972
|
)
|
|
|
(2,239
|
)
|
Defined benefit plans
|
|
|
(122
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
Total AOCI, net of taxes
|
|
|
(8,928
|
)
|
|
|
(12,031
|
)
|
Treasury stock, at cost, 76,157,174 shares and
76,684,097 shares, respectively
|
|
|
(3,911
|
)
|
|
|
(3,953
|
)
|
|
|
|
|
|
|
|
|
|
Total equity (deficit)
|
|
|
(1,478
|
)
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity (deficit)
|
|
$
|
2,195,795
|
|
|
$
|
2,261,780
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
FREDDIE
MAC
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
|
|
|
|
|
|
|
|
|
Stock, at
|
|
|
Stock, at
|
|
|
Common
|
|
|
Additional
|
|
|
Earnings
|
|
|
|
|
|
Treasury
|
|
|
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Redemption
|
|
|
Redemption
|
|
|
Stock, at
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
AOCI, Net
|
|
|
Stock,
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Stock
|
|
|
Value
|
|
|
Value
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit)
|
|
|
of Tax
|
|
|
at Cost
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
(in millions)
|
|
|
Balance as of December 31, 2009
|
|
|
1
|
|
|
|
464
|
|
|
|
649
|
|
|
$
|
51,700
|
|
|
$
|
14,109
|
|
|
$
|
|
|
|
$
|
57
|
|
|
$
|
(33,921
|
)
|
|
$
|
(23,648
|
)
|
|
$
|
(4,019
|
)
|
|
$
|
94
|
|
|
$
|
4,372
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,011
|
)
|
|
|
(2,690
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(11,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2010
|
|
|
1
|
|
|
|
464
|
|
|
|
649
|
|
|
|
51,700
|
|
|
|
14,109
|
|
|
|
|
|
|
|
57
|
|
|
|
(42,932
|
)
|
|
|
(26,338
|
)
|
|
|
(4,019
|
)
|
|
|
92
|
|
|
|
(7,331
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,401
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(11,402
|
)
|
Other comprehensive income (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
9,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,401
|
)
|
|
|
9,091
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2,311
|
)
|
Increase in liquidation preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,600
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Income tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Common stock issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
(1
|
)
|
Noncontrolling interest purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
(120
|
)
|
Transfer from retained earnings (accumulated deficit) to
additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior preferred stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,585
|
)
|
Dividend equivalent payments on expired stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Dividends and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2010
|
|
|
1
|
|
|
|
464
|
|
|
|
649
|
|
|
$
|
62,300
|
|
|
$
|
14,109
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(56,945
|
)
|
|
$
|
(17,247
|
)
|
|
$
|
(3,955
|
)
|
|
$
|
|
|
|
$
|
(1,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
|
1
|
|
|
|
464
|
|
|
|
649
|
|
|
$
|
64,200
|
|
|
$
|
14,109
|
|
|
$
|
|
|
|
$
|
7
|
|
|
$
|
(62,733
|
)
|
|
$
|
(12,031
|
)
|
|
$
|
(3,953
|
)
|
|
$
|
|
|
|
$
|
(401
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,463
|
)
|
Other comprehensive income (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,463
|
)
|
|
|
3,103
|
|
|
|
|
|
|
|
|
|
|
|
1,640
|
|
Increase in liquidation preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Income tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Common stock issuances
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Transfer from retained earnings (accumulated deficit) to
additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior preferred stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,222
|
)
|
Dividend equivalent payments on expired stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2011
|
|
|
1
|
|
|
|
464
|
|
|
|
650
|
|
|
$
|
64,700
|
|
|
$
|
14,109
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
(67,449
|
)
|
|
$
|
(8,928
|
)
|
|
$
|
(3,911
|
)
|
|
$
|
|
|
|
$
|
(1,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
FREDDIE
MAC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,463
|
)
|
|
$
|
(11,402
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Derivative losses
|
|
|
1,632
|
|
|
|
5,963
|
|
Asset related amortization premiums, discounts, and
basis adjustments
|
|
|
595
|
|
|
|
(48
|
)
|
Debt related amortization premiums and discounts on
certain debt securities and basis adjustments
|
|
|
(311
|
)
|
|
|
1,099
|
|
Net discounts paid on retirements of other debt
|
|
|
(469
|
)
|
|
|
(1,041
|
)
|
Net premiums received from issuance of debt securities of
consolidated trusts
|
|
|
1,927
|
|
|
|
1,225
|
|
(Gains) losses on extinguishment of debt securities of
consolidated trusts and other debt
|
|
|
(113
|
)
|
|
|
273
|
|
Provision for credit losses
|
|
|
4,518
|
|
|
|
10,425
|
|
Losses on investment activity
|
|
|
1,096
|
|
|
|
1,369
|
|
Losses (gains) on debt recorded at fair value
|
|
|
118
|
|
|
|
(891
|
)
|
Deferred income tax benefit
|
|
|
15
|
|
|
|
(268
|
)
|
Purchases of held-for-sale mortgage loans
|
|
|
(5,298
|
)
|
|
|
(2,795
|
)
|
Sales of mortgage loans acquired as held-for-sale
|
|
|
6,998
|
|
|
|
3,629
|
|
Repayments of mortgage loans acquired as held-for-sale
|
|
|
22
|
|
|
|
11
|
|
Change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
190
|
|
|
|
279
|
|
Accrued interest payable
|
|
|
(618
|
)
|
|
|
(887
|
)
|
Income taxes payable
|
|
|
(319
|
)
|
|
|
70
|
|
Other, net
|
|
|
(726
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
7,794
|
|
|
|
6,663
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of trading securities
|
|
|
(28,705
|
)
|
|
|
(28,153
|
)
|
Proceeds from sales of trading securities
|
|
|
24,076
|
|
|
|
4,231
|
|
Proceeds from maturities of trading securities
|
|
|
10,122
|
|
|
|
21,477
|
|
Purchases of available-for-sale securities
|
|
|
(7,687
|
)
|
|
|
(626
|
)
|
Proceeds from sales of available-for-sale securities
|
|
|
2,107
|
|
|
|
606
|
|
Proceeds from maturities of available-for-sale securities
|
|
|
17,965
|
|
|
|
23,542
|
|
Purchases of held-for-investment mortgage loans
|
|
|
(17,610
|
)
|
|
|
(25,200
|
)
|
Repayments of mortgage loans acquired as held-for-investment
|
|
|
159,045
|
|
|
|
156,865
|
|
Decrease in restricted cash
|
|
|
5,778
|
|
|
|
8,714
|
|
Net proceeds from mortgage insurance and acquisitions and
dispositions of real estate owned
|
|
|
6,782
|
|
|
|
5,654
|
|
Net decrease (increase) in federal funds sold and securities
purchased under agreements to resell
|
|
|
12,915
|
|
|
|
(27,568
|
)
|
Derivative premiums and terminations and swap collateral, net
|
|
|
(2,965
|
)
|
|
|
(5,646
|
)
|
Purchase of noncontrolling interest
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
181,823
|
|
|
|
133,873
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt securities of consolidated trusts
held by third parties
|
|
|
43,997
|
|
|
|
38,756
|
|
Repayments of debt securities of consolidated trusts held by
third parties
|
|
|
(217,330
|
)
|
|
|
(206,991
|
)
|
Proceeds from issuance of other debt
|
|
|
521,779
|
|
|
|
602,116
|
|
Repayments of other debt
|
|
|
(554,835
|
)
|
|
|
(597,356
|
)
|
Increase in liquidation preference of senior preferred stock
|
|
|
500
|
|
|
|
10,600
|
|
Payment of cash dividends on senior preferred stock
|
|
|
(3,222
|
)
|
|
|
(2,585
|
)
|
Excess tax benefits associated with stock-based awards
|
|
|
1
|
|
|
|
1
|
|
Payments of low-income housing tax credit partnerships notes
payable
|
|
|
(31
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(209,141
|
)
|
|
|
(155,542
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(19,524
|
)
|
|
|
(15,006
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
37,012
|
|
|
|
64,683
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
17,488
|
|
|
$
|
49,677
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
Cash paid (received) for:
|
|
|
|
|
|
|
|
|
Debt interest
|
|
$
|
43,449
|
|
|
$
|
48,738
|
|
Net derivative interest carry and swap collateral interest
|
|
|
2,074
|
|
|
|
2,412
|
|
Income taxes
|
|
|
(1
|
)
|
|
|
(191
|
)
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Held-for-sale mortgage loans securitized and retained as trading
securities
|
|
|
448
|
|
|
|
371
|
|
Underlying mortgage loans related to guarantor swap transactions
|
|
|
143,324
|
|
|
|
142,146
|
|
Debt securities of consolidated trusts held by third parties
established for guarantor swap transactions
|
|
|
143,324
|
|
|
|
142,146
|
|
Transfers from held-for-investment mortgage loans to
held-for-sale mortgage loans
|
|
|
|
|
|
|
196
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Freddie Mac was chartered by Congress in 1970 to stabilize the
nations residential mortgage market and expand
opportunities for home ownership and affordable rental housing.
Our statutory mission is to provide liquidity, stability and
affordability to the U.S. housing market. We are a GSE
regulated by FHFA, the SEC, HUD, and the Treasury. For more
information on the roles of FHFA and the Treasury, see
NOTE 2: CONSERVATORSHIP AND RELATED MATTERS in
this
Form 10-Q
and NOTE 3: CONSERVATORSHIP AND RELATED MATTERS
in our Annual Report on our
Form 10-K
for the year ended December 31, 2010, or our 2010 Annual
Report.
We are involved in the U.S. housing market by participating
in the secondary mortgage market. We do not participate directly
in the primary mortgage market. Our participation in the
secondary mortgage market includes providing our credit
guarantee for mortgages originated by mortgage lenders in the
primary mortgage market and investing in mortgage loans and
mortgage-related securities.
Our operations consist of three reportable segments, which are
based on the type of business activities each
performs Single-family Guarantee, Investments, and
Multifamily. Our Single-family Guarantee segment reflects
results from our single-family credit guarantee activities. In
our Single-family Guarantee segment, we acquire and securitize
mortgage loans by issuing PCs to third-party investors and we
also guarantee the payment of principal and interest on
single-family mortgage loans and mortgage-related securities. We
also resecuritize mortgage-related securities that are issued by
us or Ginnie Mae as well as private (non-agency) entities. Our
Investments segment reflects results from our investment,
funding, and hedging activities. In our Investments segment, we
invest principally in mortgage-related securities and
single-family mortgage loans. These activities are funded by
debt issuances. We manage the interest-rate risk associated with
these investment and funding activities using derivatives. Our
Multifamily segment reflects results from our investments (both
purchases and sales), securitization, and guarantee activities
in multifamily mortgage loans and securities. In our Multifamily
segment, we purchase multifamily mortgage loans primarily for
securitization. We also guarantee the payment of principal and
interest on multifamily mortgage-related securities and
mortgages underlying multifamily housing revenue bonds. See
NOTE 15: SEGMENT REPORTING for additional
information.
Under conservatorship, we are focused on the following primary
business objectives: (a) meeting the needs of the U.S.
residential mortgage market by making home ownership and rental
housing more affordable by providing liquidity to mortgage
originators and, indirectly, to mortgage borrowers;
(b) working to reduce the number of foreclosures and
helping to keep families in their homes, including through our
role in the MHA Program initiatives, including HAMP and HARP,
and through our non-HAMP workout programs; (c) minimizing
our credit losses; (d) maintaining the credit quality of
the loans we purchase and guarantee; and (e) strengthening
our infrastructure and improving overall efficiency.
In addition to our primary business objectives discussed above,
we have a variety of different, and potentially competing,
objectives based on our charter, public statements from Treasury
and FHFA officials, and other guidance from our Conservator. For
information regarding these objectives, see NOTE 2:
CONSERVATORSHIP AND RELATED MATTERS Business
Objectives.
Throughout our consolidated financial statements and related
notes, we use certain acronyms and terms which are defined in
the Glossary.
For additional information regarding our significant accounting
policies, see NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES in our 2010 Annual Report.
Basis of
Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with GAAP for interim financial
information and include our accounts as well as the accounts of
other entities in which we have a controlling financial
interest. All intercompany balances and transactions have been
eliminated. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and related notes in our 2010 Annual
Report. We are operating under the basis that we will realize
assets and satisfy liabilities in the normal course of business
as a going concern and in accordance with the delegation of
authority from FHFA to our Board of Directors and management.
Certain financial information that is normally included in
annual financial statements prepared in conformity with GAAP but
is not required for interim reporting purposes has been
condensed or omitted. Certain amounts in prior periods
consolidated financial statements have been reclassified to
conform to the current presentation. In the opinion of
management, all adjustments, which include only normal recurring
adjustments, have been recorded for a fair statement of our
unaudited consolidated financial statements.
We recorded the cumulative effect of certain miscellaneous
errors related to previously reported periods as corrections in
the three and six months ended June 30, 2011. We concluded
that these errors are not material individually or in the
aggregate to our previously issued consolidated financial
statements for any of the periods affected, or to our estimated
earnings for the full year ending December 31, 2011 or to
the trend of earnings. The cumulative effect, net of taxes, of
the errors corrected during the three and six months ended
June 30, 2011 was $189 million and $28 million,
respectively.
Use of
Estimates
The preparation of financial statements requires us to make
estimates and assumptions that affect: (a) the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements;
and (b) the reported amounts of revenues and expenses and
gains and losses during the reporting period. Management has
made significant estimates in preparing the financial
statements, including, but not limited to, establishing the
allowance for loan losses and reserve for guarantee losses,
valuing financial instruments and other assets and liabilities,
assessing impairments on investments, and assessing the
realizability of net deferred tax assets. Actual results could
be different from these estimates.
Recently
Issued Accounting Guidance, Not Yet Adopted Within These
Consolidated Financial Statements
Fair
Value Measurement
In May 2011, the FASB issued amendments to the accounting
guidance pertaining to fair value measurement and disclosure.
These amendments provide both: (a) clarification about the
FASBs intent about the application of existing fair value
measurement and disclosure requirements; and (b) changes to
some of the principles or requirements for measuring fair value
or for disclosing information about fair value measurements.
These amendments are effective for interim and annual periods
beginning after December 15, 2011 and are to be applied
prospectively, with early adoption not permitted by public
companies. We do not expect that the adoption of these
amendments will have a material impact on our consolidated
financial statements.
Reconsideration
of Effective Control for Repurchase Agreements
In April 2011, the FASB issued an amendment to the guidance for
transfers and servicing with regard to repurchase agreements and
other agreements that both entitle and obligate a transferor to
repurchase or redeem financial assets before their maturity.
This amendment removes the criterion related to collateral
maintenance from the transferors assessment of effective
control. It focuses the assessment of effective control on the
transferors rights and obligations with respect to the
transferred financial assets and not whether the transferor has
the practical ability to perform in accordance with those rights
or obligations. The amendment is effective for interim and
annual periods beginning on or after December 15, 2011. We
do not expect that the adoption of this amendment will have a
material impact on our consolidated financial statements.
A
Creditors Determination of Whether a Restructuring is a
TDR
In April 2011, the FASB issued an amendment to the accounting
guidance for receivables to clarify when a restructuring such as
a loan modification is considered a TDR. This amendment
clarifies the guidance regarding a creditors evaluation of
whether a debtor is experiencing financial difficulty and
whether a creditor has granted a concession to a debtor for
purposes of determining if a restructuring constitutes a TDR.
The amendment is effective for interim and annual periods
beginning on or after June 15, 2011 and applies
retrospectively to restructurings occurring on or after the
beginning of the fiscal year of adoption, with early adoption
permitted. We are evaluating the impact of this amendment on our
consolidated financial statements; however, we expect that the
population of loan restructurings we account for and disclose as
TDRs will increase.
NOTE 2:
CONSERVATORSHIP AND RELATED MATTERS
Business
Objectives
We continue to operate under the conservatorship that commenced
on September 6, 2008, conducting our business under the
direction of FHFA, as our Conservator. The conservatorship and
related matters have had a wide-ranging impact on us, including
our regulatory supervision, management, business, financial
condition and results of operations. Upon its appointment, FHFA,
as Conservator, immediately succeeded to all rights, titles,
powers and privileges of Freddie Mac, and of any stockholder,
officer or director thereof, with respect to the company and its
assets. The Conservator also succeeded to the title to all
books, records, and assets of Freddie Mac held by any other
legal custodian or third party. During the
conservatorship, the Conservator has delegated certain authority
to the Board of Directors to oversee, and management to conduct,
day-to-day
operations so that the company can continue to operate in the
ordinary course of business. The directors serve on behalf of,
and exercise authority as directed by, the Conservator.
We are also subject to certain constraints on our business
activities by Treasury due to the terms of, and Treasurys
rights under, the Purchase Agreement. Our ability to access
funds from Treasury under the Purchase Agreement is critical to
keeping us solvent.
Our business objectives and strategies have in some cases been
altered since we were placed into conservatorship, and may
continue to change. These changes to our business objectives and
strategies may not contribute to our profitability. Based on our
charter, public statements from Treasury and FHFA officials and
other guidance and directives from our Conservator, we have a
variety of different, and potentially competing, objectives,
including:
|
|
|
|
|
providing liquidity, stability and affordability in the mortgage
market;
|
|
|
|
continuing to provide additional assistance to the struggling
housing and mortgage markets;
|
|
|
|
reducing the need to draw funds from Treasury pursuant to the
Purchase Agreement;
|
|
|
|
returning to long-term profitability; and
|
|
|
|
protecting the interests of taxpayers.
|
In a letter to the Chairmen and Ranking Members of the Senate
Banking and House Financial Services Committees dated
February 2, 2010, the Acting Director of FHFA stated that
the focus of the conservatorship is on conserving assets,
minimizing corporate losses, ensuring Freddie Mac continues to
serve its mission, overseeing remediation of identified
weaknesses in corporate operations and risk management, and
ensuring that sound corporate governance principles are
followed. The Acting Director of FHFA stated that minimizing our
credit losses is our central goal and that we will be limited to
continuing our existing core business activities and taking
actions necessary to advance the goals of the conservatorship.
The Acting Director stated that permitting us to offer new
products is inconsistent with the goals of the conservatorship.
These objectives create conflicts in strategic and day-to-day
decision making that will likely lead to suboptimal outcomes for
one or more, or possibly all, of these objectives. We regularly
receive direction from our Conservator on how to pursue our
objectives under conservatorship, including direction to focus
our efforts on assisting homeowners in the housing and mortgage
markets. The Conservator and Treasury have also not authorized
us to engage in certain business activities and transactions,
including the purchase or sale of certain assets, which we
believe may have had a beneficial impact on our results of
operations or financial condition, if executed. Our inability to
execute such transactions may adversely affect our
profitability, and thus contribute to our need to draw
additional funds from Treasury. However, we believe that the
support provided by Treasury pursuant to the Purchase Agreement
currently enables us to maintain our access to the debt markets
and to have adequate liquidity to conduct our normal business
activities, although the costs of our debt funding could vary.
Given the important role the Obama Administration and our
Conservator have placed on Freddie Mac in addressing housing and
mortgage market conditions and our public mission, we may be
required to take additional actions that could have a negative
impact on our business, operating results, or financial
condition. The Acting Director of FHFA stated that FHFA does not
expect we will be a substantial buyer or seller of mortgages for
our mortgage-related investments portfolio, except for purchases
of seriously delinquent mortgages from PC trusts. We are also
subject to limits on the amount of assets we can sell from our
mortgage-related investments portfolio in any calendar month
without review and approval by FHFA and, if FHFA determines,
Treasury.
Certain changes to our business objectives and strategies are
designed to provide support for the mortgage market in a manner
that serves our public mission and other non-financial
objectives, but may not contribute to our profitability. Some of
these changes increase our expenses, while others require us to
forego revenue or other opportunities. In addition, the
objectives set forth for us under our charter and by our
Conservator, as well as the restrictions on our business under
the Purchase Agreement, have adversely impacted and may continue
to adversely impact our financial results, including our segment
results. For example, our efforts to help struggling homeowners
and the mortgage market, in line with our public mission, may
help to mitigate our credit losses, but in some cases may
increase our expenses or require us to forgo revenue
opportunities in the near term. There is significant uncertainty
as to the ultimate impact that our efforts to aid the housing
and mortgage markets, including our efforts in connection with
the MHA Program, will have on our future capital or liquidity
needs. We are allocating significant internal resources to the
implementation of the various initiatives under the MHA Program
and to the servicing alignment initiative as directed by FHFA on
April 28, 2011, which has increased, and will continue to
increase, our expenses. We cannot currently estimate whether, or
the extent to which, costs incurred
in the near term from HAMP or other MHA Program efforts may be
offset, if at all, by the prevention or reduction of potential
future costs of loan defaults and foreclosures due to these
initiatives.
There is significant uncertainty as to whether or when we will
emerge from conservatorship, as it has no specified termination
date, and as to what changes may occur to our business structure
during or following our conservatorship, including whether we
will continue to exist. Our future structure and role will be
determined by the Obama Administration and Congress. We have no
ability to predict the outcome of these deliberations.
On February 11, 2011, the Obama Administration delivered a
report to Congress that lays out the Administrations plan
to reform the U.S. housing finance market, including
options for structuring the governments long-term role in
a housing finance system in which the private sector is the
dominant provider of mortgage credit. The report recommends
winding down Freddie Mac and Fannie Mae, and states that the
Obama Administration will work with FHFA to determine the best
way to responsibly reduce the role of Freddie Mac and Fannie Mae
in the market and ultimately wind down both institutions. The
report states that these efforts must be undertaken at a
deliberate pace, which takes into account the impact that these
changes will have on borrowers and the housing market.
The report states that the government is committed to ensuring
that Freddie Mac and Fannie Mae have sufficient capital to
perform under any guarantees issued now or in the future and the
ability to meet any of their debt obligations, and further
states that the Obama Administration will not pursue policies or
reforms in a way that would impair the ability of Freddie Mac
and Fannie Mae to honor their obligations. The report states the
Obama Administrations belief that under the
companies senior preferred stock purchase agreements with
Treasury, there is sufficient funding to ensure the orderly and
deliberate wind down of Freddie Mac and Fannie Mae, as described
in the Administrations plan.
The report identifies a number of policy levers that could be
used to wind down Freddie Mac and Fannie Mae, shrink the
governments footprint in housing finance, and help bring
private capital back to the mortgage market, including
increasing guarantee fees, phasing in a 10% down payment
requirement, reducing conforming loan limits, and winding down
Freddie Mac and Fannie Maes investment portfolios,
consistent with the senior preferred stock purchase agreements.
These recommendations, if implemented, would have a material
impact on our business volumes, market share, results of
operations and financial condition. We cannot predict the extent
to which these recommendations will be implemented or when any
actions to implement them may be taken. However, we are not
aware of any current plans of our Conservator to significantly
change our business model or capital structure in the near-term.
Management is continuing its efforts to identify and evaluate
actions that could be taken to reduce the significant
uncertainties surrounding our business, as well as the level of
future draws under the Purchase Agreement; however, our ability
to pursue such actions may be limited by market conditions and
other factors. Our future draws are dictated by the terms of the
Purchase Agreement. Any actions we take will likely require
approval by FHFA and possibly Treasury before they are
implemented. FHFA will regulate any actions we take related to
the uncertainties surrounding our business. In addition, FHFA,
Treasury, or Congress may have a different perspective from
management and may direct us to focus our efforts on supporting
the mortgage markets in ways that make it more difficult for us
to implement any such actions.
Impact of
the Purchase Agreement and FHFA Regulation on the
Mortgage-Related Investments Portfolio
Under the terms of the Purchase Agreement and FHFA regulation,
our mortgage-related investments portfolio is subject to a cap
that decreases by 10% each year until the portfolio reaches
$250 billion. As a result, the UPB of our mortgage-related
investments portfolio could not exceed $810 billion as of
December 31, 2010 and may not exceed $729 billion as
of December 31, 2011. The UPB of our mortgage-related
investments portfolio, for purposes of the limit imposed by the
Purchase Agreement and FHFA regulation, was $685.0 billion
at June 30, 2011. The annual 10% reduction in the size of
our mortgage-related investments portfolio is calculated based
on the maximum allowable size of the mortgage-related
investments portfolio, rather than the actual UPB of the
mortgage-related investments portfolio, as of December 31 of the
preceding year. The limitation is determined without giving
effect to the January 1, 2010 change in the accounting
guidance related to transfers of financial assets and
consolidation of VIEs.
Government
Support for our Business
We are dependent upon the continued support of Treasury and FHFA
in order to continue operating our business. Our ability to
access funds from Treasury under the Purchase Agreement is
critical to keeping us solvent and avoiding the appointment of a
receiver by FHFA under statutory mandatory receivership
provisions.
Significant recent developments with respect to the support we
receive from the government include the following:
|
|
|
|
|
On March 31, 2011, we received $500 million in funding
from Treasury under the Purchase Agreement relating to our
quarterly net worth deficit at December 31, 2010, which
increased the aggregate liquidation preference of the senior
preferred stock to $64.7 billion as of March 31, 2011.
No cash was received from Treasury under the Purchase Agreement
during the second quarter of 2011 due to our positive net worth
at March 31, 2011.
|
|
|
|
On both March 31, 2011 and June 30, 2011, we paid
dividends of $1.6 billion in cash on the senior preferred
stock to Treasury at the direction of the Conservator.
|
To address our net worth deficit of $1.5 billion at
June 30, 2011, FHFA will submit a draw request on our
behalf to Treasury under the Purchase Agreement in the amount of
$1.5 billion, and will request that we receive these funds
by September 30, 2011. Commencing in the second quarter of
2011, our draw request represents our net worth deficit at
quarter-end rounded up to the nearest $1 million. Following
funding of the draw request related to our net worth deficit at
June 30, 2011, our annual cash dividend obligation to
Treasury on the senior preferred stock will increase from
$6.5 billion to $6.6 billion, which exceeds our annual
historical earnings in all but one period.
Through June 30, 2011, we paid $13.2 billion in cash
dividends in the aggregate on the senior preferred stock.
Continued cash payment of senior preferred dividends will have
an adverse impact on our future financial condition and net
worth. In addition, cash payment of quarterly commitment fees
payable to Treasury will negatively impact our future net worth
over the long-term. Treasury waived the fee for the first three
quarters of 2011. The amount of the fee has not yet been
established and could be substantial. As a result of additional
draws and other factors: (a) the liquidation preference of,
and the dividends we owe on, the senior preferred stock would
increase and, therefore, we may need additional draws from
Treasury in order to pay our dividend obligations; and
(b) there is significant uncertainty as to our long-term
financial sustainability.
See NOTE 3: CONSERVATORSHIP AND RELATED
DEVELOPMENTS, NOTE 9: DEBT SECURITIES AND
SUBORDINATED BORROWINGS, and NOTE 13: FREDDIE
MAC STOCKHOLDERS EQUITY (DEFICIT) in our 2010 Annual
Report for more information on the terms of the conservatorship
and the Purchase Agreement.
NOTE 3:
VARIABLE INTEREST ENTITIES
We use securitization trusts in our securities issuance process,
and are required to evaluate the trusts for consolidation. For
VIEs, our policy is to consolidate all entities in which we hold
a controlling financial interest and are therefore deemed to be
the primary beneficiary. The accounting guidance related to the
consolidation of VIEs states that an enterprise will be deemed
to have a controlling financial interest in, and thus be the
primary beneficiary of, a VIE if it has both: (a) the power
to direct the activities of the VIE that most significantly
impact the VIEs economic performance; and (b) the
right to receive benefits from the VIE that could potentially be
significant to the VIE or the obligation to absorb losses of the
VIE that could potentially be significant to the VIE. We perform
ongoing assessments of whether we are the primary beneficiary of
a VIE. See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Consolidation and Equity Method of
Accounting in our 2010 Annual Report for further
information regarding the consolidation of certain VIEs.
Based on our evaluation, we determined that we are the primary
beneficiary of trusts that issue our single-family PCs and
certain Other Guarantee Transactions. Therefore, we consolidate
on our balance sheet the assets and liabilities of these trusts.
In addition to our PC trusts, we are involved with numerous
other entities that meet the definition of a VIE, as discussed
below.
VIEs for
which We are the Primary Beneficiary
Single-family
PC Trusts
Our single-family PC trusts issue pass-through securities that
represent undivided beneficial interests in pools of mortgages
held by these trusts. For our fixed-rate PCs, we guarantee the
timely payment of interest and principal. For our ARM PCs, we
guarantee the timely payment of the weighted average coupon
interest rate for the underlying mortgage loans and the full and
final payment of principal; we do not guarantee the timely
payment of principal on ARM PCs. In exchange for providing this
guarantee, we may receive a management and guarantee fee and
up-front delivery fees. We issue most of our single-family PCs
in transactions in which our customers exchange mortgage loans
for PCs. We refer to these transactions as guarantor swaps.
PCs are designed so that we bear the credit risk inherent in the
loans underlying the PCs through our guarantee of principal and
interest payments on the PCs. The PC holders bear the interest
rate or prepayment risk on the mortgage
loans and the risk that we will not perform on our obligation as
guarantor. For purposes of our consolidation assessments, our
evaluation of power and economic exposure with regard to PC
trusts focuses on credit risk because the credit performance of
the underlying mortgage loans was identified as the activity
that most significantly impacts the economic performance of
these entities. We have the power to impact the activities
related to this risk in our role as guarantor and master
servicer.
Specifically, in our role as master servicer, we establish
requirements for how mortgage loans are serviced and what steps
are to be taken to avoid credit losses (e.g.,
modification, foreclosure). Additionally, in our capacity as
guarantor, we have the ability to purchase defaulted mortgage
loans out of the PC trust to help manage credit losses. See
NOTE 5: INDIVIDUALLY IMPAIRED LOANS AND
NON-PERFORMING LOANS for further information regarding our
purchase of mortgage loans out of PC trusts. These powers allow
us to direct the activities of the VIE (i.e., the PC
trust) that most significantly impact its economic performance.
In addition, we determined that our guarantee to each PC trust
to provide principal and interest payments obligates us to
absorb losses that could potentially be significant to the PC
trusts. Accordingly, we concluded that we are the primary
beneficiary of our single-family PC trusts.
At June 30, 2011 and December 31, 2010, we were the
primary beneficiary of, and therefore consolidated,
single-family PC trusts with assets totaling $1.6 trillion
and $1.7 trillion, respectively, as measured using the UPB
of issued PCs. The assets of each PC trust can be used only to
settle obligations of that trust. In connection with our PC
trusts, we have credit protection in the form of primary
mortgage insurance, pool insurance, recourse to lenders, and
other forms of credit enhancement. We also have credit
protection for certain of our PC trusts that issue PCs backed by
loans or certificates of federal agencies (such as FHA, VA, and
USDA). See NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES Credit Protection and Other Forms of Credit
Enhancement for additional information regarding
third-party credit enhancements related to our PC trusts.
Other
Guarantee Transactions
Other Guarantee Transactions are mortgage-related securities
that we issue to third parties in exchange for non-Freddie Mac
mortgage-related securities. See NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Securitization
Activities through Issuances of Freddie Mac Mortgage-Related
Securities in our 2010 Annual Report for information on
the nature of Other Guarantee Transactions. The degree to which
our involvement with securitization trusts that issue Other
Guarantee Transactions provides us with power to direct the
activities that most significantly impact the economic
performance of these VIEs (e.g., the ability to mitigate
credit losses on the underlying assets of these entities) and
exposure to benefits or losses that could potentially be
significant to the VIEs (e.g., the existence of third
party credit enhancements) varies by transaction. Our
consolidation determination took into consideration the specific
facts and circumstances of our involvement with each of these
entities, including our ability to direct or influence the
performance of the underlying assets and our exposure to
potentially significant variability based upon the design of
each entity and its governing contractual arrangements. As a
result, we have concluded that we are the primary beneficiary of
certain Other Guarantee Transactions with underlying assets
totaling $14.2 billion and $15.8 billion at
June 30, 2011 and December 31, 2010, respectively. For
those Other Guarantee Transactions that we do consolidate, the
investors in these securities have recourse only to the assets
of those VIEs.
Consolidated
VIEs
Table 3.1 represents the carrying amounts and classification of
the assets and liabilities of consolidated VIEs on our
consolidated balance sheets.
Table
3.1 Assets and Liabilities of Consolidated
VIEs
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets Line Item
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Cash and cash equivalents
|
|
$
|
1
|
|
|
$
|
1
|
|
Restricted cash and cash equivalents
|
|
|
1,850
|
|
|
|
7,514
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
13,950
|
|
|
|
29,350
|
|
Mortgage loans held-for-investment by consolidated trusts
|
|
|
1,634,773
|
|
|
|
1,646,172
|
|
Accrued interest receivable
|
|
|
6,704
|
|
|
|
6,895
|
|
Real estate owned, net
|
|
|
83
|
|
|
|
118
|
|
Other assets
|
|
|
3,252
|
|
|
|
6,001
|
|
|
|
|
|
|
|
|
|
|
Total assets of consolidated VIEs
|
|
$
|
1,660,613
|
|
|
$
|
1,696,051
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable
|
|
$
|
6,241
|
|
|
$
|
6,502
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
1,499,036
|
|
|
|
1,528,648
|
|
Other liabilities
|
|
|
3,821
|
|
|
|
3,851
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of consolidated VIEs
|
|
$
|
1,509,098
|
|
|
$
|
1,539,001
|
|
|
|
|
|
|
|
|
|
|
VIEs for
which We are not the Primary Beneficiary
Table 3.2 represents the carrying amounts and
classification of the assets and liabilities recorded on our
consolidated balance sheets related to our variable interests in
non-consolidated VIEs, as well as our maximum exposure to loss
as a result of our involvement with these VIEs. Our involvement
with VIEs for which we are not the primary beneficiary generally
takes one of two forms: (a) purchasing an investment in
these entities; or (b) providing a guarantee to these
entities. Our maximum exposure to loss for those VIEs in which
we have purchased an investment is calculated as the maximum
potential charge that we would recognize in our consolidated
statements of income and comprehensive income if that investment
were to become worthless. This amount does not include
other-than-temporary impairments or other write-downs that we
previously recognized through earnings. Our maximum exposure to
loss for those VIEs for which we have provided a guarantee
represents the contractual amounts that could be lost under the
guarantees if counterparties or borrowers defaulted, without
consideration of possible recoveries under credit enhancement
arrangements. We do not believe the maximum exposure to loss
disclosed in the table below is representative of the actual
loss we are likely to incur, based on our historical loss
experience and after consideration of proceeds from related
collateral liquidation, including possible recoveries under
credit enhancement arrangements.
Table
3.2 Variable Interests in VIEs for which We are not
the Primary Beneficiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
Mortgage-Related Security Trusts
|
|
Unsecuritized
|
|
|
|
|
Asset-Backed
|
|
Freddie Mac
|
|
Non-Freddie Mac
|
|
Multifamily
|
|
|
|
|
Investment
Trusts(1)
|
|
Securities(2)
|
|
Securities(1)
|
|
Loans(3)
|
|
Other(1)(4)
|
|
|
(in millions)
|
|
Assets and Liabilities Recorded on our Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,355
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted cash and cash equivalents
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
35
|
|
|
|
288
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
|
|
|
|
|
85,221
|
|
|
|
129,068
|
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
164
|
|
|
|
16,997
|
|
|
|
18,216
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment, unsecuritized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,759
|
|
|
|
|
|
Held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,463
|
|
|
|
|
|
Accrued interest receivable
|
|
|
|
|
|
|
519
|
|
|
|
462
|
|
|
|
345
|
|
|
|
5
|
|
Derivative assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Other assets
|
|
|
|
|
|
|
358
|
|
|
|
3
|
|
|
|
193
|
|
|
|
411
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, net
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
Other liabilities
|
|
|
|
|
|
|
(524
|
)
|
|
|
(1
|
)
|
|
|
(36
|
)
|
|
|
(832
|
)
|
Maximum Exposure to Loss
|
|
$
|
4,519
|
|
|
$
|
32,568
|
|
|
$
|
163,800
|
|
|
$
|
81,795
|
|
|
$
|
11,344
|
|
Total Assets of Non-Consolidated
VIEs(5)
|
|
$
|
51,779
|
|
|
$
|
36,610
|
|
|
$
|
1,023,005
|
|
|
$
|
131,227
|
|
|
$
|
25,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
Mortgage-Related Security Trusts
|
|
Unsecuritized
|
|
|
|
|
Asset-Backed
|
|
Freddie Mac
|
|
Non-Freddie Mac
|
|
Multifamily
|
|
|
|
|
Investment
Trusts(1)
|
|
Securities(2)
|
|
Securities(1)
|
|
Loans(3)
|
|
Other(1)(4)
|
|
|
(in millions)
|
|
Assets and Liabilities Recorded on our Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,909
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Restricted cash and cash equivalents
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
34
|
|
|
|
464
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value
|
|
|
|
|
|
|
85,689
|
|
|
|
137,568
|
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
44
|
|
|
|
13,437
|
|
|
|
18,914
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment, unsecuritized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,448
|
|
|
|
|
|
Held-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,413
|
|
|
|
|
|
Accrued interest receivable
|
|
|
|
|
|
|
419
|
|
|
|
717
|
|
|
|
372
|
|
|
|
5
|
|
Derivative assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Other assets
|
|
|
|
|
|
|
277
|
|
|
|
6
|
|
|
|
23
|
|
|
|
381
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, net
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
Other liabilities
|
|
|
|
|
|
|
(408
|
)
|
|
|
(3
|
)
|
|
|
(36
|
)
|
|
|
(1,034
|
)
|
Maximum Exposure to Loss
|
|
$
|
9,953
|
|
|
$
|
26,392
|
|
|
$
|
176,533
|
|
|
$
|
85,290
|
|
|
$
|
11,375
|
|
Total Assets of Non-Consolidated
VIEs(5)
|
|
$
|
129,479
|
|
|
$
|
29,368
|
|
|
$
|
1,036,975
|
|
|
$
|
138,330
|
|
|
$
|
25,875
|
|
|
|
(1)
|
For our involvement with non-consolidated asset-backed
investment trusts, non-Freddie Mac security trusts, and certain
other VIEs where we do not provide a guarantee, our maximum
exposure to loss is computed as the carrying amount if the
security is classified as trading or the amortized cost if the
security is classified as available-for-sale for our investments
and related assets recorded on our consolidated balance sheets,
including any unrealized amounts recorded in AOCI for securities
classified as available-for-sale.
|
(2)
|
Freddie Mac securities include our variable interests in
single-family multiclass REMICs and Other Structured Securities,
multifamily PCs, multifamily Other Structured Securities, and
Other Guarantee Transactions that we do not consolidate. For our
variable interests in non-consolidated Freddie Mac security
trusts for which we have provided a guarantee, our maximum
exposure to loss is the outstanding UPB of the underlying
mortgage loans or securities that we have guaranteed, which is
the maximum contractual amount under such guarantees. However,
our investments in single-family REMICs and Other Structured
Securities that are not consolidated do not give rise to any
additional exposure to loss as we already consolidate the
underlying collateral.
|
(3)
|
For unsecuritized multifamily loans, our maximum exposure to
loss is based on the UPB of these loans, as adjusted for loan
level basis adjustments, any associated allowance for loan
losses, accrued interest receivable, and fair value adjustments
on held-for-sale loans.
|
(4)
|
For other non-consolidated VIEs where we have provided a
guarantee, our maximum exposure to loss is the contractual
amount that could be lost under the guarantee if the
counterparty or borrower defaulted, without consideration of
possible recoveries under credit enhancement arrangements.
|
(5)
|
Represents the remaining UPB of assets held by non-consolidated
VIEs using the most current information available, where our
continuing involvement is significant. We do not include the
assets of our non-consolidated trusts related to single-family
REMICs and Other Structured Securities in this amount as we
already consolidate the underlying collateral of these trusts on
our consolidated balance sheets.
|
Asset-Backed
Investment Trusts
We invest in a variety of non-mortgage-related, asset-backed
investment trusts. These investments represent interests in
trusts consisting of a pool of receivables or other financial
assets, typically credit card receivables, auto loans, or
student loans. These trusts act as vehicles to allow originators
to securitize assets. Securities are structured from the
underlying pool of assets to provide for varying degrees of
risk. Primary risks include potential loss from the credit risk
and interest-rate risk of the underlying pool. The originators
of the financial assets or the underwriters of the deal create
the trusts and typically own the residual interest in the trust
assets. See NOTE 7: INVESTMENTS IN SECURITIES
for additional information regarding our asset-backed
investments.
At June 30, 2011 and December 31, 2010, we had
investments in 15 and 23 asset-backed investment trusts in
which we had a variable interest but were not considered the
primary beneficiary, respectively. Our investments in these
asset-backed investment trusts as of June 30, 2011 were
made in 2010 and 2011. At both June 30, 2011 and
December 31, 2010, we were not the primary beneficiary of
any such trusts because our investments are passive in nature
and do not provide us with the power to direct the activities of
the trusts that most significantly impact their economic
performance. As such, our investments in these asset-backed
investment trusts are accounted for as investment securities as
described in NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES in our 2010 Annual Report. Our
investments in these trusts totaled $4.5 billion and
$10.0 billion as of June 30, 2011 and
December 31, 2010, respectively, and are included as cash
and cash equivalents, available-for-sale securities or trading
securities on our consolidated balance sheets. At both
June 30, 2011 and December 31, 2010, we did not
guarantee any obligations of these investment trusts and our
exposure was limited to the amount of our investment.
Mortgage-Related
Security Trusts
Freddie
Mac Securities
Freddie Mac securities related to our variable interests in
non-consolidated VIEs primarily consist of our REMICs and Other
Structured Securities and Other Guarantee Transactions. REMICs
and Other Structured Securities are created by using PCs or
previously issued REMICs and Other Structured Securities as
collateral. Our involvement with the resecuritization trusts
that issue these securities does not provide us with rights to
receive benefits or obligations to absorb losses nor does it
provide any power that would enable us to direct the most
significant activities of these VIEs because the ultimate
underlying assets are PCs for which we have already provided a
guarantee (i.e., all significant rights, obligations and
powers are associated with the underlying PC trusts). As a
result, we have concluded that we are not the primary
beneficiary of these resecuritization trusts.
Other Guarantee Transactions are created by using non-Freddie
Mac mortgage-related securities as collateral. At both
June 30, 2011 and December 31, 2010, our involvement
with certain Other Guarantee Transactions does not provide us
with the power to direct the activities that most significantly
impact the economic performance of these VIEs. As a result, we
hold a variable interest in, but are not the primary beneficiary
of, certain Other Guarantee Transactions.
For non-consolidated REMICs and Other Structured Securities and
Other Guarantee Transactions, our investments are primarily
included in either available-for-sale securities or trading
securities on our consolidated balance sheets. See
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Securitization Activities through Issuances
of Freddie Mac Mortgage-Related Securities in our 2010
Annual Report for additional information on accounting for
purchases of PCs and beneficial interests issued by
resecuritization trusts. Our investments in these trusts are
funded through the issuance of unsecured debt, which is recorded
as other debt on our consolidated balance sheets.
Non-Freddie
Mac Securities
We invest in a variety of mortgage-related securities issued by
third-parties, including non-Freddie Mac agency securities,
CMBS, other private-label securities backed by various
mortgage-related assets, and obligations of states and political
subdivisions. These investments typically represent interests in
trusts that consist of a pool of mortgage-related assets and act
as vehicles to allow originators to securitize those assets.
Securities are structured from the underlying pool of assets to
provide for varying degrees of risk. Primary risks include
potential loss from the credit risk and interest-rate risk of
the underlying pool. The originators of the financial assets or
the underwriters of the deal create the trusts and typically own
the residual interest in the trust assets. See
NOTE 7: INVESTMENTS IN SECURITIES for
additional information regarding our non-Freddie Mac securities.
Our investments in these non-Freddie Mac securities at
June 30, 2011 were made between 1994 and 2011. We are not
generally the primary beneficiary of non-Freddie Mac securities
trusts because our investments are passive in nature and do not
provide us with the power to direct the activities of the trusts
that most significantly impact their economic performance. At
both June 30, 2011 and December 31, 2010, we were not
the primary beneficiary of any non-Freddie Mac securities
trusts. Our investments in non-consolidated non-Freddie Mac
mortgage-related securities are accounted for as investment
securities as described in NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES in our 2010 Annual Report.
At both June 30, 2011 and December 31, 2010, we did
not guarantee any obligations of these
investment trusts and our exposure was limited to the amount of
our investment. Our investments in these trusts are funded
through the issuance of unsecured debt, which is recorded as
other debt on our consolidated balance sheets.
Unsecuritized
Multifamily Loans
We purchase loans made to various multifamily real estate
entities. We primarily purchase such loans for securitization,
and to a lesser extent, investment purposes. These real estate
entities are primarily single-asset entities (typically
partnerships or limited liability companies) established to
acquire, construct, rehabilitate, or refinance residential
properties, and subsequently to operate the properties as
residential rental real estate. The loans we acquire usually
make up 80% or less of the value of the related underlying
property at origination. The remaining 20% of value is typically
funded through equity contributions by the partners or members
of the borrower entity. In certain cases, the 20% not funded
through the loan we acquire also includes subordinate loans or
mezzanine financing from third-party lenders. We held more than
7,000 unsecuritized multifamily loans at both June 30,
2011 and December 31, 2010.
The UPB of our investments in these loans was $81.8 billion
and $85.9 billion as of June 30, 2011 and
December 31, 2010, respectively, and was included in
unsecuritized held-for-investment mortgage loans, at amortized
cost, and held-for-sale mortgage loans at fair value on our
consolidated balance sheets. We are not generally the primary
beneficiary of the multifamily real estate borrowing entities
because the loans we acquire are passive in nature and do not
provide us with the power to direct the activities of these
entities that most significantly impact their economic
performance. However, when a multifamily loan becomes
delinquent, we may become the primary beneficiary of the
borrowing entity depending upon the structure of this entity and
the rights granted to us under the governing legal documents. At
June 30, 2011 and December 31, 2010, the amount of
loans for which we could be considered the primary beneficiary
of the underlying borrowing entity was not material. See
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Mortgage Loans in our 2010 Annual
Report and NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES for more information.
Other
Our involvement with other VIEs includes our investments in
LIHTC partnerships, certain other mortgage-related guarantees,
and certain short-term default and other guarantee commitments
that we account for as derivatives:
|
|
|
|
|
Investments in LIHTC Partnerships: We hold
equity investments in various LIHTC partnerships that invest in
lower-tier or project partnerships that are single asset
entities. In February 2010, the Acting Director of FHFA, after
consultation with Treasury, informed us that we may not sell or
transfer our investments in LIHTC assets and that he sees no
other disposition options. As a result, we wrote down the
carrying value of our LIHTC investments to zero as of
December 31, 2009, as we will not be able to realize any
value from these investments either through reductions to our
taxable income and related tax liabilities or through a sale to
a third party.
|
|
|
|
Certain other mortgage-related guarantees: We
have other guarantee commitments outstanding on multifamily
housing revenue bonds that were issued by third parties. As part
of certain other mortgage-related guarantees, we also provide
commitments to advance funds, commonly referred to as
liquidity guarantees, which require us to advance
funds to enable third parties to purchase variable-rate
multifamily housing revenue bonds, or certificates backed by
such bonds, that cannot be remarketed within five business days
after they are tendered by their holders.
|
|
|
|
Certain short-term default and other guarantee commitments
accounted for as derivatives: Our involvement in
these VIEs includes our guarantee of the performance of
interest-rate swap contracts in certain circumstances and credit
derivatives we issued to guarantee the payments on multifamily
loans or securities.
|
At June 30, 2011 and December 31, 2010, we were the
primary beneficiary of two and three, respectively,
credit-enhanced multifamily housing revenue bonds that were not
deemed to be material. We were not the primary beneficiary of
the remainder of other VIEs because our involvement in these
VIEs is passive in nature and does not provide us with the power
to direct the activities of the VIEs that most significantly
impact their economic performance. See Table 3.2 for the
carrying amounts and classification of the assets and
liabilities recorded on our consolidated balance sheets related
to our variable interests in these non-consolidated VIEs, as
well as our maximum exposure to loss as a result of our
involvement with these VIEs. Also see NOTE 9:
FINANCIAL GUARANTEES for additional information about our
involvement with the VIEs related to mortgage-related guarantees
and short-term default and other guarantee commitments discussed
above.
NOTE 4:
MORTGAGE LOANS AND LOAN LOSS RESERVES
We own both single-family mortgage loans, which are secured by
one to four family residential properties, and multifamily
mortgage loans, which are secured by properties with five or
more residential rental units. For a discussion of our
significant accounting policies regarding our mortgage loans and
loan loss reserves, see NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES in our 2010 Annual Report.
Table 4.1 summarizes the types of loans on our consolidated
balance sheets as of June 30, 2011 and December 31,
2010.
Table 4.1
Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Held by
|
|
|
|
|
|
|
|
|
Held by
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
Unsecuritized
|
|
|
Trusts
|
|
|
Total
|
|
|
Unsecuritized
|
|
|
Trusts
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Single-family:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing
|
|
$
|
137,684
|
|
|
$
|
1,488,199
|
|
|
$
|
1,625,883
|
|
|
$
|
126,561
|
|
|
$
|
1,493,206
|
|
|
$
|
1,619,767
|
|
Interest-only
|
|
|
3,512
|
|
|
|
16,986
|
|
|
|
20,498
|
|
|
|
4,161
|
|
|
|
19,616
|
|
|
|
23,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-rate
|
|
|
141,196
|
|
|
|
1,505,185
|
|
|
|
1,646,381
|
|
|
|
130,722
|
|
|
|
1,512,822
|
|
|
|
1,643,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable-rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing
|
|
|
3,844
|
|
|
|
62,945
|
|
|
|
66,789
|
|
|
|
3,625
|
|
|
|
59,851
|
|
|
|
63,476
|
|
Interest-only
|
|
|
11,789
|
|
|
|
49,925
|
|
|
|
61,714
|
|
|
|
13,018
|
|
|
|
58,792
|
|
|
|
71,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustable-rate
|
|
|
15,633
|
|
|
|
112,870
|
|
|
|
128,503
|
|
|
|
16,643
|
|
|
|
118,643
|
|
|
|
135,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Guarantee Transactions backed by non-Freddie Mac securities
|
|
|
|
|
|
|
14,090
|
|
|
|
14,090
|
|
|
|
|
|
|
|
15,580
|
|
|
|
15,580
|
|
FHA/VA and other governmental
|
|
|
1,319
|
|
|
|
3,476
|
|
|
|
4,795
|
|
|
|
1,498
|
|
|
|
3,348
|
|
|
|
4,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
158,148
|
|
|
|
1,635,621
|
|
|
|
1,793,769
|
|
|
|
148,863
|
|
|
|
1,650,393
|
|
|
|
1,799,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
68,155
|
|
|
|
|
|
|
|
68,155
|
|
|
|
72,679
|
|
|
|
|
|
|
|
72,679
|
|
Adjustable-rate
|
|
|
13,644
|
|
|
|
|
|
|
|
13,644
|
|
|
|
13,201
|
|
|
|
|
|
|
|
13,201
|
|
Other governmental
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
|
81,802
|
|
|
|
|
|
|
|
81,802
|
|
|
|
85,883
|
|
|
|
|
|
|
|
85,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of mortgage loans
|
|
|
239,950
|
|
|
|
1,635,621
|
|
|
|
1,875,571
|
|
|
|
234,746
|
|
|
|
1,650,393
|
|
|
|
1,885,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred fees, unamortized premiums, discounts and other cost
basis adjustments
|
|
|
(7,045
|
)
|
|
|
8,100
|
|
|
|
1,055
|
|
|
|
(7,665
|
)
|
|
|
7,423
|
|
|
|
(242
|
)
|
Lower of cost or fair value adjustments on loans
held-for-sale(2)
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
(311
|
)
|
Allowance for loan losses on mortgage loans
held-for-investment
|
|
|
(29,919
|
)
|
|
|
(8,948
|
)
|
|
|
(38,867
|
)
|
|
|
(28,047
|
)
|
|
|
(11,644
|
)
|
|
|
(39,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
203,031
|
|
|
$
|
1,634,773
|
|
|
$
|
1,837,804
|
|
|
$
|
198,723
|
|
|
$
|
1,646,172
|
|
|
$
|
1,844,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
198,568
|
|
|
$
|
1,634,773
|
|
|
$
|
1,833,341
|
|
|
$
|
192,310
|
|
|
$
|
1,646,172
|
|
|
$
|
1,838,482
|
|
Held-for-sale
|
|
|
4,463
|
|
|
|
|
|
|
|
4,463
|
|
|
|
6,413
|
|
|
|
|
|
|
|
6,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans, net
|
|
$
|
203,031
|
|
|
$
|
1,634,773
|
|
|
$
|
1,837,804
|
|
|
$
|
198,723
|
|
|
$
|
1,646,172
|
|
|
$
|
1,844,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB and excluding mortgage loans traded, but not yet
settled.
|
(2)
|
Includes fair value adjustments associated with mortgage loans
for which we have made a fair value election.
|
We purchased UPB of $62.2 billion of single-family mortgage
loans and $0.9 billion of multifamily loans that were
classified as held-for-investment at purchase in the three
months ended June 30, 2011. We purchased UPB of
$158.0 billion of single-family mortgage loans and
$1.7 billion of multifamily loans that were classified as
held-for-investment at purchase in the six months ended
June 30, 2011. Our sales of multifamily mortgage loans
occur primarily through the issuance of multifamily Other
Guarantee Transactions. See NOTE 9: FINANCIAL
GUARANTEES for more information. We did not sell any
held-for-investment loans during the three and six months ended
June 30, 2011. We did not have significant
reclassifications of mortgage loans into held-for-sale in the
three and six months ended June 30, 2011.
Credit
Quality of Mortgage Loans
We evaluate the credit quality of single-family loans using
different criteria than the criteria we use to evaluate
multifamily loans. The current LTV ratio is one key factor we
consider when estimating our loan loss reserves for
single-family loans. As estimated current LTV ratios increase,
the borrowers equity in the home decreases, which
negatively affects the borrowers ability to refinance or
to sell the property for an amount at or above the balance of
the outstanding mortgage loan. If a borrower has an estimated
current LTV ratio greater than 100%, the borrower is
underwater and is
more likely to default than other borrowers. A second lien
mortgage also reduces the borrowers equity in the home,
and has a similar negative effect on the borrowers ability
to refinance or sell the property for an amount at or above the
combined balances of the first and second mortgages. As of
June 30, 2011 and December 31, 2010, approximately 15%
and 14%, respectively, of loans in our single-family credit
guarantee portfolio had second lien financing at the time of
origination of the first mortgage, and we estimate that these
loans comprised 18% and 19%, respectively, of our seriously
delinquent loans, based on UPB. However, borrowers are free to
obtain second lien financing after origination, and we are not
entitled to receive notification when a borrower does so.
Therefore, it is likely that additional borrowers have
post-origination second lien mortgages.
Table 4.2 presents information on the estimated current LTV
ratios of single-family loans on our consolidated balance
sheets, all of which are held-for-investment. Our current LTV
ratio estimates are based on available data through the end of
each respective period.
Table
4.2 Recorded Investment of Held-for-Investment
Mortgage Loans, by LTV Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2011
|
|
|
As of December 31, 2010
|
|
|
|
Estimated Current LTV
Ratio(1)
|
|
|
|
|
|
Estimated Current LTV
Ratio(1)
|
|
|
|
|
|
|
<= 80
|
|
|
81 100
|
|
|
>
100(2)
|
|
|
Total
|
|
|
<= 80
|
|
|
81 100
|
|
|
>
100(2)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Single-family loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(3)
|
|
$
|
662,541
|
|
|
$
|
406,083
|
|
|
$
|
252,386
|
|
|
$
|
1,321,010
|
|
|
$
|
704,882
|
|
|
$
|
393,853
|
|
|
$
|
216,388
|
|
|
$
|
1,315,123
|
|
15-year
amortizing fixed-rate
|
|
|
235,387
|
|
|
|
19,103
|
|
|
|
3,010
|
|
|
|
257,500
|
|
|
|
233,422
|
|
|
|
16,432
|
|
|
|
2,523
|
|
|
|
252,377
|
|
Adjustable-rate(3)(4)
|
|
|
37,507
|
|
|
|
13,614
|
|
|
|
9,792
|
|
|
|
60,913
|
|
|
|
34,252
|
|
|
|
13,273
|
|
|
|
9,149
|
|
|
|
56,674
|
|
Alt-A, interest-only, and option
ARM(5)
|
|
|
35,719
|
|
|
|
34,957
|
|
|
|
84,714
|
|
|
|
155,390
|
|
|
|
45,068
|
|
|
|
44,540
|
|
|
|
85,213
|
|
|
|
174,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family loans
|
|
$
|
971,154
|
|
|
$
|
473,757
|
|
|
$
|
349,902
|
|
|
$
|
1,794,813
|
|
|
$
|
1,017,624
|
|
|
$
|
468,098
|
|
|
$
|
313,273
|
|
|
|
1,798,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment of held-for-investment loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,872,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,878,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The current LTV ratios are management estimates, which are
updated on a monthly basis. Current market values are estimated
by adjusting the value of the property at origination based on
changes in the market value of homes in the same geographical
area since that time. The value of a property at origination is
based on the sales price for purchase mortgages and third-party
appraisal for refinance mortgages. Estimates of the current LTV
ratio include the credit-enhanced portion of the loan and
exclude any secondary financing by third parties. The existence
of a second lien reduces the borrowers equity in the
property and, therefore, can increase the risk of default.
|
(2)
|
The serious delinquency rate for the total of single-family
mortgage loans with estimated current LTV ratios in excess of
100% was 12.6% and 14.9% as of June 30, 2011 and
December 31, 2010, respectively.
|
(3)
|
The majority of our loan modifications result in new terms that
include fixed interest rates after modification. However, our
HAMP loan modifications result in an initial interest rate that
subsequently adjusts to a new rate that is fixed for the
remaining life of the loan. We have classified these loans as
fixed-rate for presentation even though they have a one-time
rate adjustment provision, because the change in rate is
determined at the time of the modification rather than at a
future date.
|
(4)
|
Includes balloon/reset mortgage loans and excludes option ARMs.
|
(5)
|
We discontinued purchases of
Alt-A loans
on March 1, 2009 (or later, as customers contracts
permitted), and interest-only loans effective September 1,
2010, and have not purchased option ARM loans since 2007.
Modified loans within the
Alt-A
category remain as such, even though the borrower may have
provided full documentation of assets and income to complete the
modification. Modified loans within the option ARM category
remain as such even though the modified loan no longer provides
for optional payment provisions.
|
For information about the payment status of single-family and
multifamily mortgage loans, including the amount of such loans
we deem impaired, see NOTE 5: INDIVIDUALLY IMPAIRED
AND NON-PERFORMING LOANS. For a discussion of certain
indicators of credit quality for the multifamily loans on our
consolidated balance sheets, see NOTE 17:
CONCENTRATION OF CREDIT AND OTHER RISKS Multifamily
Mortgage Portfolio.
Allowance
for Loan Losses and Reserve for Guarantee Losses, or Loan Loss
Reserve
We maintain an allowance for loan losses on mortgage loans that
we classify as held-for-investment on our consolidated balance
sheets. Our reserve for guarantee losses is associated with
Freddie Mac mortgage-related securities backed by multifamily
loans, certain single-family Other Guarantee Transactions, and
other guarantee commitments, for which we have incremental
credit risk.
During the second quarter of 2010, we identified a backlog
related to the processing of loan workouts reported to us by our
servicers, principally loan modifications and short sales, which
impacted our allowance for loan losses. For additional
information, see NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis of
Presentation Out-of-Period Accounting
Adjustment in our 2010 Annual Report.
Table 4.3 summarizes loan loss reserve activity.
Table
4.3 Detail of Loan Loss Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Held By
|
|
|
Reserve for
|
|
|
|
|
|
|
|
|
Held By
|
|
|
Reserve for
|
|
|
|
|
|
|
Unsecuritized
|
|
|
Consolidated Trusts
|
|
|
Guarantee
Losses(1)
|
|
|
Total
|
|
|
Unsecuritized
|
|
|
Consolidated Trusts
|
|
|
Guarantee
Losses(1)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
28,898
|
|
|
$
|
9,517
|
|
|
$
|
143
|
|
|
$
|
38,558
|
|
|
$
|
14,091
|
|
|
$
|
21,758
|
|
|
$
|
120
|
|
|
$
|
35,969
|
|
Provision for credit losses
|
|
|
318
|
|
|
|
2,203
|
|
|
|
21
|
|
|
|
2,542
|
|
|
|
2,364
|
|
|
|
2,533
|
|
|
|
13
|
|
|
|
4,910
|
|
Charge-offs(3)
|
|
|
(3,570
|
)
|
|
|
(195
|
)
|
|
|
(3
|
)
|
|
|
(3,768
|
)
|
|
|
(3,969
|
)
|
|
|
(548
|
)
|
|
|
(3
|
)
|
|
|
(4,520
|
)
|
Recoveries(3)
|
|
|
773
|
|
|
|
27
|
|
|
|
|
|
|
|
800
|
|
|
|
700
|
|
|
|
72
|
|
|
|
|
|
|
|
772
|
|
Transfers,
net(4)(5)
|
|
|
2,864
|
|
|
|
(2,604
|
)
|
|
|
(2
|
)
|
|
|
258
|
|
|
|
9,601
|
|
|
|
(9,339
|
)
|
|
|
(9
|
)
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
29,283
|
|
|
$
|
8,948
|
|
|
$
|
159
|
|
|
$
|
38,390
|
|
|
$
|
22,787
|
|
|
$
|
14,476
|
|
|
$
|
121
|
|
|
$
|
37,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
673
|
|
|
$
|
|
|
|
$
|
74
|
|
|
$
|
747
|
|
|
$
|
781
|
|
|
$
|
|
|
|
$
|
61
|
|
|
$
|
842
|
|
Provision (benefit) for credit losses
|
|
|
(8
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(13
|
)
|
|
|
125
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
119
|
|
Charge-offs(3)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Transfers,
net(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
636
|
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
705
|
|
|
$
|
879
|
|
|
$
|
|
|
|
$
|
56
|
|
|
$
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
29,571
|
|
|
$
|
9,517
|
|
|
$
|
217
|
|
|
$
|
39,305
|
|
|
$
|
14,872
|
|
|
$
|
21,758
|
|
|
$
|
181
|
|
|
$
|
36,811
|
|
Provision for credit losses
|
|
|
310
|
|
|
|
2,203
|
|
|
|
16
|
|
|
|
2,529
|
|
|
|
2,489
|
|
|
|
2,533
|
|
|
|
7
|
|
|
|
5,029
|
|
Charge-offs(3)
|
|
|
(3,599
|
)
|
|
|
(195
|
)
|
|
|
(3
|
)
|
|
|
(3,797
|
)
|
|
|
(3,996
|
)
|
|
|
(548
|
)
|
|
|
(3
|
)
|
|
|
(4,547
|
)
|
Recoveries(3)
|
|
|
773
|
|
|
|
27
|
|
|
|
|
|
|
|
800
|
|
|
|
700
|
|
|
|
72
|
|
|
|
|
|
|
|
772
|
|
Transfers,
net(4)(5)
|
|
|
2,864
|
|
|
|
(2,604
|
)
|
|
|
(2
|
)
|
|
|
258
|
|
|
|
9,601
|
|
|
|
(9,339
|
)
|
|
|
(8
|
)
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
29,919
|
|
|
$
|
8,948
|
|
|
$
|
228
|
|
|
$
|
39,095
|
|
|
$
|
23,666
|
|
|
$
|
14,476
|
|
|
$
|
177
|
|
|
$
|
38,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Held By
|
|
|
Reserve for
|
|
|
|
|
|
|
|
|
Held By
|
|
|
Reserve for
|
|
|
|
|
|
|
Unsecuritized
|
|
|
Consolidated Trusts
|
|
|
Guarantee
Losses(1)
|
|
|
Total
|
|
|
Unsecuritized
|
|
|
Consolidated Trusts
|
|
|
Guarantee
Losses(1)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
27,317
|
|
|
$
|
11,644
|
|
|
$
|
137
|
|
|
$
|
39,098
|
|
|
$
|
693
|
|
|
$
|
|
|
|
$
|
32,333
|
|
|
$
|
33,026
|
|
Adjustments to beginning
balance(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,006
|
|
|
|
(32,192
|
)
|
|
|
(186
|
)
|
Provision for credit losses
|
|
|
725
|
|
|
|
3,834
|
|
|
|
32
|
|
|
|
4,591
|
|
|
|
4,522
|
|
|
|
5,745
|
|
|
|
10
|
|
|
|
10,277
|
|
Charge-offs(3)
|
|
|
(6,874
|
)
|
|
|
(437
|
)
|
|
|
(4
|
)
|
|
|
(7,315
|
)
|
|
|
(5,242
|
)
|
|
|
(2,523
|
)
|
|
|
(5
|
)
|
|
|
(7,770
|
)
|
Recoveries(3)
|
|
|
1,437
|
|
|
|
47
|
|
|
|
|
|
|
|
1,484
|
|
|
|
966
|
|
|
|
422
|
|
|
|
|
|
|
|
1,388
|
|
Transfers,
net(4)(5)
|
|
|
6,678
|
|
|
|
(6,140
|
)
|
|
|
(6
|
)
|
|
|
532
|
|
|
|
21,848
|
|
|
|
(21,174
|
)
|
|
|
(25
|
)
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
29,283
|
|
|
$
|
8,948
|
|
|
$
|
159
|
|
|
$
|
38,390
|
|
|
$
|
22,787
|
|
|
$
|
14,476
|
|
|
$
|
121
|
|
|
$
|
37,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
730
|
|
|
$
|
|
|
|
$
|
98
|
|
|
$
|
828
|
|
|
$
|
748
|
|
|
$
|
|
|
|
$
|
83
|
|
|
$
|
831
|
|
Provision (benefit) for credit losses
|
|
|
(53
|
)
|
|
|
|
|
|
|
(20
|
)
|
|
|
(73
|
)
|
|
|
176
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
148
|
|
Charge-offs(3)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
Transfers,
net(5)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
636
|
|
|
$
|
|
|
|
$
|
69
|
|
|
$
|
705
|
|
|
$
|
879
|
|
|
$
|
|
|
|
$
|
56
|
|
|
$
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
28,047
|
|
|
$
|
11,644
|
|
|
$
|
235
|
|
|
$
|
39,926
|
|
|
$
|
1,441
|
|
|
$
|
|
|
|
$
|
32,416
|
|
|
$
|
33,857
|
|
Adjustments to beginning
balance(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,006
|
|
|
|
(32,192
|
)
|
|
|
(186
|
)
|
Provision for credit losses
|
|
|
672
|
|
|
|
3,834
|
|
|
|
12
|
|
|
|
4,518
|
|
|
|
4,698
|
|
|
|
5,745
|
|
|
|
(18
|
)
|
|
|
10,425
|
|
Charge-offs(3)
|
|
|
(6,915
|
)
|
|
|
(437
|
)
|
|
|
(4
|
)
|
|
|
(7,356
|
)
|
|
|
(5,287
|
)
|
|
|
(2,523
|
)
|
|
|
(5
|
)
|
|
|
(7,815
|
)
|
Recoveries(3)
|
|
|
1,437
|
|
|
|
47
|
|
|
|
|
|
|
|
1,484
|
|
|
|
966
|
|
|
|
422
|
|
|
|
|
|
|
|
1,388
|
|
Transfers,
net(4)(5)
|
|
|
6,678
|
|
|
|
(6,140
|
)
|
|
|
(15
|
)
|
|
|
523
|
|
|
|
21,848
|
|
|
|
(21,174
|
)
|
|
|
(24
|
)
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
29,919
|
|
|
$
|
8,948
|
|
|
$
|
228
|
|
|
$
|
39,095
|
|
|
$
|
23,666
|
|
|
$
|
14,476
|
|
|
$
|
177
|
|
|
$
|
38,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan loss reserves as a percentage of the total mortgage
portfolio, excluding non-Freddie Mac securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.91
|
%
|
|
|
(1)
|
All of these loans are collectively evaluated for impairments.
Beginning January 1, 2010, our reserve for guarantee losses
is included in other liabilities.
|
(2)
|
Adjustments relate to the adoption of the accounting guidance
for transfers of financial assets and consolidation of VIEs. See
NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES in our
2010 Annual Report for further information.
|
(3)
|
Charge-offs represent the carrying amount of a loan that has
been discharged to remove the loan from our consolidated balance
sheet due to either foreclosure transfers or short sales.
Charge-offs exclude $103 million and $144 million for
the three months ended June 30, 2011 and 2010,
respectively, related to certain single-family loans purchased
under financial guarantees and recorded as losses on loans
purchased within other expenses on our consolidated statements
of income and comprehensive income. Charge-offs exclude
$209 million and $261 million for the six months ended
June 30, 2011 and 2010, respectively, related to certain
single-family loans purchased under financial guarantees and
recorded as losses on loans purchased within other expenses on
our consolidated statements of income and comprehensive income.
Recoveries of charge-offs primarily result from foreclosure
transfers and short sales on loans where a share of default risk
has been assumed by mortgage insurers, servicers or other third
parties through credit enhancements.
|
(4)
|
In February 2010, we announced that we would purchase
substantially all single-family mortgage loans that are
120 days or more delinquent from our PC trusts. We
purchased $10.6 billion and $40.2 billion in UPB of
loans from PC trusts during the three months ended June 30,
2011 and 2010, respectively. We purchased $25.2 billion and
$96.8 billion in UPB of loans from PC trusts during the six
months ended June 30, 2011 and 2010, respectively. As a
result of these purchases, related amounts of our loan loss
reserves were transferred from the allowance for loan
losses held by consolidated trusts and the reserve
for guarantee losses into the allowance for loan
losses unsecuritized.
|
(5)
|
Consist primarily of: (a) approximately $2.6 billion
and $9.3 billion during the three months ended
June 30, 2011 and 2010, respectively, and $6.1 billion
and $21.4 billion during the six months ended June 30,
2011 and 2010, respectively, of reclassified single-family
reserves related to our purchases during the periods of loans
previously held by consolidated trusts (as discussed in
endnote (4) above); (b) amounts related to agreements
with seller/servicers where the transfer represents recoveries
received under these agreements to compensate us for previously
incurred and recognized losses; (c) the transfer of a
proportional amount of the recognized reserves for guarantee
losses associated with loans purchased from non-consolidated
Freddie Mac mortgage-related securities and other guarantee
commitments; and (d) net amounts attributable to
recapitalization of past due interest on modified mortgage loans.
|
Table 4.4 presents our allowance for loan losses and our
recorded investment in mortgage loans, held-for-investment, by
impairment evaluation methodology.
Table
4.4 Net Investment in Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Single-family
|
|
|
Multifamily
|
|
|
Total
|
|
|
Single-family
|
|
|
Multifamily
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Recorded investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated
|
|
$
|
1,749,021
|
|
|
$
|
74,535
|
|
|
$
|
1,823,556
|
|
|
$
|
1,762,490
|
|
|
$
|
76,541
|
|
|
$
|
1,839,031
|
|
Individually evaluated
|
|
|
45,792
|
|
|
|
2,860
|
|
|
|
48,652
|
|
|
|
36,505
|
|
|
|
2,637
|
|
|
|
39,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recorded investment
|
|
|
1,794,813
|
|
|
|
77,395
|
|
|
|
1,872,208
|
|
|
|
1,798,995
|
|
|
|
79,178
|
|
|
|
1,878,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated
|
|
|
(26,979
|
)
|
|
|
(330
|
)
|
|
|
(27,309
|
)
|
|
|
(30,477
|
)
|
|
|
(382
|
)
|
|
|
(30,859
|
)
|
Individually evaluated
|
|
|
(11,252
|
)
|
|
|
(306
|
)
|
|
|
(11,558
|
)
|
|
|
(8,484
|
)
|
|
|
(348
|
)
|
|
|
(8,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending balance of the allowance
|
|
|
(38,231
|
)
|
|
|
(636
|
)
|
|
|
(38,867
|
)
|
|
|
(38,961
|
)
|
|
|
(730
|
)
|
|
|
(39,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment in mortgage loans
|
|
$
|
1,756,582
|
|
|
$
|
76,759
|
|
|
$
|
1,833,341
|
|
|
$
|
1,760,034
|
|
|
$
|
78,448
|
|
|
$
|
1,838,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A significant number of unsecuritized single-family mortgage
loans on our consolidated balance sheets are individually
evaluated for impairment and all single-family mortgage loans
held by our consolidated trusts are collectively evaluated for
impairment. The ending balance of the allowance for loan losses
associated with our held-for-investment unsecuritized mortgage
loans represented approximately 13.1% and 12.7% of the recorded
investment in such loans at June 30, 2011 and
December 31, 2010, respectively. The ending balance of the
allowance for loan losses associated with mortgage loans held by
our consolidated trusts represented approximately 0.5% and 0.7%
of the recorded investment in such loans as of June 30,
2011 and December 31, 2010, respectively.
Credit
Protection and Other Forms of Credit Enhancement
In connection with many of our mortgage loans
held-for-investment and other mortgage-related guarantees, we
have credit protection in the form of primary mortgage
insurance, pool insurance, recourse to lenders, and other forms
of credit enhancements.
Table 4.5 presents the UPB of loans on our consolidated balance
sheets or underlying our financial guarantees with credit
protection and the maximum amounts of potential loss recovery by
type of credit protection.
Table
4.5 Recourse and Other Forms of Credit
Protection(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB at
|
|
|
Maximum
Coverage(2)
at
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary mortgage insurance
|
|
$
|
209,758
|
|
|
$
|
217,133
|
|
|
$
|
51,209
|
|
|
$
|
52,899
|
|
Lender recourse and indemnifications
|
|
|
9,280
|
|
|
|
10,064
|
|
|
|
8,885
|
|
|
|
9,566
|
|
Pool insurance
|
|
|
33,592
|
|
|
|
37,868
|
|
|
|
3,008
|
|
|
|
3,299
|
|
HFA
indemnification(3)
|
|
|
9,057
|
|
|
|
9,322
|
|
|
|
3,170
|
|
|
|
3,263
|
|
Subordination(4)
|
|
|
3,677
|
|
|
|
3,889
|
|
|
|
724
|
|
|
|
825
|
|
Other credit
enhancements(4)
|
|
|
131
|
|
|
|
223
|
|
|
|
111
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
265,495
|
|
|
$
|
278,499
|
|
|
$
|
67,107
|
|
|
$
|
69,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HFA
indemnification(3)
|
|
$
|
1,468
|
|
|
$
|
1,551
|
|
|
$
|
514
|
|
|
$
|
543
|
|
Subordination(4)
|
|
|
18,762
|
|
|
|
12,252
|
|
|
|
2,537
|
|
|
|
1,414
|
|
Other credit enhancements
|
|
|
8,795
|
|
|
|
9,004
|
|
|
|
2,704
|
|
|
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,025
|
|
|
$
|
22,807
|
|
|
$
|
5,755
|
|
|
$
|
4,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes the credit protection associated with unsecuritized
mortgage loans, loans held by our consolidated trusts as well as
our non-consolidated mortgage guarantees and excludes FHA/VA and
other governmental loans. Except for subordination coverage,
these amounts exclude credit protection associated with
$18.1 billion and $19.8 billion in UPB of
single-family loans underlying Other Guarantee Transactions as
of June 30, 2011 and December 31, 2010, respectively,
for which the information was not available.
|
(2)
|
Except for subordination, this represents the remaining amount
of loss recovery that is available subject to terms of
counterparty agreements.
|
(3)
|
Represents the amount of potential reimbursement of losses on
securities we have guaranteed that are backed by state and local
HFA bonds, under which Treasury bears initial losses on these
securities up to 35% of those issued by Freddie Mac and Fannie
Mae under the HFA initiative on a combined basis. Treasury will
also bear losses of unpaid interest.
|
(4)
|
Represents Freddie Mac issued mortgage-related securities with
subordination protection, excluding those backed by HFA bonds.
Excludes mortgage-related securities where subordination
coverage was exhausted or maximum coverage amounts were limited
to the remaining UPB at that date. Prior period amounts have
been revised to conform to current period presentation.
|
Primary mortgage insurance is the most prevalent type of credit
enhancement protecting our single-family credit guarantee
portfolio, and is typically provided on a loan-level basis. Pool
insurance contracts generally provide insurance
on a group, or pool, of mortgage loans up to a stated aggregate
loss limit. We did not buy pool insurance during the first half
of 2011. In recent periods, we also reached the maximum limit of
recovery on certain of these contracts.
We also have credit protection for certain of the mortgage loans
on our consolidated balance sheets that are covered by insurance
or partial guarantees issued by federal agencies (such as FHA,
VA, and USDA). The total UPB of these loans was
$4.8 billion as of both June 30, 2011 and
December 31, 2010.
NOTE 5:
INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS
Individually
Impaired Loans
Individually impaired single-family loans include performing and
non-performing TDRs, as well as loans acquired under our
financial guarantees with deteriorated credit quality.
Individually impaired multifamily loans include TDRs, loans
three monthly payments or more past due, and loans that are
impaired based on management judgment. For a discussion of our
significant accounting policies regarding impaired and
non-performing loans, which are applied consistently for
multifamily loans and single-family loan classes, see
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report.
Total loan loss reserves consist of a specific valuation
allowance related to individually impaired mortgage loans, and a
general reserve for other probable incurred losses. Our recorded
investment in individually impaired mortgage loans and the
related specific valuation allowance are summarized in
Table 5.1 by product class (for single-family loans).
Table
5.1 Individually Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
|
Balance at
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
|
|
Recorded
|
|
|
Associated
|
|
|
Net
|
|
|
Recorded
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
|
UPB
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Recognized
|
|
|
Investment
|
|
|
Recognized
|
|
|
|
(in millions)
|
|
|
Single-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance
recorded(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
7,710
|
|
|
$
|
3,414
|
|
|
$
|
|
|
|
$
|
3,414
|
|
|
$
|
3,449
|
|
|
$
|
85
|
|
|
$
|
3,503
|
|
|
$
|
177
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
104
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
43
|
|
|
|
2
|
|
|
|
45
|
|
|
|
4
|
|
Adjustable
rate(3)
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
2,218
|
|
|
|
970
|
|
|
|
|
|
|
|
970
|
|
|
|
986
|
|
|
|
19
|
|
|
|
1,007
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no specific allowance recorded
|
|
$
|
10,047
|
|
|
$
|
4,433
|
|
|
$
|
|
|
|
$
|
4,433
|
|
|
$
|
4,485
|
|
|
$
|
106
|
|
|
$
|
4,562
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
33,447
|
|
|
$
|
32,382
|
|
|
$
|
(8,446
|
)
|
|
$
|
23,936
|
|
|
$
|
31,404
|
|
|
$
|
141
|
|
|
$
|
29,591
|
|
|
$
|
317
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
196
|
|
|
|
168
|
|
|
|
(13
|
)
|
|
$
|
155
|
|
|
|
156
|
|
|
|
2
|
|
|
|
155
|
|
|
|
5
|
|
Adjustable
rate(3)
|
|
|
133
|
|
|
|
119
|
|
|
|
(18
|
)
|
|
$
|
101
|
|
|
|
105
|
|
|
|
1
|
|
|
|
102
|
|
|
|
2
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
8,983
|
|
|
|
8,690
|
|
|
|
(2,775
|
)
|
|
$
|
5,915
|
|
|
|
8,279
|
|
|
|
21
|
|
|
|
7,777
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with specific allowance recorded
|
|
$
|
42,759
|
|
|
$
|
41,359
|
|
|
$
|
(11,252
|
)
|
|
$
|
30,107
|
|
|
$
|
39,944
|
|
|
$
|
165
|
|
|
$
|
37,625
|
|
|
$
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
41,157
|
|
|
$
|
35,796
|
|
|
$
|
(8,446
|
)
|
|
$
|
27,350
|
|
|
$
|
34,853
|
|
|
$
|
226
|
|
|
$
|
33,094
|
|
|
$
|
494
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
300
|
|
|
|
210
|
|
|
|
(13
|
)
|
|
|
197
|
|
|
|
199
|
|
|
|
4
|
|
|
|
200
|
|
|
|
9
|
|
Adjustable
rate(3)
|
|
|
148
|
|
|
|
126
|
|
|
|
(18
|
)
|
|
|
108
|
|
|
|
112
|
|
|
|
1
|
|
|
|
109
|
|
|
|
2
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
11,201
|
|
|
|
9,660
|
|
|
|
(2,775
|
)
|
|
|
6,885
|
|
|
|
9,265
|
|
|
|
40
|
|
|
|
8,784
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
52,806
|
|
|
|
45,792
|
|
|
|
(11,252
|
)
|
|
|
34,540
|
|
|
|
44,429
|
|
|
|
271
|
|
|
|
42,187
|
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
|
2,889
|
|
|
|
2,860
|
|
|
|
(306
|
)
|
|
|
2,554
|
|
|
|
2,864
|
|
|
|
38
|
|
|
|
3,013
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
$
|
55,695
|
|
|
$
|
48,652
|
|
|
$
|
(11,558
|
)
|
|
$
|
37,094
|
|
|
$
|
47,293
|
|
|
$
|
309
|
|
|
$
|
45,200
|
|
|
$
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
|
Recorded
|
|
|
Associated
|
|
|
Net
|
|
|
|
UPB
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
|
(in millions)
|
|
|
Single-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no specific allowance
recorded(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
8,462
|
|
|
$
|
3,721
|
|
|
$
|
|
|
|
$
|
3,721
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
119
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Adjustable
rate(3)
|
|
|
20
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
2,525
|
|
|
|
1,098
|
|
|
|
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with no specific allowance recorded
|
|
$
|
11,126
|
|
|
$
|
4,878
|
|
|
$
|
|
|
|
$
|
4,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
25,504
|
|
|
$
|
24,502
|
|
|
$
|
(6,283
|
)
|
|
$
|
18,219
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
229
|
|
|
|
198
|
|
|
|
(17
|
)
|
|
|
181
|
|
Adjustable
rate(3)
|
|
|
168
|
|
|
|
153
|
|
|
|
(23
|
)
|
|
|
130
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
7,035
|
|
|
|
6,774
|
|
|
|
(2,161
|
)
|
|
|
4,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total with specific allowance recorded
|
|
$
|
32,936
|
|
|
$
|
31,627
|
|
|
$
|
(8,484
|
)
|
|
$
|
23,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
33,966
|
|
|
$
|
28,223
|
|
|
$
|
(6,283
|
)
|
|
$
|
21,940
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
348
|
|
|
|
248
|
|
|
|
(17
|
)
|
|
|
231
|
|
Adjustable
rate(3)
|
|
|
188
|
|
|
|
162
|
|
|
|
(23
|
)
|
|
|
139
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
9,560
|
|
|
|
7,872
|
|
|
|
(2,161
|
)
|
|
|
5,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
44,062
|
|
|
|
36,505
|
|
|
|
(8,484
|
)
|
|
|
28,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
|
2,661
|
|
|
|
2,637
|
|
|
|
(348
|
)
|
|
|
2,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
$
|
46,723
|
|
|
$
|
39,142
|
|
|
$
|
(8,832
|
)
|
|
$
|
30,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Individually impaired loans with no related specific valuation
allowance primarily represent mortgage loans purchased from PC
trusts and accounted for in accordance with the accounting
guidance for loans and debt securities acquired with
deteriorated credit quality that have not experienced further
deterioration.
|
(2)
|
See endnote (3) of Table 4.2 Recorded
Investment of Held-for-Investment Mortgage Loans, by LTV
Ratio.
|
(3)
|
Includes balloon/reset mortgage loans and excludes option ARMs.
|
(4)
|
See endnote (5) of Table 4.2
Recorded Investment of Held-for-Investment Mortgage Loans, by
LTV Ratio.
|
The average recorded investment in individually impaired loans
for the three and six months ended June 30, 2010 was
approximately $24.8 billion and $21.6 billion,
respectively. We recognized interest income on individually
impaired loans of $291 million and $522 million for
the three and six months ended June 30, 2010, respectively.
Interest income foregone on individually impaired loans was
approximately $328 million and $147 million for the
three months ended June 30, 2011 and 2010, respectively.
Interest income foregone on individually impaired loans was
approximately $693 million and $339 million for the
six months ended June 30, 2011 and 2010, respectively.
Mortgage
Loan Performance
We do not accrue interest on loans three months or more past due.
Table 5.2 presents the recorded investment of our
single-family and multifamily mortgage loans,
held-for-investment, by payment status.
Table
5.2 Payment Status of Mortgage
Loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
One
|
|
|
Two
|
|
|
Three Months or
|
|
|
|
|
|
|
|
|
|
|
|
|
Month
|
|
|
Months
|
|
|
More Past Due,
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
or in Foreclosure
|
|
|
Total
|
|
|
Non-accrual
|
|
|
|
(in millions)
|
|
|
Single-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
1,241,359
|
|
|
$
|
24,456
|
|
|
$
|
8,784
|
|
|
$
|
46,411
|
|
|
$
|
1,321,010
|
|
|
$
|
46,298
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
254,164
|
|
|
|
1,509
|
|
|
|
391
|
|
|
|
1,436
|
|
|
|
257,500
|
|
|
|
1,431
|
|
Adjustable
rate(3)
|
|
|
57,885
|
|
|
|
755
|
|
|
|
275
|
|
|
|
1,998
|
|
|
|
60,913
|
|
|
|
1,993
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
123,169
|
|
|
|
4,995
|
|
|
|
2,443
|
|
|
|
24,783
|
|
|
|
155,390
|
|
|
|
24,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
1,676,577
|
|
|
|
31,715
|
|
|
|
11,893
|
|
|
|
74,628
|
|
|
|
1,794,813
|
|
|
|
74,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
|
77,217
|
|
|
|
34
|
|
|
|
12
|
|
|
|
132
|
|
|
|
77,395
|
|
|
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
$
|
1,753,794
|
|
|
$
|
31,749
|
|
|
$
|
11,905
|
|
|
$
|
74,760
|
|
|
$
|
1,872,208
|
|
|
$
|
76,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
One
|
|
|
Two
|
|
|
Three Months or
|
|
|
|
|
|
|
|
|
|
|
|
|
Month
|
|
|
Months
|
|
|
More Past Due,
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Past Due
|
|
|
Past Due
|
|
|
or in Foreclosure
|
|
|
Total
|
|
|
Non-accrual
|
|
|
|
(in millions)
|
|
|
Single-family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 and
30-year or
more, amortizing
fixed-rate(2)
|
|
$
|
1,226,874
|
|
|
$
|
26,442
|
|
|
$
|
10,203
|
|
|
$
|
51,604
|
|
|
$
|
1,315,123
|
|
|
$
|
51,507
|
|
15-year
amortizing
fixed-rate(2)
|
|
|
248,572
|
|
|
|
1,727
|
|
|
|
450
|
|
|
|
1,628
|
|
|
|
252,377
|
|
|
|
1,622
|
|
Adjustable
rate(3)
|
|
|
53,205
|
|
|
|
826
|
|
|
|
335
|
|
|
|
2,308
|
|
|
|
56,674
|
|
|
|
2,303
|
|
Alt-A,
interest-only, and option
ARM(4)
|
|
|
137,395
|
|
|
|
5,701
|
|
|
|
3,046
|
|
|
|
28,679
|
|
|
|
174,821
|
|
|
|
28,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
1,666,046
|
|
|
|
34,696
|
|
|
|
14,034
|
|
|
|
84,219
|
|
|
|
1,798,995
|
|
|
|
84,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total multifamily
|
|
|
79,044
|
|
|
|
41
|
|
|
|
7
|
|
|
|
86
|
|
|
|
79,178
|
|
|
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
$
|
1,745,090
|
|
|
$
|
34,737
|
|
|
$
|
14,041
|
|
|
$
|
84,305
|
|
|
$
|
1,878,173
|
|
|
$
|
85,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on recorded investment in the loan. Mortgage loans whose
contractual terms have been modified under agreement with the
borrower are not counted as past due as long as the borrower is
current under the modified terms. The payment status of a loan
may be affected by temporary timing differences, or lags, in the
reporting of this information to us by our servicers. In
addition, if a multifamily borrower has entered into a
forbearance agreement and is abiding by the terms of the
agreement the borrowers payment status is reflected as
current, whereas single-family loans for which the borrower has
been granted forbearance will continue to reflect the past due
status of the borrower, if applicable. As of both June 30,
2011 and December 31, 2010, approximately $0.1 billion
of multifamily loans had been granted forbearance and were not
included in delinquency amounts.
|
(2)
|
See endnote (3) of Table 4.2 Recorded
Investment of Held-for-Investment Mortgage Loans, by LTV
Ratio.
|
(3)
|
Includes balloon/reset mortgage loans and excludes option ARMs.
|
(4)
|
See endnote (5) of Table 4.2
Recorded Investment of Held-for-Investment Mortgage Loans, by
LTV Ratio.
|
We have the option under our PC agreements to purchase mortgage
loans from the loan pools that underlie our PCs under certain
circumstances to resolve an existing or impending delinquency or
default. Since the first quarter of 2010, our practice generally
results in our purchase of loans from PC trusts when the loans
have been delinquent for four months or more. As of
June 30, 2011, there were $2.9 billion in UPB of loans
that were four monthly payments past due, and that met our
repurchase criteria. Generally, we purchase these delinquent
loans, and thereby extinguish the related PC debt, at the next
scheduled PC payment date, unless the loans proceed to
foreclosure transfer, complete a foreclosure alternative or are
paid in full by the borrower before such date.
When we purchase mortgage loans from consolidated trusts, we
reclassify the loans from mortgage loans held-for-investment by
consolidated trusts to unsecuritized mortgage loans
held-for-investment and record an extinguishment of the
corresponding portion of the debt securities of the consolidated
trusts. We purchased $10.6 billion and $40.2 billion
in UPB of loans from PC trusts during the three months ended
June 30, 2011 and 2010, respectively. We purchased
$25.2 billion and $96.8 billion in UPB of loans from
PC trusts during the six months ended June 30, 2011 and
2010, respectively.
Table 5.3 summarizes the delinquency rates of mortgage
loans within our single-family credit guarantee and multifamily
mortgage portfolios.
Table
5.3 Delinquency
Rates(1)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
Delinquencies:
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
Non-credit-enhanced portfolio:
|
|
|
|
|
|
|
|
|
Serious delinquency rate
|
|
|
2.71
|
%
|
|
|
2.97
|
%
|
Total number of seriously delinquent loans
|
|
|
270,065
|
|
|
|
296,397
|
|
Credit-enhanced portfolio:
|
|
|
|
|
|
|
|
|
Serious delinquency rate
|
|
|
7.23
|
%
|
|
|
7.83
|
%
|
Total number of seriously delinquent loans
|
|
|
126,415
|
|
|
|
144,116
|
|
Total portfolio, excluding Other Guarantee Transactions
|
|
|
|
|
|
|
|
|
Serious delinquency rate
|
|
|
3.38
|
%
|
|
|
3.73
|
%
|
Total number of seriously delinquent loans
|
|
|
396,480
|
|
|
|
440,513
|
|
Other Guarantee
Transactions:(2)
|
|
|
|
|
|
|
|
|
Serious delinquency rate
|
|
|
10.14
|
%
|
|
|
9.86
|
%
|
Total number of seriously delinquent loans
|
|
|
20,977
|
|
|
|
21,926
|
|
Total single-family:
|
|
|
|
|
|
|
|
|
Serious delinquency rate
|
|
|
3.50
|
%
|
|
|
3.84
|
%
|
Total number of seriously delinquent loans
|
|
|
417,457
|
|
|
|
462,439
|
|
Multifamily:(3)
|
|
|
|
|
|
|
|
|
Non-credit-enhanced portfolio:
|
|
|
|
|
|
|
|
|
Delinquency rate
|
|
|
0.19
|
%
|
|
|
0.12
|
%
|
UPB of delinquent loans (in millions)
|
|
$
|
156
|
|
|
$
|
106
|
|
Credit-enhance portfolio:
|
|
|
|
|
|
|
|
|
Delinquency rate
|
|
|
0.70
|
%
|
|
|
0.85
|
%
|
UPB of delinquent loans (in millions)
|
|
$
|
192
|
|
|
$
|
182
|
|
Total Multifamily:
|
|
|
|
|
|
|
|
|
Delinquency rate
|
|
|
0.31
|
%
|
|
|
0.26
|
%
|
UPB of delinquent loans (in millions)
|
|
$
|
348
|
|
|
$
|
288
|
|
|
|
(1)
|
Single-family mortgage loans whose contractual terms have been
modified under agreement with the borrower are not counted as
seriously delinquent if the borrower is less than three monthly
payments past due under the modified terms. Serious
delinquencies on single-family mortgage loans underlying certain
REMICs and Other Structured Securities, Other Guarantee
Transactions, and other guarantee commitments may be reported on
a different schedule due to variances in industry practice. In
addition, multifamily loans are not counted as delinquent if the
borrower has entered into a forbearance agreement and is abiding
by the terms of the agreement, whereas single-family loans for
which the borrower has been granted forbearance will continue to
reflect the past due status of the borrower, if applicable. As
of both June 30, 2011 and December 31, 2010, approximately
$0.1 billion of multifamily loans had been granted
forbearance and were not included in delinquency amounts.
|
(2)
|
Other Guarantee Transactions generally have underlying mortgage
loans with higher risk characteristics, but some Other Guarantee
Transactions may provide inherent credit protections from losses
due to underlying subordination, excess interest,
overcollateralization and other features.
|
(3)
|
Multifamily delinquency performance is based on UPB of mortgage
loans that are two monthly payments or more past due or those in
the process of foreclosure and includes multifamily Other
Guarantee Transactions. Excludes mortgage loans whose
contractual terms have been modified under an agreement with the
borrower as long as the borrower is less than two monthly
payments past due under the modified contractual terms.
|
We continue to implement a number of initiatives to modify and
restructure loans, including the MHA Program. Our implementation
of the MHA Program, for our loans, includes the following:
(a) an initiative to allow mortgages currently owned or
guaranteed by us to be refinanced without obtaining additional
credit enhancement beyond that already in place for the loan
(our relief refinance mortgage, which is our implementation of
HARP); (b) an initiative to modify mortgages for both
homeowners who are in default and those who are at risk of
imminent default (HAMP); and (c) an initiative designed to
permit borrowers who meet basic HAMP eligibility requirements to
sell their homes in short sales or to complete a deed in lieu
transaction (HAFA). As part of accomplishing certain of these
initiatives, we pay various incentives to servicers and
borrowers. We will bear the full costs associated with these
loan workout and foreclosure alternatives on mortgages that we
own or guarantee and will not receive a reimbursement for any
component from Treasury. We cannot currently estimate whether,
or the extent to which, costs incurred in the near term from
HAMP or other MHA Program efforts may be offset, if at all, by
the prevention or reduction of potential future costs of serious
delinquencies and foreclosures due to these initiatives.
In February 2011, FHFA directed Freddie Mac and Fannie Mae to
discuss with FHFA and with each other, and wherever feasible to
develop, consistent requirements, policies and processes for the
servicing of non-performing loans. This directive was designed
to create greater consistency in servicing practices and to
build on the best practices of each of the GSEs. Pursuant to
this directive, on April 28, 2011, FHFA announced a new set
of aligned standards for servicing by Freddie Mac and Fannie
Mae, which are designed to help servicers do a better job of
communicating and working with troubled borrowers and to bring
greater accountability to the servicing industry. The aligned
requirements include earlier and more frequent communication
with borrowers, consistent requirements for collecting documents
from borrowers, consistent timelines for responding to
borrowers, a consistent approach to modifications and consistent
timelines for processing foreclosures. This initiative will
result in the alignment of the processes for both HAMP and non-
HAMP workout solutions, and will be implemented over the course
of 2011 and into 2012. Servicers will also be subject to
incentives and compensatory fee assessments with respect to
performance under these standards.
NOTE 6: REAL
ESTATE OWNED
We obtain REO properties when we are the highest bidder at
foreclosure sales of properties that collateralize
non-performing single-family and multifamily mortgage loans
owned by us or when a delinquent borrower chooses to transfer
the mortgaged property to us in lieu of going through the
foreclosure process. Upon acquiring single-family properties, we
establish a marketing plan to sell the property as soon as
practicable by either listing it with a sales broker or by other
means, such as arranging a real estate auction. Upon acquiring
multifamily properties, we may operate them with third-party
property-management firms for a period to stabilize value and
then sell the properties through commercial real estate brokers.
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report for a discussion of our
significant accounting policies for REO.
Table 6.1 provides a summary of the change in the carrying
value of our combined single-family and multifamily REO
balances. For the periods presented in Table 6.1, the
weighted average holding period for our disposed properties was
less than one year.
Table 6.1
REO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
REO,
|
|
|
Valuation
|
|
|
REO,
|
|
|
REO,
|
|
|
Valuation
|
|
|
REO,
|
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
|
|
(in millions)
|
|
|
Beginning balance
|
|
$
|
7,149
|
|
|
$
|
(773
|
)
|
|
$
|
6,376
|
|
|
$
|
6,042
|
|
|
$
|
(574
|
)
|
|
$
|
5,468
|
|
Additions
|
|
|
2,408
|
|
|
|
(163
|
)
|
|
|
2,245
|
|
|
|
3,561
|
|
|
|
(253
|
)
|
|
|
3,308
|
|
Change in holding period allowance, inventory
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
21
|
|
|
|
21
|
|
Dispositions
|
|
|
(3,024
|
)
|
|
|
330
|
|
|
|
(2,694
|
)
|
|
|
(2,748
|
)
|
|
|
249
|
|
|
|
(2,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,533
|
|
|
$
|
(601
|
)
|
|
$
|
5,932
|
|
|
$
|
6,855
|
|
|
$
|
(557
|
)
|
|
$
|
6,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
REO,
|
|
|
Valuation
|
|
|
REO,
|
|
|
REO,
|
|
|
Valuation
|
|
|
REO,
|
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
|
Gross
|
|
|
Allowance
|
|
|
Net
|
|
|
|
(in millions)
|
|
|
Beginning balance
|
|
$
|
7,908
|
|
|
$
|
(840
|
)
|
|
$
|
7,068
|
|
|
$
|
5,125
|
|
|
$
|
(433
|
)
|
|
$
|
4,692
|
|
Adjustment to beginning
balance(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
(11
|
)
|
|
|
147
|
|
Additions
|
|
|
4,861
|
|
|
|
(345
|
)
|
|
|
4,516
|
|
|
|
6,643
|
|
|
|
(497
|
)
|
|
|
6,146
|
|
Change in holding period allowance, inventory
|
|
|
|
|
|
|
(120
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
(86
|
)
|
|
|
(86
|
)
|
Dispositions
|
|
|
(6,236
|
)
|
|
|
704
|
|
|
|
(5,532
|
)
|
|
|
(5,071
|
)
|
|
|
470
|
|
|
|
(4,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,533
|
|
|
$
|
(601
|
)
|
|
$
|
5,932
|
|
|
$
|
6,855
|
|
|
$
|
(557
|
)
|
|
$
|
6,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Adjustment to the beginning balance relates to the adoption of
new accounting guidance for transfers of financial assets and
consolidation of VIEs. See NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES in our 2010 Annual Report for
further information.
|
The REO balance, net at June 30, 2011 and December 31,
2010 associated with single-family properties was
$5.8 billion and $7.0 billion, respectively, and the
balance associated with multifamily properties was
$98 million and $107 million, respectively. The West
region represented approximately 32% and 30% of our
single-family REO additions during the three months ended
June 30, 2011 and 2010, respectively, based on the number
of properties, and the state with the most REO properties in the
West region is California. At June 30, 2011, our
single-family REO inventory in California represented
approximately 13% of our total REO inventory based on the number
of properties. Our single-family REO inventory consisted of
60,599 properties and 72,079 properties at June 30, 2011
and December 31, 2010, respectively. The pace of our REO
acquisitions slowed beginning in the fourth quarter of 2010 due
to delays in the foreclosure process, including delays related
to concerns about the foreclosure process. These delays in
foreclosures continued in the first half of 2011, particularly
in states that require a judicial foreclosure process. See
NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS Seller/Servicers for additional
information about delays in single-family foreclosures.
Our REO operations expenses includes REO property expenses, net
losses incurred on disposition of REO properties, 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 insurance reimbursements
and other credit enhancement recoveries. 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 a
loss of $56 million and
a gain of $39 million on single-family REO dispositions
during the three months ended June 30, 2011 and 2010,
respectively, and recognized a loss of $182 million and a
gain of $26 million on single-family REO dispositions
during the six months ended June 30, 2011 and 2010,
respectively. We increased our valuation allowance for
properties in our single-family inventory REO by $5 million
and decreased our valuation allowance for properties in our
single-family inventory REO by $20 million in the three
months ended June 30, 2011 and 2010, respectively. We
increased our valuation allowance for properties in our
single-family inventory REO by $156 million and
$117 million in the six months ended June 30, 2011 and
2010, respectively.
REO property acquisitions result from extinguishment of our
mortgage loans held on our consolidated balance sheets and are
treated as non-cash transfers. The amount of non-cash
acquisitions of REO properties during the six months ended
June 30, 2011 and 2010 was $8.2 billion and
$11.2 billion, respectively.
NOTE 7:
INVESTMENTS IN SECURITIES
Table 7.1 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 June 30, 2011 and December 31, 2010, all
available-for-sale securities are mortgage-related securities.
Table 7.1
Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
June 30, 2011
|
|
Cost
|
|
|
Gains
|
|
|
Losses(1)
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
79,417
|
|
|
$
|
5,919
|
|
|
$
|
(115
|
)
|
|
$
|
85,221
|
|
Subprime
|
|
|
44,231
|
|
|
|
32
|
|
|
|
(13,772
|
)
|
|
|
30,491
|
|
CMBS
|
|
|
55,881
|
|
|
|
2,482
|
|
|
|
(716
|
)
|
|
|
57,647
|
|
Option ARM
|
|
|
9,661
|
|
|
|
29
|
|
|
|
(3,099
|
)
|
|
|
6,591
|
|
Alt-A and
other
|
|
|
14,546
|
|
|
|
50
|
|
|
|
(2,387
|
)
|
|
|
12,209
|
|
Fannie Mae
|
|
|
19,675
|
|
|
|
1,338
|
|
|
|
(2
|
)
|
|
|
21,011
|
|
Obligations of states and political subdivisions
|
|
|
8,825
|
|
|
|
50
|
|
|
|
(315
|
)
|
|
|
8,560
|
|
Manufactured housing
|
|
|
880
|
|
|
|
15
|
|
|
|
(51
|
)
|
|
|
844
|
|
Ginnie Mae
|
|
|
248
|
|
|
|
27
|
|
|
|
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
233,364
|
|
|
$
|
9,942
|
|
|
$
|
(20,457
|
)
|
|
$
|
222,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
80,742
|
|
|
$
|
5,142
|
|
|
$
|
(195
|
)
|
|
$
|
85,689
|
|
Subprime
|
|
|
47,916
|
|
|
|
1
|
|
|
|
(14,056
|
)
|
|
|
33,861
|
|
CMBS
|
|
|
58,455
|
|
|
|
1,551
|
|
|
|
(1,919
|
)
|
|
|
58,087
|
|
Option ARM
|
|
|
10,726
|
|
|
|
16
|
|
|
|
(3,853
|
)
|
|
|
6,889
|
|
Alt-A and
other
|
|
|
15,561
|
|
|
|
58
|
|
|
|
(2,451
|
)
|
|
|
13,168
|
|
Fannie Mae
|
|
|
23,025
|
|
|
|
1,348
|
|
|
|
(3
|
)
|
|
|
24,370
|
|
Obligations of states and political subdivisions
|
|
|
9,885
|
|
|
|
31
|
|
|
|
(539
|
)
|
|
|
9,377
|
|
Manufactured housing
|
|
|
945
|
|
|
|
13
|
|
|
|
(61
|
)
|
|
|
897
|
|
Ginnie Mae
|
|
|
268
|
|
|
|
28
|
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
247,523
|
|
|
$
|
8,188
|
|
|
$
|
(23,077
|
)
|
|
$
|
232,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes non-credit-related other-than-temporary impairments on
available-for-sale securities recognized in AOCI and temporary
unrealized losses.
|
Available-For-Sale
Securities in a Gross Unrealized Loss Position
Table 7.2 shows the fair value of available-for-sale
securities in a gross unrealized loss position, and whether they
have been in that position less than 12 months, or
12 months or greater, including the non-credit-related
portion of other-than-temporary impairments which have been
recognized in AOCI.
Table 7.2
Available-For-Sale Securities in a Gross Unrealized Loss
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
June 30, 2011
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
2,488
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
(29
|
)
|
|
$
|
1,877
|
|
|
$
|
|
|
|
$
|
(86
|
)
|
|
$
|
(86
|
)
|
|
$
|
4,365
|
|
|
$
|
|
|
|
$
|
(115
|
)
|
|
$
|
(115
|
)
|
Subprime
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
30,337
|
|
|
|
(10,982
|
)
|
|
|
(2,789
|
)
|
|
|
(13,771
|
)
|
|
|
30,346
|
|
|
|
(10,983
|
)
|
|
|
(2,789
|
)
|
|
|
(13,772
|
)
|
CMBS
|
|
|
409
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
4,384
|
|
|
|
|
|
|
|
(702
|
)
|
|
|
(702
|
)
|
|
|
4,793
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
(716
|
)
|
Option ARM
|
|
|
19
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
6,438
|
|
|
|
(2,974
|
)
|
|
|
(123
|
)
|
|
|
(3,097
|
)
|
|
|
6,457
|
|
|
|
(2,976
|
)
|
|
|
(123
|
)
|
|
|
(3,099
|
)
|
Alt-A and other
|
|
|
882
|
|
|
|
(48
|
)
|
|
|
(3
|
)
|
|
|
(51
|
)
|
|
|
10,317
|
|
|
|
(1,641
|
)
|
|
|
(695
|
)
|
|
|
(2,336
|
)
|
|
|
11,199
|
|
|
|
(1,689
|
)
|
|
|
(698
|
)
|
|
|
(2,387
|
)
|
Fannie Mae
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
26
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Obligations of states and political subdivisions
|
|
|
2,855
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
(81
|
)
|
|
|
2,974
|
|
|
|
|
|
|
|
(234
|
)
|
|
|
(234
|
)
|
|
|
5,829
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
(315
|
)
|
Manufactured housing
|
|
|
38
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
452
|
|
|
|
(36
|
)
|
|
|
(14
|
)
|
|
|
(50
|
)
|
|
|
490
|
|
|
|
(37
|
)
|
|
|
(14
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities in a gross unrealized loss
position
|
|
$
|
6,712
|
|
|
$
|
(52
|
)
|
|
$
|
(127
|
)
|
|
$
|
(179
|
)
|
|
$
|
56,793
|
|
|
$
|
(15,633
|
)
|
|
$
|
(4,645
|
)
|
|
$
|
(20,278
|
)
|
|
$
|
63,505
|
|
|
$
|
(15,685
|
)
|
|
$
|
(4,772
|
)
|
|
$
|
(20,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
Gross Unrealized Losses
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
|
Fair
|
|
|
Temporary
|
|
|
Temporary
|
|
|
|
|
December 31, 2010
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
Value
|
|
|
Impairment(1)
|
|
|
Impairment(2)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
2,494
|
|
|
$
|
|
|
|
$
|
(70
|
)
|
|
$
|
(70
|
)
|
|
$
|
1,880
|
|
|
$
|
|
|
|
$
|
(125
|
)
|
|
$
|
(125
|
)
|
|
$
|
4,374
|
|
|
$
|
|
|
|
$
|
(195
|
)
|
|
$
|
(195
|
)
|
Subprime
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,839
|
|
|
|
(10,041
|
)
|
|
|
(4,015
|
)
|
|
|
(14,056
|
)
|
|
|
33,845
|
|
|
|
(10,041
|
)
|
|
|
(4,015
|
)
|
|
|
(14,056
|
)
|
CMBS
|
|
|
2,950
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(51
|
)
|
|
|
8,894
|
|
|
|
(844
|
)
|
|
|
(1,024
|
)
|
|
|
(1,868
|
)
|
|
|
11,844
|
|
|
|
(844
|
)
|
|
|
(1,075
|
)
|
|
|
(1,919
|
)
|
Option ARM
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
6,838
|
|
|
|
(3,744
|
)
|
|
|
(108
|
)
|
|
|
(3,852
|
)
|
|
|
6,841
|
|
|
|
(3,745
|
)
|
|
|
(108
|
)
|
|
|
(3,853
|
)
|
Alt-A and other
|
|
|
42
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
12,025
|
|
|
|
(1,846
|
)
|
|
|
(602
|
)
|
|
|
(2,448
|
)
|
|
|
12,067
|
|
|
|
(1,846
|
)
|
|
|
(605
|
)
|
|
|
(2,451
|
)
|
Fannie Mae
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
68
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Obligations of states and political subdivisions
|
|
|
3,953
|
|
|
|
|
|
|
|
(163
|
)
|
|
|
(163
|
)
|
|
|
3,402
|
|
|
|
|
|
|
|
(376
|
)
|
|
|
(376
|
)
|
|
|
7,355
|
|
|
|
|
|
|
|
(539
|
)
|
|
|
(539
|
)
|
Manufactured housing
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
507
|
|
|
|
(45
|
)
|
|
|
(15
|
)
|
|
|
(60
|
)
|
|
|
515
|
|
|
|
(46
|
)
|
|
|
(15
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities in a gross unrealized loss
position
|
|
$
|
9,510
|
|
|
$
|
(2
|
)
|
|
$
|
(287
|
)
|
|
$
|
(289
|
)
|
|
$
|
67,399
|
|
|
$
|
(16,520
|
)
|
|
$
|
(6,268
|
)
|
|
$
|
(22,788
|
)
|
|
$
|
76,909
|
|
|
$
|
(16,522
|
)
|
|
$
|
(6,555
|
)
|
|
$
|
(23,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the pre-tax amount of non-credit-related
other-than-temporary impairments on available-for-sale
securities not expected to be sold which are recognized in AOCI.
|
(2)
|
Represents the pre-tax amount of temporary impairments on
available-for-sale securities recognized in AOCI.
|
At June 30, 2011, total gross unrealized losses on
available-for-sale
securities were $20.5 billion. The gross unrealized losses
relate to 2,202 individual lots representing
2,121 separate securities, including securities with
non-credit-related other-than-temporary impairments recognized
in AOCI. We purchase multiple lots of individual securities at
different times and at different costs. We determine gross
unrealized gains and gross unrealized losses by specifically
evaluating investment positions at the lot level; therefore,
some of the lots we hold for a single security may be in an
unrealized gain position while other lots for that security may
be in an unrealized loss position, depending upon the amortized
cost of the specific lot.
Impairment
Recognition on Investments in Securities
We recognize impairment losses on available-for-sale securities
within our consolidated statements of income and comprehensive
income as net impairment of available-for-sale securities
recognized in earnings when we conclude that a decrease in the
fair value of a security is other-than-temporary.
We conduct quarterly reviews to evaluate each available-for-sale
security that has an unrealized loss for other-than-temporary
impairment. An unrealized loss exists when the current fair
value of an individual security is less than its amortized cost
basis. We recognize other-than-temporary impairment in earnings
if one of the following conditions exists: (a) we have the
intent to sell the security; (b) it is more likely than not
that we will be required to sell the security before recovery of
its unrealized loss; or (c) we do not expect to recover the
amortized cost basis of the security. If we do not intend to
sell the security and we believe it is not more likely than not
that we will be required to sell prior to recovery of its
unrealized loss, we recognize only the credit component of
other-than-temporary impairment in earnings and the amounts
attributable to all other factors are recognized in AOCI. The
credit component represents the amount by which
the present value of cash flows expected to be collected from
the security is less than the amortized cost basis of the
security.
Our net impairment of available-for-sale securities recognized
in earnings on our consolidated statements of income and
comprehensive income for the three and six months ended
June 30, 2011 and 2010, includes amounts related to certain
securities where we have previously recognized
other-than-temporary impairments through AOCI, but upon the
recognition of additional credit losses, these amounts were
reclassified out of non-credit losses in AOCI and charged to
earnings. In certain instances, we recognized credit losses in
excess of unrealized losses in AOCI.
The determination of whether unrealized losses on
available-for-sale securities are other-than-temporary involves
the evaluation of numerous factors. We perform an evaluation on
a
security-by-security
basis considering all available information. The relative
importance of this information varies based on the facts and
circumstances surrounding each security, as well as the economic
environment at the time of assessment. Important factors
include, but are not limited to:
|
|
|
|
|
whether we intend to sell the security and it is not more likely
than not that we will be required to sell the security before
sufficient time elapses to recover all unrealized losses;
|
|
|
|
loan level default modeling for single-family residential
mortgages that considers individual loan characteristics,
including current LTV ratio, FICO score, and delinquency status,
requires assumptions about future home prices and interest
rates, and employs internal default models and prepayment
assumptions. The modeling for CMBS employs third-party models
that require assumptions about the economic conditions in the
areas surrounding each individual property; and
|
|
|
|
security loss modeling combining the modeled performance of the
underlying collateral relative to its current and projected
credit enhancements to determine the expected cash flows for
each evaluated security.
|
For the majority of our available-for-sale securities in an
unrealized loss position, we have asserted that we have no
intent to sell and that we believe it is not more likely than
not that we will be required to sell the security before
recovery of its amortized cost basis. Where such an assertion
has not been made, the securitys entire decline in fair
value is deemed to be other-than-temporary and is recorded
within our consolidated statements of income and comprehensive
income as net impairment of available-for-sale securities
recognized in earnings.
See Table 7.2 Available-For-Sale
Securities in a Gross Unrealized Loss Position for the
length of time our available-for-sale securities have been in an
unrealized loss position. Also see
Table 7.3 Significant Modeled Attributes
for Certain Non-Agency Mortgage-Related Securities for the
modeled default rates and severities that were used to determine
whether our senior interests in certain non-agency
mortgage-related securities would experience a cash shortfall.
Freddie
Mac and Fannie Mae Securities
We record the purchase of mortgage-related securities issued by
Fannie Mae as investments in securities in accordance with the
accounting guidance for investments in debt and equity
securities. In contrast, our purchase of mortgage-related
securities that we issued (e.g., PCs, REMICs and Other
Structured Securities, and Other Guarantee Transactions) is
recorded as either investments in securities or extinguishment
of debt securities of consolidated trusts depending on the
nature of the mortgage-related security that we purchase. See
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Securitization Activities through Issuances
of Freddie Mac Mortgage-Related Securities in our 2010
Annual Report for additional information.
We hold these investments in securities that are in an
unrealized loss position at least to recovery and typically to
maturity. As the principal and interest on these securities are
guaranteed and we do not intend to sell these securities and it
is not more likely than not that we will be required to sell
such securities before a recovery of the unrealized losses, we
consider these unrealized losses to be temporary.
Non-Agency
Mortgage-Related Securities Backed by Subprime, Option ARM,
Alt-A and Other Loans
We believe the unrealized losses on the non-agency
mortgage-related securities we hold are a result of poor
underlying collateral performance, limited liquidity, and large
risk premiums. We consider securities to be
other-than-temporarily impaired when future credit losses are
deemed likely.
Our review of the securities backed by subprime, option ARM, and
Alt-A and
other loans includes loan level default modeling and analyses of
the individual securities based on underlying collateral
performance, including the collectibility of amounts that would
be recovered from primary monoline insurers. In the case of
monoline insurers, we also consider factors such as the
availability of capital, generation of new business, pending
regulatory action, credit ratings, security
prices, and credit default swap levels traded on the insurers.
We consider loan level information including estimated current
LTV ratios, FICO scores, and other loan level characteristics.
We also consider the differences between the loan level
characteristics of the performing and non-performing loan
populations.
Table 7.3 presents the modeled default rates and
severities, without regard to subordination, that are used to
determine whether our senior interests in certain non-agency
mortgage-related securities will experience a cash shortfall.
Our proprietary default model requires assumptions about future
home prices, as defaults and severities are modeled at the loan
level and then aggregated. The model uses projections of future
home prices at the state level. Assumptions of voluntary
prepayment rates are also an input to the present value of
expected cash flows and are discussed below.
Table
7.3 Significant Modeled Attributes for Certain
Non-Agency Mortgage-Related Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
Alt-A(1)
|
|
|
Subprime first lien
|
|
Option ARM
|
|
Fixed Rate
|
|
Variable Rate
|
|
Hybrid Rate
|
|
|
(dollars in millions)
|
|
Issuance Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB
|
|
$
|
1,279
|
|
|
$
|
123
|
|
|
$
|
940
|
|
|
$
|
548
|
|
|
$
|
2,287
|
|
Weighted average collateral
defaults(2)
|
|
|
37%
|
|
|
|
37%
|
|
|
|
8%
|
|
|
|
44%
|
|
|
|
26%
|
|
Weighted average collateral
severities(3)
|
|
|
57%
|
|
|
|
54%
|
|
|
|
48%
|
|
|
|
51%
|
|
|
|
41%
|
|
Weighted average voluntary prepayment
rates(4)
|
|
|
6%
|
|
|
|
7%
|
|
|
|
10%
|
|
|
|
7%
|
|
|
|
8%
|
|
Average credit
enhancement(5)
|
|
|
41%
|
|
|
|
17%
|
|
|
|
14%
|
|
|
|
18%
|
|
|
|
15%
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB
|
|
$
|
6,979
|
|
|
$
|
3,009
|
|
|
$
|
1,269
|
|
|
$
|
886
|
|
|
$
|
4,124
|
|
Weighted average collateral
defaults(2)
|
|
|
56%
|
|
|
|
54%
|
|
|
|
25%
|
|
|
|
52%
|
|
|
|
40%
|
|
Weighted average collateral
severities(3)
|
|
|
67%
|
|
|
|
63%
|
|
|
|
54%
|
|
|
|
58%
|
|
|
|
49%
|
|
Weighted average voluntary prepayment
rates(4)
|
|
|
4%
|
|
|
|
6%
|
|
|
|
9%
|
|
|
|
7%
|
|
|
|
8%
|
|
Average credit
enhancement(5)
|
|
|
52%
|
|
|
|
15%
|
|
|
|
5%
|
|
|
|
27%
|
|
|
|
6%
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB
|
|
$
|
20,720
|
|
|
$
|
7,120
|
|
|
$
|
586
|
|
|
$
|
1,203
|
|
|
$
|
1,253
|
|
Weighted average collateral
defaults(2)
|
|
|
65%
|
|
|
|
68%
|
|
|
|
40%
|
|
|
|
63%
|
|
|
|
53%
|
|
Weighted average collateral
severities(3)
|
|
|
71%
|
|
|
|
70%
|
|
|
|
61%
|
|
|
|
64%
|
|
|
|
57%
|
|
Weighted average voluntary prepayment
rates(4)
|
|
|
7%
|
|
|
|
6%
|
|
|
|
10%
|
|
|
|
8%
|
|
|
|
8%
|
|
Average credit
enhancement(5)
|
|
|
17%
|
|
|
|
5%
|
|
|
|
8%
|
|
|
|
0%
|
|
|
|
2%
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB
|
|
$
|
22,092
|
|
|
$
|
4,526
|
|
|
$
|
165
|
|
|
$
|
1,440
|
|
|
$
|
358
|
|
Weighted average collateral
defaults(2)
|
|
|
63%
|
|
|
|
66%
|
|
|
|
56%
|
|
|
|
64%
|
|
|
|
63%
|
|
Weighted average collateral
severities(3)
|
|
|
72%
|
|
|
|
71%
|
|
|
|
68%
|
|
|
|
67%
|
|
|
|
68%
|
|
Weighted average voluntary prepayment
rates(4)
|
|
|
7%
|
|
|
|
7%
|
|
|
|
8%
|
|
|
|
8%
|
|
|
|
8%
|
|
Average credit
enhancement(5)
|
|
|
18%
|
|
|
|
13%
|
|
|
|
14%
|
|
|
|
(4)%
|
|
|
|
0%
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPB
|
|
$
|
51,070
|
|
|
$
|
14,778
|
|
|
$
|
2,960
|
|
|
$
|
4,077
|
|
|
$
|
8,022
|
|
Weighted average collateral
defaults(2)
|
|
|
62%
|
|
|
|
64%
|
|
|
|
25%
|
|
|
|
58%
|
|
|
|
39%
|
|
Weighted average collateral
severities(3)
|
|
|
71%
|
|
|
|
69%
|
|
|
|
57%
|
|
|
|
63%
|
|
|
|
51%
|
|
Weighted average voluntary prepayment
rates(4)
|
|
|
6%
|
|
|
|
6%
|
|
|
|
9%
|
|
|
|
8%
|
|
|
|
8%
|
|
Average credit
enhancement(5)
|
|
|
23%
|
|
|
|
10%
|
|
|
|
9%
|
|
|
|
7%
|
|
|
|
8%
|
|
|
|
(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)
|
The expected cumulative default rate expressed as a percentage
of the current collateral UPB.
|
(3)
|
The expected average loss given default calculated as the ratio
of cumulative loss over cumulative default rate for each
security.
|
(4)
|
The securitys voluntary prepayment rate represents the
average of the monthly voluntary prepayment rate weighted by the
securitys outstanding UPB.
|
(5)
|
Reflects the ratio of the current principal amount of the
securities issued by a trust that will absorb losses in the
trust 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). Only includes credit
enhancement provided by subordinated securities; excludes credit
enhancement provided by monoline bond insurance,
overcollateralization and other forms of credit enhancement.
Negative values are shown when collateral losses that have yet
to be applied to the tranches exceed the remaining credit
enhancement, if any.
|
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
collectibility of contractual amounts due to us. As such, we
have impaired securities with current ratings ranging from CCC
to AAA and have determined that other securities within the same
ratings were not other-than-temporarily impaired. However, we
carefully consider individual ratings, especially those below
investment grade, including changes since June 30, 2011.
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 enhancement levels and
a principal or interest loss could occur, we do not believe that
those conditions were likely as of June 30, 2011.
In addition, we considered fair values at June 30, 2011, as
well as any significant changes in fair value since
June 30, 2011 to assess if they were indicative of
potential future cash shortfalls. In this assessment, we put
greater emphasis on categorical pricing information than on
individual prices. We use multiple pricing services and dealers
to price the majority of the non-agency mortgage-related
securities we hold. We observed significant dispersion in prices
obtained from different sources. However, we carefully consider
individual and sustained price declines, placing greater weight
when dispersion is lower and less weight when dispersion is
higher. Where dispersion is higher, other factors previously
mentioned receive greater weight. For further information, see
NOTE 18: FAIR VALUE DISCLOSURES.
Commercial
Mortgage-Backed Securities
CMBS are exposed to stresses in the commercial real estate
market. We use external models to identify securities that may
have an increased risk of failing to make their contractual
payments. We then perform an analysis of the underlying
collateral on a
security-by-security
basis to determine whether we will receive all of the
contractual payments due to us. During the second quarter of
2011, we recognized the unrealized fair value losses related to
three investments in CMBS of $154 million as an impairment
charge in earnings because we have the intent to sell these
securities. While it is reasonably possible that, under certain
conditions, collateral losses on our CMBS for which we have not
recorded an impairment charge could exceed our credit
enhancement levels and a principal or interest loss could occur,
we do not believe that those conditions were likely as of
June 30, 2011. We do not intend to sell the remaining CMBS
and it is not more likely than not that we will be required to
sell such securities before recovery of the unrealized losses.
Obligations
of States and Political Subdivisions
These investments consist of housing revenue bonds. We believe
the unrealized losses on obligations of states and political
subdivisions are primarily a result of movements in interest
rates and liquidity and risk premiums. We have determined that
the impairment of these securities is temporary based on our
conclusion that we do not intend to sell these securities and it
is not more likely than not that we will be required to sell
such securities before a recovery of the unrealized losses. We
believe that any credit risk related to these securities is
minimal because of the issuer guarantees provided on these
securities.
Monoline
Bond Insurance
We rely on monoline bond insurance, including secondary
coverage, to provide credit protection on some of our non-agency
mortgage-related securities. Circumstances in which it is likely
a principal and interest shortfall will occur and there is
substantial uncertainty surrounding a primary monoline bond
insurers ability to pay all future claims can give rise to
recognition of other-than-temporary impairment recognized in
earnings. See NOTE 17: CONCENTRATION OF CREDIT AND
OTHER RISKS Bond Insurers for additional
information.
Other-Than-Temporary
Impairments on Available-for-Sale Securities
Table 7.4 summarizes our net impairments of
available-for-sale securities recognized in earnings by security
type.
Table 7.4
Net Impairment of Available-For-Sale Securities Recognized in
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impairment of Available-For-Sale
|
|
|
|
Securities Recognized in Earnings
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime
|
|
$
|
(70
|
)
|
|
$
|
(17
|
)
|
|
$
|
(804
|
)
|
|
$
|
(349
|
)
|
Option ARM
|
|
|
(65
|
)
|
|
|
(48
|
)
|
|
|
(346
|
)
|
|
|
(150
|
)
|
Alt-A and other
|
|
|
(32
|
)
|
|
|
(333
|
)
|
|
|
(72
|
)
|
|
|
(352
|
)
|
CMBS(1)
|
|
|
(183
|
)
|
|
|
(17
|
)
|
|
|
(318
|
)
|
|
|
(72
|
)
|
Manufactured housing
|
|
|
(2
|
)
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairments on available-for-sale
securities
|
|
$
|
(352
|
)
|
|
$
|
(428
|
)
|
|
$
|
(1,545
|
)
|
|
$
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes $154 million of other-than-temporary impairments
recognized in earnings for the three and six months ended
June 30, 2011 as we have the intent to sell the related
security before recovery of its amortized cost basis.
|
Table 7.5 presents the changes in the unrealized
credit-related
other-than-temporary
impairment component of the amortized cost related to
available-for-sale
securities: (a) that we have written down for
other-than-temporary
impairment; and (b) for which the credit component of the
loss is recognized in earnings. The credit-related
other-than-temporary
impairment component of the amortized cost represents the
difference between the present value of expected future cash
flows, including the estimated proceeds from bond insurance, and
the amortized cost basis of the security prior to considering
credit losses. The beginning balance represents the
other-than-temporary
impairment credit loss component related to
available-for-sale
securities for which
other-than-temporary
impairment occurred prior to January 1, 2011. Net
impairment of
available-for-sale
securities recognized in earnings is presented as additions in
two components based upon whether the current period is:
(a) the first time the debt security was credit-impaired;
or (b) not the first time the debt security was
credit-impaired. The credit loss component is reduced if we
sell, intend to sell or believe we will be required to sell
previously credit-impaired
available-for-sale
securities. Additionally, the credit loss component is reduced
if we receive cash flows in excess of what we expected to
receive over the remaining life of the credit-impaired debt
security or the security matures or is fully written down.
Table
7.5 Other-Than-Temporary Impairments Related to
Credit Losses on Available-For-Sale
Securities(1)
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
|
(in millions)
|
|
|
Credit-related
other-than-temporary
impairments on
available-for-sale
securities recognized in earnings:
|
|
|
|
|
Beginning balance remaining credit losses to be
realized on
available-for-sale
securities held at the beginning of the period where
other-than-temporary impairments were recognized in earnings
|
|
$
|
14,878
|
|
Additions:
|
|
|
|
|
Amounts related to credit losses for which an
other-than-temporary
impairment was not previously recognized
|
|
|
49
|
|
Amounts related to credit losses for which an
other-than-temporary
impairment was previously recognized
|
|
|
1,342
|
|
Reductions:
|
|
|
|
|
Amounts related to securities which were sold, written off or
matured
|
|
|
(558
|
)
|
Amounts previously recognized in other comprehensive income that
were recognized in earnings because we intend to sell the
security or it is more likely than not that we will be required
to sell the security before recovery of its amortized cost basis.
|
|
|
(161
|
)
|
Amounts related to amortization resulting from increases in cash
flows expected to be collected that are recognized over the
remaining life of the security
|
|
|
(60
|
)
|
|
|
|
|
|
Ending balance remaining credit losses to be
realized on
available-for-sale
securities held at period end where other-than-temporary
impairments were recognized in earnings
|
|
$
|
15,490
|
|
|
|
|
|
|
|
|
(1) |
Excludes
other-than-temporary
impairments on securities that we intend to sell or it is more
likely than not that we will be required to sell before recovery
of the unrealized losses.
|
Realized
Gains and Losses on Sales of Available-For-Sale
Securities
Table 7.6 below illustrates the gross realized gains and
gross realized losses received from the sale of
available-for-sale securities.
Table 7.6
Gross Realized Gains and Gross Realized Losses on Sales of
Available-For-Sale
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Gross realized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
|
|
|
$
|
26
|
|
|
$
|
77
|
|
|
$
|
26
|
|
Fannie Mae
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities gross realized gains
|
|
|
17
|
|
|
|
26
|
|
|
|
95
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities gross realized gains
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
|
15
|
|
|
|
26
|
|
|
|
95
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
Option ARM
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities gross realized losses
|
|
|
(80
|
)
|
|
|
(6
|
)
|
|
|
(80
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses
|
|
|
(80
|
)
|
|
|
(6
|
)
|
|
|
(80
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses)
|
|
$
|
(65
|
)
|
|
$
|
20
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
These individual sales do not change our conclusion that we do
not intend to sell the majority of our remaining
mortgage-related securities and it is not more likely than not
that we will be required to sell such securities before a
recovery of the unrealized losses.
|
Maturities
of Available-For-Sale Securities
Table 7.7 summarizes the remaining contractual maturities
of available-for-sale securities.
Table 7.7
Maturities of Available-For-Sale
Securities(1)
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
Due within 1 year or less
|
|
$
|
41
|
|
|
$
|
41
|
|
Due after 1 through 5 years
|
|
|
1,167
|
|
|
|
1,226
|
|
Due after 5 through 10 years
|
|
|
6,385
|
|
|
|
6,741
|
|
Due after 10 years
|
|
|
225,771
|
|
|
|
214,841
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
233,364
|
|
|
$
|
222,849
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Maturity information provided is based on contractual
maturities, which may not represent expected life as obligations
underlying these securities may be prepaid at any time without
penalty.
|
AOCI
Related to Available-For-Sale Securities
Table 7.8 presents the changes in AOCI related to
available-for-sale securities. The net unrealized holding gains
represent the net fair value adjustments recorded on
available-for-sale securities throughout the periods presented,
after the effects of our federal statutory tax rate of 35%. The
net reclassification adjustment for net realized losses
represents the amount of those fair value adjustments, after the
effects of our federal statutory tax rate of 35%, that have been
recognized in earnings due to a sale of an available-for-sale
security or the recognition of an impairment loss.
Table 7.8
AOCI Related to Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Beginning balance
|
|
$
|
(9,678
|
)
|
|
$
|
(20,616
|
)
|
Adjustment to initially apply the adoption of amendments to
accounting guidance for transfers of financial assets and the
consolidation of
VIEs(1)
|
|
|
|
|
|
|
(2,683
|
)
|
Net unrealized holding
gains(2)
|
|
|
1,849
|
|
|
|
8,146
|
|
Net reclassification adjustment for net realized
losses(3)(4)
|
|
|
995
|
|
|
|
597
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
(6,834
|
)
|
|
$
|
(14,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net of tax benefit of $1.4 billion for the six months ended
June 30, 2010.
|
(2)
|
Net of tax expense of $1.0 billion and $4.4 billion
for the six months ended June 30, 2011 and 2010,
respectively.
|
(3)
|
Net of tax benefit of $536 million and $321 million
for the six months ended June 30, 2011 and 2010,
respectively.
|
(4)
|
Includes the reversal of previously recorded unrealized losses
that have been recognized on our consolidated statements of
income and comprehensive income as impairment losses on
available-for-sale securities of $1.0 billion and
$609 million, net of taxes, for the six months ended
June 30, 2011 and 2010, respectively.
|
Trading
Securities
Table 7.9 summarizes the estimated fair values by major
security type for trading securities.
Table 7.9
Trading Securities
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
16,997
|
|
|
$
|
13,437
|
|
Fannie Mae
|
|
|
17,982
|
|
|
|
18,726
|
|
Ginnie Mae
|
|
|
165
|
|
|
|
172
|
|
Other
|
|
|
82
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities
|
|
|
35,226
|
|
|
|
32,366
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
164
|
|
|
|
44
|
|
Treasury bills
|
|
|
250
|
|
|
|
17,289
|
|
Treasury notes
|
|
|
17,497
|
|
|
|
10,122
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
1,627
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities
|
|
|
19,538
|
|
|
|
27,896
|
|
|
|
|
|
|
|
|
|
|
Total fair value of trading securities
|
|
$
|
54,764
|
|
|
$
|
60,262
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011 and 2010, we
recorded net unrealized gains (losses) on trading securities
held at June 30, 2011 and 2010 of $229 million and
$(272) million, respectively. For the six months ended
June 30, 2011 and 2010, we recorded net unrealized gains
(losses) on trading securities held at June 30, 2011 and
2010 of $10 million and $(689) million, respectively.
Total trading securities include $2.2 billion and
$2.5 billion, respectively, of hybrid financial assets as
defined by the derivative and hedging accounting guidance
regarding certain hybrid financial instruments as of
June 30, 2011 and December 31, 2010. Gains (losses) on
trading securities on our consolidated statements of income and
comprehensive income include $11 million and
$(30) million, respectively, related to these hybrid
financial securities for the three and six months ended
June 30, 2011. Gains (losses) on trading securities include
gains of $36 million and $1 million related to these
trading securities for the three and six months ended
June 30, 2010, respectively.
Collateral
Pledged
Collateral
Pledged to Freddie Mac
Our counterparties are required to pledge collateral for
securities purchased under agreements to resell transactions,
and most derivative instruments are subject to collateral
posting thresholds generally related to a counterpartys
credit rating. We consider the types of securities being pledged
to us as collateral when determining how much we lend related to
securities purchased under agreements to resell transactions.
Additionally, we subsequently and regularly review the market
values of these securities compared to amounts loaned in an
effort to ensure our exposure to losses is minimized. We had
cash and cash equivalents pledged to us related to derivative
instruments of $1.7 billion and $2.2 billion at
June 30, 2011 and December 31, 2010, respectively.
Although it is our practice not to repledge assets held as
collateral, a portion of the collateral may be repledged based
on master agreements related to our derivative instruments. At
June 30, 2011 and December 31, 2010, we did not have
collateral in the form of securities pledged to and held by us
under these master agreements. Also at June 30, 2011 and
December 31, 2010, we did not have securities pledged to us
for securities
purchased under agreements to resell transactions that we had
the right to repledge. From time to time we may obtain pledges
of collateral from certain seller/servicers as additional
security for their obligations to us, including their
obligations to repurchase mortgages sold to us in breach of
representations and warranties. These pledges may take the form
of cash, cash equivalents, or agency securities.
In addition, we hold cash and cash equivalents as collateral in
connection with certain of our multifamily guarantees as credit
enhancements. The cash and cash equivalents held as collateral
related to these transactions at June 30, 2011 and
December 31, 2010 was $368 million and
$550 million, respectively.
Collateral
Pledged by Freddie Mac
We are required to pledge collateral for margin requirements
with third-party custodians in connection with secured
financings and derivative transactions with some counterparties.
The level of collateral pledged related to our derivative
instruments is determined after giving consideration to our
credit rating. As of June 30, 2011, we had one secured,
uncommitted intraday line of credit with a third party in
connection with the Federal Reserves payments system risk
policy, which restricts or eliminates daylight overdrafts by the
GSEs, in connection with our use of the Fedwire system. In
certain circumstances, the line of credit agreement gives the
secured party the right to repledge the securities underlying
our financing to other third parties, including the Federal
Reserve Bank. We pledge collateral to meet our collateral
requirements under the line of credit agreement upon demand by
the counterparty.
Table 7.10 summarizes all securities pledged as collateral
by us, including assets that the secured party may repledge and
those that may not be repledged.
Table 7.10
Collateral in the Form of Securities Pledged
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Securities pledged with the ability for the secured party to
repledge:
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third
parties(1)
|
|
$
|
10,345
|
|
|
$
|
9,915
|
|
Available-for-sale securities
|
|
|
244
|
|
|
|
817
|
|
Securities pledged without the ability for the secured party to
repledge:
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third
parties(1)
|
|
|
139
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total securities pledged
|
|
$
|
10,728
|
|
|
$
|
10,737
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents PCs held by us in our Investments segment mortgage
investments portfolio and pledged as collateral which are
recorded as a reduction to debt securities of consolidated
trusts held by third parties on our consolidated balance sheets.
|
Securities
Pledged with the Ability of the Secured Party to
Repledge
At June 30, 2011, we pledged securities with the ability of
the secured party to repledge of $10.6 billion, of which
$10.5 billion was collateral posted in connection with our
uncommitted intraday line of credit with a third party as
discussed above.
At December 31, 2010, we pledged securities with the
ability of the secured party to repledge of $10.7 billion,
of which $10.5 billion was collateral posted in connection
with our uncommitted intraday line of credit with a third party
as discussed above.
There were no borrowings against the line of credit at
June 30, 2011 or December 31, 2010. The remaining
$0.1 billion and $0.2 billion of collateral posted
with the ability of the secured party to repledge at
June 30, 2011 and December 31, 2010, respectively, was
posted in connection with our margin account related to futures
transactions.
Securities
Pledged without the Ability of the Secured Party to
Repledge
At June 30, 2011 and December 31, 2010, we pledged
securities without the ability of the secured party to repledge
of $139 million and $5 million, respectively, at a
clearinghouse in connection with the trading and settlement of
securities.
Collateral
in the Form of Cash Pledged
At June 30, 2011, we pledged $10.0 billion of
collateral in the form of cash and cash equivalents, all but
$109 million of which related to our derivative agreements
as we had $10.1 billion of such derivatives in a net loss
position. At December 31, 2010, we pledged
$8.5 billion of collateral in the form of cash and cash
equivalents, all but $40 million of which related to our
derivative agreements as we had $9.3 billion of such
derivatives in a net loss position. The remaining
$109 million and $40 million was posted at
clearinghouses in connection with our securities and other
derivative transactions at June 30, 2011 and
December 31, 2010, respectively.
NOTE 8: DEBT
SECURITIES AND SUBORDINATED BORROWINGS
Debt securities that we issue are classified on our consolidated
balance sheets as either debt securities of consolidated trusts
held by third parties or other debt. We issue other debt to fund
our operations.
Under the Purchase Agreement, without the prior written consent
of Treasury, we may not incur indebtedness that would result in
the par value of our aggregate indebtedness exceeding 120% of
the amount of mortgage assets we are allowed to own on
December 31 of the immediately preceding calendar year.
Because of this debt limit, we may be restricted in the amount
of debt we are allowed to issue to fund our operations. Under
the Purchase Agreement, the amount of our
indebtedness is determined without giving effect to
the January 1, 2010 change in the accounting guidance
related to transfers of financial assets and consolidation of
VIEs. Therefore, indebtedness does not include debt
securities of consolidated trusts held by third parties. We also
cannot become liable for any subordinated indebtedness, without
the prior consent of Treasury.
Our debt cap under the Purchase Agreement is $972 billion
in 2011. As of June 30, 2011, we estimate that the par
value of our aggregate indebtedness totaled $695.2 billion,
which was approximately $276.8 billion below the debt cap.
Our aggregate indebtedness is calculated as the par value of
other debt.
In Tables 8.1 and 8.2, the categories of short-term debt
(due within one year) and long-term debt (due after one year)
are based on the original contractual maturity of the debt
instruments classified as other debt.
Table 8.1 summarizes the interest expense and the balances
of total debt, net per our consolidated balance sheets.
Table 8.1
Total Debt, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense for the
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Balance,
Net(1)
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
(in millions)
|
|
|
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
95
|
|
|
$
|
137
|
|
|
$
|
210
|
|
|
$
|
278
|
|
|
$
|
189,092
|
|
|
$
|
197,106
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt
|
|
|
3,232
|
|
|
|
4,320
|
|
|
|
6,670
|
|
|
|
8,766
|
|
|
|
491,634
|
|
|
|
516,123
|
|
Subordinated debt
|
|
|
6
|
|
|
|
11
|
|
|
|
18
|
|
|
|
23
|
|
|
|
361
|
|
|
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
3,238
|
|
|
|
4,331
|
|
|
|
6,688
|
|
|
|
8,789
|
|
|
|
491,995
|
|
|
|
516,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
3,333
|
|
|
|
4,468
|
|
|
|
6,898
|
|
|
|
9,067
|
|
|
|
681,087
|
|
|
|
713,940
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
17,261
|
|
|
|
19,048
|
|
|
|
34,664
|
|
|
|
38,691
|
|
|
|
1,499,036
|
|
|
|
1,528,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
$
|
20,594
|
|
|
$
|
23,516
|
|
|
$
|
41,562
|
|
|
$
|
47,758
|
|
|
$
|
2,180,123
|
|
|
$
|
2,242,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents par value, net of associated discounts, premiums and
hedge-related basis adjustments, with $0.7 billion and
$0.9 billion, respectively, of other short-term debt, and
$3.2 billion and $3.6 billion, respectively, of other
long-term debt that represents the fair value of debt securities
with the fair value option elected at June 30, 2011 and
December 31, 2010.
|
For the three and six months ended June 30, 2011, we
recognized fair value gains (losses) of $(37) million and
$(118) million, respectively, on our foreign-currency
denominated debt, of which $(46) million and
$(163) million, respectively, are gains (losses) related to
our net foreign-currency translation.
Other
Debt
Table 8.2 summarizes the balances and effective interest rates
for other debt. We had no balances in federal funds purchased
and securities sold under agreements to repurchase at either
June 30, 2011 or December 31, 2010.
Table
8.2 Other Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Par Value
|
|
|
Balance,
Net(1)
|
|
|
Effective
Rate(2)
|
|
|
Par Value
|
|
|
Balance,
Net(1)
|
|
|
Effective
Rate(2)
|
|
|
Other short-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference
Bills®
securities and discount notes
|
|
$
|
188,411
|
|
|
$
|
188,343
|
|
|
|
0.16
|
%
|
|
$
|
194,875
|
|
|
$
|
194,742
|
|
|
|
0.24
|
%
|
Medium-term notes
|
|
|
749
|
|
|
|
749
|
|
|
|
0.14
|
|
|
|
2,364
|
|
|
|
2,364
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other short-term debt
|
|
|
189,160
|
|
|
|
189,092
|
|
|
|
0.16
|
|
|
|
197,239
|
|
|
|
197,106
|
|
|
|
0.25
|
|
Other long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original maturities on or before December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
45,522
|
|
|
|
45,519
|
|
|
|
1.62
|
%
|
|
|
120,951
|
|
|
|
120,959
|
|
|
|
2.13
|
%
|
2012
|
|
|
132,695
|
|
|
|
132,653
|
|
|
|
1.75
|
|
|
|
138,474
|
|
|
|
138,418
|
|
|
|
1.79
|
|
2013
|
|
|
112,310
|
|
|
|
112,061
|
|
|
|
1.83
|
|
|
|
79,177
|
|
|
|
78,886
|
|
|
|
2.64
|
|
2014
|
|
|
60,997
|
|
|
|
60,816
|
|
|
|
2.57
|
|
|
|
36,328
|
|
|
|
36,142
|
|
|
|
3.46
|
|
2015
|
|
|
37,680
|
|
|
|
37,653
|
|
|
|
2.96
|
|
|
|
45,779
|
|
|
|
45,752
|
|
|
|
2.99
|
|
Thereafter
|
|
|
116,855
|
|
|
|
103,293
|
|
|
|
4.49
|
|
|
|
110,269
|
|
|
|
96,677
|
|
|
|
4.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term
debt(3)
|
|
|
506,059
|
|
|
|
491,995
|
|
|
|
2.53
|
|
|
|
530,978
|
|
|
|
516,834
|
|
|
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
$
|
695,219
|
|
|
$
|
681,087
|
|
|
|
|
|
|
$
|
728,217
|
|
|
$
|
713,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents par value, net of associated discounts, premiums, and
hedging-related adjustments.
|
(2)
|
Represents the weighted average effective rate that remains
constant over the life of the instrument, which includes the
amortization of discounts or premiums, issuance costs and
hedging-related basis adjustments.
|
(3)
|
Balance, net for other long-term debt includes callable debt of
$124.5 billion and $142.6 billion at June 30,
2011 and December 31, 2010, respectively.
|
Debt
Securities of Consolidated Trusts Held by Third
Parties
Debt securities of consolidated trusts held by third parties
represents our liability to third parties that hold beneficial
interests in our consolidated securitization trusts
(i.e., single-family PC trusts and certain Other
Guarantee Transactions).
Table 8.3 summarizes the debt securities of consolidated
trusts held by third parties based on underlying mortgage
product type.
Table 8.3
Debt Securities of Consolidated Trusts Held by Third
Parties(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Contractual
|
|
|
|
|
|
Balance,
|
|
|
Average
|
|
|
Contractual
|
|
|
|
|
|
Balance,
|
|
|
Average
|
|
|
|
Maturity(2)
|
|
|
UPB
|
|
|
Net
|
|
|
Coupon(2)
|
|
|
Maturity(2)
|
|
|
UPB
|
|
|
Net
|
|
|
Coupon(2)
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more, fixed-rate
|
|
|
2011 - 2048
|
|
|
$
|
1,074,301
|
|
|
$
|
1,084,346
|
|
|
|
5.00
|
%
|
|
|
2011-2048
|
|
|
$
|
1,110,943
|
|
|
$
|
1,118,994
|
|
|
|
5.03
|
%
|
20-year
fixed-rate
|
|
|
2012 - 2031
|
|
|
|
65,988
|
|
|
|
66,885
|
|
|
|
4.67
|
|
|
|
2012-2031
|
|
|
|
63,941
|
|
|
|
64,752
|
|
|
|
4.78
|
|
15-year
fixed-rate
|
|
|
2011 - 2026
|
|
|
|
234,548
|
|
|
|
237,480
|
|
|
|
4.29
|
|
|
|
2011-2026
|
|
|
|
227,269
|
|
|
|
229,510
|
|
|
|
4.41
|
|
Adjustable-rate
|
|
|
2011 - 2047
|
|
|
|
54,715
|
|
|
|
55,338
|
|
|
|
3.43
|
|
|
|
2011-2047
|
|
|
|
50,904
|
|
|
|
51,351
|
|
|
|
3.69
|
|
Interest-only(3)
|
|
|
2026 - 2041
|
|
|
|
52,669
|
|
|
|
52,757
|
|
|
|
5.15
|
|
|
|
2026-2040
|
|
|
|
61,773
|
|
|
|
61,830
|
|
|
|
5.30
|
|
FHA/VA
|
|
|
2011 - 2041
|
|
|
|
2,195
|
|
|
|
2,230
|
|
|
|
5.71
|
|
|
|
2011-2040
|
|
|
|
2,171
|
|
|
|
2,211
|
|
|
|
5.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities of consolidated trusts held by third
parties(4)
|
|
|
|
|
|
$
|
1,484,416
|
|
|
$
|
1,499,036
|
|
|
|
|
|
|
|
|
|
|
$
|
1,517,001
|
|
|
$
|
1,528,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Debt securities of consolidated trusts held by third parties are
prepayable without penalty.
|
(2)
|
Based on the contractual maturity and interest rate of debt
securities of our consolidated trusts held by third parties.
|
(3)
|
Includes interest-only securities and interest-only mortgage
loans that allow the borrowers to pay only interest for a fixed
period of time before the loans begin to amortize.
|
(4)
|
The effective rate for debt securities of consolidated trusts
held by third parties was 4.57% as of both June 30, 2011
and December 31, 2010, respectively.
|
Lines of
Credit
At both June 30, 2011 and December 31, 2010, we had
one secured, uncommitted intraday line of credit with a third
party totaling $10 billion. We use this line of credit
regularly to provide us with additional liquidity to fund our
intraday activities through the Fedwire system in connection
with the Federal Reserves payments system risk policy,
which restricts or eliminates daylight overdrafts by the GSEs.
No amounts were drawn on this line of credit at June 30,
2011 or
December 31, 2010. We expect to continue to use the current
facility to satisfy our intraday financing needs; however, as
the line is uncommitted, we may not be able to draw on it if and
when needed.
Subordinated
Debt Interest and Principal Payments
In a September 23, 2008 statement concerning the
conservatorship, the Director of FHFA stated that we would
continue to make interest and principal payments on our
subordinated debt, even if we fail to maintain required capital
levels. As a result, the terms of any of our subordinated debt
that provide for us to defer payments of interest under certain
circumstances, including our failure to maintain specified
capital levels, are no longer applicable.
NOTE 9:
FINANCIAL GUARANTEES
We securitize substantially all of the single-family mortgage
loans we purchase and issue securities backed by such mortgage
loans, which we guarantee. During the six months ended
June 30, 2011 and 2010, we issued and guaranteed
$155.5 billion and $163.7 billion, respectively, in
UPB of Freddie Mac mortgage-related securities backed by
single-family mortgage loans (excluding those backed by HFA
bonds). Beginning January 1, 2010, we no longer recognize a
financial guarantee for such arrangements as we instead
recognize both the mortgage loans and the debt securities of
these securitization trusts on our consolidated balance sheets.
Table 9.1 presents our maximum potential exposure, our
recognized liability, and the maximum remaining term of our
financial guarantees that are not consolidated on our balance
sheets.
Table 9.1
Financial Guarantees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
Maximum
|
|
|
Maximum
|
|
Recognized
|
|
Remaining
|
|
Maximum
|
|
Recognized
|
|
Remaining
|
|
|
Exposure(1)
|
|
Liability
|
|
Term
|
|
Exposure(1)
|
|
Liability
|
|
Term
|
|
|
(dollars in millions, terms in years)
|
|
Non-consolidated Freddie Mac
securities(2)
|
|
$
|
31,456
|
|
|
$
|
264
|
|
|
|
40
|
|
|
$
|
25,279
|
|
|
$
|
202
|
|
|
|
41
|
|
Other guarantee
commitments(3)
|
|
|
20,409
|
|
|
|
431
|
|
|
|
38
|
|
|
|
18,670
|
|
|
|
427
|
|
|
|
38
|
|
Derivative instruments
|
|
|
41,729
|
|
|
|
820
|
|
|
|
34
|
|
|
|
37,578
|
|
|
|
301
|
|
|
|
35
|
|
Servicing-related premium guarantees
|
|
|
147
|
|
|
|
|
|
|
|
5
|
|
|
|
172
|
|
|
|
|
|
|
|
5
|
|
|
|
(1)
|
Maximum exposure represents the contractual amounts that could
be lost under the non-consolidated guarantees if counterparties
or borrowers defaulted, without consideration of possible
recoveries under credit enhancement arrangements, such as
recourse provisions, third-party insurance contracts, or from
collateral held or pledged. The maximum exposure disclosed above
is not representative of the actual loss we are likely to incur,
based on our historical loss experience and after consideration
of proceeds from related collateral liquidation. The maximum
exposure for our liquidity guarantees is not mutually exclusive
of our default guarantees on the same securities; therefore,
these amounts are included within the maximum exposure of
non-consolidated Freddie Mac securities and other guarantee
commitments.
|
(2)
|
As of June 30, 2011 and December 31, 2010, the UPB of
non-consolidated Freddie Mac securities associated with
single-family mortgage loans was $11.0 billion and
$11.3 billion, respectively. The remaining balances relate
to multifamily mortgage loans.
|
(3)
|
As of June 30, 2011 and December 31, 2010, the UPB of
other guarantee commitments associated with single-family
mortgage loans was $10.4 billion and $8.6 billion,
respectively. The remaining balances relate to multifamily
mortgage loans.
|
Non-consolidated
Freddie Mac Securities
We issue three types of mortgage-related securities:
(a) PCs; (b) REMICs and Other Structured Securities;
and (c) Other Guarantee Transactions. We guarantee the
payment of principal and interest on these securities, which are
backed by pools of mortgage loans, irrespective of the cash
flows received from the borrowers. Commencing January 1,
2010, only our guarantees issued to non-consolidated
securitization trusts are accounted for in accordance with the
accounting guidance for guarantees (i.e., a guarantee
asset and guarantee obligation are recognized).
At June 30, 2011 and December 31, 2010, there were
$1.5 trillion and $1.4 trillion, respectively, of
securities we issued in resecuritizations of our PCs and other
previously issued REMICs and Other Structured Securities. The
securities issued in these resecuritizations consist of
single-class and multiclass securities backed by PCs, REMICs,
interest-only strips, and principal-only strips and do not
increase our credit-related exposure. As a result, no guarantee
asset or guarantee obligation is recognized for these
transactions and they are excluded from the table above.
We recognize a guarantee asset, guarantee obligation and a
reserve for guarantee losses, as necessary, for securities
issued by non-consolidated securitization trusts and other
guarantee commitments for which we are exposed to incremental
credit risk. Our guarantee obligation represents the recognized
liability, net of cumulative amortization, associated with our
guarantee of PCs and certain Other Guarantee Transactions issued
to non-consolidated securitization trusts. In addition to our
guarantee obligation, we recognize a reserve for guarantee
losses, which is included within other liabilities on our
consolidated balance sheets, which totaled $0.2 billion at
both June 30, 2011 and December 31, 2010,
respectively. For many of the loans underlying our
non-consolidated guarantees, there are credit protections from
third parties, including subordination, covering a portion of
our exposure. See NOTE 4: MORTGAGE LOANS AND LOAN
LOSS RESERVES for information about credit protections on
loans we guarantee. See NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING PRINCIPLES in our 2010 Annual
Report for further information about our accounting for
financial guarantees.
During the three and six months ended June 30, 2011 we
issued approximately $3.8 billion and $6.7 billion,
respectively, compared to $2.2 billion and
$3.7 billion for the three and six months ended
June 30, 2010, respectively, in UPB of non-consolidated
Freddie Mac securities primarily backed by multifamily mortgage
loans, for which a guarantee asset and guarantee obligation were
recognized. During the six months ended June 30, 2010, we
also issued $4.1 billion in UPB of non-consolidated Other
Guarantee Transactions backed by HFA bonds as part of the NIBP,
for which a guarantee asset and guarantee obligation were
recognized.
In connection with transfers of financial assets to
non-consolidated securitization trusts that are accounted for as
sales and for which we have incremental credit risk, we
recognize our guarantee obligation in accordance with the
accounting guidance for guarantees. Additionally, we may retain
an interest in the transferred financial assets (e.g., a
beneficial interest issued by the securitization trust). See
NOTE 10: RETAINED INTERESTS IN MORTGAGE-RELATED
SECURITIZATIONS for further information on these retained
interests.
Other
Guarantee Commitments
We provide long-term standby commitments to certain of our
customers, which obligate us to purchase seriously delinquent
loans that are covered by those agreements. During the three and
six months ended June 30, 2011, we issued and guaranteed
$0.7 billion and $2.5 billion, respectively, in UPB of
long-term standby commitments. These other guarantee commitments
totaled $7.5 billion and $5.5 billion of UPB at
June 30, 2011 and December 31, 2010, respectively. We
also had other guarantee commitments on multifamily housing
revenue bonds that were issued by HFAs of $9.6 billion and
$9.7 billion in UPB at June 30, 2011 and
December 31, 2010, respectively. In addition, as of
June 30, 2011 and December 31, 2010, respectively, we
had issued guarantees under the TCLFP on securities backed by
HFA bonds with UPB of $3.3 billion and $3.5 billion,
respectively.
Derivative
Instruments
Derivative instruments include written options, written
swaptions, interest-rate swap guarantees, and short-term default
guarantee commitments accounted for as credit derivatives. See
NOTE 11: DERIVATIVES for further discussion of
these derivative guarantees.
We guarantee the performance of interest-rate swap contracts in
two circumstances. First, we guarantee that a borrower will
perform under an interest-rate swap contract linked to a
borrowers adjustable-rate mortgage. And second, in
connection with our issuance of certain REMICs and Other
Structured Securities, which are backed by tax-exempt bonds, we
guarantee that the sponsor of the transaction will perform under
the interest-rate swap contract linked to the senior
variable-rate certificates that we issued.
We also have issued REMICs and Other Structured Securities with
stated final maturities that are shorter than the stated
maturity of the underlying mortgage loans. If the underlying
mortgage loans to these securities have not been purchased by a
third party or fully matured as of the stated final maturity
date of such securities, we will sponsor an auction of the
underlying assets. To the extent that purchase or auction
proceeds are insufficient to cover unpaid principal amounts due
to investors in such REMICs and Other Structured Securities, we
are obligated to fund such principal. Our maximum exposure on
these guarantees represents the outstanding UPB of the REMICs
and Other Structured Securities subject to stated final
maturities.
Servicing-Related
Premium Guarantees
We provide guarantees to reimburse servicers for premiums paid
to acquire servicing in situations where the original seller is
unable to perform under its separate servicing agreement. The
liability associated with these agreements was not material at
June 30, 2011 and December 31, 2010.
Other
Indemnifications
In connection with certain business transactions, we may provide
indemnification to counterparties for claims arising out of
breaches of certain obligations (e.g., those arising from
representations and warranties) in contracts entered into in the
normal course of business. Our assessment is that the risk of
any material loss from such a claim for indemnification is
remote and there are no probable and estimable losses associated
with these contracts. Therefore, we have not recorded any
liabilities related to these indemnifications on our
consolidated balance sheets at June 30, 2011 and
December 31, 2010.
As part of the guarantee arrangements pertaining to multifamily
housing revenue bonds, we provided commitments to advance funds,
commonly referred to as liquidity guarantees. These
guarantees require us to advance funds to enable others to
repurchase any tendered tax-exempt and related taxable bonds
that are unable to be remarketed. Any such advances are treated
as loans and are secured by a pledge to us of the repurchased
securities until the securities are remarketed. We hold cash and
cash equivalents on our consolidated balance sheets for the
amount of these commitments. No advances under these liquidity
guarantees were outstanding at June 30, 2011 and
December 31, 2010.
NOTE 10:
RETAINED INTERESTS IN MORTGAGE-RELATED SECURITIZATIONS
Beginning January 1, 2010, in accordance with the amendment
to the accounting guidance for consolidation of VIEs, we
consolidated our single-family PC trusts and certain Other
Guarantee Transactions. As a result, a large majority of our
transfers of financial assets that historically qualified as
sales (e.g., the transfer of mortgage loans to our
single-family PC trusts) are no longer treated as such because
the financial assets are transferred to a consolidated entity.
In addition, to the extent that we receive newly-issued PCs or
Other Guarantee Transactions in connection with such a transfer,
we extinguish a proportional amount of the debt securities of
the consolidated trust. See NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES in our 2010 Annual Report for
further information regarding the impacts of consolidation of
our single-family PC trusts and certain Other Guarantee
Transactions.
Certain of our transfers of financial assets to non-consolidated
trusts and third parties may continue to qualify as sales. In
connection with our transfers of financial assets that qualify
as sales, we may retain certain interests in the transferred
assets. Our retained interests are primarily beneficial
interests issued by non-consolidated securitization trusts
(e.g., multifamily PCs and multiclass resecuritization
securities). These interests are included in investments in
securities on our consolidated balance sheets. In addition, our
guarantee asset recognized in connection with non-consolidated
securitization transactions also represents a retained interest.
For more information about our retained interests in
mortgage-related securitizations, see NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Investments in
Securities in our 2010 Annual Report. These transfers and
our resulting retained interests are not significant to our
consolidated financial statements in the first half of 2011 and
2010.
NOTE 11:
DERIVATIVES
Use of
Derivatives
We use derivatives primarily to:
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hedge forecasted issuances of debt;
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synthetically create callable and non-callable funding;
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regularly adjust or rebalance our funding mix in order to more
closely match changes in the interest-rate characteristics of
our mortgage assets; and
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hedge foreign-currency exposure.
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Hedge
Forecasted Debt Issuances
When we commit to purchase mortgage investments, such
commitments are typically for a future settlement ranging from
two weeks to three months after the date of the commitment. To
facilitate larger and more predictable debt issuances that
contribute to lower funding costs, we use interest-rate
derivatives to economically hedge the interest-rate risk
exposure from the time we commit to purchase a mortgage to the
time the related debt is issued.
Create
Synthetic Funding
We also use derivatives to synthetically create the substantive
economic equivalent of various debt funding structures. For
example, the combination of a series of short-term debt
issuances over a defined period and a pay-fixed interest rate
swap with the same maturity as the last debt issuance is the
substantive economic equivalent of a long-term fixed-rate debt
instrument of comparable maturity. Similarly, the combination of
non-callable debt and a call swaption, or option to enter into a
receive-fixed interest rate swap, with the same maturity as the
non-callable debt, is the substantive economic equivalent of
callable debt. These derivatives strategies increase our funding
flexibility and allow us to better match asset and liability
cash flows, often reducing overall funding costs.
Adjust
Funding Mix
We generally use interest-rate swaps to mitigate contractual
funding mismatches between our assets and liabilities. We also
use swaptions and other option-based derivatives to adjust the
contractual terms of our debt funding in response
to changes in the expected lives of our investments in
mortgage-related assets. As market conditions dictate, we take
rebalancing actions to keep our interest-rate risk exposure
within management-set limits. In a declining interest-rate
environment, we typically enter into receive-fixed interest rate
swaps or purchase Treasury-based derivatives to shorten the
duration of our funding to offset the declining duration of our
mortgage assets. In a rising interest-rate environment, we
typically enter into pay-fixed interest rate swaps or sell
Treasury-based derivatives in order to lengthen the duration of
our funding to offset the increasing duration of our mortgage
assets.
Foreign-Currency
Exposure
We use foreign-currency swaps to eliminate virtually all of our
exposure to fluctuations in exchange rates related to our
foreign-currency denominated debt by entering into swap
transactions that effectively convert foreign-currency
denominated obligations into U.S. dollar-denominated
obligations.
Types of
Derivatives
We principally use the following types of derivatives:
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LIBOR- and Euribor-based interest-rate swaps;
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LIBOR- and Treasury-based options (including swaptions);
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LIBOR- and Treasury-based exchange-traded futures; and
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Foreign-currency swaps.
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In addition to swaps, futures and purchased options, our
derivative positions include the following:
Written
Options and Swaptions
Written call and put swaptions are sold to counterparties
allowing them the option to enter into receive- and pay-fixed
interest rate swaps, respectively. Written call and put options
on mortgage-related securities give the counterparty the right
to execute a contract under specified terms, which generally
occurs when we are in a liability position. We use these written
options and swaptions to manage convexity risk over a wide range
of interest rates. Written options lower our overall hedging
costs, allow us to hedge the same economic risk we assume when
selling guaranteed final maturity REMICs with a more liquid
instrument, and allow us to rebalance the options in our
callable debt and REMICs portfolios. We may, from time to time,
write other derivative contracts such as caps, floors,
interest-rate futures and options on
buy-up and
buy-down commitments.
Commitments
We routinely enter into commitments that include: (a) our
commitments to purchase and sell investments in securities;
(b) our commitments to purchase mortgage loans; and
(c) our commitments to purchase and extinguish or issue
debt securities of our consolidated trusts. Most of these
commitments are considered derivatives and therefore are subject
to the accounting guidance for derivatives and hedging.
Swap
Guarantee Derivatives
In connection with some of the guarantee arrangements pertaining
to multifamily housing revenue bonds and multifamily
pass-through certificates, we may also guarantee the
sponsors or the borrowers obligations as a
counterparty on any related interest-rate swaps used to mitigate
interest-rate risk, which are accounted for as swap guarantee
derivatives.
Credit
Derivatives
We entered into credit-risk sharing agreements for certain
credit enhanced multifamily housing revenue bonds held by third
parties in exchange for a monthly fee. In addition, we have
purchased mortgage loans containing debt cancellation contracts,
which provide for mortgage debt or payment cancellation for
borrowers who experience unanticipated losses of income
dependent on a covered event. The rights and obligations under
these agreements have been assigned to the servicers. However,
in the event the servicer does not perform as required by
contract, under our guarantee, we would be obligated to make the
required contractual payments.
For a discussion of our significant accounting policies related
to derivatives, please see NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Derivatives in
our 2010 Annual Report.
Derivative
Assets and Liabilities at Fair Value
Table 11.1 presents the location and fair value of derivatives
reported in our consolidated balance sheets.
Table
11.1 Derivative Assets and Liabilities at Fair
Value
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At June 30, 2011
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At December 31, 2010
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Notional or
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Notional or
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Contractual
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Derivatives at Fair Value
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Contractual
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Derivatives at Fair Value
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Amount
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Assets(1)
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Liabilities(1)
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Amount
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Assets(1)
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Liabilities(1)
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(in millions)
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Total derivative portfolio
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Derivatives not designated as hedging instruments under the
accounting guidance for derivatives and
hedging(2)
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Interest-rate swaps:
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Receive-fixed
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$
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215,758
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$
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3,971
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$
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(1,271
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)
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$
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324,590
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$
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6,952
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$
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(3,267
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)
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Pay-fixed
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321,870
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716
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(21,468
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)
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394,294
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3,012
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(24,210
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)
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Basis (floating to floating)
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3,275
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5
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(1
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)
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2,375
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6
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(2
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Total interest-rate swaps
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540,903
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4,692
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(22,740
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)
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721,259
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9,970
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(27,479
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)
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Option-based:
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Call swaptions
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Purchased
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103,825
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8,260
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114,110
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8,391
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Written
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23,025
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(780
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11,775
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(244
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Put swaptions
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Purchased
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73,475
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1,714
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59,975
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1,404
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Written
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6,000
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6,000
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(8
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)
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Other option-based
derivatives(3)
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41,861
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1,515
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(1
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)
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47,234
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1,460
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(10
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Total option-based
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248,186
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11,489
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(781
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239,094
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11,255
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(262
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)
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Futures
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105,169
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4
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(50
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)
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212,383
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3
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(170
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)
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Foreign-currency swaps
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2,184
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327
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2,021
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172
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Commitments(4)
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34,361
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121
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(66
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)
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14,292
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103
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(123
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Credit derivatives
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11,383
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2
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(4
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12,833
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12
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(5
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Swap guarantee derivatives
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3,733
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(36
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)
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3,614
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(36
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)
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Total Derivatives not designated as hedging instruments
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945,919
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16,635
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(23,677
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)
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1,205,496
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21,515
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(28,075
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)
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Netting
adjustments(5)
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(16,389
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23,269
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(21,372
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)
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26,866
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Total derivative portfolio, net
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$
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945,919
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$
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246
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$
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(408
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$
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1,205,496
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$
|
143
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$
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(1,209
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)
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(1)
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The value of derivatives on our consolidated balance sheets is
reported as derivative assets, net and derivative liabilities,
net.
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(2)
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See Use of Derivatives for additional information
about the purpose of entering into derivatives not designated as
hedging instruments and our overall risk management strategies.
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(3)
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Primarily includes purchased interest rate caps and floors.
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(4)
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Commitments include: (a) our commitments to purchase and
sell investments in securities; (b) our commitments to
purchase mortgage loans; and (c) our commitments to
purchase and extinguish or issue debt securities of our
consolidated trusts.
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(5)
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Represents counterparty netting, cash collateral netting, net
trade/settle receivable or payable, and net derivative interest
receivable or payable. The net cash collateral posted and net
trade/settle receivable were $8.2 billion and
$6 million, respectively, at June 30, 2011. The net
cash collateral posted and net trade/settle receivable were
$6.3 billion and $1 million, respectively, at
December 31, 2010. The net interest receivable (payable) of
derivative assets and derivative liabilities was approximately
$(1.3) billion and $(0.8) billion at June 30,
2011 and December 31, 2010, respectively, which was mainly
related to interest rate swaps that we have entered into.
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The carrying value of our derivatives on our consolidated
balance sheets is equal to their fair value, including net
derivative interest receivable or payable and net trade/settle
receivable or payable and is net of cash collateral held or
posted, where allowable by a master netting agreement.
Derivatives in a net asset position are reported as derivative
assets, net. Similarly, derivatives in a net liability position
are reported as derivative liabilities, net. Cash collateral we
obtained from counterparties to derivative contracts that has
been offset against derivative assets at June 30, 2011 and
December 31, 2010 was $1.7 billion and
$2.2 billion, respectively. Cash collateral we posted to
counterparties to derivative contracts that has been offset
against derivative liabilities at June 30, 2011 and
December 31, 2010 was $9.9 billion and
$8.5 billion, respectively. We are subject to collateral
posting thresholds based on the credit rating of our long-term
senior unsecured debt securities from S&P or Moodys.
In the event our credit ratings fall below certain specified
rating triggers or are withdrawn by S&P or Moodys,
the counterparties to the derivative instruments are entitled to
full overnight collateralization on derivative instruments in
net liability positions. The aggregate fair value of all
derivative instruments with credit-risk-related contingent
features that were in a liability position on June 30,
2011, was $10.1 billion for which we have posted collateral
of $9.9 billion in the normal course of business. If the
credit-risk-related contingent features underlying these
agreements were triggered on June 30, 2011, we would be
required to post an additional $0.2 billion of collateral
to our counterparties.
At June 30, 2011 and December 31, 2010, there were no
amounts of cash collateral that were not offset against
derivative assets, net or derivative liabilities, net, as
applicable. See NOTE 17: CONCENTRATION OF CREDIT AND
OTHER RISKS for further information related to our
derivative counterparties.
Gains and
Losses on Derivatives
Table 11.2 presents the gains and losses on derivatives reported
in our consolidated statements of income and comprehensive
income.
Table
11.2 Gains and Losses on Derivatives
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Three Months Ended June 30,
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Amount of Gain or
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(Loss) Recognized in
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Amount of Gain or (Loss)
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Other Income
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Amount of Gain or (Loss) Recognized in AOCI
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Reclassified from AOCI
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(Ineffective Portion
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on Derivatives
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into Earnings
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and Amount Excluded
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Derivatives in Cash Flow
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(Effective Portion)
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(Effective Portion)
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from Effectiveness Testing)
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Hedging
Relationships(1)
|
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2011
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2010
|
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|
2011
|
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2010
|
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2011
|
|
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2010
|
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(in millions)
|
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Closed cash flow
hedges(2)
|
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$
|
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|
$
|
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|
|
$
|
(201
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)
|
|
$
|
(277
|
)
|
|
$
|
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|
|
$
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Six Months Ended June 30,
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|
|
|
|
|
Amount of Gain or
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Recognized in
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Losses)
|
|
|
Other Income
|
|
|
|
Amount of Gain or (Loss) Recognized in AOCI
|
|
|
Reclassified from AOCI
|
|
|
(Ineffective Portion
|
|
|
|
on Derivatives
|
|
|
into Earnings
|
|
|
and Amount Excluded
|
|
Derivatives in Cash Flow
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
from Effectiveness Testing)
|
|
Hedging
Relationships(1)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
Closed cash flow
hedges(2)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(398
|
)
|
|
$
|
(536
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
|
|
Derivative Gains
(Losses)(3)
|
|
|
|
|
|
|
|
instruments under the accounting guidance
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
for derivatives and
hedging(4)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-currency denominated
|
|
$
|
(3
|
)
|
|
$
|
(57
|
)
|
|
$
|
(40
|
)
|
|
$
|
(65
|
)
|
|
|
|
|
|
|
|
|
U.S. dollar denominated
|
|
|
3,561
|
|
|
|
10,716
|
|
|
|
1,357
|
|
|
|
13,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receive-fixed swaps
|
|
|
3,558
|
|
|
|
10,659
|
|
|
|
1,317
|
|
|
|
13,034
|
|
|
|
|
|
|
|
|
|
Pay-fixed
|
|
|
(7,307
|
)
|
|
|
(18,633
|
)
|
|
|
(3,344
|
)
|
|
|
(23,380
|
)
|
|
|
|
|
|
|
|
|
Basis (floating to floating)
|
|
|
|
|
|
|
36
|
|
|
|
1
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
|
(3,749
|
)
|
|
|
(7,938
|
)
|
|
|
(2,026
|
)
|
|
|
(10,272
|
)
|
|
|
|
|
|
|
|
|
Option based:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
2,026
|
|
|
|
6,531
|
|
|
|
1,342
|
|
|
|
7,031
|
|
|
|
|
|
|
|
|
|
Written
|
|
|
(196
|
)
|
|
|
(336
|
)
|
|
|
(158
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
Put swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
(355
|
)
|
|
|
(813
|
)
|
|
|
(477
|
)
|
|
|
(1,787
|
)
|
|
|
|
|
|
|
|
|
Written
|
|
|
|
|
|
|
84
|
|
|
|
7
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
Other option-based
derivatives(5)
|
|
|
127
|
|
|
|
398
|
|
|
|
81
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
|
1,602
|
|
|
|
5,864
|
|
|
|
795
|
|
|
|
5,282
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
(99
|
)
|
|
|
42
|
|
|
|
(140
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
Foreign-currency
swaps(6)
|
|
|
47
|
|
|
|
(484
|
)
|
|
|
156
|
|
|
|
(815
|
)
|
|
|
|
|
|
|
|
|
Commitments(7)
|
|
|
(257
|
)
|
|
|
(114
|
)
|
|
|
(421
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Swap guarantee derivatives
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(2,455
|
)
|
|
|
(2,627
|
)
|
|
|
(1,633
|
)
|
|
|
(5,963
|
)
|
|
|
|
|
|
|
|
|
Accrual of periodic
settlements:(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed interest rate
swaps(9)
|
|
|
1,066
|
|
|
|
1,688
|
|
|
|
2,312
|
|
|
|
3,220
|
|
|
|
|
|
|
|
|
|
Pay-fixed interest rate swaps
|
|
|
(2,428
|
)
|
|
|
(2,906
|
)
|
|
|
(4,932
|
)
|
|
|
(5,790
|
)
|
|
|
|
|
|
|
|
|
Foreign-currency swaps
|
|
|
6
|
|
|
|
5
|
|
|
|
10
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
4
|
|
|
|
2
|
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrual of periodic settlements
|
|
|
(1,352
|
)
|
|
|
(1,211
|
)
|
|
|
(2,601
|
)
|
|
|
(2,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,807
|
)
|
|
$
|
(3,838
|
)
|
|
$
|
(4,234
|
)
|
|
$
|
(8,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Derivatives that meet specific criteria may be accounted for as
cash flow hedges. Net deferred gains and losses on closed cash
flow hedges (i.e., where the derivative is either
terminated or redesignated) are also included in AOCI until the
related forecasted transaction affects earnings or is determined
to be probable of not occurring.
|
(2)
|
Amounts reported in AOCI related to changes in the fair value of
commitments to purchase securities that were designated as cash
flow hedges are recognized as basis adjustments to the related
assets, which are amortized in earnings as interest income.
Amounts linked to interest payments on long-term debt are
recorded in other debt interest expense and amounts not linked
to interest payments on long-term debt are recorded in expense
related to derivatives.
|
(3)
|
Gains (losses) are reported as derivative gains (losses) on our
consolidated statements of income and comprehensive income.
|
(4)
|
See Use of Derivatives for additional information
about the purpose of entering into derivatives not designated as
hedging instruments and our overall risk management strategies.
|
(5)
|
Primarily includes purchased interest rate caps and floors.
|
(6)
|
Foreign-currency swaps are defined as swaps in which the net
settlement is based on one leg calculated in a foreign-currency
and the other leg calculated in U.S. dollars.
|
(7)
|
Commitments include: (a) our commitments to purchase and
sell investments in securities; (b) our commitments to
purchase mortgage loans; and (c) our commitments to
purchase and extinguish or issue debt securities of our
consolidated trusts.
|
(8)
|
For derivatives not in qualifying hedge accounting
relationships, the accrual of periodic cash settlements is
recorded in derivative gains (losses) on our consolidated
statements of income and comprehensive income.
|
(9)
|
Includes imputed interest on zero-coupon swaps.
|
Hedge
Designation of Derivatives
At June 30, 2011 and December 31, 2010, we did not
have any derivatives in hedge accounting relationships; however,
there are deferred net losses recorded in AOCI related to closed
cash flow hedges. As shown in Table 11.3, the total AOCI
related to derivatives designated as cash flow hedges was a loss
of $2.0 billion and $2.6 billion at June 30, 2011
and 2010, respectively, composed of deferred net losses on
closed cash flow hedges. Closed cash flow hedges involve
derivatives that have been terminated or are no longer
designated as cash flow hedges. Fluctuations in prevailing
market interest rates have no impact on the deferred portion of
AOCI relating to losses on closed cash flow hedges.
The previous deferred amount related to closed cash flow hedges
remains in our AOCI balance and will be recognized into earnings
over the expected time period for which the forecasted
transactions impact earnings. Over the next 12 months, we
estimate that approximately $461 million, net of taxes, of
the $2.0 billion of cash flow hedge losses in AOCI at
June 30, 2011 will be reclassified into earnings. The
maximum remaining length of time over which we have hedged the
exposure related to the variability in future cash flows on
forecasted transactions, primarily forecasted debt issuances, is
23 years. However, over 70% and 90% of AOCI relating to
closed cash flow hedges at June 30, 2011, will be
reclassified to earnings over the next five and ten years,
respectively.
Table 11.3 presents the changes in AOCI related to
derivatives designated as cash flow hedges. Net
reclassifications of losses to earnings represents the AOCI
amount that was recognized in earnings as the originally hedged
forecasted transactions affected earnings, unless it was deemed
probable that the forecasted transaction would not occur. If it
is probable that the forecasted transaction will not occur, then
the deferred gain or loss associated with the hedge related to
the forecasted transaction would be reclassified into earnings
immediately.
Table 11.3
AOCI Related to Cash Flow Hedge Relationships
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Beginning
balance(1)
|
|
$
|
(2,239
|
)
|
|
$
|
(2,905
|
)
|
Cumulative effect of change in accounting
principle(2)
|
|
|
|
|
|
|
(7
|
)
|
Net reclassifications of losses to
earnings(3)
|
|
|
267
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
Ending
balance(1)
|
|
$
|
(1,972
|
)
|
|
$
|
(2,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents net deferred gains and losses on closed (i.e.,
terminated or redesignated) cash flow hedges.
|
(2)
|
Represents adjustment to initially apply the accounting guidance
for accounting for transfers of financial assets and
consolidation of VIEs, as well as a change in the amortization
method for certain related deferred items. Net of tax benefit of
$4 million for the six months ended June 30, 2010.
|
(3)
|
Net of tax benefit of $131 million and $180 million
for the six months ended June 30, 2011 and 2010,
respectively.
|
NOTE 12:
FREDDIE MAC STOCKHOLDERS EQUITY (DEFICIT)
Senior
Preferred Stock
To address our net worth deficit of $1.5 billion at
June 30, 2011, FHFA will submit a draw request on our
behalf to Treasury under the Purchase Agreement in the amount of
$1.5 billion. We received $500 million in March 2011
pursuant to a draw request that FHFA submitted to Treasury on
our behalf to address the deficit in our net worth as of
December 31, 2010. No cash was received from Treasury under
the Purchase Agreement during the second quarter of 2011 due to
our positive net worth at March 31, 2011. The aggregate
liquidation preference on the senior preferred stock owned by
Treasury was $64.7 billion and $64.2 billion as of
June 30, 2011 and December 31, 2010, respectively. See
NOTE 16: REGULATORY CAPITAL for additional
information.
Stock
Repurchase and Issuance Programs
We did not repurchase or issue any of our common shares or
non-cumulative preferred stock during the six months ended
June 30, 2011, except for issuances of treasury stock as
reported on our consolidated statements of equity (deficit)
relating to stock-based compensation granted prior to
conservatorship. Common stock delivered under these stock-based
compensation plans consists of treasury stock. During the six
months ended June 30, 2011, restrictions lapsed on
823,605 restricted stock units, all of which were granted
prior to conservatorship. For a discussion regarding our
stock-based compensation plans, see NOTE 13: FREDDIE
MAC STOCKHOLDERS EQUITY (DEFICIT) in our 2010 Annual
Report.
Dividends
Declared During 2011
No common dividends were declared in 2011. On both
March 31, 2011 and June 30 2011, we paid dividends of
$1.6 billion in cash on the senior preferred stock at the
direction of our Conservator. We did not declare or pay
dividends on any other series of Freddie Mac preferred stock
outstanding during the six months ended June 30, 2011.
NOTE 13:
INCOME TAXES
Income
Tax Benefit
For the three months ended June 30, 2011 and 2010, we
reported an income tax benefit of $232 million and
$286 million, respectively, resulting in effective tax
rates of 9.8% and 5.7%, respectively. For the six months ended
June 30, 2011 and 2010, we reported an income tax benefit
of $306 million and $389 million, respectively,
representing effective tax rates of 17.3% and 3.3%,
respectively. For the three and six months ended June 30,
2011 and 2010, our effective tax rate was different from the
statutory rate of 35% primarily due to changes in the valuation
allowance recorded against a portion of our net deferred tax
assets.
Deferred
Tax Assets, Net
We use the asset and liability method to account for income
taxes in accordance with the accounting guidance for income
taxes. Under this method, deferred tax assets and liabilities
are recognized based upon the expected future tax consequences
of existing temporary differences between the financial
reporting and the tax reporting basis of assets and liabilities
using enacted statutory tax rates. Valuation allowances are
recorded to reduce net deferred tax assets when it is more
likely than not that a tax benefit will not be realized. The
realization of our net deferred tax assets is dependent upon the
generation of sufficient taxable income in available carryback
years from current operations and unrecognized tax benefits, and
upon our intent and ability to hold
available-for-sale
debt securities until the recovery of any temporary unrealized
losses.
In connection with our entry into conservatorship, we determined
that it was more likely than not that a portion of our net
deferred tax assets would not be realized due to our inability
to generate sufficient taxable income and, therefore, we
recorded a valuation allowance. After evaluating all available
evidence, including our losses, the events and developments
related to our conservatorship, volatility in the economy, and
related difficulty in forecasting future profit levels, we
reached a similar conclusion in subsequent quarters, including
the second quarter of 2011. Our valuation allowance increased by
$658 million to $33.9 billion in the six months ended
June 30, 2011, primarily attributable to an increase in
temporary differences during the period. As of June 30,
2011, after consideration of the valuation allowance, we had a
net deferred tax asset of $3.9 billion, primarily
representing the tax effect of unrealized losses on our
available-for-sale securities. We believe the deferred tax asset
related to these unrealized losses is more likely than not to be
realized because of our assertion that we have the intent and
ability to hold our available-for-sale securities until any
temporary unrealized losses are recovered.
As of June 30, 2011, we had net operating loss and LIHTC
carryforwards that will expire over multiple years beginning in
2027 and ending in 2031 and alternative minimum tax credit
carryforwards that will not expire.
Unrecognized
Tax Benefits
At June 30, 2011, we had total unrecognized tax benefits,
exclusive of interest, of $1.2 billion. This amount relates
to tax positions for which ultimate deductibility is highly
certain, but for which there is uncertainty as to the timing of
such deductibility. If favorably resolved, $1.2 billion of
unrecognized tax benefits would have a positive impact on the
effective tax rate due to the reversal of the valuation
allowance established against deferred tax assets created by the
uncertain tax positions. This favorable impact would be offset
by a $186 million tax expense related to the establishment
of a valuation allowance against credits that have been carried
forward. A valuation allowance has not currently been recorded
against this amount because a portion of the unrecognized tax
benefits was used as a source of taxable income in our
realization assessment of our net deferred tax assets.
We continue to recognize interest and penalties, if any, in
income tax expense. There has been no material change during the
quarter in total accrued interest payable allocable to
unrecognized tax benefits.
The period for assessment under the statute of limitations for
federal income tax purposes is open on corporate income tax
returns filed for tax years 1998 to 2009. Prior to 2011, the IRS
completed its examinations of tax years 1998 to 2007. We
received Statutory Notices from the IRS assessing
$3.0 billion of additional income taxes and penalties for
the 1998 to 2005 tax years. We filed a petition with the
U.S. Tax Court on October 22, 2010 in response to the
Statutory Notices. The principal matter of controversy involves
questions of timing and potential penalties regarding our tax
accounting method for certain hedging transactions. The IRS
responded to our petition with the U.S. Tax Court on
December 21, 2010. On July 6, 2011, the U.S. Tax Court
issued a Notice Setting Case for Trial and a Standing Pretrial
Order. The trial date set forth in the Notice is
December 12, 2011. We continue to seek resolution of the
controversy by settlement. It is reasonably possible that the
hedge accounting method issue will be resolved within the next
12 months. We believe adequate reserves have been provided
for settlement on reasonable terms. However, changes could occur
in the gross balance of unrecognized tax benefits within the
next 12 months that could have a material impact on income
tax expense in the period the issue is resolved if the outcome
reached is not in our favor and the assessment is in excess of
the amount currently reserved. We have no information that would
enable us to estimate such impact at this time.
NOTE 14:
EMPLOYEE BENEFITS
Defined
Benefit Plans
We maintain a tax-qualified, funded defined benefit pension
plan, or Pension Plan, covering substantially all of our
employees. We also maintain a nonqualified, unfunded defined
benefit pension plan for our officers as part of our SERP (we
refer to this plan and the Pension Plan as our Defined Benefit
Pension Plans). We also maintain a defined benefit
postretirement health care plan, or Retiree Health Plan, that
generally provides postretirement health care benefits on a
contributory basis to retired employees age 55 or older who
meet certain minimum service and other eligibility requirements.
Our Retiree Health Plan is currently unfunded and the benefits
are paid from our general assets. This plan and our Defined
Benefit Pension Plans are collectively referred to as the
Defined Benefit Plans.
In June 2011, we amended our Defined Benefit Pension Plans.
Under those amendments, eligibility for the pension benefit
under our Defined Benefit Pension Plans will be limited to
eligible employees hired on or before December 31, 2011.
The amendments are effective January 1, 2012.
Table 14.1 presents the components of the net periodic
benefit cost with respect to pension and postretirement health
care benefits for the three and six months ended June 30,
2011 and 2010. Net periodic benefit cost is included in salaries
and employee benefits on our consolidated statements of income
and comprehensive income.
Table 14.1
Net Periodic Benefit Cost Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2011
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Pension Benefits
|
|
(in millions)
|
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
17
|
|
|
$
|
16
|
|
Interest cost on benefit obligation
|
|
|
10
|
|
|
|
10
|
|
|
|
20
|
|
|
|
19
|
|
Expected return on plan assets
|
|
|
(12
|
)
|
|
|
(10
|
)
|
|
|
(24
|
)
|
|
|
(20
|
)
|
Recognized net actuarial loss
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
16
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Health Care Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Interest cost on benefit obligation
|
|
|
3
|
|
|
|
2
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
8
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows Related to Defined Benefit Plans
Our general practice is to contribute to our Pension Plan an
amount equal to at least the minimum required contribution, if
any, but no more than the maximum amount deductible for federal
income tax purposes each year. A contribution to our Pension
Plan is not required in calendar year 2011.
NOTE 15:
SEGMENT REPORTING
We evaluate segment performance and allocate resources based on
a Segment Earnings approach, subject to the conduct of our
business under the direction of the Conservator. See
NOTE 2: CONSERVATORSHIP AND RELATED MATTERS for
additional information about the conservatorship. The financial
performance of our segments is measured based on each
segments contribution to GAAP net income (loss). In
addition, our Investments segment is measured on its
contribution to GAAP total comprehensive income (loss).
We present Segment Earnings by: (a) reclassifying certain
investment-related activities and credit guarantee-related
activities between various line items on our GAAP consolidated
statements of income and comprehensive income; and
(b) allocating certain revenues and expenses, including
certain returns on assets and funding costs, and all
administrative expenses to our three reportable segments. These
reclassifications and allocations are described in
NOTE 17: SEGMENT REPORTING in our 2010 Annual
Report.
We do not consider our assets by segment when evaluating segment
performance or allocating resources. We conduct our operations
solely in the U.S. and its territories. Therefore, we do
not generate any revenue from geographic locations outside of
the U.S. and its territories.
Segments
Our operations consist of three reportable segments, which are
based on the type of business activities each
performs Investments, Single-family Guarantee, and
Multifamily. The chart below provides a summary of our three
reportable segments and the All Other category. As reflected in
the chart, certain activities that are not part of a reportable
segment are included in the All Other category. The All Other
category consists of material corporate level expenses that are:
(a) non-recurring in nature; and (b) based on
management decisions outside the control of the management of
our reportable segments. By recording these types of activities
to the All Other category, we believe the financial results of
our three reportable segments reflect the decisions and
strategies that are executed within the reportable segments and
provide greater comparability across time periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Description
|
|
|
Activities/Items
|
|
|
|
|
|
|
|
Investments
|
|
|
Segment Earnings for the Investments segment reflects results
from our investment, funding and hedging activities. In our
Investments segment, we invest principally in mortgage-related
securities and single-family performing mortgage loans funded by
other debt issuances and hedged using derivatives. Segment
Earnings for this segment consist primarily of the returns on
these investments, less the related funding, hedging, and
administrative expenses. The Investments segment also reflects
the impact of changes in fair value of CMBS and multifamily
held-for-sale loans associated with changes in interest rates.
|
|
|
Investments in mortgage-related securities and single-family performing mortgage loans
Investments in asset-backed securities
All other traded instruments / securities, excluding CMBS and multifamily housing revenue bonds
Debt issuances
All asset / liability management returns
Guarantee buy-ups / buy-downs, net of execution gains / losses
Cash and liquidity management
Deferred tax asset valuation allowance
Allocated administrative expenses and taxes
|
|
|
|
|
|
|
|
Single-Family Guarantee
|
|
|
Segment Earnings for the Single-family Guarantee segment
reflects results from our single-family credit guarantee
activities. In our Single-family Guarantee segment, we purchase
single-family mortgage loans originated by our seller/servicers
in the primary mortgage market. In most instances, we use the
mortgage securitization process to package the purchased
mortgage loans into guaranteed mortgage-related securities. We
guarantee the payment of principal and interest on the
mortgage-related security in exchange for management and
guarantee fees. Segment Earnings for this segment consist
primarily of management and guarantee fee revenues, including
amortization of upfront fees, less the related credit costs
(i.e., provision for credit losses), administrative
expenses, allocated funding costs, and amounts related to net
float benefits or expenses.
|
|
|
Management and guarantee fees on PCs, including those retained by us, and single-family mortgage loans in the mortgage investments portfolio
Up-front credit delivery fees
Adjustments for security performance
Credit losses on all single-family assets
Expected net float income or expense on the single-family credit guarantee portfolio
Deferred tax asset valuation allowance
Allocated debt costs, administrative expenses and taxes
|
|
|
|
|
|
|
|
Multifamily
|
|
|
Segment Earnings for the Multifamily segment reflects results
from our investment (both purchases and sales), securitization,
and guarantee activities in multifamily mortgage loans and
securities. Although we hold multifamily mortgage loans that we
purchased for investment, we have not purchased significant
amounts of these loans for investment since 2010. Currently, our
primary strategy is to purchase multifamily mortgage loans for
purposes of aggregation and then securitization. We guarantee
the senior tranches of these securitizations. Although we hold
CMBS that we purchased for investment, we have not purchased
significant amounts of non-agency CMBS for investment since
2008. The Multifamily segment does not issue REMIC securities
but does issue Other Structured Securities, Other Guarantee
Transactions, and other guarantee commitments. Segment Earnings
for this segment consist primarily of the interest earned on
assets related to multifamily investment activities and
management and guarantee fee income, less allocated funding
costs, the related credit costs (i.e. provision (benefit)
for credit losses), and administrative expenses. In addition,
the Multifamily segment reflects gains on sale of mortgages and
the impact of changes in the fair value of CMBS and
held-for-sale loans associated only with factors other than
changes in interest rates, such as liquidity and credit.
|
|
|
Multifamily mortgage loans held-for-sale and associated securitization activities
Investments in CMBS, multifamily housing revenue bonds, and multifamily mortgage loans held-for-investment
Allocated debt costs, administrative expenses and taxes
Other guarantee commitments on multifamily mortgage loans
LIHTC and valuation allowance
Deferred tax asset valuation allowance
|
|
|
|
|
|
|
|
All Other
|
|
|
The All Other category consists of corporate-level expenses that
are material and infrequent in nature and based on management
decisions outside the control of the reportable segments.
|
|
|
LIHTC write-down
Tax settlements, as applicable
Legal settlements, as applicable
The deferred tax asset valuation allowance associated with previously recognized income tax credits carried forward.
|
|
|
|
|
|
|
|
Segment
Earnings
The sum of Segment Earnings for each segment and the All Other
category equals GAAP net income (loss) attributable to Freddie
Mac. Likewise, the sum of total comprehensive income (loss) for
each segment and the All Other category equals GAAP total
comprehensive income (loss) attributable to Freddie Mac.
However, the accounting principles we apply to present certain
financial statement line items in Segment Earnings for our
reportable segments, in particular Segment Earnings net interest
income and management and guarantee income, differ significantly
from those applied in preparing the comparable line items in our
consolidated financial statements prepared in accordance with
GAAP. Accordingly, the results of such line items differ
significantly from, and should not be used as a substitute for,
the comparable line items as determined in accordance with GAAP.
For reconciliations of the Segment Earnings line items to the
comparable line items in our consolidated financial statements
prepared in accordance with GAAP, see
Table 15.2 Segment Earnings and
Reconciliation to GAAP Results.
In presenting Segment Earnings net interest income and
management and guarantee income, we make adjustments to better
reflect how management measures and assesses the performance of
each segment and the company as a whole. These adjustments
relate to amounts that, effective January 1, 2010, are no
longer reflected in net income (loss) as determined in
accordance with GAAP as a result of the adoption of accounting
guidance for the transfers of financial assets and the
consolidation of VIEs. These adjustments are reversed through
the segment adjustments line item within Segment Earnings, so
that Segment Earnings (loss) for each segment equals GAAP net
income (loss) attributable to Freddie Mac for each segment.
Segment adjustments consist of the following:
|
|
|
|
|
We adjust our Segment Earnings net interest income for the
Investments segment to include the amortization of cash premiums
and discounts and buy-up and buy-down fees on the consolidated
Freddie Mac mortgage-related securities we purchase as
investments. As of June 30, 2011, the unamortized balance
of such premiums and discounts and buy-up and buy-down fees was
$1.6 billion. These adjustments are necessary to reflect
the economic yield realized on investments in consolidated
Freddie Mac mortgage-related securities purchased at a premium
or discount or with buy-up or buy-down fees.
|
|
|
|
We adjust our Segment Earnings management and guarantee income
for the Single-family Guarantee segment to include the
amortization of delivery fees recorded in periods prior to the
January 1, 2010 adoption of accounting guidance for the
transfers of financial assets and the consolidation of VIEs. As
of June 30, 2011, the unamortized balance of such fees was
$2.6 billion. We consider such fees to be part of the
effective rate of the guarantee fee on guaranteed mortgage
loans. This adjustment is necessary in order to better reflect
the realization of revenue associated with guarantee contracts
over the life of the underlying loans.
|
Table 15.1 presents Segment Earnings by segment.
Table 15.1
Summary of Segment Earnings and Total Comprehensive Income
(Loss)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Segment Earnings (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
10
|
|
|
$
|
(411
|
)
|
|
$
|
2,147
|
|
|
$
|
(1,724
|
)
|
Single-family Guarantee
|
|
|
(2,386
|
)
|
|
|
(4,505
|
)
|
|
|
(4,206
|
)
|
|
|
(10,101
|
)
|
Multifamily
|
|
|
200
|
|
|
|
150
|
|
|
|
559
|
|
|
|
371
|
|
All Other
|
|
|
37
|
|
|
|
53
|
|
|
|
37
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Earnings (loss), net of taxes
|
|
|
(2,139
|
)
|
|
|
(4,713
|
)
|
|
|
(1,463
|
)
|
|
|
(11,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Freddie Mac
|
|
$
|
(2,139
|
)
|
|
$
|
(4,713
|
)
|
|
$
|
(1,463
|
)
|
|
$
|
(11,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) of segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
643
|
|
|
$
|
3,203
|
|
|
$
|
3,906
|
|
|
$
|
5,010
|
|
Single-family Guarantee
|
|
|
(2,385
|
)
|
|
|
(4,504
|
)
|
|
|
(4,209
|
)
|
|
|
(10,104
|
)
|
Multifamily
|
|
|
605
|
|
|
|
818
|
|
|
|
1,906
|
|
|
|
2,731
|
|
All Other
|
|
|
37
|
|
|
|
53
|
|
|
|
37
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) of segments
|
|
|
(1,100
|
)
|
|
|
(430
|
)
|
|
|
1,640
|
|
|
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to Freddie Mac
|
|
$
|
(1,100
|
)
|
|
$
|
(430
|
)
|
|
$
|
1,640
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The sum of Segment Earnings for each segment and the All Other
category equals GAAP net income (loss) attributable to Freddie
Mac. Likewise, the sum of total comprehensive income (loss) for
each segment and the All Other category equals GAAP total
comprehensive income (loss) attributable to Freddie Mac.
|
Table 15.2 presents detailed financial information by
financial statement line item for our reportable segments and
All Other.
Table 15.2
Segment Earnings and Reconciliation to GAAP Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Non-Interest Income (Loss)
|
|
|
|
|
|
REO
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Less: Net
|
|
|
|
|
|
Total Other
|
|
|
Comprehensive
|
|
|
|
Net
|
|
|
(Provision)
|
|
|
Management
|
|
|
|
|
|
Derivative
|
|
|
Other
|
|
|
|
|
|
Operations
|
|
|
Other
|
|
|
|
|
|
Tax
|
|
|
Net
|
|
|
(Income) Loss
|
|
|
Net Income
|
|
|
Comprehensive
|
|
|
Income
|
|
|
|
Interest
|
|
|
Benefit for
|
|
|
and Guarantee
|
|
|
Security
|
|
|
Gains
|
|
|
Non-Interest
|
|
|
Administrative
|
|
|
Income
|
|
|
Non-Interest
|
|
|
Segment
|
|
|
(Expense)
|
|
|
Income
|
|
|
Noncontrolling
|
|
|
(Loss)
|
|
|
Income (Loss),
|
|
|
(Loss)
|
|
|
|
Income
|
|
|
Credit Losses
|
|
|
Income(1)
|
|
|
Impairments
|
|
|
(Losses)
|
|
|
Income (Loss)
|
|
|
Expenses
|
|
|
(Expense)
|
|
|
Expense
|
|
|
Adjustments(2)
|
|
|
Benefit
|
|
|
(Loss)
|
|
|
Interests
|
|
|
Freddie Mac
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
|
|
|
Investments
|
|
$
|
1,826
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(139
|
)
|
|
$
|
(2,156
|
)
|
|
$
|
243
|
|
|
$
|
(101
|
)
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
126
|
|
|
$
|
212
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
633
|
|
|
$
|
643
|
|
Single-family Guarantee
|
|
|
(30
|
)
|
|
|
(2,886
|
)
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
(228
|
)
|
|
|
(35
|
)
|
|
|
(106
|
)
|
|
|
(143
|
)
|
|
|
(14
|
)
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
(2,386
|
)
|
|
|
1
|
|
|
|
(2,385
|
)
|
Multifamily
|
|
|
304
|
|
|
|
13
|
|
|
|
30
|
|
|
|
(182
|
)
|
|
|
2
|
|
|
|
111
|
|
|
|
(55
|
)
|
|
|
8
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
200
|
|
|
|
|
|
|
|
200
|
|
|
|
405
|
|
|
|
605
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Earnings (loss), net of taxes
|
|
|
2,100
|
|
|
|
(2,873
|
)
|
|
|
878
|
|
|
|
(321
|
)
|
|
|
(2,154
|
)
|
|
|
562
|
|
|
|
(384
|
)
|
|
|
(27
|
)
|
|
|
(135
|
)
|
|
|
(17
|
)
|
|
|
232
|
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
(2,139
|
)
|
|
|
1,039
|
|
|
|
(1,100
|
)
|
Reconciliation to consolidated statements of income and
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications(3)
|
|
|
2,335
|
|
|
|
344
|
|
|
|
(694
|
)
|
|
|
(31
|
)
|
|
|
(1,653
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
126
|
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reconciling items
|
|
|
2,461
|
|
|
|
344
|
|
|
|
(837
|
)
|
|
|
(31
|
)
|
|
|
(1,653
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
4,561
|
|
|
$
|
(2,529
|
)
|
|
$
|
41
|
|
|
$
|
(352
|
)
|
|
$
|
(3,807
|
)
|
|
$
|
261
|
|
|
$
|
(384
|
)
|
|
$
|
(27
|
)
|
|
$
|
(135
|
)
|
|
$
|
|
|
|
$
|
232
|
|
|
$
|
(2,139
|
)
|
|
$
|
|
|
|
$
|
(2,139
|
)
|
|
$
|
1,039
|
|
|
$
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Non-Interest Income (Loss)
|
|
|
|
|
|
REO
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Less: Net
|
|
|
|
|
|
Total Other
|
|
|
Comprehensive
|
|
|
|
Net
|
|
|
(Provision)
|
|
|
Management
|
|
|
|
|
|
Derivative
|
|
|
Other
|
|
|
|
|
|
Operations
|
|
|
Other
|
|
|
|
|
|
Tax
|
|
|
Net
|
|
|
(Income) Loss
|
|
|
Net Income
|
|
|
Comprehensive
|
|
|
Income
|
|
|
|
Interest
|
|
|
Benefit for
|
|
|
and Guarantee
|
|
|
Security
|
|
|
Gains
|
|
|
Non-Interest
|
|
|
Administrative
|
|
|
Income
|
|
|
Non-Interest
|
|
|
Segment
|
|
|
(Expense)
|
|
|
Income
|
|
|
Noncontrolling
|
|
|
(Loss)
|
|
|
Income (Loss),
|
|
|
(Loss)
|
|
|
|
Income
|
|
|
Credit Losses
|
|
|
Income(1)
|
|
|
Impairments
|
|
|
(Losses)
|
|
|
Income (Loss)
|
|
|
Expenses
|
|
|
(Expense)
|
|
|
Expense
|
|
|
Adjustments(2)
|
|
|
Benefit
|
|
|
(Loss)
|
|
|
Interests
|
|
|
Freddie Mac
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
|
|
|
Investments
|
|
$
|
3,479
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,168
|
)
|
|
$
|
(1,053
|
)
|
|
$
|
479
|
|
|
$
|
(196
|
)
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
329
|
|
|
$
|
278
|
|
|
$
|
2,147
|
|
|
$
|
|
|
|
$
|
2,147
|
|
|
$
|
1,759
|
|
|
$
|
3,906
|
|
Single-family Guarantee
|
|
|
70
|
|
|
|
(5,170
|
)
|
|
|
1,718
|
|
|
|
|
|
|
|
|
|
|
|
419
|
|
|
|
(443
|
)
|
|
|
(292
|
)
|
|
|
(172
|
)
|
|
|
(328
|
)
|
|
|
(8
|
)
|
|
|
(4,206
|
)
|
|
|
|
|
|
|
(4,206
|
)
|
|
|
(3
|
)
|
|
|
(4,209
|
)
|
Multifamily
|
|
|
583
|
|
|
|
73
|
|
|
|
58
|
|
|
|
(317
|
)
|
|
|
4
|
|
|
|
298
|
|
|
|
(106
|
)
|
|
|
8
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
559
|
|
|
|
|
|
|
|
559
|
|
|
|
1,347
|
|
|
|
1,906
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Earnings (loss), net of taxes
|
|
|
4,132
|
|
|
|
(5,097
|
)
|
|
|
1,776
|
|
|
|
(1,485
|
)
|
|
|
(1,049
|
)
|
|
|
1,196
|
|
|
|
(745
|
)
|
|
|
(284
|
)
|
|
|
(214
|
)
|
|
|
1
|
|
|
|
306
|
|
|
|
(1,463
|
)
|
|
|
|
|
|
|
(1,463
|
)
|
|
|
3,103
|
|
|
|
1,640
|
|
Reconciliation to consolidated statements of income and
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications(3)
|
|
|
4,640
|
|
|
|
579
|
|
|
|
(1,369
|
)
|
|
|
(60
|
)
|
|
|
(3,185
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
329
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reconciling items
|
|
|
4,969
|
|
|
|
579
|
|
|
|
(1,697
|
)
|
|
|
(60
|
)
|
|
|
(3,185
|
)
|
|
|
(605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
9,101
|
|
|
$
|
(4,518
|
)
|
|
$
|
79
|
|
|
$
|
(1,545
|
)
|
|
$
|
(4,234
|
)
|
|
$
|
591
|
|
|
$
|
(745
|
)
|
|
$
|
(284
|
)
|
|
$
|
(214
|
)
|
|
$
|
|
|
|
$
|
306
|
|
|
$
|
(1,463
|
)
|
|
$
|
|
|
|
$
|
(1,463
|
)
|
|
$
|
3,103
|
|
|
$
|
1,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Non-Interest Income (Loss)
|
|
|
|
|
|
REO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
|
|
|
|
|
|
Total Other
|
|
|
Comprehensive
|
|
|
|
Net
|
|
|
|
|
|
Management
|
|
|
|
|
|
Derivative
|
|
|
Other
|
|
|
|
|
|
Operations
|
|
|
Other
|
|
|
|
|
|
Income
|
|
|
Net
|
|
|
(Income) Loss
|
|
|
Net Income
|
|
|
Comprehensive
|
|
|
Income
|
|
|
|
Interest
|
|
|
Provision for
|
|
|
and Guarantee
|
|
|
Security
|
|
|
Gains
|
|
|
Non-Interest
|
|
|
Administrative
|
|
|
Income
|
|
|
Non-Interest
|
|
|
Segment
|
|
|
Tax
|
|
|
Income
|
|
|
Noncontrolling
|
|
|
(Loss)
|
|
|
Income (Loss),
|
|
|
(Loss)
|
|
|
|
Income
|
|
|
Credit Losses
|
|
|
Income(1)
|
|
|
Impairments
|
|
|
(Losses)
|
|
|
Income (Loss)
|
|
|
Expenses
|
|
|
(Expense)
|
|
|
Expense
|
|
|
Adjustments(2)
|
|
|
Benefit
|
|
|
(Loss)
|
|
|
Interests
|
|
|
Freddie Mac
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
|
|
|
Investments
|
|
$
|
1,509
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(327
|
)
|
|
$
|
(2,193
|
)
|
|
$
|
294
|
|
|
$
|
(111
|
)
|
|
$
|
|
|
|
$
|
(6
|
)
|
|
$
|
294
|
|
|
$
|
129
|
|
|
$
|
(411
|
)
|
|
$
|
|
|
|
$
|
(411
|
)
|
|
$
|
3,614
|
|
|
$
|
3,203
|
|
Single-family Guarantee
|
|
|
51
|
|
|
|
(5,294
|
)
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
268
|
|
|
|
(242
|
)
|
|
|
41
|
|
|
|
(90
|
)
|
|
|
(208
|
)
|
|
|
104
|
|
|
|
(4,505
|
)
|
|
|
|
|
|
|
(4,505
|
)
|
|
|
1
|
|
|
|
(4,504
|
)
|
Multifamily
|
|
|
278
|
|
|
|
(119
|
)
|
|
|
25
|
|
|
|
(17
|
)
|
|
|
(1
|
)
|
|
|
55
|
|
|
|
(51
|
)
|
|
|
(1
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
|
|
668
|
|
|
|
818
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Earnings (loss), net of taxes
|
|
|
1,838
|
|
|
|
(5,413
|
)
|
|
|
890
|
|
|
|
(344
|
)
|
|
|
(2,194
|
)
|
|
|
617
|
|
|
|
(404
|
)
|
|
|
40
|
|
|
|
(115
|
)
|
|
|
86
|
|
|
|
286
|
|
|
|
(4,713
|
)
|
|
|
|
|
|
|
(4,713
|
)
|
|
|
4,283
|
|
|
|
(430
|
)
|
Reconciliation to consolidated statements of income and
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications(3)
|
|
|
2,004
|
|
|
|
384
|
|
|
|
(645
|
)
|
|
|
(84
|
)
|
|
|
(1,644
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
294
|
|
|
|
|
|
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reconciling items
|
|
|
2,298
|
|
|
|
384
|
|
|
|
(853
|
)
|
|
|
(84
|
)
|
|
|
(1,644
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
4,136
|
|
|
$
|
(5,029
|
)
|
|
$
|
37
|
|
|
$
|
(428
|
)
|
|
$
|
(3,838
|
)
|
|
$
|
602
|
|
|
$
|
(404
|
)
|
|
$
|
40
|
|
|
$
|
(115
|
)
|
|
$
|
|
|
|
$
|
286
|
|
|
$
|
(4,713
|
)
|
|
$
|
|
|
|
$
|
(4,713
|
)
|
|
$
|
4,283
|
|
|
$
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Non-Interest Income (Loss)
|
|
|
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net
|
|
|
|
|
|
Total Other
|
|
|
Comprehensive
|
|
|
|
Net
|
|
|
|
|
|
Management
|
|
|
|
|
|
Derivative
|
|
|
Other
|
|
|
|
|
|
REO
|
|
|
Other
|
|
|
|
|
|
Income
|
|
|
Net
|
|
|
(Income) Loss
|
|
|
Net Income
|
|
|
Comprehensive
|
|
|
Income
|
|
|
|
Interest
|
|
|
Provision for
|
|
|
and Guarantee
|
|
|
Security
|
|
|
Gains
|
|
|
Non-Interest
|
|
|
Administrative
|
|
|
Operations
|
|
|
Non-Interest
|
|
|
Segment
|
|
|
Tax
|
|
|
Income
|
|
|
Noncontrolling
|
|
|
(Loss)
|
|
|
Income (Loss),
|
|
|
(Loss)
|
|
|
|
Income
|
|
|
Credit Losses
|
|
|
Income(1)
|
|
|
Impairments
|
|
|
(Losses)
|
|
|
Income (Loss)
|
|
|
Expenses
|
|
|
Expense
|
|
|
Expense
|
|
|
Adjustments(2)
|
|
|
Benefit
|
|
|
(Loss)
|
|
|
Interests
|
|
|
Freddie Mac
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
|
|
|
Investments
|
|
$
|
2,820
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(703
|
)
|
|
$
|
(4,895
|
)
|
|
$
|
272
|
|
|
$
|
(233
|
)
|
|
$
|
|
|
|
$
|
(13
|
)
|
|
$
|
804
|
|
|
$
|
226
|
|
|
$
|
(1,722
|
)
|
|
$
|
(2
|
)
|
|
$
|
(1,724
|
)
|
|
$
|
6,734
|
|
|
$
|
5,010
|
|
Single-family Guarantee
|
|
|
110
|
|
|
|
(11,335
|
)
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
|
|
478
|
|
|
|
(471
|
)
|
|
|
(115
|
)
|
|
|
(169
|
)
|
|
|
(421
|
)
|
|
|
109
|
|
|
|
(10,101
|
)
|
|
|
|
|
|
|
(10,101
|
)
|
|
|
(3
|
)
|
|
|
(10,104
|
)
|
Multifamily
|
|
|
516
|
|
|
|
(148
|
)
|
|
|
49
|
|
|
|
(72
|
)
|
|
|
4
|
|
|
|
163
|
|
|
|
(105
|
)
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
1
|
|
|
|
368
|
|
|
|
3
|
|
|
|
371
|
|
|
|
2,360
|
|
|
|
2,731
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment Earnings (loss), net of taxes
|
|
|
3,446
|
|
|
|
(11,483
|
)
|
|
|
1,762
|
|
|
|
(775
|
)
|
|
|
(4,891
|
)
|
|
|
913
|
|
|
|
(809
|
)
|
|
|
(119
|
)
|
|
|
(218
|
)
|
|
|
383
|
|
|
|
389
|
|
|
|
(11,402
|
)
|
|
|
1
|
|
|
|
(11,401
|
)
|
|
|
9,091
|
|
|
|
(2,310
|
)
|
Reconciliation to consolidated statements of income and
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications(3)
|
|
|
4,011
|
|
|
|
1,058
|
|
|
|
(1,269
|
)
|
|
|
(163
|
)
|
|
|
(3,632
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
804
|
|
|
|
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reconciling items
|
|
|
4,815
|
|
|
|
1,058
|
|
|
|
(1,690
|
)
|
|
|
(163
|
)
|
|
|
(3,632
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
8,261
|
|
|
$
|
(10,425
|
)
|
|
$
|
72
|
|
|
$
|
(938
|
)
|
|
$
|
(8,523
|
)
|
|
$
|
908
|
|
|
$
|
(809
|
)
|
|
$
|
(119
|
)
|
|
$
|
(218
|
)
|
|
$
|
|
|
|
$
|
389
|
|
|
$
|
(11,402
|
)
|
|
$
|
1
|
|
|
$
|
(11,401
|
)
|
|
$
|
9,091
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Management and guarantee income total per consolidated
statements of income and comprehensive income is included in
other income on our GAAP consolidated statements of income and
comprehensive income.
|
(2)
|
See Segment Earnings for additional information
regarding these adjustments.
|
(3)
|
See NOTE 17: SEGMENT REPORTING Segment
Earnings Investment Activity-Related
Reclassifications and Credit
Guarantee Activity-Related Reclassifications in our
2010 Annual Report for information regarding these
reclassifications.
|
Table 15.3 presents total comprehensive income (loss) by segment.
Table
15.3 Total Comprehensive Income (Loss) of
Segments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Unrealized Gains
|
|
|
|
|
|
Total Other
|
|
|
|
|
|
|
|
|
|
(Losses) Related to
|
|
|
(Losses) Related to
|
|
|
|
|
|
Comprehensive
|
|
|
Total Comprehensive
|
|
|
|
Net Income
|
|
|
Available-For-Sale
|
|
|
Cash Flow Hedge
|
|
|
Changes in Defined
|
|
|
Income (Loss),
|
|
|
Income (Loss)
|
|
|
|
(Loss) Freddie Mac
|
|
|
Securities
|
|
|
Relationships
|
|
|
Benefit Plans
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
Total comprehensive income (loss) of segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
10
|
|
|
$
|
498
|
|
|
$
|
135
|
|
|
$
|
|
|
|
$
|
633
|
|
|
$
|
643
|
|
Single-family Guarantee
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(2,385
|
)
|
Multifamily
|
|
|
200
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
405
|
|
|
|
605
|
|
All Other
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
(2,139
|
)
|
|
$
|
903
|
|
|
$
|
135
|
|
|
$
|
1
|
|
|
$
|
1,039
|
|
|
$
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Unrealized Gains
|
|
|
|
|
|
Total Other
|
|
|
|
|
|
|
|
|
|
(Losses) Related to
|
|
|
(Losses) Related to
|
|
|
|
|
|
Comprehensive
|
|
|
Total Comprehensive
|
|
|
|
Net Income
|
|
|
Available-For-Sale
|
|
|
Cash Flow Hedge
|
|
|
Changes in Defined
|
|
|
Income (Loss),
|
|
|
Income (Loss)
|
|
|
|
(Loss) Freddie Mac
|
|
|
Securities
|
|
|
Relationships
|
|
|
Benefit Plans
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
Total comprehensive income (loss) of segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
2,147
|
|
|
$
|
1,497
|
|
|
$
|
266
|
|
|
$
|
(4
|
)
|
|
$
|
1,759
|
|
|
$
|
3,906
|
|
Single-family Guarantee
|
|
|
(4,206
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(4,209
|
)
|
Multifamily
|
|
|
559
|
|
|
|
1,347
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,347
|
|
|
|
1,906
|
|
All Other
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
(1,463
|
)
|
|
$
|
2,844
|
|
|
$
|
267
|
|
|
$
|
(8
|
)
|
|
$
|
3,103
|
|
|
$
|
1,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Unrealized Gains
|
|
|
|
|
|
Total Other
|
|
|
|
|
|
|
|
|
|
(Losses) Related to
|
|
|
(Losses) Related to
|
|
|
|
|
|
Comprehensive
|
|
|
Total Comprehensive
|
|
|
|
Net Income
|
|
|
Available-For-Sale
|
|
|
Cash Flow Hedge
|
|
|
Changes in Defined
|
|
|
Income (Loss),
|
|
|
Income (Loss)
|
|
|
|
(Loss) Freddie Mac
|
|
|
Securities
|
|
|
Relationships
|
|
|
Benefit Plans
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
Total comprehensive income (loss) of segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
(411
|
)
|
|
$
|
3,429
|
|
|
$
|
184
|
|
|
$
|
1
|
|
|
$
|
3,614
|
|
|
$
|
3,203
|
|
Single-family Guarantee
|
|
|
(4,505
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(4,504
|
)
|
Multifamily
|
|
|
150
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
668
|
|
|
|
818
|
|
All Other
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
(4,713
|
)
|
|
$
|
4,097
|
|
|
$
|
184
|
|
|
$
|
2
|
|
|
$
|
4,283
|
|
|
$
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
|
|
|
Unrealized Gains
|
|
|
|
|
|
Total Other
|
|
|
|
|
|
|
|
|
|
(Losses) Related to
|
|
|
(Losses) Related to
|
|
|
|
|
|
Comprehensive
|
|
|
Total Comprehensive
|
|
|
|
Net Income
|
|
|
Available-For-Sale
|
|
|
Cash Flow Hedge
|
|
|
Changes in Defined
|
|
|
Income (Loss),
|
|
|
Income (Loss)
|
|
|
|
(Loss) Freddie Mac
|
|
|
Securities
|
|
|
Relationships
|
|
|
Benefit Plans
|
|
|
Net of Taxes
|
|
|
Freddie Mac
|
|
|
|
(in millions)
|
|
|
Total comprehensive income (loss) of segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
(1,724
|
)
|
|
$
|
6,381
|
|
|
$
|
356
|
|
|
$
|
(3
|
)
|
|
$
|
6,734
|
|
|
$
|
5,010
|
|
Single-family Guarantee
|
|
|
(10,101
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(10,104
|
)
|
Multifamily
|
|
|
371
|
|
|
|
2,362
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
2,360
|
|
|
|
2,731
|
|
All Other
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total per consolidated statements of income and comprehensive
income
|
|
$
|
(11,401
|
)
|
|
$
|
8,743
|
|
|
$
|
356
|
|
|
$
|
(8
|
)
|
|
$
|
9,091
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The sum of total comprehensive income (loss) for each segment
and the All Other category equals GAAP total comprehensive
income (loss) attributable to Freddie Mac.
|
NOTE 16:
REGULATORY CAPITAL
On October 9, 2008, FHFA announced that it was suspending
capital classification of us during conservatorship in light of
the Purchase Agreement. FHFA continues to closely monitor our
capital levels, but the existing statutory and FHFA-directed
regulatory capital requirements are not binding during
conservatorship. We continue to provide our submission to FHFA
on minimum capital.
Our regulatory minimum capital is a leverage-based measure that
is generally calculated based on GAAP and reflects a 2.50%
capital requirement for on-balance sheet assets and 0.45%
capital requirement for off-balance sheet obligations. Based
upon our adoption of amendments to the accounting guidance for
transfers of financial assets and consolidation of VIEs, we
determined that, under the new consolidation guidance, we are
the primary beneficiary of trusts that issue our single-family
PCs and certain Other Guarantee Transactions and, therefore,
effective January 1, 2010, we consolidated on our balance
sheet the assets and liabilities of these trusts. Pursuant to
regulatory guidance from FHFA, our minimum capital requirement
was not automatically affected by adoption of these amendments.
Specifically, upon adoption of these amendments, FHFA directed
us, for purposes of minimum capital, to continue reporting
single-family PCs and certain Other Guarantee Transactions held
by third parties using a 0.45% capital requirement. FHFA
reserves the authority under the GSE Act to raise the minimum
capital requirement for any of our assets or activities. On
March 3, 2011, FHFA issued a final rule setting forth
procedures and standards in the event FHFA were to make such a
temporary increase in minimum capital levels. Table 16.1
summarizes our minimum capital requirements and deficits and net
worth.
Table 16.1
Net Worth and Minimum Capital
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
GAAP net
worth(1)
|
|
$
|
(1,478
|
)
|
|
$
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
Core capital
(deficit)(2)(3)
|
|
$
|
(57,250
|
)
|
|
$
|
(52,570
|
)
|
Less: Minimum capital
requirement(2)
|
|
|
24,901
|
|
|
|
25,987
|
|
|
|
|
|
|
|
|
|
|
Minimum capital surplus
(deficit)(2)
|
|
$
|
(82,151
|
)
|
|
$
|
(78,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net worth (deficit) represents the difference between our assets
and liabilities under GAAP.
|
(2)
|
Core capital and minimum capital figures for June 30, 2011
are estimates. FHFA is the authoritative source for our
regulatory capital.
|
(3)
|
Core capital excludes certain components of GAAP total equity
(deficit) (i.e., AOCI and liquidation preference of the
senior preferred stock) as these items do not meet the statutory
definition of core capital.
|
Following our entry into conservatorship, we have focused our
risk and capital management, consistent with the objectives of
conservatorship, on, among other things, maintaining a positive
balance of GAAP equity in order to reduce the likelihood that we
will need to make additional draws on the Purchase Agreement
with Treasury, while returning to long-term profitability. The
Purchase Agreement provides that, if FHFA determines as of
quarter end that our liabilities have exceeded our assets under
GAAP, Treasury will contribute funds to us in an amount equal to
the difference between such liabilities and assets.
Under the GSE Act, FHFA must place us into receivership if FHFA
determines in writing that our assets are and have been less
than our obligations for a period of 60 days. FHFA has
notified us that the measurement period for any mandatory
receivership determination with respect to our assets and
obligations would commence no earlier than the SEC public filing
deadline for our quarterly or annual financial statements and
would continue for 60 calendar days after that date. FHFA has
advised us that, if, during that
60-day
period, we receive funds from Treasury in an amount at least
equal to the deficiency amount under the Purchase Agreement, the
Director of FHFA will not make a mandatory receivership
determination. If funding has been requested under the Purchase
Agreement to address a deficit in our net worth, and Treasury is
unable to provide us with such funding within the
60-day
period specified by FHFA, FHFA would be required to place us
into receivership if our assets remain less than our obligations
during that
60-day
period.
To address our net worth deficit of $1.5 billion at
June 30, 2011, FHFA will submit a draw request on our
behalf to Treasury under the Purchase Agreement in the amount of
$1.5 billion, and will request that we receive these funds
by September 30, 2011. Commencing in the second quarter of
2011, our draw request represents our net worth deficit at
quarter-end rounded up to the nearest $1 million. Upon
funding of this draw request, our aggregate funding received
from Treasury under the Purchase Agreement will increase to
$65.2 billion. This aggregate funding amount does not
include the initial $1.0 billion liquidation preference of
senior preferred stock that we issued to Treasury in September
2008 as an initial commitment fee and for which no cash was
received. As a result of the additional $1.5 billion draw
request, the aggregate liquidation preference on the senior
preferred stock owned by Treasury will increase from
$64.7 billion at June 30, 2011 to $66.2 billion.
We paid quarterly dividends of $1.6 billion on the senior
preferred stock in cash on both March 31, 2011 and
June 30, 2011 at the direction of the Conservator.
Following funding of the draw request related to
our net worth deficit at June 30, 2011, our annual cash
dividend obligation to Treasury on the senior preferred stock
will increase from $6.5 billion to $6.6 billion, which
exceeds our annual historical earnings in all but one period.
NOTE 17:
CONCENTRATION OF CREDIT AND OTHER RISKS
Single-family
Credit Guarantee Portfolio
Our business activity is to participate in and support the
residential mortgage market in the United States, which we
pursue by both issuing guaranteed mortgage securities and
investing in mortgage loans and mortgage-related securities.
Table 17.1 summarizes the concentration by year of
origination and geographical area of the approximately
$1.8 trillion UPB of our single-family credit guarantee
portfolio at both June 30, 2011 and December 31, 2010.
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report and
NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES and NOTE 7: INVESTMENTS IN
SECURITIES for more information about credit risk
associated with loans and mortgage-related securities that we
hold.
Table 17.1
Concentration of Credit Risk Single-Family Credit
Guarantee Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
Percent of Credit
Losses(1)
|
|
|
|
|
|
|
Serious
|
|
|
|
|
|
Serious
|
|
|
Six Months Ended
|
|
|
|
Percentage of
|
|
|
Delinquency
|
|
|
Percentage of
|
|
|
Delinquency
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
Portfolio(2)
|
|
|
Rate(3)
|
|
|
Portfolio(2)
|
|
|
Rate(3)
|
|
|
2011
|
|
|
2010
|
|
|
Year of Origination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
6
|
%
|
|
|
<0.1
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
%
|
|
|
N/A
|
|
2010
|
|
|
20
|
|
|
|
0.1
|
|
|
|
18
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
%
|
2009
|
|
|
20
|
|
|
|
0.3
|
|
|
|
21
|
|
|
|
0.3
|
|
|
|
1
|
|
|
|
|
|
2008
|
|
|
8
|
|
|
|
4.9
|
|
|
|
9
|
|
|
|
4.9
|
|
|
|
8
|
|
|
|
6
|
|
2007
|
|
|
10
|
|
|
|
11.0
|
|
|
|
11
|
|
|
|
11.6
|
|
|
|
37
|
|
|
|
34
|
|
2006
|
|
|
8
|
|
|
|
10.3
|
|
|
|
9
|
|
|
|
10.5
|
|
|
|
29
|
|
|
|
30
|
|
2005
|
|
|
9
|
|
|
|
6.0
|
|
|
|
10
|
|
|
|
6.0
|
|
|
|
17
|
|
|
|
21
|
|
2004 and prior
|
|
|
19
|
|
|
|
2.5
|
|
|
|
22
|
|
|
|
2.5
|
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
3.5
|
%
|
|
|
100
|
%
|
|
|
3.8
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
|
|
|
28
|
%
|
|
|
3.8
|
%
|
|
|
27
|
%
|
|
|
4.7
|
%
|
|
|
56
|
%
|
|
|
47
|
%
|
Northeast
|
|
|
25
|
|
|
|
3.1
|
|
|
|
25
|
|
|
|
3.2
|
|
|
|
7
|
|
|
|
8
|
|
North Central
|
|
|
18
|
|
|
|
2.8
|
|
|
|
18
|
|
|
|
3.1
|
|
|
|
15
|
|
|
|
16
|
|
Southeast
|
|
|
17
|
|
|
|
5.4
|
|
|
|
18
|
|
|
|
5.6
|
|
|
|
18
|
|
|
|
25
|
|
Southwest
|
|
|
12
|
|
|
|
1.8
|
|
|
|
12
|
|
|
|
2.1
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
3.5
|
%
|
|
|
100
|
%
|
|
|
3.8
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
16
|
%
|
|
|
3.8
|
%
|
|
|
16
|
%
|
|
|
4.9
|
%
|
|
|
32
|
%
|
|
|
26
|
%
|
Florida
|
|
|
6
|
|
|
|
10.6
|
|
|
|
6
|
|
|
|
10.5
|
|
|
|
12
|
|
|
|
19
|
|
Illinois
|
|
|
5
|
|
|
|
4.5
|
|
|
|
5
|
|
|
|
4.6
|
|
|
|
4
|
|
|
|
5
|
|
Georgia
|
|
|
3
|
|
|
|
3.6
|
|
|
|
3
|
|
|
|
4.1
|
|
|
|
4
|
|
|
|
3
|
|
Michigan
|
|
|
3
|
|
|
|
2.4
|
|
|
|
3
|
|
|
|
3.0
|
|
|
|
5
|
|
|
|
6
|
|
Arizona
|
|
|
3
|
|
|
|
4.6
|
|
|
|
3
|
|
|
|
6.1
|
|
|
|
12
|
|
|
|
11
|
|
Nevada
|
|
|
1
|
|
|
|
10.6
|
|
|
|
1
|
|
|
|
11.9
|
|
|
|
6
|
|
|
|
5
|
|
All other
|
|
|
63
|
|
|
|
N/A
|
|
|
|
63
|
|
|
|
N/A
|
|
|
|
25
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
3.5
|
%
|
|
|
100
|
%
|
|
|
3.8
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Credit losses consist of the aggregate amount of charge-offs,
net of recoveries, and REO operations expense in each of the
respective periods and exclude foregone interest on
non-performing loans and other market-based losses recognized on
our consolidated statements of income and comprehensive income.
|
(2)
|
Based on the UPB of our single-family credit guarantee
portfolio, which includes unsecuritized single-family mortgage
loans held by us on our consolidated balance sheets and those
underlying Freddie Mac mortgage-related securities, or covered
by our other guarantee commitments.
|
(3)
|
Serious delinquencies on mortgage loans underlying certain
REMICs and Other Structured Securities, Other Guarantee
Transactions, and other guarantee commitments may be reported on
a different schedule due to variances in industry practice.
|
(4)
|
Region designation: West (AK, AZ, CA, GU, HI, ID, MT, NV, OR,
UT, WA); Northeast (CT, DE, DC, MA, ME, MD, NH, NJ, NY, PA, RI,
VT, VA, WV); North Central (IL, IN, IA, MI, MN, ND, OH, SD, WI);
Southeast (AL, FL, GA, KY, MS, NC, PR, SC, TN, VI); Southwest
(AR, CO, KS, LA, MO, NE, NM, OK, TX, WY).
|
(5)
|
States presented based on those with the highest percentage of
credit losses during the six months ended June 30, 2011.
Our top seven states based on the highest percentage of UPB as
of June 30, 2011 are: California (16%), Florida (6%),
Illinois (5%), New York (5%), Texas (5%), New Jersey (4%), and
Virginia (4%), and comprised 45% of our single-family credit
guarantee portfolio as of June 30, 2011.
|
Credit
Performance of Certain Higher Risk Single-Family Loan
Categories
Participants in the mortgage market often characterize
single-family loans based upon their overall credit quality at
the time of origination, generally considering them to be prime
or subprime. Many mortgage market participants classify
single-family loans with credit characteristics that range
between their prime and subprime categories as
Alt-A
because
these loans have a combination of characteristics of each
category, may be underwritten with lower or alternative income
or asset documentation requirements compared to a full
documentation mortgage loan, or both. However, there is no
universally accepted definition of subprime or
Alt-A.
Although we discontinued new purchases of mortgage loans with
lower documentation standards for assets or income beginning
March 1, 2009 (or later, as our customers contracts
permitted), we continued to purchase certain amounts of these
mortgages in cases where the loan was either: (a) purchased
pursuant to a previously issued other guarantee commitment;
(b) part of our relief refinance mortgage initiative; or
(c) in another refinance mortgage initiative and the
pre-existing mortgage (including
Alt-A loans)
was originated under less than full documentation standards. In
the event we purchase a refinance mortgage in either our relief
refinance mortgage initiative or in another mortgage refinance
initiative and the original loan had been previously identified
as Alt-A,
such refinance loan may no longer be categorized or reported as
Alt-A in
Table 17.2 because the new refinance loan replacing the
original loan would not be identified by the seller/servicer as
an Alt-A
loan. As a result, our reported
Alt-A
balances may be lower than would otherwise be the case had such
refinancing not occurred.
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 borrowers 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 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 isolated
characteristics.
Table 17.2
Certain Higher-Risk Categories in the Single-Family Credit
Guarantee
Portfolio(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
Portfolio(1)
|
|
Serious Delinquency Rate
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
June 30, 2011
|
|
December 31, 2010
|
|
Interest-only
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
17.7
|
%
|
|
|
18.4
|
%
|
Option ARM
|
|
|
<1
|
|
|
|
1
|
|
|
|
21.6
|
|
|
|
21.2
|
|
Alt-A(2)
|
|
|
6
|
|
|
|
6
|
|
|
|
11.7
|
|
|
|
12.2
|
|
Original LTV ratio greater than
90%(3)
|
|
|
9
|
|
|
|
9
|
|
|
|
6.8
|
|
|
|
7.8
|
|
Lower original FICO scores (less than 620)
|
|
|
3
|
|
|
|
3
|
|
|
|
12.5
|
|
|
|
13.9
|
|
|
|
(1)
|
Based on UPB.
|
(2)
|
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 mortgage
or in another refinance mortgage initiative.
|
(3)
|
Based on our first lien exposure on the property. Includes the
credit-enhanced portion of the loan and excludes any secondary
financing by third parties. The existence of a second lien
reduces the borrowers equity in the property and,
therefore, increases the risk of default.
|
The percentage of borrowers in our single-family credit
guarantee portfolio, based on UPB, with estimated current LTV
ratios greater than 100% was 20% and 18% at June 30, 2011
and December 31, 2010, respectively. As estimated current
LTV ratios increase, the borrowers equity in the home
decreases, which negatively affects the borrowers ability
to refinance or to sell the property for an amount at or above
the balance of the outstanding mortgage loan. If a borrower has
an estimated current LTV ratio greater than 100%, the borrower
is underwater and is more likely to default than
other borrowers. The serious delinquency rate for single-family
loans with estimated current LTV ratios greater than 100% was
12.7% and 14.9% as of June 30, 2011 and December 31,
2010, 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
Table 17.3 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 LTV ratio greater than
80%).
Table
17.3 Concentration of Credit Risk
Multifamily Mortgage Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Delinquency
|
|
|
|
|
|
Delinquency
|
|
|
|
UPB(1)
|
|
|
Rate(2)
|
|
|
UPB(1)
|
|
|
Rate(2)
|
|
|
|
(dollars in billions)
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
$
|
19.2
|
|
|
|
0.04
|
%
|
|
$
|
19.3
|
|
|
|
0.06
|
%
|
Texas
|
|
|
13.1
|
|
|
|
0.78
|
|
|
|
12.7
|
|
|
|
0.52
|
|
New York
|
|
|
9.3
|
|
|
|
|
|
|
|
9.2
|
|
|
|
|
|
Florida
|
|
|
6.8
|
|
|
|
0.42
|
|
|
|
6.4
|
|
|
|
0.56
|
|
Virginia
|
|
|
5.8
|
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
Georgia
|
|
|
5.6
|
|
|
|
1.09
|
|
|
|
5.5
|
|
|
|
0.98
|
|
All other states
|
|
|
50.9
|
|
|
|
0.29
|
|
|
|
49.7
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
|
0.31
|
%
|
|
$
|
108.4
|
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast
|
|
$
|
31.6
|
|
|
|
0.22
|
%
|
|
$
|
31.1
|
|
|
|
|
%
|
West
|
|
|
28.5
|
|
|
|
0.06
|
|
|
|
28.3
|
|
|
|
0.07
|
|
Southwest
|
|
|
21.0
|
|
|
|
0.69
|
|
|
|
20.2
|
|
|
|
0.61
|
|
Southeast
|
|
|
20.0
|
|
|
|
0.51
|
|
|
|
19.2
|
|
|
|
0.59
|
|
North Central
|
|
|
9.6
|
|
|
|
0.12
|
|
|
|
9.6
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
110.7
|
|
|
|
0.31
|
%
|
|
$
|
108.4
|
|
|
|
0.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original LTV ratio greater than 80%
|
|
$
|
6.5
|
|
|
|
2.45
|
%
|
|
$
|
6.6
|
|
|
|
2.30
|
%
|
Original DSCR below 1.10
|
|
|
3.0
|
|
|
|
2.05
|
|
|
|
3.2
|
|
|
|
1.22
|
|
Non-credit enhanced loans
|
|
|
83.5
|
|
|
|
0.19
|
|
|
|
87.5
|
|
|
|
0.12
|
|
|
|
(1)
|
Beginning in the second quarter of 2011, we exclude
non-consolidated mortgage-related securities for which we do not
provide our guarantee. The prior period has been revised to
conform to the current period presentation.
|
(2)
|
Based on the UPB of multifamily mortgages two monthly payments
or more delinquent or in foreclosure.
|
(3)
|
See endnote (4) to Table 17.1
Concentration of Credit Risk Single-family Credit
Guarantee Portfolio for a description of these regions.
|
(4)
|
These categories are not mutually exclusive and a loan in one
category may also be included within another.
|
One indicator of risk for mortgage loans in our multifamily
mortgage portfolio is the amount of a borrowers equity in
the underlying property. A borrowers equity in a property
decreases as the LTV ratio increases. Higher LTV ratios
negatively affect a borrowers ability to refinance or sell
a property for an amount at or above the balance of the
outstanding mortgage. The DSCR is another indicator of future
credit performance. The DSCR estimates a multifamily
borrowers ability to service its mortgage obligation using
the secured propertys cash flow, after deducting
non-mortgage expenses from income. The higher the DSCR, the more
likely a multifamily borrower will be able to continue servicing
its mortgage obligation.
Our multifamily mortgage portfolio includes certain loans for
which we have credit enhancement. Credit enhancement
significantly reduces our exposure to a potential credit loss.
As of June 30, 2011, more than one-half of the multifamily
loans, measured both in terms of number of loans and on a UPB
basis, that were two monthly payments or more past due had
credit enhancements that we currently believe will mitigate our
expected losses on those loans.
We estimate that the percentage of loans in our multifamily
mortgage portfolio with a current LTV ratio of greater than 100%
was approximately 8% at both June 30, 2011 and
December 31, 2010, and our estimate of the current average
DSCR for these loans was 1.2 and 1.1 as of June 30, 2011
and December 31, 2010, respectively. We estimate that the
percentage of loans in our multifamily mortgage portfolio with a
current DSCR less than 1.0 was 6% and 7% at June 30, 2011
and December 31, 2010, respectively, and the average
current LTV ratio of these loans was 101% and 108%,
respectively. Our estimates of current DSCRs are based on the
latest available income information for these properties and our
assessments of market conditions. Our estimates of the current
LTV ratios for multifamily loans are based on values we receive
from a third-party service provider as well as our internal
estimates of property value, for which we may use changes in tax
assessments, market vacancy rates, rent growth and comparable
property sales in local areas as well as third-party appraisals
for a portion of the portfolio. We periodically perform our own
valuations or obtain third-party appraisals in cases where a
significant deterioration in a borrowers financial
condition has occurred, the borrower has applied for
refinancing, or in certain other circumstances where we deem it
appropriate to reassess the property value. Although we use the
most recently available results of our multifamily borrowers to
estimate a propertys value, there may be a significant lag
in reporting, which could be six months or more, as they
complete their results in the normal course of business. Our
internal estimates of property valuation are derived using
techniques that include income capitalization, discounted cash
flows, sales comparables, or replacement costs.
Seller/Servicers
We acquire a significant portion of our single-family mortgage
purchase volume from several large seller/servicers with whom we
have entered into mortgage purchase volume commitments that
provide for the lenders to deliver us a specified dollar amount
of mortgages during a specified period of time. Our top
10 single-family seller/servicers provided approximately
85% of our single-family purchase volume during the six months
ended June 30, 2011. Wells Fargo Bank, N.A., JPMorgan
Chase Bank, N.A., Bank of America, N.A. and U.S.
Bank, N.A. accounted for 29%, 14%, 11% and 10%,
respectively, of our single-family mortgage purchase volume and
were the only single-family seller/servicers that comprised 10%
or more of our purchase volume during the six months ended
June 30, 2011. We are exposed to the risk that we could
lose purchase volume to the extent these arrangements are
terminated without replacement from other lenders.
We are exposed to institutional credit risk arising from the
potential insolvency or non-performance by our seller/servicers
of their obligations to repurchase mortgages or (at our option)
indemnify us in the event of: (a) breaches of the
representations and warranties they made when they sold the
mortgages to us; or (b) failure to comply with our
servicing requirements. Our contracts require that a
seller/servicer repurchase a mortgage after we issue a
repurchase request, unless the seller/servicer avails itself of
an appeals process provided for in our contracts. As of
June 30, 2011 and December 31, 2010, the UPB of loans
subject to our repurchase requests issued to our single-family
seller/servicers was approximately $3.1 billion and
$3.8 billion, and approximately 43% and 34% of these
requests, respectively, were outstanding for more than four
months since issuance of our initial repurchase request as
measured by the UPB of the loans subject to the requests. During
the three and six months ended June 30, 2011, respectively,
we recovered amounts that covered losses with respect to
$1.2 billion and $2.4 billion of UPB on loans subject
to our repurchase requests.
On August 24, 2009, one of our single-family
seller/servicers, Taylor, Bean & Whitaker
Mortgage Corp., or TBW, filed for bankruptcy and announced
its plan to wind down its operations. We had exposure to TBW
with respect to its loan repurchase obligations. We also had
exposure with respect to certain borrower funds that TBW held
for the benefit of Freddie Mac. TBW received and processed such
funds in its capacity as a servicer of loans owned or guaranteed
by Freddie Mac. TBW maintained certain bank accounts, primarily
at Colonial Bank, to deposit such borrower funds and to provide
remittance to Freddie Mac. Colonial Bank was placed into
receivership by the FDIC in August 2009.
With the approval of FHFA, as Conservator, we entered into a
settlement with TBW and the creditors committee appointed
in the TBW bankruptcy proceeding to represent the interests of
the unsecured trade creditors of TBW. The settlement was filed
with the bankruptcy court on June 22, 2011. The court
approved the settlement and confirmed TBWs proposed plan
of liquidation on July 21, 2011. We understand that Ocala
Funding, LLC, or Ocala, which is a wholly owned subsidiary of
TBW, or its creditors may file an action to recover certain
funds paid to us prior to the TBW bankruptcy. See
NOTE 19: LEGAL CONTINGENCIES for additional
information on the settlement, our claims arising from
TBWs bankruptcy, and Ocalas potential claims.
As previously disclosed, we joined an investor group that
delivered a notice of non-performance in 2010 to The Bank of New
York Mellon, as Trustee, and Countrywide Home Loans
Servicing LP (now known as BAC Home Loans
Servicing, LP), related to the possibility that certain
mortgage pools backing certain mortgage-related securities
issued by Countrywide Financial and related entities include
mortgages that may have been ineligible for inclusion in the
pools due to breaches of representations or warranties.
On June 29, 2011, Bank of America Corporation announced
that it, BAC Home Loans Servicing, LP, Countrywide
Financial Corporation and Countrywide Home Loans, Inc.
entered into a settlement agreement with The Bank of New York
Mellon, as trustee, to resolve all outstanding and potential
claims related to alleged breaches of representations and
warranties (including repurchase claims), substantially all
historical loan servicing claims and certain other historical
claims with respect to 530 Countrywide first-lien and
second-lien residential mortgage-related securitization trusts.
Bank of America indicated that the settlement is subject to
final court approval and certain other conditions, including the
receipt of a private letter ruling from the IRS. There can be no
assurance that final court approval of the settlement will be
obtained or that all conditions will be satisfied. Bank of
America noted that, given the number of investors and the
complexity of the settlement, it is not possible to predict
whether and to what extent challenges will be made to the
settlement or the timing or ultimate outcome of the court
approval process, which could take a substantial period of time.
We have investments in certain of these Countrywide
securitization trusts and would expect to benefit from this
settlement, if final court approval is obtained.
In connection with the settlement, Bank of America Corporation
entered into an agreement with the investor group. Under this
agreement, the investor group agreed, among other things, to use
reasonable best efforts and to cooperate in good faith to
effectuate the settlement, including to obtain final court
approval. Freddie Mac was not a party to this
agreement, but agreed to retract any previously delivered
notices of non-performance upon final court approval of the
settlement.
The court has directed that any objections to the settlement be
filed no later than August 30, 2011. FHFA, after
considering input from us and others, will determine whether or
not to object to the proposed settlement.
The ultimate amounts of recovery payments we received from
seller/servicers may be significantly less than the amount of
our estimates of potential exposure to losses related to their
obligations. Our estimate of probable incurred losses for
exposure to seller/servicers for their repurchase obligations is
considered in our allowance for loan losses as of June 30,
2011 and December 31, 2010. See NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Allowance for
Loan Losses and Reserve for Guarantee Losses in our 2010
Annual Report for further information. We believe we have
adequately provided for these exposures, based upon our
estimates of incurred losses, in our loan loss reserves at
June 30, 2011 and December 31, 2010; however, our
actual losses may exceed our estimates.
We also are exposed to the risk that seller/servicers might fail
to service mortgages in accordance with our contractual
requirements, resulting in increased credit losses. For example,
our seller/servicers have an active role in our loss mitigation
efforts, including under the MHA Program, and therefore, we have
exposure to them to the extent a decline in their performance
results in a failure to realize the anticipated benefits of our
loss mitigation plans.
A significant portion of our single-family mortgage loans are
serviced by several large seller/servicers. Our top five
single-family loan servicers, Wells Fargo Bank N.A., Bank
of America N.A., JPMorgan Chase Bank, N.A.,
Citimortgage, Inc., and U.S. Bank, N.A., together
serviced approximately 67% of our single-family mortgage loans
as of June 30, 2011. Wells Fargo Bank N.A., Bank of
America N.A., and JPMorgan Chase Bank, N.A. serviced
approximately 26%, 14% and 12%, respectively, of our
single-family mortgage loans, as of June 30, 2011. Since we
do not have our own servicing operation, if our servicers lack
appropriate process controls, experience a failure in their
controls, or experience an operating disruption in their ability
to service mortgage loans, it could have an adverse impact on
our business and financial results.
During the second half of 2010, a number of our
seller/servicers, including several of our largest ones,
temporarily suspended foreclosure proceedings in some or all
states in which they do business. These seller/servicers
announced these suspensions were necessary while they evaluated
and addressed issues relating to the improper preparation and
execution of certain documents used in foreclosure proceedings,
including affidavits. While these servicers generally resumed
foreclosure proceedings in the first quarter of 2011, the rate
at which they are effecting foreclosures has been slower than
prior to the suspensions. See NOTE 7: REAL ESTATE
OWNED in our 2010 Annual Report for additional
information.
As of June 30, 2011 our top four multifamily servicers,
Berkadia Commercial Mortgage LLC, Wells Fargo
Bank, N.A., CBRE Capital Markets, Inc., and Deutsche
Bank Berkshire Mortgage, each serviced more than 10% of our
multifamily mortgage portfolio and together serviced
approximately 51% of our multifamily mortgage portfolio.
In our multifamily business, we are exposed to the risk that
multifamily seller/servicers could come under financial
pressure, which could potentially cause degradation in the
quality of servicing they provide to us or, in certain cases,
reduce the likelihood that we could recover losses through
recourse agreements or other credit enhancements, where
applicable. This risk primarily relates to multifamily loans
that we hold on our consolidated balance sheets where we retain
all of the related credit risk. We monitor the status of all our
multifamily seller/servicers in accordance with our counterparty
credit risk management framework.
Mortgage
Insurers
We have institutional credit risk relating to the potential
insolvency of or non-performance by mortgage insurers that
insure single-family mortgages we purchase or guarantee. We
evaluate the recovery from insurance policies for mortgage loans
that we hold for investment as well as loans underlying our
non-consolidated Freddie Mac mortgage-related securities and
covered by other guarantee commitments as part of the estimate
of our loan loss reserves. See NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Allowance for Loan
Losses and Reserve for Guarantee Losses in our 2010 Annual
Report for additional information. As of June 30, 2011,
these insurers provided coverage, with maximum loss limits of
$54.8 billion, for $259.9 billion of UPB, in
connection with our single-family credit guarantee portfolio.
Our top six mortgage insurer counterparties, Mortgage Guaranty
Insurance Corporation (or MGIC), Radian Guaranty Inc.,
Genworth Mortgage Insurance Corporation, United Guaranty
Residential Insurance Co., PMI Mortgage Insurance Co.
(or PMI), and Republic Mortgage Insurance Co. (or RMIC)
each accounted for more than 10% and collectively represented
approximately 95% of our overall mortgage insurance coverage at
June 30, 2011. All our mortgage insurance counterparties
are rated BBB or below as of July 22, 2011, based on the
lower of the S&P or Moodys rating scales and stated
in terms of the S&P equivalent.
We received proceeds of $1.3 billion and $0.7 billion
during the six months ended June 30, 2011 and 2010,
respectively, from our primary and pool mortgage insurance
policies for recovery of losses on our single-family loans. We
had outstanding receivables from mortgage insurers of
$2.1 billion and $2.3 billion as of June 30, 2011
and December 31, 2010, respectively. The balance of our
outstanding accounts receivable from mortgage insurers, net of
associated reserves, was approximately $1.4 billion and
$1.5 billion as of June 30, 2011 and December 31,
2010, respectively. Four of our mortgage insurers, including
RMIC and PMI, have exceeded regulatory risk to capital ratios
required by their state insurance regulators, and others may
exceed regulatory limits in the future. Most, but not all,
states have issued waivers to allow the companies to continue
writing new business in their states, and Freddie Mac has, in
certain circumstances, approved limited purpose affiliates to
allow the companies to continue writing business in those states
that have not issued waivers. Some of those state waivers are
nearing their expiration dates.
On July 28, 2011, RMIC announced that its waiver of minimum
state regulatory capital requirements will expire on
August 31, 2011, and that it has not yet obtained necessary
approvals to move production of new business to a separately
capitalized subsidiary. RMIC stated that it is probable that its
new business production will cease, at least temporarily, prior
to August 31, 2011. RMIC also stated that, absent approval
to underwrite new production through a separately capitalized
subsidiary, it is most likely that RMICs existing book of
business would be placed into run off operating mode. We
notified RMIC that they were suspended as an approved insurer
for Freddie Mac loans effective August 1, 2011.
We evaluate the near term recovery from insurance policies for
mortgage loans that we hold on our consolidated balance sheet as
well as loans underlying our non-consolidated Freddie Mac
mortgage-related securities and covered by other guarantee
commitments as part of the estimate of our loan loss reserves.
Based upon currently available information, we believe that all
of our mortgage insurance counterparties have the capacity to
pay all claims as they become due in the normal course for the
near term, except for claims obligations of Triad Guaranty
Insurance Corporation (or Triad) that were partially deferred
beginning June 1, 2009, under order of Triads state
regulator. However, we believe that certain of our other
mortgage insurance counterparties may lack sufficient ability to
fully meet all of their expected lifetime claims paying
obligations to us over the long term as such claims emerge.
Bond
Insurers
Bond insurance, which may be either primary or secondary
policies, is a credit enhancement covering some of the
non-agency mortgage-related securities we hold. Primary policies
are acquired by the securitization trust issuing the securities
we purchase, while secondary policies are acquired by us. At
June 30, 2011, we had coverage, including secondary
policies, on non-agency mortgage-related securities totaling
$10.1 billion of UPB. At June 30, 2011, our top five
bond insurers, Ambac Assurance Corporation (or Ambac), Financial
Guaranty Insurance Company (or FGIC), MBIA Insurance Corp.,
Assured Guaranty Municipal Corp., and National Public
Finance Guarantee Corp., each accounted for more than 10%
of our overall bond insurance coverage and collectively
represented approximately 99% of our total coverage.
We evaluate the recovery from primary monoline bond insurance
policies as part of our impairment analysis for our investments
in securities. FGIC and Ambac are currently not paying any
claims. If a monoline bond insurer fails to meet its obligations
on our investments in securities, then the fair values of our
securities may further decline, which could have a material
adverse effect on our results and financial condition. We
recognized other-than-temporary impairment losses during 2010
and 2011 related to investments in mortgage-related securities
covered by bond insurance as a result of our uncertainty over
whether or not certain insurers will meet our future claims in
the event of a loss on the securities. See NOTE 7:
INVESTMENTS IN SECURITIES for further information on our
evaluation of impairment on securities covered by bond insurance.
Cash and
Other Investments Counterparties
We are exposed to institutional credit risk arising from the
potential insolvency or non-performance of counterparties of
non-mortgage-related investment agreements and cash equivalent
transactions, including those entered into on behalf of our
securitization trusts. These financial instruments are
investment grade at the time of purchase and primarily
short-term in nature, which mitigates institutional credit risk
for these instruments.
Our cash and other investment counterparties are primarily
financial institutions and the Federal Reserve Bank. As of
June 30, 2011 and December 31, 2010, there were
$53.4 billion and $91.6 billion, respectively, of cash
and other non-
mortgage assets invested in financial instruments with
institutional counterparties or deposited with the Federal
Reserve Bank. As of June 30, 2011, these included:
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$14.4 billion of cash equivalents invested in
32 counterparties that had short-term credit ratings of
A-1 or above
on the S&P or equivalent scale;
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$6.0 billion of federal funds sold with four counterparties
that had short-term S&P ratings of
A-1 or above;
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$1.3 billion of federal funds sold with one counterparty
that had a short-term S&P rating of
A-2;
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$7.1 billion of securities purchased under agreements to
resell with three counterparties that had short-term S&P
ratings of
A-1 or above;
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$19.2 billion of securities purchased under agreements to
resell with eight counterparties that had short-term S&P
ratings of
A-2; and
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$4.9 billion of cash deposited with the Federal Reserve
Bank.
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Derivative
Portfolio
Derivative
Counterparties
Our use of derivatives exposes us to institutional credit risk,
which arises from the possibility that the derivative
counterparty will not be able to meet its contractual
obligations. Exchange-traded derivatives, such as futures
contracts, do not measurably increase our institutional credit
risk because changes in the value of open exchange-traded
contracts are settled daily through a financial clearinghouse
established by each exchange. OTC derivatives, however, expose
us to institutional credit risk because transactions are
executed and settled between us and our counterparty. Our use of
OTC interest-rate swaps, option-based derivatives, and
foreign-currency swaps is subject to rigorous internal credit
and legal reviews. All of our OTC derivatives counterparties are
major financial institutions and are experienced participants in
the OTC derivatives market.
On an ongoing basis, we review the credit fundamentals of all of
our OTC derivative counterparties to confirm that they continue
to meet our internal standards. We assign internal ratings,
credit capital, and exposure limits to each counterparty based
on quantitative and qualitative analysis, which we update and
monitor on a regular basis. We conduct additional reviews when
market conditions dictate or certain events affecting an
individual counterparty occur.
Master
Netting and Collateral Agreements
We use master netting and collateral agreements to reduce our
credit risk exposure to our active OTC derivative counterparties
for interest-rate swaps, option-based derivatives, and
foreign-currency swaps. Master netting agreements provide for
the netting of amounts receivable and payable from an individual
counterparty, which reduces our exposure to a single
counterparty in the event of default. On a daily basis, the
market value of each counterpartys derivatives outstanding
is calculated to determine the amount of our net credit
exposure, which is equal to derivatives in a net gain position
by counterparty after giving consideration to collateral posted.
Our collateral agreements require most counterparties to post
collateral for the amount of our net exposure to them above the
applicable threshold. Bilateral collateral agreements are in
place for the majority of our counterparties. Collateral posting
thresholds are tied to a counterpartys credit rating.
Derivative exposures and collateral amounts are monitored on a
daily basis using both internal pricing models and dealer price
quotes. Collateral is typically transferred within one business
day based on the values of the related derivatives. This time
lag in posting collateral can affect our net uncollateralized
exposure to derivative counterparties.
Collateral posted by a derivative counterparty is typically in
the form of cash, although U.S. Treasury securities, Freddie Mac
mortgage-related securities, or our debt securities may also be
posted. In the event a counterparty defaults on its obligations
under the derivatives agreement and the default is not remedied
in the manner prescribed in the agreement, we have the right
under the agreement to direct the custodian bank to transfer the
collateral to us or, in the case of non-cash collateral, to sell
the collateral and transfer the proceeds to us.
Our uncollateralized exposure to counterparties for OTC
interest-rate swaps, option-based derivatives, foreign-currency
swaps, and purchased interest-rate caps, after applying netting
agreements and collateral, was $113 million and
$32 million at June 30, 2011 and December 31,
2010, respectively. In the event that all of our counterparties
for these derivatives were to have defaulted simultaneously on
June 30, 2011, our maximum loss for accounting purposes
would have been approximately $113 million. Four
counterparties each accounted for greater than 10% and
collectively accounted for 94% of our net uncollateralized
exposure to derivative counterparties, excluding commitments, at
June 30,
2011. These counterparties were Barclays Bank PLC, Deutsche
Bank, A.G., UBS A.G., and Goldman Sachs Bank USA, all of which
were rated A or higher as of July 22, 2011.
The total exposure on our OTC forward purchase and sale
commitments, which are treated as derivatives, was
$121 million and $103 million at June 30, 2011
and December 31, 2010, respectively. These commitments are
uncollateralized. Because the typical maturity of our forward
purchase and sale commitments is less than 60 days and they
are generally settled through a clearinghouse, we do not require
master netting and collateral agreements for the counterparties
of these commitments. However, we monitor the credit
fundamentals of the counterparties to our forward purchase and
sale commitments on an ongoing basis to ensure that they
continue to meet our internal risk-management standards.
NOTE 18:
FAIR VALUE DISCLOSURES
Fair
Value Hierarchy
The accounting guidance for fair value measurements and
disclosures establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value.
Assets and liabilities are classified in their entirety within
the fair value hierarchy based on the lowest level input that is
significant to the fair value measurement. Table 18.1 sets
forth by level within the fair value hierarchy assets and
liabilities measured and reported at fair value on a recurring
basis in our consolidated balance sheets at June 30, 2011
and December 31, 2010.
Table 18.1
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
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Fair Value at June 30, 2011
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Quoted Prices in
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Active Markets for
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Significant Other
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Significant
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Identical Assets
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Observable Inputs
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Unobservable Inputs
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Netting
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(Level 1)
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(Level 2)
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(Level 3)
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Adjustment(1)
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Total
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(in millions)
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Assets:
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Investments in securities:
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Available-for-sale,
at fair value:
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Mortgage-related securities:
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Freddie Mac
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$
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$
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83,238
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$
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1,983
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$
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$
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85,221
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Subprime
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30,491
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30,491
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CMBS
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54,440
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3,207
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57,647
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Option ARM
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6,591
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6,591
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Alt-A and other
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12
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12,197
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12,209
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Fannie Mae
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20,824
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187
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21,011
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Obligations of states and political subdivisions
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8,560
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8,560
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Manufactured housing
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844
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844
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Ginnie Mae
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261
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14
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275
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Total available-for-sale securities, at fair value
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158,775
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64,074
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222,849
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Trading, at fair value:
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Mortgage-related securities:
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Freddie Mac
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14,375
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2,622
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16,997
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Fannie Mae
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17,139
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843
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17,982
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Ginnie Mae
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139
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26
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|
|
|
|
165
|
|
Other
|
|
|
|
|
|
|
64
|
|
|
|
18
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities
|
|
|
|
|
|
|
31,717
|
|
|
|
3,509
|
|
|
|
|
|
|
|
35,226
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
Treasury bills
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Treasury notes
|
|
|
17,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,497
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities
|
|
|
17,747
|
|
|
|
1,791
|
|
|
|
|
|
|
|
|
|
|
|
19,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities, at fair value
|
|
|
17,747
|
|
|
|
33,508
|
|
|
|
3,509
|
|
|
|
|
|
|
|
54,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
17,747
|
|
|
|
192,283
|
|
|
|
67,583
|
|
|
|
|
|
|
|
277,613
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale,
at fair value
|
|
|
|
|
|
|
|
|
|
|
4,463
|
|
|
|
|
|
|
|
4,463
|
|
Derivative assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps
|
|
|
|
|
|
|
4,646
|
|
|
|
46
|
|
|
|
|
|
|
|
4,692
|
|
Option-based derivatives
|
|
|
5
|
|
|
|
11,484
|
|
|
|
|
|
|
|
|
|
|
|
11,489
|
|
Other
|
|
|
4
|
|
|
|
444
|
|
|
|
6
|
|
|
|
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, before netting adjustments
|
|
|
9
|
|
|
|
16,574
|
|
|
|
52
|
|
|
|
|
|
|
|
16,635
|
|
Netting
adjustments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,389
|
)
|
|
|
(16,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets, net
|
|
|
9
|
|
|
|
16,574
|
|
|
|
52
|
|
|
|
(16,389
|
)
|
|
|
246
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee asset, at fair value
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets carried at fair value on a recurring basis
|
|
$
|
17,756
|
|
|
$
|
208,857
|
|
|
$
|
72,765
|
|
|
$
|
(16,389
|
)
|
|
$
|
282,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities recorded at fair value
|
|
$
|
|
|
|
$
|
3,998
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,998
|
|
Derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps
|
|
|
|
|
|
|
22,423
|
|
|
|
317
|
|
|
|
|
|
|
|
22,740
|
|
Option-based derivatives
|
|
|
|
|
|
|
780
|
|
|
|
1
|
|
|
|
|
|
|
|
781
|
|
Other
|
|
|
50
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, before netting adjustments
|
|
|
50
|
|
|
|
23,256
|
|
|
|
371
|
|
|
|
|
|
|
|
23,677
|
|
Netting
adjustments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,269
|
)
|
|
|
(23,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities, net
|
|
|
50
|
|
|
|
23,256
|
|
|
|
371
|
|
|
|
(23,269
|
)
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities carried at fair value on a recurring basis
|
|
$
|
50
|
|
|
$
|
27,254
|
|
|
$
|
371
|
|
|
$
|
(23,269
|
)
|
|
$
|
4,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2010
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Netting
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Adjustment(1)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
|
|
|
$
|
83,652
|
|
|
$
|
2,037
|
|
|
$
|
|
|
|
$
|
85,689
|
|
Subprime
|
|
|
|
|
|
|
|
|
|
|
33,861
|
|
|
|
|
|
|
|
33,861
|
|
CMBS
|
|
|
|
|
|
|
54,972
|
|
|
|
3,115
|
|
|
|
|
|
|
|
58,087
|
|
Option ARM
|
|
|
|
|
|
|
|
|
|
|
6,889
|
|
|
|
|
|
|
|
6,889
|
|
Alt-A and other
|
|
|
|
|
|
|
13
|
|
|
|
13,155
|
|
|
|
|
|
|
|
13,168
|
|
Fannie Mae
|
|
|
|
|
|
|
24,158
|
|
|
|
212
|
|
|
|
|
|
|
|
24,370
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
9,377
|
|
|
|
|
|
|
|
9,377
|
|
Manufactured housing
|
|
|
|
|
|
|
|
|
|
|
897
|
|
|
|
|
|
|
|
897
|
|
Ginnie Mae
|
|
|
|
|
|
|
280
|
|
|
|
16
|
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities, at fair value
|
|
|
|
|
|
|
163,075
|
|
|
|
69,559
|
|
|
|
|
|
|
|
232,634
|
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
|
|
|
|
11,138
|
|
|
|
2,299
|
|
|
|
|
|
|
|
13,437
|
|
Fannie Mae
|
|
|
|
|
|
|
17,872
|
|
|
|
854
|
|
|
|
|
|
|
|
18,726
|
|
Ginnie Mae
|
|
|
|
|
|
|
145
|
|
|
|
27
|
|
|
|
|
|
|
|
172
|
|
Other
|
|
|
|
|
|
|
11
|
|
|
|
20
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities
|
|
|
|
|
|
|
29,166
|
|
|
|
3,200
|
|
|
|
|
|
|
|
32,366
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Treasury bills
|
|
|
17,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,289
|
|
Treasury notes
|
|
|
10,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,122
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-mortgage-related securities
|
|
|
27,411
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
27,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities, at fair value
|
|
|
27,411
|
|
|
|
29,651
|
|
|
|
3,200
|
|
|
|
|
|
|
|
60,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
27,411
|
|
|
|
192,726
|
|
|
|
72,759
|
|
|
|
|
|
|
|
292,896
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale,
at fair value
|
|
|
|
|
|
|
|
|
|
|
6,413
|
|
|
|
|
|
|
|
6,413
|
|
Derivative assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps
|
|
|
|
|
|
|
9,921
|
|
|
|
49
|
|
|
|
|
|
|
|
9,970
|
|
Option-based derivatives
|
|
|
|
|
|
|
11,255
|
|
|
|
|
|
|
|
|
|
|
|
11,255
|
|
Other
|
|
|
3
|
|
|
|
266
|
|
|
|
21
|
|
|
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, before netting adjustments
|
|
|
3
|
|
|
|
21,442
|
|
|
|
70
|
|
|
|
|
|
|
|
21,515
|
|
Netting
adjustments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,372
|
)
|
|
|
(21,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets, net
|
|
|
3
|
|
|
|
21,442
|
|
|
|
70
|
|
|
|
(21,372
|
)
|
|
|
143
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee asset, at fair value
|
|
|
|
|
|
|
|
|
|
|
541
|
|
|
|
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets carried at fair value on a recurring basis
|
|
$
|
27,414
|
|
|
$
|
214,168
|
|
|
$
|
79,783
|
|
|
$
|
(21,372
|
)
|
|
$
|
299,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities recorded at fair value
|
|
$
|
|
|
|
$
|
4,443
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,443
|
|
Derivative liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps
|
|
|
|
|
|
|
26,856
|
|
|
|
623
|
|
|
|
|
|
|
|
27,479
|
|
Option-based derivatives
|
|
|
8
|
|
|
|
252
|
|
|
|
2
|
|
|
|
|
|
|
|
262
|
|
Other
|
|
|
170
|
|
|
|
28
|
|
|
|
136
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, before netting adjustments
|
|
|
178
|
|
|
|
27,136
|
|
|
|
761
|
|
|
|
|
|
|
|
28,075
|
|
Netting
adjustments(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,866
|
)
|
|
|
(26,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities, net
|
|
|
178
|
|
|
|
27,136
|
|
|
|
761
|
|
|
|
(26,866
|
)
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities carried at fair value on a recurring basis
|
|
$
|
178
|
|
|
$
|
31,579
|
|
|
$
|
761
|
|
|
$
|
(26,866
|
)
|
|
$
|
5,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents counterparty netting, cash collateral netting, net
trade/settle receivable or payable and net derivative interest
receivable or payable. The net cash collateral posted and net
trade/settle receivable were $8.2 billion and
$6 million, respectively, at June 30, 2011. The net
cash collateral posted and net trade/settle receivable were
$6.3 billion and $1 million, respectively, at
December 31, 2010. The net interest receivable (payable) of
derivative assets and derivative liabilities was approximately
$(1.3) billion and $(0.8) billion at June 30,
2011 and December 31, 2010, respectively, which was mainly
related to interest rate swaps that we have entered into.
|
Recurring
Fair Value Changes
For the three and six months ended June 30, 2011, we did
not have any significant transfers between Level 1 and
Level 2 assets or liabilities.
Our Level 3 items mainly consist of non-agency
mortgage-related securities and multifamily held-for-sale loans.
See Valuation Methods and Assumptions Subject to Fair
Value Hierarchy for additional information about the
valuation methods and assumptions used in our fair value
measurements.
During the three and six months ended June 30, 2011, the
fair value of our Level 3 assets decreased by
$5.0 billion and $7.0 billion, respectively, mainly
attributable to: (a) monthly remittances of principal
repayments from the underlying collateral of non-agency
mortgage-related securities; and (b) net sales of
multifamily held-for-sale loans. In addition, the fair value of
our investments in non-agency mortgage-related securities also
decreased from the widening of OAS levels on these securities
during the second quarter of 2011. During the three and six
months ended June 30, 2011, we had a net transfer into
Level 3 assets of $12 million and $160 million,
respectively, resulting from a change in valuation method for
certain mortgage-related securities due to a lack of relevant
price quotes from dealers and third-party pricing services.
In the second quarter of 2010, our Level 3 assets decreased
by $1.0 billion, mainly attributable to monthly remittances
of principal repayments from the underlying collateral. For the
six months ended June 30, 2010, our Level 3 assets
decreased by $28.5 billion primarily due to the adoption of
the amendments to the accounting standards for transfers of
financial assets and consolidation of VIEs. These accounting
changes resulted in the elimination of $28.8 billion of our
Level 3 assets on January 1, 2010, including the
elimination of certain mortgage-related securities issued by our
consolidated trusts that are held by us and the guarantee asset
for guarantees issued to our consolidated trusts. In addition,
we transferred $0.3 billion of Level 3 assets to
Level 2 during the six months ended June 30, 2010,
resulting from improved liquidity and availability of the price
quotes received from dealers and third-party pricing services.
Table 18.2 provides a reconciliation of the beginning and
ending balances for assets and liabilities measured at fair
value using significant unobservable inputs (Level 3).
Table 18.2
Fair Value Measurements of Assets and Liabilities Using
Significant Unobservable Inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers
|
|
|
|
|
|
Unrealized
|
|
|
|
Balance,
|
|
|
Included in
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in and/or out
|
|
|
Balance,
|
|
|
gains (losses)
|
|
|
|
March 31, 2011
|
|
|
earnings(1)(2)(3)(4)
|
|
|
income
|
|
|
Total
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Sales
|
|
|
Settlements,
net(5)
|
|
|
of Level
3(6)
|
|
|
June 30, 2011
|
|
|
still
held(7)
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
1,896
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
40
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(27
|
)
|
|
$
|
66
|
|
|
$
|
1,983
|
|
|
$
|
|
|
Subprime
|
|
|
33,344
|
|
|
|
(70
|
)
|
|
|
(1,255
|
)
|
|
|
(1,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
30,491
|
|
|
|
(70
|
)
|
CMBS
|
|
|
3,093
|
|
|
|
|
|
|
|
136
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
3,207
|
|
|
|
|
|
Option ARM
|
|
|
6,989
|
|
|
|
(65
|
)
|
|
|
76
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(409
|
)
|
|
|
|
|
|
|
6,591
|
|
|
|
(65
|
)
|
Alt-A and other
|
|
|
12,924
|
|
|
|
(32
|
)
|
|
|
(182
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513
|
)
|
|
|
|
|
|
|
12,197
|
|
|
|
(32
|
)
|
Fannie Mae
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
187
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
8,875
|
|
|
|
3
|
|
|
|
244
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
(404
|
)
|
|
|
|
|
|
|
8,560
|
|
|
|
|
|
Manufactured housing
|
|
|
878
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
844
|
|
|
|
(2
|
)
|
Ginnie Mae
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
68,209
|
|
|
|
(166
|
)
|
|
|
(942
|
)
|
|
|
(1,108
|
)
|
|
|
8
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
(2,943
|
)
|
|
|
66
|
|
|
|
64,074
|
|
|
|
(169
|
)
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
2,697
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
(65
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
(54
|
)
|
|
|
2,622
|
|
|
|
(65
|
)
|
Fannie Mae
|
|
|
871
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
843
|
|
|
|
(17
|
)
|
Ginnie Mae
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Other
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
3,613
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
(83
|
)
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
(54
|
)
|
|
|
3,509
|
|
|
|
(83
|
)
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
|
5,304
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
3,270
|
|
|
|
|
|
|
|
(4,400
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
4,463
|
|
|
|
94
|
|
Net
derivatives(8)
|
|
|
(757
|
)
|
|
|
522
|
|
|
|
|
|
|
|
522
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(77
|
)
|
|
|
2
|
|
|
|
(319
|
)
|
|
|
407
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
asset(9)
|
|
|
597
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
667
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
|
|
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers
|
|
|
|
|
|
Unrealized
|
|
|
|
Balance,
|
|
|
Included in
|
|
|
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in and/or out
|
|
|
Balance,
|
|
|
gains (losses)
|
|
|
|
January 1, 2011
|
|
|
earnings(1)(2)(3)(4)
|
|
|
income
|
|
|
Total
|
|
|
Purchases
|
|
|
Issuances
|
|
|
Sales
|
|
|
Settlements,
net(5)
|
|
|
of Level
3(6)
|
|
|
June 30, 2011
|
|
|
still
held(7)
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
2,037
|
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
39
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(78
|
)
|
|
$
|
(32
|
)
|
|
$
|
1,983
|
|
|
$
|
|
|
Subprime
|
|
|
33,861
|
|
|
|
(804
|
)
|
|
|
315
|
|
|
|
(489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,881
|
)
|
|
|
|
|
|
|
30,491
|
|
|
|
(804
|
)
|
CMBS
|
|
|
3,115
|
|
|
|
|
|
|
|
112
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
3,207
|
|
|
|
|
|
Option ARM
|
|
|
6,889
|
|
|
|
(346
|
)
|
|
|
768
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720
|
)
|
|
|
|
|
|
|
6,591
|
|
|
|
(346
|
)
|
Alt-A and other
|
|
|
13,155
|
|
|
|
(72
|
)
|
|
|
56
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(942
|
)
|
|
|
|
|
|
|
12,197
|
|
|
|
(72
|
)
|
Fannie Mae
|
|
|
212
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
(5
|
)
|
|
|
187
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
9,377
|
|
|
|
4
|
|
|
|
242
|
|
|
|
246
|
|
|
|
1
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
(869
|
)
|
|
|
|
|
|
|
8,560
|
|
|
|
|
|
Manufactured housing
|
|
|
897
|
|
|
|
(5
|
)
|
|
|
11
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
844
|
|
|
|
(5
|
)
|
Ginnie Mae
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
69,559
|
|
|
|
(1,223
|
)
|
|
|
1,545
|
|
|
|
322
|
|
|
|
18
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
(5,593
|
)
|
|
|
(37
|
)
|
|
|
64,074
|
|
|
|
(1,227
|
)
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
2,299
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
266
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(95
|
)
|
|
|
186
|
|
|
|
2,622
|
|
|
|
(3
|
)
|
Fannie Mae
|
|
|
854
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
11
|
|
|
|
843
|
|
|
|
(5
|
)
|
Ginnie Mae
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Other
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
3,200
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
266
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(114
|
)
|
|
|
197
|
|
|
|
3,509
|
|
|
|
(9
|
)
|
Mortgage Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
|
6,413
|
|
|
|
359
|
|
|
|
|
|
|
|
359
|
|
|
|
5,434
|
|
|
|
|
|
|
|
(7,721
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
4,463
|
|
|
|
81
|
|
Net
derivatives(8)
|
|
|
(691
|
)
|
|
|
395
|
|
|
|
|
|
|
|
395
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(319
|
)
|
|
|
293
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
asset(9)
|
|
|
541
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
667
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
issuances,
|
|
|
Net transfers
|
|
|
|
|
|
Unrealized
|
|
|
|
Balance,
|
|
|
Included in
|
|
|
comprehensive
|
|
|
|
|
|
sales and
|
|
|
in and/or out
|
|
|
Balance,
|
|
|
gains (losses)
|
|
|
|
March 31, 2010
|
|
|
earnings(1)(2)(3)(4)
|
|
|
income(1)(2)
|
|
|
Total
|
|
|
settlements,
net(5)
|
|
|
of Level
3(6)
|
|
|
June 30, 2010
|
|
|
still
held(7)
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
2,011
|
|
|
$
|
|
|
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
(10
|
)
|
|
$
|
69
|
|
|
$
|
2,099
|
|
|
$
|
|
|
Subprime
|
|
|
35,835
|
|
|
|
(17
|
)
|
|
|
715
|
|
|
|
698
|
|
|
|
(1,979
|
)
|
|
|
|
|
|
|
34,554
|
|
|
|
(17
|
)
|
CMBS
|
|
|
56,491
|
|
|
|
(17
|
)
|
|
|
2,604
|
|
|
|
2,587
|
|
|
|
(949
|
)
|
|
|
|
|
|
|
58,129
|
|
|
|
(17
|
)
|
Option ARM
|
|
|
7,025
|
|
|
|
(54
|
)
|
|
|
374
|
|
|
|
320
|
|
|
|
(448
|
)
|
|
|
|
|
|
|
6,897
|
|
|
|
(48
|
)
|
Alt-A and other
|
|
|
13,383
|
|
|
|
(333
|
)
|
|
|
545
|
|
|
|
212
|
|
|
|
(637
|
)
|
|
|
|
|
|
|
12,958
|
|
|
|
(333
|
)
|
Fannie Mae
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
289
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
11,104
|
|
|
|
|
|
|
|
98
|
|
|
|
98
|
|
|
|
(459
|
)
|
|
|
|
|
|
|
10,743
|
|
|
|
|
|
Manufactured housing
|
|
|
901
|
|
|
|
(13
|
)
|
|
|
32
|
|
|
|
19
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
892
|
|
|
|
(13
|
)
|
Ginnie Mae
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
127,072
|
|
|
|
(434
|
)
|
|
|
4,397
|
|
|
|
3,963
|
|
|
|
(4,540
|
)
|
|
|
69
|
|
|
|
126,564
|
|
|
|
(428
|
)
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
2,821
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
(328
|
)
|
|
|
590
|
|
|
|
(42
|
)
|
|
|
3,041
|
|
|
|
(328
|
)
|
Fannie Mae
|
|
|
1,182
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
(248
|
)
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
918
|
|
|
|
(248
|
)
|
Ginnie Mae
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
Other
|
|
|
25
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
4,056
|
|
|
|
(578
|
)
|
|
|
|
|
|
|
(578
|
)
|
|
|
576
|
|
|
|
(44
|
)
|
|
|
4,010
|
|
|
|
(578
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
|
2,206
|
|
|
|
126
|
|
|
|
|
|
|
|
126
|
|
|
|
(676
|
)
|
|
|
|
|
|
|
1,656
|
|
|
|
2
|
|
Net
derivatives(8)
|
|
|
(35
|
)
|
|
|
310
|
|
|
|
|
|
|
|
310
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
199
|
|
|
|
222
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
asset(9)
|
|
|
482
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
|
|
|
|
485
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
Realized and unrealized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
effect
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of change
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
issuances,
|
|
|
Net transfers
|
|
|
|
|
|
Unrealized
|
|
|
|
Balance,
|
|
|
in accounting
|
|
|
Balance,
|
|
|
Included in
|
|
|
comprehensive
|
|
|
|
|
|
sales and
|
|
|
in and/or out
|
|
|
Balance,
|
|
|
gains (losses)
|
|
|
|
December 31, 2009
|
|
|
principle(10)
|
|
|
January 1, 2010
|
|
|
earnings(1)(2)(3)(4)
|
|
|
income(1)(2)
|
|
|
Total
|
|
|
settlements,
net(5)
|
|
|
of Level
3(6)
|
|
|
June 30, 2010
|
|
|
still
held(7)
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
$
|
20,807
|
|
|
$
|
(18,775
|
)
|
|
$
|
2,032
|
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
(53
|
)
|
|
$
|
104
|
|
|
$
|
2,099
|
|
|
$
|
|
|
Subprime
|
|
|
35,721
|
|
|
|
|
|
|
|
35,721
|
|
|
|
(349
|
)
|
|
|
3,265
|
|
|
|
2,916
|
|
|
|
(4,083
|
)
|
|
|
|
|
|
|
34,554
|
|
|
|
(349
|
)
|
CMBS
|
|
|
54,019
|
|
|
|
|
|
|
|
54,019
|
|
|
|
(72
|
)
|
|
|
5,660
|
|
|
|
5,588
|
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
58,129
|
|
|
|
(72
|
)
|
Option ARM
|
|
|
7,236
|
|
|
|
|
|
|
|
7,236
|
|
|
|
(156
|
)
|
|
|
696
|
|
|
|
540
|
|
|
|
(879
|
)
|
|
|
|
|
|
|
6,897
|
|
|
|
(150
|
)
|
Alt-A and other
|
|
|
13,391
|
|
|
|
|
|
|
|
13,391
|
|
|
|
(352
|
)
|
|
|
1,164
|
|
|
|
812
|
|
|
|
(1,245
|
)
|
|
|
|
|
|
|
12,958
|
|
|
|
(352
|
)
|
Fannie Mae
|
|
|
338
|
|
|
|
|
|
|
|
338
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
289
|
|
|
|
|
|
Obligations of states and political subdivisions
|
|
|
11,477
|
|
|
|
|
|
|
|
11,477
|
|
|
|
1
|
|
|
|
212
|
|
|
|
213
|
|
|
|
(947
|
)
|
|
|
|
|
|
|
10,743
|
|
|
|
|
|
Manufactured housing
|
|
|
911
|
|
|
|
|
|
|
|
911
|
|
|
|
(15
|
)
|
|
|
54
|
|
|
|
39
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
892
|
|
|
|
(15
|
)
|
Ginnie Mae
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
143,904
|
|
|
|
(18,775
|
)
|
|
|
125,129
|
|
|
|
(943
|
)
|
|
|
11,066
|
|
|
|
10,123
|
|
|
|
(8,792
|
)
|
|
|
104
|
|
|
|
126,564
|
|
|
|
(938
|
)
|
Trading, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac
|
|
|
2,805
|
|
|
|
(5
|
)
|
|
|
2,800
|
|
|
|
(627
|
)
|
|
|
|
|
|
|
(627
|
)
|
|
|
1,151
|
|
|
|
(283
|
)
|
|
|
3,041
|
|
|
|
(631
|
)
|
Fannie Mae
|
|
|
1,343
|
|
|
|
|
|
|
|
1,343
|
|
|
|
(398
|
)
|
|
|
|
|
|
|
(398
|
)
|
|
|
(25
|
)
|
|
|
(2
|
)
|
|
|
918
|
|
|
|
(398
|
)
|
Ginnie Mae
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
1
|
|
Other
|
|
|
28
|
|
|
|
(1
|
)
|
|
|
27
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
23
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
4,203
|
|
|
|
(6
|
)
|
|
|
4,197
|
|
|
|
(1,026
|
)
|
|
|
|
|
|
|
(1,026
|
)
|
|
|
1,124
|
|
|
|
(285
|
)
|
|
|
4,010
|
|
|
|
(1,030
|
)
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-sale, at fair value
|
|
|
2,799
|
|
|
|
|
|
|
|
2,799
|
|
|
|
223
|
|
|
|
|
|
|
|
223
|
|
|
|
(1,366
|
)
|
|
|
|
|
|
|
1,656
|
|
|
|
2
|
|
Net
derivatives(8)
|
|
|
(430
|
)
|
|
|
|
|
|
|
(430
|
)
|
|
|
675
|
|
|
|
|
|
|
|
675
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
199
|
|
|
|
417
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee
asset(9)
|
|
|
10,444
|
|
|
|
(10,024
|
)
|
|
|
420
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
73
|
|
|
|
|
|
|
|
485
|
|
|
|
(8
|
)
|
|
|
(1)
|
Changes in fair value for available-for-sale investments are
recorded in AOCI, while gains and losses from sales are recorded
in other gains (losses) on investments on our consolidated
statements of income and comprehensive income. For
mortgage-related securities classified as trading, the realized
and unrealized gains (losses) are recorded in other gains
(losses) on investments on our consolidated statements of income
and comprehensive income.
|
(2)
|
Changes in fair value of derivatives are recorded in derivative
gains (losses) on our consolidated statements of income and
comprehensive income for those not designated as accounting
hedges.
|
(3)
|
Changes in fair value of the guarantee asset are recorded in
other income on our consolidated statements of income and
comprehensive income.
|
(4)
|
For held-for-sale mortgage loans with fair value option elected,
gains (losses) on fair value changes and sale of mortgage loans
are recorded in other income on our consolidated statements of
income and comprehensive income.
|
(5)
|
For non-agency mortgage-related securities, primarily represents
principal repayments.
|
(6)
|
Transfer in and/or out of Level 3 during the period is
disclosed as if the transfer occurred at the beginning of the
period.
|
(7)
|
Represents the amount of total gains or losses for the period,
included in earnings, attributable to the change in unrealized
gains (losses) related to assets and liabilities classified as
Level 3 that were still held at June 30, 2011 and
2010, respectively. Included in these amounts are credit-related
other-than-temporary impairments recorded on available-for-sale
securities.
|
(8)
|
Net derivatives include derivative assets and derivative
liabilities prior to counterparty netting, cash collateral
netting, net trade/settle receivable or payable and net
derivative interest receivable or payable.
|
(9)
|
We estimate that all amounts recorded for unrealized gains and
losses on our guarantee asset relate to those amounts still in
position. The amounts reflected as included in earnings
represent the periodic fair value changes of our guarantee asset.
|
(10)
|
Represents adjustment to adopt the amendments to the accounting
guidance for transfers of financial assets and consolidation of
VIEs.
|
Non-recurring
Fair Value Changes
Certain assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments in certain
circumstances. We consider the fair value measurement related to
these assets to be non-recurring. These assets include impaired
held-for-investment multifamily mortgage loans and REO, net.
These fair value measurements usually result from the write-down
of individual assets to current fair value amounts due to
impairments.
The fair value of impaired multifamily held-for-investment
mortgage loans is generally based on the value of the underlying
property. Given the relative illiquidity in the markets for
these impaired loans, and differences in contractual terms of
each loan, we classified these loans as Level 3 in the fair
value hierarchy. See Valuation Methods and Assumptions
Subject to Fair Value Hierarchy Mortgage Loans,
Held-for-Investment for additional details.
REO is initially measured at its fair value less costs to sell.
In subsequent periods, REO is reported at the lower of its
carrying amount or fair value less costs to sell. Subsequent
measurements of fair value less costs to sell are estimated
values based on relevant current and historical factors, which
are considered to be unobservable inputs. As a result, REO is
classified as Level 3 under the fair value hierarchy. See
Valuation Methods and Assumptions Subject to Fair Value
Hierarchy REO, Net for additional
details.
Table 18.3 presents assets measured and reported at fair
value on a non-recurring basis in our consolidated balance
sheets by level within the fair value hierarchy at June 30,
2011 and December 31, 2010, respectively.
Table 18.3
Assets Measured at Fair Value on a Non-Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2011
|
|
|
Fair Value at December 31, 2010
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
Active Markets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
for Identical
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
for Identical
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,716
|
|
|
$
|
1,716
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,560
|
|
|
$
|
1,560
|
|
REO,
net(2)
|
|
|
|
|
|
|
|
|
|
|
3,484
|
|
|
|
3,484
|
|
|
|
|
|
|
|
|
|
|
|
5,606
|
|
|
|
5,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value on a non-recurring basis
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,200
|
|
|
$
|
5,200
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,166
|
|
|
$
|
7,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gains
(Losses)(3)
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-for-investment
|
|
$
|
(4
|
)
|
|
$
|
(109
|
)
|
|
$
|
5
|
|
|
$
|
(132
|
)
|
REO,
net(2)
|
|
|
(24
|
)
|
|
|
(7
|
)
|
|
|
(90
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains (losses)
|
|
$
|
(28
|
)
|
|
$
|
(116
|
)
|
|
$
|
(85
|
)
|
|
$
|
(190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents carrying value and related write-downs of loans for
which adjustments are based on the fair value amounts. These
loans include impaired multifamily mortgage loans that are
classified as held-for-investment and have a related valuation
allowance.
|
(2)
|
Represents the fair value and related losses of foreclosed
properties that were measured at fair value subsequent to their
initial classification as REO, net. The carrying amount of REO,
net was written down to fair value of $3.5 billion, less
estimated costs to sell of $246 million (or approximately
$3.3 billion) at June 30, 2011. The carrying amount of
REO, net was written down to fair value of $5.6 billion,
less estimated costs to sell of $406 million (or
approximately $5.2 billion) at December 31, 2010.
|
(3)
|
Represents the total net gains (losses) recorded on items
measured at fair value on a non-recurring basis as of
June 30, 2011 and 2010, respectively.
|
Fair
Value Election
We elected the fair value option for certain types of
securities, multifamily held-for-sale mortgage loans,
foreign-currency denominated debt, and certain other debt.
Certain
Available-for-Sale Securities with Fair Value Option
Elected
We elected the fair value option for certain available-for-sale
mortgage-related securities to better reflect the natural offset
these securities provide to fair value changes recorded
historically on our guarantee asset at the time of our election.
In addition, upon adoption of the accounting guidance for the
fair value option, we elected this option for available-for-sale
securities within the scope of the accounting guidance for
investments in beneficial interests in securitized financial
assets to better reflect any valuation changes that would occur
subsequent to impairment write-downs previously recorded
on these instruments. By electing the fair value option for
these instruments, we reflect valuation changes through our
consolidated statements of income and comprehensive income in
the period they occur, including any increases in value.
For mortgage-related securities and investments in securities
that were selected for the fair value option and subsequently
classified as trading securities, the change in fair value is
recorded in other gains (losses) on investment securities
recognized in earnings in our consolidated statements of income
and comprehensive income. See NOTE 7: INVESTMENTS IN
SECURITIES for additional information regarding the net
unrealized gains (losses) on trading securities, which include
gains (losses) for other items that are not selected for the
fair value option. Related interest income continues to be
reported as interest income in our consolidated statements of
income and comprehensive income. See NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Investments in
Securities in our 2010 Annual Report for additional
information about the measurement and recognition of interest
income on investments in securities.
Debt
Securities with Fair Value Option Elected
We elected the fair value option for foreign-currency
denominated debt and certain other debt securities. In the case
of foreign-currency denominated debt, we have entered into
derivative transactions that effectively convert these
instruments to U.S. dollar denominated floating rate
instruments. The fair value changes on these derivatives were
recorded in derivative gains (losses) in our consolidated
statements of income and comprehensive income. We elected the
fair value option on these debt instruments to better reflect
the economic offset that naturally results from the debt due to
changes in interest rates. We also elected the fair value option
for certain other debt securities containing potential embedded
derivatives that required bifurcation.
The changes in fair value of debt securities with the fair value
option elected were $(37) million and $(118) million
for the three and six months ended June 30, 2011,
respectively, which were recorded in gains (losses) on debt
recorded at fair value in our consolidated statements of income
and comprehensive income. The changes in fair value related to
fluctuations in exchange rates and interest rates were
$(44) million and $(116) million for the three and six
months ended June 30, 2011, respectively. The remaining
changes in the fair value of $7 million and
$(2) million were attributable to changes in credit risk
for the three and six months ended June 30, 2011,
respectively.
The changes in fair value of debt securities with the fair value
option elected were $544 million and $891 million for
the three and six months ended June 30, 2010, respectively,
which were recorded in gains (losses) on debt recorded at fair
value in our consolidated statements of income and comprehensive
income. The changes in fair value related to fluctuations in
exchange rates and interest rates were $539 million and
$877 million for the three and six months ended
June 30, 2010, respectively. The remaining changes in the
fair value of $5 million and $14 million were
attributable to changes in credit risk for the three and six
months ended June 30, 2010, respectively.
The change in fair value attributable to changes in credit risk
was primarily determined by comparing the total change in fair
value of the debt to the total change in fair value of the
interest-rate and foreign-currency derivatives used to hedge the
debt. Any difference in the fair value change of the debt
compared to the fair value change in the derivatives is
attributed to credit risk.
The difference between the aggregate fair value and aggregate
UPB for long-term debt securities with fair value option elected
was $65 million and $108 million at June 30, 2011
and December 31, 2010, respectively. Related interest
expense continues to be reported as interest expense in our
consolidated statements of income and comprehensive income. See
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Debt Securities Issued in our 2010
Annual Report for additional information about the measurement
and recognition of interest expense on debt securities issued.
Multifamily
Held-For-Sale Mortgage Loans with Fair Value Option
Elected
We elected the fair value option for multifamily mortgage loans
that were purchased for securitization. Through this channel, we
acquire loans that we intend to securitize and sell to CMBS
investors. While this is consistent with our overall strategy to
expand our multifamily business, it differs from our traditional
buy-and-hold
strategy with respect to multifamily loans held-for-investment.
Therefore, these multifamily mortgage loans were classified as
held-for-sale mortgage loans in our consolidated balance sheets
to reflect our intent to sell in the future.
We recorded $298 million and $359 million from the
change in fair value in gains (losses) on mortgage loans
recorded at fair value in other income in our consolidated
statements of income and comprehensive income for the three and
six months ended June 30, 2011, respectively. We recorded
fair value changes of $126 million and $223 million in
other income in our consolidated statements of income and
comprehensive income for the three and six months ended
June 30, 2010, respectively. The changes in fair value of
these loans were primarily attributable to changes in interest
rates and other non-credit related items such as liquidity. The
changes in fair value attributable to credit risk were not
material given that these loans were generally originated within
the past six to twelve months and have not seen a change in
their credit characteristics.
The difference between the aggregate fair value and the
aggregate UPB for multifamily held-for-sale loans with the fair
value option elected was $45 million and
$(311) million at June 30, 2011 and December 31,
2010, respectively. Related interest income continues to be
reported as interest income in our consolidated statements of
income and comprehensive income. See NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Mortgage
Loans in our 2010 Annual Report for additional information
about the measurement and recognition of interest income on our
mortgage loans.
Valuation
Methods and Assumptions Subject to Fair Value
Hierarchy
We categorize assets and liabilities that we measure and report
at fair value in our consolidated balance sheets within the fair
value hierarchy based on the valuation process used to derive
the fair value and our judgment regarding the observability of
the related inputs.
Investments
in Securities
Agency
Securities
Fixed-rate agency securities are valued based on
dealer-published quotes for a base TBA security, adjusted to
reflect the measurement date as opposed to a forward settlement
date (carry) and
pay-ups for
specified collateral. The base TBA price varies based on agency,
term, coupon, and settlement month. The carry adjustment
converts forward settlement date prices to spot or
same-day
settlement date prices such that the fair value is estimated as
of the measurement date, and not as of the forward settlement
date. The carry adjustment uses our internal prepayment and
interest rate models. A
pay-up is
added to the base TBA price for characteristics that are
observed to be trading at a premium versus TBAs; this currently
includes seasoning and low-loan balance attributes. Haircuts are
applied to a small subset of positions that are less liquid and
are observed to trade at a discount relative to TBAs; this
includes securities that are not eligible for delivery into TBA
trades.
Adjustable-rate agency securities are valued based on the median
of prices from multiple pricing services. The key valuation
drivers used by the pricing services include the interest rate
cap structure, term, agency, remaining term, and months-to-next
coupon reset, coupled with prevailing market conditions, namely
interest rates.
Because fixed-rate and adjustable-rate agency securities are
generally liquid and contain observable pricing in the market,
they generally are classified as Level 2.
Multiclass structures are valued using a variety of methods,
depending on the product type. The predominant valuation
methodology uses the median prices from multiple pricing
services. This method is used for structures for which there is
typically significant, relevant market activity. Some of the key
valuation drivers used by the pricing services are the
collateral type, tranche type, weighted average life, and
coupon, coupled with interest rates. Other tranche types that
are more challenging to price are valued using the median prices
from multiple dealers. These include structured interest-only,
structured principal-only, inverse floaters, and inverse
interest-only structures. Some of the key valuation drivers used
by the dealers are the collateral type, tranche type, weighted
average life, and coupon, coupled with interest rates. In
addition, there is a subset of tranches for which there is a
lack of relevant market activity that are priced using a proxy
relationship where the position is matched to the closest
dealer-priced tranche, then valued by calculating an OAS using
our proprietary prepayment and interest rate models from the
dealer-priced tranche. If necessary, our judgment is applied to
estimate the impact of differences in prepayment uncertainty or
other unique cash flow characteristics related to that
particular security. We then determine the fair values for these
securities by using the estimated OAS as an input to the
valuation calculation in conjunction with interest-rate and
prepayment models to calculate the NPV of the projected cash
flows. These positions typically have smaller balances and are
more difficult for dealers to value. There is also a subset of
positions for which prices are published on a daily basis; these
include trust interest-only and trust principal-only strips.
These are fairly liquid tranches and are quoted on a regular
settlement date basis. In order to align the regular settlement
date price with the balance sheet date, the OAS is calculated
based on the published prices. Then the tranche is valued using
that OAS applied to the balance sheet date.
Multiclass agency securities are classified as Level 2 or 3
depending on the significance of the inputs that are not
observable.
Commercial
Mortgage-Backed Securities
CMBS are valued based on the median prices from multiple pricing
services. Some of the key valuation drivers used by the pricing
services include the collateral type, collateral performance,
capital structure, issuer, credit enhancement, coupon, and
weighted average life, coupled with the observed spread levels
on trades of similar securities. The weighted average coupon of
the collateral underlying our CMBS investments was 5.7% as of
both June 30, 2011 and December 31, 2010. The
weighted-average life of the collateral underlying our CMBS
investments was 4.0 years and 4.3 years, respectively,
as of June 30, 2011 and December 31, 2010. Many of
these securities have significant prepayment lockout periods or
penalty periods that limit the window of potential prepayment to
a relatively narrow band. These securities are primarily
classified in Level 2.
Subprime,
Option ARM, and Alt-A and Other (Mortgage-Related)
These private-label investments are valued using either the
median of multiple dealer prices or the median prices from
multiple pricing services. Some of the key valuation drivers
used by the dealers and pricing services include the product
type, vintage, collateral performance, capital structure, credit
enhancements, and coupon, coupled with interest rates and
spreads observed on trades of similar securities, where
possible. The market for non-agency mortgage-related securities
backed by subprime, option ARM, and
Alt-A and
other loans is highly illiquid, resulting in wide price ranges
as well as wide credit spreads. These securities are primarily
classified in Level 3.
Table 18.4 below presents the fair value of subprime,
option ARM, and
Alt-A and
other investments we held by origination year.
Table
18.4 Fair Value of Subprime, Option ARM, and Alt-A
and Other Investments by Origination Year
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Year of Origination
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
2004 and prior
|
|
$
|
4,702
|
|
|
$
|
4,998
|
|
2005
|
|
|
11,860
|
|
|
|
13,126
|
|
2006
|
|
|
17,681
|
|
|
|
19,333
|
|
2007
|
|
|
15,048
|
|
|
|
16,461
|
|
2008 and beyond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,291
|
|
|
$
|
53,918
|
|
|
|
|
|
|
|
|
|
|
Obligations
of States and Political Subdivisions
These primarily represent housing revenue bonds, which are
valued by taking the median prices from multiple pricing
services. Some of the key valuation drivers used by the pricing
services include the structure of the bond, call terms,
cross-collateralization features, and tax-exempt features
coupled with municipal bond rates, credit ratings, and spread
levels. These securities are unique, resulting in low trading
volumes and are classified as Level 3 in the fair value
hierarchy.
Manufactured
Housing
Securities backed by loans on manufactured housing properties
are dealer-priced and we arrive at the fair value by taking the
median of multiple dealer prices. Some of the key valuation
drivers include the collaterals performance and vintage.
These securities are classified as Level 3 in the fair
value hierarchy because key inputs are unobservable in the
market due to low levels of liquidity.
Asset-Backed
Securities (Non-Mortgage-Related)
These private-label non-mortgage-related securities are
dealer-priced. Some of the key valuation drivers include the
discount margin, subordination level, and prepayment speed,
coupled with interest rates. They are classified as Level 2
because of their liquidity and tight pricing ranges.
Treasury
Bills and Treasury Notes
Treasury bills and Treasury notes are classified as Level 1
in the fair value hierarchy since they are actively traded and
price quotes are widely available at the measurement date for
the exact security we are valuing.
FDIC-Guaranteed
Corporate Medium-Term Notes
Since these securities carry the FDIC guarantee, they are
considered to have no credit risk. They are valued based on
yield analysis. They are classified as Level 2 because of
their high liquidity and tight pricing ranges.
Mortgage
Loans, Held-for-Sale
Mortgage loans, held-for-sale represent multifamily mortgage
loans with the fair value option elected. Thus, all
held-for-sale mortgage loans are measured at fair value on a
recurring basis.
The fair value of multifamily mortgage loans is generally based
on market prices obtained from a third-party pricing service
provider for similar actively traded mortgages, adjusted for
differences in loan characteristics and contractual terms. The
pricing service aggregates observable price points from two
markets: agency and non-agency. The agency market consists of
purchases made by the GSEs of loans underwritten by our
counterparties in accordance with our guidelines while the
non-agency market generally consists of secondary market trades
between banks and other financial institutions of loans that
were originated and initially held in portfolio by these
institutions. The pricing service blends the observable price
data obtained from these two distinct markets into a final
composite price based on the expected probability that a given
loan will trade in one of these two markets. This estimated
probability is largely a function of the loans credit
quality, as determined by its current LTV ratio and DSCR. The
result of this blending technique is that lower credit quality
loans receive a lower percentage of agency price weighting and
higher credit quality loans receive a higher percentage of
agency price weighting.
Given the relative illiquidity in the marketplace for
multifamily mortgage loans and differences in contractual terms,
these loans are classified as Level 3 in the fair value
hierarchy.
Mortgage
Loans, Held-for-Investment
Mortgage loans, held-for-investment measured at fair value on a
non-recurring basis represent impaired multifamily mortgage
loans, which are not measured at fair value on an ongoing basis
but have been written down to fair value due to impairment. The
valuation technique we use to measure the fair value of impaired
multifamily mortgage loans, held-for-investment is based on the
value of the underlying property and may include assessment of
third-party appraisals, environmental, and engineering reports
that we compare with relevant market performance to arrive at a
fair value. Our valuation technique incorporates one or more of
the following methods: income capitalization, discounted cash
flow, sales comparables, and replacement cost. We consider the
physical condition of the property, rent levels, and other
market drivers, including input from sales brokers and the
property manager. We classify impaired multifamily mortgage
loans, held-for-investment as Level 3 in the fair value
hierarchy as their valuation includes significant unobservable
inputs.
Derivative
Assets, Net
Derivative assets largely consist of interest-rate swaps,
option-based derivatives, futures, and forward purchase and sale
commitments that we account for as derivatives. The carrying
value of our derivatives on our consolidated balance sheets is
equal to their fair value, including net derivative interest
receivable or payable, trade/settle receivable or payable and is
net of cash collateral held or posted, where allowable by a
master netting agreement. Derivatives in a net unrealized gain
position are reported as derivative assets, net. Similarly,
derivatives in a net unrealized loss position are reported as
derivative liabilities, net.
Interest-Rate
Swaps and Option-Based Derivatives
The fair values of interest-rate swaps are determined by using
the appropriate yield curves to discount the expected cash flows
of both the fixed and variable rate components of the swap
contracts. In doing so, we first observe publicly available
market spot interest rates, such as money market rates,
Eurodollar futures contracts and LIBOR swap rates. The spot
curves are translated to forward curves using internal models.
From the forward curves, the periodic cash flows are calculated
on the pay and receive side of the swap and discounted back at
the relevant forward rates to arrive at the fair value of the
swap. Since the fair values of the swaps are determined by using
observable inputs from active markets, these are generally
classified as Level 2 under the fair value hierarchy.
Option-based derivatives include call and put swaptions and
other option-based derivatives, the majority of which are
European options. The fair values of the European call and put
swaptions are calculated by using market observable interest
rates and dealer-supplied interest rate volatility grids as
inputs to our option-pricing models. Within each grid, prices
are determined based on the option term of the underlying swap
and the strike rate of the swap. Derivatives with embedded
American options are valued using dealer-provided pricing grids.
The grids contain prices corresponding to specified option terms
of the underlying swaps and the strike rate of the swaps.
Interpolation is used to calculate prices for positions for
which specific grid points are not provided. Derivatives with
embedded Bermudan options are valued based on prices provided
directly by counterparties. Swaptions are classified as
Level 2 under the fair value hierarchy. Other option-based
derivatives include exchange-traded options that are valued by
exchange-published daily closing prices. Therefore,
exchange-traded options are classified as Level 1 under the
fair value hierarchy. Other option-based
derivatives also include purchased interest-rate cap and floor
contracts that are valued by using observable market interest
rates and cap and floor rate volatility grids obtained from
dealers, and cancellable interest rate swaps that are valued by
using dealer prices. Cap and floor contracts are classified as
Level 2 and cancellable interest rate swaps with fair
values using significant unobservable inputs are classified as
Level 3 under the fair value hierarchy.
Table 18.5 below shows the fair value, prior to
counterparty and cash collateral netting adjustments, for our
interest-rate swaps and option-based derivatives and the
maturity profile of our derivative positions. It also provides
the weighted-average fixed rates of our pay-fixed and
receive-fixed swaps. As of June 30, 2011 and
December 31, 2010 our option-based derivatives had a
remaining weighted-average life of 4.2 years and
4.5 years, respectively.
Table
18.5 Fair Values and Maturities for Interest-Rate
Swaps and Option-Based Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
Fair
Value(1)
|
|
|
|
Notional or
|
|
|
Total Fair
|
|
|
Less than
|
|
|
1 to 3
|
|
|
Greater than 3
|
|
|
In Excess
|
|
|
|
Contractual Amount
|
|
|
Value(2)
|
|
|
1 Year
|
|
|
Years
|
|
|
and up to 5 Years
|
|
|
of 5 Years
|
|
|
|
(dollars in millions)
|
|
|
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
199,851
|
|
|
$
|
2,260
|
|
|
$
|
151
|
|
|
$
|
590
|
|
|
$
|
931
|
|
|
$
|
588
|
|
Weighted average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
1.31
|
%
|
|
|
1.22
|
%
|
|
|
2.21
|
%
|
|
|
3.60
|
%
|
Forward-starting
swaps(4)
|
|
|
15,907
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
441
|
|
Weighted average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.59
|
%
|
|
|
1.09
|
%
|
|
|
4.51
|
%
|
Basis (floating to floating)
|
|
|
3,275
|
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
Pay-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
302,831
|
|
|
|
(18,263
|
)
|
|
|
(136
|
)
|
|
|
(1,261
|
)
|
|
|
(4,880
|
)
|
|
|
(11,986
|
)
|
Weighted-average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
2.90
|
%
|
|
|
1.68
|
%
|
|
|
3.28
|
%
|
|
|
4.07
|
%
|
Forward-starting
swaps(4)
|
|
|
19,039
|
|
|
|
(2,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,489
|
)
|
Weighted-average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
$
|
540,903
|
|
|
$
|
(18,048
|
)
|
|
$
|
15
|
|
|
$
|
(670
|
)
|
|
$
|
(3,947
|
)
|
|
$
|
(13,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
|
126,850
|
|
|
|
7,480
|
|
|
|
4,066
|
|
|
|
1,307
|
|
|
|
748
|
|
|
|
1,359
|
|
Put swaptions
|
|
|
79,475
|
|
|
|
1,714
|
|
|
|
117
|
|
|
|
427
|
|
|
|
484
|
|
|
|
686
|
|
Other option-based
derivatives(5)
|
|
|
41,861
|
|
|
|
1,514
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
$
|
248,186
|
|
|
$
|
10,708
|
|
|
$
|
4,188
|
|
|
$
|
1,734
|
|
|
$
|
1,232
|
|
|
$
|
3,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Fair
Value(1)
|
|
|
|
Notional or
|
|
|
Total Fair
|
|
|
Less than
|
|
|
1 to 3
|
|
|
Greater than 3
|
|
|
In Excess
|
|
|
|
Contractual Amount
|
|
|
Value(2)
|
|
|
1 Year
|
|
|
Years
|
|
|
and up to 5 Years
|
|
|
of 5 Years
|
|
|
|
(dollars in millions)
|
|
|
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
302,178
|
|
|
$
|
3,314
|
|
|
$
|
137
|
|
|
$
|
534
|
|
|
$
|
1,269
|
|
|
$
|
1,374
|
|
Weighted average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
1.54
|
%
|
|
|
1.12
|
%
|
|
|
2.39
|
%
|
|
|
3.66
|
%
|
Forward-starting
swaps(4)
|
|
|
22,412
|
|
|
|
371
|
|
|
|
|
|
|
|
123
|
|
|
|
(9
|
)
|
|
|
257
|
|
Weighted average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
1.88
|
%
|
|
|
4.19
|
%
|
Basis (floating to floating)
|
|
|
2,375
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
Pay-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
338,035
|
|
|
|
(17,189
|
)
|
|
|
(273
|
)
|
|
|
(1,275
|
)
|
|
|
(3,297
|
)
|
|
|
(12,344
|
)
|
Weighted-average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
|
2.21
|
%
|
|
|
3.04
|
%
|
|
|
4.02
|
%
|
Forward-starting
swaps(4)
|
|
|
56,259
|
|
|
|
(4,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,009
|
)
|
Weighted-average fixed
rate(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
$
|
721,259
|
|
|
$
|
(17,509
|
)
|
|
$
|
(136
|
)
|
|
$
|
(618
|
)
|
|
$
|
(2,033
|
)
|
|
$
|
(14,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
$
|
125,885
|
|
|
$
|
8,147
|
|
|
$
|
2,754
|
|
|
$
|
2,661
|
|
|
$
|
1,246
|
|
|
$
|
1,486
|
|
Put swaptions
|
|
|
65,975
|
|
|
|
1,396
|
|
|
|
136
|
|
|
|
451
|
|
|
|
226
|
|
|
|
583
|
|
Other option-based
derivatives(5)
|
|
|
47,234
|
|
|
|
1,450
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
1,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
$
|
239,094
|
|
|
$
|
10,993
|
|
|
$
|
2,882
|
|
|
$
|
3,112
|
|
|
$
|
1,471
|
|
|
$
|
3,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value is categorized based on the period from June 30,
2011 and December 31, 2010, respectively, until the
contractual maturity of the derivatives.
|
(2)
|
Represents fair value for each product type, prior to
counterparty netting, cash collateral netting, net trade/settle
receivable or payable, and net derivative interest receivable or
payable adjustments.
|
(3)
|
Represents the notional weighted average rate for the fixed leg
of the swaps.
|
(4)
|
Represents interest-rate swap agreements that are scheduled to
begin on future dates ranging from less than one year to fifteen
years.
|
(5)
|
Primarily includes purchased interest rate caps and floors.
|
Other
Derivatives
Other derivatives mainly consist of exchange-traded futures,
foreign-currency swaps, certain forward purchase and sale
commitments, and credit derivatives. The fair value of
exchange-traded futures is based on end-of-day closing prices
obtained from third-party pricing services; therefore, they are
classified as Level 1 under the fair value hierarchy. The
fair value of foreign-currency swaps is determined by using the
appropriate yield curves to calculate and discount the expected
cash flows for the swap contracts; therefore, they are
classified as Level 2 under the fair value hierarchy since
the fair values are determined through models that use
observable inputs from active markets.
Certain purchase and sale commitments are also considered to be
derivatives and are classified as Level 2 or Level 3
under the fair value hierarchy, depending on the fair value
hierarchy classification of the purchased or sold item, whether
a security or loan. Such valuation techniques are further
discussed in the Investments in Securities
section above and Valuation Methods and Assumptions Not
Subject to Fair Value Hierarchy Mortgage
Loans.
Credit derivatives primarily include purchased credit default
swaps and certain short-term default guarantee commitments,
which are valued using prices from the respective counterparty
and verified using third-party dealer credit default spreads at
the measurement date. We classify credit derivatives as
Level 3 under the fair value hierarchy due to the inactive
market and significant divergence among prices obtained from the
dealers.
Consideration
of Credit Risk in Our Valuation of Derivatives
The fair value of derivative assets considers the impact of
institutional credit risk in the event that the counterparty
does not honor its payment obligation. Additionally, the fair
value of derivative liabilities considers the impact of our
institutional credit risk. Based on this evaluation, our fair
value of derivatives is not adjusted for credit risk because we
obtain collateral from, or post collateral to, most
counterparties, typically within one business day of the daily
market value calculation, and substantially all of our credit
risk arises from counterparties with investment-grade credit
ratings of A or above. See NOTE 17: CONCENTRATION OF
CREDIT AND OTHER RISKS for a discussion of our
counterparty credit risk.
Other
Assets, Guarantee Asset
Our guarantee asset is valued either through obtaining dealer
quotes on similar securities or through an expected cash flow
approach. Because of the broad range of liquidity discounts
applied by dealers to these similar securities and because the
expected cash flow valuation approach uses significant
unobservable inputs, we classified the guarantee asset as
Level 3.
REO,
Net
REO is carried at the lower of its carrying amount or fair value
less costs to sell. The fair value of REO is calculated using an
internal model that considers state and collateral level data to
produce an estimate of fair value based on REO dispositions in
the most recent three months. We use the actual disposition
prices on REO and the current loan UPB to estimate the current
fair value of REO. Certain adjustments, such as state specific
adjustments, are made to the estimated fair value, as
applicable. Due to the use of unobservable inputs, REO is
classified as Level 3 under the fair value hierarchy.
Debt
Securities Recorded at Fair Value
We elected the fair value option for foreign-currency
denominated debt instruments and certain other debt securities.
See Fair Value Election Debt Securities
with Fair Value Option Elected for additional
information. We determine the fair value of these instruments by
obtaining multiple quotes from dealers. Since the prices
provided by the dealers consider only observable data such as
interest rates and exchange rates, these fair values are
classified as Level 2 under the fair value hierarchy.
Derivative
Liabilities, Net
See discussion under Derivative Assets, Net
above.
Consolidated
Fair Value Balance Sheets
The supplemental consolidated fair value balance sheets in
Table 18.6 present our estimates of the fair value of our
financial assets and liabilities at June 30, 2011 and
December 31, 2010. The valuations of financial instruments
on our consolidated fair value balance sheets are in accordance
with the accounting guidance for fair value measurements and
disclosures and the accounting guidance for financial
instruments. The consolidated fair value balance sheets do not
purport to present our net realizable, liquidation, or market
value as a whole. Furthermore, amounts we ultimately realize
from the disposition of assets or settlement of liabilities may
vary significantly from the fair values presented.
During the second quarter of 2010 our fair value results as
presented in our consolidated fair value balance sheets were
affected by a change in the estimation of a risk premium
assumption embedded in our model to apply credit costs, which
led to a decrease in our fair value measurement of mortgage
loans. For more information concerning our approach to valuation
related to our mortgage loans, see Valuation Methods and
Assumptions Not Subject to Fair Value Hierarchy
Mortgage Loans.
Table 18.6
Consolidated Fair Value Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount(1)
|
|
|
Fair Value
|
|
|
Amount(1)
|
|
|
Fair Value
|
|
|
|
(in billions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17.5
|
|
|
$
|
17.5
|
|
|
$
|
37.0
|
|
|
$
|
37.0
|
|
Restricted cash and cash equivalents
|
|
|
2.3
|
|
|
|
2.3
|
|
|
|
8.1
|
|
|
|
8.1
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
33.6
|
|
|
|
33.6
|
|
|
|
46.5
|
|
|
|
46.5
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
|
222.8
|
|
|
|
222.8
|
|
|
|
232.6
|
|
|
|
232.6
|
|
Trading, at fair value
|
|
|
54.8
|
|
|
|
54.8
|
|
|
|
60.3
|
|
|
|
60.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
|
277.6
|
|
|
|
277.6
|
|
|
|
292.9
|
|
|
|
292.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held by consolidated trusts
|
|
|
1,634.8
|
|
|
|
1,665.8
|
|
|
|
1,646.2
|
|
|
|
1,667.5
|
|
Unsecuritized mortgage loans
|
|
|
203.0
|
|
|
|
195.4
|
|
|
|
198.7
|
|
|
|
191.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
1,837.8
|
|
|
|
1,861.2
|
|
|
|
1,844.9
|
|
|
|
1,859.0
|
|
Derivative assets, net
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Other assets
|
|
|
26.8
|
|
|
|
27.1
|
|
|
|
32.3
|
|
|
|
37.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,195.8
|
|
|
$
|
2,219.5
|
|
|
$
|
2,261.8
|
|
|
$
|
2,280.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts held by third parties
|
|
$
|
1,499.0
|
|
|
$
|
1,568.8
|
|
|
$
|
1,528.7
|
|
|
$
|
1,589.5
|
|
Other debt
|
|
|
681.1
|
|
|
|
696.9
|
|
|
|
713.9
|
|
|
|
729.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt, net
|
|
|
2,180.1
|
|
|
|
2,265.7
|
|
|
|
2,242.6
|
|
|
|
2,319.2
|
|
Derivative liabilities, net
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Other liabilities
|
|
|
16.8
|
|
|
|
16.4
|
|
|
|
18.4
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,197.3
|
|
|
|
2,282.5
|
|
|
|
2,262.2
|
|
|
|
2,339.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior preferred stockholders
|
|
|
64.7
|
|
|
|
64.7
|
|
|
|
64.2
|
|
|
|
64.2
|
|
Preferred stockholders
|
|
|
14.1
|
|
|
|
1.4
|
|
|
|
14.1
|
|
|
|
0.3
|
|
Common stockholders
|
|
|
(80.3
|
)
|
|
|
(129.1
|
)
|
|
|
(78.7
|
)
|
|
|
(123.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
(1.5
|
)
|
|
|
(63.0
|
)
|
|
|
(0.4
|
)
|
|
|
(58.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
2,195.8
|
|
|
$
|
2,219.5
|
|
|
$
|
2,261.8
|
|
|
$
|
2,280.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Equals the amount reported on our GAAP consolidated balance
sheets.
|
Limitations
Our consolidated fair value balance sheets do not capture all
elements of value that are implicit in our operations as a going
concern because our consolidated fair value balance sheets only
capture the values of the current investment and securitization
portfolios as of the dates presented. For example, our
consolidated fair value balance sheets do not capture the value
of new investment and securitization business that would likely
replace prepayments as they occur, nor do they include any
estimation of intangible or goodwill values. Thus, the fair
value of net assets attributable to stockholders presented on
our consolidated fair value balance sheets does not represent an
estimate of our net realizable, liquidation or market value as a
whole.
The fair value of certain financial instruments is based on our
assumed current principal exit market as of the dates presented.
As new markets are developed, our assumed principal exit market
may change. The use of different assumptions and methodologies
to determine the fair values of certain financial instruments,
including the use of different principal exit markets, could
have a material impact on the fair value of net assets
attributable to stockholders presented on our consolidated fair
value balance sheets.
We report certain assets and liabilities that are not financial
instruments (such as property and equipment and REO), as well as
certain financial instruments that are not covered by the
disclosure requirements in the accounting guidance for
financial instruments, such as pension liabilities, at their
carrying amounts in accordance with GAAP on our consolidated
fair value balance sheets. We believe these items do not have a
significant impact on our overall fair value results. Other
non-financial assets and liabilities on our GAAP consolidated
balance sheets represent deferrals of costs and revenues that
are amortized in accordance with GAAP, such as deferred debt
issuance costs and deferred fees. Cash receipts and payments
related to these items are generally recognized in the fair
value of net assets when received or paid, with no basis
reflected on our fair value balance sheets.
Valuation
Methods and Assumptions Not Subject to Fair Value
Hierarchy
The following are valuation assumptions and methods for items
not subject to the fair value hierarchy either because they are
not measured at fair value other than on the fair value balance
sheet or are only measured at fair value at inception.
Cash
and Cash Equivalents
Cash and cash equivalents largely consist of highly liquid
investment securities with an original maturity of three months
or less used for cash management purposes, as well as cash held
at financial institutions and cash collateral posted by our
derivative counterparties. Given that these assets are
short-term in nature with limited market value volatility, the
carrying amount on our GAAP consolidated balance sheets is
deemed to be a reasonable approximation of fair value.
Federal
Funds Sold and Securities Purchased Under Agreements to
Resell
Federal funds sold and securities purchased under agreements to
resell principally consist of short-term contractual agreements
such as reverse repurchase agreements involving Treasury and
agency securities and federal funds sold. Given that these
assets are short-term in nature, the carrying amount on our GAAP
consolidated balance sheets is deemed to be a reasonable
approximation of fair value.
Mortgage
Loans
Single-family mortgage loans are not subject to the fair value
hierarchy since they are classified as held-for-investment and
recorded at amortized cost. Certain multifamily mortgage loans
are subject to the fair value hierarchy since these are either
recorded at fair value with the fair value option elected or
they are held for investment and recorded at fair value upon
impairment, which is based upon the fair value of the collateral
as multifamily loans are collateral-dependent.
Single-Family
Loans
We determine the fair value of single-family mortgage loans as
an estimate of the price we would receive if we were to
securitize those loans, as we believe this represents the
principal market for such loans. This includes both those held
by consolidated trusts and unsecuritized loans and excludes
single-family loans for which a contractual modification has
been completed. Our estimate of fair value is based on
comparisons to actively traded mortgage-related securities with
similar characteristics. We adjust to reflect the excess coupon
(implied management and guarantee fee) and credit obligation
related to performing our guarantee.
To calculate the fair value, we begin with a security price
derived from benchmark security pricing for similar actively
traded mortgage-related securities, adjusted for yield, credit,
and liquidity differences. This security pricing process is
consistent with our approach for valuing similar securities
retained in our investment portfolio or issued to third parties.
See Valuation Methods and Assumptions Subject to Fair
Value Hierarchy Investments in
Securities.
We estimate the present value of the additional cash flows on
the mortgage loan coupon in excess of the coupon on the
mortgage-related securities. Our approach for estimating the
fair value of the implied management and guarantee fee at
June 30, 2011 used third-party market data as practicable.
The valuation approach for the majority of implied management
and guarantee fee that relates to fixed-rate loan products with
coupons at or near current market rates involves obtaining
dealer quotes on hypothetical securities constructed with
collateral from our single-family credit guarantee portfolio.
The remaining implied management and guarantee fee relates to
underlying loan products for which comparable market prices were
not readily available. These amounts relate specifically to ARM
products, highly seasoned loans, or fixed-rate loans with
coupons that are not consistent with current market rates. This
portion of the implied management and guarantee fee is valued
using an expected cash flow approach, including only those cash
flows expected to result from our contractual right to receive
management and guarantee fees.
The implied management and guarantee fee for single-family
mortgage loans is also net of the related credit and other costs
(such as general and administrative expense) and benefits (such
as credit enhancements) inherent in our
guarantee obligation. We use entry-pricing information for all
guaranteed loans that would qualify for purchase under current
underwriting guidelines (used for the majority of the guaranteed
loans, but accounts for a small share of the overall fair value
of the guarantee obligation). For loans that do not qualify for
purchase based on current underwriting guidelines, we use our
internal credit models, which incorporate factors such as loan
characteristics, loan performance status information, expected
losses, and risk premiums without further adjustment (used for
less than a majority of the guaranteed loans, but accounts for
the largest share of the overall fair value of the guarantee
obligation).
For single-family mortgage loans for which a contractual
modification has been approved, we estimate fair value based on
our estimate of prices we would receive if we were to sell these
loans in the whole loan market, as this represents our current
principal market for modified loans. These prices are obtained
from multiple dealers who reference market activity, where
available, for modified loans and use internal models and their
judgment to determine default rates, severity rates, and risk
premiums.
Multifamily
Loans
For a discussion of the techniques used to determine the fair
value of held-for-sale, and both impaired and non-impaired
held-for-investment multifamily loans, see Valuation
Methods and Assumptions Subject to Fair Value
Hierarchy Mortgage Loans,
Held-for-Investment and Mortgage
Loans, Held-for-Sale, respectively.
Other
Assets
Our other assets are not financial instruments required to be
valued at fair value under the accounting guidance for
disclosures about the fair value of financial instruments, such
as property and equipment. For most of these non-financial
instruments in other assets, we use the carrying amounts from
our GAAP consolidated balance sheets as the reported values on
our consolidated fair value balance sheets, without any
adjustment. These assets represent an insignificant portion of
our GAAP consolidated balance sheets. Certain non-financial
assets in other assets on our GAAP consolidated balance sheets
are assigned a zero value on our consolidated fair value balance
sheets. This treatment is applied to deferred items such as
deferred debt issuance costs.
We adjust the GAAP-basis deferred taxes reflected on our
consolidated fair value balance sheets to include estimated
income taxes on the difference between our consolidated fair
value balance sheets net assets attributable to common
stockholders, including deferred taxes from our GAAP
consolidated balance sheets, and our GAAP consolidated balance
sheets equity attributable to common stockholders. To the extent
the adjusted deferred taxes are a net asset, this amount is
included in other assets. In addition, if our net deferred tax
assets on our consolidated fair value balance sheets, calculated
as described above, exceed our net deferred tax assets on our
GAAP consolidated balance sheets that have been reduced by a
valuation allowance, our net deferred tax assets on our
consolidated fair value balance sheets are limited to the amount
of our net deferred tax assets on our GAAP consolidated balance
sheets. If the adjusted deferred taxes are a net liability, this
amount is included in other liabilities.
Accrued interest receivable is one of the components included
within other assets on our consolidated fair value balance
sheets. On our GAAP consolidated balance sheets, we reverse
accrued but uncollected interest income when a loan is placed on
non-accrual
status. There is no such reversal performed for the fair value
of accrued interest receivable disclosed on our consolidated
fair value balance sheets. Rather, we include in our disclosure
the amount we deem to be collectible. As a result, there is a
difference between the accrued interest receivable GAAP-basis
carrying amount and its fair value disclosed on our consolidated
fair value balance sheets.
Total
Debt, Net
Total debt, net represents debt securities of consolidated
trusts held by third parties and other debt that we issued to
finance our assets. On our consolidated GAAP balance sheets,
total debt, net, excluding debt securities for which the fair
value option has been elected, is reported at amortized cost,
which is net of deferred items, including premiums, discounts,
and hedging-related basis adjustments.
For fair value balance sheet purposes, we use the
dealer-published quotes for a base TBA security, adjusted for
the carry and
pay-up price
adjustments, to determine the fair value of the debt securities
of consolidated trusts held by third parties. The valuation
techniques we use are similar to the approach we use to value
our investments in agency securities for GAAP purposes. See
Valuation Methods and Assumptions Subject to Fair Value
Hierarchy Investment in Securities
Agency Securities for additional information regarding
the valuation techniques we use.
Other debt includes both non-callable and callable debt, as well
as short-term zero-coupon discount notes. The fair value of the
short-term zero-coupon discount notes is based on a discounted
cash flow model with market inputs. The valuation of other debt
securities represents the proceeds that we would receive from
the issuance of debt and is generally
based on market prices obtained from broker/dealers, reliable
third-party pricing service providers or direct market
observations. We elected the fair value option for
foreign-currency denominated debt and certain other debt
securities and reported them at fair value on our GAAP
consolidated balance sheets. See Valuation Methods and
Assumptions Subject to Fair Value Hierarchy Debt
Securities Recorded at Fair Value for additional
information.
Other
Liabilities
Other liabilities consist of accrued interest payable on debt
securities, the guarantee obligation for our other guarantee
commitments and guarantees issued to non-consolidated entities,
the reserve for guarantee losses on non-consolidated trusts,
servicer advanced interest payable and certain other servicer
liabilities, accounts payable and accrued expenses, payables
related to securities, and other miscellaneous liabilities. We
believe the carrying amount of these liabilities is a reasonable
approximation of their fair value, except for the guarantee
obligation for our other guarantee commitments and guarantees
issued to non-consolidated entities. The technique for
estimating the fair value of our guarantee obligation related to
the credit component of the loans fair value is described
in the Mortgage Loans Single-Family
Loans section.
Furthermore, certain deferred items reported as other
liabilities on our GAAP consolidated balance sheets are assigned
zero value on our consolidated fair value balance sheets, such
as deferred fees. Also, as discussed in Other
Assets, other liabilities may include a deferred tax
liability adjusted for fair value balance sheet purposes.
Net
Assets Attributable to Senior Preferred
Stockholders
Our senior preferred stock held by Treasury in connection with
the Purchase Agreement is recorded at the stated liquidation
preference for purposes of the consolidated fair value balance
sheets. As the senior preferred stock is restricted as to its
redemption, we consider the liquidation preference to be the
most appropriate measure for purposes of the consolidated fair
value balance sheets.
Net
Assets Attributable to Preferred Stockholders
To determine the preferred stock fair value, we use a
market-based approach incorporating quoted dealer prices.
Net
Assets Attributable to Common Stockholders
Net assets attributable to common stockholders is equal to the
difference between the fair value of total assets and the sum of
total liabilities reported on our consolidated fair value
balance sheets, less the value of net assets attributable to
senior preferred stockholders and the fair value attributable to
preferred stockholders.
NOTE 19:
LEGAL CONTINGENCIES
We are involved as a party to a variety of legal and regulatory
proceedings arising from time to time in the ordinary course of
business including, among other things, contractual disputes,
personal injury claims, employment-related litigation and other
legal proceedings incidental to our business. We are frequently
involved, directly or indirectly, in litigation involving
mortgage foreclosures. From time to time, we are also involved
in proceedings arising from our termination of a
seller/servicers eligibility to sell mortgages to,
and/or
service mortgages for, us. In these cases, the former
seller/servicer sometimes seeks damages against us for wrongful
termination under a variety of legal theories. In addition, we
are sometimes sued in connection with the origination or
servicing of mortgages. These suits typically involve claims
alleging wrongful actions of seller/servicers. Our contracts
with our seller/servicers generally provide for indemnification
against liability arising from their wrongful actions with
respect to mortgages sold to Freddie Mac.
Litigation and claims resolution are subject to many
uncertainties and are not susceptible to accurate prediction. In
accordance with the accounting guidance for contingencies, we
reserve for litigation claims and assessments asserted or
threatened against us when a loss is probable and the amount of
the loss can be reasonably estimated.
Putative
Securities Class Action Lawsuits
Ohio Public Employees Retirement System (OPERS)
vs. Freddie Mac, Syron, et al. This putative securities
class action lawsuit was filed against Freddie Mac and certain
former officers on January 18, 2008 in the
U.S. District Court for the Northern District of Ohio
purportedly on behalf of a class of purchasers of Freddie Mac
stock from August 1, 2006 through November 20, 2007.
The plaintiff alleges that the defendants violated federal
securities laws by making false and misleading statements
concerning our business, risk management and the procedures we
put into place to protect the company from problems in the
mortgage industry. On April 10, 2008, the Court appointed
OPERS as lead plaintiff and approved its choice of counsel. On
September 2, 2008, defendants filed a motion to dismiss
plaintiffs amended
complaint. On November 7, 2008, the plaintiff filed a
second amended complaint, which removed certain allegations
against Richard Syron, Anthony Piszel, and Eugene McQuade,
thereby leaving insider-trading allegations against only
Patricia Cook. The second amended complaint also extends the
damages period, but not the class period. The plaintiff seeks
unspecified damages and interest, and reasonable costs and
expenses, including attorney and expert fees. On
November 19, 2008, the Court granted FHFAs motion to
intervene in its capacity as Conservator. On April 6, 2009,
defendants filed a motion to dismiss the second amended
complaint, which motion remains pending.
Kuriakose vs. Freddie Mac, Syron, Piszel and Cook.
Another putative class action lawsuit was filed against Freddie
Mac and certain former officers on August 15, 2008 in the
U.S. District Court for the Southern District of New York
for alleged violations of federal securities laws purportedly on
behalf of a class of purchasers of Freddie Mac stock from
November 21, 2007 through August 5, 2008. The
plaintiff claims that defendants made false and misleading
statements about Freddie Macs business that artificially
inflated the price of Freddie Macs common stock, and seeks
unspecified damages, costs, and attorneys fees. On
February 6, 2009, the Court granted FHFAs motion to
intervene in its capacity as Conservator. On May 19, 2009,
plaintiffs filed an amended consolidated complaint, purportedly
on behalf of a class of purchasers of Freddie Mac stock from
November 30, 2007 through September 7, 2008. Freddie
Mac filed a motion to dismiss the complaint on February 24,
2010. On March 30, 2011, the Court granted without
prejudice Freddie Macs motion to dismiss all claims, and
allowed the plaintiffs the option to file a new complaint, which
they did on July 15, 2011.
At present, it is not possible for us to predict the probable
outcome of these lawsuits or any potential impact on our
business, financial condition, or results of operations.
Shareholder
Demand Letters
In late 2007 and early 2008, the Board of Directors received
three letters from purported shareholders of Freddie Mac, which
together contain allegations of corporate mismanagement and
breaches of fiduciary duty in connection with the companys
risk management, alleged false and misleading financial
disclosures, and the alleged sale of stock based on material
non-public information by certain current and former officers
and directors of Freddie Mac. Collectively, the letters demanded
that the board commence an independent investigation into the
alleged conduct, institute legal proceedings to recover damages
and unjust enrichment from board members, senior officers,
Freddie Macs outside auditors, and other parties who
allegedly aided or abetted the improper conduct, and implement
corporate governance initiatives to ensure that the alleged
problems do not recur. Prior to the conservatorship, the Board
of Directors formed a Special Litigation Committee, or SLC, to
investigate the purported shareholders allegations, and
engaged counsel for that purpose. Pursuant to the
conservatorship, FHFA, as the Conservator, has succeeded to the
powers of the Board of Directors, including the power to conduct
investigations such as the one conducted by the SLC of the prior
Board of Directors. The counsel engaged by the former SLC
continued the investigation pursuant to instructions from FHFA.
As described below, each of these purported shareholders
subsequently filed lawsuits against Freddie Mac.
On February 25, 2011, the counsel engaged by the former SLC
submitted a report to the Conservator, in which the counsel
concluded, among other things, that it uncovered no
evidence sufficient to demonstrate that any of the
Companys current or former officers or directors engaged
in willful misconduct, a knowing violation of criminal law or of
any federal or state securities law, or any acts from which they
derived improper personal benefit, including in connection with
the Companys acceptance and management of credit risk from
2004 through 2007.
Shareholder
Derivative Lawsuits
On July 24, 2008 and August 15, 2008, purported
shareholders, The Adams Family Trust, Kevin Tashjian and the
Louisiana Municipal Police Employees Retirement System, or
LMPERS, filed two derivative lawsuits in the U.S. District
Court for the Eastern District of Virginia against certain
current and former officers and directors of Freddie Mac, with
Freddie Mac named as a nominal defendant in the actions. On
October 15, 2008, the U.S. District Court for the
Eastern District of Virginia consolidated these two cases.
Previously, on March 10, 2008, a purported shareholder,
Robert Bassman, had filed a similar shareholder derivative
lawsuit in the U.S. District Court for the Southern
District of New York, which was subsequently transferred to the
Eastern District of Virginia and then, on December 12,
2008, consolidated with the cases filed by The Adams Family
Trust, Kevin Tashjian, and LMPERS. While no consolidated
complaint has been filed, the complaints collectively assert
claims for breach of fiduciary duty, negligence, violations of
federal securities laws, violations of the Sarbanes-Oxley Act of
2002 and unjust enrichment. Those claims are based on
allegations that defendants failed to implement
and/or
maintain sufficient risk management and other controls; failed
to adequately reserve for uncollectible loans and other risks of
loss; and made false and misleading statements regarding the
companys exposure to the subprime market, the strength of
the companys risk management and internal controls, and
the
companys underwriting standards in response to alleged
abuses in the subprime market. The plaintiffs also allege that
certain of the defendants breached their fiduciary duties and
unjustly enriched themselves through their salaries, bonuses,
benefits and other compensation, and sale of stock based on
material non-public information. The complaints seek unspecified
damages, equitable relief, the imposition of a constructive
trust for the proceeds of alleged insider stock sales, an
accounting, restitution, disgorgement, declaratory relief, an
order requiring reform and improvement of corporate governance,
punitive damages, costs, interest, and attorneys,
accountants and experts fees.
After FHFA successfully intervened in these consolidated actions
in its capacity as Conservator, it filed a motion to substitute
for plaintiffs. On July 27, 2009, the District Court
entered an order granting FHFAs motion, and on
August 20, 2009, the plaintiffs filed an appeal of that
order. On March 16, 2011, FHFA filed with the District
Court a motion for voluntary dismissal without prejudice. On
April 21, 2011, the District Court granted FHFAs
motion for voluntary dismissal. On May 5, 2011, the Court
of Appeals for the Fourth Circuit affirmed the District
Courts ruling allowing FHFA to substitute for plaintiffs.
On June 6, 2008, a purported shareholder, the Esther
Sadowsky Testamentary Trust, filed a shareholder derivative
complaint in the U.S. District Court for the Southern
District of New York against certain former officers and current
and former directors of Freddie Mac. Plaintiff asserts claims
for alleged breach of fiduciary duty and declaratory and
injunctive relief, based on allegations that defendants caused
the company to violate its charter by engaging in unsafe,
unsound and improper speculation in high risk mortgages to boost
near term profits, report growth in the companys
mortgage-related investments portfolio and guarantee business,
and take market share away from its primary competitor, Fannie
Mae. Among other things, plaintiff seeks an accounting, an
order requiring that defendants remit all salary and
compensation received during the periods they allegedly breached
their duties, and an award of pre-judgment and post-judgment
interest, attorneys fees, expert fees and consulting fees,
and other costs and expenses. On November 13, 2008, FHFA
filed a motion to substitute for the Esther Sadowsky
Testamentary Trust. On February 26, 2009, Robert Bassman
filed a motion with the District Court to intervene or, in the
alternative, to appear as amicus curiae. On May 6, 2009,
the District Court granted FHFAs motion to substitute and
denied Bassmans motion to intervene. The District Court
subsequently stayed the case through March 2, 2011. On
June 4, 2009, the Esther Sadowsky Testamentary Trust filed
a notice of appeal of the May 6 order granting FHFAs
substitution motion. On September 17, 2009, Bassman filed a
notice of appeal of the May 6 order denying his motion to
intervene or appear as amicus curiae. On March 10, 2010,
the U.S. Court of Appeals for the Second Circuit granted
FHFAs motion to dismiss the appeal of the Esther Sadowsky
Testamentary Trust and dismissed that appeal on April 12,
2010 due to lack of jurisdiction. On March 4, 2011, the
Second Circuit affirmed the District Courts decision
denying Bassmans motion to intervene and dismissed
Bassmans motion to appeal due to lack of jurisdiction. The
Second Circuit issued its mandate to the District Court on
April 11, 2011. Following the February 25, 2011 SLC
counsel report, FHFA filed its status report with the District
Court on March 2, 2011, stating that it intended to file a
motion for voluntary dismissal without prejudice, which it did
on March 16, 2011. On May 31, 2011, the District Court
granted FHFAs motion to dismiss the case without prejudice.
Energy
Lien Litigation
On July 14, 2010, the State of California filed a lawsuit
against Fannie Mae, Freddie Mac, FHFA, and others in the
U.S. District Court for the Northern District of
California, alleging that Fannie Mae and Freddie Mac committed
unfair business practices in violation of California law by
asserting that property liens arising from government-sponsored
energy initiatives such as Californias Property Assessed
Clean Energy, or PACE, program cannot take priority over a
mortgage to be sold to Fannie Mae or Freddie Mac. The lawsuit
contends that the PACE programs create liens superior to such
mortgages and that, by affirming Fannie Mae and Freddie
Macs positions, FHFA has violated the National
Environmental Policy Act, or NEPA, and the Administrative
Procedure Act, or APA. The complaint seeks declaratory and
injunctive relief, costs and such other relief as the court
deems proper.
Similar complaints have been filed by other parties. On
July 26, 2010, the County of Sonoma filed a lawsuit against
Fannie Mae, Freddie Mac, FHFA, and others in the
U.S. District Court for the Northern District of
California, alleging similar violations of California law, NEPA,
and the APA. In a filing dated September 23, 2010, the
County of Placer moved to intervene in the Sonoma County lawsuit
as a party plaintiff seeking to assert similar claims, which
motion was granted on November 1, 2010. On October 1,
2010, the City of Palm Desert filed a similar complaint against
Fannie Mae, Freddie Mac, and FHFA in the Northern District of
California. On October 8, 2010, Leon County and the Leon
County Energy Improvement District filed a similar complaint
against Fannie Mae, Freddie Mac, FHFA, and others in the
Northern District of Florida. On October 12, 2010, FHFA
filed a motion before the Judicial Panel on Multi-District
Litigation seeking an order transferring these cases as well as
a related case filed only against FHFA, for coordination or
consolidation of pretrial proceedings. This motion was denied on
February 8, 2011. On October 14, 2010, the defendants
filed a motion to dismiss the lawsuits pending in the Northern
District of California. Also on October 14, 2010, the
County of Sonoma filed a motion for preliminary injunction
seeking to enjoin the defendants from giving any force or effect
in Sonoma County to certain directives by FHFA regarding energy
retrofit loan programs and other related relief. On
October 26, 2010, the Town of Babylon filed a similar
complaint against Fannie Mae, Freddie Mac, and FHFA, as well as
the Office of the Comptroller of the Currency, in the U.S.
District Court for the Eastern District of New York.
The defendants have filed motions to dismiss these lawsuits. The
courts have entered stipulated orders dismissing the individual
officers of Freddie Mac and Fannie Mae from the cases. On
December 17, 2010, the judge handling the cases in the
Northern District of California requested a position statement
from the United States, which was filed on February 8,
2011. On June 13, 2011, the complaint filed by the Town of
Babylon was dismissed.
At present, it is not possible for us to predict the probable
outcome of these lawsuits or any potential impact on our
business, financial condition or results of operations.
Government
Investigations and Inquiries
On September 26, 2008, Freddie Mac received a federal grand
jury subpoena from the U.S. Attorneys Office for the
Southern District of New York. The subpoena sought documents
relating to accounting, disclosure, and corporate governance
matters for the period beginning January 1, 2007.
Subsequently, we were informed that the subpoena was withdrawn,
and that an investigation was being conducted by the
U.S. Attorneys Office for the Eastern District of
Virginia. On June 1, 2011, the Federal Bureau of
Investigation office assisting the investigation advised Freddie
Macs outside counsel that the investigation had been
concluded.
On September 26, 2008, Freddie Mac received notice from the
Staff of the Enforcement Division of the SEC that it is also
conducting an inquiry to determine whether there has been any
violation of federal securities laws, and directing the company
to preserve documents. On October 21, 2008, the SEC issued
to the company a request for documents. The SEC staff has also
conducted interviews of company employees. Beginning
January 23, 2009, the SEC issued subpoenas to Freddie Mac
and certain of its employees pursuant to a formal order of
investigation. Freddie Mac is cooperating fully in these matters.
Freddie Mac was informed by Donald J. Bisenius, former Executive
Vice President Single-Family Credit Guarantee, that
on February 10, 2011, he received a Wells
Notice from the SEC staff in connection with the
investigation. The Wells Notice indicates that the staff is
considering recommending that the SEC bring civil enforcement
action against Mr. Bisenius for possible violations of the
federal securities laws and related rules that are alleged to
have occurred in 2007 and 2008.
Under the SECs procedures, a recipient of a Wells Notice
has an opportunity to respond in the form of a written
submission that seeks to persuade the SEC staff that no action
should be commenced. Mr. Bisenius has informed the company
that he has made such a submission.
Related
Third Party Litigation and Indemnification Requests
On December 15, 2008, a plaintiff filed a putative class
action lawsuit in the U.S. District Court for the Southern
District of New York against certain former Freddie Mac officers
and others styled Jacoby v. Syron, Cook, Piszel, Banc of
America Securities LLC, JP Morgan Chase & Co.,
and FTN Financial Markets. The complaint, as amended on
December 17, 2008, contends that the defendants made
material false and misleading statements in connection with
Freddie Macs September 2007 offering of non-cumulative,
non-convertible, perpetual fixed-rate preferred stock, and that
such statements grossly overstated Freddie Macs
capitalization and failed to disclose Freddie
Macs exposure to mortgage-related losses, poor
underwriting standards and risk management procedures. The
complaint further alleges that Syron, Cook, and Piszel made
additional false statements following the offering. Freddie Mac
is not named as a defendant in this lawsuit, but the
underwriters previously gave notice to Freddie Mac of their
intention to seek full indemnity and contribution under the
Underwriting Agreement in this case, including reimbursement of
fees and disbursements of their legal counsel. The case is
currently dormant and we believe plaintiff may have
abandoned it.
By letter dated October 17, 2008, Freddie Mac received
formal notification of a putative class action securities
lawsuit, Mark v. Goldman, Sachs & Co.,
J.P. Morgan Chase & Co., and Citigroup
Global Markets Inc., filed on September 23, 2008,
in the U.S. District Court for the Southern District of New
York, regarding the companys November 29, 2007 public
offering of 8.375% Fixed to Floating Rate Non-Cumulative
Perpetual Preferred Stock.
On January 29, 2009, a plaintiff filed a putative class
action lawsuit in the U.S. District Court for the Southern
District of New York styled Kreysar v.
Syron, et al. On April 30, 2009, the Court
consolidated the Mark case with the Kreysar case, and the
plaintiffs filed a consolidated class action complaint on
July 2, 2009. The consolidated complaint
alleges that three former Freddie Mac officers, certain
underwriters and Freddie Macs auditor violated federal
securities laws by making material false and misleading
statements in connection with an offering by Freddie Mac of
$6 billion of 8.375% Fixed to Floating Rate Non-Cumulative
Perpetual Preferred Stock Series Z that commenced on
November 29, 2007. The complaint further alleges that
certain defendants and others made additional false statements
following the offering. The complaint names as defendants Syron,
Piszel, Cook, Goldman, Sachs & Co., JPMorgan
Securities Inc., Banc of America Securities LLC,
Citigroup Global Markets Inc., Credit Suisse
Securities (USA) LLC, Deutsche Bank
Securities Inc., Morgan Stanley & Co.
Incorporated, UBS Securities LLC and
PricewaterhouseCoopers LLP.
The defendants filed a motion to dismiss the consolidated class
action complaint on September 30, 2009. On January 14,
2010, the Court granted the defendants motion to dismiss
the consolidated action with leave to file an amended complaint
on or before March 15, 2010. On March 15, 2010,
plaintiffs filed their amended consolidated complaint against
these same defendants. The defendants moved to dismiss the
amended consolidated complaint on April 28, 2010. On
July 29, 2010, the Court granted the defendants
motion to dismiss, without prejudice, and allowed the plaintiffs
leave to replead. On August 16, 2010, the plaintiffs filed
their second amended consolidated complaint against these same
defendants. The defendants moved to dismiss the second amended
consolidated complaint on September 16, 2010. On
October 22, 2010, the Court granted the defendants
motion to dismiss, without prejudice, again allowing the
plaintiffs leave to replead. On November 14, 2010, the
plaintiffs filed a third amended consolidated complaint against
PricewaterhouseCoopers LLP, Syron and Piszel, omitting Cook
and the underwriter defendants. On January 11, 2011, the
Court granted the remaining defendants motion to dismiss
the complaint with respect to PricewaterhouseCoopers LLP,
but denied the motion with respect to Syron and Piszel. On
April 4, 2011, Piszel filed a motion for partial judgment
on the pleadings. The Court granted that motion on
April 28, 2011. Freddie Mac is not named as a defendant in
the consolidated lawsuit, but the underwriters previously gave
notice to Freddie Mac of their intention to seek full indemnity
and contribution under the Underwriting Agreement in this case,
including reimbursement of fees and disbursements of their legal
counsel. At present, it is not possible for us to predict the
probable outcome of the lawsuit or any potential impact on our
business, financial condition or results of operations.
On July 6, 2011, plaintiffs filed a lawsuit in the
U.S. District Court for Massachusetts styled Liberty
Mutual Insurance Company, Peerless Insurance Company, Employers
Insurance Company of Wausau, Safeco Corporation and Liberty Life
Assurance Company of Boston v. Goldman,
Sachs & Co. The complaint alleges that
Goldman, Sachs & Co. made materially misleading
statements and omissions in connection with Freddie Macs
Series Z preferred stock offering that commenced on
November 29, 2007. Freddie Mac is not named as a defendant
in this lawsuit.
Lehman
Bankruptcy
On September 15, 2008, Lehman filed a chapter 11
bankruptcy petition in the Bankruptcy Court for the Southern
District of New York. Thereafter, many of Lehmans
U.S. subsidiaries and affiliates also filed bankruptcy
petitions (collectively, the Lehman Entities).
Freddie Mac had numerous relationships with the Lehman Entities
which give rise to several claims. On September 22, 2009,
Freddie Mac filed proofs of claim in the Lehman bankruptcies
aggregating approximately $2.1 billion. On April 14,
2010, Lehman filed its chapter 11 plan and disclosure
statement, providing for the liquidation of the bankruptcy
estates assets over the next three years. On
January 25, 2011, Lehman filed its first amended plan and
disclosure statement. Lehman filed its second amended joint plan
and disclosure statement on June 29, 2011. The plan and
disclosure statement are subject to court approval.
Taylor,
Bean & Whitaker Bankruptcy
On August 24, 2009, TBW filed for bankruptcy in the
Bankruptcy Court for the Middle District of Florida. Prior to
that date, Freddie Mac had terminated TBWs status as a
seller/servicer of loans. On or about June 14, 2010,
Freddie Mac filed a proof of claim in the TBW bankruptcy
aggregating $1.78 billion. Of this amount, about
$1.15 billion related to current and projected repurchase
obligations and about $440 million related to funds
deposited with Colonial Bank, or with the FDIC as its receiver,
which were attributable to mortgage loans owned or guaranteed by
us and previously serviced by TBW. The remaining
$190 million represented miscellaneous costs and expenses
incurred in connection with the termination of TBWs status
as a seller/servicer.
With the approval of FHFA, as Conservator, we entered into a
settlement with TBW and the creditors committee appointed
in the TBW bankruptcy proceeding to represent the interests of
the unsecured trade creditors of TBW. The settlement, which is
discussed below, was filed with the bankruptcy court on
June 22, 2011. The court approved the settlement and
confirmed TBWs proposed plan of liquidation on
July 21, 2011.
Under the terms of the settlement, we have been granted an
unsecured claim in the TBW bankruptcy estate in the amount of
$1.022 billion, largely representing our claims to past and
future loan repurchase exposures. We estimate that
this claim may result in a distribution to us of approximately
$40-45 million,
which is based on the plan of liquidation and disclosure
statement filed with the court by TBW indicating that general
unsecured creditors are likely to receive a distribution of 3.3
to 4.4 cents on the dollar. We are also entitled to
approximately $203 million on deposit in certain TBW bank
accounts relating to our mortgage loans, $150 million of
which we received on June 21, 2011 from the FDIC as
receiver of Colonial Bank. We are required to assign ownership
rights of certain escrow accounts associated with the serviced
loans to TBW and certain of its creditors. The settlement also
allows for our sale of TBW-related mortgage servicing rights and
provides a formula for determining the amount of the proceeds,
if any, to be allocated to third parties that have asserted
interests in those rights. We estimate that during the third
quarter of 2011, we will recognize approximately a
$0.2 billion gain, representing the difference between the
amounts we assign, or pay, to TBW and their creditors and the
liability recorded on our consolidated balance sheet.
At June 30, 2011, we estimate our uncompensated loss
exposure to TBW to be approximately $0.7 billion. This
estimated exposure largely relates to outstanding repurchase
claims that have already been adjusted in our financial
statements to their net realizable value through our provision
for loan losses. Our ultimate losses could exceed our recorded
estimate. Potential changes in our estimate of uncompensated
loss exposure or the potential for additional claims as
discussed below could cause us to record additional losses in
the future.
We understand that Ocala Funding, LLC, or Ocala, which is a
wholly owned subsidiary of TBW, or its creditors may file an
action to recover certain funds paid to us prior to the TBW
bankruptcy. However, no actions against Freddie Mac related to
Ocala have been initiated in bankruptcy court or elsewhere to
recover assets. Based on court filings and other information, we
understand that Ocala or its creditors may attempt to assert
fraudulent transfer and other possible claims totaling
approximately $840 million against us related to funds that
were allegedly transferred from Ocala to Freddie Mac custodial
accounts. We also understood that Ocala might attempt to make
claims against us asserting ownership of a large number of loans
that we purchased from TBW. The order approving the settlement
provides that nothing in the settlement shall be construed to
limit, waive or release Ocalas claims against Freddie Mac,
except for TBWs claims and claims arising from the
allocation of the loans discussed above to Freddie Mac.
On or about May 14, 2010, certain underwriters at Lloyds,
London and London Market Insurance Companies brought an
adversary proceeding in bankruptcy court against TBW, Freddie
Mac and other parties seeking a declaration rescinding mortgage
bankers bonds insuring against loss resulting from dishonest
acts by TBWs officers, directors, and employees. Several
excess insurers on the bonds thereafter filed similar claims in
that action. Freddie Mac has filed a proof of loss under the
bonds, but we are unable at this time to estimate our potential
recovery, if any, thereunder. Discovery is proceeding.
IRS
Litigation
We received Statutory Notices from the IRS assessing
$3.0 billion of additional income taxes and penalties for
the 1998 to 2005 tax years. We filed a petition with the
U.S. Tax Court on October 22, 2010 in response to the
Statutory Notices. The IRS responded to our petition with the
U.S. Tax Court on December 21, 2010. On July 6, 2011,
the U.S. Tax Court issued a Notice Setting Case for Trial and a
Standing Pretrial Order. The trial date set forth in the Notice
is December 12, 2011. We continue to seek resolution of the
controversy by settlement. We believe adequate reserves have
been provided for settlement on reasonable terms. For
information on this matter, see NOTE 13: INCOME
TAXES.
NOTE 20:
EARNINGS (LOSS) PER SHARE
We have participating securities related to options and
restricted stock units with dividend equivalent rights that
receive dividends as declared on an equal basis with common
shares but are not obligated to participate in undistributed net
losses. Consequently, in accordance with accounting guidance for
earnings per share, we use the two-class method of
computing earnings per share. Basic earnings per common share
are computed by dividing net loss attributable to common
stockholders by weighted average common shares
outstanding basic for the period. The weighted
average common shares outstanding basic during the
three and six months ended June 30, 2011 and 2010 include
the weighted average number of shares during the periods that
are associated with the warrant for our common stock issued to
Treasury as part of the Purchase Agreement since the warrant is
unconditionally exercisable by the holder at a minimal cost. See
NOTE 2: CONSERVATORSHIP AND RELATED MATTERS for
further information.
Diluted loss per common share is computed as net loss
attributable to common stockholders divided by weighted average
common shares outstanding diluted for the period,
which considers the effect of dilutive common equivalent shares
outstanding. For periods with net income, the effect of dilutive
common equivalent shares outstanding includes: (a) the
weighted average shares related to stock options; and
(b) the weighted average of restricted shares and
restricted stock units. Such items are included in the
calculation of weighted average common shares
outstanding diluted during periods of net income,
when the assumed conversion of the share equivalents has a
dilutive effect. Such items are excluded from the weighted
average common shares outstanding basic. For a
discussion of our significant accounting policies regarding our
calculation of earnings per common share, see NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings
Per Common Share in our 2010 Annual Report.
Table 20.1
Loss Per Common Share Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions,
|
|
|
|
except per share amounts)
|
|
|
Net loss attributable to Freddie Mac
|
|
$
|
(2,139
|
)
|
|
$
|
(4,713
|
)
|
|
$
|
(1,463
|
)
|
|
$
|
(11,401
|
)
|
Preferred stock
dividends(1)
|
|
|
(1,617
|
)
|
|
|
(1,296
|
)
|
|
|
(3,222
|
)
|
|
|
(2,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,756
|
)
|
|
$
|
(6,009
|
)
|
|
$
|
(4,685
|
)
|
|
$
|
(13,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic (in
thousands)(2)
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
Dilutive potential common shares (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
(in thousands)
|
|
|
3,244,967
|
|
|
|
3,249,198
|
|
|
|
3,245,970
|
|
|
|
3,250,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive potential common shares excluded from the
computation of dilutive potential common shares (in thousands)
|
|
|
3,229
|
|
|
|
5,020
|
|
|
|
3,808
|
|
|
|
5,729
|
|
Basic loss per common share
|
|
$
|
(1.16
|
)
|
|
$
|
(1.85
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(4.30
|
)
|
Diluted loss per common share
|
|
$
|
(1.16
|
)
|
|
$
|
(1.85
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(4.30
|
)
|
|
|
(1)
|
Consistent with the covenants of the Purchase Agreement, we paid
dividends on our senior preferred stock, but did not declare
dividends on any other series of preferred stock outstanding
subsequent to entering conservatorship.
|
(2)
|
Includes the weighted average number of shares during the period
that are associated with the warrant for our common stock issued
to Treasury as part of the Purchase Agreement. This warrant is
included in shares outstanding basic, since it is
unconditionally exercisable by the holder at a minimal cost of
$0.00001 per share.
|
NOTE 21:
SELECTED FINANCIAL STATEMENT LINE ITEMS
Table 21.1 below presents the major components of other assets
and other liabilities on our consolidated balance sheets.
Table
21.1 Other Assets and Other Liabilities on
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Guarantee asset
|
|
$
|
667
|
|
|
$
|
541
|
|
Accounts and other receivables
|
|
|
6,268
|
|
|
|
8,734
|
|
All other
|
|
|
1,446
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
8,381
|
|
|
$
|
10,875
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Guarantee obligation
|
|
$
|
733
|
|
|
$
|
625
|
|
Servicer liabilities
|
|
|
4,045
|
|
|
|
4,456
|
|
Accounts payable and accrued expenses
|
|
|
1,257
|
|
|
|
1,760
|
|
All other
|
|
|
1,165
|
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
7,200
|
|
|
$
|
8,098
|
|
|
|
|
|
|
|
|
|
|
PART II
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are involved as a party to a variety of legal proceedings
arising from time to time in the ordinary course of business.
See NOTE 19: LEGAL CONTINGENCIES for more
information regarding our involvement as a party to various
legal proceedings.
ITEM 1A.
RISK FACTORS
This
Form 10-Q
should be read together with the RISK FACTORS
sections in our
Form 10-Q
for the quarter ended March 31, 2011 and our 2010 Annual
Report, which describe various risks and uncertainties to which
we are or may become subject, and is supplemented by the
discussion below. These risks and uncertainties could, directly
or indirectly, adversely affect our business, financial
condition, results of operations, cash flows, strategies
and/or
prospects.
A
downgrade in the credit ratings of our debt could adversely
affect our liquidity and other aspects of our business. Our
business could also be adversely affected if there is a
downgrade in the credit ratings of the U.S. government or a
payment default by the U.S. government.
Nationally recognized statistical rating organizations play an
important role in determining, by means of the ratings they
assign to issuers and their debt, the availability and cost of
funding. We currently receive ratings from three nationally
recognized statistical rating organizations for our unsecured
borrowings. These ratings are largely based on the support we
receive from Treasury, and therefore are influenced by the
credit ratings of the U.S. government.
Our credit ratings are important to our liquidity. Actions by
governmental entities or others, including changes in government
support for us, additional GAAP losses, additional draws under
the Purchase Agreement, a downgrade in the credit ratings of or
outlook on the U.S. government, and other factors could
adversely affect our debt credit ratings. Any downgrade in the
credit ratings of the U.S. government would be expected to be
followed or accompanied by a downgrade in our credit ratings.
Such actions could lead to major disruptions in the mortgage
market and to our business due to lower liquidity, higher
borrowing costs, lower asset values and higher credit losses,
and could cause us to experience much greater net losses and net
worth deficits. The full range and extent of the adverse effects
to our business that would result from any such ratings
downgrades and market disruptions cannot be predicted with
certainty. However, we expect that they would:
(i) adversely affect our liquidity and cause us to limit or
suspend new business activities that entail outlays of cash;
(ii) make new issuances of debt significantly more costly,
and potentially prohibitively expensive as well as adversely
affect the supply of debt financing available to us;
(iii) reduce the value of our guarantee to investors and
adversely affect our ability to issue our guaranteed
mortgage-related securities; (iv) reduce the value of
Treasury and agency mortgage securities we hold;
(v) increase the cost of mortgage financing for borrowers,
thereby reducing the supply of mortgages available to us to
purchase; (vi) adversely affect home prices, reducing the
value of our REO and likely leading to additional borrower
defaults on mortgage loans we guarantee; and (vii) trigger
additional collateral requirements under our derivatives
contracts.
Earlier this year, given concerns that the
U.S. governments statutory debt limit would not be
raised in a timely manner as well as uncertainty about
achievement of a credible deficit reduction solution, certain
major credit rating agencies took actions on the
U.S. governments credit ratings. Due to the support
we receive from Treasury, these rating agencies also took
corresponding actions on certain of our credit ratings. On
August 2, 2011, President Obama signed the Budget and
Control Act of 2011 which raised the
U.S. governments statutory debt limit. The raising of
the statutory debt limit and details outlined in the legislation
to reduce the deficit resulted in further rating actions on our
debt ratings and the ratings of the U.S. government.
On July 15, 2011, S&P placed our senior long-term debt
and short-term debt on CreditWatch with negative implications
given our direct reliance on the U.S. government. This
action followed S&Ps placement of the long-term and
short-term credit ratings of the United States on CreditWatch
with negative implications on July 14, 2011. S&P
subsequently lowered the long-term credit rating of the United
States to AA+ from AAA and affirmed the
short-term rating of
A-1+
on August 5, 2011. S&P removed both the short- and
long-term ratings of the U.S. government from CreditWatch
negative and assigned a negative outlook to the long-term credit
rating. By assigning a negative outlook to the
U.S. governments long-term credit rating, S&P
indicated that the long-term rating could be lowered within the
next two years if: (a) there are less reductions in
spending than agreed to; (b) interest rates are higher; or
(c) new fiscal pressures during the period result in a
higher general government debt trajectory than currently assumed
in its base case. On August 8, 2011, S&P lowered our
senior long-term debt credit rating to AA+ from
AAA and assigned a negative outlook to the rating.
On August 2, 2011, Moodys confirmed our senior
long-term debt and subordinated debt ratings and assigned a
negative outlook to the ratings. This action accompanied
Moodys confirmation of the U.S. governments
long-term credit rating and assignment of a negative outlook to
the rating. By assigning a negative outlook to the
governments long-term credit rating, Moodys
indicated that there would be a risk of downgrade if:
(a) there is a weakening in fiscal discipline in the coming
year; (b) further fiscal consolidation measures are not
adopted in 2013; (c) the economic outlook deteriorates
significantly; or (d) there is an appreciable rise in the
U.S. governments funding costs over and above what is
currently expected.
On August 2, 2011, Fitch noted that it expects to conclude
its scheduled review of the U.S. governments credit
rating by the end of August 2011. Fitch had indicated in July
2011, that following resolution of the debt ceiling situation,
the ratings of financial institutions that are directly
underpinned by support from the U.S. government, such as
Freddie Mac, would ultimately be aligned with whatever Fitch
determines the U.S. government rating to be, either
remaining at the current AAAlevel or potentially a lower
rating level.
If
Treasury is unable to provide us with funding requested under
the Purchase Agreement to address a deficit in our net worth,
FHFA could be required to place us into
receivership.
Under the Purchase Agreement, Treasury made a commitment to
provide funding, under certain conditions, to eliminate deficits
in our net worth. Under the GSE Act, FHFA must place us into
receivership if FHFA determines in writing that our assets are
less than our obligations for a period of 60 calendar days.
FHFA has notified us that the measurement period for any
mandatory receivership determination with respect to our assets
and obligations would commence no earlier than the SEC public
filing deadline for our quarterly or annual financial statements
and would continue for 60 calendar days after that date. FHFA
has also advised us that, if, during that
60-day
period, we receive funds from Treasury in an amount at least
equal to the deficiency amount under the Purchase Agreement, the
Director of FHFA will not make a mandatory receivership
determination. If funding has been requested under the Purchase
Agreement to address a deficit in our net worth, and Treasury is
unable to provide us with such funding within the
60-day
period specified by FHFA, FHFA would be required to place us
into receivership if our assets remain less than our obligations
during that
60-day
period.
We
could incur significant credit losses and credit-related
expenses in the event of a major natural disaster or other
catastrophic event in geographic areas in which portions of our
total mortgage portfolio are concentrated.
We own or guarantee mortgage loans throughout the United States.
The occurrence of a major natural or environmental disaster
(such as an earthquake, hurricane, tsunami, or widespread damage
caused to the environment by commercial entities), terrorist
attack, pandemic, or similar catastrophic event in a regional
geographic area of the United States could negatively impact our
credit losses and credit-related expenses in the affected area.
The occurrence of a catastrophic event could negatively impact a
geographic area in a number of different ways, depending on the
nature of the event. A catastrophic event that either damaged or
destroyed residential real estate underlying mortgage loans we
own or guarantee or negatively impacted the ability of
homeowners to continue to make principal and interest payments
on mortgage loans we own or guarantee could increase our serious
delinquency rates and average loan loss severity in the affected
region or regions, which could have a material adverse effect on
our business, results of operations, financial condition,
liquidity and net worth. While we attempt to maintain a
geographically diverse portfolio, there can be no assurance that
a catastrophic event, depending on its magnitude, scope and
nature, will not generate significant credit losses and
credit-related expenses. We may not have insurance coverage for
some of these catastrophic events. In some cases, we may be
prohibited by state law from requiring such insurance as a
condition to our purchasing or guaranteeing loans.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
Recent
Sales of Unregistered Securities
The securities we issue are exempted securities
under the Securities Act of 1933, as amended. As a result, we do
not file registration statements with the SEC with respect to
offerings of our securities.
Following our entry into conservatorship, we suspended the
operation of and ceased making grants under equity compensation
plans. Previously, we had provided equity compensation under
those plans to employees and members of our Board of Directors.
Under the Purchase Agreement, we cannot issue any new options,
rights to purchase, participations or other equity interests
without Treasurys prior approval. However, grants
outstanding as of the date of the Purchase Agreement remain in
effect in accordance with their terms.
No stock options were exercised during the three months ended
June 30, 2011. However, restrictions lapsed on
31,233 restricted stock units.
See NOTE 13: FREDDIE MAC STOCKHOLDERS EQUITY
(DEFICIT) in our 2010 Annual Report for more information.
Dividend
Restrictions
Our payment of dividends on Freddie Mac common stock or any
series of Freddie Mac preferred stock (other than senior
preferred stock) is subject to certain restrictions as described
in MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES Dividends and Dividend Restrictions
in our 2010 Annual Report.
Information
about Certain Securities Issuances by Freddie Mac
Pursuant to SEC regulations, public companies are required to
disclose certain information when they incur a material direct
financial obligation or become directly or contingently liable
for a material obligation under an off-balance sheet
arrangement. The disclosure must be made in a current report on
Form 8-K
under Item 2.03 or, if the obligation is incurred in
connection with certain types of securities offerings, in
prospectuses for that offering that are filed with the SEC.
Freddie Macs securities offerings are exempted from SEC
registration requirements. As a result, we are not required to
and do not file registration statements or prospectuses with the
SEC with respect to our securities offerings. To comply with the
disclosure requirements of
Form 8-K
relating to the incurrence of material financial obligations, we
report our incurrence of these types of obligations either in
offering circulars (or supplements thereto) that we post on our
web site or in a current report on
Form 8-K,
in accordance with a no-action letter we received
from the SEC staff. In cases where the information is disclosed
in an offering circular posted on our web site, the document
will be posted on our web site within the same time period that
a prospectus for a non-exempt securities offering would be
required to be filed with the SEC.
The web site address for disclosure about our debt securities,
other than debt securities of consolidated trusts, is
www.freddiemac.com/debt. From this address, investors can access
the offering circular and related supplements for debt
securities offerings under Freddie Macs global debt
facility, including pricing supplements for individual issuances
of debt securities.
Disclosure about the mortgage-related securities we issue, some
of which are off-balance sheet obligations, can be found at
www.freddiemac.com/mbs. From this address, investors can access
information and documents about our mortgage-related securities,
including offering circulars and related offering circular
supplements.
ITEM 6.
EXHIBITS
The exhibits are listed in the Exhibit Index at the end of this
Form 10-Q.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Federal Home Loan Mortgage Corporation
|
|
|
|
By:
|
/s/ Charles E.
Haldeman, Jr.
|
Charles E. Haldeman, Jr.
Chief Executive Officer
Date: August 8, 2011
Ross J. Kari
Executive Vice President Chief Financial Officer
(Principal Financial Officer)
Date: August 8, 2011
GLOSSARY
Agency securities Generally refers to
mortgage-related securities issued by the GSEs or government
agencies.
Alt-A
loan Although there is no universally accepted
definition of
Alt-A, many
mortgage market participants classify single-family loans with
credit characteristics that range between their prime and
subprime categories as
Alt-A
because these loans have a combination of characteristics of
each category, may be underwritten with lower or alternative
income or asset documentation requirements compared to a full
documentation mortgage loan, or both. In determining our
Alt-A
exposure on loans underlying our single-family credit guarantee
portfolio, we classified mortgage loans as
Alt-A if the
lender that delivers them to us classified the loans as
Alt-A, or if
the loans had reduced documentation requirements, as well as a
combination of certain credit characteristics and expected
performance characteristics at acquisition which, when compared
to full documentation loans in our portfolio, indicate that the
loan should be classified as
Alt-A. In
the event we purchase a refinance mortgage in either our relief
refinance mortgage initiative or in another mortgage refinance
initiative and the original loan had been previously identified
as Alt-A,
such refinance loan may no longer be categorized or reported as
an Alt-A
mortgage in this
Form 10-Q
and our other financial reports because the new refinance loan
replacing the original loan would not be identified by the
servicer as an
Alt-A loan.
As a result, our reported
Alt-A
balances may be lower than would otherwise be the case had such
refinancing not occurred. For non-agency mortgage-related
securities that are backed by
Alt-A loans,
we categorize our investments in non-agency mortgage-related
securities as
Alt-A if the
securities were identified as such based on information provided
to us when we entered into these transactions.
AOCI Accumulated other comprehensive income
(loss), net of taxes
ARM Adjustable-rate mortgage A
mortgage loan with an interest rate that adjusts periodically
over the life of the mortgage loan based on changes in a
benchmark index.
BPS Basis points One
one-hundredth of 1%. This term is commonly used to quote the
yields of debt instruments or movements in interest rates.
Cash and other investments portfolio Our cash
and other investments portfolio is comprised of our cash and
cash equivalents, federal funds sold and securities purchased
under agreements to resell, and investments in
non-mortgage-related securities.
Charter The Federal Home Loan Mortgage
Corporation Act, as amended, 12 U.S.C. § 1451 et
seq.
CMBS Commercial mortgage-backed
security A security backed by mortgages on
commercial property (often including multifamily rental
properties) rather than one-to-four family residential real
estate. Although the mortgage pools underlying CMBS can include
mortgages financing multifamily properties and commercial
properties, such as office buildings and hotels, the classes of
CMBS that we hold receive distributions of scheduled cash flows
only from multifamily properties. Military housing revenue bonds
are included as CMBS within investments-related disclosures. We
have not identified CMBS as either subprime or Alt-A securities.
Conforming loan/Conforming jumbo loan/Conforming loan
limit A conventional single-family mortgage loan
with an original principal balance that is equal to or less than
the applicable conforming loan limit, which is a dollar amount
cap on the size of the original principal balance of
single-family mortgage loans we are permitted by law to purchase
or securitize. The conforming loan limit is determined annually
based on changes in FHFAs housing price index. Any
decreases in the housing price index are accumulated and used to
offset any future increases in the housing price index so that
conforming loan limits do not decrease from year-to-year. Since
2006, the base conforming loan limit for a one-family residence
has been set at $417,000 with higher limits in certain
high-cost areas.
Beginning in 2008, the conforming loan limits were increased for
mortgages originated in certain high-cost areas
above the conforming loan limits. In addition, conforming loan
limits for certain high-cost areas were increased temporarily
(up to $729,250 for a one-family residence). Actual loan limits
are set by FHFA for each county (or equivalent) and the loan
limit for specific high-cost areas may be lower than the maximum
amounts. We refer to loans that we have purchased with UPB
exceeding $417,000 as conforming jumbo loans.
Conservator The Federal Housing Finance
Agency, acting in its capacity as conservator of Freddie Mac.
Convexity A measure of how much a financial
instruments duration changes as interest rates change.
Core spread income Refers to a fair value
estimate of the net current period accrual of income from the
spread between mortgage-related investments and debt, calculated
on an option-adjusted basis.
Credit enhancement Any number of different
financial arrangements that are designed to reduce credit risk
by partially or fully compensating an investor in the event of
certain financial losses. Examples of credit enhancements
include mortgage insurance, overcollateralization,
indemnification agreements, and government guarantees.
Credit losses Consists of charge-offs and REO
operations income (expense), net of recoveries.
Credit-related expenses Consists of our
provision for credit losses and REO operations income (expense).
Deed in lieu of foreclosure An alternative to
foreclosure in which the borrower voluntarily conveys title to
the property to the lender and the lender accepts such title
(sometimes together with an additional payment by the borrower)
in full satisfaction of the mortgage indebtedness.
Delinquency A failure to make timely payments
of principal or interest on a mortgage loan. For single-family
mortgage loans, we generally report delinquency rate information
for loans that are seriously delinquent. For multifamily loans,
we report delinquency rate information based on the UPB of loans
that are two monthly payments or more past due or in the process
of foreclosure.
Derivative A financial instrument whose value
depends upon the characteristics and value of an underlying
financial asset or index, such as a security or commodity price,
interest or currency rates, or other financial indices.
Dodd-Frank Act Dodd-Frank Wall Street Reform
and Consumer Protection Act.
DSCR Debt Service Coverage Ratio
An indicator of future credit performance for multifamily loans.
The DSCR estimates a multifamily borrowers ability to
service its mortgage obligation using the secured
propertys cash flow, after deducting non-mortgage expenses
from income. The higher the DSCR, the more likely a multifamily
borrower will be able to continue servicing its mortgage
obligation.
Duration The weighted average maturity of a
financial instruments cash flows. Duration is used as a
measure of a financial instruments price sensitivity to
changes in interest rates.
Duration gap One of our primary interest-rate
risk measures. Duration gap is a measure of the difference
between the estimated durations of our interest rate sensitive
assets and liabilities. We present the duration gap of our
financial instruments in units expressed as months. A duration
gap of zero implies that the change in value of our interest
rate sensitive assets from an instantaneous change in interest
rates would be expected to be accompanied by an equal and
offsetting change in the value of our debt and derivatives, thus
leaving the net fair value of equity unchanged.
Effective rent The average rent paid by the
tenant over the term of a lease.
Euribor Euro Interbank Offered Rate
Exchange Act Securities and Exchange Act of
1934, as amended
Fannie Mae Federal National Mortgage
Association
FDIC Federal Deposit Insurance Corporation
Federal Reserve Board of Governors of the
Federal Reserve System
FHA Federal Housing Administration
FHFA Federal Housing Finance
Agency FHFA is an independent agency of the
U.S. government established by the Reform Act with
responsibility for regulating Freddie Mac, Fannie Mae, and the
FHLBs.
FHLB Federal Home Loan Bank
FICO score A credit scoring system developed
by Fair, Isaac and Co. FICO scores are the most commonly used
credit scores today. FICO scores are ranked on a scale of
approximately 300 to 850 points with a higher value indicating a
lower likelihood of credit default.
Fixed-rate mortgage Refers to a mortgage
originated at a specific rate of interest that remains constant
over the life of the loan.
Foreclosure alternative A workout option
pursued when a home retention action is not successful or not
possible. A foreclosure alternative is either a short sale or
deed in lieu of foreclosure.
Foreclosure transfer Refers to our completion
of a transaction provided for by the foreclosure laws of the
applicable state, in which a delinquent borrowers
ownership interest in a mortgaged property is terminated and
title to the property is transferred to us or to a third party.
State foreclosure laws commonly refer to such transactions as
foreclosure sales, sheriffs sales, or trustees
sales, among other terms. When we, as mortgage holder, acquire a
property in this manner, we pay for it by extinguishing some or
all of the mortgage debt.
Freddie Mac mortgage-related securities
Securities we issue and guarantee, including PCs, REMICs and
Other Structured Securities, and Other Guarantee Transactions.
GAAP Generally accepted accounting principles
Ginnie Mae Government National Mortgage
Association
GSE Act The Federal Housing Enterprises
Financial Safety and Soundness Act of 1992, as amended by the
Reform Act.
GSEs Government sponsored
enterprises Refers to certain legal entities created
by the U.S. government, including Freddie Mac, Fannie Mae,
and the FHLBs.
Guarantee fee The fee that we receive for
guaranteeing the payment of principal and interest to mortgage
security investors.
HAFA Home Affordable Foreclosures Alternative
program In 2009, the Treasury Department introduced
the HAFA program to provide an option for HAMP-eligible
homeowners who are unable to keep their homes. The HAFA program
took effect on April 5, 2010 and we implemented it
effective August 1, 2010.
HAMP Home Affordable Modification
Program Refers to the effort under the MHA Program
whereby the U.S. government, Freddie Mac and Fannie Mae
commit funds to help eligible homeowners avoid foreclosure and
keep their homes through mortgage modifications.
HARP Home Affordable Refinance
Program Refers to the effort under the MHA Program
that seeks to help eligible borrowers with loans guaranteed by
us or Fannie Mae refinance into loans with more affordable
monthly payments
and/or
fixed-rate terms and is available until June 2012. Under HARP,
we allow eligible borrowers who have mortgages with current LTV
ratios from 80% up to 125% to refinance their mortgages without
obtaining new mortgage insurance in excess of what is already in
place. The relief refinance initiative is our implementation of
HARP for our loans, under which we also allow borrowers with LTV
ratios of 80% and below to participate.
HFA State or local Housing Finance Agency
HUD U.S. Department of Housing and Urban
Development Prior to the enactment of the Reform
Act, HUD had general regulatory authority over Freddie Mac,
including authority over our affordable housing goals and new
programs. Under the Reform Act, FHFA now has general regulatory
authority over us, though HUD still has authority over Freddie
Mac with respect to fair lending.
Implied volatility A measurement of how the
value of a financial instrument changes due to changes in the
markets expectation of potential changes in future
interest rates. A decrease in implied volatility generally
increases the estimated fair value of our mortgage assets and
decreases the estimated fair value of our callable debt and
options-based derivatives, while an increase in implied
volatility generally has the opposite effect.
Interest-only loan A mortgage loan that
allows the borrower to pay only interest (either fixed-rate or
adjustable-rate) for a fixed period of time before principal
amortization payments are required to begin. After the end of
the interest-only period, the borrower can choose to refinance
the loan, pay the principal balance in total, or begin paying
the monthly scheduled principal due on the loan.
IRS Internal Revenue Service
LIBOR London Interbank Offered Rate
LIHTC partnerships Low-income housing tax
credit partnerships Prior to 2008, we invested as a
limited partner in LIHTC partnerships, which are formed for the
purpose of providing funding for affordable multifamily rental
properties. These LIHTC partnerships invest directly in limited
partnerships that own and operate multifamily rental properties
that generate federal income tax credits and deductible
operating losses.
Liquidation preference Generally refers to an
amount that holders of preferred securities are entitled to
receive out of available assets, upon liquidation of a company.
The initial liquidation preference of our senior preferred stock
was $1.0 billion. The aggregate liquidation preference of
our senior preferred stock includes the initial liquidation
preference plus amounts funded by Treasury under the Purchase
Agreement. In addition, dividends and periodic commitment fees
not paid in cash are added to the liquidation preference of the
senior preferred stock. We may make payments to reduce the
liquidation preference of the senior preferred stock only in
limited circumstances.
LTV ratio Loan-to-value ratio The
ratio of the unpaid principal amount of a mortgage loan to the
value of the property that serves as collateral for the loan,
expressed as a percentage. Loans with high LTV ratios generally
tend to have a higher risk of default and, if a default occurs,
a greater risk that the amount of the gross loss will be high
compared to loans with lower LTV ratios. We report LTV ratios
based solely on the amount of the loan purchased or guaranteed
by us, generally excluding any second lien mortgages (unless we
own or guarantee the second lien).
MD&A Managements Discussion and
Analysis of Financial Condition and Results of Operations
MHA Program Making Home Affordable
Program Formerly known as the Housing Affordability
and Stability Plan, the MHA Program was announced by the Obama
Administration in February 2009. The MHA Program is designed to
help in the housing recovery, promote liquidity and housing
affordability, expand foreclosure prevention efforts and set
market standards. The MHA Program includes HARP and HAMP.
Monoline bond insurers Companies that provide
credit insurance principally covering securitized assets in both
the primary issuance and secondary markets.
Mortgage assets Refers to both mortgage loans
and the mortgage-related securities we hold in our
mortgage-related investments portfolio.
Mortgage-related investments portfolio Our
investment portfolio, which consists principally of
mortgage-related securities and single-family and multifamily
mortgage loans. The size of our mortgage-related investments
portfolio under the Purchase Agreement is determined without
giving effect to the January 1, 2010 change in accounting
guidance related to transfers of financial assets and
consolidation of VIEs. Accordingly, for purposes of the
portfolio limit, when PCs and certain Other Guarantee
Transactions are purchased into the mortgage-related investments
portfolio, this is considered the acquisition of assets rather
than the reduction of debt.
Mortgage-to-debt OAS The net OAS between
the mortgage and agency debt sectors. This is an important
factor in determining the expected level of net interest yield
on a new mortgage asset. Higher mortgage-to-debt OAS means that
a newly purchased mortgage asset is expected to provide a
greater return relative to the cost of the debt issued to fund
the purchase of the asset and, therefore, a higher net interest
yield. Mortgage-to-debt OAS tends to be higher when there is
weak demand for mortgage assets and lower when there is strong
demand for mortgage assets.
Multifamily mortgage A mortgage loan secured
by a property with five or more residential rental units.
Multifamily mortgage portfolio Consists of
multifamily mortgage loans held by us on our consolidated
balance sheets as well as those underlying non-consolidated
Freddie Mac mortgage-related securities, and other guarantee
commitments, but excluding those underlying our guarantees of
HFA bonds under the HFA Initiative.
Net worth (deficit) The amount by which our
total assets exceed (or are less than) our total liabilities as
reflected on our consolidated balance sheets prepared in
conformity with GAAP.
NIBP New Issue Bond Program
NPV Net present value
OAS Option-adjusted spread An
estimate of the incremental yield spread between a particular
financial instrument (e.g., a security, loan or
derivative contract) and a benchmark yield curve (e.g.,
LIBOR or agency or U.S. Treasury securities). This includes
consideration of potential variability in the instruments
cash flows resulting from any options embedded in the
instrument, such as prepayment options.
OCC Office of the Comptroller of the Currency
OFHEO Office of Federal Housing Enterprise
Oversight
Option ARM loan Mortgage loans that permit a
variety of repayment options, including minimum, interest-only,
fully amortizing
30-year and
fully amortizing
15-year
payments. The minimum payment alternative for option ARM loans
allows the borrower to make monthly payments that may be less
than the interest accrued for the period. The unpaid interest,
known as negative amortization, is added to the principal
balance of the loan, which increases the outstanding loan
balance. For our non-agency mortgage-related securities that are
backed by option ARM loans, we categorize securities as option
ARM 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 securities as
either subprime or Alt-A securities.
OTC Over-the-counter
Other guarantee commitments Mortgage-related
assets held by third parties for which we provide our guarantee
without our securitization of the related assets.
Other Guarantee Transactions Transactions in
which third parties transfer non-Freddie Mac mortgage-related
securities to trusts specifically created for the purpose of
issuing mortgage-related securities, or certificates, in the
Other Guarantee Transactions.
PCs Participation Certificates
Securities that we issue as part of a securitization
transaction. Typically we purchase mortgage loans from parties
who sell mortgage loans, place a pool of loans into a PC trust
and issue PCs from that trust. The PCs are generally transferred
to the seller of the mortgage loans in consideration of the
loans or are sold to third party investors if we purchased the
mortgage loans for cash.
Pension Plan Employees Pension Plan
PMVS Portfolio Market Value
Sensitivity One of our primary interest-rate risk
measures. PMVS measures are estimates of the amount of average
potential pre-tax loss in the market value of our net assets due
to parallel
(PMVS-L) and
non-parallel
(PMVS-YC)
changes in LIBOR.
Primary mortgage market The market where
lenders originate mortgage loans and lend funds to borrowers. We
do not lend money directly to homeowners, and do not participate
in this market.
Purchase Agreement / Senior Preferred Stock
Purchase Agreement An agreement the Conservator,
acting on our behalf, entered into with Treasury on
September 7, 2008, which was subsequently amended and
restated on September 26, 2008 and further amended on
May 6, 2009 and December 24, 2009.
Recorded Investment The dollar amount of a
loan or security recorded on our consolidated balance sheets,
excluding any valuation allowance, such as the allowance for
loan losses, but which does reflect direct write-downs of the
investment. For mortgage loans, direct write-downs consist of
valuation allowances associated with recording our initial
investment in loans acquired with evidence of credit
deterioration at the time of purchase.
Reform Act The Federal Housing Finance
Regulatory Reform Act of 2008, which, among other things,
amended the GSE Act by establishing a single regulator, FHFA,
for Freddie Mac, Fannie Mae, and the FHLBs.
Relief refinance mortgage A single-family
mortgage loan delivered to us for purchase or guarantee that
meets the criteria of the Freddie Mac Relief Refinance
Mortgagesm
initiative. This initiative is our implementation of HARP for
our loans. Although HARP is targeted at borrowers with current
LTV ratios above 80% (and up to a maximum of 125%), our
initiative also allows borrowers with LTV ratios of 80% and
below to participate.
REMIC Real Estate Mortgage Investment
Conduit A type of multiclass mortgage-related
security that divides the cash flows (principal and interest) of
the underlying mortgage-related assets into two or more classes
that meet the investment criteria and portfolio needs of
different investors.
REMICs and Other Structured Securities (or in the case of
Multifamily securities, Other Structured
Securities) Single- and multiclass securities
issued by Freddie Mac that represent beneficial interests in
pools of PCs and certain other types of mortgage-related assets.
REMICs and Other Structured Securities that are single-class
securities pass through the cash flows (principal and interest)
on the underlying mortgage-related assets. REMICs and Other
Structured Securities that are multiclass securities divide the
cash flows of the underlying mortgage-related assets into two or
more classes designed to meet the investment criteria and
portfolio needs of different investors. Our principal multiclass
securities qualify for tax treatment as REMICs.
REO Real estate owned Real estate
which we have acquired through foreclosure or through a deed in
lieu of foreclosure.
S&P Standard & Poors
SEC Securities and Exchange Commission
Secondary mortgage market A market consisting
of institutions engaged in buying and selling mortgages in the
form of whole loans (i.e., mortgages that have not been
securitized) and mortgage-related securities. We participate in
the secondary mortgage market by purchasing mortgage loans and
mortgage-related securities for investment and by issuing
guaranteed mortgage-related securities, principally PCs.
Senior preferred stock The shares of Variable
Liquidation Preference Senior Preferred Stock issued to Treasury
under the Purchase Agreement.
Seriously delinquent Single-family mortgage
loans that are three monthly payments or more past due or in the
process of foreclosure as reported to us by our servicers.
SERP Supplemental Executive Retirement Plan
Short sale Typically an alternative to
foreclosure consisting of a sale of a mortgaged property in
which the homeowner sells the home at market value and the
lender accepts proceeds (sometimes together with an additional
payment or promissory note from the borrower) that are less than
the outstanding mortgage indebtedness.
Single-family credit guarantee portfolio
Consists of unsecuritized single-family loans, single-family
loans held by consolidated trusts, and single-family loans
underlying non-consolidated Other Guarantee Transactions and
covered by other guarantee commitments. Excludes our REMICs and
Other Structured Securities that are backed by Ginnie Mae
Certificates and our guarantees under the HFA Initiative.
Single-family mortgage A mortgage loan
secured by a property containing four or fewer residential
dwelling units.
Spread The difference between the yields of
two debt securities, or the difference between the yield of a
debt security and a benchmark yield, such as LIBOR.
Strips Mortgage pass-through securities
created by separating the principal and interest payments on a
pool of mortgage loans. A principal-only strip entitles the
security holder to principal cash flows, but no interest cash
flows, from the underlying mortgages. An interest-only strip
entitles the security holder to interest cash flows, but no
principal cash flows, from the underlying mortgages.
Subprime Participants in the mortgage market
may characterize single-family loans based upon their overall
credit quality at the time of origination, generally considering
them to be prime or subprime. Subprime generally refers to the
credit risk classification of a loan. There is no universally
accepted definition of subprime. The subprime segment of the
mortgage market primarily serves borrowers with poorer credit
payment histories and such loans typically have a mix of credit
characteristics that indicate a higher likelihood of default and
higher loss severities than prime loans. Such characteristics
might include, among other factors, a combination of high LTV
ratios, low credit scores or originations using lower
underwriting standards, such as limited or no documentation of a
borrowers income. While we have not historically
characterized the loans in our single-family credit guarantee
portfolio as either prime or subprime, we do monitor the amount
of loans we have guaranteed with characteristics that indicate a
higher degree of credit risk. Notwithstanding our historical
characterizations of the single family credit guarantee
portfolio, certain security collateral underlying our Other
Guarantee Transactions have been identified as subprime based on
information provided to Freddie Mac when the transactions were
entered into. We also categorize our investments in non-agency
mortgage-related securities as subprime if they were identified
as such based on information provided to us when we entered into
these transactions.
Swaption An option contract to enter into an
interest-rate swap. In exchange for an option premium, a buyer
obtains the right but not the obligation to enter into a
specified swap agreement with the issuer on a specified future
date.
TBA To be announced
TCLFP Temporary Credit and Liquidity Facility
Program
TDR Troubled debt restructuring A
type of loan modification in which the changes to the
contractual terms result in concessions to borrowers that are
experiencing financial difficulties.
Total comprehensive income (loss) Consists of
net income (loss) plus the after-tax changes in: (a) the
unrealized gains and losses on available-for-sale securities;
(b) the effective portion of derivatives accounted for as
cash flow hedge relationships; and (c) defined benefit
plans.
Total other comprehensive income (loss)
Consists of the after-tax changes in: (a) the unrealized
gains and losses on available-for-sale securities; (b) the
effective portion of derivatives accounted for as cash flow
hedge relationships; and (c) defined benefit plans.
Total mortgage portfolio Includes mortgage
loans and mortgage-related securities held on our consolidated
balance sheets as well as the balances of our non-consolidated
issued and guaranteed single-class and multiclass securities,
and other mortgage-related financial guarantees issued to third
parties.
Treasury U.S. Department of the Treasury
UPB Unpaid principal balance
USDA U.S. Department of Agriculture
VA U.S. Department of Veteran Affairs
VIE Variable Interest Entity A
VIE is an entity: (a) that has a total equity investment at
risk that is not sufficient to finance its activities without
additional subordinated financial support provided by another
party; or (b) where the group of equity holders does not
have: (i) the ability to make significant decisions about
the entitys activities; (ii) the obligation to absorb
the entitys expected losses; or (iii) the right to
receive the entitys expected residual returns.
Warrant Refers to the warrant we issued to
Treasury on September 8, 2008 pursuant to the Purchase
Agreement. The warrant provides Treasury the ability to purchase
shares of our common stock equal to 79.9% of the total number of
shares of Freddie Mac common stock outstanding on a fully
diluted basis on the date of exercise.
Workout, or loan workout A workout is either:
(a) a home retention action, which is either a loan
modification, repayment plan, or forbearance agreement; or
(b) a foreclosure alternative, which is either a short sale
or a deed in lieu of foreclosure.
XBRL eXtensible Business Reporting Language
Yield curve A graphical display of the
relationship between yields and maturity dates for bonds of the
same credit quality. The slope of the yield curve is an
important factor in determining the level of net interest yield
on a new mortgage asset, both initially and over time. For
example, if a mortgage asset is purchased when the yield curve
is inverted, with short-term rates higher than long-term rates,
our net interest yield on the asset will tend to be lower
initially and then increase over time. Likewise, if a mortgage
asset is purchased when the yield curve is steep, with
short-term rates lower than long-term rates, our net interest
yield on the asset will tend to be higher initially and then
decrease over time.
EXHIBIT
INDEX
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Exhibit No.
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Description
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3
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.1
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Bylaws of the Federal Home Loan Mortgage Corporation, as amended
and restated June 3, 2011 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on
Form 8-K
as filed on June 7, 2011)
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10
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.1
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Officer Severance Policy, dated April 11, 2011
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2011, as filed on
May 4, 2011)
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10
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.2
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10
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.3
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Second Amendment to the Federal Home Loan Mortgage Corporation
Supplemental Executive Retirement Plan (as Amended and Restated
January 1, 2008) (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on
Form 8-K
as filed on June 28, 2011)
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10
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.4
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10
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.5
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12
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.1
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31
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.1
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31
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.2
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32
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.1
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32
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.2
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101
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.INS
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XBRL Instance
Document(1)
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101
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.SCH
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XBRL Taxonomy Extension
Schema(1)
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101
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.CAL
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XBRL Taxonomy Extension
Calculation(1)
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101
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.LAB
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XBRL Taxonomy Extension
Labels(1)
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101
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.PRE
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XBRL Taxonomy Extension
Presentation(1)
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101
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.DEF
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XBRL Taxonomy Extension
Definition(1)
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(1) |
The financial information contained in these XBRL documents is
unaudited. The information in these exhibits shall not be deemed
filed for purposes of Section 18 of the
Securities Exchange Act of 1934, or otherwise subject to the
liabilities of Section 18, nor shall they be deemed
incorporated by reference into any disclosure document relating
to Freddie Mac, except to the extent, if any, expressly set
forth by specific reference in such filing.
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