e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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x |
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
March 31, 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). o 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 April 22, 2011, there were 649,688,423 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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FINANCIAL
STATEMENTS
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92
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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 (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 months ended March 31, 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. Taken together, 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 first quarter of 2011 improved
compared to the first quarter of 2010, even though we continued
to be impacted by the ongoing weakness in the economy, including
the mortgage market. Our total comprehensive income (loss) was
$2.7 billion and $(1.9) billion for the first quarters
of 2011 and 2010, respectively, consisting of: (a) a net
income (loss) of $676 million and $(6.7) billion,
respectively, reflecting reductions in both derivative losses
and provision for credit losses in the first quarter of 2011
compared to the first quarter of 2010; and
(b) $2.1 billion and $4.8 billion of changes in
AOCI, respectively, primarily resulting from improved fair
values on available-for-sale securities.
Our total equity was $1.2 billion at March 31, 2011
reflecting total comprehensive income of $2.7 billion
during the first quarter of 2011, partially offset by our
dividend payment of $1.6 billion on our senior preferred
stock on March 31, 2011. As a result of our positive net
worth at March 31, 2011, FHFA will not submit a draw
request on our behalf to Treasury under the Purchase Agreement.
Also contributing to total equity was cash proceeds received of
$500 million from a draw under Treasurys funding
commitment on March 31, 2011, related to our deficit in net
worth at December 31, 2010. As a result of this draw from
Treasury under the Purchase Agreement, the aggregate liquidation
preference of Treasurys senior preferred stock increased
to $64.7 billion at March 31, 2011.
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; (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 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 represents 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 continued to guarantee more than 90% of the
single-family conforming mortgages originated during the first
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 first quarter of 2011, we guaranteed
$95.7 billion in UPB of single-family conforming mortgage
loans representing more than 430,000 borrowers who purchased
homes or refinanced their mortgages. Relief refinance mortgages
with LTV ratios of 80% and above represented approximately 15%
of our total single-family credit guarantee portfolio purchases
in the first quarter of 2011.
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, there have been fewer sources of mortgage funds, and 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
March 2011, we estimate that borrowers were paying an average of
61 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 housing crisis to help eligible borrowers, including
our relief refinance mortgage initiative, which is our
implementation of HARP. In the first quarter of 2011, we helped
more than 62,000 borrowers either stay in their homes or
sell their properties and avoid foreclosure through HAMP and our
various other workout programs. In March 2011, FHFA announced it
had extended HARP to June 30, 2012 for qualifying
borrowers. 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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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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03/31/2010
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(number of loans)
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Loan modifications
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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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44,228
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Repayment plans
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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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8,761
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Forbearance
agreements(2)
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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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8,858
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Short sales and
deed-in-lieu
transactions
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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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7,064
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Total single-family loan workouts
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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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68,911
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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 62,641 single-family loan workouts during the
first quarter of 2011, including 35,158 loan modifications
and 10,706 short sales and deed-in-lieu transactions.
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Based on information provided by the MHA Program administrator,
our servicers had completed 119,690 loan modifications
under HAMP from the introduction of the initiative in 2009
through March 31, 2011 and, as of March 31, 2011,
19,897 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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In addition to these efforts, we continue to focus on assisting
consumers through outreach and other efforts. These efforts
included: (a) meeting with borrowers nationwide in
foreclosure prevention workshops; (b) operating a Borrower
Help Network to provide distressed borrowers with free
one-on-one
counseling; and (c) in instances where foreclosure has
occurred, allowing affected families who qualify to rent back
their homes for a limited period of time. In recent periods, we
also increased our efforts to directly assist our servicers by
increasing our servicing staff.
For more information about HAMP, other loan workout programs,
and our relief refinance mortgage initiative, and other options
to help eligible borrowers, see RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Portfolio Management
Activities MHA Program and
Loan Workout Activities.
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 possible modification under HAMP before considering other
workout alternatives. If a borrower is not eligible for a
modification under HAMP, 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
incur;
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managing foreclosure timelines to the extent possible, given
elongated state timelines;
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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 March 31, 2011, the UPB of loans
subject to repurchase requests issued to our single-family
seller/servicers was approximately $3.4 billion, and
approximately 38% 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.
During 2010, we entered into agreements with certain of our
seller/servicers to release specified loans in
their portfolios from certain repurchase obligations in exchange
for one-time cash payments. We may enter into similar agreements
or seek other remedies in the future. 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 $587 million and $294 million in the
first quarter of 2011 and 2010, respectively, which helped to
mitigate our credit losses.
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
engaging with homeowners 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. We believe this
effort will result in certain changes in our non-HAMP loan
modification processes which may temporarily result in delays in
these activities while the changes are implemented by us and our
servicers. Servicers will also be subject to incentives and
sanctions with respect to performance under these standards.
Ultimately, we expect this effort will help streamline loss
mitigation processes for servicers and delinquent borrowers,
give servicers consistent guidance to help improve their
servicing performance, and lay the foundation for industry
benchmarks for responsible servicing that will benefit the
housing finance system, servicers and consumers.
Maintaining
the Credit Quality of New Loan Purchases and
Guarantees
We continue to focus on maintaining underwriting standards 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 anticipated
credit-related and administrative expenses on such loans.
As of March 31, 2011, more than 40% 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
better serious delinquency trends in the early years of their
terms than loans originated in 2005 through 2008.
We believe the credit quality of the single-family loans we have
acquired in the first quarter of 2011 (excluding relief
refinance mortgages, which represented approximately 30% of our
single family purchase volume during the quarter) is
significantly better than that of loans we acquired from 2005
through 2008, as measured by original LTV ratios, FICO scores,
and income documentation standards. The substantial majority of
the single-family mortgages we purchased in the first quarter of
2011 were
30-year and
15-year
fixed-rate mortgages. Approximately 85% of our single-family
loan purchases in the first quarter of 2011 were refinance
mortgages. Relief refinance mortgages with LTV ratios of 80% and
above (which we refer to as 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.
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 March 31,
2011.
Table 2
Single-Family Credit Guarantee Portfolio Data by Year of
Origination(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serious
|
|
|
|
% of
|
|
|
Average
|
|
|
Original
|
|
|
Current
|
|
|
Delinquency
|
|
|
|
Portfolio
|
|
|
Credit
Score(2)
|
|
|
LTV Ratio
|
|
|
LTV
Ratio(3)
|
|
|
Rate(4)
|
|
|
Year of Origination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2
|
%
|
|
|
752
|
|
|
|
70
|
%
|
|
|
68
|
%
|
|
|
|
%
|
2010
|
|
|
20
|
|
|
|
755
|
|
|
|
70
|
|
|
|
70
|
|
|
|
0.07
|
|
2009
|
|
|
21
|
|
|
|
755
|
|
|
|
68
|
|
|
|
71
|
|
|
|
0.31
|
|
2008
|
|
|
8
|
|
|
|
727
|
|
|
|
74
|
|
|
|
88
|
|
|
|
4.91
|
|
2007
|
|
|
11
|
|
|
|
707
|
|
|
|
77
|
|
|
|
107
|
|
|
|
11.26
|
|
2006
|
|
|
8
|
|
|
|
711
|
|
|
|
75
|
|
|
|
106
|
|
|
|
10.34
|
|
2005
|
|
|
9
|
|
|
|
718
|
|
|
|
73
|
|
|
|
92
|
|
|
|
6.05
|
|
2004 and prior
|
|
|
21
|
|
|
|
721
|
|
|
|
71
|
|
|
|
59
|
|
|
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
734
|
|
|
|
71
|
|
|
|
78
|
|
|
|
3.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on the single-family credit guarantee portfolio, which
totaled $1,815 billion at March 31, 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 March 31, 2011.
|
(3)
|
We estimate current market values by adjusting the value of the
property at origination based on changes in the market value of
homes since origination.
|
(4)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Credit
Performance Delinquencies for further
information about our reported serious delinquency rates.
|
During the first quarter of 2011, the guarantee-related revenue
from the mortgage guarantees issued after 2008 exceeded the
credit-related and administrative expenses associated with these
guarantees. Credit-related expenses consist of our provision for
credit losses and REO operations expense. 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 long-term project will
likely take several years to fully implement and focuses on
making significant improvements to our systems infrastructure in
order to: (a) improve risk management; (b) enhance the
service we provide to our customers; and (c) 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 focus on reducing administrative expenses and other
cost reduction measures.
We continue to actively monitor our general and administrative
expenses, while also continuing to focus on retaining key
talent. During the full year of 2010, we reduced our
administrative expenses by $88 million, despite increasing
the number of employees in our non-performing asset management
group. Our general and administrative expenses continued to
decline in the first quarter of 2011.
Single-Family
Credit Guarantee Portfolio
Since the beginning of 2008, on an aggregate basis, we have
recorded provision for credit losses associated with
single-family loans of approximately $64.3 billion, and
have recorded an additional $4.6 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, as of
March 31, 2011, that 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
increased slightly during the first quarter of 2011 to
$1,815 billion at March 31, 2011 from
$1,809 billion at December 31, 2010, since new loan
purchase and guarantee activity exceeded the amount of
liquidations. Table 3 provides certain credit statistics
for our single-family credit guarantee portfolio.
Table 3
Credit Statistics, Single-Family Credit Guarantee
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
03/31/2010
|
|
Payment status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One month past due
|
|
|
1.75
|
%
|
|
|
2.07
|
%
|
|
|
2.11
|
%
|
|
|
2.02
|
%
|
|
|
1.89
|
%
|
Two months past due
|
|
|
0.65
|
%
|
|
|
0.78
|
%
|
|
|
0.80
|
%
|
|
|
0.77
|
%
|
|
|
0.79
|
%
|
Seriously
delinquent(1)
|
|
|
3.63
|
%
|
|
|
3.84
|
%
|
|
|
3.80
|
%
|
|
|
3.96
|
%
|
|
|
4.13
|
%
|
Non-performing loans (in
millions)(2)
|
|
$
|
115,083
|
|
|
$
|
115,478
|
|
|
$
|
112,746
|
|
|
$
|
111,758
|
|
|
$
|
110,079
|
|
Single-family loan loss reserve (in
millions)(3)
|
|
$
|
38,558
|
|
|
$
|
39,098
|
|
|
$
|
37,665
|
|
|
$
|
37,384
|
|
|
$
|
35,969
|
|
REO inventory (in properties)
|
|
|
65,159
|
|
|
|
72,079
|
|
|
|
74,897
|
|
|
|
62,178
|
|
|
|
53,831
|
|
REO assets, net carrying value (in millions)
|
|
$
|
6,261
|
|
|
$
|
6,961
|
|
|
$
|
7,420
|
|
|
$
|
6,228
|
|
|
$
|
5,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
03/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
03/31/2010
|
|
|
(in units, unless noted)
|
|
Seriously delinquent loan
additions(1)
|
|
|
97,646
|
|
|
|
113,235
|
|
|
|
115,359
|
|
|
|
123,175
|
|
|
|
150,941
|
|
Loan
modifications(4)
|
|
|
35,158
|
|
|
|
37,203
|
|
|
|
39,284
|
|
|
|
49,562
|
|
|
|
44,228
|
|
Foreclosure starts
ratio(5)
|
|
|
0.58
|
%
|
|
|
0.73
|
%
|
|
|
0.75
|
%
|
|
|
0.61
|
%
|
|
|
0.64
|
%
|
REO
acquisitions(6)
|
|
|
24,707
|
|
|
|
23,771
|
|
|
|
39,053
|
|
|
|
34,662
|
|
|
|
29,412
|
|
REO disposition severity
ratio:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
44.5
|
%
|
|
|
43.9
|
%
|
|
|
41.9
|
%
|
|
|
42.0
|
%
|
|
|
43.9
|
%
|
Florida
|
|
|
54.8
|
%
|
|
|
53.0
|
%
|
|
|
54.9
|
%
|
|
|
53.8
|
%
|
|
|
56.2
|
%
|
Arizona
|
|
|
50.8
|
%
|
|
|
49.5
|
%
|
|
|
46.6
|
%
|
|
|
44.3
|
%
|
|
|
45.3
|
%
|
Nevada
|
|
|
53.1
|
%
|
|
|
53.1
|
%
|
|
|
51.6
|
%
|
|
|
49.4
|
%
|
|
|
50.7
|
%
|
Michigan
|
|
|
48.3
|
%
|
|
|
49.7
|
%
|
|
|
49.2
|
%
|
|
|
47.2
|
%
|
|
|
47.6
|
%
|
Total U.S.
|
|
|
43.0
|
%
|
|
|
41.3
|
%
|
|
|
41.5
|
%
|
|
|
39.2
|
%
|
|
|
40.5
|
%
|
Single-family credit losses (in millions)
|
|
$
|
3,226
|
|
|
$
|
3,086
|
|
|
$
|
4,216
|
|
|
$
|
3,851
|
|
|
$
|
2,907
|
|
|
|
(1)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Credit
Performance 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.
|
(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)
|
Our REO acquisition volume temporarily slowed in the fourth
quarter of 2010 and first quarter of 2011 due to delays in the
foreclosure process, including delays related to concerns about
deficiencies in foreclosure documentation practices, which
reduced our credit losses for these periods.
|
(7)
|
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 new serious delinquencies (i.e., seriously
delinquent loan additions) declined in each of the last five
quarters; however, our single-family credit guarantee portfolio
continued to experience a high level of serious delinquencies
and foreclosures in the first quarter of 2011 as compared to
periods before 2009. Our servicers generally resumed
foreclosures and we fully resumed marketing and sales of REO
properties during the first quarter of 2011, which led to a high
REO disposition volume during the quarter. Our REO inventory
(measured in properties) declined in each of the last two
quarters. The UPB of our non-performing loans also declined in
the first quarter of 2011. This was the first decline in
non-performing loans since the first half of 2006. However, the
credit losses from our single-family credit guarantee portfolio
were higher in the first quarter of 2011 than the first quarter
of 2010, 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 significant inventory of
seriously delinquent loans. This inventory accumulated in prior
periods due to the lengthening in the foreclosure and
modification timelines caused by various suspensions of
foreclosure transfers, process requirements for HAMP, and
constraints in servicers capabilities to process large
volumes of problem loans. Due to the length of time necessary
for servicers either to complete the foreclosure process or
pursue foreclosure alternatives on seriously delinquent loans
still 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.
|
|
|
|
Continued decline in national home prices, based on our own
index, which resulted in continued high loss severity ratios on
our dispositions of REO inventory.
|
We believe our REO disposition severity ratio was impacted in
the fourth quarter of 2010 and, to a lesser extent in the first
quarter of 2011, particularly in the state of Florida, by
temporary suspensions of REO sales by us and our
seller/servicers in the latter part of 2010 related to concerns
about deficiencies in foreclosure documentation practices. See
Mortgage Market and Economic Conditions
Concerns Regarding Deficiencies in Foreclosure Documentation
Practices for further information.
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. See RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Credit Performance
Delinquencies for further information about factors
affecting our reported delinquency rates.
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.
On March 31, 2011, we received $500 million in funding
from Treasury under the Purchase Agreement relating to our net
worth deficit as of December 31, 2010. This draw increased
the aggregate liquidation preference of the senior preferred
stock to $64.7 billion at March 31, 2011 from
$64.2 billion at December 31, 2010. At March 31,
2011, our assets exceeded our liabilities under GAAP by
$1.2 billion; therefore FHFA will not submit a draw request
on our behalf to Treasury under the Purchase Agreement.
We pay cash dividends to Treasury at an annual rate of 10%. We
have paid cash dividends to Treasury of $11.6 billion life
to date, an amount equal to 18% of our aggregate draws under the
Purchase Agreement. As of March 31, 2011, our annual cash
dividend obligation to Treasury on the senior preferred stock of
$6.5 billion 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.
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 more information on conservatorship and the Purchase
Agreement, see BUSINESS Conservatorship and
Related Matters in our 2010 Annual Report.
Consolidated
Financial Results
Net income (loss) was $0.7 billion and $(6.7) billion
for the first quarters of 2011 and 2010, respectively. Key
highlights of our financial results include:
|
|
|
|
|
Net interest income for the first quarter of 2011 increased
slightly to $4.5 billion from $4.1 billion in the
first quarter of 2010, mainly due to lower funding costs,
partially offset by a decline in the average balances of
mortgage-related securities and mortgage loans.
|
|
|
|
|
|
Provision for credit losses for the first quarter of 2011
decreased to $2.0 billion, compared to $5.4 billion
for the first quarter of 2010. The provision for credit losses
in the first quarter of 2011 primarily reflects a decline in the
number of delinquent loan inflows, and a decline in the rate at
which seriously delinquent loans ultimately transition to a loss
event. The provision for credit losses in the first quarter of
2010 reflected increases in non-performing loans and serious
delinquency rates in that period.
|
|
|
|
Non-interest income (loss) was $(1.3) billion for the first
quarter of 2011, compared to $(4.9) billion for the first
quarter of 2010. This improvement was primarily due to
significantly lower losses on derivatives in the first quarter
of 2011, compared to the first quarter of 2010, attributable to
the impact of a slight increase in interest rates during the
first quarter of 2011 as compared to a decline in interest rates
during the first quarter of 2010. The decline in derivative
losses was partially offset by higher impairments on
mortgage-related securities recognized in earnings in the first
quarter of 2011 compared to the first quarter of 2010.
|
|
|
|
Non-interest expense was $0.7 billion in both the first
quarter of 2011 and the first quarter of 2010, and reflects
increased REO operations expense partially offset by a decline
in administrative expenses in the 2011 period, compared to the
2010 period.
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|
|
|
Total comprehensive income (loss) was $2.7 billion for the
first quarter of 2011 compared to $(1.9) billion for the
first quarter of 2010. Total comprehensive income for the first
quarter of 2011 reflects the net result of the $0.7 billion
of net income, and $2.1 billion of changes in AOCI
primarily resulting from improved fair values on
available-for-sale securities.
|
Mortgage
Market and Economic Conditions
Overview
The housing market recovery experienced continued challenges
during the first quarter of 2011 due primarily to weak housing
demand. The U.S. real gross domestic product rose by 1.8% on an
annualized basis during the period, compared to 3.1% during the
fourth quarter of 2010, according to the Bureau of Economic
Analysis estimates. Unemployment was 8.8% in March 2011,
improving from 9.4% in December 2010, based on data from the
U.S. Bureau of Labor Statistics.
Single-Family
Housing Market
We believe the level of home sales in the U.S. is a
significant driver of 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). We believe new home sales can be an indicator of
certain economic trends, such as the potential for growth in
total U.S. mortgage debt outstanding. Sales of existing
homes in the first quarter of 2011 averaged 5.14 million
(at a seasonally adjusted annual rate), an improvement of 8%
from an average seasonally adjusted annual rate of
4.75 million in the fourth quarter of 2010. New home sales
in the first quarter of 2011 averaged 0.29 million homes
(at a seasonally adjusted annual rate) declining approximately
2% from an average seasonally adjusted annual rate of
0.30 million homes in the fourth quarter of 2010.
We estimate that home prices declined 2.8% nationwide during the
first quarter of 2011. This estimate is based on our own index
of mortgage loans in our single-family credit guarantee
portfolio. Other indices 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 first quarter of 2011, though certain
states and metropolitan areas continue to exhibit weaker than
average fundamentals. This improvement continues a trend of
several consecutive quarters 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. Improving fundamentals
and perceived optimism about demand for multifamily housing have
helped improve property values in most markets. However, rising
interest rates may cause property owners to increase the returns
they expect on their multifamily property investments. In turn,
this could reduce multifamily property values, which could make
it more difficult to refinance multifamily properties when the
balloon payment becomes due.
Concerns
Regarding Deficiencies in Foreclosure Documentation
Practices
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 until November 2010.
During the first quarter of 2011, we fully resumed marketing and
sales of REO properties. While the larger servicers have
generally resumed foreclosure proceedings, the rate at which
they are completing foreclosures is slower than prior to the
suspensions. These issues have caused delays in the foreclosure
process in many states and temporarily slowed the pace of our
REO acquisitions. We expect the pace of our REO acquisitions to
increase in the remainder of 2011, in part due to the resumption
of foreclosure activity by servicers. We generally refer to
these issues as the concerns about foreclosure documentation
practices. See MD&A MORTGAGE MARKET AND
ECONOMIC CONDITIONS, AND OUTLOOK Mortgage Market and
Economic Conditions Concerns Regarding
Deficiencies in Foreclosure Documentation Practices in
our 2010 Annual Report for further information.
Consent
Orders with Servicers Regarding Foreclosure and Loss Mitigation
Practices
On April 13, 2011, the Comptroller of the Currency, the
Federal Reserve, the FDIC, and the Office of Thrift Supervision
entered into consent orders with fourteen 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 submit their comprehensive action plans. It is
possible that these plans will result in changes to these
companies mortgage servicing practices that could
adversely affect our business.
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
As in the past, we expect key macroeconomic drivers of the
economy such as income growth, unemployment rate,
and inflation will affect the performance of the
housing and mortgage markets in 2011. The economy is expected to
generate new jobs and rising incomes, contributing to a gradual
recovery in housing activity and declines in delinquency rates.
However, several developments may adversely affect the prospects
for a housing recovery. The current and expected increases in
oil prices raise concerns about the overall economic recovery
and housing markets as higher oil prices reduce consumers
cash for other spending. We also expect rates on fixed-rate
mortgages to be slightly higher in the second half of 2011, as
stronger GDP growth and further labor market improvements
generate higher demand for credit and consumer spending. Lastly,
many large financial institutions experienced temporary delays
in the foreclosure process late in 2010, and we believe the
resumption of foreclosures will result in increased distressed
sales of REO properties in 2011.
Our expectation for home prices, based on our own index, is that
national average home prices will continue to 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 increase in the near
term and, for 2011, remain significantly above historical
levels. 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 backlog of seriously delinquent
loans. For the near term, we also expect:
|
|
|
|
|
loss severity rates to remain relatively high, as market
conditions, such as home prices and the rate of home sales,
continue to remain weak;
|
|
|
|
|
|
REO operations expense to continue to increase, as single-family
REO acquisition volume and property inventory continues to be
high;
|
|
|
|
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
We expect that the continuation of challenging economic
conditions, including elevated unemployment in certain states in
which we have substantial investments in multifamily mortgage
loans, including Nevada, Arizona, and Georgia, may negatively
impact our mortgage portfolio performance and may lead to
additional non-performing assets. Improvements in loan
performance historically lag improvements in broader economic
and market trends during market recoveries. As a result, we may
continue to experience elevated credit losses in the remainder
of 2011 and delinquency rates may increase despite improving
fundamentals. In addition, as more market participants
re-emerged in the multifamily market during the first quarter of
2011, increased competition from other institutional investors
may 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 and second 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. While we are not
aware of any current plans of our Conservator to significantly
change our business model or capital structure in the near-term,
there are likely to be significant changes beyond the near-term
that we expect to be decided by the Obama Administration and
Congress. 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. 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 pools.
Table 4 presents the UPB of our mortgage-related
investments portfolio, for purposes of the limit imposed by the
Purchase Agreement and FHFA regulation. We disclose our mortgage
assets on this basis monthly 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.
The UPB of our mortgage-related investments portfolio declined
from December 31, 2010 to March 31, 2011, primarily
due to liquidations, partially offset by the purchase of
$14.6 billion of seriously delinquent loans from PC trusts.
Table
4 Mortgage-Related Investments
Portfolio(1)
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|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
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|
|
(in millions)
|
|
|
Investments segment Mortgage investments portfolio
|
|
$
|
477,446
|
|
|
$
|
481,677
|
|
Single-family Guarantee segment Single-family
unsecuritized mortgage
loans(2)
|
|
|
67,882
|
|
|
|
69,766
|
|
Multifamily segment Mortgage investments portfolio
|
|
|
146,710
|
|
|
|
145,431
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related investments portfolio
|
|
$
|
692,038
|
|
|
$
|
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.
|
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, 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.
See LEGISLATIVE AND REGULATORY MATTERS for
information on recent developments in GSE reform legislation and
recently initiated rulemakings under the Dodd-Frank Act.
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 months ended
March 31, 2011.
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|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
|
(dollars in millions,
|
|
|
except share-related amounts)
|
|
Statements of Income and Comprehensive Income Data
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
4,540
|
|
|
$
|
4,125
|
|
Provision for credit losses
|
|
|
(1,989
|
)
|
|
|
(5,396
|
)
|
Non-interest income (loss)
|
|
|
(1,252
|
)
|
|
|
(4,854
|
)
|
Non-interest expense
|
|
|
(697
|
)
|
|
|
(667
|
)
|
Net income (loss) attributable to Freddie Mac
|
|
|
676
|
|
|
|
(6,688
|
)
|
Total comprehensive income (loss) attributable to Freddie Mac
|
|
|
2,740
|
|
|
|
(1,880
|
)
|
Net loss attributable to common stockholders
|
|
|
(929
|
)
|
|
|
(7,980
|
)
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.29
|
)
|
|
|
(2.45
|
)
|
Diluted
|
|
|
(0.29
|
)
|
|
|
(2.45
|
)
|
Cash dividends per common share
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in
thousands):(2)
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,246,985
|
|
|
|
3,251,295
|
|
Diluted
|
|
|
3,246,985
|
|
|
|
3,251,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
(dollars in millions)
|
|
Balance Sheets Data
|
|
|
|
|
|
|
|
|
Mortgage loans held-for-investment, at amortized cost by
consolidated trusts (net of allowance for loan losses)
|
|
$
|
1,644,609
|
|
|
$
|
1,646,172
|
|
Total assets
|
|
|
2,244,916
|
|
|
|
2,261,780
|
|
Debt securities of consolidated trusts held by third parties
|
|
|
1,510,426
|
|
|
|
1,528,648
|
|
Other debt
|
|
|
715,572
|
|
|
|
713,940
|
|
All other liabilities
|
|
|
17,681
|
|
|
|
19,593
|
|
Total Freddie Mac stockholders equity (deficit)
|
|
|
1,237
|
|
|
|
(401
|
)
|
Portfolio
Balances(3)
|
|
|
|
|
|
|
|
|
Mortgage-related investments portfolio
|
|
$
|
692,038
|
|
|
$
|
696,874
|
|
Total Freddie Mac Mortgage-Related
Securities(4)
|
|
|
1,689,978
|
|
|
|
1,712,918
|
|
Total mortgage
portfolio(5)
|
|
|
2,143,472
|
|
|
|
2,164,859
|
|
Non-performing
assets(6)
|
|
|
124,438
|
|
|
|
125,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Ratios(7)
|
|
|
|
|
|
|
|
|
Return on average
assets(8)(11)
|
|
|
0.1
|
%
|
|
|
(1.1
|
)%
|
Non-performing assets
ratio(9)
|
|
|
6.4
|
|
|
|
5.9
|
|
Equity to assets
ratio(10)(11)
|
|
|
0.0
|
|
|
|
(0.4
|
)
|
|
|
(1)
|
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2010 Annual Report for more 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 for the first quarters of 2011
and 2010, 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 42 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 three months ended
March 31, 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 more
information concerning our more 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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Net interest income
|
|
$
|
4,540
|
|
|
$
|
4,125
|
|
Provision for credit losses
|
|
|
(1,989
|
)
|
|
|
(5,396
|
)
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for credit losses
|
|
|
2,551
|
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
Gains (losses) on extinguishment of debt securities of
consolidated trusts
|
|
|
223
|
|
|
|
(98
|
)
|
Gains (losses) on retirement of other debt
|
|
|
12
|
|
|
|
(38
|
)
|
Gains (losses) on debt recorded at fair value
|
|
|
(81
|
)
|
|
|
347
|
|
Derivative gains (losses)
|
|
|
(427
|
)
|
|
|
(4,685
|
)
|
Impairment of available-for-sale securities:
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment of available-for-sale
securities
|
|
|
(1,054
|
)
|
|
|
(417
|
)
|
Portion of other-than-temporary impairment recognized in AOCI
|
|
|
(139
|
)
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(1,193
|
)
|
|
|
(510
|
)
|
Other gains (losses) on investment securities recognized in
earnings
|
|
|
(120
|
)
|
|
|
(416
|
)
|
Other income
|
|
|
334
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(1,252
|
)
|
|
|
(4,854
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(361
|
)
|
|
|
(405
|
)
|
REO operations expense
|
|
|
(257
|
)
|
|
|
(159
|
)
|
Other expenses
|
|
|
(79
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(697
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit
|
|
|
602
|
|
|
|
(6,792
|
)
|
Income tax benefit
|
|
|
74
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
676
|
|
|
|
(6,689
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes and
reclassification adjustments:
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to
available-for-sale securities
|
|
|
1,941
|
|
|
|
4,646
|
|
Changes in unrealized gains (losses) related to cash flow hedge
relationships
|
|
|
132
|
|
|
|
172
|
|
Changes in defined benefit plans
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net of taxes and
reclassification adjustments
|
|
|
2,064
|
|
|
|
4,808
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
2,740
|
|
|
|
(1,881
|
)
|
Less: Comprehensive (income) loss attributable to noncontrolling
interest
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) attributable to Freddie Mac
|
|
$
|
2,740
|
|
|
$
|
(1,880
|
)
|
|
|
|
|
|
|
|
|
|
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 March 31,
|
|
|
|
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
|
|
$
|
37,561
|
|
|
$
|
16
|
|
|
|
0.17
|
%
|
|
$
|
66,973
|
|
|
$
|
17
|
|
|
|
0.10
|
%
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
47,861
|
|
|
|
18
|
|
|
|
0.15
|
|
|
|
51,645
|
|
|
|
16
|
|
|
|
0.12
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(3)
|
|
|
456,972
|
|
|
|
5,316
|
|
|
|
4.65
|
|
|
|
593,512
|
|
|
|
7,279
|
|
|
|
4.91
|
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(167,528
|
)
|
|
|
(2,063
|
)
|
|
|
(4.93
|
)
|
|
|
(256,951
|
)
|
|
|
(3,441
|
)
|
|
|
(5.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities, net
|
|
|
289,444
|
|
|
|
3,253
|
|
|
|
4.50
|
|
|
|
336,561
|
|
|
|
3,838
|
|
|
|
4.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related
securities(3)
|
|
|
29,309
|
|
|
|
30
|
|
|
|
0.41
|
|
|
|
20,189
|
|
|
|
61
|
|
|
|
1.21
|
|
Mortgage loans held by consolidated
trusts(4)
|
|
|
1,650,567
|
|
|
|
20,064
|
|
|
|
4.86
|
|
|
|
1,787,327
|
|
|
|
22,732
|
|
|
|
5.09
|
|
Unsecuritized mortgage
loans(4)
|
|
|
240,557
|
|
|
|
2,334
|
|
|
|
3.88
|
|
|
|
159,780
|
|
|
|
1,961
|
|
|
|
4.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,295,299
|
|
|
$
|
25,715
|
|
|
|
4.48
|
|
|
$
|
2,422,475
|
|
|
$
|
28,625
|
|
|
|
4.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts including PCs held by
Freddie Mac
|
|
$
|
1,665,608
|
|
|
$
|
(19,466
|
)
|
|
|
(4.67
|
)
|
|
$
|
1,801,525
|
|
|
$
|
(23,084
|
)
|
|
|
(5.13
|
)
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(167,528
|
)
|
|
|
2,063
|
|
|
|
4.93
|
|
|
|
(256,951
|
)
|
|
|
3,441
|
|
|
|
5.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities of consolidated trusts held by third
parties
|
|
|
1,498,080
|
|
|
|
(17,403
|
)
|
|
|
(4.65
|
)
|
|
|
1,544,574
|
|
|
|
(19,643
|
)
|
|
|
(5.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
194,822
|
|
|
|
(115
|
)
|
|
|
(0.24
|
)
|
|
|
242,938
|
|
|
|
(141
|
)
|
|
|
(0.23
|
)
|
Long-term
debt(5)
|
|
|
518,034
|
|
|
|
(3,450
|
)
|
|
|
(2.66
|
)
|
|
|
556,907
|
|
|
|
(4,458
|
)
|
|
|
(3.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
712,856
|
|
|
|
(3,565
|
)
|
|
|
(2.00
|
)
|
|
|
799,845
|
|
|
|
(4,599
|
)
|
|
|
(2.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,210,936
|
|
|
|
(20,968
|
)
|
|
|
(3.79
|
)
|
|
|
2,344,419
|
|
|
|
(24,242
|
)
|
|
|
(4.14
|
)
|
Income (expense) related to
derivatives(6)
|
|
|
|
|
|
|
(207
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(258
|
)
|
|
|
(0.04
|
)
|
Impact of net non-interest-bearing funding
|
|
|
84,363
|
|
|
|
|
|
|
|
0.14
|
|
|
|
78,056
|
|
|
|
|
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding of interest-earning assets
|
|
$
|
2,295,299
|
|
|
$
|
(21,175
|
)
|
|
|
(3.69
|
)
|
|
$
|
2,422,475
|
|
|
$
|
(24,500
|
)
|
|
|
(4.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/yield
|
|
|
|
|
|
$
|
4,540
|
|
|
|
0.79
|
|
|
|
|
|
|
$
|
4,125
|
|
|
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and net interest yield increased by
$415 million and 11 basis points, respectively, during
the three months ended March 31, 2011, compared to the
three months ended March 31, 2010, due to: (a) lower
funding costs from the replacement of debt at lower rates; and
(b) 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, which we refer to as
foregone interest income, and reversals of previously recognized
interest income, net of cash received, related to non-performing
loans was $1.0 billion during the three months ended
March 31, 2011, compared to $1.1 billion during the
three months ended March 31, 2010.
During the three months ended March 31, 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 $64.3 billion, and
have recorded an additional $4.6 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, as of
March 31, 2011, that 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 decreased to $2.0 billion
in the first quarter of 2011, compared to $5.4 billion in
the first quarter of 2010, due to a decline in the number of
delinquent loan inflows, and a decline in the rate at which
seriously delinquent loans ultimately transition to a loss
event. While the quarterly amount of our provision for credit
losses declined for the last several consecutive quarters, our
quarterly amount of charge-offs, net of recoveries remained
elevated. We believe the level of our charge-offs will continue
to remain high in 2011 due to the large number of single-family
non-performing loans that will likely be resolved during the
year. As of March 31, 2011 and December 31, 2010, the
UPB of our single-family non-performing loans was
$115.1 billion and $115.5 billion, respectively; these
amounts include $32.2 billion and $26.6 billion,
respectively, of single-family TDRs that are reperforming, or
less than three months past due. As of March 31, 2011 and
December 31, 2010, the UPB of multifamily non-performing
loans was $3.0 billion and $2.9 billion, respectively.
Although still at historically high levels, the UPB of our
single-family non-performing loans declined slightly during the
first quarter of 2011. See RISK MANAGEMENT
Credit Risk Mortgage Credit Risk for
further information on our single-family credit guarantee
portfolio, including credit performance, charge-offs, and growth
in the balance of our non-performing assets.
In the first quarter of 2011, we also continued to experience
high volumes of loan modifications involving concessions to
borrowers, which are considered TDRs. 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 TDRs
than for loans that are not TDRs. We expect the percentage of
modifications that qualify as TDRs in 2011 will remain high,
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.
The total number of seriously delinquent loans declined during
the first quarter of 2011, but has remained high due to the
continued weakness in home prices, persistently high
unemployment, extended foreclosure timelines and foreclosure
suspensions in many states, and 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 began making significant investments in systems and personnel
in the last months of 2010 to help our seller/servicers manage
their performance. We believe this will help us to better
realize the benefits of our loss mitigation plans, though it is
too early to determine if this will be successful.
Our provision (benefit) for credit losses associated with our
multifamily mortgage portfolio was $(60) million and
$29 million for the first quarters of 2011 and 2010,
respectively. Our loan loss reserve associated with our
multifamily mortgage portfolio was $747 million and
$828 million as of March 31, 2011 and
December 31, 2010, respectively. The decrease in the
reserves was driven 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 and
improved borrower credit profiles. 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
March 31, 2011 and 2010, we extinguished debt securities of
consolidated trusts with a UPB of $24.8 billion and
$2.1 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 $223 million and
$(98) million, respectively. The gains in the first quarter
of 2011 were due to the repurchases of our debt securities at a
discount resulting from an increase in interest rates during the
period. See Table 18 Total
Mortgage-Related Securities
Purchase Activity for additional information regarding
purchases of PCs, including those issued by consolidated PC
trusts.
Gains
(Losses) on Retirement of Other Debt
Gains (losses) on retirement of other debt were $12 million
and $(38) million during the three months ended
March 31, 2011 and 2010, respectively. We recognized gains
on debt retirements in the first quarter of 2011 primarily due
to the repurchase of other debt securities at a discount. We
also recognized fewer losses on debt calls and puts in the first
quarter of 2011 compared to the first quarter of 2010 due to a
decreased level of debt call activity in the first quarter 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 months ended March 31, 2011, we
recognized losses on debt recorded at fair value of
$81 million primarily due to the U.S. dollar weakening
relative to the Euro. For the three months ended March 31,
2010, we recognized gains on debt recorded at fair value of
$347 million 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 March 31,
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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Interest-rate swaps
|
|
$
|
1,723
|
|
|
$
|
(2,334
|
)
|
Option-based
derivatives(1)
|
|
|
(807
|
)
|
|
|
(582
|
)
|
Other
derivatives(2)
|
|
|
(94
|
)
|
|
|
(420
|
)
|
Accrual of periodic
settlements(3)
|
|
|
(1,249
|
)
|
|
|
(1,349
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(427
|
)
|
|
$
|
(4,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(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 months ended March 31, 2011, we recognized
losses on derivatives of $0.4 billion primarily due to
$1.2 billion of losses related to the accrual of periodic
settlements on interest-rate swaps as we continued to be in a
net pay-fixed swap position during the first quarter of 2011,
partially offset by the improvement in derivative fair values as
interest rates increased. As a result, we recognized fair value
gains of $4.0 billion on our pay-fixed swaps, partially
offset by fair value losses on our receive-fixed swaps of
$2.2 billion. We recognized fair value losses of
$0.8 billion on our
option-based derivatives, resulting from losses on our purchased
call swaptions primarily due to the increase in forward interest
rates during the three months ended March 31, 2011.
During the three months ended March 31, 2010, the fair
value of our derivative portfolio was impacted by a decline in
swap interest rates and implied volatility, resulting in a loss
on derivatives of $4.7 billion. As a result of these
factors, we recorded losses of $4.7 billion on our
pay-fixed swaps, partially offset by gains on our receive-fixed
swap positions of $2.4 billion. We also recorded losses of
$1.0 billion on our purchased put swaptions.
Investment
Securities-Related Activities
Impairments
of Available-For-Sale Securities
We recorded net impairments of available-for-sale securities
recognized in earnings of $1.2 billion and
$510 million during the three months ended March 31,
2011 and 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 months ended
March 31, 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 $(200) million and
$(417) million related to gains (losses) on trading
securities during the three months ended March 31, 2011 and
2010, respectively.
During the three months ended March 31, 2011 and 2010, the
losses on trading securities were primarily due to the movement
of securities with unrealized gains towards maturity. During the
three months ended March 31, 2011, these losses were
partially offset by gains due to tightening of OAS levels on
agency securities, and during the three months ended
March 31, 2010, these losses were partially offset by fair
value gains on our non-interest-only securities classified as
trading primarily due to decreased interest rates.
Other
Income
Table 8 summarizes the significant components of other income.
Table 8
Other Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Other income (losses):
|
|
|
|
|
|
|
|
|
Guarantee-related income
|
|
$
|
54
|
|
|
$
|
59
|
|
Gains (losses) on sale of mortgage loans
|
|
|
95
|
|
|
|
95
|
|
Gains (losses) on mortgage loans recorded at fair value
|
|
|
(33
|
)
|
|
|
21
|
|
Recoveries on loans impaired upon purchase
|
|
|
125
|
|
|
|
169
|
|
All other
|
|
|
93
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$
|
334
|
|
|
$
|
546
|
|
|
|
|
|
|
|
|
|
|
Other income declined during the first quarter of 2011, compared
to the first quarter of 2010, primarily due to lower recoveries
on loans impaired upon purchase, a decline in all other income
during the first quarter of 2011, and the shift to net losses on
mortgage loans recorded at fair value in the first quarter of
2011.
During the first quarters of 2011 and 2010, we recognized
recoveries on loans impaired upon purchase of $125 million
and $169 million, respectively. Our recoveries on loans
impaired upon purchase declined in the first quarter of 2011,
compared to the first quarter of 2010, 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.
All other income declined to $93 million in the first
quarter of 2011 from $202 million in the first quarter of
2010. All other income was higher in the first quarter of 2010
primarily due to reduced expectations of losses from certain
legal claims that were previously recognized.
Non-Interest
Expense
Table 9 summarizes the components of non-interest expense.
Table 9
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Administrative
expenses(1):
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
207
|
|
|
$
|
234
|
|
Professional services
|
|
|
56
|
|
|
|
81
|
|
Occupancy expense
|
|
|
15
|
|
|
|
16
|
|
Other administrative expenses
|
|
|
83
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Total administrative expenses
|
|
|
361
|
|
|
|
405
|
|
REO operations expense
|
|
|
257
|
|
|
|
159
|
|
Other expenses
|
|
|
79
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
697
|
|
|
$
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
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 in the first quarter of 2011
compared to the first quarter of 2010, due in part to our
ongoing focus on cost reduction measures, particularly with
regard to salaries and employee benefits and professional
services costs. Administrative expenses declined during 2010 and
we expect these expenses will continue to decline for the full
year of 2011 when compared to 2010.
REO
Operations Expense
The table below presents the components of our REO operations
expense for the first quarters of 2011 and 2010, and REO
inventory and disposition information.
Table
10 REO Operations Expense, REO Inventory, and REO
Dispositions
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
REO operations expense:
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
REO property
expenses(1)
|
|
$
|
308
|
|
|
$
|
232
|
|
Disposition (gains) losses,
net(2)(3)
|
|
|
126
|
|
|
|
13
|
|
Change in holding period allowance, dispositions
|
|
|
(155
|
)
|
|
|
(67
|
)
|
Change in holding period allowance,
inventory(4)
|
|
|
151
|
|
|
|
137
|
|
Recoveries(5)
|
|
|
(173
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Total single-family REO operations expense
|
|
|
257
|
|
|
|
156
|
|
Multifamily REO operations (income) expense
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total REO operations expense
|
|
$
|
257
|
|
|
$
|
159
|
|
|
|
|
|
|
|
|
|
|
REO inventory (in properties), at March 31:
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
65,159
|
|
|
|
53,831
|
|
Multifamily
|
|
|
15
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
65,174
|
|
|
|
53,839
|
|
|
|
|
|
|
|
|
|
|
REO property dispositions (in properties)
|
|
|
31,628
|
|
|
|
21,969
|
|
|
|
(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)
|
In the first quarter of 2011, we 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.
|
Total REO operations expense was $257 million in the first
quarter of 2011 as compared to $159 million in the first
quarter of 2010. This increase was primarily due to higher
property expenses associated with larger REO inventories and
higher disposition losses. Net disposition losses increased in
the first quarter of 2011, compared to the first quarter of
2010, as we completed a higher volume of property dispositions
in 2011 and home prices declined on a national basis. We
currently expect REO property expenses to continue to increase
due to expected continued high levels of REO acquisitions and
inventory in the remainder of 2011.
The pace of our REO acquisitions was slowed by delays in the
foreclosure process arising from concerns about foreclosure
documentation practices, particularly in states that require a
judicial foreclosure process. The acquisition slowdown, coupled
with high disposition levels, led to an approximate 10%
reduction in REO property inventory from December 31, 2010
to March 31, 2011. We expect the pace of our REO
acquisitions to increase in the remainder of 2011 in part due to
the resumption of foreclosure activity by servicers. For more
information on how concerns about foreclosure documentation
practices could adversely affect our REO operations (income)
expense, 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 Credit Performance
Non-Performing Assets for additional
information about our REO activity.
Other
Expenses
Other expenses primarily consist of losses on loans purchased
and other miscellaneous expenses. Our losses on loans purchased
were $4 million during the first quarter of 2011 compared
to $17 million during the first quarter of 2010. Losses on
delinquent and modified loans purchased from mortgage pools
within our non-consolidated securitization trusts occur when the
acquisition basis of the purchased loan exceeds the estimated
fair value of the loan on the date of purchase.
Income
Tax Benefit
For the three months ended March 31, 2011 and 2010, we
reported an income tax benefit of $74 million and
$103 million, respectively. See NOTE 13: INCOME
TAXES for additional information.
Total
Comprehensive Income (Loss)
Our total comprehensive income (loss) was $2.7 billion and
$(1.9) billion for the first quarters of 2011 and 2010,
respectively, consisting of: (a) a net income (loss) of
$676 million and $(6.7) billion, respectively; and
(b) $2.1 billion and $4.8 billion of changes in
AOCI, respectively, primarily resulting from improved fair
values on available-for-sale securities. See CONSOLIDATED
BALANCE SHEETS ANALYSIS Total Equity (Deficit)
for additional information regarding changes in AOCI.
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 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 and
guarantee activities in multifamily mortgage loans and
securities. We purchase multifamily mortgage loans primarily for
purposes of aggregation and then securitization. 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 primarily includes management and
guarantee fee income and the interest earned on assets related
to multifamily investment activities, net of allocated funding
costs. The Multifamily segment reflects 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 credit and
liquidity.
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) and 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.
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 our internal measures of
performance. 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 March 31, 2011 and December 31,
2010. For a discussion of each segments portfolios, see
Segment Earnings Results.
Table
11 Segment Mortgage Portfolio
Composition(1)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Segment portfolios:
|
|
|
|
|
|
|
|
|
Investments Mortgage investments portfolio:
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(2)
|
|
$
|
88,301
|
|
|
$
|
79,097
|
|
Freddie Mac mortgage-related securities
|
|
|
256,283
|
|
|
|
263,152
|
|
Non-agency mortgage-related securities
|
|
|
94,592
|
|
|
|
99,639
|
|
Non-Freddie Mac agency mortgage-related securities
|
|
|
38,270
|
|
|
|
39,789
|
|
|
|
|
|
|
|
|
|
|
Total Investments Mortgage investments
portfolio
|
|
|
477,446
|
|
|
|
481,677
|
|
|
|
|
|
|
|
|
|
|
Single-family Guarantee Managed loan
portfolio:(3)
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(4)
|
|
|
67,882
|
|
|
|
69,766
|
|
Single-family Freddie Mac mortgage-related securities held by us
|
|
|
256,283
|
|
|
|
261,508
|
|
Single-family Freddie Mac mortgage-related securities held by
third parties
|
|
|
1,416,882
|
|
|
|
1,437,399
|
|
Single-family other guarantee
commitments(5)
|
|
|
9,990
|
|
|
|
8,632
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Guarantee Managed loan
portfolio
|
|
|
1,751,037
|
|
|
|
1,777,305
|
|
|
|
|
|
|
|
|
|
|
Multifamily Guarantee
portfolio:(3)
|
|
|
|
|
|
|
|
|
Multifamily Freddie Mac mortgage-related securities held by us
|
|
|
2,197
|
|
|
|
2,095
|
|
Multifamily Freddie Mac mortgage-related securities held by
third parties
|
|
|
14,615
|
|
|
|
11,916
|
|
Multifamily other guarantee
commitments(5)
|
|
|
9,947
|
|
|
|
10,038
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Guarantee portfolio
|
|
|
26,759
|
|
|
|
24,049
|
|
|
|
|
|
|
|
|
|
|
Multifamily Mortgage investments
portfolio:(3)
|
|
|
|
|
|
|
|
|
Multifamily investment securities portfolio
|
|
|
62,558
|
|
|
|
59,548
|
|
Multifamily loan portfolio
|
|
|
84,152
|
|
|
|
85,883
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Mortgage investments
portfolio
|
|
|
146,710
|
|
|
|
145,431
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily portfolio
|
|
|
173,469
|
|
|
|
169,480
|
|
|
|
|
|
|
|
|
|
|
Less: Freddie Mac single-family and multifamily
securities(6)
|
|
|
(258,480
|
)
|
|
|
(263,603
|
)
|
|
|
|
|
|
|
|
|
|
Total mortgage portfolio
|
|
$
|
2,143,472
|
|
|
$
|
2,164,859
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,653
|
|
|
$
|
1,311
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities
|
|
|
(1,029
|
)
|
|
|
(376
|
)
|
Derivative gains (losses)
|
|
|
1,103
|
|
|
|
(2,702
|
)
|
Other non-interest income (loss)
|
|
|
236
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
310
|
|
|
|
(3,100
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(95
|
)
|
|
|
(122
|
)
|
Other non-interest expense
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(95
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
203
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss) before income tax benefit
|
|
|
2,071
|
|
|
|
(1,408
|
)
|
Income tax benefit
|
|
|
66
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes, including noncontrolling
interest
|
|
|
2,137
|
|
|
|
(1,311
|
)
|
Less: Net (income) loss noncontrolling interest
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
2,137
|
|
|
|
(1,313
|
)
|
Total other comprehensive income, net of taxes
|
|
|
1,126
|
|
|
|
3,120
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
3,263
|
|
|
$
|
1,807
|
|
|
|
|
|
|
|
|
|
|
Key metrics Investments:
|
|
|
|
|
|
|
|
|
Portfolio balances:
|
|
|
|
|
|
|
|
|
Average balances of interest-earning
assets:(3)(4)(5)
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(6)
|
|
$
|
399,113
|
|
|
$
|
530,865
|
|
Non-mortgage-related
investments(7)
|
|
|
114,732
|
|
|
|
138,806
|
|
Unsecuritized single-family loans
|
|
|
85,515
|
|
|
|
43,559
|
|
|
|
|
|
|
|
|
|
|
Total average balances of interest-earning assets
|
|
$
|
599,360
|
|
|
$
|
713,230
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
1.10%
|
|
|
|
0.74%
|
|
|
|
(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 beginning on 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
$3.3 billion and $1.8 billion for the three months
ended March 31, 2011 and 2010, respectively, consisting of:
(a) Segment Earnings (loss) of $2.1 billion and
$(1.3) billion, respectively; and
(b) $1.1 billion and $3.1 billion of changes in
AOCI, respectively.
The UPB of the Investments segment mortgage investments
portfolio declined by 3.5% on an annualized basis from
$482 billion at December 31, 2010 to $477 billion
at March 31, 2011, compared to a decline of 30.5% on an
annualized basis from December 31, 2009 to March 31,
2010.
We held $294.6 billion of agency securities and
$94.6 billion of non-agency mortgage-related securities as
of March 31, 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 select 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 and net interest yield
increased $342 million and 36 basis points,
respectively, during the three months ended March 31, 2011,
compared to the three months ended March 31, 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) increased by
$3.4 billion to $310 million during the three months
ended March 31, 2011, compared to $(3.1) billion
during the three months ended March 31, 2010. Non-interest
income for the three months ended March 31, 2011 was
primarily attributable to derivative gains, partially offset by
net impairments of available-for-sale securities. Non-interest
loss for the three months ended March 31, 2010 was
primarily driven by derivative losses and net impairments of
available-for-sale securities.
Impairments recorded in our Investments segment increased by
$653 million during the three months ended March 31,
2011, compared to the three months ended March 31, 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
$1.1 billion in the three months ended March 31, 2011,
compared to $(2.7) billion in the three months ended
March 31, 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 months
ended March 31, 2011, longer-term swap interest rates
increased, resulting in fair value gains on our pay-fixed swaps
that were partially offset by fair value losses on our
receive-fixed swaps and purchased call swaptions. During the
three months ended March 31, 2010, longer-term swap
interest rates decreased, resulting in losses on our pay-fixed
interest-rate swaps partially offset by fair value gains on our
receive-fixed swaps. See Non-Interest Income
(Loss) Derivative Gains (Losses) for
additional information on our derivatives.
Our Investments segments change in AOCI for the three
months ended March 31, 2011 was $1.1 billion compared
to $3.1 billion for the three months ended March 31,
2010. Net unrealized losses in AOCI on our available-for-sale
securities decreased by $1.0 billion during the three
months ended March 31, 2011, primarily attributable to the
recognition in earnings of other-than-temporary impairments on
our non-agency mortgage-related securities. Net unrealized
losses in AOCI on our available-for-sale securities decreased by
$3.0 billion during the three months ended March 31,
2010, primarily attributable to fair value gains related to the
movement of securities with unrealized losses towards maturity.
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 its expectation
that any net additions to our mortgage-related investments
portfolio would be related to purchasing seriously delinquent
mortgages out of PC pools. 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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
100
|
|
|
$
|
59
|
|
Provision for credit losses
|
|
|
(2,284
|
)
|
|
|
(6,041
|
)
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
870
|
|
|
|
848
|
|
Other non-interest income
|
|
|
211
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,081
|
|
|
|
1,058
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(215
|
)
|
|
|
(229
|
)
|
REO operations expense
|
|
|
(257
|
)
|
|
|
(156
|
)
|
Other non-interest expense
|
|
|
(66
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(538
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
(185
|
)
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss) before income tax benefit (expense)
|
|
|
(1,826
|
)
|
|
|
(5,601
|
)
|
Income tax benefit
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
$
|
(1,820
|
)
|
|
$
|
(5,596
|
)
|
Total other comprehensive income (loss), net of taxes
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(1,824
|
)
|
|
$
|
(5,600
|
)
|
|
|
|
|
|
|
|
|
|
Key metrics Single-family Guarantee:
|
|
|
|
|
|
|
|
|
Balances and Growth (in billions, except rate):
|
|
|
|
|
|
|
|
|
Average balance of single-family credit guarantee portfolio
|
|
$
|
1,819
|
|
|
$
|
1,874
|
|
Issuance Single-family credit
guarantees(3)
|
|
$
|
96
|
|
|
$
|
94
|
|
Fixed-rate products Percentage of
purchases(4)
|
|
|
94
|
%
|
|
|
98
|
%
|
Liquidation rate Single-family credit guarantees
(annualized)(5)
|
|
|
28
|
%
|
|
|
35
|
%
|
Management and Guarantee Fee Rate (in bps, annualized):
|
|
|
|
|
|
|
|
|
Contractual management and guarantee fees
|
|
|
13.6
|
|
|
|
13.3
|
|
Amortization of delivery fees
|
|
|
5.5
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings management and guarantee income
|
|
|
19.1
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
Credit:
|
|
|
|
|
|
|
|
|
Serious delinquency rate, at end of period
|
|
|
3.63
|
%
|
|
|
4.13
|
%
|
REO inventory, at end of period (number of properties)
|
|
|
65,159
|
|
|
|
53,831
|
|
Single-family credit losses, in bps
(annualized)(6)
|
|
|
71.0
|
|
|
|
62.3
|
|
Market:
|
|
|
|
|
|
|
|
|
Single-family mortgage debt outstanding (total U.S. market,
in billions)(7)
|
|
$
|
10,070
|
|
|
$
|
10,226
|
|
30-year
fixed mortgage
rate(8)
|
|
|
4.9
|
%
|
|
|
5.1
|
%
|
|
|
(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, and includes purchases of
interest-only mortgages with fixed interest rates.
|
(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 pools. See NOTE 5: INDIVIDUALLY
IMPAIRED AND NON-PERFORMING LOANS for more information.
|
(6)
|
Credit losses are equal to REO operations expenses plus
charge-offs, net of recoveries, associated with single-family
mortgage loans. Calculated as the amount of credit losses
divided by the sum of the average balance of our single-family
credit guarantee portfolio.
|
(7)
|
Source: Federal Reserve Flow of Funds Accounts of the United
States of America dated March 10, 2011. The outstanding
amount for March 31, 2011 reflects the balance as of
December 31, 2010, 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 first quarters of 2011 and 2010, total comprehensive
(loss) for our Single-family Guarantee segment, which is
comprised almost entirely of Segment Earnings (loss), was
$(1.8) billion and $(5.6) billion, respectively.
Segment Earnings (loss) improved in the first quarter of 2011,
compared to the first quarter of 2010, primarily due to a
decline in provision for credit losses, partially offset by an
increase in REO operations expense.
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 first quarter of 2011 compared to the first
quarter 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 quarter of 2011 as mortgage rates remained low and
refinancing activity remained high.
During the first quarters of 2011 and 2010, our Segment Earnings
provision for credit losses for the Single-family Guarantee
segment was $2.3 billion and $6.0 billion,
respectively. Segment Earnings provision for credit losses
decreased in the first quarter of 2011, compared to the first
quarter of 2010, primarily due to a decline in the number of
delinquent loan inflows, and a decline in the rate at which
delinquent loans ultimately transition to a loss event.
Table 14 provides summary information about the composition
of Segment Earnings (loss) for this segment in the first quarter
of 2011.
Table 14
Segment Earnings Composition Single-Family Guarantee
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
Segment Earnings
|
|
|
|
|
|
|
|
|
|
Management and
|
|
|
|
|
|
|
|
|
|
Guarantee
Income(1)
|
|
|
Credit
Expenses(2)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Net
Amount(4)
|
|
|
|
(dollars in millions, rates in bps)
|
|
|
Year of
origination(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
26
|
|
|
|
15.0
|
|
|
$
|
(3
|
)
|
|
|
3.2
|
|
|
$
|
23
|
|
2010
|
|
|
184
|
|
|
|
20.6
|
|
|
|
(54
|
)
|
|
|
5.8
|
|
|
|
130
|
|
2009
|
|
|
170
|
|
|
|
18.5
|
|
|
|
(50
|
)
|
|
|
5.3
|
|
|
|
120
|
|
2008
|
|
|
110
|
|
|
|
24.6
|
|
|
|
(211
|
)
|
|
|
57.0
|
|
|
|
(101
|
)
|
2007
|
|
|
101
|
|
|
|
18.8
|
|
|
|
(884
|
)
|
|
|
180.3
|
|
|
|
(783
|
)
|
2006
|
|
|
59
|
|
|
|
17.0
|
|
|
|
(763
|
)
|
|
|
208.3
|
|
|
|
(704
|
)
|
2005
|
|
|
66
|
|
|
|
16.6
|
|
|
|
(403
|
)
|
|
|
96.6
|
|
|
|
(337
|
)
|
2004 and prior
|
|
|
154
|
|
|
|
18.4
|
|
|
|
(173
|
)
|
|
|
18.8
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
870
|
|
|
|
19.1
|
|
|
$
|
(2,541
|
)
|
|
|
55.9
|
|
|
|
(1,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215
|
)
|
Net interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Income tax benefit and other non-interest income and (expense),
net(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amortization of delivery fees of $252 million for
the three months ended March 31, 2011.
|
(2)
|
Consists of the aggregate of the Segment Earnings provision for
credit losses and Segment Earnings REO operations expense.
|
(3)
|
Based on the average securitized balance of the single-family
credit guarantee portfolio. Historical rates of average credit
expenses may not be representative of future results.
|
(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.
|
(6)
|
Includes segment adjustments.
|
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 anticipated 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 related income to cover the credit
and administrative expenses associated with such loans. 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
was $1.75 trillion at March 31, 2011 compared to
$1.78 trillion at December 31, 2010. The slight
decline in this portfolio was primarily attributable to
liquidations of Freddie Mac mortgage-related securities, which
are due to high levels of refinancing, and our repurchases of
delinquent loans from PC pools during the first quarter of 2011.
The annualized liquidation rate on our securitized single-family
credit guarantees was 28.1% for the first quarter of 2011,
compared to 34.7% in the first quarter of 2010.
Refinance volumes continued to be high due to continued low
interest rates, and represented 85% of our single-family
mortgage purchase volume during the first quarter of 2011.
Relief refinance mortgages represented approximately 30% and 24%
of our single-family mortgage purchase volume during the first
quarters of 2011 and 2010, respectively. Due to increasing
interest rates and improving economic conditions we believe
that, overall and as a percentage of our
purchase volume, refinance loan volume should decline
substantially, and mortgages originated for home purchases
should increase during the remainder of 2011.
The serious delinquency rate on our single-family credit
guarantee portfolio decreased slightly to 3.63% as of
March 31, 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.
As of March 31, 2011, more than 40% of our single-family
credit guarantee portfolio is comprised of mortgage loans
originated after 2008. These new vintages reflect a combination
of changes in underwriting practices and a higher composition of
fixed-rate and refinanced mortgage products, and represent an
increasingly large proportion of our single-family credit
guarantee portfolio. The proportion of the portfolio represented
by older 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 those 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. Although the volume of
new serious delinquencies declined in each of the last five
quarters, our serious delinquency rate remains high, reflecting
continued stress in the housing and labor markets.
Single-family credit losses as a percentage of the average
balance of the single-family credit guarantee portfolio,
increased to 71 basis points in the first quarter of 2011,
compared to 62 basis points in the first quarter of 2010.
Charge-offs, excluding recoveries, associated with single-family
loans increased to $3.7 billion in the first quarter of
2011, compared to $3.4 billion in the first quarter of
2010, primarily due to a decline in home prices and increased
short sale activity during the first quarter of 2011, partially
offset by a lower volume of foreclosure transfers, as compared
to the first quarter of 2010. See RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk for further information on our
single-family credit guarantee portfolio, including credit
performance, charge-offs, and growth in the balance of 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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
279
|
|
|
$
|
238
|
|
Benefit (provision) for credit losses
|
|
|
60
|
|
|
|
(29
|
)
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
28
|
|
|
|
24
|
|
Security impairments
|
|
|
(135
|
)
|
|
|
(55
|
)
|
Derivative gains (losses)
|
|
|
2
|
|
|
|
5
|
|
Other non-interest income
|
|
|
187
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
82
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(51
|
)
|
|
|
(54
|
)
|
REO operations expense
|
|
|
|
|
|
|
(3
|
)
|
Other non-interest expense
|
|
|
(13
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(64
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
Segment Earnings before income tax benefit
|
|
|
357
|
|
|
|
217
|
|
Income tax benefit
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes, including noncontrolling interest
|
|
|
359
|
|
|
|
218
|
|
Less: Net (income) loss noncontrolling interest
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes
|
|
|
359
|
|
|
|
221
|
|
Total other comprehensive income, net of taxes
|
|
|
942
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
1,301
|
|
|
$
|
1,913
|
|
|
|
|
|
|
|
|
|
|
Key metrics Multifamily:
|
|
|
|
|
|
|
|
|
Balances and Growth:
|
|
|
|
|
|
|
|
|
Average balance of Multifamily loan portfolio
|
|
$
|
85,779
|
|
|
$
|
83,456
|
|
Average balance of Multifamily guarantee portfolio
|
|
$
|
25,312
|
|
|
$
|
18,179
|
|
Average balance of Multifamily investment securities portfolio
|
|
$
|
62,842
|
|
|
$
|
62,501
|
|
Liquidation rate Multifamily loan portfolio
(annualized)
|
|
|
5.8
|
%
|
|
|
2.5
|
%
|
Growth rate (annualized)
|
|
|
3.6
|
%
|
|
|
8.2
|
%
|
Yield and Rate:
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
0.75
|
%
|
|
|
0.65
|
%
|
Average Management and guarantee fee rate, in bps
(annualized)(2)
|
|
|
46.8
|
|
|
|
52.8
|
|
Credit:
|
|
|
|
|
|
|
|
|
Delinquency
rate(3)
|
|
|
0.36
|
%
|
|
|
0.22
|
%
|
Loan loss reserves at period end
|
|
$
|
747
|
|
|
$
|
842
|
|
Loan loss reserves, in bps
|
|
|
67.4
|
|
|
|
81.5
|
|
Credit losses, in bps
(annualized)(4)
|
|
|
4.2
|
|
|
|
8.2
|
|
|
|
(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 Credit
Performance Delinquencies for information
on our reported multifamily delinquency rate.
|
(4)
|
Credit losses are equal to REO operations expenses plus
charge-offs, net of recoveries, associated with multifamily
mortgage loans. Calculated as the amount of credit losses
divided by the sum of the combined average balances of our
multifamily loan portfolio and multifamily guarantee portfolio.
|
Our total comprehensive income (loss) for our Multifamily
segment was $1.3 billion and $1.9 billion for the
first quarters of 2011 and 2010, respectively, consisting of:
(a) Segment Earnings of $0.4 billion and
$0.2 billion, respectively; and (b) $0.9 billion
and $1.7 billion of changes in AOCI, respectively,
primarily resulting from improved fair values related to credit
risk on available-for-sale securities.
Segment Earnings for our Multifamily segment increased to
$359 million for the first quarter of 2011 compared to
$221 million for the first quarter of 2010, primarily due
to increased net interest income and a recognized benefit for
credit losses in the first quarter of 2011. We currently expect
to generate positive Segment Earnings in the Multifamily segment
in 2011.
Net interest income increased $41 million, or 17%, for the
first quarter of 2011 compared to the first quarter of 2010,
primarily attributable to growth in the multifamily loan
portfolio with higher interest rates relative to allocated
funding costs in the first quarter of 2011.
Segment Earnings non-interest income for the Multifamily segment
was unchanged in the first quarter of 2011 compared to the first
quarter of 2010. 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
quarter of 2011, compared to the first quarter of 2010. CMBS
impairments during the first quarters of 2011 and 2010 totaled
$135 million and $55 million, respectively. We
recognized $83 million in gain on sales of
$3.4 billion in UPB of multifamily loans during the first
quarter of 2011, compared to $107 million of gain on sales
of $1.8 billion in UPB of multifamily loans during the
first quarter 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.
Multifamily market fundamentals, including vacancy rates and
effective rents, continued to improve nationally and in most
states and metropolitan areas during the first quarter of 2011.
These improving fundamentals continued to help stabilize
property values in a number of markets. While multifamily market
fundamentals reflect positive trends for much of the nation,
certain states in which we have substantial investments in
multifamily mortgage loans, including Nevada, Arizona, and
Georgia, continue to exhibit weaker than average fundamentals
and elevated unemployment and may negatively impact our mortgage
portfolio performance and may lead to additional non-performing
assets. For further information on delinquencies, including
geographical and other concentrations, see NOTE 17:
CONCENTRATION OF CREDIT AND OTHER RISKS.
Our Multifamily segment recognized a benefit for credit losses
of $60 million in the first quarter of 2011 compared to a
provision for credit losses of $29 million in the first
quarter of 2010. Our loan loss reserve associated with our
multifamily mortgage portfolio was $747 million and
$828 million as of March 31, 2011 and
December 31, 2010, respectively. The decrease in our loan
loss reserve in the first quarter of 2011 was driven by positive
trends in vacancy rates and effective rents reflected over the
past several consecutive quarters, as well as stabilizing or
improved property values and improved borrower credit profiles.
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 assess a propertys value,
there may be a significant lag in reporting as they prepare
their results in the normal course of business.
The delinquency rate for loans in the multifamily mortgage
portfolio was 0.36% and 0.26% as of March 31, 2011 and
December 31, 2010, respectively. As of March 31, 2011,
our delinquent multifamily loans are concentrated in Georgia and
Texas. Loans in these two states represented approximately 17%
of the loans in our multifamily mortgage portfolio and
approximately 37% of our multifamily delinquent loans, both on a
UPB basis, as of March 31, 2011. As of March 31, 2011,
approximately 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 reduce our expected losses on those
loans. The multifamily delinquency rate of credit-enhanced loans
as of March 31, 2011 and December 31, 2010, was 0.75%
and 0.85%, respectively, while the delinquency rate for
non-credit-enhanced loans was 0.25% and 0.12%, respectively. See
RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Credit
Performance Delinquencies 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
decreased from 8.2 basis points in the first quarter of
2010 to 4.2 basis points in the first quarter of 2011,
driven by decreased charge-offs and REO operations expense for
the first quarter of 2011. Charge-offs, excluding recoveries,
associated with multifamily loans declined to $12 million
in the first quarter of 2011, compared to $18 million in
the first quarter of 2010, due to a lower number of foreclosures
in the 2011 period. Although our charge-offs were low for the
first quarter of 2011, we expect that our charge-offs will
increase in the remainder of 2011.
The UPB of the total multifamily portfolio increased to
$173.5 billion at March 31, 2011 from
$169.5 billion at December 31, 2010, due primarily to
increased guarantees of securities issued during the first
quarter of 2011 as part of our CME securitization program as
well as the transfer of certain housing revenue bonds to the
Multifamily Segment that were previously managed by the
Investments segment. We issued $3.0 billion and
$3.2 billion of Freddie Mac mortgage-related securities and
other guarantee commitments related to multifamily mortgage
loans in the first quarters 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 under our CME securitization program, 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 more
information concerning our more 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 related to our consolidated VIEs are
comprised primarily of restricted cash and cash equivalents and
investments in securities purchased under agreements to resell.
These short-term assets related to our consolidated VIEs
decreased by $19.9 billion from December 31, 2010 to
March 31, 2011, primarily due to a relative decline in
refinancing activities as a result of the increase in mortgage
rates during the period.
Excluding amounts related to our consolidated VIEs, we held
$34.3 billion and $37.0 billion of cash and cash
equivalents, $5.8 billion and $1.4 billion of federal
funds sold, and $20.5 billion and $15.8 billion of
securities purchased under agreements to resell at
March 31, 2011 and December 31, 2010, respectively.
The aggregate increase in these assets is largely related to an
increase in forecasted debt redemptions. In addition, excluding
amounts related to our consolidated VIEs, we held on average
$32.0 billion of cash and cash equivalents and
$28.6 billion of federal funds sold and securities
purchased under agreements to resell during the three months
ended March 31, 2011.
Investments
in Securities
Table 16 provides detail regarding our investments in securities
as of March 31, 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
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Available-for-sale mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
$
|
85,744
|
|
|
$
|
85,689
|
|
Subprime
|
|
|
33,344
|
|
|
|
33,861
|
|
CMBS
|
|
|
57,944
|
|
|
|
58,087
|
|
Option ARM
|
|
|
6,989
|
|
|
|
6,889
|
|
Alt-A and other
|
|
|
12,937
|
|
|
|
13,168
|
|
Fannie Mae
|
|
|
22,844
|
|
|
|
24,370
|
|
Obligations of states and political subdivisions
|
|
|
8,875
|
|
|
|
9,377
|
|
Manufactured housing
|
|
|
878
|
|
|
|
897
|
|
Ginnie Mae
|
|
|
283
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
229,838
|
|
|
|
232,634
|
|
|
|
|
|
|
|
|
|
|
Total investments in available-for-sale securities
|
|
|
229,838
|
|
|
|
232,634
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
Trading mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
|
15,951
|
|
|
|
13,437
|
|
Fannie Mae
|
|
|
18,586
|
|
|
|
18,726
|
|
Ginnie Mae
|
|
|
167
|
|
|
|
172
|
|
Other
|
|
|
26
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
34,730
|
|
|
|
32,366
|
|
|
|
|
|
|
|
|
|
|
Trading non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
94
|
|
|
|
44
|
|
Treasury bills
|
|
|
9,397
|
|
|
|
17,289
|
|
Treasury notes
|
|
|
16,123
|
|
|
|
10,122
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
1,009
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
Total trading non-mortgage-related securities
|
|
|
26,623
|
|
|
|
27,896
|
|
|
|
|
|
|
|
|
|
|
Total investments in trading securities
|
|
|
61,353
|
|
|
|
60,262
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
291,191
|
|
|
$
|
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 of $26.6 billion and
$27.9 billion as of March 31, 2011 and
December 31, 2010, respectively. Our holdings of
non-mortgage-related securities at March 31, 2011 decreased
slightly compared to December 31, 2010 while continuing to
meet required liquidity and contingency levels.
We did not hold any available-for-sale non-mortgage-related
securities during the three months ended March 31, 2011 and
did not record a net impairment of available-for-sale securities
recognized in earnings during the three months ended
March 31, 2010 on our non-mortgage-related securities.
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, single-family PCs and certain Other
Guarantee Transactions we purchase 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 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
|
|
$
|
81,067
|
|
|
$
|
9,018
|
|
|
$
|
90,085
|
|
|
$
|
79,955
|
|
|
$
|
8,118
|
|
|
$
|
88,073
|
|
Multifamily
|
|
|
503
|
|
|
|
1,694
|
|
|
|
2,197
|
|
|
|
339
|
|
|
|
1,756
|
|
|
|
2,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities
|
|
|
81,570
|
|
|
|
10,712
|
|
|
|
92,282
|
|
|
|
80,294
|
|
|
|
9,874
|
|
|
|
90,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
securities:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
20,732
|
|
|
|
17,140
|
|
|
|
37,872
|
|
|
|
21,238
|
|
|
|
18,139
|
|
|
|
39,377
|
|
Multifamily
|
|
|
163
|
|
|
|
87
|
|
|
|
250
|
|
|
|
228
|
|
|
|
88
|
|
|
|
316
|
|
Ginnie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
284
|
|
|
|
114
|
|
|
|
398
|
|
|
|
296
|
|
|
|
117
|
|
|
|
413
|
|
Multifamily
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
21,206
|
|
|
|
17,341
|
|
|
|
38,547
|
|
|
|
21,789
|
|
|
|
18,344
|
|
|
|
40,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime
|
|
|
351
|
|
|
|
52,492
|
|
|
|
52,843
|
|
|
|
363
|
|
|
|
53,855
|
|
|
|
54,218
|
|
Option ARM
|
|
|
|
|
|
|
15,232
|
|
|
|
15,232
|
|
|
|
|
|
|
|
15,646
|
|
|
|
15,646
|
|
Alt-A and other
|
|
|
2,333
|
|
|
|
15,977
|
|
|
|
18,310
|
|
|
|
2,405
|
|
|
|
16,438
|
|
|
|
18,843
|
|
CMBS
|
|
|
21,002
|
|
|
|
36,857
|
|
|
|
57,859
|
|
|
|
21,401
|
|
|
|
37,327
|
|
|
|
58,728
|
|
Obligations of states and political
subdivisions(5)
|
|
|
9,359
|
|
|
|
24
|
|
|
|
9,383
|
|
|
|
9,851
|
|
|
|
26
|
|
|
|
9,877
|
|
Manufactured housing
|
|
|
904
|
|
|
|
145
|
|
|
|
1,049
|
|
|
|
930
|
|
|
|
150
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency mortgage-related
securities(6)
|
|
|
33,949
|
|
|
|
120,727
|
|
|
|
154,676
|
|
|
|
34,950
|
|
|
|
123,442
|
|
|
|
158,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of mortgage-related securities
|
|
$
|
136,725
|
|
|
$
|
148,780
|
|
|
|
285,505
|
|
|
$
|
137,033
|
|
|
$
|
151,660
|
|
|
|
288,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, discounts, deferred fees, impairments of UPB and other
basis adjustments
|
|
|
|
|
|
|
|
|
|
|
(11,959
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,839
|
)
|
Net unrealized (losses) on mortgage-related securities, pre-tax
|
|
|
|
|
|
|
|
|
|
|
(8,978
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value of mortgage-related securities
|
|
|
|
|
|
|
|
|
|
$
|
264,568
|
|
|
|
|
|
|
|
|
|
|
$
|
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 are
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 50% of these
securities held at both March 31, 2011 and
December 31, 2010 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
March 31, 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
$285.5 billion at March 31, 2011 primarily as a result
of liquidations exceeding our purchase activity during the three
months ended March 31, 2011.
Table 18 summarizes our mortgage-related securities purchase
activity for the three months ended March 31, 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
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Non-Freddie Mac mortgage-related securities purchased for
resecuritization:
|
|
|
|
|
|
|
|
|
Ginnie Mae Certificates
|
|
$
|
16
|
|
|
$
|
13
|
|
Non-agency mortgage-related securities purchased for Other
Guarantee
Transactions(2)
|
|
|
2,879
|
|
|
|
5,621
|
|
|
|
|
|
|
|
|
|
|
Total Non-Freddie Mac mortgage-related securities purchased for
resecuritization
|
|
|
2,895
|
|
|
|
5,634
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities purchased as
investments in securities:
|
|
|
|
|
|
|
|
|
Agency securities:
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
1,019
|
|
|
|
|
|
Variable-rate
|
|
|
168
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
1,187
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
as investments in securities
|
|
|
1,187
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
|
|
$
|
4,082
|
|
|
$
|
5,681
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac mortgage-related securities purchased:
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
$
|
36,679
|
|
|
$
|
4,840
|
|
Variable-rate
|
|
|
2,542
|
|
|
|
203
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
25
|
|
|
|
25
|
|
Variable-rate
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities purchased
|
|
$
|
39,246
|
|
|
$
|
5,099
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB. Excludes mortgage-related securities traded but
not yet settled.
|
(2)
|
Purchases for the three months ended March 31, 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.
|
We did not purchase any non-agency mortgage-related securities
during the first quarters of 2011 or 2010, other than purchases
for resecuritization as Other Guarantee Transactions.
Unrealized
Losses on Available-For-Sale Mortgage-Related
Securities
At March 31, 2011, our gross unrealized losses, pre-tax, on
available-for-sale mortgage-related securities were
$20.2 billion, compared to $23.1 billion at
December 31, 2010. This improvement in unrealized losses
was primarily due to an increase in fair value on non-agency
mortgage-related securities, as spreads tightened on CMBS,
coupled with fair value gains related to the movement of
non-agency mortgage-related securities with unrealized losses
towards maturity. 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 March 31, 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. Tables 19 and 20 present information about our
holdings of these 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.
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
|
|
|
3/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
03/31/2010
|
|
|
(dollars in millions)
|
|
UPB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
52,403
|
|
|
$
|
53,756
|
|
|
$
|
55,250
|
|
|
$
|
56,922
|
|
|
$
|
58,912
|
|
Option ARM
|
|
|
15,232
|
|
|
|
15,646
|
|
|
|
16,104
|
|
|
|
16,603
|
|
|
|
17,206
|
|
Alt-A(2)
|
|
|
15,487
|
|
|
|
15,917
|
|
|
|
16,406
|
|
|
|
16,909
|
|
|
|
17,476
|
|
Gross unrealized losses,
pre-tax:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
12,481
|
|
|
$
|
14,026
|
|
|
$
|
16,446
|
|
|
$
|
17,757
|
|
|
$
|
18,462
|
|
Option ARM
|
|
|
3,170
|
|
|
|
3,853
|
|
|
|
4,815
|
|
|
|
5,770
|
|
|
|
6,147
|
|
Alt-A(2)
|
|
|
1,941
|
|
|
|
2,096
|
|
|
|
2,542
|
|
|
|
3,335
|
|
|
|
3,539
|
|
Present value of expected credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
$
|
6,612
|
|
|
$
|
5,937
|
|
|
$
|
4.364
|
|
|
$
|
3,311
|
|
|
$
|
4,444
|
|
Option ARM
|
|
|
4,993
|
|
|
|
4,850
|
|
|
|
4,208
|
|
|
|
3,534
|
|
|
|
3,769
|
|
Alt-A(2)
|
|
|
2,401
|
|
|
|
2,469
|
|
|
|
2,101
|
|
|
|
1,653
|
|
|
|
1,635
|
|
Collateral delinquency
rate:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
45
|
%
|
|
|
46
|
%
|
|
|
49
|
%
|
Option ARM
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
45
|
|
|
|
46
|
|
Alt-A(2)
|
|
|
26
|
|
|
|
27
|
|
|
|
26
|
|
|
|
26
|
|
|
|
27
|
|
Cumulative collateral
loss:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
19
|
%
|
|
|
18
|
%
|
|
|
17
|
%
|
|
|
16
|
%
|
|
|
15
|
%
|
Option ARM
|
|
|
14
|
|
|
|
13
|
|
|
|
11
|
|
|
|
10
|
|
|
|
9
|
|
Alt-A(2)
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
Average credit
enhancement:(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first lien
|
|
|
24
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
26
|
%
|
|
|
28
|
%
|
Option ARM
|
|
|
11
|
|
|
|
12
|
|
|
|
12
|
|
|
|
13
|
|
|
|
15
|
|
Alt-A(2)
|
|
|
8
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
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
|
|
|
3/31/2011
|
|
12/31/2010
|
|
09/30/2010
|
|
06/30/2010
|
|
03/31/2010
|
|
|
(in millions)
|
|
Net impairment of available-for-sale securities recognized in
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first and second liens
|
|
$
|
734
|
|
|
$
|
1,207
|
|
|
$
|
213
|
|
|
$
|
17
|
|
|
$
|
332
|
|
Option ARM
|
|
|
281
|
|
|
|
668
|
|
|
|
577
|
|
|
|
48
|
|
|
|
102
|
|
Alt-A and other
|
|
|
40
|
|
|
|
372
|
|
|
|
296
|
|
|
|
333
|
|
|
|
19
|
|
Principal repayments and cash
shortfalls:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first and second liens:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
1,361
|
|
|
$
|
1,512
|
|
|
$
|
1,685
|
|
|
$
|
2,001
|
|
|
$
|
2,117
|
|
Principal cash shortfalls
|
|
|
14
|
|
|
|
6
|
|
|
|
8
|
|
|
|
12
|
|
|
|
13
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
315
|
|
|
$
|
347
|
|
|
$
|
377
|
|
|
$
|
435
|
|
|
$
|
449
|
|
Principal cash shortfalls
|
|
|
100
|
|
|
|
111
|
|
|
|
122
|
|
|
|
80
|
|
|
|
32
|
|
Alt-A and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
452
|
|
|
$
|
537
|
|
|
$
|
582
|
|
|
$
|
653
|
|
|
$
|
617
|
|
Principal cash shortfalls
|
|
|
81
|
|
|
|
62
|
|
|
|
56
|
|
|
|
67
|
|
|
|
22
|
|
|
|
(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 months ended
March 31, 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 increased to
$15.2 billion at March 31, 2011 from
$14.3 billion at December 31, 2010. All of this amount
has been reflected in our net impairment of available-for-sale
securities recognized in earnings in this and prior periods. The
increase in our estimate of the present value of expected future
credit losses resulted primarily from our expectation of slower
prepayments, and to a lesser extent from deteriorating
delinquency data on the underlying loans, decreases in actual
and forward home prices, and higher forward interest rates.
Since the beginning of 2007, we have incurred actual principal
cash shortfalls of $903 million on impaired non-agency
mortgage-related securities, of which $199 million related
to the three months ended March 31, 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 reasons 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. During the three months ended
March 31, 2011, we continued to experience the depletion of
structural credit enhancements on selected 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 March 31, 2011 and
2010.
Table
21 Net Impairment on Available-For-Sale
Mortgage-Related Securities Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2011
|
|
|
March 31, 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
|
|
$
|
34,370
|
|
|
$
|
712
|
|
|
$
|
19,084
|
|
|
$
|
317
|
|
Other years first and second
liens(1)
|
|
|
1,089
|
|
|
|
22
|
|
|
|
643
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime first and second
liens(1)
|
|
|
35,459
|
|
|
|
734
|
|
|
|
19,727
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
9,929
|
|
|
|
232
|
|
|
|
7,251
|
|
|
|
88
|
|
Other years
|
|
|
2,170
|
|
|
|
49
|
|
|
|
223
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option ARM
|
|
|
12,099
|
|
|
|
281
|
|
|
|
7,474
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
2,416
|
|
|
|
15
|
|
|
|
1,625
|
|
|
|
9
|
|
Other years
|
|
|
3,728
|
|
|
|
23
|
|
|
|
292
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
|
6,144
|
|
|
|
38
|
|
|
|
1,917
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
520
|
|
|
|
2
|
|
|
|
491
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM,
Alt-A and
other loans
|
|
|
54,222
|
|
|
|
1,055
|
|
|
|
29,609
|
|
|
|
453
|
|
CMBS
|
|
|
1,404
|
|
|
|
135
|
|
|
|
1,629
|
|
|
|
55
|
|
Manufactured housing
|
|
|
314
|
|
|
|
3
|
|
|
|
83
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
$
|
55,940
|
|
|
$
|
1,193
|
|
|
$
|
31,321
|
|
|
$
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes all second liens.
We recorded net impairment of available-for-sale
mortgage-related securities recognized in earnings of
$1.2 billion and $510 million during the three months
ended March 31, 2011 and 2010, respectively, as our
estimate of the present value of expected future credit losses
on certain individual securities increased during the periods.
Included in these net
impairments are $1.1 billion and $453 million of
impairments related to securities backed by subprime, option
ARM, and
Alt-A and
other loans during the three months ended March 31, 2011
and 2010, respectively.
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, which contributed to poor performance
during the three months ended March 31, 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 months ended March 31, 2011 and 2010. See
NOTE 17: CONCENTRATION OF CREDIT AND OTHER
RISKS Bond Insurers for additional information.
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 March 31, 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 March 31,
2011 and as such has been recorded in AOCI.
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 March 31, 2011 based on their
ratings as of March 31, 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 March 31, 2011
|
|
UPB
|
|
|
of UPB
|
|
|
Cost
|
|
|
Losses
|
|
|
Coverage(1)
|
|
|
|
(dollars in millions)
|
|
|
Subprime loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
1,433
|
|
|
|
3
|
%
|
|
$
|
1,433
|
|
|
$
|
(97
|
)
|
|
$
|
23
|
|
Other investment grade
|
|
|
3,069
|
|
|
|
6
|
|
|
|
3,069
|
|
|
|
(367
|
)
|
|
|
400
|
|
Below investment
grade(2)
|
|
|
48,341
|
|
|
|
91
|
|
|
|
41,328
|
|
|
|
(12,029
|
)
|
|
|
1,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,843
|
|
|
|
100
|
%
|
|
$
|
45,830
|
|
|
$
|
(12,493
|
)
|
|
$
|
2,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other investment grade
|
|
|
116
|
|
|
|
1
|
|
|
|
116
|
|
|
|
(13
|
)
|
|
|
116
|
|
Below investment
grade(2)
|
|
|
15,116
|
|
|
|
99
|
|
|
|
10,018
|
|
|
|
(3,157
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,232
|
|
|
|
100
|
%
|
|
$
|
10,134
|
|
|
$
|
(3,170
|
)
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A and other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
769
|
|
|
|
4
|
%
|
|
$
|
773
|
|
|
$
|
(43
|
)
|
|
$
|
7
|
|
Other investment grade
|
|
|
2,198
|
|
|
|
12
|
|
|
|
2,217
|
|
|
|
(268
|
)
|
|
|
353
|
|
Below investment
grade(2)
|
|
|
15,343
|
|
|
|
84
|
|
|
|
12,105
|
|
|
|
(1,904
|
)
|
|
|
2,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,310
|
|
|
|
100
|
%
|
|
$
|
15,095
|
|
|
$
|
(2,215
|
)
|
|
$
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
27,331
|
|
|
|
47
|
%
|
|
$
|
27,386
|
|
|
$
|
(27
|
)
|
|
$
|
42
|
|
Other investment grade
|
|
|
26,525
|
|
|
|
46
|
|
|
|
26,496
|
|
|
|
(468
|
)
|
|
|
1,654
|
|
Below investment
grade(2)
|
|
|
4,003
|
|
|
|
7
|
|
|
|
3,577
|
|
|
|
(998
|
)
|
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,859
|
|
|
|
100
|
%
|
|
$
|
57,459
|
|
|
$
|
(1,493
|
)
|
|
$
|
3,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM, Alt-A and other loans, and CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
29,533
|
|
|
|
21
|
%
|
|
$
|
29,592
|
|
|
$
|
(167
|
)
|
|
$
|
72
|
|
Other investment grade
|
|
|
31,908
|
|
|
|
22
|
|
|
|
31,898
|
|
|
|
(1,116
|
)
|
|
|
2,523
|
|
Below investment
grade(2)
|
|
|
82,803
|
|
|
|
57
|
|
|
|
67,028
|
|
|
|
(18,088
|
)
|
|
|
5,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,244
|
|
|
|
100
|
%
|
|
$
|
128,518
|
|
|
$
|
(19,371
|
)
|
|
$
|
8,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in mortgage-related securities
|
|
$
|
285,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
increased to $1,888 billion as of March 31, 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 $7.3 billion, to $156.2 billion at March 31,
2011 from $148.9 billion at December 31, 2010,
primarily due to our purchases of seriously delinquent and
modified loans from the mortgage pools underlying our PCs. As
guarantor, we have the right to purchase mortgages that back our
PCs from the underlying loan pools when they are significantly
past due or when we determine that loss of the property is
likely or default by the borrower is imminent due to borrower
incapacity, death or other extraordinary circumstances that make
future payments unlikely or impossible. This right to repurchase
mortgages is known as our repurchase option, and we also
exercise this option when we modify a mortgage. See
NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING
LOANS for more information on our purchases of
single-family loans from PC pools.
The UPB of unsecuritized multifamily mortgage loans was
$84.2 billion at March 31, 2011 and $85.9 billion
at December 31, 2010. Our multifamily loan activity in the
first quarters of 2011 and 2010 primarily consisted of purchases
of loans intended for securitization and sales through Other
Guarantee Transactions as part of our CME securitization
program. We expect to continue to purchase and subsequently
securitize multifamily loans in 2011 under our CME
securitization program, which supports liquidity for the
multifamily market and affordability for multifamily rental
housing, as our primary multifamily business strategy in 2011.
Table 23 summarizes our purchase and guarantee activity in
mortgage loans for the three months ended March 31, 2011
and 2010. This activity consists of: (a) mortgage loans
underlying consolidated single-family PCs and certain Other
Guarantee Transactions (regardless of whether such securities
are held by us or third parties); (b) unsecuritized
single-family and multifamily mortgage loans; and
(c) mortgage loans underlying our mortgage-related
financial guarantees which are not consolidated on our balance
sheets.
Table 23
Mortgage Loan Purchase and Other Guarantee Commitment
Activity(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Purchase
|
|
|
% of
|
|
|
Purchase
|
|
|
% of
|
|
|
|
Amount
|
|
|
Purchases
|
|
|
Amount
|
|
|
Purchases
|
|
|
|
(dollars in millions)
|
|
|
Mortgage loan purchases and guarantee issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more amortizing fixed-rate
|
|
$
|
62,898
|
|
|
|
62
|
%
|
|
$
|
65,614
|
|
|
|
72
|
%
|
20-year
amortizing fixed-rate
|
|
|
6,715
|
|
|
|
7
|
|
|
|
3,358
|
|
|
|
4
|
|
15-year
amortizing fixed-rate
|
|
|
22,110
|
|
|
|
22
|
|
|
|
15,114
|
|
|
|
17
|
|
Adjustable-rate(2)
|
|
|
5,741
|
|
|
|
6
|
|
|
|
1,858
|
|
|
|
2
|
|
Interest-only(3)
|
|
|
|
|
|
|
|
|
|
|
321
|
|
|
|
<1
|
|
FHA/VA and other governmental
|
|
|
87
|
|
|
|
<1
|
|
|
|
2,783
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
single-family(4)
|
|
|
97,551
|
|
|
|
97
|
%
|
|
|
89,048
|
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
3,049
|
|
|
|
3
|
|
|
|
2,113
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loan purchases and other guarantee commitment
activity(5)
|
|
$
|
100,600
|
|
|
|
100
|
%
|
|
$
|
91,161
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of mortgage purchases and other guarantee commitment
activity with credit
enhancements(6)
|
|
|
7
|
%
|
|
|
|
|
|
|
13
|
%
|
|
|
|
|
|
|
(1)
|
Based on UPB. Excludes mortgage loans traded but not yet
settled. Excludes net additions of seriously delinquent loans
and balloon/reset mortgages purchased out of PC pools. 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 quarter 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 $7.3 billion and $5.9 billion of mortgage
loans in excess of $417,000, which we refer to as conforming
jumbo mortgages, for the three months ended March 31, 2011
and 2010, respectively.
|
(5)
|
Includes issuances of other guarantee commitments on
single-family loans of $1.8 billion and $2.8 billion
and issuances of other guarantee commitments on multifamily
loans of $0.2 billion and $0.6 billion during the
three months ended March 31, 2011 and 2010, respectively,
which include our unsecuritized guarantees of HFA bonds under
the TCLFP in the first quarter of 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 classify net
derivative interest receivable or payable, trade/settle
receivable or payable, and cash collateral held or posted on our
consolidated balance sheets to derivative assets, net and
derivative liabilities, net. See NOTE 11:
DERIVATIVES for additional information regarding our
derivatives.
At March 31, 2011, the net fair value of our total
derivative portfolio was $(0.7) billion, as compared to
$(1.1) billion at December 31, 2010. The increase in
the net fair value of our total derivative portfolio was
primarily due to increasing longer-term swap 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
March 31, 2011 and December 31, 2010. Also see
CONSOLIDATED RESULTS OF OPERATIONS
Non-Interest Income (Loss) Derivative Gains
(Losses) for a description of gains (losses) on our
derivative positions.
Table 24 shows the fair value for each derivative type and
the maturity profile of our derivative positions as of
March 31, 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. See Table 30
Derivative Counterparty Credit Exposure for additional
information regarding derivative counterparty credit exposure.
Table 24 also provides the weighted average fixed rate of
our pay-fixed and receive-fixed swaps.
Table 24
Derivative Fair Values and Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 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
|
|
$
|
230,197
|
|
|
$
|
432
|
|
|
$
|
185
|
|
|
$
|
262
|
|
|
$
|
272
|
|
|
$
|
(287
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
1.36
|
%
|
|
|
1.18
|
%
|
|
|
2.42
|
%
|
|
|
3.68
|
%
|
Forward-starting
swaps(5)
|
|
|
19,596
|
|
|
|
141
|
|
|
|
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
134
|
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.37
|
%
|
|
|
1.57
|
%
|
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receive-fixed
|
|
|
249,793
|
|
|
|
573
|
|
|
|
185
|
|
|
|
270
|
|
|
|
271
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis (floating to floating)
|
|
|
3,375
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Pay-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
299,011
|
|
|
|
(13,473
|
)
|
|
|
(178
|
)
|
|
|
(1,144
|
)
|
|
|
(2,761
|
)
|
|
|
(9,390
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
3.21
|
%
|
|
|
2.44
|
%
|
|
|
3.24
|
%
|
|
|
4.07
|
%
|
Forward-starting
swaps(5)
|
|
|
31,004
|
|
|
|
(2,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,682
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pay-fixed
|
|
|
330,015
|
|
|
|
(16,155
|
)
|
|
|
(178
|
)
|
|
|
(1,144
|
)
|
|
|
(2,761
|
)
|
|
|
(12,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
|
583,183
|
|
|
|
(15,579
|
)
|
|
|
7
|
|
|
|
(874
|
)
|
|
|
(2,487
|
)
|
|
|
(12,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
104,850
|
|
|
|
7,172
|
|
|
|
3,319
|
|
|
|
1,127
|
|
|
|
1,340
|
|
|
|
1,386
|
|
Written
|
|
|
23,775
|
|
|
|
(566
|
)
|
|
|
(4
|
)
|
|
|
(415
|
)
|
|
|
(147
|
)
|
|
|
|
|
Put swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
60,475
|
|
|
|
1,819
|
|
|
|
56
|
|
|
|
615
|
|
|
|
462
|
|
|
|
686
|
|
Written
|
|
|
6,000
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other option-based
derivatives(6)
|
|
|
44,884
|
|
|
|
1,388
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
|
239,984
|
|
|
|
9,812
|
|
|
|
3,366
|
|
|
|
1,327
|
|
|
|
1,655
|
|
|
|
3,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
157,197
|
|
|
|
(97
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-currency swaps
|
|
|
2,138
|
|
|
|
281
|
|
|
|
88
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
Commitments(7)
|
|
|
15,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap guarantee derivatives
|
|
|
3,731
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,002,110
|
|
|
|
(5,619
|
)
|
|
$
|
3,364
|
|
|
$
|
645
|
|
|
$
|
(833
|
)
|
|
$
|
(8,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit derivatives
|
|
|
11,664
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,013,774
|
|
|
|
(5,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative interest receivable (payable), net
|
|
|
|
|
|
|
(1,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade/settle receivable (payable), net
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative collateral (held) posted, net
|
|
|
|
|
|
|
6,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,013,774
|
|
|
$
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Fair value is categorized based on the period from
March 31, 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.
|
Table 25 summarizes the changes in derivative fair values.
Table 25
Changes in Derivative Fair Values
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,(1)
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in millions)
|
|
|
Beginning balance, at January 1 Net asset
(liability)
|
|
$
|
(6,560
|
)
|
|
$
|
(2,267
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
Commitments(2)
|
|
|
20
|
|
|
|
10
|
|
Credit derivatives
|
|
|
(5
|
)
|
|
|
(2
|
)
|
Swap guarantee derivatives
|
|
|
|
|
|
|
(1
|
)
|
Other
derivatives:(3)
|
|
|
|
|
|
|
|
|
Changes in fair value
|
|
|
986
|
|
|
|
(3,302
|
)
|
Fair value of new contracts entered into during the
period(4)
|
|
|
233
|
|
|
|
56
|
|
Contracts realized or otherwise settled during the period
|
|
|
(291
|
)
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
Ending balance, at December 31 Net asset
(liability)
|
|
$
|
(5,617
|
)
|
|
$
|
(5,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The value of derivatives on our consolidated balance sheets is
reported as derivative assets, net and derivative liabilities,
net, and includes derivative interest receivable (payable), net,
trade/settle receivable (payable), net and derivative cash
collateral (held) posted, net. 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
March 31, 2011. Fair value excludes derivative interest
receivable or (payable), net of $(1.5) billion,
trade/settle receivable or (payable), net of $3 million,
and derivative cash collateral posted, net of $5.7 billion
at March 31, 2010.
|
(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.
|
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
$6.4 billion at March 31, 2011 from $7.1 billion
at December 31, 2010. The pace of our REO acquisitions
temporarily slowed beginning in the fourth quarter of 2010 due
to delays in the foreclosure process, including delays related
to concerns about deficiencies in foreclosure documentation
practices. These delays in foreclosures continued in the first
quarter of 2011, particularly in states that require a judicial
foreclosure process. While foreclosure proceedings generally
resumed during the first quarter of 2011, the rate of
foreclosure completion is slower than prior to the suspensions.
We expect our REO inventory to grow in the remainder of 2011.
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Credit
Performance 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 first quarter of 2011. Our valuation allowance
decreased by $91 million during the first quarter of 2011
to $33.3 billion, primarily due to the reversal of
temporary differences during the period. As of March 31,
2011, after consideration of the valuation allowance, we had a
net deferred tax asset of $4.5 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
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. 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 $8.1 billion as of March 31,
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 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
|
|
$
|
1,192,471
|
|
|
$
|
|
|
|
$
|
1,192,471
|
|
|
$
|
1,213,448
|
|
|
$
|
|
|
|
$
|
1,213,448
|
|
20-year
amortizing fixed-rate
|
|
|
67,076
|
|
|
|
|
|
|
|
67,076
|
|
|
|
65,210
|
|
|
|
|
|
|
|
65,210
|
|
15-year
amortizing fixed-rate
|
|
|
249,148
|
|
|
|
|
|
|
|
249,148
|
|
|
|
248,702
|
|
|
|
|
|
|
|
248,702
|
|
Adjustable-rate(3)
|
|
|
62,160
|
|
|
|
|
|
|
|
62,160
|
|
|
|
61,269
|
|
|
|
|
|
|
|
61,269
|
|
Interest-only(4)
|
|
|
72,630
|
|
|
|
|
|
|
|
72,630
|
|
|
|
79,835
|
|
|
|
|
|
|
|
79,835
|
|
FHA/VA and other governmental
|
|
|
3,570
|
|
|
|
|
|
|
|
3,570
|
|
|
|
3,369
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family
|
|
|
1,647,055
|
|
|
|
|
|
|
|
1,647,055
|
|
|
|
1,671,833
|
|
|
|
|
|
|
|
1,671,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
|
|
|
|
4,560
|
|
|
|
4,560
|
|
|
|
|
|
|
|
4,603
|
|
|
|
4,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total single-family and multifamily
|
|
|
1,647,055
|
|
|
|
4,560
|
|
|
|
1,651,615
|
|
|
|
1,671,833
|
|
|
|
4,603
|
|
|
|
1,676,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Guarantee Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HFA
bonds:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
|
|
|
|
6,152
|
|
|
|
6,152
|
|
|
|
|
|
|
|
6,168
|
|
|
|
6,168
|
|
Multifamily
|
|
|
|
|
|
|
1,146
|
|
|
|
1,146
|
|
|
|
|
|
|
|
1,173
|
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total HFA bonds
|
|
|
|
|
|
|
7,298
|
|
|
|
7,298
|
|
|
|
|
|
|
|
7,341
|
|
|
|
7,341
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family(6)
|
|
|
14,979
|
|
|
|
4,1 |