e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly period ended
March 31, 2012
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:
001-34139
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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8200 Jones Branch Drive
McLean, Virginia
22102-3110
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52-0904874
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(703) 903-2000
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(State or other jurisdiction
of
incorporation or organization)
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(Address of principal
executive
offices, including zip code)
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(I.R.S. Employer
Identification No.)
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(Registrants telephone
number,
including area code)
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Indicate by check mark whether the
registrant: (1) has filed all reports required
to be filed by Section 13 or
15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports); and (2) has been
subject to such filing requirements for the past
90 days. x Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). x Yes o No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer o
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Accelerated
filer x
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Non-accelerated
filer (Do not check if a smaller
reporting
company) o
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Smaller
reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes x No
As of April 23, 2012, there were 650,033,623 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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FINANCIAL
STATEMENTS
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101
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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, 2011, or 2011 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 in this
Form 10-Q
and in the comparably captioned section of our 2011 Annual
Report; and (b) the BUSINESS and RISK
FACTORS sections of our 2011 Annual Report.
Throughout this
Form 10-Q,
we use certain acronyms and terms that 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, 2012 included in
FINANCIAL STATEMENTS, and our 2011 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. We are
working to support the recovery of the housing market and the
nations economy by providing essential liquidity to the
mortgage market and helping to stem the rate of foreclosures. We
believe our actions are helping communities across the country
by providing Americas families with access to mortgage
funding at low rates while helping distressed borrowers keep
their homes and avoid foreclosure, where feasible.
Summary
of Financial Results
Our financial performance in the first quarter of 2012 was
impacted by the ongoing weakness in the economy, including in
the mortgage market, and changes in interest rates. Our
comprehensive income was $1.8 billion and $2.7 billion
for the first quarters of 2012 and 2011, respectively,
consisting of: (a) $577 million and $676 million
of net income, respectively; and (b) $1.2 billion and
$2.1 billion of total other comprehensive income,
respectively.
Our total equity (deficit) was $(18) million at
March 31, 2012, reflecting our comprehensive income of
$1.8 billion for the first quarter of 2012 and our dividend
payment of $1.8 billion on our senior preferred stock in
March 2012. To address our deficit in net worth, FHFA, as
Conservator, will submit a draw request on our behalf to
Treasury under the Purchase Agreement for $19 million.
Following receipt of the draw, the aggregate liquidation
preference on the senior preferred stock owned by Treasury will
be $72.3 billion.
Our
Primary Business Objectives
We are focused on the following primary business objectives:
(a) developing mortgage market enhancements in support of a
new infrastructure for the secondary mortgage market;
(b) contracting the dominant presence of the GSEs in the
marketplace; (c) providing credit availability for new or
refinanced mortgages and maintaining foreclosure prevention
activities; (d) minimizing our credit losses;
(e) maintaining sound credit quality of the loans we
purchase or guarantee; and (f) strengthening our
infrastructure and improving overall efficiency while also
focusing on retention of key employees.
Our business objectives reflect direction we have received from
the Conservator. On March 8, 2012, FHFA instituted a
scorecard for use by both us and Fannie Mae that established
objectives, performance targets and measures for 2012, and
provides the implementation roadmap for FHFAs strategic
plan for Freddie Mac and Fannie Mae. We are aligning our
resources and internal business plans to meet the goals and
objectives laid out in the 2012 conservatorship scorecard. See
LEGISLATIVE AND REGULATORY MATTERS FHFAs
Strategic Plan for Freddie Mac and Fannie Mae Conservatorships
and 2012 Conservatorship Scorecard. Based on our charter,
other legislation, public statements from Treasury and FHFA
officials, and other guidance and directives from our
Conservator, we have a variety of different, and potentially
competing, objectives. For more information, see
BUSINESS Conservatorship and Related
Matters Impact of Conservatorship and Related
Actions on Our Business in our 2011 Annual Report.
Developing
Mortgage Market Enhancements in Support of a New Infrastructure
for the Secondary Mortgage Market
In the first quarter of 2012, we continued our efforts to build
value for the industry and build the infrastructure for a future
housing finance system. These efforts include the implementation
of the Uniform Mortgage Data Program, or UMDP, which provides us
with the ability to collect additional data that we believe will
improve our risk management practices. The UMDP creates standard
terms and definitions to be used throughout the industry and
establishes standard reporting protocols. The UMDP is a key
building block in developing a future secondary mortgage market.
In the first quarter of 2012, we completed a key milestone of
the UMDP with the launch of the Uniform Collateral Data Portal
for the electronic submission of appraisal reports for
conventional mortgages. We are also working with FHFA and others
to develop a plan for the design and building of a single
securitization platform that can be used in a future secondary
mortgage market. FHFA also directed us and Fannie Mae to discuss
harmonizing our seller/servicer contracts.
Contracting
the Dominant Presence of the GSEs in the
Marketplace
We continue to take steps toward the goal of gradually shifting
mortgage credit risk from Freddie Mac to private investors,
while simplifying and shrinking certain of our operations. In
the case of single-family credit guarantees, we are exploring
several ways to accomplish this goal, including increasing
guarantee fees, establishing loss-sharing arrangements, and
evaluating new risk-sharing transactions beyond the traditional
charter-required mortgage insurance coverage. In addition, we
are studying the steps necessary for our competitive disposition
of certain investment assets, including non-performing loans. To
evaluate how to accomplish the goal of contracting our
operations in the multifamily business, we are conducting a
market analysis of the viability of our multifamily operations
without government guarantees.
Providing
Credit Availability for New or Refinanced Mortgages and
Maintaining Foreclosure Prevention Activities
We provide liquidity and support to the U.S. mortgage
market in a number of important ways:
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Our support enables borrowers to have access to a variety of
conforming mortgage products, including the prepayable
30-year
fixed-rate mortgage, which historically has represented the
foundation of the mortgage market.
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Our support provides lenders with a constant source of liquidity
for conforming mortgage products. We estimate that we, Fannie
Mae, and Ginnie Mae collectively guaranteed more than 90% of the
single-family conforming mortgages originated during the first
quarter of 2012.
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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 liquidity
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 withdrawn.
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During the first quarters of 2012 and 2011, we guaranteed
$105.1 billion and $97.6 billion in UPB of
single-family conforming mortgage loans, respectively,
representing approximately 491,000 and 461,000 loans,
respectively.
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, for 20 years prior to 2007, the average
effective interest rates on conforming, fixed-rate single-family
mortgage loans were about 30 basis points lower than on
non-conforming loans. Since 2007, this gap has widened, and, we
estimate that interest rates on conforming, fixed-rate loans,
excluding conforming jumbo loans, have been lower than those on
non-conforming loans by as much as 184 basis points. In
March 2012, we estimate that
borrowers were paying an average of 54 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.
We are focused on reducing the number of foreclosures and
helping to keep families in their homes. In addition to our
participation in HAMP, we introduced several new initiatives
during the last few years to help eligible borrowers keep their
homes or avoid foreclosure. Our relief refinance initiative,
including HARP (which is the portion of our relief refinance
initiative for loans with LTV ratios above 80%), is a
significant part of our effort to keep families in their homes.
Relief refinance loans have been provided to more than 565,000
borrowers with LTV ratios above 80% since the initiative began
in 2009, including approximately 85,000 such loans during the
first quarter of 2012.
A number of FHFA-directed changes to HARP were announced in late
2011. These changes are intended to allow more borrowers to
participate in the program and benefit from refinancing their
home mortgages. Since industry participation in HARP is not
mandatory, implementation schedules have varied as individual
lenders, mortgage insurers, and other market participants modify
their processes. It is too early to estimate how many eligible
borrowers are likely to refinance under the revised program.
We have also implemented the FHFA-directed servicing alignment
initiative, which included a new non-HAMP standard loan
modification initiative.
The table below presents our single-family loan workout
activities for the last five quarters.
Table 1
Total Single-Family Loan Workout
Volumes(1)
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For the Three Months Ended
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03/31/2012
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12/31/2011
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09/30/2011
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06/30/2011
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03/31/2011
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(number of loans)
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Loan modifications
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13,677
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19,048
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23,919
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31,049
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35,158
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Repayment plans
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10,575
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8,008
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8,333
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7,981
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9,099
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Forbearance
agreements(2)
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3,656
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3,867
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4,262
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3,709
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7,678
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Short sales and deed in lieu of foreclosure transactions
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12,245
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12,675
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11,744
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11,038
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10,706
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Total single-family loan workouts
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40,153
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43,598
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48,258
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53,777
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62,641
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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
modification trial periods. 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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Highlights of our loan workout efforts include the following:
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We completed approximately 40,000 single-family loan workouts
during the first quarter of 2012, including 13,677 loan
modifications (HAMP and non-HAMP) and 12,245 short sales and
deed in lieu of foreclosure transactions.
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Based on information provided by the MHA Program administrator,
our servicers had completed 158,688 loan modifications under
HAMP from the introduction of the initiative in 2009 through
March 31, 2012.
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As of March 31, 2012, approximately 16,000 borrowers were
in modification trial periods, consisting of approximately 5,000
borrowers in trial periods for our non-HAMP standard
modification and approximately 11,000 borrowers in HAMP trial
periods.
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For more information about HAMP, the servicing alignment
initiative and our non-HAMP standard loan modification, other
loan workout programs, our relief refinance mortgage initiative
(including HARP), and other initiatives to help eligible
borrowers keep their homes or avoid foreclosure, see RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Single-Family Mortgage Credit
Risk Single-Family Loan Workouts and the MHA
Program.
Minimizing
Our Credit Losses
To help minimize the credit losses related to our guarantee
activities, we are focused on:
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pursuing a variety of loan workouts, including foreclosure
alternatives, in an effort to reduce the severity of losses we
experience over time;
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managing foreclosure timelines to the extent possible, given the
prolonged foreclosure process in many states;
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managing our inventory of foreclosed properties to reduce costs
and maximize proceeds; and
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|
pursuing contractual remedies against originators, lenders,
servicers, and insurers, as appropriate.
|
We establish guidelines for our servicers to follow and provide
them default management tools to use, in part, in determining
which type of loan workout would be expected to provide the best
opportunity for minimizing our credit losses. We require our
single-family seller/servicers to first evaluate problem loans
for a repayment or forbearance plan before considering
modification. If a borrower is not eligible for a modification,
our seller/servicers pursue other workout options before
considering foreclosure.
We have contractual arrangements with our seller/servicers under
which they agree to sell us mortgage loans, and represent and
warrant that those loans have been originated under specified
underwriting standards. If we subsequently discover that the
representations and warranties were breached (i.e.,
contractual standards were not followed), we can exercise
certain contractual remedies to mitigate our actual or potential
credit losses. These contractual remedies include the ability to
require the seller/servicer to repurchase the loan at its
current UPB or make us whole for any credit losses realized with
respect to the loan. The amount we expect to collect on
outstanding repurchase requests is significantly less than the
UPB of the loans subject to the repurchase requests primarily
because many of these requests will likely be satisfied by the
seller/servicers reimbursing us for realized credit losses. Some
of these requests also may be rescinded in the course of the
contractual appeals process. As of March 31, 2012, the UPB
of loans subject to repurchase requests issued to our
single-family seller/servicers was approximately
$3.2 billion, and approximately 38% of these requests were
outstanding for more than four months since issuance of our
initial repurchase request (this figure includes repurchase
requests for which appeals were pending). Of the total amount of
repurchase requests outstanding at March 31, 2012,
approximately $1.2 billion were issued due to mortgage
insurance rescission or mortgage insurance claim denial.
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, typically at the
borrowers expense, for certain mortgages with higher LTV
ratios. We received payments under primary and other mortgage
insurance of $491 million and $587 million in the
first quarters of 2012 and 2011, respectively, which helped to
mitigate our credit losses. The financial condition of many of
our mortgage insurers remained weak in the first quarter of
2012. We expect to receive substantially less than full payment
of our claims from Triad Guaranty Insurance Corp., Republic
Mortgage Insurance Company, and PMI Mortgage Insurance Co.,
which are three of our mortgage insurance counterparties. We
believe that certain other of our mortgage insurance
counterparties may lack sufficient ability to meet all their
expected lifetime claims paying obligations to us as those
claims emerge. Our loan loss reserves reflect our estimates of
expected insurance recoveries related to probable incurred
losses.
See RISK MANAGEMENT Credit Risk
Institutional Credit Risk for further information
on our agreements with our seller/servicers and our exposure to
mortgage insurers.
Maintaining
Sound Credit Quality of the Loans We Purchase or
Guarantee
We continue to focus on maintaining credit policies, including
our underwriting standards, that allow us to purchase and
guarantee loans made to qualified borrowers that we believe will
provide management and guarantee fee income (excluding the
amounts associated with the Temporary Payroll Tax Cut
Continuation Act of 2011), over the long-term, that exceeds our
expected credit-related and administrative expenses on such
loans.
Approximately 95% of our single-family purchase volume in the
first quarter of 2012 consisted of fixed-rate, first lien,
amortizing mortgages. Approximately 87% and 85% of our
single-family purchase volumes in the first quarters of 2012 and
2011, respectively, were refinance mortgages, and approximately
31% and 36%, respectively, of these refinance loans were relief
refinance mortgages, based on UPB.
The credit quality of the single-family loans we acquired in the
first quarter of 2012 (excluding relief refinance mortgages,
which represented approximately 26% of our single-family
purchase volume during the first quarter of 2012) is
significantly better than that of loans we acquired from 2005
through 2008, as measured by original LTV ratios, FICO scores,
and the proportion of loans underwritten with fully documented
income. The improvement in credit quality of loans we have
purchased since 2008 (excluding relief refinance mortgages) is
primarily the result of: (a) changes in our credit
policies, including changes in our underwriting standards;
(b) fewer purchases of loans with higher risk
characteristics; and (c) changes in mortgage insurers
and lenders underwriting practices.
Our underwriting procedures for relief refinance mortgages are
limited in many cases, and such procedures generally do not
include all of the changes in underwriting standards we have
implemented in the last several years. As a result, relief
refinance mortgages generally reflect many of the credit risk
attributes of the original loans. However, borrower
participation in our relief refinance mortgage initiative may
help reduce our exposure to credit risk in cases where borrower
payments under their mortgages are reduced, thereby
strengthening the borrowers potential to make their
mortgage payments.
Over time, relief refinance mortgages with LTV ratios above 80%
(i.e., HARP loans) may not perform as well as other
refinance mortgages because the continued high LTV ratios of
these loans increases the probability of default. In addition,
relief refinance mortgages may not be covered by mortgage
insurance for the full excess of their UPB over 80%.
Approximately 16% and 15% of our single-family purchase volume
in the first quarters of 2012 and 2011, respectively, was relief
refinance mortgages with LTV ratios above 80%. Relief refinance
mortgages of all LTV ratios comprised approximately 13% and 11%
of the UPB in our total single-family credit guarantee portfolio
at March 31, 2012 and December 31, 2011, respectively.
The table below 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, 2012.
Table 2
Single-Family Credit Guarantee Portfolio Data by Year of
Origination(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2012
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Current
|
|
|
Serious
|
|
|
|
% of
|
|
|
Credit
|
|
|
Original
|
|
|
Current
|
|
|
LTV Ratio
|
|
|
Delinquency
|
|
|
|
Portfolio
|
|
|
Score(2)
|
|
|
LTV
Ratio(3)
|
|
|
LTV
Ratio(4)
|
|
|
>100%(4)(5)
|
|
|
Rate(6)
|
|
|
Year of Origination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
4
|
%
|
|
|
758
|
|
|
|
72
|
%
|
|
|
71
|
%
|
|
|
8
|
%
|
|
|
|
%
|
2011
|
|
|
16
|
|
|
|
755
|
|
|
|
72
|
|
|
|
70
|
|
|
|
5
|
|
|
|
0.09
|
|
2010
|
|
|
18
|
|
|
|
754
|
|
|
|
71
|
|
|
|
72
|
|
|
|
6
|
|
|
|
0.32
|
|
2009
|
|
|
16
|
|
|
|
753
|
|
|
|
69
|
|
|
|
73
|
|
|
|
7
|
|
|
|
0.60
|
|
2008
|
|
|
6
|
|
|
|
724
|
|
|
|
74
|
|
|
|
93
|
|
|
|
37
|
|
|
|
5.94
|
|
2007
|
|
|
9
|
|
|
|
704
|
|
|
|
77
|
|
|
|
114
|
|
|
|
62
|
|
|
|
11.72
|
|
2006
|
|
|
7
|
|
|
|
709
|
|
|
|
75
|
|
|
|
112
|
|
|
|
57
|
|
|
|
10.92
|
|
2005
|
|
|
8
|
|
|
|
715
|
|
|
|
73
|
|
|
|
96
|
|
|
|
39
|
|
|
|
6.66
|
|
2004 and prior
|
|
|
16
|
|
|
|
718
|
|
|
|
71
|
|
|
|
61
|
|
|
|
9
|
|
|
|
2.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
736
|
|
|
|
72
|
|
|
|
80
|
|
|
|
20
|
|
|
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on the loans remaining in the portfolio at March 31,
2012, which totaled $1.7 trillion, rather than all loans
originally guaranteed by us and originated in the respective
year. Includes loans acquired under our relief refinance
initiative, which began in 2009.
|
(2)
|
Based on FICO score of the borrower as of the date of loan
origination and may not be indicative of the borrowers
creditworthiness at March 31, 2012. Excludes less than 1%
of loans in the portfolio because the FICO scores at origination
were not available at March 31, 2012. As of March 31,
2011, average credit score for all relief refinance loans was
743, compared to an average of 735 for all other loans in the
portfolio.
|
(3)
|
See endnote (4) to Table 34
Characteristics of the Single-Family Credit Guarantee
Portfolio for information on our calculation of original
LTV ratios.
|
(4)
|
We estimate current market values by adjusting the value of the
property at origination based on changes in the market value of
homes in the same geographical area since origination. See
endnote (5) to Table 34
Characteristics of the Single-Family Credit Guarantee
Portfolio for information on our calculation of current
LTV ratios. As of March 31, 2011, the average current LTV
ratio for all relief refinance loans was 80%.
|
(5)
|
Calculated as a percentage of the aggregate UPB of loans with
LTV ratios greater than 100% in relation to the total UPB of
loans in the category.
|
(6)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Single-family Mortgage
Credit Risk Delinquencies for further
information about our reported serious delinquency rates.
|
As of March 31, 2012 and December 31, 2011,
approximately 54% and 51%, respectively, of our single-family
credit guarantee portfolio consisted of mortgage loans
originated after 2008, which have experienced lower serious
delinquency trends in the early years of their terms than loans
originated in 2005 through 2008.
Strengthening
Our Infrastructure and Improving Overall Efficiency While Also
Focusing On Retention of Key Employees
We are working to both enhance the quality of our infrastructure
and improve our efficiency in order to preserve the
taxpayers investment. We are focusing our resources
primarily on key projects, many of which will likely take
several years to fully implement, and on making significant
improvements to our systems infrastructure in order to:
(a) implement mandatory initiatives from FHFA or other
governmental bodies; (b) replace legacy hardware or
software systems at the end of their lives and to strengthen our
disaster recovery capabilities; and (c) improve our data
collection and administration as well as our ability to oversee
the servicing of loans.
We continue to actively manage our general and administrative
expenses, while also continuing to focus on retaining key
talent. Our general and administrative expenses declined in the
first quarter of 2012 compared to the first quarter of 2011,
largely due to a reduction in the number of our employees and
changes in our compensation plans. We currently expect that our
general and administrative expenses for the full-year 2012 will
be approximately equivalent to those we experienced in the
full-year 2011, with lower salaries and employee benefits
expense offset by increased professional services expense, in
part due to: (a) the continually changing mortgage market;
(b) an environment in which we are subject to increased
regulatory oversight and mandates; and (c) strategic
arrangements that we may enter into with outside firms to
provide operational capability and staffing for key functions,
if needed. We believe the initiatives we are pursuing under the
2012 conservatorship scorecard and other FHFA-mandated
initiatives may require additional resources and affect our
level of administrative expenses going forward.
We believe our risks related to employee turnover and low
employee engagement remain elevated. Uncertainty surrounding our
future business model, organizational structure, and
compensation has contributed to elevated levels of voluntary
employee turnover and low employee engagement. Disruptive levels
of turnover at both the executive and non-executive levels and
low employee engagement have contributed to a deterioration in
our control environment and may lead to breakdowns in many of
our operations. To help mitigate the uncertainty surrounding
compensation, we introduced a new compensation program for
employees. We continue to explore various strategic arrangements
with outside firms to provide operational capability and
staffing for key functions, if needed. However, these or other
efforts to manage this risk to the enterprise may not be
successful. For more information on the risks related to
employee turnover, see CONTROLS AND PROCEDURES, and
for recent legislative and regulatory developments affecting
these risks, see LEGISLATIVE AND REGULATORY
MATTERS Legislative and Regulatory Developments
Concerning Executive Compensation.
Single-Family
Credit Guarantee Portfolio
The UPB of our single-family credit guarantee portfolio declined
approximately 1% during the first quarter of 2012, as the amount
of single-family loan liquidations exceeded new loan purchase
and guarantee activity. We believe this is due, in part, to
declines in the amount of single-family mortgage debt
outstanding in the market and our competitive position compared
to other market participants. The table below provides certain
credit statistics for our single-family credit guarantee
portfolio.
Table 3
Credit Statistics, Single-Family Credit Guarantee
Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
|
9/30/2011
|
|
6/30/2011
|
|
3/31/2011
|
|
Payment status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One month past due
|
|
|
1.63
|
%
|
|
|
2.02
|
%
|
|
|
1.94
|
%
|
|
|
1.92
|
%
|
|
|
1.75
|
%
|
Two months past due
|
|
|
0.57
|
%
|
|
|
0.70
|
%
|
|
|
0.70
|
%
|
|
|
0.67
|
%
|
|
|
0.65
|
%
|
Seriously
delinquent(1)
|
|
|
3.51
|
%
|
|
|
3.58
|
%
|
|
|
3.51
|
%
|
|
|
3.50
|
%
|
|
|
3.63
|
%
|
Non-performing loans (in
millions)(2)
|
|
$
|
119,599
|
|
|
$
|
120,514
|
|
|
$
|
119,081
|
|
|
$
|
114,819
|
|
|
$
|
115,083
|
|
Single-family loan loss reserve (in
millions)(3)
|
|
$
|
37,771
|
|
|
$
|
38,916
|
|
|
$
|
39,088
|
|
|
$
|
38,390
|
|
|
$
|
38,558
|
|
REO inventory (in properties)
|
|
|
59,307
|
|
|
|
60,535
|
|
|
|
59,596
|
|
|
|
60,599
|
|
|
|
65,159
|
|
REO assets, net carrying value (in millions)
|
|
$
|
5,333
|
|
|
$
|
5,548
|
|
|
$
|
5,539
|
|
|
$
|
5,834
|
|
|
$
|
6,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
3/31/2012
|
|
12/31/2011
|
|
9/30/2011
|
|
6/30/2011
|
|
3/31/2011
|
|
|
(in units, unless noted)
|
|
Seriously delinquent loan
additions(1)
|
|
|
80,815
|
|
|
|
95,661
|
|
|
|
93,850
|
|
|
|
87,813
|
|
|
|
97,646
|
|
Loan
modifications(4)
|
|
|
13,677
|
|
|
|
19,048
|
|
|
|
23,919
|
|
|
|
31,049
|
|
|
|
35,158
|
|
Foreclosure starts
ratio(5)
|
|
|
0.53
|
%
|
|
|
0.54
|
%
|
|
|
0.56
|
%
|
|
|
0.55
|
%
|
|
|
0.58
|
%
|
REO acquisitions
|
|
|
23,805
|
|
|
|
24,758
|
|
|
|
24,378
|
|
|
|
24,788
|
|
|
|
24,707
|
|
REO disposition severity
ratio:(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
44.2
|
%
|
|
|
44.6
|
%
|
|
|
45.5
|
%
|
|
|
44.9
|
%
|
|
|
44.5
|
%
|
Arizona
|
|
|
45.0
|
%
|
|
|
46.7
|
%
|
|
|
48.7
|
%
|
|
|
51.3
|
%
|
|
|
50.8
|
%
|
Florida
|
|
|
48.6
|
%
|
|
|
50.1
|
%
|
|
|
53.3
|
%
|
|
|
52.7
|
%
|
|
|
54.8
|
%
|
Nevada
|
|
|
56.5
|
%
|
|
|
54.2
|
%
|
|
|
53.2
|
%
|
|
|
55.4
|
%
|
|
|
53.1
|
%
|
Illinois
|
|
|
49.3
|
%
|
|
|
51.2
|
%
|
|
|
50.5
|
%
|
|
|
49.4
|
%
|
|
|
49.5
|
%
|
Total U.S.
|
|
|
40.3
|
%
|
|
|
41.2
|
%
|
|
|
41.9
|
%
|
|
|
41.7
|
%
|
|
|
43.0
|
%
|
Single-family credit losses (in millions)
|
|
$
|
3,435
|
|
|
$
|
3,209
|
|
|
$
|
3,440
|
|
|
$
|
3,106
|
|
|
$
|
3,226
|
|
|
|
(1)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Single-Family
Mortgage Credit Risk Delinquencies for
further information about our reported serious delinquency rates.
|
(2)
|
Consists of the UPB of loans in our single-family credit
guarantee portfolio that have undergone a TDR or that are
seriously delinquent. As of March 31, 2012 and
December 31, 2011, approximately $46.1 billion and
$44.4 billion in UPB of TDR loans, respectively, were no
longer seriously delinquent.
|
(3)
|
Consists of the combination of: (a) our allowance for loan
losses on mortgage loans held for investment; and (b) our
reserve for guarantee losses associated with non-consolidated
single-family mortgage securitization trusts and other guarantee
commitments.
|
(4)
|
Represents the number of modification agreements with borrowers
completed during the quarter. Excludes forbearance agreements,
repayment plans, and loans in modification trial periods.
|
(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)
|
States presented represent the five states where our credit
losses were greatest during 2011 and the first quarter of 2012.
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.
|
In discussing our credit performance, we often use the terms
credit losses and credit-related
expenses. These terms are significantly different. Our
credit losses consist of charge-offs and REO
operations income (expense), while our credit-related
expenses consist of our provision for credit losses and
REO operations income (expense).
Since the beginning of 2008, on an aggregate basis, we have
recorded provision for credit losses associated with
single-family loans of approximately $75.0 billion, and
have recorded an additional $4.2 billion in losses on loans
purchased from PC trusts, net of recoveries. The majority of
these losses are associated with loans originated in 2005
through 2008. While loans originated in 2005 through 2008 will
give rise to additional credit losses that have not yet been
incurred and, thus, have not yet been provisioned for, we
believe that, as of March 31, 2012, 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.
Borrower payment performance (for all early stages of
delinquency) improved at March 31, 2012, compared to
December 31, 2011. In addition, the number of seriously
delinquent loan additions declined during the first quarter of
2012. However, several factors, including delays in the
foreclosure process, have resulted in loans remaining in serious
delinquency for longer periods than prior to 2008, particularly
in states that require a judicial foreclosure process. As of
March 31, 2012 and December 31, 2011, the percentage
of seriously delinquent loans that have been delinquent for more
than six months was 73% and 70%, respectively.
The credit losses and loan loss reserves associated with our
single-family credit guarantee portfolio remained elevated in
the first quarter of 2012, due in part to:
|
|
|
|
|
Losses associated with the continued high volume of foreclosures
and foreclosure alternatives. These actions relate to the
continued efforts of our servicers to resolve our large
inventory of seriously delinquent loans. Due to the length of
time necessary for servicers either to complete the foreclosure
process or pursue foreclosure alternatives on seriously
delinquent loans in our portfolio, we expect our credit losses
will continue to remain high even if the volume of new serious
delinquencies continues to decline.
|
|
|
|
Continued negative impact of certain loan groups within the
single-family credit guarantee portfolio, such as those
underwritten with certain lower documentation standards and
interest-only loans, as well as 2005 through 2008 vintage loans.
These groups continue to be large contributors to our credit
losses. Loans originated in 2005 through 2008 comprised
approximately 30% and 36% of our single-family credit guarantee
portfolio, based on UPB at March 31, 2012 and 2011,
respectively; however, these loans accounted for approximately
88% and 91% of our credit losses during the three months ended
March 31, 2012 and 2011, respectively.
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Cumulative decline in national home prices of 28% since June
2006, based on our own index. As a result of this price decline,
approximately 20% of loans in our single-family credit guarantee
portfolio, based on UPB, had estimated current LTV ratios in
excess of 100% (i.e., underwater loans) as of
March 31, 2012.
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Weak financial condition of many of our mortgage insurers, which
has reduced our estimates of expected recoveries from these
counterparties.
|
Some of our loss mitigation activities create fluctuations in
our delinquency statistics. For example, loans that we report as
seriously delinquent before they enter a modification trial
period continue to be reported as seriously delinquent until the
modifications become effective and the loans are removed from
delinquent status by our servicers. See RISK
MANAGEMENT Credit Risk Mortgage
Credit Risk Single-family 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.
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.
We received cash proceeds of $146 million from our draw
under Treasurys funding commitment during the first
quarter of 2012 related to a quarterly deficit in equity at
December 31, 2011. To address our net worth deficit of
$18 million at March 31, 2012, FHFA, as Conservator,
will submit a draw request on our behalf to Treasury under the
Purchase Agreement in the amount of $19 million. FHFA will
request that we receive these funds by June 30, 2012. Upon
funding of the draw request: (a) our aggregate liquidation
preference on the senior preferred stock owned by Treasury will
be $72.3 billion; and (b) the corresponding annual
cash dividend owed to Treasury will be $7.23 billion.
We pay cash dividends to Treasury at an annual rate of 10%.
Through March 31, 2012, we paid aggregate cash dividends to
Treasury of $18.3 billion, an amount equal to 26% of our
aggregate draws received under the Purchase Agreement. As of
March 31, 2012, our annual cash dividend obligation to
Treasury on the senior preferred stock exceeded our annual
historical earnings in all but one period. As a result, we
expect to make additional draws in future periods, even if our
operating performance generates net income or comprehensive
income.
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 2011 Annual Report.
Consolidated
Financial Results
Net income was $577 million and $676 million for the
first quarters of 2012 and 2011, respectively. Key highlights of
our financial results include:
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Net interest income was $4.5 billion for both the first
quarters of 2012 and 2011, reflecting the impact of a reduction
in the average balances of our higher-yielding mortgage-related
assets offset by lower funding costs in the first quarter of
2012 compared to the first quarter of 2011.
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|
|
|
Provision for credit losses for the first quarter of 2012
declined to $1.8 billion, compared to $2.0 billion for
the first quarter of 2011. The provision for credit losses for
the first quarter of 2012 reflects stabilizing expected loss
severity on single-family loans and a decline in the number of
seriously delinquent loan additions.
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|
|
|
Non-interest income (loss) was $(1.5) billion for the first
quarter of 2012, compared to $(1.3) billion for the first
quarter of 2011, largely driven by an increase in derivative
losses, partially offset by a decline in net impairments of
available-for-sale securities recognized in earnings during the
first quarter of 2012 compared to the first quarter of 2011.
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|
|
|
Non-interest expense declined to $596 million in the first
quarter of 2012, from $697 million in the first quarter of
2011, primarily due to a reduction in REO operations expense.
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|
|
|
Comprehensive income was $1.8 billion for the first quarter
of 2012 compared to $2.7 billion for the first quarter of
2011. Comprehensive income for the first quarter of 2012 was
driven by the $577 million net income and a reduction in
net unrealized losses related to our available-for-sale
securities.
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Mortgage
Market and Economic Conditions
Overview
The U.S. real gross domestic product rose by 2.2% on an
annualized basis during the first quarter of 2012, compared to
1.6% during 2011, according to the Bureau of Economic Analysis.
The national unemployment rate was 8.2% in March 2012, compared
to 8.5% in December 2011, based on data from the
U.S. Bureau of Labor Statistics. In the data underlying the
unemployment rate, an average of over 210,000 monthly net
new jobs were added to the economy during the first quarter of
2012, which shows evidence of a slow, but steady positive trend
for the economy and the labor market.
Single-Family
Housing Market
The single-family housing market continued to experience
challenges in the first quarter of 2012 primarily due to
continued weakness in the employment market and a significant
inventory of seriously delinquent loans and REO properties in
the market.
Based on data from the National Association of Realtors, sales
of existing homes in the first quarter of 2012 averaged
4.57 million (at a seasonally adjusted annual rate),
increasing from 4.37 million in the fourth quarter of 2011.
Based on data from the U.S. Census Bureau and HUD, new home
sales in the first quarter of 2012 averaged 337,000 (at a
seasonally adjusted annual rate) increasing approximately 4%
from approximately 325,000 in the fourth quarter of 2011. We
estimate that home prices remained relatively stable during the
first quarter of 2012, with our nationwide index registering
approximately a 0.3% decline from December 2011 through March
2012 without adjustment for seasonality. This estimate was based
on our own price index of mortgage loans on one-family homes
funded by us or Fannie Mae.
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.
The foreclosure process continues to experience delays, due to a
number of factors, but particularly in states that require a
judicial foreclosure process. Delays in the foreclosure process
(and in certain cases the removal of such delays) may also
adversely affect trends in home prices in certain geographic
areas. There have been a number of regulatory developments in
recent periods impacting single-family mortgage servicing and
foreclosure practices. It is possible that these developments
will result in significant changes to mortgage servicing and
foreclosure practices that could adversely affect our business.
For information on these matters, see RISK
FACTORS Operational Risks We have
incurred, and will continue to incur, expenses and we may
otherwise be adversely affected by delays and deficiencies in
the foreclosure process in our 2011 Annual Report and
LEGISLATIVE AND REGULATORY MATTERS
Developments Concerning Single-Family Servicing Practices.
Multifamily
Housing Market
Multifamily market fundamentals continued to improve on a
national level during the first quarter of 2012. This
improvement continues a trend of favorable movements in key
indicators such as vacancy rates and effective rents that
generally began in early 2010. Vacancy rates and effective rents
are important to loan performance because multifamily loans are
generally repaid from the cash flows generated by the underlying
property and these factors significantly influence those cash
flows. These improving fundamentals and perceived optimism in
recent periods about demand for multifamily housing have
contributed to improvement in property values in most markets.
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 2012 to be
significantly worse than we expect, including adverse changes in
consumer confidence, national or international economic
conditions and changes in the federal governments fiscal
policies. See FORWARD-LOOKING STATEMENTS for
additional information.
Overview
We continue to expect key macroeconomic drivers of the
economy such as income growth, employment, and
inflation will affect the performance of the housing
and mortgage markets in the remainder of 2012. Since we expect
that economic and job growth will likely be stronger in 2012
than in 2011, we believe that housing affordability will remain
relatively high in 2012 for potential home buyers. We also
expect that the volume of home sales will likely increase in
2012, compared to the volume in 2011, but still remain
relatively weak compared to historical levels. Important factors
that we believe will continue to negatively impact single-family
housing demand are the relatively high unemployment rate and
relatively low consumer confidence measures. Consumer confidence
measures, while up from recession lows, remain below long-term
averages and suggest that households will likely continue to be
cautious in home buying. We also expect interest rates on
fixed-rate single-family mortgages to remain historically low in
2012, which may extend the recent high level of refinancing
activity (relative to new purchase lending activity). The
recently expanded and streamlined HARP initiative may result in
a high level of refinancing, particularly for borrowers that are
underwater on their current loans. For information on this
initiative, see RISK MANAGEMENT Credit
Risk Mortgage Credit Risk
Single-Family Mortgage Credit Risk Single-Family
Loan Workouts and the MHA Program.
While home prices remain at significantly lower levels from
their peak in most areas, estimates of the inventory of unsold
homes, including those held by financial institutions and
financially distressed borrowers, remain high. To the extent a
large volume of loans complete the foreclosure process in a
short time period the resulting REO inventory could have a
negative impact on the housing market. Due to these and other
factors, our expectation for home prices, based on our own
index, is that national average home prices will continue to
remain weak and may decline on a seasonally adjusted basis over
the near term before a long-term recovery in housing begins.
Single-Family
Our provision for credit losses and charge-offs were elevated
during the first quarter of 2012, and we expect they will likely
remain elevated during the remainder of 2012. This is in part
due to the substantial number of underwater mortgage
loans in our single-family credit guarantee portfolio, as well
as the substantial inventory of seriously delinquent loans. For
the near term, we also expect:
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REO disposition severity ratios to remain near their historical
highs, as market conditions, such as home prices and the rate of
home sales continue to remain weak;
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non-performing assets, which include loans, deemed TDRs, to
continue to remain high;
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the volume of loan workouts to remain high; and
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continued high volume of loans in the foreclosure process as
well as prolonged foreclosure timelines.
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Multifamily
The most recent market data available continues to reflect
improving national apartment fundamentals, including decreasing
vacancy rates and increasing effective rents. As a result, we
expect our multifamily delinquency rate to remain relatively low
during the remainder of 2012.
Our purchase and guarantee of multifamily loans increased to
$5.8 billion for the first quarter of 2012, compared to
$3.0 billion during the same period in 2011, as strong
volumes from late in 2011 carried into the first quarter of
2012. However, we anticipate the growth in our purchase and
guarantee volumes will slow for the remainder of the year,
ultimately reflecting a more modest increase in 2012, compared
to 2011.
Long-Term
Financial Sustainability
There is significant uncertainty as to our long-term financial
sustainability. The Acting Director of FHFA stated on
September 19, 2011 that it ought to be clear to
everyone at this point, given [Freddie Mac and Fannie
Maes] losses since being placed into conservatorship and
the terms of the Treasurys financial support agreements,
that [Freddie Mac and Fannie Mae] will not be able to earn their
way back to a condition that allows them to emerge from
conservatorship.
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 generate net
income or comprehensive income in excess of our annual dividends
payable to Treasury over the long term.
There continues to be significant uncertainty in the current
mortgage market environment, and continued high levels of
unemployment, weakness in home prices, and adverse changes in
interest rates, mortgage security prices, and spreads could lead
to additional draws. For discussion of other factors that could
result in additional draws, see RISK FACTORS
Conservatorship and Related Matters We expect to
make additional draws under the Purchase Agreement in future
periods, which will adversely affect our future results of
operations and financial condition in our 2011 Annual
Report.
There is significant uncertainty as to whether or when we will
emerge from conservatorship, as it has no specified termination
date, and as to what changes may occur to our business structure
during or following conservatorship, including whether we will
continue to exist. We are not aware of any current plans of our
Conservator to significantly change our business model or
capital structure in the near-term. Our future structure and
role will be determined by the Administration and Congress, and
there are likely to be significant changes beyond the near-term.
We have no ability to predict the outcome of these
deliberations. For a discussion of FHFAs strategic plan
for us, see LEGISLATIVE AND REGULATORY MATTERS
FHFAs Strategic Plan for Freddie Mac and Fannie Mae
Conservatorships and 2012 Conservatorship Scorecard.
Limits on
Investment Activity and Our Mortgage-Related Investments
Portfolio
The conservatorship has significantly impacted our investment
activity. 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
$729 billion as of December 31, 2011 and may not
exceed $656.1 billion as of December 31, 2012. FHFA
has indicated that such portfolio reduction targets should be
viewed as minimum reductions and has encouraged us to reduce the
mortgage-related investments portfolio at a faster rate than
required, consistent with FHFA guidance, safety and soundness
and the goal of conserving and preserving assets. We are also
subject to limits on the amount of mortgage assets we can sell
in any calendar month without review and approval by FHFA and,
if FHFA so determines, Treasury. We are working with FHFA to
identify ways to prudently accelerate the rate of contraction of
the portfolio.
The table below presents the UPB of our mortgage-related
investments portfolio, for purposes of the limit imposed by the
Purchase Agreement and FHFA regulation.
Table 4
Mortgage-Related Investments
Portfolio(1)
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March 31, 2012
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|
December 31, 2011
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(in millions)
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|
Investments segment Mortgage investments portfolio
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$
|
417,015
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|
$
|
449,273
|
|
Single-family Guarantee segment Single-family
unsecuritized mortgage
loans(2)
|
|
|
61,903
|
|
|
|
62,469
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|
Multifamily segment Mortgage investments portfolio
|
|
|
139,380
|
|
|
|
141,571
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|
|
|
|
|
|
|
|
|
|
Total mortgage-related investments portfolio
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$
|
618,298
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|
|
$
|
653,313
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|
|
|
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|
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|
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(1)
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Based on UPB and excludes mortgage loans and mortgage-related
securities traded, but not yet settled.
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(2)
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Represents unsecuritized seriously delinquent single-family
loans managed by the Single-family Guarantee segment.
|
FHFA has stated that we will not be a substantial buyer or
seller of mortgages for our mortgage-related investments
portfolio. FHFA also stated that, given the size of our current
mortgage-related investments portfolio and the potential volume
of delinquent mortgages to be removed from PC pools, it expects
that any net additions to our mortgage-related investments
portfolio would be related to that activity. We expect that our
holdings of unsecuritized single-family loans could increase in
the remainder of 2012.
We consider the liquidity of our assets in our mortgage-related
investments portfolio based on three categories: (a) agency
securities; (b) assets that are less liquid than agency
securities; and (c) illiquid assets. Assets that are less
liquid than agency securities include unsecuritized performing
single-family mortgage loans, multifamily mortgage loans, CMBS,
and housing revenue bonds. Our less liquid assets collectively
represented approximately 33% of the UPB of the portfolio at
March 31, 2012, as compared to 32% as of December 31,
2011. Illiquid assets include unsecuritized seriously delinquent
and modified single-family mortgage loans which we removed from
PC trusts, and our investments in non-agency mortgage-related
securities backed by subprime, option ARM, and
Alt-A and
other loans. Our illiquid assets collectively represented
approximately 30% of the UPB of the portfolio at March 31,
2012, as compared to 29% as of December 31, 2011. The
changing composition of our mortgage-related investments
portfolio to a greater proportion of illiquid assets may
influence our decisions regarding funding and hedging. The
description above of the liquidity of our assets is based on our
own internal expectations given current market conditions.
Changes in market conditions could adversely affect the
liquidity of our assets at any given time.
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, 2012.
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For the Three Months Ended
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March 31,
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2012
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2011
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(dollars in millions,
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except share-related amounts)
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Statements of Comprehensive Income Data
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|
|
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Net interest income
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|
$
|
4,500
|
|
|
$
|
4,540
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Provision for credit losses
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|
|
(1,825
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)
|
|
|
(1,989
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)
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Non-interest income (loss)
|
|
|
(1,516
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)
|
|
|
(1,252
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)
|
Non-interest expense
|
|
|
(596
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)
|
|
|
(697
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)
|
Net income
|
|
|
577
|
|
|
|
676
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|
Comprehensive income
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|
|
1,789
|
|
|
|
2,740
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Net loss attributable to common stockholders
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|
|
(1,227
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)
|
|
|
(929
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)
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Net loss per common share:
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|
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|
|
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Basic
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(0.38
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)
|
|
|
(0.29
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)
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Diluted
|
|
|
(0.38
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)
|
|
|
(0.29
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)
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Cash dividends per common share
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|
|
|
|
|
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Weighted average common shares outstanding (in
thousands):(2)
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|
|
|
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|
Basic
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|
3,241,502
|
|
|
|
3,246,985
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|
Diluted
|
|
|
3,241,502
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|
|
|
3,246,985
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
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|
December 31, 2011
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(dollars in millions)
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|
Balance Sheets Data
|
|
|
|
|
|
|
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Mortgage loans held-for-investment, at amortized cost by
consolidated trusts (net of allowances for loan losses)
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$
|
1,555,067
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$
|
1,564,131
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Total assets
|
|
|
2,114,944
|
|
|
|
2,147,216
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|
Debt securities of consolidated trusts held by third parties
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1,481,622
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|
|
|
1,471,437
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|
Other debt
|
|
|
618,629
|
|
|
|
660,546
|
|
All other liabilities
|
|
|
14,711
|
|
|
|
15,379
|
|
Total Freddie Mac stockholders equity (deficit)
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|
|
(18
|
)
|
|
|
(146
|
)
|
Portfolio
Balances(3)
|
|
|
|
|
|
|
|
|
Mortgage-related investments portfolio
|
|
$
|
618,298
|
|
|
$
|
653,313
|
|
Total Freddie Mac mortgage-related
securities(4)
|
|
|
1,617,595
|
|
|
|
1,624,684
|
|
Total mortgage
portfolio(5)
|
|
|
2,056,501
|
|
|
|
2,075,394
|
|
Non-performing
assets(6)
|
|
|
127,951
|
|
|
|
129,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
For the Three Months Ended
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|
|
March 31,
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|
|
2012
|
|
2011
|
|
Ratios(7)
|
|
|
|
|
|
|
|
|
Return on average
assets(8)
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Non-performing assets
ratio(9)
|
|
|
6.8
|
|
|
|
6.4
|
|
Equity to assets
ratio(10)
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|
|
|
|
|
|
|
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(1)
|
See NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES in our 2011 Annual Report for information
regarding our accounting policies and the impact of new
accounting policies on our consolidated financial statements.
|
(2)
|
Includes the weighted average number of shares that are
associated with the warrant for our common stock issued to
Treasury as part of the Purchase Agreement. This warrant is
included in basic loss per share, because it is unconditionally
exercisable by the holder at a cost of $0.00001 per share.
|
(3)
|
Represents the UPB and excludes mortgage loans and
mortgage-related securities traded, but not yet settled.
|
(4)
|
See Table 27 Freddie Mac Mortgage-Related
Securities for the composition of this line item.
|
(5)
|
See Table 11 Composition of Segment
Mortgage Portfolios and Credit Risk Portfolios for the
composition of our total mortgage portfolio.
|
(6)
|
See Table 45 Non-Performing Assets
for a description of our non-performing assets.
|
(7)
|
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 net income 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.
|
CONSOLIDATED
RESULTS OF OPERATIONS
The following discussion of our consolidated results of
operations should be read in conjunction with our consolidated
financial statements, including the accompanying notes. Also see
CRITICAL ACCOUNTING POLICIES AND ESTIMATES for
information concerning certain significant accounting policies
and estimates applied in determining our reported results of
operations.
Impact of
Legislated Increase to Guarantee Fees
Effective April 1, 2012, the guarantee fee on all
single-family residential mortgages sold to Freddie Mac was
increased by 10 basis points. Guarantee fees related to
mortgage loans held by our consolidated trusts, including those
attributable to the 10 basis point increase, will continue
to be reported within our GAAP consolidated statements of
comprehensive income in net interest income and the remittance
of the additional fees to Treasury will be reported in
non-interest expense. For additional information, see
LEGISLATIVE AND REGULATORY MATTERS Legislated
Increase to Guarantee Fees.
Table 5
Summary Consolidated Statements of Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Net interest income
|
|
$
|
4,500
|
|
|
$
|
4,540
|
|
Provision for credit losses
|
|
|
(1,825
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses
|
|
|
2,675
|
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
Gains (losses) on extinguishment of debt securities of
consolidated trusts
|
|
|
(4
|
)
|
|
|
223
|
|
Gains (losses) on retirement of other debt
|
|
|
(21
|
)
|
|
|
12
|
|
Gains (losses) on debt recorded at fair value
|
|
|
(17
|
)
|
|
|
(81
|
)
|
Derivative gains (losses)
|
|
|
(1,056
|
)
|
|
|
(427
|
)
|
Impairment of available-for-sale securities:
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment of available-for-sale
securities
|
|
|
(475
|
)
|
|
|
(1,054
|
)
|
Portion of other-than-temporary impairment recognized in AOCI
|
|
|
(89
|
)
|
|
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(564
|
)
|
|
|
(1,193
|
)
|
Other gains (losses) on investment securities recognized in
earnings
|
|
|
(288
|
)
|
|
|
(120
|
)
|
Other income
|
|
|
434
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(1,516
|
)
|
|
|
(1,252
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(337
|
)
|
|
|
(361
|
)
|
REO operations expense
|
|
|
(171
|
)
|
|
|
(257
|
)
|
Other expenses
|
|
|
(88
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(596
|
)
|
|
|
(697
|
)
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit
|
|
|
563
|
|
|
|
602
|
|
Income tax benefit
|
|
|
14
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
577
|
|
|
|
676
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes and reclassification
adjustments:
|
|
|
|
|
|
|
|
|
Changes in unrealized gains (losses) related to
available-for-sale securities
|
|
|
1,147
|
|
|
|
1,941
|
|
Changes in unrealized gains (losses) related to cash flow hedge
relationships
|
|
|
111
|
|
|
|
132
|
|
Changes in defined benefit plans
|
|
|
(46
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of taxes and
reclassification adjustments
|
|
|
1,212
|
|
|
|
2,064
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,789
|
|
|
$
|
2,740
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
The table below 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,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
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
|
|
$
|
51,029
|
|
|
$
|
4
|
|
|
|
0.03
|
%
|
|
$
|
37,561
|
|
|
$
|
16
|
|
|
|
0.17
|
%
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
26,057
|
|
|
|
9
|
|
|
|
0.14
|
|
|
|
47,861
|
|
|
|
18
|
|
|
|
0.15
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(3)
|
|
|
383,227
|
|
|
|
4,363
|
|
|
|
4.55
|
|
|
|
456,972
|
|
|
|
5,316
|
|
|
|
4.65
|
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(125,363
|
)
|
|
|
(1,441
|
)
|
|
|
(4.60
|
)
|
|
|
(167,528
|
)
|
|
|
(2,063
|
)
|
|
|
(4.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities, net
|
|
|
257,864
|
|
|
|
2,922
|
|
|
|
4.53
|
|
|
|
289,444
|
|
|
|
3,253
|
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related
securities(3)
|
|
|
28,464
|
|
|
|
16
|
|
|
|
0.23
|
|
|
|
29,309
|
|
|
|
30
|
|
|
|
0.41
|
|
Mortgage loans held by consolidated
trusts(4)
|
|
|
1,559,823
|
|
|
|
17,468
|
|
|
|
4.48
|
|
|
|
1,650,567
|
|
|
|
20,064
|
|
|
|
4.86
|
|
Unsecuritized mortgage
loans(4)
|
|
|
254,877
|
|
|
|
2,312
|
|
|
|
3.63
|
|
|
|
240,557
|
|
|
|
2,334
|
|
|
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,178,114
|
|
|
$
|
22,731
|
|
|
|
4.18
|
|
|
$
|
2,295,299
|
|
|
$
|
25,715
|
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities of consolidated trusts including PCs held by
Freddie Mac
|
|
$
|
1,580,749
|
|
|
$
|
(16,694
|
)
|
|
|
(4.22
|
)
|
|
$
|
1,665,608
|
|
|
$
|
(19,466
|
)
|
|
|
(4.67
|
)
|
Extinguishment of PCs held by Freddie Mac
|
|
|
(125,363
|
)
|
|
|
1,441
|
|
|
|
4.60
|
|
|
|
(167,528
|
)
|
|
|
2,063
|
|
|
|
4.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities of consolidated trusts held by third
parties
|
|
|
1,455,386
|
|
|
|
(15,253
|
)
|
|
|
(4.19
|
)
|
|
|
1,498,080
|
|
|
|
(17,403
|
)
|
|
|
(4.65
|
)
|
Other debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
149,130
|
|
|
|
(40
|
)
|
|
|
(0.11
|
)
|
|
|
194,822
|
|
|
|
(115
|
)
|
|
|
(0.24
|
)
|
Long-term
debt(5)
|
|
|
496,644
|
|
|
|
(2,776
|
)
|
|
|
(2.23
|
)
|
|
|
518,034
|
|
|
|
(3,450
|
)
|
|
|
(2.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other debt
|
|
|
645,774
|
|
|
|
(2,816
|
)
|
|
|
(1.74
|
)
|
|
|
712,856
|
|
|
|
(3,565
|
)
|
|
|
(2.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
2,101,160
|
|
|
|
(18,069
|
)
|
|
|
(3.44
|
)
|
|
|
2,210,936
|
|
|
|
(20,968
|
)
|
|
|
(3.79
|
)
|
Expense related to
derivatives(6)
|
|
|
|
|
|
|
(162
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
(207
|
)
|
|
|
(0.04
|
)
|
Impact of net non-interest-bearing funding
|
|
|
76,954
|
|
|
|
|
|
|
|
0.12
|
|
|
|
84,363
|
|
|
|
|
|
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funding of interest-earning assets
|
|
$
|
2,178,114
|
|
|
$
|
(18,231
|
)
|
|
|
(3.35
|
)
|
|
$
|
2,295,299
|
|
|
$
|
(21,175
|
)
|
|
|
(3.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/yield
|
|
|
|
|
|
$
|
4,500
|
|
|
|
0.83
|
|
|
|
|
|
|
$
|
4,540
|
|
|
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 where we expect a
significant improvement in cash flows.
|
(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 closed 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 decreased by $40 million and net
interest yield increased by 4 basis points during the three
months ended March 31, 2012, compared to the three months
ended March 31, 2011. The primary driver underlying the
decrease in net interest income was the reduction in the average
balance of higher-yielding mortgage-related assets due to
continued liquidations and limited purchase activity, partially
offset by lower funding costs from the replacement of debt at
lower rates. The increase in net interest yield was primarily
due to the benefits of lower funding costs, partially offset by
the negative impact of the reduction in the average balance of
higher-yielding mortgage assets.
We do not recognize interest income on non-performing loans that
have been placed on non-accrual status, except when cash
payments are received. We refer to this interest income that we
do not recognize as foregone interest income. Foregone interest
income and reversals of previously recognized interest income,
net of cash received, related to non-performing loans was
$0.9 billion and $1.0 billion during the three months
ended March 31, 2012 and 2011, respectively. This reduction
was primarily due to the decreased volume of non-performing
loans on non-accrual status.
During the three months ended March 31, 2012, 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
We maintain loan loss reserves at levels we believe are
appropriate to absorb probable incurred losses on mortgage loans
held-for-investment and loans underlying our financial
guarantees. Our loan loss reserves are increased through the
provision for credit losses and are reduced by net charge-offs.
Our provision for credit losses declined to $1.8 billion in
the first quarter of 2012, compared to $2.0 billion in the
first quarter of 2011. The provision for credit losses for the
first quarter of 2012 reflects stabilizing expected loss
severity on single-family loans and a decline in the number of
seriously delinquent loan additions, while the first quarter of
2011 reflects worsening expected loss severity and higher
modification volumes offset by a decline in the rate at which
seriously delinquent loans ultimately transition to a loss event.
During the first quarter of 2012, our charge-offs, net of
recoveries for single-family loans, exceeded the amount of our
provision for credit losses. Our charge-offs in the first
quarter of 2012 were less than they otherwise would have been
because of the suppression of loan and collateral resolution
activity due to delays in the foreclosure process. We believe
the level of our charge-offs will continue to remain high and
may increase in the remainder of 2012.
As of March 31, 2012 and December 31, 2011, the UPB of
our single-family non-performing loans was $119.6 billion
and $120.5 billion, respectively. These amounts include
$46.1 billion and $44.4 billion, respectively, of
single-family TDRs that are reperforming (i.e., less than
three months past due). TDRs remain categorized as
non-performing throughout the remaining life of the loan
regardless of whether the borrower makes payments which return
the loan to a current payment status after modification. See
RISK MANAGEMENT Credit Risk
Mortgage Credit Risk for further information on our
single-family credit guarantee portfolio, including credit
performance, charge-offs, our loan loss reserves balance, and
our non-performing assets.
The total number of seriously delinquent loans declined
approximately 3% and 6% during the first quarters of 2012 and
2011, respectively. However, our serious delinquency rate
remains high compared to historical levels due to the continued
weakness in home prices, persistently high unemployment,
extended foreclosure timelines, and continued challenges faced
by servicers processing large volumes of problem loans. Our
seller/servicers have an active role in our loan workout
activities, including under the servicing alignment initiative
and the MHA Program, and a decline in their performance could
result in a failure to realize the anticipated benefits of our
loss mitigation plans.
Since the beginning of 2008, on an aggregate basis, we have
recorded provision for credit losses associated with
single-family loans of approximately $75.0 billion, and
have recorded an additional $4.2 billion in losses on loans
purchased from our PCs, net of recoveries. The majority of these
losses are associated with loans originated in 2005 through
2008. While loans originated in 2005 through 2008 will give rise
to additional credit losses that have not yet been incurred, and
thus have not been provisioned for, we believe that, as of
March 31, 2012, 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 and amount of charge-offs in the
future will be affected by a number of factors, including:
(a) the actual level of mortgage defaults; (b) the
impact of the MHA Program and other loss mitigation efforts,
including any requirement to utilize principal forgiveness in
our loan modification initiatives; (c) any government
actions or programs that impact the ability of troubled
borrowers to obtain modifications, including legislative changes
to bankruptcy laws; (d) changes in property values;
(e) regional economic conditions, including unemployment
rates; (f) delays in the foreclosure process, including
those related to the concerns about deficiencies in foreclosure
documentation practices; (g) third-party mortgage insurance
coverage and recoveries; and (h) the realized rate of
seller/servicer repurchases. In addition, in April 2012, FHFA
issued an advisory bulletin that could have an impact on our
provision for credit losses in the future; however, we are still
assessing the operational and accounting impacts of the
bulletin. See LEGISLATIVE AND REGULATORY DEVELOPMENTS
FHFA Advisory Bulletin for additional
information. See RISK MANAGEMENT Credit
Risk Institutional Credit Risk for
information on mortgage insurers and seller/servicer repurchase
obligations.
We recognized a benefit for credit losses associated with our
multifamily mortgage portfolio of $19 million and
$60 million for the first quarters of 2012 and 2011,
respectively. Our loan loss reserves associated with our
multifamily mortgage portfolio were $525 million and
$545 million as of March 31, 2012 and
December 31, 2011, respectively. The decline in loan loss
reserves for multifamily loans in the first quarter of 2012 was
driven primarily by the increased seasoning of our portfolio and
the lower level of estimated incurred credit losses based on our
historical experience.
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 trusts. 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. Gains (losses) on extinguishment of
debt securities of consolidated trusts were $(4) million
and $223 million for the three months ended March 31,
2012 and 2011, respectively. For the three months ended
March 31, 2012 and 2011, we extinguished debt securities of
consolidated trusts with a UPB of $692 million and
$24.8 billion, respectively (representing our purchase of
single-family PCs with a corresponding UPB amount). The decrease
in purchases of single-family PCs was primarily due to a lower
volume of dollar roll transactions to support the market and
pricing of our single-family PCs. See
Table 19 Mortgage-Related Securities
Purchase Activity for additional information regarding
purchases of mortgage-related securities, including those issued
by consolidated PC trusts.
Gains
(Losses) on Retirement of Other Debt
Gains (losses) on retirement of other debt were
$(21) million and $12 million during the three months
ended March 31, 2012 and 2011, respectively. We recognized
losses on debt retirements in the first quarter of 2012
primarily due to write-offs of unamortized deferred issuance
costs. We recognized gains on debt retirements in the first
quarter of 2011 primarily due to the repurchase of other debt
securities at a discount. For more information, see
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Other Debt Securities
Other Debt Retirement Activities.
Gains
(Losses) on Debt Recorded at Fair Value
Gains (losses) on debt recorded at fair value primarily relate
to changes in the fair value of our foreign-currency denominated
debt. During the first three months of 2012 and 2011, we
recognized losses on debt recorded at fair value of
$17 million and $81 million, respectively, primarily
due to a combination of the U.S. dollar weakening relative
to the Euro and changes in interest rates. 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)
The table below presents derivative gains (losses) reported in
our consolidated statements of comprehensive income. See
NOTE 10: DERIVATIVES
Table 10.2 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 comprehensive income. At
March 31, 2012 and December 31, 2011, 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 strategy to
manage interest-rate risk, they generally increase the
volatility of reported net income 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. Beginning in the fourth quarter of 2011,
we started issuing a higher percentage of long-term debt. This
allows us to take advantage of attractive long-term rates while
decreasing our reliance on interest-rate swaps.
Table 7
Derivative Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
Derivative Gains (Losses)
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Interest-rate swaps
|
|
$
|
1,208
|
|
|
$
|
1,723
|
|
Option-based
derivatives(1)
|
|
|
(1,077
|
)
|
|
|
(807
|
)
|
Other
derivatives(2)
|
|
|
(111
|
)
|
|
|
(94
|
)
|
Accrual of periodic
settlements(3)
|
|
|
(1,076
|
)
|
|
|
(1,249
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,056
|
)
|
|
$
|
(427
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(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) interest rates and implied volatility; and (b) the
mix and volume of derivatives in our derivative portfolio.
During the three months ended March 31, 2012, we recognized
losses on derivatives of $1.1 billion primarily due to
losses related to the accrual of periodic settlements on
interest-rate swaps as we were in a net pay-fixed swap position.
We recognized fair value gains on our pay-fixed swaps of
$3.8 billion, which were largely offset by: (a) fair
value losses on our receive-fixed swaps of $2.6 billion;
and (b) fair value losses on our option-based derivatives
of $1.1 billion resulting from losses on our purchased call
swaptions due to an increase in long-term interest rates. The
fair value of derivatives during the three months ended
March 31, 2012 reflects a decline in short-term interest
rates and an increase in long-term interest rates compared to
the three months ended March 31, 2011, when both short-term
and long-term interest rates increased.
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 were in a net pay-fixed
swap position, 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 interest rates.
Investment
Securities-Related Activities
Impairments
of Available-For-Sale Securities
We recorded net impairments of available-for-sale securities
recognized in earnings, which were related to non-agency
mortgage-related securities, of $564 million and
$1.2 billion during the three months ended March 31,
2012 and 2011, 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, 2012 and 2011.
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. Trading securities mainly include Treasury
securities, agency fixed-rate and variable-rate pass-through
mortgage-related securities, and agency REMICs, including
inverse floating-rate, interest-only and principal-only
securities. We recognized $(377) million and
$(200) million related to gains (losses) on trading
securities during the three months ended March 31, 2012 and
2011, respectively.
Losses in both periods are primarily due to the movement of
securities with unrealized gains towards maturity. The losses
during the three months ended March 31, 2011 were partially
offset by larger fair value gains, compared to the three months
ended March 31, 2012, due to a tightening of OAS levels on
agency securities.
Other
Income
The table below summarizes the significant components of other
income.
Table 8
Other Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
Gains (losses) on sale of mortgage loans
|
|
$
|
40
|
|
|
$
|
95
|
|
Gains (losses) on mortgage loans recorded at fair value
|
|
|
139
|
|
|
|
(33
|
)
|
Recoveries on loans impaired upon purchase
|
|
|
89
|
|
|
|
125
|
|
Guarantee-related income,
net(1)
|
|
|
70
|
|
|
|
54
|
|
All other
|
|
|
96
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
$
|
434
|
|
|
$
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Most of our guarantee-related income relates to securitized
multifamily mortgage loans where we have not consolidated the
securitization trusts on our consolidated balance sheets.
|
Gains
(Losses) on Sale of Mortgage Loans
In the first quarters of 2012 and 2011, we recognized
$40 million and $95 million, respectively, of gains on
sale of mortgage loans with associated UPB of $3.7 billion
and $3.4 billion, respectively. All such amounts relate to
our securitizations of multifamily loans which we had elected to
carry at fair value while they were held on our consolidated
balance sheet. We had lower gains on sale of mortgage loans in
the first quarter of 2012, compared to the first quarter of
2011, as a significant portion of the improved fair value of the
loans was instead recognized within gains (losses) on mortgage
loans recorded at fair value during periods prior to the
loans securitization.
Gains
(Losses) on Mortgage Loans Recorded at Fair Value
In the first quarters of 2012 and 2011, we recognized
$139 million and $(33) million, respectively, of gains
(losses) on mortgage loans recorded at fair value. We held
higher balances of multifamily loans on our consolidated balance
sheets that were designated for subsequent securitization during
the first quarter of 2012, compared to the first quarter of 2011
which, when combined with improving fair values on those loans,
resulted in gains during the first quarter of 2012.
Recoveries
on Loans Impaired upon Purchase
Recoveries on loans impaired upon purchase represent the
recapture into income of previously recognized losses associated
with purchases of delinquent loans from our PCs in conjunction
with our guarantee activities. Recoveries occur when a
non-performing loan is repaid in full or when at the time of
foreclosure the estimated fair value of the acquired property,
less costs to sell, exceeds the carrying value of the loan. For
impaired loans where the borrower has made required payments
that return the loan to less than three months past due, the
recovery amounts are instead recognized as interest income over
time as periodic payments are received.
During the first quarters of 2012 and 2011, we recognized
recoveries on loans impaired upon purchase of $89 million
and $125 million, respectively. Our recoveries on loans
impaired upon purchase declined in the first quarter of 2012,
compared to the first quarter of 2011, due to a lower volume of
foreclosure transfers and payoffs associated with loans impaired
upon purchase.
All
Other
All other income consists primarily of transactional fees, fees
assessed to our servicers, such as for technology use and late
fees or other penalties, and other miscellaneous income.
Non-Interest
Expense
The table below summarizes the components of non-interest
expense.
Table 9
Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Administrative expenses:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
176
|
|
|
$
|
207
|
|
Professional services
|
|
|
71
|
|
|
|
56
|
|
Occupancy expense
|
|
|
14
|
|
|
|
15
|
|
Other administrative expense
|
|
|
76
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Total administrative expenses
|
|
|
337
|
|
|
|
361
|
|
REO operations expense
|
|
|
171
|
|
|
|
257
|
|
Other expenses
|
|
|
88
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
596
|
|
|
$
|
697
|
|
|
|
|
|
|
|
|
|
|
Administrative
Expenses
Administrative expenses decreased during the three months ended
March 31, 2012 compared to the three months ended
March 31, 2011, largely due to a reduction in salaries and
employee benefits expense. We currently expect that our general
and administrative expenses for the full-year 2012 will be
approximately equivalent to those we experienced in the
full-year 2011, with lower salaries and employee benefits
expense offset by increased professional services expense, in
part due to: (a) the continually changing mortgage market;
(b) an environment in which we are subject to increased
regulatory oversight and mandates; and (c) strategic
arrangements that we may enter into with outside firms to
provide operational capability and staffing for key functions,
if needed. We believe the initiatives we are pursuing under the
2012
conservatorship scorecard and other FHFA-mandated initiatives
may require additional resources and affect our level of
administrative expenses going forward.
REO
Operations Expense
The table below presents the components of our REO operations
expense, and REO inventory and disposition information.
Table 10
REO Operations Expense, REO Inventory, and REO
Dispositions
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in millions)
|
|
|
REO operations expense:
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
REO property
expenses(1)
|
|
$
|
378
|
|
|
$
|
308
|
|
Disposition (gains) losses,
net(2)
|
|
|
(78
|
)
|
|
|
126
|
|
Change in holding period allowance, dispositions
|
|
|
(57
|
)
|
|
|
(155
|
)
|
Change in holding period allowance,
inventory(3)
|
|
|
1
|
|
|
|
151
|
|
Recoveries(4)
|
|
|
(72
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Total single-family REO operations expense
|
|
|
172
|
|
|
|
257
|
|
Multifamily REO operations expense (income)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total REO operations expense
|
|
$
|
171
|
|
|
$
|
257
|
|
|
|
|
|
|
|
|
|
|
REO inventory (in properties), at March 31:
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
59,307
|
|
|
|
65,159
|
|
Multifamily
|
|
|
16
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
59,323
|
|
|
|
65,174
|
|
|
|
|
|
|
|
|
|
|
REO property dispositions (in properties):
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
25,033
|
|
|
|
31,627
|
|
Multifamily
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,037
|
|
|
|
31,628
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Represents the (increase) decrease in the estimated fair value
of properties that were in inventory during the period.
|
(4)
|
Includes recoveries from primary mortgage insurance, pool
insurance and seller/servicer repurchases.
|
REO operations expense declined to $171 million in the
first quarter of 2012, as compared to $257 million in the
first quarter of 2011, primarily due to stabilizing home prices
in certain geographical areas with significant REO activity,
which resulted in gains on disposition of properties as well as
lower write-downs of single-family REO inventory during the
first quarter of 2012. However, we also experienced lower
recoveries on REO properties during the first quarter of 2012,
compared to the first quarter of 2011, primarily due to reduced
recoveries from mortgage insurers, in part due to the continued
weakness in the financial condition of our mortgage insurance
counterparties, and a decline in reimbursements of losses from
seller/servicers associated with repurchase requests.
Although our servicers have resumed the foreclosure process in
most areas, we believe the volume of our single-family REO
acquisitions during the first quarter of 2012 was less than it
otherwise would have been due to delays in the foreclosure
process, particularly in states that require a judicial
foreclosure process. The lower acquisition rate, coupled with
high disposition levels, led to a lower REO property inventory
level at March 31, 2012, compared to March 31, 2011.
We expect that the length of the foreclosure process will
continue to remain above historical levels. See RISK
MANAGEMENT Credit Risk Mortgage Credit
Risk Non-Performing Assets for
additional information about our REO activity.
Other
Expenses
Other expenses were $88 million and $79 million in the
first quarters of 2012 and 2011, respectively. Other expenses
consist primarily of HAMP servicer incentive fees, costs related
to terminations and transfers of mortgage servicing, and other
miscellaneous expenses.
Income
Tax Benefit
For the three months ended March 31, 2012 and 2011, we
reported an income tax benefit of $14 million and
$74 million, respectively. See NOTE 12: INCOME
TAXES for additional information.
Comprehensive
Income
Our comprehensive income was $1.8 billion and
$2.7 billion for the three months ended March 31, 2012
and 2011, respectively, consisting of:
(a) $577 million and $676 million of net income,
respectively; and (b) $1.2 billion and
$2.1 billion of total other comprehensive income,
respectively, primarily due to a reduction in net unrealized
losses related to our available-for-sale securities. See
CONSOLIDATED BALANCE SHEETS ANALYSIS Total
Equity (Deficit) for additional information regarding
total other comprehensive income.
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, which are funded by
other debt issuances and hedged using derivatives. In our
Investments segment, we also provide funding and hedging
management services to the Single-family Guarantee and
Multifamily segments. The Investments segment reflects changes
in the fair value of the Multifamily segment assets that are
associated with changes in interest rates. 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
credit-related expenses, administrative expenses, allocated
funding costs, and amounts related to net float benefits or
expenses.
The Multifamily segment reflects results from our investment
(both purchases and sales), securitization, and guarantee
activities in multifamily mortgage loans and securities.
Although we hold multifamily mortgage loans and non-agency CMBS
that we purchased for investment, our purchases of such
multifamily mortgage loans for investment have declined
significantly since 2010, and our purchases of CMBS have
declined significantly since 2008. The only CMBS that we have
purchased since 2008 have been senior, mezzanine, and
interest-only tranches related to certain of our securitization
transactions, and these purchases have not been significant.
Currently, our primary business strategy is to purchase
multifamily mortgage loans for aggregation and then
securitization. We guarantee the senior tranches of these
securitizations in Other Guarantee Transactions. Our Multifamily
segment also issues Other Structured Securities, but does not
issue REMIC securities. Our Multifamily segment also enters into
other guarantee commitments for multifamily HFA bonds and
housing revenue bonds held by third parties. Segment Earnings
for this segment consist primarily of the interest earned on
assets related to multifamily investment activities and
management and guarantee fee income, less credit-related
expenses, administrative expenses, and allocated funding costs.
In addition, the Multifamily segment reflects gains on sale of
mortgages and the impact of changes in fair value of CMBS and
held-for-sale loans associated only with market factors other
than changes in interest rates, such as liquidity and credit.
We evaluate segment performance and allocate resources based on
a Segment Earnings approach, subject to the conduct of our
business under the direction of the Conservator. The financial
performance of our Single-family Guarantee segment and
Multifamily segment are measured based on each segments
contribution to GAAP net income (loss). Our Investments segment
is measured on its contribution to GAAP comprehensive income
(loss), which consists of the sum of its contribution to:
(a) GAAP net income (loss); and (b) GAAP total other
comprehensive income (loss), net of taxes. The sum of Segment
Earnings for each segment and the All Other category equals GAAP
net income (loss). Likewise, the sum of comprehensive income
(loss) for each segment and the All Other category equals GAAP
comprehensive income (loss).
The All Other category consists of material corporate level
expenses that are: (a) infrequent in nature; and
(b) based on management decisions outside the control of
the management of our reportable segments. By recording these
types of activities to the All Other category, we believe the
financial results of our three reportable segments reflect the
decisions and strategies that are executed within the reportable
segments and provide greater comparability across time periods.
The All Other category also includes the deferred tax asset
valuation allowance associated with previously recognized income
tax credits carried forward.
In presenting Segment Earnings, we make significant
reclassifications to certain financial statement line items in
order to reflect a measure of net interest income on investments
and a measure of management and guarantee income on guarantees
that is in line with how we manage our business. We present
Segment Earnings by: (a) reclassifying certain
investment-related activities and credit guarantee-related
activities between various line items on our GAAP consolidated
statements of 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 14: SEGMENT REPORTING in our 2011
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.
Beginning in 2012, under guidance from FHFA we began to curtail
mortgage-related investments portfolio purchase and retention
activities that are undertaken for the primary purpose of
supporting the price performance of our PCs, which may result in
a significant decline in the market share of our single-family
guarantee business, lower comprehensive income, and a more rapid
decline in the size of our total mortgage portfolio.
The table below provides information about our various segment
mortgage portfolios at March 31, 2012 and December 31,
2011. For a discussion of each segments portfolios, see
Segment Earnings Results.
Table 11
Composition of Segment Mortgage Portfolios and Credit Risk
Portfolios(1)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in millions)
|
|
|
Segment mortgage portfolios:
|
|
|
|
|
|
|
|
|
Investments Mortgage investments portfolio:
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(2)
|
|
$
|
103,593
|
|
|
$
|
109,190
|
|
Freddie Mac mortgage-related securities
|
|
|
199,132
|
|
|
|
220,659
|
|
Non-agency mortgage-related securities
|
|
|
84,180
|
|
|
|
86,526
|
|
Non-Freddie Mac agency securities
|
|
|
30,110
|
|
|
|
32,898
|
|
|
|
|
|
|
|
|
|
|
Total Investments Mortgage investments
portfolio
|
|
|
417,015
|
|
|
|
449,273
|
|
|
|
|
|
|
|
|
|
|
Single-family Guarantee Managed loan
portfolio:(3)
|
|
|
|
|
|
|
|
|
Single-family unsecuritized mortgage
loans(4)
|
|
|
61,903
|
|
|
|
62,469
|
|
Single-family Freddie Mac mortgage-related securities held by us
|
|
|
199,132
|
|
|
|
220,659
|
|
Single-family Freddie Mac mortgage-related securities held by
third parties
|
|
|
1,390,328
|
|
|
|
1,378,881
|
|
Single-family other guarantee
commitments(5)
|
|
|
12,498
|
|
|
|
11,120
|
|
|
|
|
|
|
|
|
|
|
Total Single-family Guarantee Managed loan
portfolio
|
|
|
1,663,861
|
|
|
|
1,673,129
|
|
|
|
|
|
|
|
|
|
|
Multifamily Guarantee portfolio:
|
|
|
|
|
|
|
|
|
Multifamily Freddie Mac mortgage related securities held by us
|
|
|
2,614
|
|
|
|
3,008
|
|
Multifamily Freddie Mac mortgage related securities held by
third parties
|
|
|
25,521
|
|
|
|
22,136
|
|
Multifamily other guarantee
commitments(5)
|
|
|
9,856
|
|
|
|
9,944
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Guarantee portfolio
|
|
|
37,991
|
|
|
|
35,088
|
|
|
|
|
|
|
|
|
|
|
Multifamily Mortgage investments portfolio
|
|
|
|
|
|
|
|
|
Multifamily investment securities portfolio
|
|
|
56,891
|
|
|
|
59,260
|
|
Multifamily loan portfolio
|
|
|
82,489
|
|
|
|
82,311
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily Mortgage investments
portfolio
|
|
|
139,380
|
|
|
|
141,571
|
|
|
|
|
|
|
|
|
|
|
Total Multifamily portfolio
|
|
|
177,371
|
|
|
|
176,659
|
|
|
|
|
|
|
|
|
|
|
Less: Freddie Mac single-family and certain multifamily
securities(6)
|
|
|
(201,746
|
)
|
|
|
(223,667
|
)
|
|
|
|
|
|
|
|
|
|
Total mortgage portfolio
|
|
$
|
2,056,501
|
|
|
$
|
2,075,394
|
|
|
|
|
|
|
|
|
|
|
Credit risk
portfolios:(7)
|
|
|
|
|
|
|
|
|
Single-family credit guarantee
portfolio:(3)
|
|
|
|
|
|
|
|
|
Single-family mortgage loans, on-balance sheet
|
|
$
|
1,714,182
|
|
|
$
|
1,733,215
|
|
Non-consolidated Freddie Mac mortgage-related securities
|
|
|
10,437
|
|
|
|
10,735
|
|
Other guarantee commitments
|
|
|
12,498
|
|
|
|
11,120
|
|
Less: HFA-related
guarantees(8)
|
|
|
(8,142
|
)
|
|
|
(8,637
|
)
|
Less: Freddie Mac mortgage-related securities backed by Ginnie
Mae
certificates(8)
|
|
|
(748
|
)
|
|
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
Total single-family credit guarantee portfolio
|
|
$
|
1,728,227
|
|
|
$
|
1,745,654
|
|
|
|
|
|
|
|
|
|
|
Multifamily mortgage portfolio:
|
|
|
|
|
|
|
|
|
Multifamily mortgage loans, on-balance sheet
|
|
$
|
82,489
|
|
|
$
|
82,311
|
|
Non-consolidated Freddie Mac mortgage-related securities
|
|
|
28,135
|
|
|
|
25,144
|
|
Other guarantee commitments
|
|
|
9,856
|
|
|
|
9,944
|
|
Less: HFA-related
guarantees(8)
|
|
|
(1,235
|
)
|
|
|
(1,331
|
)
|
|
|
|
|
|
|
|
|
|
Total multifamily mortgage portfolio
|
|
$
|
119,245
|
|
|
$
|
116,068
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Based on UPB and excludes mortgage loans and mortgage-related
securities traded, but not yet settled.
|
(2)
|
Excludes unsecuritized seriously delinquent 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 segments mortgage investments portfolio.
|
(3)
|
The balances of the mortgage-related securities in the
Single-family Guarantee managed loan portfolio are based on the
UPB of the security, whereas the balances of our single-family
credit guarantee portfolio 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 seriously delinquent single-family
loans managed by the Single-family Guarantee segment.
|
(5)
|
Represents the UPB of mortgage-related assets held by third
parties for which we provide our guarantee without our
securitization of the related assets.
|
(6)
|
Freddie Mac single-family mortgage-related securities held by us
are included in both our Investments segments mortgage
investments portfolio and our Single-family Guarantee
segments managed loan portfolio, and Freddie Mac
multifamily mortgage-related securities held by us are included
in both the multifamily investment securities portfolio and the
multifamily guarantee portfolio. Therefore, these amounts are
deducted in order to reconcile to our total mortgage portfolio.
|
(7)
|
Represents the UPB of loans for which we present
characteristics, delinquency data, and certain other statistics
in this report. See GLOSSARY for further description.
|
(8)
|
We exclude HFA-related guarantees and our resecuritizations of
Ginnie Mae certificates from our credit risk portfolios and most
related statistics because these guarantees do not expose us to
meaningful amounts of credit risk due to the credit enhancement
provided on them by the U.S. government.
|
Segment
Earnings Results
Investments
The table below presents the Segment Earnings of our Investments
segment.
Table 12
Segment Earnings and Key Metrics
Investments(1)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,763
|
|
|
$
|
1,653
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(496
|
)
|
|
|
(1,029
|
)
|
Derivative gains (losses)
|
|
|
200
|
|
|
|
1,103
|
|
Gains (losses) on trading securities
|
|
|
(398
|
)
|
|
|
(234
|
)
|
Gains (losses) on sale of mortgage loans
|
|
|
(14
|
)
|
|
|
12
|
|
Gains (losses) on mortgage loans recorded at fair value
|
|
|
(38
|
)
|
|
|
(83
|
)
|
Other non-interest income
|
|
|
513
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
(233
|
)
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(92
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(92
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
155
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings before income tax benefit
|
|
|
1,593
|
|
|
|
2,071
|
|
Income tax benefit
|
|
|
35
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes
|
|
|
1,628
|
|
|
|
2,137
|
|
Total other comprehensive income, net of taxes
|
|
|
335
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,963
|
|
|
$
|
3,263
|
|
|
|
|
|
|
|
|
|
|
Key metrics:
|
|
|
|
|
|
|
|
|
Portfolio balances:
|
|
|
|
|
|
|
|
|
Average balances of interest-earning
assets:(3)(4)
|
|
|
|
|
|
|
|
|
Mortgage-related
securities(5)
|
|
$
|
330,593
|
|
|
$
|
399,113
|
|
Non-mortgage-related
investments(6)
|
|
|
105,539
|
|
|
|
114,732
|
|
Unsecuritized single-family
loans(7)
|
|
|
109,306
|
|
|
|
85,515
|
|
|
|
|
|
|
|
|
|
|
Total average balances of interest-earning assets
|
|
$
|
545,438
|
|
|
$
|
599,360
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
1.29
|
%
|
|
|
1.10
|
%
|
|
|
(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 13:
SEGMENT REPORTING Table 13.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
For a description of our segment adjustments, see
NOTE 14: SEGMENT REPORTING Segment
Earnings in our 2011 Annual Report.
|
(3)
|
Excludes mortgage loans and mortgage-related securities traded,
but not yet settled.
|
(4)
|
We calculate average balances based on amortized cost.
|
(5)
|
Includes our investments in single-family PCs and certain Other
Guarantee Transactions, which have been consolidated under GAAP
on our consolidated balance sheet since January 1, 2010.
|
(6)
|
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.
|
(7)
|
Excludes unsecuritized seriously delinquent single-family
mortgage loans.
|
Segment Earnings for our Investments segment decreased by
$509 million to $1.6 billion during the three months
ended March 31, 2012, compared to $2.1 billion during
the three months ended March 31, 2011, primarily due to
decreased derivative gains, partially offset by a decrease in
net impairments of available-for-sale securities recognized in
earnings. Comprehensive income for our Investments segment
decreased by $1.3 billion to $2.0 billion during the
three months ended March 31, 2012, compared to
$3.3 billion during the three months ended March 31,
2011, primarily due to a smaller improvement in the fair value
of available-for-sale securities.
During the three months ended March 31, 2012, the UPB of
the Investments segment mortgage investments portfolio decreased
at an annualized rate of 28.7%. We held $229.2 billion of
agency securities and $84.2 billion of non-agency
mortgage-related securities as of March 31, 2012, compared
to $253.6 billion of agency securities and
$86.5 billion of non-agency mortgage-related securities as
of December 31, 2011. The decline in UPB of agency
securities is due mainly to liquidations, including prepayments
and selected sales. The decline in UPB of non-agency
mortgage-related securities is due mainly to the receipt of
monthly remittances of principal repayments from both the
recoveries of liquidated loans and, to a lesser extent,
voluntary repayments of the underlying collateral, representing
a partial return of our investments in these securities. Since
the beginning of 2007, we have incurred actual principal cash
shortfalls of $1.8 billion on impaired non-agency
mortgage-related securities in the Investments segment. 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 by $110 million and 19 basis points,
respectively, during the three months ended March 31, 2012,
compared to the three months ended March 31, 2011. 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 and limited purchase activity.
Segment Earnings non-interest income (loss) was
$(233) million during the three months ended March 31,
2012, compared to $310 million during the three months
ended March 31, 2011. This change was mainly due to
decreased derivative gains, partially offset by a decrease in
net impairments of available-for-sale securities recognized in
earnings.
Impairments recorded in our Investments segment were
$496 million during the three months ended March 31,
2012, compared to $1.0 billion during the three months
ended March 31, 2011. Impairments recorded in both periods
were primarily due to our expectation of slower prepayments,
which resulted in higher credit losses, on our non-agency
mortgage-related securities. Increasing interest rates also
contributed to the impairments recorded during the three months
ended March 31, 2011, while lower interest rates during the
three months ended March 31, 2012 resulted in a slight
benefit from expected structural credit enhancements on the
available-for-sale securities. 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 losses on trading securities of $398 million
during the three months ended March 31, 2012, compared to
$234 million during the three months ended March 31,
2011. Losses in both periods were primarily due to the movement
of securities with unrealized gains towards maturity. The losses
during the three months ended March 31, 2011 were partially
offset by larger fair value gains compared to the three months
ended March 31, 2012, due to a tightening of OAS levels on
agency securities.
We recorded derivative gains for this segment of
$200 million during the three months ended March 31,
2012, compared to $1.1 billion during the three months
ended March 31, 2011. While derivatives are an important
aspect of our strategy to manage 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 both the three months ended March 31, 2012 and 2011,
swap interest rate changes resulted in fair value gains on our
pay-fixed swaps, largely offset by: (a) fair value losses
on our receive-fixed swaps; and (b) fair value losses on
our option-based derivatives resulting from losses on our
purchased call swaptions, due to an increase in long-term
interest rates. The fair value of derivatives during the three
months ended March 31, 2012 reflects a decline in
short-term interest rates and an increase in longer-term
interest rates compared to the three months ended March 31,
2011, when both short-term and longer-term interest rates
increased. See Non-Interest Income (Loss)
Derivative Gains (Losses) for additional
information on our derivatives.
Our Investments segments total other comprehensive income
was $335 million during the three months ended
March 31, 2012, compared to $1.1 billion during the
three months ended March 31, 2011. Net unrealized losses in
AOCI on our available-for-sale securities decreased by
$242 million during the three months ended March 31,
2012, primarily due to the impact of fair value gains related to
the movement of non-agency mortgage-related securities with
unrealized losses towards maturity and the recognition in
earnings of other-than-temporary impairments on our non-agency
mortgage-related securities, partially offset by fair value
losses related to the movement of agency securities with
unrealized gains towards maturity. 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. The changes in fair value of CMBS,
excluding impacts from the changes in interest rates, are
reflected in the Multifamily segment.
For a discussion of items that may impact our Investments
segment net interest income over time, see EXECUTIVE
SUMMARY Limits on Investment Activity and Our
Mortgage-Related Investments Portfolio.
Single-Family
Guarantee
The table below 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,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(32
|
)
|
|
$
|
100
|
|
Provision for credit losses
|
|
|
(2,184
|
)
|
|
|
(2,284
|
)
|
Non-interest income:
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
1,011
|
|
|
|
870
|
|
Other non-interest income
|
|
|
181
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,192
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(193
|
)
|
|
|
(215
|
)
|
REO operations expense
|
|
|
(172
|
)
|
|
|
(257
|
)
|
Other non-interest expense
|
|
|
(73
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(438
|
)
|
|
|
(538
|
)
|
|
|
|
|
|
|
|
|
|
Segment
adjustments(2)
|
|
|
(196
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss) before income tax (expense) benefit
|
|
|
(1,658
|
)
|
|
|
(1,826
|
)
|
Income tax (expense) benefit
|
|
|
(17
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
(1,675
|
)
|
|
|
(1,820
|
)
|
Total other comprehensive income (loss), net of taxes
|
|
|
(23
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(1,698
|
)
|
|
$
|
(1,824
|
)
|
|
|
|
|
|
|
|
|
|
Key metrics:
|
|
|
|
|
|
|
|
|
Balances and Volume (in billions, except rate):
|
|
|
|
|
|
|
|
|
Average balance of single-family credit guarantee portfolio and
HFA guarantees
|
|
$
|
1,741
|
|
|
$
|
1,819
|
|
Issuance Single-family credit
guarantees(3)
|
|
$
|
111
|
|
|
$
|
96
|
|
Fixed-rate products Percentage of
purchases(4)
|
|
|
95
|
%
|
|
|
94
|
%
|
Liquidation rate Single-family credit guarantees
(annualized)(5)
|
|
|
30
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
Management and Guarantee Fee Rate (in bps, annualized):
|
|
|
|
|
|
|
|
|
Contractual management and guarantee fees
|
|
|
14.3
|
|
|
|
13.6
|
|
Amortization of delivery fees
|
|
|
8.9
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings management and guarantee income
|
|
|
23.2
|
|
|
|
19.1
|
|
|
|
|
|
|
|
|
|
|
Credit:
|
|
|
|
|
|
|
|
|
Serious delinquency rate, at end of period
|
|
|
3.51
|
%
|
|
|
3.63
|
%
|
REO inventory, at end of period (number of properties)
|
|
|
59,307
|
|
|
|
65,159
|
|
Single-family credit losses, in bps
(annualized)(6)
|
|
|
78.6
|
|
|
|
71.0
|
|
Market:
|
|
|
|
|
|
|
|
|
Single-family mortgage debt outstanding (total U.S. market, in
billions)(7)
|
|
$
|
10,291
|
|
|
$
|
10,453
|
|
30-year
fixed mortgage
rate(8)
|
|
|
4.0
|
%
|
|
|
4.9
|
%
|
|
|
(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 13:
SEGMENT REPORTING Table 13.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
For a description of our segment adjustments, see
NOTE 14: SEGMENT REPORTING Segment
Earnings in our 2011 Annual Report.
|
(3)
|
Based on UPB.
|
(4)
|
Excludes Other Guarantee Transactions.
|
(5)
|
Represents principal repayments relating to loans underlying
Freddie Mac mortgage-related securities and other guarantee
commitments, including those related to our removal of seriously
delinquent and modified mortgage loans and balloon/reset
mortgage loans out of PC pools.
|
(6)
|
Calculated as the amount of single-family credit losses divided
by the sum of the average carrying value of our single-family
credit guarantee portfolio and the average balance of our
single-family HFA initiative guarantees.
|
(7)
|
Source: Federal Reserve Flow of Funds Accounts of the United
States of America dated March 8, 2012. The outstanding
amount for March 31, 2012 reflects the balance as of
December 31, 2011.
|
(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%.
|
Segment Earnings (loss) for our Single-family Guarantee segment
improved to $(1.7) billion in the first quarter of 2012
compared to $(1.8) billion in the first quarter of 2011,
primarily due to an increase in management and guarantee income
and a decline in Segment Earnings provision for credit losses.
The table below provides summary information about the
composition of Segment Earnings (loss) for this segment for the
three months ended March 31, 2012 and 2011.
Table 14
Segment Earnings Composition Single-Family Guarantee
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2012
|
|
|
|
Segment Earnings
|
|
|
|
|
|
|
|
|
|
Management and
|
|
|
|
|
|
|
|
|
|
Guarantee
Income(1)
|
|
|
Credit
Expenses(2)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Net
|
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount(4)
|
|
|
|
(dollars in millions, rates in bps)
|
|
|
Year of
origination:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
17
|
|
|
|
13.9
|
|
|
$
|
(4
|
)
|
|
|
2.6
|
|
|
$
|
13
|
|
2011
|
|
|
185
|
|
|
|
25.3
|
|
|
|
(53
|
)
|
|
|
7.4
|
|
|
|
132
|
|
2010
|
|
|
195
|
|
|
|
26.1
|
|
|
|
(103
|
)
|
|
|
13.4
|
|
|
|
92
|
|
2009
|
|
|
199
|
|
|
|
27.4
|
|
|
|
(106
|
)
|
|
|
14.7
|
|
|
|
93
|
|
2008
|
|
|
86
|
|
|
|
25.1
|
|
|
|
(204
|
)
|
|
|
73.5
|
|
|
|
(118
|
)
|
2007
|
|
|
83
|
|
|
|
19.0
|
|
|
|
(791
|
)
|
|
|
200.3
|
|
|
|
(708
|
)
|
2006
|
|
|
53
|
|
|
|
18.9
|
|
|
|
(463
|
)
|
|
|
157.2
|
|
|
|
(410
|
)
|
2005
|
|
|
61
|
|
|
|
19.1
|
|
|
|
(451
|
)
|
|
|
135.3
|
|
|
|
(390
|
)
|
2004 and prior
|
|
|
132
|
|
|
|
20.4
|
|
|
|
(181
|
)
|
|
|
25.4
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,011
|
|
|
|
23.2
|
|
|
$
|
(2,356
|
)
|
|
|
53.9
|
|
|
$
|
(1,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
Net interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
Other non-interest income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
Segment Earnings
|
|
|
|
|
|
|
|
|
|
Management and
|
|
|
|
|
|
|
|
|
|
Guarantee
Income(1)
|
|
|
Credit
Expenses(2)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Net
|
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount
|
|
|
Rate(3)
|
|
|
Amount(4)
|
|
|
|
(dollars in millions, rates in bps)
|
|
|
Year of
origination:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
26
|
|
|
|
15.0
|
|
|
$
|
(3
|
)
|
|
|
3.2
|
|
|
$
|
23
|
|
2010
|
|
|
184
|
|
|
|
20.6
|
|
|
|
(52
|
)
|
|
|
5.6
|
|
|
|
132
|
|
2009
|
|
|
170
|
|
|
|
18.5
|
|
|
|
(56
|
)
|
|
|
6.0
|
|
|
|
114
|
|
2008
|
|
|
110
|
|
|
|
24.6
|
|
|
|
(228
|
)
|
|
|
61.6
|
|
|
|
(118
|
)
|
2007
|
|
|
101
|
|
|
|
18.8
|
|
|
|
(888
|
)
|
|
|
181.1
|
|
|
|
(787
|
)
|
2006
|
|
|
59
|
|
|
|
17.0
|
|
|
|
(788
|
)
|
|
|
215.2
|
|
|
|
(729
|
)
|
2005
|
|
|
66
|
|
|
|
16.6
|
|
|
|
(418
|
)
|
|
|
100.2
|
|
|
|
(352
|
)
|
2004 and prior
|
|
|
154
|
|
|
|
18.4
|
|
|
|
(108
|
)
|
|
|
11.7
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
870
|
|
|
|
19.1
|
|
|
$
|
(2,541
|
)
|
|
|
55.9
|
|
|
$
|
(1,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215
|
)
|
Net interest income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Other non-interest income and expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings (loss), net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes amortization of delivery fees of $388 million and
$252 million for first quarters of 2012 and 2011,
respectively.
|
(2)
|
Consists of the aggregate of the Segment Earnings provision for
credit losses and Segment Earnings REO operations expense.
Historical rates of average credit expenses may not be
representative of future results. In the first quarter of 2012,
we enhanced our method of allocating credit expenses by loan
origination year. Prior period amounts have been revised to
conform to the current period presentation.
|
(3)
|
Calculated as the annualized amount of Segment Earnings
management and guarantee income or credit expenses,
respectively, divided by the sum of the average carrying values
of the single-family credit guarantee portfolio and the average
balance of our single-family HFA initiative guarantees.
|
(4)
|
Calculated as Segment Earnings management and guarantee income
less credit expenses.
|
(5)
|
Segment Earnings management and guarantee income is presented by
year of guarantee origination, whereas credit expenses are
presented based on year of loan origination.
|
As of March 31, 2012, loans originated after 2008 have, on
a cumulative basis, provided management and guarantee fee income
that has exceeded the credit-related and administrative expenses
associated with these loans. 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
these new guarantee issuances, will provide management and
guarantee fee income, over the long term, that exceeds our
expected credit-related and administrative expenses associated
with the underlying loans. Nevertheless, various factors, such
as continued high unemployment rates, further declines in home
prices, or negative impacts of HARP loans originated in recent
years (which may not perform as well as other refinance
mortgages, due in part to the high LTV ratios of the loans),
could require us to incur expenses on these loans beyond our
current expectations.
Based on our historical experience, we expect that the
performance of the loans in an individual origination year will
vary over time. The aggregate UPB of the loans from an
origination year will decline over time due to repayments,
refinancing, and other liquidation events, resulting in
declining management and guarantee fee income from the loans in
that origination year in future periods. In addition, we expect
that the credit-related expenses related to the remaining loans
in the origination year will increase over time, as some
borrowers experience financial difficulties and default on their
loans. As a result, there will likely be periods when an
origination year is not profitable, though it may remain
profitable on a cumulative basis.
Our management and guarantee fee income associated with
guarantee issuances in 2005 through 2008 has not been adequate
to cover the credit and administrative expenses associated with
such loans, primarily due to the high rate of defaults on the
loans originated in those years coupled with a high volume of
refinancing since 2008. High levels of refinancing and
delinquency since 2008 have significantly reduced the balance of
performing loans from those years that remain in our portfolio
and consequently reduced management and guarantee income
associated with loans originated in 2005 through 2008 (we do not
recognize Segment Earnings management and guarantee income on
non-accrual mortgage 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 for the foreseeable future.
Consequently, we expect to continue reporting net losses for the
Single-family Guarantee segment throughout 2012.
Segment Earnings management and guarantee income increased in
the first quarter of 2012, as compared to the first quarter of
2011, primarily due to an increase in amortization of delivery
fees. This was driven by a higher volume of delivery fees and
the lower interest rate environment during the first quarter of
2012, which increased refinance activity.
The UPB of the Single-family Guarantee managed loan portfolio
was $1.7 trillion at both March 31, 2012 and
December 31, 2011. The annualized liquidation rate on our
securitized single-family credit guarantees was approximately
30% and 28% for the first quarters of 2012 and 2011,
respectively, and remained high in the first quarter of 2012 due
to significant refinancing activity. We expect the size of our
Single-family Guarantee managed loan portfolio will continue to
decline during 2012.
Refinance volumes were high during the first quarter of 2012 due
to continued low interest rates, and represented 87% of our
single-family mortgage purchase volume during the first quarter
of 2012, compared to 85% of our single-family mortgage purchase
volume during the first quarter of 2011, based on UPB. Relief
refinance mortgages comprised approximately 31% and 36% of our
total refinance volume during the first quarters of 2012 and
2011, respectively. Over time, relief refinance mortgages with
LTV ratios above 80% (i.e., HARP loans) may not perform
as well as other refinance mortgages because the continued high
LTV ratios of these loans increases the probability of default.
Based on our historical experience, there is an increase in
borrower default risk as LTV ratios increase, particularly for
loans with LTV ratios above 80%. In addition, relief refinance
mortgages may not be covered by mortgage insurance for the full
excess of their UPB over 80%. Approximately 16% and 15% of our
single-family purchase volume in the first quarters of 2012 and
2011, respectively, was relief refinance mortgages with LTV
ratios above 80%. Relief refinance mortgages of all LTV ratios
comprised approximately 13% and 11% of the UPB in our total
single-family credit guarantee portfolio at March 31, 2012
and December 31, 2011, respectively.
On October 24, 2011, FHFA, Freddie Mac, and Fannie Mae
announced a series of FHFA-directed changes to HARP in an effort
to attract more eligible borrowers whose monthly payments are
current and who can benefit from refinancing their home
mortgages. For more information about our relief refinance
mortgage initiative, see RISK MANAGEMENT
Credit Risk Mortgage Credit Risk
Single-Family Mortgage Credit Risk Single-Family
Loan Workouts and the MHA Program.
Similar to our purchases in 2009 through 2011, the credit
quality of the single-family loans we acquired in the first
quarter of 2012 (excluding relief refinance mortgages) is
significantly better than that of loans we acquired from 2005
through 2008, as measured by original LTV ratios, FICO scores,
and the proportion of loans underwritten with fully documented
income. Mortgages originated after 2008, including relief
refinance mortgages, represent more than half of the UPB of our
single-family credit guarantee portfolio as of March 31,
2012, and their composition of that portfolio continues to grow.
Provision for credit losses for the Single-family Guarantee
segment declined to $2.2 billion in the first quarter of
2012, compared to $2.3 billion in the first quarter of
2011. The provision for credit losses for the first quarter of
2012 reflects stabilizing expected loss severity and a decline
in the number of seriously delinquent loan additions, while the
first quarter of 2011 reflects worsening expected loss severity
and higher modification volumes offset by a decline in the rate
at which seriously delinquent loans ultimately transition to a
loss event.
Single-family credit losses as a percentage of the average
balance of the single-family credit guarantee portfolio and
HFA-related guarantees were 79 basis points and
71 basis points for the first quarters of 2012 and 2011,
respectively. Charge-offs, net of recoveries, associated with
single-family loans were $3.3 billion and $3.0 billion
in the first quarters of 2012 and 2011, respectively. See
RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Single-Family
Mortgage Credit Risk for further information on our
single-family credit guarantee portfolio, including credit
performance, charge-offs, and our non-performing assets.
The serious delinquency rate on our single-family credit
guarantee portfolio was 3.51% and 3.58% as of March 31,
2012 and December 31, 2011, respectively, and declined
during the first quarter of 2012 primarily due to a high volume
of foreclosure transfers and a slowdown in new serious
delinquencies. Our serious delinquency rate remains high
compared to historical levels due to the continued weakness in
home prices, persistently high unemployment, extended
foreclosure timelines, and continued challenges faced by
servicers processing large volumes of problem loans. In
addition, our serious delinquency rate was adversely impacted by
the decline in the size of our single-family credit guarantee
portfolio in the first quarter of 2012 because this rate is
calculated on a smaller number of loans at the end of the period.
Segment Earnings REO operations expense was $172 million
and $257 million in the first quarters of 2012, and 2011,
respectively. The decrease in the first quarter of 2012,
compared to the first quarter of 2011, was primarily due to
stabilizing home prices in certain geographical areas with
significant REO activity, which resulted in gains on disposition
of properties as well as lower write-downs of single-family REO
inventory during the first quarter of 2012. However, we
experienced lower recoveries on REO properties during the first
quarter of 2012, compared to the first quarter of 2011,
primarily due to reduced recoveries from mortgage insurers due,
in part to the continued weakness in the financial condition of
our mortgage insurance counterparties, and a decline in
reimbursements of losses from seller/servicers associated with
repurchase requests.
Our REO inventory (measured in number of properties) declined 2%
from December 31, 2011 to March 31, 2012 as the volume
of single-family REO dispositions exceeded the volume of
single-family REO acquisitions. We continued to experience high
REO disposition severity ratios on sales of our REO inventory
during the first quarter of 2012. We believe our single-family
REO acquisition volume and single-family credit losses in the
first quarter of 2012 have been less than they otherwise would
have been due to delays in the single-family foreclosure
process, particularly in states that require a judicial
foreclosure process.
Multifamily
The table below presents the Segment Earnings of our Multifamily
segment.
Table 15
Segment Earnings and Key Metrics
Multifamily(1)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(dollars in millions)
|
|
|
Segment Earnings:
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
318
|
|
|
$
|
279
|
|
(Provision) benefit for credit losses
|
|
|
19
|
|
|
|
60
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
Management and guarantee income
|
|
|
33
|
|
|
|
28
|
|
Net impairment of available-for-sale securities recognized in
earnings
|
|
|
(16
|
)
|
|
|
(135
|
)
|
Gains (losses) on sale of mortgage loans
|
|
|
54
|
|
|
|
83
|
|
Gains (losses) on mortgage loans recorded at fair value
|
|
|
177
|
|
|
|
50
|
|
Other non-interest income (loss)
|
|
|
109
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
357
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
|
(52
|
)
|
|
|
(51
|
)
|
REO operations income (expense)
|
|
|
1
|
|
|
|
|
|
Other non-interest expense
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
(66
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
Segment Earnings before income tax benefit (expense)
|
|
|
628
|
|
|
|
357
|
|
Income tax benefit (expense)
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Segment Earnings, net of taxes
|
|
|
624
|
|
|
|
359
|
|
Total other comprehensive income, net of taxes
|
|
|
900
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,524
|
|
|
$
|
1,301
|
|
|
|
|
|
|
|
|
|
|
Key metrics:
|
|
|
|
|
|
|
|
|
Balances and Volume:
|
|
|
|
|
|
|
|
|
Average balance of Multifamily loan portfolio
|
|
$
|
83,130
|
|
|
$
|
85,779
|
|
Average balance of Multifamily guarantee portfolio
|
|
$
|
36,645
|
|
|
$
|
25,312
|
|
Average balance of Multifamily investment securities portfolio
|
|
$
|
58,028
|
|
|
$
|
62,842
|
|
Multifamily new loan purchase and other guarantee commitment
volume
|
|
$
|
5,751
|
|
|
$
|
3,049
|
|
Multifamily units financed from new volume activity
|
|
|
86,431
|
|
|
|
52,641
|
|
Multifamily Other Guarantee Transaction issuance
|
|
$
|
3,139
|
|
|
$
|
2,906
|
|
Yield and Rate:
|
|
|
|
|
|
|
|
|
Net interest yield Segment Earnings basis
(annualized)
|
|
|
0.90
|
%
|
|
|
0.75
|
%
|
Average Management and guarantee fee rate, in bps
(annualized)(2)
|
|
|
38.7
|
|
|
|
46.8
|
|
Credit:
|
|
|
|
|
|
|
|
|
Delinquency rate:
|
|
|
|
|
|
|
|
|
Credit-enhanced loans, at period end
|
|
|
0.39
|
%
|
|
|
0.75
|
%
|
Non-credit-enhanced loans, at period end
|
|
|
0.16
|
%
|
|
|
0.25
|
%
|
Total delinquency rate, at period
end(3)
|
|
|
0.23
|
%
|
|
|
0.36
|
%
|
Allowance for loan losses and reserve for guarantee losses, at
period end
|
|
$
|
525
|
|
|
$
|
747
|
|
Allowance for loan losses and reserve for guarantee losses, in
bps
|
|
|
43.6
|
|
|
|
67.4
|
|
Credit losses, in bps
(annualized)(4)
|
|
|
|
|
|
|
4.2
|
|
REO inventory, at net carrying value
|
|
$
|
121
|
|
|
$
|
115
|
|
REO inventory, at period end (number of properties)
|
|
|
16
|
|
|
|
15
|
|
|
|
(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 13:
SEGMENT REPORTING Table 13.2
Segment Earnings and Reconciliation to GAAP Results.
|
(2)
|
Represents Multifamily Segment Earnings management
and guarantee income, excluding prepayment and certain other
fees, divided by the sum of the average balance of the
multifamily guarantee portfolio and the average balance of
guarantees associated with the HFA initiative, excluding certain
bonds under the NIBP.
|
(3)
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk Multifamily Mortgage Credit
Risk for information on our reported multifamily
delinquency rate.
|
(4)
|
Calculated as the amount of multifamily credit losses divided by
the sum of the average carrying value of our multifamily loan
portfolio and the average balance of the multifamily guarantee
portfolio, including multifamily HFA initiative guarantees.
|
Segment Earnings for our Multifamily segment increased to
$624 million in the first quarter of 2012, compared to
$359 million in the first quarter of 2011, primarily due to
lower impairment associated with available-for-sale CMBS and
higher gains on mortgage loans recorded at fair value in the
first quarter of 2012. Our comprehensive income for our
Multifamily segment was $1.5 billion in the first quarter
of 2012, consisting of: (a) Segment Earnings of
$0.6 billion; and (b) $0.9 billion of total other
comprehensive income, which was mainly attributable to favorable
changes in fair value of available-for-sale CMBS in the first
quarter of 2012.
Our multifamily loan purchase and guarantee volume increased to
$5.8 billion for first quarter of 2012, compared to
$3.0 billion during the first quarter of 2011, as strong
volumes from late in 2011 carried into the first quarter of
2012. However, we anticipate the growth in our purchase and
guarantee volumes will slow for the remainder of the year,
ultimately reflecting a more modest increase in 2012, compared
to 2011. We completed Other Guarantee Transactions of
$3.1 billion and $2.9 billion in UPB of multifamily
loans in the first quarters of 2012 and 2011, respectively. The
UPB of the total multifamily portfolio increased slightly to
$177.4 billion at March 31, 2012 from
$176.7 billion at December 31, 2011.
Segment Earnings net interest income increased by
$39 million, or 14%, to $318 million, in the first
quarter of 2012 from $279 million in the first quarter of
2011, primarily due to the cumulative effect of new business
volumes since 2008 which have higher yields relative to
allocated funding costs. Net interest yield was 90 and
75 basis points in the first quarters of 2012 and 2011,
respectively.
Segment Earnings non-interest income (loss) was
$357 million and $82 million in the first quarters of
2012 and 2011, respectively. The increase in the first quarter
of 2012 was primarily driven by lower security impairments on
CMBS and increased gains recognized on mortgage loans recorded
at fair value, reflecting favorable market spread movements and
higher amounts of loans held for subsequent securitization.
Segment Earnings gains (losses) on mortgage loans recorded at
fair value are presented net of changes in fair value due to
changes in interest rates.
While our Multifamily Segment Earnings management and guarantee
income increased 18% in the first quarter of 2012 compared to
the first quarter of 2011, the average management and guarantee
fee rate on our guarantee portfolio declined to 39 basis
points in the first quarter of 2012 from 47 basis points in
the first quarter of 2011. The decline in our average management
and guarantee fee rate in the first quarter of 2012 reflects the
impact from our increased volume of Other Guarantee
Transactions, which have lower credit risk associated with our
guarantee (and thus we charge a lower rate) relative to other
issued guarantees because these transactions contain significant
levels of credit enhancement through subordination.
Multifamily credit losses as a percentage of the combined
average balance of our multifamily loan and guarantee portfolios
were 0 and 4 basis points in the first quarters of 2012 and
2011, respectively. Our Multifamily segment recognized a benefit
for credit losses of $19 million and $60 million in
the first quarters of 2012 and 2011, respectively. Our loan loss
reserves associated with our multifamily mortgage portfolio were
$525 million and $545 million as of March 31,
2012 and December 31, 2011, respectively. The decline in
our loan loss reserves in the first quarter of 2012 was
primarily driven by the increased seasoning of our portfolio and
the lower level of estimated incurred credit losses based on our
historical experience.
The credit quality of the multifamily mortgage portfolio remains
strong, as evidenced by low delinquency rates and credit losses,
which we believe reflects prudent underwriting practices. The
delinquency rate for loans in the multifamily mortgage portfolio
was 0.23% and 0.22%, as of March 31, 2012 and
December 31, 2011, respectively. As of March 31, 2012,
approximately half of the multifamily loans that were two or
more monthly payments past due, measured on a UPB basis, had
credit enhancements that we currently believe will mitigate our
expected losses on those loans. We expect our multifamily
delinquency rate to remain relatively low during the remainder
of 2012. See RISK MANAGEMENT Credit
Risk Mortgage Credit Risk
Multifamily Mortgage Credit Risk
for further information about our reported multifamily
delinquency rates and credit enhancements on multifamily loans.
For further information on delinquencies, including geographical
and other concentrations, see NOTE 15: CONCENTRATION
OF CREDIT AND OTHER RISKS.
CONSOLIDATED
BALANCE SHEETS ANALYSIS
The following discussion of our consolidated balance sheets
should be read in conjunction with our consolidated financial
statements, including the accompanying notes. Also, see
CRITICAL ACCOUNTING POLICIES AND ESTIMATES for
information concerning certain significant accounting policies
and estimates applied in determining our reported financial
position.
Cash and
Cash Equivalents, Federal Funds Sold and Securities Purchased
Under Agreements to Resell
Cash and cash equivalents, federal funds sold and securities
purchased under agreements to resell, and other liquid assets
discussed in Investments in Securities
Non-Mortgage-Related Securities, are important to
our cash flow and asset and liability management, and our
ability to provide liquidity and stability to the mortgage
market. We use these assets to help manage recurring cash flows
and meet our other cash management needs. We consider federal
funds sold to be overnight unsecured trades executed with
commercial banks that are members of the Federal Reserve System.
Securities purchased under agreements to resell principally
consist of short-term contractual agreements such as reverse
repurchase agreements involving Treasury and agency securities.
The short-term assets on our consolidated balance sheets also
include those related to our consolidated VIEs, which are
comprised primarily of restricted cash and cash equivalents at
March 31, 2012. These short-term assets, related to our
consolidated VIEs, increased by $2.7 billion from
December 31, 2011 to March 31, 2012, primarily due to
an increase in the level of refinancing activity.
Excluding amounts related to our consolidated VIEs, we held
$8.6 billion and $28.4 billion of cash and cash
equivalents, no federal funds sold, and $21.3 billion and
$12.0 billion of securities purchased under agreements to
resell at March 31, 2012 and December 31, 2011,
respectively. The aggregate decrease in these assets was
primarily driven by a decline in funding needs for debt
redemptions. In addition, excluding amounts related to our
consolidated VIEs, we held on average $27.6 billion of cash
and cash equivalents and $24.4 billion of federal funds
sold and securities purchased under agreements to resell during
the three months ended March 31, 2012.
For information regarding our liquidity management practices and
policies, see LIQUIDITY AND CAPITAL RESOURCES.
Investments
in Securities
The table below provides detail regarding our investments in
securities as of March 31, 2012 and December 31, 2011.
The table does not include our holdings of single-family PCs and
certain Other Guarantee Transactions as of March 31, 2012
and December 31, 2011. For information on our holdings of
such securities, see Table 11 Composition
of Segment Mortgage Portfolios and Credit Risk Portfolios.
Table 16
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in millions)
|
|
|
Investments in securities:
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
$
|
76,163
|
|
|
$
|
81,092
|
|
Subprime
|
|
|
27,145
|
|
|
|
27,999
|
|
CMBS
|
|
|
54,753
|
|
|
|
55,663
|
|
Option ARM
|
|
|
5,818
|
|
|
|
5,865
|
|
Alt-A and
other
|
|
|
11,094
|
|
|
|
10,879
|
|
Fannie Mae
|
|
|
18,897
|
|
|
|
20,322
|
|
Obligations of states and political subdivisions
|
|
|
7,565
|
|
|
|
7,824
|
|
Manufactured housing
|
|
|
748
|
|
|
|
766
|
|
Ginnie Mae
|
|
|
239
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
|
202,422
|
|
|
|
210,659
|
|
|
|
|
|
|
|
|
|
|
Total investments in available-for-sale securities
|
|
|
202,422
|
|
|
|
210,659
|
|
|
|
|
|
|
|
|
|
|
Trading:
|
|
|
|
|
|
|
|
|
Mortgage-related securities:
|
|
|
|
|
|
|
|
|
Freddie
Mac(1)
|
|
|
14,504
|
|
|
|
16,047
|
|
Fannie Mae
|
|
|
13,692
|
|
|
|
15,165
|
|
Ginnie Mae
|
|
|
151
|
|
|
|
156
|
|
Other
|
|
|
153
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Total trading mortgage-related securities
|
|
|
28,500
|
|
|
|
31,532
|
|
|
|
|
|
|
|
|
|
|
Non-mortgage-related securities:
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
695
|
|
|
|
302
|
|
Treasury bills
|
|
|
3,000
|
|
|
|
100
|
|
Treasury notes
|
|
|
23,164
|
|
|
|
24,712
|
|
FDIC-guaranteed corporate medium-term notes
|
|
|
2,960
|
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
Total trading non-mortgage-related securities
|
|
|
29,819
|
|
|
|
27,298
|
|
|
|
|
|
|
|
|
|
|
Total investments in trading securities
|
|
|
58,319
|
|
|
|
58,830
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
260,741
|
|
|
$
|
269,489
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For information on the types of instruments that are included,
see NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Investments in Securities in our 2011
Annual Report.
|
Non-Mortgage-Related
Securities
Our investments in non-mortgage-related securities provide an
additional source of liquidity. We held investments in
non-mortgage-related securities classified as trading of
$29.8 billion and $27.3 billion as of March 31,
2012 and December 31, 2011, respectively. While balances
may fluctuate from period to period, we continue to meet
required liquidity and contingency levels.
Mortgage-Related
Securities
Our investments in mortgage-related securities consist of
securities issued by Fannie Mae, Ginnie Mae, and other financial
institutions. We also invest in our own mortgage-related
securities. However, the single-family PCs and certain Other
Guarantee Transactions we purchase as investments are not
accounted for as investments in securities because we recognize
the underlying mortgage loans on our consolidated balance sheets
through consolidation of the related trusts.
The table below provides the UPB of our investments in
mortgage-related securities classified as available-for-sale or
trading on our consolidated balance sheets. The table below does
not include our holdings of our own single-family PCs and
certain Other Guarantee Transactions. For further information on
our holdings of such securities, see
Table 11 Composition of Segment Mortgage
Portfolios and Credit Risk Portfolios.
Table 17
Characteristics of Mortgage-Related Securities on Our
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
Total
|
|
|
Rate
|
|
|
Rate(1)
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Freddie Mac mortgage-related
securities:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
$
|
68,545
|
|
|
$
|
9,064
|
|
|
$
|
77,609
|
|
|
$
|
72,795
|
|
|
$
|
9,753
|
|
|
$
|
82,548
|
|
Multifamily
|
|
|
859
|
|
|
|
1,755
|
|
|
|
2,614
|
|
|
|
1,216
|
|
|
|
1,792
|
|
|
|
3,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities
|
|
|
69,404
|
|
|
|
10,819
|
|
|
|
80,223
|
|
|
|
74,011
|
|
|
|
11,545
|
|
|
|
85,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
securities:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
14,859
|
|
|
|
14,908
|
|
|
|
29,767
|
|
|
|
16,543
|
|
|
|
15,998
|
|
|
|
32,541
|
|
Multifamily
|
|
|
47
|
|
|
|
76
|
|
|
|
123
|
|
|
|
52
|
|
|
|
76
|
|
|
|
128
|
|
Ginnie Mae:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family
|
|
|
243
|
|
|
|
100
|
|
|
|
343
|
|
|
|
253
|
|
|
|
104
|
|
|
|
357
|
|
Multifamily
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Freddie Mac agency securities
|
|
|
15,165
|
|
|
|
15,084
|
|
|
|
30,249
|
|
|
|
16,864
|
|
|
|
16,178
|
|
|
|
33,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency mortgage-related securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime
|
|
|
332
|
|
|
|
47,519
|
|
|
|
47,851
|
|
|
|
336
|
|
|
|
48,696
|
|
|
|
49,032
|
|
Option ARM
|
|
|
|
|
|
|
13,508
|
|
|
|
13,508
|
|
|
|
|
|
|
|
13,949
|
|
|
|
13,949
|
|
Alt-A and
other
|
|
|
2,047
|
|
|
|
14,272
|
|
|
|
16,319
|
|
|
|
2,128
|
|
|
|
14,662
|
|
|
|
16,790
|
|
CMBS
|
|
|
19,113
|
|
|
|
33,122
|
|
|
|
52,235
|
|
|
|
19,735
|
|
|
|
34,375
|
|
|
|
54,110
|
|
Obligations of states and political
subdivisions(5)
|
|
|
7,448
|
|
|
|
22
|
|
|
|
7,470
|
|
|
|
7,771
|
|
|
|
22
|
|
|
|
7,793
|
|
Manufactured housing
|
|
|
797
|
|
|
|
138
|
|
|
|
935
|
|
|
|
831
|
|
|
|
129
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency mortgage-related
securities(6)
|
|
|
29,737
|
|
|
|
108,581
|
|
|
|
138,318
|
|
|
|
30,801
|
|
|
|
111,833
|
|
|
|
142,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of mortgage-related securities
|
|
$
|
114,306
|
|
|
$
|
134,484
|
|
|
|
248,790
|
|
|
$
|
121,676
|
|
|
$
|
139,556
|
|
|
|
261,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums, discounts, deferred fees, impairments of UPB and other
basis adjustments
|
|
|
|
|
|
|
|
|
|
|
(12,724
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,363
|
)
|
Net unrealized (losses) on mortgage-related securities, pre-tax
|
|
|
|
|
|
|
|
|
|
|
(5,144
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value of mortgage-related securities
|
|
|
|
|
|
|
|
|
|
$
|
230,922
|
|
|
|
|
|
|
|
|
|
|
$
|
242,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
When we purchase REMICs and Other Structured Securities and
certain Other Guarantee Transactions that we have issued, we
account for these securities as investments in debt securities
as we are investing in the debt securities of a non-consolidated
entity. We do not consolidate our resecuritization trusts since
we are not deemed to be the primary beneficiary of such trusts.
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. See NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Investments in
Securities in our 2011 Annual Report for further
information.
|
(3)
|
Agency securities are generally not separately rated by
nationally recognized statistical rating organizations, but have
historically been viewed as having a level of credit quality at
least equivalent to non-agency mortgage-related securities
AAA-rated or equivalent.
|
(4)
|
For information about how these securities are rated, see
Table 23 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 36% and 37% of
these securities held at March 31, 2012 and
December 31, 2011, respectively, were AAA-rated as of those
dates, based on the UPB and 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 21% of total
non-agency mortgage-related securities held at both
March 31, 2012 and December 31, 2011 were AAA-rated as
of those dates, based on the UPB and the lowest rating available.
|
The table below provides the UPB and fair value of our
investments in mortgage-related securities classified as
available-for-sale or trading on our consolidated balance sheets.
Table 18
Additional Characteristics of Mortgage-Related Securities on Our
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
December 31, 2011
|
|
|
|
UPB
|
|
|
Fair Value
|
|
|
UPB
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
Agency pass-through
securities(1)
|
|
$
|
22,093
|
|
|
$
|
23,940
|
|
|
$
|
24,283
|
|
|
$
|
26,193
|
|
Agency REMICs and Other Structured Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only
securities(2)
|
|
|
|
|
|
|
2,725
|
|
|
|
|
|
|
|
2,863
|
|
Principal-only
securities(3)
|
|
|
3,284
|
|
|
|
3,057
|
|
|
|
3,569
|
|
|
|
3,344
|
|
Inverse floating-rate
securities(4)
|
|
|
4,439
|
|
|
|
6,165
|
|
|
|
4,839
|
|
|
|
6,826
|
|
Other Structured Securities
|
|
|
80,656
|
|
|
|
87,759
|
|
|
|
85,907
|
|
|
|
93,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
110,472
|
|
|
|
123,646
|
|
|
|
118,598
|
|
|
|
133,031
|
|
Non-agency
securities(5)
|
|
|
138,318
|
|
|
|
107,276
|
|
|
|
142,634
|
|
|
|
109,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-related securities
|
|
$
|
248,790
|
|
|
$
|
230,922
|
|
|
$
|
261,232
|
|
|
$
|
242,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents an undivided beneficial interest in trusts that hold
pools of mortgages.
|
(2)
|
Represents securities where the holder receives only the
interest cash flows.
|
(3)
|
Represents securities where the holder receives only the
principal cash flows.
|
(4)
|
Represents securities where the holder receives interest cash
flows that change inversely with the reference rate (i.e.
higher cash flows when interest rates are low and lower cash
flows when interest rates are high). Additionally, these
securities receive a portion of principal cash flows associated
with the underlying collateral.
|
(5)
|
Includes fair values of $3 million and $2 million of
interest-only securities at March 31, 2012 and
December 31, 2011, respectively.
|
The total UPB of our investments in mortgage-related securities
on our consolidated balance sheets decreased from
$261.2 billion at December 31, 2011 to
$248.8 billion at March 31, 2012, while the fair value
of these investments decreased from $242.2 billion at
December 31, 2011 to $230.9 billion at March 31,
2012. The reduction resulted from our purchase activity
remaining less than liquidations, consistent with our efforts to
reduce our mortgage-related investments portfolio, as described
in EXECUTIVE SUMMARY Limits on Investment
Activity and Our Mortgage-Related Investments Portfolio.
The table below summarizes our mortgage-related securities
purchase activity for the three months ended March 31, 2012
and 2011. 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 19
Mortgage-Related Securities Purchase
Activity(1)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
(in millions)
|
|
|
Non-Freddie Mac mortgage-related securities purchased for
resecuritization:
|
|
|
|
|
|
|
|
|
Ginnie Mae Certificates
|
|
$
|
5
|
|
|
$
|
16
|
|
Non-agency mortgage-related securities purchased for Other
Guarantee Transactions
|
|
|
3,124
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased for
resecuritization
|
|
|
3,129
|
|
|
|
2,895
|
|
|
|
|
|
|
|
|
|
|
Non-Freddie Mac mortgage-related securities purchased as
investments in securities:
|
|
|
|
|
|
|
|
|
Agency securities:
|
|
|
|
|
|
|
|
|
Fannie Mae:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
|
|
|
|
1,019
|
|
Variable-rate
|
|
|
50
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
Total agency securities
|
|
|
50
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
Non-agency mortgage-related securities:
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
Variable-rate
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-agency mortgage-related securities
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
as investments in securities
|
|
|
60
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
Total non-Freddie Mac mortgage-related securities purchased
|
|
$
|
3,189
|
|
|
$
|
4,082
|
|
|
|
|
|
|
|
|
|
|
Freddie Mac mortgage-related securities purchased:
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
$
|
3,465
|
|
|
$
|
36,679
|
|
Variable-rate
|
|
|
132
|
|
|
|
2,542
|
|
Multifamily:
|
|
|
|
|
|
|
|
|
Fixed-rate
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Total Freddie Mac mortgage-related securities purchased
|
|
$
|
3,597
|
|
|
$
|
39,246
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based on UPB. Excludes mortgage-related securities traded but
not yet settled.
|
During the three months ended March 31, 2012, we reduced
our participation in dollar roll transactions, which were
primarily used to support the market and pricing of our PCs, as
compared to the three months ended March 31, 2011. When
these transactions involve our consolidated PC trusts, the
purchase and sale represents an extinguishment and issuance of
debt securities, respectively, and impacts our net interest
income and recognition of gain or loss on the extinguishment of
debt on our consolidated statements of comprehensive income.
These transactions can cause short-term fluctuations in the
balance of our mortgage-related investments portfolio. The
purchases during the three months ended March 31, 2011
reflected in Table 19 Mortgage-Related
Securities Purchase Activity are attributed primarily to
these transactions. For more information, see
BUSINESS Our Business Segments
Investments Segment PC Support
Activities and RISK FACTORS
Competitive and Market Risks Any decline in the
price performance of or demand for our PCs could have an adverse
effect on the volume and profitability of our new single-family
guarantee business in our 2011 Annual Report.
Unrealized
Losses on Available-For-Sale Mortgage-Related
Securities
At March 31, 2012, our gross unrealized losses, pre-tax, on
available-for-sale mortgage-related securities were
$18.7 billion, compared to $20.1 billion at
December 31, 2011. The decrease was primarily due to fair
value gains related to the movement of non-agency
mortgage-related securities with unrealized losses towards
maturity and 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, 2012 were mainly attributable to poor underlying
collateral performance, limited liquidity and large risk
premiums in the market for residential non-agency
mortgage-related securities. All available-for-sale securities
in an unrealized loss position are evaluated to determine if the
impairment is other-than-temporary. See Total Equity
(Deficit) and NOTE 7: INVESTMENTS IN
SECURITIES for additional information regarding unrealized
losses on our available-for-sale securities.
Higher-Risk
Components of Our Investments in Mortgage-Related
Securities
As discussed below, we have exposure to subprime, option ARM,
interest-only, and
Alt-A and
other loans as part of our investments in mortgage-related
securities as follows:
|
|
|
|
|
Single-family non-agency mortgage-related
securities: We hold non-agency mortgage-related
securities backed by subprime, option ARM, and
Alt-A and
other loans.
|
|
|
|
|
|
Single-family Freddie Mac mortgage-related
securities: We hold certain Other Guarantee
Transactions as part of our investments in securities. There are
subprime and option ARM loans underlying some of these Other
Guarantee Transactions. For more information on single-family
loans with certain higher-risk characteristics underlying our
issued securities, see RISK MANAGEMENT Credit
Risk Mortgage Credit Risk.
|
Non-Agency
Mortgage-Related Securities Backed by Subprime, Option ARM, and
Alt-A
Loans
We categorize our investments in non-agency mortgage-related
securities as subprime, option ARM, or
Alt-A if the
securities were identified as such based on information provided
to us when we entered into these transactions. We have not
identified option ARM, CMBS, obligations of states and political
subdivisions, and manufactured housing securities as either
subprime or
Alt-A
securities. Since the first quarter of 2008, we have not
purchased any non-agency mortgage-related securities backed by
subprime, option ARM, or
Alt-A loans.
The two tables below present information about our holdings of
our available-for-sale non-agency mortgage-related securities
backed by subprime, option ARM and
Alt-A loans.
Table 20
Non-Agency Mortgage-Related Securities Backed by Subprime First
Lien, Option ARM, and
Alt-A Loans
and Certain Related Credit
Statistics(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
3/31/2012
|
|
12/31/2011
|
|
9/30/2011
|
|
6/30/2011
|
|
3/31/2011
|
|
|
(dollars in millions)
|
|
UPB:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
$
|
47,478
|
|
|
$
|
48,644
|
|
|
$
|
49,794
|
|
|
$
|
51,070
|
|
|
$
|
52,403
|
|
Option ARM
|
|
|
13,508
|
|
|
|
13,949
|
|
|
|
14,351
|
|
|
|
14,778
|
|
|
|
15,232
|
|
Alt-A(3)
|
|
|
13,885
|
|
|
|
14,260
|
|
|
|
14,643
|
|
|
|
15,059
|
|
|
|
15,487
|
|
Gross unrealized losses,
pre-tax:(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
$
|
12,661
|
|
|
$
|
13,401
|
|
|
$
|
14,132
|
|
|
$
|
13,764
|
|
|
$
|
12,481
|
|
Option ARM
|
|
|
2,909
|
|
|
|
3,169
|
|
|
|
3,216
|
|
|
|
3,099
|
|
|
|
3,170
|
|
Alt-A(3)
|
|
|
2,094
|
|
|
|
2,612
|
|
|
|
2,468
|
|
|
|
2,171
|
|
|
|
1,941
|
|
Present value of expected future credit
losses:(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
$
|
7,325
|
|
|
$
|
6,746
|
|
|
$
|
5,414
|
|
|
$
|
6,487
|
|
|
$
|
6,612
|
|
Option ARM
|
|
|
3,908
|
|
|
|
4,251
|
|
|
|
4,434
|
|
|
|
4,767
|
|
|
|
4,993
|
|
Alt-A(3)
|
|
|
2,237
|
|
|
|
2,235
|
|
|
|
2,204
|
|
|
|
2,310
|
|
|
|
2,401
|
|
Collateral delinquency
rate:(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
|
42
|
%
|
|
|
42
|
%
|
|
|
42
|
%
|
|
|
42
|
%
|
|
|
44
|
%
|
Option ARM
|
|
|
43
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
Alt-A(3)
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
|
|
26
|
|
|
|
26
|
|
Average credit
enhancement:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
|
20
|
%
|
|
|
21
|
%
|
|
|
22
|
%
|
|
|
23
|
%
|
|
|
24
|
%
|
Option ARM
|
|
|
6
|
|
|
|
7
|
|
|
|
8
|
|
|
|
10
|
|
|
|
11
|
|
Alt-A(3)
|
|
|
6
|
|
|
|
7
|
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
Cumulative collateral
loss:(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime first
lien(2)
|
|
|
23
|
%
|
|
|
22
|
%
|
|
|
21
|
%
|
|
|
20
|
%
|
|
|
19
|
%
|
Option ARM
|
|
|
18
|
|
|
|
17
|
|
|
|
16
|
|
|
|
15
|
|
|
|
14
|
|
Alt-A(3)
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
|
|
(1)
|
See Ratings of Non-Agency Mortgage-Related
Securities for additional information about these
securities.
|
(2)
|
Excludes non-agency mortgage-related securities backed
exclusively by subprime second liens. Certain securities
identified as subprime first lien may be backed in part by
subprime second lien loans, as the underlying loans of these
securities were permitted to include a small percentage of
subprime second lien loans.
|
(3)
|
Excludes non-agency mortgage-related securities backed by other
loans, which are primarily comprised of securities backed by
home equity lines of credit.
|
(4)
|
Represents the aggregate of the amount by which amortized cost,
after other-than-temporary impairments, exceeds fair value
measured at the individual lot level.
|
(5)
|
Represents our estimate of future contractual cash flows that we
do not expect to collect, discounted at the effective interest
rate implicit in the security at the date of acquisition. This
discount rate is only utilized to analyze the cumulative credit
deterioration for securities since acquisition and may be lower
than the discount rate used to measure ongoing
other-than-temporary impairment to be recognized in earnings for
securities that have experienced a significant improvement in
expected cash flows since the last recognition of
other-than-temporary impairment recognized in earnings.
|
(6)
|
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.
|
(7)
|
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 bond insurance, overcollateralization
and other forms of credit enhancement.
|
(8)
|
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, option ARM, and
Alt-A loans
were structured to include credit enhancements, particularly
through subordination and other structural enhancements.
|
For purposes of our cumulative credit deterioration analysis,
our estimate of the present value of expected future credit
losses on our non-agency mortgage-related securities increased
to $14.2 billion at March 31, 2012 from
$14.0 billion at December 31, 2011. All of these
amounts have been reflected in our net impairment of
available-for-sale
securities recognized in earnings in this period or prior
periods. The increase in the present value of expected future
credit losses was primarily due to our expectation of slower
prepayments on our non-agency mortgage-related securities.
Table 21
Non-Agency Mortgage-Related Securities Backed by Subprime,
Option ARM,
Alt-A and
Other
Loans(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
3/31/2012
|
|
12/31/2011
|
|
9/30/2011
|
|
6/30/2011
|
|
3/31/2011
|
|
|
(in millions)
|
|
Principal repayments and cash
shortfalls:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
1,175
|
|
|
$
|
1,159
|
|
|
$
|
1,287
|
|
|
$
|
1,341
|
|
|
$
|
1,361
|
|
Principal cash shortfalls
|
|
|
6
|
|
|
|
7
|
|
|
|
6
|
|
|
|
10
|
|
|
|
14
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
272
|
|
|
$
|
298
|
|
|
$
|
318
|
|
|
$
|
331
|
|
|
$
|
315
|
|
Principal cash shortfalls
|
|
|
169
|
|
|
|
103
|
|
|
|
109
|
|
|
|
123
|
|
|
|
100
|
|
Alt-A and
other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
$
|
374
|
|
|
$
|
385
|
|
|
$
|
425
|
|
|
$
|
464
|
|
|
$
|
452
|
|
Principal cash shortfalls
|
|
|
97
|
|
|
|
80
|
|
|
|
81
|
|
|
|
84
|
|
|
|
81
|
|
|
|
(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.
|
Since the beginning of 2007, we have incurred actual principal
cash shortfalls of $1.8 billion on impaired non-agency
mortgage-related securities, of which $275 million related
to the three months ended March 31, 2012. 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, option ARM, and
Alt-A loans
were structured to include credit enhancements, particularly
through subordination and other structural enhancements. Bond
insurance is an additional credit enhancement covering some of
the non-agency mortgage-related securities. These credit
enhancements are the primary reason we expect our actual losses,
through principal or interest shortfalls, to be less than the
underlying collateral losses in the aggregate. It is difficult
to estimate the point at which structural credit enhancements
will be exhausted and we will incur actual losses. During the
three months ended March 31, 2012, we continued to
experience the erosion of structural credit enhancements on many
securities backed by subprime, 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
The table below provides information about the mortgage-related
securities for which we recognized other-than-temporary
impairments in earnings.
Table 22
Net Impairment of Available-For-Sale Mortgage-Related Securities
Recognized in Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Impairment of Available-For-Sale
|
|
|
|
Securities Recognized in Earnings
|
|
|
|
Three Months Ended
|
|
|
|
3/31/2012
|
|
|
12/31/2011
|
|
|
9/30/2011
|
|
|
6/30/2011
|
|
|
3/31/2011
|
|
|
|
(in millions)
|
|
|
Subprime:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
$
|
433
|
|
|
$
|
472
|
|
|
$
|
29
|
|
|
$
|
67
|
|
|
$
|
717
|
|
Other years
|
|
|
8
|
|
|
|
8
|
|
|
|
2
|
|
|
|
3
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime
|
|
|
441
|
|
|
|
480
|
|
|
|
31
|
|
|
|
70
|
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
32
|
|
|
|
40
|
|
|
|
15
|
|
|
|
43
|
|
|
|
232
|
|
Other years
|
|
|
16
|
|
|
|
19
|
|
|
|
4
|
|
|
|
22
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option ARM
|
|
|
48
|
|
|
|
59
|
|
|
|
19
|
|
|
|
65
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 & 2007
|
|
|
16
|
|
|
|
22
|
|
|
|
29
|
|
|
|
16
|
|
|
|
15
|
|
Other years
|
|
|
36
|
|
|
|
21
|
|
|
|
10
|
|
|
|
15
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
|
52
|
|
|
|
43
|
|
|
|
39
|
|
|
|
31
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
5
|
|
|
|
3
|
|
|
|
41
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM,
Alt-A and
other loans
|
|
|
546
|
|
|
|
585
|
|
|
|
130
|
|
|
|
167
|
|
|
|
1,055
|
|
CMBS
|
|
|
16
|
|
|
|
8
|
|
|
|
27
|
|
|
|
183
|
|
|
|
135
|
|
Manufactured housing
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale mortgage-related securities
|
|
$
|
564
|
|
|
$
|
595
|
|
|
$
|
161
|
|
|
$
|
352
|
|
|
$
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes all first and second liens.
|
We recorded net impairment of available-for-sale
mortgage-related securities recognized in earnings of
$564 million during the three months ended March 31,
2012, compared to $1.2 billion during the three months
ended March 31, 2011. We recorded these impairments because
our estimate of the present value of expected future credit
losses on certain individual securities increased during the
period. These impairments include $546 million related to
securities backed by subprime, option ARM, and
Alt-A and
other loans during the three months ended March 31, 2012,
compared to $1.1 billion during the three months ended
March 31, 2011. For more information, see
NOTE 7: INVESTMENTS IN SECURITIES
Other-Than-Temporary Impairments on Available-for-Sale
Securities.
While it is reasonably possible that collateral losses on our
available-for-sale mortgage-related securities where we have not
recorded an impairment charge in earnings could exceed our
credit enhancement levels, we do not believe that those
conditions were likely at March 31, 2012. 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,
2012 and have recorded these fair value losses in AOCI.
The credit performance of loans underlying our holdings of
non-agency mortgage-related securities has declined since 2007.
This decline has been particularly severe for subprime, option
ARM, and
Alt-A and
other loans. Economic factors negatively 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 during recent
years. 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 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 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, 2012 and 2011. See RISK
MANAGEMENT Credit Risk Institutional
Credit Risk Bond Insurers and
NOTE 15: CONCENTRATION OF CREDIT AND OTHER
RISKS Bond Insurers for additional information.
Our assessments concerning other-than-temporary impairment
require significant judgment and the use of models, and are
subject to potentially significant change. In addition, changes
in the performance of the individual securities and in mortgage
market conditions may also affect our impairment assessments.
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. Impacts related to changes in interest rates
may also affect our losses due to the structural credit
enhancements on our investments in non-agency mortgage-related
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 risks associated with the use of models,
see RISK FACTORS Operational Risks
We face risks and uncertainties associated with the internal
models that we use for financial accounting and reporting
purposes, to make business decisions, and to manage risks.
Market conditions have raised these risks and
uncertainties in our 2011 Annual Report. 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
delays and deficiencies in the foreclosure process in
our 2011 Annual Report.
For information regarding our efforts to mitigate losses on our
investments in non-agency mortgage-related securities, see
RISK MANAGEMENT Credit Risk
Institutional Credit Risk.
Ratings
of Non-Agency Mortgage-Related Securities
The table below 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, 2012 based on their
ratings as of March 31, 2012, as well as those held at
December 31, 2011 based on their ratings as of
December 31, 2011 using the lowest rating available for
each security.
Table 23
Ratings of Non-Agency Mortgage-Related Securities Backed by
Subprime, Option ARM,
Alt-A and
Other Loans, and CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Bond
|
|
|
|
|
|
|
Percentage
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Insurance
|
|
Credit Ratings as of March 31, 2012
|
|
UPB
|
|
|
of UPB
|
|
|
Cost
|
|
|
Losses
|
|
|
Coverage(1)
|
|
|
|
(dollars in millions)
|
|
|
Subprime loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
599
|
|
|
|
1
|
%
|
|
$
|
599
|
|
|
$
|
(65
|
)
|
|
$
|
18
|
|
Other investment grade
|
|
|
2,292
|
|
|
|
5
|
|
|
|
2,292
|
|
|
|
(291
|
)
|
|
|
383
|
|
Below investment
grade(2)
|
|
|
44,960
|
|
|
|
94
|
|
|
|
36,859
|
|
|
|
(12,310
|
)
|
|
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47,851
|
|
|
|
100
|
%
|
|
$
|
39,750
|
|
|
$
|
(12,666
|
)
|
|
$
|
2,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other investment grade
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
|
|
(6
|
)
|
|
|
63
|
|
Below investment
grade(2)
|
|
|
13,445
|
|
|
|
100
|
|
|
|
8,651
|
|
|
|
(2,903
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,508
|
|
|
|
100
|
%
|
|
$
|
8,714
|
|
|
$
|
(2,909
|
)
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A and
other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
109
|
|
|
|
1
|
%
|
|
$
|
109
|
|
|
$
|
(6
|
)
|
|
$
|
6
|
|
Other investment grade
|
|
|
2,395
|
|
|
|
14
|
|
|
|
2,413
|
|
|
|
(302
|
)
|
|
|
296
|
|
Below investment
grade(2)
|
|
|
13,815
|
|
|
|
85
|
|
|
|
10,723
|
|
|
|
(1,945
|
)
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,319
|
|
|
|
100
|
%
|
|
$
|
13,245
|
|
|
$
|
(2,253
|
)
|
|
$
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
25,479
|
|
|
|
49
|
%
|
|
$
|
25,517
|
|
|
$
|
(17
|
)
|
|
$
|
41
|
|
Other investment grade
|
|
|
23,801
|
|
|
|
45
|
|
|
|
23,754
|
|
|
|
(220
|
)
|
|
|
1,584
|
|
Below investment
grade(2)
|
|
|
2,955
|
|
|
|
6
|
|
|
|
2,833
|
|
|
|
(463
|
)
|
|
|
1,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,235
|
|
|
|
100
|
%
|
|
$
|
52,104
|
|
|
$
|
(700
|
)
|
|
$
|
3,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM,
Alt-A and
other loans, and CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
26,187
|
|
|
|
20
|
%
|
|
$
|
26,225
|
|
|
$
|
(88
|
)
|
|
$
|
65
|
|
Other investment grade
|
|
|
28,551
|
|
|
|
22
|
|
|
|
28,522
|
|
|
|
(819
|
)
|
|
|
2,326
|
|
Below investment
grade(2)
|
|
|
75,175
|
|
|
|
58
|
|
|
|
59,066
|
|
|
|
(17,621
|
)
|
|
|
5,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129,913
|
|
|
|
100
|
%
|
|
$
|
113,813
|
|
|
$
|
(18,528
|
)
|
|
$
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in mortgage-related securities
|
|
$
|
248,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of subprime, option ARM,
Alt-A and
other loans, and CMBS of total investments in mortgage-related
securities
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Ratings as of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
1,000
|
|
|
|
2
|
%
|
|
$
|
1,000
|
|
|
$
|
(115
|
)
|
|
$
|
23
|
|
Other investment grade
|
|
|
2,643
|
|
|
|
5
|
|
|
|
2,643
|
|
|
|
(399
|
)
|
|
|
383
|
|
Below investment
grade(2)
|
|
|
45,389
|
|
|
|
93
|
|
|
|
37,704
|
|
|
|
(12,894
|
)
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,032
|
|
|
|
100
|
%
|
|
$
|
41,347
|
|
|
$
|
(13,408
|
)
|
|
$
|
2,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option ARM loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Other investment grade
|
|
|
76
|
|
|
|
1
|
|
|
|
76
|
|
|
|
(8
|
)
|
|
|
76
|
|
Below investment
grade(2)
|
|
|
13,873
|
|
|
|
99
|
|
|
|
8,943
|
|
|
|
(3,161
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,949
|
|
|
|
100
|
%
|
|
$
|
9,019
|
|
|
$
|
(3,169
|
)
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A and
other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
350
|
|
|
|
2
|
%
|
|
$
|
348
|
|
|
$
|
(20
|
)
|
|
$
|
6
|
|
Other investment grade
|
|
|
2,237
|
|
|
|
13
|
|
|
|
2,260
|
|
|
|
(371
|
)
|
|
|
310
|
|
Below investment
grade(2)
|
|
|
14,203
|
|
|
|
85
|
|
|
|
11,053
|
|
|
|
(2,421
|
)
|
|
|
2,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,790
|
|
|
|
100
|
%
|
|
$
|
13,661
|
|
|
$
|
(2,812
|
)
|
|
$
|
2,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
25,499
|
|
|
|
47
|
%
|
|
$
|
25,540
|
|
|
$
|
(22
|
)
|
|
$
|
42
|
|
Other investment grade
|
|
|
25,421
|
|
|
|
47
|
|
|
|
25,394
|
|
|
|
(346
|
)
|
|
|
1,585
|
|
Below investment
grade(2)
|
|
|
3,190
|
|
|
|
6
|
|
|
|
2,851
|
|
|
|
(180
|
)
|
|
|
1,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,110
|
|
|
|
100
|
%
|
|
$
|
53,785
|
|
|
$
|
(548
|
)
|
|
$
|
3,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subprime, option ARM,
Alt-A and
other loans, and CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA-rated
|
|
$
|
26,849
|
|
|
|
20
|
%
|
|
$
|
26,888
|
|
|
$
|
(157
|
)
|
|
$
|
71
|
|
Other investment grade
|
|
|
30,377
|
|
|
|
23
|
|
|
|
30,373
|
|
|
|
(1,124
|
)
|
|
|
2,354
|
|
Below investment
grade(2)
|
|
|
76,655
|
|
|
|
57
|
|
|
|
60,551
|
|
|
|
(18,656
|
)
|
|
|
5,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,881
|
|
|
|
100
|
%
|
|
$
|
117,812
|
|
|
$
|
(19,937
|
)
|
|
$
|
7,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in mortgage-related securities
|
|
$
|
261,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 bond insurance. This
amount does not represent the maximum amount of losses we could
recover, as the bond insurance also covers interest.
|
(2)
|
Includes securities with S&P equivalent credit ratings
below BBB and certain securities that are no longer rated.
|
Mortgage
Loans
The UPB of mortgage loans on our consolidated balance sheets
declined to $1.80 trillion as of March 31, 2012, as
compared to $1.82 trillion as of December 31, 2011. This
decline reflects that the amount of single-family loan
liquidations has exceeded new loan purchase and guarantee
activity, which we believe is due, in part, to declines in the
amount of single-family mortgage debt outstanding in the market
and our competitive position compared to other market
participants.
The UPB of unsecuritized single-family mortgage loans declined
by $6.2 billion to $165.5 billion at March 31,
2012, from $171.7 billion at December 31, 2011,
primarily due to our net loan securitization volume exceeding
the amount of delinquent loans we removed from PC trusts during
the first quarter of 2012. We expect that our holdings of
unsecuritized single-family loans could increase in the
remainder of 2012.
Based on the amount of the recorded investment of single-family
loans on our consolidated balance sheets, approximately
$70.0 billion, or 4.1%, of these loans as of March 31,
2012 were seriously delinquent, as compared to
$72.4 billion, or 4.2%, as of December 31, 2011. This
decline was primarily due to modifications, foreclosure
transfers, and short sale activity. The majority of these
seriously delinquent loans are unsecuritized, and were removed
by us from our PC trusts. As guarantor, we have the right to
remove mortgages that back our PCs from the underlying loan
pools under certain circumstances. See NOTE 5:
INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS for more
information on our removal of single-family loans from PC trusts.
The UPB of unsecuritized multifamily mortgage loans was
$82.5 billion at March 31, 2012 and $82.3 billion
at December 31, 2011. Our multifamily loan activity in the
first quarters of 2012 and 2011 primarily consisted of purchases
of loans intended for securitization and subsequent sale through
Other Guarantee Transactions. To pursue our primary multifamily
business strategy, we expect to continue to purchase and then
securitize multifamily loans, which provides liquidity for the
multifamily market, supports affordability for multifamily
rental housing, and helps us manage our credit risks.
We maintain an allowance for loan losses on mortgage loans that
we classify as held-for-investment on our consolidated balance
sheets. Our reserve for guarantee losses is associated with
Freddie Mac mortgage-related securities backed by multifamily
loans, certain single-family Other Guarantee Transactions, and
other guarantee commitments, for which we have incremental
credit risk. Collectively, we refer to our allowance for loan
losses and our reserve for guarantee losses as our loan loss
reserves. Our loan loss reserves were $38.3 billion and
$39.5 billion at March 31, 2012 and December 31,
2011, respectively, including $37.8 billion and
$38.9 billion, respectively, related to single-family
loans. At March 31, 2012 and December 31, 2011, our
loan loss reserves, as a percentage of our total mortgage
portfolio, excluding non-Freddie Mac securities, were 2.0% and
2.1%, respectively, and as a percentage of the UPB associated
with our non-performing loans was 31.3% and 32.0%, respectively.
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk and NOTE 4:
MORTGAGE LOANS AND LOAN LOSS RESERVES for further detail
about the mortgage loans and associated allowance for loan
losses recorded on our consolidated balance sheets.
The table below summarizes our purchase and guarantee activity
in mortgage loans. This activity consists of: (a) mortgage
loans underlying consolidated single-family PCs issued in the
period (regardless of whether such securities are held by us or
third parties); (b) single-family and multifamily mortgage
loans purchased, but not securitized, in the
period; and (c) mortgage loans underlying our
mortgage-related financial guarantees issued in the period,
which are not consolidated on our balance sheets.
Table 24
Mortgage Loan Purchase and Other Guarantee Commitment
Activity(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
UPB
|
|
|
% of
|
|
|
UPB
|
|
|
% of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
Mortgage loan purchases and guarantee issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-year or
more amortizing fixed-rate
|
|
$
|
61,847
|
|
|
|
56
|
%
|
|
$
|
62,898
|
|
|
|
62
|
%
|
20-year
amortizing fixed-rate
|
|
|
8,410
|
|
|
|
8
|
|
|
|
6,715
|
|
|
|
7
|
|
15-year
amortizing fixed-rate
|
|
|
29,574
|
|
|
|
26
|
|
|
|
22,110
|
|
|
|
22
|
|
Adjustable-rate(2)
|
|
|
5,152
|
|
|
|
5
|
|
|
|
5,741
|
|
|
|
6
|
|
FHA/VA and other governmental
|
|
|
90
|
|
|
|
<1
|
|
|
|
87
|
|
|
|
<1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
single-family(3)
|
|
|
105,073
|
|
|
|
95
|
|
|
|
97,551
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
5,751
|
|
|
|
5
|
|
|
|
3,049
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loan purchases and other guarantee commitment
activity(4)
|
|
$
|
110,824
|
|
|
|
100
|
%
|
|
$
|
100,600
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of mortgage purchases and other guarantee commitment
activity with credit
enhancements(5)
|
|
|
9
|
%
|
|
|
|
|
|
|
7
|
%
|
|
|
|
|
|
|
(1)
|
Based on UPB. Excludes mortgage loans traded but not yet
settled. Excludes the removal of seriously delinquent loans and
balloon/reset mortgages out of PC trusts. Includes other
guarantee commitments associated with mortgage loans. See
endnote (4) 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 quarters of 2012 or 2011.
|
(3)
|
Includes $8.6 billion and $7.3 billion of mortgage
loans in excess of $417,000, which we refer to as conforming
jumbo mortgages, for the first quarters of 2012 and 2011,
respectively.
|
(4)
|
Includes issuances of other guarantee commitments on
single-family loans of $2.3 billion and $1.8 billion
and issuances of other guarantee commitments on multifamily
loans of $0.1 billion and $0.2 billion during the
first quarters of 2012 and 2011, respectively.
|
(5)
|
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 multifamily mortgage and single-family
credit guarantee portfolios.
|
See RISK MANAGEMENT Credit Risk
Mortgage Credit Risk and NOTE 15:
CONCENTRATION OF CREDIT AND OTHER RISKS
Table 15.2 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 in derivative assets, net and
derivative liabilities, net. See NOTE 10:
DERIVATIVES for additional information regarding our
derivatives.
The table below shows the fair value for each derivative type,
the weighted average fixed rate of our pay-fixed and
receive-fixed swaps, and the maturity profile of our derivative
positions reconciled to the amounts presented on our
consolidated balance sheets as of March 31, 2012. A
positive fair value in the table below for each derivative type
is the estimated amount, prior to netting by counterparty, that
we would be entitled to receive if the derivatives of that type
were
terminated. A negative fair value for a derivative type is the
estimated amount, prior to netting by counterparty, that we
would owe if the derivatives of that type were terminated.
Table 25
Derivative Fair Values and Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2012
|
|
|
|
Notional or
|
|
|
|
|
|
Fair
Value(1)
|
|
|
|
Contractual
|
|
|
Total Fair
|
|
|
Less than
|
|
|
1 to 3
|
|
|
Greater than 3
|
|
|
In Excess
|
|
|
|
Amount(2)
|
|
|
Value(3)
|
|
|
1 Year
|
|
|
Years
|
|
|
and up to 5 Years
|
|
|
of 5 Years
|
|
|
|
(dollars in millions)
|
|
|
Interest-rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
$
|
236,803
|
|
|
$
|
9,080
|
|
|
$
|
59
|
|
|
$
|
519
|
|
|
$
|
3,538
|
|
|
$
|
4,964
|
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
1.52
|
%
|
|
|
0.92
|
%
|
|
|
2.24
|
%
|
|
|
3.10
|
%
|
Forward-starting
swaps(5)
|
|
|
11,650
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total receive-fixed
|
|
|
248,453
|
|
|
|
9,872
|
|
|
|
59
|
|
|
|
519
|
|
|
|
3,538
|
|
|
|
5,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis (floating to floating)
|
|
|
2,400
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Pay-fixed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps
|
|
|
280,869
|
|
|
|
(26,292
|
)
|
|
|
(38
|
)
|
|
|
(2,647
|
)
|
|
|
(5,112
|
)
|
|
|
(18,495
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
0.95
|
%
|
|
|
3.11
|
%
|
|
|
2.83
|
%
|
|
|
3.68
|
%
|
Forward-starting
swaps(5)
|
|
|
15,704
|
|
|
|
(1,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,490
|
)
|
Weighted average fixed
rate(4)
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pay-fixed
|
|
|
296,573
|
|
|
|
(27,782
|
)
|
|
|
(38
|
)
|
|
|
(2,647
|
)
|
|
|
(5,112
|
)
|
|
|
(19,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-rate swaps
|
|
|
547,426
|
|
|
|
(17,908
|
)
|
|
|
20
|
|
|
|
(2,128
|
)
|
|
|
(1,571
|
)
|
|
|
(14,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option-based:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Call swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
52,500
|
|
|
|
7,766
|
|
|
|
1,789
|
|
|
|
3,382
|
|
|
|
555
|
|
|
|
2,040
|
|
Written
|
|
|
12,025
|
|
|
|
(886
|
)
|
|
|
(172
|
)
|
|
|
(557
|
)
|
|
|
(157
|
)
|
|
|
|
|
Put swaptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
49,450
|
|
|
|
527
|
|
|
|
6
|
|
|
|
35
|
|
|
|
134
|
|
|
|
352
|
|
Written
|
|
|
250
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other option-based
derivatives(6)
|
|
|
34,365
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total option-based
|
|
|
148,590
|
|
|
|
9,431
|
|
|
|
1,618
|
|
|
|
2,860
|
|
|
|
532
|
|
|
|
4,421
|
|
|