Company: FMCCN
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001026214-25-000040
Chunk: 76

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-02-13
Form: 10-K
Item: Item 15
Chunk 76
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To reduce credit risk exposure to floating rate loans, we generally require borrowers to purchase interest rate caps to protect against large movements in interest rates. This underwriting requirement protects both the borrower and Freddie Mac as rising interest rates generally result in higher debt service payments and financing costs, thereby reducing net property cash flows. We generally require a minimum term three-year interest rate cap to be in place at origination with an escrow established for the cost to purchase replacement caps through the maturity of the loan. Replacing a required interest rate cap, especially one with a longer term and/or lower strike rate, becomes more expensive in volatile and rising interest rate environments. As a result, the cost of interest rate caps has risen significantly in recent years and there is no guarantee that this escrow will be sufficient to purchase the required replacement cap.

FREDDIE MAC  |  2024 Form 10-K65

Management's Discussion and AnalysisRisk Management

The charts below provide the weighted average original LTV ratio and original DSCR for our new business activity. 

  Weighted Average Original LTV Ratio                                                                                                                 Weighted Average Original DSCR(1)

(1)     Assumes monthly payments that reflect amortization of principal.

The table below presents the percentage of our Multifamily new business activity that had certain characteristics that may be considered higher risk.

Table 33 - Percentage of Multifamily New Business Activity With Higher Risk Characteristics Year Ended December 31,202420232022Original LTV ratio greater than 80%1 %1 %1 %Original DSCR less than or equal to 1.102 5 2 

Transferring Credit Risk to Third-Party Investors 

Types of Credit Enhancements

In connection with the acquisition, guarantee, and/or securitization of a loan or group of loans, we may obtain various forms of credit protection that reduce our credit risk exposure to the underlying mortgage borrower and reduce our required capital. For example, at the time of loan acquisition or guarantee, we may obtain recourse and/or indemnification protection from our lenders or sellers. After acquisition, we reduce our credit risk exposure to the underlying borrower primarily through our senior subordinate securitizations and our other CRT products including MCIP and MSCR notes. The timing of our other CRT products can vary as we aggregate adequately sized reference pools to execute transactions.

The following table summarizes our principal types of credit enhancements. See MD&A - Our Business Segments - Multifamily - Products and Activities for additional information on our securit