Company: FMCCN
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001026214-25-000040
Chunk: 144

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-02-13
Form: 10-K
Item: Item 15
Chunk 144
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-mitigating hedging activities; (2) bona fide market-making activities; and (3) liquidity commitments. We believe that the risk-mitigating hedging exception will enable us to continue to conduct our credit risk transfer transactions. Securitization participants must comply with the rule with respect to any ABS the first closing of the sale of which occurs on or after June 9, 2025. 

FREDDIE MAC  |  2024 Form 10-K105

Management's Discussion and AnalysisCritical Accounting Estimates

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make a number of judgments and assumptions that affect estimates of the reported amounts within our consolidated financial statements. Critical accounting estimates are important to the presentation of our financial condition and results of operations and require management to make difficult, complex, or subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from our estimates, and the use of different judgments and assumptions related to these estimates could have a material impact on our consolidated financial statements.

Our critical accounting estimates and policies relate to the Single-Family allowance for credit losses. For additional information about our critical accounting estimates and significant accounting policies, see the notes accompanying our consolidated financial statements.

Single-Family Allowance for Credit Losses

The Single-Family allowance for credit losses represents our estimate of expected credit losses over the contractual term of the mortgage loans. The Single-Family allowance for credit losses pertains to all single-family loans classified as held-for-investment on our consolidated balance sheets.

Determining the appropriateness of the Single-Family allowance for credit losses is a complex process that is subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity. This process involves the use of models that require us to make judgments about matters that are difficult to predict. Our estimate of expected credit losses incorporates these judgments into an internally-based model that uses a Monte Carlo simulation which generates many possible house price scenarios for up to 40 years for each MSA. These scenarios are used to estimate loan-level expected future cash flows and credit losses based on each loan's individual characteristics.

Changes in forecasted house price growth rates can have a significant effect on our allowance for credit losses estimates. These growth rates are used to develop the detailed forecasted life-of-loan house price growth rates for each MSA. The table below shows our nationwide forecasted house price growth rates that were used in determining our allowance for