| MORTGAGE LOANS AND LOAN LOSS RESERVES | 80 to 100 > 100 (2) Total ≤ 80 > 80 to 100 > 100 (2) Total (in millions) Single-family mortgage loans: 20 and 30-year or more, amortizing fixed-rate (3) $ 961,742 $ 250,081 $ 67,213 $ 1,279,036 $ 911,071 $ 258,126 $ 85,398 $ 1,254,595 15-year amortizing fixed-rate (3) 267,240 13,713 2,493 283,446 265,098 14,101 3,338 282,537 Adjustable-rate 60,376 5,570 421 66,367 60,463 6,701 709 67,873 Alt-A, interest-only, and option ARM 28,408 15,647 11,735 55,790 28,935 18,232 16,448 63,615 Total single-family mortgage loans $ 1,317,766 $ 285,011 $ 81,862 $ 1,684,639 $ 1,265,567 $ 297,160 $ 105,893 $ 1,668,620 (1) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes in the same geographic area since that time. Changes in market value are derived from our internal index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family mortgage loan acquisitions, including foreclosure sales. Estimates of the current LTV ratio include the credit-enhanced portion of the mortgage loan and exclude any secondary financing by third parties. (2) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with estimated current LTV ratios in excess of 100% was 6.92% and 9.01% as of June 30, 2015 and December 31, 2014, respectively. (3) The majority of our mortgage loan modifications result in new terms that include fixed interest rates after modification. As of June 30, 2015 and December 31, 2014, we have categorized UPB of approximately $40.6 billion and $42.3 billion , respectively, of modified mortgage loans as fixed-rate mortgage loans (instead of as adjustable rate mortgage loans), even though the modified mortgage loans have rate adjustment provisions. In these cases, while the terms of the modified mortgage loans provide for the interest rate to adjust in the future, such future rates are determined at the time of modification rather than at a subsequent date. We have discontinued our purchases of Alt-A, interest-only, and option ARM loans. For reporting purposes mortgage loans within the Alt-A category continue to be presented in that category following modification, even though the borrower may have provided full documentation of assets and income to complete the modification and mortgage loans within the option ARM category continue to be presented in that category following modification, even though the modified mortgage loan no longer provides for optional payment provisions. A second-lien mortgage loan reduces the borrower’s equity in the home, and has a negative effect on the borrower’s ability to refinance or sell the property for an amount at or above the combined balances of the first and second mortgage loans. As of June 30, 2015 and December 31, 2014, based on data collected by us at mortgage loan delivery, approximately 13% and 14% , respectively, of mortgage loans in our single-family credit guarantee portfolio had second-lien financing by third parties at origination of the first mortgage loan. However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive notification when a borrower does so. Therefore, it is likely that additional borrowers have post-origination second-lien mortgage loans. For further information about concentrations of risk associated with our single-family and multifamily mortgage loans, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.” The following table presents the recorded investment in our multifamily held-for-investment mortgage loans, by credit quality indicator as of June 30, 2015 and December 31, 2014. The multifamily credit quality indicator is based on available data through the end of each period presented. Table 4.3 — Recorded Investment of Multifamily Mortgage Loans, by Credit Classification June 30, 2015 December 31, 2014 (in millions) Credit risk profile by internally assigned grade: (1) Pass $ 35,026 $ 38,518 Special mention 1,444 1,805 Substandard 762 1,030 Doubtful 11 — Total $ 37,243 $ 41,353 (1) A mortgage loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; "Special mention" has signs of potential financial weakness; "Substandard" has a well-defined financial weakness that jeopardizes the timely full repayment; and "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions. For information about the payment status of single-family and multifamily mortgage loans, including the amount of such mortgage loans we deem impaired, see “NOTE 5: IMPAIRED LOANS.” Allowance for Loan Losses and Reserve for Guarantee Losses, or Loan Loss Reserves Our loan loss reserves consist of our allowance for loan losses on mortgage loans that we classify as held-for investment on our consolidated balance sheets and reserve for guarantee losses associated with Freddie Mac mortgage-related securities backed by multifamily mortgage loans, certain single-family Other Guarantee Transactions, and other guarantee commitments, for which we have incremental credit risk. On January 1, 2015, we adopted regulatory guidance that changed when we deem a mortgage loan to be uncollectible and we recognized $1.9 billion of charge-offs on that date related to this change in estimate. See "NOTE 1: SUMMARY OF SIGNFICANT ACCOUNTING POLICIES" for further information about this change. The table below presents our loan loss reserves activity. Table 4.4 — Detail of Loan Loss Reserves Three Months Ended June 30, 2015 2014 Allowance for Loan Losses Reserve for Allowance for Loan Losses Reserve for Unsecuritized Held By Consolidated Trusts Total Unsecuritized Held By Consolidated Trusts Total (dollars in millions) Single-family: Beginning balance $ 16,020 $ 2,554 $ 105 $ 18,679 $ 21,107 $ 2,789 $ 106 $ 24,002 Provision (benefit) for credit losses (929 ) 125 (36 ) (840 ) (787 ) 196 (4 ) (595 ) Charge-offs (793 ) (57 ) (2 ) (852 ) (1,150 ) (70 ) (2 ) (1,222 ) Recoveries 192 4 — 196 327 16 — 343 Transfers, net (1) 45 112 — 157 459 (279 ) — 180 Ending balance $ 14,535 $ 2,738 $ 67 $ 17,340 $ 19,956 $ 2,652 $ 100 $ 22,708 Multifamily: Beginning balance $ 74 $ — $ 17 $ 91 $ 113 $ — $ 19 $ 132 Provision (benefit) for credit losses (14 ) — (3 ) (17 ) (20 ) — (3 ) (23 ) Charge-offs (6 ) — — (6 ) (2 ) — — (2 ) Ending balance $ 54 $ — $ 14 $ 68 $ 91 $ — $ 16 $ 107 Total: Beginning balance $ 16,094 $ 2,554 $ 122 $ 18,770 $ 21,220 $ 2,789 $ 125 $ 24,134 Provision (benefit) for credit losses (943 ) 125 (39 ) (857 ) (807 ) 196 (7 ) (618 ) Charge-offs (799 ) (57 ) (2 ) (858 ) (1,152 ) (70 ) (2 ) (1,224 ) Recoveries 192 4 — 196 327 16 — 343 Transfers, net (1) 45 112 — 157 459 (279 ) — 180 Ending balance $ 14,589 $ 2,738 $ 81 $ 17,408 $ 20,047 $ 2,652 $ 116 $ 22,815 Ratio of total loan loss reserves (excluding TDR concessions) to annualized net charge-offs for single-family mortgage loans 2.4 2.8 Ratio of total loan loss reserves to annualized net charge-offs for single-family mortgage loans 6.6 5.5 Six Months Ended June 30, 2015 2014 Allowance for Loan Losses Reserve for Allowance for Loan Losses Reserve for Unsecuritized Held By Consolidated Trusts Total Unsecuritized Held By Consolidated Trusts Total (in millions) Single-family: Beginning balance $ 18,800 $ 2,884 $ 109 $ 21,793 $ 21,487 $ 3,006 $ 85 $ 24,578 Provision (benefit) for credit losses (1,398 ) 100 (38 ) (1,336 ) (876 ) 367 18 (491 ) Charge-offs (3,574 ) (225 ) (4 ) (3,803 ) (2,450 ) (226 ) (3 ) (2,679 ) Recoveries 361 9 — 370 664 246 — 910 Transfers, net (1) 346 (30 ) — 316 1,131 (741 ) — 390 Ending balance $ 14,535 $ 2,738 $ 67 $ 17,340 $ 19,956 $ 2,652 $ 100 $ 22,708 Multifamily: Beginning balance $ 77 $ — $ 17 $ 94 $ 125 $ — $ 26 $ 151 Provision (benefit) for credit losses (17 ) — (3 ) (20 ) (32 ) — (10 ) (42 ) Charge-offs (6 ) — — (6 ) (2 ) — — (2 ) Ending balance $ 54 $ — $ 14 $ 68 $ 91 $ — $ 16 $ 107 Total: Beginning balance $ 18,877 $ 2,884 $ 126 $ 21,887 $ 21,612 $ 3,006 $ 111 $ 24,729 Provision (benefit) for credit losses (1,415 ) 100 (41 ) (1,356 ) (908 ) 367 8 (533 ) Charge-offs (3,580 ) (225 ) (4 ) (3,809 ) (2,452 ) (226 ) (3 ) (2,681 ) Recoveries 361 9 — 370 664 246 — 910 Transfers, net (1) 346 (30 ) — 316 1,131 (741 ) — 390 Ending balance $ 14,589 $ 2,738 $ 81 $ 17,408 $ 20,047 $ 2,652 $ 116 $ 22,815 (1) Includes approximately $0.2 billion during both the three months ended June 30, 2015 and the three months ended June 30, 2014, $0.3 billion during the six months ended June 30, 2015 and $0.4 billion during the six months ended June 30, 2014, attributable to capitalization of past due interest on modified mortgage loans. Also includes amounts associated with reclassified single-family reserves related to our removal of mortgage loans previously held by consolidated trusts, net of reclassifications for single-family mortgage loans subsequently resecuritized after such removal. The table below presents our allowance for loan losses and our recorded investment in mortgage loans, held-for-investment, by impairment evaluation methodology. Table 4.5 — Net Investment in Mortgage Loans June 30, 2015 December 31, 2014 Single-family Multifamily Total Single-family Multifamily Total (in millions) Recorded investment: Collectively evaluated $ 1,590,166 $ 36,523 $ 1,626,689 $ 1,568,237 $ 40,451 $ 1,608,688 Individually evaluated 94,473 720 95,193 100,383 902 101,285 Total recorded investment 1,684,639 37,243 1,721,882 1,668,620 41,353 1,709,973 Ending balance of the allowance for loan losses: Collectively evaluated (1,745 ) (24 ) (1,769 ) (3,847 ) (25 ) (3,872 ) Individually evaluated (15,528 ) (30 ) (15,558 ) (17,837 ) (52 ) (17,889 ) Total ending balance of the allowance (17,273 ) (54 ) (17,327 ) (21,684 ) (77 ) (21,761 ) Net investment in mortgage loans $ 1,667,366 $ 37,189 $ 1,704,555 $ 1,646,936 $ 41,276 $ 1,688,212 A significant number of unsecuritized single-family mortgage loans on our consolidated balance sheets are individually evaluated for impairment while substantially all single-family mortgage loans held by our consolidated trusts are collectively evaluated for impairment. The ending balance of the allowance for loan losses associated with our held-for-investment unsecuritized mortgage loans represented approximately 11.0% and 12.7% of the recorded investment in such mortgage loans at June 30, 2015 and December 31, 2014 , respectively, and a substantial portion of the allowance associated with these mortgage loans represented interest rate concessions provided to borrowers as part of mortgage loan modifications. The ending balance of the allowance for loan losses associated with mortgage loans held by our consolidated trusts represented approximately 0.2% of the recorded investment in such mortgage loans as of both June 30, 2015 and December 31, 2014 . Credit Protection and Other Forms of Credit Enhancement In connection with many of our mortgage loans and other mortgage-related guarantees, we have credit protection in the form of primary mortgage insurance, credit risk transfer transactions, pool insurance, recourse to lenders, and other forms of credit enhancements. The table below presents the UPB of mortgage loans on our consolidated balance sheets or underlying our financial guarantees with credit protection and the maximum amounts of potential loss recovery by type of credit protection. Table 4.6 — Recourse and Other Forms of Credit Protection (1) UPB at Maximum Coverage (2) at June 30, 2015 December 31, 2014 June 30, 2015 December 31, 2014 (in millions) Single-family: Primary mortgage insurance $ 238,366 $ 227,495 $ 60,810 $ 57,938 Other credit protection: Credit risk transfer transactions (3) 233,149 144,272 11,246 6,657 Lender recourse and indemnifications 6,001 6,527 5,640 6,092 Pool insurance (4) 1,969 2,284 840 947 HFA indemnification 3,029 3,357 3,029 3,324 Subordination (5) 2,252 2,377 310 339 Other credit enhancements 19 20 16 18 Total $ 484,785 $ 386,332 $ 81,891 $ 75,315 Multifamily: K Certificates $ 86,788 $ 75,541 $ 15,736 $ 13,576 Subordination (5) 4,490 4,724 788 796 HFA indemnification 713 772 699 699 Other credit enhancements 6,383 5,706 2,181 1,685 Total $ 98,374 $ 86,743 $ 19,404 $ 16,756 (1) Except for the majority of our single-family credit risk transfer transactions, our credit enhancements generally provide protection for the first, or initial, credit losses associated with the related mortgage loans. Excludes: (a) FHA/VA and other governmental loans; (b) purchased credit protection associated with $9.0 billion and $9.8 billion in UPB of single-family mortgage loans underlying Other Guarantee Transactions as of June 30, 2015 and December 31, 2014, respectively; and (c) repurchase rights (subject to certain conditions and limitations) we have under representations and warranties provided by our agreements with seller/servicers to underwrite loans and service them in accordance with our standards. (2) Except for subordination and K Certificates, this represents the remaining amount of loss recovery that is available subject to terms of counterparty agreements. For subordination and K Certificates coverage, this represents the UPB of the securities that are subordinate to our guarantee, which provide protection by absorbing first losses. (3) Excludes $75.4 billion and $48.3 billion in UPB at June 30, 2015 and December 31, 2014, respectively, where the related mortgage loans are also covered by primary mortgage insurance. Maximum coverage amounts presented represent the outstanding balance of STACR debt notes held by third parties as well as the remaining aggregate limit of insurance purchased from third parties in ACIS transactions. (4) Excludes approximately $0.8 billion and $0.9 billion in UPB at June 30, 2015 and December 31, 2014, respectively, where the related mortgage loans are also covered by primary mortgage insurance. (5) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding multifamily K Certificates and those securities backed by state and local HFA bonds related to the HFA initiative. Primary mortgage insurance and credit risk transfers are the most prevalent type of credit enhancements protecting our single-family credit guarantee portfolio. For information about counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Mortgage Insurers.” Our credit risk transfer transactions include structured agency credit risk (STACR) debt note transactions and agency credit insurance structures (ACIS), and provide credit enhancement by transferring a portion of credit losses on single-family mortgage loans to third party investors and insurers. The value of these transactions to us is dependent on various economic scenarios, and we will benefit from these transactions if we experience significant mortgage loan defaults. We completed five and two STACR debt note transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. We completed five and two ACIS transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. We also have credit enhancements protecting our multifamily mortgage portfolio. Subordination, primarily through our K Certificates, is the most prevalent type, whereby we mitigate our credit risk exposure by structuring our securities to sell the expected credit risk to private investors who purchase the subordinate tranches. We also have credit protection for certain mortgage loans on our consolidated balance sheets that are covered by insurance or partial guarantees issued by federal agencies (such as FHA, VA, and USDA). The total UPB of these mortgage loans was $3.4 billion and $3.6 billion as of June 30, 2015 and December 31, 2014, respectively. Non-Cash Investing and Financing Activities We acquired $123.9 billion and $82.7 billion of mortgage loans held-for-investment in exchange for the issuance of debt securities of consolidated trusts in guarantor swap transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. These guarantor swap transactions during the six months ended June 30, 2015 included approximately $3.8 billion of mortgage loans received from sellers to satisfy advances that were recorded in other assets on our condensed consolidated balance sheets." id="sjs-B4">NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES We own both single-family mortgage loans, which are secured by one to four unit residential properties, and multifamily mortgage loans, which are secured by properties with five or more residential rental units. Our single-family mortgage loans are predominantly first lien, fixed-rate mortgage loans secured by the borrower’s primary residence. For a discussion of our significant accounting policies regarding our mortgage loans and loan loss reserves, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in our 2014 Annual Report. The table below summarizes the types of mortgage loans on our consolidated balance sheets as of June 30, 2015 and December 31, 2014. Table 4.1 — Mortgage Loans June 30, 2015 December 31, 2014 Unsecuritized Held By Consolidated Trusts Total Unsecuritized Held By Consolidated Trusts Total (in millions) Single-family: Fixed-rate Amortizing $ 101,493 $ 1,462,905 $ 1,564,398 $ 105,560 $ 1,431,872 $ 1,537,432 Interest-only 723 2,722 3,445 939 3,298 4,237 Total fixed-rate 102,216 1,465,627 1,567,843 106,499 1,435,170 1,541,669 Adjustable-rate Amortizing 1,149 67,227 68,376 1,353 68,632 69,985 Interest-only 2,710 18,838 21,548 3,191 20,373 23,564 Total adjustable-rate 3,859 86,065 89,924 4,544 89,005 93,549 Other Guarantee Transactions — 6,434 6,434 — 7,042 7,042 FHA/VA and other governmental 480 2,909 3,389 473 3,139 3,612 Total single-family 106,555 1,561,035 1,667,590 111,516 1,534,356 1,645,872 Multifamily: Fixed-rate 43,397 498 43,895 43,632 524 44,156 Adjustable-rate 11,250 — 11,250 9,321 — 9,321 Other governmental 3 — 3 3 — 3 Total multifamily 54,650 498 55,148 52,956 524 53,480 Total UPB of mortgage loans 161,205 1,561,533 1,722,738 164,472 1,534,880 1,699,352 Deferred fees, unamortized premiums, discounts and other cost basis adjustments (4,989 ) 27,393 22,404 (3,366 ) 26,098 22,732 Fair value adjustments on loans held-for sale (852 ) — (852 ) 257 — 257 Allowance for loan losses on mortgage loans held-for-investment (14,589 ) (2,738 ) (17,327 ) (18,877 ) (2,884 ) (21,761 ) Total mortgage loans, net $ 140,775 $ 1,586,188 $ 1,726,963 $ 142,486 $ 1,558,094 $ 1,700,580 Mortgage loans, net: Held-for-investment $ 118,367 $ 1,586,188 $ 1,704,555 $ 130,118 $ 1,558,094 $ 1,688,212 Held-for-sale 22,408 — 22,408 12,368 — 12,368 Total mortgage loans, net $ 140,775 $ 1,586,188 $ 1,726,963 $ 142,486 $ 1,558,094 $ 1,700,580 During the three months ended June 30, 2015 and the three months ended June 30, 2014 , we purchased $99.8 billion and $57.8 billion , respectively, in UPB of single-family mortgage loans, and $1.0 billion and $0.7 billion , respectively, in UPB of multifamily mortgage loans that were classified as held-for-investment. During the six months ended June 30, 2015 and the six months ended June 30, 2014, we purchased $179.0 billion and $106.4 billion , respectively, in UPB of single-family mortgage loans, and $1.8 billion and $1.3 billion , respectively, in UPB of multifamily mortgage loans that were classified as held-for-investment. Our sales of multifamily mortgage loans occur primarily through the issuance of multifamily K Certificates, which we categorize as Other Guarantee Transactions. During the three months ended June 30, 2015 and the three months ended June 30, 2014, we sold $10.1 billion and $4.5 billion , respectively, in UPB of held-for-sale multifamily mortgage loans. During the six months ended June 30, 2015 and the six months ended June 30, 2014, we sold $15.2 billion and $8.4 billion , respectively, in UPB of held-for-sale multifamily mortgage loans. See “NOTE 14: FINANCIAL GUARANTEES” for more information on our issuances of Other Guarantee Transactions. In January 2015, FHFA informed us that it would not object to our sales of additional seriously delinquent single-family mortgage loans. As a result, we reclassified $4.5 billion and $8.1 billion in UPB of mortgage loans from held-for-investment to held-for-sale during the three months ended June 30, 2015 and the six months ended June 30, 2015, respectively. For information regarding the fair value of our mortgage loans classified as held-for-sale, see "NOTE 16: FAIR VALUE DISCLOSURES." Credit Quality of Mortgage Loans We evaluate the credit quality of single-family mortgage loans using different criteria than the criteria we use to evaluate multifamily mortgage loans. The current LTV ratio is one key factor we consider when estimating our loan loss reserves for single-family mortgage loans. As estimated current LTV ratios increase, the borrower’s equity in the home decreases, which negatively affects the borrower’s ability to refinance (outside of HARP) or to sell the property for an amount at or above the balance of the outstanding mortgage loan. The table below presents information on the estimated current LTV ratios of single-family held-for-investment mortgage loans on our consolidated balance sheets. Our current LTV ratio estimates are based on available data through the end of each respective period presented. Table 4.2 — Recorded Investment of Single-Family Mortgage Loans, by LTV Ratio As of June 30, 2015 As of December 31, 2014 Estimated Current LTV Ratio (1) Estimated Current LTV Ratio (1) ≤ 80 > 80 to 100 > 100 (2) Total ≤ 80 > 80 to 100 > 100 (2) Total (in millions) Single-family mortgage loans: 20 and 30-year or more, amortizing fixed-rate (3) $ 961,742 $ 250,081 $ 67,213 $ 1,279,036 $ 911,071 $ 258,126 $ 85,398 $ 1,254,595 15-year amortizing fixed-rate (3) 267,240 13,713 2,493 283,446 265,098 14,101 3,338 282,537 Adjustable-rate 60,376 5,570 421 66,367 60,463 6,701 709 67,873 Alt-A, interest-only, and option ARM 28,408 15,647 11,735 55,790 28,935 18,232 16,448 63,615 Total single-family mortgage loans $ 1,317,766 $ 285,011 $ 81,862 $ 1,684,639 $ 1,265,567 $ 297,160 $ 105,893 $ 1,668,620 (1) The current LTV ratios are management estimates, which are updated on a monthly basis. Current market values are estimated by adjusting the value of the property at origination based on changes in the market value of homes in the same geographic area since that time. Changes in market value are derived from our internal index which measures price changes for repeat sales and refinancing activity on the same properties using Freddie Mac and Fannie Mae single-family mortgage loan acquisitions, including foreclosure sales. Estimates of the current LTV ratio include the credit-enhanced portion of the mortgage loan and exclude any secondary financing by third parties. (2) The serious delinquency rate for the total of single-family held-for-investment mortgage loans with estimated current LTV ratios in excess of 100% was 6.92% and 9.01% as of June 30, 2015 and December 31, 2014, respectively. (3) The majority of our mortgage loan modifications result in new terms that include fixed interest rates after modification. As of June 30, 2015 and December 31, 2014, we have categorized UPB of approximately $40.6 billion and $42.3 billion , respectively, of modified mortgage loans as fixed-rate mortgage loans (instead of as adjustable rate mortgage loans), even though the modified mortgage loans have rate adjustment provisions. In these cases, while the terms of the modified mortgage loans provide for the interest rate to adjust in the future, such future rates are determined at the time of modification rather than at a subsequent date. We have discontinued our purchases of Alt-A, interest-only, and option ARM loans. For reporting purposes mortgage loans within the Alt-A category continue to be presented in that category following modification, even though the borrower may have provided full documentation of assets and income to complete the modification and mortgage loans within the option ARM category continue to be presented in that category following modification, even though the modified mortgage loan no longer provides for optional payment provisions. A second-lien mortgage loan reduces the borrower’s equity in the home, and has a negative effect on the borrower’s ability to refinance or sell the property for an amount at or above the combined balances of the first and second mortgage loans. As of June 30, 2015 and December 31, 2014, based on data collected by us at mortgage loan delivery, approximately 13% and 14% , respectively, of mortgage loans in our single-family credit guarantee portfolio had second-lien financing by third parties at origination of the first mortgage loan. However, borrowers are free to obtain second-lien financing after origination, and we are not entitled to receive notification when a borrower does so. Therefore, it is likely that additional borrowers have post-origination second-lien mortgage loans. For further information about concentrations of risk associated with our single-family and multifamily mortgage loans, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS.” The following table presents the recorded investment in our multifamily held-for-investment mortgage loans, by credit quality indicator as of June 30, 2015 and December 31, 2014. The multifamily credit quality indicator is based on available data through the end of each period presented. Table 4.3 — Recorded Investment of Multifamily Mortgage Loans, by Credit Classification June 30, 2015 December 31, 2014 (in millions) Credit risk profile by internally assigned grade: (1) Pass $ 35,026 $ 38,518 Special mention 1,444 1,805 Substandard 762 1,030 Doubtful 11 — Total $ 37,243 $ 41,353 (1) A mortgage loan categorized as: "Pass" is current and adequately protected by the current financial strength and debt service capacity of the borrower; "Special mention" has signs of potential financial weakness; "Substandard" has a well-defined financial weakness that jeopardizes the timely full repayment; and "Doubtful" has a weakness that makes collection or liquidation in full highly questionable and improbable based on existing conditions. For information about the payment status of single-family and multifamily mortgage loans, including the amount of such mortgage loans we deem impaired, see “NOTE 5: IMPAIRED LOANS.” Allowance for Loan Losses and Reserve for Guarantee Losses, or Loan Loss Reserves Our loan loss reserves consist of our allowance for loan losses on mortgage loans that we classify as held-for investment on our consolidated balance sheets and reserve for guarantee losses associated with Freddie Mac mortgage-related securities backed by multifamily mortgage loans, certain single-family Other Guarantee Transactions, and other guarantee commitments, for which we have incremental credit risk. On January 1, 2015, we adopted regulatory guidance that changed when we deem a mortgage loan to be uncollectible and we recognized $1.9 billion of charge-offs on that date related to this change in estimate. See "NOTE 1: SUMMARY OF SIGNFICANT ACCOUNTING POLICIES" for further information about this change. The table below presents our loan loss reserves activity. Table 4.4 — Detail of Loan Loss Reserves Three Months Ended June 30, 2015 2014 Allowance for Loan Losses Reserve for Allowance for Loan Losses Reserve for Unsecuritized Held By Consolidated Trusts Total Unsecuritized Held By Consolidated Trusts Total (dollars in millions) Single-family: Beginning balance $ 16,020 $ 2,554 $ 105 $ 18,679 $ 21,107 $ 2,789 $ 106 $ 24,002 Provision (benefit) for credit losses (929 ) 125 (36 ) (840 ) (787 ) 196 (4 ) (595 ) Charge-offs (793 ) (57 ) (2 ) (852 ) (1,150 ) (70 ) (2 ) (1,222 ) Recoveries 192 4 — 196 327 16 — 343 Transfers, net (1) 45 112 — 157 459 (279 ) — 180 Ending balance $ 14,535 $ 2,738 $ 67 $ 17,340 $ 19,956 $ 2,652 $ 100 $ 22,708 Multifamily: Beginning balance $ 74 $ — $ 17 $ 91 $ 113 $ — $ 19 $ 132 Provision (benefit) for credit losses (14 ) — (3 ) (17 ) (20 ) — (3 ) (23 ) Charge-offs (6 ) — — (6 ) (2 ) — — (2 ) Ending balance $ 54 $ — $ 14 $ 68 $ 91 $ — $ 16 $ 107 Total: Beginning balance $ 16,094 $ 2,554 $ 122 $ 18,770 $ 21,220 $ 2,789 $ 125 $ 24,134 Provision (benefit) for credit losses (943 ) 125 (39 ) (857 ) (807 ) 196 (7 ) (618 ) Charge-offs (799 ) (57 ) (2 ) (858 ) (1,152 ) (70 ) (2 ) (1,224 ) Recoveries 192 4 — 196 327 16 — 343 Transfers, net (1) 45 112 — 157 459 (279 ) — 180 Ending balance $ 14,589 $ 2,738 $ 81 $ 17,408 $ 20,047 $ 2,652 $ 116 $ 22,815 Ratio of total loan loss reserves (excluding TDR concessions) to annualized net charge-offs for single-family mortgage loans 2.4 2.8 Ratio of total loan loss reserves to annualized net charge-offs for single-family mortgage loans 6.6 5.5 Six Months Ended June 30, 2015 2014 Allowance for Loan Losses Reserve for Allowance for Loan Losses Reserve for Unsecuritized Held By Consolidated Trusts Total Unsecuritized Held By Consolidated Trusts Total (in millions) Single-family: Beginning balance $ 18,800 $ 2,884 $ 109 $ 21,793 $ 21,487 $ 3,006 $ 85 $ 24,578 Provision (benefit) for credit losses (1,398 ) 100 (38 ) (1,336 ) (876 ) 367 18 (491 ) Charge-offs (3,574 ) (225 ) (4 ) (3,803 ) (2,450 ) (226 ) (3 ) (2,679 ) Recoveries 361 9 — 370 664 246 — 910 Transfers, net (1) 346 (30 ) — 316 1,131 (741 ) — 390 Ending balance $ 14,535 $ 2,738 $ 67 $ 17,340 $ 19,956 $ 2,652 $ 100 $ 22,708 Multifamily: Beginning balance $ 77 $ — $ 17 $ 94 $ 125 $ — $ 26 $ 151 Provision (benefit) for credit losses (17 ) — (3 ) (20 ) (32 ) — (10 ) (42 ) Charge-offs (6 ) — — (6 ) (2 ) — — (2 ) Ending balance $ 54 $ — $ 14 $ 68 $ 91 $ — $ 16 $ 107 Total: Beginning balance $ 18,877 $ 2,884 $ 126 $ 21,887 $ 21,612 $ 3,006 $ 111 $ 24,729 Provision (benefit) for credit losses (1,415 ) 100 (41 ) (1,356 ) (908 ) 367 8 (533 ) Charge-offs (3,580 ) (225 ) (4 ) (3,809 ) (2,452 ) (226 ) (3 ) (2,681 ) Recoveries 361 9 — 370 664 246 — 910 Transfers, net (1) 346 (30 ) — 316 1,131 (741 ) — 390 Ending balance $ 14,589 $ 2,738 $ 81 $ 17,408 $ 20,047 $ 2,652 $ 116 $ 22,815 (1) Includes approximately $0.2 billion during both the three months ended June 30, 2015 and the three months ended June 30, 2014, $0.3 billion during the six months ended June 30, 2015 and $0.4 billion during the six months ended June 30, 2014, attributable to capitalization of past due interest on modified mortgage loans. Also includes amounts associated with reclassified single-family reserves related to our removal of mortgage loans previously held by consolidated trusts, net of reclassifications for single-family mortgage loans subsequently resecuritized after such removal. The table below presents our allowance for loan losses and our recorded investment in mortgage loans, held-for-investment, by impairment evaluation methodology. Table 4.5 — Net Investment in Mortgage Loans June 30, 2015 December 31, 2014 Single-family Multifamily Total Single-family Multifamily Total (in millions) Recorded investment: Collectively evaluated $ 1,590,166 $ 36,523 $ 1,626,689 $ 1,568,237 $ 40,451 $ 1,608,688 Individually evaluated 94,473 720 95,193 100,383 902 101,285 Total recorded investment 1,684,639 37,243 1,721,882 1,668,620 41,353 1,709,973 Ending balance of the allowance for loan losses: Collectively evaluated (1,745 ) (24 ) (1,769 ) (3,847 ) (25 ) (3,872 ) Individually evaluated (15,528 ) (30 ) (15,558 ) (17,837 ) (52 ) (17,889 ) Total ending balance of the allowance (17,273 ) (54 ) (17,327 ) (21,684 ) (77 ) (21,761 ) Net investment in mortgage loans $ 1,667,366 $ 37,189 $ 1,704,555 $ 1,646,936 $ 41,276 $ 1,688,212 A significant number of unsecuritized single-family mortgage loans on our consolidated balance sheets are individually evaluated for impairment while substantially all single-family mortgage loans held by our consolidated trusts are collectively evaluated for impairment. The ending balance of the allowance for loan losses associated with our held-for-investment unsecuritized mortgage loans represented approximately 11.0% and 12.7% of the recorded investment in such mortgage loans at June 30, 2015 and December 31, 2014 , respectively, and a substantial portion of the allowance associated with these mortgage loans represented interest rate concessions provided to borrowers as part of mortgage loan modifications. The ending balance of the allowance for loan losses associated with mortgage loans held by our consolidated trusts represented approximately 0.2% of the recorded investment in such mortgage loans as of both June 30, 2015 and December 31, 2014 . Credit Protection and Other Forms of Credit Enhancement In connection with many of our mortgage loans and other mortgage-related guarantees, we have credit protection in the form of primary mortgage insurance, credit risk transfer transactions, pool insurance, recourse to lenders, and other forms of credit enhancements. The table below presents the UPB of mortgage loans on our consolidated balance sheets or underlying our financial guarantees with credit protection and the maximum amounts of potential loss recovery by type of credit protection. Table 4.6 — Recourse and Other Forms of Credit Protection (1) UPB at Maximum Coverage (2) at June 30, 2015 December 31, 2014 June 30, 2015 December 31, 2014 (in millions) Single-family: Primary mortgage insurance $ 238,366 $ 227,495 $ 60,810 $ 57,938 Other credit protection: Credit risk transfer transactions (3) 233,149 144,272 11,246 6,657 Lender recourse and indemnifications 6,001 6,527 5,640 6,092 Pool insurance (4) 1,969 2,284 840 947 HFA indemnification 3,029 3,357 3,029 3,324 Subordination (5) 2,252 2,377 310 339 Other credit enhancements 19 20 16 18 Total $ 484,785 $ 386,332 $ 81,891 $ 75,315 Multifamily: K Certificates $ 86,788 $ 75,541 $ 15,736 $ 13,576 Subordination (5) 4,490 4,724 788 796 HFA indemnification 713 772 699 699 Other credit enhancements 6,383 5,706 2,181 1,685 Total $ 98,374 $ 86,743 $ 19,404 $ 16,756 (1) Except for the majority of our single-family credit risk transfer transactions, our credit enhancements generally provide protection for the first, or initial, credit losses associated with the related mortgage loans. Excludes: (a) FHA/VA and other governmental loans; (b) purchased credit protection associated with $9.0 billion and $9.8 billion in UPB of single-family mortgage loans underlying Other Guarantee Transactions as of June 30, 2015 and December 31, 2014, respectively; and (c) repurchase rights (subject to certain conditions and limitations) we have under representations and warranties provided by our agreements with seller/servicers to underwrite loans and service them in accordance with our standards. (2) Except for subordination and K Certificates, this represents the remaining amount of loss recovery that is available subject to terms of counterparty agreements. For subordination and K Certificates coverage, this represents the UPB of the securities that are subordinate to our guarantee, which provide protection by absorbing first losses. (3) Excludes $75.4 billion and $48.3 billion in UPB at June 30, 2015 and December 31, 2014, respectively, where the related mortgage loans are also covered by primary mortgage insurance. Maximum coverage amounts presented represent the outstanding balance of STACR debt notes held by third parties as well as the remaining aggregate limit of insurance purchased from third parties in ACIS transactions. (4) Excludes approximately $0.8 billion and $0.9 billion in UPB at June 30, 2015 and December 31, 2014, respectively, where the related mortgage loans are also covered by primary mortgage insurance. (5) Represents Freddie Mac issued mortgage-related securities with subordination protection, excluding multifamily K Certificates and those securities backed by state and local HFA bonds related to the HFA initiative. Primary mortgage insurance and credit risk transfers are the most prevalent type of credit enhancements protecting our single-family credit guarantee portfolio. For information about counterparty risk associated with mortgage insurers, see “NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Mortgage Insurers.” Our credit risk transfer transactions include structured agency credit risk (STACR) debt note transactions and agency credit insurance structures (ACIS), and provide credit enhancement by transferring a portion of credit losses on single-family mortgage loans to third party investors and insurers. The value of these transactions to us is dependent on various economic scenarios, and we will benefit from these transactions if we experience significant mortgage loan defaults. We completed five and two STACR debt note transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. We completed five and two ACIS transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. We also have credit enhancements protecting our multifamily mortgage portfolio. Subordination, primarily through our K Certificates, is the most prevalent type, whereby we mitigate our credit risk exposure by structuring our securities to sell the expected credit risk to private investors who purchase the subordinate tranches. We also have credit protection for certain mortgage loans on our consolidated balance sheets that are covered by insurance or partial guarantees issued by federal agencies (such as FHA, VA, and USDA). The total UPB of these mortgage loans was $3.4 billion and $3.6 billion as of June 30, 2015 and December 31, 2014, respectively. Non-Cash Investing and Financing Activities We acquired $123.9 billion and $82.7 billion of mortgage loans held-for-investment in exchange for the issuance of debt securities of consolidated trusts in guarantor swap transactions during the six months ended June 30, 2015 and the six months ended June 30, 2014, respectively. These guarantor swap transactions during the six months ended June 30, 2015 included approximately $3.8 billion of mortgage loans received from sellers to satisfy advances that were recorded in other assets on our condensed consolidated balance sheets. |
