Presentation by Dr. Frank Nothaft at the 13th Annual Economic Summit hosted by NVAR at George Mason University on Wednesday, September 23, 2009.

1. Housing and Mortgage Market Update NVAR Economic Summit Fairfax, VA September 23, 2009 Frank E. Nothaft Chief Economist

3. Single-family Building Hit a Record in 2005, but Has Fallen to Lowest Level Since 1945 Office of the Chief Economist One-Family Housing Starts (thousands of units, SAAR) Sources: Bureau of Census (SAAR), Freddie Mac Third Quarter 2005 record: 1.75 million units Forecast First Quarter 2009: 0.36 million units – Recession

4. Building Permits Have Dropped in U.S. Over Last 4 Years Office of the Chief Economist Housing Permits U.S. (Thousands) Source: Bureau of Census (“Washington, DC and Northern Virginia” is the Washington-Arlington-Alexandria, DC-VA-MD-WV MSA) United States Washington, DC and Northern Virginia Housing Permits Washington & NoVa (Thousands) 76% Drop 74% Drop – Recession

5. Existing Home Sales Down a Third in U.S. and More in Virginia during the Last Four Years Office of the Chief Economist Source: National Association of Realtors (Existing Single-Family Houses, Apartment Condos & Co-ops) U.S. Existing Home Sales (Thousands) Virginia Existing Home Sales (Thousands) Home Sales Change 2005Q2 – 2009Q2 United States -33% Virginia -42% United States Virginia

6. Job Loss Is the Main Hardship Reason Among Delinquent Prime Borrowers Office of the Chief Economist Source: Freddie Mac; data exclude delinquent loans in Louisiana and Mississippi due to hurricane effects. Data cover only prime conventional conforming loans.

7. U.S. Unemployment Rate Rose to 9.7% in August, the Highest in More Than 26 Years Office of the Chief Economist Unemployment Rate (Percent) Forecast Sources: U.S. Department of Labor, Freddie Mac (“Washington, DC and Northern Virginia” is the Washington-Arlington-Alexandria, DC-VA-MD-WV MSA) United States Nov-Dec ‘82: 10.8% 2009Q4: 9.9% Dec ‘82-Jan ‘83: 7.8% VA Aug-09 6.5% Virginia Washington, DC and Northern Virginia – National Recession

8. Forclosures Spike When House Values Fall Office of the Chief Economist Source: FHFA Purchase-Only House Price Index, MBA National Delinquency Survey Virginia Annual House Price Change Percent of Virginia Loans in Foreclosure House Price Change (Left Scale) Foreclosure Rate (Right Scale)

9. Recent Default Experience Is Unlike Any Previous Business Cycle Since the 1930s Office of the Chief Economist Prime conventional loans 90 days or more delinquent or in foreclosure (percent) Source: National Bureau of Economic Research, Mortgage Bankers Association (Prime Conventional includes Alt-A). – Recession Year

10. Increasing Delinquencies, Especially Subprime Office of the Chief Economist Loans 90 Days or More Delinquent or in Foreclosure (percent of number) Source: Mortgage Bankers Association; “Prime Loans” includes Alt-A (Quarterly data not seasonally adjusted;1998Q1-2009Q2).

11. Relative to Serviced Loans, Subprime Accounts for a Very Large Share of Virginia Foreclosures Office of the Chief Economist Number of Foreclosures Started (Annual Rate in Thousands) Source: Mortgage Banker’s Association National Delinquency Survey (2003 is only for fourth quarter). Numbers adjusted for 85% coverage. 28% 36% 31% 30% 41% 32% 19% 32% 50% 38% 48% 7% 45% Subprime Share of Loans Serviced in VA: Peak (2007): 10% Today: 8% 56% 10% 35% 8% 56% 44% 28% 28%

12. Subprime, Alt-A ARMs, and Option ARMs Drive Foreclosures in Virginia Office of the Chief Economist Source: Mortgage Banker’s Association National Delinquency Survey. Numbers adjusted for 85% coverage. 28% Percent 1.7 million Loans 60,000 Foreclosures SUBPRIME FHA & VA PRIME & Alt-A ARM PRIME & Alt-A FIXED RATE

13. Private Label Securities Comprise 13% of Loans Outstanding but Over a Third of Problem Loans Office of the Chief Economist Number of First Mortgages Outstanding (in millions) Seriously Delinquent Mortgages (in millions) Other Portfolio 477 Other Portfolio 1% Total: 53 Million Sources: FDIC, Freddie Mac, Fannie Mae, Mortgage Bankers Association, HUD, First American CoreLogic (LoanPerformance). Note: Data as of June 30, 2009. Seriously Delinquent loans were at least 90 days delinquent or in foreclosure. Components may not sum to 100% because of rounding. Freddie Mac and Fannie Mae figures include whole loans held in portfolio and in guaranteed securities outstanding. Freddie Mac Fannie Mae Banks & Thrifts FHA & VA Private Label Securities Total: 4.2 Million

14. Keeping People in Their Homes A Long-Standing Priority for Freddie Mac Office of the Chief Economist Source: Freddie Mac Single-Family Alternatives to Foreclosure

15. Freddie Mac Plays A Leadership Role in Making Home Affordable Office of the Chief Economist $75 billion for 3-4 million mortgages Lower rates for 4-5 million mortgages Subsidized Modifications Easier Refinancing Making Home Affordable Has Two Main Components:

19. Where to Get More Information Look for regular updates to our economic forecast, commentary and data at www.freddiemac.com/news/finance Contact us at chief_economist@freddiemac.com Opinions, estimates, forecasts and other views contained in this document are those of Freddie Mac's Office of the Chief Economist, do not necessarily represent the views of Freddie Mac or its management, should not be construed as indicating Freddie Mac's business prospects or expected results, and are subject to change without notice. Although the Office of the Chief Economist attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this document may be used with proper attribution. Alteration of this document is prohibited. © 2009 by Freddie Mac.