Freddie Mac 2009 Annual Report Download - page 144

We are also exposed to the risk that if multifamily seller/servicers come under financial pressure due to the current
stressful economic environment, they could be adversely affected, which could potentially cause degradation in the quality of
service they provide or, in certain cases, reduce the likelihood that we could recover losses on loans covered by recourse
agreements or other credit enhancements. Capmark Finance Inc., which serviced 17.1% of the multifamily loans on our
consolidated balance sheet, filed for bankruptcy on October 25, 2009. On November 24, 2009, the U.S. Bankruptcy Court for
the District of Delaware gave Capmark Financial Group Inc. (“Capmark”) approval to complete the sale of its North
American servicing and mortgage banking businesses to Berkadia Commercial Mortgage LLC (Berkadia). The sale to
Berkadia, a newly formed entity owned by Berkshire Hathaway Inc. and Leucadia National Corporation, was completed in
December 2009. As of December 31, 2009, affiliates of Centerline Holding Company serviced 5.0% of the multifamily loans
on our consolidated balance sheet. Centerline Holding Company announced that it was pursuing a restructuring plan with its
debt holders due to adverse financial conditions. We continue to monitor the status of all our multifamily servicers in
accordance with our counterparty credit risk management framework.
Mortgage Insurers
We have institutional credit risk relating to the potential insolvency or non-performance of mortgage insurers that insure
single-family mortgages we purchase or guarantee. As a guarantor, we remain responsible for the payment of principal and
interest if a mortgage insurer fails to meet its obligations to reimburse us for claims. If any of our mortgage insurers that
provide credit enhancement fails to fulfill its obligation, we could experience increased credit-related costs and a possible
reduction in the fair values associated with our PCs or Structured Securities.
We attempt to manage this risk by establishing eligibility standards for mortgage insurers and by monitoring our
exposure to individual mortgage insurers. Our monitoring includes performing regular analysis of the estimated financial
capacity of mortgage insurers under different adverse economic conditions. In addition, state insurance authorities regulate
mortgage insurers and we periodically meet with certain state authorities to review market concerns. We also monitor the
mortgage insurers’ credit ratings, as provided by nationally recognized statistical rating organizations, and we periodically
review the methods used by such organizations. Most of our mortgage insurers received significant rating downgrades during
2009. Mortgage insurer rescissions of mortgage insurance coverage are also on the rise. In evaluating the likelihood that an
insurer will have the ability to pay our expected claims, we consider our own analysis of the insurer’s financial capacity, any
downgrades in the insurer’s credit rating and various other factors.
Table 51 summarizes our exposure to mortgage insurers as of December 31, 2009. In the event that a mortgage insurer
fails to perform, the outstanding coverage represents our maximum exposure to credit losses resulting from such failure.
Table 51 — Mortgage Insurance by Counterparty
Counterparty Name Credit Rating
(1)
Credit Rating Outlook
(1)
Primary
Insurance
(2)
Pool
Insurance
(2)
Coverage
Outstanding
(3)
As of December 31, 2009
(in billions)
Mortgage Guaranty Insurance Corporation (MGIC) ....... B+ Watch Negative $ 57.8 $40.9 $15.3
Radian Guaranty Inc. ........................... B+ Negative 41.2 19.6 12.0
Genworth Mortgage Insurance Corporation ............. BBB- Negative 37.9 1.1 9.6
PMI Mortgage Insurance Co. ...................... B Negative 30.4 3.4 7.6
United Guaranty Residential Insurance Co. . . . ......... BBB Negative 31.2 0.5 7.6
Republic Mortgage Insurance Company ............... BB+ Negative 25.8 3.3 6.4
Triad Guaranty Insurance Corp.
(4)
................... NR NR 12.3 4.2 3.1
CMG Mortgage Insurance Co. ..................... BBB+ Watch Negative 2.7 0.1 0.7
Total ....................................... $239.3 $73.1 $62.3
(1) Latest rating available as of February 11, 2010. Represents the lower of S&P and Moody’s credit ratings and outlooks. In this table, the rating and
outlook of the legal entity is stated in terms of the S&P equivalent.
(2) Represents the amount of unpaid principal balance at the end of the period for our single-family mortgage portfolio covered by the respective insurance
type.
(3) Represents the remaining aggregate contractual limit for reimbursement of losses of principal incurred under policies of both primary and pool
insurance. These amounts are based on our gross coverage without regard to netting of coverage that may exist on some of the related mortgages for
double-coverage under both types of insurance.
(4) Beginning on June 1, 2009, Triad began paying valid claims 60% in cash and 40% in deferred payment obligations.
We received proceeds of $952 million and $596 million during 2009 and 2008, respectively, from our primary and pool
mortgage insurance policies for recovery of losses on our single-family loans. The balance of our outstanding mortgage
insurance recovery claims rose from approximately $0.8 billion at December 31, 2008 to approximately $1.7 billion at
December 31, 2009, as the volume of loss events, such as foreclosures, increased. Mortgage insurers continue to increase
their frequency of claim review. Claim reviews by insurers delay the settlement and payment of our claims and,
consequently, caused our accounts receivable balance from mortgage insurers to increase. Denials of our claims have
increased. The balance of our outstanding accounts receivable, net of our reserves, from mortgage insurance claims was
$1.0 billion and $678 million as of December 31, 2009 and 2008, respectively, and as of December 31, 2009 this included
141 Freddie Mac