Freddie Mac 2009 Annual Report Download - page 145

less than $100 million associated with Triad. We include an estimate of our recoveries from mortgage insurers as part of our
loan loss reserves. If our assessment of one or more of our mortgage insurer’s ability to fulfill its obligations to us worsens,
it could result in a significant increase in our loan loss reserve estimate.
Based upon currently available information, we expect that all of our mortgage insurance counterparties will continue to
pay all claims as due in the normal course for the near term except for claims obligations of Triad that have been deferred
after June 1, 2009, under order of Triad’s state regulator. However, we believe that several of our mortgage insurance
counterparties are at risk of falling out of compliance with regulatory capital requirements, which may result in regulatory
actions that could restrict the insurer’s ability to write new business, at least in certain states, and negatively impact our
access to mortgage insurance for high LTV loans. In 2009, several mortgage insurers requested that we approve, as eligible
insurers, new subsidiaries or affiliates to write new mortgage insurance business in any state where the insurers’ regulatory
capital requirements were breached, and the regulator did not issue a waiver. On February 11, 2010, we approved such a
request from MGIC. We are considering the remaining requests.
Bond Insurers
Our investments in non-Freddie Mac issued securities expose us to institutional credit risk to the extent that servicers,
issuers, guarantors, or third parties providing credit enhancements become insolvent or do not perform. Our non-Freddie Mac
issued securities include both agency and non-agency mortgage-related securities.
Agency mortgage-related securities, which are securities issued or guaranteed by Fannie Mae or Ginnie Mae, present
minimal institutional credit risk due to the prevailing view that these securities have a level of credit quality at least
equivalent to non-agency mortgage-related securities rated AAA (based on the S&P rating scale or an equivalent rating from
other nationally recognized statistical rating organizations). See “CONSOLIDATED BALANCE SHEETS ANALYSIS —
Investments in Securities” for more information on institutional credit risk associated with our investments in securities,
including information on higher risk components and the significant impairment charges we recorded during 2009 related to
our investments in non-agency mortgage-related securities.
Most of our non-agency mortgage-related securities rely primarily on subordinated tranches to provide credit loss
protection. Bond insurance, including primary and secondary policies, is an additional credit enhancement covering some of
the non-agency securities held on our consolidated balance sheets. Primary policies are acquired by the issuing trust while
secondary policies are acquired by us. Bond insurance exposes us to the risks related to the bond insurer’s ability to satisfy
claims. As of December 31, 2009, we had insurance coverage, including secondary policies, on securities totaling
$11.7 billion of unpaid principal balance. Table 52 presents the coverage amounts for all securities held on our consolidated
balance sheet covered by bond insurance, including secondary coverage. In the event a monoline bond insurer fails to
perform, the coverage outstanding represents our maximum exposure to loss related to such a failure.
Table 52 — Monoline Bond Insurance by Counterparty
Counterparty Name Credit Rating
(1)
Credit Rating Outlook
(1)
Coverage Outstanding
(2)
Percent of Total
(2)
December 31, 2009
(dollars in billions)
Ambac Assurance Corporation ..................... CC Developing $ 5.0 43%
Financial Guaranty Insurance Company (FGIC)
(3)
........ NR NR 2.3 20
MBIA Insurance Corp. .......................... B- Negative 1.7 14
Assured Guaranty Municipal Corp.
(4)
................. AA- Negative 1.4 12
National Public Finance Guarantee Corp. (NPFGC) ....... BBB+ Developing 1.2 10
Others
(5)
.................................... 0.1 1
Total. . . . . . . . . . . . . .......................... $11.7 100%
(1) Latest ratings available as of February 11, 2010. Represents the lower of S&P and Moody’s credit ratings. In this table, the rating and outlook of the
legal entity is stated in terms of the S&P equivalent.
(2) Represents the remaining contractual limit for reimbursement of losses, including lost interest and other expenses, on non-agency securities.
(3) In March 2009, FGIC issued its 2008 financial statements, which expressed substantial doubt concerning the ability to operate as a going concern.
Consequently, in April 2009, S&P withdrew its ratings of FGIC and discontinued ratings coverage.
(4) Assured Guaranty Municipal Corp. was formerly known as Financial Security Assurance (FSA).
(5) Includes remaining exposure to Syncora Guarantee Inc., or SGI, after consideration of policy holder settlements in July 2009.
In accordance with our risk management policies, we actively monitor the financial strength of our bond insurers. In the
event one or more of our bond insurers were to become insolvent, it is likely that we would not collect all of our claims
from the affected insurer, and it would impact our ability to recover certain unrealized losses on our investments in these
non-agency securities. We believe that some of our bond insurers lack sufficient ability to fully meet all of their expected
lifetime claims-paying obligations to us as they emerge.
On November 24, 2009, the New York State Insurance Department ordered FGIC to restructure in order to improve its
financial condition and to suspend paying any and all claims effective immediately. We are currently assessing the impact of
this development on FGIC’s obligations to us. During the second quarter of 2009, as part of a comprehensive restructuring,
142 Freddie Mac