Freddie Mac 2009 Annual Report Download - page 316

seller/servicers to the extent we fail to realize the anticipated benefits of our loss mitigation plans, or seller/servicers
complete a lower percentage of the repurchases they are obligated to make. Either of these conditions could cause our losses
to be significantly higher than those estimated within our loan loss reserves.
Due to strain on the mortgage finance industry, the financial condition and performance of many of our seller/servicers
have been adversely affected. Many institutions, some of which were our customers, have failed, been acquired, received
assistance from the U.S. government, received multiple ratings downgrades or experienced liquidity constraints. The resulting
consolidation within the mortgage finance industry further concentrates our institutional credit risk among a smaller number
of institutions.
In July 2008, IndyMac Bancorp, Inc., or IndyMac, announced that the FDIC had been made a conservator of the bank.
In March 2009, we entered into an agreement with the FDIC with respect to the transfer of loan servicing from IndyMac to
a third-party, under which we received an amount to partially recover our future losses incurred from IndyMac’s repurchase
obligations. After the FDIC’s rejection of Freddie Mac’s remaining claims in August 2009, we declined to pursue further
collection efforts.
In September 2008, Lehman and its affiliates declared bankruptcy. Lehman and its affiliates also service single-family
loans for us. We have exposure to Lehman for servicing-related obligations due to us, including repurchase obligations.
Lehman suspended its repurchases from us after declaring bankruptcy. On September 22, 2009, we filed proofs of claim in
the Lehman bankruptcies, which included our claim for repurchase obligations.
In September 2008, Washington Mutual Bank was acquired by JPMorgan Chase Bank, N.A. We agreed to JPMorgan
Chase becoming the servicer of mortgages previously serviced by Washington Mutual in return for JPMorgan Chase’s
agreement to assume Washington Mutual’s recourse obligations to repurchase any of such mortgages that were sold to us
with recourse. With respect to mortgages that Washington Mutual sold to us without recourse, JPMorgan Chase made a one-
time payment to us in the first quarter of 2009 with respect to obligations of Washington Mutual to repurchase any of such
mortgages that are inconsistent with certain representations and warranties made at the time of sale.
In total, we received approximately $650 million associated with the IndyMac servicing transfer and the JPMorgan
Chase agreement, which was initially recorded as a deferred obligation within other liabilities in our consolidated balance
sheets. In 2009, $375 million of this amount was reclassified to our loan loss reserve and the remainder offset delinquent
interest to partially offset losses as incurred on related loans covered by these agreements. In the case of IndyMac, the
payment we received in the servicing transfer was significantly less than the amount of the claim we filed for existing and
potential exposure to losses related to repurchase obligations, which, as discussed above, the FDIC has rejected.
On August 4, 2009, we notified TBW that we had terminated its eligibility as a seller and servicer for us effective
immediately. TBW accounted for approximately 1.9% and 5.2% of our single-family mortgage purchase volume activity for
2009 and 2008, respectively. On August 24, 2009, TBW filed for bankruptcy and announced its plan to wind down its
operations. We estimate that the amount of potential exposure, excluding the fair value of related servicing rights, to us
related to the loan repurchase obligations of TBW is approximately $700 million as of December 31, 2009. Unrelated to our
potential exposure arising out of TBW loan repurchase obligations, in its capacity as a servicer of loans owned or guaranteed
by Freddie Mac, TBW received and processed certain borrower funds that it held for the benefit of Freddie Mac. TBW
maintained certain bank accounts, primarily at Colonial Bank, to deposit such borrower funds and to provide remittance to
Freddie Mac. Colonial Bank was placed into receivership by the FDIC on or about August 14, 2009. Freddie Mac filed a
proof of claim aggregating approximately $595 million against Colonial Bank on November 18, 2009. The proof of claim
relates to monies that remain, or should remain, on deposit with Colonial Bank, or with the FDIC as its receiver, which are
attributable to mortgage loans owned or guaranteed by us and previously serviced by TBW. These monies include, among
other items, payoff funds, borrower payments of mortgage principal and interest, as well as taxes and insurance payments
related to these loans. We continue to evaluate our other potential exposures to TBW and are working with the debtor in
possession, the FDIC and other creditors to quantify these exposures. At this time, we are unable to estimate our total
potential exposure related to TBW’s bankruptcy; however, the amount of additional losses related to such exposures could be
significant.
The estimates of potential exposure to our counterparties are higher than our estimates for probable loss which are
based on estimated loan losses that have been incurred through December 31, 2009. Our estimate of probable incurred losses
for exposure to seller/servicers for their repurchase obligations to us is a component of our allowance for loan losses as of
December 31, 2009 and 2008. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for
Loan Losses and Reserve for Guarantee Losses” for further information. We believe we have adequately provided for these
exposures, based upon our estimates of incurred losses, in our loan loss reserves at December 31, 2009 and 2008; however,
our actual losses may exceed our estimates.
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