Freddie Mac 2010 Annual Report Download - page 111

interests. We are also pursuing other loss mitigation strategies, in some cases in conjunction with other investors. The
effectiveness of our efforts is highly uncertain and any potential recoveries may take significant time to realize. See
“CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities” for information on our investments in
non-agency mortgage-related securities.
Consolidation in the industry and any efforts we take to reduce exposure to financially weakened counterparties could
further increase our exposure to individual counterparties. The failure of any of our primary counterparties to meet their
obligations to us could have a material adverse effect on our results of operations, financial condition, and our ability to
conduct future business.
Mortgage Seller/Servicers
We acquire a significant portion of our single-family mortgage purchase volume from several large lenders, or seller/
servicers. Our top 10 single-family seller/servicers provided approximately 78% of our single-family purchase volume during
2010. Wells Fargo Bank, N.A., Bank of America, N.A., and Chase Home Finance LLC accounted for 27%, 12% and 10%,
respectively, of our single-family mortgage purchase volume and were the only single-family seller/servicers that comprised
10% or more of our purchase volume for 2010. During 2010, our top three multifamily lenders, CBRE Capital Markets, Inc.,
Wells Fargo Multifamily Capital and Berkadia Commercial Mortgage LLC, accounted for 17%, 16%, and 11%, respectively,
of our multifamily mortgage purchase volume. Our top 10 multifamily lenders represented an aggregate of approximately
84% of our multifamily purchase volume in 2010.
Pursuant to their repurchase obligations, our seller/servicers repurchase mortgages sold to us, whether we subsequently
securitized the loans or held them as unsecuritized loans on our consolidated balance sheets. In lieu of repurchase, we may
choose to allow a seller/servicer to indemnify us against losses on such mortgages or otherwise compensate us for the risk of
continuing to hold the mortgages. We are exposed to institutional credit risk arising from the potential insolvency or non-
performance by our mortgage seller/servicers, including non-performance of their repurchase obligations arising from
breaches of the representations and warranties made to us for loans they underwrote and sold to us or failure to honor their
recourse and indemnification obligations to us. In some cases, the ultimate amounts of recovery payments we received and
may receive in the future from seller/servicers were and may be significantly less than the amount of our estimates of
potential exposure to losses related to their obligations.
Some of our seller/servicers have failed to fully perform their repurchase obligations due to lack of financial capacity,
while others, including many of our larger seller/servicers, have not fully performed their repurchase obligations in a timely
manner. The UPB of loans subject to repurchase requests issued to our single-family seller/servicers declined to
approximately $3.8 billion as of December 31, 2010 from $4.2 billion as of December 31, 2009, primarily because the
volume of resolved requests exceeded our issuance of new requests in 2010. Repurchase request resolution during 2010
benefitted from agreements with certain seller/servicers, including the agreement with Bank of America discussed below. Our
contracts require that a seller/servicer repurchase a mortgage within 30 days after we issue a repurchase request, unless the
seller/servicer avails itself of an appeals process provided for in our contracts, in which case the deadline for repurchase is
extended until we decide the appeal. As of December 31, 2010, approximately 34% of these repurchase requests were
outstanding for more than four months since issuance of our repurchase request. The actual amount we expect to collect on
these requests is significantly less than their UPB amounts primarily because many of these requests are satisfied by
reimbursement of our realized losses by seller/servicers, or may be rescinded in the course of the contractual appeal process.
Based on our historical loss experience and the fact that many of these loans are covered by credit enhancement, we expect
the actual credit losses experienced by us should we fail to collect on these repurchase requests would also be less than the
UPB of the loans. We may also enter into agreements with seller/servicers to resolve claims for repurchases.
During the years ended December 31, 2010 and 2009, we recovered amounts that covered losses with respect to
$6.4 billion and $4.3 billion, respectively, of UPB of loans associated with our repurchase requests, including amounts
associated with one-time settlement agreements. Four of our larger single-family seller/servicers collectively had
approximately 32% and 23% of their repurchase obligations outstanding more than four months at December 31, 2010 and
December 31, 2009, respectively as measured by the UPB of loans associated with our repurchase requests. In order to
resolve outstanding repurchase requests on a more timely basis with our single-family seller/servicers in the future, we have
begun to require certain of our larger seller/servicers to commit to plans for completing repurchases, with financial
consequences or with stated remedies for non-compliance, as part of the annual renewals of our contracts with them. It is too
early to tell if these provisions will help in resolving future repurchase requests or the impact they may have on the size or
timing of our credit losses. In the event of non-performance by a seller/servicer, we may also seek partial recovery of
amounts owed by the seller/servicer by transferring all or a portion of the mortgage servicing rights of the seller/servicer to a
different servicer. However, this option may be difficult to accomplish with respect to our larger seller/servicers, as it may be
challenging to transfer a large servicing portfolio.
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