Freddie Mac 2010 Annual Report Download - page 113

JPMorgan Chase Bank, N.A., Citimortgage, Inc., and U.S. Bank, N.A., together serviced approximately 68% of our single-
family mortgage loans, the first three of which each serviced 10% or more of our single-family mortgage loans, as of
December 31, 2010. We are also indirectly exposed to the actions and financial capacity of servicers in their roles as trustee
and issuer of private-label mortgage-related securities we hold.
During the second half of 2010, a number of our single-family servicers, including several of our largest, announced
that they were evaluating the potential extent of issues relating to the possible improper execution of documents associated
with foreclosures of loans they service, including those they service for us. Some of these companies also announced they
would temporarily suspend foreclosure proceedings in some or all states in which they do business while they assess these
issues. A number of these companies continue to address these issues, and certain of these suspensions remain in effect. See
“RISK FACTORS — Operational Risks — Our expenses could increase and we may otherwise be adversely affected by
deficiencies in foreclosure practices, as well as related delays in the foreclosure process.” For information on our problem
loan workouts, see “Mortgage Credit Risk — Portfolio Management Activities — Loan Workout Activities.” In addition, a
group consisting of state attorneys general and state bank and mortgage regulators in all 50 states and the District of
Columbia is reviewing foreclosure practices.
As of December 31, 2010, our top four multifamily servicers, Berkadia Commercial Mortgage LLC, Wells Fargo
Bank, N.A., CBRE Capital Markets, Inc., and Deutsche Bank Berkshire Mortgage, each serviced more than 10% of our
multifamily mortgage portfolio and together serviced approximately 52% of our multifamily mortgage portfolio.
We are exposed to the risk that multifamily seller/servicers could come under financial pressure due to the current
stressful economic environment, which could potentially cause degradation in the quality of servicing they provide to us or,
in certain cases, reduce the likelihood that we could recover losses through lender repurchase or through recourse agreements
or other credit enhancements, where applicable. We continue to monitor the status of all our multifamily seller/servicers in
accordance with our counterparty credit risk management framework.
Mortgage Insurers
We have institutional credit risk relating to the potential insolvency of or non-performance by 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 fail to fulfill their obligation, we could experience increased credit losses.
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 discuss their views. 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. None of our mortgage insurers has a rating higher than BBB. 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 37 summarizes our exposure to mortgage insurers as of December 31, 2010. 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 37 — 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, 2010
(in billions)
Mortgage Guaranty Insurance Corporation (MGIC) ....... B+ Negative $ 52.5 $33.7 $13.9
Radian Guaranty Inc. ........................... B+ Negative 38.3 16.2 11.3
Genworth Mortgage Insurance Corporation . . . . ......... BB+ Negative 34.0 1.0 8.6
United Guaranty Residential Insurance Co. . . . ......... BBB Stable 29.0 0.4 7.1
PMI Mortgage Insurance Co. ...................... B Positive 27.3 2.4 6.9
Republic Mortgage Insurance Company . . . . . . ......... BB+ Negative 23.1 2.5 5.8
Triad Guaranty Insurance Corp.
(4)
................... NR NR 10.2 1.3 2.5
CMG Mortgage Insurance Co. ..................... BBB Negative 2.7 0.1 0.7
Total . . . . ................................... $217.1 $57.6 $56.8
(1) Latest rating available as of February 11, 2011. 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 UPB at the end of the period for our single-family credit guarantee portfolio covered by the respective insurance type.
(3) Represents the remaining aggregate contractual limit for reimbursement of losses 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 to the extent an affected mortgage is covered 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.
110 Freddie Mac