Freddie Mac 2010 Annual Report Download - page 114

We received proceeds of $1.8 billion and $952 million during the years ended December 31, 2010 and 2009,
respectively, from our primary and pool mortgage insurance policies for recovery of losses on our single-family loans. We
had outstanding receivables from mortgage insurers, net of associated reserves, of $1.5 billion and $1.0 billion as of
December 31, 2010 and December 31, 2009, respectively.
During the year ended December 31, 2010, increases in default volumes and in the time between claim filing and
receipt of payment resulted in an increase in our receivables for mortgage and pool insurance claims. Although the volume
of rescissions of claims under mortgage insurance coverage temporarily declined mid-year, the volume of rescissions
returned to elevated levels by year-end. When an insurer rescinds coverage, the seller/servicer generally is in breach of
representations and warranties made to us when we purchased the affected mortgage. Consequently, we may require the
seller/servicer to repurchase the mortgage or to indemnify us for additional loss.
The UPB of single-family loans covered by pool insurance declined approximately 25% during the year ended
December 31, 2010, primarily due to payoffs and other liquidation events. We did not purchase any pool insurance on single-
family loans during 2010 and 2009 and we do not expect to acquire any such policies for credit enhancement during 2011.
We also reached the maximum limit of recovery on certain of these policies. As a result, losses we recognized on certain
loans previously identified as credit enhanced increased during 2010, compared to prior years. We may reach aggregate loss
limits on other pool insurance policies in the near term, which would further increase our credit losses.
Our pool insurance policies generally have coverage periods that range from ten to twelve years. In many cases, we
entered into these agreements to cover higher-risk mortgage product types delivered to us through bulk transactions. As of
December 31, 2010, pool insurance policies which will expire: (a) during 2011 covered approximately $1.1 billion in UPB of
loans, and the remaining contractual limit for reimbursement of losses on such loans was approximately $373 million; and
(b) between 2012 and 2017 covered approximately $44.0 billion in UPB of loans, and the remaining contractual limit for
reimbursement of losses on such loans was approximately $1.0 billion. Any losses in excess of the contractual limit will be
borne by us. We expect to generate claims sufficient to utilize the $1.4 billion of loss coverage on policies which expire
between 2011 and 2017. The remaining pool insurance policies, for which the remaining contractual limit for reimbursement
of losses was approximately $1.9 billion, expire after 2017. These figures include coverage under our pool insurance policies
with Triad, based on the stated coverage amounts under such policies. As noted below, we do not expect to receive full
payment of our claims from Triad.
Based upon currently available information, we believe 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 were partially
deferred beginning June 1, 2009, under order of Triad’s state regulator. In 2010, we approved Essent Guaranty, Inc., which
acquired certain assets and infrastructure of Triad in December 2009, as a new mortgage insurer.
Bond Insurers
Most of the non-agency mortgage-related securities we hold rely primarily on subordinated tranches to provide credit
loss protection. Bond insurance, including primary and secondary policies, is a credit enhancement covering some of the
non-agency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the
securities we purchase while secondary policies are acquired by us. Bond insurance exposes us to the risks related to the
bond insurer’s ability to satisfy claims.
Table 38 presents our coverage amounts of monoline bond insurance, including secondary coverage, for the non-agency
mortgage-related securities we hold. 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 38 — Monoline Bond Insurance by Counterparty
Counterparty Name Credit Rating
(1)
Credit Rating Outlook
(1)
Coverage Outstanding
(2)
Percent of Total
(2)
December 31, 2010
(dollars in billions)
Ambac
(3)
.................................... NR N/A $ 4.6 43%
FGIC
(3)
..................................... NR N/A 2.0 19
MBIA Insurance Corp. . . . . . ..................... B– Negative 1.5 14
Assured Guaranty Municipal Corp. (AGMC) . . . ......... AA– Negative 1.3 12
National Public Finance Guarantee Corp. (NPFGC) ....... BBB Developing 1.2 11
Others . . . ................................... 0.1 1
Total ....................................... $10.7 100%
(1) Latest ratings available as of February 11, 2011. 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 mortgage-related
securities.
(3) Neither S&P nor Moody’s provide credit ratings for Ambac or FGIC.
111 Freddie Mac