Freddie Mac 2010 Annual Report Download - page 266

In 2010, we reached the maximum limit of recovery under certain pool insurance policies. As a result, losses we
recognized in 2010 increased on certain loans previously identified as credit enhanced. We may reach aggregate loss limits
on other pool insurance policies in the near term, which would further increase our credit losses.
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 of $2.3 billion and $1.7 billion as of December 31, 2010 and 2009,
respectively. The balance of our outstanding accounts receivable from mortgage insurers, net of associated reserves, was
approximately $1.5 billion and $1.0 billion as December 31, 2010 and 2009, respectively. 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 Guaranty Insurance Corporation (or 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
Bond insurance, including primary and secondary policies, is a credit enhancement covering certain of our investments
in non-agency mortgage-related securities. Primary policies are acquired by the securitization trust issuing securities we
purchase, while secondary policies are acquired by us. At December 31, 2010, we had coverage, including secondary
policies, on non-agency mortgage-related securities totaling $10.7 billion of UPB. At December 31, 2010, the top five of our
bond insurers, Ambac Assurance Corporation, Financial Guaranty Insurance Company (or FGIC), MBIA Insurance Corp.,
Assured Guaranty Municipal Corp. (or AGMC), and National Public Finance Guarantee Corp. or (NPFGC), each accounted
for more than 10% of our overall bond insurance coverage and collectively represented approximately 99% of our total
coverage.
In November 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. On March 25, 2010, FGIC made an
exchange offer to the holders of various residential mortgage-backed securities insured by FGIC. The offer was ultimately
terminated due to insufficient participation by security holders. On August 4, 2010, FGIC Corporation, the parent company
of FGIC, announced that it had filed for bankruptcy. We continue to monitor FGIC’s efforts to restructure and assess the
impact on our investments.
In March 2010, Ambac established a segregated account for certain Ambac-insured securities, including those held by
Freddie Mac, and consented to the rehabilitation of the segregated account requested by the Wisconsin Office of the
Commissioner of Insurance. On March 24, 2010, a Wisconsin state circuit court issued an order for rehabilitation and an
order for temporary injunctive relief regarding the segregated account. Among other things, no claims arising under the
segregated account will be paid, and policyholders are enjoined from taking certain actions until the plan of rehabilitation is
approved by the circuit court. The plan of rehabilitation was filed with the circuit court by the Office of the Commissioner of
Insurance on October 8, 2010, and approved on January 24, 2011. On November 8, 2010, Ambac Financial Group Inc, the
parent company of Ambac, filed for bankruptcy.
We believe that, in addition to FGIC and Ambac, some of our other bond insurers lack sufficient ability to fully meet all
of their expected lifetime claims-paying obligations to us as such claims emerge.
We evaluate the recovery from primary monoline bond insurance policies as part of our impairment analysis for our
investments in securities. If a monoline bond insurer fails to meet its obligations on our investments in securities, then the
fair values of our securities would further decline, which could have a material adverse effect on our results and financial
condition. We recognized other-than-temporary impairment losses during 2009 and 2010 related to investments in mortgage-
related securities covered by bond insurance as a result of our uncertainty over whether or not certain insurers will meet our
future claims in the event of a loss on the securities. See “NOTE 8: INVESTMENTS IN SECURITIES” for further
information on our evaluation of impairment on securities covered by bond insurance.
Cash and Other Investments Counterparties
We are exposed to institutional credit risk from the potential insolvency or non-performance of counterparties of non-
mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of our
securitization trusts. These financial instruments are investment grade at the time of purchase and primarily short-term in
nature, which mitigates institutional credit risk for these instruments.
During 2008, we recognized $1.1 billion of losses on investment activity associated with our role as securities
administrator for our securitization trusts on unsecured loans made to Lehman on the trusts’ behalf. These short-term loans
were due to mature on September 15, 2008, the date Lehman filed for bankruptcy; however, Lehman failed to repay these
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