Freddie Mac 2014 Annual Report Download - page 123

118 Freddie Mac
The amount we expect to collect on the outstanding repurchase requests is significantly less than the UPB of the related
loans primarily because many will likely be satisfied by reimbursement of our realized credit losses by seller/servicers, instead
of repurchase of loans at their UPB.
We continue to face challenges with respect to the performance of certain of our servicers in managing our seriously
delinquent loans. We also continue to be adversely affected by the length of the foreclosure timeline, particularly in states that
require a judicial foreclosure process, which has provided challenges to our seller/servicers because they have had to change
their processes for compliance with the requirements of each jurisdiction. We seek remedies from servicers such as
compensatory fees for failure to perform certain requirements with respect to the servicing of delinquent loans.
During 2014, excluding transfers between affiliated companies and assignments of servicing for newly originated loans,
approximately $9.7 billion in UPB of loans in our single-family credit guarantee portfolio were transferred from our primary
servicers to specialty servicers, which are non-depository financial institutions that specialize in workouts of problem loans.
Transfers involving approximately $5.8 billion in UPB of such loans were facilitated by us as part of our efforts to assist
troubled borrowers, increase problem loan workouts, and mitigate our credit losses. Some of these non-depository specialty
servicers have grown rapidly in recent years and now service a large share of our loans. These non-depository specialty
servicers may not have the same financial strength, internal controls, or operational capacity as our depository servicers.
Certain specialty servicers have recently been the subject of significant adverse scrutiny from regulators. As of both December
31, 2014 and 2013, approximately 10% of our total single-family credit guarantee portfolio was serviced by our three largest
non-depository specialty servicers. Several of these specialty servicers also service a large share of the loans underlying our
investments in non-agency mortgage-related securities, as discussed in "Agency and Non-Agency Mortgage-Related Security
Issuers."
Our non-depository specialty servicers include subsidiaries and/or affiliates of Ocwen Financial Corp. (Ocwen). Ocwen
and its subsidiaries and/or affiliates have recently been the subject of significant adverse regulatory scrutiny, including in New
York and California, and Ocwen’s credit rating and servicer rating have been downgraded. In December 2014, the New York
State Department of Financial Services (NYDFS) entered into a consent order with Ocwen that provided for, among other
items, changes in Ocwen’s board of directors. Ocwen is not permitted to acquire additional mortgage servicing rights until it
receives prior approval from the NYDFS, and meets certain conditions set forth in the consent agreement. In January 2015, the
California Department of Business Oversight (CDBO) announced that it had entered into a settlement with Ocwen Loan
Servicing, LLC related to the company’s failure to provide certain loan information to the regulator. Among other items, the
settlement prohibits Ocwen Loan Servicing, LLC from acquiring any additional mortgage servicing rights for loans secured by
properties in California until the CDBO determines the firm can fully respond in a timely manner to future requests for
information. As of December 31, 2014, approximately 3% of our total single-family credit guarantee portfolio was serviced by
subsidiaries and/or affiliates of Ocwen. We are taking steps designed to reduce our exposure to Ocwen and its subsidiaries and/
or affiliates with respect to the servicing of our single-family loans.
For more information about our seller/servicers, including concentration information about these counterparties and
settlement agreements associated with pre-conservatorship loan purchase activity, see “RISK FACTORS — Competitive and
Market Risks — Our financial results may be adversely affected if mortgage seller/servicers fail to perform their repurchase
and other obligations to us," and "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/Servicers."
Multifamily Mortgage Seller/Servicers
In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial
pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their monitoring
of each property’s financial performance and physical condition. This could also, in certain cases, reduce the likelihood that we
could recover losses through lender repurchases, recourse agreements or other credit enhancements, where applicable. This risk
primarily relates to multifamily loans that we hold on our consolidated balance sheets where we retain all of the related credit
risk.
Similar to the single-family business, we maintain eligibility standards for institutions that sell or deliver us multifamily
mortgage loans for purchase or securitization. We monitor the status of our multifamily seller/servicers in accordance with our
counterparty credit risk management framework.
We acquire a significant portion of our multifamily new business volume from several large sellers. A significant portion
of our multifamily mortgage portfolio, excluding loans underlying K Certificates, is serviced by several large multifamily
servicers. For more information about our multifamily seller/servicers, including concentration information about these
counterparties, see "NOTE 15: CONCENTRATION OF CREDIT AND OTHER RISKS — Seller/Servicers."
Mortgage Insurers
We are exposed to 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 fails to fulfill its obligations, we could experience increased credit losses.
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