Freddie Mac 2014 Annual Report Download - page 217

212 Freddie Mac
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 14% of our investments in single-family non-agency mortgage-related
securities, based on UPB, were serviced by JPMorgan Chase Bank, N.A.
We acquire our multifamily mortgage loans from a network of approved sellers. Our top two multifamily sellers, CBRE
Capital Markets, Inc. and Berkadia Commercial Mortgage LLC, accounted for 20% and 15%, respectively, of our multifamily
new business volume for 2014. Our top ten multifamily sellers represented an aggregate of approximately 84% of our
multifamily new business volume for 2014.
A significant portion of our multifamily mortgage loans are serviced by several of our large customers. As of
December 31, 2014 our top three multifamily servicers, Wells Fargo Bank, N.A., Berkadia Commercial Mortgage LLC, and
CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding K Certificates,
and together serviced approximately 39% of this portfolio.
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. We 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. We evaluate the recovery and collectability from insurance policies
for mortgage loans that we hold for investment as well as loans underlying our non-consolidated Freddie Mac mortgage-related
securities or covered by other guarantee commitments as part of the estimate of our loan loss reserves. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee
Losses” for additional information. As of December 31, 2014, mortgage insurers provided coverage with maximum loss limits
of $58.9 billion, for $230.7 billion of UPB, in connection with our single-family credit guarantee portfolio. These amounts are
based on gross coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered
under both primary and pool insurance. Our top four mortgage insurer counterparties, Radian Guaranty Inc., United Guaranty
Residential Insurance Company, Mortgage Guaranty Insurance Corporation, and Genworth Mortgage Insurance Corporation
each accounted for more than 10% and collectively represented approximately 80% of our overall mortgage insurance coverage
at December 31, 2014. Of our four largest counterparties, three are rated BB-, and one is rated BBB+, as of December 31,
2014, based on the lower of the S&P or Moody’s rating scales and stated in terms of the S&P equivalent. PMI Mortgage
Insurance Co. (PMI), Republic Mortgage Insurance Co. (RMIC), and Triad Guaranty Insurance Corp. (Triad) are no longer
rated by either S&P or Moody’s because they are in rehabilitation or under regulatory supervision.
We received proceeds of $1.1 billion and $2.0 billion during 2014 and 2013, 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 $0.4 billion and $0.7 billion (excluding deferred payment obligations associated with unpaid claim amounts) as of
December 31, 2014 and 2013, respectively. The balance of these receivables, net of associated reserves, was approximately
$0.3 billion and $0.5 billion at December 31, 2014 and 2013, respectively.
PMI and Triad are both in rehabilitation, and a substantial portion of their claims are recorded by us as deferred payment
obligations. These insurers no longer issue new insurance but continue to pay a portion of their respective claims in cash. In
March 2014, PMI began paying valid claims 67% in cash and 33% in deferred payment obligations and made a one-time cash
payment to us for claims that were previously settled for 55% in cash. In December 2013, Triad began paying valid claims 75%
in cash and 25% in deferred payment obligations and made a one-time cash payment to us for claims that were previously
settled for 60% in cash. If, as we currently expect, these insurers do not pay the full amount of their deferred payment
obligations in cash, we would lose a portion of the coverage from these insurers. As of December 31, 2014, we had cumulative
unpaid deferred payment obligations of $0.4 billion from these insurers. We reserved for all of these unpaid amounts as
collectability is uncertain.
RMIC is under regulatory supervision and is no longer issuing new insurance. In June 2014, RMIC announced that it
would: (a) resume paying valid claims at 100% of the claim amount without further deferrals, effective with claims settled on
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