Freddie Mac 2014 Annual Report Download - page 218

213 Freddie Mac
or after July 1, 2014, and (b) pay, in full, all deferred payment obligations outstanding as of June 30, 2014. In July 2014, we
received RMIC's payment of all deferred payment obligations owed to us. Previously, RMIC had been paying all valid claims
60% in cash and 40% in deferred payment obligations.
It is not clear how the regulators of these companies will administer their respective deferred payment plans in the future,
nor when or if those obligations will be paid.
Bond Insurers
Bond insurance is a credit enhancement covering certain of the non-agency mortgage-related securities we hold. Some
policies were acquired by the securitization trust that issued the securities we purchase, while others were acquired by us. At
December 31, 2014, the maximum principal exposure to credit losses related to such policies was $6.8 billion. At December 31,
2014, our top four bond insurers, Ambac Assurance Corporation (Ambac), National Public Finance Guarantee Corp., Financial
Guaranty Insurance Company (FGIC), and MBIA Insurance Corp., each accounted for more than 10% of our overall bond
insurance coverage and collectively represented approximately 92% of our total coverage.
In June 2012, a rehabilitation order was signed granting the Superintendent of Financial Services of the State of New
York the authority to take possession and/or control of FGIC’s property and assets and to conduct FGIC’s business. In June
2013, FGIC’s plan of rehabilitation was approved under which permitted claims are paid 17% in cash and the remainder in
deferred payment obligations.
In March 2010, Ambac established a segregated account for certain Ambac-insured securities, including some of those
held by Freddie Mac. Upon the request of the Wisconsin Office of the Commissioner of Insurance, the Wisconsin circuit court
put the segregated account into rehabilitation (i.e., a state insolvency proceeding). The Office of the Commissioner of Insurance
subsequently filed a plan of rehabilitation with the court. In the third quarter of 2012, Ambac began making partial cash
payments of 25% of the permitted amount of each policy claim. In 2013, Ambac began making supplemental payments, equal
to all or a portion of the permitted policy claim, with respect to certain specified securities. In June 2014, an amended plan was
approved by the court. The amended plan provided for Ambac to increase the amount of cash payments to 45% of the permitted
amount of each policy claim, and Ambac made a one-time cash payment to us for claims that were previously settled for 25%
in cash.
We expect to receive substantially less than full payment of our claims from Ambac and FGIC as these companies are
either insolvent or in rehabilitation. We believe that we will also likely receive substantially less than full payment of our claims
from some of our other bond insurers, because we believe they also lack sufficient ability to fully meet all of their expected
lifetime claims-paying obligations to us as such claims emerge. We evaluate the expected recovery from primary bond
insurance policies as part of our impairment analysis for our investments in securities. See “NOTE 7: INVESTMENTS IN
SECURITIES” for further information on our investments in securities covered by bond insurance.
Cash and Other Investments Counterparties
We are exposed to institutional credit risk arising 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. Our policies require that the issuer be rated as investment grade at the time the financial instrument is
purchased. We base the permitted term and dollar limits for each of these transactions on the counterparty's financial strength in
order to further mitigate our risk.
Our cash and other investment counterparties are primarily major institutions, Treasury, and the Federal Reserve Bank of
New York. As of December 31, 2014 and 2013, including amounts related to our consolidated VIEs, there were $71.4 billion
and $85.9 billion, respectively, of: (a) cash and securities purchased under agreements to resell invested with institutional
counterparties; (b) Treasury securities classified as cash equivalents; or (c) cash deposited with the Federal Reserve Bank of
New York. As of December 31, 2014 these included:
• $42.2 billion of securities purchased under agreements to resell with 15 counterparties that had short-term S&P ratings
of A-1 or above;
• $1.2 billion of securities purchased under agreements to resell with three counterparties that had short-term S&P
ratings of A-2;
• $8.6 billion of securities purchased under agreements to resell with four counterparties that do not have short-term
S&P or other third-party credit ratings, but were evaluated under the company's counterparty credit risk system and
were determined to be eligible for these transactions (by providing more than 100% in approved collateral);
• $4.4 billion of cash equivalents invested in Treasury securities; and
• $15.0 billion of cash deposited with the Federal Reserve Bank of New York (as a non-interest-bearing deposit).
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