Freddie Mac 2015 Annual Report Download - page 131

Management's Discussion and Analysis Risk Management | Institutional Credit Risk
Freddie Mac 2015 Form 10-K 129
new capital and liquidity requirements and enhancements to certain servicer operational requirements.
Our revised operational requirements took effect in August 2015 and our revised financial requirements
took effect on December 31, 2015.
Evaluating Counterparty Financial Strength and Performance and Monitoring our Exposure
We perform ongoing monitoring and review of our exposure to individual sellers or servicers in
accordance with our counterparty risk management framework, including requiring our counterparties to
provide regular financial reporting to us. We also monitor and rate our sellers and servicers' compliance
with our standards and periodically review their operational processes. We may disqualify or suspend a
seller or servicer with or without cause at any time. Once a seller/servicer is disqualified or suspended, we
no longer purchase loans originated by that counterparty and no longer allow that counterparty to service
loans for us, while seeking to transfer servicing of existing portfolios.
As discussed in more detail in “Our Business Segments", we acquire a significant portion of both our
single-family and multifamily loan purchase volume from several large lenders, and a large percentage of
our loans are also serviced by several large servicers.
We have significant exposure to non-depository and smaller depository financial institutions in our single-
family business. These institutions may not have the same financial strength or operational capacity, or be
subject to the same level of regulatory oversight, as our largest mortgage seller or servicer counterparties.
Although our business with our single-family loan sellers is concentrated, a number of our largest single-
family loan seller counterparties reduced or eliminated their purchases of loans from mortgage brokers
and correspondent lenders in recent years. As a result, we acquire a greater portion of our single-family
business volume directly from non-depository and smaller depository financial institutions.
Also in recent years, there has been a shift in our single-family servicing from depository institutions to
non-depository institutions. Some of these non-depository institutions have grown rapidly in recent years
and now service a large share of our loans. We estimate that from December 31, 2012 to December 31,
2015, the percentage of our single-family credit guarantee portfolio that was serviced by non-depository
servicers grew from 19% to 29%. Approximately 35% and 44% of our single-family credit guarantee
portfolio that was serviced by our non-depository servicers was serviced by our three largest non-
depository servicers, on a combined basis, as of December 31, 2015 and 2014, respectively. Certain non-
depository servicers have been the subject of scrutiny from regulators.
Ocwen Financial Corp. (Ocwen) is one of our significant non-depository servicers of single-family
loans. Ocwen and its subsidiaries and/or affiliates have been the subject of significant adverse regulatory
scrutiny, and we have taken steps to reduce our exposure to them. We reduced the UPB of our loans
serviced by Ocwen to $26.4 billion at December 31, 2015 from $50.9 billion at December 31, 2014, or a
reduction of approximately 48%. We continue to closely monitor Ocwen’s performance.
Working with Underperforming Counterparties and Limiting our Losses from their
Nonperformance of Obligations, when Possible
We require certain of our larger single-family sellers to maintain ineligible loan rates below a stated
threshold, with financial consequences for non-compliance. In addition, we actively manage the current
quality of loan originations of our largest single-family sellers by performing loan quality control sampling
reviews and communicating loan defect rates and the causes of those defects to such sellers on a