Freddie Mac 2015 Annual Report Download - page 132

Management's Discussion and Analysis Risk Management | Institutional Credit Risk
Freddie Mac 2015 Form 10-K 130
monthly basis. If necessary, we work with these sellers to develop an appropriate plan of corrective
action.
We use a variety of tools and techniques to engage our single-family sellers and servicers and limit our
losses, including the following:
• Repurchases and other remedies - For certain violations of our single-family selling or servicing
policies, we can require the counterparty to repurchase loans or provide alternative remedies, such
as reimbursement of realized losses or indemnification. We typically first issue a notice of defect and
allow a period of time to correct the problem prior to issuing a repurchase request.
In January 2016, at the direction of FHFA, we implemented a new remedies framework for the
categorization of loan origination defects. Among other items, the framework provides that "significant
defects" will result in a repurchase request or a repurchase alternative, such as recourse or
indemnification. We may require the seller to pay us additional fees or provide us with additional data
on the loan.
The UPB of loans subject to repurchase obligations from single-family loan sellers declined to $0.2
billion at December 31, 2015 from $0.3 billion at December 31, 2014. See Note 13 for additional
information about loans subject to repurchase obligations.
• Incentives and compensatory fees - We pay various incentives to single-family servicers for
completing workouts of problem loans. We also assess compensatory fees if single-family servicers
do not achieve certain benchmarks with respect to servicing delinquent loans.
• Servicing transfers - From time to time, we facilitate the transfer of servicing for certain groups of
single-family loans that are delinquent or are deemed at risk of default to servicers that we believe
have the capabilities and resources necessary to improve the loss mitigation associated with the
loans. Depending on our experience with the results of these transfers and specific servicer
experience and capacity, we may permit additional transfers in the future, subject to FHFA approval in
the case of larger transfers.
Mortgage and Bond Insurers
Overview
We have exposure to mortgage and bond insurers through credit enhancements we obtained on single-
family loans and certain investments in non-agency mortgage-related securities. We also have exposure
to insurers through our ACIS transactions. If any of our mortgage or bond insurers fail to fulfill their
obligations, we may not receive reimbursement for credit losses to which we are contractually entitled
pursuant to our credit enhancement arrangements.