Freddie Mac 2015 Annual Report Download - page 185

Risk Factors Credit Risks
Freddie Mac 2015 Form 10-K 183
serviced by non-depository financial institutions. These non-depository and smaller financial
institutions may not have the same financial strength or operational capacity, or be subject to the
same level of regulatory oversight, as our large single-family loan seller and servicer counterparties
(which are depository institutions). As a result, we face increased risk that these counterparties could
fail to perform their obligations to us. In particular, non-depository servicers rapidly grew their
servicing portfolios in the last several years. This appears to have resulted in operational strains that
have subjected these servicers to regulatory scrutiny. This rapid growth could expose us to increased
risks if any operational strain adversely affects these servicers’ servicing performance or their
financial strength. In addition, if these servicers reduce their servicing portfolios, there may be a
constraint in overall servicing capacity.
Our seller/servicers also have a significant role in servicing loans in our multifamily mortgage portfolio. We
are exposed to the risk that multifamily seller/servicers could come under financial pressure, which could
potentially cause a decline in their servicing performance.
For more information, see “MD&A - Risk Management - Credit Risk - Institutional Credit Risk - Sellers and
Servicers.”
Credit risk related to counterparties to derivatives, short-term lending and other transactions
We have significant exposure to institutions in the financial services industry relating to derivatives,
funding, short-term lending, securities and other transactions (e.g., cash and other investments
transactions). These transactions are critical to our business, including our ability to:
• Manage interest rate and other risks related to our investments in mortgage-related assets;
• Fund our business operations; and
• Service our customers.
We face the risk of operational failure of the clearing members, exchanges, clearinghouses, or other
financial intermediaries we use to facilitate derivatives, short-term lending and other transactions. If a
clearing member or clearinghouse were to fail, we could lose some or all of the collateral or margin
posted with the clearing member or clearinghouse.
We are a clearing member of the clearinghouse through which we execute mortgage-related securities
transactions; as a result, we could be subject to losses because we are required to participate in the
coverage of losses incurred by other clearing members if they fail to meet their obligations to the
clearinghouse.
If our counterparties to short-term lending transactions fail, we are exposed to losses to the extent the
transaction is unsecured or the collateral posted to us is insufficient.
For more information, see “MD&A - Risk Management - Credit Risk - Institutional Credit Risk - Other
Counterparties - Cash and Other Investments Counterparties” and “- Derivative Counterparties.”
Credit risk related to mortgage and bond insurers, and insurers and reinsurers in ACIS transactions
It is unlikely that we will receive full payment of our claims from several of the mortgage insurers of our
single-family loans and bond insurers of certain of our non-agency mortgage-related securities, as these
insurers are insolvent or are paying only a portion of our claims under our mortgage and bond insurance
policies. For more information, see Note 13.