Fannie Mae 2012 Annual Report Download - page 154

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Table 60: Rescission Rates of Mortgage Insurance
As of December 31, 2012
Cumulative Rescission
Rate(1) Cumulative Claims Resolution Percentage(2)
Primary mortgage insurance claims filed in:
First six months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%48 %
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 74
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 92
Pool mortgage insurance claim filed in:
First six months of 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 %86 %
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 96
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 99
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(1) Represents claims filed during the period where coverage was rescinded as of December 31, 2012, divided by total claims filed during
the same period. Denied claims are excluded from the rescinded population.
(2) Represents claims filed during the period that were resolved as of December 31, 2012, divided by the total claims filed during the
same period. Claims resolved mainly consist of claims for which we have settled and claims for which coverage has been rescinded by
the mortgage insurer.
When we estimate the credit losses that are inherent in our mortgage loan portfolio and under the terms of our guaranty
obligations we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance
recoveries would reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our
mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of
the balance sheet date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage
insurer counterparties’ ability to fulfill their respective obligations to us worsens, it could result in an increase in our loss
reserves.
The following table displays our estimated benefit from mortgage insurers as of December 31, 2012 and 2011 that reduces
our total loss reserves.
Table 61: Estimated Mortgage Insurance Benefit
As of December 31,
2012 2011
(Dollars in millions)
Contractual mortgage insurance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,993 $15,099
Less: Collectibility adjustment(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708 2,867
Estimated benefit included in total loss reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,285 $12,232
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(1) Represents an adjustment that reduces the contractual benefit for our assessment of our mortgage insurer counterparties’ inability to
fully pay the contractual mortgage insurance claims.
During 2012, we experienced an improvement in the profile of our single-family book of business, which resulted in a
decrease in the contractual benefit we expect to receive from mortgage insurers. The collectibility adjustment to the estimated
mortgage insurance benefit for probable losses also decreased as of December 31, 2012 compared to December 31, 2011,
primarily driven by lower projected claims that we will submit to our mortgage insurance counterparties due to lower
expected defaults. We expect lower defaults primarily as a result of higher actual and forecasted home prices and better
observed performance of high mark-to-market LTV loans. For loans that are collectively evaluated for impairment, we
estimate the portion of our loss that we expect to recover from each of our mortgage insurance counterparties, the contractual
mortgage insurance coverage, and an estimate of each counterparty’s resources available to pay claims to us. An analysis by
our Counterparty Risk division determines whether, based on all the information available to us, any counterparty is
considered probable to fail to meet their obligations in the next 30 months. This period is consistent with the amount of time
over which claims related to losses incurred today are expected to be paid in the normal course of business. If this analysis
finds a failure of a counterparty is probable, we then reserve for the shortfall between projected claims and estimated
resources available to pay claims to us. For loans with delayed foreclosure timelines, where we expect the counterparty to