Freddie Mac 2008 Annual Report Download - page 147

time within which to process a claim and make a determination as to its validity and amount. It typically takes two months
from the time a claim is filed to receive a primary mortgage insurance payment; however, due to our insurers’ performing
greater diligence reviews on these claims to verify the original underwriting of the loans by our seller/servicers is in
accordance with their standards, the recovery timelines during 2008 have been extended by several months. At December 31,
2008 and 2007, in connection with PCs and Structured Securities backed by single-family mortgage loans, excluding the
loans that are underlying Structured Transactions, we had maximum coverage totaling $59.4 billion and $51.9 billion,
respectively, in primary mortgage insurance.
Other prevalent types of credit enhancements that we use are lender recourse and indemnification agreements (under
which we may require a lender to reimburse us for credit losses realized on mortgages), as well as pool insurance. Pool
insurance provides insurance on a pool of loans up to a stated aggregate loss limit. In addition to a pool-level loss coverage
limit, some pool insurance contracts may have limits on coverage at the loan level. For pool insurance contracts that expire
before the completion of the contractual term of the mortgage loan, we seek to ensure that the contracts cover the period of
time during which we believe the mortgage loans are most likely to default. At December 31, 2008 and 2007, in connection
with the single-family mortgage portfolio, excluding the loans that are underlying Structured Transactions, the maximum
amount of losses we could recover under lender recourse and indemnification agreements was $11.0 billion and
$12.1 billion, respectively.
Most mortgage insurers that provide pool and primary mortgage insurance coverage to us have been downgraded by
nationally recognized statistical rating organizations. We have institutional credit risk relating to the potential insolvency or
non-performance of mortgage insurers that insure mortgages we purchase or guarantee. We manage this risk by establishing
eligibility standards for mortgage insurers and by regularly monitoring our exposure to individual mortgage insurers. Our
monitoring includes regularly performing analysis of the estimated financial capacity of mortgage insurers under different
adverse economic conditions. We also monitor the mortgage insurers’ credit ratings, as provided by nationally recognized
statistical rating organizations, and we periodically review the methods used by the nationally recognized statistical rating
organizations. To the extent there are downgrades in the credit rating of a mortgage insurer, we consider whether each
downgrade and various other factors may indicate an increased likelihood that the insurer will not have the ability to pay our
estimated exposure to covered losses. See “Institutional Credit Risk — Mortgage Seller/Servicers” and “— Mortgage
Insurers” for further discussion about our seller/servicers and mortgage loan insurers.
In order to file a claim under a pool insurance policy, we generally must have finalized the primary mortgage claim,
disposed of the foreclosed property, and quantified the net loss payable to us with respect to the insured loan to determine
the amount due under the pool insurance policy. Certain pool mortgage insurance policies have specified loss deductibles that
must be met before we are entitled to recover under the policy. Pool insurance proceeds are generally received five to six
months after disposition of the underlying property. At both December 31, 2008 and 2007, in connection with PCs and
Structured Securities backed by single-family mortgage loans, excluding the loans that are underlying single-family
Structured Transactions, we had maximum coverage totaling $3.8 billion in pool insurance.
Other forms of credit enhancements on our single-family mortgage portfolio include government guarantees, collateral
(including cash or high-quality marketable securities) pledged by a lender, excess interest and subordinated security
structures. At December 31, 2008 and 2007, in connection with PCs and Structured Securities backed by single-family
mortgage loans, excluding the loans that are underlying single-family Structured Transactions, the maximum amount of
losses we could recover under other forms of credit enhancements was $0.5 billion and $0.5 billion, respectively.
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