Freddie Mac 2009 Annual Report Download - page 45

all claims when due, the regulator could take action that might impact the timing and amount of claim payments made to us.
Further, we independently assess the financial condition, including the claims-paying resources, of each mortgage insurer.
Based on our analysis of the financial condition of a mortgage insurer and pursuant to our eligibility requirements for
mortgage insurers, we could take action against a mortgage insurer intended to protect our interests that may impact the
timing and amount of claims payments received from that insurer. Mortgage insurer rescissions of mortgage insurance
coverage are also on the rise.
In the event one or more of our bond insurers were to become insolvent, it is likely that we would not collect all of our
claims from the affected insurer, and it would impact our ability to recover certain unrealized losses on our investments in
non-agency mortgage-related securities. We believe that some of our bond insurers lack sufficient ability to fully meet all of
their expected lifetime claims-paying obligations to us as they emerge. In 2009, regulators deemed the financial condition of
certain bond insurers to be impaired and ordered such insurers to restructure to relieve the impairment. We are concerned
that other bond insurers may be subject to a similar assessment in 2010, and some or all may be unable to restructure to
relieve the impairment and may be deemed to be insolvent.
If mortgage insurers continue to tighten their standards, the volume of high LTV mortgages available for us to purchase
could be reduced, which could negatively affect our business and make it more difficult for us to meet our affordable
housing goals.
Our charter requires that single-family mortgages with LTV ratios above 80% at the time of purchase be covered by
specified credit enhancements or participation interests. In the current environment, many mortgage insurers are restricting
the issuance of insurance on new mortgages with higher LTV ratios or with lower borrower credit scores or on select
property types, which has contributed to the reduction in our business volumes for loans with LTV ratios over 80%. If our
mortgage insurer counterparties further restrict their eligibility requirements or new business volumes for high LTV ratio
loans, or if we are no longer willing or able to obtain mortgage insurance from these counterparties, and we are not able to
avail ourselves of suitable alternative methods of obtaining credit enhancement for these loans, we may be further restricted
in our ability to purchase or securitize loans with LTV ratios over 80% at the time of purchase. For example, where
mortgage insurance or another charter-acceptable credit enhancement is not available, we may be hindered in our ability to
purchase high LTV ratio loans that refinance mortgages we do not own or guarantee into more affordable loans. The
unavailability of suitable credit enhancement could also negatively impact our ability to pursue new business opportunities
relating to high LTV ratio and other higher risk loans and therefore harm our competitive position and our earnings. This
could also impact our ability to meet our affordable housing goals, as purchases of loans with high LTV ratios can contribute
to our performance under those goals.
The loss of business volume from key lenders could result in a decline in our market share and revenues.
Our business depends on our ability to acquire a steady flow of mortgage loans. We purchase a significant percentage of
our single-family mortgages from several large mortgage originators. During 2009 and 2008, approximately 74% and 84%,
respectively, of our guaranteed mortgage securities issuances originated from purchase volume associated with our ten largest
customers. Two of our single-family customers each accounted for greater than 10% of our mortgage securitization volume
for 2009. Similarly, we acquire a significant portion of our multifamily mortgage loans from several large lenders. We enter
into mortgage purchase volume commitments with many of our single-family customers that provide for the customers to
deliver to us a specified dollar amount or minimum percentage of their total sales of conforming loans. There is a risk that
we will not be able to enter into a new commitment with a key customer that will maintain mortgage purchase volume
following the expiration of the existing commitment. The mortgage industry has been consolidating and a decreasing number
of large lenders originate most single-family mortgages. The loss of business from any one of our major lenders could
adversely affect our market share, our revenues and the credit loss performance of our single-family mortgage portfolio.
Changes in general business and economic conditions in the U.S. and abroad may adversely affect our business and
results of operations.
Our business and results of operations may continue to be adversely affected by changes in general business and
economic conditions, including changes in the international markets for our investments or our mortgage-related and debt
securities. These conditions include employment rates, fluctuations in both debt and equity capital markets, the value of the
U.S. dollar as compared to foreign currencies, the strength of the U.S. financial markets and national economy and the local
economies in which we conduct business, and the economies of other countries that purchase our mortgage-related and debt
securities. In addition, if weak general market conditions continue to negatively impact national and regional economic
conditions, we could experience significantly higher delinquencies and credit losses which will likely increase our losses in
future periods and will adversely affect our results of operations or financial condition.
The mortgage credit markets experienced very difficult conditions and volatility during 2008 and 2009. The
deteriorating conditions in these markets resulted in a decrease in availability of corporate credit and liquidity within the
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