Freddie Mac 2011 Annual Report Download - page 135

Table 39 — Repurchase Request Activity
(1)
2011 2010 2009
Year Ended December 31,
(in millions)
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,807 $ 4,201 $ 3,608
New requests issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,172 16,498 12,364
Requests collected
(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,490) (7,467) (5,326)
Requests cancelled
(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,707) (9,298) (4,776)
Other
(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66) (127) (1,669)
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,716 $ 3,807 $ 4,201
(1) Beginning and ending balances represent the UPB of the loans associated with the repurchase requests. New requests issued and requests cancelled
represent the amount of the request, while requests collected represent cash payment received.
(2) Requests collected include payments received upon fulfillment of the repurchase request, reimbursement of losses for requests associated with
foreclosed mortgage loans, negotiated settlements, and other alternative remedies.
(3) Consists primarily of those requests that were resolved by the servicer providing missing documentation or a successful appeal of the request.
(4) Other includes items that affect the UPB of the loan while the repurchase request is outstanding, such as changes in UPB due to payments made on
the loan. Also includes requests deemed uncollectible due to counterparty failures.
As shown in the table above, the amount of new repurchase requests declined from $16.5 billion in 2010 to
$9.2 billion in 2011. This decline reflects: (a) a lower volume of loan reviews performed in 2011 relating to loans
originated in 2008 and prior years; (b) the reduction in the number of loans originated in 2005 to 2008, including those
with higher risk characteristics, within our single-family credit guarantee portfolio; and (c) the increase in the number of
loans covered by negotiated agreements (as discussed below) or originated by counterparties that defaulted in recent years.
The UPB of loans subject to open repurchase requests declined to approximately $2.7 billion as of December 31,
2011 from $3.8 billion as of December 31, 2010 because the combined volume of requests collected and cancelled
exceeded the volume of new request issuances. As measured by UPB, approximately 39% and 34% of the repurchase
requests outstanding at December 31, 2011 and December 31, 2010, respectively, were outstanding for four months or
more since issuance of the initial request (these figures include repurchase requests for which appeals were pending). As
of December 31, 2011, two of our largest seller/servicers had aggregate repurchase requests outstanding, based on UPB,
of $1.4 billion, and approximately 48% of these requests were outstanding for four months or more since issuance of the
initial request. The amount we expect to collect on the outstanding requests is significantly less than the UPB of the loans
subject to repurchase requests primarily because many of these requests will likely be satisfied by reimbursement of our
realized credit losses by seller/servicers, instead of repurchase of loans at their UPB. Some of these requests also may be
rescinded in the course of the contractual appeal process. Based on our historical loss experience and the fact that many
of these loans are covered by credit enhancements, we expect the actual credit losses experienced by us should we fail to
collect on these repurchase requests will also be less than the UPB of the loans.
Mortgage insurance rescission repurchase requests tend to be outstanding longer than other repurchase requests for a
number of reasons, including: (a) lenders do not agree with the basis used by the mortgage insurers to rescind coverage;
(b) the mortgage insurers’ appeals process for rescissions can be lengthy (as long as one year or more); (c) lenders expect
us to suspend repurchase enforcement until after the appeal decision by the mortgage insurer is made (although this is not
our practice); and (d) in certain cases, we have agreed to consider a repurchase alternative that would allow certain of our
seller/servicers to provide us a commitment for the amount of lost mortgage insurance coverage in lieu of a full
repurchase. Until a decision on such a repurchase alternative is made, we temporarily suspend the collection efforts for
outstanding repurchases associated with mortgage insurance rescission for these seller/servicers. Of the total amount of
repurchase requests outstanding at December 31, 2011, approximately $1.2 billion were issued due to mortgage insurance
rescission or mortgage insurance claim denial. Our actual credit losses could increase should the mortgage insurance
coverage not be reinstated and we fail to collect on these repurchase requests.
During 2010 and 2009, we entered into agreements with certain of our seller/servicers to release specified loans from
certain repurchase obligations in exchange for one-time cash payments. In a memorandum to the FHFA Office of
Inspector General dated September 19, 2011, FHFA stated that in 2011 it had “suspended certain future repurchase
agreements with seller/servicers concerning their repurchase obligations pending the outcome” of a review by Freddie
Mac of its loan sampling methodology. We are in discussions with FHFA concerning our review of our sampling
methodology. We cannot predict when this process will be completed or whether or when FHFA will terminate or revise
its suspension. It is possible that our loan sampling methodology could change in ways that increase our repurchase
request volumes with our seller/servicers. During 2011, we expanded our reviews of defaulted loans to include certain
loans that were previously excluded from our review process.
In order to resolve outstanding repurchase requests on a more timely basis with our single-family seller/servicers in
the future, we have begun to require certain of our larger seller/servicers to commit to plans for completing repurchases,
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