Freddie Mac 2011 Annual Report Download - page 137

Home Loans, Inc. and Countrywide Bank FSB. Under the terms of the agreement, we received a $1.28 billion cash
payment in consideration for releasing Bank of America and its two affiliates from current and future repurchase requests
arising from loans sold to us by the Countrywide entities for which the first regularly scheduled monthly payments were
due on or before December 31, 2008. The UPB of the loans in this portfolio as of December 31, 2010, was approximately
$114 billion. The agreement applies only to certain claims for repurchase based on breaches of representations and
warranties and the agreement contains specified limitations and does not cover loans sold to us or serviced for us by other
Bank of America entities. This agreement did not have a material impact on our 2011 or 2010 consolidated statements of
income and comprehensive income.
On August 24, 2009, TBW filed for bankruptcy. Prior to that date, we had terminated TBW’s status as a seller/
servicer of our loans. We had exposure to TBW with respect to its loan repurchase obligations. We also had exposure with
respect to certain borrower funds that TBW held for the benefit of Freddie Mac. TBW received and processed such funds
in its capacity as a servicer of loans owned or guaranteed by Freddie Mac. TBW maintained certain bank accounts,
primarily at Colonial Bank, to deposit such borrower funds and to provide remittance to Freddie Mac. Colonial Bank was
placed into receivership by the FDIC in August 2009.
On or about June 14, 2010, we filed a proof of claim in the TBW bankruptcy aggregating $1.78 billion. Of this
amount, approximately $1.15 billion related to current and projected repurchase obligations and approximately
$440 million related to funds deposited with Colonial Bank, or with the FDIC as its receiver, which were attributable to
mortgage loans owned or guaranteed by us and previously serviced by TBW. The remaining $190 million represented
miscellaneous costs and expenses incurred in connection with the termination of TBW’s status as a seller/servicer of our
loans.
In June 2011, with the approval of FHFA, as Conservator, we entered into a settlement with TBW and the creditors’
committee appointed in the TBW bankruptcy proceeding to represent the interests of the unsecured trade creditors of
TBW. At the time of settlement, we estimated our uncompensated loss exposure to TBW to be approximately $0.7 billion.
This estimated exposure largely relates to outstanding repurchase claims that have already been substantially provided for
in our financial statements through our provision for loan losses. Our ultimate losses could exceed our recorded estimate.
Potential changes in our estimate of uncompensated loss exposure or the potential for additional claims as discussed
below could cause us to record additional losses in the future.
We understand that Ocala Funding, LLC, which is a wholly owned subsidiary of TBW, or its creditors, may file an
action to recover certain funds paid to us prior to the TBW bankruptcy. However, no actions against Freddie Mac related
to Ocala have been initiated in bankruptcy court or elsewhere to recover assets. We are also involved in an adversary
proceeding in bankruptcy court brought by certain underwriters at Lloyds, London and London Market Insurance
Companies against TBW, Freddie Mac, and other parties. For more information on these matters, including terms of the
TBW settlement, see “NOTE 18: LEGAL CONTINGENCIES — Taylor, Bean & Whitaker Bankruptcy.”
A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our top three
single-family loan servicers, Wells Fargo Bank N.A., JPMorgan Chase Bank, N.A., and Bank of America N.A., together
serviced approximately 49% of our single-family mortgage loans as of December 31, 2011. Wells Fargo Bank N.A.,
JPMorgan Chase Bank, N.A., and Bank of America N.A. serviced approximately 26%, 12%, and 11%, respectively, of our
single-family mortgage loans, as of December 31, 2011. Because we do not have our own servicing operation, if our
servicers lack appropriate process controls, experience a failure in their controls, or experience an operating disruption in
their ability to service mortgage loans, our business and financial results could be adversely affected.
During the second half of 2010, a number of our single-family servicers, including several of our largest, announced
that they were evaluating the potential extent of issues relating to the possible improper execution of documents
associated with foreclosures of loans they service, including those they service for us. Some of these companies
temporarily suspended foreclosure proceedings in certain states in which they do business. While these servicers generally
resumed foreclosure proceedings in the first quarter of 2011, the rate at which they are effecting foreclosures has been
slower than prior to the suspensions. See “RISK FACTORS — Operational Risks — We have incurred, and will continue
to incur, expenses and we may otherwise be adversely affected by delays and deficiencies in the foreclosure process” for
further information.
We also are exposed to the risk that seller/servicers might fail to service mortgages in accordance with our
contractual requirements, resulting in increased credit losses. For example, our seller/servicers have an active role in our
loan workout efforts, including under the MHA Program and the recent servicing alignment initiative, and therefore, we
also have exposure to them to the extent a decline in their performance results in a failure to realize the anticipated
benefits of our loss mitigation plans. In addition, during 2011, there have been several regulatory developments that have
132 Freddie Mac