Freddie Mac 2011 Annual Report Download - page 139

The table below summarizes our exposure to mortgage insurers as of December 31, 2011. In the event that a
mortgage insurer fails to perform, the coverage outstanding represents our maximum exposure to credit losses resulting
from such failure. As of December 31, 2011, most of the coverage outstanding from mortgage insurance shown in the
table below is attributed to primary policies rather than pool insurance policies.
Table 41 — Mortgage Insurance by Counterparty
Counterparty Name Credit Rating
(1)
Credit Rating
Outlook
(1)
Primary
Insurance
(2)
Pool
Insurance
(2)
Coverage
Outstanding
(3)
As of December 31, 2011
(in billions)
Mortgage Guaranty Insurance Corporation (MGIC) . . . . . . . . . . . . B Negative $ 48.0 $28.3 $12.2
Radian Guaranty Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B Negative 36.2 7.0 10.0
Genworth Mortgage Insurance Corporation . . . . . . . . . . . . . . . . . B Negative 29.9 0.8 7.5
United Guaranty Residential Insurance Co. . . . . . . . . . . . . . . . . . BBB Stable 28.4 0.2 7.0
PMI Mortgage Insurance Co. (PMI)
(4)
. . . . . . . . . . . . . . . . . . . . . CCC– Negative 24.0 1.3 6.1
Republic Mortgage Insurance Company (RMIC)
(5)
. . . . . . . . . . . . Not Rated N/A 19.5 1.9 4.9
Triad Guaranty Insurance Corp
(6)
. . . . . . . . . . . . . . . . . . . . . . . . Not Rated N/A 8.2 0.7 2.1
CMG Mortgage Insurance Co. . . . . . . . . . . . . . . . . . . . . . . . . . . BBB Negative 3.0 0.1 0.7
Essent Guaranty, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Rated N/A 0.8 — 0.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $198.0 $40.3 $50.6
(1) Latest rating available as of February 27, 2012. Represents the lower of S&P and Moody’s credit ratings and outlooks. In this table, the rating and
outlook of the legal entity is stated in terms of the S&P equivalent.
(2) Represents the amount of UPB at the end of the period for our single-family credit guarantee portfolio covered by the respective insurance type.
These amounts are based on our gross coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered
under both types of insurance. See “Table 4.5 — Recourse and Other Forms of Credit Protection” in “NOTE 4: MORTGAGE LOANS AND LOAN
LOSS RESERVES” for further information.
(3) Represents the remaining aggregate contractual limit for reimbursement of losses under policies of both primary and pool insurance. These amounts
are based on our gross coverage without regard to netting of coverage that may exist to the extent an affected mortgage is covered under both types
of insurance.
(4) Beginning in October 2011, PMI began paying valid claims 50% in cash and 50% in deferred payment obligations under order of its state regulator.
(5) In January 2012, RMIC began paying valid claims 50% in cash and 50% in deferred payment obligations under order of its state regulator.
(6) Beginning in June 2009, Triad began paying valid claims 60% in cash and 40% in deferred payment obligations under order of its state regulator.
We received proceeds of $2.5 billion and $1.8 billion during the years ended December 31, 2011 and 2010,
respectively, from our primary and pool mortgage insurance policies for recovery of losses on our single-family loans. We
had outstanding receivables from mortgage insurers, net of associated reserves, of $1.0 billion and $1.5 billion as of
December 31, 2011 and December 31, 2010, respectively.
The UPB of single-family loans covered by pool insurance declined approximately 29% during 2011, primarily due
to prepayments and other liquidation events. We did not purchase pool insurance on single-family loans in 2011. Our pool
insurance policies generally have coverage periods that range from 10 to 12 years. In many cases, we entered into these
agreements to cover higher-risk mortgage product types delivered to us through bulk transactions. As of December 31,
2011, pool insurance policies that will expire: (a) during 2012 covered approximately $2.4 billion in UPB of loans, and
the remaining contractual limit for reimbursement of losses on such loans was approximately $0.2 billion; and
(b) between 2013 and 2018 covered approximately $35.0 billion in UPB of loans, and the remaining contractual limit for
reimbursement of losses on such loans was approximately $0.8 billion. The remaining pool insurance policies, for which
the remaining contractual limit for reimbursement of losses was approximately $0.9 billion, expire after 2018. Any losses
in excess of the contractual limit will be borne by us. These figures include coverage under our pool insurance policies
based on the stated coverage amounts under such policies. As noted below, we do not expect to receive full payment of
our claims from several of these counterparties.
Based on information we received from MGIC, we understand that MGIC may challenge our future claims under
certain of their pool insurance policies. We believe that our pool insurance policies with MGIC provide us with the right
to obtain recoveries for losses up to the aggregate limit indicated in the table above. However, MGIC’s interpretation of
these policies would result in claims coverage approximately $0.6 billion lower than the amount of coverage outstanding
set forth in the table above. We expect this difference to increase but not to exceed approximately $0.7 billion.
In August 2011, we suspended PMI and its affiliates and RMIC and its affiliates as approved mortgage insurers,
making loans insured by either company (except relief refinance loans with pre-existing insurance) ineligible for sale to
Freddie Mac. Both of these companies ceased writing new business during the third quarter of 2011, and have been put
under state supervision. PMI instituted a partial claim payment plan in October 2011, under which claim payments will be
made 50% in cash, with the remaining amount deferred as a policyholder claim. RMIC instituted a partial claim payment
plan in January 2012, under which claim payments will be made 50% in cash and 50% in deferred payment obligations
for an initial period not to exceed one year. We and FHFA are in discussions with the state regulators of PMI and RMIC
134 Freddie Mac