Freddie Mac 2011 Annual Report Download - page 141

claims emerge. In the event one or more of our other bond insurers were to become subject to a regulatory order or
insolvency proceeding, our ability to recover certain unrealized losses on our mortgage-related securities would be
negatively impacted. We considered our expectations regarding our bond insurers’ ability to meet their obligations in
making our impairment determinations at December 31, 2011 and December 31, 2010. See “NOTE 7: INVESTMENTS
IN SECURITIES — Other-Than-Temporary Impairments on Available-For-Sale Securities” for additional information
regarding impairment losses on securities covered by bond insurers.
The table below shows the non-agency mortgage-related securities we hold that were covered by primary bond
insurance at December 31, 2011 and December 31, 2010.
Table 43 — Non-Agency Mortgage-Related Securities Covered by Primary Bond Insurance
UPB
(3)
Gross
Unrealized
Losses
(4)
UPB
(3)
Gross
Unrealized
Losses
(4)
UPB
(3)
Gross
Unrealized
Losses
(4)
UPB
(3)
Gross
Unrealized
Losses
(4)
UPB
(3)
Gross
Unrealized
Losses
(4)
UPB
(3)
Gross
Unrealized
Losses
(4)
Ambac FGIC
MBIA Insurance
Corp AGMC
(1)
Other
(2)
Total
(in millions)
At December 31, 2011
First lien subprime .......... $ 619 $(169) $ 831 $(230) $ 8 $ (1) $ 404 $ (91) $ — $ — $1,862 $ (491)
Second lien subprime . . ...... — — 185 — — — — — — — 185 —
Option ARM . . ........... 39 — — — — — 76 (8) — — 115 (8)
Alt-A and other
(5)
.......... 993 (87) 743 (56) 366 (3) 289 (81) 64 (3) 2,455 (230)
Manufactured housing . . ...... 87 (14) — — 139 (6) — — — — 226 (20)
CMBS . . ............... 2,195 (86) — — — — — — 1,129 (38) 3,324 (124)
Obligations of states and political
subdivisions . ........... 363 (11) 38 (1) 197 (5) 319 (3) 17 (2) 934 (22)
Total . . . ............... $4,296 $(367) $1,797 $(287) $710 $(15) $1,088 $(183) $1,210 $ (43) $9,101 $ (895)
At December 31, 2010
First lien subprime .......... $ 676 $(207) $ 924 $(322) $ 12 $ (1) $ 427 $ (99) $ 3 $ — $2,042 $ (629)
Second lien subprime . . ...... — — 227 (12) — — — — — — 227 (12)
Option ARM . . ........... 50 — — — — — 129 (16) — — 179 (16)
Alt-A and other
(5)
.......... 1,150 (186) 832 (93) 425 (29) 340 (82) 71 (1) 2,818 (391)
Manufactured housing . . ...... 97 (11) — — 154 (15) — — — — 251 (26)
CMBS . . ............... 2,206 (277) — — — — — — 1,195 (159) 3,401 (436)
Obligations of states and political
subdivisions . ........... 419 (44) 38 (2) 234 (19) 366 (18) 17 (3) 1,074 (86)
Total . . . ............... $4,598 $(725) $2,021 $(429) $825 $(64) $1,262 $(215) $1,286 $(163) $9,992 $(1,596)
(1) Assured Guaranty Municipal Corp. was formerly known as Financial Security Assurance.
(2) Represents insurance provided by Syncora Guarantee Inc., Radian Group, Inc., and CIFG Holdings Ltd, and includes certain exposures to bonds
insured by NPFGC, formerly known as MBIA Insurance Corp. of Illinois, which is a subsidiary of MBIA Inc., the parent company of MBIA
Insurance Corp.
(3) Represents the amount of UPB covered by insurance coverage. This amount does not represent the maximum amount of losses we could recover, as
the insurance also covers unpaid interest.
(4) Represents the amount of gross unrealized losses at the respective reporting date on the securities with insurance.
(5) The majority of the Alt-A and other loans covered by bond insurance are securities backed by home equity lines of credit.
Cash and Other Investments Counterparties
We are exposed to institutional credit risk arising from the potential insolvency or non-performance of counterparties
of non-mortgage-related investment agreements and cash equivalent transactions, including those entered into on behalf of
our securitization trusts. These financial instruments are investment grade at the time of purchase and primarily short-term
in nature, which mitigates institutional credit risk for these instruments.
Our cash and other investment counterparties are primarily financial institutions and the Federal Reserve Bank. As of
December 31, 2011 and December 31, 2010, there were $68.5 billion and $91.6 billion, respectively, of cash and other
non- mortgage assets invested in financial instruments with institutional counterparties or deposited with the Federal
Reserve Bank. See “NOTE 16: CONCENTRATION OF CREDIT AND OTHER RISKS” for further information on
counterparty credit ratings and concentrations within our cash and other investments.
Document Custodians
We use third-party document custodians to provide loan document certification and custody services for the loans
that we purchase and securitize. In many cases, our seller/servicer customers or their affiliates also serve as document
custodians for us. Our ownership rights to the mortgage loans that we own or that back our PCs and REMICs and Other
Structured Securities could be challenged if a seller/servicer intentionally or negligently pledges or sells the loans that we
purchased or fails to obtain a release of prior liens on the loans that we purchased, which could result in financial losses
to us. When a seller/servicer or one of its affiliates acts as a document custodian for us, the risk that our ownership
interest in the loans may be adversely affected is increased, particularly in the event the seller/servicer were to become
insolvent. We seek to mitigate these risks through legal and contractual arrangements with these custodians that identify
136 Freddie Mac