Freddie Mac 2011 Annual Report Download - page 293

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. Since 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, it could have an adverse impact on our business and financial results.
During the second half of 2010, a number of our seller/servicers, including several of our largest ones, temporarily
suspended foreclosure proceedings in some or all states in which they do business. These seller/servicers announced these
suspensions were necessary while they evaluated and addressed issues relating to the improper preparation and execution
of certain documents used in foreclosure proceedings, including affidavits. 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 “NOTE 6: REAL ESTATE OWNED” for additional information.
As of December 31, 2011 our top three multifamily servicers, Berkadia Commercial Mortgage LLC, CBRE Capital
Markets, Inc., and Wells Fargo Bank, N.A., each serviced more than 10% of our multifamily mortgage portfolio and
together serviced approximately 40% of our multifamily mortgage portfolio.
In our multifamily business, we are exposed to the risk that multifamily seller/servicers could come under financial
pressure, which could potentially cause degradation in the quality of the servicing they provide us, including their
monitoring of each property’s financial performance and physical condition. This could also, in certain cases, reduce the
likelihood that we could recover losses through lender repurchases, recourse agreements, or other credit enhancements,
where applicable. This risk primarily relates to multifamily loans that we hold on our consolidated balance sheets where
we retain all of the related credit risk. We monitor the status of all our multifamily seller/servicers in accordance with our
counterparty credit risk management framework.
Mortgage Insurers
We have institutional credit risk relating to the potential insolvency of or non-performance by mortgage insurers that
insure single-family mortgages we purchase or guarantee. We evaluate the recovery and collectability from insurance
policies for mortgage loans that we hold for investment as well as loans underlying our non-consolidated Freddie Mac
mortgage-related securities or covered by other guarantee commitments as part of the estimate of our loan loss reserves.
See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve
for Guarantee Losses” for additional information. As of December 31, 2011, these insurers provided coverage, with
maximum loss limits of $50.6 billion, for $238.3 billion of UPB, in connection with our single-family credit guarantee
portfolio. Our top five mortgage insurer counterparties, Mortgage Guaranty Insurance Corporation (or MGIC), Radian
Guaranty Inc., Genworth Mortgage Insurance Corporation, United Guaranty Residential Insurance Co., and PMI Mortgage
Insurance Co. (or PMI) each accounted for more than 10% and collectively represented approximately 84% of our overall
mortgage insurance coverage at December 31, 2011. All our mortgage insurance counterparties are rated BBB or below as
of February 27, 2012, based on the lower of the S&P or Moody’s rating scales and stated in terms of the S&P equivalent.
We received proceeds of $2.5 billion and $1.8 billion during 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 of $1.8 billion and $2.3 billion as of December 31, 2011 and 2010, respectively. The balance of our
outstanding accounts receivable from mortgage insurers, net of associated reserves, was approximately $1.0 billion and
$1.5 billion as of December 31, 2011 and 2010, respectively.
In August 2011, we suspended RMIC and its affiliates, and PMI and its affiliates, as approved mortgage insurers for
Freddie Mac loans, making loans insured by either company 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 concerning future payments of our
claims. It is not yet clear how the state regulators of PMI and RMIC will administer their respective deferred payment
plans. In the future, our mortgage insurance exposure will likely be concentrated among a smaller number of mortgage
insurer counterparties.
Triad Guaranty Insurance Corp., or Triad, is continuing to pay claims 60% in cash and 40% in deferred payment
obligations under orders of its state regulator. To date, the state regulator has not allowed Triad to begin paying its
deferred payment obligations and it is uncertain when or if Triad will be permitted to do so.
288 Freddie Mac