Freddie Mac 2012 Annual Report Download - page 172

originated in 2008 and prior years; and (b) the increase in the number of loans covered by negotiated agreements (as
discussed below) or originated by counterparties that had defaulted.
The UPB of loans subject to open repurchase requests increased to $3.0 billion at December 31, 2012 from $2.7 billion
at December 31, 2011 because the volume of new request issuances exceeded the combined volume of requests collected and
cancelled. As measured by UPB, approximately 41% and 39% of the repurchase requests outstanding at December 31, 2012
and December 31, 2011, 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, 2012, two of our largest seller/
servicers (Bank of America, N.A. and Wells Fargo Bank, N.A.) had aggregate repurchase requests outstanding, based on
UPB, of $1.7 billion, and approximately 53% 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 the 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rescinded in the course of the contractual appeal process.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 (e.g., mortgage insurance), 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. In order to resolve
outstanding repurchase requests on a more timely basis with our single-family seller/servicers, we have required certain of
our larger seller/servicers to commit to plans for completing repurchases, with financial consequences or with stated
remedies for non-compliance, as part of the annual renewals of our contracts with them. As of December 31, 2012, our 14
largest seller/servicers, which held more than 80% of all outstanding repurchase requests, are subject to the revised contract
terms. For mortgages we purchase beginning in 2013, under our new representation and warranty framework, all of our
seller/servicers will be subject to the same process for repurchase requests, including remedies for non-compliance, and we
will no longer include such provisions in individual seller/servicer contracts.
Repurchase requests related to mortgage insurance rescission and claim denial tend to be outstanding longer than other
repurchase requests for a number of reasons, including: (a) lenders may 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. Of the total amount of repurchase requests outstanding at December 31, 2012, approximately
$1.2 billion were issued due to mortgage insurance rescission or mortgage insurance claim denial.
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. As of December 31, 2012, loans totaling $120.9
billion in UPB, representing 7.4% of our single-family credit guarantee portfolio, were subject to such negotiated
agreements. In a memorandum to the FHFA Office of Inspector General dated September 19, 2011, FHFA stated that 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. Since the issuance of this memorandum, FHFA
conducted its evaluation of our loan review process and provided us with guidelines for future repurchase-related
agreements, under which larger agreements will generally need to be reviewed and approved by FHFA. We did not enter into
any negotiated agreements with seller/servicers concerning release of their repurchase obligations during 2012 or 2011.
However, in the ordinary course of business we sometimes rescind certain repurchase requests through the contractual
appeals process.
Our estimate of recoveries from seller/servicer repurchase obligations is considered in our allowance for loan losses;
however, our actual recoveries may be different than our estimates. Such differences are reflected in our allowance for loan
losses and impact the amount of the provision for credit losses that we record during a given period. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Allowance for Loan Losses and Reserve for Guarantee
Losses” for further information. We believe we have appropriately provided for these exposures, based upon our estimates of
incurred losses, in our loan loss reserves at December 31, 2012 and 2011; however, our actual losses may exceed our
estimates.
The table below summarizes the percentage of our single-family credit guarantee portfolio by year of loan origination
that is subject to agreements releasing loans from certain repurchase obligations, including defaulted counterparties. Since
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