Freddie Mac 2012 Annual Report Download - page 176

them to pay their respective deferred payment obligations in cash, and it is uncertain when or if they will be permitted to do
so. If PMI, RMIC, and Triad do not pay the full amount of their deferred payment obligations, we would lose a portion of the
coverage from these counterparties shown in the table above. For more information, see “NOTE 15: CONCENTRATION OF
CREDIT AND OTHER RISKS — Mortgage Insurers.”
In addition to PMI, RMIC, and Triad, we believe that certain other of our mortgage insurance counterparties lack
sufficient ability to meet all their expected lifetime claims paying obligations to us as those claims emerge. In January 2013,
we approved National Mortgage Insurance Corporation as an eligible mortgage insurer. In the future, we believe our
mortgage insurance exposure will likely be concentrated among a smaller number of counterparties.
Bond Insurers
Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering certain of the
non-agency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the
securities we purchase, while secondary policies are acquired by us. Bond insurance exposes us to the risk that the bond
insurer will be unable to satisfy claims.
The table below presents our coverage amounts of bond insurance, including secondary coverage, for the non-agency
mortgage-related securities we hold. In the event a bond insurer fails to perform, the coverage outstanding represents our
maximum exposure to credit losses related to such a failure.
Table 66 — Bond Insurance by Counterparty
As of December 31, 2012
Counterparty Name Credit Rating(1)
Credit Rating
Outlook(1)
Gross
Unrealized
Losses(2)
Coverage
Outstanding(3)
Percent of
Total Coverage
Outstanding(3)
(dollars in millions)
Ambac Assurance Corporation (Ambac)(4) ..................... NotRated N/A $177 $3,958 46%
Financial Guaranty Insurance Company (FGIC)(4) ................ NotRated N/A 202 1,608 18
MBIA Insurance Corp. ................................... CCC Negative 18 1,062 12
National Public Finance Guarantee Corp. ..................... BBB Negative 24 1,097 13
Assured Guaranty Municipal Corp. .......................... A Stable 101 865 10
Syncora Guarantee Inc. (Syncora)(4) .......................... NotRated N/A 1 56 1
CIFG Assurance Corporation .............................. NotRated N/A 5 30 <1
Total ................................................ $528 $8,676 100%
(1) Represents the rating and outlook of the corporate entity to which we have the greatest exposure, which in some cases is a holding company. Coverage
amounts may include coverage provided by consolidated affiliates and subsidiaries of the counterparty. Latest ratings available as of February 15, 2013.
Represents the lower of S&P and Moody’s credit ratings stated in terms of the S&P equivalent.
(2) Represents the amount of gross unrealized losses on the non-agency mortgage-related securities with insurance.
(3) Represents the remaining contractual limit for reimbursement of losses, including lost interest and other expenses, on non-agency mortgage-related
securities.
(4) Ambac, FGIC, and Syncora are currently operating under regulatory or court ordered supervision.
We monitor the financial strength of our bond insurers in accordance with our risk management policies. Some of our
larger bond insurers are in runoff mode where no new business is being written. We expect to receive substantially less than
full payment of our claims from Ambac and FGIC as these companies are insolvent. FGIC is currently not paying any of its
claims. Ambac, which had not paid claims since March 2010, began paying a portion of its claims in cash in the fall of 2012.
For information about developments concerning Ambac and FGIC, see “NOTE 15: CONCENTRATION OF CREDIT AND
OTHER RISKS — Bond Insurers.” We believe that we will likely receive substantially less than full payment of our claims
from some of our other bond insurers, because we believe they also lack sufficient ability to fully meet all of their expected
lifetime claims-paying obligations to us as such 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 non-
agency mortgage-related securities would be negatively affected. We considered our expectations regarding our bond
insurers’ ability to meet their obligations in making our impairment determinations on our non-agency mortgage-related
securities at December 31, 2012 and 2011. 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.
171 Freddie Mac