Freddie Mac 2012 Annual Report Download - page 293

Non-Agency Mortgage-Related Security Issuers
As discussed below, we are engaged in various loss mitigation efforts concerning certain investments in non-agency
mortgage-related securities. The effectiveness of these various loss mitigation efforts is highly uncertain, in part because our
rights as an investor are limited, and any potential recoveries may take significant time to realize.
In 2011, FHFA, as Conservator for Freddie Mac and Fannie Mae, filed lawsuits against 18 corporate families of
financial institutions and related defendants seeking to recover losses and damages sustained by Freddie Mac and Fannie
Mae as a result of their investments in certain residential non-agency mortgage-related securities issued or sold by, or backed
by mortgages originated by, these financial institutions or control persons thereof. These institutions include some of our
largest seller/servicers and counterparties, including counterparties to debt funding and derivatives transactions. Recent
developments include:
• Ally Financial Inc. is one of the financial institutions. Certain of the Ally entities that are defendants in the Ally
lawsuit (with respect to the securities owned by Freddie Mac) filed for bankruptcy protection in the U.S. Bankruptcy
Court for the Southern District of New York on May 14, 2012. This creates additional uncertainty as to the likelihood,
timing, and nature of potential recoveries from the Ally lawsuit.
• On January 16, 2013, Freddie Mac and FHFA entered into a settlement agreement with General Electric Company
and affiliates in connection with FHFA’s lawsuit against the GE companies.
At the direction of our Conservator, we are also working to enforce contractual rights of certain trusts with respect to the
non-agency mortgage-related securities we hold, and are engaged in other efforts to mitigate losses on our investments in
these securities, in some cases in conjunction with other investors. We have directed certain trustees to initiate litigation on
behalf of certificate holders against several financial institutions (many of whom are Freddie Mac counterparties) for breach
of contract claims.
In June 2011, Bank of America Corporation announced that it, BAC Home Loans Servicing, LP, Countrywide Financial
Corporation and Countrywide Home Loans, Inc. entered into a settlement agreement with The Bank of New York Mellon, as
trustee, to resolve certain claims with respect to a number of Countrywide first-lien and second-lien residential mortgage-
related securitization trusts. We have investments in certain of these Countrywide securitization trusts and would expect to
benefit from this settlement, if final court approval is obtained. Bank of America indicated that the settlement is subject to
final court approval and certain other conditions. There can be no assurance that final court approval of the settlement will be
obtained or that all conditions will be satisfied. Bank of America noted that, given the number of investors and the
complexity of the settlement, it is not possible to predict the timing or ultimate outcome of the court approval process, which
could take a substantial period of time.
Seller/Servicers
We acquire a significant portion of our single-family mortgage purchase volume from several large seller/servicers with
whom we have entered into mortgage purchase volume commitments that provide for the lenders to deliver us up to a certain
volume of mortgages during a specified period of time. Our top 10 single-family seller/servicers provided approximately
73% of our single-family purchase volume during the year ended December 31, 2012. Wells Fargo Bank, N.A., U.S.
Bank, N.A., and JPMorgan Chase Bank, N.A., accounted for 27%, 12%, and 10%, respectively, of our single-family
mortgage purchase volume and were the only single-family seller/servicers that comprised 10% or more of our purchase
volume during the year ended December 31, 2012. We are exposed to the risk that we could lose purchase volume to the
extent these arrangements are terminated without replacement from other lenders.
We are exposed to institutional credit risk arising from the potential insolvency or non-performance by our seller/
servicers of their obligations to repurchase mortgages or (at our option) indemnify us in the event of: (a) breaches of the
representations and warranties they made when they sold the mortgages to us; or (b) failure to comply with our servicing
requirements. Our contracts require that a seller/servicer repurchase a mortgage after we issue a repurchase request, unless
the seller/servicer avails itself of an appeals process provided for in our contracts, in which case the deadline for repurchase
is extended until we decide the appeal. As of December 31 2012 and 2011 the UPB of loans subject to our repurchase
requests issued to our single-family seller/servicers was approximately $3.0 billion and $2.7 billion, and approximately 41%
and 39% of these requests, respectively, were outstanding for four months or more since issuance of our initial repurchase
request as measured by the UPB of the loans subject to the requests (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
288 Freddie Mac