Freddie Mac 2012 Annual Report Download - page 294

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. During 2012 and 2011, we
recovered amounts that covered losses with respect to $3.5 billion and $4.4 billion, respectively, of UPB on loans subject to
our repurchase requests.
Residential Capital LLC (“ResCap”) and a number of its subsidiaries, including GMAC Mortgage, LLC and Residential
Funding Company, LLC (with GMAC Mortgage, LLC, collectively, “GMAC”), filed for bankruptcy in the U.S. Bankruptcy
Court for the Southern District of New York on May 14, 2012. ResCap and GMAC are direct or indirect subsidiaries of Ally
Financial Inc. GMAC serviced (either as a servicer or a subservicer) approximately 3% of our single-family mortgage loans
as of December 31, 2012. In connection with the bankruptcy filing, the bankruptcy court approved a package of servicing
assurances designed to provide comfort that GMAC will continue to maintain the existing quality of its servicing during the
bankruptcy case, and that we will have the right to transfer our loans to another servicer in the event that GMAC fails to meet
certain servicing quality criteria. The primary purpose of the bankruptcy was to effect the sale and transfer of the GMAC
origination and servicing platform, including servicing rights with respect to Freddie Mac loans, free and clear of liens and
claims in an auction sale supervised by the bankruptcy court. Ocwen Loan Servicing, LLC was the successful bidder for the
servicing rights with respect to Freddie Mac loans in an auction held on October 23, 2012. On November 21, 2012, the
bankruptcy court approved the sale to Ocwen, and the sale was completed on February 15, 2013.
At the direction of FHFA, Freddie Mac and Fannie Mae have launched a new representation and warranty framework
for conventional loans purchased by the GSEs on or after January 1, 2013. The objective of the new framework is to clarify
lenders’ repurchase exposures and liability on future sales of mortgage loans to Freddie Mac and Fannie Mae. The new
framework does not affect seller/servicers’ obligations under their contracts with us with respect to loans sold to us prior to
January 1, 2013. The new framework also does not affect their obligation to service these loans in accordance with our
servicing standards. Under this new framework, lenders will be relieved of certain repurchase obligations for loans that meet
specific payment requirements. Examples, subject to certain exclusions, include:
• Loans with 36 months of consecutive, on-time payments after we purchase them; and
• Relief refinance mortgages with 12 months of consecutive, on-time payments after we purchase them.
The ultimate amounts of recovery payments we receive from seller/servicers related to their repurchase obligations may
be significantly less than the amount of our estimates of potential exposure to losses. Our estimate of probable incurred
losses for exposure to seller/servicers for their repurchase obligations is considered in our allowance for loan losses as of
December 31, 2012 and 2011. 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.
We are also exposed to the risk that seller/servicers might fail to service mortgages in accordance with our contractual
requirements, resulting in increased credit losses. For example, our seller/servicers have an active role in our loss mitigation
efforts, including under the servicing alignment initiative and the MHA Program, and therefore, we have exposure to them to
the extent a decline in their performance results in a failure to realize the anticipated benefits of our loss mitigation plans.
A significant portion of our single-family mortgage loans are serviced by several large seller/servicers. Our top two
single-family loan servicers, Wells Fargo Bank N.A. and JP Morgan Chase Bank, N.A., serviced approximately 26% and
12%, respectively, of our single-family mortgage loans, as of December 31, 2012 and together serviced approximately 38%
of our single-family mortgage loans. 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.
As of December 31, 2012 our top three multifamily servicers, Berkadia Commercial Mortgage, LLC, Wells Fargo
Bank, N.A., and CBRE Capital Markets, Inc., each serviced more than 10% of our multifamily mortgage portfolio, excluding
Other Guarantee Transactions, and together serviced approximately 40% of this 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.
289 Freddie Mac