Freddie Mac 2012 Annual Report Download - page 295

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, 2012, these insurers provided coverage, with maximum
loss limits of $48.1 billion, for $199.0 billion of UPB, in connection with our single-family credit guarantee portfolio. Our
top four mortgage insurer counterparties, Mortgage Guaranty Insurance Corporation (or “MGIC”), Radian Guaranty Inc.,
United Guaranty Residential Insurance Company, and Genworth Mortgage Insurance Corporation each accounted for more
than 10% and collectively represented approximately 75% of our overall mortgage insurance coverage at December 31,
2012. Certain of our mortgage insurance counterparties are no longer rated by either S&P or Moody’s. The remaining
counterparties, including the top four counterparties, are rated BBB or below as of February 15, 2013, based on the lower of
the S&P or Moody’s rating scales and stated in terms of the S&P equivalent.
We and MGIC were involved in litigation concerning our current and future claims under certain of MGIC’s pool
insurance policies. In the litigation, we contended that the policies had approximately $0.5 billion more in coverage than
MGIC contended was provided for under the policies. In December 2012, we entered into a settlement agreement with MGIC
concerning this dispute. Under the terms of the settlement, MGIC paid us $100 million in December 2012, and will pay us an
additional $167.5 million in monthly installments over four years beginning on January 2, 2013. The effect of this settlement
was immaterial to our consolidated financial statements in 2012. See “NOTE 17: LEGAL CONTINGENCIES — Mortgage
Guaranty Insurance Corporation” for further information.
We received proceeds of $2.0 billion and $2.5 billion during 2012 and 2011, 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 $1.3 billion and $1.8 billion as of December 31, 2012 and 2011, respectively. The balance of our
outstanding accounts receivable from mortgage insurers, net of associated reserves, was approximately $0.8 billion and
$1.0 billion as of December 31, 2012, and 2011, 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 (except relief refinance loans
with pre-existing insurance). 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. In November 2012, RMIC announced that its state regulator had
approved its corrective plan, which provides for the run-off of its existing business. Under the plan, RMIC is paying valid
claims, settled on or after January 19, 2012, 60% in cash and a deferred payment obligation for the remaining 40% which
will be retained in claim reserves until a future pay-out date. 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, and neither company has begun to pay its deferred payment obligations
in cash. In the future, our mortgage insurance exposure will likely be concentrated among a smaller number of mortgage
insurer counterparties.
Triad Guaranty Insurance Corporation, 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 in cash and it is uncertain when or if Triad will be permitted to do so.
Bond Insurers
Bond insurance, which may be either primary or secondary policies, is a credit enhancement covering some of the non-
agency mortgage-related securities we hold. Primary policies are acquired by the securitization trust issuing the securities we
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