Freddie Mac 2015 Annual Report Download - page 299

Financial Statements Notes to the Consolidated Financial Statements | Note 13
Freddie Mac 2015 Form 10-K 297
MORTGAGE INSURERS
We have institutional credit risk relating to the potential insolvency of, or non-performance by, mortgage
insurers that insure single-family loans we purchase or guarantee. We evaluate the recovery and
collectability from mortgage insurers as part of the estimate of our loan loss reserves. See Note 4 for
additional information. As of December 31, 2015, mortgage insurers provided coverage with maximum
loss limits of $66.5 billion, for $259.3 billion of UPB, in connection with our single-family credit guarantee
portfolio. These amounts are based on gross coverage without regard to netting of coverage that may
exist to the extent an affected loan is covered under both primary and pool insurance. Our top four
mortgage insurer counterparties, United Guaranty Residential Insurance Company, Radian Guaranty Inc.,
Mortgage Guaranty Insurance Corporation, and Genworth Mortgage Insurance Corporation, each
accounted for more than 10% and collectively represented approximately 80% of our overall mortgage
insurance coverage at December 31, 2015. Each of our four largest counterparties had a credit rating of
BB+ or greater, as of December 31, 2015, based on the lower of the S&P or Moody’s rating scales and
stated in terms of the S&P equivalent. PMI Mortgage Insurance Co. (PMI), Republic Mortgage Insurance
Co. (RMIC), and Triad Guaranty Insurance Corp. (Triad) are no longer rated by either S&P or Moody’s
because they are in rehabilitation or under regulatory supervision.
We received proceeds of $0.7 billion and $1.1 billion during 2015 and 2014, 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 $0.3 billion and $0.4 billion (excluding deferred
payment obligations associated with unpaid claim amounts) as of December 31, 2015 and 2014,
respectively. The balance of these receivables, net of associated reserves, was approximately $0.2 billion
and $0.3 billion at December 31, 2015 and 2014, respectively.
PMI and Triad are both in rehabilitation, and a substantial portion of their claims is recorded by us as
deferred payment obligations. These insurers no longer issue new insurance but continue to pay a portion
of their respective claims in cash. In 2014, PMI began paying valid claims 67% in cash and 33% in
deferred payment obligations and made a one-time cash payment to us for claims that were previously
settled for 55% in cash. In 2015, PMI began paying valid claims 70% in cash and 30% in deferred
payment obligations and made a one-time cash payment to us for claims that were previously settled for
67% in cash. In 2013, Triad began paying valid claims 75% in cash and 25% in deferred payment
obligations and made a one-time cash payment to us for claims that were previously settled for 60% in
cash. If, as we currently expect, these insurers do not pay the full amount of their deferred payment
obligations in cash, we would lose a portion of the coverage from these insurers. As of December 31,
2015 and 2014, we had cumulative unpaid deferred payment obligations of $0.5 billion and $0.4 billion,
respectively, from these insurers. We reserved for all of these unpaid amounts as collectability is
uncertain.
RMIC is under regulatory supervision and is no longer issuing new insurance. In 2014, RMIC resumed
paying valid claims at 100% of the claim amount. Previously, RMIC had been paying all valid claims 60%
in cash and 40% in deferred payment obligations.
It is not clear how the regulators of these companies will administer their respective deferred payment
plans in the future, nor when or if those obligations will be paid.