Freddie Mac 2015 Annual Report Download - page 95

Management's Discussion and Analysis Risk Management | SF Credit Risk
Freddie Mac 2015 Form 10-K 93
The table below contains additional detail on the relief refinance loans we purchased.
Year Ended December 31,
2015 2014
(UPB in millions) UPB Loan Count Average Loan Size UPB Loan Count Average Loan Size
Above 125% Original LTV $ 569 3,766 $ 151,000 $ 1,439 8,794 $164,000
Above 100% to 125% Original LTV 2,043 11,784 $ 173,000 4,295 24,113 $178,000
Above 80% to 100% Original LTV 4,938 28,999 $ 170,000 8,356 49,340 $169,000
80% and below Original LTV 11,980 85,677 $ 140,000 13,204 96,409 $137,000
Total $ 19,530 130,226 $ 150,000 $ 27,294 178,656 $ 153,000
Offering Private Investors New and Innovative Ways to Share in the Credit Risk of the Core Single-
Family Book
Our Charter requires coverage by specified credit enhancements or participation interests on single-
family loans with LTV ratios above 80% at the time of purchase. In addition to obtaining credit
enhancements required by our Charter, we also enter into various other types of transactions in which we
transfer mortgage credit risk to third parties.
We use the following types of credit enhancements to transfer a portion of the credit risk on a loan or
group of loans at the time we acquire the loan.
• Primary mortgage insurance - Most of our loans with LTV ratios above 80% are protected by
primary mortgage insurance. Primary mortgage insurance provides loan-level protection against
default up to a specified amount and is typically paid for by the borrower. Generally, an insured loan
must be in default and the borrower’s interest in the underlying property must have been
extinguished, such as through a short sale or foreclosure, before a claim can be filed under a primary
mortgage insurance policy. The mortgage insurer has a prescribed period of time within which to
process a claim and make a determination as to its validity and amount.
• Seller indemnification agreement - An agreement with a seller upon loan acquisition under which
the seller will absorb a portion of the losses on the related single-family loans in exchange for a fee or
a guarantee fee reduction. The indemnification amount may be fully or partially collateralized.
• Lender recourse and indemnification agreements - Require a lender to repurchase a loan upon
default or to reimburse us for realized credit losses. Lender recourse and lender indemnification
agreements are entered into as an alternative to requiring primary mortgage insurance or in
exchange for a lower management and guarantee fee. We have not used lender recourse or lender
indemnification agreements on a widespread basis in recent years.
• Pool insurance - Provides insurance on a group of loans up to a stated aggregate loss limit. We
have not purchased pool insurance policies since 2008, and the majority of our pool insurance
policies will expire in the next five years.
We also enter into the following types of credit risk transfer transactions subsequent to our purchase or
guarantee of loans.
• STACR debt notes - Are unsecured debt obligations. We issue STACR debt notes related to certain
notional credit risk positions to third-party investors. We make payments of principal and interest on
the issued notes. The amount of principal that we are required to pay the STACR debt note investors
is linked to the credit performance of certain loans (referred to as a reference pool) that we have