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SEC Filings

10-Q
FEDERAL NATIONAL MORTGAGE ASSOCIATION FANNIE MAE filed this Form 10-Q on 08/05/2011
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rescinded coverage, we generally require the seller/servicer to repurchase the loan or indemnify us against loss.
 
In 2010, some mortgage insurers disclosed that they entered into agreements with lenders whereby they agreed to waive certain rights to investigate claims for some of the lenders’ insured loans in return for some compensation against loss. Although these agreements do not affect our rights to demand repurchase in the event of violations of lender representations and warranties, these agreements are likely to result in fewer mortgage insurance rescissions for certain groups of loans.
 
As a result, in April 2011, we issued an announcement which prohibited servicers from entering into any agreement that modifies the terms of an approved mortgage insurance master policy on loans delivered to us. We also required servicers to disclose any such agreements with mortgage insurers to us. With respect to our mortgage insurance counterparties, changes to the substance of their master policies have required our prior approval since 2005. In October 2010, we required our top mortgage insurers to notify us promptly of any agreement that affects their investigative or rescission rights. In April 2011, we further clarified and amended our mortgage insurer requirements to prohibit any agreement that has the effect of modifying a master policy, including any investigative or rescission rights, absent our approval. By taking these steps, we hope to mitigate the risk of loss for loans that would have resulted in mortgage insurance rescission, and—as a result—a lender repurchase, for loan defects that we may not have otherwise uncovered in our independent review process.
 
We evaluate the financial condition of our mortgage insurer counterparties to assess whether we have incurred probable losses in connection with our coverage. We also evaluate these counterparties individually to determine whether or under what conditions they will remain eligible to insure new mortgages sold to us.
 
On July 29, 2011, we notified Republic Mortgage Insurance Corporation (“RMIC”) that, effective immediately, both RMIC and its affiliate, Republic Mortgage Insurance Company of North Carolina (“RMIC-NC”), are suspended nationwide as approved mortgage insurers as provided by our qualified mortgage insurer approval requirements, as well as per the terms of RMIC-NC’s limited approval. RMIC had previously obtained a temporary waiver of the state-imposed risk-to-capital limits from its domiciliary regulator, the North Carolina Department of Insurance (“NC DOI”). On July 28, 2011, RMIC’s parent company, Old Republic International, Corp., announced that NC DOI had extended their waiver, but that it was due to expire on August 31, 2011. It is our understanding that the expiration of this waiver would result in NC DOI prohibiting RMIC from writing any new mortgage insurance policies in North Carolina on or after September 1, 2011. Except for Triad Guaranty Insurance Corporation, RMIC and RMIC-NC, as of August 4, 2011, our private mortgage insurer counterparties remain qualified to conduct business with us.
 
As of June 30, 2011, our allowance for loan losses of $69.5 billion, allowance for accrued interest receivable of $3.0 billion and reserve for guaranty losses of $960 million incorporated an estimated recovery amount of approximately $15.4 billion from mortgage insurance related both to loans that are individually measured for impairment and those that are collectively reserved. This amount is comprised of the contractual recovery of approximately $16.5 billion as of June 30, 2011 and an adjustment of approximately $1.1 billion which reduces the contractual recovery for our assessment of our mortgage insurer counterparties’ inability to fully pay those claims. As of December 31, 2010, our allowance for loan losses of $61.6 billion, allowance for accrued interest receivable of $3.4 billion and reserve for guaranty losses of $323 million incorporated an estimated recovery amount of approximately $16.4 billion from mortgage insurance related both to loans that are individually measured for impairment and those that are collectively reserved. This amount is comprised of the contractual recovery of approximately $17.5 billion as of December 31, 2010 and an adjustment of approximately $1.2 billion, which reduces the contractual recovery for our assessment of our mortgage insurer counterparties’ inability to fully pay those claims.
 
When an insured loan held in our mortgage portfolio subsequently goes into foreclosure, we charge off the loan, eliminating any previously-recorded loss reserves, and record REO and a mortgage insurance receivable for the claim proceeds deemed probable of recovery, as appropriate. However, if a mortgage insurer rescinds insurance coverage, the initial receivable becomes due from the mortgage seller/servicer. We had outstanding receivables of $4.4 billion as of both June 30, 2011 and December 31, 2010 related to amounts claimed on insured, defaulted loans that we have not yet received, of which $534 million as of June 30, 2011 and


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