Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit

9 Months Ended

Sep. 30, 2019

Credit Enhancement Receivable Contingent Liability And Credit Enhancement Deposit [Abstract]

Credit Enhancement Receivable, Contingent Liability And Credit Enhancement Deposit

(12) Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit

Newmark is a party to a Credit Enhancement Agreement (“CEA”), dated March 9, 2012, with German American Capital Corporation and Deutsche Bank Americas Holding Corporation (together, the “DB Entities”). On October 20, 2016, the DB Entities assigned the CEA to Deutsche Bank AG Cayman Island Branch, a Cayman Island Branch of Deutsche Bank AG (“DB Cayman”). Under the terms of these agreements, DB Cayman provides Newmark with varying levels of ongoing credit protection, subject to certain limits, for Fannie Mae and Freddie Mac loans subject to loss sharing (See Note 23 — “Financial Guarantee Liability”) in Newmark’s servicing portfolio as of March 9, 2012. DB Cayman will also reimburse Newmark for any losses incurred due to violation of underwriting and servicing agreements that occurred prior to March 9, 2012. For the three and nine months ended September 30, 2019 and 2018, there were no reimbursements under the CEA.  

Credit enhancement receivable

As of September 30, 2019, Newmark had $19.9 billion of credit risk loans in its servicing portfolio with a maximum pre-credit enhancement loss exposure of $5.7 billion. Newmark had a form of credit protection from DB Cayman on $29.4 million of credit risk loans with a maximum loss exposure coverage of $9.8 million. The amount of the maximum loss exposure without any form of credit protection from DB Cayman was $5.7 billion.

As of December 31, 2018, Newmark had $20.6 billion of credit risk loans in its servicing portfolio with a maximum pre-credit enhancement loss exposure of $5.8 billion. Newmark had a form of credit protection from DB Cayman on $230.7 million of credit risk loans with a maximum loss exposure coverage of $76.2 million. The amount of the maximum loss exposure without any form of credit protection from DB Cayman was $5.7 billion.

As of September 30, 2019 and December 31, 2018, there was no Credit enhancement receivable.

Credit enhancement deposit

The CEA required the DB Entities to deposit $25.0 million into Newmark’s Fannie Mae restricted liquidity account (See Note 9 — “Capital and Liquidity Requirements”), which Newmark is required to return to DB Cayman, less any outstanding claims, on March 9, 2021. The $25.0 million is included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.

Contingent liability

Under the CEA, Newmark is required to pay DB Cayman, on March 9, 2021, an amount equal to 50% of the positive difference, if any, between (a) $25.0 million, and (b) Newmark’s unreimbursed loss-sharing payments from March 9, 2012 through March 9, 2021 on Newmark’s servicing portfolio as of March 9, 2012. Contingent liabilities as of September 30, 2019 and December 31, 2018 were $11.7 million and $11.1 million, respectively, and are included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.