Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit

3 Months Ended

Mar. 31, 2020

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

Credit Enhancement Receivable, Contingent Liability And Credit Enhancement Deposit

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 months ended March 31, 2020 and 2019, there were no reimbursements under the CEA.

Credit enhancement receivable

Newmark's servicing portfolio consisted of the following loss-sharing components (in thousands):

	March 31, 2020		December 31, 2019
Total credit risk loan portfolio	$	20,853,783	$	20,209,577
Maximum DB Cayman credit protection	29,021		29,253
Maximum pre-credit enhancement loss exposure	$	6,124,007	$	5,835,163
Maximum DB Cayman credit protection	9,674		9,751
Maximum loss exposure without any form of credit protection	$	6,114,333	$	5,825,412

As of March 31, 2020 and December 31, 2019, 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 deposit is included in “Accounts payable, accrued expenses and other liabilities” on the unaudited accompanying 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 March 31, 2020 and December 31, 2019 were $12.1 million and $11.8 million, respectively and are included in “Other long-term liabilities” on the accompanying unaudited condensed consolidated balance sheets.