Financial Guarantee Liability

3 Months Ended

Mar. 31, 2022

Newmark shares risk of loss for loans originated under the Fannie Mae DUS and Freddie TAH programs and could incur losses in the event of defaults under or foreclosure of these loans. Under the loss-share guarantee, Newmark’s maximum liability to the extent of actual losses incurred is approximately 33% of the outstanding principal balance on Fannie Mae DUS or Freddie TAH loans. Risk-sharing percentages are established on a loan-by-loan basis when originated, with most loans at 33% and “modified” loans at lower percentages. Under certain circumstances, risk-sharing percentages can be revised subsequent to origination or Newmark could be required to repurchase the loan. In the event of a loss resulting from a catastrophic event that is not required to be covered by borrowers’ insurance policies, Newmark can recover the loss under its mortgage impairment insurance policy. Any potential recovery is subject to the policy’s deductibles and limits.

At March 31, 2022, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of $26.1 billion with a maximum potential loss of $7.9 billion. At December 31, 2021, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of approximately $25.8 billion with a maximum potential loss of approximately $7.8 billion. As of March 31, 2022 and December 31, 2021, there were no loans covered by the Credit Enhancement Agreement.

Newmark’s current estimate of expected credit losses considers various factors, including, without being limited to, historical default and losses, current delinquency status, loan size, terms, amortization types, the forward-looking view of the primary risk drivers (debt-service coverage ratio and loan-to-value) based on forecasts in economic conditions and local market performance. During the three months ended March 31, 2022 and 2021, there was an increase to the reserve by $0.2 million and a decrease to the reserve by $1.6 million, respectively. A loan is considered to be delinquent once it is 60 days past due. As of March 31, 2022, there was one loan in the credit risk portfolio with an outstanding principal balance of $10.7 million, with a maximum loss exposure of $3.6 million, that was in default. If the loan in default resulted in a loss event, proceeds from the liquidation of the assets are estimated to be approximately $10.6 million based on current estimates of fair value. Newmark’s share of the loss would approximate $0.1 million. As of March 31, 2022, there was one loan in foreclosure that had an outstanding principal balance of $22.8 million, with a maximum loss exposure of $7.6 million (both numbers as of foreclosure date). Proceeds from the liquidation of the asset is estimated to be approximately $19.9 million based on current estimate of fair value. BPC’s share of the loss would approximate $1.1 million. As of December 31, 2021, there were two loans in the credit risk portfolio with outstanding principal balances of $33.6 million, with a maximum loss exposure of $11.2 million, that were delinquent. If all two delinquent loans resulted in a loss event, proceeds from the liquidation of the assets are estimated to be approximately $28.4 million based on estimates of fair value at December 31, 2021. Newmark's share of the loss would approximate $2.3 million. As of March 31, 2022 and December 31, 2021, no actual losses were incurred.

The provisions for risk-sharing were included in “Operating, administrative and other” on the accompanying unaudited condensed consolidated statements of operations as follows (in thousands):


Balance, January 1, 2021	$	29,581

Provision for expected credit losses	(3,592)
Balance, December 31, 2021	25,989
Provision for expected credit losses	195
Balance, March 31, 2022	$	26,184