Financial Guarantee Liability

12 Months Ended

Dec. 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 December 31, 2022, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of $27.6 billion with a maximum potential loss of $8.4 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 December 31, 2022 and 2021, there were no loans covered by the CEA.

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 of economic conditions and local market performance. During the years ended December 31, 2022, 2021 and 2020, there were increases (decreases) to the reserve by $1.7 million, $(3.6) million and $11.6 million, respectively. A loan is considered to be delinquent once it is 60 days past due. As of December 31, 2022, there was one loan in foreclosure with an outstanding principal balance of $22.8 million, with a maximum loss exposure of $7.6 million. Proceeds from the liquidation of the assets are estimated to be approximately $20.0 million based on current estimates of fair value. Newmark’s share of the loss would approximate $1.5 million. As of December 31, 2022, there was one delinquent loan that had an outstanding principal balance of $7.3 million, with a maximum loss exposure of $2.4 million. Proceeds from the liquidation of the asset are estimated to be approximately $4.2 million based on current estimate of fair value. Newmark's share of the loss would approximate $1.1 million. As of December 31, 2021, there were two loans in the credit risk portfolio that were delinquent with outstanding principal balances of $33.6 million, with a maximum loss exposure of $11.2 million. If both 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 December 31, 2022 and 2021, no actual losses were incurred.

The provisions for risk-sharing were included in “Operating, administrative and other” on the accompanying 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	1,740
Balance, December 31, 2022	$	27,729