Concentrations of credit risk arise when a number of customers and counterparties engage in similar activities or have similar economic characteristics that make them susceptible to similar changes in industry conditions, which could affect their ability to meet their contractual obligations. Based on our assessment of business conditions that could impact our financial results, we have determined that concentrations of credit risk exist among:

Regional economic conditions may affect a borrower’s ability to repay his or her mortgage loan and the property value underlying the loan. Geographic concentrations increase the exposure of our portfolio to changes in credit risk. Single-family borrowers are primarily affected by home prices and interest rates.

To manage credit risk and comply with legal requirements, we typically require primary mortgage insurance or other credit enhancements if the current LTV ratio (i.e., the ratio of the unpaid principal balance of a loan to the current value of the property that serves as collateral) of a single-family conventional mortgage loan is greater than 80% when the loan is delivered to us.

Numerous factors affect a multifamily borrower’s ability to repay the loan and the value of the property underlying the loan. Multifamily loans are generally non-recourse to the borrower. The most significant factors affecting credit risk are rental income, capitalization rates for the mortgaged property, and general economic conditions. The average unpaid principal

balance for multifamily loans is significantly larger than for single-family borrowers and, therefore, individual defaults for multifamily borrowers can result in more significant losses. We continually monitor the performance and risk characteristics of our multifamily loans, underlying properties and borrowers on an ongoing basis.

As part of our multifamily risk management activities, we perform detailed loan reviews that evaluate property performance, borrower and geographic concentrations, lender qualifications, counterparty risk and contract compliance. We generally require mortgage servicers to obtain and submit periodic property operating information and condition reviews, allowing us to monitor the performance of individual loans. We use this information to evaluate the credit quality of our portfolio, identify potential problem loans and initiate appropriate loss mitigation activities.



	Geographic Concentration⁽¹⁾
	Percentage of Single-Family Conventional Guaranty Book of Business						Percentage of Multifamily Guaranty Book of Business
	As of December 31,						As of December 31,
	2019			2018			2019			2018
Midwest		15	%		15	%		10	%		10	%
Northeast		17			17			15			14
Southeast		22			22			27			26
Southwest		18			18			23			24
West		28			28			25			26
Total		100	%		100	%		100	%		100	%

Midwest consists of IL, IN, IA, MI, MN, NE, ND, OH, SD and WI. Northeast consists of CT, DE, ME, MA, NH, NJ, NY, PA, PR, RI, VT and VI. Southeast consists of AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA and WV. Southwest consists of AZ, AR, CO, KS, LA, MO, NM, OK, TX and UT. West consists of AK, CA, GU, HI, ID, MT, NV, OR, WA and WY.

For single-family and multifamily loans, we use this information, in conjunction with housing market and economic conditions, to structure our pricing and our eligibility and underwriting criteria to reflect the current risk of loans with higher-risk characteristics, and in some cases we decide to significantly reduce our participation in riskier loan product categories. Management also uses this data together with other credit risk measures to identify key trends that guide the development of our loss mitigation strategies.

For single-family loans, management monitors the serious delinquency rate, which is the percentage of single-family loans, based on the number of loans that are 90 days or more past due or in the foreclosure process, and loans that have higher risk characteristics, such as high mark-to-market LTV ratios.



	As of December 31,
	2019						2018
	30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽¹⁾		30 Days Delinquent		60 Days Delinquent		Seriously Delinquent⁽¹⁾
Percentage of single-family conventional guaranty book of business based on UPB	1.07	%	0.29	%	0.59	%	1.17	%	0.32	%	0.69	%
Percentage of single-family conventional loans based on loan count	1.27		0.35		0.66		1.37		0.38		0.76



	As of December 31,
	2019			2018
	Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB	Seriously Delinquent Rate⁽¹⁾		Percentage of Single-Family Conventional Guaranty Book of Business Based on UPB	Seriously Delinquent Rate⁽¹⁾
Estimated mark-to-market LTV ratio:
Greater than 100%	*	10.14	%	*	9.85	%
Geographical distribution:
California	19	0.32		19	0.34
Florida	6	0.84		6	1.16
Illinois	4	0.91		4	0.98
New Jersey	3	1.13		4	1.38
New York	5	1.18		5	1.40
All other states	63	0.64		62	0.73
Product distribution:
Alt-A	2	2.95		2	3.35
Vintages:
2004 and prior	2	2.48		3	2.69
2005-2008	4	4.11		5	4.61
2009-2019	94	0.35		92	0.34



	As of December 31,
	2019⁽¹⁾				2018⁽¹⁾
	30 Days Delinquent		Seriously Delinquent⁽²⁾		30 Days Delinquent		Seriously Delinquent⁽²⁾
Percentage of multifamily guaranty book of business	0.02	%	0.04	%	0.02	%	0.06	%



	As of December 31,
	2019				2018
	Percentage of Multifamily Guaranty Book of Business⁽¹⁾		Percentage Seriously Delinquent⁽²⁾⁽³⁾		Percentage of Multifamily Guaranty Book of Business⁽¹⁾		Percentage Seriously Delinquent⁽²⁾⁽³⁾
Original LTV ratio:
Greater than 80%	1	%	—	%	1	%	—	%
Less than or equal to 80%	99		0.04		99		0.06
Current DSCR below 1.0⁽⁴⁾	2		0.48		2		1.38

Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most recently available results from our multifamily borrowers, there is a lag in reporting, which typically can range from 3 to 6 months but in some cases may be longer. For certain properties, we do not receive updated financial information.

Mortgage Insurers. Mortgage insurance “risk in force” refers to our maximum potential loss recovery under the applicable mortgage insurance policies in force and is generally based on the loan-level insurance coverage percentage and, if applicable, any aggregate pool loss limit, as specified in the policy.

The following table displays our total mortgage insurance risk in force by primary and pool insurance, as well as the total risk-in-force mortgage insurance coverage as a percentage of the single-family conventional guaranty book of business.



	As of December 31,
	2019			2018
	Risk in Force		Percentage of Single-Family Conventional Guaranty Book of Business	Risk in Force		Percentage of Single-Family Conventional Guaranty Book of Business
	(Dollars in millions)
Mortgage insurance risk in force:
Primary mortgage insurance	$	162,855		$	152,379
Pool mortgage insurance	339			409
Total mortgage insurance risk in force	$	163,194	6%	$	152,788	5%

Mortgage insurance does not protect us from all losses on covered loans. For example, mortgage insurance does not cover us from default risk for properties that suffered damages that were not covered by the hazard insurance we require. Specifically, a property damaged by a flood that was outside a Federal Emergency Management Agency (“FEMA”)-identified Special Flood Hazard Area, where we require coverage, or a property damaged by an earthquake are the most likely scenarios where property damage may result in a default not covered by hazard insurance.

The table below displays our mortgage insurer counterparties that provided approximately 10% or more of the risk-in-force mortgage insurance coverage on mortgage loans in our single-family conventional guaranty book of business.



	Percentage of Risk in Force Coverage by Mortgage Insurer
	As of December 31,
	2019		2018
Counterparty:⁽¹⁾
Arch Capital Group Ltd.	23	%	25	%
Radian Guaranty, Inc.	20		21
Mortgage Guaranty Insurance Corp.	18		18
Genworth Mortgage Insurance Corp.⁽²⁾	15		15
Essent Guaranty, Inc.	14		12
Others	10		9
Total	100	%	100	%

Three of our mortgage insurer counterparties that are currently not approved to write new business are in run-off: PMI Mortgage Insurance Co. (“PMI”), Triad Guaranty Insurance Corporation (“Triad”) and Republic Mortgage Insurance Company (“RMIC”). Entering run-off may close off a source of profits and liquidity that may have otherwise assisted a mortgage insurer in paying claims under insurance policies, and could also cause the quality and speed of its claims processing to deteriorate. These three mortgage insurers provided a combined $3.3 billion, or 2%, of our risk in force mortgage insurance coverage of our single-family conventional guaranty book of business as of December 31, 2019.

PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is currently paying 74.5% of claims under its mortgage insurance policies in cash and is deferring the remaining 25.5%, and Triad is currently paying 75% of claims in cash and deferring the remaining 25%. It is uncertain whether PMI or Triad will be permitted in the future to pay any remaining deferred policyholder claims and/or increase or decrease the amount of cash they pay on claims. RMIC is no longer deferring payments on policyholder claims and has paid us its previously outstanding deferred payment obligations as well as interest on those obligations; however, RMIC remains in run-off.

We have counterparty credit risk relating to the potential insolvency of, or non-performance by, mortgage insurers that insure single-family loans we purchase or guarantee. There is risk that these counterparties may fail to fulfill their obligations to pay our claims under insurance policies. On at least a quarterly basis, we assess our mortgage insurer counterparties’ respective abilities to fulfill their obligations to us. Our assessment includes financial reviews and analyses of the insurers’ portfolios and capital adequacy. If we determine that it is probable that we will not collect all of our claims from one or more of our mortgage insurer counterparties, it could increase our loss reserves, which could adversely affect our results of operations, liquidity, financial condition and net worth.

When we estimate the credit losses that are inherent in our mortgage loans and under the terms of our guaranty obligations, we also consider the recoveries that we will receive on primary mortgage insurance, as mortgage insurance recoveries would reduce the severity of the loss associated with defaulted loans. We evaluate the financial condition of our mortgage insurer counterparties and adjust the contractually due recovery amounts to ensure that only probable losses as of the balance sheet date are included in our loss reserve estimate. As a result, if our assessment of one or more of our mortgage insurer counterparties’ ability to fulfill their respective obligations to us worsens, it could increase our loss reserves. As of December 31, 2019 and 2018, our estimated benefit from mortgage insurance reduced our loss reserves by $410 million and $691 million, respectively.

When an insured loan held in our retained 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, cancels or denies insurance coverage, the initial receivable becomes due from the mortgage seller or servicer. We had outstanding receivables of $654 million recorded in “Other assets” in our consolidated balance sheets as of December 31, 2019 and $745 million as of December 31, 2018 related to amounts claimed on insured, defaulted loans excluding government-insured loans. We assessed these outstanding receivables for collectability, and established a valuation allowance of $541 million as of December 31, 2019 and $564 million as of December 31, 2018, which reduced our claim receivable to the amount considered probable of collection.

Mortgage Servicers and Sellers. Mortgage servicers collect mortgage and escrow payments from borrowers, pay taxes and insurance costs from escrow accounts, monitor and report delinquencies, and perform other required activities on our behalf. Our mortgage servicers and sellers may also be obligated to repurchase loans or foreclosed properties, reimburse us for losses or provide other remedies under certain circumstances, such as if it is determined that the mortgage loan did not meet our underwriting or eligibility requirements, if certain loan representations and warranties are violated or if mortgage insurers rescind coverage. Our representation and warranty framework does not require repurchase for loans that have breaches of certain selling representations and warranties if they have met specified criteria for relief.

Our business with mortgage servicers is concentrated. The table below displays the percentage of our single-family guaranty book of business serviced by our top five depository single-family mortgage servicers and top five non-depository single-family mortgage servicers, and identifies one servicer that serviced more than 10% of our single-family guaranty book of business based on unpaid principal balance.



	Percentage of Single-Family Guaranty Book of Business
	As of December 31,
	2019		2018
Wells Fargo Bank, N.A. (together with its affiliates)	17	%	18	%
Remaining top five depository servicers	15		16
Top five non-depository servicers	27		22
Total	59	%	56	%

There was an increase in the portion of our single-family guaranty book serviced by our top five non-depository servicers in 2019, particularly for our delinquent single-family loans. Compared with depository financial institutions, these institutions pose additional risks because they may not have the same financial strength or operational capacity, or be subject to the same level of regulatory oversight, as our largest mortgage servicer counterparties, which are mostly depository institutions.

The table below displays the percentage of our multifamily guaranty book of business serviced by our top five multifamily mortgage servicers, and identifies two servicers that serviced 10% or more of our multifamily guaranty book of business based on unpaid principal balance.



	Percentage of Multifamily Guaranty Book of Business
	As of December 31,
	2019		2018
Wells Fargo Bank, N.A. (together with its affiliates)	13	%	14	%
Walker & Dunlop, LLC	12		12
Remaining top five servicers	23		22
Total	48	%	48	%

If a significant mortgage servicer or seller counterparty, or a number of mortgage servicers or sellers, fails to meet their obligations to us, it could adversely affect our results of operations and financial condition. We mitigate these risks in several ways, including:

Multifamily Lenders with Risk Sharing. We enter into risk sharing agreements with lenders pursuant to which the lenders agree to bear all or some portion of the credit losses on the covered loans. Our maximum potential loss recovery from lenders under these risk sharing agreements on both Delegated Underwriting and Servicing (“DUS”) and non-DUS multifamily loans was $81.4 billion as of December 31, 2019, compared with $71.8 billion as of December 31, 2018. As of December 31, 2019 and 2018, 44% of our maximum potential loss recovery on multifamily loans was from four DUS lenders.

Derivatives Counterparties. For information on credit risk associated with our derivative transactions and repurchase agreements see “Note 8, Derivative Instruments” and “Note 14, Netting Arrangements.”