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Concentrations of Credit Risk
6 Months Ended
Jun. 30, 2020
Risks and Uncertainties [Abstract]  
Concentrations of Credit Risk Concentrations of Credit Risk
Risk Characteristics of our Guaranty Book of Business
One of the measures by which we gauge our performance risk is the delinquency status of the mortgage loans in our guaranty book of business.
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.
We report the delinquency status of our single-family and multifamily guaranty book of business below. We report loans receiving COVID-19-related payment forbearance as delinquent according to the contractual terms of the loans.
Single-Family Credit Risk Characteristics
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.
The following tables display the delinquency status and serious delinquency rates for specified loan categories of our single-family conventional guaranty book of business.
As of
June 30, 2020
December 31, 2019
30 Days Delinquent60 Days Delinquent
Seriously Delinquent(1)
30 Days Delinquent60 Days Delinquent
Seriously Delinquent(1)
Percentage of single-family conventional guaranty book of business based on UPB
1.45 %1.85 %3.04 %1.07 %0.29 %0.59 %
Percentage of single-family conventional loans based on loan count
1.47  1.60  2.65  1.27  0.35  0.66  
As of
June 30, 2020
December 31, 2019
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%*18.12 %*10.14 %
Geographical distribution:
California19 %2.54  19 %0.32  
Florida 3.98   0.84  
Illinois 2.71   0.91  
New Jersey 4.81   1.13  
New York 4.96   1.18  
All other states63  2.30  63  0.64  
Product distribution:
Alt-A 8.07   2.95  
Vintages:
2004 and prior 5.00   2.48  
2005-2008 8.37   4.11  
2009-202095  2.21  94  0.35  
* Represents less than 0.5% of single-family conventional guaranty book of business.
(1)Based on loan count, consists of single-family conventional loans that were 90 days or more past due or in the foreclosure process as of June 30, 2020 or December 31, 2019.
Multifamily Credit Risk Characteristics
For multifamily loans, management monitors the serious delinquency rate, which is the percentage of multifamily loans, based on unpaid principal balance, that are 60 days or more past due, and other loans that have higher risk characteristics, to assess the overall credit quality of our multifamily book of business. Higher risk characteristics include, but are not limited to, current DSCR below 1.0 and original LTV ratios greater than 80%. We stratify multifamily loans into different internal risk categories based on the credit risk inherent in each individual loan.
The following tables display the delinquency status and serious delinquency rates for specified loan categories of our multifamily guaranty book of business.
As of
June 30, 2020(1)
December 31, 2019(1)
30 Days Delinquent
Seriously Delinquent(2)
30 Days Delinquent
Seriously Delinquent(2)
Percentage of multifamily guaranty book of business0.32%1.00 %0.02 %0.04 %
As of
June 30, 2020December 31, 2019
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%%0.39 %%— %
Less than or equal to 80%99  1.01  99  0.04  
Current DSCR below 1.0(4)
 22.91   0.48  
(1)Calculated based on the aggregate unpaid principal balance of multifamily loans for each category divided by the aggregate unpaid principal balance of loans in our multifamily guaranty book of business.
(2)Consists of multifamily loans that were 60 days or more past due as of the dates indicated.
(3)Calculated based on the unpaid principal balance of multifamily loans that were seriously delinquent divided by the aggregate unpaid principal balance of multifamily loans for each category included in our multifamily guaranty book of business.
(4)Our estimates of current DSCRs are based on the latest available income information for these properties. Although we use the most recently available results of 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. As a result, the financial statements we have received from borrowers to date have largely not reflected the impact of COVID-19. For certain properties, we do not receive updated financial information.
Other Concentrations
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
June 30, 2020December 31, 2019
Risk in ForcePercentage of Single-Family Guaranty Book of BusinessRisk in ForcePercentage of Single-Family Guaranty Book of Business
(Dollars in millions)
Mortgage insurance risk in force:
Primary mortgage insurance$165,871  $162,855  
Pool mortgage insurance301  339  
Total mortgage insurance risk in force$166,172  5%$163,194  6%
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
June 30, 2020December 31, 2019
Counterparty:(1)
Arch Capital Group Ltd.22 %23 %
Radian Guaranty, Inc.20  20  
Mortgage Guaranty Insurance Corp.18  18  
Genworth Mortgage Insurance Corp.(2)
16  15  
Essent Guaranty, Inc.14  14  
Others10  10  
Total100 %100 %
(1)Insurance coverage amounts provided for each counterparty may include coverage provided by affiliates and subsidiaries of the counterparty.
(2)Genworth Financial, Inc., the ultimate parent company of Genworth Mortgage Insurance Corp., is in the process of being acquired by China Oceanwide Holdings Group Co., Ltd. Upon acquisition, Genworth Mortgage Insurance Corp. will continue to be subject to our ongoing review of financial and operational eligibility requirements.
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 $2.9 billion, or 2%, of the risk-in-force mortgage insurance coverage of our single-family conventional guaranty book of business as of June 30, 2020.
PMI and Triad have been paying only a portion of policyholder claims and deferring the remaining portion. PMI is currently paying 76.5% of claims under its mortgage insurance policies in cash and is deferring the remaining 23.5%, 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 expected credit 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 June 30, 2020 and December 31, 2019, our estimated benefit from mortgage insurance, which is based on estimated credit losses as of period end, reduced our loss reserves by $2.0 billion and $410 million, respectively.
As of June 30, 2020 and December 31, 2019, we had outstanding receivables of $578 million and $654 million, respectively, recorded in “Other assets” in our condensed consolidated balance sheets related to amounts claimed on insured, defaulted loans excluding government-insured loans. As of June 30, 2020 and December 31, 2019, we assessed these outstanding
receivables for collectability, and established a valuation allowance of $500 million and $541 million, respectively, 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 (i.e., servicers that are not insured depository institutions), 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
June 30, 2020December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)16 %17 %
Remaining top five depository servicers13  15  
Top five non-depository servicers27  27  
Total56 %59 %
Compared with depository financial institutions, our non-depository servicers 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 depository financial 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
June 30, 2020December 31, 2019
Wells Fargo Bank, N.A. (together with its affiliates)13 %13 %
Walker & Dunlop, Inc.12  12  
Remaining top five servicers23  23  
Total48 %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:
establishing minimum standards and financial requirements for our servicers;
monitoring financial and portfolio performance as compared with peers and internal benchmarks; and
for our largest mortgage servicers, conducting periodic on-site and financial reviews to confirm compliance with servicing guidelines and servicing performance expectations.
We may take one or more of the following actions to mitigate our credit exposure to mortgage servicers that present a higher risk:
require a guaranty of obligations by higher-rated entities;
transfer exposure to third parties;
require collateral;
establish more stringent financial requirements;
work with underperforming major servicers to improve operational processes; and
suspend or terminate the selling and servicing relationship if deemed necessary.
Derivative Counterparties. For information on credit risk associated with our derivative transactions and repurchase agreements see “Note 8, Derivative Instruments” and “Note 11, Netting Arrangements.”