Company: FMCCN
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001026214-25-000040
Chunk: 81

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-02-13
Form: 10-K
Item: Item 15
Chunk 81
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 as of December 31, 2023. 

FREDDIE MAC  |  2024 Form 10-K68

Management's Discussion and AnalysisRisk Management

Natural Disaster and Climate-Related Risk Management

Natural disasters in areas where we own or guarantee mortgage loans expose us to credit risk by damaging properties that secure loans in our mortgage portfolio and by negatively impacting the ability of borrowers to make payments on mortgage loans. We also face climate transition risk, which is the negative financial and economic impact from any potential transition to a lower-carbon economy. Changing policies, coupled with changing market preferences, could affect housing and could result in a significant financial burden to our borrowers. The extent of our transition risk exposure depends on the nature of the policies. 

We require all homes underlying single-family mortgages in our portfolio to have homeowners insurance coverage throughout the life of the loan; however, we do not require earthquake insurance. Sellers are required to confirm that adequate homeowners insurance coverage exists at the time the loan is sold to Freddie Mac, and servicers are required to confirm and provide evidence that homeowners insurance is maintained, directly placing coverage when necessary. For homes located in SFHAs, we also require flood insurance coverage. Sellers are required to determine whether homes underlying single-family mortgages are located in an SFHA and, if so, to confirm that flood insurance coverage exists at the time the loan is sold to Freddie Mac. Servicers are also required to confirm and provide evidence that flood insurance on these homes is maintained throughout the life of the loan and is in amounts needed to comply with federal government and Freddie Mac requirements. If a borrower fails to obtain and maintain required flood insurance coverage, servicers must directly place such coverage.

For multifamily mortgages, we also have insurance requirements to address catastrophic risks for properties. Seller/servicers are required to determine whether any buildings at multifamily properties are located in SFHAs and to confirm flood insurance is in place and complies with federal government and Freddie Mac requirements throughout the life of the mortgage. In addition, we require property insurance to cover earthquake damage indicated by results of a seismic risk assessment. Insurance for all relevant perils is required to cover building replacement cost as well as to cover business income rental value. If a multifamily borrower fails to maintain required insurance, servicers must directly place required coverage. We confirm insurance compliance prior to loan purchase during the underwriting process. We also review insurance compliance post-purchase and prior to securitization and require our seller/servicers to report details of insurance compliance annually.