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Financial Guarantee Liability | 6 Months Ended
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Jun. 30, 2021
Guarantees [Abstract] |
Financial Guarantee Liability | Financial Guarantee Liability 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 June 30, 2021, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of $24.8 billion with a maximum potential loss of $7.4 billion. At December 31, 2020, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie Mac had outstanding principal balances of approximately $24.0 billion with a maximum potential loss of approximately $7.2 billion, of which $6.2 million was covered by the Credit Enhancement Agreement (see Note 12 — “Credit Enhancement Receivable, Credit Enhancement Deposit and Contingent Liability”). 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 and six months ended June 30, 2021, there was a decrease to the reserve of $4.7 million and $6.3 million, respectively. For the three and six months ended June 30, 2020, there was an increase in the reserve of $0.2 million and $32.6 million, respectively. A loan is considered to be delinquent once it is 60 days past due. As of June 30, 2021, there were two loans in the credit risk portfolio with an outstanding principal balance of $33.6 million, with a maximum loss exposure of $11.2 million, that was in default. If the two loans in default results in a loss event, proceeds from the liquidation of the assets are estimated to be approximately $30.4 million based on current estimates of fair value. Newmark’s share of the loss would approximate $1.5 million. As of December 31, 2020, there were four loans in the credit risk portfolio with outstanding principal balances of $53.5 million, with a maximum loss exposure of $17.8 million, that were delinquent. If all four delinquent loans resulted in a loss event, proceeds from the liquidation of the assets are estimated to be approximately $39.0 million based on estimates of fair value at December 31, 2020. Newmark's share of the loss would approximate $5.3 million. 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, 2020 | $ | 15 |
Impact of adopting ASC 326 | 17,935 |
Provision for expected credit losses | 11,631 |
Balance, December 31, 2020 | 29,581 |
Provision for expected credit losses | (6,349) |
Balance, June 30, 2021 | $ | 23,232 |

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- Definition The entire disclosure for each guarantee obligation, or each group of similar guarantee obligations, including (a) the nature of the guarantee, including its term, how it arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee; (c) the current carrying amount of the liability, if any, for the guarantor's obligations under the guarantee; and (d) the nature of any recourse provisions under the guarantee, and any assets held either as collateral or by third parties, and any relevant related party disclosure. Excludes disclosures about product warranties. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 460 -URI http://asc.fasb.org/topic&trid=2155896 + Details
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