Freddie Mac 2004 Annual Report Download - page 178

Unpaid Principal Balances of Issued PCs and Structured Securities
Table 2.1 below presents the unpaid principal balances of issued PCs and Structured Securities as of
December 31, 2004 and 2003.
Table 2.1 Ì Issued PCs and Structured Securities Based on Unpaid Principal Balances(1)(2)
December 31,
2004 2003
(dollars in millions)
PCs and Structured Securities:
Held by third parties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 852,270 $ 752,164
Held by Freddie Mac in the:
Retained portfolio(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 356,698 393,135
Cash and investments portfolio(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 16,769
Total issued PCs and Structured Securities(5)(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,208,968 $1,162,068
(1) Excludes mortgage loans and mortgage-related securities traded, but not yet settled.
(2) Due to the nature of security program remittance cycles of issued PCs and Structured Securities, the unpaid principal balances of the
underlying mortgage loans do not equal the unpaid principal balances of issued PCs and Structured Securities. See
""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ì Due to Participation CertiÑcate Investors'' for more
information.
(3) With respect to mortgage loans purchased through Freddie Mac's Cash Window that were internally securitized as PCs and held as
available-for-sale investments in the Retained portfolio, the company recognized losses of $1 million and $178 million for the years
ended December 31, 2004 and 2003, respectively, that correspond to permanent lower-of-cost-or-market value adjustments that were
recognized in connection with such mortgage loans. Such lower-of-cost-or-market value adjustments were treated as basis
adjustments to such issued PCs and, as such, are amortized into interest income over the holding period of such securities.
(4) Represents PCs and Structured Securities held by Freddie Mac in connection with PC market-making and support activities, which
are reÖected in Investments on the consolidated balance sheets. In the fourth quarter of 2004, Freddie Mac ceased its PC market-
making and support activities accomplished through its Securities Sales & Trading Group business unit and its external Money
Manager program.
(5) As further discussed in ""NOTE 4: FINANCIAL GUARANTEES,'' these amounts include:
‚ $3,015 million and $4,729 million of Structured Securities backed by Ginnie Mae CertiÑcates at December 31, 2004 and 2003,
respectively.
‚ $5,432 million and $5,044 million at December 31, 2004 and 2003, respectively, that pertain to Freddie Mac's guarantee of (a) the
payment of principal and interest on (i) tax-exempt multifamily housing revenue bonds that support pass-through certiÑcates
issued by third parties; and (ii) multifamily mortgage loans that are originated and held by state and municipal housing Ñnance
agencies to support tax-exempt multifamily housing revenue bonds; and (b) Freddie Mac pass-through certiÑcates which are
backed by tax-exempt multifamily housing revenue bonds and related taxable bonds and/or loans together with scheduled
principal payments on such bonds and/or loans.
‚ $1,806 million and $2,278 million at December 31, 2004 and 2003, respectively, of single-family mortgage loans held by third
parties for which Freddie Mac provided a credit guarantee.
(6) PCs and Structured Securities exclude $723,429 million and $637,491 million at December 31, 2004 and 2003, respectively, of
Structured Securities backed by resecuritized PCs and other previously issued Structured Securities. These excluded Structured
Securities do not increase Freddie Mac's credit related exposure and consist of single-class Structured Securities backed by PCs,
Real Estate Mortgage Investment Conduits, or REMICs and principal-only strips. The notional balance of interest-only strips of
$105,703 million and $91,192 million at December 31, 2004 and 2003, respectively, is excluded because this table is based on unpaid
principal balances. Also excluded are modiÑable and combinable REMIC tranches and interest and principal classes, which
collectively total $1,097,336 million and $988,600 million at December 31, 2004 and 2003, respectively, where the holder has the
option to exchange the security tranches for other pre-deÑned security tranches.
At December 31, 2004 and 2003, approximately 86 percent and 78 percent, respectively, of issued PCs
and Structured Securities (excluding securities issued by Freddie Mac and backed by Ginnie Mae CertiÑcates
or non-agency mortgage-related securities and other securities guaranteed by Freddie Mac) had correspond-
ing GAs, GOs or PC residuals recognized on Freddie Mac's consolidated balance sheets. The percentage of
these PCs and Structured Securities that had corresponding GAs, GOs or PC residuals due to the adoption of
FIN 45 accounting on January 1, 2003 was 39 percent and 30 percent, at December 31, 2004 and 2003,
respectively. As of December 31, 2004 and 2003, 87 percent and 81 percent, respectively, of PCs and
Structured Securities held by third parties had a related GA and GO established.
Gains and Losses on Transfers of PCs and Structured Securities that are Accounted for as Sales
Freddie Mac recognized pre-tax gains of approximately $356 million, $711 million and $874 million for
the years ended December 31, 2004, 2003 and 2002, respectively, on transfers of PCs and Structured
Freddie Mac
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