Freddie Mac 2005 Annual Report Download - page 129

Asset-Backed Investment Trusts
We invest in a variety of mortgage and non-mortgage-related, asset-backed investment trusts. These investments
represent interests in trusts consisting of a pool of receivables or other Ñnancial assets, typically credit card receivables, auto
loans or student loans. These trusts act as vehicles to allow originators to securitize assets. Securities are structured from the
underlying pool of assets to provide for varying degrees of risk. Primary risks include potential loss from the credit risk and
interest-rate risk of the underlying pool. The originators of the Ñnancial assets or the underwriters of the deal create the trusts
and typically own the residual interest in the trust assets. At December 31, 2005 and 2004, we were not the primary
beneÑciary of any asset-backed investment trusts.
Structured Securities Ì T-Series Transactions
In T-Series transactions (or alternative collateral deals), a seller or sellers of mortgage loans transfers mortgage loans to
a trust speciÑcally for the purpose of issuing securities collateralized by the mortgage loans. These T-Series trusts issue
various senior interests, subordinated interests or both. We guarantee and purchase certain of the senior interests.
Simultaneous with this guarantee and purchase, we issue and guarantee Structured Securities. These Structured Securities
represent an interest in the senior interests of the T-Series transactions. The subordinated interests are generally either held
by the seller or other party or sold in the capital markets. At December 31, 2005 and 2004, we were not the primary
beneÑciary of any T-Series transactions.
Consolidated VIEs
Table 3.1 represents the carrying amounts and classiÑcation of consolidated assets that are collateral for the
consolidated VIEs.
Table 3.1 Ì Assets of Consolidated VIEs
December 31,
Consolidated Balance Sheets Line Item 2005 2004
(in millions)
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 45 $ 51
Accounts and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 167 170
Total assets of consolidated VIEs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $212 $221
VIEs Not Consolidated
Low-Income Housing Tax Credit Partnerships
At December 31, 2005 and 2004, we had unconsolidated investments in 168 and 149 low-income housing tax credit
partnerships, respectively, in which we had a signiÑcant variable interest. The size of these partnerships at December 31,
2005 and 2004, as measured in total assets, was $8.1 billion and $6.7 billion, respectively. These partnerships are accounted
for using the equity method, as described in ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.''
As a limited partner, our maximum exposure to loss equals the undiscounted book value of our equity investment. At
December 31, 2005 and 2004, our maximum exposure to loss on unconsolidated low-income housing tax credit partnerships,
in which we had a signiÑcant variable interest, was $3.7 billion and $3.1 billion, respectively.
Asset-Backed Investment Trusts
At December 31, 2005, we no longer had a signiÑcant variable interest in any trusts related to non-mortgage-related,
asset-backed securities. At December 31, 2004, we had investments in three trusts related to non-mortgage-related, asset-
backed securities in which we had a signiÑcant variable interest. These investments had been made between 2000 and 2004
and were typically senior interests rated A1 and P1 by Standard & Poor's, or S&P, and Moody's, respectively. These
ratings are the short-term equivalent of between A and AAA in typical long-term rating scales. These trusts had total assets
at December 31, 2004 of $12.8 billion. As an investor, our maximum exposure to loss consisted of the book value of our
investment. At December 31, 2004, our maximum exposure to loss on non-mortgage-related, asset-backed investment
trusts, in which we had a signiÑcant variable interest, was approximately $3.4 billion.
Structured Securities Ì T-Series Transactions
At both December 31, 2005 and 2004, we had investments or guarantees related to two T-Series transactions in which
we had a signiÑcant variable interest. Our involvement in these two T-Series transactions began in 1996 and 2002,
respectively. The size of these two transactions at December 31, 2005 and 2004, as measured in total assets, was
$105 million and $170 million, respectively. At December 31, 2005 and 2004, our maximum exposure to loss on these
113 Freddie Mac