Freddie Mac 2005 Annual Report Download - page 21

exchange for PCs. Investors in PCs may include the lenders that sold us the underlying mortgages, as well as pension funds,
insurance companies, securities dealers and other Ñxed-income investors. Investors may choose to hold these PCs in their
portfolios or sell them to others. Our guarantee increases the marketability of our PCs, providing additional liquidity to the
mortgage market.
Guarantees of Structured Securities. We also issue securities representing beneÑcial interests in pools of PCs and
certain other types of mortgage-related assets. We refer to these mortgage-related securities as Structured Securities. We
guarantee the payment of principal and interest on most of the Structured Securities we issue. By issuing Structured
Securities, we seek to provide liquidity to alternative segments of the mortgage market. We issue many of our Structured
Securities in transactions in which securities dealers or investors sell us the mortgage-related assets underlying the
Structured Securities in exchange for the Structured Securities. We also sell Structured Securities to securities dealers or
investors in exchange for cash.
We issue single-class Structured Securities and multi-class Structured Securities. Single-class Structured Securities
pass through the cash Öows on the underlying mortgage-related assets. Multi-class Structured Securities divide the cash
Öows of the underlying mortgage-related assets into two or more classes that meet the investment criteria and portfolio needs
of diÅerent investors. Our principal multi-class Structured Securities qualify for tax treatment as Real Estate Mortgage
Investment Conduits, or REMICs. For purposes of this Information Statement, multi-class Structured Securities include
Structured Securities backed by non-agency mortgage-related securities.
Guarantees Related to Tax-Exempt Multifamily Housing Revenue Bonds. We guarantee the payment of principal and
interest on tax-exempt multifamily housing revenue bonds that support pass-through certiÑcates issued by third parties.
These housing revenue bonds are collateralized by mortgage loans on low- and moderate-income multifamily housing
projects. In addition, we guarantee the payment of principal and interest related to low- and moderate-income multifamily
mortgage loans underlying tax-exempt multifamily housing revenue bonds.
PC and Structured Securities Support Activities. We support the liquidity and depth of the market for PCs through a
variety of activities, including educating dealers and investors about the merits of trading and investing in PCs, and
introducing new mortgage-related securities products and initiatives. We support the price performance of our PCs through
a variety of strategies, including the issuance of Structured Securities and the purchase and sale by our Retained portfolio of
PCs and other agency securities, including Fannie Mae securities. While some purchases of PCs may result in a return on
equity substantially below our normal thresholds, this strategy is not expected to have a material eÅect on the long-term
value of the company. Depending upon market conditions, including the relative prices, supply of, and demand for PCs and
comparable Fannie Mae securities, there may be substantial variability in any period in the total amount of securities we
purchase or sell for our Retained portfolio in accordance with this strategy. We may increase, reduce or discontinue these or
other related activities at any time, which could aÅect the liquidity and depth of the market for PCs.
In the fourth quarter of 2004, as part of our eÅort to realign our activities around our mission and core business, we
ceased our PC market making and support activities accomplished through our Securities Sales & Trading Group, or
SS&TG, and our external Money Manager program. For more information, see ""MD&A Ì CONSOLIDATED RE-
SULTS OF OPERATIONS Ì Net Interest Income.''
The To Be Announced Market. In connection with our credit guarantee activities, we issue PCs that represent pools of
mortgages with similar characteristics. Because these PCs are homogeneous and are issued in high volume, they are highly
liquid and trade with similar securities on a ""generic'' basis, also referred to as trading in the To Be Announced, or TBA,
market. A TBA trade in Freddie Mac securities represents a contract for the purchase or sale of PCs to be delivered at a
future date; however, the speciÑc PCs that will be delivered to fulÑll the trade obligation, and thus the speciÑc
characteristics of the mortgages underlying those PCs, are not known (i.e., ""announced'') at the time of the trade, but only
shortly before the trade is settled. During 2005, we issued approximately $282.0 billion of PCs backed by single-family
mortgage loans that were eligible to be delivered to settle TBA trades, representing approximately 71 percent of our total
guaranteed PC and Structured Security issuances. The use of the TBA market increases the liquidity of mortgage
investments and improves the distribution of investment capital available for residential mortgage Ñnancing, thereby helping
us to accomplish our statutory mission.
Available Information
Our Information Statements, Supplements and other Ñnancial disclosure documents are available free of charge on our
website at www.FreddieMac.com. (We do not intend this internet address to be an active link and are not using references
to this internet address here or elsewhere in this Information Statement to incorporate additional information into this
Information Statement.) Our corporate governance guidelines, Codes of Conduct for employees and members of the board
of directors (and any amendments or waivers that would be required to be disclosed), and the charters of the board's Ñve
standing committees (the Audit; Finance and Capital Deployment; Mission and Sourcing; Governance, Nominating and
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