Freddie Mac 2009 Annual Report Download - page 333

Real Estate Mortgage Investment Conduit (REMIC) — A type of multi-class mortgage-related security that divides the
cash flows (principal and interest) of the underlying mortgage-related assets into two or more classes that meet the
investment criteria and portfolio needs of different investors.
Real estate owned (REO) — Real estate which we have acquired through foreclosure or through a deed in lieu of
foreclosure.
Reform Act — The Federal Housing Finance Regulatory Reform Act of 2008, which, among other things, amended the GSE
Act by establishing a single regulator, FHFA, for Freddie Mac, Fannie Mae and the FHLBs.
Secondary mortgage market — A market consisting of institutions engaged in buying and selling mortgages in the form of
whole loans (i.e., mortgages that have not been securitized) and mortgage-related securities. We participate in the secondary
mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed
mortgage-related securities, principally PCs.
Senior preferred stock — The shares of Variable Liquidation Preference Senior Preferred Stock issued to Treasury under
the Purchase Agreement.
Single-family mortgage — A mortgage loan secured by a property containing four or fewer residential dwelling units.
Single-family mortgage portfolio — Consists of single-family loans held in our mortgage-related investments portfolio as
well as those underlying PCs, Structured Securities and other mortgage-related guarantees we have issued, and excludes
certain Structured Transactions and that portion of our Structured Securities that are backed by Ginnie Mae Certificates.
Spread — The difference between the yields of two debt securities, or the difference between the yield of a debt security
and a benchmark yield, such as LIBOR.
Strips — Mortgage pass-through securities created by separating the principal and interest payments on a pool of mortgage
loans. A principal-only strip entitles the security holder to principal cash flows, but no interest cash flows, from the
underlying mortgages. An interest-only strip entitles the security holder to interest cash flows, but no principal cash flows,
from the underlying mortgages.
Structured Securities — Single- and multi-class securities issued by Freddie Mac that represent beneficial interests in pools
of PCs and certain other types of mortgage-related assets. Single-class Structured Securities pass through the cash flows
(principal and interest) on the underlying mortgage-related assets. Multi-class Structured Securities divide the cash flows of
the underlying mortgage-related assets into two or more classes that meet the investment criteria and portfolio needs of
different investors. Our principal multi-class Structured Securities qualify for tax treatment as REMICs.
Structured Transactions — Transactions in which Structured Securities are issued to third parties in exchange for non-
Freddie Mac mortgage-related securities, which are transferred to trusts specifically created for the purpose of issuing
securities or certificates in the Structured Transaction. These trusts issue various senior interests, subordinated interests or
both. We purchase interests, including senior interests, of the trusts and simultaneously issue guaranteed Structured Securities
backed by these interests. Although Structured Transactions generally have underlying mortgage loans with higher risk
characteristics, they may afford us credit protection from losses due to the underlying structure employed and additional
credit enhancement features.
Subprime — Subprime generally refers to the credit risk classification of a loan. There is no universally accepted definition
of subprime. The subprime segment of the mortgage market primarily serves borrowers with poorer credit payment histories
and such loans typically have a mix of credit characteristics that indicate a higher likelihood of default and higher loss
severities than prime loans. Such characteristics might include a combination of high LTV ratios, low credit scores or
originations using lower underwriting standards, such as limited or no documentation of a borrower’s income. For our non-
agency mortgage-related securities that are backed by subprime loans, we classified securities as subprime if the securities
were labeled as subprime when sold to us.
Swaption — An option contract to enter into an interest rate swap. In exchange for an option premium, a buyer obtains the
right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
Total mortgage portfolio — Includes mortgage loans and mortgage-related securities held on our consolidated balance sheet
as well as the balances of PCs, Structured Securities and other financial guarantees on mortgage loans and securities held by
third parties. Guaranteed PCs and Structured Securities held by third parties are not included on our consolidated balance
sheets.
Treasury — U.S. Department of the Treasury.
Variable Interest Entity (VIE) — A VIE is an entity: (a) that has a total equity investment at risk that is not sufficient to
finance its activities without additional subordinated financial support provided by another party; or (b) where the group of
equity holders does not have: (i) the ability to make significant decisions about the entity’s activities; (ii) the obligation to
absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns.
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