Freddie Mac 2009 Annual Report Download - page 97

Single-Family Guarantee
In our Single-family Guarantee segment, we guarantee the payment of principal and interest on single-family mortgage-
related securities, including those held in our mortgage-related investments portfolio, in exchange for monthly management
and guarantee fees and other up-front compensation. Earnings for this segment consist primarily of management and
guarantee fee revenues less the related credit costs (i.e., provision for credit losses) and operating expenses. Earnings for this
segment also include the interest earned on assets held in the Investments segment related to single-family guarantee
activities, net of allocated funding costs and amounts related to expected net float benefits.
Expected net float benefit consists of estimates of float, net of our cost of funding advances, and compensating interest.
Float is the income earned from the temporary investment of cash payments received from loan servicers for borrower
payments and prepayments in advance of the date that payments are due to PC holders. The cost of funding advances arises
in situations where we are required to pay PC holders prior to receiving cash from the loan servicers, including when a
borrower is delinquent and we have not yet purchased the mortgage from the pool. When a borrower prepays the loan
balance, interest is only due from the borrower up to the date of the prepayment; however, the holder of the PC is entitled to
interest for the entire month. We make payments to the PC holders for this shortfall, which we refer to as compensating
interest. We record our estimate of expected net float benefit in the Single-family Guarantee segment and the difference
between expectations and actual results is reflected in Segment Earnings for our Investments segment.
94 Freddie Mac