Freddie Mac 2010 Annual Report Download - page 184

PCs, we guarantee the payment of principal and interest to the holders of the tranches of our REMICs and Other Structured
Securities. However, for REMICs and Other Structured Securities where we have already guaranteed the underlying assets,
there is no incremental credit risk assumed by us.
With respect to the resecuritization trusts used for REMICs and Other Structured Securities whose underlying assets are
PCs, we do not have rights to receive benefits or obligations to absorb losses that could potentially be significant to the trusts
because we have already provided a guarantee on the underlying assets. Additionally, our involvement with these trusts does
not provide any power that would enable us to direct the significant economic activities of these entities. Although we may
be exposed to prepayment risk through our ownership of the securities issued by these trusts, we do not have the ability
through our involvement with the trust to impact the economic risks to which we are exposed. As a result, we have
concluded that we are not the primary beneficiary of, and therefore do not consolidate, the resecuritization trusts used for
REMICs and Other Structured Securities whose underlying assets are PCs unless we hold a substantial portion of the
outstanding beneficial interests that have been issued by the trust and are therefore considered the primary beneficiary of the
trust.
We receive a transaction fee from third parties for issuing REMICs and Other Structured Securities in exchange for PCs
or other mortgage-related assets. We defer the portion of the transaction fee that is equal to the estimated value of our future
administrative responsibilities for issued REMICs and Other Structured Securities. These responsibilities include ongoing
trustee services, administration of pass-through amounts, paying agent services, tax reporting, and other required services.
We estimate the value of these future responsibilities based on quotes from third-party vendors who perform each type of
service and, where quotes are not available, based on our estimates of what those vendors would charge. The remaining
portion of the transaction fee relates to compensation earned in connection with structuring-related services we rendered to
third parties and is allocated between REMICs and Other Structured Securities we retain, if any, and the REMICs and Other
Structured Securities acquired by third parties, based on the relative fair value of the securities. The portion of the fee
allocated to any REMICs and Other Structured Securities we retain is deferred as a carrying value adjustment and is
amortized into interest income using the effective interest method over the contractual lives of these securities. The fee
allocated to REMICs and Other Structured Securities acquired by third parties is recognized immediately in earnings as other
income.
Other Guarantee Transactions
Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-Freddie
Mac mortgage-related securities. Other Guarantee Transactions typically involve us purchasing either the senior tranches
from a non-Freddie Mac senior-subordinated securitization or single-class pass-through securities, placing the acquired assets
into a securitization trust, providing a guarantee of the principal and interest of the acquired assets and issuing securities
backed by these assets. To the extent that we are deemed to be the primary beneficiary of such a securitization trust, we
recognize the mortgage loans underlying the Other Guarantee Transaction as mortgage loans held-for-investment, at
amortized cost. Correspondingly, we recognize the issued securities held by third parties as debt securities of consolidated
trusts. However, to the extent we are not deemed to be the primary beneficiary of such a securitization trust, we recognize a
guarantee asset, to the extent a management and guarantee fee is charged, and we recognize a guarantee obligation at fair
value. We do not receive transaction fees, apart from our management and guarantee fee, for these transactions.
Purchases and Sales of Freddie Mac Mortgage-Related Securities
PCs
When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt securities of
the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to the extent the amount
paid to redeem the debt differs from carrying value, adjusted for any related purchase commitments accounted for as
derivatives.
When we sell PCs that have been previously issued by consolidated PC trusts, we recognize a liability to the third-party
beneficial interest holders of the related consolidated trust as debt securities of consolidated trusts held by third parties. That
is, our sale of PCs issued by consolidated PC trusts is accounted for as the issuance of debt, not as the sale of investment
securities.
Single-Class REMICs and Other Structured Securities
Our mortgage-related securities that we classify as REMICs and Other Structured Securities may be single-class or
multiclass resecuritization transactions. In REMICs and Other Structured Securities that are single-class securities, the
collateral includes PCs and single-class REMICs and Other Structured Securities. We do not consolidate these
resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts. Our single-class REMICs and Other
Structured Securities pass through all of the cash flows of the underlying PCs directly to the holders of the securities and are
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