Freddie Mac 2010 Annual Report Download - page 19

Other Guarantee Transactions
We also issue mortgage-related securities to third parties in exchange for non-Freddie Mac mortgage-related securities.
We refer to these as Other Guarantee Transactions. The non-Freddie Mac mortgage-related securities are transferred to trusts
that were specifically created for the purpose of issuing securities, or certificates, in the Other Guarantee Transactions. The
following diagram illustrates an example of an Other Guarantee Transaction:
Other Guarantee Transaction
Mortgage Lender
OGTC = Other Guarantee Transaction Certificates
Securities Dealers
and Investors
Mortgage loan Sub. Class
OGTC and Cash Cash
Private Label
Trust
Freddie Mac
Trust
Sr. Class
and/or
Pass-through
OGTC
Freddie Mac
(guarantor)
Guarantee
Fee
Investors
(which may
include Freddie
Mac)
OGTC Cash
Other Guarantee Transactions can generally be segregated into two different types. In one type, we purchase only senior
tranches from a non-Freddie Mac senior-subordinated securitization, place the senior tranches into securitization trusts, and
issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on those certificates. In this
type of transaction, our credit risk is reduced by the credit protections from the related subordinated tranches, which we
neither purchase nor guarantee. In the second type, we purchase single-class pass-through securities, place them in
securitization trusts and issue Other Guarantee Transaction certificates guaranteeing the principal and interest payments on
those certificates. Our single-family Other Guarantee Transactions backed by single-class pass-through securities do not
benefit from structural or other credit enhancement protections.
Although Other Guarantee Transactions generally have underlying mortgage loans with varying risk characteristics, we
do not issue tranches that have concentrations of credit risk beyond those embedded in the underlying assets, as all cash
flows of the underlying collateral are passed through to the holders of the securities and there are no economic residual
interests in the securitization trusts. Additionally, there may be other credit enhancements and structural features retained by
the seller, such as excess interest or overcollateralization, that provide credit protection to our interests, and reduce the
likelihood that we will have to perform under our guarantee of the senior tranches. In exchange for providing our guarantee,
we may receive a management and guarantee fee or other delivery fees, if the underlying collateral is not already guaranteed
by us.
In 2010 and 2009, we entered into transactions under Treasury’s NIBP with HFAs, for the partial guarantee of certain
single-family and multifamily HFA bonds, which were Other Guarantee Transactions with significant credit enhancement
provided by Treasury. The securities issued by us pursuant to the NIBP were purchased by Treasury. See “NOTE 3:
CONSERVATORSHIP AND RELATED MATTERS” for further information.
16 Freddie Mac