Freddie Mac 2010 Annual Report Download - page 232

Servicing-Related Premium Guarantees
We provide guarantees to reimburse servicers for premiums paid to acquire servicing in situations where the original
seller is unable to perform under its separate servicing agreement. The liability associated with these agreements was not
material at December 31, 2010 and 2009.
Other Indemnifications
In connection with certain business transactions, we may provide indemnification to counterparties for claims arising out
of breaches of certain obligations (e.g., those arising from representations and warranties) in contracts entered into in the
normal course of business. Our assessment is that the risk of any material loss from such a claim for indemnification is
remote and there are no probable and estimable losses associated with these contracts. Therefore, we have not recorded any
liabilities related to these indemnifications on our consolidated balance sheets at December 31, 2010 and 2009.
NOTE 11: RETAINED INTERESTS IN MORTGAGE-RELATED SECURITIZATIONS
Beginning January 1, 2010, in accordance with the amendment to the accounting standards on consolidation of VIEs,
we consolidated our single-family PC trusts and certain Other Guarantee Transactions. As a result, a large majority of our
transfers of financial assets that historically qualified as sales (e.g., the transfer of mortgage loans to our single-family PC
trusts) are no longer treated as such because the financial assets are transferred to a consolidated entity. In addition, to the
extent that we receive newly-issued PCs or Other Guarantee Transactions in connection with such a transfer, we extinguish a
proportional amount of the debt securities of the consolidated trust. See “NOTE 2: CHANGE IN ACCOUNTING
PRINCIPLES” for further information regarding the impacts of consolidation of our single-family PC trusts and certain
Other Guarantee Transactions.
Certain of our transfers of financial assets to non-consolidated trusts and third parties may continue to qualify as sales.
In connection with our transfers of financial assets that qualify as sales, we may retain certain interests in the transferred
assets. Our retained interests are primarily beneficial interests issued by non-consolidated securitization trusts (e.g.,
multifamily PCs and multiclass resecuritization securities). These interests are included in investments in securities on our
consolidated balance sheets. In addition, our guarantee asset recognized in connection with non-consolidated securitization
transactions also represents a retained interest. For more information about our retained interests in mortgage-related
securitizations, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities.”
These transfers and our resulting retained interests are not significant to our consolidated financial statements in 2010.
Our exposure to credit losses on the loans underlying our retained securitization interests and our guarantee asset was
recorded within our reserve for guarantee losses on PCs and as a component of our guarantee obligation, respectively. For
information regarding our charge-offs, and delinquencies on loans we have securitized, see “NOTE 5: MORTGAGE LOANS
AND LOAN LOSS RESERVES” and “NOTE 6: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS.”
Table 11.1 below presents the carrying values of our retained interests in securitization transactions as of December 31, 2009.
Carrying values of our retained interests at December 31, 2010 were not significant.
Table 11.1 — Carrying Value of Retained Interests
December 31, 2009
(in millions)
Retained Interests, mortgage-related securities . . . . .................................................... $91,537
Retained Interests, guarantee asset . . . . . . .......................................................... $10,444
Retained Interests, Mortgage-Related Securities
We estimate the fair value of retained interests in mortgage-related securities based on independent price quotes
obtained from third-party pricing services or dealer provided prices. The hypothetical sensitivity of the carrying value of
retained securitization interests is based on internal models adjusted where necessary to align with fair values.
Retained Interests, Guarantee Asset
Our approach for estimating the fair value of the guarantee asset at December 31, 2009 used third-party market data as
practicable. For approximately 80% of the fair value of the guarantee asset, which related to fixed-rate loan products that
reflect current market rates, the valuation approach involved obtaining dealer quotes on proxy securities with collateral
similar to aggregated characteristics of our portfolio. This effectively equated the guarantee asset with current, or “spot,”
market values for excess servicing interest-only securities. We consider these securities to be comparable to the guarantee
asset in that they represent interest-only cash flows and do not have matching principal-only securities. The remaining 20%
of the fair value of the guarantee asset related to underlying loan products for which comparable market prices were not
readily available. These amounts related specifically to ARM products, highly seasoned loans or fixed-rate loans with
coupons that are not consistent with current market rates. This portion of the guarantee asset was valued using an expected
cash flow approach, including only those cash flows expected to result from our contractual right to receive management and
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