Freddie Mac 2014 Annual Report Download - page 15

10 Freddie Mac
REMICs and Other Structured Securities
Our REMICs and Other Structured Securities represent beneficial interests in pools of PCs and certain other types of
mortgage-related assets. We create these securities (which can be either single-class or multiclass) primarily by using PCs or
previously issued REMICs and Other Structured Securities as the underlying collateral.
Single-class securities involve the straight pass-through of all of the cash flows of the underlying collateral to holders of
the beneficial interests. Multiclass securities divide all of the cash flows of the underlying collateral into two or more classes
with varying maturities, payment priorities and coupons. Our primary multiclass securities qualify for tax treatment as
REMICs. We believe our issuance of these securities expands the range of investors in our mortgage-related securities to
include those seeking specific security attributes.
Similar to our PCs, we guarantee the payment of principal and interest to the holders of tranches of our REMICs and
Other Structured Securities. We do not charge a management and guarantee fee for these securities if the underlying collateral
is already guaranteed by us since no additional credit risk is introduced. The collateral underlying nearly all of our single-
family REMICs and Other Structured Securities consists of other mortgage-related securities that we guarantee. All of the cash
flows from the collateral underlying our single-family REMICs and Other Structured Securities are generally passed through to
investors in these securities. We do not issue tranches of securities in these transactions that have concentrations of credit risk
beyond those embedded in the underlying assets. The following diagram provides a general example of how we create REMICs
and Other Structured Securities.
REMICs and Other Structured Securities
We issue many of our REMICs and Other Structured Securities in transactions in which securities dealers or investors sell
us mortgage-related assets or we exchange our own mortgage-related assets (e.g., PCs and REMICs and Other Structured
Securities) for the REMICs and Other Structured Securities. For REMICs and Other Structured Securities that we issue to third
parties, we typically receive a transaction, or resecuritization, fee. This transaction fee is compensation for facilitating the
transaction, as well as future administrative responsibilities.
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 are specifically created for the purpose of issuing securities, or certificates, in the Other Guarantee Transactions.
Other Guarantee Transactions are generally of 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 structural credit protections from the related subordinated tranches, which we do
not issue or 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
Other Guarantee Transactions backed by single-class pass-through securities do not benefit from structural or other credit
enhancement protections. In exchange for providing our guarantee on Other Guarantee Transactions, we receive a management
and guarantee fee and/or other delivery fees. 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. All of the cash flows from the underlying collateral are passed through to the investors in the securities, so
there are no economic residual interests in the related securitization trusts.
Our primary Other Guarantee Transactions are multifamily K Certificates. In substantially all of these transactions, we
guarantee only the most senior tranches of the securities. The expected credit risk associated with these loans is sold in
subordinated tranches to third-party investors. We do not issue or guarantee the subordinated tranches, which are considered
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