Freddie Mac 2014 Annual Report Download - page 154

149 Freddie Mac
In return for providing our guarantee of the payment of principal and interest, we earn a management and guarantee fee
that is paid to us over the life of an issued PC, representing a portion of the interest collected on the underlying loans.
PC Trusts
We are the primary beneficiary of securitization trusts that issue our single-family PCs and therefore consolidate the
assets and liabilities of these trusts at either their: (a) carrying value, if the underlying assets are contributed by us to the trust;
or (b) fair value, for those securitization trusts established for our guarantor swap program. Mortgage loans underlying our
issued single-family PCs are recognized on our consolidated balance sheets as mortgage loans held-for-investment by
consolidated trusts, at amortized cost. The corresponding single-family PCs held by third parties are recognized on our
consolidated balance sheets as debt securities of consolidated trusts held by third parties. Refer to “Mortgage Loans” and “Debt
Securities Issued” below for further information on the subsequent accounting treatment of these assets and liabilities,
respectively.
REMICs and Other Structured Securities
Our single-family REMICs and Other Structured Securities use resecuritization trusts and represent beneficial interests in
groups of PCs and other types of mortgage-related assets. We create these securities primarily by using PCs or previously
issued REMICs and Other Structured Securities as collateral. Similar to our 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 exposure to credit loss
assumed by us.
With respect to the resecuritization trusts used for our single-family REMICs and Other Structured Securities whose
underlying assets are PCs or previously issued REMICs and Other Structured Securities, 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 us with 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 affect the economic risks to which we are exposed. As a result, 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 or
previously issued REMICs and Other Structured Securities, unless we hold substantially all of the outstanding beneficial
interests that have been issued by the trust.
We receive a transaction fee from third parties for issuing our single-family REMICs and Other Structured Securities
whose underlying assets are PCs or previously issued REMICs and Other Structured Securities. We defer the portion of the
transaction fee that is equal to the estimated value of our future administrative responsibilities for these 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.
Our multifamily Other Structured Securities use securitization trusts that meet the definition of a VIE. Our multifamily
Other Structured Securities typically involve our acquisition of tax-exempt multifamily housing revenue bonds, placement of
those bonds in a securitization trust, and issuance of tax-exempt senior certificates as well as subordinate certificates that
provide structural credit protection. The housing revenue bonds are collateralized by low- and moderate-income multifamily
housing developments. We guarantee the principal and interest on the senior certificates and, because the underlying collateral
is not already guaranteed by us, we receive a management and guarantee fee.
Our involvement with the securitization trusts used for our multifamily Other Structured Securities whose underlying
assets are multifamily housing revenue bonds does not provide us with power that would enable us to direct the significant
economic activities of these entities. As a result, we are not the primary beneficiary of, and therefore do not consolidate, these
entities.
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
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