Freddie Mac 2014 Annual Report Download - page 155

150 Freddie Mac
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 initially recognize a guarantee
asset and a guarantee obligation at fair value to the extent a management and guarantee fee is charged. We do not receive
transaction fees, apart from our management and guarantee fee, for these transactions.
Our primary Other Guarantee Transactions are issuances of multifamily K Certificates. In substantially all of these
transactions, we guarantee only the most senior tranches of the securities and our initial involvement with the trusts that issue
the K Certificates does not provide us with any 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 trusts when K Certificates
are initially issued. To the extent that our involvement with the trusts changes, we evaluate whether we have become the
primary beneficiary.
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 its carrying value, adjusted for any related purchase commitments accounted for as derivatives.
When we sell PCs that have been 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.
Single-Class REMICs and Other Structured Securities
The collateral for our single-class REMICs and Other Structured Securities includes PCs and previously issued 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 the 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 deemed to be substantially the same as the
underlying PCs. As a result, when we purchase single-class REMICs and Other Structured Securities, we extinguish a pro rata
portion of the outstanding debt securities of the related PC trust on our consolidated balance sheets.
When we sell single-class REMICs and Other Structured Securities, we recognize a liability to the third-party beneficial
interest holders of the related consolidated PC trust as debt securities of consolidated trusts held by third parties. That is, our
sale of single-class REMICs and Other Structured Securities is accounted for as the issuance of debt.
Multiclass REMICs and Other Structured Securities
The collateral for our single-family multiclass REMICs and Other Structured Securities includes PCs and previously
issued REMICs and Other Structured Securities. We do not consolidate most of these resecuritization trusts as we are not
deemed to be the primary beneficiary of the trusts unless we hold substantially all of the outstanding beneficial interests that
have been issued by the trust. In our single-family multiclass REMICs and Other Structured Securities, the cash flows of the
underlying PCs are divided (e.g., stripped and/or time tranched). Due primarily to this division of cash flows, these securities
are not deemed to be substantially the same as the underlying PCs. As a result, when we purchase single-family multiclass
REMICs and Other Structured Securities, we record these securities as investments in debt securities rather than as the
extinguishment of debt since we are investing in the debt securities of a non-consolidated entity. See “Investments in
Securities” for further information regarding our accounting for investments in multiclass REMICs and Other Structured
Securities.
We recognize, as assets, both the investment in single-family multiclass REMICs and Other Structured Securities and the
mortgage loans backing the PCs held by the trusts which underlie the single-family multiclass REMICs and Other Structured
Securities. Additionally, we recognize, as liabilities, the unsecured debt issued to third parties to fund the purchase of the
single-family multiclass REMICs and Other Structured Securities as well as the debt issued to third parties of the PC trusts we
consolidate which underlie the single-family multiclass REMICs and Other Structured Securities. This results in recognition of
interest income from both assets and interest expense from both liabilities.
The collateral for our multifamily multiclass Other Structured Securities typically includes multifamily housing revenue
bonds which are collateralized by low- and moderate-income multifamily housing developments. We do not consolidate the
securitization trusts that issue these securities as we are not deemed to be the primary beneficiary of the trusts. When we
purchase multifamily multiclass Other Structured Securities, we record them as investments in debt securities. See
“Investments in Securities” for further information regarding our accounting for investments in multiclass REMICs and Other
Structured Securities.
When we sell multiclass REMICs and Other Structured Securities in which we are not the primary beneficiary of the
resecuritization trust, we account for the transfer in accordance with the accounting guidance for transfers of financial assets.
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