Freddie Mac 2014 Annual Report Download - page 169

164 Freddie Mac
potentially be significant to the PC trusts. Accordingly, we concluded that we are the primary beneficiary of our single-family
PC trusts.
At both December 31, 2014 and 2013, we were the primary beneficiary of, and therefore consolidated, single-family PC
trusts with assets totaling $1.5 trillion, as measured using the UPB of issued PCs. The assets of each PC trust can be used only
to settle obligations of that trust. In connection with many of our PC trusts, we have credit protection in the form of primary
mortgage insurance, pool insurance, recourse to lenders, credit risk transfer transactions, and other forms of credit
enhancement. We also have credit protection for certain of our PC trusts that issue PCs backed by loans or certificates of
federal agencies (such as FHA, VA, and USDA). See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES —
Credit Protection and Other Forms of Credit Enhancement” for additional information regarding third-party credit
enhancements related to our PC trusts.
REMICs and Other Structured Securities
REMICs and Other Structured Securities are mortgage-related securities that we issue to third parties. We do not
consolidate the trusts that issue these securities unless we hold substantially all of the beneficial interests in the trust and are
therefore considered to be the primary beneficiary. We had investments of approximately $1.4 billion and $3.5 billion in UPB,
as of December 31, 2014 and 2013, respectively, where we held substantially all the outstanding beneficial interests in the trusts
and consolidated them on our balance sheets.
Other Guarantee Transactions
In Other Guarantee Transactions, we issue mortgage-related securities to third parties in exchange for non-Freddie Mac
mortgage-related securities. The degree to which our involvement with securitization trusts that issue Other Guarantee
Transactions provides us with the power to direct the activities that most significantly impact the economic performance of
these VIEs (e.g., the ability to direct the servicing of the underlying assets of these entities) and the obligation to absorb losses
that could potentially be significant to the VIEs varies by transaction. For all Other Guarantee Transactions, our variable
interest in these VIEs represents some form of credit guarantee.
We consolidate Other Guarantee Transactions when: (a) we have the obligation to absorb credit losses through our
financial guarantee; and (b) we also have the ability to direct the loss mitigation activities of the underlying assets, which is the
power to direct the activities that most significantly impact the economic performance of these VIEs. We do not consolidate the
Other Guarantee Transactions that do not meet these conditions. As a result, we have concluded that we are the primary
beneficiary of Other Guarantee Transactions with underlying assets totaling $7.4 billion and $8.9 billion at December 31, 2014
and 2013, respectively.
VIEs for which We are not the Primary Beneficiary
The table below presents the carrying amounts and classification of the assets and liabilities recorded on our consolidated
balance sheets related to our variable interests in non-consolidated VIEs, as well as our maximum exposure to loss as a result of
our involvement with these VIEs. Our involvement with VIEs for which we are not the primary beneficiary generally takes one
of two forms: (a) purchasing an investment in these entities; or (b) providing a guarantee to these entities. Our maximum
exposure to loss for those VIEs in which we have purchased an investment is calculated as the maximum potential charge that
we would recognize in earnings if that investment were to become worthless. This amount does not include other-than-
temporary impairments or other write-downs that we previously recognized through earnings. Our maximum exposure to loss
for those VIEs for which we have provided a guarantee represents the contractual amounts that could be lost under the
guarantees if counterparties or borrowers defaulted, without consideration of possible recoveries under credit enhancement
arrangements. We do not believe the maximum exposure to loss disclosed in the table below is representative of the actual loss
we are likely to incur, based on our historical loss experience and after consideration of proceeds from related collateral
liquidation, including possible recoveries under credit enhancement arrangements.
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