Freddie Mac 2014 Annual Report Download - page 189

184 Freddie Mac
(1) The weighted average yield is calculated based on a yield for each individual lot held at December 31, 2014 excluding any fully taxable-equivalent
adjustments related to tax exempt sources of interest income. The numerator for the individual lot yield consists of the sum of: (a) the year-end interest
coupon rate multiplied by the year-end UPB; and (b) the amortization income or expense calculated for December 2014 (excluding the accretion of
non-credit-related other-than-temporary impairments and any adjustments recorded for changes in the effective rate). The denominator for the
individual lot yield consists of the year-end amortized cost of the lot excluding effects of other-than-temporary impairments on the UPB of impaired
lots.
Trading Securities
The table below summarizes the estimated fair values by major security type for trading securities. Our trading securities
mainly consist of Treasury securities, agency fixed-rate and variable-rate pass-through mortgage-related securities, and agency
REMICs, including inverse floating rate, interest-only and principal-only securities.
Table 7.8 — Trading Securities
December 31, 2014 December 31, 2013
(in millions)
Mortgage-related securities:
Freddie Mac $ 17,469 $ 9,349
Fannie Mae 6,099 7,180
Ginnie Mae 16 98
Other 171 141
Total mortgage-related securities 23,755 16,768
U.S. Treasury securities 6,682 6,636
Total fair value of trading securities $ 30,437 $ 23,404
With the exception of principal-only securities, our agency securities, classified as trading, were valued at a net premium
(i.e., net fair value was higher than UPB) as of December 31, 2014.
For the years ended December 31, 2014, 2013, and 2012, we recorded net unrealized gains (losses) on trading securities
held at those dates of $(88) million, $(1.6) billion, and $(1.7) billion, respectively.
Non-Cash Investing and Financing Activities
From time to time, beginning in 2014, we contribute PCs, single-class REMICs and Other Structured Securities held in
our mortgage-related investments portfolio as collateral for a multiclass REMIC and Other Structured Securities trust in
exchange for beneficial interests in the multiclass REMIC and Other Structured Securities trust. We do not consolidate the
multiclass REMIC and Other Structured Securities trust unless we hold substantially all of the beneficial interests issued by the
trust. As a result, if we do not hold substantially all of the beneficial interests issued by the multiclass REMIC and Other
Structured Securities trust, we account for this type of transaction as the acquisition of investment securities and issuance of
debt securities of consolidated trusts. During 2014, we received investment securities as consideration for the issuance of debt
securities of consolidated trusts of $1.8 billion as a result of these transactions.
NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS
Debt securities that we issue are classified on our consolidated balance sheets as either debt securities of consolidated
trusts held by third parties or other debt. We issue other debt to fund our operations.
Under the Purchase Agreement, without the prior written consent of Treasury, we may not incur indebtedness that would
result in the par value of our aggregate indebtedness exceeding 120% of the amount of mortgage assets we are allowed to own
on December 31 of the immediately preceding calendar year. Because of this debt limit, we may be restricted in the amount of
debt we are allowed to issue to fund our operations. Under the Purchase Agreement, the amount of our “indebtedness” is
determined without giving effect to the January 1, 2010 change in the accounting guidance related to transfers of financial
assets and consolidation of VIEs. Therefore, “indebtedness” does not include debt securities of consolidated trusts held by third
parties. We also cannot become liable for any subordinated indebtedness without the prior consent of Treasury. See “NOTE 2:
CONSERVATORSHIP AND RELATED MATTERS” for information regarding restrictions on the amount of mortgage-related
securities that we may own.
Our debt cap under the Purchase Agreement was $663.0 billion in 2014 and declined to $563.6 billion on January 1,
2015. As of December 31, 2014, our aggregate indebtedness was $454.0 billion. Our aggregate indebtedness is calculated as the
par value of other short- and long-term debt.
In the tables below, the categories of short-term debt (due within one year) and long-term debt (due after one year) are
based on the original contractual maturity of the debt instruments classified as other debt.
Other Short-Term Debt
As indicated in "Table 8.1 — Other Short-Term Debt", a majority of other short-term debt consisted of Reference Bills®
securities and discount notes, paying only principal at maturity. Reference Bills® securities, discount notes, and medium-term
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