Freddie Mac 2014 Annual Report Download - page 211

206 Freddie Mac
Table 14.1 — Financial Guarantees
December 31, 2014 December 31, 2013
Maximum
Exposure(1) Recognized Liability(2)
Maximum
Remaining
Term Maximum
Exposure(1) Recognized Liability(2)
Maximum
Remaining
Term
(dollars in millions, terms in years)
Non-consolidated Freddie Mac securities $ 87,529 $ 861 39 $ 71,809 $ 731 40
Other guarantee commitments 26,147 772 39 29,160 791 36
Derivative instruments 21,336 154 31 9,856 239 32
(1) The maximum exposure represents the contractual amounts that could be lost if counterparties or borrowers defaulted, without consideration of
possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts, or from collateral held or
pledged. The maximum exposure disclosed above is not 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. The maximum exposure for our liquidity guarantees is not mutually exclusive of
our default guarantees on the same securities; therefore, these amounts are included within the maximum exposure of non-consolidated Freddie Mac
securities and other guarantee commitments.
(2) For non-consolidated Freddie Mac securities and other guarantee commitments, this amount represents the guarantee obligation on our consolidated
balance sheets. This amount excludes our reserve for guarantee losses, which totaled $126 million and $111 million as of December 31, 2014 and 2013,
respectively, and is included within other liabilities on our consolidated balance sheets.
Non-Consolidated Freddie Mac Securities
We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and Other Structured Securities; and (c) Other
Guarantee Transactions. We guarantee the payment of principal and interest to the trusts which issue these securities, which are
backed by pools of mortgage-related assets, irrespective of the cash flows received from the borrowers.
Our single-family securities issued in resecuritizations of our PCs and other previously issued REMICs and Other
Structured Securities are not consolidated unless we hold substantially all of the beneficial interests of the trust and are
therefore considered the primary beneficiary of the trust. Our resecuritizations of PCs and other previously issued REMICs and
Structured Securities do not give rise to any additional exposure to credit loss as we already consolidate the underlying
collateral. The securities issued in these resecuritizations consist of single-class and multiclass securities backed by PCs,
REMICs, interest-only strips, and principal-only strips. Since these resecuritizations do not increase our credit-risk, no
guarantee asset or guarantee obligation is recognized for these transactions and they are excluded from the table above.
During 2014 and 2013, we issued approximately $18.5 billion and $23.7 billion, respectively, in UPB of Other Guarantee
Transactions, all of which were backed by multifamily mortgage loans, for which a guarantee asset and guarantee obligation
were recognized.
For many of the loans underlying our non-consolidated guarantees, there are credit protections from third parties,
including subordination, covering a portion of our exposure. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS
RESERVES” for information about credit protections on loans we guarantee.
Other Guarantee Commitments
We provide long-term standby commitments to certain of our customers, which obligate us to purchase seriously
delinquent loans that are covered by those agreements. During 2014 and 2013, we issued and guaranteed $2.6 billion and $9.9
billion, respectively, in UPB of long-term standby commitments. These long-term standby commitments totaled $16.5 billion
and $19.2 billion in UPB at December 31, 2014 and December 31, 2013, respectively. Periodically, certain of our customers
seek to terminate long-term standby commitments and simultaneously enter into guarantor swap transactions to obtain our PCs
backed by many of the same mortgage loans.
We also had other guarantee commitments on multifamily housing revenue bonds that were issued by HFAs of $9.3
billion and $9.1 billion in UPB at December 31, 2014 and December 31, 2013, respectively. In addition, as of December 31,
2014 and December 31, 2013, we had issued guarantees under the TCLFP on securities backed by HFA bonds with UPB of
$0.4 billion and $0.9 billion, respectively.
Derivative Instruments
Derivative instruments include written options, written swaptions, interest-rate swap guarantees, and short-term default
guarantee commitments accounted for as credit derivatives. See “NOTE 9: DERIVATIVES” for further discussion of these
derivative guarantees.
We guarantee the performance of interest-rate swap contracts in two circumstances. First, in connection with certain other
guarantee commitments, we guarantee that a multifamily borrower will perform under an interest-rate swap contract linked to
the borrower’s ARM. And second, in connection with our issuance of certain REMICs and Other Structured Securities, which
are backed by tax-exempt bonds, we guarantee that the sponsor of the transaction will perform under the interest-rate swap
contract linked to the senior variable-rate certificates that we issued.
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