Freddie Mac 2015 Annual Report Download - page 174

Management's Discussion and Analysis Off-Balance Sheet Arrangements
Freddie Mac 2015 Form 10-K 172
OFF-BALANCE SHEET ARRANGEMENTS
We enter into certain business arrangements that are not recorded on our consolidated balance sheets or
that may be recorded in amounts that differ from the full contract or notional amount of the transaction
and that may expose us to potential losses in excess of the amounts recorded on our consolidated
balance sheets. See Note 2 and Note 3 for more information on our off-balance sheet securitization
activities and other guarantees.
SECURITIZATION ACTIVITIES AND OTHER GUARANTEES
We have certain off-balance sheet arrangements related to our securitization activities involving
guaranteed loans and mortgage-related securities, though most of our securitization activities are on-
balance sheet. Our off-balance sheet arrangements related to these securitization activities primarily
consist of K Certificates. We also have off-balance sheet arrangements related to certain other
securitization products and other mortgage-related guarantees.
Our maximum potential off-balance sheet exposure to credit losses relating to these securitization
activities and guarantees is primarily represented by the UPB of the underlying loans and securities,
which was $127.3 billion and $113.7 billion at December 31, 2015 and 2014, respectively.
As part of the guarantee arrangements pertaining to certain multifamily housing revenue bonds and
securities backed by multifamily housing revenue bonds, we provided commitments to advance funds,
commonly referred to as “liquidity guarantees,” which were $8.9 billion and $9.6 billion at December 31,
2015 and 2014, respectively. These guarantees require us to advance funds to third parties that enable
them to repurchase tendered bonds or securities that are unable to be remarketed. At both December 31,
2015 and 2014, there were no liquidity guarantee advances outstanding.
In addition, as part of the HFA initiative, we, together with Fannie Mae, provided liquidity guarantees for
certain variable-rate multifamily housing revenue bonds, under which Freddie Mac generally was
obligated to purchase 50% of any tendered bonds that could not be remarketed within five business days.
At December 31, 2014, there were no bonds purchased under the liquidity guarantees. As of July 2015,
all of the HFAs had exited the HFA initiative and the liquidity guarantees expired.
Our exposure to losses on the transactions described above would be partially mitigated by the recovery
we would receive through exercising our rights to the collateral backing the underlying loans and the
available credit enhancements, which may include recourse and primary mortgage insurance with third
parties. In addition, we provide for incurred losses each period on these guarantees within our provision
for credit losses.
OTHER AGREEMENTS
We own interests in numerous entities that are considered to be VIEs for which we are not the primary
beneficiary and which we do not consolidate in accordance with the accounting guidance for the
consolidation of VIEs. These VIEs relate primarily to our investment activity in mortgage-related assets.
Our consolidated balance sheets reflect only our investment in the VIEs, rather than the full amount of the
VIEs’ assets and liabilities.
As part of our credit guarantee business, we routinely enter into forward purchase and sale commitments