Freddie Mac 2015 Annual Report Download - page 229

Financial Statements Notes to the Consolidated Financial Statements | Note 3
Freddie Mac 2015 Form 10-K 227
Because we have already guaranteed the underlying assets, we do not receive any incremental
management and guarantee fees in exchange for our guarantee, and, accordingly, we do not recognize
any additional guarantee assets, guarantee obligations, or reserves for guarantee losses related to
resecuritization trusts. Instead, we receive a one-time transaction fee which represents compensation for
both the structuring and creation of the securities and for our ongoing administrative responsibilities to
service the securities. We recognize the portion of the transaction fee related to creation of the securities
immediately in earnings. We defer the portion of the fee related to ongoing administrative responsibilities
and amortize it over the life of the associated trust.
When we purchase a REMIC or Stripped Giant PC as an investment in our mortgage-related investments
portfolio, we record the security as an investment in debt securities rather than extinguishment of debt
since we are investing in the debt securities of a non-consolidated entity. We do not consolidate REMIC
or Stripped Giant PC trusts that we hold as we are not deemed to be the primary beneficiary of the trusts,
unless we have the unilateral ability to collapse the trust. Similarly, sales of REMICs or Stripped Giant
PCs previously held as investments in our mortgage-related investments portfolio are accounted for as
sales of investments in debt securities. See Note 7 for additional information on accounting for
investments in debt securities.
K Certificates
In a typical K Certificate transaction, we sell multifamily loans to a non-Freddie Mac securitization trust
that issues senior and subordinated securities, and simultaneously purchase and place the senior
securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. In substantially all
of these transactions, we guarantee only the senior securities issued by the Freddie Mac securitization
trust and do not issue or guarantee the subordinated securities issued by the non-Freddie Mac
securitization trust. We receive a management and guarantee fee in exchange for our guarantee. We
serve as guarantor of our K Certificate trusts and, from time to time, as master servicer. However, in
contrast to single-family PC trusts, the rights to direct loss mitigation activities of the underlying loans and
to purchase delinquent loans from the securitization trust are held by the investor in the most subordinate
remaining securities issued by the trust, and we do not have any power to direct those activities unless
we are the investor in the most subordinate remaining securities.
The economic performance of our K Certificate trusts is most significantly affected by the performance of
the underlying loans. Because our rights do not provide us with the power to direct the activities that most
significantly affect the performance of the underlying loans, we are not the primary beneficiary of our K
Certificate trusts and, therefore, do not consolidate those trusts.
When we sell loans to a K Certificate trust, we derecognize the transferred loans and account for our
guarantee to the non-consolidated K Certificate trust. We account for our investments in the beneficial
interests issued by non-consolidated K Certificate trusts as investments in debt securities.
During 2015 and 2014, we issued approximately $29.4 billion and $18.3 billion, respectively, of K
Certificates for which a guarantee asset and guarantee obligation were recognized.