Freddie Mac 2004 Annual Report Download - page 186

Mortgage Reinsurance Company
In May 1998, Freddie Mac transferred credit risk to a consolidated special purpose entity in a reinsurance
transaction.
Consolidated VIEs
As of December 31, 2004, the company had investments in Ñve low-income housing tax credit
partnerships, West*Mac and the mortgage reinsurance company referred to above, of which Freddie Mac was
the primary beneÑciary. These are consolidated pursuant to the requirements of FIN 46-R. Prior to 2004,
Freddie Mac consolidated these in accordance with other applicable requirements under GAAP. Table 3.1
represents the carrying amounts and classiÑcation of consolidated assets that are collateral for the consolidated
VIEs.
Table 3.1 Ì Assets of Consolidated VIEs
Consolidated Balance Sheets Line Item December 31, 2004
(dollars in millions)
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 51
Accounts and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 170
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 239
Total assets of consolidated VIEs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $460
The investors in the obligations of consolidated VIEs have recourse only to the assets of those VIEs and
do not have recourse to the company.
VIEs Not Consolidated
As of December 31, 2004, the company had unconsolidated investments in 149 low-income housing tax
credit partnerships in which Freddie Mac had a signiÑcant variable interest. The size of these partnerships at
December 31, 2004, as measured in total assets, was $7.5 billion. These partnerships are accounted for using
the equity method, as described in ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLI-
CIES.'' As a limited partner, Freddie Mac's maximum exposure to loss equals the book value of its equity
investment. As of December 31, 2004, Freddie Mac's maximum exposure to loss on unconsolidated low-
income housing tax credit partnerships, in which Freddie Mac had a signiÑcant variable interest, was
$2.9 billion.
At December 31, 2004, the company had investments in three trusts related to non-mortgage-related,
asset-backed securities in which Freddie Mac had a signiÑcant variable interest. These trusts had total assets
of $12.8 billion. At December 31, 2003, the company had investments in 15 trusts related to non-mortgage-
related, asset-backed securities in which Freddie Mac had a signiÑcant variable interest. These trusts had total
assets of $7.9 billion. As an investor, Freddie Mac's maximum exposure to loss consisted of the book value of
its investment. As of December 31, 2004, Freddie Mac's maximum exposure to loss on non-mortgage-related,
asset-backed investment trusts in which Freddie Mac had a signiÑcant variable interest was approximately
$3.4 billion. As of December 31, 2003, Freddie Mac's maximum exposure to loss on non-mortgage-related,
asset-backed investment trusts in which Freddie Mac had a signiÑcant variable interest was approximately
$1.8 billion. These investments are typically senior interests rated A1 and P1 by Standard & Poor's and
Moody's, respectively, which is the short-term equivalent to between A and AAA in typical long-term rating
scales.
At both December 31, 2004 and 2003, the company had investments or guarantees related to two
T-Series transactions in which Freddie Mac had a signiÑcant variable interest. Freddie Mac's involvement in
the T-Series transactions began in 1996 and 2002, respectively. The size of these transactions at December 31,
2004 and 2003, as measured in total assets, was $170 million and $367 million, respectively. As of
December 31, 2004 and 2003, Freddie Mac's maximum exposure to loss on T-Series transactions in which
Freddie Mac had a signiÑcant variable interest was $147 million and $339 million, respectively, consisting of
the book value of the company's investments plus incremental guarantees of the senior interests that are held
by third parties.
Freddie Mac
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