Freddie Mac 2004 Annual Report Download - page 189

Other Guarantees
Freddie Mac has guaranteed the performance of interest-rate swap contracts in two circumstances. First,
as part of a resecuritization transaction, Freddie Mac transferred certain swaps and related assets to a third
party. Freddie Mac guaranteed that interest income generated from the assets would be suÇcient to cover the
required payments under the interest-rate swap contracts. In the other circumstance, Freddie Mac guaranteed
that a customer would perform under an interest-rate swap contract linked to the customer's variable rate
mortgage. The maximum remaining terms of any of these guarantees at December 31, 2004 and 2003 was
29 years and 27 years, respectively; however, the actual terms may be signiÑcantly less than the contractual
terms as the amortizing notional balance of the swaps is linked to prepayable mortgage loans. The maximum
potential amount of future payments under the guarantees was $50 million and $136 million at December 31,
2004 and 2003, respectively. The company has not established a liability on its consolidated balance sheets at
December 31, 2004 and 2003 because it was not probable that it would be required to make payments under
these contractual arrangements on those dates.
Freddie Mac provides guarantees to reimburse servicers for premiums paid to acquire servicing in
situations where Freddie Mac requires the original seller to repurchase the loan and the original seller is
unable to perform under a separate agreement to reimburse the servicer for those servicing premiums. Freddie
Mac's servicing related premium guarantees are payable according to a vesting schedule for up to Ñve years
from the date of purchase of servicing rights. Freddie Mac's servicing-related premium guarantees issued
in 2003 and 2004 extend through 2008 and 2009, respectively. The maximum potential amount of future
payments under the guarantees was $113 million and $151 million at December 31, 2004 and 2003,
respectively. The company has not established a liability on its consolidated balance sheets at December 31,
2004 and 2003 because it was not probable that it would be required to make payments under these
contractual arrangements on those dates.
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