Freddie Mac 2004 Annual Report Download - page 84

Total Debt Securities, Net
We issue non-callable and callable short- and long-term debt securities in domestic and global capital
markets in a wide range of maturities to meet our funding needs. The balance of debt securities includes
deferred premiums, discounts and hedging gains and losses.
Total debt securities decreased by $7.9 billion, or 1 percent, to $731.7 billion at December 31, 2004 from
$739.6 billion at December 31, 2003. This decrease corresponds to the decrease in total assets during 2004.
During 2004, debt due within one year declined by $13.0 billion, partially oÅset by a $5.0 billion increase in
debt due after one year. We adjust our mix of long-term and short-term debt to reÖect our funding and
portfolio duration objectives.
Guarantee Obligation for Participation CertiÑcates
The Guarantee obligation for Participation CertiÑcates represents the unamortized balance of our
obligation to guarantee the payment of principal and interest of PCs and Structured Securities, an obligation
initially established at fair value in transactions that qualify as sales under SFAS 125/140 or that were subject
to the requirements of FIN 45.
The Guarantee obligation for Participation CertiÑcates increased by $1.2 billion to $4.1 billion as of
December 31, 2004 from $2.9 billion as of December 31, 2003. The changes in the guarantee obligation
balances during 2004 and 2003 are summarized in Table 37.
Table 37 Ì Changes in Guarantee Obligation for Participation CertiÑcates
2004 2003
(dollars in millions)
Beginning balance, at January 1ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,904 $1,427
Adjustment for change in accounting(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (110)
Transfer-out to the loan loss reserve during the period(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (13) (19)
Additions, net of repurchases:
Fair value of newly-issued guarantee obligations(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,174 1,684
Deferred gains on newly-executed guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 732 847
Amortization income related to:(4)
Credit and buy-down fees received ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (128) (57)
Initial fair value of contractual guarantee fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (604) (868)
Income on ""Guarantee obligation for Participation CertiÑcates''ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (732) (925)
Ending balance, at December 31 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $4,065 $2,904
(1) Represents the reclassiÑcation of the incurred losses included in the ""Guarantee obligation for Participation CertiÑcates'' at
January 1, 2003 in conjunction with the implementation of FIN 45.
(2) Represents portions of guarantee obligations recognized upon the sale of PCs or Structured Securities that correspond to incurred
credit losses reclassiÑed to Reserve for guarantee losses on Participation CertiÑcates at initial recognition of a guarantee obligation.
(3) Includes the fair value of guarantee obligations that were recognized in connection with transfers of PCs and Structured Securities
that qualiÑed as sales, as well as the fair value of guarantee obligations recognized that related to PCs and Structured Securities
issued in Guarantor swaps and other similar transactions subject to FIN 45. The amount is presented net of reductions attributable to
purchases of PCs and Structured Securities.
(4) Includes amortization of deferred revenue recognized for our guarantee obligation.
In 2004 and 2003, the primary drivers aÅecting the net increase in the guarantee obligation balance were
our business volume and changes in the mortgage interest rates resulting in Öuctuations in liquidation rates
from period to period. Additions, net of repurchases declined from 2003 primarily because we issued
49 percent fewer PCs and Structured Securities in 2004 (in terms of unpaid principal balances). Amortization
of guarantee obligations increased due to lower liquidation rates in 2004 compared to 2003. Other factors
contributing to the change in the amortization of the guarantee obligation are discussed in ""CONSOLI-
DATED RESULTS OF OPERATIONS Ì Net Interest Income.''
Total Stockholders' Equity
Total stockholders' equity decreased by $0.1 billion to $31.4 billion at December 31, 2004 from
$31.5 billion at December 31, 2003.
Freddie Mac
72