Freddie Mac 2006 Annual Report Download - page 131

the extent that purchase or auction proceeds are insuÇcient to cover unpaid principal amounts due to investors in such
Structured Securities, we are obligated to fund such principal. Such guarantees of stated Ñnal maturity are accounted for as
derivative instruments.
At December 31, 2006 and 2005, the maximum potential amount of payments we could be required to make under
guarantees of stated Ñnal maturity of issued Structured Securities was $22.7 billion and $11.7 billion, respectively, which
represents the outstanding unpaid principal balance of the underlying mortgage loans. At December 31, 2006 and 2005, the
total fair value of recognized liabilities concerning such guarantees was $6 million and $2 million, respectively.
IndemniÑcations
In connection with various business transactions, we sometimes provide indemniÑcation to counterparties for breaches
of certain obligations (e.g., those arising from representations and warrantees) in contracts entered into in the normal course
of business. It is diÇcult to estimate our maximum exposure under these indemniÑcation arrangements because in many
cases there are no stated or notional amounts included in the indemniÑcation clauses. At December 31, 2006, our assessment
is that the risk of any material loss from such a claim for indemniÑcation is remote. Such indemniÑcation provisions pertain
to matters such as hold harmless clauses, adverse changes in tax laws, breaches of conÑdentiality, misconduct and potential
claims from third parties related to items such as actual or alleged infringement of intellectual property. We have not
recorded any liabilities related to these indemniÑcations on our consolidated balance sheets at December 31, 2006 and 2005
because there are no reasonably probable and estimable losses associated with these contracts.
Other Guarantees
We have guaranteed the performance of interest-rate swap contracts in three circumstances. First, as part of a
resecuritization transaction, we transferred certain swaps and related assets to a third party. We guaranteed that interest
income generated from the assets would be suÇcient to cover the required payments under the interest-rate swap contracts.
Second, we guaranteed that a borrower would perform under an interest-rate swap contract linked to a customer's variable-
rate mortgage. And third, in connection with certain Structured Securities, we guaranteed that the sponsor of the
securitized multifamily housing revenue bonds would perform under the interest-rate swap contract linked to the variable-
rate certiÑcates we issued, which are backed by the bonds. The maximum remaining terms of any of these guarantees at
December 31, 2006 and 2005 were 28 years and 29 years, respectively; however, the actual terms may be signiÑcantly less
than the contractual terms because the mortgage loans underlying the swaps are prepayable. The maximum potential
amount of future undiscounted payments under the guarantees was $779 million and $717 million at December 31, 2006 and
2005, respectively. At December 31, 2006 and 2005, the total fair value of recognized liabilities concerning such guarantees
was $3 million and $2 million, respectively.
We provide guarantees to reimburse servicers for premiums paid to acquire servicing in situations where the original
seller is unable to perform under its separate servicing agreement. Our servicing-related premium guarantees are payable
according to a vesting schedule for up to Ñve years from the date of purchase of servicing rights. The maximum potential
amount of future payments under these servicing-related premium guarantees was $44 million and $54 million at
December 31, 2006 and 2005, respectively. We have not established a liability on our consolidated balance sheets at
December 31, 2006 and 2005 because we do not expect material amounts to be paid under these arrangements.
119 Freddie Mac