Freddie Mac 2008 Annual Report Download - page 15

Structured Transactions
We also issue Structured Securities to third parties in exchange for non-Freddie Mac mortgage-related securities. We
refer to these as Structured Transactions. The non-Freddie Mac mortgage-related securities are transferred to trusts that were
specifically created for the purpose of issuing securities, or certificates, in the Structured Transactions. The following
diagram illustrates an example of a Structured Transaction:
Structured Transactions
Mortgage Lender
STC = Structured Transaction Certificates
Securities Dealers
and Investors
Mortgage loan Sub. Class
STC and Cash Cash
Private Label
Trust
Freddie Mac
Trust
Sr. Class STC
Freddie Mac
(guarantor)
Guarantee
Fee
Investors
(which may
include Freddie
Mac)
STC Cash
Structured Transactions can generally be segregated into two different types. In one type, we purchase only the senior
tranches from a non-Freddie Mac senior-subordinated securitization, place these senior tranches into securitization trusts,
provide a guarantee of the principal and interest of the senior tranches, and issue the Structured Transaction certificates. For
all other Structured Transactions, we purchase single-class pass-through securities, place them in securitization trusts,
guarantee the principal and interest, and issue the Structured Transaction certificates. In exchange for providing our
guarantee, we may receive a management and guarantee fee or other delivery fees.
Although Structured Transactions generally have underlying mortgage loans with varying risk characteristics, we do not
issue tranches that have concentrations of credit risk beyond that embedded in the underlying assets, as all cash flows of the
underlying collateral are passed through to the holders of the securities and there are no economic residual interests in the
securitization trusts. Further, the senior tranches we purchase to back the Structured Transactions benefit from credit
protections from the related subordinated tranches, which we do not purchase. Additionally, there are other credit
enhancements and structural features retained by the seller, such as excess interest or overcollateralization, that provide credit
protection to our interests, and reduce the likelihood that we will have to perform under our guarantee of the senior tranches.
Structured Transactions backed by single-class pass-through securities do not benefit from structural or other credit
enhancement protections.
During 2008 and 2007, we entered into long-term standby commitments for mortgage assets held by third parties that
require us to purchase loans from lenders when the loans subject to these commitments meet certain delinquency criteria.
During 2008, several of these agreements were amended to permit a significant portion of the loans previously covered by
the long-term standby commitments to be securitized as PCs or Structured Transactions, which totaled $19.9 billion in
issuances during 2008.
For information about the relative size of our securitization products, refer to “Table 52 — Issued PCs and Structured
Securities.” For information about the relative performance of these securities, refer to our “MD&A — CREDIT RISKS”
section.
12 Freddie Mac