Freddie Mac 2008 Annual Report Download - page 196

Multilender Swaps
We account for a portion of PCs that we issue through our multilender swap program in the same manner as transfers
that are accounted for as cash auctions of PCs if we contribute mortgage loans as collateral. The accounting for the
remaining portion of such PC issuances is consistent with the accounting for PCs issued through a guarantor swap
transaction.
Structured Securities
Our Structured Securities represent beneficial interests in pools of PCs and certain other types of mortgage-related
assets. We create Structured Securities primarily by using PCs or previously issued Structured Securities as collateral. Similar
to our PCs, we guarantee the payment of principal and interest to the holders of the tranches of our Structured Securities. For
Structured Securities that we issue to third parties in exchange for PCs, we receive a transaction fee (measured at the amount
received), but we generally do not recognize any incremental guarantee asset or guarantee obligation because the underlying
collateral is a guaranteed PC; therefore, there is no incremental guarantee asset or obligation to record. Rather, we defer and
amortize into earnings as other non-interest income on a straight-line basis that portion of the transaction fee that we receive
equal to the estimated fair value of our future administrative responsibilities for issued Structured Securities. These
responsibilities include ongoing trustee services, administration of pass-through amounts, paying agent services, tax reporting
and other required services. We estimate the fair value of these future responsibilities based on quotes from third-party
vendors who perform each type of service and, where quotes are not available, based on our estimates of what those vendors
would charge.
The remaining portion of the transaction fee relates to compensation earned in connection with structuring-related
services we rendered to third parties and is allocated to the Structured Securities we retain, if any, and the Structured
Securities acquired by third parties, based on the relative fair value of the Structured Securities. The fee allocated to any
Structured Securities we retain is deferred as a carrying value adjustment of retained Structured Securities and is amortized
using the effective interest method over the estimated lives of the Structured Securities. The fee allocated to the Structured
Securities acquired by third parties is recognized immediately in earnings as other non-interest income.
Structured Transactions
Structured Securities that we issue to third parties in exchange for non-Freddie Mac mortgage-related securities are
referred to as Structured Transactions. We recognize a guarantee asset, to the extent a management and guarantee fee is
charged, and we recognize our guarantee obligation at fair value. We do not receive transaction fees for these transactions.
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 a securitization trust,
provide a guarantee of the principal and interest of the senior tranches, and issue the Structured Transaction. For other
Structured Transactions, we purchase single-class pass-through securities, place them in a securitization trust, guarantee the
principal and interest, and issue the Structured Transaction.
Cash-Based Sales Transactions
Sometimes we issue PCs and Structured Securities through cash-based sales transactions. Cash-based sales involve the
transfer of loans or PCs that we hold into PCs or Structured Securities. Upon completion of a transfer of loans or PCs that
qualifies as a sale under SFAS 140, we de-recognize all assets sold and recognize all assets obtained and liabilities incurred.
We continue to carry on our consolidated balance sheets any retained interests in securitized financial assets. Such
retained interests may include our right to receive management and guarantee fees on PCs or Structured Transactions, which
is classified on our consolidated balance sheets as a guarantee asset. The carrying amount of all such retained interests is
determined by allocating the previous carrying amount of the transferred assets between assets sold and the retained interests
based upon their relative fair values at the date of transfer. Other retained interests include PCs or Structured Securities that
are not transferred to third parties upon the completion of a securitization or resecuritization transaction.
Upon sale of a PC, we recognize a guarantee obligation representing our non-contingent obligation to stand ready to
perform under the terms of our guarantee. The resulting gain (loss) on sale of transferred PCs and Structured Securities is
reflected in our consolidated statements of operations as a component of gains (losses) on investment activity.
Freddie Mac PCs and Structured Securities included in Mortgage-Related Securities
When we own Freddie Mac PCs or Structured Securities, we do not derecognize any components of the guarantee asset,
guarantee obligation, reserve for guarantee losses, or any other outstanding recorded amounts associated with the guarantee
transaction because our contractual guarantee obligation to the unconsolidated securitization trust remains in force until the
trust is liquidated, unless the trust is consolidated. We continue to account for the guarantee asset, guarantee obligation, and
reserve for guarantee losses in the same manner as described above, and investments in Freddie Mac PCs and Structured
Securities, as described in greater detail below. Whether we own the security or not, our guarantee obligation and related
credit exposure does not change. Our valuation of these securities is consistent with the legal structure of the guarantee
193 Freddie Mac