Freddie Mac 2010 Annual Report Download - page 231

of our securitization trusts commencing January 1, 2010. See “NOTE 5: MORTGAGE LOANS AND LOAN LOSS
RESERVES” for further information on mortgage loans underlying our consolidated mortgage trusts.
In connection with transfers of financial assets to non-consolidated securitization trusts that are accounted for as sales
and for which we have incremental credit risk, we recognize our guarantee obligation in accordance with the accounting
standards for guarantees. Additionally, we may retain an interest in the transferred financial assets (e.g., a beneficial interest
issued by the securitization trust). See “NOTE 11: RETAINED INTERESTS IN MORTGAGE-RELATED
SECURITIZATIONS” for further information on these retained interests.
Securitization Trusts
Effective December 2007 we established securitization trusts for the administration of cash remittances received on the
underlying assets of our PCs and REMICs and Other Structured Securities. As described in “NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES,” we now recognize the cash held by our consolidated single-family PC trusts and certain
Other Guarantee Transactions as restricted cash and cash equivalents on our consolidated balance sheets. We receive fees as
master servicer, issuer, trustee and administrator for our consolidated PCs and REMICs and Other Structured Securities,
however, such amounts are now recorded within net interest income. These fees are derived from interest earned on principal
and interest cash flows held in restricted cash and cash equivalents between the time funds are remitted to the trust by
servicers and the date of distribution to our PCs and REMICs and Other Structured Securities holders. These fees are offset
by interest expense we incur when a borrower prepays a mortgage, but the full amount of interest for the month is due to the
PC investor. We recognized trust management income (expense) of $0 million, $(761) million, and $(70) million during 2010
(on our non-consolidated trusts), 2009 (on all trusts), and 2008 (on all trusts), respectively, on our consolidated statements of
operations.
Other Guarantee Commitments
We provide long-term standby commitments to certain of our customers, which obligate us to purchase seriously
delinquent loans that are covered by those agreements. These other guarantee commitments totaled $5.5 billion and
$5.1 billion of UPB at December 31, 2010 and 2009, respectively. We also had other guarantee commitments on multifamily
housing revenue bonds that were issued by HFAs of $9.7 billion and $9.2 billion in UPB at December 31, 2010 and 2009,
respectively. In addition, as of December 31, 2010 and 2009, respectively, we had issued guarantees under the TCLFP on
securities backed by HFA bonds with UPB of $3.5 billion and $0.8 billion, respectively.
As part of the guarantee arrangements pertaining to multifamily housing revenue bonds, we provided commitments to
advance funds, commonly referred to as “liquidity guarantees.” These guarantees require us to advance funds to enable others
to repurchase any tendered tax-exempt and related taxable bonds that are unable to be remarketed. Any such advances are
treated as loans and are secured by a pledge to us of the repurchased securities until the securities are remarketed. We hold
cash and cash equivalents on our consolidated balance sheets for the amount of these commitments. No advances under these
liquidity guarantees were outstanding at December 31, 2010 or 2009.
Derivative Instruments
Derivative instruments include written options, written swaptions, interest-rate swap guarantees, and short-term default
guarantee commitments accounted for as credit derivatives. See “NOTE 12: DERIVATIVES” for further discussion of these
derivative guarantees.
We 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 sufficient 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 borrower’s adjustable-rate
mortgage. And third, in connection with our issuance of certain REMICs and Other Structured Securities, which are backed
by tax-exempt bonds, we guaranteed that the sponsor of the transaction would perform under the interest-rate swap contract
linked to the senior variable-rate certificates that we issued.
We also have issued REMICs and Other Structured Securities with stated final maturities that are shorter than the stated
maturity of the underlying mortgage loans. If the underlying mortgage loans to these securities have not been purchased by a
third party or fully matured as of the stated final maturity date of such securities, we will sponsor an auction of the
underlying assets. To the extent that purchase or auction proceeds are insufficient to cover unpaid principal amounts due to
investors in such REMICs and Other Structured Securities, we are obligated to fund such principal. Our maximum exposure
on these guarantees represents the outstanding UPB of the underlying mortgage loans.
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