Freddie Mac 2011 Annual Report Download - page 215

parties. That is, our sale of single-class REMICs and Other Structured Securities is accounted for as the issuance of debt,
not as the sale of investment securities.
Multiclass REMICs and Other Structured Securities
In multiclass REMICs and Other Structured Securities, the collateral includes PCs and REMICs and Other Structured
Securities. Generally, PCs serve as the primary type of collateral for these resecuritizations. We do not consolidate these
resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts unless we hold substantially all of
the outstanding beneficial interests that have been issued by the trust and are therefore considered to be the primary
beneficiary. In our multiclass REMICs and Other Structured Securities, the cash flows of the underlying PCs are divided
(e.g., stripped and/or time tranched). Due primarily to this division of cash flows, these securities are not deemed to be
substantially the same as the underlying PCs. As a result, when we purchase multiclass REMICs and Other Structured
Securities, we record these securities as investments in debt securities rather than as the extinguishment of debt since we
are investing in the debt securities of a non-consolidated entity. See “Investments in Securities” for further information
regarding our accounting for investments in multiclass REMICs and Other Structured Securities. The purchase of these
securities is generally funded through the issuance of unsecured debt to third parties.
We recognize, as assets, both the investment in the multiclass REMICs and Other Structured Securities and the
mortgage loans backing the PCs held by the trusts which underlie the multiclass REMICs and Other Structured Securities.
Additionally, we recognize, as liabilities, the unsecured debt issued to third parties to fund the purchase of the multiclass
REMICs and Other Structured Securities as well as the debt issued to third parties of the PC trusts we consolidate which
underlie the multiclass REMICs and Other Structured Securities. This results in recognition of interest income from both
assets and interest expense from both liabilities.
When we sell multiclass REMICs and Other Structured Securities, we account for the transfer in accordance with the
accounting guidance for transfers of financial assets. To the extent the transfer of multiclass REMICs and Other Structured
Securities qualifies as a sale, we de-recognize all assets sold and recognize all assets obtained and liabilities incurred. Any
gain (loss) on the sale of multiclass REMICs and Other Structured Securities is reflected in our consolidated statements of
income and comprehensive income as a component of other gains (losses) on investment securities. To the extent the
transfer of multiclass REMICs and Other Structured Securities does not qualify as a sale, we account for the transfer as a
financing transaction and recognize a liability for the proceeds received from third parties in the transfer.
Other Guarantee Commitments
In certain circumstances we also provide our guarantee of mortgage-related assets held by third parties without our
securitization of the related assets. For example, we provide long-term standby commitments to certain of our single-
family customers, which obligate us to purchase seriously delinquent loans that are covered by those agreements. In
addition, during 2009 and 2010, we issued guarantees under the TCLFP on securities backed by HFA bonds as part of the
HFA Initiative.
Cash and Cash Equivalents
Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash
equivalents. In addition, cash collateral that we have the right to use for general corporate purposes and that we obtain
from counterparties to derivative contracts is recorded as cash and cash equivalents.
Restricted Cash and Cash Equivalents
Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is
recorded as restricted cash in our consolidated balance sheets. Restricted cash includes cash remittances received on the
underlying assets of our consolidated trusts, which are deposited into a separate custodial account. These cash remittances
include both scheduled and unscheduled principal and interest payments. The cash remittances are segregated in the
separate custodial account until they are remitted to the PC, REMIC and Other Structured Securities holders on their
respective security payment dates, and are not commingled with our general operating funds. As securities administrator,
we invest the cash held in the custodial account, pending distribution to our PC, REMIC, and Other Structured Securities
holders, in short-term investments and are entitled to the interest income earned on these short-term investments, which is
recorded as interest income, other on our consolidated statements of income and comprehensive income.
Mortgage Loans
Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Mortgage loans that we have the
ability and intent to hold for the foreseeable future are classified as held-for-investment. Historically, we classified
210 Freddie Mac