Freddie Mac 2011 Annual Report Download - page 232

through three separate initiatives, to state and local HFAs so that the HFAs can continue to meet their mission of
providing affordable financing for both single-family and multifamily housing. The parties agreed to certain modifications
to the initiatives on November 23, 2011. FHFA directed us and Fannie Mae to participate in the HFA initiative on a basis
that is consistent with the goals of being commercially reasonable and safe and sound. Treasury’s participation in these
assistance initiatives does not affect the amount of funding that Treasury can provide to Freddie Mac under the terms of
the Purchase Agreement.
From October 19, 2009 to December 31, 2009, we, Treasury, Fannie Mae, and participating HFAs entered into
definitive agreements setting forth the respective parties’ obligations under this initiative. The initiatives are as follows:
• TCLFP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to provide
$8.2 billion of credit and liquidity support, including outstanding interest at the date of the guarantee, for variable
rate demand obligations, or VRDOs, previously issued by HFAs. This support was provided through the issuance of
guarantees, which provide credit enhancement to the holders of such VRDOs and also create an obligation to
provide funds to purchase any VRDOs that are put by their holders and are not remarketed. Treasury provided a
credit and liquidity backstop on the TCLFP. These guarantees replaced existing liquidity facilities from other
providers. The guarantees are scheduled to expire on or before December 31, 2012. However, Treasury has given
TCLFP participants the option to extend their individual TCLFP facilities for an additional three years to
December 31, 2015. This option must be exercised in 2012.
• NIBP — In December 2009, on a 50-50 pro rata basis, Freddie Mac and Fannie Mae agreed to issue in total
$15.3 billion of partially guaranteed pass-through securities backed by new single-family and certain new
multifamily housing bonds issued by HFAs. Treasury purchased all of the pass-through securities issued by Freddie
Mac and Fannie Mae. This initiative provides financing for HFAs to issue new housing bonds.
Treasury will bear the initial losses of principal up to 35% of total principal for these two initiatives combined, and
thereafter Freddie Mac and Fannie Mae each will be responsible only for losses of principal on the securities that it issues
to the extent that such losses are in excess of 35% of all losses under both initiatives. Treasury will bear all losses of
unpaid interest. Under both initiatives, we and Fannie Mae were paid fees at the time bonds were securitized and also will
be paid ongoing fees.
The third initiative under the HFA initiative is described below:
•Multifamily Credit Enhancement Initiative. Using existing housing bond credit enhancement products, Freddie
Mac is providing a guarantee of new housing bonds issued by HFAs, which Treasury purchased from the HFAs.
Treasury will not be responsible for a share of any losses incurred by us in this initiative.
Related Parties as a Result of Conservatorship
As a result of our issuance to Treasury of the warrant to purchase shares of our common stock equal to 79.9% of the
total number of shares of our common stock outstanding, on a fully diluted basis, we are deemed a related party to the
U.S. government. Except for the transactions with Treasury discussed above in “Business Objectives,” “Government
Support for our Business” and “Housing Finance Agency Initiative” as well as in “NOTE 8: DEBT SECURITIES AND
SUBORDINATED BORROWINGS,” and “NOTE 12: FREDDIE MAC STOCKHOLDERS’ EQUITY (DEFICIT),” no
transactions outside of normal business activities have occurred between us and the U.S. government during the year
ended December 31, 2011. In addition, we are deemed related parties with Fannie Mae as both we and Fannie Mae have
the same relationships with FHFA and Treasury. All transactions between us and Fannie Mae have occurred in the normal
course of business.
NOTE 3: VARIABLE INTEREST ENTITIES
We use securitization trusts in our securities issuance process, and are required to evaluate the trusts for consolidation
on an ongoing basis. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Consolidation and
Equity Method of Accounting” for further information regarding the consolidation of certain VIEs.
Based on our evaluation of whether we hold a controlling financial interest in these VIEs, we determined that we are
the primary beneficiary of trusts that issue our single-family PCs and certain Other Guarantee Transactions. Therefore, we
consolidate on our balance sheet the assets and liabilities of these trusts. In addition to our PC trusts, we are involved with
numerous other entities that meet the definition of a VIE, as discussed below.
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