Freddie Mac 2011 Annual Report Download - page 264

levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of interest under
certain circumstances, including our failure to maintain specified capital levels, are no longer applicable.
NOTE 9: FINANCIAL GUARANTEES
When we securitize single-family mortgages that we purchase, we issue mortgage-related securities that can be sold
to investors or held by us. During the years ended December 31, 2011 and 2010, we issued and guaranteed $300.2 billion
and $375.9 billion, respectively, in UPB of Freddie Mac mortgage-related securities backed by single-family mortgage
loans (excluding those backed by HFA bonds).
Beginning January 1, 2010, we no longer recognize a financial guarantee for such arrangements as we instead
recognize both the mortgage loans and the debt securities of these securitization trusts on our consolidated balance sheets.
The table below presents our maximum potential exposure, our recognized liability, and the maximum remaining term of
our financial guarantees that are not consolidated on our balance sheets.
Table 9.1 — Financial Guarantees
Maximum
Exposure
(1)
Recognized
Liability
Maximum
Remaining
Term
Maximum
Exposure
(1)
Recognized
Liability
Maximum
Remaining
Term
December 31, 2011 December 31, 2010
(dollars in millions, terms in years)
Non-consolidated Freddie Mac securities
(2)
. . . . . . . . . . . . . . . $35,879 $ 300 42 $25,279 $202 41
Other guarantee commitments
(3)
. . . . . . . . . . . . . . . . . . . . . . . 21,064 487 37 18,670 427 38
Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,737 2,977 34 37,578 301 35
Servicing-related premium guarantees . . . . . . . . . . . . . . . . . . . 151 — 5 172 — 5
(1) Maximum exposure represents the contractual amounts that could be lost under the non-consolidated guarantees if counterparties or borrowers
defaulted, without consideration of possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance
contracts, or from collateral held or pledged. The maximum exposure disclosed above is not representative of the actual loss we are likely to incur,
based on our historical loss experience and after consideration of proceeds from related collateral liquidation. The maximum exposure for our
liquidity guarantees is not mutually exclusive of our default guarantees on the same securities; therefore, these amounts are included within the
maximum exposure of non-consolidated Freddie Mac securities and other guarantee commitments.
(2) As of December 31, 2011 and December 31, 2010, the UPB of non-consolidated Freddie Mac securities associated with single-family mortgage
loans was $10.7 billion and $11.3 billion, respectively. The remaining balances relate to multifamily mortgage loans.
(3) As of December 31, 2011 and December 31, 2010, the UPB of other guarantee commitments associated with single-family mortgage loans was
$11.1 billion and $8.6 billion, respectively. The remaining balances relate to multifamily mortgage loans.
Non-Consolidated Freddie Mac Securities
We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and Other Structured Securities; and
(c) Other Guarantee Transactions. We guarantee the payment of principal and interest on these securities, which are
backed by pools of mortgage loans, irrespective of the cash flows received from the borrowers. Commencing January 1,
2010, only our guarantees issued to non-consolidated securitization trusts are accounted for in accordance with the
accounting guidance for guarantees (i.e., a guarantee asset and guarantee obligation are recognized).
Our securities issued in resecuritizations of our PCs and other previously issued REMICs and Other Structured
Securities are not consolidated as they do not give rise to any additional exposure to credit loss as we already consolidate
the underlying collateral. The securities issued in these resecuritizations consist of single-class and multiclass securities
backed by PCs, REMICs, interest-only strips, and principal-only strips. Since these resecuritizations do not increase our
credit-risk, no guarantee asset or guarantee obligation is recognized for these transactions and they are excluded from the
table above.
We recognize a guarantee asset, guarantee obligation and a reserve for guarantee losses, as necessary, for securities
issued by non-consolidated securitization trusts and other guarantee commitments for which we are exposed to
incremental credit risk. Our guarantee obligation represents the recognized liability, net of cumulative amortization,
associated with our guarantee of multifamily PCs and certain Other Guarantee Transactions issued to non-consolidated
securitization trusts. In addition to our guarantee obligation, we recognize a reserve for guarantee losses, which is
included within other liabilities on our consolidated balance sheets, which totaled $0.2 billion at both December 31, 2011
and 2010, respectively. For many of the loans underlying our non-consolidated guarantees, there are credit protections
from third parties, including subordination, covering a portion of our exposure. See “NOTE 4: MORTGAGE LOANS
AND LOAN LOSS RESERVES” for information about credit protections on loans we guarantee. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further information about our accounting for financial
guarantees.
During 2011 we issued approximately $11.8 billion, compared to $5.9 billion in 2010, in UPB of non-consolidated
Freddie Mac securities primarily backed by multifamily mortgage loans, for which a guarantee asset and guarantee
259 Freddie Mac