Freddie Mac 2011 Annual Report Download - page 265

obligation were recognized. During 2010, we also issued $3.9 billion in UPB of non-consolidated Other Guarantee
Transactions backed by HFA bonds as part of the NIBP, for which a guarantee asset and guarantee obligation were
recognized.
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
guidance 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 10: RETAINED INTERESTS IN MORTGAGE-RELATED
SECURITIZATIONS” for further information on these retained interests.
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. During 2011 and 2010, we issued and guaranteed $4.4 billion and
$3.2 billion, respectively, in UPB of long-term standby commitments. These other guarantee commitments totaled
$8.6 billion and $5.5 billion of UPB at December 31, 2011 and December 31, 2010, respectively. We also had other
guarantee commitments on multifamily housing revenue bonds that were issued by HFAs of $9.6 billion and $9.7 billion
in UPB at December 31, 2011 and December 31, 2010, respectively. In addition, as of December 31, 2011, and 2010,
respectively, we had issued guarantees under the TCLFP on securities backed by HFA bonds with UPB of $2.9 billion,
and $3.5 billion, respectively.
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 11: DERIVATIVES” for further discussion
of these derivative guarantees.
We guarantee the performance of interest-rate swap contracts in two circumstances. First, we guarantee that a
borrower will perform under an interest-rate swap contract linked to a borrower’s ARM. And second, in connection with
our issuance of certain REMICs and Other Structured Securities, which are backed by tax-exempt bonds, we guarantee
that the sponsor of the transaction will 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 REMICs and Other Structured Securities
subject to stated final maturities.
Servicing-Related Premium Guarantees
We provide guarantees to reimburse servicers for premiums paid to acquire servicing in situations where the original
seller is unable to perform under its separate servicing agreement. The liability associated with these agreements was not
material at December 31, 2011 and 2010.
Other Indemnifications
In connection with certain business transactions, we may provide indemnification to counterparties for claims arising
out of breaches of certain obligations (e.g., those arising from representations and warranties) in contracts entered into in
the normal course of business. Our assessment is that the risk of any material loss from such a claim for indemnification
is remote and there are no significant probable and estimable losses associated with these contracts. In addition, we
provided indemnification for litigation defense costs to certain former officers who are subject to ongoing litigation. See
“NOTE 18: LEGAL CONTINGENCIES” for further information on ongoing litigation. The recognized liabilities on our
consolidated balance sheets related to indemnifications were not significant at December 31, 2011 and 2010.
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
260 Freddie Mac