Freddie Mac 2011 Annual Report Download - page 266

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, 2011 and 2010.
Securitization Trusts
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 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES,” we 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.
Such amounts are 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 net trust management income (expense) of $0 million during 2011 and 2010 (on
our non-consolidated trusts), and $(761) million during 2009 (on all trusts), on our consolidated statements of income and
comprehensive income.
NOTE 10: RETAINED INTERESTS IN MORTGAGE-RELATED SECURITIZATIONS
Beginning January 1, 2010, in accordance with the amendment to the accounting guidance for consolidation of VIEs,
we consolidated our single-family PC trusts and certain Other Guarantee Transactions. As a result, a large majority of our
transfers of financial assets that historically qualified as sales (e.g., the transfer of mortgage loans to our single-family PC
trusts) are no longer treated as such because the financial assets are transferred to a consolidated entity. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further information regarding the impacts of
consolidation of our single-family PC trusts and certain Other Guarantee Transactions.
Certain of our transfers of financial assets to non-consolidated trusts and third parties may continue to qualify as
sales. In connection with our transfers of financial assets that qualify as sales, we may retain certain interests in the
transferred assets. Our retained interests are primarily beneficial interests issued by non-consolidated securitization trusts
(e.g., multifamily PCs and multiclass resecuritization securities). These interests are included in investments in securities
on our consolidated balance sheets. In addition, our guarantee asset recognized in connection with non-consolidated
securitization transactions also represents a retained interest. For more information about our retained interests in
mortgage-related securitizations, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
Investments in Securities.” These transfers and our resulting retained interests are not significant to our consolidated
financial statements in 2011 and 2010.
Our exposure to credit losses on the loans underlying our retained securitization interests is recorded within our
reserve for guarantee losses. For further information regarding our charge-offs and other activity associated with our
reserve for guarantee losses on loans for which we have provided our guarantee, see “NOTE 4: MORTGAGE LOANS
AND LOAN LOSS RESERVES.”
Retained Interests, Guarantee Asset
During 2009, the fair values of our guarantee asset associated with single-family loans at the time of securitization
and subsequent fair value measurements at the end of a period were primarily estimated using third-party information.
Consequently, we derived our assumptions by determining those implied by our valuation estimates, with the internal rate
of return, or discount rate, adjusted where necessary to align our internal models with estimated fair values determined
using third-party information. However, prepayment rates are presented based on our internal models and were not
similarly adjusted. For the portion of our guarantee asset that was valued by obtaining dealer quotes on proxy securities,
we derived the assumptions from the prices we were provided. For the year ended December 31, 2009, we estimate the
average internal rate of return, prepayment rates and weighted average lives used in measuring the fair value of our
guarantee asset associated with single-family loans were 13.8%, 26.4%, and 3.3 years, respectively. These estimates
represent the average assumptions used both at the end of the period as well as the valuation assumptions at guarantee
issuance during the year on a combined basis. Our estimate of the average internal rate of return represents a UPB
weighted average of the discount rates implied by a model which employs multiple interest rate scenarios versus a single
assumption.
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