Freddie Mac 2012 Annual Report Download - page 218

from a non-Freddie Mac senior-subordinated securitization or single-class pass-through securities, placing the acquired assets
into a securitization trust, providing a guarantee of the principal and interest of the acquired assets and issuing securities
backed by these assets. To the extent that we are deemed to be the primary beneficiary of such a securitization trust, we
recognize the mortgage loans underlying the Other Guarantee Transaction as mortgage loans held-for-investment, at
amortized cost. Correspondingly, we recognize the issued securities held by third parties as debt securities of consolidated
trusts. However, to the extent we are not deemed to be the primary beneficiary of such a securitization trust, we recognize a
guarantee asset, to the extent a management and guarantee fee is charged, and we recognize a guarantee obligation at fair
value. We do not receive transaction fees, apart from our management and guarantee fee, for these transactions.
Purchases and Sales of Freddie Mac Mortgage-Related Securities
PCs
When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt securities of
the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to the extent the amount
paid to redeem the debt differs from its carrying value, adjusted for any related purchase commitments accounted for as
derivatives.
When we sell PCs that have been issued by consolidated PC trusts, we recognize a liability to the third-party beneficial
interest holders of the related consolidated trust as debt securities of consolidated trusts held by third parties. That is, our sale
of PCs issued by consolidated PC trusts is accounted for as the issuance of debt.
Single-Class REMICs and Other Structured Securities
Our mortgage-related securities that we classify as REMICs and Other Structured Securities may be single-class or
multiclass resecuritization transactions. In REMICs and Other Structured Securities that are single-class securities, the
collateral includes PCs and single-class REMICs and Other Structured Securities. We do not consolidate these
resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts. Our single-class REMICs and Other
Structured Securities pass through all of the cash flows of the underlying PCs directly to the holders of the securities and are
deemed to be substantially the same as the underlying PCs. As a result, when we purchase single-class REMICs and Other
Structured Securities, we extinguish a pro rata portion of the outstanding debt securities of the related PC trust on our
consolidated balance sheets.
When we sell single-class REMICs and Other Structured Securities, we recognize a liability to the third-party beneficial
interest holders of the related consolidated PC trust as debt securities of consolidated trusts held by third parties. That is, our
sale of single-class REMICs and Other Structured Securities is accounted for as the issuance of debt.
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 most of
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. 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.
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.
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