Freddie Mac 2012 Annual Report Download - page 219

When we sell multiclass REMICs and Other Structured Securities in which we are not the primary beneficiary of the
resecuritization trust, we account for the transfer in accordance with the accounting guidance for transfers of financial assets.
To the extent the transfer of multiclass REMICs and Other Structured Securities qualifies as a sale, we de-recognize all assets
sold and recognize all assets obtained and liabilities incurred. Any gain (loss) on the sale of multiclass REMICs and Other
Structured Securities is reflected in our consolidated statements of comprehensive income as a component of other gains
(losses) on investment securities. To the extent the transfer of multiclass REMICs and Other Structured Securities does not
qualify as a sale, we account for the transfer as a financing transaction and recognize a liability for the proceeds received
from third parties in the transfer.
Other Guarantee Commitments
In certain circumstances, we also provide our guarantee of mortgage-related assets held by third parties, in exchange for
a guarantee fee, without our securitization of the related assets. For example, we provide long-term standby commitments to
certain of our single-family customers, which obligate us to purchase seriously delinquent loans that are covered by those
agreements. In addition, during 2010 and 2009, we issued guarantees under the TCLFP on securities backed by HFA bonds
as part of the HFA Initiative.
Cash and Cash Equivalents
Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash
equivalents. In addition, cash collateral that we have the right to use for general corporate purposes and that we obtain from
counterparties to derivative contracts is recorded as cash and cash equivalents.
Restricted Cash and Cash Equivalents
Cash collateral accepted from counterparties that we do not have the right to use for general corporate purposes is
recorded as restricted cash in our consolidated balance sheets. Restricted cash includes cash remittances received on the
underlying assets of our consolidated trusts, which are deposited into a separate custodial account. These cash remittances
include both scheduled and unscheduled principal and interest payments. The cash remittances are segregated in the separate
custodial account until they are remitted to the PC, REMIC and Other Structured Securities holders on their respective
security payment dates, and are not commingled with our general operating funds. As securities administrator, we invest the
cash held in the custodial account, pending distribution to our PC, REMIC, and Other Structured Securities holders, in short-
term investments and are entitled to the interest income earned on these short-term investments, which is recorded as interest
income, other on our consolidated statements of comprehensive income.
Mortgage Loans
Upon acquisition, we classify a loan as either held-for-sale or held-for-investment. Mortgage loans that we have the
ability and intent to hold for the foreseeable future are classified as held-for-investment. Loans we acquire and which we
intend to securitize using an entity we will consolidate will generally be classified as held-for-investment both prior to and
subsequent to their securitization, in accordance with our intent and ability to hold such loans for the foreseeable future.
Held-for-investment mortgage loans are reported in our consolidated balance sheets at their outstanding UPB, net of
deferred fees and other cost basis adjustments (including unamortized premiums and discounts, delivery fees and other
pricing adjustments). These deferred items are amortized into interest income over the contractual lives of the loans using the
effective interest method. We recognize interest income on an accrual basis except when we believe the collection of
principal and interest in full is not reasonably assured. If the collection of principal and interest in full is not reasonably
assured, we cease the accrual of interest income and any interest income accrued but uncollected is reversed.
Mortgage loans not classified as held-for-investment are classified as held-for-sale. Held-for-sale loans are reported at
lower-of-cost-or-fair-value on our consolidated balance sheets. Any excess of a held-for-sale loan’s cost over its fair value is
recognized as a valuation allowance in other income on our consolidated statements of comprehensive income, with changes
in this valuation allowance also being recorded in other income. Premiums, discounts, and other cost basis adjustments
recognized upon acquisition on single-family loans classified as held-for-sale are deferred and not amortized. We elected the
fair value option for multifamily mortgage loans held for sale that we intend to securitize and sell to investors. See
“NOTE 16: FAIR VALUE DISCLOSURES — Fair Value Option — Multifamily Held-For-Sale Mortgage Loans” and
“NOTE 16: FAIR VALUE DISCLOSURES — Fair Value Option — Changes in Fair Value under the Fair Value Option
Election.” Thus, these multifamily mortgage loans are measured at fair value on a recurring basis, with subsequent gains or
214 Freddie Mac