Freddie Mac 2012 Annual Report Download - page 237

INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further information regarding our removal of
mortgage loans out of PC trusts. These powers allow us to direct the activities of the VIE (i.e., the PC trust) that most
significantly impact its economic performance. In addition, we determined that our guarantee to each PC trust to provide
principal and interest payments obligates us to absorb losses that could potentially be significant to the PC trusts.
Accordingly, we concluded that we are the primary beneficiary of our single-family PC trusts.
At December 31, 2012 and 2011, we were the primary beneficiary of, and therefore consolidated, single-family PC
trusts with assets totaling $1.5 trillion and $1.6 trillion, respectively, as measured using the UPB of issued PCs. The assets of
each PC trust can be used only to settle obligations of that trust. In connection with our PC trusts, we have credit protection
in the form of primary mortgage insurance, pool insurance, recourse to lenders, and other forms of credit enhancement. We
also have credit protection for certain of our PC trusts that issue PCs backed by loans or certificates of federal agencies (such
as FHA, VA, and USDA). See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES — Credit Protection and
Other Forms of Credit Enhancement” for additional information regarding third-party credit enhancements related to our PC
trusts.
REMICs and Other Structured Securities
REMICs and Other Structured Securities are mortgage-related securities that we issue to third parties. We do not
consolidate these securities unless we hold substantially all of the beneficial interests in the trust and are therefore considered
to be the primary beneficiary. We have investments in certain REMIC trusts where we held substantially all the outstanding
beneficial interests in the trusts in prior periods, but did not consolidate the trusts in those periods. We began consolidating
these trusts during the third quarter of 2012 by derecognizing our investments in these entities, which totaled approximately
$4.4 billion, and recognizing the assets and liabilities of the consolidated entities at their fair values. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Basis of Presentation” for more information on the
correction of this prior period error that was not material to our consolidated financial statements.
Other Guarantee Transactions
Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-Freddie
Mac mortgage-related securities. The degree to which our involvement with securitization trusts that issue Other Guarantee
Transactions provides us with power to direct the activities that most significantly impact the economic performance of these
VIEs (e.g., the ability to direct the servicing of the underlying assets of these entities) and our obligation to absorb losses that
could potentially be significant to the VIEs (e.g., the existence of third-party credit enhancements) varies by transaction. For
all Other Guarantee Transactions, our variable interest in these VIEs represents some form of credit guarantee, whether
covering all the issued beneficial interests or only the most senior ones. The nature of our credit guarantee typically
determines whether we have power to direct the activities that most significantly impact the economic performance of the
VIE.
We consolidate Other Guarantee Transactions when our credit guarantee is in a first loss position to absorb credit losses
on the underlying assets of these entities as of the reporting date and we also have the ability to direct the servicing of the
underlying assets, which is the power to direct the activities that most significantly impact the economic performance of
these VIEs. For those Other Guarantee Transactions in which our credit guarantee is not in a first loss position to absorb
credit losses on the underlying assets of these entities as of the reporting date (i.e., our credit guarantee is in a secondary loss
position), or we do not have the ability to direct the servicing of the underlying assets, then we are not the primary
beneficiary, and we do not consolidate the VIE. Our consolidation determination took into consideration the specific facts
and circumstances of our involvement with each of these entities. As a result, we have concluded that we are the primary
beneficiary of Other Guarantee Transactions with underlying assets totaling $11.0 billion and $12.9 billion at December 31,
2012 and 2011, respectively.
Consolidated VIEs
The table below represents the carrying amounts and classification of the assets and liabilities of consolidated VIEs on
our consolidated balance sheets.
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