Freddie Mac 2012 Annual Report Download - page 24

classes involve the creation of classes that have relatively more predictable amortization schedules across different
prepayment scenarios, thus reducing prepayment risk, extension risk, or both.
Our REMICs and Other Structured Securities represent beneficial interests in pools of PCs and/or certain other types of
mortgage-related assets. We create these securities primarily by using PCs or previously issued REMICs and Other
Structured Securities as the underlying collateral. Similar to our PCs, we guarantee the payment of principal and interest to
the holders of tranches of our REMICs and Other Structured Securities. We do not charge a management and guarantee fee
for these securities if the underlying collateral is already guaranteed by us since no additional credit risk is introduced.
Because the collateral underlying nearly all of our single-family REMICs and Other Structured Securities consists of other
mortgage-related securities that we guarantee, there are no economic residual interests in the related securitization trust. We
do not issue tranches of securities in these transactions that have concentrations of credit risk beyond those embedded in the
underlying assets. The following diagram provides a general example of how we create REMICs and Other Structured
Securities.
REMICs and Other Structured Securities
Security Dealer
PCs
Freddie Mac
(administrator)
TRUST
PCs
Security
Classes
Security
Classes
Transaction Fee
We issue many of our REMICs and Other Structured Securities in transactions in which securities dealers or investors
sell us mortgage-related assets or we use our own mortgage-related assets (e.g., PCs and REMICs and Other Structured
Securities) in exchange for the REMICs and Other Structured Securities. The creation of REMICs and Other Structured
Securities allows for setting differing terms for specific classes of investors, and our issuance of these securities can expand
the range of investors in our mortgage-related securities to include those seeking specific security attributes. For REMICs
and Other Structured Securities that we issue to third parties, we typically receive a transaction, or resecuritization, fee. This
transaction fee is compensation for facilitating the transaction, as well as future administrative responsibilities.
19 Freddie Mac