Freddie Mac 2012 Annual Report Download - page 267

Director of FHFA stated that we would continue to make interest and principal payments on our subordinated debt, even if
we fail to maintain required capital levels.
NOTE 9: FINANCIAL GUARANTEES
When we securitize single-family mortgages that we purchase, we issue mortgage-related securities that can be sold to
investors or held by us. During the years ended December 31, 2012, and 2011, we issued approximately $439.3 billion and
$300.2 billion respectively, in UPB of Freddie Mac mortgage-related securities backed by single-family mortgage loans
(excluding those backed by HFA bonds). Beginning January 1, 2010, we no longer recognize a financial guarantee for such
arrangements as we instead recognize both the mortgage loans and the debt securities of these securitization trusts on our
consolidated balance sheets.
For securities issued by non-consolidated securitization trusts and other guarantee commitments for which we are
exposed to incremental credit risk, we recognize a guarantee asset, guarantee obligation and a reserve for guarantee losses, as
necessary. Our guarantee obligation represents the recognized liability, net of cumulative amortization, associated with our
guarantee.
The table below presents our maximum potential exposure, our recognized liability, and the maximum remaining term
of our financial guarantees that are not consolidated on our balance sheets.
Table 9.1 — Financial Guarantees
December 31, 2012 December 31, 2011
Maximum
Exposure(1)
Recognized
Liability
Maximum
Remaining
Term
Maximum
Exposure(1)
Recognized
Liability
Maximum
Remaining
Term
(dollars in millions, terms in years)
Non-consolidated Freddie Mac securities ..................... $50,715 $430 41 $35,879 $ 300 42
Other guarantee commitments ............................. 23,455 575 37 21,064 487 37
Derivative instruments ................................... 10,306 789 33 37,737 2,977 34
Servicing-related premium guarantees ....................... 210 — 5 151 — 5
(1) Maximum exposure represents the contractual amounts that could be lost under the non-consolidated guarantees if counterparties or borrowers defaulted,
without consideration of possible recoveries under credit enhancement arrangements, such as recourse provisions, third-party insurance contracts, or
from collateral held or pledged. The maximum exposure disclosed above is not representative of the actual loss we are likely to incur, based on our
historical loss experience and after consideration of proceeds from related collateral liquidation. The maximum exposure for our liquidity guarantees is
not mutually exclusive of our default guarantees on the same securities; therefore, these amounts are included within the maximum exposure of non-
consolidated Freddie Mac securities and other guarantee commitments.
Non-Consolidated Freddie Mac Securities
We issue three types of mortgage-related securities: (a) PCs; (b) REMICs and Other Structured Securities; and (c) Other
Guarantee Transactions. We guarantee the payment of principal and interest on these securities, which are backed by pools of
mortgage loans, irrespective of the cash flows received from the borrowers.
Our single-family securities issued in resecuritizations of our PCs and other previously issued REMICs and Other
Structured Securities are not consolidated unless we hold substantially all of the beneficial interests of the trust and are
therefore considered the primary beneficiary of the trust. Our resecuritizations of PCs and other previously issued REMICs
and Structured Securities do not give rise to any additional exposure to credit loss as we already consolidate the underlying
collateral. The securities issued in these resecuritizations consist of single-class and multiclass securities backed by PCs,
REMICs, interest-only strips, and principal-only strips. Since these resecuritizations do not increase our credit-risk, no
guarantee asset or guarantee obligation is recognized for these transactions and they are excluded from the table above.
During 2012 we issued approximately $17.5 billion, compared to $11.8 billion in 2011, in UPB of non-consolidated
Freddie Mac securities primarily backed by multifamily mortgage loans, for which a guarantee asset and guarantee obligation
were recognized.
We recognize a reserve for guarantee losses, which is included within other liabilities on our consolidated balance
sheets, which totaled $183 million and $198 million at December 31, 2012 and 2011, respectively. For many of the loans
underlying our non-consolidated guarantees, there are credit protections from third parties, including subordination, covering
a portion of our exposure. See “NOTE 4: MORTGAGE LOANS AND LOAN LOSS RESERVES” for information about
credit protections on loans we guarantee.
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