Freddie Mac 2015 Annual Report Download - page 137

Management's Discussion and Analysis Risk Management | Institutional Credit Risk
Freddie Mac 2015 Form 10-K 135
As of December 31, 2015
(dollars in millions)
Number of
Counter-
parties Fair Value - Gain positions
Fair Value - Gain
positions, net of
collateral
OTC interest-rate swap and swaption counterparties (by rating):
AA- or above 5 $ 270 $2
A+, A, or A- 9 1,568 59
BBB+, BBB, or BBB- 3 — —
Total OTC 17 1,838 61
Cleared and exchange-traded derivatives — —
Total 17 $ 1,838 $ 61
Approximately 97% of our exposure at fair value for OTC interest-rate swap and option-based derivatives,
excluding amounts related to our posting of cash collateral in excess of our derivative liability determined
at the counterparty level, was collateralized at December 31, 2015. The remaining exposure was primarily
due to market movements between the measurement of a derivative at fair value and our receipt of the
related collateral, as well as exposure amounts below the applicable counterparty collateral posting
threshold.
The concentration of our derivative exposure among our primary OTC derivative counterparties remains
high and could further increase.
We have posted non-cash collateral of $2.8 billion for initial margin related to cleared and exchange-
traded derivatives as of December 31, 2015.
We also execute forward purchase and sale commitments of mortgage-related securities, including dollar
roll transactions, that are treated as derivatives for accounting purposes and utilize the Mortgage Backed
Securities Division of the Fixed Income Clearing Corporation (“MBSD/FICC”) as a clearinghouse. As a
clearing member of the clearinghouse, we post margin to the MBSD/FICC and are exposed to the
institutional credit risk of the organization. In the event a clearing member fails and causes losses to the
MBSD/FICC clearing system, we could be subject to the loss of the margin that we have posted to the
MBSD/FICC. Moreover, our exposure could exceed the amount of margin we have posted to the MBSD/
FICC, as clearing members are generally required to cover losses caused by defaulting members on a
pro rata basis. It is difficult to estimate our maximum exposure, as this would require an assessment of
transactions that we and other members of the MBSD/FICC may execute in the future. We believe that it
is unlikely we will have to make any material payments under these arrangements and the risk of loss is
expected to be remote because of the MBSD/FICC’s financial safeguards and our ability to terminate our
membership in the clearinghouse (which would limit our loss).
Other Counterparties
We have exposure to other types of counterparties to transactions that we enter into in the ordinary
course of business, including the following:
• Cash and other investments counterparties - We are exposed to the non-performance of
counterparties relating to cash and other investments (including non-mortgage-related investments
and cash equivalent) transactions, including those entered into on behalf of our securitization trusts.
Our policies require that the counterparty be evaluated using our internal counterparty rating model
prior to our entering into such transactions. We monitor the financial strength of our counterparties to