Company: FMCCN
Filing Date: 2025-02-13
Form Type: 10-K
Source: 0001026214-25-000040
Chunk: 40

Company: FEDERAL HOME LOAN MORTGAGE CORP
Filing Date: 2025-02-13
Form: 10-K
Item: Item 12
Chunk 40
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 K Certificate securitization, we transfer the interest-rate risk, liquidity risk, and a portion of the credit risk of the underlying collateral to third-party investors. The structures of these transactions involve the issuance of senior and subordinate securities that represent undivided beneficial interests in trusts that hold pools of multifamily loans that we previously purchased. In a senior subordinate K Certificate, we sell multifamily loans to a non-Freddie Mac securitization trust that issues senior and subordinate securities and simultaneously purchase and place the senior securities into a Freddie Mac securitization trust that issues guaranteed K Certificates. We do not issue or guarantee the subordinate securities.

At inception of a senior subordinate K Certificate transaction, we recognize a guarantee asset. This asset, which represents the right to collect contractual fees in exchange for our guarantee of the issued senior mortgage-related securities, is recorded at fair value with subsequent changes in fair value recognized in earnings. The fair value of our guarantee assets may vary significantly from period-to-period based on changes in market conditions, including interest rates and credit spreads. Because our multifamily loans contain prepayment protection, decreasing interest rates generally result in higher guarantee asset fair values, with the opposite effect occurring when interest rates increase. Pursuant to our funds transfer pricing methodologies, gains and losses on interest-rate risk management derivative instruments are allocated to Multifamily to offset interest rate-related changes in fair value on guarantee assets. See Note 5 for additional information on our accounting for guarantees.

Our K Certificate product offers investors a variety of structural and collateral options that provide for stable cash flows and a structured credit enhancement. The volume and type of our K Certificate securitizations are generally influenced by our business strategy, the product mix and size of our held-for-sale securitization pipeline, and market demand for multifamily securities. While the amount of guarantee fees we receive may vary by collateral type and deal structure, it is generally fixed for those K Certificate series that we issue with regular frequency (e.g., 5-, 7- and 10-year fixed-rate K Certificates and floating rate K Certificates). 

The diagram below shows a senior subordinate K Certificate transaction.

Our K Certificate product offerings include a fully guaranteed K Certificate transaction. This product retains most of the same collateral and bond features that are present in K Certificates with subordination. While we initially retain the credit risk of the mortgage pool, we expect to subsequently transfer a portion of the credit risk using other CRT products such as MCIP and MSCR notes.

We consolidate the secur