Freddie Mac 2004 Annual Report Download - page 39

Table 11 summarizes our assets and liabilities that are recorded at fair value in the GAAP-basis
consolidated balance sheets at December 31, 2004 and 2003.
Table 11 Ì Assets and Liabilities Recorded at Fair Value
December 31,
2004 2003
(dollars in millions)
Retained portfolio(1)
Mortgage-related securities:
Available-for-sale, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $590,461 $581,326
Trading, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11,842 18,200
Participation CertiÑcate residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 845 671
Investments
Mortgage-related securities:
Trading, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 32,817
Participation CertiÑcate residuals, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì (5)
Non-mortgage-related securities:
Available-for-sale, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29,830 31,228
Trading, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 1,314
Other assets(2)
Derivative assets, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15,257 16,180
Guarantee asset for Participation CertiÑcates, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,516 3,686
Selected debt securities, net
Securities sold, not yet purchased, at fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 733
Other liabilities
Derivative liabilities, at fair valueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 226 357
(1) Mortgage loans classiÑed as held-for-sale are not included in this table because they are carried on the GAAP-basis consolidated
balance sheets at lower-of-cost-or-market value (i.e., not at fair value). The carrying value was $2.6 billion and $2.5 billion at
December 31, 2004 and 2003, respectively.
(2) Real estate owned is not included in this table because it is carried on the GAAP-basis consolidated balance sheets at lower-of-cost-
or-fair value (after deduction for estimated disposition costs). The carrying value was $741 million and $795 million at December 31,
2004 and 2003, respectively.
Fair value aÅects our earnings in a variety of ways. For certain Ñnancial instruments that are carried at
fair value (such as securities and PC residuals classiÑed as trading, derivatives with no hedge designation and
guarantee assets), changes in fair value are recognized in current period earnings. These changes are classiÑed
in several captions on our consolidated statements of income, including Gains (losses) on investment activity,
Derivative gains (losses) and Gains (losses) on guarantee assets for PCs, at fair value. For certain other
Ñnancial instruments that are carried at fair value (such as securities and PC residuals classiÑed as available-
for-sale and derivatives in cash Öow hedge relationships), changes in fair value are generally deferred, net of
tax, in AOCI, a component of Stockholders' equity. The deferred gains and losses in AOCI, initially measured
at fair value, are recognized in earnings over time through amortization, sale of securities from the available-
for-sale category or impairment recognition. In addition, impairments of mortgage loans classiÑed as held-for-
sale are recognized in earnings through lower-of-cost-or-market valuation adjustments. Finally, certain other
amounts (such as Guarantee obligations) are initially measured at fair value, but are not remeasured at fair
value on a periodic basis. These amounts aÅect earnings over time through the amortization of these amounts
into income and extinguishment when we purchase the related PCs and Structured Securities into the
Retained portfolio.
The estimation of fair values reÖects our judgments regarding appropriate valuation methods and
assumptions. The selection of a method to estimate fair value for each type of Ñnancial instrument depends on
both the reliability and availability of relevant market data. The amount of judgment involved in estimating
the fair value of a Ñnancial instrument is aÅected by a number of factors, such as the type of instrument, the
liquidity of the markets for the instrument and the contractual characteristics of the instrument.
Freddie Mac
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