Freddie Mac 2005 Annual Report Download - page 161

to guarantee-related credit losses, see ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' and
""NOTE 2: TRANSFERS OF SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS.''
Reserve for guarantee losses on Participation CertiÑcates
The carrying amount of the Reserve for guarantee losses on Participation CertiÑcates on our GAAP consolidated
balance sheets represents loan loss reserves for oÅ-balance sheet PCs in accordance with GAAP that are not already
accounted for under SFAS 125/140. This line item has no basis in our consolidated fair value balance sheets, because the
estimated fair value of all expected default losses is included in the Guarantee obligation reported on our consolidated fair
value balance sheets, as discussed above.
Derivative liabilities
See discussion under ""Derivative assets'' above.
Other liabilities
Other liabilities principally consists of amounts due to PC investors (i.e., principal and interest), funding liabilities
associated with investments in LIHTC partnerships, accrued interest payable on debt securities and other miscellaneous
obligations of less than one year. We believe the carrying amount of these liabilities is a reasonable approximation of their
fair value, except for funding liabilities associated with investments in LIHTC partnerships, for which fair value is estimated
using expected cash Öows discounted at a market-based yield. Furthermore, certain deferred items reported as Other
liabilities on our GAAP consolidated balance sheets are assigned zero value on our consolidated fair value balance sheets,
such as deferred credit fees. Also, as discussed in ""Other assets,'' Other liabilities may include a deferred tax liability
adjusted for fair value balance sheet purposes.
Minority interests in consolidated subsidiaries
Minority interests in consolidated subsidiaries primarily represent preferred stock interests that third parties hold in our
two majority-owned REIT subsidiaries. In accordance with GAAP, we consolidated the REITs. The preferred stock
interests are not within the scope of SFAS 107 disclosure requirements. However, we present the fair value of these interests
in our fair value balance sheets. The fair value of the third-party minority interests in these REITs was based on the
estimated value of the underlying REIT preferred stock we determined based on a valuation model. In 2005, we improved
our fair value estimates to reÖect observed market activity.
Net assets attributable to preferred stockholders
To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.
Net assets attributable to common stockholders
Net assets attributable to common stockholders is equal to the diÅerence between the fair value of total assets and the
sum of total liabilities and minority interests reported on our consolidated fair value balance sheets, less the fair value of net
assets attributable to preferred stockholders.
NOTE 17: CONCENTRATION OF CREDIT AND OTHER RISKS
Mortgages and Mortgage-Related Securities
Table 17.1 summarizes the geographical concentration of mortgages and mortgage-related securities that are held by us
or that are collateral for PCs and Structured Securities, excluding:
‚ $2,021 million and $3,015 million of mortgage-related securities issued by Ginnie Mae that back Structured
Securities at December 31, 2005 and 2004, respectively, because these securities do not expose us to meaningful
amounts of credit risk;
‚ $44,626 million and $59,715 million of agency mortgage-related securities at December 31, 2005 and 2004,
respectively, because these securities do not expose us to meaningful amounts of credit risk; and
‚ $242,586 million and $175,163 million of non-agency mortgage-related securities held in the Retained portfolio
at December 31, 2005 and 2004, respectively, because geographic information regarding these securities is not
available. With respect to these securities, we look to third party credit enhancements (e.g., bond insurance) or
other credit enhancements resulting from the securitization structure supporting such securities (e.g., subordina-
tion levels) as a primary means of managing credit risk.
See ""NOTE 5: RETAINED PORTFOLIO AND CASH AND INVESTMENTS PORTFOLIO'' for more information
about the securities we hold.
145 Freddie Mac