Freddie Mac 2009 Annual Report Download - page 109

INVESTMENTS IN SECURITIES” to our consolidated financial statements for additional information regarding unrealized
losses on available-for-sale securities.
Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities
We recorded net impairment of available-for-sale securities recognized in earnings related to non-agency mortgage-
related securities of approximately $11.0 billion during 2009. Of this amount, $6.9 billion was recognized in the first quarter
of 2009, prior to the adoption of an amendment to the accounting standards for investments in debt and equity securities, and
related to non-agency mortgage-related securities backed by subprime, option ARM, Alt-A and other loans that were
probable of incurring a contractual principal or interest loss.
Our other-than-temporary charges for 2009 were significantly affected by an amendment to the accounting standards for
investments in debt and equity securities that we adopted on April 1, 2009. This amendment provided guidance designed to
create greater clarity and consistency in accounting for and presenting impairment losses on debt securities. Under this
guidance, a portion of the other-than-temporary impairment (that portion which relates to securities not intended to be sold
and which is not credit-related) is recorded in AOCI and not recognized in earnings. Credit-related portions of other-than-
temporary impairments are recognized in earnings. As a result of the adoption of this amendment on April 1, 2009, we
recorded a cumulative adjustment of $(9.9) billion, net of tax, related to other-than-temporary impairment losses to AOCI.
This cumulative adjustment reclassified the non-credit component of previously recognized other-than-temporary impairments
from retained earnings to AOCI. For more information, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES— Recently Adopted Accounting Standards — Change in the Impairment Model for Debt Securities” and
“NOTE 6: INVESTMENTS IN SECURITIES— Other-Than-Temporary Impairments on Available-For-Sale Securities” to our
consolidated financial statements.
Table 30 provides additional information regarding other-than-temporary impairments related to our available-for-sale
mortgage-related securities recognized in earnings for the three months ended December 31, 2009 and 2008.
Table 30 — Net Impairment on Available-For-Sale Mortgage-Related Securities Recognized in Earnings
Unpaid
Principal
Balance
Net Impairment of
Available-For-Sale
Securities Recognized
in Earnings
Unpaid
Principal
Balance
Net Impairment of
Available-For-Sale
Securities Recognized
in Earnings
December 31, 2009 December 31, 2008
Three Months Ended
(in millions)
Subprime:
2006 & 2007 first lien ...................................... $26,398 $499 $ 3,633 $1,319
Other years — first and second liens
(1)
........................... 870 16 154 35
Total subprime — first and second liens . ......................... 27,268 515 3,787 1,354
Option ARM:
2006 & 2007 ............................................ 2,516 15 2,735 1,676
Other years . ............................................ 167 — 1,858 1,026
Total option ARM . . ...................................... 2,683 15 4,593 2,702
Alt-A:
2006 & 2007 ............................................ 2,516 35 1,272 569
Other years . ............................................ 871 16 2,916 1,404
Total Alt-A . ............................................ 3,387 51 4,188 1,973
Other loans . . . ............................................ 80 — 1,068 765
Total subprime, option ARM, Alt-A and other loans . . . . . ............ 33,418 581 13,636 6,794
Commercial mortgage-backed securities . . ......................... 1,596 83 — —
Manufactured housing . ...................................... 142 3 252 82
Total available-for-sale mortgage-related securities . . .................. $35,156 $667 $13,888 $6,876
(1) Includes all second liens.
We recorded net impairment of available-for-sale securities in earnings related to non-agency mortgage-related securities
of $667 million during the fourth quarter of 2009. This impairment is primarily due to the higher defaults and severities
related to the collateral underlying these securities, particularly subprime, for our more recent vintages of non-agency
mortgage-related securities. The deterioration in the performance of the collateral underlying these securities has not
impacted our conclusion that we do not intend to sell these securities and it is not more likely than not that we will be
required to sell such securities. Included in these net impairments are $27 million of impairments related to securities backed
by subprime, option ARM, Alt-A and other loans and $30 million of impairments related to CMBS impaired for the first
time during the fourth quarter of 2009.
In addition, $656 million of the total other-than-temporary impairments primarily related to our non-agency securities
for the fourth quarter of 2009 were non-credit-related and, thus, recognized in AOCI. We currently estimate that the future
106 Freddie Mac