Freddie Mac 2009 Annual Report Download - page 121

Derivative Assets and Liabilities, Net
The composition of our derivative portfolio changes from period to period as a result of derivative purchases,
terminations or assignments prior to contractual maturity and expiration of the derivatives at their contractual maturity. We
classify net derivative interest receivable or payable, trade/settle receivable or payable and cash collateral held or posted on
our consolidated balance sheets to derivative assets, net and derivative liabilities, net. See “NOTE 13: DERIVATIVES —
Table 13.1 — Derivative Assets and Liabilities at Fair Value” to our consolidated financial statements for our notional or
contractual amounts and related fair values of our total derivative portfolio by product type at December 31, 2009 and
December 31, 2008. We record changes in fair values of our derivatives in current income or, where applicable, to the extent
our cash-flow hedge accounting relationships are effective, we defer those changes in AOCI. See “CONSOLIDATED
RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Overview” for a description of gains (losses) on
our derivative positions.
The net fair value of the total derivative portfolio increased to $(0.4) billion during 2009 primarily due to increasing
longer-term swap interest rates, which positively impacted our net pay-fixed interest rate swap portfolio position by
$13.6 billion. However, the fair value of our purchased call swaptions decreased by $13.3 billion during 2009 primarily due
to the increase in longer-term swap interest rates.
The net fair value of the total derivative portfolio decreased to $(1.3) billion in 2008 due to the continued interest rate
decreases across the yield curve, which negatively impacted our interest rate swap portfolio, since we were in a net pay-fixed
swap position. This decrease in fair value was partially offset by the increase in implied volatility during 2008 resulting in
increases to the value of our purchased options.
As interest rates decreased, the fair value of our pay-fixed swap portfolio decreased by $40.3 billion in 2008. This was
partially offset by increases in the fair value of our receive-fixed swap portfolio of approximately $18.6 billion and our
purchased call swaption portfolio of $14.0 billion.
Table 38 shows the fair value for each derivative type and the maturity profile of our derivative positions as of
December 31, 2009. A positive fair value in Table 38 for each derivative type is the estimated amount, prior to netting by
counterparty, that we would be entitled to receive if we terminated the derivatives of that type. A negative fair value for a
derivative type is the estimated amount, prior to netting by counterparty, that we would owe if we terminated the derivatives
of that type. See “RISK MANAGEMENT — Credit Risks — Table 55 — Derivative Counterparty Credit Exposure” for
additional information regarding derivative counterparty credit exposure. Table 38 also provides the weighted average fixed
rate of our pay-fixed and receive-fixed swaps.
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