Freddie Mac 2009 Annual Report Download - page 123

Table 39 summarizes the changes in derivative fair values.
Table 39 — Changes in Derivative Fair Values
2009
(1)
2008
(1)
(in millions)
Beginning balance, at January 1 — Net asset (liability) ............................................... $(3,827) $ 4,790
Net change in:
Forward purchase and sale commitments ..................................................... 6 (322)
Credit derivatives . . . .................................................................. (23) 28
Swap guarantee derivatives . . . ............................................................ (23) (7)
Other derivatives:
(2)
Changes in fair value . .................................................................. 2,762 (13,806)
Fair value of new contracts entered into during the period
(3)
........................................ 3,148 3,587
Contracts realized or otherwise settled during the period . . ......................................... (4,310) 1,903
Ending balance, at December 31 — Net asset (liability) ............................................... $(2,267) $ (3,827)
(1) The value of derivatives on our consolidated balance sheets is reported as derivative assets, net and derivative liabilities, net, and includes derivative
interest receivable (payable), net, trade/settle receivable (payable), net and derivative cash collateral (held) posted, net. Refer to “Table 38 — Derivative
Fair Values and Maturities” for reconciliation of fair value to the amounts presented on our consolidated balance sheets as of December 31, 2009. Fair
value excludes derivative interest receivable, net of $1.1 billion, trade/settle receivable or (payable), net of $— million and derivative cash collateral
posted, net of $1.5 billion at December 31, 2008. Fair value excludes derivative interest receivable, net of $1.7 billion, trade/settle receivable or
(payable), net of $— million and derivative cash collateral held, net of $6.2 billion at January 1, 2008.
(2) Includes fair value changes for interest-rate swaps, option-based derivatives, futures, foreign-currency swaps and interest-rate caps.
(3) Consists primarily of cash premiums paid or received on options.
Table 40 provides information on our outstanding written and purchased swaption and option premiums at
December 31, 2009 and 2008, based on the original premium receipts or payments. We use written options primarily to
mitigate convexity risk and reduce our overall hedging costs. See “QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks — Sources of Interest-Rate Risk and Other Market
Risks — Duration Risk and Convexity Risk” for further discussion related to convexity risk.
Table 40 — Outstanding Written and Purchased Swaption and Option Premiums
Original Premium
Amount (Paid)
Received
Original Weighted
Average Life to
Expiration
Remaining Weighted
Average Life
(dollars in millions)
Purchased:
(1)
At December 31, 2009 . . . . ...................................... $(8,399) 6.5 years 4.9 years
At December 31, 2008 . . . . ...................................... $(6,775) 7.6 years 6.2 years
Written:
(2)
At December 31, 2009 . . . . ...................................... $ 41 6.5years 6.2 years
At December 31, 2008 . . . . ...................................... $ 186 2.9years 2.2 years
(1) Purchased options exclude callable swaps.
(2) Excludes written options on guarantees of stated final maturity of Structured Securities.
Guarantee Asset
See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Gains (Losses) on Guarantee
Asset” for further discussion of gains (losses) on our guarantee asset. Table 41 summarizes changes in the guarantee asset
balance.
Table 41 — Changes in Guarantee Asset
2009 2008
December 31,
(in millions)
Beginning balance ......................................................................... $ 4,847 $ 9,591
Additions, net ............................................................................ 2,310 2,439
Other
(1)
................................................................................ (12) (92)
Components of gains (losses) on guarantee asset:
Return of investment on guarantee asset ........................................................ (1,999) (1,750)
Change in fair value of future management and guarantee fees . . . . . . ................................... 5,298 (5,341)
Gains (losses) on guarantee asset ............................................................... 3,299 (7,091)
Ending balance ........................................................................... $10,444 $ 4,847
(1) Represents a reduction in our guarantee asset associated with the extinguishment of our previously issued long-term credit guarantees upon conversion
into either PCs or Structured Transactions within the same month.
The decrease in additions to our guarantee asset during 2009 compared to 2008 was primarily due to lower average fair
values of excess-servicing, interest-only mortgage securities (which we use to estimate the value of our guarantee asset)
associated with our newly-issued guarantees, which was partially offset by a significant increase in the volume of our
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