Freddie Mac 2009 Annual Report Download - page 124

guarantee issuances in 2009, as compared to 2008. We issued $475.4 billion and $357.9 billion of our financial guarantees
during 2009 and 2008, respectively.
The change in the fair value of future management and guarantee fees was $5.3 billion and $(5.3) billion in 2009 and
2008, respectively. The significant increase in the fair values of future management and guarantee fees in 2009, as compared
to the significant decrease in fair values during 2008 was due to an increase in fair values of excess-servicing, interest-only
mortgage securities at December 31, 2009 as compared to fair values at December 31, 2008. These fair values were
positively impacted by improved, or tightening spreads on mortgage assets in 2009, as compared to 2008.
REO, Net
We acquire residential properties as a result of borrower defaults on mortgage loans that we own or for which we have
issued our financial guarantees. The balance of our REO, net increased substantially to $4.7 billion at December 31, 2009
from $3.3 billion at December 31, 2008. Our single-family REO property inventory increased 54% during 2009, with the
most significant amount of acquisitions in California, Arizona, Florida, Michigan and Nevada. However, our temporary
suspensions of foreclosure transfers during 2009 and our efforts to modify mortgage loans under the HAMP lessened the rate
of growth of our REO acquisitions in 2009. We expect our REO inventory to continue to grow in 2010, as we expect our
REO acquisitions to outpace our REO dispositions. See “RISK MANAGEMENT — Credit Risks — Mortgage Credit Risk —
Credit Loss Performance” for additional information.
Deferred Tax Assets, Net
We recognize deferred tax assets and liabilities based upon the expected future tax consequences of existing temporary
differences between the financial reporting and the tax reporting basis of assets and liabilities using enacted statutory tax
rates. Valuation allowances reduce deferred tax assets, net when it is more likely than not that a tax benefit will not be
realized. The realization of our deferred tax assets, net is dependent upon the generation of sufficient taxable income or upon
our conclusion that we have the intent and ability to hold available-for-sale securities to the recovery of any temporary
unrealized losses. On a quarterly basis, we consider all evidence currently available, both positive and negative, in
determining whether, based on the weight of that evidence, the deferred tax assets, net will be realized and whether a
valuation allowance is necessary.
Subsequent to our entry into conservatorship, we determined that it was more likely than not that a portion of our
deferred tax assets, net would not be realized due to our inability to generate sufficient taxable income and we recorded a
valuation allowance. After evaluating all available evidence, including the events and developments related to our
conservatorship, other recent events in the market, and related difficulty in forecasting future profit levels, we reached a
similar conclusion in the fourth quarter of 2009. We increased our valuation allowance by $2.7 billion in total during 2009,
including a $3.1 billion increase in the fourth quarter. The $2.7 billion increase during 2009 was primarily attributable to
temporary differences generated during the year, partially offset by a $5.1 billion reduction attributable to the second quarter
adoption of an amendment to the accounting standards for investments in debt and equity securities. See “NOTE 6:
INVESTMENTS IN SECURITIES” for additional information on our adoption of the amendment to the accounting
standards for investments in debt and equity securities. Our total valuation allowance as of December 31, 2009 was
$25.1 billion. As of December 31, 2009, after consideration of the valuation allowance, we had a net deferred tax asset of
$11.1 billion representing the tax effect of unrealized losses on our available-for-sale securities. Management believes these
unrealized losses are more likely than not of being realized because of our conclusion that we have the intent and ability to
hold our available-for-sale securities until any temporary unrealized losses are recovered. For additional information, see
“NOTE 15: INCOME TAXES — Deferred Tax Assets, Net” to our consolidated financial statements and “CRITICAL
ACCOUNTING POLICIES AND ESTIMATES — Realizability of Deferred Tax Assets, Net.” Our view of our ability to
realize the deferred tax assets, net may change in future periods, particularly if the mortgage and housing markets continue
to decline.
LIHTC Partnerships
Prior to 2008, we invested as a limited partner in LIHTC partnerships formed for the purpose of providing equity
funding for affordable multifamily rental properties. In these investments, we provide equity contributions to partnerships
designed to sponsor the development and ongoing operations for low- and moderate-income multifamily apartments and we
planned to realize a return on our investment through reductions in income tax expense that result from federal income tax
credits and the deductibility of operating losses. However, we are no longer able to realize any value from our LIHTC
investments because we do not expect to be able to use the underlying federal income tax credits or the operating losses
generated from the partnerships as a reduction to our taxable income because of our inability to generate sufficient taxable
income. On February 18, 2010, we received a letter from the Acting Director of FHFA stating that FHFA has determined
that any sale of the LIHTC investments by Freddie Mac would require Treasury’s consent under the terms of the Purchase
121 Freddie Mac