Freddie Mac 2009 Annual Report Download - page 217

We no longer invest in LIHTC partnerships because we do not expect to be able to use the underlying federal income
tax credits or the operating losses generated from LIHTC partnerships as a reduction to our taxable income because of our
inability to generate sufficient taxable income. Furthermore, we are not able to realize any value through a sale to a third
party as a result of a restriction imposed by Treasury. As a result, we wrote down the carrying value of our LIHTC
investments to zero as of December 31, 2009. See “NOTE 5: VARIABLE INTEREST ENTITIES” for additional
information.
Cash and Cash Equivalents and Statements of Cash Flows
Highly liquid investment securities that have an original maturity of three months or less are accounted for as cash
equivalents. In addition, cash collateral we obtain from counterparties to derivative contracts where we are in a net
unrealized gain position is recorded as cash and cash equivalents. The vast majority of the cash and cash equivalents balance
is interest-bearing in nature.
We adopted the accounting standards related to the fair value option for financial assets and financial liabilities on
January 1, 2008, which requires, among other things, the classification of trading securities cash flows based on the purpose
for which the securities were acquired. Upon adoption, we classified our trading securities cash flows as investing activities
because we intend to hold these securities for investment purposes. Prior to our adoption, we classified cash flows on all
trading securities as operating activities. As a result, the operating and investing activities on our consolidated statements of
cash flows have been impacted by this change.
In the consolidated statements of cash flows, cash flows related to the acquisition and termination of derivatives other
than forward commitments are generally classified in investing activities, without regard to whether the derivatives are
designated as a hedge of another item. Cash flows from commitments accounted for as derivatives that result in the
acquisition or sale of mortgage securities or mortgage loans are classified in either: (a) operating activities for mortgage
loans classified as held-for-sale, or (b) investing activities for trading securities, available-for-sale securities or mortgage
loans classified as held-for-investment. Cash flows related to purchases of mortgage loans held-for-sale are classified in
operating activities until the loans have been securitized and retained as available-for-sale PCs in the same period as they are
purchased, at which time the cash flows are classified as investing activities. When mortgage loans held-for-sale are sold or
securitized, proceeds from sale or securitization and any related gain or loss are classified in operating activities. All cash
inflows associated with our investments in mortgage-related securities issued by us that are classified as available-for-sale
(i.e., payments, maturities, and proceeds from sales) are classified as investing activities.
Cash flows related to management and guarantee fees, including upfront, guarantee-related payments, are classified as
operating activities, along with the cash flows related to the collection and distribution of payments on the mortgage loans
underlying PCs. Upfront, guarantee-related payments are discussed further below in “Securitization Activities through
Issuances of Guaranteed PCs and Structured Securities — Cash Payments at Inception.”
When we have the right to purchase mortgage loans from PC pools, we recognize the mortgage loans as held-for-
investment with a corresponding payable to the trust. For periods prior to the third quarter of 2009, the right to purchase the
loans was included in net cash provided by investing activities and the increase in the payable to the trust was included in
net cash used by operating activities. We determined that the recognition of these mortgage loans should be reflected as a
non-cash activity. We revised our consolidated statements of cash flows for the year ended December 31, 2008 to reflect this
correction. This revision resulted in an increase to the cash used for operating activities by $518 million and a decrease to
the cash used for investing activities by $518 million for 2008. Management concluded that this revision is not material to
our previously issued consolidated financial statements.
Restricted Cash
Cash collateral accepted from counterparties that we do not have the right to use is recorded as restricted cash in our
consolidated balance sheets. Restricted cash also includes cash held on deposit at the Fixed Income Clearing Corporation.
Securitization Activities through Issuances of Guaranteed PCs and Structured Securities
Overview
We securitize substantially all of the single-family mortgages we have purchased and issue mortgage-related securities
called PCs that can be sold to investors or held by us. Guarantor swaps are transactions where financial institutions exchange
mortgage loans for PCs backed by these mortgage loans. Multilender swaps are similar to guarantor swaps, except that
formed PC pools include loans that are contributed by more than one other party or by us. We issue PCs and Structured
Securities through various swap-based exchanges significantly more often than through cash-based exchanges. We also issue
and transfer Structured Securities to third parties in exchange for PCs and non-Freddie Mac mortgage-related securities.
214 Freddie Mac