Freddie Mac 2009 Annual Report Download - page 232

consolidated balance sheets the mortgage loans underlying our issued single-family PCs and certain Structured Transactions
as mortgage loans held-for-investment by consolidated trusts, at amortized cost. Correspondingly, we will also prospectively
recognize single-family PCs and certain Structured Transactions held by third parties on our consolidated balance sheets as
debt securities of consolidated trusts held by third parties.
The cumulative effect of these changes in accounting principles as of January 1, 2010 is a net decrease of
approximately $11.7 billion to total equity (deficit), which includes the changes to the opening balances of AOCI and
retained earnings (accumulated deficit). This net decrease is driven principally by: (1) the elimination of deferred premiums,
purchase price adjustments and positive mark-to-market fluctuations (inclusive of deferred tax amounts) related to investment
securities issued by securitization trusts we are required to consolidate as we will initially recognize the underlying mortgage
loans at their unpaid principal balance; (2) the elimination of the guarantee asset and guarantee obligation established for
guarantees issued to securitization trusts we are required to consolidate; and (3) the difference between the application of our
corporate non-accrual policy to delinquent mortgage loans consolidated as of January 1, 2010 and the prior reserve for
uncollectible interest relating to investment securities issued by securitization trusts we are required to consolidate.
The effects of these changes are summarized in Table 1.1 below. Table 1.1 also illustrates the approximate impact on
our consolidated balance sheets upon our adoption of these changes in accounting principles.
Table 1.1 — Impact of the Change in Accounting for Transfers of Financial Assets and Consolidation of Variable
Interest Entities
December 31,
2009
Consolidation
of VIEs
Reclassifications
and Eliminations
January 1,
2010
(in billions)
Assets
Cash and cash equivalents, restricted cash and cash equivalents, federal funds sold
and securities purchased under agreements to resell
(1)
.................... $ 72.2 $ 22.5 $ — $ 94.7
Investments in securities
(2)
........................................ 606.9 — (286.5) 320.4
Mortgage loans, net
(3)(4)
.......................................... 127.9 1,812.9 (34.1) 1,906.7
Accounts and other receivables, net
(5)
................................. 6.1 8.9 1.4 16.4
Guarantee asset, at fair value
(6)
..................................... 10.4 — (10.0) 0.4
All other assets . . . . . . . . . . . ..................................... 18.3 0.1 1.0 19.4
Total assets ................................................. $841.8 $1,844.4 $(328.2) $2,358.0
Liabilities and equity (deficit)
Accrued interest payable
(7)
........................................ $ 5.0 $ 8.7 $ (1.5) $ 12.2
Debt, net
(8)
................................................... 780.6 1,835.7 (269.2) 2,347.1
Guarantee obligation
(6)
........................................... 12.5 — (11.9) 0.6
Reserve for guarantee losses on Participation Certificates
(4)
.................. 32.4 — (32.2) 0.2
All other liabilities . . . . . . . . ..................................... 6.9 — (1.7) 5.2
Total liabilities .............................................. 837.4 1,844.4 (316.5) 2,365.3
Total equity (deficit) . . . . . . . ..................................... 4.4 — (11.7) (7.3)
Total liabilities and equity (deficit) ................................. $841.8 $1,844.4 $(328.2) $2,358.0
(1) We will begin recognizing the cash held by our single-family PC trusts and certain Structured Transactions as restricted cash and cash equivalentson
our consolidated balance sheets. This adjustment represents amounts that may only be used to settle the obligations of our consolidated trusts.
(2) We will no longer account for single-family PCs and certain Structured Transactions as investments in securities because we will prospectively
recognize the underlying mortgage loans on our consolidated balance sheets through consolidation of the issuing entities.
(3) We will begin recognizing the mortgage loans underlying our single-family PCs and certain Structured Transactions on our consolidated balance sheets
as mortgage loans held-for-investment by consolidated trusts. Any remaining held-for-sale loans will be multifamily mortgage loans.
(4) We will no longer establish a reserve for guarantee losses on PCs and Structured Transactions issued by trusts that we have consolidated; rather, we will
recognize an allowance for loan losses against the mortgage loans that underlie those PCs and Structured Transactions. We will continue to recognize a
reserve for guarantee losses related to our long-term standby commitments and guarantees issued to non-consolidated entities.
(5) We will begin recognizing accrued interest receivable on a larger population of loans as a result of our consolidation of PC trusts and certain Structured
Transactions. Accrued interest receivable is currently included within accounts and other receivables, net; prospectively, it will be presented asa
separate line item and all other items currently included within accounts and other receivables, net will be included within the other assets line item.
(6) We will no longer recognize a guarantee asset and guarantee obligation for guarantees issued to trusts that we have consolidated. We will continue to
recognize a guarantee asset and guarantee obligation for our long-term standby commitments and guarantees issued to non-consolidated entities.
(7) We will begin recognizing accrued interest payable on PCs and Structured Transactions issued by our consolidated trusts that are held by third parties.
(8) We will begin recognizing our liability to third parties that hold beneficial interests in our consolidated single-family PC trusts and certain Structured
Transactions as debt securities of consolidated trusts held by third parties.
Prospective adoption of these changes in accounting principles will also significantly impact the presentation of our
consolidated statements of operations. These impacts are discussed in the sections that follow:
Line Items That No Longer Will Be Separately Presented
Line items that no longer will be separately presented on our consolidated statements of operations include:
• Management and guarantee income — we will no longer recognize management and guarantee income on PCs and
Structured Transactions issued by trusts that we have consolidated; rather, the portion of the interest collected on the
underlying loans that represents our management and guarantee fee will be recognized as part of interest income on
229 Freddie Mac