Freddie Mac 2009 Annual Report Download - page 254

such securities. Net impairment of available-for-sale securities recognized in earnings during 2009 included $185 million
related to other-than-temporary impairments of non-mortgage-related asset-backed securities where we could not assert that
we did not intend to sell these securities before a recovery of the unrealized losses. The decision to impair these asset-
backed securities is consistent with our consideration of these securities as a contingent source of liquidity. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for information regarding our
policy on accretion of impairments.
During the years ended December 31, 2008 and 2007, we recorded $17.7 billion and $365 million, respectively, of
impairment of available-for-sale securities recognized in earnings. Of the impairments recognized during 2008, $16.5 billion
related to non-agency mortgage-related securities backed by subprime, option ARM, Alt-A and other loans primarily due to
deterioration in the performance of the collateral underlying these loans. In addition, during 2008 we also recorded net
impairment of available-for-sale securities recognized in earnings of $1.0 billion, related to our non-mortgage-related asset-
backed securities where we did not have the intent to hold to a forecasted recovery of the unrealized losses.
Table 6.5 presents a roll-forward of the credit-related other-than-temporary impairment component of the amortized cost
related to available-for-sale securities (1) that we have written down for other-than-temporary impairment and (2) for which
the credit component of the loss is recognized in earnings. The credit-related other-than-temporary impairment component of
the amortized cost represents the difference between the present value of expected future cash flows, including bond
insurance, and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents
the other-than-temporary impairment credit loss component related to available-for-sale securities for which other-than-
temporary impairment occurred prior to April 1, 2009. Net impairment of available-for-sale securities recognized in earnings
is presented as additions in two components based upon whether the current period is (1) the first time the debt security was
credit-impaired or (2) not the first time the debt security was credit impaired. The credit loss component is reduced if we
sell, intend to sell or believe we will be required to sell previously credit-impaired available-for-sale securities. Additionally,
the credit loss component is reduced if we receive cash flows in excess of what we expected to receive over the remaining
life of the credit-impaired debt security or the security matures or is fully written down.
Table 6.5 — Other-Than-Temporary Impairments Related to Credit Losses on Available-For-Sale Securities
(1)
Nine Months Ended
December 31, 2009
(2)
(in millions)
Credit-related other-than-temporary impairments on available-for-sale securities recognized in earnings:
Beginning balance — remaining credit losses to be realized on available-for-sale securities held at the beginning of the
period where other-than-temporary impairments were recognized in earnings ................................ $ 7,489
Additions:
Amounts related to credit losses for which an other-than-temporary impairment was not previously recognized . . ....... 1,050
Amounts related to credit losses for which an other-than-temporary impairment was previously recognized ........... 3,006
Amounts related to the termination of our rights to certain policies with Syncora Guarantee Inc.
(3)
................. 113
Reductions:
Amounts related to securities which were sold, written off or matured . . . ................................. (103)
Amounts related to amortization resulting from increases in cash flows expected to be collected that are recognized over
the remaining life of the security . ........................................................... (42)
Ending balance — remaining credit losses to be realized on available-for-sale securities held at period end where other-than-
temporary impairments were recognized in earnings
(4)
............................................... $11,513
(1) Excludes other-than-temporary impairments on securities that we intend to sell or it is more likely than not that we will be required to sell before
recovery of the unrealized losses.
(2) This roll-forward commenced upon our adoption of an amendment to the accounting standards for investments in debt and equity securities on April 1,
2009. This amendment was effective and was applied prospectively by us in the second quarter of 2009.
(3) During the second quarter of 2009, as part of its comprehensive restructuring, Syncora Guarantee Inc., or SGI, pursued a settlement with certain
policyholders. In July 2009, we agreed to terminate our rights under certain policies with SGI, which provided credit coverage for certain of the bonds
owned by us, in exchange for a one-time cash payment of $113 million.
(4) The balances at December 31, 2009 exclude increases in cash flows expected to be collected that will be recognized in earnings over the remaining life
of the security of $709 million, net of amortization.
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