Freddie Mac 2009 Annual Report Download - page 278

Table 13.2 presents the gains and losses of derivatives reported in our consolidated statements of operations.
Table 13.2 — Gains and Losses on Derivatives
(1)
2009 2008 2007 2009 2008 2007 2009 2008 2007
Year Ended December 31, Year Ended December 31, Year Ended December 31,
Derivatives in Cash Flow
Hedging Relationships
(3)
Amount of Gain or (Loss) Recognized
in AOCI on Derivative
(Effective Portion)
Amount of Gain or (Loss) Reclassified
from AOCI into Earnings
(Effective Portion)
Amount of Gain or (Loss)
Recognized in Other Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
(2)
(in millions)
Pay-fixed interest rate swaps
(4)
...... $ — $ (564) $ — $ — $ (92) $ — $— $(16) $—
Forward sale commitments ......... — 17 (46) — — — — — —
Closed cash flow hedges
(5)
......... — — — (1,165) (1,283) (1,543) — — —
Total ....................... $ — $ (547) $ (46) $(1,165) $(1,375) $(1,543) $— $(16) $—
2009 2008 2007
Year Ended December 31,
Derivatives not designated as hedging
Instruments under the accounting standards
for derivatives and hedging
(7)
Derivative Gains (Losses)
(6)
(in millions)
Interest-rate swaps:
Receive-fixed
Foreign-currency denominated . . . $ 64 $ 489 $ (335)
U.S. dollar denominated . . . .... (13,337) 29,732 4,240
Total receive-fixed swaps . . . (13,273) 30,221 3,905
Pay-fixed ................... 27,078 (58,295) (11,362)
Basis (floating to floating) ........ (194) 109 —
Total interest-rate swaps .... 13,611 (27,965) (7,457)
Option-based:
Call swaptions
Purchased . .............. (10,566) 17,242 2,472
Written . . . .............. 248 14 (121)
Put swaptions
Purchased . .............. 323 (1,095) (4)
Written . . . .............. (321) 156 (72)
Other option-based derivatives
(8)
.... (370) 763 9
Total option-based ........ (10,686) 17,080 2,284
Futures . . . ................... (300) (2,074) 142
Foreign-currency swaps
(9)
.......... 138 (584) 2,341
Forward purchase and sale
commitments . . .............. (708) (112) 445
Credit derivatives . .............. (4) 27 11
Swap guarantee derivatives ......... (20) (4) (2)
Other
(10)
..................... 12 (27) —
Subtotal .................. 2,043 (13,659) (2,236)
Accrual of periodic settlements:
Receive-fixed interest rate
swaps
(11)
................. 5,817 1,928 (327)
Pay-fixed interest rate swaps . . .... (9,964) (3,482) 703
Foreign-currency swaps ......... 89 319 (48)
Other . . ................... 115 (60) 4
Total accrual of periodic
settlements .............. (3,943) (1,295) 332
Total . . . .............. $ (1,900) $(14,954) $ (1,904)
(1) For all derivatives in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in net interest income on our consolidated statements of
operations. For derivatives not in qualifying hedge accounting relationships, the accrual of periodic cash settlements is recorded in derivative gains (losses) on our
consolidated statements of operations.
(2) Gain or (loss) arises when the fair value change of a derivative does not exactly offset the fair value change of the hedged item attributable to the hedged risk, and is a
component of other income in our consolidated statements of operations. No amounts have been excluded from the assessment of effectiveness.
(3) Derivatives that meet specific criteria may be accounted for as cash flow hedges. Changes in the fair value of the effective portion of open qualifying cash flow hedges are
recorded in AOCI, net of taxes. Net deferred gains and losses on closed cash flow hedges (i.e., where the derivative is either terminated or redesignated) are also included in
AOCI, net of taxes, until the related forecasted transaction affects earnings or is determined to be probable of not occurring.
(4) In 2008, we ceased designating derivative positions as cash flow hedges associated with forecasted issuances of debt in conjunction with our entry into conservatorship on
September 6, 2008. As a result of our discontinuance of this hedge accounting strategy, we transferred the previous deferred amount of $(472) million related to the fair
value changes of these hedges from open cash flow hedges to closed cash flow hedges within AOCI on September 6, 2008.
(5) Amounts reported in AOCI related to changes in the fair value of commitments to purchase securities that are designated as cash flow hedges are recognized as basis
adjustments to the related assets which are amortized in earnings as interest income. Amounts linked to interest payments on long-term debt are recorded in long-term debt
interest expense and amounts not linked to interest payments on long-term debt are recorded in expense related to derivatives.
(6) Gains (losses) are reported as derivative gains (losses) on our consolidated statements of operations.
(7) See “Use of Derivatives” for additional information about the purpose of entering into derivatives not designated as hedging instruments and our overall risk management
strategies.
(8) Primarily represents purchased interest rate caps and floors, purchased put options on agency mortgage-related securities, as well as certain written options, including
guarantees of stated final maturity of issued Structured Securities and written call options on agency mortgage-related securities.
(9) Foreign-currency swaps are defined as swaps in which the net settlement is based on one leg calculated in a foreign-currency and the other leg calculated in U.S. dollars.
(10) Related to the bankruptcy of Lehman Brothers Holdings, Inc., or Lehman.
(11) Includes imputed interest on zero-coupon swaps.
During 2008 we elected cash flow hedge accounting relationships for certain commitments to sell mortgage-related
securities; however, we discontinued hedge accounting for these derivative instruments in December 2008. In addition,
275 Freddie Mac