Freddie Mac 2009 Annual Report Download - page 293

operating decision maker. We conduct our operations solely in the U.S. and its territories. Therefore, we do not generate any
revenue from geographic locations outside of the U.S. and its territories.
Segments
Our operations include three reportable segments, which are based on the type of business activities each performs —
Investments, Single-family Guarantee and Multifamily. Certain activities that are not part of a segment are included in the
All Other category. We evaluate our performance and allocate resources based on Segment Earnings, which we describe and
present in this note, subject to the conduct of our business under the direction of the Conservator. See “NOTE 2:
CONSERVATORSHIP AND RELATED DEVELOPMENTS” for further information about the conservatorship. We do not
consider our assets by segment when making these evaluations or allocations.
Investments
In this segment, we invest principally in mortgage-related securities and single-family mortgage loans through our
mortgage-related investments portfolio. Segment Earnings consists primarily of the returns on these investments, less the
related financing costs and administrative expenses. Within this segment, our activities may include the purchase of
mortgage loans and mortgage-related securities with less attractive investment returns and with incremental risk in order to
achieve our affordable housing goals and subgoals. We maintain a cash and other investments portfolio in this segment to
help manage our liquidity. We fund our investment activities, including investing activities in our Multifamily segment,
primarily through issuances of short- and long-term debt in the capital markets. Results also include derivative transactions
we enter into to help manage interest-rate and other market risks associated with our debt financing and mortgage-related
investments portfolio.
Single-Family Guarantee
In our Single-family Guarantee segment, we purchase single-family mortgages originated by our lender customers in the
primary mortgage market, primarily through our guarantor swap program. We securitize certain of the mortgages we
purchase and issue mortgage-related securities that can be sold to investors or held by us in our Investments segment. In this
segment, we also guarantee the payment of principal and interest on single-family mortgage-related securities, including
those held in our mortgage-related investments portfolio, in exchange for management and guarantee fees received over time
and other up-front compensation. Earnings for this segment consist primarily of management and guarantee fee revenues,
including amortization of upfront payments, less the related credit costs (i.e., provision for credit losses) and operating
expenses. Also included is the interest earned on assets held in the Investments segment related to single-family guarantee
activities, net of allocated funding costs and amounts related to net float benefits.
Multifamily
In this segment, we guarantee, securitize and invest in multifamily mortgages and CMBS. We also securitize and
guarantee the payment of principal and interest on multifamily mortgage-related securities and mortgages underlying
multifamily housing revenue bonds. These activities support our mission to supply financing for affordable rental housing.
This segment also includes certain equity investments in various limited partnerships that sponsor the development and
ongoing operations for low- and moderate-income multifamily rental apartments that provide federal income tax credits and
deductible operating losses to their equity investors. Also included is the interest earned on assets held in the Investments
segment related to multifamily activities, net of allocated funding costs.
All Other
All Other includes corporate-level expenses not allocated to any of our reportable segments, such as costs associated
with remediating our internal controls and near-term restructuring costs, costs related to the resolution of certain legal
matters and certain income tax items.
Segment Allocations
Results of each reportable segment include directly attributable revenues and expenses. Administrative expenses that are
not directly attributable to a segment are allocated ratably using alternative quantifiable measures such as headcount
distribution or segment usage if considered semi-direct or on a pre-determined basis if considered indirect. Expenses not
allocated to segments consist primarily of costs associated with remediating our internal controls and near-term restructuring
costs and are included in the All Other category. Net interest income for each segment includes an allocation related to the
interest earned on each segment’s assets and off-balance sheet obligations, net of allocated funding costs (i.e. debt expenses)
related to such assets and obligations. These allocations, however, do not include the effects of dividends paid on our senior
preferred stock. The tax benefits generated by the LIHTC partnerships are allocated to the Multifamily segment. All
remaining taxes are calculated based on a 35% federal statutory rate as applied to pre-tax Segment Earnings.
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