Freddie Mac 2009 Annual Report Download - page 312

dealers, reliable third-party pricing service providers or direct market observations. We elected the fair value option for debt
securities denominated in foreign currencies and certain other debt securities and reported them at fair value on our GAAP
consolidated balance sheets.
Guarantee Obligation
We did not establish a guarantee obligation for GAAP purposes for PCs and Structured Securities that were issued
through our guarantor swap program prior to adoption of the accounting standards for guarantees. In addition, after it is
initially recorded at fair value the guarantee obligation is not subsequently carried at fair value for GAAP purposes. On our
consolidated fair value balance sheets, the guarantee obligation reflects the fair value of our guarantee obligation on all PCs
regardless of when they were issued. To derive the fair value of our guarantee obligation, we use entry-pricing information
for all guaranteed loans that would qualify for purchase under current underwriting guidelines (used for the majority of the
guaranteed loans, but translates into a small portion of the overall fair value of the guarantee obligation). We use our internal
credit models, which incorporate factors such as loan characteristics, expected losses and risk premiums without further
adjustment for those guaranteed loans that would not qualify for purchase under current underwriting guidelines (used for
less than a majority of the guaranteed loans, but translates into the vast majority of the overall fair value of the guarantee
obligation). For information concerning our valuation approach and accounting policies related to our guarantees of mortgage
assets for GAAP purposes, see “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” and “NOTE 3:
FINANCIAL GUARANTEES AND MORTGAGE SECURITIZATIONS.”
Reserve for Guarantee Losses on PCs
The carrying amount of the reserve for guarantee losses on PCs on our GAAP consolidated balance sheets represents
the estimated losses inherent in the loans that back our PCs. This line item has no basis on our consolidated fair value
balance sheets, because the estimated fair value of all expected default losses (both contingent and non-contingent) is
included in the guarantee obligation reported on our consolidated fair value balance sheets.
Other Liabilities
Other liabilities principally consist of funding liabilities associated with investments in LIHTC partnerships, accrued
interest payable on debt securities and other miscellaneous obligations of less than one year. We believe the carrying amount
of these liabilities is a reasonable approximation of their fair value, except for funding liabilities associated with investments
in LIHTC partnerships, for which fair value is estimated using expected cash flows discounted at our cost of funds.
Furthermore, certain deferred items reported as other liabilities on our GAAP consolidated balance sheets are assigned zero
value on our consolidated fair value balance sheets, such as deferred credit fees. Also, as discussed in “Other Assets,” other
liabilities may include a deferred tax liability adjusted for fair value balance sheet purposes.
Net Assets Attributable to Senior Preferred Stockholders
Our senior preferred stock held by Treasury in connection with the Purchase Agreement is recorded at the stated
liquidation preference for purposes of the consolidated fair value balance sheets. As the senior preferred stock is restricted as
to its redemption, we consider the liquidation preference to be the most appropriate measure for purposes of the consolidated
fair value balance sheets.
Net Assets Attributable to Preferred Stockholders
To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.
Net Assets Attributable to Common Stockholders
Net assets attributable to common stockholders is equal to the difference between the fair value of total assets and the
sum of total liabilities reported on our consolidated fair value balance sheets, less the value of net assets attributable to
senior preferred stockholders, the fair value attributable to preferred stockholders and the fair value of noncontrolling
interests.
Noncontrolling Interests in Consolidated Subsidiaries
Noncontrolling interests in consolidated subsidiaries primarily represent preferred stock interests that third parties hold
in our two majority-owned REIT subsidiaries. In accordance with GAAP, we consolidated the REITs. The preferred stock
interests are not within the scope of disclosure requirements in the accounting standards for financial instruments. However,
we present the fair value of these interests on our consolidated fair value balance sheets. Since the REIT preferred stock
dividend suspension, the fair value of the third-party noncontrolling interests in these REITs is based on Freddie Mac’s
preferred stock quotes. For more information, see “NOTE 20: NONCONTROLLING INTERESTS” to our consolidated
financial statements.
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