Freddie Mac 2009 Annual Report Download - page 66

Consolidated Results of Operations — 2009 versus 2008
Net loss attributable to Freddie Mac was $21.6 billion and $50.1 billion for 2009 and 2008, respectively. Net loss
decreased during 2009 compared to 2008, principally due to higher net interest income, improved mark-to-fair value results
on derivatives, our guarantee asset and trading securities, and lower other-than-temporary impairment losses recognized in
earnings. These improvements were partially offset by increases in provision for credit losses, write-downs of our LIHTC
partnership investments and losses on loans purchased. Income tax benefit (expense) was $0.8 billion and $(5.6) billion for
2009 and 2008, respectively. In 2008, the income tax expense resulted from our establishment of a partial valuation
allowance against our net deferred tax asset. Our net loss attributable to common stockholders of $25.7 billion for 2009,
reflected $4.1 billion of dividends on the senior preferred stock.
Net interest income was $17.1 billion for 2009, compared to $6.8 billion for 2008. In 2009, we held higher amounts of
fixed-rate mortgage loans and investments in agency mortgage-related securities and had lower funding costs, due to
significantly lower interest rates on our short- and long-term borrowings, as compared to 2008. These items were partially
offset by the impact of declining short-term interest rates on floating-rate mortgage-related and non-mortgage-related
securities. Net interest income in 2009 also benefited from the funds we received from Treasury under the Purchase
Agreement. These funds generate net interest income because the costs of such funds are not reflected in interest expense,
but instead are reflected as dividends paid on senior preferred stock.
Non-interest income (loss) was $(2.7) billion for 2009 compared to $(29.2) billion for 2008. The increase in non-interest
income for 2009 was primarily due to changes in interest rates resulting in improved mark-to-fair value results related to
derivatives (increase of $15.7 billion), our guarantee asset (increase of $10.4 billion) and trading securities (increase of
$3.9 billion). Non-interest income (loss) also increased for 2009 due to lower other-than-temporary impairment losses
recognized in earnings of $6.5 billion, primarily as a result of our adoption of an amendment to the accounting standards for
investments in debt and equity securities effective April 1, 2009. These improvements in non-interest income (loss) were
partially offset by a $3.7 billion increase in LIHTC partnerships expense in 2009, which reflects our write down of the
carrying value of these assets to zero at December 31, 2009. See “NOTE 5: VARIABLE INTEREST ENTITIES” to our
consolidated financial statements for additional information.
Non-interest expense increased to $36.7 billion in 2009 from $22.2 billion in 2008 primarily due to a $13.1 billion
increase in provision for credit losses, which was due to continued credit deterioration in our single-family mortgage
portfolio, and principally resulted from further increases in delinquency rates and higher loss severities on a per-property
basis. Multifamily provision for credit losses increased in 2009 as a result of deterioration in the multifamily market as well.
Also contributing to the increase in non-interest expense was a $3.1 billion increase in losses on loans purchased, which was
primarily due to lower fair values on these loans and a higher volume of purchases of modified loans out of PCs in 2009.
Consolidated Results of Operations — 2008 versus 2007
Net loss was $50.1 billion and $3.1 billion for 2008 and 2007, respectively. Net loss increased during 2008 compared to
2007, principally due to an increase in credit-related expenses, impairment losses on interest-only mortgage securities and
certain non-agency mortgage-related securities, the establishment of a partial valuation allowance against our net deferred tax
assets and increased losses on our derivative portfolio and guarantee asset. We refer to the combination of our provision for
credit losses and REO operations expense as credit-related expenses when we use this term and specifically exclude other
market-based impairment losses. These loss and expense items for 2008 were partially offset by higher net interest income
and higher income on our guarantee obligation as well as lower losses on certain credit guarantees and lower losses on loans
purchased due to changes in our operational practice of purchasing delinquent loans out of PC securitization pools.
Net interest income was $6.8 billion for 2008, compared to $3.1 billion for 2007. We held higher amounts of fixed-rate
agency mortgage-related securities at significantly wider spreads relative to our funding costs during 2008 as compared to
2007. Non-interest income (loss) was $(29.2) billion and $(0.3) billion for 2008 and 2007, respectively. The increase in non-
interest loss during 2008 was primarily due to higher security impairments, higher derivative losses excluding foreign-
currency related effects, and higher losses on our guarantee asset driven by increased uncertainty in the market and declines
in long-term interest rates. Non-interest expense for 2008 and 2007 totaled $22.2 billion and $8.8 billion, respectively, and
included credit-related expenses of $17.5 billion and $3.1 billion, respectively. Administrative expenses totaled $1.5 billion
for 2008, down from $1.7 billion for 2007 as we implemented several cost reduction measures.
Two accounting changes had a significant positive impact on our financial results for 2008. Upon adoption of an
amendment to the accounting standards for fair value measurements and disclosures on January 1, 2008, we began measuring
the fair value of our newly-issued guarantee obligations at their inception using the practical expedient provided by the initial
measurement guidance for guarantees. As a result, prospectively from January 1, 2008, we no longer record estimates of
deferred gains or immediate, “day one” losses on most guarantees. Also effective January 1, 2008, we adopted an
amendment to the accounting standards for the fair value option for financial assets and liabilities, which permits companies
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