Freddie Mac 2009 Annual Report Download - page 68

programs. Treasury’s purchase program expired on December 31, 2009 and the Federal Reserve is expected to complete its
purchase program by the end of the first quarter of 2010. Once this occurs, it is possible that spreads could widen again,
which might create favorable investment opportunities. However, we may be limited in our ability to take advantage of any
favorable investment opportunities in future periods because, under the Purchase Agreement and FHFA regulation, the unpaid
principal balance of our mortgage-related investments portfolio must decline by 10% per year until it reaches $250 billion.
Due to this requirement, the unpaid principal balance of our mortgage-related investments portfolio may not exceed
$810 billion as of December 31, 2010. Treasury has stated it does not expect us to be an active buyer to increase the size of
our mortgage-related investments portfolio, and also does not expect that active selling will be necessary to meet the required
portfolio reduction targets. FHFA has also stated its expectation in the Acting Director’s February 2, 2010 letter that we will
not be a substantial buyer or seller of mortgages for our mortgage-related investments portfolio, except for purchases of
delinquent mortgages out of PC pools.
The unpaid principal balance of our mortgage loans increased 24.5%, or $27.3 billion, during 2009 to $138.8 billion.
The increase in mortgage loans was primarily due to increased investment opportunities in multifamily mortgage loans as a
result of limited market participation by non-GSE investors during 2009. Our investment in single-family mortgage loans
also increased in 2009 due to purchases of modified and delinquent loans out of PC pools.
Short-term debt decreased by $91.1 billion during 2009 to $344.0 billion, and long-term debt increased by $28.7 billion
to $436.6 billion. As a result, our outstanding short-term debt, including the current portion of long-term debt, decreased as a
percentage of our total debt outstanding to 44% at December 31, 2009 from 52% at December 31, 2008. The increase in our
long-term debt reflects the improvement during 2009 of spreads on our debt and our continued favorable access to the debt
markets. We believe the Federal Reserve’s purchases in the secondary market of our long-term debt under its purchase
program have contributed to this improvement. In addition, during 2009, consistent with our efforts to reduce funding costs,
we made several tender offers to purchase our more costly debt securities.
Our reserve for guarantee losses on PCs increased by $17.5 billion to $32.4 billion during 2009 as a result of an
increase in probable incurred losses, primarily attributable to the overall macroeconomic environment, including continued
weakness in the housing market and high unemployment.
Total equity (deficit) increased from $(30.6) billion at December 31, 2008 to $4.4 billion at December 31, 2009,
reflecting increases due to (i) $36.9 billion we received from Treasury under the Purchase Agreement during 2009, (ii) a
$17.8 billion decrease in our unrealized losses in AOCI, net of taxes, on our available-for-sale securities and (iii) an increase
in retained earnings (accumulated deficit) of $15.0 billion, and a corresponding adjustment of $(9.9) billion net of taxes, to
AOCI, as a result of the April 1, 2009 adoption of an amendment to the accounting standards for investments in debt and
equity securities. These increases in total equity (deficit) were partially offset by an $21.6 billion net loss for 2009, and
$4.1 billion of senior preferred stock dividends for 2009. The $17.8 billion decrease in the unrealized losses in AOCI, net of
taxes, on our available-for-sale securities during 2009 was largely due to (i) improvements in the market values of agency
and non-agency available-for-sale mortgage-related securities and (ii) the recognition in earnings of other-than-temporary
impairments on our non-agency mortgage-related securities.
Consolidated Fair Value Results
During 2009, the fair value of net assets, before capital transactions, increased by $0.3 billion compared to a
$120.9 billion decrease during 2008. The fair value of net assets as of December 31, 2009 was $(62.5) billion, compared to
$(95.6) billion as of December 31, 2008. Our fair value results for 2009 reflect the $36.9 billion we received from Treasury
and $4.1 billion of dividends paid to Treasury on our senior preferred stock during 2009 under the Purchase Agreement. The
increase in the fair value of our net assets, before capital transactions, during 2009 was principally related to an increase in
the fair value of our mortgage loans and our investments in mortgage-related securities, resulting from higher core spread
income and net tightening of mortgage-to-debt OAS.
Liquidity and Capital Resources
Liquidity
Our access to the debt markets improved since the height of the credit crisis in the fall of 2008, and spreads on our debt
remained favorable during 2009. Treasury and the Federal Reserve have taken a number of actions in recent periods that
have contributed to this improvement in our access to debt financing, including the following:
• Treasury entered into the Lending Agreement with us on September 18, 2008, pursuant to which Treasury established
a secured lending facility that was available to us as a liquidity backstop. The Lending Agreement expired on
December 31, 2009, and we did not make any borrowings under it;
• the Federal Reserve implemented a program to purchase, in the secondary market, up to $175 billion in direct
obligations of Freddie Mac, Fannie Mae, and the FHLBs. The Federal Reserve announced that it would gradually
65 Freddie Mac