Freddie Mac 2009 Annual Report Download - page 87

Table 18 — Gains (Losses) on Investments
2009 2008 2007
Year Ended December 31,
(in millions)
Impairment-related
(1)
:
Total other-than-temporary impairment of available-for-sale securities ............................ $(23,125) $(17,682) $(365)
Portion of other-than-temporary impairment recognized in AOCI . . .............................. 11,928 — —
Net impairment of available-for-sale securities recognized in earnings . . . ........................ (11,197) (17,682) (365)
Other:
Gains (losses) on trading securities
(2)
................................................... 4,882 955 506
Gains (losses) on sale of mortgage loans
(3)
............................................... 745 117 14
Gains (losses) on sale of available-for-sale securities . . . ..................................... 1,083 546 232
Lower of cost or fair value adjustments ................................................. (679) (30) (93)
Gains (losses) on mortgage loans elected at fair value . . ..................................... (190) (14) —
Total gains (losses) on investments .................................................. $ (5,356) $(16,108) $ 294
(1) We adopted an amendment to the accounting standards for investments in debt and equity securities effective April 1, 2009. See “NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES— Recently Adopted Accounting Standards” to our consolidated financial statements for further
information.
(2) Includes mark-to-fair value adjustments on securities classified as trading recorded in accordance with accounting guidance for investments in beneficial
interests for securitized assets.
(3) Represents gains (losses) on mortgage loans sold in connection with securitization transactions.
Impairments on Available-For-Sale Securities
During 2009, we recorded total other-than-temporary impairment related to our available-for-sale securities of
$23.1 billion, of which $11.2 billion was recognized in earnings and $11.9 billion was recognized in AOCI. Of the amount
recognized in earnings, $6.9 billion was recognized in the first quarter of 2009, prior to the adoption of an amendment to the
accounting standards for investments in debt and equity securities, and related to non-agency mortgage-related securities
backed by subprime, option ARM and Alt-A and other loans that were probable of incurring a contractual principal or
interest loss. This amendment, which we adopted on April 1, 2009, changed the recognition, measurement and presentation
of other-than-temporary impairments of debt securities, and was intended to bring greater consistency to the timing of
impairment recognition and provide greater clarity to investors about the credit and non-credit components of impaired debt
securities that are not expected to be sold. Under this guidance, the non-credit-related portion of the other-than-temporary
impairment (that portion which relates to securities not intended to be sold or which it is not more likely than not we will be
required to sell) is recorded in AOCI and not recognized in earnings. Credit-related portions of other-than-temporary
impairments are recognized in earnings. See “NOTE 6: INVESTMENTS IN SECURITIES” to our consolidated financial
statements for additional information regarding these accounting principles and other-than-temporary impairments recorded
during 2009, 2008 and 2007. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently
Adopted Accounting Standards — Change in the Impairment Model for Debt Securities” to our consolidated financial
statements for information on how other-than-temporary impairments are recorded on our financial statements commencing
in the second quarter of 2009.
During 2008, we recorded $17.7 billion of impairment on available-for-sale securities recognized in earnings, primarily
related to our investments in non-agency mortgage-related securities backed by subprime, option ARM and Alt-A and other
loans mainly due to deterioration in the performance of the collateral underlying these loans.
See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities — Mortgage-Related
Securities — Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM and Alt-A Loans” for additional
information.
Gains (Losses) on Trading Securities
During 2009, we recognized net gains on trading securities of $4.9 billion, compared to net gains of $955 million in
2008. The unpaid principal balance of our securities classified as trading increased to $208.8 billion at December 31, 2009
compared to $183.7 billion at December 31, 2008, primarily due to the increased balance of agency mortgage-related
securities. The increased balance in our investments in trading securities, combined with a steepening yield curve and
tightening OAS levels, contributed $3.3 billion to the gains on these trading securities during 2009. In addition, during 2009
we sold agency securities classified as trading with unpaid principal balances of approximately $148.7 billion, which
generated realized gains of $1.7 billion.
In 2008, we elected the fair value option for approximately $87 billion of securities and transferred the securities
previously classified as available-for-sale to trading. The increase in the balance of the trading securities along with a
decrease in interest rates resulted in significant gains on trading securities. Partially offsetting these gains were losses related
to interest-only securities classified as trading, primarily as a result of the decrease in interest rates, and the realization of
84 Freddie Mac