Freddie Mac 2009 Annual Report Download - page 88

$481 million of losses from the sale of certain agency securities prior to our entry into conservatorship during the third
quarter of 2008 in an effort to meet the mandatory target capital surplus requirement then in effect.
In 2007, the overall decrease in long-term interest rates resulted in gains related to our agency securities classified as
trading.
Gains (Losses) on Sale of Mortgage Loans
We recognized gains on sale of mortgage loans of $745 million, $117 million and $14 million in 2009, 2008 and 2007,
respectively. Gains and losses on the sale of mortgage loans result from issuances of PCs and Structured Securities other than
through guarantor swap transactions. Excluding resecuritizations of HFA bonds, we executed two multifamily securitizations
during 2009 totaling approximately $2 billion in unpaid principal balance and also increased our securitization of single-
family loans through cash auction, which resulted in higher gains during 2009 as compared to 2008. In 2010, we expect to
continue securitization of multifamily loans, as market conditions allow. Beginning January 1, 2010, we do not expect to
record gains or losses on securitizations of single-family loans due to our adoption of amendments to accounting standards
for transfers of financial assets and consolidation of VIEs.
Gains (Losses) on Sale of Available-For-Sale Securities
We recorded net gains on the sale of available-for-sale securities of $1.1 billion during 2009, primarily related to our
sale of agency mortgage-related securities with unpaid principal balances of approximately $18.0 billion, which generated net
gains of $774 million.
During 2008, we entered into Structured Transactions and sales of seasoned securities with unpaid principal balances of
$36 billion, primarily consisting of agency mortgage-related securities, which generated a net gain of $546 million. These
sales occurred principally during the first quarter and prior to our entry into conservatorship during the third quarter of 2008,
when market conditions were favorable and we sold assets in an effort to meet the mandatory target capital surplus
requirement then in effect.
In 2007, we realized net gains on the sale of available-for-sale securities of $232 million, primarily related to sales
conducted for capital management purposes.
Lower of Cost or Fair Value Adjustments
We recognized lower of cost or fair value adjustments of $(679) million, $(30) million and $(93) million in 2009, 2008
and 2007, respectively. We record single-family mortgage loans classified as held-for-sale at the lower of amortized cost or
fair value, which is evaluated each period by aggregating loans based on the mortgage product type. During 2009, we
transferred $10.6 billion of single-family mortgage loans from held-for-sale to held-for-investment. The majority of these
loans were originally purchased with the expectation of subsequent sale in a PC auction, but we now expect to hold these for
investment on our consolidated balance sheet. Upon transfer, we evaluate the lower of cost or fair value for each individual
loan. We recognized approximately $438 million of losses associated with these transfers during 2009, representing the
unrealized losses of certain loans on the dates of transfer; however, we are not permitted to similarly recognize any
unrealized gains on individual loans at the time of transfer. We did not transfer any mortgage loans between these categories
during 2008 or 2007.
In connection with the adoption of new accounting standards for transfers of financial assets and consolidation of VIEs
on January 1, 2010, we transferred all remaining single-family loans held-for-sale on our balance sheets with unpaid
principal balances of approximately $13.5 billion to held-for-investment, and thereafter, we no longer expect to classify
single-family mortgage loans as held-for-sale. Consequently, we expect that our lower of cost or fair value adjustments
should significantly decline in 2010. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Recently
Issued Accounting Standards, Not Yet Adopted Within These Consolidated Financial Statements” to our consolidated
financial statements for further information.
Gains (Losses) on Debt Recorded at Fair Value
We elected the fair value option for our foreign-currency denominated debt effective January 1, 2008. Accordingly,
foreign-currency translation exposure is a component of gains (losses) on debt recorded at fair value. Prior to that date,
translation gains and losses on our foreign-currency denominated debt were reported in foreign-currency gains (losses), net in
our consolidated statements of operations. We manage the exposure associated with our foreign-currency denominated debt
related to fluctuations in exchange rates and interest rates through the use of derivatives, and changes in the fair value of
such derivatives are recorded as derivative gains (losses) in our consolidated statements of operations. For 2009, we
recognized losses of $(404) million on debt recorded at fair value, primarily due to the U.S. dollar weakening relative to the
Euro. For 2008, we recognized gains of $406 million on debt recorded at fair value, primarily due to the U.S. dollar
strengthening relative to the Euro. See “Derivative Overview” for additional information about how we mitigate changes in
the fair value of our foreign-currency denominated debt by using derivatives.
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