Freddie Mac 2009 Annual Report Download - page 89

Gains (Losses) on Debt Retirement
We repurchase or call our outstanding debt securities from time to time to help support the liquidity and predictability
of the market for our debt securities and to manage the mix of liabilities funding our assets. When we repurchase or call
outstanding debt securities, we recognize a gain or loss related to the difference between the amount paid to redeem the debt
security and the carrying value, including any remaining unamortized deferred items (e.g., premiums, discounts, issuance
costs and hedging-related basis adjustments), in earnings in the period of extinguishment as a component of gains (losses) on
debt retirement. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to our consolidated financial
statements for information about our accounting policies related to debt retirements.
Gains (losses) on debt retirement were $(568) million, $209 million and $345 million during 2009, 2008 and 2007,
respectively. The losses recorded during 2009 include losses of $184 million related to the tender offer for our subordinated
debt securities we conducted in 2009. Also contributing to the losses during 2009 were debt issuance costs offset by smaller
gains compared to larger gains in 2008 related to reversals of previously recorded interest expense on our debt with coupon
levels that increase at predetermined intervals, which generally contribute gains upon debt retirement. During 2008, we
recognized gains due to the increased level of call activity, primarily involving our debt with coupon levels that increase at
predetermined intervals. For more information, see “LIQUIDITY AND CAPITAL RESOURCES — Liquidity — Debt
Securities — Debt Retirement Activities.”
Recoveries on Loans Impaired upon Purchase
Recoveries on loans impaired upon purchase represent the recapture into income of previously recognized losses on
loans purchased and provision for credit losses associated with purchases of delinquent loans from our PCs in conjunction
with our guarantee activities. See “Losses on Loans Purchased” for additional information about our practices for purchasing
mortgage loans underlying our guarantees. Recoveries occur when a non-performing loan is repaid in full or when at the
time of foreclosure the estimated fair value of the acquired property, less costs to sell, exceeds the carrying value of the loan.
For impaired loans where the borrower has made required payments that return the loan to less than 90 days delinquent, the
recovery amounts are instead recognized as interest income over time as periodic payments are received.
The amount of impaired loans that we purchased increased significantly during 2007. However, since December 2007,
when we changed our practice for optional purchases of delinquent loans from our PCs, the increase in the carrying balances
of these loans has slowed. During 2009, 2008 and 2007, we recognized recoveries on loans impaired upon purchase of
$379 million, $495 million and $505 million, respectively. Recoveries on impaired loans decreased in 2009, compared to
2008, because a greater percentage of loans purchased from PC pools were modified instead of being repaid in full or
proceeding to foreclosure. Modifications on delinquent loans can delay the ultimate resolution of losses and consequently
extend the timeframe for the recognition of our recoveries, if any, on loans impaired upon purchase. In general, our
purchases of impaired loans have been more concentrated on those where the property is located in states and regions where
home prices have remained weak during 2009, which has limited our recoveries.
Commencing January 1, 2010, we no longer recognize losses on loans purchased from PC pools related to our single-
family PC trusts and certain Structured Transactions due to adoption of the amendments to the accounting standards for
transfers of financial assets and consolidation of VIEs. Consequently, our potential recoveries should decrease over time
since we will only recognize recoveries on loans impaired upon purchase prior to January 1, 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 about the
impact of adoption of these amendments.
Foreign-Currency Gains (Losses), Net
We manage the exposure associated with our foreign-currency denominated debt related to fluctuations in exchange
rates through the use of derivatives. We elected the fair value option for foreign-currency denominated debt effective
January 1, 2008. Prior to this election, gains and losses associated with the foreign-currency translation exposure of our
foreign-currency denominated debt were recorded as foreign-currency gains (losses), net in our consolidated statements of
operations. With the adoption of the fair value option for financial assets and financial liabilities, foreign-currency exposure
is now a component of gains (losses) on debt recorded at fair value. Because our adoption of the fair value option was
prospective, prior period amounts have not been reclassified. See “Derivative Overview” and “Gains (Losses) on Debt
Recorded at Fair Value” and “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to our consolidated
financial statements for additional information.
For 2007, we recognized net foreign-currency translation losses primarily related to our foreign-currency denominated
debt of $2.3 billion as the U.S. dollar weakened relative to the Euro during the period. During the same period, these losses
were offset by an increase of $2.3 billion in the fair value of foreign-currency-related derivatives recorded in derivative gains
(losses).
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