Freddie Mac 2009 Annual Report Download - page 90

Low-Income Housing Tax Credit Partnerships
We record the combination of our share of partnership losses and impairment of our net investment in LIHTC
partnerships accounted for under the equity method as LIHTC partnerships expense on our consolidated statements of
operations. LIHTC partnerships expense totaled $4.2 billion and $453 million in 2009 and 2008, respectively.
On February 18, 2010, we received a letter from the Acting Director of FHFA stating that FHFA has determined that
any sale of the LIHTC investments by Freddie Mac would require Treasury’s consent under the terms of the Purchase
Agreement. The letter further stated that FHFA had presented other options for Treasury to consider, including allowing
Freddie Mac to pay senior preferred stock dividends by waiving the right to claim future tax benefits of the LIHTC
investments. However, after further consultation with Treasury and consistent with the terms of the Purchase Agreement, the
Acting Director informed us we may not sell or transfer the assets and that he sees no other disposition options. As a result,
we wrote down the carrying value of our LIHTC investments to zero as of December 31, 2009, resulting in a loss of
$3.4 billion. This write-down reduces our net worth at December 31, 2009 and, as such, increases the likelihood that we will
require additional draws from Treasury under the Purchase Agreement and, as a consequence, increases the likelihood that
our dividend obligation on the senior preferred stock will increase. Our investments in low-income housing tax credit
partnership equity investments totaled $— billion and $4.1 billion as of December 31, 2009 and 2008, respectively. See
“NOTE 5: VARIABLE INTEREST ENTITIES — LIHTC Partnerships” to our consolidated financial statements for further
information.
Trust Management Income (Expense)
Trust management income (expense) represents the amounts we earn as administrator, issuer and trustee, net of related
expenses, related to the management of remittances of principal and interest on loans underlying our PCs and Structured
Securities. Trust management income (expense) was $(761) million, $(70) million and $18 million for 2009, 2008 and 2007,
respectively. We experienced trust management expenses associated with shortfalls in interest payments on PCs, known as
compensating interest, which significantly exceeded our trust management income during 2009 and 2008. Significantly larger
shortfalls in 2009 are the result of higher refinance activity and lower interest income on trust assets, which we receive as fee
income, than in 2008. See “Segment Earnings — Segment Earnings-Results —Single-Family Guarantee” for further
information on compensating interest.
Other Income
Other income primarily consists of resecuritization fees, fees associated with servicing and technology-related programs,
fees related to multifamily loans (including application and other fees) and various other fees received from mortgage
originators and servicers. For 2009, 2008 and 2007, other income included resecuritization fees of $71 million, $44 million
and $85 million, respectively, that were recognized at the time the related securities were issued.
Non-Interest Expense
Table 19 summarizes the components of non-interest expense.
Table 19 — Non-Interest Expense
2009 2008 2007
Year Ended December 31,
(in millions)
Administrative expenses:
Salaries and employee benefits ....................................................... $ 912 $ 828 $ 828
Professional services .............................................................. 310 262 392
Occupancy expense ............................................................... 68 67 64
Other administrative expenses ........................................................ 361 348 390
Total administrative expenses ....................................................... 1,651 1,505 1,674
Provision for credit losses . . . ......................................................... 29,530 16,432 2,854
REO operations expense ............................................................. 307 1,097 206
Losses on certain credit guarantees ...................................................... — 17 1,988
Losses on loans purchased . . . ......................................................... 4,754 1,634 1,865
Securities administrator loss on investment activity . . ......................................... — 1,082 —
Other expenses . . . . . ............................................................... 483 418 226
Total non-interest expense . . . ......................................................... $36,725 $22,185 $8,813
Administrative Expenses
Administrative expenses increased in 2009 compared to 2008, in part due to higher legal fees and other professional
service costs to support corporate initiatives. Salaries and employee benefits expenses for 2009 reflect a slight increase in
employee headcount as well as higher employee retention and severance compensation costs. Administrative expenses
decreased in 2008 compared to 2007 as we decreased our reliance on consultants and implemented other cost reduction
measures.
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