Freddie Mac 2010 Annual Report Download - page 100

During the three months and year ended December 31, 2009, we recorded net impairment of available-for-sale
mortgage-related securities recognized in earnings of $0.7 billion and $11.0 billion, respectively. The impairments recorded
during the three months ended December 31, 2009 related primarily to increases in expected future credit losses on our
holdings of non-agency mortgage-related securities. Of the impairments recorded during the year ended December 31, 2009,
$6.9 billion were recognized in the first quarter, prior to our adoption of the amendment to the accounting standards related
to investments in debt and equity securities, and included both credit and non-credit-related other-than-temporary
impairments. For further information on our adoption of the amendment to the accounting standards for investments in debt
and equity securities and how other-than-temporary impairments are recorded on our financial statements commencing in the
second quarter of 2009, see “NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES — Other Changes in Accounting
Principles — Change in the Impairment Model for Debt Securities.” See “NOTE 8: INVESTMENTS IN SECURITIES” for
additional information regarding the accounting principles for investments in debt and equity securities and the other-than-
temporary impairments recorded during the years ended December 31, 2010, 2009, and 2008.
Our assessments concerning other-than-temporary impairment require significant judgment and the use of models, and
are subject to potentially significant change due to the performance of the individual securities and mortgage market
conditions. Depending on the structure of the individual mortgage-related security and our estimate of collateral losses
relative to the amount of credit support available for the senior tranches we own, a change in collateral loss estimates can
have a disproportionate impact on the loss estimate for the security. Additionally, servicer performance, loan modification
programs and backlogs, bankruptcy reform and other forms of government intervention in the housing market can
significantly affect the performance of these securities, including the timing of loss recognition of the underlying loans and
thus the timing of losses we recognize on our securities. Foreclosure processing suspensions can also affect our losses. For
example, while defaulted loans remain in the trusts prior to completion of the foreclosure process, the subordinate classes of
securities issued by the securitization trusts may continue to receive interest payments, rather than absorbing default losses.
This may reduce the amount of funds available for the senior tranches we own. Given the extent of the housing and
economic downturn over the past few years, it is difficult to estimate the future performance of mortgage loans and
mortgage-related securities with any assurance, and actual results could differ materially from our expectations. Furthermore,
various market participants could arrive at materially different conclusions regarding estimates of future cash shortfalls. For
more information on how delays in the foreclosure process, including delays related to concerns about deficiencies in
foreclosure documentation practices, could adversely affect the values of, and the losses on, the non-agency mortgage-related
securities we hold, see “RISK FACTORS — Operational Risks — Our expenses could increase and we may otherwise be
adversely affected by deficiencies in foreclosure practices, as well as related delays in the foreclosure process.”
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