Freddie Mac 2010 Annual Report Download - page 181

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage market and expand
opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and
affordability to the U.S. housing market. We are a GSE regulated by FHFA, the SEC, HUD, and the Treasury. For more
information on the roles of FHFA and the Treasury, see “NOTE 3: CONSERVATORSHIP AND RELATED MATTERS.”
We are involved in the U.S. housing market by participating in the secondary mortgage market. We do not participate
directly in the primary mortgage market. Our participation in the secondary mortgage market includes providing our credit
guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans and
mortgage-related securities.
Our operations consist of three reportable segments, which are based on the type of business activities each performs —
Single-family Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results from our
single-family credit guarantee activities. In our Single-family Guarantee segment, we acquire and securitize mortgage loans
by issuing PCs to third-party investors and we also guarantee the payment of principal and interest on single-family
mortgage loans and mortgage-related securities. We also resecuritize mortgage-related securities that are issued by us or
Ginnie Mae as well as private (non-agency) entities. Our Investments segment reflects results from our investment, funding,
and hedging activities. In our Investments segment, we invest principally in mortgage-related securities and single-family
mortgage loans. These activities are funded by debt issuances. We manage the interest-rate risk associated with these
investment and funding activities using derivatives. Our Multifamily segment reflects results from our investments and
guarantee activities in multifamily mortgage loans and securities. In our Multifamily segment, we purchase multifamily
mortgage loans primarily for securitization, and CMBS for investment. We also guarantee the payment of principal and
interest on multifamily mortgage-related securities and mortgages underlying multifamily housing revenue bonds. See
“NOTE 17: SEGMENT REPORTING” for additional information.
Under conservatorship, we are focused on the following primary business objectives: (a) meeting the needs of the U.S.
residential mortgage market by making home ownership and rental housing more affordable by providing liquidity to
mortgage originators and, indirectly, to mortgage borrowers; (b) working to reduce the number of foreclosures and helping to
keep families in their homes, including through our role in the MHA Program initiatives, including HAMP, and our relief
refinance mortgage initiative; (c) minimizing our credit losses; and (d) maintaining the credit quality of the loans we
purchase and guarantee.
In addition to our primary business objectives discussed above, we have a variety of different, and potentially
competing, objectives based on our charter, public statements from Treasury and FHFA officials, and guidance from our
Conservator. For information regarding these objectives see “NOTE 3: CONSERVATORSHIP AND RELATED
MATTERS — Business Objectives.”
Throughout our consolidated financial statements and related notes, we use certain acronyms and terms which are
defined in the Glossary.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our
accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany
balances and transactions have been eliminated.
Our current accounting policies are described below. For additional information regarding recently adopted accounting
standards and other changes in accounting principles see “NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES.” We are
operating under the basis that we will realize assets and satisfy liabilities in the normal course of business as a going concern
and in accordance with the delegation of authority from FHFA to our Board of Directors and management. Certain amounts
in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.
We evaluate the materiality of identified errors in the financial statements using both an income statement, or “rollover,”
and a balance sheet, or “iron-curtain,” approach, based on relevant quantitative and qualitative factors. Net loss includes
certain adjustments to correct immaterial errors related to previously reported periods.
Out-of-Period Accounting Adjustment
During the second quarter of 2010, we identified a backlog related to the processing of certain loan workout activities
reported to us by our servicers, principally loan modifications and short sales. This backlog was the result of a significant
increase in the volume of loan workouts executed by servicers beginning in 2009, which placed pressure on our existing loan
processing capabilities. Our loan accounting processing activities and our loan loss reserving process are dependent on
accurate loan data from our loan reporting systems. Our loan workout operational processes rely on manual reviews and
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