Freddie Mac 2010 Annual Report Download - page 271

During 2010, our Level 3 assets decreased by $81.7 billion primarily due to the transfer of the majority of CMBS from
Level 3 to Level 2 and our adoption of the amendments to the accounting standards for transfers of financial assets and
consolidation of VIEs. During 2010, the CMBS market continued to improve and we observed significantly less variability in
fair value quotes received from dealers and third-party pricing services. In the fourth quarter of 2010 we determined that
these market conditions stabilized to a degree that we believe indicates that unobservable inputs are no longer significant to
the fair values of these securities and, as a result, we transferred $51.3 billion of CMBS from Level 3 to Level 2. The
adoption of the amendments to the accounting standards for transfers of financial assets and consolidation of VIEs resulted in
the elimination of $28.8 billion in our Level 3 assets on January 1, 2010, including: (1) certain mortgage-related securities
issued by our consolidated trusts that are held by us; and (2) the guarantee asset for guarantees issued to our consolidated
trusts. In addition, we transferred $0.4 billion of other Level 3 assets to Level 2 during 2010, resulting from improved
liquidity and availability of price quotes received from dealers and third-party pricing services.
During 2009, our Level 3 assets increased by $48.1 billion primarily due to the transfer of CMBS securities from
Level 2 to Level 3 given the continued weakness in the market for non-agency CMBS, as evidenced by low transaction
volumes and wide spreads, as investor demand for these assets remained limited. As a result, we continued to observe
significant variability in the quotes received from dealers and third-party pricing services. We concluded that the prices on
these securities received from pricing services and dealers were reflective of significant unobservable inputs. Consequently,
we transferred $46.4 billion of Level 2 assets to Level 3 during 2009.
Table 20.2 provides a reconciliation of the beginning and ending balances for assets and liabilities measured at fair
value using significant unobservable inputs (Level 3).
Table 20.2 — Fair Value Measurements of Assets and Liabilities Using Significant Unobservable Inputs
Balance,
December 31, 2009
Cumulative
effect
of change
in accounting
principle
(1)
Balance,
January 1, 2010
Included in
earnings
(2)(3)(4)(5)
Included in
other
comprehensive
income
(2)(3)
Total
Purchases,
issuances,
sales and
settlements, net
(6)
Net transfers
in and/or out
of Level 3
(7)
Balance,
December 31, 2010
Unrealized
gains (losses)
still held
(8)
Realized and unrealized gains (losses)
For The Year Ended December 31, 2010
(in millions)
Investments in securities:
Available-for-sale, at fair value:
Mortgage-related securities:
Freddie Mac . . . . . . . . . . . . . . . . . . $ 20,807 $(18,775) $ 2,032 $ — $ 5 $ 5 $ — $ — $ 2,037 $ —
Subprime . . . . . . . . . . . . . . . . . . . . 35,721 — 35,721 (1,769) 7,046 5,277 (7,137) — 33,861 (1,769)
CMBS . . . . . . . . . . . . . . . . . . . . . 54,019 — 54,019 — 369 369 — (51,273) 3,115 —
Option ARM . . . . . . . . . . . . . . . . . . 7,236 — 7,236 (1,402) 2,611 1,209 (1,556) — 6,889 (1,395)
Alt-A and other . . . . . . . . . . . . . . . . 13,391 — 13,391 (1,020) 3,128 2,108 (2,344) — 13,155 (1,020)
Fannie Mae . . . . . . . . . . . . . . . . . . 338 — 338 — — — (139) 13 212 —
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . 11,477 — 11,477 4 (123) (119) (1,981) — 9,377 —
Manufactured housing . . . . . . . . . . . . . 911 — 911 (27) 126 99 (113) — 897 (27)
Ginnie Mae . . . . . . . . . . . . . . . . . . 4 — 4 — (1) (1) (5) 18 16 —
Total available-for-sale mortgage-related
securities . . . . . . . . . . . . . . . . . 143,904 (18,775) 125,129 (4,214) 13,161 8,947 (13,275) (51,242) 69,559 (4,211)
Trading, at fair value:
Mortgage-related securities:
Freddie Mac . . . . . . . . . . . . . . . . . . 2,805 (5) 2,800 (777) — (777) 659 (383) 2,299 (799)
Fannie Mae . . . . . . . . . . . . . . . . . . 1,343 — 1,343 (449) — (449) (38) (2) 854 (449)
Ginnie Mae . . . . . . . . . . . . . . . . . . 27 — 27 1 — 1 (1) — 27 1
Other . . . . . . . . . . . . . . . . . . . . . . 28 (1) 27 (1) — (1) (4) (2) 20 (1)
Total trading mortgage-related
securities . . . . . . . . . . . . . . . . . 4,203 (6) 4,197 (1,226) — (1,226) 616 (387) 3,200 (1,248)
Mortgage loans:
Held-for-sale, at fair value . . . . . . . . . . . . . 2,799 — 2,799 (1) — (1) 3,615 — 6,413 (308)
Net derivatives
(9)
. . . . . . . . . . . . . . . . . . . . (430) — (430) (141) — (141) (120) — (691) (619)
Other assets:
Guarantee asset
(10)
. . . . . . . . . . . . . . . . . 10,444 (10,024) 420 (24) — (24) 145 — 541 (24)
268 Freddie Mac