Freddie Mac 2010 Annual Report Download - page 273

Table 20.3 presents assets measured and reported at fair value on a non-recurring basis in our consolidated balance
sheets by level within the fair value hierarchy at December 31, 2010 and 2009, respectively.
Table 20.3 — Assets Measured at Fair Value on a Non-Recurring Basis
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Total Gains
(Losses)
(5)
Fair Value at December 31, 2010
(in millions)
Assets measured at fair value on a non-recurring basis:
Mortgage loans:
(1)
Held-for-investment . ................................... $— $— $ 1,560 $ 1,560 $ (183)
REO, net
(2)
........................................... — — 5,606 5,606 (290)
Total assets measured at fair value on a non-recurring basis ......... $— $— $ 7,166 $ 7,166 $ (473)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Total Gains
(Losses)
(5)
Fair Value at December 31, 2009
(in millions)
Assets measured at fair value on a non-recurring basis:
Mortgage loans:
(1)
Held-for-investment . ................................... $— $— $ 894 $ 894 $ (231)
Held-for-sale . ........................................ — — 13,393 13,393 (64)
REO, net
(2)
........................................... — — 1,532 1,532 607
LIHTC partnership equity investments
(3)
........................ — — — — (3,669)
Accounts and other receivables, net
(4)
.......................... — — — — (109)
Total assets measured at fair value on a non-recurring basis ......... $— $— $15,819 $15,819 $(3,466)
(1) Represents carrying value and related write-downs of loans for which adjustments are based on the fair value amounts. These loans include held-for-sale
mortgage loans where the fair value is below cost and impaired multifamily mortgage loans, that are classified as held-for-investment and have a related
valuation allowance.
(2) Represents the fair value and related losses of foreclosed properties that were measured at fair value subsequent to their initial classification as REO,
net. The carrying amount of REO, net was written down to fair value of $5.6 billion, less estimated costs to sell of $406 million (or approximately
$5.2 billion) at December 31, 2010. The carrying amount of REO, net was written down to fair value of $1.5 billion, less estimated costs to sell of
$106 million (or approximately $1.4 billion) at December 31, 2009.
(3) Represents the carrying value and related write-downs of impaired LIHTC partnership equity investments for which adjustments are based on the fair
value amounts.
(4) Represents the carrying value and related write-downs of impaired LIHTC partnership consolidated investments for which adjustments are based on fair
value amounts.
(5) Represents the total gains (losses) recorded on items measured at fair value on a non-recurring basis as of December 31, 2010 and 2009, respectively.
Fair Value Election
We elected the fair value option for certain types of securities, multifamily held-for-sale mortgage loans, foreign-
currency denominated debt, and certain other debt.
Certain Available-for-Sale Securities with Fair Value Option Elected
We elected the fair value option for certain available-for-sale mortgage-related securities to better reflect the natural
offset these securities provide to fair value changes recorded historically on our guarantee asset at the time of our election. In
addition, upon adoption of the accounting standards for the fair value option, we elected this option for available-for-sale
securities within the scope of the accounting standards for investments in beneficial interests in securitized financial assets to
better reflect any valuation changes that would occur subsequent to impairment write-downs previously recorded on these
instruments. By electing the fair value option for these instruments, we reflect valuation changes through our consolidated
statements of operations in the period they occur, including any increases in value.
For mortgage-related securities and investments in securities that were selected for the fair value option and
subsequently classified as trading securities, the change in fair value is recorded in other gains (losses) on investment
securities recognized in earnings in our consolidated statements of operations. See “NOTE 8: INVESTMENTS IN
SECURITIES” for additional information regarding the net unrealized gains (losses) on trading securities, which include
gains (losses) for other items that are not selected for the fair value option. Related interest income continues to be reported
as interest income in our consolidated statements of operations. See “NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES — Investments in Securities” for additional information about the measurement and recognition
of interest income on investments in securities.
Debt Securities with Fair Value Option Elected
We elected the fair value option for foreign-currency denominated debt and certain other debt securities. In the case of
foreign-currency denominated debt, we have entered into derivative transactions that effectively convert these instruments to
U.S. dollar denominated floating rate instruments. The fair value changes on these derivatives were recorded in derivative
270 Freddie Mac