Freddie Mac 2010 Annual Report Download - page 79

$3.3 billion to the gains on these trading securities during 2009. In addition, we sold agency securities classified as trading
with UPBs of approximately $148.7 billion, which generated realized gains of $1.7 billion.
In 2008, we elected the fair value option for approximately $87 billion of securities and transferred the securities
previously classified as available-for-sale to trading. The increase in the balance of the trading securities along with a
decrease in interest rates resulted in significant gains on trading securities. Partially offsetting these gains were losses related
to interest-only securities classified as trading, primarily as a result of the decrease in interest rates, and the realization of
$481 million of losses from the sale of certain agency securities prior to our entry into conservatorship during the third
quarter of 2008 in an effort to meet the mandatory target capital surplus requirement then in effect.
Other Income
Table 13 summarizes the significant components of other income.
Table 13 — Other Income
2010 2009 2008
Year Ended December 31,
(in millions)
Other income (losses):
Management and guarantee income . . . . . . ............................................... $ 143 $3,033 $ 3,370
Gains (losses) on guarantee asset . . . . . . . ............................................... (61) 3,299 (7,091)
Income on guarantee obligation . . . . . . . . ............................................... 135 3,479 4,826
Gains (losses) on sale of mortgage loans . . ............................................... 267 745 117
Lower-of-cost-or-fair-value adjustments on held-for-sale mortgage loans . . .......................... — (679) (30)
Gains (losses) on mortgage loans recorded at fair value . ...................................... (249) (190) (14)
Recoveries on loans impaired upon purchase .............................................. 806 379 495
Low-income housing tax credit partnerships ............................................... — (4,155) (453)
Trust management income (expense) . . . . . ............................................... — (761) (70)
All other ....................................................................... 819 222 195
Total other income .................................................................. $1,860 $ 5,372 $ 1,345
Other income includes items associated with our guarantee business activities on non-consolidated trusts, including
management and guarantee income, gains (losses) on guarantee asset, income on guarantee obligation, gains (losses) on sale
of mortgage loans, and trust management income (expense). Upon consolidation of our single-family PC trusts and certain
Other Guarantee Transactions commencing January 1, 2010, guarantee-related items no longer have a material impact on our
results and are therefore included in other income on our consolidated statements of operations. The management and
guarantee income recognized during 2010 was earned from our non-consolidated securitization trusts and other mortgage
credit guarantees which had an aggregate UPB of $44.0 billion as of December 31, 2010 compared to $1.87 trillion as of
December 31, 2009. For additional information on the impact of consolidation of our single-family PC trusts and certain
Other Guarantee Transactions, see “NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES” AND “NOTE 23: SELECTED
FINANCIAL STATEMENT LINE ITEMS.”
All other income increased to $819 million in 2010 from $222 million in 2009, primarily due to recognition of
mortgage-servicing income related to reclaimed servicing rights associated with one of our former single-family seller/
servicers, and assessment of penalties and other fees on single-family seller servicers, including penalties arising from
failures to complete foreclosures within required time periods, and to a lesser extent, increased expectations of recoveries
from certain legal claims.
Lower-of-Cost-or-Fair-Value Adjustments on Held-for-Sale Mortgage Loans
We recognized lower-of-cost-or-fair-value adjustments of $0 million, $(679) million, and $(30) million in 2010, 2009,
and 2008, respectively. Due to the change in the accounting standard for consolidation of VIEs, which we adopted on
January 1, 2010, all single-family mortgage loans on our consolidated balance sheet were reclassified as held-for-investment.
Consequently, beginning in 2010, we no longer record lower-of-cost-or-fair-value adjustments on single-family mortgage
loans. During 2009, we transferred $10.6 billion of single-family mortgage loans from held-for-sale to held-for-investment.
Upon transfer, we evaluated the lower of cost or fair value for each individual loan. We recognized approximately
$438 million of losses associated with these transfers during 2009, representing the unrealized losses of certain loans on the
dates of transfer; however, we were not permitted to similarly recognize any unrealized gains on individual loans at the time
of transfer. We did not transfer any mortgage loans between these categories during 2008.
Recoveries on Loans Impaired upon Purchase
Recoveries on loans impaired upon purchase represent the recapture into income of previously recognized losses on
loans purchased and provision for credit losses associated with purchases of delinquent loans from our PCs in conjunction
with our guarantee activities. Recoveries occur when a non-performing loan is repaid in full or when at the time of
foreclosure the estimated fair value of the acquired property, less costs to sell, exceeds the carrying value of the loan. For
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