Freddie Mac 2014 Annual Report Download - page 152

147 Freddie Mac
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Freddie Mac is a GSE chartered by Congress in 1970. Our public mission is to provide liquidity, stability, and
affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, the CFPB and Treasury, and are currently
operating under the conservatorship of FHFA. For more information on the roles of FHFA and Treasury, see “NOTE 2:
CONSERVATORSHIP AND RELATED MATTERS.”
We perform our mission by participating in the secondary 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. We do not participate directly in the primary mortgage market.
We have 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 purchase and guarantee single-family mortgage loans
originated by our seller/servicers in the primary mortgage market and we manage our seriously delinquent loans. In most
instances, we use the mortgage securitization process to package the loans into guaranteed mortgage-related securities. We
guarantee the payment of principal and interest on the mortgage-related securities in exchange for management and guarantee
fees. Our Investments segment reflects results from three primary activities: (a) managing the company’s mortgage-related
investments portfolio, excluding Multifamily segment investments and single-family seriously delinquent loans; (b) managing
the treasury function for the entire company, including funding and liquidity; and (c) managing interest-rate risk for the entire
company. In our Investments segment, we invest principally in mortgage-related securities and single-family performing
mortgage loans. Our Multifamily segment reflects results from our investment (both purchases and sales), securitization, and
guarantee activities in multifamily mortgage loans and securities. In our Multifamily segment, our primary business model is to
purchase multifamily mortgage loans for aggregation and then securitization through issuance of multifamily K Certificates.
See “NOTE 13: SEGMENT REPORTING” for additional information.
Our primary business objectives are: (a) to support U.S. homeowners and renters by maintaining mortgage availability
even when other sources of financing are scarce and by providing struggling homeowners with alternatives that allow them to
stay in their homes or avoid foreclosure; (b) to reduce taxpayer exposure to losses by increasing the role of private capital in the
mortgage market and reducing our overall risk profile; (c) to build a commercially strong and efficient business enterprise to
succeed in a to-be-determined “future state;" and (d) to support and improve the secondary mortgage market. For information
regarding our objectives, see “NOTE 2: 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. 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 income includes
certain adjustments to correct immaterial errors related to previously reported periods.
Beginning in the first quarter of 2014, we reclassified net discounts paid on retirements of other debt and net premiums
received from issuance of debt securities of consolidated trusts and other debt from cash flows from operating activities to cash
flows from financing activities on our consolidated statements of cash flows. This reclassification resulted in a decrease of $2.0
billion and $3.2 billion to net cash provided by operating activities, and an increase of $2.0 billion and $3.2 billion to net cash
used in financing activities for 2013 and 2012, respectively.
Use of Estimates
The preparation of financial statements requires us to make estimates and assumptions that affect: (a) the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and
(b) the reported amounts of revenues and expenses and gains and losses during the reporting period. Management has made
significant estimates in preparing the financial statements for establishing the allowance for loan losses and reserve for
guarantee losses, valuing financial instruments and other assets and liabilities, assessing impairments on investments, and
assessing our ability to realize net deferred tax assets. Actual results could be different from these estimates.
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