Freddie Mac 2014 Annual Report Download - page 184

179 Freddie Mac
Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position
Less than 12 Months 12 Months or Greater
December 31, 2014 Fair
Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
(in millions)
Available-for-sale securities:
Freddie Mac $ 2,531 $ (14) $ 936 $ (32)
Fannie Mae 2,693 (9) 5 (1)
Ginnie Mae 66 — — —
CMBS 184 (5) 1,149 (51)
Subprime 286 (3) 6,533 (607)
Option ARM 77 — 1,490 (183)
Alt-A and other 185 (5) 499 (30)
Obligations of states and political subdivisions 48 — 28 (2)
Manufactured housing 42 — 15 (2)
Total available-for-sale securities in a gross unrealized loss position $ 6,112 $ (36) $ 10,655 $ (908)
December 31, 2013
Available-for-sale securities:
Freddie Mac $ 7,957 $ (144) $ 649 $ (45)
Fannie Mae 248 (2) 19 (1)
CMBS 1,147 (85) 1,992 (252)
Subprime 472 (19) 19,103 (2,761)
Option ARM 77 (2) 2,608 (379)
Alt-A and other 262 (5) 1,854 (137)
Obligations of states and political subdivisions 1,885 (56) 24 (5)
Manufactured housing — — 65 (6)
Total available-for-sale securities in a gross unrealized loss position $ 12,048 $ (313) $ 26,314 $ (3,586)
At December 31, 2014, total gross unrealized losses on available-for-sale securities were $0.9 billion. The gross
unrealized losses relate to 385 individual lots representing 364 separate securities. We purchase multiple lots of individual
securities at different times and at different costs. We determine gross unrealized gains and gross unrealized losses by
specifically evaluating investment positions at the lot level; therefore, some of the lots we hold for an individual security may
be in an unrealized gain position while other lots for that security may be in an unrealized loss position, depending upon the
amortized cost of the specific lot.
Impairment Recognition on Investments in Securities
We recognize impairment losses on available-for-sale securities within our consolidated statements of comprehensive
income as net impairment of available-for-sale securities recognized in earnings when we conclude that a decrease in the fair
value of a security is other-than-temporary. For information regarding our evaluation of our available-for-sale securities for
impairment, see "NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities."
The evaluation of whether unrealized losses on available-for-sale securities are other-than-temporary requires significant
management judgments and assumptions and consideration of numerous factors. We perform an evaluation on a security-by-
security basis considering all available information. The relative importance of this information varies based on the facts and
circumstances surrounding each security, as well as the economic environment at the time of assessment. Important factors
include, but are not limited to:
• whether we intend to sell the security or it is more likely than not that we will be required to sell the security before
sufficient time elapses to recover all unrealized losses;
• the use of a third-party model for single-family non-agency mortgage-related securities that considers the credit
performance of the underlying collateral, including current LTV ratio, delinquency status, servicer performance, loan
modification terms and status, and borrower credit information. The model also incorporates assumptions about the
economic environment, including future home prices, unemployment, and interest rates to project underlying collateral
prepayment speeds, default rates, loss severities, and delinquency rates. Our estimation approach for CMBS includes
the use of a separate third-party model that utilizes underlying collateral performance, current and expected credit
enhancements, and incorporates assumptions about the underlying collateral cash flows; and
• the incorporation of security-level subordination information and the priority of cash flow payments by the models to
project and estimate cash flows expected to be collected for each security.
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