Freddie Mac 2014 Annual Report Download - page 185

180 Freddie Mac
See “Table 7.2 — Available-For-Sale Securities in a Gross Unrealized Loss Position” for the length of time our available-
for-sale securities have been in an unrealized loss position. Also see “Table 7.3 — Significant Modeled Attributes for Certain
Available-For-Sale Non-Agency Mortgage-Related Securities” for the modeled default rates and severities that were used to
determine whether our senior interests in certain non-agency mortgage-related securities would experience a cash shortfall.
As noted in “Table 7.4 — Net Impairment of Available-For-Sale Securities Recognized in Earnings,” our net impairment
on available-for-sale securities during 2014 includes certain securities that we have the intent to sell prior to the recovery of the
unrealized loss. In cases where we have the intent to sell or it is more likely than not that we will be required to sell the security
before recovery of its amortized cost, the security’s entire decline in fair value would be deemed to be other-than-temporary
and is recorded within our consolidated statements of comprehensive income as net impairment of available-for-sale securities
recognized in earnings. For the remaining available-for-sale securities in an unrealized loss position at December 31, 2014, we
have asserted that we have no intent to sell and that we believe it is not more likely than not that we will be required to sell the
security before recovery of its amortized cost basis.
Freddie Mac and Fannie Mae Securities
We record the purchase of mortgage-related securities issued by Fannie Mae as investments in securities in accordance
with the accounting guidance for investments in debt and equity securities. In contrast, our purchase of mortgage-related
securities that we issued (e.g., PCs, REMICs and Other Structured Securities, and Other Guarantee Transactions) is recorded as
either investments in securities or extinguishment of debt securities of consolidated trusts depending on the nature of the
mortgage-related security that we purchase. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
Securitization Activities through Issuances of Freddie Mac Mortgage-Related Securities” for additional information.
We hold these investments in securities that are in an unrealized loss position at least to recovery and typically to
maturity. As the principal and interest on these securities are guaranteed and we do not intend to sell these securities and it is
not more likely than not that we will be required to sell such securities before a recovery of the securities' amortized cost basis,
we consider these unrealized losses to be temporary.
Non-Agency Mortgage-Related Securities Backed by Subprime, Option ARM, Alt-A and Other Loans
We believe the unrealized losses on the non-agency mortgage-related securities we hold are mainly attributable to poor
underlying collateral performance, limited liquidity, and risk premiums. Our review of the securities backed by subprime,
option ARM, and Alt-A and other loans includes the third-party loan level default modeling and analyses of the individual
securities based on underlying collateral performance, including the collectability of amounts from bond insurers. In evaluating
collectability from bond insurers, we consider factors that affect both the bond insurers’ financial performance and ability to
pay their obligations. We consider loan level information including estimated current LTV ratios, credit scores, and other loan
level characteristics. For additional information regarding bond insurers, see “NOTE 15: CONCENTRATION OF CREDIT
AND OTHER RISKS — Bond Insurers.”
The table below presents the modeled attributes, including default rates, prepayment rates, and severities, without regard
to subordination, that are used to determine whether our interests in certain available-for-sale non-agency mortgage-related
securities will experience a cash shortfall.
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