Freddie Mac 2014 Annual Report Download - page 238

233 Freddie Mac
Table 16.7 — Difference between Fair Value and Unpaid Principal Balance for Certain Financial Instruments with Fair
Value Option Elected
December 31,
2014 2013
Multifamily
Held-For-Sale
Mortgage Loans Other Debt -
Long Term
Multifamily
Held-For-Sale
Mortgage Loans Other Debt -
Long Term
(in millions)
Fair value $ 12,130 $ 5,820 $ 8,727 $ 2,683
Unpaid principal balance 11,872 5,896 8,721 2,635
Difference $ 258 $ (76) $ 6 $ 48
Changes in Fair Value under the Fair Value Option Election
We recorded gains (losses) of $0.9 billion, $(0.3) billion, and $1.0 billion for the years ended December 31, 2014, 2013,
and 2012, respectively, from the change in fair value on multifamily held-for-sale mortgage loans recorded at fair value in other
income in our consolidated statements of comprehensive income.
Gains (losses) on debt securities with the fair value option elected were $144 million, $(37) million, and $16 million for
the years ended December 31, 2014, 2013, and 2012, respectively, and were recorded in other income in our consolidated
statements of comprehensive income.
Changes in fair value attributable to instrument-specific credit risk were not material for the years ended December 31,
2014, 2013, or 2012 for any assets or liabilities for which we elected the fair value option.
NOTE 17: LEGAL CONTINGENCIES
We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary
course of business including, among other things, contractual disputes, personal injury claims, employment-related litigation
and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in litigation involving
mortgage foreclosures. From time to time, we are also involved in proceedings arising from our termination of a seller/
servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the former seller/servicer sometimes
seeks damages against us for wrongful termination under a variety of legal theories. In addition, we are sometimes sued in
connection with the origination or servicing of mortgages. These suits typically involve claims alleging wrongful actions of
seller/servicers. Our contracts with our seller/servicers generally provide for indemnification of Freddie Mac against liability
arising from seller/servicers' wrongful actions with respect to mortgages sold to or serviced for Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In
accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or
threatened against us when a loss is probable (as defined in such guidance) and the amount of the loss can be reasonably
estimated.
During 2014, we paid approximately $15 million for the advancement of legal fees and expenses of former officers
pursuant to our indemnification obligations to them. These fees and expenses related to certain of the matters described below,
and are being partially offset by insurance payments. This figure does not include certain administrative support costs and
certain costs related to document production and storage.
Putative Securities Class Action Lawsuit: Ohio Public Employees Retirement System (“OPERS”) vs. Freddie Mac, Syron,
et al.
This putative securities class action lawsuit was filed against Freddie Mac and certain former officers on January 18, 2008
in the U.S. District Court for the Northern District of Ohio purportedly on behalf of a class of purchasers of Freddie Mac stock
from August 1, 2006 through November 20, 2007. FHFA later intervened as Conservator, and the plaintiff amended its
complaint on several occasions. The plaintiff alleged, among other things, that the defendants violated federal securities laws
by making false and misleading statements concerning our business, risk management, and the procedures we put into place to
protect the company from problems in the mortgage industry. The plaintiff sought unspecified damages and interest, and
reasonable costs and expenses, including attorney and expert fees.
Defendants filed motions to dismiss the second and third amended complaints, which the Court initially denied. On April
13, 2013, the judge who had presided over the case since 2008 recused himself, and the case was reassigned to a new judge. On
August 23, 2013, the new judge granted defendants' motion to vacate the previous judge's orders denying defendants' motions
to dismiss. Defendants filed new motions to dismiss the complaint on October 8, 2013. On October 31, 2014, the Court
granted defendants’ motions and dismissed the case in its entirety against all defendants, with prejudice. On November 25,
2014, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit.
At present, it is not possible for us to predict the probable outcome of this lawsuit or any potential effect on our business,
financial condition, liquidity, or results of operations. In addition, we are unable to reasonably estimate the possible loss or
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