Freddie Mac 2015 Annual Report Download - page 306

Financial Statements Notes to the Consolidated Financial Statements | Note 14
Freddie Mac 2015 Form 10-K 304
Instrument Valuation Technique
Classification in
the Fair Value
Hierarchy
Adjustable-rate single-class and majority of multi-class securities:
Median of external sources
Predominantly
Level 2
Certain multi-class securities: Single external source Levels 2 and 3
Agency mortgage-
related securities
(continued)
Certain multi-class securities with limited market activity: Discounted
cash flows or risk metric pricing. Under risk metric pricing, securities
are valued by starting with a prior period price and adjusting that price
for market changes in certain key risk metrics such as key rate
durations. Significant inputs used in the discounted cash flow
technique include OAS. Significant inputs used in the risk metric pricing
technique include key risk metrics, such as key rate durations.
Significant increases (decreases) in the OAS in isolation would result
in a significantly lower (higher) fair value. Significant increases
(decreases) in key rate durations in isolation would result in a
significant increase (decrease) in the magnitude of change of fair value
measurement in response to key rate movements
Level 3
Commercial
mortgage-related
securities
Valuations are based on the median of external sources or, in limited
circumstances, a single external source
Predominantly
Level 2
Other non-agency
mortgage-related
securities
Valuations are based on the median of external sources Level 3
Mortgage Loans
Single-family loans Valuations are based on:
GSE Securitization Market: Benchmark security pricing for actively
traded mortgage-related securities with similar characteristics,
adjusting for the value of our management and guarantee fee and our
credit obligation related to performing our guarantee (see Guarantee
Obligation). The credit obligation is based on: delivery and guarantee
fees we charge under current market pricing for loans that qualify
under our current underwriting standards (Level 2) and internal credit
models for loans that do not qualify under our current underwriting
standards (Level 3)
Level 2 or 3
Whole Loan Market: Median of external sources, referencing market
activity for deeply delinquent and modified loans, where available
Level 3
Impaired held-for-investment: Internal models that estimate the fair
value of the underlying collateral for impaired loans. Significant inputs
used by our internal models include REO disposition, short sale and
third-party sale values, combined with mortgage loan level
characteristics using the repeat housing sales index to estimate the
current fair value of the mortgage loan. Significant increases
(decreases) in the historical average sales proceeds per mortgage loan
in isolation would result in significantly higher (lower) fair value
measurements
Level 3
Multifamily loans Valuations are based on: