Freddie Mac 2015 Annual Report Download - page 307

Financial Statements Notes to the Consolidated Financial Statements | Note 14
Freddie Mac 2015 Form 10-K 305
Instrument Valuation Technique
Classification in
the Fair Value
Hierarchy
Held-for-sale: Market prices from a third-party pricing service, using
discounted cash flows based on K Certificate market spreads
Level 2
Held-for-investment: Market prices from a third-party pricing service
using discounted cash flows incorporating credit spreads for similar
loans based on the loan's LTV and DSCR
Level 3
Impaired held-for-investment: Income capitalization or third-party
appraisals. Significant inputs in the income capitalization technique
include capitalization rates. Significant increases (decreases) in the
capitalization rate in isolation would result in a significantly lower
(higher) fair value measurement
Level 3
Derivative Assets, Net and Derivative Liabilities, Net
Derivatives Valuations are based on:
Exchange-traded futures: Quoted prices in active markets Level 1
Interest-rate swaps: Discounted cash flows. Significant inputs include
market-based interest rates
Level 2
Option-based derivatives: Option-pricing models. Significant inputs
include Interest-rate volatility matrices
Level 2
Purchase and Sale Commitments: see Agency Mortgage-Related
Securities
Level 2
Other Assets and Other Liabilities
Guarantee asset Valuations are based on:
Single-family: Median of external sources with adjustments for specific
loan characteristics
Level 3
Multifamily: Discounted cash flows. Significant inputs include current
OAS-to-benchmark interest rates for new guarantees. Significant
increases (decreases) in the OAS in isolation would result in a
significantly lower (higher) fair value measurement
Level 3
Mortgage servicing
rights Valuations are based on market prices from third party using discounted
cash flows. Significant inputs include:
Level 3
Estimated prepayment rates,
Estimated costs to service both performing and non-accrual loans, and
Estimated servicing income per loan (including ancillary income).
Significant increases (decreases) in cost to service per loan and
prepayment rate in isolation would result in a significantly lower
(higher) fair value measurement. Significant increases (decreases) in
servicing income per loan in isolation would result in a significantly
higher (lower) fair value measurement.