Freddie Mac 2004 Annual Report Download - page 182

Table 2.3 Ì Sensitivity Analysis
At December 31, 2004
Other
retained
PC residual(1) GA(2) interests(3)
(dollars in millions)
Fair value ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 845 $4,516 $ 713(4)
Weighted average IRR assumptions:ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.8% 6.1% 10.8%
Impact on fair value of 100 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (28) $ (161) $ (23)
Impact on fair value of 200 bps upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (54) $ (312) $ (44)
Impact on fair value of 100 bps downward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 29 $ 172 $ 25
Impact on fair value of 200 bps downward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 59 $ 348 $ 52
Weighted average prepayment rate assumptions:ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19.0% 19.5% 14.3%
Impact on fair value of 10% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (16) $ (207) $ (28)
Impact on fair value of 20% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (32) $ (393) $ (53)
Impact on fair value of 10% downward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 17 $ 231 $ 32
Impact on fair value of 20% downward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 36 $ 490 $ 68
Weighted average default rate assumptions:ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.0% 1.0% N/A(5)
Impact on fair value of 10% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (65) $ (3) N/A(5)
Impact on fair value of 20% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(130) $ (7) N/A(5)
Weighted average loss severity rate assumptions: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24.0% N/A(6) N/A(5)
Impact on fair value of 10% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (86) N/A(6) N/A(5)
Impact on fair value of 20% upward change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(174) N/A(6) N/A(5)
(1) At December 31, 2004 and 2003, approximately $107 million and $47 million, respectively, of recognized PC residuals were classiÑed
as available-for-sale representing, as a function of the unpaid principal balances of related PCs or Structured Securities,
approximately 17 percent of recognized PC residuals. Therefore, approximately 83 percent of the future changes in fair value of
recognized PC residuals would be recognized in earnings, while the balance of such future changes in fair value would be reÖected in
AOCI, net of taxes.
(2) At December 31, 2004, GAs totaled $4,516 million on Freddie Mac's consolidated balance sheet and of that amount, approximately
$88 million (or approximately 2 percent), relates to PCs backed by multifamily mortgage loans. The sensitivity analysis presented in
Table 2.3 relates solely to GAs associated with PCs backed by single-family mortgage loans.
(3) Includes interest-only securities that were issued by Freddie Mac as part of a resecuritization transaction for which sale accounting
treatment was applied, and Freddie Mac securities that were (a) purchased at a premium (to par) of 10 percent or greater and
(b) associated with either a securitization or resecuritization transaction for which sale accounting treatment was applied. Also
included are Freddie Mac securities held by the company for which securitized / resecuritized mortgage-related assets were (a) not
of high credit quality and (b) associated with either a securitization or resecuritization transaction for which sale accounting
treatment was applied.
(4) Includes accrued interest.
(5) Sensitivities of reported fair value to changes in default and loss severity rates associated with Other retained interests for which a
recognized PC residual exists are captured in the corresponding column entitled PC residual. Otherwise, with respect to Other
retained interests for which a PC residual was not recognized, such securities are valued for consolidated Ñnancial statement purposes
at the observed market price for such securities, which reÖect inherent credit protection provided by Freddie Mac. In this case,
changes in the reported fair value of such securities would not be aÅected by variations in default and loss severity assumptions and,
as a result, a corresponding sensitivity analysis was not prepared.
(6) Severity of loss has no impact on the underlying cash Öows of the guarantee asset or the resultant fair values.
The sensitivity analysis in the preceding table is hypothetical. Each of the calculated eÅects summarized
above was determined by adjusting only one assumption at a time, as opposed to having determined a
hypothetical eÅect on fair value based upon assumed, correlating changes in more than one assumption
(where, in reality, a change in one assumption would generally result in changes to one or more of the other
speciÑed assumptions). Additionally, any corresponding hedge transactions executed by Freddie Mac were not
considered in determining the hypothetical eÅects summarized above. Results provided above should not be
extrapolated to either (a) other sensitivity analyses in which changes in other assumptions are made or (b) to
other securities held by Freddie Mac.
Freddie Mac
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