Freddie Mac 2004 Annual Report Download - page 76

Table 31 summarizes Other expenses for 2004, 2003, and 2002.
Table 31 Ì Other Expenses
Year Ended December 31,
2004 2003 2002
(dollars in millions)
Other expenses:
OFHEO civil money penalty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì $125 $ Ì
Loss contingency expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 75 Ì
Selected aÅordable housing transaction feesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 41 124 Ì
Amortization of credit enhancements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 86 134 Ì
Realized losses on certain guarantees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 33 60 Ì
Loan Prospector»-related expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 56 99 86
Special charitable contributions(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 225
Disposition of certain technology-related assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì 52
Other(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 55 79 69
Total Other expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $271 $696 $432
(1) Special charitable contributions represents a cash contribution to the Freddie Mac Foundation and corporate giving programs
announced in the fourth quarter of 2002. The contribution to the Freddie Mac Foundation is expected to provide operating funds for
the Foundation for six to eight years from the contribution date.
(2) We reclassiÑed certain expenses from Other administrative expenses as included in Administrative expenses (see ""Table 30 Ì
Administrative Expenses'' for additional information) to Other for 2003 and 2002 to conform with the 2004 presentation.
Total Other expenses totaled $271 million, $696 million and $432 million in 2004, 2003 and 2002,
respectively.
Total Other expenses in 2003 included two charges that totaled $200 million. First, we paid a
$125 million civil money penalty in connection with the OFHEO consent order, which was accrued in the
second quarter of 2003. Second, we recognized in the second quarter of 2003 a $75 million expense for a loss
contingency reserve related to legal proceedings arising from the restatement. See ""NOTE 13: LEGAL
CONTINGENCIES'' to our consolidated Ñnancial statements for additional information. We also entered
into certain multifamily aÅordable housing transactions during the third and fourth quarters of 2003 that
contained a number of contractual incentives, including the payment of fees totaling $124 million in the third
and fourth quarters of 2003 and $41 million in the Ñrst quarter of 2004.
Total Other expenses also include the amortization of credit enhancements, realized losses related to
certain guarantees as well as other costs associated with our ongoing activities. Beginning in 2003, credit
enhancements are included in Other assets and amortized into Other expenses over time. Amortization
expense related to credit enhancements declined $48 million in 2004 from 2003 levels primarily as a result of
declines in our liquidation rates during 2004 compared to 2003. In 2002, credit enhancements were included in
the carrying value of the guarantee asset and changes in their carrying value were included in Gains
(losses) on ""Guarantee asset for Participation CertiÑcates, at fair value.''
Beginning in 2003, due to the adoption of FIN 45, we began recording guarantee assets and guarantee
obligations at fair value at inception on (i) PCs issued through our Guarantor Program, (ii) that portion of
PCs issued through MultiLender Program transactions that did not qualify as a sale under SFAS 125/140 and
(iii) certain Structured Securities that we issue to third parties in exchange for non-agency mortgage-backed
securities. Consequently, we immediately recognize any excess of the related guarantee obligation over the
guarantee asset and Other assets (that relate to recognized credit enhancements described above) as realized
losses on certain guarantees. Such realized losses decreased $27 million to $33 million in 2004 from
$60 million in 2003 primarily as a result of interest-rate Öuctuations that aÅect our determination of the initial
fair value of the guarantee asset, credit-enhancement asset and guarantee obligation. In 2002, we did not
recognize guarantee assets and obligations related to PCs issued through our Guarantor Program or for that
portion of PCs transferred to third parties in MultiLender Program transactions that did not qualify as sales
under SFAS 125/140. Consequently, we did not recognize a similar expense in 2002.
Freddie Mac
64