Freddie Mac 2006 Annual Report Download - page 160

assets that are recognized at the inception of an executed Guarantor Swap are valued independently of each other, net
diÅerences between these recognized assets and liabilities may exist at inception. If the amount of the Guarantee asset plus
the credit enhancement-related assets is greater than the amount of the Guarantee obligation, the diÅerence between such
amounts is deferred on our GAAP consolidated balance sheets as a component of the Guarantee obligation. This
component of the Guarantee obligation is not recorded on the consolidated fair value balance sheets. The diÅerence between
the fair value and carrying value of the Guarantee obligation shown in Table 16.1 reÖects the diÅerent basis of accounting
for this liability. For example, the fair value of the Guarantee obligation does not include the unamortized balance of
deferred guarantee income that is a component of its carrying value on the GAAP consolidated balance sheets. For
information concerning our valuation approach and accounting policies related to guarantee-related credit losses, see
""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' and ""NOTE 2: TRANSFERS OF
SECURITIZED INTERESTS IN MORTGAGE-RELATED ASSETS.''
Derivative liabilities
See discussion under ""Derivative assets'' above.
Reserve for guarantee losses on PCs
The carrying amount of the Reserve for guarantee losses on PCs on our GAAP consolidated balance sheets represents
loan loss reserves for oÅ-balance sheet PCs in accordance with GAAP that are not already accounted for under SFAS 140.
This line item has no basis on our consolidated fair value balance sheets, because the estimated fair value of all expected
default losses is included in the Guarantee obligation reported on our consolidated fair value balance sheets.
Other liabilities
Other liabilities principally consists of amounts due to PC investors (i.e., principal and interest), funding liabilities
associated with investments in LIHTC partnerships, accrued interest payable on debt securities and other miscellaneous
obligations of less than one year. We believe the carrying amount of these liabilities is a reasonable approximation of their
fair value, except for funding liabilities associated with investments in LIHTC partnerships, for which fair value is estimated
using expected cash Öows discounted at a market-based yield. Furthermore, certain deferred items reported as Other
liabilities on our GAAP consolidated balance sheets are assigned zero value on our consolidated fair value balance sheets,
such as deferred credit fees. Also, as discussed in ""Other assets,'' Other liabilities may include a deferred tax liability
adjusted for fair value balance sheet purposes.
Minority interests in consolidated subsidiaries
Minority interests in consolidated subsidiaries primarily represent preferred stock interests that third parties hold in our
two majority-owned REIT subsidiaries. In accordance with GAAP, we consolidated the REITs. The preferred stock
interests are not within the scope of SFAS 107 disclosure requirements. However, we present the fair value of these interests
on our consolidated fair value balance sheets. The fair value of the third-party minority interests in these REITs was based
on the estimated value of the underlying REIT preferred stock we determined based on a valuation model. In 2005, we
improved our fair value estimates to reÖect observed market activity.
Net assets attributable to preferred stockholders
To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.
Net assets attributable to common stockholders
Net assets attributable to common stockholders is equal to the diÅerence between the fair value of total assets and the
sum of total liabilities and minority interests reported on our consolidated fair value balance sheets, less the fair value of net
assets attributable to preferred stockholders.
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