Freddie Mac 2008 Annual Report Download - page 111

We maintain a cash and other investments portfolio that is important to our financial management and our ability to
provide liquidity and stability to the mortgage market. Of the $64.3 billion in this portfolio as of December 31, 2008,
$45.3 billion represented investments in cash and cash equivalents. At December 31, 2008, the investments in this portfolio
also included $8.8 billion of non-mortgage-related securities that we could sell to provide us with an additional source of
liquidity to fund our business operations. We also use this portfolio to help manage recurring cash flows and meet our other
cash management needs. In addition, we use the portfolio to hold capital on a temporary basis until we can deploy it into
mortgage-related investments or credit guarantee opportunities. We may also sell the securities in this portfolio to meet
mortgage-funding needs, provide diverse sources of liquidity or help manage the interest rate risk inherent in mortgage-
related assets.
During 2008, we increased the balance of our cash and other investments portfolio by $14.0 billion, primarily due to a
$36.8 billion increase in highly liquid shorter-term cash and cash equivalent assets, including deposits in financial institutions
and commercial paper, partially offset by a $26.3 billion decrease in longer-term non-mortgage-related investments, including
asset-backed securities. As a result of counterparty credit concerns during the latter half of 2008, these deposits in financial
institutions included substantial cash balances in accounts that did not earn interest.
We recognized other-than-temporary impairment charges in our cash and other investments portfolio of $590 million
during the fourth quarter of 2008, related to our non-mortgage-related investments with $9.8 billion of unpaid principal
balance, as management could not assert the positive intent to hold these securities to recovery. Other-than-temporary
impairments taken on our non-mortgage-related securities during 2008 were $1.1 billion. The decision to impair these
securities is consistent with our consideration of securities from the cash and other investments portfolio as a contingent
source of liquidity. As we do not expect any contractual cash shortfalls, these impairment charges will be recognized as net
interest income in future periods. As a result of these other-than-temporary impairment charges, there are no remaining net
unrealized losses in our non-mortgage-related investments portfolio at December 31, 2008.
During 2007, we reduced the balance of our cash and other investments portfolio in order to take advantage of
investment opportunities in mortgage-related securities as OAS widened. In addition, effective in December 2007, we
established securitization trusts for the underlying assets of our PCs and Structured Securities. Consequently, we hold
remittances in a segregated account and do not commingle those funds with our general operating funds. The cash owned by
the trusts is not reflected in our cash and cash equivalents balances on our consolidated balance sheets.
During 2006, we decided to maintain higher levels of liquid investments to ensure that we could appropriately service
our outstanding debt and PCs and Structured Securities while operating under the Federal Reserve’s intraday overdraft policy,
which was revised effective July 2006. The revised policy restricts the GSEs, among others, from maintaining intraday
overdraft positions at the Federal Reserve.
Table 37 provides credit enhancement data and credit ratings of the non-mortgage-related securities in our cash and
other investments portfolio at December 31, 2008.
Table 37 — Investments in Non-Mortgage-Related Securities
Collateral Type
Amortized
Cost
Fair
Value
Collateral
Delinquency
%
(1)
Average Credit
Enhancement
(2)
Minimum
Current
Subordination
(3)
Original %
AAA-rated
(4)
Current %
AAA-rated
(5)
Current
Investment
Grade
(6)
Credit Enhancement Statistics
December 31, 2008
(dollars in millions)
Non-mortgage-related securities:
Asset-backed securities:
Credit cards ........... $3,668 $3,671 4% 15% —% 100% 77% 100%
Auto credit ........... 2,837 2,837 3 47 — 100 65 100
Equipment lease . . ...... 841 841 2 14 4 100 92 100
Student loans .......... 579 581 1 56 — 100 95 100
Dealer floor plans
(7)
..... 414 414 — 43 5 100 6 6
Stranded assets
(8)
....... 321 322 — 1 — 100 100 100
Insurance premiums ..... 128 128 1 7 5 100 100 100
Total non-mortgage-related
securities . ............ $8,788 $8,794 3 28 100 73 95
(1) Determined based on loans that are 60 days or more past due that underlie the securities and based on the unpaid principal balance and servicing data
reported for December 31, 2008.
(2) Consists of subordination, financial guarantees and other credit enhancements. Does not include the benefit of excess interest.
(3) Reflects the current subordination credit enhancement of the lowest security in each category type.
(4) Reflects the composition of the portfolio that was AAA-rated as of the date of our acquisition of the security, based on the lowest rating available.
(5) Reflects the AAA-rated composition of the securities as of March 2, 2009, based on the lowest rating available.
(6) Reflects the composition of these securities with credit ratings BBB⫺or above as of March 2, 2009, based on unpaid principal balance and the lowest
rating available.
(7) Includes securities backed by liens secured by automobile dealer inventories.
(8) Includes securities backed by liens secured by fixed assets owned by regulated public utilities.
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