Freddie Mac 2008 Annual Report Download - page 112

Issuers Greater than 10% of Stockholders’ Equity (Deficit)
We held Fannie Mae securities in our mortgage-related investments portfolio with a fair value of $72.2 billion at
December 31, 2008. No other individual issuer at the individual trust level exceeded 10% of total stockholders’ equity
(deficit) at December 31, 2008.
Derivative Assets and Liabilities, Net
See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Gains (Losses)” for
a description of gains (losses) on our derivative positions. Table 38 summarizes the notional or contractual amounts and
related fair value of our total derivative portfolio by product type.
Table 38 — Total Derivative Portfolio
Notional
or Contractual
Amount
(1)
Fair Value
(2)
Notional
or Contractual
Amount
(1)
Fair Value
(2)
2008 2007
December 31,
(in millions)
Interest-rate swaps:
Receive-fixed . . . . . . . . ........................................ $ 279,609 $ 22,266 $ 301,649 $ 3,648
Pay-fixed . . . . . . . . . . . ........................................ 404,359 (51,790) 409,682 (11,492)
Basis (floating to floating) ....................................... 82,190 108 498 —
Total interest-rate swaps . . . .................................. 766,158 (29,416) 711,829 (7,844)
Option-based:
Purchased call swaptions ........................................ 177,922 21,089 259,272 7,134
Written call swaptions . ........................................ — — 1,900 (27)
Purchased put swaptions ........................................ 41,550 539 18,725 631
Written put swaptions . . ........................................ 6,000 (46) 2,650 (74)
Other option-based derivatives
(3)
................................... 68,583 1,864 30,486 (23)
Total option-based . ........................................ 294,055 23,446 313,033 7,641
Futures . . . . . . . . . . . . . . ........................................ 128,698 (871) 196,270 92
Foreign-currency swaps. . . ........................................ 12,924 2,982 20,118 4,568
Subtotal . . . . . . . . . . ........................................ 1,201,835 (3,859) 1,241,250 4,457
Forward purchase and sale commitments ............................... 108,273 5 72,662 327
Credit derivatives . . . . . . . ........................................ 13,631 38 7,667 10
Swap guarantee derivatives ........................................ 3,281 (11) 1,302 (4)
Total derivative portfolio ........................................ $1,327,020 $ (3,827) $1,322,881 $ 4,790
(1) Notional or contractual amounts are used to calculate the periodic settlement amounts to be received and paid and generally do not represent actual
amounts to be exchanged or directly reflect our exposure to institutional credit risk. Notional or contractual amounts are not recorded as assets or
liabilities on our consolidated balance sheets.
(2) The value of derivatives on our consolidated balance sheets is reported as derivative assets, net and derivative liability, net, and includes derivative
interest receivable or (payable), net, trade/settle receivable or (payable), net and derivative cash collateral (held) or posted, net. Refer to
“CONSOLIDATED RESULTS OF OPERATIONS — Table 15 — Summary of the Effect of Derivatives on Selected Consolidated Financial Statement
Captions” for reconciliation of fair value to the amounts presented on our consolidated balance sheets as of December 31, 2008 and 2007. The fair
values for futures are directly derived from quoted market prices. Fair values of other derivatives are derived primarily from valuation models using
market data inputs.
(3) Primarily represents purchased interest rate caps and floors, as well as written options, including guarantees of stated final maturity of issued Structured
Securities and written call options on PCs we issued.
The composition of our derivative portfolio changes from period to period as a result of derivative purchases,
terminations or assignments prior to contractual maturity and expiration of the derivatives at their contractual maturity. In
addition, we classify net derivative interest receivable or payable, trade/settle receivable or payable and cash collateral held
or posted on our consolidated balance sheets to derivative assets, net and derivative liability, net. We record changes in fair
values of our derivatives in current income or, where applicable, to the extent our cash-flow hedge accounting relationships
are effective, we defer those changes in AOCI.
As interest rates fluctuate, we use derivatives to adjust the contractual funding of our debt in response to changes in the
expected lives of our mortgage-related assets. Our mix of notional or contractual amounts changed year-over-year as we
responded to the declining interest rate environment. In 2008, we responded to the declining availability of longer-term debt
by maintaining our pay-fixed swap position even as rates decreased. We used a combination of a series of short-term debt
issuances and a pay-fixed swap with the same maturity as the last debt issuance to obtain the substantive economic
equivalent of a long-term fixed-rate debt instrument.
The fair value of the total derivative portfolio decreased in 2008 due to the continued net interest rate decreases across
the yield curve, which negatively impacted our interest rate swap portfolio, since we are in a net pay-fixed swap position.
This decrease in fair value has been partially offset by the increase in implied volatility during 2008 resulting in increases to
the value of our purchased options.
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