Freddie Mac 2008 Annual Report Download - page 212

Table 3.4 — Details of Cash Flows
2008 2007 2006
For the Year Ended
December 31,
(in millions)
Cash flows from:
Proceeds from transfers of Freddie Mac securities that were accounted for as sales
(1)
................... $36,885 $62,644 $79,565
Cash flows received on the guarantee asset
(2)
.............................................. 2,871 2,288 1,873
Principal and interest from retained securitization interests
(3)
................................... 20,411 23,541 25,535
Purchases of delinquent or foreclosed loans and required purchase of balloon mortgages
(4)
............... (12,093) (9,011) (4,698)
(1) On our consolidated statements of cash flows, this amount is included in the investing activities as part of proceeds from sales of trading and available-
for-sale securities.
(2) Represents cash received from securities receiving sales treatment under SFAS 140 or FIN 45 and related to management and guarantee fees, which
reduce the guarantee asset. On our consolidated statements of cash flows, the change in guarantee asset and the corresponding management and
guarantee fee income are reflected as operating activities.
(3) On our consolidated statements of cash flows, the cash flows from interest are included in net income (loss) and the principal repayments are included
in the investing activities as part of proceeds from maturities of available-for-sale securities. The amounts for 2007 and 2006 have been revised to also
include cash flows from interest-only and principal-only strips, which conforms to the 2008 presentation.
(4) On our consolidated statements of cash flows, this amount is included in the investing activities as part of purchases of held-for-investment mortgages.
Includes our acquisitions of REO in cases where a foreclosure sale occurred while a loan was owned by the securitization trust.
In addition to the cash flow shown above, we are obligated under our guarantee to make up any shortfalls in principal
and interest to the holders of our securities, including those shortfalls arising from losses incurred in our role as trustee for
the master trust which administers cash remittances from mortgages and makes payments to the security holders. See
“NOTE 18: CONCENTRATION OF CREDIT AND OTHER RISKS — Principal and Interest Securitization Trusts” for
further information on these cash flows.
Gains and Losses on Transfers of PCs and Structured Securities that are Accounted for as Sales
The gain or loss on a securitization that qualifies as a sale, is determined, in part, on the carrying amounts of the
financial assets sold. The carrying amounts of the assets sold are allocated between those sold to third parties and those held
as retained interests based on their relative fair value at the date of sale. We recognized net pre-tax gains (losses) on transfers
of PCs and Structured Securities that were accounted for as sales under SFAS 140 of approximately $151 million,
$141 million and $235 million for the years ended December 31, 2008, 2007 and 2006, respectively. The gross proceeds
associated with these sales are presented within the table above.
NOTE 4: VARIABLE INTEREST ENTITIES
We are a party to numerous entities that are considered to be VIEs. Our investments in VIEs include LIHTC
partnerships and certain Structured Securities transactions. In addition, we buy the highly-rated senior securities in non-
mortgage-related, asset-backed investment trusts that are VIEs. Highly-rated senior securities issued by these securitization
trusts are not designed to absorb a significant portion of the variability created by the assets/collateral in the trusts. Our
investments in these securities do not represent a significant variable interest in the securitization trusts as the securities
issued by these trusts are not designed to absorb a significant portion of the variability in the trust. Accordingly, we do not
consolidate these securities. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Consolidation and
Equity Method of Accounting” for further information regarding the consolidation practices of our VIEs.
LIHTC Partnerships
We invest as a limited partner in LIHTC partnerships formed for the purpose of providing equity funding for affordable
multifamily rental properties. The LIHTC partnerships invest as limited partners in lower-tier partnerships, which own and
operate multifamily rental properties. These properties are rented to qualified low-income tenants, allowing the properties to
be eligible for federal tax credits. Most of these LIHTC partnerships are VIEs. A general partner operates the partnership,
identifying investments and obtaining debt financing as needed to finance partnership activities. There were no third-party
credit enhancements of our LIHTC investments at December 31, 2008. Although these partnerships generate operating losses,
we realize a return on our investment through reductions in income tax expense that result from tax credits and the
deductibility of the operating losses of these partnerships. The partnership agreements are typically structured to meet a
required 15-year period of occupancy by qualified low-income tenants. The investments in LIHTC partnerships, in which we
were either the primary beneficiary or had a significant variable interest, were made between 1989 and 2007. At
December 31, 2008 and 2007, we did not guarantee any obligations of these LIHTC partnerships and our exposure was
limited to the amount of our investment. In addition, we are exposed to the potential disallowance of income tax credits
previously taken and to our potential inability to fully utilize future income tax credits. See “NOTE 14: INCOME TAXES”
for additional information. At December 31, 2008 and 2007, we were the primary beneficiary of investments in six
partnerships and we consolidated these investments. The investors in the obligations of the consolidated LIHTC partnerships
have recourse only to the assets of those VIEs and do not have recourse to us. In addition, the assets of each partnership can
be used only to settle obligations of that partnership.
209 Freddie Mac