Freddie Mac 2008 Annual Report Download - page 217

stressful scenarios where a principal or interest loss could occur on certain individual securities, we do not believe that those
conditions were probable as of December 31, 2008.
In addition, we considered changes in fair value since December 31, 2008 to assess if they were indicative of potential
future cash shortfalls. In this assessment, we put greater emphasis on categorical pricing information than on individual
prices. We use multiple pricing services and dealers to price the majority of our non-agency mortgage-related securities. We
observed significant dispersion in prices obtained from different sources. However, we carefully consider individual and
sustained price declines, placing greater weight when dispersion is lower and less weight when dispersion is higher. Where
dispersion is higher, other factors previously mentioned, received greater weight.
Commercial Mortgage-backed Securities
We perform an analysis of the underlying collateral on a security-by-security basis to determine whether we will receive
all of the contractual payments due to us. We believe the declines in fair value are attributable to the deterioration of
liquidity and larger risk premiums in the commercial mortgage-backed securities market consistent with the broader credit
markets and not to the performance of the underlying collateral supporting the securities. Substantially all of these securities
were AAA-rated at December 31, 2008. Though delinquencies for commercial mortgage-backed securities have increased,
the credit enhancement of these bonds is sufficient to cover the expected losses on them. Since we generally hold these
securities to maturity, we have concluded that we have the ability and intent to hold these securities to a recovery of the
unrealized losses.
Obligations of States and Political Subdivisions
These investments consist of mortgage revenue bonds. The unrealized losses on obligations of states and political
subdivisions are primarily a result of movements in interest rates and liquidity and risk premiums. We have concluded that
the impairment of these securities is temporary based on our ability and intent to hold these securities to recovery, the extent
and duration of the decline in fair value relative to the amortized cost as well as a lack of any other facts or circumstances to
suggest that the decline was other-than-temporary. The issuer guarantees related to these securities have led us to conclude
that any credit risk is minimal.
Impairments on Available-For-Sale Securities
Table 5.3 summarizes our impairments recorded by security type and the duration of the unrealized loss prior to
impairment of less than 12 months or 12 months or greater.
Table 5.3 — Other-Than-Temporary Impairments on Mortgage-Related Securities Recorded by Gross Unrealized Loss
Position
Less than
12 months
12 months
or greater Total
Gross Unrealized Loss Position
(in millions)
Year Ended December 31, 2008
Mortgage-related securities:
(1)
Subprime . .................................................................. $ (168) $ (3,453) $ (3,621)
Alt-A and other . . ............................................................. (914) (4,339) (5,253)
MTA...................................................................... — (7,602) (7,602)
Obligations of states and political subdivisions . . . . . . .................................... (58) (10) (68)
Manufactured housing . . . ....................................................... (74) (16) (90)
Total other-than-temporary impairments . . . . . . . . . .................................... $(1,214) $(15,420) $(16,634)
Year Ended December 31, 2007
Mortgage-related securities:
Freddie Mac ................................................................. $ (17) $ (320) $ (337)
Fannie Mae .................................................................. (1) (12) (13)
Subprime
(1)
.................................................................. (11) — (11)
Manufactured housing
(1)
......................................................... (4) — (4)
Total other-than-temporary impairments . . . . . . . . . .................................... $ (33) $ (332) $ (365)
Year Ended December 31, 2006
Mortgage-related securities:
Freddie Mac ................................................................. $ (168) $ (13) $ (181)
Fannie Mae .................................................................. (31) (17) (48)
Commercial mortgage-backed securities
(1)
............................................. (62) (4) (66)
Manufactured housing
(1)
......................................................... (2) — (2)
Total other-than-temporary impairments . . . . . . . . . .................................... $ (263) $ (34) $ (297)
(1) Represents securities of private-label or non-agency issuers.
During 2008, we recorded impairments related to investments in mortgage-related securities of $16.6 billion primarily
related to non-agency securities backed by subprime loans, Alt-A and other loans and MTA loans, due to the combination of
214 Freddie Mac