Freddie Mac 2008 Annual Report Download - page 218

a more pessimistic view of future performance due to the economic environment and poor performance of the collateral
underlying these securities. The portion of these impairment charges associated with expected recoveries that we estimate
may be recognized as net interest income in future periods was $11.8 billion which was on securities backed primarily by
subprime, Alt-A and other and MTA loans as of December 31, 2008. We estimate that the future expected principal and
interest shortfall on these securities will be significantly less than the probable impairment loss required to be recorded under
GAAP, as we expect these shortfalls to be less than the recent fair value declines. Contributing to the impairments were
certain credit enhancements related to primary monoline bond insurance provided by three monoline insurers on individual
securities in an unrealized loss position, for which we have determined that it is probable a principal and interest shortfall
will occur, and, that in such a case there is substantial uncertainty surrounding the insurer’s ability to pay all future claims.
We rely on monoline bond insurance, including secondary coverage, to provide credit protection on some of our securities
held in our mortgage-related investments portfolio as well as our non-mortgage-related investments portfolio. Monolines are
companies that provide credit insurance principally covering securitized assets in both the primary issuance and secondary
markets. The recent deterioration has not impacted our ability and intent to hold these securities. See “NOTE 1: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for information regarding our policy on
accretion of impairments.
We also recognized impairment charges of $1.1 billion for the year ended December 31, 2008 related to our short-term
available-for-sale non-mortgage-related securities, as management could no longer assert the positive intent to hold these
securities to recovery. The decision to impair these securities is consistent with our consideration of sales of securities from
the cash and other investments portfolio as a contingent source of liquidity. As we do not expect any actual cash shortfalls,
these impairment charges will be recognized as net interest income in future periods. Our cash and other investments
portfolio is comprised of our cash and cash equivalents, federal funds sold and securities purchased under agreements to
resell and investments in non-mortgage-related securities.
We recorded security impairments on available-for-sale securities for the years ended 2007 and 2006 of $365 million
and $297 million, respectively.
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