Freddie Mac 2008 Annual Report Download - page 219

Realized Gains and Losses on Available-For-Sale Securities
Table 5.4 below illustrates the gross realized gains and gross realized losses received from the sale of available-for-sale
securities.
Table 5.4 — Gross Realized Gains and Gross Realized Losses on Available-For-Sale Securities
2008 2007 2006
Year Ended December 31,
(in millions)
Mortgage-related investments portfolio:
Mortgage-related securities:
Freddie Mac . . .................................................................... $423 $666 $164
Fannie Mae . . . .................................................................... 67 — 1
Subprime. . . . . .................................................................... — 4 1
Commercial mortgage-backed securities . . .................................................. — 3 210
Manufactured housing ................................................................ — 11 —
Obligations of states and political subdivisions . . . ............................................ 75 1 —
Total mortgage-related securities gross realized gains . . . ...................................... 565 685 376
Cash and other investments portfolio:
Non-mortgage-related securities:
Asset-backed securities ............................................................... 1 1 —
Obligations of state and political subdivisions ................................................ — 2 —
Total non-mortgage-related securities gross realized gains ...................................... 1 3 —
Gross realized gains. .................................................................... 566 688 376
Mortgage-related investments portfolio:
Mortgage-related securities:
Freddie Mac . . .................................................................... (13) (390) (358)
Fannie Mae . . . .................................................................... (2) (9) (77)
Commercial mortgage-backed securities . . .................................................. — — (60)
Obligations of states and political subdivisions . . . ............................................ (5) — —
Total mortgage-related securities gross realized losses . . . ...................................... (20) (399) (495)
Cash and other investments portfolio:
Non-mortgage-related securities:
Asset-backed securities ............................................................... — (56) (7)
Obligations of state and political subdivisions ................................................ — (1) (14)
Total non-mortgage-related securities gross realized losses ...................................... — (57) (21)
Gross realized losses .................................................................... (20) (456) (516)
Net realized gains (losses) ................................................................ $546 $232 $(140)
We had gross realized losses during 2008 of $20 million primarily related to the sales of agency securities. During 2007
and 2006, we had gross realized losses related to sales of securities that were not impaired at the previous balance sheet date,
as well as sales of securities that were previously impaired and experienced further declines in fair value. For Freddie Mac
securities, these losses generally relate to our structuring activity where we do not assert the ability and intent to hold to
recovery for a specific population of securities. Of the $399 million in gross realized losses in 2007 shown on Table 5.4,
$390 million related to Freddie Mac securities. Of that amount, approximately $190 million related to Freddie Mac securities
where we had previously asserted the ability and intent to hold to recovery. However, these losses relate to a discrete number
of resecuritization transactions involving seasoned agency securities, which were in response to facts and circumstances
arising after the previous balance sheet date related to our voluntary portfolio growth limit and unanticipated extraordinary
market conditions. The balance of the realized losses on agency securities in both 2007 and 2006 included on Table 5.4,
relate to (1) resecuritization transactions where we had not previously asserted an intent and ability to hold the securities
because unrealized losses at the previous balance sheet date represented such a small decline in value that interest rate
movements within a near term could easily have caused the securities to fully recover in value and, thus, these unrealized
losses were not other-than-temporary; or (2) sales of agency securities that resulted in average gross realized losses of less
than 1% of the unpaid principal balance on those securities. For the securities where losses were less than 1%, the securities
were often acquired subsequent to the previous balance sheet date or the securities were not in a loss position at the balance
sheet date.
Realized losses for non-agency commercial mortgage-backed securities in 2006 primarily related to securities for which
we had the ability and intent to hold to recovery but were subsequently sold in response to FHFA directing us to divest of
certain securities (specifically certain mixed use commercial mortgage-backed securities). These transactions were unusual
and non-recurring in nature and therefore do not contradict our ability and intent to hold to recovery on other securities.
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