Freddie Mac 2008 Annual Report Download - page 226

Table 7.1 — Real Estate Owned
REO,
Gross
Valuation
Allowance
REO,
Net
(in millions)
Balance, December 31, 2006 . . . . . .................................................... $ 871 $(128) $ 743
Additions . . . . . . . . . . . . . . . . . .................................................... 2,906 (175) 2,731
Dispositions and write-downs . . . .................................................... (1,710) (28) (1,738)
Balance, December 31, 2007 . . . . . .................................................... 2,067 (331) 1,736
Additions . . . . . . . . . . . . . . . . . .................................................... 6,991 (428) 6,563
Dispositions and write-downs . . . .................................................... (4,842) (202) (5,044)
Balance, December 31, 2008 . . . . . .................................................... $4,216 $(961) $ 3,255
We recognized net losses of $682 million and $120 million on REO dispositions for the years ended December 31, 2008
and 2007, respectively, which are included in REO operations expense. The number of REO property additions increased by
121% in 2008 compared to those in 2007. Increases in our single-family REO acquisitions have been most significant in the
North Central, West and Southeast regions. The West region represents approximately 30% and 11% of the new acquisitions
in 2008 and 2007, respectively, based on the number of units, and the highest concentration in the West region is in the state
of California. We increased our valuation allowance for single-family REO by $495 million and $129 million for the years
ended December 31, 2008 and 2007, respectively, to account for declines in home prices during these periods.
NOTE 8: DEBT SECURITIES AND SUBORDINATED BORROWINGS
Debt securities are classified as either short-term (due within one year) or long-term (due after one year) based on their
remaining contractual maturity.
The Purchase Agreement provides that, without the prior consent of Treasury, we may not increase our indebtedness (as
defined in the Purchase Agreement) to more than a specified limit nor may we become liable for any subordinated
indebtedness. For the purposes of the Purchase Agreement, the balance of our indebtedness at December 31, 2008 did not
exceed the specified limit.
Table 8.1 summarizes the balances and effective interest rates for debt securities, as well as subordinated borrowings.
Table 8.1 — Total Debt
Balance,
Net
(1)
Effective
Rate
(2)
Balance,
Net
(1)
Effective
Rate
(2)
2008 2007
December 31,
(dollars in millions)
Short-term debt:
Short-term debt securities . . . .............................................. $329,702 1.73% $197,601 4.52%
Current portion of long-term debt............................................ 105,412 3.46 98,320 4.44
Short-term debt ......................................................... 435,114 2.15 295,921 4.49
Long-term debt:
Senior debt . .......................................................... 403,402 4.70 438,147 5.24
Subordinated debt . . . . . . . . .............................................. 4,505 5.59 4,489 5.84
Long-term debt.......................................................... 407,907 4.71 442,636 5.25
Total debt . . . .......................................................... $843,021 $738,557
(1) Represents par value, net of associated discounts, premiums and foreign-currency-related and hedge-related basis adjustments, with $1.6 billion of
current portion of long-term debt and $11.7 billion of long-term debt that represents the fair value of foreign-currency denominated debt in accordance
with SFAS 159 at December 31, 2008.
(2) Represents the weighted average effective rate that remains constant over the life of the instrument, which includes the amortization of discounts or
premiums and issuance costs. 2008 also includes the amortization of hedge-related basis adjustments.
For 2008, we recognized fair value gains of $406 million on our foreign-currency denominated debt, of which
$710 million are gains related to our net foreign-currency translation. See “NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES” for additional information regarding our adoption of SFAS 159.
Short-Term Debt
As indicated in Table 8.2, a majority of short-term debt (excluding current portion of long-term debt) consisted of
Reference Bills˛securities and discount notes, paying only principal at maturity. Reference Bills˛securities, discount notes
and medium-term notes are unsecured general corporate obligations. Certain medium-term notes that have original maturities
of one year or less are classified as short-term debt securities. Securities sold under agreements to repurchase are effectively
collateralized borrowing transactions where we sell securities with an agreement to repurchase such securities. These
agreements require the underlying securities to be delivered to the dealers who arranged the transactions. Federal funds
purchased are unsecuritized borrowings from commercial banks that are members of the Federal Reserve System. At both
December 31, 2008 and 2007, the balance of federal funds purchased and securities sold under agreements to repurchase
was $—.
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