Freddie Mac 2008 Annual Report Download - page 265

also include certain assets and liabilities that are not financial instruments (such as property and equipment and real estate
owned, which are included in other assets) at their carrying value in accordance with GAAP. The valuations of financial
instruments on our consolidated fair value balance sheets are in accordance with GAAP fair value guidelines prescribed by
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” or SFAS 107, and other relevant pronouncements.
During the year ended December 31, 2008, our fair value results were impacted by several changes in our approach for
estimating the fair value of certain financial instruments, primarily related to our valuation of our guarantee obligation as a
result of the adoption of SFAS 157 on January 1, 2008 and other improvements to our methodology during the year ended
December 31, 2008, including adjustments to our guarantee obligation models to better align with observed delinquency
trends, slow our expected prepayment speeds on certain higher loan-to-value ratio mortgage loans and change our default
expectations for higher risk mortgage loans. These changes resulted in net after-tax changes in the fair value of total net
assets of approximately $4.6 billion, $(1.2) billion, $(1.4) billion and $0.3 billion at March 31, 2008, June 30, 2008,
September 30, 2008 and December 31, 2008, respectively. For a further discussion of our adoption of SFAS 157 and
information concerning our valuation approach related to our guarantee obligation, see “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES — Recently Adopted Accounting Standards” and “Valuation Methods and
Assumptions Not Subject to Fair Value Hierarchy — Guarantee Obligation.”
Table 17.4 — Consolidated Fair Value Balance Sheets
(1)
Carrying
Amount
(2)
Fair Value
Carrying
Amount
(2)
Fair Value
December 31, 2008 December 31, 2007
(in billions)
Assets
Cash and cash equivalents ................................................. $ 45.3 $ 45.3 $ 8.6 $ 8.6
Federal funds sold and securities purchased under agreements to resell . . . . . . ............ 10.2 10.2 6.6 6.6
Investments in securities
Available-for-sale, at fair value ............................................ 458.9 458.9 650.8 650.8
Trading, at fair value . .................................................. 190.4 190.4 14.1 14.1
Total investments in securities ........................................... 649.3 649.3 664.9 664.9
Mortgage loans . . . . . . .................................................. 107.6 100.7 80.0 76.8
Derivative assets, net . . .................................................. 1.0 1.0 0.8 0.8
Guarantee asset
(3)
....................................................... 4.8 5.4 9.6 10.4
Other assets . . . . . . . . .................................................. 32.8 34.1 23.9 31.8
Total assets. . . . . . .................................................. $851.0 $846.0 $794.4 $799.9
Liabilities and minority interests
Total debt, net . . . . . . . .................................................. $843.0 $ 870.6 $738.6 $749.3
Guarantee obligation. . . .................................................. 12.1 59.7 13.7 26.2
Derivative liabilities, net .................................................. 2.3 2.3 0.6 0.6
Reserve for guarantee losses on Participation Certificates . . . . ........................ 14.9 — 2.6 —
Other liabilities . . . . . . .................................................. 9.3 9.0 12.0 11.0
Minority interests in consolidated subsidiaries . . . ................................ 0.1 — 0.2 0.2
Total liabilities and minority interests . ...................................... 881.7 941.6 767.7 787.3
Net assets attributable to stockholders
Senior preferred stockholders . . ............................................. 14.8 14.8 — —
Preferred stockholders. . .................................................. 14.1 0.1 14.1 12.3
Common stockholders. . .................................................. (59.6) (110.5) 12.6 0.3
Total net assets . . . . . .................................................. (30.7) (95.6) 26.7 12.6
Total liabilities, minority interests and net assets .............................. $851.0 $846.0 $794.4 $799.9
(1) The consolidated fair value balance sheets do not purport to present our net realizable, liquidation or market value as a whole. Furthermore, amounts we
ultimately realize from the disposition of assets or settlement of liabilities may vary significantly from the fair values presented.
(2) Equals the amount reported on our GAAP consolidated balance sheets.
(3) The fair value of our guarantee asset reported exceeds the carrying value primarily because the fair value includes our guarantee asset related to PCs
that were issued prior to the implementation of FIN 45 in 2003 and thus are not recognized on our GAAP consolidated balance sheets.
Limitations
Our consolidated fair value balance sheets do not capture all elements of value that are implicit in our operations as a
going concern because our consolidated fair value balance sheets only capture the values of the current investment and
securitization portfolios. For example, our consolidated fair value balance sheets do not capture the value of new investment
and securitization business that would likely replace prepayments as they occur. Thus, the fair value of net assets attributable
to stockholders presented on our consolidated fair value balance sheets does not represent an estimate of our net realizable,
liquidation or market value as a whole.
We report certain assets and liabilities that are not financial instruments (such as property and equipment and real estate
owned), as well as certain financial instruments that are not covered by the SFAS 107 disclosure requirements (such as
pension liabilities) at their carrying amounts in accordance with GAAP on our consolidated fair value balance sheets. We
believe these items do not have a significant impact on our overall fair value results. Other non-financial assets and liabilities
262 Freddie Mac