Freddie Mac 2009 Annual Report Download - page 245

Table 4.4 — Details of Cash Flows
2009 2008 2007
For the Year Ended
December 31,
(in millions)
Cash flows from:
Proceeds from transfers of Freddie Mac securities that were accounted for as sales
(1)
.................. $118,445 $ 36,885 $62,644
Cash flows received on the guarantee asset
(2)
............................................. 2,922 2,871 2,288
Principal and interest from retained securitization interests
(3)
.................................. 21,377 20,411 23,541
Purchases of delinquent or foreclosed loans and required purchase of balloon mortgages
(4)
.............. (26,346) (13,539) (6,811)
(1) On our consolidated statements of cash flows, this amount is included in the investing activities as part of proceeds from sales of trading and available-
for-sale securities.
(2) Represents cash received from securities receiving sales treatment and related to management and guarantee fees, which reduce the guarantee asset. On
our consolidated statements of cash flows, the change in guarantee asset and the corresponding management and guarantee fee income are reflected as
operating activities.
(3) On our consolidated statements of cash flows, the cash flows from interest are included in net income (loss) and the principal repayments are included
in the investing activities as part of proceeds from maturities of available-for-sale securities.
(4) On our consolidated statements of cash flows, this amount is included in the investing activities as part of purchases of held-for-investment mortgages.
Includes our acquisitions of REO in cases where a foreclosure sale occurred while a loan was owned by the securitization trust.
In addition to the cash flow shown above, we are obligated under our guarantee to make up any shortfalls in principal
and interest to the holders of our securities, including those shortfalls arising from losses incurred in our role as trustee for
the master trust, which administers cash remittances from mortgages and makes payments to the security holders. See
“NOTE 19: CONCENTRATION OF CREDIT AND OTHER RISKS — Securitization Trusts” for further information on
these cash flows.
Gains and Losses on Transfers of PCs and Structured Securities that are Accounted for as Sales
The gain or loss on a securitization that qualifies as a sale, is determined, in part, based on the carrying amounts of the
financial assets sold. The carrying amounts of the assets sold are allocated between those sold to third parties and those held
as retained interests based on their relative fair value at the date of sale. We recognized net pre-tax gains (losses) on
transfers of mortgage loans, PCs and Structured Securities that were accounted for as sales of approximately $1.5 billion,
$151 million and $141 million for the years ended December 31, 2009, 2008 and 2007, respectively. We recognized higher
gains in 2009 as a result of increased securitization activity in 2009 as compared to 2008 due to improved fundamentals in
the securitization market. The gross proceeds associated with these sales are presented within the table above.
NOTE 5: VARIABLE INTEREST ENTITIES
We are a party to numerous entities that are considered to be VIEs. Our investments in VIEs include LIHTC
partnerships and certain Structured Securities transactions. In addition, we buy the highly-rated senior securities in non-
mortgage-related, asset-backed investment trusts that are VIEs. Our investments in these securities do not represent a
significant variable interest in the securitization trusts as the securities issued by these trusts are not designed to absorb a
significant portion of the variability in the trust. Accordingly, we do not consolidate these securities. See
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Consolidation and Equity Method of Accounting”
for further information regarding the consolidation practices of our VIEs.
LIHTC Partnerships
The LIHTC Program is widely regarded as the most successful federal program for the production and preservation of
rental housing affordable to low-income households. The LIHTC Program is an indirect federal subsidy used to finance the
development of affordable rental housing for low-income households. Congress enacted the LIHTC Program in 1986 to
provide the private market with an incentive to invest in affordable rental housing. Federal housing tax credits are awarded to
developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects,
which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property
can in turn offer lower, more affordable rents.
As a nationwide investor, we supported the LIHTC market regardless of location, investing in rural areas, in central
cities, in special needs projects and in difficult to develop areas. We are a strong proponent of high standards of reporting
and asset management, as well as underwriting and investment criteria. Our presence in multi-investor funds enabled smaller
investors to participate in much larger pools of projects and helped to attract investment capital to areas that would not
otherwise have seen such investments. The LIHTC partnerships invest as limited partners in partnerships that own and
operate multifamily rental properties. These properties are rented to qualified low-income tenants, allowing the properties to
be eligible for federal income tax credits. Most of these LIHTC partnerships are VIEs. A general partner operates the
partnership, identifying investments and obtaining debt financing as needed to finance partnership activities. There were no
third-party credit enhancements of our LIHTC investments at December 31, 2009 and 2008. Although these partnerships
242 Freddie Mac