Freddie Mac 2009 Annual Report Download - page 304

basis but are subject to fair value adjustments in certain circumstances. These adjustments to fair value usually result from
the application of lower-of-cost-or-fair-value accounting or the write-down of individual assets to current fair value amounts
due to impairments.
For a discussion related to our fair value measurement of our investments in LIHTC partnerships see “Valuation
Methods and Assumptions Subject to Fair Value Hierarchy — Low-Income Housing Tax Credit Partnership Equity
Investments.” Our investments in LIHTC partnerships are valued using unobservable inputs and as a result are classified as
Level 3 under the fair value hierarchy.
For a discussion related to our fair value measurement of single-family held-for-sale mortgage loans see “Valuation
Methods and Assumptions Subject to Fair Value Hierarchy — Mortgage Loans, Held-for-Sale.” Since the fair values of these
mortgage loans are derived from observable prices with adjustments that may be significant, they are classified as Level 3
under the fair value hierarchy.
The fair value of multifamily held-for-investment mortgage loans is generally based on market prices obtained from a
third-party pricing service provider for similar mortgages, considering the current credit risk profile for each loan, adjusted
for differences in contractual terms. However, given the relative illiquidity in the marketplace for these loans, and differences
in contractual terms, we classified these loans as Level 3 in the fair value hierarchy.
For GAAP purposes, subsequent to acquisition REO is carried at the lower of its carrying amount or fair value less
estimated costs to sell. The subsequent fair value less estimated costs to sell is an estimated value based on relevant recent
historical factors, which are considered to be unobservable inputs. As a result, REO is classified as Level 3 under the fair
value hierarchy.
Table 18.3 presents assets measured and reported at fair value on a non-recurring basis in our consolidated balance
sheets by level within the fair value hierarchy at December 31, 2009 and 2008, respectively.
Table 18.3 — Assets Measured at Fair Value on a Non-Recurring Basis
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Total Gains
(Losses)
(5)
Fair Value at December 31, 2009
(in millions)
Assets measured at fair value on a non-recurring basis:
Mortgage loans:
(1)
Held-for-investment .................................... $— $— $ 894 $ 894 $ (231)
Held-for-sale......................................... — — 13,393 13,393 (64)
REO, net
(2)
........................................... — — 1,532 1,532 607
LIHTC partnership equity investments
(3)
........................ — — — — (3,669)
Accounts and other receivables, net
(4)
.......................... — — — — (109)
Total assets measured at fair value on a non-recurring basis ......... $— $— $15,819 $15,819 $(3,466)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Total
Total Gains
(Losses)
(5)
Fair Value at December 31, 2008
(in millions)
Assets measured at fair value on a non-recurring basis:
Mortgage loans:
(1)
Held-for-investment ..................................... $— $— $ 72 $ 72 $ (12)
Held-for-sale . . . ...................................... — — 1,022 1,022 (7)
REO, net
(2)
............................................ — — 2,029 2,029 (495)
LIHTC partnership equity investments
(3)
......................... — — 6 6 (2)
Total gains (losses)....................................... $— $— $3,129 $3,129 $(516)
(1) Represents carrying value and related write-downs of loans for which adjustments are based on the fair value amounts. These loans include held-for-sale
mortgage loans where the fair value is below cost and impaired multifamily mortgage loans, which are classified as held-for-investment and have a
related valuation allowance.
(2) Represents the fair value and related losses of foreclosed properties that were measured at fair value subsequent to their initial classification as REO,
net. The carrying amount of REO, net was written down to fair value of $1.5 billion, less estimated costs to sell of $106 million (or approximately
$1.4 billion) at December 31, 2009. The carrying amount of REO, net was written down to fair value of $2.0 billion, less estimated costs to sell of
$169 million (or approximately $1.8 billion) at December 31, 2008.
(3) Represents the carrying value and related write-downs of impaired low-income housing tax credit partnership equity investments for which adjustments
are based on the fair value amounts.
(4) Represents the carrying value and related write-downs of impaired low-income housing tax credit partnership consolidated investments for which
adjustments are based on fair value amounts.
(5) Represents the total gains (losses) recorded on items measured at fair value on a non-recurring basis as of December 31, 2009 and 2008, respectively.
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