Freddie Mac 2010 Annual Report Download - page 197

We continue to recognize losses on loans purchased related to our other guarantee commitments and losses from
purchases of loans from non-consolidated entities in other expenses;
• Recoveries of loans impaired upon purchase — as these acquisitions of loans from PC trusts that we have consolidated
are no longer treated as purchases for accounting purposes, there will be no recoveries of such loans related to
consolidated VIEs that require recognition in our consolidated statements of operations; and
• Trust management income — we no longer recognize trust management income from the single-family PC trusts that
we consolidate; rather, such amounts are now recognized in net interest income.
See “NOTE 23: SELECTED FINANCIAL STATEMENT LINE ITEMS” for further information regarding line items
that are no longer separately presented on our consolidated financial statements.
Line Items Significantly Impacted and Still Separately Presented:
Line items that were significantly impacted and that continue to be separately presented on our consolidated statements
of operations include:
• Interest income on mortgage loans — we now recognize interest income on the mortgage loans underlying PCs and
Other Guarantee Transactions issued by trusts that we consolidate, which includes the portion of interest that was
historically recognized as management and guarantee income. Upfront credit-related and other fees received in
connection with such loans historically were treated as a component of the related guarantee obligation; prospectively,
these fees are treated as basis adjustments to the loans to be amortized over their respective lives as a component of
interest income on mortgage loans;
• Interest income on investments in securities — we no longer recognize interest income on our investments in the PCs
and Other Guarantee Transactions issued by trusts that we consolidate, as we now recognize interest income on the
mortgage loans underlying PCs and Other Guarantee Transactions issued by trusts that we consolidate;
• Interest expense — we now recognize interest expense on PCs and Other Guarantee Transactions that were issued by
trusts that we consolidate and are held by third parties; and
• Other gains (losses) on investments — we no longer recognize other gains (losses) on investments for single-family
PCs and certain Other Guarantee Transactions because those securities are no longer accounted for as investments by
us as a result of our consolidation of the related trusts.
Newly Created Line Item:
The following line item has been added to our consolidated statements of operations:
• Gains (losses) on extinguishment of debt securities of consolidated trusts — we record the purchase of PCs, REMICs
and Other Structured Securities that are single-class securities, and certain Other Guarantee Transactions as an
extinguishment of outstanding debt with a gain or loss recorded to this line item. The gain or loss recognized is the
difference between the amount paid to redeem the debt and its carrying value, adjusted for any related purchase
commitments accounted for as derivatives. As discussed in “NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES,” REMICs and Other Structured Securities that are single-class securities pass through all
of the cash flows of the underlying PCs directly to the holders and are deemed to be substantially the same as the
underlying PCs. We are not deemed to be the primary beneficiary for the related trusts and thus we do not consolidate
them.
Impacts on Consolidated Statements of Cash Flows
The adoption of these changes in accounting principles also significantly impacted the presentation of our consolidated
statements of cash flows. At transition when we consolidated our single-family PCs and certain Other Guarantee
Transactions, there was significant non-cash activity. Table 2.1 contains a summary of the impacts recorded when we adopted
these changes in accounting principles. All of the activity in the columns titled “Consolidation of VIEs” and
“Reclassifications and Eliminations” were non-cash changes.
Other Changes in Accounting Principles
Scope Exception Related to Embedded Credit Derivatives
In March 2010, the FASB issued an amendment to the accounting standards for derivatives and hedging to clarify the
scope exception for embedded credit derivatives. The amendment provides that embedded credit derivatives created by the
subordination of one financial instrument to another qualify for the scope exception and should not be subject to potential
bifurcation and separate accounting. Other embedded credit derivative features are considered embedded derivatives and
subject to potential bifurcation, provided that the overall contract is not a derivative in its entirety. This amendment was
effective for fiscal quarters beginning after June 15, 2010 with early adoption permitted. Our adoption of this amendment
beginning in the third quarter of 2010 did not have an impact to our consolidated financial statements.
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