Freddie Mac 2011 Annual Report Download - page 197

We believe our judgments and assumptions used in our evaluation of other-than-temporary impairment are
reasonable. However, different judgments or assumptions could have resulted in materially different recognition of other-
than-temporary impairment. It is possible that the losses we ultimately realize could be significantly higher or lower than
the losses we have recognized in our financial results to date.
Realizability of Deferred Tax Assets, Net
We use the asset and liability method to account for income taxes pursuant to the accounting guidance for income
taxes. Under this method, deferred tax assets and liabilities are recognized based upon the expected future tax
consequences of existing temporary differences between the financial reporting and the tax reporting basis of assets and
liabilities using enacted statutory tax rates. Valuation allowances are recorded to reduce net deferred tax assets when it is
more likely than not that a tax benefit will not be realized. The realization of these net deferred tax assets is dependent
upon the generation of sufficient taxable income in available carryback years from current operations and unrecognized
tax benefits, and upon our intent and ability to hold available-for-sale debt securities until the recovery of any temporary
unrealized losses. On a quarterly basis, we determine whether a valuation allowance is necessary. In so doing, we consider
all evidence currently available, both positive and negative, in determining whether, based on the weight of that evidence,
it is more likely than not that the net deferred tax assets will be realized.
The consideration of this evidence requires significant estimates, assumptions, and judgments, particularly about our
future financial condition and results of operations and our intent and ability to hold available-for-sale debt securities with
temporary unrealized losses until recovery. As discussed in “RISK FACTORS,” the conservatorship and related matters
fundamentally affecting our control, management, and operations are likely to affect our future financial condition and
results of operations. These events have resulted in a variety of uncertainties regarding our future operations, our business
objectives and strategies, and our future profitability, the impact of which cannot be reliably forecasted at this time. As
such, any changes in these estimates, assumptions or judgments may have a material effect on our financial position and
results of operations.
We determined that, as of September 30, 2008, it was more likely than not that we would not realize the portion of
our net deferred tax assets that is dependent upon the generation of future taxable income. This determination was driven
by the events and the resulting uncertainties as of that date. Those conditions continued to exist as of December 31, 2011.
As a result, we continue to maintain a valuation allowance against these net deferred tax assets at December 31, 2011. It
is possible that, in future periods, the uncertainties regarding our future operations and profitability could be resolved such
that it could become more likely than not that these net deferred tax assets would be realized due to the generation of
sufficient taxable income. If that were to occur, we would assess the need for a reduction of the valuation allowance,
which could have a material effect on our financial position and results of operations in the period of the reduction.
Also, we determined that a valuation allowance is not necessary for the portion of our net deferred tax assets that is
dependent upon our intent and ability to hold available-for-sale debt securities until the recovery of any temporary
unrealized losses. These temporary unrealized losses have only impacted AOCI, not income from continuing operations or
our taxable income, nor will they impact income from continuing operations or taxable income if they are held to
maturity. As such, the realization of this deferred tax asset is not dependent upon the generation of sufficient taxable
income but rather on our intent and ability to hold these securities until recovery of these unrealized losses which may be
at maturity. Our conclusion that these unrealized losses are temporary and that we have the intent and ability to hold these
securities until recovery requires significant estimates, assumptions, and judgments, as described above in “Impairment
Recognition on Investments in Securities.” Any changes in these estimates, assumptions, or judgments in future periods
may result in the recognition of an other-than-temporary impairment, which would result in some of this deferred tax
asset not being realized and may have a material effect on our financial position and results of operations. For more
information see “NOTE 13: INCOME TAXES.”
RISK MANAGEMENT AND DISCLOSURE COMMITMENTS
In October 2000, we announced our adoption of a series of commitments designed to enhance market discipline,
liquidity and capital. In September 2005, we entered into a written agreement with FHFA, then OFHEO, that updated
these commitments and set forth a process for implementing them. A copy of the letters between us and OFHEO dated
September 1, 2005 constituting the written agreement has been filed as an exhibit to our Registration Statement on
Form 10, filed with the SEC on July 18, 2008, and is available on the Investor Relations page of our web site at
www.freddiemac.com/investors/sec filings/index.html.
In November 2008, FHFA suspended our periodic issuance of subordinated debt disclosure commitment during the
term of conservatorship and thereafter until directed otherwise. In March 2009, FHFA suspended the remaining disclosure
192 Freddie Mac