Freddie Mac 2011 Annual Report Download - page 211

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage market and expand
opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and
affordability to the U.S. housing market. We are a GSE regulated by FHFA, the SEC, HUD, and the Treasury, and are
currently operating under the conservatorship of FHFA. For more information on the roles of FHFA and the Treasury, see
“NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”
We are involved in the U.S. housing market by participating in the secondary mortgage market. We do not participate
directly in the primary mortgage market. Our participation in the secondary mortgage market includes providing our credit
guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans
and mortgage-related securities.
Our operations consist of three reportable segments, which are based on the type of business activities each
performs — Single-family Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results
from our single-family credit guarantee activities. In our Single-family Guarantee segment, we purchase single-family
mortgage loans originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage
securitization process to package the purchased mortgage loans into guaranteed mortgage-related securities. We guarantee
the payment of principal and interest on the mortgage-related securities in exchange for management and guarantee fees.
Our Investments segment reflects results from our investment, funding, and hedging activities. In our Investments
segment, we invest principally in mortgage-related securities and single-family performing mortgage loans, which are
funded by debt issuances and hedged using derivatives. Our Multifamily segment reflects results from our investment
(both purchases and sales), securitization, and guarantee activities in multifamily mortgage loans and securities. In our
Multifamily segment, our primary business strategy is to purchase multifamily mortgage loans for aggregation and then
securitization. See “NOTE 14: SEGMENT REPORTING” for additional information.
Under conservatorship, we are focused on the following primary business objectives: (a) meeting the needs of the
U.S. residential mortgage market by making home ownership and rental housing more affordable by providing liquidity to
mortgage originators and, indirectly, to mortgage borrowers; (b) working to reduce the number of foreclosures and helping
to keep families in their homes, including through our role in FHFA and other governmental initiatives, such as the
FHFA-directed servicing alignment initiative, HAMP and HARP, as well as our own workout and refinancing initiatives;
(c) minimizing our credit losses; (d) maintaining sound credit quality of the loans we purchase and guarantee; and
(e) strengthening our infrastructure and improving overall efficiency while also focusing on retention of key employees.
We also have a variety of different, and potentially competing, objectives based on our charter, other legislation, public
statements from Treasury and FHFA officials, and other guidance and directives from our Conservator. For information
regarding these objectives, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Business Objectives.”
Throughout our consolidated financial statements and related notes, we use certain acronyms and terms which are
defined in the “GLOSSARY.”
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our
accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany
balances and transactions have been eliminated.
Our current accounting policies are described below. We are operating under the basis that we will realize assets and
satisfy liabilities in the normal course of business as a going concern and in accordance with the delegation of authority
from FHFA to our Board of Directors and management. Certain amounts in prior periods’ consolidated financial
statements have been reclassified to conform to the current presentation.
We evaluate the materiality of identified errors in the financial statements using both an income statement, or
“rollover,” and a balance sheet, or “iron-curtain,” approach, based on relevant quantitative and qualitative factors. Net loss
includes certain adjustments to correct immaterial errors related to previously reported periods.
We recorded the cumulative effect of certain miscellaneous errors related to previously reported periods as
corrections in the year ended December 31, 2011. We concluded that these errors are not material individually or in the
aggregate to our previously issued consolidated financial statements for any of the periods affected, or to our earnings for
the full year ended December 31, 2011, or to the trend of earnings. The impact to earnings, net of taxes, for the year
ended December 31, 2011 was $0.4 billion.
206 Freddie Mac