Freddie Mac 2011 Annual Report Download - page 224

Comprehensive Income
Comprehensive income is the change in equity, on a net of tax basis, resulting from transactions and other events and
circumstances from non-owner sources during a period. It includes all changes in equity during a period, except those
resulting from investments by stockholders. We define comprehensive income as consisting of net income (loss) plus
changes in: (a) the unrealized gains and losses on available-for-sale securities; (b) the effective portion of derivatives
accounted for as cash flow hedge relationships; and (c) defined benefit plans.
Recently Adopted Accounting Guidance
A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring
On July 1, 2011, we adopted an amendment to the accounting guidance related to the classification of loans as
TDRs, which clarifies when a restructuring such as a loan modification is considered a TDR. This amendment clarifies
the guidance regarding a creditor’s evaluation of whether a debtor is experiencing financial difficulty and whether a
creditor has granted a concession to a debtor for purposes of determining if a restructuring constitutes a TDR.
Both single-family and multifamily loans that experience restructurings resulting in a concession being granted to a
borrower experiencing financial difficulties are considered TDRs. The amendment provides guidance to determine whether
a borrower is experiencing financial difficulties, which is largely consistent with the guidance for debtors. As we had
previously analogized to the guidance for debtors, this change does not have a significant impact on our determination of
whether a borrower is experiencing financial difficulties. Pursuant to this amendment, a concession is deemed to have
been granted when, as a result of the restructuring, we do not expect to collect all amounts due, including interest
accrued, at the original contractual interest rate. The amendment also specifies that a concession shall not be determined
by comparing the borrower’s pre-restructuring effective interest rate to the post-restructuring effective interest rate. These
changes result in a significant impact on our determination of whether a concession has been granted.
The amendment was effective for interim and annual periods beginning on or after June 15, 2011 and applied as of
July 1, 2011 to restructurings occurring on or after January 1, 2011. As of September 30, 2011, the total recorded
investment in loans identified as TDRs during the third quarter of 2011 which relate to modifications or agreements
entered into between January 1, 2011 and June 30, 2011 was $7.5 billion, and the allowance for credit losses related to
those loans was $1.7 billion. We recognized additional provision for credit losses of $0.2 billion during the third quarter
of 2011 due to the population of restructurings occurring in the first half of 2011 that are now considered TDRs.
Please refer to “NOTE 5: INDIVIDUALLY IMPAIRED AND NON-PERFORMING LOANS” for further disclosures
regarding our loan restructurings accounted for and disclosed as TDRs and for discussion regarding how modifications
and other loss mitigation activities are factored into our allowance for loan losses.
Accounting for Transfers of Financial Assets and Consolidation of VIEs
On January 1, 2010, we prospectively adopted amendments to the accounting guidance applicable to the accounting
for transfers of financial assets and the consolidation of VIEs. The amendment for transfers of financial assets was
applicable on a prospective basis to new transfers, while the amendment relating to consolidation of VIEs was applied
prospectively to all entities within its scope as of the date of adoption.
We use securitization trusts in our securities issuance process. Prior to January 1, 2010, these trusts met the definition
of QSPEs and were not subject to consolidation. Effective January 1, 2010, the concept of a QSPE was removed from
GAAP and entities previously considered QSPEs were required to be evaluated for consolidation. Based on our
consolidation evaluation, we determined that we are the primary beneficiary of trusts that issue our single-family PCs and
certain Other Guarantee Transactions. As a result, a large portion of our off-balance sheet assets and liabilities prior to
January 1, 2010 have been consolidated. Effective January 1, 2010, we consolidated these trusts and recognized the assets
and liabilities at their UPB, with accrued interest, allowance for credit losses or other-than-temporary impairments
recognized as appropriate, using the practical expedient permitted upon adoption since we determined that calculation of
historical carrying values was not practical. Other newly consolidated assets and liabilities that either do not have a UPB
or are required to be carried at fair value were measured at fair value. See “Consolidation and Equity Method of
Accounting” above for a discussion of our assessment to determine whether we are considered the primary beneficiary of
a trust and thus need to consolidate it. As such, we recognized on our consolidated balance sheets the mortgage loans
underlying our issued single-family PCs and certain Other Guarantee Transactions as mortgage loans held-for-investment
by consolidated trusts, at amortized cost. We also recognized the corresponding single-family PCs and certain Other
Guarantee Transactions held by third parties on our consolidated balance sheets as debt securities of consolidated trusts
held by third parties. After January 1, 2010, new consolidations of trust assets and liabilities are recorded at either their:
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