Freddie Mac 2011 Annual Report Download - page 255

Our analysis is subject to change as new information regarding delinquencies, severities, loss timing, prepayments,
and other factors becomes available. While it is reasonably possible that, under certain conditions, collateral losses on our
remaining available-for-sale securities for which we have not recorded an impairment charge could exceed our credit
enhancement levels and a principal or interest loss could occur, we do not believe that those conditions were likely as of
December 31, 2011.
Commercial Mortgage-Backed Securities
CMBS are exposed to stresses in the commercial real estate market. We use external models to identify securities
that may have an increased risk of failing to make their contractual payments. We then perform an analysis of the
underlying collateral on a security-by-security basis to determine whether we will receive all of the contractual payments
due to us. During the year ended December 31, 2011, we recognized the unrealized fair value losses related to certain
investments in CMBS of $181 million as an impairment charge in earnings because we have the intent to sell these
securities. While it is reasonably possible that, under certain conditions, collateral losses on our CMBS for which we have
not recorded an impairment charge could exceed our credit enhancement levels and a principal or interest loss could
occur, we do not believe that those conditions were likely as of December 31, 2011. We do not intend to sell the
remaining CMBS and it is not more likely than not that we will be required to sell such securities before recovery of the
unrealized losses.
Obligations of States and Political Subdivisions
These investments consist of housing revenue bonds. We believe the unrealized losses on obligations of states and
political subdivisions are primarily a result of movements in interest rates and liquidity and risk premiums. We have
determined that the impairment of these securities is temporary based on our conclusion that we do not intend to sell
these securities and it is not more likely than not that we will be required to sell such securities before a recovery of the
unrealized losses. We believe that any credit risk related to these securities is minimal because of the issuer guarantees
provided on these securities.
Bond Insurance
We rely on bond insurance, including secondary coverage, to provide credit protection on some of our non-agency
mortgage-related securities. Circumstances in which it is likely a principal and interest shortfall will occur and there is
substantial uncertainty surrounding a bond insurer’s ability to pay all future claims can give rise to recognition of other-
than-temporary impairment recognized in earnings. See “NOTE 16: CONCENTRATION OF CREDIT AND OTHER
RISKS — Bond Insurers” for additional information.
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