Freddie Mac 2011 Annual Report Download - page 281

over the contractual life of the instrument to fully reflect the periodic cost associated with the protection provided
by these contracts.
Amortization related to certain items is not relevant to how we measure the economic yield earned on the securities
held in our investments portfolio. Therefore, as described below, we reclassify these items in Segment Earnings from net
interest income to non-interest income.
• Amortization related to derivative commitment basis adjustments associated with mortgage-related and non-
mortgage-related securities is reclassified in Segment Earnings from net interest income to non-interest income.
• Amortization related to accretion of other-than-temporary impairments on non-mortgage-related securities held in
our cash and other investments portfolio is reclassified in Segment Earnings from net interest income to non-
interest income.
• Amortization related to premiums and discounts associated with PCs and Other Guarantee Transactions issued by
our consolidated trusts that we previously held and subsequently transferred to third parties is reclassified in
Segment Earnings from net interest income to non-interest income. The amortization is related to deferred gains
(losses) on transfers of these securities.
Credit Guarantee Activity-Related Reclassifications
In preparing certain line items within Segment Earnings, we make various reclassifications to earnings determined
under GAAP related to our credit-guarantee activities, including those described below. All credit guarantee-related
income and costs are included in Segment Earnings management and guarantee income.
• Net guarantee fee is reclassified in Segment Earnings from net interest income to management and guarantee
income.
• Implied management and guarantee fee related to unsecuritized mortgage loans held in the mortgage investments
portfolio is reclassified in Segment Earnings from net interest income to management and guarantee income.
• The portion of the amount reversed for accrued but uncollected interest upon placing loans on a non-accrual status
that relates to guarantee fees is reclassified in Segment Earnings from net interest income to management and
guarantee income. The remaining portion of the allowance for lost interest is reclassified in Segment Earnings from
net interest income to provision for credit losses. Under GAAP-basis earnings and Segment Earnings, the guarantee
fee is not accrued on loans three monthly payments or more past due.
Segment Adjustments
In presenting Segment Earnings net interest income and management and guarantee income, we make adjustments to
better reflect how management measures and assesses the performance of each segment and the company as a whole.
These adjustments relate to amounts that, effective January 1, 2010, are no longer reflected in net income (loss) as
determined in accordance with GAAP as a result of the adoption of accounting guidance for the transfers of financial
assets and the consolidation of VIEs. These adjustments are reversed through the segment adjustments line item within
Segment Earnings, so that Segment Earnings (loss) for each segment equals GAAP net income (loss) attributable to
Freddie Mac for each segment. Segment adjustments consist of the following:
• We adjust our Segment Earnings net interest income for the Investments segment to include the amortization of
cash premiums and discounts and buy-up and buy-down fees on the consolidated Freddie Mac mortgage-related
securities we purchase as investments. As of December 31, 2011, the unamortized balance of such premiums and
discounts and buy-up and buy-down fees was $1.6 billion. These adjustments are necessary to reflect the economic
yield realized on investments in consolidated Freddie Mac mortgage-related securities purchased at a premium or
discount or with buy-up or buy-down fees.
• We adjust our Segment Earnings management and guarantee income for the Single-family Guarantee segment to
include the amortization of delivery fees recorded in periods prior to the January 1, 2010 adoption of accounting
guidance for the transfers of financial assets and the consolidation of VIEs. As of December 31, 2011, the
unamortized balance of such fees was $2.2 billion. We consider such fees to be part of the effective rate of the
guarantee fee on guaranteed mortgage loans. This adjustment is necessary in order to better reflect the realization
of revenue associated with guarantee contracts over the life of the underlying loans.
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