Freddie Mac 2011 Annual Report Download - page 310

for less than a majority of the guaranteed loans, but accounts for the largest share of the overall fair value of the
guarantee obligation).
For single-family mortgage loans for which a contractual modification has been approved, we estimate fair value
based on our estimate of prices we would receive if we were to sell these loans in the whole loan market, as this
represents our current principal market for modified loans. These prices are obtained from multiple dealers who reference
market activity, where available, for modified loans and use internal models and their judgment to determine default rates,
severity rates, and risk premiums.
The fair value of single-family mortgage loans is a fair value measurement with limited market benchmarks and
significant unobservable inputs. In determining the fair value of single-family mortgage loans, valuation outcomes can
vary widely based on management judgments and decisions used in determining: (a) a principal exit market; (b) modeling
assumptions; and (c) inputs used to determine variables including risk premiums, credit costs, security pricing, and
implied management and guarantee fees. Specifically, the valuation of single-family mortgage loans could change
significantly based on changes in our assumptions about the probability of default, severity, home prices, and risk
premium.
Multifamily Loans
For a discussion of the techniques used to determine the fair value of held-for-sale, and both impaired and non-
impaired held-for-investment multifamily loans, see “Valuation Methods and Assumptions Subject to Fair Value
Hierarchy — Mortgage Loans, Held-for-Investment” and “— Mortgage Loans, Held-for-Sale,” respectively.
Other Assets
Most of our other assets are not financial instruments required to be valued at fair value under the accounting
guidance for disclosures about the fair value of financial instruments, such as property and equipment. For most of these
non-financial instruments in other assets, we use the carrying amounts from our GAAP consolidated balance sheets as the
reported values on our consolidated fair value balance sheets, without any adjustment. These assets represent an
insignificant portion of our GAAP consolidated balance sheets.
We adjust the GAAP-basis deferred taxes reflected on our consolidated fair value balance sheets to include estimated
income taxes on the difference between our consolidated fair value balance sheets net assets attributable to common
stockholders, including deferred taxes from our GAAP consolidated balance sheets, and our GAAP consolidated balance
sheets equity attributable to common stockholders. To the extent the adjusted deferred taxes are a net asset, this amount is
included in other assets. In addition, if our net deferred tax assets on our consolidated fair value balance sheets, calculated
as described above, exceed our net deferred tax assets on our GAAP consolidated balance sheets that have been reduced
by a valuation allowance, our net deferred tax assets on our consolidated fair value balance sheets are limited to the
amount of our net deferred tax assets on our GAAP consolidated balance sheets. If the adjusted deferred taxes are a net
liability, this amount is included in other liabilities.
Accrued interest receivable is one of the components included within other assets on our consolidated fair value
balance sheets. On our GAAP consolidated balance sheets, we reverse accrued but uncollected interest income when a
loan is placed on non-accrual status. There is no such reversal performed for the fair value of accrued interest receivable
disclosed on our consolidated fair value balance sheets. Rather, we include in our fair value disclosure the amount we
deem to be collectible. As a result, there is a difference between the accrued interest receivable GAAP-basis carrying
amount and its fair value disclosed on our consolidated fair value balance sheets.
Total Debt, Net
Total debt, net represents debt securities of consolidated trusts held by third parties and other debt that we issued to
finance our assets. On our consolidated GAAP balance sheets, total debt, net, excluding debt securities for which the fair
value option has been elected, is reported at amortized cost, which is net of deferred items, including premiums,
discounts, and hedging-related basis adjustments.
For fair value balance sheet purposes, we use the dealer-published quotes for a base TBA security, adjusted for the
carry and pay-up price adjustments, to determine the fair value of the debt securities of consolidated trusts held by third
parties. The valuation techniques we use are similar to the approach we use to value our investments in agency securities
for GAAP purposes. See “Valuation Methods and Assumptions Subject to Fair Value Hierarchy — Investments in
Securities — Agency Securities” for additional information regarding the valuation techniques we use.
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