Freddie Mac 2011 Annual Report Download - page 311

Other debt includes both non-callable and callable debt, as well as short-term zero-coupon discount notes. The fair
value of the short-term zero-coupon discount notes is based on a discounted cash flow model with market inputs. The
valuation of other debt securities represents the proceeds that we would receive from the issuance of debt and is generally
based on market prices obtained from broker/dealers or reliable third-party pricing service providers. We elected the fair
value option for foreign-currency denominated debt and certain other debt securities and reported them at fair value on
our GAAP consolidated balance sheets. See “Valuation Methods and Assumptions Subject to Fair Value Hierarchy —
Debt Securities Recorded at Fair Value” for additional information.
Other Liabilities
Other liabilities consist of accrued interest payable on debt securities, the guarantee obligation for our other
guarantee commitments and guarantees issued to non-consolidated entities, the reserve for guarantee losses on non-
consolidated trusts, servicer advanced interest payable and certain other servicer liabilities, accounts payable and accrued
expenses, payables related to securities, and other miscellaneous liabilities. We believe the carrying amount of these
liabilities is a reasonable approximation of their fair value, except for the guarantee obligation for our other guarantee
commitments and guarantees issued to non-consolidated entities. The technique for estimating the fair value of our
guarantee obligation related to the credit component of the loan’s fair value is described in the “Mortgage Loans —
Single-Family Loans” section.
As discussed in “Other Assets,” other liabilities may include a deferred tax liability adjusted for fair value balance
sheet purposes.
Net Assets Attributable to Senior Preferred Stockholders
Our senior preferred stock held by Treasury in connection with the Purchase Agreement is recorded at the stated
liquidation preference for purposes of the consolidated fair value balance sheets. As the senior preferred stock is restricted
as to its redemption, we consider the liquidation preference to be the most appropriate measure for purposes of the
consolidated fair value balance sheets.
Net Assets Attributable to Preferred Stockholders
To determine the preferred stock fair value, we use a market-based approach incorporating quoted dealer prices.
Net Assets Attributable to Common Stockholders
Net assets attributable to common stockholders is equal to the difference between the fair value of total assets and
the sum of total liabilities reported on our consolidated fair value balance sheets, less the value of net assets attributable to
senior preferred stockholders and the fair value attributable to preferred stockholders.
NOTE 18: LEGAL CONTINGENCIES
We are involved as a party in a variety of legal and regulatory proceedings arising from time to time in the ordinary
course of business including, among other things, contractual disputes, personal injury claims, employment-related
litigation and other legal proceedings incidental to our business. We are frequently involved, directly or indirectly, in
litigation involving mortgage foreclosures. From time to time, we are also involved in proceedings arising from our
termination of a seller/servicer’s eligibility to sell mortgages to, and/or service mortgages for, us. In these cases, the
former seller/servicer sometimes seeks damages against us for wrongful termination under a variety of legal theories. In
addition, we are sometimes sued in connection with the origination or servicing of mortgages. These suits typically
involve claims alleging wrongful actions of seller/servicers. Our contracts with our seller/servicers generally provide for
indemnification against liability arising from their wrongful actions with respect to mortgages sold to or serviced for
Freddie Mac.
Litigation and claims resolution are subject to many uncertainties and are not susceptible to accurate prediction. In
accordance with the accounting guidance for contingencies, we reserve for litigation claims and assessments asserted or
threatened against us when a loss is probable and the amount of the loss can be reasonably estimated.
In 2011, we paid approximately $8 million for the advancement of legal fees and expenses of current and former
officers and directors pursuant to our indemnification obligations to them. These fees and expenses related to some of the
matters described below and to certain shareholder derivative lawsuits that were dismissed in April and May 2011. This
figure does not include certain administrative support costs and certain costs related to document production and storage.
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