Freddie Mac 2011 Annual Report Download - page 316

and disclosure statement filed with the court by TBW indicating that general unsecured creditors are likely to receive a
distribution of 3.3 to 4.4 cents on the dollar. The settlement provides that $6 million of this amount is to be paid to
certain creditors of TBW. In addition, pursuant to the settlement, we have received net proceeds of $156 million through
December 31, 2011 relating to various funds on deposit, net of amounts we were required to assign or pay to other
parties. The settlement also allows for our sale of TBW-related mortgage servicing rights and provides a formula for
determining the amount of the proceeds, if any, to be allocated to third parties that have asserted interests in those rights.
During the year ended December 31, 2011, we recognized a $0.2 billion gain, primarily representing the difference
between the amounts we assigned, or paid, to TBW and their creditors and the liability recorded on our consolidated
balance sheet.
At the time of settlement, we estimated our uncompensated loss exposure to TBW to be approximately $0.7 billion.
This estimated exposure largely relates to outstanding repurchase claims that have already been substantially provided for
in our financial statements through our provision for loan losses. Our ultimate losses could exceed our recorded estimate.
Potential changes in our estimate of uncompensated loss exposure or the potential for additional claims as discussed
below could cause us to record additional losses in the future.
We understand that Ocala Funding, LLC, or Ocala, which is a wholly owned subsidiary of TBW, or its creditors,
may file an action to recover certain funds paid to us prior to the TBW bankruptcy. However, no actions against Freddie
Mac related to Ocala have been initiated in bankruptcy court or elsewhere to recover assets. Based on court filings and
other information, we understand that Ocala or its creditors may attempt to assert fraudulent transfer and other possible
claims totaling approximately $840 million against us related to funds that were allegedly transferred from Ocala to
Freddie Mac custodial accounts. We also understood that Ocala might attempt to make claims against us asserting
ownership of a large number of loans that we purchased from TBW. The order approving the settlement provides that
nothing in the settlement shall be construed to limit, waive or release Ocala’s claims against Freddie Mac, except for
TBW’s claims and claims arising from the allocation of the loans discussed above to Freddie Mac.
On or about May 14, 2010, certain underwriters at Lloyds, London and London Market Insurance Companies brought
an adversary proceeding in bankruptcy court against TBW, Freddie Mac and other parties seeking a declaration rescinding
mortgage bankers bonds providing fidelity and errors and omissions insurance coverage. Several excess insurers on the
bonds thereafter filed similar claims in that action. Freddie Mac has filed a proof of loss under the bonds, but we are
unable at this time to estimate our potential recovery, if any, thereunder. Discovery is proceeding.
IRS Litigation
We received Statutory Notices from the IRS assessing $3.0 billion of additional income taxes and penalties for the
1998 to 2007 tax years. We filed a petition with the U.S. Tax Court on October 22, 2010 in response to the Statutory
Notices for the 1998 to 2005 tax years. We paid the tax assessed in the Statutory Notice received for the years 2006 to
2007 of $36 million and will seek a refund through the administrative process, which could include filing suit in Federal
District Court. We believe appropriate reserves have been provided for settlement on reasonable terms. For information on
this matter, see “NOTE 13: INCOME TAXES.”
NOTE 19: SELECTED FINANCIAL STATEMENT LINE ITEMS
As discussed in “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,” we adopted amendments to
the accounting guidance for transfers of financial assets and consolidation of VIEs effective January 1, 2010. As a result
of this change in accounting principles, certain line items on our consolidated statements of income and comprehensive
income, consolidated balance sheets, and consolidated statements of cash flows are no longer material to our 2011 and
2010 consolidated results of operations, financial position, and cash flows.
As this change in accounting principles was applied prospectively, the results of operations for the years ended
December 31, 2011 and 2010 reflect the consolidation of our single-family PC trusts and certain Other Guarantee
Transactions while the results of operations for the year ended December 31, 2009 reflect the accounting policies in effect
at that time, i.e., these securitization entities were accounted for off-balance sheet.
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