Freddie Mac 2011 Annual Report Download - page 95

multifamily mortgage loans, including Nevada, Arizona, and Georgia, continue to exhibit weaker than average apartment
fundamentals.
Non-Interest Income (Loss)
Gains (Losses) on Extinguishment of Debt Securities of Consolidated Trusts
When we purchase PCs that have been issued by consolidated PC trusts, we extinguish a pro rata portion of the
outstanding debt securities of the related consolidated trusts. We recognize a gain (loss) on extinguishment of the debt
securities to the extent the amount paid to extinguish the debt security differs from its carrying value. For the years ended
December 31, 2011 and 2010, we extinguished debt securities of consolidated trusts with a UPB of $75.4 billion and
$17.8 billion, respectively (representing our purchase of single-family PCs with a corresponding UPB amount). The
increase in purchases of single-family PCs was due to an increased volume of dollar roll transactions to support the
market and pricing of our single-family PCs. Losses on extinguishment of these debt securities of consolidated trusts were
$219 million and $164 million for the years ended December 31, 2011 and 2010, respectively. The losses during 2011 and
2010 were primarily due to the repurchase of our debt securities at higher net purchase premiums driven by a decrease in
interest rates during the periods. See “Table 25 — Total Mortgage-Related Securities Purchase Activity” for additional
information regarding purchases of mortgage-related securities, including those issued by consolidated PC trusts.
Gains (Losses) on Retirement of Other Debt
We repurchase or call our outstanding other debt securities from time to time when we believe it is economically
beneficial and to manage the mix of liabilities funding our assets. When we repurchase or call outstanding debt securities,
or holders put outstanding debt securities to us, we recognize a gain or loss to the extent the amount paid to redeem the
debt security differs from its carrying value. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”
for more information regarding our accounting policies related to debt retirements.
Gains (losses) on retirement of other debt were $44 million, $(219) million, and $(568) million during the years
ended December 31, 2011, 2010, and 2009, respectively. We recognized gains on debt retirements during 2011, compared
to losses during 2010, because we purchased debt with lower associated discounts in 2011 relative to the comparable
periods in 2010. We recognized fewer losses on debt retirement during 2010 compared to 2009 primarily due to decreased
losses on calls and puts in 2010 compared to 2009. For more information, see “LIQUIDITY AND CAPITAL
RESOURCES — Liquidity — Other Debt Securities —Other Debt Retirement Activities.”
Gains (Losses) on Debt Recorded at Fair Value
Gains (losses) on debt recorded at fair value primarily relate to changes in the fair value of our foreign-currency
denominated debt. During 2011 and 2010, we recognized gains on debt recorded at fair value of $91 million and
$580 million, respectively, primarily due to a combination of the U.S. dollar strengthening relative to the Euro and
changes in interest rates. During 2009, we recognized losses on debt recorded at fair value of $404 million primarily due
to the U.S. dollar weakening relative to the Euro. We mitigate changes in the fair value of our foreign-currency
denominated debt by using foreign currency swaps and foreign-currency denominated interest-rate swaps.
Derivative Gains (Losses)
The table below presents derivative gains (losses) reported in our consolidated statements of income and
comprehensive income. See “NOTE 11: DERIVATIVES — Table 11.2 — Gains and Losses on Derivatives” for
information about gains and losses related to specific categories of derivatives. Changes in fair value and interest accruals
on derivatives not in hedge accounting relationships are recorded as derivative gains (losses) in our consolidated
statements of income and comprehensive income. At December 31, 2011, 2010, and 2009, we did not have any
derivatives in hedge accounting relationships; however, there are amounts recorded in AOCI related to discontinued cash
flow hedges. Amounts recorded in AOCI associated with these closed cash flow hedges are reclassified to earnings when
the forecasted transactions affect earnings. If it is probable that the forecasted transaction will not occur, then the deferred
gain or loss associated with the forecasted transaction is reclassified into earnings immediately.
While derivatives are an important aspect of our strategy to manage interest-rate risk, they generally increase the
volatility of reported net income (loss) because, while fair value changes in derivatives affect net income (loss), fair value
changes in several of the types of assets and liabilities being hedged do not affect net income (loss).
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