Freddie Mac 2011 Annual Report Download - page 97

2009. As a result of these factors, we recorded gains on our pay-fixed swap positions, partially offset by losses on our
receive-fixed swaps, resulting in a $13.6 billion net gain. We also recorded losses of $10.7 billion on option-based
derivatives, primarily on our purchased call swaptions, as the impact of the increasing swap interest rates more than offset
the impact of higher implied volatility.
Investment Securities-Related Activities
Since January 1, 2010, as a result of our adoption of amendments to the accounting guidance for transfers of
financial assets and consolidation of VIEs, we no longer account for the single-family PCs and certain Other Guarantee
Transactions we hold as investments in securities. Instead, we now recognize the underlying mortgage loans on our
consolidated balance sheets through consolidation of the related trusts. Our adoption of these amendments resulted in a
decrease in our investments in securities of $286.5 billion on January 1, 2010. See “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES” for additional information.
Impairments of Available-For-Sale Securities
We recorded net impairments of available-for-sale securities recognized in earnings, which were related to non-
agency mortgage-related securities, of $2.3 billion, $4.3 billion, and $11.2 billion during the years ended December 31,
2011, 2010, and 2009. See “CONSOLIDATED BALANCE SHEETS ANALYSIS — Investments in Securities —
Mortgage-Related Securities — Other-Than-Temporary Impairments on Available-For-Sale Mortgage-Related Securities”
and “NOTE 7: INVESTMENTS IN SECURITIES” for information regarding the accounting principles for investments in
debt and equity securities and the other-than-temporary impairments recorded during the years ended December 31, 2011,
2010, and 2009.
Other Gains (Losses) on Investment Securities Recognized in Earnings
Other gains (losses) on investment securities recognized in earnings primarily consists of gains (losses) on trading
securities. We recognized $(1.0) billion, $(1.3) billion, and $4.9 billion related to gains (losses) on trading securities
during the years ended December 31, 2011, 2010, and 2009.
Trading securities mainly include Treasury securities, agency fixed-rate and variable-rate pass-through mortgage-
related securities, and agency REMICs, including inverse floating-rate, interest-only and principal-only securities. With the
exception of principal-only securities, our agency securities, classified as trading, were at a net premium (i.e. have higher
net fair value than UPB) as of December 31, 2011. Gains (losses) on trading securities do not include the interest earned
on these assets, which is recorded as part of net interest income. Additionally, our securities classified as trading are
managed in the overall context of our interest-rate risk management strategy and framework. However, the impacts of
changes in fair value of related derivatives and other debt are not recognized in other gains (losses) on investment
securities recognized in earnings on our consolidated statements of income and comprehensive income.
During the years ended December 31, 2011 and 2010, the losses on trading securities were primarily due to the
movement of securities with unrealized gains towards maturity. The decreased losses during the year ended December 31,
2011, compared to the year ended December 31, 2010, was primarily due to higher fair value gains at the end of 2011 as
a result of a decline in longer-term interest rates.
At December 31, 2009, the fair value of our investments in trading securities was $222.3 billion, compared to
$58.8 billion and $60.3 billion at December 31, 2011 and 2010, respectively. The significant reduction in the fair value of
our investments in trading securities was primarily due to our adoption of amendments to the accounting guidance for
transfers of financial assets and consolidation of VIEs, as noted above. The larger balance in our investments in trading
securities during 2009, combined with tightening OAS levels, contributed to the gains on these trading securities. In
addition, during the year ended December 31, 2009, we sold agency securities classified as trading with an aggregate UPB
of approximately $148.7 billion, which generated realized gains of $1.7 billion.
For a further discussion of our interest-rate risk management strategy and framework, see “QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.”
Other Income
Other income includes items associated with our guarantee activities on non-consolidated trusts, including
management and guarantee income, gains (losses) on guarantee asset, income on guarantee obligation, gains (losses) on
sale of mortgage loans, and trust management income (expense). Upon consolidation of our single-family PC trusts and
certain Other Guarantee Transactions commencing January 1, 2010, guarantee-related items no longer have a material
impact on our results and are therefore included in other income on our consolidated statements of income and
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