Freddie Mac 2012 Annual Report Download - page 107

2011 vs. 2010
Segment Earnings for our Investments segment increased by $2.1 billion to $3.4 billion in 2011, compared to
$1.3 billion in 2010, primarily due to an increase in net interest income and a decrease in net impairments recognized in
earnings, partially offset by larger derivative losses. Comprehensive income for our Investments segment decreased by $5.0
billion to $6.5 billion in 2011, compared to $11.5 billion in 2010, primarily due to a smaller improvement in net unrealized
losses on our available-for-sale securities.
During 2011, the UPB of the Investments segment mortgage investments portfolio decreased by 6.7%. We held $253.6
billion of agency securities and $86.5 billion of non-agency mortgage-related securities as of December 31, 2011, compared
to $302.9 billion of agency securities and $99.6 billion of non-agency mortgage-related securities as of December 31, 2010.
The decline in UPB of agency securities is due mainly to liquidations, including prepayments and selected sales. The decline
in UPB of non-agency mortgage-related securities is due mainly to the receipt of monthly remittances of principal
repayments from both the recoveries from liquidated loans and, to a lesser extent, voluntary repayments of the underlying
collateral, representing a partial return of our investments in these securities.
Segment Earnings net interest income increased $1.1 billion, and Segment Earnings net interest yield increased 31 basis
points during 2011, compared to 2010. The primary driver was lower funding costs, primarily due to the replacement of debt
at lower rates. These lower funding costs were partially offset by the reduction in the balance of higher-yielding mortgage-
related assets due to continued liquidations.
Segment Earnings non-interest income (loss) was $(4.6) billion in 2011, compared to $(6.1) billion in 2010. This
improvement in non-interest loss was mainly due to decreased net impairment of available-for-sale securities and decreased
losses on trading securities, partially offset by increased derivative losses.
Impairments recorded in our Investments segment decreased by $2.0 billion during 2011, compared to 2010, primarily
due to the impact of lower interest rates in 2011 resulting in a benefit from expected structural credit enhancements on the
securities. The impact of lower interest rates was partially offset by the impact of declines in forecasted home prices.
We recorded losses on trading securities of $(1.0) billion during 2011, compared to $(1.4) billion during 2010. Losses in
both periods are primarily due to the movement of securities with unrealized gains towards maturity. These losses were
partially offset by larger fair value gains in 2011, due to a more significant decline in long-term interest rates, compared to
2010.
We recorded derivative gains (losses) for this segment of $(3.6) billion during 2011, compared to $(1.9) billion during
2010. During 2011 and 2010, swap interest rates decreased, resulting in fair value losses on our pay-fixed swaps, partially
offset by fair value gains on our receive-fixed swaps and purchased call swaptions.
Our Investments segment’s total other comprehensive income declined to $3.1 billion in 2011 compared to $10.2 billion
in 2010, primarily due to lower gains on non-agency mortgage-related securities as spreads widened more in 2011 compared
to 2010.
For a discussion of items that have affected our Investments segment net interest income over time, and will likely
continue to do so, see “BUSINESS — Conservatorship and Related Matters — Limits on Investment Activity and Our
Mortgage-Related Investments Portfolio.”
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