Freddie Mac 2012 Annual Report Download - page 130

The table below summarizes the changes in derivative fair values.
Table 32 — Changes in Derivative Fair Values
2012(1) 2011(2)
(in millions)
Beginning balance, at January 1 — Net asset (liability) .................................................... $(8,662) $(6,560)
Net change in:
Commitments .............................................................................. 29 (36)
Credit derivatives ........................................................................... — (11)
Swap guarantee derivatives .................................................................... 2 (1)
Other derivatives:(3)
Changes in fair value ......................................................................... 1,051 (3,383)
Fair value of new contracts entered into during the period(4) ............................................. 2 594
Contracts realized or otherwise settled during the period ............................................... 682 735
Ending balance, at December 31 — Net asset (liability) ................................................... $(6,896) $(8,662)
(1) Refer to ‘‘Table 31 — Derivative Fair Values and Maturities’’ for a reconciliation of net fair value to the amounts presented on our consolidated balance
sheets as of December 31, 2012.
(2) At December 31, 2011, fair value in this table excludes derivative interest receivable or (payable), net of $(1.1) billion, trade/settle receivable or
(payable), net of $1 million, and derivative cash collateral posted, net of $9.4 billion.
(3) Includes fair value changes for interest-rate swaps, option-based derivatives, futures, and foreign-currency swaps.
(4) Consists primarily of cash premiums paid or received on options.
See “CONSOLIDATED RESULTS OF OPERATIONS — Non-Interest Income (Loss) — Derivative Gains (Losses)”
for a description of gains (losses) on our derivative positions.
REO, Net
We acquire properties, which are recorded as REO assets on our consolidated balance sheets, typically as a result of
borrower default (and subsequent foreclosures) on mortgage loans that we own or guarantee. The balance of our REO, net,
declined to $4.4 billion at December 31, 2012, from $5.7 billion at December 31, 2011. We believe the volume of our single-
family REO acquisitions in recent years was less than it otherwise would have been due to several factors, including the
length of the foreclosure process and increased volume of foreclosure alternatives. Lower acquisitions, coupled with high
disposition levels, led to a lower REO property inventory level in 2012 compared to 2011. We expect that the length of the
foreclosure process will continue to remain above historical levels and may further increase. Additionally, we expect our
REO activity to remain at elevated levels, as we have a large inventory of seriously delinquent loans in our single-family
credit guarantee portfolio. See “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Non-Performing Assets”
for additional information about our REO activity.
Deferred Tax Assets, Net
After evaluating all available evidence, including our prior years’ losses, the events and developments related to our
conservatorship, volatility in the economy, related difficulty in forecasting future profit levels, and our assertion that we have
the intent and ability to hold our available-for-sale securities until any temporary unrealized losses are recovered, we
continue to record a valuation allowance on a portion of our net deferred tax assets as of December 31, 2012 and 2011. We
will continue to evaluate our conclusion regarding the need for a valuation allowance. It is possible that, in future periods, the
uncertainties regarding our future operations and profitability could be resolved such that it could become more likely than
not that the deferred tax assets would be realized and that a valuation allowance would no longer be necessary. See
“NOTE 12: INCOME TAXES” for additional information.
Other Assets
Other assets consist of the guarantee asset related to non-consolidated trusts and other guarantee commitments, accounts
and other receivables, and other miscellaneous assets. Other assets increased to $13.8 billion as of December 31, 2012 from
$10.5 billion as of December 31, 2011 primarily due to an increase in servicer receivables resulting from an increase in
mortgage loans paid off by borrowers at the end of the year that had not yet been remitted to us. Other assets also increased
as we reduced certain unrecognized tax benefits to zero as a result of a favorable resolution of matters in dispute with the
IRS. For more information regarding the discussions with the IRS, see “NOTE 12: INCOME TAXES — Unrecognized Tax
Benefits — IRS Examinations and Litigation.” For more information on other assets, see “NOTE 18: SELECTED
FINANCIAL STATEMENT LINE ITEMS.”
125 Freddie Mac