Freddie Mac 2012 Annual Report Download - page 191

Table 71 — Summary of Assets and Liabilities Measured at Fair Value on a Recurring Basis on Our Consolidated
Balance Sheets
December 31,
2012 2011
Total GAAP
Recurring
Fair Value
Percentage
in Level 3
Total GAAP
Recurring
Fair Value
Percentage
in Level 3
(dollars in millions)
Assets:
Investments in securities:
Available-for-sale, at fair value ............................................ $174,896 31% $210,659 28%
Trading, at fair value ................................................... 41,492 4 58,830 4
Mortgage loans:
Held-for-sale, at fair value ............................................... 14,238 100 9,710 100
Derivative assets, net(1) .................................................... 657 — 118 —
Other assets:
Guarantee asset, at fair value ............................................. 1,029 100 752 100
All other, at fair value .................................................. 114 100 151 100
Total assets carried at fair value on a recurring basis(1) .......................... $232,426 28 $280,220 23
Liabilities:
Debt securities of consolidated trusts held by third parties, at fair value ................. $ 70 —% $ — —%
Other debt, at fair value ................................................... 2,187 100 3,015 —
Derivative liabilities, net(1) ................................................. 178 — 435 —
Total liabilities carried at fair value on a recurring basis(1) ....................... $ 2,435 7 $ 3,450 —
(1) Percentages by level are based on gross fair value of derivative assets and derivative liabilities before counterparty netting, cash collateral netting, net
trade/settle receivable or payable and net derivative interest receivable or payable.
Level 3 Recurring Fair Value Measurements
At December 31, 2012 and 2011, we measured and recorded at fair value on a recurring basis, assets of $72.0 billion
and $72.5 billion, respectively, or approximately 28% and 23% of total assets carried at fair value on a recurring basis, using
significant unobservable inputs (Level 3), before the impact of counterparty and cash collateral netting. Our Level 3 assets at
December 31, 2012 primarily consisted of non-agency mortgage-related securities and multifamily held-for-sale loans. At
December 31, 2012 and 2011, we also measured and recorded at fair value on a recurring basis, Level 3 liabilities of $2.3
billion and $0.1 billion, or 7% and less than 1%, respectively, of total liabilities carried at fair value on a recurring basis,
before the impact of counterparty and cash collateral netting. Our Level 3 liabilities at December 31, 2012 primarily
consisted of foreign-currency denominated debt recorded at fair value.
The non-agency mortgage-related securities market continued to be illiquid during 2012, with low transaction volumes,
wide credit spreads, and limited transparency. We continue to utilize the prices on such securities provided to us by various
pricing services and dealers and believe that the procedures executed by the pricing services and dealers, combined with our
internal verification and analytical processes, help ensure that the prices used to develop our financial statements are in
accordance with the accounting guidance for fair value measurements and disclosures.
See “NOTE 16: FAIR VALUE DISCLOSURES – Changes in Fair Value Levels” for a discussion of changes in our
Level 3 assets and liabilities and “— Table 16.2 — Fair Value Measurements of Assets and Liabilities Using Significant
Unobservable Inputs” for the Level 3 reconciliation. For discussion of types and characteristics of mortgage loans underlying
our mortgage-related securities, see “Table 23 — Characteristics of Mortgage-Related Securities on Our Consolidated
Balance Sheets” and “RISK MANAGEMENT — Credit Risk — Mortgage Credit Risk — Single-Family Mortgage Credit
Risk.”
Consideration of Credit Risk in Our Valuation
We consider credit risk in the valuation of our assets and liabilities through consideration of credit risk of the
counterparty in asset valuations and through consideration of our own institutional credit risk in liability valuations on our
GAAP consolidated balance sheets.
We consider credit risk in our valuation of investments in securities based on fair value measurements that are largely
the result of price quotes received from multiple dealers or pricing services. Some of the key valuation drivers of such fair
value measurements include the collateral type, collateral performance, credit quality of the issuer, tranche type, weighted
average life, vintage, coupon, and interest rates. We also make adjustments for items such as credit enhancements or other
186 Freddie Mac