Freddie Mac 2012 Annual Report Download - page 214

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Freddie Mac was chartered by Congress in 1970 to stabilize the nation’s residential mortgage market and expand
opportunities for home ownership and affordable rental housing. Our statutory mission is to provide liquidity, stability and
affordability to the U.S. housing market. We are a GSE regulated by FHFA, the SEC, HUD, and the Treasury, and are
currently operating under the conservatorship of FHFA. For more information on the roles of FHFA and the Treasury, see
“NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”
We are involved in the U.S. housing market by participating in the secondary mortgage market. We do not participate
directly in the primary mortgage market. Our participation in the secondary mortgage market includes providing our credit
guarantee for mortgages originated by mortgage lenders in the primary mortgage market and investing in mortgage loans and
mortgage-related securities.
Our operations consist of three reportable segments, which are based on the type of business activities each performs —
Single-family Guarantee, Investments, and Multifamily. Our Single-family Guarantee segment reflects results from our
single-family credit guarantee activities. In our Single-family Guarantee segment, we purchase single-family mortgage loans
originated by our seller/servicers in the primary mortgage market. In most instances, we use the mortgage securitization
process to package the purchased mortgage loans into guaranteed mortgage-related securities. We guarantee the payment of
principal and interest on the mortgage-related securities in exchange for management and guarantee fees. Our Investments
segment reflects results from our investment, funding, and hedging activities. In our Investments segment, we invest
principally in mortgage-related securities and single-family performing mortgage loans, which are funded by debt issuances
and hedged using derivatives. Our Multifamily segment reflects results from our investment (both purchases and sales),
securitization, and guarantee activities in multifamily mortgage loans and securities. In our Multifamily segment, our primary
business strategy is to purchase multifamily mortgage loans for aggregation and then securitization. See “NOTE 13:
SEGMENT REPORTING” for additional information.
We are focused on the following primary business objectives: (a) providing credit availability for mortgages and
maintaining foreclosure prevention activities; (b) minimizing our credit losses; (c) developing mortgage market
enhancements in support of a new infrastructure for the secondary mortgage market; (d) maintaining sound credit quality on
the loans we purchase or guarantee; (e) contracting the dominant presence of the GSEs in the marketplace; and
(f) strengthening our infrastructure and improving overall efficiency while also focusing on retention of key employees. Our
business objectives reflect direction we have received from the Conservator. In March 2012, FHFA instituted the 2012
conservatorship scorecard, or the Conservatorship Scorecard, for use by both us and Fannie Mae that established business
objectives and performance targets and measures, and provided the implementation roadmap for FHFA’s strategic plan for
Freddie Mac and Fannie Mae. We continue to align our resources and internal business plans to meet the goals and objectives
in FHFA’s directives. For information regarding these objectives, see “NOTE 2: CONSERVATORSHIP AND RELATED
MATTERS — Business Objectives.”
Throughout our consolidated financial statements and related notes, we use certain acronyms and terms which are
defined in the “GLOSSARY.”
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP and include our
accounts as well as the accounts of other entities in which we have a controlling financial interest. All intercompany balances
and transactions have been eliminated.
Our current accounting policies are described below. We are operating under the basis that we will realize assets and
satisfy liabilities in the normal course of business as a going concern and in accordance with the delegation of authority from
FHFA to our Board of Directors and management. Certain amounts in prior periods’ consolidated financial statements have
been reclassified to conform to the current presentation.
We evaluate the materiality of identified errors in the financial statements using both an income statement, or
“rollover,” and a balance sheet, or “iron curtain,” approach, based on relevant quantitative and qualitative factors. Net
income (loss) includes certain adjustments to correct immaterial errors related to previously reported periods.
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