Freddie Mac 2012 Annual Report Download - page 220

losses related to sales or changes in fair value reported in other income in our consolidated statements of comprehensive
income. We do not have any held-for-sale loans reported at the lower-of-cost-or-fair-value on our consolidated balance
sheets as of December 31, 2012 or 2011.
Cash flows related to mortgage loans held by our consolidated trusts are classified as either investing activities (e.g.,
principal repayments) or operating activities (e.g., interest payments received from borrowers included within net income
(loss)). In addition, cash flows related to purchases of mortgage loans held-for-sale are classified in operating activities.
When mortgage loans held-for-sale are sold or securitized, proceeds from the sale or securitization and any related gain or
loss are classified in operating activities.
Allowance for Loan Losses and Reserve for Guarantee Losses
The allowance for loan losses and the reserve for guarantee losses represent estimates of incurred credit losses. The
allowance for loan losses pertains to all single-family and multifamily loans classified as held-for-investment on our
consolidated balance sheets whereas the reserve for guarantee losses relates to single-family and multifamily loans
underlying our non-consolidated Freddie Mac mortgage-related securities and other guarantee commitments. Total held-for-
investment mortgage loans, net are shown net of the allowance for loan losses on our consolidated balance sheets. The
reserve for guarantee losses is included within other liabilities on our consolidated balance sheets. We recognize incurred
losses by recording a charge to the provision for credit losses in our consolidated statements of comprehensive income.
Determining the appropriateness of the loan loss reserves is a complex process that is subject to numerous estimates and
assumptions requiring significant judgment about matters that involve a high degree of subjectivity.
We estimate credit losses related to homogeneous pools of loans in accordance with the accounting guidance for
contingencies. Accordingly, we maintain an allowance for loan losses on mortgage loans held-for-investment when it is
probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Loans that we evaluate for
individual impairment are measured in accordance with the subsequent measurement requirements of the accounting
guidance for receivables.
For both the single-family and multifamily portfolios, we charge off (in full or in part) our recorded investment in a loan
in the period it is determined that the loan (or a portion thereof) is uncollectible, which generally occurs at final disposition of
the loan through foreclosure or other loss event. However, if losses are evident prior to final disposition, earlier recognition
of a charge-off is required by our policies. We also consider charge-offs for certain very small balance loans and upon the
occurrence of certain events such as natural disasters. A charge-off is also recorded if we realize a specific credit loss upon
the modification of a loan in a TDR. We do not have any established threshold in terms of days past due beyond which we
partially or fully charge-off loans.
Single-Family Loans
We determine single-family loan loss reserves both on a collective and individual basis. For further discussion on
individually impaired single-family loans, refer to “Impaired Loans” below.
We estimate loan loss reserves on homogeneous pools of single-family loans using a statistically based model that
evaluates a variety of factors affecting collectability. The homogeneous pools of single-family mortgage loans are
determined based on common underlying characteristics, including estimated current LTV ratios and trends in home prices,
loan product type and geographic region. In determining the loan loss reserves for single-family loans at the balance sheet
date, we evaluate key inputs and factors including, but not limited to:
• estimated current LTV ratios and historical trends in home prices;
• loan product type;
• delinquency/default status and history;
• actual and estimated rates of collateral loss severity for similar loans;
• geographic location;
• loan age;
• sourcing channel;
• occupancy type;
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