Freddie Mac 2012 Annual Report Download - page 316

market pricing and are classified as Level 2. However, certain other debt securities are classified as Level 3 when there is a
low volume or level of activity in the market for those types of debt securities.
Total debt, net for which we have elected the fair value option includes certain debt securities of consolidated trusts held
by third parties, foreign-currency denominated debt and certain other debt. We report these items at fair value on our GAAP
consolidated balance sheets. See “Valuation Techniques for Assets and Liabilities Measured at Fair Value in Our
Consolidated Balance Sheets — Debt Securities of Consolidated Trusts Held by Third Parties, at Fair Value” and “— Other
Debt, at Fair Value “ for additional information.
Other Liabilities
Other liabilities consist of accrued interest payable on debt securities, the guarantee obligation for guarantees issued to
unconsolidated entities, the reserve for guarantee losses for guarantees issued to unconsolidated entities, servicer advanced
interest payable and certain other servicer liabilities, accounts payable and accrued expenses, payables related to securities,
and other miscellaneous liabilities. We believe the carrying amount of these liabilities is a reasonable approximation of their
fair value, except for the guarantee obligation for guarantees issued to unconsolidated entities. The technique for estimating
the fair value of our guarantee obligation is described in the “Mortgage Loans — Single-Family Loans” section above.
As discussed in “Other Assets,” other liabilities may include a deferred tax liability adjusted for fair value balance sheet
purposes.
Other liabilities are classified primarily as Level 2 or Level 3 depending on whether the valuation technique uses
unobservable inputs that are significant to the fair value measurement.
Net Assets Attributable to Senior Preferred Stockholders
Our senior preferred stock held by Treasury in connection with the Purchase Agreement is recorded at the stated
liquidation preference for purposes of the consolidated fair value balance sheets, which is the same as the carrying value in
our GAAP consolidated balance sheets, and does not reflect fair value. As the senior preferred stock is restricted as to its
redemption, we consider the liquidation preference to be the most appropriate measure for purposes of the consolidated fair
value balance sheets. Our senior preferred stock is classified as Level 3 because the valuation is based on unobservable
inputs.
Net Assets Attributable to Preferred Stockholders
Preferred stock is valued using a market-based approach incorporating quoted dealer prices. These securities have
observable market pricing and are classified as Level 2.
Net Assets Attributable to Common Stockholders
Net assets attributable to common stockholders is equal to the difference between the fair value of total assets and total
liabilities reported on our consolidated fair value balance sheets, less the value of net assets attributable to senior preferred
stockholders and the fair value attributable to preferred stockholders. Our net assets attributable to common stockholders is
classified as Level 3 because the valuation is based on unobservable inputs.
Fair Value Option
We elected the fair value option for certain types of investments in securities, multifamily held-for-sale mortgage loans,
and certain debt.
Investments in Securities
We elected the fair value option for certain mortgage-related securities to better reflect the natural offset these securities
provide to fair value changes recorded historically on our guarantee asset at the time of our election. In addition, upon
adoption of the accounting guidance for the fair value option, we elected this option for securities within the scope of the
accounting guidance for investments in beneficial interests in securitized financial assets to better reflect any valuation
changes that would occur subsequent to impairment write-downs previously recorded on these instruments. Related interest
income continues to be reported as interest income in our consolidated statements of comprehensive income. See “NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Investments in Securities” for additional information about
the measurement and recognition of interest income on investments in securities. See “NOTE 7: INVESTMENTS IN
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