Freddie Mac 2012 Annual Report Download - page 317

SECURITIES” for additional information regarding the net unrealized gains (losses) on trading securities, which include
gains (losses) for other items that are not selected for the fair value option.
Multifamily Held-For-Sale Mortgage Loans
We elected the fair value option for multifamily mortgage loans that were purchased for securitization. These
multifamily mortgage loans are classified as held-for-sale mortgage loans in our consolidated balance sheets to reflect our
intent to sell in the future. 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 — Mortgage Loans”
for additional information about the measurement and recognition of interest income on our mortgage loans.
Debt Securities of Consolidated Trusts Held by Third Parties
We elected the fair value option for certain debt securities of consolidated trusts held by third parties. These consist of
certain multifamily K certificates. We elected the fair value option on these debt instruments as they contain embedded
derivatives that require bifurcation. Fair value changes for debt securities of consolidated trusts held by third parties are
recorded in gains (losses) on debt recorded at fair value in our consolidated statements of comprehensive income. Related
interest expense continues to be reported as interest expense in our consolidated statements of comprehensive income. See
“NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — Debt Securities Issued” for additional
information about the measurement and recognition of interest expense on debt securities issued.
Other Debt
We elected the fair value option for foreign-currency denominated debt and certain other debt securities. In the case of
foreign-currency denominated debt, we have entered into derivative transactions that effectively convert these instruments to
U.S. dollar denominated floating rate instruments. We elected the fair value option on these debt instruments to better reflect
the economic offset that naturally results from the debt due to changes in interest rates. We also elected the fair value option
for certain other debt securities containing potential embedded derivatives that required bifurcation. Fair value changes for
debt for which we have elected the fair value option are recorded in gains (losses) on debt recorded at fair value in our
consolidated statements of comprehensive income. Related interest expense continues to be reported as interest expense in
our consolidated statements of comprehensive income. See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES — Debt Securities Issued” for additional information about the measurement and recognition of interest expense
on debt securities issued.
The table below presents the fair value and UPB related to certain items for which we have elected the fair value option
at December 31, 2012 and 2011.
Table 16.7 — Difference between Fair Value and Unpaid Principal Balance for Certain Financial Instruments with
Fair Value Option Elected
As of December 31,
2012 2011
Multifamily
Held-For-Sale
Mortgage Loans
Other Debt -
Long Term
Multifamily
Held-For-Sale
Mortgage Loans
Other Debt -
Long Term
(in millions)
Fair value ...................................................... $14,238 $2,187 $9,710 $2,765
Unpaid principal balance ........................................... 13,972 2,167 9,515 2,722
Difference .................................................... $ 266 $ 20 $ 195 $ 43
Changes in Fair Value under the Fair Value Option Election
The table below presents fair value gains and losses, including changes attributable to instrument-specific credit risk, for
debt securities for which we have elected the fair value option for the years ended December 31, 2012, 2011, and 2010.
For multifamily held-for-sale mortgage loans, we recorded $1.0 billion, $0.8 billion, and $0 billion from the change in
fair value in other income in our consolidated statements of comprehensive income for the years ended 2012, 2011, and
2010, respectively. Multifamily held-for-sale mortgage loans are not included in the table below because we determined that
the changes in fair value attributable to instrument-specific credit risk were not material given that these loans were generally
originated within the past 12 months and have not seen a change in their credit characteristics.
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