Freddie Mac 2015 Annual Report Download - page 214

Financial Statements Notes to the Consolidated Financial Statements | Note 1
Freddie Mac 2015 Form 10-K 212
CHANGE IN ESTIMATE
Adoption of Regulatory Guidance on Determining when a Loan is Uncollectible
On January 1, 2015, we adopted regulatory guidance issued by FHFA that establishes guidelines for
adverse classification and identification of specified single-family and multifamily assets, including
guidelines for recognizing charge-offs on certain single-family loans. We analyze loans for collectability
based on several factors, including, but not limited to:
• Servicing actions that indicate the potential for near-term loss mitigation, such as whether we have
achieved quality borrower contact;
• Credit risk factors, such as whether the loan is in a state with foreclosure practices that prevent timely
resolution of delinquencies; and
• Loan characteristics that indicate whether repayment is likely to occur, such as the borrower's
payment history, loan status, and historical performance of loans with similar characteristics.
Upon adoption, we changed the timing of when we deem certain single-family loans to be uncollectible,
and we began to charge-off the amount of recorded investment in excess of the fair value of the
underlying collateral for loans that have been deemed uncollectible prior to foreclosure, based on the
factors identified above.
This adoption resulted in a reduction to both the recorded investment of loans, held-for-investment, and
our allowance for loan losses of $1.9 billion on January 1, 2015. However, these additional charge-offs did
not have a material impact on our comprehensive income for 2015, as we had already reserved for these
losses in our allowance for loan losses in prior periods.
CONSOLIDATION AND EQUITY METHOD ACCOUNTING
For each entity with which we are involved, we determine whether the entity should be consolidated in our
financial statements. We generally consolidate entities in which we have a controlling financial interest.
The method for determining whether a controlling financial interest exists varies depending on whether
the entity is a VIE. For entities that are not VIEs, we hold a controlling financial interest in entities where
we hold a majority of the voting rights or where we are able to exercise control through substantive
participating rights or as a general partner. We do not currently consolidate any entities which are not
VIEs. We use the equity method to account for our interests in entities in which we do not have a
controlling financial interest, but over which we have significant influence.
CASH AND CASH EQUIVALENTS
Highly liquid investment securities that have an original maturity of three months or less are accounted for
as cash equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS
Cash collateral accepted from counterparties that we do not have the right to use for general corporate
purposes is recorded as restricted cash in our consolidated balance sheets. Restricted cash includes
cash remittances received from servicers of the underlying assets of our consolidated trusts, as well as
cash remittances received on mortgage loans we own, which are deposited into a separate custodial