Freddie Mac 2015 Annual Report Download - page 308

Financial Statements Notes to the Consolidated Financial Statements | Note 14
Freddie Mac 2015 Form 10-K 306
Instrument Valuation Technique
Classification in
the Fair Value
Hierarchy
Single-family REO Valuations are based on an internal model, which uses REO
disposition prices combined with loan level characteristics, using the
repeat housing sales index. Significant inputs include the historical
sales proceeds per property and the repeat housing sales index.
Significant increases (decreases) in the historical sales proceeds per
property in isolation would result in significantly higher (lower) fair value
measurement.
Level 3
Guarantee obligation Valuations are based on:
Single-family
The delivery and management and guarantee fees that we charge
under our current market pricing Level 2
Internal credit models. Significant inputs include loan
characteristics, loan performance, and status information. Level 3
Multifamily: Discounted cash flows. Significant inputs are similar to
those used in the valuation technique for the Multifamily Guarantee
Asset.
Level 3
Debt
Debt securities of
consolidated trusts
held by third parties
Valuations are based on the valuation techniques we use to value our
investments in agency securities. Level 2 or 3
Other debt Valuations are based on: Predominantly
Level 2
Median of external sources
Single external source
Published yield matrices
HARP Loans
For loans that have been refinanced under HARP, we value our guarantee obligation using the
management and guarantee fees currently charged by us under that initiative. HARP loans valued using
this technique are classified as Level 2, as the fees charged by us are observable. If, subsequent to
delivery, the refinanced loan no longer qualifies for purchase based on current underwriting standards
(such as becoming past due or being modified), the fair value of the guarantee obligation is then
measured using our internal credit models or the median of external sources, if the loan’s principal market
has changed to the whole loan market. HARP loans valued using either of these techniques are classified
as Level 3 as significant inputs are unobservable. The majority of our HARP loans are classified as Level
2.