Freddie Mac 2015 Annual Report Download - page 321

Financial Statements Notes to the Consolidated Financial Statements | Note 14
Freddie Mac 2015 Form 10-K 319
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.
Interest income is recognized using the prospective effective interest method. We recognize as interest
income (over the life of these securities) the excess of all estimated cash flows attributable to these
interests over their book value using the effective interest method. We update our estimates of expected
cash flows periodically and recognize changes in the calculated effective interest rate on a prospective
basis. For 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, see Gains (losses) on trading
securities within the reconciliation of Segment Earnings to GAAP results in Note 12.
Multifamily Held-For-Sale Loans
We elected the fair value option for multifamily loans that were purchased for securitization. These loans
are classified as held-for-sale loans on our consolidated balance sheets to reflect our intent to sell in the
future and are measured at fair value on a recurring basis, with subsequent gains or losses related to
changes in fair value (net of accrued interest income) reported in other income in our consolidated
statements of comprehensive income. We elected to report separately the portion of the changes in fair
value of the loans related to accrued interest from the remaining changes in fair value. Related interest
income continues to be reported based on the stated terms of the loans, as interest income in our
consolidated statements of comprehensive income.
Debt Securities of Consolidated Trusts Held by Third Parties and Other Debt
We elected the fair value option on debt that contains embedded derivatives, primarily STACR debt notes.
Fair value changes are recorded in other income in our consolidated statements of comprehensive
income. For debt where we have elected the fair value option, upfront costs and fees are recognized in
earnings as incurred and not deferred. Related interest expense continues to be reported as interest
expense based on the stated terms of the debt securities.
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, 2015 and 2014.
December 31,
2015 2014
(in millions)
Multifamily
Held-For-Sale
Loans Other Debt -
Long Term
Multifamily
Held-For-Sale
Loans Other Debt -
Long Term
Fair value $ 17,660 $7,045 $12,130 $5,820
Unpaid principal balance 17,673 7,093 11,872 5,896
Difference $ (13) $ (48) $ 258 $(76)