LOANS RECEIVABLE, NET

Loans receivable, net at March 31, 2016 and December 31, 2015 are summarized as follows (dollars in millions):



	March 31, 2016			December 31, 2015
One- to four-family	$	2,370		$	2,488
Home equity	1,974			2,114
Consumer and other	317			341
Total loans receivable	4,661			4,943
Unamortized premiums, net	21			23
Allowance for loan losses	(322		)	(353		)
Total loans receivable, net	$	4,360		$	4,613

At March 31, 2016, the Company pledged $3.9 billion and $0.3 billion of loans as collateral to the FHLB and Federal Reserve Bank, respectively. At December 31, 2015, the Company pledged $4.2 billion and $0.3 billion of loans as collateral to the FHLB and Federal Reserve Bank, respectively.

The following table presents the total recorded investment in loans receivable and allowance for loan losses by loans that have been collectively evaluated for impairment and those that have been individually evaluated for impairment by loan class at March 31, 2016 and December 31, 2015 (dollars in millions):



	Recorded Investment				Allowance for Loan Losses
	March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015
Collectively evaluated for impairment:
One- to four-family	$	2,109	$	2,219	$	41	$	31
Home equity	1,767		1,915		217		255
Consumer and other	320		344		6		6
Total collectively evaluated for impairment	4,196		4,478		264		292
Individually evaluated for impairment:
One- to four-family	277		286		8		9
Home equity	209		202		50		52
Total individually evaluated for impairment	486		488		58		61
Total	$	4,682	$	4,966	$	322	$	353

Credit Quality and Concentrations of Credit Risk

The Company tracks and reviews factors to predict and monitor credit risk in its mortgage loan portfolio on an ongoing basis. These factors include: loan type, estimated current LTV/CLTV ratios, delinquency history, borrowers’ current credit scores, housing prices, loan vintage and geographic location of the property. The Company believes LTV/CLTV ratios and credit scores are the key factors in determining future loan performance. The factors are updated on at least a quarterly basis. The Company tracks and reviews delinquency status to predict and monitor credit risk in the consumer and other loan portfolio on at least a quarterly basis.

Credit Quality

The following tables show the distribution of the Company’s mortgage loan portfolios by credit quality indicator at March 31, 2016 and December 31, 2015 (dollars in millions):



	One- to Four-Family						Home Equity
Current LTV/CLTV ⁽¹⁾	March 31, 2016			December 31, 2015			March 31, 2016			December 31, 2015
<=80%	$	1,482		$	1,519		$	802		$	843
80%-100%	560			609			507			549
100%-120%	206			227			387			420
>120%	122			133			278			302
Total mortgage loans receivable	$	2,370		$	2,488		$	1,974		$	2,114
Average estimated current LTV/CLTV ⁽²⁾	76		%	77		%	90		%	90		%
Average LTV/CLTV at loan origination ⁽³⁾	71		%	71		%	81		%	81		%

(1)

Current CLTV calculations for home equity loans are based on the maximum available line for home equity lines of credit and outstanding principal balance for home equity installment loans. For home equity loans in the second lien position, the original balance of the first lien loan at origination date and updated valuations on the property underlying the loan are used to calculate CLTV. Current property values are updated on a quarterly basis using the most recent property value data available to the Company. For properties in which the Company did not have an updated valuation, home price indices were utilized to estimate the current property value.


(2)	The average estimated current LTV/CLTV ratio reflects the outstanding balance at the balance sheet date and the maximum available line for home equity lines of credit, divided by the estimated current value of the underlying property.


(3)	Average LTV/CLTV at loan origination calculations are based on LTV/CLTV at time of purchase for one- to four-family purchased loans and home equity installment loans and maximum available line for home equity lines of credit.



	One- to Four-Family				Home Equity
Current FICO ⁽¹⁾	March 31, 2016		December 31, 2015		March 31, 2016		December 31, 2015
>=720	$	1,357	$	1,423	$	994	$	1,069
719 - 700	219		246		201		222
699 - 680	195		198		177		183
679 - 660	163		150		144		152
659 - 620	167		198		196		203
<620	269		273		262		285
Total mortgage loans receivable	$	2,370	$	2,488	$	1,974	$	2,114

(1)

FICO scores are updated on a quarterly basis; however, there were approximately $37 million and $39 million of one- to four-family loans at March 31, 2016 and December 31, 2015, respectively, and $3 million of home equity loans at both March 31, 2016 and December 31, 2015 for which the updated FICO scores were not available. For these loans, the current FICO distribution included the most recent FICO scores where available, otherwise the original FICO score was used.

Concentrations of Credit Risk

One- to four-family loans include loans for a five to ten year interest-only period, followed by an amortizing period ranging from 20 to 25 years. At March 31, 2016, 38% of the Company's one- to four-family portfolio was not yet amortizing. During the trailing twelve months ended March 31, 2016, borrowers of approximately 17% of the portfolio made voluntary annual principal payments of at least $2,500 and of this population, nearly half made principal payments that were $10,000 or greater.

The home equity loan portfolio is primarily second lien loans on residential real estate properties, which have a higher level of credit risk than first lien mortgage loans. Approximately 13% of the home equity portfolio was in the first lien position and the Company holds both the first and second lien positions in less than 1% of the home equity loan portfolio at March 31, 2016. The home equity loan portfolio consists of approximately 18% of home equity installment loans and approximately 82% of home equity lines of credit at March 31, 2016. Of the home equity lines of credit, approximately 53% had converted to amortizing loans at March 31, 2016.

Home equity installment loans are primarily fixed rate and fixed term, fully amortizing loans that do not offer the option of an interest-only payment. The majority of home equity lines of credit convert to amortizing loans at the end of the draw period, which typically ranges from five to ten years. Approximately 3% of this portfolio will require the borrowers to repay the loan in full at the end of the draw period. At March 31, 2016, 47% of the home equity line of credit portfolio had not converted from the interest-only draw period and had not begun amortizing. During the trailing twelve months ended March 31, 2016, borrowers of approximately 40% of the portfolio made annual principal payments of at least $500 on their home equity lines of credit and slightly under half reduced their principal balance by at least $2,500.

The following table outlines when one- to four-family and home equity lines of credit convert to amortizing by percentage of the one- to four-family portfolio and home equity line of credit portfolios, respectively, at March 31, 2016:



Period of Conversion to Amortizing Loan	% of One- to Four-Family Portfolio	% of Home Equity Line of Credit Portfolio
Already amortizing	62%	53%
Through December 31, 2016	15%	32%
Year ending December 31, 2017	23%	14%
Year ending December 31, 2018 or later	—%	1%

The average age of our mortgage loans receivable was 10.1 and 9.9 years at March 31, 2016 and December 31, 2015, respectively. Approximately 37% of the Company’s mortgage loans receivable were concentrated in California at both March 31, 2016 and December 31, 2015. No other state had concentrations of mortgage loans that represented 10% or more of the Company’s mortgage loans receivable at March 31, 2016 and December 31, 2015.

Delinquent Loans

The following table shows total loans receivable by delinquency category at March 31, 2016 and December 31, 2015 (dollars in millions):



	Current		30-89 Days Delinquent		90-179 Days Delinquent		180+ Days Delinquent		Total
March 31, 2016
One- to four-family	$	2,160	$	74	$	28	$	108	$	2,370
Home equity	1,839		52		28		55		1,974
Consumer and other	311		5		1		—		317
Total loans receivable	$	4,310	$	131	$	57	$	163	$	4,661
December 31, 2015
One- to four-family	$	2,279	$	72	$	26	$	111	$	2,488
Home equity	1,978		52		31		53		2,114
Consumer and other	334		6		1		—		341
Total loans receivable	$	4,591	$	130	$	58	$	164	$	4,943

Loans delinquent 180 days and greater have been written down to their expected recovery value. Loans delinquent 90 to 179 days generally have not been written down to their expected recovery value (unless they are in process of bankruptcy or are modifications for which there is substantial doubt as to the borrower’s ability to repay the loan), but present a risk of future charge-off. Additional charge-offs on loans delinquent 180 days and greater are possible if home prices decline beyond current expectations.

The Company monitors loans in which a borrower’s current credit history casts doubt on their ability to repay a loan. Loans are classified as special mention when they are between 30 and 89 days past due. The trend in special mention loan balances is generally indicative of the expected trend for charge-offs in future periods, as these loans have a greater propensity to migrate into nonaccrual status and ultimately charge-off. One- to four-family loans are generally secured in a first lien position by real estate assets, reducing the potential loss when compared to an unsecured loan. Home equity loans are generally secured by real estate assets; however, the majority of these loans are secured in a second lien position, which substantially increases the potential loss when compared to a first lien position. The loss severity of our second lien home equity loans was approximately 94% for three months ended March 31, 2016.

Nonperforming Loans

The Company classifies loans as nonperforming when they are no longer accruing interest, which includes loans that are 90 days and greater past due, TDRs that are on nonaccrual status for all classes of loans (including loans in bankruptcy) and certain junior liens that have a delinquent senior lien. The following table shows the comparative data for nonperforming loans at March 31, 2016 and December 31, 2015 (dollars in millions):



	March 31, 2016		December 31, 2015
One- to four-family	$	259	$	263
Home equity	165		154
Consumer and other	1		1
Total nonperforming loans receivable	$	425	$	418

Real Estate Owned and Loans with Formal Foreclosure Proceedings in Process

At March 31, 2016 and December 31, 2015, the Company held $26 million and $27 million, respectively, of real estate owned that were acquired through foreclosure or through a deed in lieu of foreclosure or similar legal agreement. The Company also held $99 million and $108 million of loans for which formal foreclosure proceedings were in process at March 31, 2016 and December 31, 2015, respectively.

Allowance for Loan Losses

The following table provides a roll forward by loan portfolio of the allowance for loan losses for the three months ended March 31, 2016 and 2015 (dollars in millions):



	Three Months Ended March 31, 2016
	One- to Four-Family			Home Equity			Consumer and Other			Total
Allowance for loan losses, beginning of period	$	40		$	307		$	6		$	353
Provision (benefit) for loan losses	8			(42		)	—			(34		)
Charge-offs	(1		)	(5		)	(2		)	(8		)
Recoveries⁽¹⁾	2			7			2			11
Charge-offs, net	1			2			—			3
Allowance for loan losses, end of period	$	49		$	267		$	6		$	322



	Three Months Ended March 31, 2015
	One- to Four-Family			Home Equity			Consumer and Other			Total
Allowance for loan losses, beginning of period	$	27		$	367		$	10		$	404
Provision (benefit) for loan losses	5			(2		)	2			5
Charge-offs	(1		)	(10		)	(3		)	(14		)
Recoveries	—			5			2			7
Charge-offs, net	(1		)	(5		)	(1		)	(7		)
Allowance for loan losses, end of period	$	31		$	360		$	11		$	402


(1)	Includes a one-time payment from a third party mortgage originator of $3 million to satisfy in full all pending and future repurchase requests with them for the three months ended March 31, 2016.

Total loans receivable designated as held-for-investment decreased $0.3 billion during the three months ended March 31, 2016. The allowance for loan losses was $322 million, or 6.9% of total loans receivable, as of March 31, 2016 compared to $353 million, or 7.1% of total loans receivable, as of December 31, 2015.

Impaired Loans—Troubled Debt Restructurings

TDRs include two categories of loans: (1) loan modifications completed under the Company’s programs that involve granting an economic concession to a borrower experiencing financial difficulty, and (2) loans that have been charged off based on the estimated current value of the underlying property less estimated selling costs due to bankruptcy notification.

Delinquency status is the primary measure the Company uses to evaluate the performance of loans modified as TDRs. As mentioned above, the Company classifies loans as nonperforming when they are no longer accruing interest, which includes loans that are 90 days and greater past due, TDRs that are on nonaccrual status for all classes of loans, including loans in bankruptcy, and certain junior liens that have a delinquent senior lien. The following table shows a summary of the Company’s recorded investment in TDRs that were on accrual and nonaccrual status, further disaggregated by delinquency status, in addition to the recorded investment in TDRs at March 31, 2016 and December 31, 2015 (dollars in millions):



			Nonaccrual TDRs
	Accrual TDRs⁽¹⁾		Current⁽²⁾		30-89 Days Delinquent		90-179 Days Delinquent		180+ Days Delinquent		Total Recorded Investment in TDRs⁽³⁾⁽⁴⁾
March 31, 2016
One- to four-family	$	105	$	104	$	19	$	6	$	43	$	277
Home equity	114		53		12		7		23		209
Total	$	219	$	157	$	31	$	13	$	66	$	486
December 31, 2015
One- to four-family	$	106	$	106	$	19	$	8	$	47	$	286
Home equity	120		42		11		8		21		202
Total	$	226	$	148	$	30	$	16	$	68	$	488


(1)	Represents loans modified as TDRs that are current and have made six or more consecutive payments.


(2)	Represents loans modified as TDRs that are current but have not yet made six consecutive payments, bankruptcy loans and certain junior lien TDRs that have a delinquent senior lien.


(3)	The unpaid principal balance in one- to four-family TDRs was $275 million and $283 million at March 31, 2016 and December 31, 2015, respectively. For home equity loans, the recorded investment in TDRs represents the unpaid principal balance.


(4)	Total recorded investment in TDRs at March 31, 2016 consisted of $335 million of loans modified as TDRs and $151 million of loans that have been charged off due to bankruptcy notification. Total recorded investment in TDRs at December 31, 2015 consisted of $334 million of loans modified as TDRs and $154 million of loans that have been charged off due to bankruptcy notification.

The following table shows the average recorded investment and interest income recognized both on a cash and accrual basis for the Company’s TDRs during the three months ended March 31, 2016 and 2015 (dollars in millions):



	Average Recorded Investment				Interest Income Recognized
	Three Months Ended March 31,				Three Months Ended March 31,
	2016		2015		2016		2015
One- to four-family	$	282	$	313	$	2	$	2
Home equity	205		218		4		5
Total	$	487	$	531	$	6	$	7

Included in the allowance for loan losses was a specific valuation allowance of $58 million and $61 million that was established for TDRs at March 31, 2016 and December 31, 2015, respectively. The specific allowance for these individually impaired loans represents the forecasted losses over the estimated remaining life of the loans, including the economic concessions granted to the borrowers. The following table shows detailed information related to the Company’s TDRs at March 31, 2016 and December 31, 2015 (dollars in millions):



	March 31, 2016						December 31, 2015
	Recorded Investment in TDRs		Specific Valuation Allowance		Net Investment in TDRs		Recorded Investment in TDRs		Specific Valuation Allowance		Net Investment in TDRs
With a recorded allowance:
One- to four-family	$	69	$	8	$	61	$	72	$	9	$	63
Home equity	$	115	$	50	$	65	$	111	$	52	$	59
Without a recorded allowance:⁽¹⁾
One- to four-family	$	208	$	—	$	208	$	214	$	—	$	214
Home equity	$	94	$	—	$	94	$	91	$	—	$	91
Total:
One- to four-family	$	277	$	8	$	269	$	286	$	9	$	277
Home equity	$	209	$	50	$	159	$	202	$	52	$	150


(1)	Represents loans where the discounted cash flow analysis or collateral value is equal to or exceeds the recorded investment in the loan.

Troubled Debt Restructurings — Loan Modifications

The Company has loan modification programs that focus on the mitigation of potential losses in the one- to four-family and home equity mortgage loan portfolio. The Company currently does not have an active loan modification program for consumer and other loans. The various types of economic concessions that may be granted in a loan modification typically consist of interest rate reductions, maturity date extensions, principal forgiveness or a combination of these concessions. The Company uses specialized servicers that focus on loan modifications and pursue trial modifications for loans that are more than 180 days delinquent. Trial modifications are classified immediately as TDRs and continue to be reported as delinquent until the successful completion of the trial period, which is typically 90 days. The loan then becomes a permanent modification reported as current but remains on nonaccrual status until six consecutive payments have been made.

The following table shows loans modified as TDRs by delinquency category at March 31, 2016 and December 31, 2015 (dollars in millions):



	Modifications Current		Modifications 30-89 Days Delinquent		Modifications 90-179 Days Delinquent		Modifications 180+ Days Delinquent		Total Recorded Investment in Modifications⁽¹⁾
March 31, 2016
One- to four-family	$	137	$	9	$	4	$	13	$	163
Home equity	145		9		5		13		172
Total	$	282	$	18	$	9	$	26	$	335
December 31, 2015
One- to four-family	$	138	$	11	$	5	$	16	$	170
Home equity	139		8		6		11		164
Total	$	277	$	19	$	11	$	27	$	334


(1)	Includes loans modified as TDRs that also had received a bankruptcy notification of $43 million and $42 million at March 31, 2016 and December 31, 2015, respectively.

The following table shows loans modified as TDRs and the specific valuation allowance by loan portfolio as well as the percentage of total expected losses at March 31, 2016 and December 31, 2015 (dollars in millions):



	Recorded Investment in Modifications before Charge-offs		Charge-offs			Recorded Investment in Modifications		Specific Valuation Allowance			Net Investment in Modifications		Specific Valuation Allowance as a % of Modifications		Total Expected Losses
March 31, 2016
One- to four-family	$	208	$	(45	)	$	163	$	(8	)	$	155	5	%	26	%
Home equity	288		(116		)	172		(50		)	122		29	%	58	%
Total	$	496	$	(161	)	$	335	$	(58	)	$	277	17	%	44	%
December 31, 2015
One- to four-family	$	216	$	(46	)	$	170	$	(9	)	$	161	5	%	25	%
Home equity	284		(120		)	164		(52		)	112		32	%	61	%
Total	$	500	$	(166	)	$	334	$	(61	)	$	273	18	%	45	%

The recorded investment in loans modified as TDRs includes the charge-offs related to certain loans that were written down to the estimated current value of the underlying property less estimated selling costs. These charge-offs were recorded on modified loans that were delinquent in excess of 180 days, in bankruptcy, or when certain characteristics of the loan, including CLTV, borrower’s credit and type of modification, cast substantial doubt on the borrower’s ability to repay the loan. The total expected loss on loans modified as TDRs includes both the previously recorded charge-offs and the specific valuation allowance.

The vast majority of the Company’s loans modified as TDRs include an interest rate reduction in combination with another type of concession. The Company prioritizes the interest rate reduction modifications in combination with the other modification categories. Each class is mutually exclusive in that if a modification had an interest rate reduction with an extension and other modification, the modification would only be presented in the extension column in the table below. The following tables provide the number of loans and post-modification balances immediately after being modified by major class during the three months ended March 31, 2016 and 2015 (dollars in millions):



	Three Months Ended March 31, 2016
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	14	$	4	$	—	$	1	$	5
Home equity	193	2		1		12		15
Total	207	$	6	$	1	$	13	$	20



	Three Months Ended March 31, 2015
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	6	$	1	$	—	$	—	$	1
Home equity	243	1		1		16		18
Total	249	$	2	$	1	$	16	$	19

(1)

Includes TDRs that resulted from a loan modification program being offered to a subset of borrowers with home equity lines of credit whose original loan terms provided the borrowers the option to accelerate their date of conversion to amortizing loans. As certain terms of the Company's offer represented economic concessions, such as longer amortization periods than were in the original loan agreements, to certain borrowers experiencing financial difficulty, this program resulted in $9 million and $14 million of TDRs during the first quarter of 2016 and 2015, respectively.

The Company considers modifications that become 30 days past due to have experienced a payment default. The following table shows the recorded investment in modifications that experienced a payment default within 12 months after the modification for the three months ended March 31, 2016 and 2015 (dollars in millions):



	Three Months Ended March 31,
	2016			2015
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
One- to four-family⁽¹⁾	5	$	2	2	$	1
Home equity⁽²⁾⁽³⁾	13	1		40	2
Total	18	$	3	42	$	3


(1)	For three months ended March 31, 2016 and 2015, less than $1 million and $0, respectively, of the recorded investment in one- to four-family loans that had a payment default in the trailing 12 months was classified as current.


(2)	For both the three months ended March 31, 2016 and 2015, less than $1 million of the recorded investment in home equity loans that had a payment default in the trailing 12 months was classified as current.


(3)	The majority of these home equity modifications during the three months ended March 31, 2015 experienced servicer transfers during this same period.