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Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2016
Fair Value Disclosures [Abstract]  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
The following tables present the financial instruments carried at fair value as of September 30, 2016 and December 31, 2015, by caption on the Consolidated Statement of Financial Condition and by level in the valuation hierarchy.
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
September 30, 2016
(Dollars in millions)
Investment securities available-for-sale
 
 
 
 
 
 
 
Agency - Commercial
$
—

 
$
510

 
$
—

 
$
510

Agency - Residential
—

 
573

 
—

 
573

       Municipal obligations
—

 
32

 
—

 
32

Loans held-for-sale
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
3,352

 
—

 
3,352

Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
8

 
—

 
8

Second mortgage loans
—

 
—

 
41

 
41

HELOC loans
—

 
—

 
31

 
31

Mortgage servicing rights
—

 
—

 
302

 
302

Derivative assets
 
 
 
 
 
 
 
Rate lock commitments
—

 
—

 
63

 
63

U.S. Treasury, swap and euro dollar futures
1

 
—

 
—

 
1

Mortgage backed securities forwards
—

 
2

 
—

 
2

Interest rate swaps and swaptions
—

 
53

 
—

 
53

Total derivative assets
1

 
55

 
63

 
119

Total assets at fair value
$
1

 
$
4,530

 
$
437

 
$
4,968

Derivative liabilities
 
 
 
 
 
 
 
Interest rate swap on FHLB advances
$
—

 
$
(52
)
 
$
—

 
$
(52
)
Mortgage backed securities forwards
—

 
(24
)
 
—

 
(24
)
Interest rate swaps and swaptions
—

 
(17
)
 
—

 
(17
)
Total derivative liabilities
—

 
(93
)
 
—

 
(93
)
Warrant liabilities
—

 
(10
)
 
—

 
(10
)
DOJ litigation settlement
—

 
—

 
(60
)
 
(60
)
Total liabilities at fair value
$
—

 
$
(103
)
 
$
(60
)
 
$
(163
)
 
 
 
 
 
 
 
 
  
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
December 31, 2015
(Dollars in millions)
Investment securities available-for-sale
 
 
 
 
 
 
 
Agency - Commercial
$
—

 
$
766

 
$
—

 
$
766

Agency - Residential
—

 
514

 
—

 
514

Municipal obligations
—

 
14

 
—

 
14

Loans held-for-sale
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
2,541

 
—

 
2,541

Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
6

 
—

 
6

Second mortgage loans
—

 
—

 
42

 
42

HELOC loans
—

 
—

 
64

 
64

Mortgage servicing rights
—

 
—

 
296

 
296

Derivative assets
 
 
 
 
 
 
 
Rate lock commitments
—

 
—

 
26

 
26

Mortgage backed securities forwards
—

 
7

 
—

 
7

Interest rate swaps and swaptions
—

 
25

 
—

 
25

Total derivative assets
—

 
32

 
26

 
58

Total assets at fair value
$
—

 
$
3,873

 
$
428

 
$
4,301

Derivative liabilities
 
 
 
 
 
 
 
U.S. Treasury, swap and euro dollar futures
$
(1
)
 
$
—

 
$
—

 
$
(1
)
Mortgage backed securities forwards
—

 
(6
)
 
—

 
(6
)
Interest rate swap on FHLB advances
—

 
(4
)
 
—

 
(4
)
Interest rate swaps
—

 
(7
)
 
—

 
(7
)
Total derivative liabilities
(1
)
 
(17
)
 
—

 
(18
)
Warrant liabilities
—

 
(8
)
 
—

 
(8
)
DOJ litigation settlement
—

 
—

 
(84
)
 
(84
)
Total liabilities at fair value
$
(1
)
 
$
(25
)
 
$
(84
)
 
$
(110
)
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
The tables below include a roll forward of the Consolidated Statement of Financial Condition amounts for the three and nine months ended September 30, 2016 and 2015 (including the change in fair value) for financial instruments classified by us within level 3 of the valuation hierarchy:
 
 
Recorded in Earnings
 
Recorded in OCI
 
 
 
 
 
Three Months Ended September 30, 2016
Balance at
Beginning of
Period
Total Unrealized Gains / (Losses)
Total Realized Gains / (Losses)
 
Total Unrealized Gains / (Losses)
Purchases / Originations
Sales
Settlements
Transfers In (Out)
Balance at
End of 
Period
Assets
(Dollars in millions)
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Second mortgage loans
$
38

$
(2
)
$
—

 
$
—

$
—

$
—

$
(3
)
$
8

$
41

HELOC loans
44

6

—

 
—

—

—

(11
)
(8
)
31

Mortgage servicing rights
301

(33
)
—

 
—

51

(17
)
—

—

302

          Totals
$
383

$
(29
)
$
—

 
$
—

$
51

$
(17
)
$
(14
)
$
—

$
374

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation settlement
$
(84
)
$
24

$
—

 
$
—

$
—

$
—

$
—

$
—

$
(60
)
Derivative financial instruments (net)
 
 
 
 
 
 
 
 
 
 
Rate lock commitments
$
82

$
33

$
—

 
$
—

$
116

$
(150
)
$
(18
)
$
—

$
63

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Other investments
$
100

$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
100

Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Second mortgage loans
48

—

—

 
—

—

—

(3
)
—

45

HELOC loans
93

2

—

 
—

—

—

(15
)
—

80

Mortgage servicing rights
317

(24
)
—

 
—

74

(73
)
—

—

294

Totals
$
558

$
(22
)
$
—

 
$
—

$
74

$
(73
)
$
(18
)
$
—

$
519

Liabilities
 
 
 
 
 
 
 
 
 
 
Long-term debt
$
(36
)
$
—

$
—

 
$
—

$
—

$
—

$
4

$
—

$
(32
)
DOJ litigation settlement
(84
)
—

—

 
—

—

—

—

—

(84
)
Totals
$
(120
)
$
—

$
—

 
$
—

$
—

$
—

$
4

$
—

$
(116
)
Derivative financial instruments (net)
 
 
 
 
 
 
 
 
 
 
Rate lock commitments
$
30

$
53

$
—

 
$
—

$
81

$
(104
)
$
(16
)
$
—

$
44

 
 
Recorded in Earnings
 
Recorded in OCI
 
 
 
 
 
Nine Months Ended September 30, 2016
Balance at
Beginning of
Period
Total Unrealized Gains / (Losses)
Total Realized Gains / (Losses)
 
Total Unrealized Gains / (Losses)
Purchases / Originations
Sales
Settlements
Transfers In (Out)
Balance at
End of 
Period
Assets
(Dollars in millions)
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Second mortgage loans
$
42

$
(1
)
$
—

 
$
—

$
—

$
—

$
(8
)
8

41

HELOC loans
64

3

—

 
—

—

—

(28
)
(8
)
31

Mortgage servicing rights
296

(126
)
—

 
—

173

(41
)
—

—

302

Totals
$
402

$
(124
)
$
—

 
$
—

$
173

$
(41
)
$
(36
)
$
—

$
374

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation
$
(84
)
$
24

$
—

 
$
—

$
—

$
—

$
—

—

$
(60
)
Derivative financial instruments (net)
 
 
 
 
 
 
 
 
 
 
Rate lock commitments
$
26

$
153

$
—

 
$
—

$
303

$
(371
)
$
(48
)
$
—

$
63

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Other investments
$
100

$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
100

Investment securities available-for-sale
 
 
 
 
 
 
 
 
 
 
Municipal obligation
2

—

—

 
—

—

—

(2
)
—

—

Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Second mortgage loans
53

2

1

 
—

—

—

(11
)
—

45

HELOC loans
132

(4
)
—

 
—

—

—

(48
)
—

80

Mortgage servicing rights
258

(40
)
—

 
—

220

(144
)
—

—

294

Totals
$
545

$
(42
)
$
1

 
$
—

$
220

$
(144
)
$
(61
)
$
—

$
519

Liabilities
 
 
 
 
 
 
 
 
 
 
Long-term debt
$
(84
)
$
—

$
(3
)
 
$
—

$
—

$
24

$
31

$
—

$
(32
)
DOJ litigation
(82
)
(2
)
—

 
—

—

—

—

—

(84
)
Totals
$
(166
)
$
(2
)
$
(3
)
 
$
—

$
—

$
24

$
31

$
—

$
(116
)
Derivative financial instruments (net)
 
 
 
 
 
 
 
 
 
 
Rate lock commitments
$
31

$
60

$
—

 
$
—

$
272

$
(276
)
$
(43
)
$
—

$
44
Fair Value Inputs, Assets and Liabilities Measured on Recurring Basis, Quantitative Information
The following tables present the quantitative information about recurring level 3 fair value financial instruments and the fair value measurements as of September 30, 2016 and December 31, 2015:
 
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
September 30, 2016
(Dollars in millions)
  Assets
 
Second mortgage loans
$
41

Discounted cash flows
Discount rate
Constant prepayment rate
Constant default rate
8.0% - 12.0% (10.0%) 10.9% - 16.4% (13.6%)
2.7% - 4.1% (3.4%)
HELOC loans
$
31

Discounted cash flows
Discount rate
6.6% - 9.9% (8.2%)
Mortgage servicing rights
$
302

Discounted cash flows
Option adjusted spread
Constant prepayment rate
Weighted average cost to service per loan
7.4% - 11.0% (9.2%)
12.8% - 18.5% (15.7%)
$57 - $85 ($71)
  Liabilities
 
 
 
 
DOJ litigation settlement
$
(60
)
Discounted cash flows
Discount rate
5.7% - 8.5% (7.1%)
Derivative financial instruments
 
 
 
 
Rate lock commitments
$
63

Consensus pricing
Origination pull-through rate
66.6% - 99.9% (83.3%)

 
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
December 31, 2015
(Dollars in millions)
  Assets
 
Second mortgage loans
$
42

Discounted cash flows
Discount rate
Constant prepayment rate
Constant default rate
7.2% - 10.8% (9.0%)13.5% - 20.2% (16.9%)
2.6% - 4.0% (3.3%)
HELOC loans
$
64

Discounted cash flows
Discount rate
6.8% - 10.1% (8.4%)
Mortgage servicing rights
$
296

Discounted cash flows
Option adjusted spread
Constant prepayment rate
Weighted average cost to service per loan
6.6% - 9.9% (8.2%)
10.3% - 14.8% (12.6%)
$57 - $86 ($72)
  Liabilities
 
 
 
 
DOJ litigation settlement
$
(84
)
Discounted cash flows
Discount rate
4.9% - 9.5% (7.2%)
Derivative financial instruments
 
 
 
 
Rate lock commitments
$
26

Consensus pricing
Origination pull-through rate
67.6% - 101.5% (84.6%)
Fair Value Inputs, Assets, Quantitative Information
The significant unobservable inputs used in the fair value measurement of the MSRs are option adjusted spreads, prepayment rates, and cost to service. Significant increases (decreases) in all three assumptions in isolation would result in a significantly lower (higher) fair value measurement. Additionally, the key economic assumptions used in determining the fair value of MSRs capitalized during the three and nine months ended September 30, 2016 and 2015 periods were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Weighted average life (in years)
6.7

 
7.9

 
6.9

 
7.9

Weighted average constant prepayment rate
13.4
%
 
11.0
%
 
13.5
%
 
11.2
%
Weighted average option adjusted spread
11.8
%
 
8.9
%
 
9.5
%
 
8.7
%
    
The key economic assumptions reflected in the overall fair value of the entire portfolio of MSRs were as follows:
 
September 30,
2016
 
December 31,
2015
Weighted average life (in years)
6.0

 
7.3

Weighted average constant prepayment rate
15.7
%
 
12.6
%
Weighted average option adjusted spread
9.2
%
 
8.2
%
Fair Value Measurements, Nonrecurring
These assets are measured at the lower of cost or market and had a fair value below cost at the end of the period as summarized below:
 
Total (1)
 
Level 2
 
Level 3
 
(Dollars in millions)
September 30, 2016
 
Loans held-for-sale (2)
$
10

 
$
10

 
$
—

Impaired loans held-for-investment (3)
 
 
 
 
 
Residential first mortgage loans
22

 
—

 
22

Commercial and industrial loans
1

 
—

 
1

Repossessed assets (4)
15

 
—

 
15

Totals
$
48

 
$
10

 
$
38

December 31, 2015
 
 
 
 
 
Loans held-for-sale (2)
$
8

 
$
8

 
$
—

Impaired loans held-for-investment (3)
 
 
 
 
 
Residential first mortgage loans
40

 
—

 
40

Commercial real estate loans
2

 
—

 
2

Repossessed assets (4)
17

 
—

 
17

Totals 
$
67

 
$
8

 
$
59


(1)
The fair values are obtained at various dates during the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively.
(2)
We recorded less than $1 million in fair value losses on loans held-for-sale for which we did not elect the fair value option (included in interest income on the Consolidated Statements of Operations) during both the three and nine months ended September 30, 2016, respectively, compared to less than $1 million in fair value losses on loans held-for-sale during both the three and nine months ended September 30, 2015, respectively.
(3)
We recorded $11 million and $31 million in fair value losses on impaired loans (included in provision (benefit) for loan losses on Consolidated Statements of Operations) during the three and nine months ended September 30, 2016, respectively, compared to $20 million and $76 million in fair value losses on impaired loans during the three and nine months ended September 30, 2015, respectively.
(4)
We recorded zero and $2 million in losses related to write downs of repossessed assets based on the estimated fair value of the specific assets during the three and nine months ended September 30, 2016, respectively, and recognized net gain of $1 million and $2 million on sales of repossessed assets (both write downs and net gains/losses are included in assets resolution expense on the Consolidated Statements of Operations) during the three and nine months ended September 30, 2016. We recorded $1 million and $2 million in losses related to write downs of repossessed assets based on the estimated fair value of the specific assets during the three and nine months ended September 30, 2015, respectively, and recognized a net gain of $1 million and $2 million on sales of repossessed assets during the three and nine months ended September 30, 2015, respectively.
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques
The following tables present the quantitative information about nonrecurring level 3 fair value financial instruments and the fair value measurements as of September 30, 2016 and December 31, 2015:
 
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
September 30, 2016
(Dollars in millions)
Impaired loans held-for-investment
 
 
 
 
     Residential first mortgage loans
$
22

Fair value of collateral
Loss severity discount
23% - 28% (25.6%)
     Commercial and industrial loans
$
1

Fair value of collateral
Loss severity discount
50% - 55% (53.4%)
Repossessed assets
$
15

Fair value of collateral
Loss severity discount
35% - 98% (61.7%)
 
Fair Value
Valuation Technique
Unobservable Input
Range (Weighted Average)
December 31, 2015
(Dollars in millions)
Impaired loans held-for-investment
 
 
 
 
     Residential first mortgage loans
$
40

Fair value of collateral
Loss severity discount
35% - 45% (35.2%)
     Commercial real estate loans
$
2

Fair value of collateral
Loss severity discount
45% - 55% (50.1%)
Repossessed assets
$
17

Fair value of collateral
Loss severity discount
16% - 100% (48.7%)
Fair Value, by Balance Sheet Grouping
The following table presents the carrying amount and estimated fair value of financial instruments that are carried either at fair value, cost, or amortized cost:
 
September 30, 2016
 
 
 
Estimated Fair Value
 
Carrying
Value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
174

 
$
174

 
$
174

 
$
—

 
$
—

Investment securities available-for-sale
1,115

 
1,115

 
—

 
1,115

 
—

Investment securities held-to-maturity
1,156

 
1,177

 
—

 
1,177

 
—

Loans held-for-sale
3,393

 
3,394

 
—

 
3,394

 
—

Loans with government guarantees
404

 
391

 
—

 
391

 
—

Loans held-for-investment, net
6,147

 
6,134

 
—

 
8

 
6,126

Repossessed assets
15

 
15

 
—

 
—

 
15

Federal Home Loan Bank stock
172

 
172

 
—

 
172

 
—

Mortgage servicing rights
302

 
302

 
—

 
—

 
302

Bank owned life insurance
269

 
269

 
—

 
269

 
—

Other assets, foreclosure claims
152

 
152

 
—

 
152

 
—

Derivative financial instruments, assets
119

 
119

 
1

 
55

 
63

Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits and savings accounts
$
(5,204
)
 
$
(4,961
)
 
$
—

 
$
(4,961
)
 
$
—

Certificates of deposit
(1,083
)
 
(1,095
)
 
—

 
(1,095
)
 
—

Government deposits
(1,176
)
 
(1,158
)
 
—

 
(1,158
)
 
—

Company controlled deposits
(1,908
)
 
(1,839
)
 
—

 
(1,839
)
 
—

Federal Home Loan Bank advances
(2,482
)
 
(2,450
)
 
—

 
(2,450
)
 
—

Other long-term debt
(493
)
 
(257
)
 
—

 
(257
)
 
—

Warrant liabilities
(10
)
 
(10
)
 
—

 
(10
)
 
—

DOJ litigation settlement
(60
)
 
(60
)
 
—

 
—

 
(60
)
Derivative financial instruments, liabilities
(93
)
 
(93
)
 
—

 
(93
)
 
—


 
 
December 31, 2015
 
 
 
Estimated Fair Value
 
Carrying
Value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
208

 
$
208

 
$
208

 
$
—

 
$
—

Investment securities available-for-sale
1,294

 
1,294

 
—

 
1,294

 
—

Investment securities held-to-maturity
1,268

 
1,262

 
—

 
1,262

 
—

Loans held-for-sale
2,576

 
2,578

 
—

 
2,578

 
—

Loans with government guarantees
485

 
469

 
—

 
469

 
—

Loans held-for-investment, net
6,165

 
6,121

 
—

 
6

 
6,115

Repossessed assets
17

 
17

 
—

 
—

 
17

Federal Home Loan Bank stock
170

 
170

 
—

 
170

 
—

Mortgage servicing rights
296

 
296

 
—

 
—

 
296

Bank owned life insurance
178

 
178

 
—

 
178

 
—

Other assets, foreclosure claims
210

 
210

 
—

 
210

 
—

Derivative financial instruments, assets
58

 
58

 
7

 
25

 
26

Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits and savings accounts
$
(5,008
)
 
$
(4,744
)
 
$
—

 
$
(4,744
)
 
$
—

Certificates of deposit
(826
)
 
(833
)
 
—

 
(833
)
 
—

Government deposits
(1,062
)
 
(1,045
)
 
—

 
(1,045
)
 
—

Company controlled deposits
(1,039
)
 
(947
)
 
—

 
(947
)
 
—

Federal Home Loan Bank advances
(3,541
)
 
(3,543
)
 
—

 
(3,543
)
 
—

Long-term debt
(247
)
 
(89
)
 
—

 
(89
)
 
—

Warrant liabilities
(8
)
 
(8
)
 
—

 
(8
)
 
—

DOJ litigation settlement
(84
)
 
(84
)
 
—

 
—

 
(84
)
Derivative financial instruments, liabilities
(18
)
 
(18
)
 
(1
)
 
(17
)
 
—
Schedule of Changes in Fair Value Included in Earnings
The following table reflects the change in fair value included in earnings of financial instruments for which the fair value option has been elected:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Assets
(Dollars in millions)
Loans held-for-sale
 
 
 
 
 
 
 
 
Net gain on loan sales
$
151

 
$
134

 
$
440

 
$
276

Loans held-for-investment
 
 
 
 
 
 
 
 
Interest income on loans
$
—

 
$
1

 
$
(2
)
 
$
4

 
Other noninterest income
—

 
(1
)
 
—

 
(35
)
Liabilities
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
Other noninterest income
$
—

 
$
3

 
$
—

 
$
28

Litigation settlement
 
 
 
 
 
 
 
 
Other noninterest income
$
24

 
$
—

 
$
24

 
$
2

 
Other noninterest (expense)
$
—

 
$
—

 
$
—

 
$
(2
)
Fair Value, Option, Quantitative Disclosures
The following table reflects the difference between the aggregate fair value and aggregate remaining contractual principal balance outstanding as of September 30, 2016 and December 31, 2015 for assets and liabilities for which the fair value option has been elected:
 
 
September 30, 2016
 
December 31, 2015
 
 
(Dollars in millions)
 


Unpaid Principal Balance
Fair Value
Fair Value Over / (Under) Unpaid Principal Balance
Unpaid Principal Balance
Fair Value
Fair Value Over / (Under) Unpaid Principal Balance
Assets
 
 
 
 
 
 
 
Nonaccrual loans
 
 
 
 
 
 
 
Loans held-for-sale
$
2

$
2

$
—

 
$
1

$
—

$
(1
)
    Loans held-for-investment
18

12

(6
)
 
21

10

(11
)
Total nonaccrual loans
$
20

$
14

$
(6
)
 
$
22

$
10

$
(12
)
    Other performing loans
 
 
 
 
 
 
 
    Loans held-for-sale
$
3,217

$
3,350

$
133

 
$
2,451

$
2,541

$
90

    Loans held-for-investment
81

68

(13
)
 
112

101

(11
)
Total other performing loans
$
3,298

$
3,418

$
120

 
$
2,563

$
2,642

$
79

    Total loans
 
 
 
 
 
 
 
    Loans held-for-sale
$
3,219

$
3,352

$
133

 
$
2,452

$
2,541

$
89

    Loans held-for-investment
99

80

(19
)
 
133

111

(22
)
Total loans
$
3,318

$
3,432

$
114

 
$
2,585

$
2,652

$
67

Liabilities
 
 
 
 
 
 
 
      Litigation settlement (1)
$
(118
)
$
(60
)
$
58

 
$
(118
)
$
(84
)
$
34


(1)
We are obligated to pay $118 million in installment payments upon meeting certain performance conditions.