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Fair Value Measurements (Tables)
 6 Months Ended
Jun. 30, 2017
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 by caption on the Consolidated Statement of Financial Condition and by level in the valuation hierarchy.

 
June 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
 
(Dollars in millions)
Investment securities available-for-sale
 
 
 
 
 
 
 
Agency - Commercial
$
—

 
$
518

 
$
—

 
$
518

Agency - Residential
—

 
1,029

 
—

 
1,029

Municipal obligations
—

 
37

 
—

 
37

Corporate debt obligations
—

 
30

 
—

 
30

Loans held-for-sale
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
4,473

 
—

 
4,473

Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
8

 
—

 
8

Home equity
—

 
—

 
5

 
5

Mortgage servicing rights
—

 
—

 
184

 
184

Derivative assets
 
 
 
 
 
 
 
Rate lock commitments (fallout-adjusted)
—

 
—

 
27

 
27

Mortgage-backed securities forwards
—

 
24

 
—

 
24

Interest rate swaps and swaptions
—

 
15

 
—

 
15

Interest rate swap on FHLB advances (net)
—

 
2

 
—

 
2

Total assets at fair value
$
—

 
$
6,136

 
$
216

 
$
6,352

Derivative liabilities
 
 
 
 
 
 
 
Rate lock commitments (fallout-adjusted)
$
—

 
$
—

 
$
(1
)
 
$
(1
)
Futures
(1
)
 
—

 
—

 
(1
)
Mortgage backed securities forwards
—

 
(4
)
 
—

 
(4
)
Interest rate swaps
—

 
(2
)
 
—

 
(2
)
DOJ litigation settlement
—

 
—

 
(60
)
 
(60
)
Contingent consideration
—

 
—

 
(23
)
 
(23
)
Total liabilities at fair value
$
(1
)
 
$
(6
)
 
$
(84
)
 
$
(91
)

    
On May 15, 2017, the Company closed on the acquisition of certain assets of Opes Advisors (“Opes”), a California based retail mortgage originator and wealth management service provider. Although the acquired assets of Opes were not significant, the addition of Opes positions us to increase our distributed retail lending channel. Consideration in the acquisition of Opes consisted of upfront cash and contingent cash in the form of an earn-out. The earn-out is based on future target production volumes and profitability of the division which were significant inputs to the preliminary fair value. The acquisition resulted in goodwill of $16 million net of the deferred tax impact of the contingent consideration. We deem the initial valuation of the assets and liabilities to be provisional and have left the measurement period open. These fair values may be adjusted in a future period, not to exceed one year after the acquisition date, to reflect new facts and circumstances which existed as of the acquisition date.




 
December 31, 2016
  
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
 
(Dollars in millions)
Investment securities available-for-sale
 
 
 
 
 
 
 
Agency - Commercial
$
—

 
$
548

 
$
—

 
$
548

Agency - Residential
—

 
898

 
—

 
898

Municipal obligations
—

 
34

 
—

 
34

Loans held-for-sale
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
3,145

 
—

 
3,145

Loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
—

 
7

 
—

 
7

Home equity
—

 
—

 
65

 
65

Mortgage servicing rights
—

 
—

 
335

 
335

Derivative assets
 
 
 
 
 
 
 
Rate lock commitments (fallout-adjusted)
—

 
—

 
24

 
24

Futures
2

 
—

 
—

 
2

Mortgage backed securities forwards
—

 
43

 
—

 
43

Interest rate swaps and swaptions
—

 
35

 
—

 
35

Interest rate swaps on FHLB advances (net)
—

 
19

 
—

 
19

Total assets at fair value
$
2

 
$
4,729

 
$
424

 
$
5,155

Derivative liabilities
 
 
 
 
 
 
 
Rate lock commitments (fallout-adjusted)
$
—

 
$
—

 
$
(6
)
 
$
(6
)
Mortgage backed securities forwards
—

 
(11
)
 
—

 
(11
)
Interest rate swaps
—

 
(37
)
 
—

 
(37
)
Warrant liabilities
—

 
(4
)
 
—

 
(4
)
DOJ litigation settlement
—

 
—

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

 
$
(52
)
 
$
(66
)
 
$
(118
)

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2017.
Fair Value, Assets and Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
The tables below include a roll forward of the Consolidated Statements of Financial Condition amounts (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
 
 
 
 
 
 
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
 
(Dollars in millions)
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
 
 
 
 
 
 
 
 
 
 
Home equity
$
53

$
—

$
—

 
$
—

$
—

$
(52
)
$
(1
)
$
—

$
—

Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Home equity
5

—

—

 
—

—

—

—

—

5

Mortgage servicing rights
295

(2
)
—

 
—

82

(191
)
—

—

184

Rate lock commitments (net) (1)
41

18

—

 
—

64

—

—

(97
)
26

Totals
$
394

$
16

$
—

 
$
—

$
146

$
(243
)
$
(1
)
$
(97
)
$
215

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation settlement
$
(60
)
$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
(60
)
Contingent consideration
—

—

—

 
—

(23
)
—

—

—

(23
)
Totals
$
(60
)
$
—

$
—

 
$
—

$
(23
)
$
—

$
—

$
—

$
(83
)
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Home equity
$
95

$
(3
)
$
—

 
$
—

$
—

$
—

$
(10
)
$
—

$
82

Mortgage servicing rights
281

(44
)
—

 
—

64

—

—

—

301

Rate lock commitments (net) (1)
61

58

—

 
—

90

—

—

(126
)
83

Totals
$
437

$
11

$
—

 
$
—

$
154

$
—

$
(10
)
$
(126
)
$
466

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation settlement
$
(84
)
$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
(84
)

(1)
Rate lock commitments are reported on a fallout adjusted basis. Transfers out of Level 3 represent the settlement value of the commitments that are transferred to LHFS, which are classified as Level 2 assets.

 
 
Recorded in Earnings
 
Recorded in OCI
 
 
 
 
 
 
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
 
(Dollars in millions)
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
 
 
 
 
 
 
 
 
 
 
Home equity
$
—

$
1

$
—

 
$
—

$
—

$
(52
)
$
(1
)
$
52

$
—

Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Home equity
65

1

—

 
—

—

—

(6
)
(55
)
5

Mortgage servicing rights
335

2

—

 
—

103

(256
)
—

—

184

Rate lock commitments (net) (1)
18

34

—

 
—

117

—

—

(143
)
26

Totals
$
418

$
38

$
—

 
$
—

$
220

$
(308
)
$
(7
)
$
(146
)
$
215

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation settlement
$
(60
)
$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
(60
)
Contingent consideration
—

—

—

 
—

(23
)
—

—

—

(23
)
Totals
$
(60
)
$
—

$
—

 
$
—

$
(23
)
$
—

$
—

$
—

$
(83
)
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Loans held-for-investment
 
 
 
 
 
 
 
 
 
 
Home equity
$
106

$
(2
)
$
—

 
$
—

$
—

$
—

$
(22
)
$
—

$
82

Mortgage servicing rights
296

(92
)
—

 
—

121

(24
)
—

—

301

Rate lock commitments (net) (1)
26

120

—

 
—

157

—

—

(220
)
83

Totals
$
428

$
26

$
—

 
$
—

$
278

$
(24
)
$
(22
)
$
(220
)
$
466

Liabilities
 
 
 
 
 
 
 
 
 
 
DOJ litigation settlement
$
(84
)
$
—

$
—

 
$
—

$
—

$
—

$
—

$
—

$
(84
)
(1)
Rate lock commitments are reported on a fallout adjusted basis. Transfers out of Level 3 represent the settlement value of the commitments that are transferred to LHFS, which are classified as Level 2 assets.
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:
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(Dollars in millions)
June 30, 2017
 
Assets
 
Loans held-for-investment
 
 
 
 
 
 
 
Home equity
$
5

 
Discounted cash flows
 
Discount rate
Constant prepayment rate
Constant default rate
 
5.8% - 10.8% (9.0%)
5.0% - 7.5% (6.3%)
3.0% - 4.5% (3.4%)
Mortgage servicing rights
$
184

 
Discounted cash flows
 
Option adjusted spread
Constant prepayment rate
Weighted average cost to service per loan
 
5.2% - 7.7% (6.4%)
7.6% - 11.2% (9.4%)
$56 - $82 ($70)
Rate lock commitments (net)
$
26

 
Consensus pricing
 
Origination pull-through rate
 
66.6% - 100.0% (83.3%)
Liabilities
 
 
 
 
 
 
 
DOJ litigation settlement
$
60

 
Discounted cash flows
 
Discount rate
Asset growth rate
 
7.2% - 10.8% (9.0%)
1.0% - 18.1% (3.7%)
Contingent consideration
$
23

 
Discounted cash flows
 
Beta
Equity volatility
 
0.6 - 1.6 (1.1)
26.6% - 58.9% (40.0%)
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(Dollars in millions)
December 31, 2016
 
Assets
 
Loans held-for-investment
 
 
 
 
 
 
 
Home equity
$
65

 
Discounted cash flows
 
Discount rate
Constant prepayment rate
Constant default rate
 
6.0% - 12.2% (9.3%)
16.3% - 24.4% (20.3%)
2.7% - 4.1% (3.7%)
Mortgage servicing rights
$
335

 
Discounted cash flows
 
Option adjusted spread
Constant prepayment rate
Weighted average cost to service per loan
 
6.2% - 9.3% (7.8%)
13.9% - 19.2% (16.7%)
$55 - $82 ($68)
Rate lock commitments (net)
$
18

 
Consensus pricing
 
Origination pull-through rate
 
66.9% - 100.0% (83.6%)
Liabilities
 
 
 
 
 
 
 
DOJ litigation settlement
$
60

 
Discounted cash flows
 
Discount rate
Asset growth rate
 
6.6% - 9.8% (8.2%)
4.2% - 11.6% (7.9%)
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 changes in fair value of MSRs capitalized were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Weighted average life (in years)
6.1

 
7.0

 
6.2

 
7.0

Weighted average constant prepayment rate
9.8
%
 
13.3
%
 
10.1
%
 
13.5
%
Weighted average option adjusted spread
6.0
%
 
8.9
%
 
6.9
%
 
8.2
%
    
The key economic assumptions reflected in the overall fair value of the entire portfolio of MSRs were as follows:
 
June 30, 2017
 
December 31, 2016
Weighted average life (in years)
6.2

 
6.6

Weighted average constant prepayment rate
9.4
%
 
16.7
%
Weighted average option adjusted spread
6.4
%
 
7.8
%
Fair Value Measurements, Nonrecurring
We also have assets that under certain conditions are subject to measurement at fair value on a nonrecurring basis. Assets measured at fair value on a nonrecurring basis were as follows:
 
Total (1)
 
Level 2
 
Level 3
 
Gains/(Losses)
 
(Dollars in millions)
June 30, 2017
 
 
 
Loans held-for-sale (2)
$
9

 
$
9

 
$
—

 
$
(1
)
Impaired loans held-for-investment (2)
 
 
 
 
 
 
 
Residential first mortgage loans
21

 
—

 
21

 
(4
)
Repossessed assets (3)
9

 
—

 
9

 
—

Totals
$
39

 
$
9

 
$
30

 
$
(5
)
December 31, 2016
 
 
 
 
 
 
 
Loans held-for-sale (2)
$
9

 
$
9

 
$
—

 
$
(2
)
Impaired loans held-for-investment (2)
 
 
 
 
 
 
 
Residential first mortgage loans
25

 
—

 
25

 
(28
)
Repossessed assets (3)
14

 
—

 
14

 
(2
)
Totals 
$
48

 
$
9

 
$
39

 
$
(32
)

(1)
The fair values are determined at various dates during the six months ended June 30, 2017 and the year ended December 31, 2016, respectively.
(2)
Gains/(losses) reflect fair value adjustments on assets for which we did not elect the fair value option.
(3)
Gains/(losses) reflect write downs of repossessed assets based on the estimated fair value of the specific assets.
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:
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
 
(Dollars in millions)
June 30, 2017
 
 
 
 
 
 
 
Impaired loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
$
21

 
Fair value of collateral
 
Loss severity discount
 
27% - 29% (28.0%)
Repossessed assets
$
9

 
Fair value of collateral
 
Loss severity discount
 
12% - 100% (73.8%)
December 31, 2016
 
 
 
 
 
 
 
Impaired loans held-for-investment
 
 
 
 
 
 
 
Residential first mortgage loans
$
25

 
Fair value of collateral
 
Loss severity discount
 
22% - 40% (29.5%)
Repossessed assets
$
14

 
Fair value of collateral
 
Loss severity discount
 
22% - 100% (69.5%)
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:
 
June 30, 2017
 
 
 
Estimated Fair Value
 
Carrying
Value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
183

 
$
183

 
$
183

 
$
—

 
$
—

Investment securities available-for-sale
1,614

 
1,614

 
—

 
1,614

 
—

Investment securities held-to-maturity
1,014

 
1,008

 
—

 
1,008

 
—

Loans held-for-sale
4,506

 
4,674

 
—

 
4,674

 
—

Loans held-for-investment
6,776

 
6,867

 
—

 
8

 
6,859

Loans with government guarantees
278

 
269

 
—

 
269

 
—

Mortgage servicing rights
184

 
184

 
—

 
—

 
184

Federal Home Loan Bank stock
260

 
260

 
—

 
260

 
—

Bank owned life insurance
325

 
325

 
—

 
325

 
—

Repossessed assets
9

 
9

 
—

 
—

 
9

Other assets, foreclosure claims
99

 
99

 
—

 
99

 
—

Derivative financial instruments, assets
68

 
68

 
—

 
41

 
27

Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits and savings accounts
$
(5,394
)
 
$
(4,998
)
 
$
—

 
$
(4,998
)
 
$
—

Certificates of deposit
(1,153
)
 
(1,159
)
 
—

 
(1,159
)
 
—

Government deposits
(851
)
 
(834
)
 
—

 
(834
)
 
—

Company controlled deposits
(1,297
)
 
(994
)
 
—

 
(994
)
 
—

Federal Home Loan Bank advances
(4,870
)
 
(4,856
)
 
—

 
(4,856
)
 
—

Long-term debt
(493
)
 
(382
)
 
—

 
(382
)
 
—

DOJ litigation settlement
(60
)
 
(60
)
 
—

 
—

 
(60
)
Contingent consideration
(23
)
 
(23
)
 
—

 
—

 
(23
)
Derivative financial instruments, liabilities
(8
)
 
(8
)
 
(1
)
 
(6
)
 
(1
)


 
 
December 31, 2016
 
 
 
Estimated Fair Value
 
Carrying
Value
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
158

 
$
158

 
$
158

 
$
—

 
$
—

Investment securities available-for-sale
1,480

 
1,480

 
—

 
1,480

 
—

Investment securities held-to-maturity
1,093

 
1,084

 
—

 
1,084

 
—

Loans held-for-sale
3,177

 
3,178

 
—

 
3,178

 
—

Loans held-for-investment
6,065

 
5,998

 
—

 
7

 
5,991

Loans with government guarantees
365

 
354

 
—

 
354

 
—

Mortgage servicing rights
335

 
335

 
—

 
—

 
335

Federal Home Loan Bank stock
180

 
180

 
—

 
180

 
—

Bank owned life insurance
271

 
271

 
—

 
271

 
—

Repossessed assets
14

 
14

 
—

 
—

 
14

Other assets, foreclosure claims
135

 
135

 
—

 
135

 
—

Derivative financial instruments, assets
123

 
123

 
45

 
54

 
24

Liabilities
 
 
 
 
 
 
 
 
 
Retail deposits
 
 
 
 
 
 
 
 
 
Demand deposits and savings accounts
$
(5,268
)
 
$
(4,956
)
 
$
—

 
$
(4,956
)
 
$
—

Certificates of deposit
(1,056
)
 
(1,062
)
 
—

 
(1,062
)
 
—

Government deposits
(1,030
)
 
(1,011
)
 
—

 
(1,011
)
 
—

Company controlled deposits
(1,446
)
 
(1,371
)
 
—

 
(1,371
)
 
—

Federal Home Loan Bank advances
(2,980
)
 
(2,964
)
 
—

 
(2,964
)
 
—

Long-term debt
(493
)
 
(277
)
 
—

 
(277
)
 
—

Warrant liabilities
(4
)
 
(4
)
 
—

 
(4
)
 
—

DOJ litigation settlement
(60
)
 
(60
)
 
—

 
—

 
(60
)
Derivative financial instruments, liabilities
(54
)
 
(54
)
 
(11
)
 
(37
)
 
(6
)
Schedule of Changes in Fair Value Included in Earnings
he 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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
Loans held-for-sale
 
 
 
 
 
 
 
Net gain on loan sales
$
115

 
$
145

 
$
168

 
$
289

Loans held-for-investment
 
 
 
 
 
 
 
Other non-interest income
$
—

 
$
2

 
$
1

 
$
2
Fair Value, Option, Quantitative Disclosures
The following table reflects the difference between the aggregate fair value and aggregate remaining contractual principal balance outstanding for assets and liabilities for which the fair value option has been elected:
 
June 30, 2017
 
December 31, 2016


Unpaid Principal Balance
 
Fair Value
 
Fair Value Over / (Under) Unpaid Principal Balance
 
Unpaid Principal Balance
 
Fair Value
 
Fair Value Over / (Under) Unpaid Principal Balance
 
(Dollars in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
$
4

 
$
3

 
$
(1
)
 
$
2

 
$
2

 
$
—

Loans held-for-investment
6

 
4

 
(2
)
 
19

 
13

 
(6
)
Total nonaccrual loans
$
10

 
$
7

 
$
(3
)
 
$
21

 
$
15

 
$
(6
)
Other performing loans
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
$
4,327

 
$
4,470

 
$
143

 
$
3,103

 
$
3,143

 
$
40

Loans held-for-investment
10

 
9

 
(1
)
 
72

 
59

 
(13
)
Total other performing loans
$
4,337

 
$
4,479

 
$
142

 
$
3,175

 
$
3,202

 
$
27

Total loans
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-sale
$
4,331

 
$
4,473

 
$
142

 
$
3,105

 
$
3,145

 
$
40

Loans held-for-investment
16

 
13

 
(3
)
 
91

 
72

 
(19
)
Total loans
$
4,347

 
$
4,486

 
$
139

 
$
3,196

 
$
3,217

 
$
21

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

 
$
(118
)
 
$
(60
)
 
$
58


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