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Loans Held-for-Investment
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
Loans Held-for-Investment Loans Held-for-Investment

The following table presents our loans-held-for-investment:
 
December 31, 2019
December 31, 2018
 
(Dollars in millions)
Consumer loans
 
Residential first mortgage
$
3,154

$
2,999

Home Equity
1,024

731

Other
729

314

Total consumer loans
4,907

4,044

Commercial loans
 
 
Commercial real estate
2,828

2,152

Commercial and industrial
1,634

1,433

Warehouse lending
2,760

1,459

Total commercial loans
7,222

5,044

Total loans held-for-investment
$
12,129

$
9,088


    
The following table presents the UPB of our loan sales and purchases in the loans held-for-investment portfolio:
 
For the Year Ended
 
2019
2018
2017
 
(Dollars in millions)
Loans Sold (1)
 
 
 
Performing loans
$
217

$
158

$
102

Nonperforming loans
—

—

25

Total performing and nonperforming loans sold
$
217

$
158

$
127

Net gain associated with loan sales (2)
$
2

$
2

$
2

Loans Purchased
 
 
 
Residential first mortgage loans
—

3

8

HELOC
249

—

250

Other consumer
51

34

—

Total loans purchased
$
300

$
37

$
258

Premium associated with loans purchased
$
11

$
—

$
9

(1)
Upon a change in our intent, the loans were transferred to LHFS and subsequently sold.
(2)
Recorded in net gain on loan sales on Consolidated Statement of Operations.

We have pledged certain LHFI, LHFS, and loans with government guarantees to collateralize lines of credit and/or borrowings with the FRB of Chicago and the FHLB of Indianapolis. At December 31, 2019 and 2018, we pledged loans of $9.1 billion and $6.8 billion, respectively.

The following table presents changes in ALLL, by class of loan:
 
Residential
First
Mortgage (1)
Home Equity
Other
Consumer
Commercial
Real
Estate
Commercial
and
Industrial
Warehouse
Lending
Total
 
(Dollars in millions)
Year Ended December 31, 2019
 
 
 
 
 
 
 
Beginning balance ALLL
$
38

$
15

$
3

$
48

$
18

$
6

$
128

Charge-offs (2)
(3
)
(2
)
(7
)
—

(31
)
—

(43
)
Recoveries
1

2

—

—

1

—

4

Provision (benefit)
(14
)
(1
)
10

(10
)
34

(1
)
18

Ending balance ALLL
$
22

$
14

$
6

$
38

$
22

$
5

$
107

Year Ended December 31, 2018
 
 
 
 
 
 
 
Beginning balance ALLL
$
47

$
22

$
1

$
45

$
19

$
6

$
140

Charge-offs (2)
(4
)
(2
)
(2
)
—

—

—

(8
)
Recoveries
2

1

1

—

—

—

4

Provision (benefit)
(7
)
(6
)
3

3

(1
)
—

(8
)
Ending balance ALLL
$
38

$
15

$
3

$
48

$
18

$
6

$
128

Year Ended December 31, 2017
 
 
 
 
 
 
 
Beginning balance ALLL
$
65

$
24

$
1

$
28

$
17

$
7

$
142

Charge-offs (2)
(8
)
(3
)
(2
)
(1
)
—

—

(14
)
Recoveries
1

2

1

1

1

—

6

Provision (benefit)
(11
)
(1
)
1

17

1

(1
)
6

Ending balance ALLL
$
47

$
22

$
1

$
45

$
19

$
6

$
140

(1)
Includes allowance and charge-offs related to loans with government guarantees.
(2)
Includes charge-offs of zero, zero and $1 million related to the transfer and subsequent sale of loans during the years ended December 31, 2019, 2018 and 2017, respectively. Also includes charge-offs related to loans with government guarantees of $2 million, $2 million, and $4 million during the years ended December 31, 2019, 2018 and 2017, respectively.


The following table sets forth the method of evaluation, by class of loan:
 
Residential
First
Mortgage (1)
Home Equity
Other
Consumer
Commercial
Real
Estate
Commercial
and
Industrial
Warehouse
Lending
Total
 
(Dollars in millions)
December 31, 2019
 
 
 
 
 
 
 
Loans held-for-investment (2)
 
 
 
 
 
 
 
Individually evaluated
$
32

$
20

$
1

$
—

$
—

$
—

$
53

Collectively evaluated
3,113

1,001

728

2,828

1,634

2,760

12,064

Total loans
$
3,145

$
1,021

$
729

$
2,828

$
1,634

$
2,760

$
12,117

Allowance for loan losses (2)
 
 
 
 
 
 
 
Individually evaluated
$
5

$
7

$
1

$
—

$
—

$
—

$
13

Collectively evaluated
17

7

5

38

22

5

94

Total allowance for loan losses
$
22

$
14

$
6

$
38

$
22

$
5

$
107

December 31, 2018
 
 
 
 
 
 
 
Loans held-for-investment (2)
 
 
 
 
 
 
 
Individually evaluated
$
32

$
23

$
—

$
—

$
—

$
—

$
55

Collectively evaluated
2,959

706

314

2,152

1,433

1,459

9,023

Total loans
$
2,991

$
729

$
314

$
2,152

$
1,433

$
1,459

$
9,078

Allowance for loan losses (2)
 
 
 
 
 
 
 
Individually evaluated
$
4

$
7

$
—

$
—

$
—

$
—

$
11

Collectively evaluated
34

8

3

48

18

6

117

Total allowance for loan losses
$
38

$
15

$
3

$
48

$
18

$
6

$
128

(1)
Includes allowance related to loans with government guarantees.
(2)
Excludes loans carried under the fair value option.

The following table sets forth the LHFI aging analysis of past due and current loans (for further information on our policy for past due and impaired loans, see Note 1 - Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies):
 
30-59 Days
Past Due
60-89 Days
Past Due
90 Days or
Greater Past
Due (1)
Total
Past Due
Current
Total LHFI
 
(Dollars in millions)
December 31, 2019
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
5

$
4

$
21

$
30

$
3,124

$
3,154

Home equity
1

—

4

5

1,019

1,024

Other
3

1

1

5

724

729

Total consumer loans
9

5

26

40

4,867

4,907

Commercial loans
 
 
 
 
 
 
Commercial real estate
—

—

—

—

2,828

2,828

Commercial and industrial
—

—

—

—

1,634

1,634

Warehouse lending
—

—

—

—

2,760

2,760

Total commercial loans
—

—

—

—

7,222

7,222

Total loans (2)
$
9

$
5

$
26

$
40

$
12,089

$
12,129

December 31, 2018
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
4

$
2

$
19

$
25

$
2,974

$
2,999

Home equity
1

—

3

4

727

731

Other
—

—

—

—

314

314

Total consumer loans
5

2

22

29

4,015

4,044

Commercial loans
 
 
 
 
 
 
Commercial real estate
—

—

—

—

2,152

2,152

Commercial and industrial
—

—

—

—

1,433

1,433

Warehouse lending
—

—

—

—

1,459

1,459

Total commercial loans
—

—

—

—

5,044

5,044

Total loans (2)
$
5

$
2

$
22

$
29

$
9,059

$
9,088

(1)
Includes less than 90 days past due performing loans which are placed on non-accrual. Interest revenue is not being recognized on these loans.
(2)
Includes $4 million and $3 million of past due loans accounted for under the fair value option at December 31, 2019 and 2018, respectively.
         
Interest that would have been accrued on impaired loans if such loans were paying in accordance with their original terms, totaled approximately $1 million, $1 million and $1 million during the years ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019 and 2018, we had no loans 90 days or greater past due and still accruing interest.

Troubled Debt Restructurings

The following table provides a summary of TDRs by type and performing status:
 
TDRs
 
Performing
Nonperforming
Total
 
(Dollars in millions)
December 31, 2019
 
 
 
Consumer loans
 
 
 
Residential first mortgage
$
20

$
8

$
28

Home equity
18

2

20

Total TDRs (1)(2)
$
38

$
10

$
48

December 31, 2018
 
Consumer loans
 
 
 
Residential first mortgage
$
22

$
8

$
30

Home Equity
22

2

24

Total TDRs (1)(2)
$
44

$
10

$
54

(1)
The ALLL on TDR loans totaled $8 million and $10 million at December 31, 2019 and 2018, respectively.
(2)
Includes $2 million and $3 million of TDR loans accounted for under the fair value option at December 31, 2019 and 2018, respectively.

The following table provides a summary of newly modified TDRs:
 
New TDRs
 
Number of Accounts
Pre-Modification Unpaid Principal Balance
Post-Modification Unpaid Principal Balance (1)
Increase (Decrease) in Allowance at Modification
 
(Dollars in millions)
Year Ended December 31, 2019
 
 
 
 
Residential first mortgages
8

$
1

$
1

$
—

Home equity (2)(3)
6

—

—

—

Total TDR loans
14

$
1

$
1

$
—

Year Ended December 31, 2018
 
 
 
 
Residential first mortgages
14

$
3

$
3

$
—

Home equity (2)(3)
17

1

1

—

Total TDR loans
31

$
4

$
4

$
—

Year Ended December 31, 2017
 
 
 
 
Residential first mortgages
16

$
4

$
4

$
—

Home equity (2)(3)
82

6

5

(1
)
Total TDR loans
98

$
10

$
9

$
(1
)
(1)
Post-modification balances include past due amounts that are capitalized at modification date.
(2)
Home equity post-modification UPB reflects write downs.
(3)
Includes loans carried at fair value option.

During the years ended December 31, 2019, 2018, and 2017, there were zero, zero, and one, newly modified TDR loans which had been modified in the preceding 12 months that subsequently defaulted in those periods, respectively. The UPB associated with those TDR loans was zero in the year ended December 31, 2019, zero and less than $1 million, in the aggregate, in each of the years ended December 31, 2018 and 2017. There was no increase or decrease in the allowance associated with these TDRs at subsequent default. All TDRs within consumer and commercial loan portfolios are considered subsequently defaulted when greater than 90 days past due. Subsequent default is defined as a payment re-defaulted within 12 months of the restructuring date.

Impaired Loans

The following table presents individually evaluated impaired loans and the associated allowance:  
 
December 31, 2019
December 31, 2018
 
Recorded
Investment
Net Unpaid Principal
Balance
Related
Allowance
Recorded
Investment
Net Unpaid Principal
Balance
Related
Allowance
 
(Dollars in millions)
With no related allowance recorded
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
16

$
20

$
—

$
13

$
16

$
—

Home equity
1

4

—

1

4

—

Other consumer
—

1

—

—

—

—

Total loans with no related allowance recorded
$
17

$
25

$
—

$
14

$
20

$
—

With an allowance recorded
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
16

$
16

$
3

$
19

$
20

$
4

Home equity
19

19

7

22

23

7

Other consumer
1

1

1

—

—

—

Total loans with an allowance recorded
$
36

$
36

$
11

$
41

$
43

$
11

Total impaired loans
 
 
 
 
 
 
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
32

$
36

$
3

$
32

$
36

$
4

Home equity
20

23

7

23

27

7

Other consumer
1

2

1

—

—

—

Total impaired loans
$
53

$
61

$
11

$
55

$
63

$
11

        
The following table presents average impaired loans and the interest income recognized:
 
For the Years Ended December 31,
 
2019
2018
2017
 
Average
Recorded
Investment
Interest Income Recognized
Average
Recorded
Investment
Interest Income Recognized
Average
Recorded
Investment
Interest Income Recognized
 
(Dollars in millions)
Consumer loans
 
 
 
 
 
 
Residential first mortgage
$
36

$
—

$
33

$
1

$
38

$
1

Home equity
17

—

25

2

28

1

Other consumer
2

—

—

—

—

—

Commercial loans
 
 
 
 
 
 
Commercial and industrial
15

—

2

—

—

—

Total impaired loans
$
70

$
—

$
60

$
3

$
66

$
2


Credit Quality

We utilize an internal risk rating system which is applied to all consumer and commercial loans. Descriptions of our internal risk ratings as they relate to credit quality follow the ratings used by the U.S. bank regulatory agencies as listed below.

Pass. Pass assets are not impaired nor do they have any known deficiencies that could impact the quality of the asset.

Watch. Watch assets are defined as pass rated assets that exhibit elevated risk characteristics or other factors that deserve management’s close attention and increased monitoring. However, the asset does not exhibit a potential or well-defined weakness that would warrant a downgrade to criticized or adverse classification.

Special mention. Assets identified as special mention possess credit deficiencies or potential weaknesses deserving management's close attention. Special mention assets have a potential weakness or pose an unwarranted financial risk that, if not corrected, could weaken the assets and increase risk in the future. Special mention assets are criticized, but do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Assets identified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the full collection or liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. For home equity loans and other consumer loans, we evaluate credit quality based on the aging and status of payment activity and any other known credit characteristics that call into question full repayment of the asset. Substandard loans may be placed on either accrual or non-accrual status.

Doubtful. An asset classified as doubtful has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. A doubtful asset has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral, and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Due to the high probability of loss, doubtful assets are placed on non-accrual.

Loss. An asset classified as loss is considered uncollectible and of such little value that the continuance as a bankable asset is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but, rather that it is not practical or desirable to defer writing off the asset even though partial recovery may be affected in the future.

Consumer Loans

Consumer loans consist of open and closed end loans extended to individuals for household, family, and other personal expenditures, and includes consumer loans, and loans to individuals secured by their personal residence, including first mortgage, home equity, and home improvement loans. Because consumer loans are usually relatively small-balance, homogeneous exposures, consumer loans are rated primarily on payment performance. Payment performance is a proxy for the strength of repayment capacity and loans are generally classified based on their payment status rather than by an individual review of each loan.
In accordance with regulatory guidance, we assign risk ratings to consumer loans in the following manner:
•Consumer loans are classified as Watch once the loan becomes 60 days past due.
•Open and closed-end consumer loans 90 days or more past due are classified Substandard.

Commercial Loans

Management conducts periodic examinations which serve as an independent verification of the accuracy of the ratings assigned. Loan grades are based on different factors within the borrowing relationship: entity sales, debt service coverage, debt/total net worth, liquidity, balance sheet and income statement trends, management experience, business stability, financing structure, and financial reporting requirements. The underlying collateral is also rated based on the specific type of collateral and corresponding LTV. The combination of the borrower and collateral risk ratings results in the final rating for the borrowing relationship.
 
December 31, 2019
 
Pass
Watch
Special Mention
Substandard
Total Loans
 
(Dollars in millions)
Consumer Loans
 
 
 
 
 
Residential First Mortgage
$
3,107

$
27

$
—

$
20

$
3,154

Home equity
1,002

18

—

4

1,024

Other Consumer
727

1

—

1

729

Total Consumer Loans
$
4,836

$
46

$
—

$
25

$
4,907

 
 
 
Commercial Loans
 
 
 
 
 
Commercial Real Estate
$
2,794

$
24

$
5

$
5

$
2,828

Commercial and Industrial
1,533

72

24

5

1,634

Warehouse
2,556

189

15

—

2,760

Total Commercial Loans
$
6,883

$
285

$
44

$
10

$
7,222

 
December 31, 2018
 
Pass
Watch
Special Mention
Substandard
Total Loans
 
(Dollars in millions)
Consumer Loans
 
 
 
 
 
Residential First Mortgage
$
2,952

$
28

$
—

$
19

$
2,999

Home equity
705

23

—

3

731

Other Consumer
314

—

—

—

314

Total Consumer Loans
$
3,971

$
51

$
—

$
22

$
4,044

 
 
 
Commercial Loans
 
 
 
 
 
Commercial Real Estate
$
2,132

$
14

$
5

$
1

$
2,152

Commercial and Industrial
1,351

53

29

—

1,433

Warehouse
1,324

120

15

—

1,459

Total Commercial Loans
$
4,807

$
187

$
49

$
1

$
5,044