XML 35 R23.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

9 Months Ended

Sep. 30, 2021

We utilize fair value measurements to record or disclose the fair value on certain assets and liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability through an orderly transaction between market participants at the measurement date. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation models rely on market-based parameters when available, such as interest rate yield curves or credit spreads. Unobservable inputs may be based on Management's judgment, assumptions and estimates related to credit quality, our future earnings, interest rates and other relevant inputs. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

Valuation Hierarchy

U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The hierarchy is based on the transparency of the inputs used in the valuation process with the highest priority given to quoted prices available in active markets and the lowest priority given to unobservable inputs where no active market exists, as discussed below.

Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets in which we can participate as of the measurement date;

Level 2 - Quoted prices for similar instruments in active markets, and other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

Level 3 - Unobservable inputs that reflect our own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the overall fair value measurement. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the financial instruments carried at fair value by caption on the Consolidated Statements of Financial Condition and by level in the valuation hierarchy.


	September 30, 2021
	Level 1		Level 2		Level 3		Total Fair Value
	(Dollars in millions)
Investment securities available-for-sale
Agency - Commercial	$	—	$	726	$	—	$	726
Agency - Residential	—		761		—		761
Municipal obligations	—		22		—		22
Corporate debt obligations	—		73		—		73
Other MBS	—		219		—		219
Certificate of deposit	—		1		—		1
Loans held-for-sale
Residential first mortgage loans	—		5,996		—		5,996
Loans held-for-investment
Residential first mortgage loans	—		11		—		11
Home equity	—		—		1		1
Mortgage servicing rights	—		—		340		340
Derivative assets
Rate lock commitments (fallout-adjusted)	—		—		86		86

Mortgage-backed securities forwards	—		51		—		51
Interest rate swaps and swaptions	—		67		—		67
Total assets at fair value	$	—	$	7,927	$	427	$	8,354
Derivative liabilities
Rate lock commitments (fallout-adjusted)	$	—	$	—	$	(1)	$	(1)
Mortgage backed securities forwards	—		(24)		—		(24)
Interest rate swaps	—		(5)		—		(5)

Total liabilities at fair value	$	—	$	(29)	$	(1)	$	(30)


	December 31, 2020
	Level 1		Level 2		Level 3		Total Fair Value
	(Dollars in millions)
Investment securities available-for-sale
Agency - Commercial	$	—	$	1,061	$	—	$	1,061
Agency - Residential	—		735		—		735
Municipal obligations	—		28		—		28
Corporate debt obligations	—		77		—		77
Other MBS	—		42		—		42
Certificate of deposit	—		1		—		1
Loans held-for-sale
Residential first mortgage loans	—		7,009		—		7,009
Loans held-for-investment
Residential first mortgage loans	—		11		—		11
Home equity	—		—		2		2
Mortgage servicing rights	—		—		329		329
Derivative assets
Rate lock commitments (fallout-adjusted)	—		—		208		208
Mortgage-backed securities forwards	—		14		—		14
Interest rate swaps and swaptions	—		59		—		59
Total assets at fair value	$	—	$	9,037	$	539	$	9,576
Derivative liabilities
Mortgage-backed securities forwards	$	—	$	(98)	$	—	$	(98)
Interest rate swaps	—		(4)		—		(4)
DOJ Liability	—		—		(35)		(35)
Total liabilities at fair value	$	—	$	(102)	$	(35)	$	(137)

Fair Value Measurements Using Significant Unobservable Inputs

The following table includes 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:


	Balance at Beginning of Period		Total Gains (Losses) Recorded in Earnings (1)		Purchases / Closings		Sales		Settlement		Transfers Out		Balance at End of Period
	(Dollars in millions)
Three Months Ended September 30, 2021
Assets
Loans held-for-investment
Home equity	$	2	$	—	$	—	$	—	$	(1)	$	—	$	1
Mortgage servicing rights (2)	342		(7)		67		(62)		—		—		340
Rate lock commitments (net) (2)(3)	114		38		135		—		—		(202)		85
Totals	$	458	$	31	$	202	$	(62)	$	(1)	$	(202)	$	426

Three Months Ended September 30, 2020
Assets
Loans held-for-investment
Home equity	$	2	$	—	$	—	$	—	$	—	$	—	$	2
Mortgage servicing rights (2)	261		(23)		85		—		—		—		323
Rate lock commitments (net) (2)(3)	205		90		333		—		—		(371)		257
Totals	$	468	$	67	$	418	$	—	$	—	$	(371)	$	582
Liabilities
DOJ Liability	$	(35)	$	—	$	—	$	—	$	—	$	—	$	(35)
Contingent consideration	(27)		—		—		—		27		—		—
Totals	$	(62)	$	—	$	—	$	—	$	27	$	—	$	(35)

(1)There were no unrealized gains (losses) recorded in OCI during the three months ended September 30, 2021 and 2020.

(2)We utilized swaptions, futures, forward agency and loan sales and interest rate swaps to manage the risk associated with MSRs and rate lock commitments. Gains and losses for individual lines do not reflect the effect of our risk management activities related to such Level 3 instruments.

(3)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.


	Balance at Beginning of Period		Total Gains (Losses) Recorded in Earnings (1)		Purchases / Closings		Sales		Settlement		Transfers Out		Balance at End of Period
	(Dollars in millions)
Nine Months Ended September 30, 2021
Assets
Loans held-for-investment
Home equity	$	2	$	—	$	—	$	—	$	(1)	$	—	$	1
Mortgage servicing rights (2)	329		(27)		196		(158)		—		—		$	340
Rate lock commitments (net) (2)(3)	208		(84)		519		—		—		(558)		$	85
Totals	$	539	$	(111)	$	715	$	(158)	$	(1)	$	(558)	$	426
Liabilities
DOJ Liability	$	(35)	$	(35)	$	—	$	—	$	70	$	—	$	—

Nine Months Ended September 30, 2020
Assets
Loans held-for-investment
Home equity	$	2	$	—	$	—	$	—	$	—	$	—	$	2
Mortgage servicing rights (2)	291		(131)		209		(46)		—		—		323
Rate lock commitments (net) (2)(3)	34		274		805		—		—		(856)		257
Totals	$	327	$	143	$	1,014	$	(46)	$	—	$	(856)	$	582
Liabilities
DOJ Liability	$	(35)	$	—	$	—	$	—	$	—	$	—	$	(35)
Contingent consideration	(10)		(17)		—		—		27		—		—
Totals	$	(45)	$	(17)	$	—	$	—	$	27	$	—	$	(35)

(1)There were no unrealized gains (losses) recorded in OCI during the nine months ended September 30, 2021 and 2020.

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)
September 30, 2021
Assets
Loans held-for-investment
Home equity	$	1	Discounted cash flows	Discount rate Constant prepayment rate Constant default rate	7.2% -10.8% (9.0%) 12.6% - 18.9% (15.8%) 1.5%-2.3% (1.9%)	(1)
Mortgage servicing rights	$	340	Discounted cash flows	Option adjusted spread Constant prepayment rate Weighted average cost to service per loan	3.9% - 21.6% (8.4%) 0 % - 11.0% (9.1%) $67 - $90 ($80)	(1)
Rate lock commitments (net)	$	85	Consensus pricing	Origination pull-through rate	73.8%	(1)

(1)Unobservable inputs were weighted by their relative fair value of the instruments.

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

(Dollars in millions)

December 31, 2020

Assets

Loans held-for-investment

Home equity

Discounted cash flows

Discount rate
Constant prepayment rate
Constant default rate

7.2% -10.8% (9.0%)

12.6% - 18.9% (15.8%)

1.5%-2.3% (1.9%)

(1)

Mortgage servicing rights

329

Discounted cash flows

Option adjusted spread
Constant prepayment rate
Weighted average cost to service per loan

3.4% - 21.2% (8.0%)

0% - 13.3% (10.5%)

$67 - $95 ($81)

(1)

Rate lock commitments (net)

208

Consensus pricing

Closing pull-through rate

75.7% - 87.2% (77.5%)

(1)

Liabilities

DOJ Liability

(35)

Discounted cash flows

See description below

(1)Unobservable inputs were weighted by their relative fair value of the instruments.

Recurring Significant Unobservable Inputs

Home equity. The most significant unobservable inputs used in the fair value measurement of the HELOANs are discount rates, constant prepayment rates, and default rates. The constant prepayment and default rates are based on a 12 month historical average. Significant increases (decreases) in the discount rate in isolation result in a significantly lower (higher) fair value measurement. Increases (decreases) in prepay rates in isolation result in a higher (lower) fair value and increases (decreases) in default rates in isolation result in a lower (higher) fair value.

MSRs. 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 result in a significantly lower (higher) fair value measurement. Weighted average life (in years) is used to determine the change in fair value of MSRs. For September 30, 2021 and December 31, 2020, the weighted average life (in years) for the entire MSR portfolio was 5.8 and 4.2, respectively.

DOJ Liability. The DOJ liability was settled for $70 million in the second quarter of 2021, fully satisfying the Amendment and reducing the liability to $0 at September 30, 2021. Prior to settlement, the significant unobservable inputs used in the fair value measurement of the DOJ Liability were the discount rate, asset growth rate, return on assets, dividend rate and potential ways we might be required to begin making DOJ Liability payments and our estimates of the likelihood of these outcomes, as further discussed in Note 15 - Legal Proceedings, Contingencies and Commitments.

Rate lock commitments. The significant unobservable input used in the fair value measurement of the rate lock commitments is the pull through rate. The pull through rate is a statistical analysis of our actual rate lock fallout history to determine the sensitivity of the residential mortgage loan pipeline compared to interest rate changes and other deterministic values. New market prices are applied based on updated loan characteristics and new fallout ratios (i.e. the inverse of the pull through rate) are applied accordingly. Significant increases (decreases) in the pull through rate in isolation result in a significantly higher (lower) fair value measurement.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We also have assets that are subject to measurement at fair value on a nonrecurring basis under certain conditions. The following table presents assets measured at fair value on a nonrecurring basis:


	Total (1)		Level 2		Level 3		Losses
	(Dollars in millions)
September 30, 2021
Loans held-for-sale (2)	$	363	$	363	$	—	$	(1)
Commercial loans	19		—		19		—
Impaired loans held-for-investment (2)
Residential first mortgage loans	27		—		27		(12)
Repossessed assets (3)	6		—		6		(1)
Totals	$	415	$	363	$	52	$	(14)
December 31, 2020
Residential first mortgage loans	$	30	$	30	$	—	$	(1)
Commercial loans	57		—		57		—
Impaired loans held-for-investment (2)
Residential first mortgage loans	24		—		24		(3)
Repossessed assets (3)	8		—		8		(3)
Totals	$	119	$	30	$	89	$	(7)

(1)The fair values are determined at various dates dependent upon when certain conditions were met requiring fair value measurement.

(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.

The following table presents 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)
September 30, 2021
Commercial loans	$	19	Fair value of collateral	Market price	N/A
Impaired loans held-for-investment
Residential first mortgage loans	$	27	Fair value of collateral	Loss severity discount	0% - 100% (30%)	(2)
Repossessed assets	$	6	Fair value of collateral	Loss severity discount	0% - 96.3% (21.6%)	(2)
December 31, 2020
Commercial loans	57		Fair value of collateral	Market price	N/A	(1)
Impaired loans held-for-investment
Residential first mortgage loans	$	24	Fair value of collateral	Loss severity discount	0% - 100% (12.8%)	(2)
Repossessed assets	$	8	Fair value of collateral	Loss severity discount	0% - 96.3% (24.5%)	(2)

(1)Fair value has been determined based on an unobservable market price.

(2)Unobservable inputs were weighted by their relative fair value of the instruments.

Nonrecurring Significant Unobservable Inputs

The significant unobservable inputs used in the fair value measurement of the impaired loans and repossessed assets are appraisals or other third-party price evaluations which incorporate measures such as recent sales prices for comparable properties.

Fair Value of Financial Instruments

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, 2021
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
	(Dollars in millions)
Assets
Cash and cash equivalents	$	149	$	149	$	149	$	—	$	—
Investment securities available-for-sale	1,802		1,802		—		1,802
Investment securities held-to-maturity	236		244		—		244
Loans held-for-sale	6,378		6,379		—		6,379
Loans held-for-investment	14,268		14,276		—		11		14,265
Loans with government guarantees	1,945		1,895		—		1,895
Mortgage servicing rights	340		340		—		—		340
Federal Home Loan Bank stock	377		377		—		377
Bank owned life insurance	363		363		—		363
Repossessed assets	6		6		—		—		6
Other assets, foreclosure claims	7		7		—		7
Derivative financial instruments, assets	204		204		—		118		86
Liabilities
Retail deposits
Demand deposits and savings accounts	$	(8,908)	$	(8,121)	$	—	$	(8,121)	$	—
Certificates of deposit	(988)		(992)		—		(992)		—
Wholesale deposits	(1,301)		(1,306)		—		(1,306)		—
Government deposits	(2,450)		(2,340)		—		(2,340)		—
Company controlled deposits	(5,688)		(5,665)		—		(5,665)		—
Federal Home Loan Bank advances and other	(3,270)		(3,286)		—		(3,286)		—
Long-term debt	(396)		(344)		—		(344)		—
Derivative financial instruments, liabilities	(30)		(30)		—		(29)		(1)


	December 31, 2020
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
	(Dollars in millions)
Assets
Cash and cash equivalents	$	623	$	623	$	623	$	—	$	—
Investment securities available-for-sale	1,944		1,944		—		1,944		—
Investment securities held-to-maturity	377		393		—		393		—
Loans held-for-sale	7,098		7,098		—		7,098		—
Loans held-for-investment	16,227		16,188		—		11		16,177
Loans with government guarantees	2,516		2,498		—		2,498		—
Mortgage servicing rights	329		329		—		—		329
Federal Home Loan Bank stock	377		377		—		377		—
Bank owned life insurance	356		358		—		358		—
Repossessed assets	8		8		—		—		8
Other assets, foreclosure claims	17		17		—		17		—
Derivative financial instruments	281		281		—		73		208
Liabilities
Retail deposits
Demand deposits and savings accounts	$	(8,616)	$	(7,864)	$	—	$	(7,864)	$	—
Certificates of deposit	(1,355)		(1,365)		—		(1,365)		—
Wholesale deposits	(1,031)		(1,047)		—		(1,047)		—
Government deposits	(1,765)		(1,706)		—		(1,706)		—
Custodial deposits	(7,206)		(7,133)		—		(7,133)		—
Federal Home Loan Bank advances	(5,100)		(5,124)		—		(5,124)		—
Long-term debt	(641)		(596)		—		(596)		—
DOJ Liability	(35)		(35)		—		—		(35)
Derivative financial instruments	(102)		(102)		—		(102)		—

Fair Value Option

We elected the fair value option for certain items as discussed throughout the Notes to the Consolidated Financial Statements to more closely align the accounting method with the underlying economic exposure. Interest income on LHFS is accrued on the principal outstanding primarily using the "simple-interest" method.

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,
	2021		2020		2021		2020
	(Dollars in millions)
Assets
Loans held-for-sale
Net gain on loan sales	$	212	$	340	$	339	$	899
Loans held-for-investment
Other noninterest income	$	1	$	—	$	1	$	—

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:


	September 30, 2021						December 31, 2020
	UPB		Fair Value		Fair Value Over / (Under) UPB		UPB		Fair Value		Fair Value Over / (Under) UPB
	(Dollars in millions)
Assets
Nonaccrual loans
Loans held-for-sale	$	11	$	9	$	(2)	$	9	$	7	$	(2)
Loans held-for-investment	12		9		(3)		9		8		(1)
Total nonaccrual loans	$	23	$	18	$	(5)	$	18	$	15	$	(3)
Other performing loans
Loans held-for-sale	$	5,897	$	5,987	$	90	$	6,704	$	7,002	$	298
Loans held-for-investment	2		2		—		5		4		(1)
Total other performing loans	$	5,899	$	5,989	$	90	$	6,709	$	7,006	$	297
Total loans
Loans held-for-sale	$	5,908	$	5,996	$	88	$	6,713	$	7,009	$	296
Loans held-for-investment	14		11		(3)		14		12		(2)
Total loans	$	5,922	$	6,007	$	85	$	6,727	$	7,021	$	294
Liabilities
DOJ Liability (1)	$	—	$	—	$	—	$	(118)	$	(35)	$	83

(1)As of March 31, 2021, the UPB and fair value of this liability has been reported per the terms of the final Settlement and Dismissal Amendment signed on March 29, 2021. See Note 15 - Legal Proceedings, Contingencies and Commitments for further details.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details