LOANS

Loans, excluding those reflected as discontinued operations, consist of the following:

Loans by Product (dollars in millions)



	December 31, 2017		December 31, 2016
Commercial Loans	$	20,892.1	$	20,117.8
Direct financing leases and leveraged leases	2,685.8		2,852.9
Total commercial	23,577.9		22,970.7
Consumer Loans	5,536.0		6,565.2
Total loans	29,113.9		29,535.9
Loans held for sale	1,095.7		635.8
Loans held for investment and held for sale⁽¹⁾	$	30,209.6	$	30,171.7

⁽¹⁾

Assets held for sale on the Balance Sheet as of December 31, 2017 and December 31, 2016 includes loans and operating lease equipment primarily related to portfolios in Commercial Banking, Consumer Banking and the China portfolio in NSP. As discussed in subsequent tables, since the Company manages the credit risk and collection of loans held for sale consistently with its loans held for investment, the aggregate amount is presented in this table.

The following table presents loans by segment, based on obligor location:

Loans (dollars in millions)



	December 31, 2017						December 31, 2016
	Domestic		Foreign		Total		Domestic		Foreign		Total
Commercial Banking	$	21,368.7	$	1,790.6	$	23,159.3	$	20,440.7	$	2,121.6	$	22,562.3
Consumer Banking⁽¹⁾	5,954.6		—		5,954.6		6,973.6		—		6,973.6
Total	$	27,323.3	$	1,790.6	$	29,113.9	$	27,414.3	$	2,121.6	$	29,535.9

⁽¹⁾The Consumer Banking segment includes certain commercial loans, primarily consisting of a portfolio of Small Business Administration ("SBA") loans. These loans are excluded from the Consumer loan balance and included in the Commercial loan balances in the tables throughout this note.

The following table presents selected components of the net investment in loans:

Components of Net Investment in Loans (dollars in millions)



	December 31, 2017			December 31, 2016
Unearned income	$	(727.8	)	$	(727.1	)
Equipment residual values	522.6			583.4
Net unamortized premiums / (discounts)	3.7			(31.0		)
Accretable yield on PCI loans	1,063.7			1,261.4
Net unamortized deferred costs and (fees)⁽¹⁾	68.7			55.8
Leveraged lease third party non-recourse debt payable	(97.3		)	(109.7		)

⁽¹⁾ Balance relates to the Commercial Banking segment.

Certain of the following tables present credit-related information at the "class" level. A class is generally a disaggregation of a portfolio segment. In determining the classes, CIT considered the loan characteristics and methods it applies in monitoring and assessing credit risk and performance.

Credit Quality Information

Commercial obligor risk ratings are reviewed on a regular basis by Credit Risk Management and are adjusted as necessary for updated information affecting the borrowers' ability to fulfill their obligations.

The definitions of the commercial loan ratings are as follows:


•	Pass — loans in this category do not meet the criteria for classification in one of the categories below.


•	Special mention — a special mention asset exhibits potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects.

•

Classified — a classified asset ranges from: (1) assets that exhibit a well-defined weakness and are inadequately protected by the current sound worth and paying capacity of the borrower, and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected to (2) assets with weaknesses that make collection or liquidation in full unlikely on the basis of current facts, conditions, and values. Assets in this classification can be accruing or on non-accrual depending on the evaluation of these factors.

The following table summarizes commercial loans by the risk ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. The consumer loan risk profiles are different from commercial loans, and use loan-to-value ("LTV") ratios in rating the credit quality, and therefore are presented separately below.

Commercial Loans and Held for Sale Loans — Risk Rating by Class / Segment (dollars in millions)



Grade:	Pass		Special Mention		Classified- accruing		Classified- non-accrual		PCI Loans		Total
December 31, 2017
Commercial Banking
Commercial Finance	$	8,284.1	$	640.9	$	981.9	$	134.8	$	10.6	$	10,052.3
Real Estate Finance	5,228.1		139.9		174.3		2.8		45.1		5,590.2
Business Capital	7,028.6		269.2		228.8		53.2		—		7,579.8
Rail	100.6		2.0		1.2		—		—		103.8
Total Commercial Banking	20,641.4		1,052.0		1,386.2		190.8		55.7		23,326.1
Consumer Banking
Other Consumer Banking ⁽¹⁾	378.5		5.9		31.9		—		2.2		418.5
Total Consumer Banking	378.5		5.9		31.9		—		2.2		418.5
Non-Strategic Portfolios	35.7		7.6		10.2		9.8		—		63.3
Total	$	21,055.6	$	1,065.5	$	1,428.3	$	200.6	$	57.9	$	23,807.9
December 31, 2016
Commercial Banking
Commercial Finance	$	8,184.7	$	677.6	$	1,181.7	$	188.8	$	42.7	$	10,275.5
Real Estate Finance	5,191.4		168.7		115.6		20.4		70.5		5,566.6
Business Capital	6,238.7		422.0		271.7		41.7		—		6,974.1
Rail	88.7		14.1		0.9		—		—		103.7
Total Commercial Banking	19,703.5		1,282.4		1,569.9		250.9		113.2		22,919.9
Consumer Banking
Other Consumer Banking ⁽²⁾	374.9		8.3		22.4		—		2.8		408.4
Total Consumer Banking	374.9		8.3		22.4		—		2.8		408.4
Non- Strategic Portfolios	143.7		36.9		19.1		10.3		—		210.0
Total	$	20,222.1	$	1,327.6	$	1,611.4	$	261.2	$	116.0	$	23,538.3

⁽¹⁾ At December 31, 2017 Other Consumer Banking loans consisted of SBA loans.

⁽²⁾ At December 31, 2016 Other Consumer Banking loans consisted of SBA loans ($370.1 million) and Private Banking

loans ($38.3 million).

For consumer loans, the Company monitors credit risk based on indicators such as delinquencies and LTV, which the Company believes are relevant credit quality indicators.

LTV refers to the ratio comparing the loan's unpaid principal balance to the property's collateral value. We examine LTV migration and stratify LTV into categories to monitor the risk in the loan classes.

The following table provides a summary of the consumer portfolio credit quality. The amounts represent the carrying value, which differ from unpaid principal balances, and include the premiums or discounts and the accretable yield and non-accretable difference for PCI loans recorded in purchase accounting. Included in the consumer loans are "covered loans" for which the Company can be reimbursed for a substantial portion of future losses under the terms of loss sharing agreements with the FDIC. Covered loans are limited to the Other Consumer Banking and Legacy Consumer Mortgage ("LCM") division. Covered Loans are discussed further in Note 5 — Indemnification Assets.

Included in the consumer loan balances as of December 31, 2017 and December 31, 2016 were loans with terms that permitted negative amortization with an unpaid principal balance of $484 million and $761 million, respectively.

The table below summarizes the Consumer loan LTV distribution and covered loan balances.

Consumer Loan LTV Distributions (dollars in millions)



	Single Family Residential										Reverse Mortgage⁽²⁾
	Covered Loans				Non-covered Loans								Non-covered loans
	Non-PCI		PCI		Non-PCI		PCI		Total Single Family Residential		Covered Loans Non-PCI		Non-PCI		PCI		Total Reverse Mortgages		Total Consumer Loans
December 31, 2017
Greater than 125%	$	2.7	$	160.0	$	7.7	$	—	$	170.4	$	—	$	—	$	—	$	—	$	170.4
101% — 125%	6.4		291.5		4.4		—		302.3		—		—		—		—		302.3
80% — 100%	77.4		566.2		137.3		—		780.9		—		—		—		—		780.9
Less than 80%	1,306.1		878.1		2,089.7		7.7		4,281.6		—		—		—		—		4,281.6
Not Applicable⁽¹⁾	—		—		0.8		—		0.8		—		—		—		—		0.8
Total	$	1,392.6	$	1,895.8	$	2,239.9	$	7.7	$	5,536.0	$	—	$	—	$	—	$	—	$	5,536.0
December 31, 2016
Greater than 125%	$	2.2	$	261.4	$	12.3	$	—	$	275.9	$	0.6	$	8.8	$	33.8	$	43.2	$	319.1
101% — 125%	4.7		443.7		13.6		—		462.0		1.2		12.7		7.9		21.8		483.8
80% — 100%	226.6		588.1		40.5		—		855.2		24.0		42.3		7.5		73.8		929.0
Less than 80%	1,515.6		872.4		1,713.1		9.2		4,110.3		405.4		304.9		9.8		720.1		4,830.4
Not Applicable ⁽¹⁾	—		—		2.9		—		2.9		—		—		—		—		2.9
Total	$	1,749.1	$	2,165.6	$	1,782.4	$	9.2	$	5,706.3	$	431.2	$	368.7	$	59.0	$	858.9	$	6,565.2


⁽¹⁾	Certain Consumer Loans do not have LTV's, including the Credit Card portfolio. The Credit Card portfolio was not significant at December 31, 2017 and 2016.


⁽²⁾	Reverse mortgage loans transferred to AHFS are excluded from the table above. As of December 31, 2017 these loans had a total carrying value of $861.0 million, of which $411.0 million were covered loans.

Past Due and Non-accrual Loans

The table that follows presents portfolio delinquency status, regardless of accrual/non-accrual classification:

Loans and Held for Sale Loans — Delinquency Status (dollars in millions)



	Past Due
	30 — 59 Days Past Due		60 — 89 Days Past Due		90 Days or Greater		Total Past Due		Current⁽¹⁾		PCI Loans⁽²⁾		Total
December 31, 2017
Commercial Banking
Commercial Finance	$	4.5	$	—	$	49.3	$	53.8	$	9,987.9	$	10.6	$	10,052.3
Real Estate Finance	8.7		—		4.1		12.8		5,532.3		45.1		5,590.2
Business Capital	172.2		33.4		19.1		224.7		7,355.1		—		7,579.8
Rail	3.9		1.4		0.8		6.1		97.7		—		103.8
Total Commercial Banking	189.3		34.8		73.3		297.4		22,973.0		55.7		23,326.1
Consumer Banking
Legacy Consumer Mortgages	26.7		7.6		34.8		69.1		1,358.5		1,903.5		3,331.1
Other Consumer Banking	9.6		0.5		0.4		10.5		3,476.4		2.2		3,489.1
Total Consumer Banking	36.3		8.1		35.2		79.6		4,834.9		1,905.7		6,820.2
Non-Strategic Portfolios	1.8		7.7		9.4		18.9		44.4		—		63.3
Total	$	227.4	$	50.6	$	117.9	$	395.9	$	27,852.3	$	1,961.4	$	30,209.6
December 31, 2016
Commercial Banking
Commercial Finance	$	21.4	$	—	$	17.6	$	39.0	$	10,193.8	$	42.7	$	10,275.5
Real Estate Finance	0.1		—		—		0.1		5,496.0		70.5		5,566.6
Business Capital	143.6		42.4		16.3		202.3		6,771.8		—		6,974.1
Rail	5.9		0.6		2.3		8.8		94.9		—		103.7
Total Commercial Banking	171.0		43.0		36.2		250.2		22,556.5		113.2		22,919.9
Consumer Banking
Legacy Consumer Mortgages	22.6		6.1		36.6		65.3		2,563.6		2,233.8		4,862.7
Other Consumer Banking	7.4		4.9		0.6		12.9		2,163.4		2.8		2,179.1
Total Consumer Banking	30.0		11.0		37.2		78.2		4,727.0		2,236.6		7,041.8
Non-Strategic Portfolios	3.0		1.1		7.0		11.1		198.9		—		210.0
Total	$	204.0	$	55.1	$	80.4	$	339.5	$	27,482.4	$	2,349.8	$	30,171.7


⁽¹⁾	Due to their nature, reverse mortgage loans are included in Current, as they do not have contractual payments due at a specified time.


⁽²⁾	PCI loans are written down at acquisition to their fair value using an estimate of cash flows deemed to be collectible. Accordingly, such loans are no longer classified as past due or non-accrual even though they may be contractually past due as we expect to fully collect the new carrying values of these loans.

Non-accrual loans include loans that are individually evaluated and determined to be impaired (generally loans with balances $500,000 or greater), as well as other, smaller balance loans placed on non-accrual due to delinquency (generally 90 days or more).

Certain loans 90 days or more past due as to interest or principal are still accruing, because they are (1) well-secured and in the process of collection or (2) real estate mortgage loans or consumer loans exempt under regulatory rules from being classified as nonaccrual until later delinquency, usually 120 days past due.

The following table sets forth non-accrual loans, assets received in satisfaction of loans (repossessed assets and OREO) and loans 90 days or more past due and still accruing.

Loans on Non-Accrual Status (dollars in millions)



	December 31, 2017						December 31, 2016
	Held for Investment		Held for Sale		Total		Held for Investment		Held for Sale		Total
Commercial Banking
Commercial Finance	$	134.8	$	—	$	134.8	$	156.7	$	32.1	$	188.8
Real Estate Finance	2.8		—		2.8		20.4		—		20.4
Business Capital	53.2		—		53.2		41.7		—		41.7
Total Commercial Banking	190.8		—		190.8		218.8		32.1		250.9
Consumer Banking
Legacy Consumer Mortgages	19.9		—		19.9		17.3		—		17.3
Other Consumer Banking	0.4		—		0.4		0.1		—		0.1
Total Consumer Banking	20.3		—		20.3		17.4		—		17.4
Non-Strategic Portfolios	—		9.8		9.8		—		10.3		10.3
Total	$	211.1	$	9.8	$	220.9	$	236.2	$	42.4	$	278.6
Repossessed assets and OREO					54.6						72.7
Total non-performing assets					$	275.5					$	351.3
Commercial loans past due 90 days or more accruing					$	11.7					$	7.2
Consumer loans past due 90 days or more accruing					20.2						24.8
Total Accruing loans past due 90 days or more					$	31.9					$	32.0

Payments received on non-accrual loans are generally applied first against outstanding principal, though in certain instances where the remaining recorded investment is deemed fully collectible, interest income is recognized on a cash basis. Reverse mortgages are not included in the non-accrual balances due to the nature of the mortgage product.

Loans in Process of Foreclosure

The table below summarizes the residential mortgage loans in the process of foreclosure and OREO:



(dollars in millions)	December 31, 2017		December 31, 2016
PCI	$	133.7	$	201.7
Non-PCI	140.9		106.3
Loans in process of foreclosure	$	274.6	$	308.0
OREO	$	52.1	$	69.9

As of December 31, 2017, the table included $122.5 million of reverse mortgage loans in the process of foreclosure that were transferred from AHFI to AHFS in September 2017 and $21 million of reverse mortgage OREO.

Impaired Loans

The following table contains information about impaired loans and the related allowance for loan losses by class, exclusive of loans that were identified as impaired at the Acquisition Date for which the Company is applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality), which are disclosed further below in this note. Impaired loans exclude PCI loans.

Impaired Loans (dollars in millions)



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment⁽³⁾
December 31, 2017
With no related allowance recorded:
Commercial Banking
Commercial Finance	$	51.9	$	72.7	$	—	$	59.9
Business Capital	11.7		13.4		—		5.7
Real Estate Finance	—		—		—		0.4
With an allowance recorded:
Commercial Banking
Commercial Finance	95.9		96.1		21.3		136.6
Business Capital	10.5		10.5		4.3		14.2
Real Estate Finance	2.7		2.8		0.4		5.6
Total Impaired Loans⁽¹⁾	172.7		195.5		26.0		222.4
Total Loans Impaired at Acquisition Date⁽²⁾	1,961.4		2,870.2		19.1		2,168.8
Total	$	2,134.1	$	3,065.7	$	45.1	$	2,391.2
December 31, 2016
With no related allowance recorded:
Commercial Banking
Commercial Finance	$	54.3	$	72.2	$	—	$	29.5
Business Capital	0.5		1.8		—		5.1
Real Estate Finance	0.7		0.7		—		1.3
With an allowance recorded:
Commercial Banking
Commercial Finance	143.0		146.2		25.5		132.1
Business Capital	6.6		6.6		4.2		8.2
Real Estate Finance	16.7		16.8		4.0		5.2
Total Impaired Loans⁽¹⁾	221.8		244.3		33.7		181.4
Total Loans Impaired at Acquisition Date⁽²⁾	2,349.8		3,440.7		13.6		2,504.4
Total	$	2,571.6	$	3,685.0	$	47.3	$	2,685.8


⁽¹⁾	Interest income recorded for the years ended December 31, 2017 and December 31, 2016 while the loans were impaired were $2.4 million and $1.6 million, of which $0.0 million and $0.6 million was interest recognized using cash-basis method of accounting for each year, respectively.


⁽²⁾	Details of loans that were identified as impaired at the Acquisition Date are presented under Loans Acquired with Deteriorated Credit Quality.


⁽³⁾	Average recorded investment for the years ended December 31, 2017 and 2016.

Impairment occurs when, based on current information and events, it is probable that CIT will be unable to collect all amounts due according to contractual terms of the agreement. For commercial loans, the Company has established review and monitoring procedures designed to identify, as early as possible, customers that are experiencing financial difficulty. Credit risk is captured and analyzed based on the Company's internal probability of obligor default (PD) and loss given default (LGD) ratings. A PD rating is determined by evaluating borrower credit-worthiness, including analyzing credit history, financial condition, cash flow adequacy, financial performance and management quality. An LGD rating is predicated on transaction structure, collateral valuation and related guarantees or recourse. Further, related considerations in determining probability of collection include the following:


•	Instances where the primary source of payment is no longer sufficient to repay the loan in accordance with terms of the loan document;


•	Lack of current financial data related to the borrower or guarantor;


•	Delinquency status of the loan;


•	Borrowers experiencing problems, such as operating losses, marginal working capital, inadequate cash flow, excessive financial leverage or business interruptions;


•	Loans secured by collateral that is not readily marketable or that has experienced or is susceptible to deterioration in realizable value; and


•	Loans to borrowers in industries or countries experiencing severe economic instability.

A shortfall between the estimated value and recorded investment in the loan is reported in the provision for credit losses. In instances when the Company measures impairment based on the present value of expected future cash flows, the change in present value is reported in the provision for credit losses.

The following summarizes key elements of the Company's policy regarding the determination of collateral fair value in the measurement of impairment:


•	"Orderly liquidation value" is the basis for collateral valuation;


•	Appraisals are updated annually or more often as market conditions warrant; and


•	Appraisal values are discounted in the determination of impairment if the:


•	appraisal does not reflect current market conditions; or


•	collateral consists of inventory, accounts receivable, or other forms of collateral that may become difficult to locate, or collect or may be subject to pilferage in a liquidation.

Loans Acquired with Deteriorated Credit Quality

For purposes of this presentation, the Company is applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans that were identified as impaired as of the acquisition date of OneWest Bank. PCI loans were initially recorded at estimated fair value with no allowance for loan losses carried over, since the initial fair values reflected credit losses expected to be incurred over the remaining lives of the loans. The acquired loans are subject to the Company's internal credit review. See Note 4 — Allowance for Loan Losses.

Purchased Credit Impaired Loans (dollars in millions)



	December 31, 2017						December 31, 2016
	Unpaid Principal Balance		Carrying Value		Allowance for Loan Losses		Unpaid Principal Balance		Carrying Value		Allowance for Loan Losses
Commercial Banking
Commercial Finance	$	16.4	$	10.6	$	0.7	$	70.0	$	42.7	$	2.4
Real Estate Finance	60.1		45.1		7.0		108.1		70.5		4.9
Consumer Banking
Other Consumer Banking	3.0		2.2		—		3.7		2.8		—
Legacy Consumer Mortgages	2,790.7		1,903.5		11.4		3,258.9		2,233.8		6.3
	$	2,870.2	$	1,961.4	$	19.1	$	3,440.7	$	2,349.8	$	13.6

The following table summarizes commercial PCI loans, which are monitored for credit quality based on internal risk classifications. See previous table Consumer Loan LTV Distributions for credit quality metrics on consumer PCI loans.



	December 31, 2017						December 31, 2016
(dollars in millions)	Non-criticized		Criticized		Total		Non-criticized		Criticized		Total
Commercial Finance	$	—	$	10.6	$	10.6	$	5.4	$	37.3	$	42.7
Real Estate Finance	21.8		23.3		45.1		35.6		34.9		70.5
Total	$	21.8	$	33.9	$	55.7	$	41.0	$	72.2	$	113.2

Accretable Yield

The excess of cash flows expected to be collected over the recorded investment (estimated fair value at acquisition) of the PCI loans represents the accretable yield and is recognized in interest income on an effective yield basis over the remaining life of the loan, or pools of loans. The accretable yield is adjusted for changes in interest rate indices for variable rate PCI loans, changes in prepayment assumptions and changes in expected principal and interest payments and collateral values. Further, if a loan within a pool of loans is modified, the modified loan remains part of the pool of loans.

Changes in the Accretable Yield for PCI Loans (dollars in millions)



	Years Ended December 31,
	2017			2016			2015
Balance at beginning of the year ⁽¹⁾	$	1,261.4		$	1,299.1		$	1,254.8
Accretion into interest income	(204.6		)	(208.3		)	(76.2		)
Reclassification from non-accretable difference	38.5			213.7			133.2
Disposals and Other	(31.6		)	(43.1		)	(12.7		)
Balance at end of the year	$	1,063.7		$	1,261.4		$	1,299.1

⁽¹⁾ For year ended December 31, 2015, the beginning balance is as of August 3, 2015, the acquisition date of OneWest Bank.

Troubled Debt Restructurings

The Company periodically modifies the terms of loans in response to borrowers' difficulties. Modifications that include a financial concession to the borrower are accounted for as troubled debt restructurings (TDRs).

CIT uses a consistent methodology across all loans to determine if a modification is with a borrower that has been determined to be in financial difficulty and was granted a concession. Specifically, the Company's policies on TDR identification include the following examples of indicators used to determine whether the borrower is in financial difficulty:


•	Borrower is in default with CIT or other material creditor


•	Borrower has declared bankruptcy


•	Growing doubt about the borrower's ability to continue as a going concern


•	Borrower has (or is expected to have) insufficient cash flow to service debt


•	Borrower is de-listing securities


•	Borrower's inability to obtain funds from other sources


•	Breach of financial covenants by the borrower.

If the borrower is determined to be in financial difficulty, then CIT utilizes the following criteria to determine whether a concession has been granted to the borrower:


•	Assets used to satisfy debt are less than CIT's recorded investment in the loan


•	Modification of terms — interest rate changed to below market rate


•	Maturity date extension at an interest rate less than market rate


•	The borrower does not otherwise have access to funding for debt with similar risk characteristics in the market at the restructured rate and terms


•	Capitalization of interest


•	Increase in interest reserves


•	Conversion of credit to Payment-In-Kind (PIK)


•	Delaying principal and/or interest for a period of three months or more


•	Partial forgiveness of the balance.

Modified loans that meet the definition of a TDR are subject to the Company's standard impaired loan policy, namely that non-accrual loans in excess of $500,000 are individually reviewed for impairment, while non-accrual loans less than $500,000 are considered as part of homogenous pools and are included in the determination of the non-specific allowance.

We may require some consumer borrowers experiencing financial difficulty to make trial payments generally for a period of three to four months, according to the terms of a planned permanent modification, to determine if they can perform according to those terms. These arrangements represent trial modifications. While loans are in trial payment programs, their original terms are not considered modified and they continue to advance through delinquency status and accrue interest according to their original terms. The planned modifications for these arrangements predominantly involve interest rate reductions or other interest rate concessions; however, the exact concession type and resulting financial effect are usually not finalized and do not take effect until the loan is permanently modified. The trial period terms are developed in accordance with our proprietary programs or the U.S. Treasury's Making Homes Affordable programs for real estate 1-4 family first lien (i.e. Home Affordable Modification Program — HAMP) and junior lien (i.e. Second Lien Modification Program — 2MP) mortgage loans. HAMP expired on December 31, 2017, which was the last day to submit an application.

At December 31, 2017, the loans in trial modification period were $0.3 million under HAMP and $12.2 million under proprietary programs. Trial modifications with a recorded investment of $12.3 million at December 31, 2017 were accruing loans and $0.2 million were non-accruing loans. At December 31, 2016, the loans in trial modification period were $36.4 million under HAMP, $0.1 million under 2MP and $3.0 million under proprietary programs. Trial modifications with a recorded investment of $38.1 million at December 31, 2016 were accruing loans and $1.4 million were non-accruing loans. Our experience is that substantially all of the mortgages that enter a trial payment period program are successful in completing the program requirements and are then permanently modified at the end of the trial period. Our allowance process considers the impact of those modifications that are probable to occur.

The recorded investment of TDRs, excluding those classified as PCI and those within a trial modification period discussed in the preceding paragraph, at December 31, 2017 and December 31, 2016, was $103.5 million and $82.3 million, of which 63% and 41%, respectively, were on non-accrual. Commercial Banking and Consumer Banking loans accounted for 83% and 17%, respectively of the total TDRs at December 31, 2017. At December 31, 2016, Commercial Banking and Consumer banking loans accounted for 85% and 15%, respectively of total TDRs. There were $13.4 million and $5.4 million, as of December 31, 2017 and 2016, respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.

The recorded investment related to modifications qualifying as TDRs that occurred during the years ended December 31, 2017 and 2016 were $92.5 million and $80.5 million, respectively. The recorded investment at the time of default of TDRs that experienced a payment default (payment default is one missed payment), during the years ended December 31, 2017 and 2016, and for which the payment default occurred within one year of the modification totaled $47.0 million and $11.3 million, respectively. The December 31, 2017 defaults related to Commercial Banking and Consumer Banking, were 93% and 7%, respectively.

The financial impact of the various modification strategies that the Company employs in response to borrower difficulties is described below. While the discussion focuses on the 2017 amounts, the overall nature and impact of modification programs were comparable in the prior year.


•	The nature of modifications qualifying as TDR's based upon recorded investment at December 31, 2017 was comprised of payment deferrals for 31% and covenant relief and/or other for 69%. For December 31, 2016 TDR recorded investment was comprised of payment deferrals for 12% and covenant relief and/or other for 88%.


•	Payment deferrals result in lower net present value of cash flows, if not accompanied by additional interest or fees, and increased provision for credit losses to the extent applicable. The financial impact of these modifications is not significant given the moderate length of deferral periods;


•	Interest rate reductions result in lower amounts of interest being charged to the customer, but are a relatively small part of the Company's restructuring programs. The weighted average change in interest rates for all TDRs occurring during the quarters ended December 31, 2017 and 2016 was not significant;

•

Debt forgiveness, or the reduction in amount owed by borrower, results in incremental provision for credit losses, in the form of higher charge-offs. While these types of modifications have the greatest individual impact on the allowance, the amounts of principal forgiveness for TDRs occurring during the years ended December 31, 2017 and 2016 was not significant, as debt forgiveness is a relatively small component of the Company's modification programs; and


•	The other elements of the Company's modification programs that are not TDRs, do not have a significant impact on financial results given their relative size, or do not have a direct financial impact, as in the case of covenant changes.

Reverse Mortgages

At December 31, 2017 reverse mortgage loans of $861.0 million were classified as assets held for sale within continuing operations related to the Financial Freedom Transaction; of which $724.7 million related to uninsured proprietary reverse mortgage loans and the remaining related to FHA insured HECM loans. At December 31, 2016, the reverse mortgage loans had an outstanding balance of $859.0 million, of which $769.6 million related to the uninsured proprietary reverse mortgage loans.

The uninsured reverse mortgage portfolio consists of approximately 1,500 loans with an unpaid principal balance of $944.0 million at December 31, 2017. The uninsured reverse mortgage portfolio consisted of approximately 1,700 loans with an average borrowers' age of 83 years old and an unpaid principal balance of $1,027.9 million at December 31, 2016. There is currently over collateralization in the portfolio, as the realizable collateral value (the lower of collectible principal and interest, or estimated value of the home) exceeds the outstanding book balance at December 31, 2017 and 2016.

From the acquisition date through December 31, 2017, any changes to the portfolio value as a result of re-estimated cash flows due to changes in actuarial assumptions or actual or expected appreciation or depreciation in property values was immaterial to the portfolio as a whole.

See Note 1 — Business and Summary of Significant Accounting Policies for further details.

Serviced Loans

In conjunction with the OneWest Transaction, the Company services HECM reverse mortgage loans sold to Agencies (Fannie Mae) and securitized in GNMA HMBS pools. HECM loans transferred into the HMBS program have not met all of the requirements for sale accounting and, therefore, the Company has accounted for these transfers as a financing transaction with the loans remaining on the Company's statement of financial position and the proceeds received are recorded as a secured borrowing. The pledged loans and secured borrowings are reported in Assets of discontinued operations and Liabilities of discontinued operations, respectively. See Note 2 — Acquisition and Disposition Activities.

As servicer of HECM loans, the Company is required to repurchase loans out of the HMBS pool upon completion of foreclosure or once the outstanding principal balance is equal to or greater than 98% of the maximum claim amount. These HECM loans are repurchased at a price equal to the unpaid principal balance outstanding on the loan plus accrued interest. The repurchase transaction represents extinguishment of debt. As a result, the HECM loan basis and accounting methodology (retrospective effective interest) would carry forward. However, if the Company classifies these repurchased loans as AHFS, that classification would result in a new accounting methodology. Loans classified as AHFS are carried at LOCOM pending assignment to the Department of Housing and Urban Development ("HUD"). Loans classified as HFI are not assignable to HUD and are subject to periodic impairment assessment. Although permitted under the GNMA HMBS program, the Company does not conduct optional repurchases upon the loan reaching a maturity event (i.e. borrower's death or the property ceases to be the borrower's principal residence). Upon investor consent to servicing transfer in connection with the Financial Freedom Transaction, CIT shall no longer have this obligation. Refer to Note 2 - Discontinued Operations.

In the year ended December 31, 2017, the Company repurchased $118.0 million (unpaid principal balance) of additional HECM loans, all of which were classified as AHFS resulting from the transfer of all reverse mortgage loans to AHFS in connection with the Financial Freedom Transaction. As of December 31, 2017, the Company had an outstanding balance of $136.3 million of HECM loans, of which $177.6 million (unpaid principal balance) is classified as AHFS.

As of December 31, 2016, the Company had an outstanding balance of $122.2 million of HECM loans, of which $32.8 million (unpaid principal balance) were classified as AHFS, $68.1 million were classified as HFI accounted for as PCI loans with an associated remaining purchase discount of $9.1 million. Serviced loans also included $30.4 million that were classified as HFI, accounted for under the effective yield method and have no remaining purchase discount.