NOTE 7—DISCONTINUED OPERATIONS

On March 10, 2011, management made the decision and finalized a plan to close all of the field offices of the proprietary full-service real estate brokerage business known as RealEstate.com, REALTORS®. We exited all markets by March 31, 2011. In September 2011, we sold the remaining assets of RealEstate.com, which consisted primarily of internet domain names and trademarks. Accordingly, these real estate businesses are presented as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. No significant future cash flows are anticipated from the disposition of this business.

On May 12, 2011, we entered into an asset purchase agreement that provided for the sale of substantially all of the operating assets of our LendingTree Loans business to Discover. On February 7, 2012, we entered into an amendment to the asset purchase agreement. We completed the sale on June 6, 2012. Discover has participated as a network lender since closing of the transaction. We have evaluated the facts and circumstances of the transaction and the applicable accounting guidance for discontinued operations, and have concluded that the LendingTree Loans business should be reflected as discontinued operations in the accompanying consolidated balance sheets and consolidated statements of operations and cash flows for all periods presented. The continuing cash flows related to this transaction are not significant and, accordingly, are not deemed to be direct cash flows of the divested business.

We have agreed to indemnify Discover for a breach or inaccuracy of any representation, warranty or covenant made by us in the asset purchase agreement, for any liability of ours that was not assumed, for any claims by our stockholders against Discover and for our failure to comply with any applicable bulk sales law, subject to certain limitations. Discover has submitted a claim for indemnification relating to our sale prior to the closing of certain loans that were listed in the asset purchase agreement as to be conveyed to Discover at closing. We have evaluated this matter as a potential loss contingency, and have determined that it is probable that a loss could be incurred. We also evaluated a range of potential losses, and a reserve of $1.6 million has been established for this matter, which is reflected as a reduction in gain from sale of discontinued operations and in current liabilities of discontinued operations.

The revenue and net loss for the Real Estate businesses that are reported as discontinued operations for the years ended December 31, 2012 and 2011 were as follows (in thousands):

	Year Ended December 31,

	2012			2011
Revenue	$	93		$	3,857

Loss before income taxes	$	(410	)	$	(16,804	)
Income tax expense		—			—
Gain from sale of discontinued operations, net of tax		—			7,752

Net loss	$	(410	)	$	(9,052	)

Net loss for the year ended December 31, 2012 includes restructuring expense of $0.2 million.

Net loss for the year ended December 31, 2011 includes goodwill disposal charges totaling $8.0 million, trademark impairment charges of $4.1 million and restructuring expense totaling $2.6 million.

The revenue and net income (loss) for LendingTree Loans that are reported as discontinued operations for the years ended December 31, 2012 and 2011 were as follows (in thousands):

	Year Ended December 31,

	2012			2011
Revenue	$	86,740		$	117,509

Income (loss) before income taxes	$	26,160		$	(741	)
Income tax benefit (expense)		(1,249	)		—
Gain from sale of discontinued operations, net of tax		24,373			—

Net income (loss)	$	49,284		$	(741	)

Net income for year ended December 31, 2012 includes intangible asset impairment charges of $1.4 million and restructuring expense totaling $0.1 million. Net loss for the year ended December 31, 2011 includes restructuring expense totaling $4.0 million.

The assets and liabilities of Real Estate that are reported as discontinued operations as of December 31, 2012 and December 31, 2011 were as follows (in thousands):

	December 31, 2012			December 31, 2011

Current assets	$	—		$	33

Current liabilities		206			702
Non-current liabilities		—			54

Net assets (liabilities)	$	(206	)	$	(723	)

The assets and liabilities of LendingTree Loans that are reported as discontinued operations as of December 31, 2012 and December 31, 2011 were as follows (in thousands):

	December 31, 2012			December 31, 2011

Loans held for sale	$	—		$	217,467
Other current assets		407			14,925

Current assets		407			232,392

Property and equipment		—			4,181
Goodwill		—			5,579
Other non-current assets		129			1,187

Non-current assets		129			10,947

Warehouse lines of credit		—			197,659
Other current liabilities		30,811			51,669

Current liabilities		30,811			249,328

Non-current liabilities		253			978

Net assets (liabilities)	$	(30,528	)	$	(6,967	)

Significant Assets and Liabilities of LendingTree Loans

Upon closing of the sale of substantially all of the operating assets of our LendingTree Loans business on June 6, 2012, LendingTree Loans ceased to originate consumer loans. The remaining operations are being wound down. These wind-down activities have included, among other things, selling the balance of loans held for sale to investors, which is substantially complete, paying off and then terminating the warehouse lines of credit, which occurred on July 21, 2012, and settling derivative obligations. Liability for losses on previously sold loans will remain with LendingTree Loans. Below is a discussion of these significant items.

Loans Held for Sale

LendingTree Loans originated all of its residential real estate loans with the intent to sell them in the secondary market. Loans held for sale consisted primarily of residential first mortgage loans that were secured by residential real estate throughout the United States.

Loans held for sale were recorded at fair value, with the exception of any loans that had been repurchased from investors or loans originated prior to January 1, 2008 on which we did not elect the fair value option. The fair value of loans held for sale was determined using current secondary market prices for loans with similar coupons, maturities and credit quality.

Interest on mortgage loans held for sale was recognized as earned and was only accrued if deemed collectible. Interest was generally deemed uncollectible when a loan became three months or more delinquent or when a loan had a defect affecting its salability. Delinquency was calculated based on the contractual due date of the loan. Loans were written off when deemed uncollectible.

The following table represents the loans held for sale by type of loan as of December 31, 2011 ($ amounts in thousands):

	December 31, 2011

	Amount		%
Conforming	$	$171,375		79	%
FHA and Alt-A		40,433		18	%
Jumbo		5,659		3	%

Total	$	217,467		100	%

The following presents the difference between the aggregate principal balance of loans on nonaccrual status for which the fair value option has been elected and for loans measured at lower of cost or market valuation as of December 31, 2012 and December 31, 2011 (in thousands):

	As of December 31, 2012

	Loans on Nonaccrual— Measured at Fair Value			Loans on Nonaccrual— Measured at LOCOM		Total Loans on Nonaccrual
Aggregate unpaid principal balance	$	412		$	—	$	412
Difference between fair value and aggregate unpaid principal balance		(412	)		—		(412	)

Loans on nonaccrual	$	—		$	—	$	—

	As of December 31, 2011

	Loans on Nonaccrual— Measured at Fair Value			Loans on Nonaccrual— Measured at LOCOM		Total Loans on Nonaccrual
Aggregate unpaid principal balance	$	539		$	—	$	539
Difference between fair value and aggregate unpaid principal balance		(244	)		—		(244	)

Loans on nonaccrual	$	295		$	—	$	295

During the year ended December 31, 2012, LendingTree Loans repurchased two loans with a total unpaid principal balance of $0.7 million. During the year ended December 31, 2011, LendingTree Loans did not repurchase any loans, but sold fifteen loans on nonaccrual status for $1.2 million, which approximated the net book value.

Fair Value Measurements

A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.

Following is a description of valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy.

LendingTree Loans entered into commitments with consumers to originate loans at specified interest rates (interest rate lock commitments—"IRLCs"). We reported IRLCs as derivative instruments at fair value, with changes in fair value being recorded in discontinued operations. IRLCs for loans to be sold to investors using a mandatory or assignment of trade ("AOT") method were hedged using "to be announced mortgage-backed securities" ("TBA MBS") and were valued using quantitative risk models. The IRLCs derive their base value from an underlying loan type with similar characteristics using the TBA MBS market, which is actively quoted and easily validated through external sources. The most significant data inputs used in this valuation included, but were not limited to, loan type, underlying loan amount, note rate, loan program and expected sale date of the loan. IRLCs for loans sold to investors on a best-efforts basis were hedged using best-efforts forward delivery commitments and were valued on an individual loan basis using a proprietary database program prior to January 1, 2012. These valuations were based on investor pricing tables stratified by product, note rate and term. The valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. Effective January 1, 2012, LendingTree Loans began valuing IRLCs for loans sold to investors on a best-efforts basis using quantitative risk models on a loan level basis. The decision to modify the valuation calculation for IRLCs for loans sold on a best-efforts basis evolved from a desire to achieve principally two goals: 1) to include this portion of the IRLCs into the main operating system we used for fair value (known as QRM), allowing us to improve our estimate of loan funding probability and 2) to include elements of the all-in fair value that we could not previously calculate in the previous models. The most significant data inputs used in the valuation of these IRLCs included, but were not limited to, investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. These valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. LendingTree Loans applied an anticipated loan funding probability based on its own experience to value IRLCs, which resulted in the classification of these derivatives as Level 3. The value of the underlying loans and the anticipated loan funding probability were the most significant assumptions affecting the valuation of IRLCs. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. At December 31, 2012, there were no IRLCs outstanding. At December 31 2011, there were $363.8 million of IRLCs notional value outstanding.

Loans held for sale measured at fair value and sold to investors using a mandatory or AOT method were also hedged using TBA MBS and valued using quantitative risk models. The valuation was based on the loan amount, note rate, loan program and expected sale date of the loan. Loans held for sale measured at fair value and sold to investors on a best-efforts basis were hedged using best-efforts forward delivery commitments and were valued using a proprietary database program prior to January 1, 2012. The best-efforts valuations prior to that date were based on daily investor pricing tables stratified by product, note rate and term. These valuations were adjusted at the loan level to consider the servicing-release premium and loan pricing adjustments specific to each loan. Effective January 1, 2012, LendingTree Loans began valuing the loans held for sale and sold to investors on a best-efforts basis using quantitative risk models. The most significant data inputs used in the valuation of these loans included investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. Loans held for sale, excluding impaired loans, were classified as Level 2. Loans held for sale measured at fair value that become impaired were transferred from Level 2 to Level 3, as the estimate of fair value was based on LendingTree Loans' experience considering lien position and current status of the loan. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. LendingTree Loans recognized interest income separately from other changes in fair value.

Under LendingTree Loans' risk management policy, LendingTree Loans economically hedged the changes in fair value of IRLCs and loans held for sale caused by changes in interest rates by using TBA MBS and entering into best-efforts forward delivery commitments. These hedging instruments were recorded at fair value with changes in fair value recorded in current earnings as a component of revenue from the origination and sale of loans. TBA MBS used to hedge both IRLCs and loans were valued using quantitative risk models based primarily on inputs related to characteristics of the MBS stratified by product, coupon and settlement date. These derivatives were classified as Level 2. Prior to January 1, 2012, best-efforts forward delivery commitments were valued using a proprietary database program using investor pricing tables considering the current base loan price. Effective January 1, 2012, best-efforts forward delivery commitments were valued using quantitative risk models based on investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. An anticipated loan funding probability was applied to value best-efforts commitments hedging IRLCs, which resulted in the classification of these contracts as Level 3. The current base loan price and the anticipated loan funding probability were the most significant assumptions affecting the value of the best-efforts commitments. A significant change in the unobservable inputs could have resulted in a significant change in the ending fair value measurement. The best-efforts forward delivery commitments hedging loans held for sale were classified as Level 2, so such contracts were transferred from Level 3 to Level 2 at the time the underlying loan was originated. For the purposes of the tables below, we refer to TBA MBS and best-efforts forward delivery commitments collectively as "Forward Delivery Contracts".

Assets and liabilities measured at fair value on a recurring basis

The following presents our assets and liabilities that are measured at fair value on a recurring basis at December 31, 2011 (in thousands):

	As of December 31, 2011

	Recurring Fair Value Measurements Using
	Quoted Market Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total Fair Value Measurements
Loans held for sale	$	—	$	217,172		$	295	$	217,467
Interest rate lock commitments ("IRLCs")		—		—			9,122		9,122
Forward delivery contracts		—		(4,107	)		19		(4,088	)

Total	$	—	$	213,065		$	9,436	$	222,501

The following presents the changes in our assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2012 and 2011 (in thousands):

	December 31, 2012

	Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at January 1, 2012	$	9,122		$	19		$	295
Transfers into Level 3		—			—			564
Transfers out of Level 3		—			(845	)		—
Total net gains (losses) included in earnings (realized and unrealized)		73,378			846			(147	)
Purchases, sales, and settlements
Purchases		—			—			—
Sales		(5,640	)		(20	)		(491	)
Settlements		(3,401	)		—			(221	)
Transfers of IRLCs to closed loans		(73,459	)		—			—

Balance at December 31, 2012	$	—		$	—		$	—

	December 31, 2011

	Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at January 1, 2011	$	5,986		$	3		$	884
Transfers into Level 3		—			—			859
Transfers out of Level 3		—			(285	)		—
Total net gains (losses) included in earnings (realized and unrealized)		114,889			359			(87	)
Purchases, sales, and settlements
Purchases(a)		970			(58	)		—
Sales		—			—			(1,041	)
Settlements		(11,977	)		—			(320	)
Transfers of IRLCs to closed loans		(100,746	)		—			—

Balance at December 31, 2011	$	9,122		$	19		$	295

(a): Purchased in conjunction with the acquisition of certain assets of SurePoint.

The following presents the gains (losses) included in earnings for the years ended December 31, 2012 and 2011 relating to our assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):

	Year Ended December 31, 2012							Year Ended December 31, 2011

	Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale			Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale
Total net gains (losses) included in earnings, which are included in discontinued operations	$	73,378	$	846	$	(147	)	$	114,889	$	359	$	(87	)

Change in unrealized gains (losses) relating to assets and liabilities still held at December 31, 2012 and 2011, which are included in discontinued operations	$	—	$	—	$	(412	)	$	9,122	$	19	$	(38	)

The following table summarizes our derivative instruments not designated as hedging instruments as of December 31, 2011 (in thousands):

	December 31, 2011

	Balance Sheet Location	Fair Value
Interest Rate Lock Commitments	Current assets of discontinued operations	$	9,282
Forward Delivery Contracts	Current assets of discontinued operations		480
Interest Rate Lock Commitments	Current liabilities of discontinued operations		(160	)
Forward Delivery Contracts	Current liabilities of discontinued operations		(4,568	)

Total Derivatives		$	5,034

The gain (loss) recognized in the consolidated statements of operations for derivatives for the periods ended December 31, 2012 and 2011 was as follows (in thousands):

	Location of Gain (Loss) Recognized in Income on Derivative	Year Ended December 31, 2012		Year Ended December 31, 2011

Interest Rate Lock Commitments	Discontinued operations	$	73,378	$	114,889
Forward Delivery Contracts	Discontinued operations		4,244		(4,938	)

Total		$	77,622	$	109,951

Assets and liabilities under the fair value option

LendingTree Loans elected to account for loans held for sale originated on or after January 1, 2008 at fair value. Electing the fair value option allowed a better offset of the changes in fair values of the loans and the forward delivery contracts used to economically hedge them, without the burden of complying with the requirements for hedge accounting.

LendingTree Loans did not elect the fair value option on loans held for sale originated prior to January 1, 2008 and on loans that were repurchased from investors on or subsequent to that date. As of December 31, 2012 and 2011, there were no loans held for sale or carried at the lower of cost or market ("LOCOM") value assessed on an individual loan basis.

The following presents the difference between the aggregate principal balance of loans held for sale for which the fair value option has been elected and for loans measured at LOCOM, as of December 31, 2012 and 2011 (in thousands):

	As of December 31, 2012

	Loans Held for Sale— Measured at Fair Value			Loans Held for Sale— Measured at LOCOM		Total Loans Held For Sale
Aggregate unpaid principal balance	$	412		$	—	$	412
Difference between fair value and aggregate unpaid principal balance		(412	)		—		(412	)

Loans held for sale	$	—		$	—	$	—

	As of December 31, 2011

	Loans Held for Sale— Measured at Fair Value		Loans Held for Sale— Measured at LOCOM		Total Loans Held For Sale
Aggregate unpaid principal balance	$	208,918	$	—	$	208,918
Difference between fair value and aggregate unpaid principal balance		8,549		—		8,549

Loans held for sale	$	217,467	$	—	$	217,467

During the years ended December 31, 2012 and 2011, the change in fair value of loans held for sale for which the fair value option was elected was a gain of $2.7 million and $4.7 million, respectively, and is included in discontinued operations in the accompanying consolidated statements of operations.

Loan Loss Obligations

LendingTree Loans sold loans it originated to investors on a servicing-released basis, so the risk of loss or default by the borrower was generally transferred to the investor. However, LendingTree Loans was required by these investors to make certain representations and warranties relating to credit information, loan documentation and collateral. These representations and warranties may extend through the contractual life of the loan. Subsequent to the loan sale, if underwriting deficiencies, borrower fraud or documentation defects are discovered in individual loans, LendingTree Loans may be obligated to repurchase the respective loan or indemnify the investors for any losses from borrower defaults if such deficiency or defect cannot be cured within the specified period following discovery. In the case of early loan payoffs and early defaults on certain loans, LendingTree Loans may be required to repay all or a portion of the premium initially paid by the investor.

Our HLC subsidiary continues to be liable for these indemnification obligations, repurchase obligations and premium repayment obligations following the sale of substantially all of the operating assets of our LendingTree Loans business in the second quarter of 2012. Approximately $17.1 million of the purchase price paid at closing is being held in escrow pending resolution of certain of these contingent liabilities. We have been negotiating with certain secondary market purchasers to settle any existing and future contingent liabilities, but we may not be able to complete such negotiations on acceptable terms, or at all.

The obligation for losses related to the representations and warranties and other provisions discussed above is initially recorded at its estimated fair value, which includes a projection of expected future losses as well as a market-based premium. Because LendingTree Loans does not service the loans it sold, it does not maintain nor generally have access to the current balances and loan performance data with respect to the individual loans previously sold to investors. Accordingly, LendingTree Loans is unable to determine, with precision, its maximum exposure for breaches of the representations and warranties it makes to the investors that purchased such loans.

During the third quarter of 2012, in order to reflect our exit from the mortgage loan origination business in the second quarter of 2012 and our current commercial objective to pursue bulk settlements with investors, management revised the estimation process for evaluating the adequacy of the reserve for loan losses. The revised methodology, which is described below, was effective as of September 30, 2012, and resulted in a $6.5 million reduction to the loss reserve on previously sold loans.

Prior to the third quarter of 2012, in estimating our exposure to losses on loans previously sold, LendingTree Loans used a model that considered the original loan balance (before it was sold to an investor), historical and projected loss frequency and loss severity ratios by loan type, as well as analyses of losses in process. Subsequent adjustments to the obligation, if any, are made once further losses are determined to be both probable and estimable. Further, LendingTree Loans segmented its loan sales into four segments, based on the extent of the documentation provided by the borrower to substantiate their income and/or assets (full or limited documentation) and the lien position of the mortgage in the underlying property (first or second position). Each of these segments typically has a different loss experience, with full documentation, first lien position loans generally having the lowest loss ratios, and limited documentation, second lien position loans generally having the highest loss ratios.

The revised methodology uses the model described above, but also incorporates into the estimation process (a) recent bulk settlements entered into by certain of our investors with governmental agencies and other counterparties, as applied to the attributes of the loans sold by LendingTree Loans and currently held by investors and (b) our own recent investor bulk settlement experience. The historical model described above was weighted 50% in the revised analysis, and each of the other factors were weighted 25% to estimate the range of remaining loan losses, which was determined to be $18 million to $34 million at December 31, 2012. The reserve balance recorded as of December 31, 2012 was $27.2 million. Management has considered both objective and subjective factors in the estimation process, but given current general industry trends in mortgage loans as well as housing prices, market expectations and actual losses related to LendingTree Loans' obligations could vary significantly from the obligation recorded as of the balance sheet date or the range estimated above.

Additionally, Tree.com has guaranteed certain loans sold to two investors in the event that LendingTree Loans is unable to satisfy its repurchase and warranty obligations related to such loans. The original principal balance of the loans sold to one of these investors is approximately $1.8 billion and $1.5 billion as of December 31, 2012 and 2011, respectively. The unpaid principal balance of the loans sold to the second investor is approximately $279.6 million and $32.4 million as of December 31, 2012 and 2011, respectively.

The following table represents the loans sold for the period shown and the aggregate loan losses through December 31, 2012:

	As of December 31, 2012

Period of Loan Sales	Number of loans sold		Original principal balance		Number of loans with losses		Original principal balance of loans with losses		Amount of aggregate losses
			(in billions)				(in millions)		(in millions)
2012		9,200	$	1.9		—	$	—	$	—
2011		12,500		2.7		1		0.3		0.1
2010		12,400		2.8		4		1.1		0.1
2009		12,800		2.8		4		0.9		0.1
2008		11,000		2.2		33		6.9		2.2
2007		36,300		6.1		160		22.1		8.2
2006		55,000		7.9		207		24.5		13.4
2005 and prior years		86,700		13.0		89		12.3		5.0

Total		235,900	$	39.4		498	$	68.1	$	29.1

The pipeline increased from 289 requests at December 31, 2011 to 398 requests at December 31, 2012 for loan repurchases and indemnifications which were considered in determining the appropriate reserve amount. The status of these loans varied from an initial review stage, which may result in a rescission of the request, to in-process, where the probability of incurring a loss is high, to indemnification, whereby LendingTree Loans has agreed to reimburse the purchaser of that loan if and when losses are incurred. The indemnification obligation may have a specific term, thereby limiting the exposure to LendingTree Loans. The original principal amount of these loans is approximately $78.1 million, comprised of approximately 72% full documentation first liens, 2% full documentation second liens, 23% limited documentation first liens and 3% limited documentation second liens.

In the fourth quarter of 2009, LendingTree Loans entered into settlement negotiations with two buyers of previously purchased limited documentation loans. The settlement with one buyer was completed in December 2009 and included a payment of $1.9 million related to all second lien loans sold to this buyer, including both full and limited documentation. The settlement was included as a charge-off to the reserve in 2009. Negotiations with the second buyer were completed in January 2010. This settlement of $4.5 million, which was paid in four equal quarterly installments in 2010, related to all then existing and future losses on limited documentation second lien loans sold to this buyer. LendingTree Loans was also required to pay an additional amount of up to $0.3 million in conjunction with this settlement, since it did not sell a certain volume of loans to this buyer in 2010. The entire $4.8 million is included in the total settlement amount and was included as a charge-off to the reserve in 2010. The $0.3 million additional liability was recorded as a separate liability from the loss reserve at December 31, 2011, and was paid in January 2012. In the second quarter of 2012, LendingTree Loans completed settlements with a third and fourth buyer of previously purchased loans. These settlements of $0.5 million and $3.3 million, respectively, relate to all existing and substantially all future losses on loans sold to these buyers. The settlement amounts were included as charge-offs to the reserve in the second quarter of 2012. The settlement amounts for all four of these settlements were not determined on an individual loan basis and are, therefore, not included in the loss amounts disclosed above for the years such loans were sold.

In December 2011, LendingTree Loans agreed to a $1.2 million settlement related to specific loans, which was included as a charge-off to the reserve in 2011 and is included in the table above. This $1.2 million settlement was recorded as a liability separate from the loss reserve at December 31, 2011, and was paid in January 2012.

Based on historical experience, it is anticipated that LendingTree Loans will continue to receive repurchase requests and incur losses on loans sold in prior years. However, the four settlements discussed above will substantially eliminate future repurchase requests from those buyers for the loan types included in those settlements.

The activity related to loss reserves on previously sold loans for the years ended December 31, 2012 and 2011, is as follows (in thousands):

	December 31,

	2012			2011
Balance, beginning of period	$	31,512		$	16,984
Provisions		6,977			16,798
Change in estimate		(6,493	)		—
Charge-offs to reserves		(4,814	)		(2,270	)

Balance, end of period	$	27,182		$	31,512

The liability for losses on previously sold loans is included in current liabilities of discontinued operations in the accompanying consolidated balance sheet.

Tree.com continues to be liable for indemnification obligations, repurchase obligations and premium repayment obligations following the sale of substantially all of the operating assets of the LendingTree Loans business to Discover. A portion of the initial purchase price paid by Discover is being held in escrow pending resolution of certain of these contingent liabilities. The Company is negotiating with secondary market purchasers to settle any existing and future contingent liabilities, but may not be able to do so on terms acceptable to it, or at all.

Warehouse Lines of Credit

Borrowings on warehouse lines of credit were $197.7 million at December 31, 2011.

As a result of the closing of the sale of substantially all of the operating assets of our LendingTree Loans business on June 6, 2012, all three then-existing warehouse lines of credit expired and terminated on July 21, 2012. Borrowings under these lines of credit were used to fund, and were secured by, consumer residential loans that were held for sale. Loans under these lines of credit were repaid using proceeds from the sales of loans by LendingTree Loans. The LendingTree Loans business was highly dependent on the availability of these warehouse lines.

As of December 31, 2011, LendingTree Loans had three committed lines of credit totaling $275.0 million of borrowing capacity. The $50.0 million first line expired on January 30, 2012. LendingTree Loans also had a $25.0 million uncommitted line with this lender, which was terminated on October 31, 2011. In addition, LendingTree Loans obtained a fourth warehouse line for $100.0 million on January 9, 2012, which was uncommitted, bringing its total borrowing capacity to $325.0 million.

The first line included an additional uncommitted credit facility of $25.0 million, which was terminated on October 31, 2011. The interest rate under the first line was the 30-day London InterBank Offered Rate ("LIBOR") or 2.00% (whichever was greater) plus 2.25%. The interest rate under the $25.0 million uncommitted line was the 30-day LIBOR plus 1.50%.

The second line was previously for $100.0 million, but was increased to $125.0 million. The interest rate under this second line was the 30-day Adjusted LIBOR or 2.0% (whichever is greater) plus 1.5% to 1.75% for loans being sold to the lender and 30-day Adjusted LIBOR or 2.0% (whichever is greater) plus 1.5% for loans not being sold to the lender.

The third line was for $100.0 million. The interest rate under this line was 30-day LIBOR plus 3.25% (LIBOR may be adjusted upward for any increase in the reserve requirement of the lender as further described in the Master Repurchase Agreement).

The $100.0 million fourth line had an interest rate equal to the overnight interest rate incurred by the lender for borrowing funds plus 3.25% to 3.75% for most loans.