DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2012

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

NOTE 6—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 is now a participating lender on our lending network. 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 applicable periods were as follows (in thousands):

	Three Months Ended September 30,
	2012			2011
Revenue	$	2		$	515
Loss before income taxes	$	(282	)	$	(637	)
Income tax provision	—			—
Gain from sale of discontinued operations	—			7,752
Net income (loss)	$	(282	)	$	7,115

	Nine Months Ended September 30,
	2012			2011
Revenue	$	77		$	3,633
Loss before income taxes	$	(442	)	$	(16,936	)
Income tax provision	—			—
Gain from sale of discontinued operations	—			7,752
Net loss	$	(442	)	$	(9,184	)

Net loss for the nine months ended September 30, 2011 includes goodwill disposal charges of $8.0 million, intangible asset impairment charges of $4.1 million and restructuring charges of $2.5 million.

The revenue and net income (loss) for LendingTree Loans that are reported as discontinued operations for the applicable periods were as follows (in thousands):

	Three Months Ended September 30,
	2012			2011
Revenue	$	5,943		$	37,094
Income before income taxes	$	4,470		$	9,606
Income tax provision	(76		)	—
Net income	$	4,394		$	9,606

	Nine Months Ended September 30,
	2012			2011
Revenue	$	87,338		$	81,726
Income (loss) before income taxes	$	27,660		$	(6,893	)
Income tax provision	(2,473		)	—
Gain from sale of discontinued operations, net of tax of $1,267 and $-0-	24,313			—
Net income (loss)	$	49,500		$	(6,893	)

Net income for the nine months ended September 30, 2012 includes intangible asset impairment charges of $1.4 million. Net loss for the nine months ended September 30, 2011 includes restructuring charges of $4.0 million.

The assets and liabilities of Real Estate that are reported as discontinued operations as of September 30, 2012 and December 31, 2011 were as follows (in thousands):

	September 30, 2012			December 31, 2011
Current assets	$	—		$	33
Current liabilities	390			702
Non-current liabilities	—			54
Net liabilities	$	(390	)	$	(723	)

The assets and liabilities of LendingTree Loans that are reported as discontinued operations as of September 30, 2012 and December 31, 2011 were as follows (in thousands):

	September 30, 2012			December 31, 2011
Loans held for sale	$	—		$	217,467
Other current assets	479			14,925
Current assets	479			232,392
Property and equipment	—			4,181
Goodwill	—			5,579
Other non-current assets	236			1,187
Non-current assets	236			10,947
Warehouse lines of credit	—			197,659
Other current liabilities	31,394			56,383
Current liabilities	31,394			254,042
Non-current liabilities	331			978
Net liabilities	$	(31,010	)	$	(11,681	)

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 and no longer has additional borrowings available under warehouse lines of credit. 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, and paying off and then terminating the warehouse lines of credit, which occurred on July 21, 2012. Additionally, 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.

The following table represents the loans held for sale by type of loan as of September 30, 2012 and December 31, 2011 ($ amounts in thousands):

	September 30, 2012				December 31, 2011
	Amount		%		Amount		%
Conforming	$	—	—	%	$	171,375	79	%
FHA	—		—	%	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 September 30, 2012 and December 31, 2011 (in thousands):

	As of September 30, 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

There is one repurchased loan included within the loans on nonaccrual status at September 30, 2012 and no repurchased loans included within the loans on nonaccrual status at December 31, 2011. During the nine months ended September 30, 2012, LendingTree Loans repurchased two loans with a total unpaid principal balance of $0.7 million. During the nine months ended September 30, 2011, LendingTree Loans did not repurchase any loans.

Fair Value Measurements

We categorize our assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the assumptions used in pricing the asset or liability into the following three levels:

·Level 1: Observable inputs such as quoted prices for identical assets and liabilities in active markets obtained from independent sources.

·Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are derived principally from or corroborated by observable market data.

·Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions, based on the best information available in the circumstances, about the assumptions market participants would use in pricing the asset or liability.

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.

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 September 30, 2012 and December 31, 2011 (in thousands):

	As of September 30, 2012
	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	$	—	$	—	$	—	$	—
Forward delivery contracts	—		—		—		—
Total	$	—	$	—	$	—	$	—

	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 three and nine months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended September 30, 2012
	Interest Rate Lock Commitments		Forward Delivery Contracts		Loans Held for Sale
Balance at July 1, 2012	$	—	$	—	$	167
Transfers into Level 3	—		—		124
Transfers out of Level 3	—		—		—
Total net gains (losses) included in earnings (realized and unrealized)	—		—		(380		)
Purchases, sales, and settlements
Purchases	—		—		—
Sales	—		—		90
Settlements	—		—		(1		)
Transfers of IRLCs to closed loans	—		—		—
Balance at September 30, 2012	$	—	$	—	$	—

	Nine Months Ended September 30, 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 September 30, 2012	$	—		$	—		$	—

	Three Months Ended September 30, 2011
	Interest Rate Lock Commitments			Forward Delivery Contracts			Loans Held for Sale
Balance at July 1, 2011	$	6,278		$	220		$	861
Transfers into Level 3	—			—			72
Transfers out of Level 3	—			(257		)	—
Total net gains (losses) included in earnings (realized and unrealized)	40,680			69			(83		)
Purchases, sales, and settlements
Purchases	—			—			—
Sales	—			—			(538		)
Settlements	(2,255		)	—			(4		)
Transfers of IRLCs to closed loans	(31,956		)	—			—
Balance at September 30, 2011	$	12,747		$	32		$	308

	Nine Months Ended September 30, 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	—			—			732
Transfers out of Level 3	—			(215		)	—
Total net gains (losses) included in earnings (realized and unrealized)	81,847			302			(86		)
Purchases, sales, and settlements
Purchases(a)	970			(58		)	—
Sales	—			—			(1,041		)
Settlements	(8,252		)	—			(181		)
Transfers of IRLCs to closed loans	(67,804		)	—			—
Balance at September 30, 2011	$	12,747		$	32		$	308

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

The following presents the gains (losses) included in earnings for the three and nine months ended September 30, 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):

	Three Months EndedSeptember 30, 2012							Nine Months EndedSeptember 30, 2012
	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	$	—	$	—	$	(380	)	$	73,378	$	846	$	(147	)
Change in unrealized losses relating to assets and liabilities still held at September 30, 2012, which are included in discontinued operations	$	—	$	—	$	(412	)	$	—	$	—	$	(412	)

	Three Months EndedSeptember 30, 2011							Nine Months EndedSeptember 30, 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	$	40,680	$	69	$	(83	)	$	81,847	$	302	$	(86	)
Change in unrealized gains (losses) relating to assets and liabilities still held at September 30, 2011, which are included in discontinued operations	$	12,747	$	32	$	—		$	12,747	$	32	$	(44	)

The following table summarizes our derivative instruments not designated as hedging instruments as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012			December 31, 2011
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest Rate Lock Commitments	Current assets of discontinued operations	$	—	Current assets of discontinued operations	$	9,282
Forward Delivery Contracts	Current assets of discontinued operations	—		Current assets of discontinued operations	480
Interest Rate Lock Commitments	Current liabilities of discontinued operations	—		Current liabilities of discontinued operations	(160		)
Forward Delivery Contracts	Current liabilities of discontinued operations	—		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 three and nine months ended September 30, 2012 and 2011 was as follows (in thousands):

	Location of Gain/(Loss)	Three Months Ended					Nine Months Ended
	Recognized in Income on Derivative	September 30, 2012		September 30, 2011			September 30, 2012		September 30, 2011
Interest Rate Lock Commitments	Discontinued operations	$	—	$	40,680		$	73,378	$	81,847
Forward Delivery Contracts	Discontinued operations	2,193		(3,262		)	4,244		(3,818		)
Total		$	2,193	$	37,418		$	77,622	$	78,029

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 September 30, 2012 and December 31, 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 September 30, 2012 and December 31, 2011 (in thousands):

	As of September 30, 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 nine months ended September 30, 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 $3.7 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 purchase 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 during the three months ended September 30, 2012.

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 not made based on changes in the fair value of the obligation, which might include an estimated change in losses that may be expected in the future, but 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 the 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 $33 million at September 30, 2012. The reserve balance recorded as of September 30, 2012 was $26.6 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 September 30, 2012 and December 31, 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 September 30, 2012 and December 31, 2011, respectively.

The following table represents the loans sold for the period shown and the aggregate loan losses through September 30, 2012:

	As of September 30, 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)
Nine months ended September 30, 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 of 365 requests for loan repurchases and indemnifications was 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 $70.9 million, comprised of approximately 70% full documentation first liens, 2% full documentation second liens, 24% limited documentation first liens and 4% 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 a settlement with a third buyer of previously purchased loans. This settlement of $3.3 million relates to all existing and substantially all future losses on loans sold to this buyer. The settlement amount was included as a charge-off to the reserve in the second quarter of 2012. The settlement amounts for all three 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 three 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 three and nine months ended September 30, 2012 and 2011, is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Balance, beginning of period	$	33,096		$	24,317		$	31,512		$	16,984
Provisions (recoveries)	(6,493		)	3,488			(109		)	11,050
Charge-offs to reserves	(14		)	(785		)	(4,814		)	(1,014		)
Balance, end of period	$	26,589		$	27,020		$	26,589		$	27,020

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

Warehouse Lines of Credit

Borrowings on warehouse lines of credit were $-0- and $197.7 million at September 30, 2012 and December 31, 2011, respectively.

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.