Note 3 Debt and Equity Securities

The amortized cost and estimated fair value of investments in debt securities, all of which are classified as available-for-sale, are as follows:


Amortized			Gross unrealized					Estimated			Other-than- temporary impairments
(in thousands)	cost			gains		losses			fair value			in AOCI
March 31, 2012
U.S. Treasury bonds	$	109,035		$	1,843	$	(816	)	$	110,062		$
Municipal bonds		357,372			18,013		(674	)		374,711
Foreign bonds		224,883			2,186		(654	)		226,415
Governmental agency bonds		173,059			1,100		(373	)		173,786
Governmental agency mortgage-backed securities		989,290			9,207		(1,143	)		997,354
Non-agency mortgage-backed securities (1)		37,553			1,189		(7,805	)		30,937			29,727
Corporate debt securities		262,721			10,661		(524	)		272,858

	$	2,153,913		$	44,199	$	(11,989	)	$	2,186,123		$	29,727

December 31, 2011
U.S. Treasury bonds	$	71,995		$	2,236	$			$	74,231		$
Municipal bonds		329,935			19,272		(84	)		349,123
Foreign bonds		212,200			3,026		(206	)		215,020
Governmental agency bonds		195,784			1,970		(1	)		197,753
Governmental agency mortgage-backed securities		1,066,656			10,816		(925	)		1,076,547
Non-agency mortgage-backed securities (1)		42,089			478		(11,933	)		30,634			32,089
Corporate debt securities		248,921			10,420		(738	)		258,603

	$	2,167,580		$	48,218	$	(13,887	)	$	2,201,911		$	32,089

(1)

At March 31, 2012, the $37.6 million amortized cost is net of $2.6 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the three months ended March 31, 2012. At December 31, 2011, the $42.1 million amortized cost is net of $9.1 million in other-than-temporary impairments determined to be credit related which have been recognized in earnings for the year ended December 31, 2011. At March 31, 2012, the $7.8 million gross unrealized losses include $7.1 million of unrealized losses for securities determined to be other-than-temporarily impaired and $0.7 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. At December 31, 2011, the $11.9 million gross unrealized losses include $11.4 million of unrealized losses for securities determined to be other-than-temporarily impaired and $0.5 million of unrealized losses for securities for which an other-than-temporary impairment has not been recognized. The $29.7 million and $32.1 million other-than-temporary impairments recorded in accumulated other comprehensive income (AOCI) through March 31, 2012 and December 31, 2011, respectively, represent the amount of other-than-temporary impairment losses recognized in AOCI which, starting January 1, 2009, were not included in earnings due to the fact that the losses were not considered to be credit related. Other-than-temporary impairments were recognized in AOCI for non-agency mortgage-backed securities only.

The cost and estimated fair value of investments in equity securities, all of which are classified as available-for-sale, are as follows:


(in thousands)	Cost		Gross unrealized					Estimated fair value
(in thousands)	Cost		gains		losses			Estimated fair value
March 31, 2012
Preferred stocks	$	7,098	$	597	$	(3	)	$	7,692
Common stocks (1)		225,127		6,817		(21,808	)		210,136

	$	232,225	$	7,414	$	(21,811	)	$	217,828

December 31, 2011
Preferred stocks	$	7,007	$	678	$	(17	)	$	7,668
Common stocks (1)		224,880		3,793		(52,341	)		176,332

	$	231,887	$	4,471	$	(52,358	)	$	184,000

(1)

CoreLogic common stock with a cost basis of $167.6 million at March 31, 2012 and December 31, 2011, and an estimated fair value of $145.8 million and $115.5 million at March 31, 2012 and December 31, 2011, respectively, is included in common stocks. In connection with the Separation, TFAC issued to the Company a number of shares of its common stock. Under the terms of the Separation and Distribution Agreement, if the Company chooses to dispose of 1% or more of CoreLogics outstanding common stock at a given date, the Company must first provide CoreLogic with the option to purchase the shares. The Company has agreed to dispose of the shares within five years after the Separation or to bear any adverse tax consequences arising as a result of holding the shares for a longer period.

The Company had the following net unrealized gains (losses) as of March 31, 2012 and December 31, 2011:


(in thousands)	As of March 31, 2012			As of December 31, 2011
Debt securities for which an other-than-temporary impairment has been recognized	$	(5,873	)	$	(10,937	)
Debt securitiesall other		38,083			45,268
Equity securities		(14,397	)		(47,887	)

	$	17,813		$	(13,556	)

Sales of debt and equity securities resulted in realized gains of $2.0 million and $0.7 million and realized losses of $0.1 million and $0.7 million for the three months ended March 31, 2012 and 2011, respectively.

The Company had the following gross unrealized losses as of March 31, 2012 and December 31, 2011:


	Less than 12 months					12 months or longer					Total
(in thousands)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
March 31, 2012
Debt securities:
U.S. Treasury bonds	$	44,552	$	(816	)	$		$			$	44,552	$	(816	)
Municipal bonds		34,495		(674	)							34,495		(674	)
Foreign bonds		78,545		(654	)							78,545		(654	)
Governmental agency bonds		49,028		(373	)							49,028		(373	)
Governmental agency mortgage-backed securities		330,281		(890	)		39,156		(253	)		369,437		(1,143	)
Non-agency mortgage-backed securities							23,059		(7,805	)		23,059		(7,805	)
Corporate debt securities		36,852		(507	)		1,353		(17	)		38,205		(524	)

Total debt securities		573,753		(3,914	)		63,568		(8,075	)		637,321		(11,989	)
Equity securities		813		(14	)		145,791		(21,797	)		146,604		(21,811	)

Total	$	574,566	$	(3,928	)	$	209,359	$	(29,872	)	$	783,925	$	(33,800	)

December 31, 2011
Debt securities:
U.S. Treasury bonds	$		$			$		$			$		$
Municipal bonds		7,186		(43	)		1,896		(41	)		9,082		(84	)
Foreign bonds		30,508		(206	)		690					31,198		(206	)
Governmental agency bonds		13,828		(1	)		4,150					17,978		(1	)
Governmental agency mortgage-backed securities		280,114		(793	)		43,835		(132	)		323,949		(925	)
Non-agency mortgage-backed securities							26,500		(11,933	)		26,500		(11,933	)
Corporate debt securities		40,682		(708	)		1,290		(30	)		41,972		(738	)

Total debt securities		372,318		(1,751	)		78,361		(12,136	)		450,679		(13,887	)
Equity securities		131,768		(52,358	)							131,768		(52,358	)

Total	$	504,086	$	(54,109	)	$	78,361	$	(12,136	)	$	582,447	$	(66,245	)

Substantially all securities in the Companys non-agency mortgage-backed portfolio are senior tranches and all were investment grade at the time of purchase, however all have been downgraded below investment grade since purchase. The table below summarizes the composition of the Companys non-agency mortgage-backed securities by collateral type, year of issuance and current credit ratings. Percentages are based on the amortized cost basis of the securities and credit ratings are based on Standard & Poors Ratings Services (S&P) and Moodys Investor Service, Inc. (Moodys) published ratings. If a security was rated differently by both rating agencies, the lower of the two ratings was selected. All amounts and ratings are as of March 31, 2012.


(in thousands, except percentages and number of securities)	Number of Securities		Amortized Cost		Estimated Fair Value		Non-Investment Grade/ Not Rated
Non-agency mortgage-backed securities:
Prime single family residential:
2007		1	$	5,371	$	4,031		100.0	%
2006		6		15,899		11,963		100.0	%
2005		1		3,797		3,054		100.0	%
Alt-A single family residential:
2007		2		12,486		11,889		100.0	%

		10	$	37,553	$	30,937		100.0	%

As of March 31, 2012, none of the non-agency mortgage-backed securities were on negative credit watch by S&P or Moodys.

The amortized cost and estimated fair value of debt securities at March 31, 2012, by contractual maturities, are as follows:

		000000		000000		000000		000000		000000
(in thousands)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost		45,702		19,278		43,921		134		109,035
Estimated fair value		45,973		20,682		43,219		188		110,062
Municipal bonds
Amortized cost		2,131		102,850		139,977		112,414		357,372
Estimated fair value		2,158		106,599		148,652		117,302		374,711
Foreign bonds
Amortized cost		33,455		160,494		30,934				224,883
Estimated fair value		33,785		161,865		30,765				226,415
Governmental agency bonds
Amortized cost		2,343		83,363		69,862		17,491		173,059
Estimated fair value		2,376		83,726		69,751		17,933		173,786
Corporate debt securities
Amortized cost		5,137		103,615		134,485		19,484		262,721
Estimated fair value		5,190		106,697		140,737		20,234		272,858

Total debt securities excluding mortgage-backed securities
Amortized cost		88,768		469,600		419,179		149,523		1,127,070
Estimated fair value		89,482		479,569		433,124		155,657		1,157,832

Total mortgage-backed securities
Amortized cost										1,026,843
Estimated fair value										1,028,291
Total debt securities
Amortized cost										2,153,913
Estimated fair value										2,186,123

Other-than-temporary impairment-debt securities

Although dislocations in the capital and credit markets have largely recovered, there continues to be volatility and disruption concerning certain vintages of non-agency mortgage-backed securities. The primary factors negatively impacting certain vintages of non-agency mortgage-backed securities include stringent borrowing guidelines that result in the inability of borrowers to refinance, high unemployment, continued declines in real estate values, uncertainty regarding the timing and effectiveness of governmental solutions and a general slowdown in economic activity. The Company determines if a non-agency mortgage-backed security in a loss position is other-than-temporarily impaired by comparing the present value of the cash flows expected to be collected from the security to its amortized cost basis. If the present value of the cash flows expected to be collected exceed the amortized cost of the security, the Company concludes that the security is not other-than-temporarily impaired. The Company performs this analysis on all non-agency mortgage-backed securities in its portfolio that are in an unrealized loss position. The methodology and key assumptions used in estimating the present value of cash flows expected to be collected are described below. For the securities that were determined not to be other-than-temporarily impaired at March 31, 2012, the present value of the cash flows expected to be collected exceeded the amortized cost of each security.

If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is other-than-temporarily impaired and it is written down to fair value with all losses recognized in earnings. As of March 31, 2012, the Company does not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell debt securities before recovery of their amortized cost basis.

If the Company does not expect to recover the amortized cost basis of a debt security with declines in fair value (even if the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security before the recovery of its remaining amortized cost basis), the losses the Company considers to be the credit portion of the other-than-temporary impairment loss (credit loss) is recognized in earnings and the non-credit portion is recognized in other comprehensive income. The credit loss is the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted at the rate implicit in the security immediately prior to the recognition of the other-than-temporary impairment.

Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security, including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project expected future cash flows may be different depending on the nature of the individual debt security. Specifically, the cash flows expected to be collected for each non-agency mortgage-backed security are estimated by analyzing loan-level detail to estimate future cash flows from the underlying assets, which are then applied to the security based on the underlying contractual provisions of the securitization trust that issued the security (e.g. subordination levels, remaining payment terms, etc.). The Company uses third-party software to determine how the underlying collateral cash flows will be distributed to each security issued from the securitization trust. The primary assumptions used in estimating future collateral cash flows are prepayment speeds, default rates and loss severity. In developing these assumptions, the Company considers the financial condition of the borrower, loan to value ratio, loan type and geographical location of the underlying property. The Company utilizes publicly available information related to specific assets, generally available market data such as forward interest rate curves and CoreLogics securities, loans and property data and market analytics tools.

The table below summarizes the primary assumptions used at March 31, 2012 in estimating the cash flows expected to be collected for these securities.


	Weighted average			Range
Prepayment speeds		7.3	%	4.0% 9.4%
Default rates		7.4	%	2.5% 13.1%
Loss severity		29.7	%	7.7% 46.2%

As a result of the Companys security-level review, it recognized other-than-temporary impairments considered to be credit related on its non-agency mortgage-backed securities of $2.6 million in earnings for the three months ended March 31, 2012. It is possible that the Company could recognize additional other-than-temporary impairment losses on some securities it owns at March 31, 2012 if future events or information cause it to determine that a decline in value is other-than-temporary.

The following table presents the change in the credit portion of the other-than-temporary impairments recognized in earnings on debt securities for which a portion of the other-than-temporary impairments related to other factors was recognized in other comprehensive income (loss) for the three months ended March 31, 2012 and 2011.


	For the Three Months Ended March 31,
(in thousands)	2012		2011
Credit loss on debt securities held at beginning of period	$	34,176	$	25,108
Addition to credit loss for which an other-than-temporary impairment was previously recognized		2,602		297
Addition to credit loss for which an other-than-temporary impairment was not previously recognized

Credit loss on debt securities held as of March 31	$	36,778	$	25,405

Other-than-temporary impairment-equity securities

When, in the Companys opinion, a decline in the fair value of an equity security, including common and preferred stock, is considered to be other-than-temporary, such equity security is written down to its fair value. When assessing if a decline in value is other-than-temporary, the factors considered include the length of time and extent to which fair value has been below cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security, the seniority of the securities, issuer-specific news and other developments, the financial condition and prospects of the issuer (including credit ratings), macro-economic changes (including the outlook for industry sectors, which includes government policy initiatives) and the Companys ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

When an equity security has been in an unrealized loss position for greater than twelve months, the Companys review of the security includes the above noted factors as well as the evidence, if any, that exists to support that the security will recover its value in the foreseeable future, typically within the next twelve months. If objective, substantial evidence does not indicate a likely recovery during that timeframe, the Companys policy is that such losses are considered other-than-temporary and therefore an impairment loss is recorded. The Company did not record any other-than-temporary impairments related to its equity securities for the three months ended March 31, 2012 or 2011.

At March 31, 2012, the Company owned 8.9 million shares of CoreLogic common stock with a cost basis of $167.6 million and an estimated fair value of $145.8 million. The Company assessed its investment in CoreLogic for other-than-temporary impairment due to the fact that its investment has been in an unrealized loss position for greater than twelve months. Based on the factors considered, the Companys opinion is that the decline in the fair value of CoreLogics common stock is not other-than-temporary; therefore, the unrealized loss of $21.8 million was recorded in accumulated other comprehensive loss on the Companys condensed consolidated balance sheet. The factors considered by the Company include, but are not limited to, (i) the Company has the ability and intent to hold the common stock for a period of time sufficient to allow for recovery, (ii) CoreLogics financial results for the quarter ended December 31, 2011 were positive, (iii) the Company believes CoreLogics board of directors and management are focused on enhancing shareholder value, (iv) the Company believes improving economic and marketplace conditions will positively impact CoreLogics financial results, (v) the positive performance of CoreLogics common stock during the first quarter of 2012, and (vi) the favorable nature of a recent research report for CoreLogic from an independent securities analyst reflecting a twelve month price target that exceeds the Companys carrying value. It is possible that the Company could recognize an other-than-temporary impairment related to its CoreLogic common stock if future events or information cause it to determine that the decline in value is other-than-temporary. The Company will continue to closely monitor and regularly review its investment in CoreLogic common stock.

Fair value measurement

The Company classifies the fair value of its debt and equity securities using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and the reporting entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy level assigned to each security in the Companys available-for-sale portfolio is based on managements assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1 Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of equity securities are classified as Level 1.

Level 2 Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The Level 2 category includes U.S. Treasury bonds, municipal bonds, foreign bonds, governmental agency bonds, governmental agency mortgage-backed securities and corporate debt securities, many of which are actively traded and have market prices that are readily verifiable.

Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Level 3 category includes non-agency mortgage-backed securities which are currently not actively traded.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial securitys hierarchy level is based upon the lowest level of input that is significant to the fair value measurement. The valuation techniques and inputs used to estimate the fair value of the Companys debt and equity securities are summarized as follows:

Debt Securities

The fair value of debt securities was based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing service monitors market indicators, industry and economic events, and for broker-quoted only securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants. The pricing service utilizes the market approach in determining the fair value of the debt securities held by the Company. Additionally, the Company obtains an understanding of the valuation models and assumptions utilized by the service and has controls in place to determine that the values provided represent fair value. The Companys validation procedures include comparing prices received from the pricing service to quotes received from other third party sources for securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing service.

Typical inputs and assumptions to pricing models used to value the Companys U.S. Treasury bonds, governmental agency bonds, governmental agency mortgage-backed securities, municipal bonds, foreign bonds and corporate debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds. The fair value of non-agency mortgage-backed securities was obtained from the independent pricing service referenced above and subject to the Companys validation procedures discussed above. However, due to the fact that these securities were not actively traded, there was less observable inputs available requiring the pricing service to use more judgment in determining the fair value of the securities, therefore the Company classified non-agency mortgage-backed securities as Level 3.

The significant unobservable inputs used in the fair value measurement of the Companys non-agency mortgage-backed securities are prepayment rates, default rates, and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for default rates is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

Equity Securities

The fair value of equity securities, including preferred and common stocks, were based on quoted market prices for identical assets that are readily and regularly available in an active market.

The following table presents the Companys available-for-sale investments measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, classified using the three-level hierarchy for fair value measurements:


(in thousands)	Estimated fair value as of March 31, 2012		Level 1		Level 2		Level 3
Debt securities:
U.S. Treasury bonds	$	110,062	$		$	110,062	$
Municipal bonds		374,711				374,711
Foreign bonds		226,415				226,415
Governmental agency bonds		173,786				173,786
Governmental agency mortgage-backed securities		997,354				997,354
Non-agency mortgage-backed securities		30,937						30,937
Corporate debt securities		272,858				272,858

		2,186,123				2,155,186		30,937

Equity securities:
Preferred stocks		7,692		7,692
Common stocks		210,136		210,136

		217,828		217,828

	$	2,403,951	$	217,828	$	2,155,186	$	30,937


(in thousands)	Estimated fair value as of December 31, 2011		Level 1		Level 2		Level 3
Debt securities:
U.S. Treasury bonds	$	74,231	$		$	74,231	$
Municipal bonds		349,123				349,123
Foreign bonds		215,020				215,020
Governmental agency bonds		197,753				197,753
Governmental agency mortgage-backed securities		1,076,547				1,076,547
Non-agency mortgage-backed securities		30,634						30,634
Corporate debt securities		258,603				258,603

		2,201,911				2,171,277		30,634

Equity securities:
Preferred stocks		7,668		7,668
Common stocks		176,332		176,332

		184,000		184,000

	$	2,385,911	$	184,000	$	2,171,277	$	30,634

The Company did not have any transfers in and out of Level 1 and Level 2 measurements during the three months ended March 31, 2012 and 2011. The Companys policy is to recognize transfers between levels in the fair value hierarchy at the end of the reporting period.

The following table presents a summary of the changes in fair value of Level 3 available-for-sale investments for the three months ended March 31, 2012 and 2011:


	For the Three Months Ended March 31,
(in thousands)	2012			2011
Fair value at beginning of period	$	30,634		$	47,534
Total gains/(losses) (realized and unrealized):
Included in earnings:
Realized losses
Net other-than-temporary impairment losses recognized in earnings		(2,602	)		(297	)
Included in other comprehensive loss		4,839			2,585
Settlements		(1,934	)		(3,452	)
Sales
Transfers into Level 3
Transfers out of Level 3

Fair value as of March 31	$	30,937		$	46,370

Unrealized gains (losses) included in earnings for the period relating to Level 3 available-for-sale investments that were still held at the end of the period:
Net other-than-temporary impairment losses recognized in earnings	$	(2,602	)	$	(297	)

The Company did not purchase any non-agency mortgage-backed securities during the three months ended March 31, 2012 and 2011.