Investments in Securities

9 Months Ended

Sep. 30, 2012

Investments, Debt and Equity Securities [Abstract]

Investments in Securities

Investments in Securities

Trading Securities

Trading securities are recorded at fair value with subsequent changes in fair value recorded as “Fair value losses, net” in our condensed consolidated statements of operations and comprehensive income (loss). The following table displays our investments in trading securities as of September 30, 2012 and December 31, 2011.

		As of
	September 30,			December 31,
	2012			2011
		(Dollars in millions)
Mortgage-related securities:
Fannie Mae		$	6,245		$	7,424
Freddie Mac		2,840			2,732
Ginnie Mae		280			287
Alt-A private-label securities		1,276			1,349
Subprime private-label securities		1,265			1,280
CMBS		9,920			10,411
Mortgage revenue bonds		681			724
Other mortgage-related securities		118			143
Total		22,625			24,350
Non-mortgage-related securities:
U.S. Treasury securities		19,897			47,737
Asset-backed securities		—			2,111
Total		19,897			49,848
Total trading securities		$	42,522		$	74,198

The following table displays information about our net trading gains and losses for the three and nine months ended September 30, 2012 and 2011.

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2012			2011			2012				2011
		(Dollars in millions)
Net trading gains (losses):
Mortgage-related securities		$	403	$	(209	)		$	687		$	151
Non-mortgage-related securities		3		(5		)		(11		)	(5		)
Total		$	406	$	(214	)		$	676		$	146
Net trading gains (losses) recorded in the period related to securities still held at period end:
Mortgage-related securities		$	396	$	(206	)		$	724		$	145
Non-mortgage-related securities		3		—				1			2
Total		$	399	$	(206	)		$	725		$	147

Available-for-Sale Securities

We measure available-for-sale (“AFS”) securities at fair value with unrealized gains and losses recorded net of tax as a component of “Other comprehensive income, net of tax” and we record realized gains and losses from the sale of AFS securities in “Investment gains, net” in our condensed consolidated statements of operations and comprehensive income (loss).

The following table displays the gross realized gains, losses and proceeds on sales of AFS securities for the three and nine months ended September 30, 2012 and 2011.

	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
	(Dollars in millions)
Gross realized gains	$	5	$	15	$	32	$	148
Gross realized losses	3		22		13		75
Total proceeds (1)	44		597		444		1,826

__________

s

⁽¹⁾  Excludes proceeds from the initial sale of securities from new portfolio securitizations included in “Note 2, Consolidations and Transfers of Financial Assets.”

The following table displays the amortized cost, gross unrealized gains and losses and fair value by major security type for AFS securities we held as of September 30, 2012 and December 31, 2011.

		As of September 30, 2012
	Total Amortized Cost (1)			Gross Unrealized Gains			Gross Unrealized Losses - OTTI (2)				Gross Unrealized Losses - Other (3)				Total Fair Value
		(Dollars in millions)
Fannie Mae		$	10,576		$	1,005		$	(1	)		$	(10	)	$	11,570
Freddie Mac		9,365			825			—				—			10,190
Ginnie Mae		676			116			—				—			792
Alt-A private-label securities		11,768			380			(792		)		(128		)	11,228
Subprime private-label securities		8,402			140			(868		)		(302		)	7,372
CMBS(4)		12,609			732			—				(20		)	13,321
Mortgage revenue bonds		8,604			176			(52		)		(55		)	8,673
Other mortgage-related securities		3,425			98			(22		)		(295		)	3,206
Total		$	65,425		$	3,472		$	(1,735	)		$	(810	)	$	66,352

		As of December 31, 2011
	Total Amortized Cost (1)			Gross Unrealized Gains			Gross Unrealized Losses - OTTI (2)				Gross Unrealized Losses - Other (3)				Total Fair Value
		(Dollars in millions)
Fannie Mae		$	15,486		$	1,381		$	(3	)		$	(14	)	$	16,850
Freddie Mac		11,906			917			—				—			12,823
Ginnie Mae		775			127			—				—			902
Alt-A private-label securities		13,314			233			(1,618		)		(246		)	11,683
Subprime private-label securities		9,556			17			(1,534		)		(453		)	7,586
CMBS(4)		13,949			181			—				(104		)	14,026
Mortgage revenue bonds		10,172			202			(56		)		(64		)	10,254
Other mortgage-related securities		3,687			92			(39		)		(282		)	3,458
Total		$	78,845		$	3,150		$	(3,250	)		$	(1,163	)	$	77,582

__________

s

⁽¹⁾  Amortized cost consists of unpaid principal balance, unamortized premiums, discounts and other cost basis adjustments as well as the credit component of other-than-temporary impairments recognized in our condensed consolidated statements of operations and comprehensive income (loss).

⁽²⁾  Represents the noncredit component of other-than-temporary impairment losses recorded in “Accumulated other comprehensive income (loss)” as well as cumulative changes in fair value of securities for which we previously recognized the credit component of an other-than-temporary impairment.

⁽³⁾  Represents the gross unrealized losses on securities for which we have not recognized an other-than-temporary impairment.

⁽⁴⁾  Amortized cost includes $566 million and $686 million as of September 30, 2012 and December 31, 2011, respectively, of increase to the carrying amount from previous fair value hedge accounting.

The following table displays additional information regarding gross unrealized losses and fair value by major security type for AFS securities in an unrealized loss position that we held as of September 30, 2012 and December 31, 2011.

		As of September 30, 2012
	Less Than 12 Consecutive Months						12 Consecutive Months or Longer
	Gross Unrealized Losses				Fair Value		Gross Unrealized Losses				Fair Value
		(Dollars in millions)
Fannie Mae		$	(1	)	$	259		$	(10	)	$	334
Alt-A private-label securities		(15		)	748			(905		)	5,159
Subprime private-label securities		(17		)	340			(1,153		)	5,583
CMBS		—			—			(20		)	272
Mortgage revenue bonds		(29		)	411			(78		)	908
Other mortgage-related securities		(3		)	107			(314		)	1,555
Total		$	(65	)	$	1,865		$	(2,480	)	$	13,811
		As of December 31, 2011
	Less Than 12 Consecutive Months						12 Consecutive Months or Longer
	Gross Unrealized Losses				Fair Value		Gross Unrealized Losses				Fair Value
		(Dollars in millions)
Fannie Mae		$	(4	)	$	519		$	(13	)	$	208
Alt-A private-label securities		(133		)	1,414			(1,731		)	6,525
Subprime private-label securities		(73		)	471			(1,914		)	6,686
CMBS		(20		)	1,458			(84		)	2,790
Mortgage revenue bonds		(4		)	114			(116		)	1,971
Other mortgage-related securities		(21		)	547			(300		)	1,588
Total		$	(255	)	$	4,523		$	(4,158	)	$	19,768

Other-Than-Temporary Impairments

We recognize the credit component of other-than-temporary impairments of our debt securities in “Net other-than-temporary impairments” and the noncredit component in “Other comprehensive income (loss)” in our condensed consolidated statements of operations and comprehensive income (loss) for those securities that we do not intend to sell and for which it is not more likely than not that we will be required to sell before recovery.

The fair value of our securities varies from period to period due to changes in interest rates, in the performance of the underlying collateral and in the credit performance of the underlying issuer, among other factors. As of September 30, 2012, $2.5 billion of gross unrealized losses on AFS securities had existed for a period of 12 consecutive months or longer. Gross unrealized losses on AFS securities as of September 30, 2012 include unrealized losses on securities with other-than-temporary impairment in which a portion of the impairment remains in “Accumulated other comprehensive income (loss).” The securities with unrealized losses for 12 consecutive months or longer, on average, had a fair value as of September 30, 2012 that was 85% of their amortized cost basis. Based on our review for impairments of AFS securities, which includes an evaluation of the collectibility of cash flows and any intent or requirement to sell the securities, we have concluded that we do not have an intent to sell and we believe it is not more likely than not that we will be required to sell the securities. Additionally, our projections of cash flows indicate that we will recover these unrealized losses over the lives of the securities.

The following table displays our net other-than-temporary impairments by major security type recognized in our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
		(Dollars in millions)
Alt-A private-label securities		$	6		$	238		$	361	$	329
Subprime private-label securities		21			2			324		2
Other		11			22			16		31
Net other-than-temporary impairments		$	38		$	262		$	701	$	362

Net other-than-temporary impairments recorded in the three months ended September 30, 2012 decreased compared with the three months ended September 30, 2011, primarily due to an increase in the net present value of projected cash flows on our Alt-A and subprime private-label securities resulting from improved home prices, as well as a tightening of credit spreads. Net other-than-temporary impairments recorded in the nine months ended September 30, 2012 increased compared with the nine months ended September 30, 2011, driven primarily by an update to the assumptions used to project cash flow estimates on our Alt-A and subprime securities in the three months ended June 30, 2012.  For additional information, refer to “Note 1, Summary of Significant Accounting Policies.”

The following table displays activity related to the unrealized credit component on debt securities held by us and recognized in our condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011. A related unrealized noncredit component has been recognized in “Other comprehensive income (loss).”

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in millions)
Balance, beginning of period	$	9,366		$	7,876		$	8,915		$	8,215
Additions for the credit component on debt securities for which OTTI was not previously recognized	11			—			13			8
Additions for the credit component on debt securities for which OTTI was previously recognized	27			262			688			354
Reductions for securities no longer in portfolio at period end	(1		)	(5		)	(3		)	(5		)
Reductions for amortization resulting from changes in cash flows expected to be collected over the remaining life of the securities	(91		)	(253		)	(301		)	(692		)
Balance, end of period	$	9,312		$	7,880		$	9,312		$	7,880

As of September 30, 2012, those debt securities with other-than-temporary impairment for which we recognized the credit component of OTTI in our condensed consolidated statements of operations and comprehensive income (loss) consisted predominantly of Alt-A and subprime securities. We evaluate Alt-A (including option adjustable rate mortgage (“ARM”)) and subprime private-label securities for other-than-temporary impairment by discounting the projected cash flows from econometric models to estimate the portion of loss in value attributable to credit. Separate components of a third-party model project regional home prices, unemployment and interest rates. The model combines these factors with available current information regarding attributes of loans in pools backing the private-label mortgage-related securities to project prepayment speeds, conditional default rates, loss severities and delinquency rates. It incorporates detailed information on security-level subordination levels and cash flow priority of payments to project security level cash flows. We have recorded other-than-temporary impairments for the three and nine months ended September 30, 2012 based on this analysis. For securities we determined were not other-than-temporarily impaired, we concluded that either the bond had no projected credit loss or, if we projected a loss, that the present value of expected cash flows was greater than the security’s cost basis.

The following table displays the modeled attributes, including default rates and severities, which are used to determine whether our senior interests in certain non-agency mortgage-related securities will experience a cash shortfall as of September 30, 2012. Assumption of voluntary prepayment rates is also an input to the present value of expected losses.

	As of September 30, 2012
				Alt-A
	Subprime			Option ARM				Fixed Rate				Variable Rate				Hybrid Rate
	(Dollars in millions)
Vintage Year
2004 & Prior:
Unpaid principal balance	$	1,459			$	448			$	2,973			$	445			$	2,027
Weighted average collateral default(1)	40.5		%		38.4		%		13.1		%		28.7		%		17.1		%
Weighted average collateral severities(2)	69.8				60.6				54.3				53.4				47.4
Weighted average voluntary prepayment rates(3)	6.4				6.3				12.4				7.0				9.9
Average credit enhancement(4)	51.8				12.2				12.1				22.7				9.4
2005
Unpaid principal balance	$	145			$	1,203			$	1,056			$	484			$	2,124
Weighted average collateral default(1)	67.8		%		53.0		%		38.5		%		50.2		%		36.8		%
Weighted average collateral severities(2)	75.6				67.5				65.5				64.0				55.1
Weighted average voluntary prepayment rates(3)	2.4				4.9				7.3				5.5				6.4
Average credit enhancement(4)	64.9				20.7				0.9				12.4				4.1
2006
Unpaid principal balance	$	10,781			$	1,038			$	478			$	1,444			$	1,495
Weighted average collateral default(1)	70.6		%		67.3		%		39.5		%		55.8		%		34.1		%
Weighted average collateral severities(2)	77.7				68.6				67.4				64.0				56.8
Weighted average voluntary prepayment rates(3)	2.3				3.6				5.8				4.3				6.3
Average credit enhancement(4)	14.1				13.0				0.4				0.6				—
2007 & After:
Unpaid principal balance	$	575			$	—			$	—			$	—			$	105
Weighted average collateral default(1)	66.3		%		N/A				N/A				N/A				40.1		%
Weighted average collateral severities(2)	69.8				N/A				N/A				N/A				59.0
Weighted average voluntary prepayment rates(3)	2.0				N/A				N/A				N/A				6.9
Average credit enhancement(4)	28.8				N/A				N/A				N/A				23.2
Total
Unpaid principal balance	$	12,960			$	2,689			$	4,507			$	2,373			$	5,751
Weighted average collateral default(1)	67.0		%		56.1		%		21.8		%		49.6		%		29.2		%
Weighted average collateral severities(2)	76.4				66.8				58.3				62.0				52.9
Weighted average voluntary prepayment rates(3)	2.7				4.6				10.5				5.1				7.6
Average credit enhancement(4)	19.6				16.3				8.2				7.1				5.3

__________

⁽¹⁾  The expected remaining cumulative default rate of the collateral pool backing the securities, as a percentage of the current collateral unpaid principal balance, weighted by security unpaid principal balance.

⁽²⁾  The expected remaining loss given default of the collateral pool backing the securities, calculated as the ratio of remaining cumulative loss divided by cumulative defaults, weighted by security unpaid principal balance.

⁽³⁾  The average monthly voluntary prepayment rate, weighted by security unpaid principal balance.

⁽⁴⁾  The average percent current credit enhancement provided by subordination of other securities. Excludes excess interest projections and monoline bond insurance.

Maturity Information

The following table displays the amortized cost and fair value of our AFS securities by major security type and remaining maturity, assuming no principal prepayments, as of September 30, 2012. Contractual maturity of mortgage-backed securities is not a reliable indicator of their expected life because borrowers generally have the right to prepay their obligations at any time.

		As of September 30, 2012
	Total Amortized Cost			Total Fair Value		One Year or Less					After One Year Through Five Years					After Five Years Through Ten Years					After Ten Years
						Amortized Cost			Fair Value		Amortized Cost			Fair Value		Amortized Cost			Fair Value		Amortized Cost			Fair Value
	(Dollars in millions)
Fannie Mae		$	10,576	$	11,570		$	—	$	—		$	29	$	30		$	1,009	$	1,073		$	9,538	$	10,467
Freddie Mac		9,365		10,190			3		3			58		62			876		945			8,428		9,180
Ginnie Mae		676		792			—		—			2		2			4		4			670		786
Alt-A private-label securities		11,768		11,228			—		—			—		1			191		197			11,577		11,030
Subprime private-label securities		8,402		7,372			—		—			—		—			—		—			8,402		7,372
CMBS		12,609		13,321			44		46			11,601		12,288			711		751			253		236
Mortgage revenue bonds		8,604		8,673			58		60			368		378			684		695			7,494		7,540
Other mortgage-related securities		3,425		3,206			—		—			—		—			—		11			3,425		3,195
Total		$	65,425	$	66,352		$	105	$	109		$	12,058	$	12,761		$	3,475	$	3,676		$	49,787	$	49,806

Accumulated Other Comprehensive Income (Loss)

The following table displays our accumulated other comprehensive income (loss) by major categories as of September 30, 2012 and December 31, 2011.

		As of
	September 30,				December 31,
	2012				2011
		(Dollars in millions)
Net unrealized gains on available-for-sale securities for which we have not recorded other-than-temporary impairment, net of tax		$	1,426			$	1,152
Net unrealized losses on available-for-sale securities for which we have recorded other-than-temporary impairment, net of tax		(812		)		(1,953		)
Other losses		(413		)		(434		)
Accumulated other comprehensive income (loss)		$	201			$	(1,235	)

The following table displays the activity in other comprehensive income (loss), net of tax, by major categories for the three and nine months ended September 30, 2012 and 2011.

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
	(Dollars in millions)
Comprehensive income (loss):
Net income (loss)	$	1,813		$	(5,085	)	$	9,650		$	(14,448	)
Other comprehensive income (loss), net of tax effect:
Changes in net unrealized gains (losses) on available-for-sale securities (net of tax of $386 and $210, respectively, for the three months ended and net of tax of $536 and $142, respectively, for the nine months ended)	719			(391		)	974			(264		)
Reclassification adjustment for other-than-temporary impairments recognized in net income (loss) (net of tax of $13 and $92, respectively, for the three months ended and $245 and $120, respectively, for the nine months ended)	25			170			456			242
Reclassification adjustment for gains included in net income (loss) (net of tax of $2 and $10, respectively, for the three months ended and net of tax of $8 and $1, respectively, for the nine months ended)	(3		)	23			(14		)	2
Other	5			1			20			6
Other comprehensive income (loss)	746			(197		)	1,436			(14		)
Total comprehensive income (loss)	$	2,559		$	(5,282	)	$	11,086		$	(14,462	)