Fair Value

12 Months Ended

Dec. 31, 2011

Fair Value Disclosures [Abstract]

Fair Value

27.    Fair Value

Fair Value Measurements

For purposes of this disclosure, fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. Fair value is based on the assumptions market participants would use when pricing an asset or liability. Additionally, entities are required to consider all aspects of nonperformance risk, including the entity's own credit standing, when measuring the fair value of a liability.

GAAP specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e., observable inputs) and the lowest priority to data lacking transparency (i.e., unobservable inputs). An instrument's categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1 Inputs are quoted prices in active markets for identical assets or liabilities at the measurement date. Additionally, the entity must have the ability to access the active market, and the quoted prices cannot be adjusted by the entity.

Level 2 Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices in active markets for similar assets or liabilities; quoted prices in inactive markets for identical or similar assets or liabilities; or inputs that are observable or can be corroborated by observable market data by correlation or other means for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs are supported by little or no market activity. The unobservable inputs represent management's best assumptions of how market participants would price the assets or liabilities. Generally, Level 3 assets and liabilities are valued using pricing models, discounted cash flow methodologies, or similar techniques that require significant judgment or estimation.

Transfers Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfer occurred. There was a transfer from Level 3 to Level 2 during 2011 of certain interest rate derivative contracts. Refer to the Level 3 recurring fair value measurements table in this note for additional information. There were no other significant transfers between any levels during the year ended December 31, 2011 or 2010.

Following are descriptions of the valuation methodologies used to measure material assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized.

Trading assets (excluding derivatives) — Trading assets are recorded at fair value. Our portfolio includes MBS (including senior and subordinated interests) and may be investment-grade, noninvestment grade, or unrated securities. Valuations are primarily based on internally developed discounted cash flow models (an income approach) that use assumptions consistent with current market conditions. The valuation considers recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (e.g., prepayment speeds, delinquency levels, and credit losses).

Available-for-sale securities — Available-for-sale securities are carried at fair value based on observable market prices, when available. If observable market prices are not available, our valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate and consider recent market transactions, experience with similar securities, current business conditions, and analysis of the underlying collateral, as available. To estimate cash flows, we are required to utilize various significant assumptions including market observable inputs (e.g., forward interest rates) and internally developed inputs (including prepayment speeds, delinquency levels, and credit losses).

Mortgageloans held-for-sale, net — Our mortgage loans held-for-sale are accounted for at either fair value because of fair value option elections or they are accounted for at the lower-of-cost or fair value. Mortgage loans held-for-sale are typically pooled together and sold into certain exit markets depending on underlying attributes of the loan, such as GSE eligibility (domestic only), product type, interest rate, and credit quality. Two valuation methodologies are used to determine the fair value of mortgage loans held-for-sale. The methodology used depends on the exit market as described below.

Level 2 mortgage loans — This includes all GSE-eligible mortgage loans carried at fair value due to fair value option election, which are valued predominantly using published forward agency prices. It also includes any domestic loans and foreign loans where recently negotiated market prices for the loan pool exist with a counterparty (which approximates fair value) or quoted market prices for similar loans are available.

Level 3 mortgage loans — This includes all conditional repurchase option loans carried at fair value due to the fair value option election and all GSE-ineligible residential mortgage loans that are accounted for at the lower-of-cost or fair value.The fair value of these residential mortgage loans are determined using internally developed valuation models because observable market prices were not available. The loans are priced on a discounted cash flow basis utilizing cash flow projections from internally developed models that utilize prepayment, default, and discount rate assumptions. To the extent available, we will utilize market observable inputs such as interest rates and market spreads. If market observable inputs are not available, we are required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates.

Refer to the section within this note titled Fair Value Option for Financial Assets and Financial Liabilities for further information about the fair value elections.

Consumer mortgage finance receivables and loans, net — We elected the fair value option for certain consumer mortgage finance receivables and loans. The elected mortgage loans collateralized on-balance sheet securitization debt in which we estimated credit reserves pertaining to securitized assets that could have exceeded or already had exceeded our economic exposure. We also elected the fair value option for all mortgage securitization trusts required to be consolidated due to the adoption of ASU 2009-17. The elected mortgage loans represent a portion of the consumer finance receivable and loans consolidated upon adoption of ASU 2009-17. The balance for which the fair value option was not elected was reported on the balance sheet at the principal amount outstanding, net of charge-offs, allowance for loan losses, and premiums or discounts.

The loans are measured at fair value using a portfolio approach. The objective in fair valuing the loans and related securitization debt is to account properly for our retained economic interest in the securitizations. As a result of reduced liquidity in capital markets, values of both these loans and the securitized bonds are expected to be volatile. Since this approach involves the use of significant unobservable inputs, we classified all the mortgage loans elected under the fair value option as Level 3. Refer to the section within this note titled Fair Value Option of Financial Assets and Financial Liabilities for additional information.

MSRs — We typically retain MSRs when we sell assets into the secondary market. MSRs are classified as Level 3 because they currently do not trade in an active market with observable prices; therefore, we use internally developed discounted cash flow models (an income approach) to estimate the fair value. These internal valuation models estimate net cash flows based on internal operating assumptions that we believe would be used by market participants combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we believe approximate yields required by investors in this asset. Cash flows primarily include servicing fees, float income, and late fees in each case less operating costs to service the loans. The estimated cash flows are discounted using an option-adjusted spread-derived discount rate.

Derivative instruments — We enter into a variety of derivative financial instruments as part of our risk management strategies. Certain of these derivatives are exchange traded, such as Eurodollar futures. To determine the fair value of these instruments, we utilize the quoted market prices for the particular derivative contracts; therefore, we classified these contracts as Level 1.

We also execute over-the-counter derivative contracts, such as interest rate swaps, swaptions, forwards, caps, floors, and agency to-be-announced securities. We utilize third-party-developed valuation models that are widely accepted in the market to value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs (such as interest rate forward curves and interpolated volatility assumptions) are used in the model. We classified these over-the-counter derivative contracts as Level 2 because all significant inputs into these models were market observable.

We also hold certain derivative contracts that are structured specifically to meet a particular hedging objective. These derivative contracts often are utilized to hedge risks inherent within certain on-balance sheet securitizations. To hedge risks on particular bond classes or securitization collateral, the derivative's notional amount is often indexed to the hedged item. As a result, we typically are required to use internally developed prepayment assumptions as an input into the model to forecast future notional amounts on these structured derivative contracts. Additionally, we hold some foreign currency derivative contracts that utilize an in-house valuation model to determine the fair value of the contracts. Accordingly, we classified these derivative contracts as Level 3.

We are required to consider all aspects of nonperformance risk, including our own credit standing, when measuring fair value of a liability. We reduce credit risk on the majority of our derivatives by entering into legally enforceable agreements that enable the posting and receiving of collateral associated with the fair value of our derivative positions on an ongoing basis. In the event that we do not enter into legally enforceable agreements that enable the posting and receiving of collateral, we will consider our credit risk and the credit risk of our counterparties in the valuation of derivative instruments through a credit valuation adjustment (CVA), if warranted. The CVA calculation utilizes our credit default swap spreads and the spreads of the counterparty.

On-balance sheet securitization debt — We elected the fair value option for certain mortgage loans held-for-investment and the related on-balance sheet securitization debt. We value securitization debt that was elected pursuant to the fair value option and any economically retained positions using market observable prices whenever possible. The securitization debt is principally in the form of asset- and MBS collateralized by the underlying mortgage loans held-for-investment. Due to the attributes of the underlying collateral and current market conditions, observable prices for these instruments are typically not available. In these situations, we consider observed transactions as Level 2 inputs in our discounted cash flow models. Additionally, the discounted cash flow models utilize other market observable inputs, such as interest rates, and internally derived inputs including prepayment speeds, credit losses, and discount rates. Fair value option-elected financing securitization debt is classified as Level 3 as a result of the reliance on significant assumptions and estimates for model inputs. Refer to the section within this note titled Fair Value Option for Financial Assets and Financial Liabilities for further information about the election. The debt that was not elected under the fair value option is reported on the balance sheet at cost, net of premiums or discounts and issuance costs.

Recurring Fair Value

The following tables display the assets and liabilities measured at fair value on a recurring basis including financial instruments elected for the fair value option. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The tables below display the hedges separately from the hedged items; therefore, they do not directly display the impact of our risk management activities.

	Recurring fair value measurements
December 31, 2011 ($ in millions)	Level 1			Level 2			Level 3			Total
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities	$	—		$	575		$	33		$	608
Total trading assets	—			575			33			608
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	903			643			—			1,546
States and political subdivisions	—			1			—			1
Foreign government	427			357			—			784
Mortgage-backed residential	—			7,312			—			7,312
Asset-backed	—			2,553			62			2,615
Corporate debt securities	—			1,491			—			1,491
Other debt securities	—			327			—			327
Total debt securities	1,330			12,684			62			14,076
Equity securities (a)	1,059			—			—			1,059
Total available-for-sale securities	2,389			12,684			62			15,135
Mortgage loans held-for-sale, net (b)	—			3,889			30			3,919
Consumer mortgage finance receivables and loans, net (b)	—			—			835			835
Mortgage servicing rights	—			—			2,519			2,519
Other assets
Interests retained in financial asset sales	—			—			231			231
Derivative contracts in receivable position (c)
Interest rate	79			5,274			88			5,441
Foreign currency	—			242			18			260
Total derivative contracts in receivable position	79			5,516			106			5,701
Collateral placed with counterparties (d)	328			—			—			328
Total assets	$	2,796		$	22,664		$	3,816		$	29,276
Liabilities
Long-term debt
On-balance sheet securitization debt (b)	$	—		$	—		$	(830	)	$	(830	)
Accrued expenses and other liabilities
Derivative contracts in payable position (c)
Interest rate	(32		)	(5,229		)	(17		)	(5,278		)
Foreign currency	—			(99		)	(2		)	(101		)
Total derivative contracts in a payable position	(32		)	(5,328		)	(19		)	(5,379		)
Loan repurchase liabilities (b)	—			—			(29		)	(29		)
Trading liabilities (excluding derivatives)	(61		)	—			—			(61		)
Total liabilities	$	(93	)	$	(5,328	)	$	(878	)	$	(6,299	)

(a) Our investment in any one industry did not exceed 18%.

(b) Carried at fair value due to fair value option elections.

(c) Includes derivatives classified as trading.

(d) Represents collateral in the form of investment securities. Cash collateral was excluded.

	Recurring fair value measurements
December 31, 2010($ in millions)	Level 1			Level 2			Level 3			Total
Assets
Trading assets
Securities of U.S. Treasury and federal agencies	$	77		$	—		$	—		$	77
Mortgage-backed residential securities	—			25			44			69
Asset-backed securities	—			—			94			94
Total trading assets	77			25			138			240
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	3,313			5			—			3,318
States and political subdivisions	—			2			—			2
Foreign government	873			375			—			1,248
Mortgage-backed residential	—			5,824			1			5,825
Asset-backed	—			1,948			—			1,948
Corporate debt securities	—			1,558			—			1,558
Other debt securities	—			151			—			151
Total debt securities	4,186			9,863			1			14,050
Equity securities (a)	796			—			—			796
Total available-for-sale securities	4,982			9,863			1			14,846
Mortgage loans held-for-sale, net (b)	—			6,420			4			6,424
Consumer mortgage finance receivables and loans, net (b)	—			—			1,015			1,015
Mortgage servicing rights	—			—			3,738			3,738
Other assets
Interests retained in financial asset sales	—			—			568			568
Derivative contracts in receivable position
Interest rate	242			3,464			105			3,811
Foreign currency	—			155			—			155
Total derivative contracts in receivable position	242			3,619			105			3,966
Collateral placed with counterparties (c)	728			—			—			728
Total assets	$	6,029		$	19,927		$	5,569		$	31,525
Liabilities
Long-term debt
On-balance sheet securitization debt (b)	$	—		$	—		$	(972	)	$	(972	)
Accrued expenses and other liabilities
Derivative contracts in liability position
Interest rate contracts	(208		)	(3,222		)	(118		)	(3,548		)
Foreign currency contracts	—			(312		)	—			(312		)
Total fair value of derivative contracts in liability position	(208		)	(3,534		)	(118		)	(3,860		)
Total liabilities	$	(208	)	$	(3,534	)	$	(1,090	)	$	(4,832	)

(a) Our investment in any one industry did not exceed 23%.

(b) Carried at fair value due to fair value option elections.

(c) Represents collateral in the form of investment securities. Cash collateral was excluded.

The following tables present the reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis. We often economically hedge the fair value change of our assets or liabilities with derivatives and other financial instruments. The Level 3 items presented below may be hedged by derivatives and other financial instruments that are classified as Level 1 or Level 2. Thus, the following tables do not fully reflect the impact of our risk management activities.

	Level 3 recurring fair value measurements
	Fair value at Jan. 1, 2011			Net realized/unrealized gains (losses)						Purchases			Sales				Issuances		Settlements			Transfers out of level 3				Fair  value at Dec. 31, 2011			Net  unrealized gains  (losses) included  in earnings still held at Dec. 31, 2011
($ in millions)				included in earnings				included in other comprehensive income
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities	$	44		$	5		(a)	$	—	$	—		$	—			$	—	$	(16	)	$	—			$	33		$	14		(a)
Asset-backed securities	94			—				—		—			(94		)		—		—			—				—			—
Total trading assets	138			5				—		—			(94		)		—		(16		)	—				33			14
Investment securities
Available-for-sale securities
Debt securities
Mortgage-backed residential	1			—				—		—			(1		)		—		—			—				—			—
Asset-backed	—			18			(b)	14		94			(64		)		—		—			—				62			—
Total debt securities	1			18				14		94			(65		)		—		—			—				62			—
Mortgage loans held-for-sale, net (c)	4			(1		)	(c)	—		46			(1		)		—		(18		)	—				30			(2		)	(c)
Consumer mortgage finance receivables and loans, net (c)	1,015			352			(c)	1		—			—				—		(533		)	—				835			136			(c)
Mortgage servicing rights	3,738			(1,606		)	(d)	—		31			(266		)	(e)	622		—			—				2,519			(1,605		)	(d)
Other assets
Interests retained in financial asset sales	568			180			(f)	—		—			—				3		(520		)	—				231			(15		)	(f)
Derivative contracts, net (g)
Interest rate	(13		)	148			(h)	—		—			—				—		(41		)	(23		)	(i)	71			145			(h)
Foreign currency	—			16			(h)	—		—			—				—		—			—				16			16			(h)
Total derivative contracts in a (payable) receivable position, net	(13		)	164				—		—			—				—		(41		)	(23		)		87			161
Total assets	$	5,451		$	(888	)		$	15	$	171		$	(426	)		$	625	$	(1,128	)	$	(23	)		$	3,797		$	(1,311	)
Liabilities
Long-term debt
On-balance sheet securitization debt (c)	$	(972	)	$	(371	)	(c)	$	1	$	—		$	—			$	—	$	512		$	—			$	(830	)	$	(184	)	(c)
Accrued expenses and other liabilities
Loan repurchase liabilities (c)	—			2			(c)	—		(46		)	—				—		15			—				(29		)	2			(c)
Total liabilities	$	(972	)	$	(369	)		$	1	$	(46	)	$	—			$	—	$	527		$	—			$	(859	)	$	(182	)

(a) The fair value adjustment was reported as other income, net of losses, and the related interest was reported as interest on trading assets in the Consolidated Statement of Income.

(b) The fair value adjustment was reported as other income, net of losses, and the related interest was reported as interest and dividends on available-for-sale investment securities in the Consolidated Statement of Income.

(c) Carried at fair value due to fair value option elections. Refer to the next section of this note titled Fair Value Option for Financial Assets and Liabilities for the location of the gains and losses in the Consolidated Statement of Income.

(d) Fair value adjustment was reported as servicing-asset valuation and hedge activities, net, in the Consolidated Statement of Income.

(e) Represents excess mortgage servicing rights transferred to an agency-controlled trust in exchange for trading securities. These securities were then sold instantaneously to third-party investors for $266 million.

(f) Reported as other income, net of losses, in the Consolidated Statement of Income.

(g) Includes derivatives classified as trading.

(h) Refer to Note 24 for information related to the location of the gains and losses on derivative instruments in the Consolidated Statement of Income.

(i) The in-house valuations of some derivative contracts classified as Level 3 was replaced with third-party developed valuation models that are widely accepted in the market to value these over-the-counter derivative contracts. The specific terms of the contract and market observable inputs are entered into the model. We reclassified these over-the-counter derivative contracts as Level 2 because all significant inputs into these models were market observable.

	Level 3 recurring fair value measurements
	Fair value at January 1, 2010			Net realized/unrealized gains (losses)							Purchases, issuances, and settlements, net			Fair value at December 31, 2010			Net  unrealized gains  (losses) included  in earnings still held at December 31, 2010
($ in millions)				included in earnings				included in other comprehensive income
Assets
Trading assets
Mortgage-backed residential securities	$	99		$	6		(a)	$	—		$	(61	)	$	44		$	24		(a)
Asset-backed securities	596			—				5			(507		)	94			—
Total trading assets	695			6				5			(568		)	138			24
Investment securities
Available-for-sale securities
Debt securities
Mortgage-backed residential	6			—				(2		)	(3		)	1			—
Asset-backed	20			—				—			(20		)	—			—
Total debt securities	26			—				(2		)	(23		)	1			—
Mortgage loans held-for-sale, net (b)	—			3			(b)	—			1			4			3			(b)
Consumer mortgage finance receivables and loans, net (b)	1,391			1,903			(b)	—			(2,279		)	1,015			1,189			(b)
Mortgage servicing rights	3,554			(871		)	(c)	—			1,055			3,738			(871		)	(c)
Other assets
Cash reserve deposits held-for-securitization trusts	31			—				—			(31		)	—			—
Interests retained in financial asset sales	471			94			(d)	—			3			568			14			(d)
Fair value of derivative contracts in receivable (liability) position, net
Interest rate contracts, net	103			180			(e)	—			(296		)	(13		)	388			(e)
Total assets	$	6,271		$	1,315			$	3		$	(2,138	)	$	5,451		$	747
Liabilities
Long-term debt
On-balance sheet securitization debt (b)	$	(1,294	)	$	(1,881	)	(b)	$	—		$	2,203		$	(972	)	$	(1,387	)	(b)
Total liabilities	$	(1,294	)	$	(1,881	)		$	—		$	2,203		$	(972	)	$	(1,387	)

(a) The fair value adjustment was reported as other income, net of losses and the related interest was reported as interest on trading assets in the Consolidated Statement of Income.

(b) Carried at fair value due to fair value option elections. Refer to the next section of this note titled Fair Value Option for Financial Assets and Liabilities for the location of the gains and losses in the Consolidated Statement of Income.

(c) Fair value adjustment reported as servicing-asset valuation and hedge activities, net, in the Consolidated Statement of Income.

(d) Reported as other income, net of losses, in the Consolidated Statement of Income.

(e) Refer to Note 24 for information related to the location of the gains and losses on derivative instruments in the Consolidated Statement of Income.

Nonrecurring Fair Value

We may be required to measure certain assets and liabilities at fair value from time to time. These periodic fair value measures typically result from the application of lower-of-cost or fair value accounting or certain impairment measures. These items would constitute nonrecurring fair value measures.

The following tables display the assets and liabilities measured at fair value on a nonrecurring basis.

	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance				Total losses included in earnings for the year ended
December 31, 2011 ($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held-for-sale, net (a)	$	—	$	—	$	479	$	479	$	(60	)		n/m (b)
Commercial finance receivables and loans, net (c)
Automobile	—		—		310		310		(30		)		n/m (b)
Mortgage	—		1		14		15		(10		)		n/m (b)
Other	—		—		20		20		(10		)		n/m (b)
Total commercial finance receivables and loans, net	—		1		344		345		(50		)		n/m (b)
Other assets
Property and equipment	—		13		—		13		n/m			(d)	$	(8	)
Repossessed and foreclosed assets (e)	—		32		27		59		(15		)		n/m (b)
Total assets	$	—	$	46	$	850	$	896	$	(125	)		$	(8	)

n/m = not meaningful

(a) Represents loans held-for-sale that are required to be measured at the lower-of-cost or fair value. The table above includes only loans with fair values below cost during 2011. The related valuation allowance represents the cumulative adjustment to fair value of those specific assets.

(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance.

(c) Represents the portion of the portfolio specifically impaired during 2011. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.

(d) The total gain (loss) included in earnings is the most relevant indicator of the impact on earnings.

(e) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.

	Nonrecurring fair value measurements								Lower-of-cost or fair value or valuation reserve allowance			Total gains included in earnings for the  year ended
December 31, 2010($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Mortgage loans held-for-sale, net (a)	$	—	$	—	$	844	$	844	$	(48	)	n/m (b)
Commercial finance receivables and loans, net (c)
Automobile	—		—		379		379		(52		)	n/m (b)
Mortgage	—		28		26		54		(14		)	n/m (b)
Other	—		—		107		107		(61		)	n/m (b)
Total commercial finance receivables and loans, net	—		28		512		540		(127		)
Other assets
Real estate and other investments (d)	—		5		—		5		n/m			$	—
Repossessed and foreclosed assets (e)	—		43		44		87		(13		)	n/m (b)
Total assets	$	—	$	76	$	1,400	$	1,476	$	(188	)	$	—

n/m = not meaningful

(a) Represents loans held-for-sale that are required to be measured at the lower-of-cost or fair value. The table above includes only loans with fair values below cost during 2010. The related valuation allowance represents the cumulative adjustment to fair value of those specific assets.

(b) We consider the applicable valuation or loan loss allowance to be the most relevant indicator of the impact on earnings caused by the fair value measurement. Accordingly, the table above excludes total gains and losses included in earnings for these items. The carrying values are inclusive of the respective valuation or loan loss allowance.

(c) Represents the portion of the portfolio specifically impaired during 2010. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.

(d) Represents model homes impaired during 2010. The total loss included in earnings represents adjustments to the fair value of the portfolio based on the estimated fair value if the model home is under lease or the estimated fair value if the model home is marketed for sale.

(e) The allowance provided for repossessed and foreclosed assets represents any cumulative valuation adjustment recognized to adjust the assets to fair value.

Fair Value Option for Financial Assets and Financial Liabilities

A description of the financial assets and liabilities elected to be measured at fair value is as follows. Our intent in electing fair value for all these items was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.

On-balance sheet mortgage securitizations — We elected to measure at fair value certain domestic consumer mortgage finance receivables and loans and the related debt held in on-balance sheet mortgage securitization structures. The fair value-elected loans are classified as finance receivable and loans, net, on the Consolidated Balance Sheet. Our policy is to separately record interest income on the fair value-elected loans (unless the loans are placed on nonaccrual status); however, the accrued interest was excluded from the fair value presentation. We classified the fair value adjustment recorded for the loans as other income, net of losses, in the Consolidated Statement of Income.

We continued to record the fair value-elected debt balances as long-term debt on the Consolidated Balance Sheet. Our policy is to separately record interest expense on the fair value-elected debt, which continues to be classified as interest on long-term debt in the Consolidated Statement of Income. We classified the fair value adjustment recorded for this fair value-elected debt as other income, net of losses, in the Consolidated Statement of Income.

Conforming and government-insured mortgage loans held-for-sale — We elected the fair value option for conforming and government-insured mortgage loans held-for-sale funded after July 31, 2009. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related hedges.

Excluded from the fair value option were conforming and government-insured loans funded on or prior to July 31, 2009, and those repurchased or rerecognized. The loans funded on or prior to July 31, 2009, were ineligible because the election must be made at the time of funding. Repurchased and rerecognized conforming and government-insured loans were not elected because the election will not mitigate earning volatility. We repurchase or rerecognize loans due to representation and warranty obligations or conditional repurchase options. Typically, we will be unable to resell these assets through regular channels due to characteristics of the assets. Since the fair value of these assets is influenced by factors that cannot be hedged, we did not elect the fair value option.

We carry the fair value-elected conforming and government-insured loans as loans held-for-sale, net, on the Consolidated Balance Sheet. Our policy is to separately record interest income on the fair value-elected loans (unless they are placed on nonaccrual status); however, the accrued interest was excluded from the fair value presentation. Upfront fees and costs related to the fair value-elected loans were not deferred or capitalized. The fair value adjustment recorded for these loans is classified as gain on mortgage and automotive loans, net, in the Consolidated Statement of Income. In accordance with GAAP, the fair value option election is irrevocable once the asset is funded even if it is subsequently determined that a particular loan cannot be sold.

GSE-ineligible mortgage loans held-for-sale subject to conditional repurchase options — As of January 1, 2011, we elected the fair value option for both GSE-ineligible mortgage loans held-for-sale subject to conditional repurchase options and the related liability. These conditional repurchase options within our private label securitizations allow us to repurchase a transferred financial asset if certain events outside our control are met. The typical conditional repurchase option is a delinquent loan repurchase option that gives us the option to purchase the loan if it exceeds a certain prespecified delinquency level. We have complete discretion regarding when or if we will exercise these options, but generally we would do so only when it is in our best interest. We record the asset and the corresponding liability on our balance sheet when the option becomes exercisable. The fair value option election must be made at initial recording. As such, the conditional repurchase option assets and liabilities recorded prior to January 1, 2011, were ineligible for the fair value election.

We carry these fair value-elected optional repurchase loan balance as loans held-for-sale, net, on the Consolidated Balance Sheet. The fair value adjustment recorded for these loans is classified as other income, net of losses, in the Consolidated Statement of Income. We carry the fair value-elected corresponding liability as accrued expenses and other liabilities on the Consolidated Balance Sheet. The fair value adjustment recorded for these liabilities are classified as other income, net of losses, in the Consolidated Statement of Income.

The following tables summarize the fair value option elections and information regarding the amounts recorded as earnings for each fair value option-elected item.

	Changes included in the Consolidated Statement of Income
Year ended December 31, ($ in millions)	Interest and fees on finance receivables and loans (a)		Interest on loans held-for-sale (a)		Interest on long-term debt (b)			Gain on mortgage and automotive loans, net		Other income, net of  losses			Total included  in earnings			Change in fair value due to credit  risk (c)
2011
Assets
Mortgage loans held-for-sale, net	$	—	$	176	$	—		$	908	$	—		$	1,084		$	—		(d)
Consumer mortgage finance receivables and loans, net	200		—		—			—		153			353			(119		)	(e)
Liabilities
Long-term debt
On-balance sheet securitization debt	—		—		(116		)	—		(256		)	(372		)	(20		)	(f)
Accrued expenses and other liabilities
Loan repurchase liabilities	—		—		—			—		2			2			—
Total													$	1,067
2010
Assets
Mortgage loans held-for-sale, net	$	—	$	221	$	—		$	845	$	3		$	1,069		$	—		(d)
Consumer mortgage finance receivables and loans, net	555		—		—			—		1,348			1,903			(8		)	(e)
Liabilities
Long-term debt
On-balance sheet securitization debt	—		—		(313		)	—		(1,568		)	(1,881		)	29			(f)
Total													$	1,091

(a) Interest income is measured by multiplying the unpaid principal balance on the loans by the coupon rate and the number of days of interest due.

(b) Interest expense is measured by multiplying bond principal by the coupon rate and the number of days of interest due to the investor.

(c) Factors other than credit quality that impact fair value include changes in market interest rates and the illiquidity or marketability in the current marketplace. Lower levels of observable data points in illiquid markets generally result in wide bid/offer spreads.

(d) The credit impact for loans held-for-sale is assumed to be zero because the loans are either suitable for sale or are covered by a government guarantee.

(e) The credit impact for consumer mortgage finance receivables and loans was quantified by applying internal credit loss assumptions to cash flow models.

(f) The credit impact for on-balance sheet securitization debt is assumed to be zero until our economic interests in a particular securitization is reduced to zero, at which point the losses on the underlying collateral will be expected to be passed through to third-party bondholders. Losses allocated to third-party bondholders, including changes in the amount of losses allocated, will result in fair value changes due to credit. We also monitor credit ratings and will make credit adjustments to the extent any bond classes are downgraded by rating agencies.

The following table provides the aggregate fair value and the aggregate unpaid principal balance for the fair value option-elected loans and long-term debt instruments.

	2011						2010
December 31, ($ in millions)	Unpaid principal balance			Fair value (a)			Unpaid principal balance			Fair value (a)
Assets
Mortgage loans held-for-sale, net
Total loans	$	3,766		$	3,919		$	6,354		$	6,424
Nonaccrual loans	54			27			3			1
Loans 90+ days past due (b)	53			27			—			—
Consumer mortgage finance receivables and loans, net
Total loans	2,436			835			2,905			1,015
Nonaccrual loans (c)	506			209			586			260
Loans 90+ days past due (b)(c)	362			163			366			184
Liabilities
Long-term debt
On-balance sheet securitization debt	$	(2,559	)	$	(830	)	$	(2,969	)	$	(972	)
Accrued expenses and other liabilities
Loan repurchase liabilities	(57		)	(29		)	—			—

(a) Excludes accrued interest receivable.

(b) Loans 90+ days past due are also presented within the nonaccrual loan balance and the total loan balance; however, excludes government-insured loans that are still accruing interest.

(c) The fair value of consumer mortgage finance receivables and loans is calculated on a pooled basis; therefore, we allocated the fair value of nonaccrual loans and loans 90+ days past due to individual loans based on the unpaid principal balances. For further discussion regarding the pooled basis, refer to the previous section of this note titled Consumer mortgage finance receivables and loans, net.

Fair Value of Financial Instruments

The following table presents the carrying and estimated fair value of financial instruments, except for those recorded at fair value on a recurring basis presented in the previous section of this note titled Recurring Fair Value. When possible, we use quoted market prices to determine fair value. Where quoted market prices are not available, the fair value is internally derived based on appropriate valuation methodologies with respect to the amount and timing of future cash flows and estimated discount rates. However, considerable judgment is required in interpreting market data to develop estimates of fair value, so the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions or estimation methodologies could be material to the estimated fair values. Fair value information presented herein was based on information available at December 31, 2011, and 2010.

	2011				2010
December 31, ($ in millions)	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets
Loans held-for-sale, net (a)	$	8,557	$	8,674	$	11,411	$	11,449
Finance receivables and loans, net (a)	113,252		113,576		100,540		99,462
Nonmarketable equity investments	419		423		504		506
Financial liabilities
Deposit liabilities	$	45,050	$	45,696	$	39,048	$	39,303
Short-term borrowings	7,680		7,622		7,508		7,509
Long-term debt (a)(b)	93,434		92,142		87,181		88,996

(a) Includes financial instruments carried at fair value due to fair value option elections. Refer to the previous section of this note titled Fair Value Option for Financial Assets and Liabilities for further information about the fair value elections.

(b) Debt includes deferred interest for zero-coupon bonds of $640 million and $569 million at December 31, 2011 and 2010, respectively.

The following describes the methodologies and assumptions used to determine fair value for the significant classes of financial instruments. In addition to the valuation methods discussed below, we also followed guidelines for determining whether a market was not active and a transaction was not distressed. As such, we assumed the price that would be received in an orderly transaction (including a market-based return) and not in forced liquidation or distressed sale.

Loans held-for-sale, net — Refer to the previous sections of this note also titled Loans held-for-sale, net, for a description of methodologies and assumptions used to determine fair value.

Finance receivables and loans, net — With the exception of mortgage loans held-for-investment, the fair value of finance receivables was based on discounted future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables (an income approach). The carrying value of wholesale receivables in certain markets and certain other automotive- and mortgage-lending receivables for which interest rates reset on a short-term basis with applicable market indices are assumed to approximate fair value either because of the short-term nature or because of the interest rate adjustment feature. The fair value of wholesale receivables in other markets was based on discounted future cash flows using applicable spreads to approximate current rates applicable to similar assets in those markets.

For mortgage loans held-for-investment used as collateral for securitization debt, we used a portfolio approach to measure these loans at fair value. The objective in fair valuing these loans (which are legally isolated and beyond the reach of our creditors) and the related collateralized borrowings is to reflect our retained economic position in the securitizations. For mortgage loans held-for-investment that are not securitized, we used valuation methods and assumptions similar to those used for mortgage loans held-for-sale. These valuations consider unique attributes of the loans such as geography, delinquency status, product type, and other factors. Refer to the previous section in this note titled Loans held-for-sale, net, for a description of methodologies and assumptions used to determine the fair value of mortgage loans held-for-sale.

Deposit liabilities — Deposit liabilities represent certain consumer and brokered bank deposits, mortgage escrow deposits, and dealer deposits. The fair value of deposits with no stated maturity is equal to their carrying amount. The fair value of fixed-maturity deposits was estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.

Debt — The fair value of debt was determined using quoted market prices for the same or similar issues, if available, or was based on the current rates offered to us for debt with similar remaining maturities.