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. For the year ended December 31, 2013, transfers from Level 2 into Level 3 included $93 million of derivative contracts in a receivable position and $93 million of derivative contracts in a payable position based on utilizing independent sources that were not considered market observable related to certain interest rate caps. Transfers from Level 3 into Level 2 included $11 million of derivative contracts in a receivable position based on increased observability of significant inputs related to the valuation of our cross-currency swap. There were no additional transfers between any levels during the year ended December 31, 2013. There were no transfers between any levels during the year ended December 31, 2012.

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.

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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).

•

Mortgage loans held-for-sale, net — Our mortgage loans held-for-sale are accounted for at fair value because of fair value option elections. 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, product type, interest rate, and credit quality. Mortgage loans classified as Level 2 were mainly 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 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.

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.

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MSRs — MSRs were classified as Level 3. Management estimated fair value using our transaction data and other market data or, in periods when there were limited MSR market transactions that were directly observable, internally developed discounted cash flow models (an income approach) were used to estimate the fair value. These internal valuation models estimated net cash flows based on internal operating assumptions that we believed would be used by market participants in orderly transactions combined with market-based assumptions for loan prepayment rates, interest rates, and discount rates that we believed approximate yields required by investors in this asset. Cash flows primarily included servicing fees, float income, and late fees in each case less operating costs to service the loans. The estimated cash flows were discounted using an option-adjusted spread-derived discount rate. As of June 30, 2013, we no longer held such positions as a result of our exit from the mortgage origination and servicing business.

•

Interests retained in financial asset sales — The interests retained are in securitization trusts and deferred purchase prices on the sale of whole-loans. Due to inactivity in the market, valuations are based on internally developed discounted cash flow models (an income approach) that use a market-based discount rate; therefore, we classified these assets as Level 3. The valuation considers recent market transactions, experience with similar assets, 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).

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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, options of Eurodollar futures, equity options, and centrally-cleared interest rate swaps. 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, a cross-currency swap, 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 execute over-the-counter interest rate caps in which there are neither quoted market prices, nor do we utilize a third-party valuation model. Therefore, we utilize management's best assumptions of how market participants would price the assets or liabilities and classified these as Level 3.

Historically, we had interest rate lock commitments and a cross-currency swap accounted for as derivative instruments that were classified as Level 3. We have also historically held certain derivative contracts that are structured specifically to meet a particular hedging objective. These derivative contracts often were 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 was often indexed to the hedged item. As a result, we typically were required to use internally developed prepayment assumptions as an input into the model to forecast future notional amounts on these structured derivative contracts. Accordingly, we classified these derivative contracts as Level 3. However, as of March 31, 2013, we no longer held such positions within continuing operations due to the sales of our international automotive finance businesses.

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.

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, 2013 ($ in millions)	Level 1			Level 2			Level 3			Total
Assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	310		$	1,117		$	—		$	1,427
U.S. State and political subdivisions	—			315			—			315
Foreign government	7			281			—			288
Mortgage-backed residential	—			10,782			—			10,782
Mortgage-backed commercial	—			39			—			39
Asset-backed	—			2,219			—			2,219
Corporate debt securities	—			1,069			—			1,069
Total debt securities	317			15,822			—			16,139
Equity securities (a)	944			—			—			944
Total available-for-sale securities	1,261			15,822			—			17,083
Mortgage loans held-for-sale, net (b)	—			16			—			16
Other assets
Interests retained in financial asset sales	—			—			100			100
Derivative contracts in a receivable position (c)
Interest rate	46			207			93			346
Foreign currency	—			16			—			16
Total derivative contracts in a receivable position	46			223			93			362
Collateral placed with counterparties	—			133			—			133
Total assets	$	1,307		$	16,194		$	193		$	17,694
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position (c)
Interest rate	$	(15	)	$	(201	)	$	(94	)	$	(310	)
Foreign currency	—			(2		)	—			(2		)
Other	(5		)	—			—			(5		)
Total derivative contracts in a payable position	(20		)	(203		)	(94		)	(317		)
Total liabilities	$	(20	)	$	(203	)	$	(94	)	$	(317	)


(a)	Our investment in any one industry did not exceed 19%.


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


(c)	For additional information on derivative instruments and hedging activities, refer to Note 21.



	Recurring fair value measurements
December 31, 2012 ($ in millions)	Level 1			Level 2			Level 3			Total
Assets
Investment securities
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	697		$	1,517		$	—		$	2,214
Foreign government	3			300			—			303
Mortgage-backed residential	—			6,906			—			6,906
Asset-backed	—			2,340			—			2,340
Corporate debt securities	—			1,263			—			1,263
Total debt securities	700			12,326			—			13,026
Equity securities (a)	1,152			—			—			1,152
Total available-for-sale securities	1,852			12,326			—			14,178
Mortgage loans held-for-sale, net (b)	—			2,490			—			2,490
Mortgage servicing rights	—			—			952			952
Other assets
Interests retained in financial asset sales	—			—			154			154
Derivative contracts in a receivable position (c)
Interest rate	40			2,170			48			2,258
Foreign currency	—			40			—			40
Total derivative contracts in a receivable position	40			2,210			48			2,298
Collateral placed with counterparties (d)	103			99			—			202
Total assets	$	1,995		$	17,125		$	1,154		$	20,274
Liabilities
Accrued expenses and other liabilities
Derivative contracts in a payable position
Interest rate	$	(13	)	$	(2,374	)	$	(1	)	$	(2,388	)
Foreign currency	—			(78		)	(2		)	(80		)
Total derivative contracts in a payable position	(13		)	(2,452		)	(3		)	(2,468		)
Total liabilities	$	(13	)	$	(2,452	)	$	(3	)	$	(2,468	)


(a)	Our investment in any one industry did not exceed 21%.


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


(c)	For additional information on derivative instruments and hedging activities, refer to Note 21.


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

The following table presents quantitative information regarding the significant unobservable inputs used in significant Level 3 assets and liabilities measured at fair value on a recurring basis.



December 31, 2013 ($ in millions)	Level 3 recurring measurements		Valuation technique	Unobservable input	Range
Assets
Other assets
Interests retained in financial asset sales	$	100	Discounted cash flow	Discount rate	5.3-5.5%
				Commercial paper rate	0-0.1%

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
				Net realized/unrealized (losses) gains																			Fair value at December 31, 2013			Net unrealized gains included in earnings still held at December 31, 2013
($ in millions)	Fair value at January 1, 2013			included in earnings				included in OCI		Purchases		Sales			Issuances		Settlements			Transfers out of level 3
Assets
Mortgage servicing rights	$	952		$	(101	)	(a)	$	—	$	—	$	(911	)	$	60	$	—		$	—		$	—		$	—
Other assets
Interests retained in financial asset sales	154			23			(b)	—		—		—			—		(77		)	—			100			—
Derivative contracts, net (c)
Interest rate	47			(52		)	(d)	—		—		—			—		4			—			(1		)	—
Foreign currency	(2		)	11			(d)	—		—		—			—		2			(11		)	—			11		(d)
Total derivative contracts in a receivable position, net	45			(41		)		—		—		—			—		6			(11		)	(1		)	11
Total assets	$	1,151		$	(119	)		$	—	$	—	$	(911	)	$	60	$	(71	)	$	(11	)	$	99		$	11


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


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


(c)	For additional information on derivative instruments and hedging activities, refer to Note 21.


(d)	Refer to Note 21 for information related to the location of the gains and losses on derivative instruments in the Consolidated Statement of Income.



	Level 3 recurring fair value measurements
	Fair value at January 1, 2012			Net realized/unrealized gains (losses)							Purchases			Sales				Issuances		Settlements			Transfers out due to deconsolidation or discontinued operations (a)			Fair value at December 31, 2012			Net unrealized gains (losses) included in earnings still held at December 31, 2012
($ in millions)				included in earnings				included in OCI
Assets
Trading assets (excluding derivatives)
Mortgage-backed residential securities	$	33		$	2		(b)	$	—		$	—		$	—			$	—	$	(4	)	$	(31	)	$	—		$	4		(b)
Investment securities
Available-for-sale debt securities
Asset-backed	62			19				(12		)	—			(69		)		—		—			—			—			—
Mortgage loans held-for-sale, net (c)	30			—				—			12			—				—		(11		)	(31		)	—			—
Consumer mortgage finance receivables and loans, net (c)	835			121			(c)	—			—			(245		)	(d)	—		(124		)	(587		)	—			51			(c)
Mortgage servicing rights	2,519			(677		)	(e)	—			—			—				240		—			(1,130		)	952			(677		)	(e)
Other assets
Interests retained in financial asset sales	231			46			(f)	—			—			—				—		(123		)	—			154			—
Derivative contracts, net (g)
Interest rate	71			(78		)	(h)	—			—			—				—		53			1			47			1			(h)
Foreign currency	16			(32		)	(h)	—			—			—				—		—			14			(2		)	(50		)	(h)
Total derivative contracts in a receivable (payable) position, net	87			(110		)		—			—			—				—		53			15			45			(49		)
Total assets	$	3,797		$	(599	)		$	(12	)	$	12		$	(314	)		$	240	$	(209	)	$	(1,764	)	$	1,151		$	(671	)
Liabilities
Long-term debt
On-balance sheet securitization debt (c)	$	(830	)	$	(115	)	(c)	$	—		$	—		$	—			$	—	$	389		$	556		$	—		$	(62	)	(c)
Accrued expenses and other liabilities
Loan repurchase liabilities (c)	(29		)	—				—			(11		)	—				—		10			30			—			—
Total liabilities	$	(859	)	$	(115	)		$	—		$	(11	)	$	—			$	—	$	399		$	586		$	—		$	(62	)


(a)	Represents the amounts transferred out of Level 3 due to the deconsolidation of ResCap or discontinued operations. Refer to Note 1 for additional information related to ResCap. Refer to Note 2 for additional information related to discontinued operations.


(b)	The fair value adjustment and the related interest were reported as income from discontinued operations, net of tax, 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)	Represents the sale of consumer mortgage finance receivables and loans sold as part of the sale of a business line during 2012.


(e)	Fair value adjustment was reported as servicing-asset valuation and hedge activities, net and income from discontinued operations, net of tax, in the Consolidated Statement of Income.


(f)	Reported as other income, net of losses, and income from discontinued operations, net of tax, in the Consolidated Statement of Income.


(g)	Includes derivatives classified as trading. For additional information on derivative instruments and hedging activities, refer to Note 21.


(h)	Refer to Note 21 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 loss included in earnings for the year ended
December 31, 2013 ($ in millions)	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance			Total loss included in earnings for the year ended
Assets
Loans held-for-sale	$	—	$	—	$	18	$	18	$	—		n/m	(a)
Commercial finance receivables and loans, net (b)
Automotive	—		—		54		54		(9		)	n/m	(a)
Other	—		—		59		59		(16		)	n/m	(a)
Total commercial finance receivables and loans, net	—		—		113		113		(25		)	n/m	(a)
Other assets
Repossessed and foreclosed assets (c)	—		—		9		9		(3		)	n/m	(a)
Other	—		—		2		2		—			n/m	(a)
Total assets	$	—	$	—	$	142	$	142	$	(28	)	n/m

n/m = not meaningful


(a)	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.


(b)	Represents the portion of the portfolio specifically impaired during 2013. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


(c)	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 loss included in earnings for the year ended
December 31, 2012 ($ in millions)	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value or valuation reserve allowance			Total loss included in earnings for the year ended
Assets
Commercial finance receivables and loans, net (a)
Automotive	$	—	$	—	$	108	$	108	$	(19	)	n/m	(b)
Other	—		—		23		23		(7		)	n/m	(b)
Total commercial finance receivables and loans, net	—		—		131		131		(26		)	n/m	(b)
Other assets
Repossessed and foreclosed assets (c)	—		—		3		3		(2		)	n/m	(b)
Total assets	$	—	$	—	$	134	$	134	$	(28	)	n/m

n/m = not meaningful


(a)	Represents the portion of the portfolio specifically impaired during 2012. The related valuation allowance represents the cumulative adjustment to fair value of those specific receivables.


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

The following table presents quantitative information regarding the significant unobservable inputs used in significant Level 3 assets measured at fair value on a nonrecurring basis.



December 31, 2013 ($ in millions)	Level 3 nonrecurring measurements		Valuation technique	Unobservable input	Range
Assets
Commercial finance receivables and loans, net
Automotive	$	54	Fair value of collateral	Adjusted appraisal value	65.0-95.0%

Fair Value Option for Financial Assets

We elected the fair value option for conforming and government-insured mortgage loans held-for-sale. We elected the fair value option to mitigate earnings volatility by better matching the accounting for the assets with the related hedges. Our intent in electing fair value measurement was to mitigate a divergence between accounting losses and economic exposure for certain assets and liabilities.

Excluded from the fair value option were conforming and government-insured loans funded on or prior to July 31, 2009, and 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 would 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 carried 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 was classified as gain (loss) on mortgage 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.

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 on loans held-for-sale (a)		Loss on mortgage loans, net			Total included in earnings
2013
Assets
Mortgage loans held-for-sale, net	$	20	$	(31	)	$	(11	)
2012
Assets
Mortgage loans held-for-sale, net	$	82	$	(32	)	$	50


(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.

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



	2013				2012
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	$	31	$	16	$	2,416	$	2,490
Nonaccrual loans	18		9		47		25
Loans 90+ days past due (b)	15		8		36		19


(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.

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, 2013 and 2012.



			Estimated fair value
December 31, ($ in millions)	Carrying value		Level 1		Level 2		Level 3		Total
2013
Financial assets
Loans held-for-sale, net (a)	$	35	$	—	$	17	$	18	$	35
Finance receivables and loans, net (a)	99,120		—		—		100,090		100,090
Nonmarketable equity investments	337		—		308		38		346
Financial liabilities
Deposit liabilities	$	53,350	$	—	$	—	$	54,070	$	54,070
Short-term borrowings	8,545		—		—		8,545		8,545
Long-term debt (a)(b)	69,824		—		31,067		42,297		73,364
2012
Financial assets
Loans held-for-sale, net (a)	$	2,576	$	—	$	2,490	$	86	$	2,576
Finance receivables and loans, net (a)	97,885		—		—		98,907		98,907
Nonmarketable equity investments	303		—		272		34		306
Financial liabilities
Deposit liabilities	$	47,915	$	—	$	—	$	48,752	$	48,752
Short-term borrowings	7,461		6		—		7,454		7,460
Long-term debt (a)(b)	74,882		—		36,018		42,533		78,551


(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)	The carrying value includes deferred interest for zero-coupon bonds of $359 million and $321 million at December 31, 2013, and 2012, 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.

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Cash and cash equivalents — Included in cash and cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value due to interest rate, quoted price, or penalty on withdrawal. Classified as Level 1 under the fair value hierarchy, cash and cash equivalents generally expose us to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. As such, the carrying value approximates the fair value of these instruments.

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Loans held-for-sale, net — Loans held-for-sale classified as Level 2 included all GSE-eligible mortgage loans valued predominantly using published forward agency prices. It also included any domestic loans where recently negotiated market prices for the loan pool existed with a counterparty (which approximated fair value) or quoted market prices for similar loans were available. Loans held-for-sale classified as Level 3 included all loans valued using internally developed valuation models because observable market prices were not available. The loans were priced on a discounted cash flow basis utilizing cash flow projections from internally developed models that utilized prepayment, default, and discount rate assumptions. To the extent available, we utilized market observable inputs such as interest rates and market spreads. If market observable inputs were not available, we were required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates.

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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 using Level 3 inputs). The carrying value of commercial receivables in certain markets and certain automotive and other 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 commercial 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, 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 section above 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 at Level 3 were estimated by discounting projected cash flows based on discount factors derived from the forward interest rate swap curve.


•	Debt — Level 2 debt was valued using quoted market prices, when available, or other means for substantiation with observable inputs. Debt valued using internally derived inputs, such as prepayment speeds and discount rates, was classified as Level 3.