9. Credit Risk

The Company is subject to the following forms of credit risk:


▪	Consumer credit risk—through mortgage banking activities as a result of originating and servicing residential mortgage loans


▪	Counterparty credit risk—through derivative transactions, sales agreements and various mortgage loan origination and servicing agreements

Consumer Credit Risk

The Company is not subject to the majority of the risks inherent in maintaining a mortgage loan portfolio because loans are not held for investment purposes and are generally sold to investors within 30 days of origination. The majority of mortgage loan sales are on a non-recourse basis and if the loans were originated in accordance with applicable underwriting standards, the Company may not have exposure to future risk of loss; however, in its capacity as a loan originator and servicer, the Company has exposure to loan repurchases and indemnifications through representation and warranty provisions and government servicing contracts.

The following tables summarize certain information regarding the total loan servicing portfolio, which includes loans associated with the capitalized mortgage servicing rights as well as loans subserviced for others:



	June 30, 2016			December 31, 2015
	(In millions)
Loan Servicing Portfolio Composition
Owned	$	93,674		$	99,869
Subserviced	138,067			126,390
Total	$	231,741		$	226,259

Conventional loans	$	204,208		$	197,971
Government loans	23,521			24,087
Home equity lines of credit	4,012			4,201
Total	$	231,741		$	226,259

Weighted-average interest rate	3.8		%	3.8		%



	June 30, 2016				December 31, 2015
	Number of Loans		Unpaid Balance		Number of Loans		Unpaid Balance
Portfolio Delinquency⁽¹⁾
30 days	2.10	%	1.48	%	2.22	%	1.55	%
60 days	0.38		0.26		0.44		0.30
90 or more days	0.63		0.47		0.82		0.62
Total	3.11	%	2.21	%	3.48	%	2.47	%

Foreclosure/real estate owned⁽²⁾	1.62	%	1.37	%	1.74	%	1.51	%

______________


⁽¹⁾	Represents portfolio delinquencies as a percentage of the total number of loans and the total unpaid balance of the portfolio.


⁽²⁾	As of June 30, 2016 and December 31, 2015, the total servicing portfolio included 14,178 and 15,487 of loans in foreclosure with an unpaid principal balance of $2.8 billion and $3.0 billion, respectively.

Repurchase and Foreclosure-Related Reserves

Repurchase and foreclosure-related reserves are maintained for probable losses related to repurchase and indemnification obligations and for on-balance sheet loans in foreclosure and real estate owned. A summary of the activity in repurchase and foreclosure-related reserves is as follows:



	Six Months Ended June 30,
	2016			2015
	(In millions)
Balance, beginning of period	$	89		$	93
Realized losses	(12		)	(13		)
Increase in reserves due to:
Changes in assumptions	3			6
New loan sales	4			6
Balance, end of period	$	84		$	92

Repurchase and foreclosure-related reserves consist of the following:

Loan Repurchases and Indemnifications

Liabilities for probable losses related to repurchase and indemnification obligations of $62 million as of both June 30, 2016 and December 31, 2015 are presented in the Condensed Consolidated Balance Sheets. The liability for loan repurchases and indemnifications represents management’s estimate of probable losses based on the best information available and requires the application of a significant level of judgment and the use of a number of assumptions.

Given the inherent uncertainties involved in estimating losses associated with future repurchase and indemnification requests, there is a reasonable possibility that future losses may be in excess of the recorded liability. As of June 30, 2016, the estimated amount of reasonably possible losses in excess of the recorded liability was $40 million, which primarily relates to the Company’s estimate of repurchase and foreclosure-related charges that may not be reimbursed pursuant to government mortgage insurance programs in the event we do not file insurance claims. The estimate is based on an expectation of future defaults and the historical defect rate for government insured loans and is based upon significant judgments and assumptions which can be influenced by many factors, including: (i) home prices and the levels of home equity; (ii) the quality of underwriting procedures; (iii) borrower delinquency and default patterns; and (iv) general economic conditions.

The liability from loan repurchases and indemnification requests does not reflect losses from litigation or governmental and regulatory examinations, investigations or inquiries. The maximum liability for future repurchase and indemnification requests, or the ranges of reasonably possible losses, cannot be estimated for the entire exposure for reasons including, but not limited to, the following:

•the Company does not service all of the loans for which it has provided representations and warranties;


•	uncertainty related to loss exposure to loans from origination years where the Agencies have substantially completed or resolved their file reviews; and


•	uncertainty related to losses associated with loans with defects that were excluded from the resolution agreement with Fannie Mae (which excludes loans with certain title defects or violations of law that were originated and delivered prior to July 1, 2012).

As of June 30, 2016, $171 million of loans have been identified in which the Company has full risk of loss or has identified a breach of representation and warranty provisions; 11% of which were at least 90 days delinquent (calculated based upon the unpaid principal balance of the loans).

Mortgage Loans in Foreclosure and Real Estate Owned

The carrying values of the mortgage loans in foreclosure and real estate owned were recorded within Other assets in the Condensed Consolidated Balance Sheets as follows:



	June 30, 2016			December 31, 2015
	(In millions)
Mortgage loans in foreclosure and related advances	$	32		$	34
Allowance for probable foreclosure losses	(9		)	(10		)
Mortgage loans in foreclosure, net	$	23		$	24

Real estate owned and related advances	$	28		$	38
Adjustment to value for real estate owned	(13		)	(17		)
Real estate owned, net	$	15		$	21