Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

12. Fair Value Measurements

Recurring Fair Value Measurements

For assets and liabilities measured at fair value on a recurring basis, there has been no change in the valuation methodologies and classification pursuant to the valuation hierarchy during the six months ended June 30, 2011. The incorporation of counterparty credit risk did not have a significant impact on the valuation of assets and liabilities recorded at fair value as of June 30, 2011 or December 31, 2010. Significant inputs to the measurement of fair value on a recurring basis and further information on the assets and liabilities measured at fair value on a recurring basis are as follows:

Mortgage Loans Held for Sale. For Level Three mortgage loans held for sale, fair value is estimated utilizing either a discounted cash flow model or underlying collateral values. The assumptions used to measure fair value using a discounted cash flow valuation methodology are as follows:

	June 30,			December 31,
	2011			2010
Prepayment speed		10	%		13	%
Discount Rate		7-10	%		7-10	%
Yield		3-8	%		3-8	%
Credit Loss (annualized)		7-32	%		5-31	%

The following table reflects the difference between the carrying amount of Mortgage loans held for sale measured at fair value, and the aggregate unpaid principal amount that the Company is contractually entitled to receive at maturity:

	June 30, 2011					December 31, 2010
			Loans 90 or						Loans 90 or
			more days past						more days past
			due and on non-						due and on non-
	Total		accrual status			Total			accrual status
	(In millions)
Mortgage loans held for sale:
Carrying amount	$	1,707	$	16		$	4,329		$	14
Aggregate unpaid principal balance		1,689		24			4,356			21
Difference	$	18	$	(8	)	$	(27	)	$	(7	)

The following table summarizes the components of Mortgage loans held for sale:

	June 30,		December 31,
	2011		2010
First mortgages:	(In millions)
Conforming(1)	$	1,534	$	4,123
Non-conforming		117		138
Construction loans		8		11
Total first mortgages		1,659		4,272
Second lien		9		11
Scratch and Dent(2)		38		40
Other		1		6
Total	$	1,707	$	4,329

(1)	Represents mortgage loans that conform to the standards of the government-sponsored entities.
(2)	Represents mortgage loans with origination flaws or performance issues.

Derivative Instruments. The average pullthrough percentage used in measuring the fair value of interest rate lock commitments was 77% and 78% as of June 30, 2011 and December 31, 2010, respectively.

Mortgage Servicing Rights. The significant assumptions used in estimating the fair value of Mortgage servicing rights (“MSRs”) were as follows (in annual rates):

	June 30,			December 31,
	2011			2010
Weighted-average prepayment speed (CPR)		12	%		12	%
Option adjusted spread, in basis points		826			844
Volatility		28	%		29	%

The following table summarizes the estimated change in the fair value of MSRs from adverse changes in the significant assumptions:

	June 30, 2011
	Weighted-
	Average			Option
	Prepayment			Adjusted
	Speed			Spread			Volatility
	(In millions)
Impact on fair value of 10% adverse change	$	(79	)	$	(68	)	$	(29	)
Impact on fair value of 20% adverse change		(152	)		(130	)		(60	)

These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on a variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption; in reality, changes in one assumption may result in changes in another, which may magnify or counteract the sensitivities. Further, this analysis does not assume any impact resulting from management’s intervention to mitigate these variations.

Assets and liabilities measured at fair value on a recurring basis were included in the Condensed Consolidated Balance Sheets as follows:

	June 30, 2011
							Cash
	Level		Level		Level		Collateral
	One		Two		Three		and Netting(1)			Total
	(In millions)
Assets:
Restricted investments	$	—	$	241	$	—	$	—		$	241
Mortgage loans held for sale		—		1,552		155		—			1,707
Mortgage servicing rights		—		—		1,508		—			1,508
Other assets:
Derivative assets:
Interest rate lock commitments		—		—		52		—			52
Forward delivery commitments		—		43		—		(23	)		20
Interest rate contracts		—		2		—		—			2
Option contracts		—		3		—		—			3
Convertible note-related agreements		—		—		31		—			31
Securitized mortgage loans		—		—		34		—			34
Liabilities:
Other liabilities:
Derivative liabilities:
Interest rate lock commitments	$	—	$	—	$	4	$	—		$	4
Forward delivery commitments		—		52		—		(33	)		19
Foreign exchange contracts		—		1		—		—			1
Convertible note-related agreements		—		—		31		—			31
Debt:
Mortgage loan securitization debt certificates		—		—		26		—			26

	December 31, 2010
							Cash
	Level		Level		Level		Collateral
	One		Two		Three		and Netting(1)			Total
	(In millions)
Assets:
Restricted investments	$	—	$	254	$	—	$	—		$	254
Mortgage loans held for sale		—		4,157		172		—			4,329
Mortgage servicing rights				—		1,442		—			1,442
Other assets:
Derivative assets:
Interest rate lock commitments		—		—		42		—			42
Forward delivery commitments		—		309		—		(241	)		68
Interest rate contracts		—		4		—		—			4
Convertible note-related agreements		—		—		54		—			54
Securitized mortgage loans		—		—		42		—			42
Liabilities:
Other liabilities:
Derivative liabilities:
Interest rate lock commitments		—		—		46		—			46
Forward delivery commitments		—		82		—		(51	)		31
Convertible note-related agreements		—		—		54		—			54
Debt:
Mortgage loan securitization debt certificates		—		—		30		—			30

⁽¹⁾ Represents adjustments to arrive at the carrying amounts of assets and liabilities presented in the Condensed Consolidated Balance Sheets for the effect of netting the payable or receivable and cash collateral held or placed with the same counterparties under master netting arrangements.

The activity in assets and liabilities classified within Level Three of the valuation hierarchy consisted of:

	Three Months Ended June 30, 2011
							Other Assets							Debt
								Interest rate						Mortgage loan
	Mortgage			Mortgage				lock			Securitized			securitization
	loans held			servicing				commitments,			mortgage			debt
	for sale			rights				net			loans			certificates
	(In millions)
Balance, beginning of period	$	157		$	1,590			$	49		$	37		$	28
Realized and unrealized gains (losses)  for assets		2			(159	)			249			—			—
Realized and unrealized (gains) losses for liabilities		—			—				—			—			1
Purchases		12			—				—			—			—
Issuances		131			77				—			—			—
Settlements		(131	)		—				(250	)		(3	)		(3	)
Transfers into level three (1)		36			—				—			—			—
Transfers out of level three (2)		(52	)		—				—			—			—
Balance, end of period	$	155		$	1,508			$	48		$	34		$	26

	Six Months Ended June 30, 2011
							Other Assets						Debt
							Interest rate						Mortgage loan
	Mortgage			Mortgage			lock			Securitized			securitization
	loans held			servicing			commitments,			mortgage			debt
	for sale			rights			net			loans			certificates
	(In millions)
Balance, beginning of period	$	172		$	1,442		$	(4	)	$	42		$	30
Realized and unrealized gains (losses)  for assets		(10	)		(191	)		433			(1	)		—
Realized and unrealized (gains) losses for liabilities		—			—			—			—			2
Purchases		24			—			—			—			—
Issuances		308			257			—			—			—
Settlements		(304	)		—			(381	)		(7	)		(6	)
Transfers into level three (1)		84			—			—			—			—
Transfers out of level three (2)		(119	)		—			—			—			—
Balance, end of period	$	155		$	1,508		$	48		$	34		$	26

	Three Months Ended June 30, 2010
							Other Assets									Debt
	Mortgage									Interest rate						Mortgage loan
	loans			Mortgage						lock			Securitized			securitization
	held			servicing			Investment			commitments,			mortgage			debt
	for sale			rights			securities			net			loans			certificates
	(In millions)
Balance, beginning of period	$	92		$	1,458		$	1		$	51		$	49		$	37
Realized and unrealized gains (losses) for assets		(3	)		(320	)		—			379			2			—
Realized and unrealized losses for liabilities		—			—			—			—			—			1
Purchases, issuances and settlements, net		15			98			(1	)		(288	)		(4	)		(3	)
Transfers into level three (1)		8			—			—			—			—			—
Transfers out of level three (2)		(9	)		—			—			—			—			—
Balance, end of period	$	103		$	1,236		$	—		$	142		$	47		$	35

	Six Months Ended June 30, 2010
							Other Assets									Debt
	Mortgage									Interest rate						Mortgage loan
	loans			Mortgage						lock			Securitized			securitization
	held			servicing			Investment			commitments,			mortgage			debt
	for sale			rights			securities			net			loans			certificates
	(In millions)
Balance, beginning of period	$	111		$	1,413		$	12		$	26		$	—		$	—
Realized and unrealized gains (losses) for assets		(5	)		(372	)		—			581			4			—
Realized and unrealized losses for liabilities		—			—			—			—			—			2
Purchases, issuances and settlements, net		(4	)		195			(1	)		(465	)		(8	)		(7	)
Transfers into level three (1)		26			—			—			—			—			—
Transfers out of level three (2)		(25	)		—			—			—			—			—
Transition adjustment (3)		—			—			(11	)		—			51			40
Balance, end of period	$	103		$	1,236		$	—		$	142		$	47		$	35

(1)	Represents transfers to Scratch and Dent and Non-Conforming loans from conforming loans. Loans that transfer into Level Three represent mortgage loans with origination flaws, performance issues, or characteristics that would make them not currently saleable through the agency mortgage-backed security market.
(2)	Represents Scratch and Dent and construction loans that were foreclosed upon, construction loans that converted to first mortgages and Scratch and Dent or Non-Conforming loans with origination flaws, performance issues or characteristics that were corrected. Mortgage loans in foreclosure are measured at fair value on a non-recurring basis, as discussed in further detail below.
(3)	Represents the transition adjustment related to the adoption of updates to Consolidation and Transfers and Servicing accounting guidance resulting in the consolidation of a mortgage loan securitization trust.

For assets and liabilities classified within Level Three of the valuation hierarchy, the following tables summarize amounts included in the Condensed Consolidated Statements of Operations for: (i) realized and unrealized gains and losses and (ii) unrealized gains and losses related to assets and liabilities that are included in the Condensed Consolidated Balance Sheets as of the end of the respective period:

	Three Months Ended June 30, 2011
											Mortgage			Related to
											loan			assets and
	Mortgage			Mortgage			Interest rate		Securitized		securitization			liabilities held at
	loans held			servicing			lock		mortgage		debt			June 30,
	for sale			rights			commitments		loans		certificates			2011
	(In millions)
Gain on mortgage loans, net	$	(1	)	$	—		$	249	$	—	$	—		$	43
Change in fair value of mortgage servicing rights		—			(159	)		—		—		—			(130	)
Mortgage interest income		3			—			—		1		—			—
Mortgage interest expense		—			—			—		—		(1	)		—
Other income		—			—			—		—		—			—

	Six Months Ended June 30, 2011
												Mortgage			Related to
												loan			assets and
	Mortgage			Mortgage			Interest rate		Securitized			securitization			liabilities held at
	loans held			servicing			lock		mortgage			debt			June 30,
	for sale			rights			commitments		loans			certificates			2011
	(In millions)
Gain on mortgage loans, net	$	(16	)	$	—		$	433	$	—		$	—		$	35
Change in fair value of mortgage servicing rights		—			(191	)		—		—			—			(102	)
Mortgage interest income		6			—			—		2			—			—
Mortgage interest expense		—			—			—		—			(2	)		—
Other income		—			—			—		(3	)		—			(3	)

	Three Months Ended June 30, 2010
											Mortgage			Related to
											loan			assets and
	Mortgage			Mortgage			Interest rate		Securitized		securitization			liabilities held at
	loans held			servicing			lock		mortgage		debt			June 30,
	for sale			rights			commitments		loans		certificates			2010
	(In millions)
Gain on mortgage loans, net	$	(5	)	$	—		$	379	$	—	$	—		$	133
Change in fair value of mortgage servicing rights		—			(320	)		—		—		—			(273	)
Mortgage interest income		2			—			—		2		—			—
Mortgage interest expense		—			—			—		—		(2	)		—
Other income		—			—			—		—		1			—

	Six Months Ended June 30, 2010
											Mortgage			Related to
											loan			assets and
	Mortgage			Mortgage			Interest rate		Securitized		securitization			liabilities held at
	loans held			servicing			lock		mortgage		debt			June 30,
	for sale			rights			commitments		loans		certificates			2010
	(In millions)
Gain on mortgage loans, net	$	(10	)	$	—		$	581	$	—	$	—		$	130
Change in fair value of mortgage servicing rights		—			(372	)		—		—		—			(262	)
Mortgage interest income		5			—			—		3		—			—
Mortgage interest expense		—			—			—		—		(3	)		—
Other income		—			—			—		1		1			1

Non-Recurring Fair Value Measurements

Other Assets. The allowance for probable losses associated with mortgage loans in foreclosure and the adjustment to record real estate owned at estimated net realizable value were based upon fair value measurements from Level Two of the valuation hierarchy. During the three and six months ended June 30, 2011, total foreclosure-related charges of $24 million and $39 million, respectively, were recorded in Other operating expenses, which include changes in the estimate of losses related to off-balance sheet exposure to loan repurchases and indemnifications in addition to the provision for valuation adjustments for mortgage loans in foreclosure and real estate owned. During the three and six months ended June 30, 2010, total foreclosure-related charges of $20 million and $43 million, respectively, were recorded.

See Note 9, “Credit Risk” for further discussion regarding the balances of mortgage loans in foreclosure, real estate owned, and the off-balance sheet exposure to loan repurchases and indemnifications.