Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2011

Fair value of mortgage loan held for sale

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 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

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	)

Components of mortgage loans held for sale

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.

Assumptions used fair value of mortgage servicing rights

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	%

Estimated change in fair value of MSRs from adverse changes in significant assumptions

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	)

Fair value of assets and liabilities measured on a recurring basis

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.

Activity of Level three assets and liabilities

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

Realized and unrealized gains and losses related to assets and liabilities classified within Level Three included in Statements of Operations

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

- Definition

Tabular disclosure of the total amount of gains or losses for the period which are included in earnings or resulted in a change to net assets which gains or losses have arisen from the use of significant unobservable inputs (Level 3) to measure the fair value of assets and liabilities. Such gains or losses are attributable to the change in unrealized gains or losses relating to those assets and liabilities so valued which are still held at the reporting date and which change are also considered for disclosure; it may be expected that a description of where those unrealized gains or losses are reported in the statement of income or the statement of financial position would also be disclosed.

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- Definition

Tabular disclosure of all information related to the key inputs and assumptions (including, at a minimum, but not limited to, and if applicable, quantitative information about discount rates, expected prepayments including the expected weighted-average life of prepayable financial assets, and anticipated credit losses) used in measuring the fair value of assets or liabilities that relate to the transferor's continuing involvement with transferred financial assets, as of the balance sheet date.

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- Definition

Tabular disclosure of a sensitivity analysis or stress test showing the hypothetical effect on the fair value of the transferor's interests in transferred financial assets (including any servicing assets or servicing liabilities) of two or more unfavorable variations from the expected levels for each key assumption that is reported, independently determined from any change in another key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test.

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