Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.3.0.15
Outstanding Loans and Leases
9 Months Ended
Sep. 30, 2011
Loans and Leases Receivable Disclosure [Abstract]  
Outstanding Loans and Leases
NOTE 6 – Outstanding Loans and Leases

The tables below present total outstanding loans and leases and an aging analysis at September 30, 2011 and December 31, 2010.

The Legacy Asset Servicing portfolio, as shown in the table below, is a separately managed legacy mortgage portfolio. Legacy Asset Servicing, which was created on January 1, 2011 in connection with the re-alignment of the CRES business segment, is responsible for servicing loans on its balance sheet and for others including loans held in other business segments and All Other. This includes servicing and managing the runoff and exposures related to selected residential mortgages and home equity loans, including discontinued real estate products, Countrywide PCI loans and certain loans that met a pre-defined delinquency status or probability of default threshold as of January 1, 2011. Since making the determination of the pool of loans to be included in the Legacy Asset Servicing portfolio, the criteria have not changed for this portfolio; however, the criteria will continue to be evaluated over time.

 
September 30, 2011
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More Past Due
(2)
Total Past
Due 30 Days
or More
Total Current
or Less Than 30
Days Past Due
(3)
Purchased
Credit -
impaired
(4)
Loans
Accounted for
Under the Fair
Value Option
Total
Outstandings
Home loans
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
$
1,833

$
736

$
2,398

$
4,967

$
174,154

$

 
$
179,121

Home equity
271

152

324

747

67,509



68,256

Legacy Asset Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage
3,632

2,358

32,504

38,494

38,636

10,265


87,395

Home equity
877

529

1,703

3,109

44,229

12,142


59,480

Discontinued real estate (6)
51

27

378

456

844

10,241


11,541

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
1,079

813

2,128

4,020

98,783



102,803

Non-U.S. credit card
215

177

416

808

15,278



16,086

Direct/Indirect consumer (7)
770

374

775

1,919

88,555



90,474

Other consumer (8)
56

19

26

101

2,709



2,810

Total consumer loans
8,784

5,185

40,652

54,621

530,697

32,648

 
617,966

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
4,741

4,741

Total consumer
8,784

5,185

40,652

54,621

530,697

32,648

4,741

622,707

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
269

204

1,056

1,529

177,477


 
179,006

Commercial real estate (10)
102

275

2,204

2,581

38,307


 
40,888

Commercial lease financing
44

41

22

107

21,243


 
21,350

Non-U.S. commercial


1

1

48,460


 
48,461

U.S. small business commercial
129

107

291

527

13,109


 
13,636

Total commercial loans
544

627

3,574

4,745

298,596


 
303,341

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
6,483

6,483

Total commercial
544

627

3,574

4,745

298,596


6,483

309,824

Total loans and leases
$
9,328

$
5,812

$
44,226

$
59,366

$
829,293

$
32,648

$
11,224

$
932,531

Percentage of outstandings
1.00
%
0.62
%
4.74
%
6.36
%
88.94
%
3.50
%
1.20
%
 
(1) 
Home loans includes $3.8 billion of fully-insured loans, $737 million of nonperforming loans and $118 million of TDRs that were removed from the Countrywide PCI loan portfolio prior to the adoption of accounting guidance on PCI loans effective January 1, 2010.
(2) 
Home loans includes $20.3 billion of fully-insured loans and $387 million of TDRs that were removed from the Countrywide PCI loan portfolio prior to the adoption of accounting guidance on PCI loans effective January 1, 2010.
(3) 
Home loans includes $1.7 billion of nonperforming loans as all principal and interest are not current or the loans are TDRs that have not demonstrated sustained repayment performance.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes non-U.S. residential mortgages of $86 million at September 30, 2011.
(6) 
Total outstandings includes $10.3 billion of pay option loans and $1.2 billion of subprime loans at September 30, 2011. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $43.6 billion, consumer lending of $8.9 billion, U.S. securities-based lending margin loans of $22.3 billion, student loans of $6.1 billion, non-U.S. consumer loans of $7.8 billion and other consumer loans of $1.8 billion at September 30, 2011.
(8) 
Total outstandings includes consumer finance loans of $1.7 billion, other non-U.S. consumer loans of $992 million and consumer overdrafts of $94 million at September 30, 2011.
(9) 
Certain consumer loans are accounted for under the fair value option and include residential mortgage loans of $1.3 billion and discontinued real estate loans of $3.4 billion at September 30, 2011. Certain commercial loans are accounted for under the fair value option and include U.S. commercial loans of $1.9 billion, non-U.S. commercial loans of $4.5 billion and commercial real estate loans of $75 million at September 30, 2011. See Note 16 – Fair Value Measurements and Note 17 – Fair Value Option for additional information.
(10) 
Total outstandings includes U.S. commercial real estate loans of $39.3 billion and non-U.S. commercial real estate loans of $1.6 billion at September 30, 2011.
 
December 31, 2010
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More Past Due
(2)
Total Past
Due 30 Days
or More
Total Current
or Less Than 30
Days Past Due
(3)
Purchased
Credit -
impaired
(4)
Loans
Accounted for
Under the Fair
Value Option
Total
Outstandings
Home loans
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
$
1,160

$
236

$
1,255

$
2,651

$
164,276

$

 
$
166,927

Home equity
186

12

105

303

71,216


 
71,519

Legacy Asset Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage
3,999

2,879

31,985

38,863

41,591

10,592

 
91,046

Home equity
1,096

792

2,186

4,074

49,798

12,590

 
66,462

Discontinued real estate (6)
68

39

419

526

930

11,652

 
13,108

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
1,398

1,195

3,320

5,913

107,872


 
113,785

Non-U.S. credit card
439

316

599

1,354

26,111


 
27,465

Direct/Indirect consumer (7)
1,086

522

1,104

2,712

87,596


 
90,308

Other consumer (8)
65

25

50

140

2,690


 
2,830

Total consumer
9,497

6,016

41,023

56,536

552,080

34,834

 
643,450

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
605

341

1,453

2,399

173,185

2

 
175,586

Commercial real estate (9)
535

186

3,554

4,275

44,957

161

 
49,393

Commercial lease financing
95

23

31

149

21,793


 
21,942

Non-U.S. commercial
25

2

6

33

31,955

41

 
32,029

U.S. small business commercial
195

165

438

798

13,921


 
14,719

Total commercial loans
1,455

717

5,482

7,654

285,811

204

 
293,669

Commercial loans accounted for under the fair value option (10)












$
3,321

3,321

Total commercial
1,455

717

5,482

7,654

285,811

204

3,321

296,990

Total loans and leases
$
10,952

$
6,733

$
46,505

$
64,190

$
837,891

$
35,038

$
3,321

$
940,440

Percentage of outstandings
1.16
%
0.72
%
4.95
%
6.83
%
89.10
%
3.72
%
0.35
%
 
(1) 
Home loans includes $2.4 billion of fully-insured loans, $818 million of nonperforming loans and $156 million of TDRs that were removed from the Countrywide PCI loan portfolio prior to the adoption of accounting guidance on PCI loans effective January 1, 2010.
(2) 
Home loans includes $16.8 billion of fully-insured loans and $372 million of TDRs that were removed from the Countrywide PCI loan portfolio prior to the adoption of accounting guidance on PCI loans effective January 1, 2010.
(3) 
Home loans includes $1.1 billion of nonperforming loans as all principal and interest are not current or the loans are TDRs that have not demonstrated sustained repayment performance.
(4) 
PCI loan amounts are shown gross of the valuation allowance and exclude $1.6 billion of PCI home loans from the Merrill Lynch acquisition which are included in their appropriate aging categories.
(5) 
Total outstandings includes non-U.S. residential mortgages of $90 million at December 31, 2010.
(6) 
Total outstandings includes $11.8 billion of pay option loans and $1.3 billion of subprime loans at December 31, 2010. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $43.3 billion, consumer lending of $12.4 billion, U.S. securities-based lending margin loans of $16.6 billion, student loans of $6.8 billion, non-U.S. consumer loans of $8.0 billion and other consumer loans of $3.2 billion at December 31, 2010.
(8) 
Total outstandings includes consumer finance loans of $1.9 billion, other non-U.S. consumer loans of $803 million and consumer overdrafts of $88 million at December 31, 2010.
(9) 
Total outstandings includes U.S. commercial real estate loans of $46.9 billion and non-U.S. commercial real estate loans of $2.5 billion at December 31, 2010.
(10) 
Certain commercial loans are accounted for under the fair value option and include U.S. commercial loans of $1.6 billion, non-U.S. commercial loans of $1.7 billion and commercial real estate loans of $79 million at December 31, 2010. See Note 16 – Fair Value Measurements and Note 17 – Fair Value Option for additional information.

The Corporation mitigates a portion of its credit risk on the residential mortgage portfolio through the use of synthetic securitization vehicles. These vehicles issue long-term notes to investors, the proceeds of which are held as cash collateral. The Corporation pays a premium to the vehicles to purchase mezzanine loss protection on a portfolio of residential mortgages owned by the Corporation. Cash held in the vehicles is used to reimburse the Corporation in the event that losses on the mortgage portfolio exceed 10 basis points (bps) of the original pool balance, up to the remaining amount of purchased loss protection of $866 million and $1.1 billion at September 30, 2011 and December 31, 2010. The vehicles are VIEs from which the Corporation purchases credit protection and in which the Corporation does not have a variable interest; and accordingly, these vehicles are not consolidated by the Corporation. Amounts due from the vehicles are recorded in other income (loss) when the Corporation recognizes a reimbursable loss, as described above. Amounts are collected when reimbursable losses are realized through the sale of the underlying collateral. At September 30, 2011 and December 31, 2010, the Corporation had a receivable of $390 million and $722 million from these vehicles for reimbursement of losses, and $35.5 billion and $53.9 billion of residential mortgage loans were referenced under these agreements. The Corporation records an allowance for credit losses on these loans without regard to the existence of the purchased loss protection as the protection does not represent a guarantee of individual loans.

In addition, the Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $21.4 billion and $12.9 billion at September 30, 2011 and December 31, 2010, providing full protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans.

Nonperforming Loans and Leases

The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs and loans accruing past due 90 days or more at September 30, 2011 and December 31, 2010. Nonperforming loans and leases exclude performing TDRs and loans accounted for under the fair value option. Nonperforming loans held-for-sale (LHFS) are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. In addition, PCI loans, consumer credit card loans, business card loans and in general consumer loans not secured by real estate, including renegotiated loans, are not considered nonperforming and are therefore excluded from nonperforming loans and leases in the table below. Real estate-secured past due consumer fully-insured loans are reported as performing since the principal repayment is insured. See Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K for further information on the criteria for classification as nonperforming.

 
Nonperforming Loans and Leases
 
Accruing Past Due 90 Days or More
(Dollars in millions)
September 30
2011
 
December 31
2010
 
September 30
2011
 
December 31
2010
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (1)
$
2,075

 
$
1,510

 
$
618

 
$
16

Home equity
336

 
107

 

 

Legacy Asset Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (1)
14,355

 
16,181

 
19,681

 
16,752

Home equity
1,997

 
2,587

 

 

Discontinued real estate
308

 
331

 

 

Credit card and other consumer
 
 
 
 
 
 
 
U.S. credit card
n/a

 
n/a

 
2,128

 
3,320

Non-U.S. credit card
n/a

 
n/a

 
416

 
599

Direct/Indirect consumer
52

 
90

 
734

 
1,058

Other consumer
24

 
48

 
2

 
2

Total consumer
19,147

 
20,854

 
23,579

 
21,747

Commercial
 
 
 
 
 
 
 
U.S. commercial
2,518

 
3,453

 
97

 
236

Commercial real estate
4,474

 
5,829

 
88

 
47

Commercial lease financing
23

 
117

 
18

 
18

Non-U.S. commercial
145

 
233

 
1

 
6

U.S. small business commercial
139

 
204

 
223

 
325

Total commercial
7,299

 
9,836

 
427

 
632

Total consumer and commercial
$
26,446

 
$
30,690

 
$
24,006

 
$
22,379

(1) 
Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At September 30, 2011 and December 31, 2010, residential mortgage includes $15.4 billion and $8.3 billion of loans on which interest has been curtailed by the Federal Housing Administration, and therefore are no longer accruing interest, although principal is still insured, and $4.9 billion and $8.5 billion of loans on which interest is still accruing.
n/a = not applicable

Included in certain loan categories in nonperforming loans and leases in the table above are TDRs that are classified as nonperforming. At September 30, 2011 and December 31, 2010, the Corporation had $3.9 billion and $3.0 billion of residential mortgages, $465 million and $535 million of home equity, $82 million and $75 million of discontinued real estate, $651 million and $175 million of U.S. commercial, $1.3 billion and $770 million of commercial real estate and $39 million and $7 million of non-U.S. commercial loans that were TDRs and classified as nonperforming.

Credit Quality Indicators

The Corporation monitors credit quality within its three portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K. Within the home loans portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the combined loans that have liens against the property and the available line of credit as a percentage of the appraised value of the property securing the loan, refreshed quarterly. Refreshed FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower’s credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. Refreshed FICO score is also a primary credit quality indicator for the credit card and other consumer portfolio segment and the business card portfolio within U.S. small business commercial. The Corporation’s commercial loans are evaluated using pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as special mention, substandard or doubtful, which are asset categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.

The tables below present certain credit quality indicators for the Corporation’s home loans, credit card and other consumer loans, and commercial loan portfolio segments, by class of financing receivables, at September 30, 2011 and December 31, 2010.

Home Loans (1)
 
September 30, 2011
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Legacy Asset
Servicing
Residential Mortgage
(2)
Countrywide
Residential
Mortgage PCI
Core Portfolio
Home
Equity
(2)
Legacy Asset
Servicing Home
Equity
(2)
Countrywide
Home Equity PCI
Legacy Asset
Servicing
Discontinued
Real Estate
(2)
Countrywide
Discontinued
Real Estate
PCI
Refreshed LTV (3)
 
 
 
 
 
 
 
 
Less than 90 percent
$
82,646

$
20,554

$
3,985

$
46,159

$
17,275

$
2,190

$
919

$
6,210

Greater than 90 percent but less than 100 percent
12,062

6,149

1,611

7,094

4,971

1,104

130

1,248

Greater than 100 percent
18,291

24,671

4,669

15,003

25,092

8,848

251

2,783

Fully-insured loans (4)
66,122

25,756







Total home loans
$
179,121

$
77,130

$
10,265

$
68,256

$
47,338

$
12,142

$
1,300

$
10,241

 
 
 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
 
 
Less than 620
$
6,962

$
19,818

$
3,869

$
4,048

$
9,298

$
2,964

$
592

$
6,255

Greater than or equal to 620
106,037

31,556

6,396

64,208

38,040

9,178

708

3,986

Fully-insured loans (4)
66,122

25,756







Total home loans
$
179,121

$
77,130

$
10,265

$
68,256

$
47,338

$
12,142

$
1,300

$
10,241

(1) 
Excludes $4.7 billion of loans accounted for under the fair value option.
(2) 
Excludes Countrywide PCI loans.
(3) 
Refreshed LTV percentages for PCI loans were calculated using the carrying value net of the related valuation allowance.
(4) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer
 
September 30, 2011
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
8,498

 
$

 
$
4,417

 
$
836

Greater than or equal to 620
94,305

 

 
47,409

 
889

Other internal credit metrics (2, 3, 4)

 
16,086

 
38,648

 
1,085

Total credit card and other consumer
$
102,803

 
$
16,086

 
$
90,474

 
$
2,810

(1) 
96 percent of the other consumer portfolio was associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $29.9 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $6.1 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the select European countries’ credit card portfolios which are evaluated using internal credit metrics, including delinquency status. At September 30, 2011, 95 percent of this portfolio was current or less than 30 days past due, two percent was 30-89 days past due and three percent was 90 days past due or more.

Commercial (1)
 
September 30, 2011
(Dollars in millions)
U.S.
Commercial
 
Commercial Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
Risk Ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
167,599

 
$
27,932

 
$
20,385

 
$
46,554

 
$
2,558

Reservable criticized
11,407

 
12,956

 
965

 
1,907

 
897

Refreshed FICO score (2)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
611

Greater than or equal to 620
 
 
 
 
 
 
 
 
4,872

Other internal credit metrics (2, 3, 4)
 
 
 
 
 
 
 
 
4,698

Total commercial credit
$
179,006

 
$
40,888

 
$
21,350

 
$
48,461

 
$
13,636

(1) 
Excludes $6.5 billion of loans accounted for under the fair value option.
(2) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(3) 
U.S. small business commercial includes business card and small business loans which are evaluated using internal credit metrics, including delinquency status. At September 30, 2011, 97 percent was current or less than 30 days past due.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.

Home Loans
 
December 31, 2010
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(1)
Legacy Asset
Servicing
Residential Mortgage
(1)
Countrywide
Residential
Mortgage PCI
Core Portfolio
Home
Equity
(1)
Legacy Asset
Servicing Home
Equity
(1)
Countrywide
Home Equity PCI
Legacy Asset
Servicing
Discontinued
Real Estate
(1)
Countrywide
Discontinued
Real Estate PCI
(2)
Refreshed LTV (2)
 
 
 
 
 
 
 
 
Less than 90 percent
$
95,874

$
21,357

$
3,710

$
51,555

$
22,125

$
2,313

$
1,033

$
6,713

Greater than 90 percent but less than 100 percent
11,581

8,234

1,664

7,534

6,504

1,215

155

1,319

Greater than 100 percent
14,047

29,043

5,218

12,430

25,243

9,062

268

3,620

Fully-insured loans (3)
45,425

21,820







Total home loans
$
166,927

$
80,454

$
10,592

$
71,519

$
53,872

$
12,590

$
1,456

$
11,652


 
 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
 
 
Less than 620
$
5,193

$
22,126

$
4,016

$
3,932

$
11,562

$
3,206

$
663

$
7,168

Greater than or equal to 620
116,309

36,508

6,576

67,587

42,310

9,384

793

4,484

Fully-insured loans (3)
45,425

21,820







Total home loans
$
166,927

$
80,454

$
10,592

$
71,519

$
53,872

$
12,590

$
1,456

$
11,652

(1) 
Excludes Countrywide PCI loans.
(2) 
Refreshed LTV percentages for PCI loans were calculated using the carrying value net of the related valuation allowance.
(3) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer
 
December 31, 2010
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
14,159

 
$
631

 
$
6,748

 
$
979

Greater than or equal to 620
99,626

 
7,528

 
48,209

 
961

Other internal credit metrics (2, 3, 4)

 
19,306

 
35,351

 
890

Total credit card and other consumer
$
113,785

 
$
27,465

 
$
90,308

 
$
2,830

(1) 
96 percent of the other consumer portfolio was associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $24.0 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $7.4 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the select European countries’ credit card portfolios and a portion of the Canadian credit card portfolio which are evaluated using internal credit metrics, including delinquency status. At December 31, 2010, 95 percent of this portfolio was current or less than 30 days past due, three percent was 30-89 days past due and two percent was 90 days past due or more.

Commercial (1)
 
December 31, 2010
(Dollars in millions)
U.S.
Commercial
 
Commercial Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
Risk Ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
160,154

 
$
29,757

 
$
20,754

 
$
30,180

 
$
3,139

Reservable criticized
15,432

 
19,636

 
1,188

 
1,849

 
988

Refreshed FICO score (2)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
888

Greater than or equal to 620
 
 
 
 
 
 
 
 
5,083

Other internal credit metrics (2, 3, 4)
 
 
 
 
 
 
 
 
4,621

Total commercial credit
$
175,586

 
$
49,393

 
$
21,942

 
$
32,029

 
$
14,719

(1) 
Includes $204 million of PCI loans in the commercial portfolio segment and excludes $3.3 billion of loans accounted for under the fair value option.
(2) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(3) 
U.S. small business commercial includes business card and small business loans which are evaluated using internal credit metrics, including delinquency status. At December 31, 2010, 95 percent was current or less than 30 days past due.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.

Impaired Loans and Troubled Debt Restructurings


A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans, all TDRs, and the renegotiated credit card and other consumer portfolio (collectively, the renegotiated portfolio). Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. PCI loans are excluded and reported separately on page 184.

Home Loans

Impaired home loans within the home loans portfolio segment consist entirely of loans modified as TDRs. Substantially all modifications of home loans meet the definition of TDRs. Modifications of home loans are done in accordance with the government's Making Home Affordable Program (government modifications) or the Corporation's proprietary programs (proprietary modifications). These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness or combinations thereof.

Prior to modification, many of these loans were not considered to be individually impaired as they were less than 180 days past due and were included in homogeneous home loan pools which are collectively evaluated for impairment. Once such a loan has been modified and designated as a TDR, it is individually assessed for impairment. In accordance with applicable accounting guidance specific to impaired loans, home loan TDRs are measured primarily based on the net present value of the estimated cash flows discounted at a loan's original effective interest rate. If the carrying value of a TDR exceeds this amount, a specific allowance for loan losses is established in that amount. Alternatively, home loan TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Home loans that reached 180 days past due prior to modification would have been charged-off to their net realizable value before they were modified as TDRs in accordance with established policy. Therefore, the modification of home loans that are 180 or more days past due as TDRs does not have an impact on the allowance for credit losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for credit losses on the outstanding principal balance, even after they have been modified in a TDR.

The net present value of the estimated cash flows is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for the first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience, but are adjusted to reflect an assessment of environmental factors that may not be reflected in the historical data, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of default models also incorporate recent experience with modification programs, a loan's default history prior to modification and the change in borrower payments post-modification.

At September 30, 2011 and December 31, 2010, remaining commitments to lend additional funds to debtors whose terms have been modified in a home loan TDR were immaterial. Home loan foreclosed properties totaled $1.9 billion and $1.2 billion at September 30, 2011 and December 31, 2010.

The table below presents impaired loans in the Corporation’s home loans portfolio segment at September 30, 2011, December 31, 2010 and September 30, 2010. The impaired home loans table below includes primarily loans managed by Legacy Asset Servicing. Certain impaired home loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value.

Impaired Loans - Home Loans
 
 
 
 
 
 
 
Three Months Ended September 30
 
September 30, 2011
 
2011
 
2010
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
9,373

 
$
7,161

 
n/a

 
$
6,280

 
$
54

 
$
5,044

 
$
51

Home equity
1,519

 
418

 
n/a

 
407

 
6

 
506

 
6

Discontinued real estate
397

 
227

 
n/a

 
210

 
2

 
207

 
2

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
10,577

 
$
9,355

 
$
1,274

 
$
9,547

 
$
88

 
$
5,016

 
$
45

Home equity
1,616

 
1,334

 
648

 
1,384

 
9

 
1,373

 
6

Discontinued real estate
220

 
164

 
32

 
101

 
2

 
188

 
2

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
19,950

 
$
16,516

 
$
1,274

 
$
15,827

 
$
142

 
$
10,060

 
$
96

Home equity
3,135

 
1,752

 
648

 
1,791

 
15

 
1,879

 
12

Discontinued real estate
617

 
391

 
32

 
311

 
4

 
395

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
2011
 
2010
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
 
 
$
5,778

 
$
170

 
$
4,057

 
$
131

Home equity
 
 
 
 
 
 
437

 
16

 
472

 
15

Discontinued real estate
 
 
 
 
 
 
218

 
6

 
218

 
6

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
 
 
$
9,042

 
$
235

 
$
5,029

 
$
145

Home equity
 
 
 
 
 
 
1,375

 
24

 
1,595

 
18

Discontinued real estate
 
 
 
 
 
 
150

 
5

 
169

 
5

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
 
 
$
14,820

 
$
405

 
$
9,086

 
$
276

Home equity
 
 
 
 
 
 
1,812

 
40

 
2,067

 
33

Discontinued real estate
 
 
 
 
 
 
368

 
11

 
387

 
11

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
Year Ended December 31, 2010
 
 
 
 
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
5,493

 
$
4,382

 
n/a

 
$
4,429

 
$
184

 
 
 
 
Home equity
1,411

 
437

 
n/a

 
493

 
21

 
 
 
 
Discontinued real estate
361

 
218

 
n/a

 
219

 
8

 
 
 
 
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
8,593

 
$
7,406

 
$
1,154

 
$
5,226

 
$
196

 
 
 
 
Home equity
1,521

 
1,284

 
676

 
1,509

 
23

 
 
 
 
Discontinued real estate
247

 
177

 
41

 
170

 
7

 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
14,086

 
$
11,788

 
$
1,154

 
$
9,655

 
$
380

 
 
 
 
Home equity
2,932

 
1,721

 
676

 
2,002

 
44

 
 
 
 
Discontinued real estate
608

 
395

 
41

 
389

 
15

 
 
 
 
(1) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the ultimate collectability of principal is not uncertain.
n/a = not applicable
The following tables present the September 30, 2011 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of home loans that were modified in TDRs during the three and nine months ended September 30, 2011, along with charge-offs that were recorded during the period in which the modification occurred. These tables consist primarily of TDRs managed by Legacy Asset Servicing.

Home Loans
 
TDRs Entered into During the Three Months Ended September 30, 2011
 
September 30, 2011
 
Three Months Ended September 30, 2011
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
Residential mortgage
$
1,931

 
$
1,677

 
5.92
%
 
4.82
%
 
$
19

Home equity
144

 
86

 
7.90

 
6.47

 
15

Discontinued real estate
21

 
13

 
7.79

 
6.16

 

Total
$
2,096

 
$
1,776

 
6.09

 
4.95

 
$
34


TDRs Entered into During the Nine Months Ended September 30, 2011

September 30, 2011
 
Nine Months Ended September 30, 2011
Residential mortgage
$
6,670

 
$
5,763

 
6.04
%
 
4.97
%
 
$
113

Home equity
616

 
360

 
7.50

 
5.99

 
131

Discontinued real estate
55

 
37

 
7.71

 
5.17

 
2

Total
$
7,341

 
$
6,160

 
6.17

 
5.06

 
$
246



The tables below present the September 30, 2011 carrying value by program type for home loans which were modified in a TDR during the three and nine months ended September 30, 2011. These tables consist primarily of TDRs managed by Legacy Asset Servicing.

Home Loans
 
TDRs Entered into During the Three Months Ended September 30, 2011
(Dollars in millions)
Residential Mortgage
 
 Home Equity
 
 Discontinued Real Estate
 
Total
Government modifications (1)
 
 
 
 
 
 
 
Contractual interest rate reduction
$
161

 
$
21

 
$
2

 
$
184

Principal and/or interest forbearance
54

 
8

 

 
62

Other modifications (2)
23

 
3

 
1

 
27

Total government modifications
238

 
32

 
3

 
273

 
 
 
 
 
 
 
 
Proprietary modifications (1)
 
 
 
 
 
 
 
Contractual interest rate reduction
807

 
29

 
5

 
841

Capitalization of past due amounts
100

 

 

 
100

Principal and/or interest forbearance
328

 
13

 
2

 
343

Other modifications (2)
204

 
12

 
3

 
219

Total proprietary modifications
1,439

 
54

 
10

 
1,503

Total modifications
$
1,677

 
$
86

 
$
13

 
$
1,776

 
TDRs Entered into During the Nine Months Ended September 30, 2011
Government modifications (1)
 
 
 
 
 
 
 
Contractual interest rate reduction
$
942

 
$
175

 
$
8

 
$
1,125

Principal and/or interest forbearance
173

 
35

 
5

 
213

Other modifications (2)
86

 
11

 
2

 
99

Total government modifications
1,201

 
221

 
15

 
1,437

 
 
 
 
 
 
 
 
Proprietary modifications (1)
 
 
 
 
 
 
 
Contractual interest rate reduction
3,090

 
68

 
16

 
3,174

Capitalization of past due amounts
388

 

 

 
388

Principal and/or interest forbearance
678

 
36

 
5

 
719

Other modifications (2)
406

 
35

 
1

 
442

Total proprietary modifications
4,562

 
139

 
22

 
4,723

Total modifications
$
5,763

 
$
360

 
$
37

 
$
6,160

(1) See definition on page 174.
(2) Includes other modifications such as term or payment extensions, principal and/or interest forgiveness and other.

In addition to the home loans modified in TDRs presented above, the Corporation also enters into trial modifications with certain borrowers under the government modifications and the proprietary modifications. Trial modifications generally represent a three- to four-month period whereby the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Trial modifications lasting more than four months are considered TDRs. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification where the terms of the loan are formally modified. Approximately half of all loans that entered into a trial modification during the first six months of 2011 became permanent modifications as of September 30, 2011. Permanent modifications include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness or combinations thereof. Substantially all permanent modifications are considered TDRs and are included in the TDR disclosures herein. As of September 30, 2011, the Corporation had 2,446 loans that were in trial modifications and were not considered TDRs, with an unpaid principal balance of $485 million and a carrying value of $341 million. Home loans in a trial period that are not considered TDRs are measured for impairment as part of homogeneous home loan pools which are collectively evaluated for impairment. The Corporation recognizes that these loans have different risk characteristics than those loans not currently in a trial modification and reflects this increased risk associated with these loans in its allowance for loan losses.

The following tables present the carrying value of loans that entered into payment default during the three months ended September 30, 2011 and during any of the three calendar quarters within the nine months ended September 30, 2011 and that had been modified in a TDR during the 12 months preceding each quarterly period, measured as of the end of each quarterly period. A payment default for home loan TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification.

Home Loans - TDRs Entering Payment Default That Were Modified During the Preceding Twelve Months
 
Three Months Ended September 30, 2011
(Dollars in millions)
 Residential Mortgage
 
Home Equity
 
 Discontinued Real Estate
 
Total
Government modifications
$
61

 
$
2

 
$

 
$
63

Proprietary modifications
573

 
7

 
1

 
581

Total modifications
$
634

 
$
9

 
$
1

 
$
644

 
Nine Months Ended September 30, 2011
Government modifications
$
163

 
$
2

 
$
1

 
$
166

Proprietary modifications
1,483

 
37

 
8

 
1,528

Total modifications
$
1,646

 
$
39

 
$
9

 
$
1,694



Credit Card and Other Consumer

The credit card and other consumer portfolio segment includes impaired loans that have been modified as a TDR. The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal laws and guidelines. Substantially all of the Corporation's credit card and other consumer loan modifications involve reducing the cardholder's interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs. In all cases, the customer's available line of credit is canceled. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies which provide solutions to customers' entire unsecured debt structures (external programs).

All credit card and other consumer loans not secured by real estate, including modified loans, remain on accrual status until the loan is either charged-off or paid in full. The allowance for impaired credit card loans is based on the present value of projected cash flows discounted using the portfolio's average contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Prior to modification, credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including but not limited to historical loss experience, delinquencies, economic trends and credit scores.

The tables below provide information on the Corporation's primary modification programs for the renegotiated portfolio. At September 30, 2011, December 31, 2010 and September 30, 2010, all renegotiated credit card and other consumer loans were considered impaired and have a related allowance as shown in the table below.

Impaired Loans - Credit Card and Other Consumer - Renegotiated TDRs
 
 
 
 
 
 
 
Three Months Ended September 30
 
September 30, 2011
 
2011
 
2010
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 (1)
 
Related
Allowance
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
6,066

 
$
6,107

 
$
1,894

 
$
6,727

 
$
102

 
$
10,352

 
$
156

Non-U.S. credit card
683

 
696

 
533

 
777

 
2

 
709

 
4

Direct/Indirect consumer
1,342

 
1,348

 
481

 
1,502

 
20

 
2,108

 
27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
2011
 
2010
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
 
 
$
7,637

 
$
344

 
$
10,894

 
$
485

Non-U.S. credit card
 
 
 
 
 
 
794

 
5

 
1,004

 
13

Direct/Indirect consumer
 
 
 
 
 
 
1,675

 
67

 
2,170

 
84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
Year Ended December 31, 2010
 
 
 
 
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
8,680

 
$
8,766

 
$
3,458

 
$
10,549

 
$
621

 
 
 
 
Non-U.S. credit card
778

 
797

 
506

 
973

 
21

 
 
 
 
Direct/Indirect consumer
1,846

 
1,858

 
822

 
2,126

 
111

 
 
 
 
(1) 
Includes accrued interest and fees.
(2) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the ultimate collectability of principal is not uncertain.
The tables below provide information on the Corporation's primary modification programs for credit cards and other consumer loans, including the unpaid principal balance and carrying value of loans that were modified in TDRs during the three and nine months ended September 30, 2011, along with charge-offs that were recorded during the calendar quarter in which the modification occurred. The table also presents the average pre- and post-modification interest rate.

Credit Card and Other Consumer
 
Renegotiated TDRs Entered into During the Three Months Ended September 30, 2011
 
September 30, 2011
 
Three Months Ended September 30, 2011
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
U.S. credit card
$
220

 
$
227

 
18.84
%
 
6.25
%
 
$
2

Non-U.S. credit card
153

 
162

 
25.92

 
0.60

 
7

Direct/Indirect consumer
41

 
42

 
15.48

 
4.51

 

Total
$
414

 
$
431

 
21.17

 
3.96

 
$
9

 
Renegotiated TDRs Entered into During the Nine Months Ended September 30, 2011
 
September 30, 2011
 
Nine Months Ended September 30, 2011
U.S. credit card
$
798

 
$
812

 
19.02
%
 
6.20
%
 
$
62

Non-U.S. credit card
336

 
354

 
26.07

 
0.78

 
167

Direct/Indirect consumer
186

 
187

 
15.62

 
5.43

 
13

Total
$
1,320

 
$
1,353

 
20.40

 
4.68

 
$
242



Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan losses for impaired credit card and other consumer loans. Loans that entered into payment default during the three months ended September 30, 2011 and during any of the three calendar quarters within the nine months ended September 30, 2011 and that had been modified in a TDR during the 12 months preceding each quarterly period, measured as of the end of each quarterly period had carrying values as of September 30, 2011 of $150 million and $749 million for U.S. credit card, $113 million and $316 million for non-U.S. credit card and $33 million and $155 million for direct/indirect consumer.

The tables below provide information on the Corporation's primary modification programs for the credit card and other consumer renegotiated TDR portfolio at September 30, 2011 and December 31, 2010.

Credit Card and Other Consumer - Renegotiated TDR Portfolio by Program Type
 
Internal Programs
 
External Programs
 
Other
 
Total
 
Percent of Balances Current or
Less Than 30 Days Past Due
(Dollars in millions)
September 30
2011
December 31
2010
 
September 30
2011
December 31
2010
 
September 30
2011
December 31
2010
 
September 30
2011
December 31
2010
 
September 30
2011
December 31
2010
U.S. credit card
$
4,412

$
6,592

 
$
1,585

$
1,927

 
$
110

$
247

 
$
6,107

$
8,766

 
79.19
%
77.66
%
Non-U.S. credit card
231

282

 
133

176

 
332

339

 
696

797

 
52.55

58.86

Direct/Indirect consumer
890

1,222

 
431

531

 
27

105

 
1,348

1,858

 
80.28

78.81

Total renegotiated TDR loans
$
5,533

$
8,096

 
$
2,149

$
2,634

 
$
469

$
691

 
$
8,151

$
11,421

 
77.10

76.51



At September 30, 2011 and December 31, 2010, the Corporation had a renegotiated TDR portfolio of $8.2 billion and $11.4 billion of which $6.3 billion was current or less than 30 days past due under the modified terms at September 30, 2011. The renegotiated TDR portfolio is excluded from nonperforming loans as the Corporation generally does not classify consumer loans not secured by real estate as nonperforming. Instead, these loans are charged off no later than the end of the month in which the loan becomes 180 days past due.

Credit Card and Other Consumer
 
Renegotiated TDRs Entered into During the Three Months Ended September 30, 2011
 
September 30, 2011
(Dollars in millions)
Internal Programs
 
External Programs
 
Other
 
Total
U.S. credit card
$
122

 
$
103

 
$
2

 
$
227

Non-U.S. credit card
83

 
79

 

 
162

Direct/Indirect consumer
22

 
20

 

 
42

Total renegotiated TDR loans
$
227

 
$
202

 
$
2

 
$
431

 
Renegotiated TDRs Entered into During the Nine Months Ended September 30, 2011
 
September 30, 2011
U.S. credit card
$
454

 
$
355

 
$
3

 
$
812

Non-U.S. credit card
179

 
174

 
1

 
354

Direct/Indirect consumer
107

 
79

 
1

 
187

Total renegotiated TDR loans
$
740

 
$
608

 
$
5

 
$
1,353



Commercial Loans

Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loans' original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of collateral less estimated costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses.

Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation's loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of interest, payment forbearances, or other actions designed to benefit the customer while mitigating the Corporation's risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Concessions may also include principal forgiveness in connection with foreclosure, short sale, or other settlement agreements leading to termination or sale of the loan. Forgiveness of principal is rare.

At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows, observable market prices or collateral value resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification.

Nonperforming commercial TDRs may be returned to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms is expected and the borrower has demonstrated a sustained period of repayment performance, typically six months. Commercial TDRs that are on accrual status are reported as performing TDRs through the end of the calendar year in which the restructuring occurred or the year in which they are returned to accrual status. In addition, if accruing TDRs bear less than a market rate of interest at the time of modification, they are reported as performing TDRs and thus impaired loans throughout their remaining lives.

At September 30, 2011 and December 31, 2010, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $721 million and $725 million at September 30, 2011 and December 31, 2010.

The following tables present impaired loans in the Corporation's commercial loan portfolio at September 30, 2011, December 31, 2010 and September 30, 2010. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.

Impaired Loans - Commercial
 
 
 
 
 
 
 
Three Months Ended September 30
 
September 30, 2011
 
2011
 
2010
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Average
Carrying
Value
 
Interest
Income
Recognized
 (1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,465

 
$
1,045

 
n/a

 
$
870

 
$

 
$
798

 
$

Commercial real estate
2,641

 
2,092

 
n/a

 
2,041

 
1

 
2,028

 
1

Non-U.S. commercial
221

 
120

 
n/a

 
96

 

 
9

 

U.S. small business commercial (2)

 

 
n/a

 

 

 

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
2,931

 
$
2,117

 
$
289

 
$
2,176

 
$
4

 
$
3,385

 
$
9

Commercial real estate
4,038

 
2,911

 
278

 
3,013

 
10

 
4,502

 
8

Non-U.S. commercial
294

 
46

 
8

 
72

 
3

 
204

 

U.S. small business commercial (2)
612

 
590

 
223

 
616

 
5

 
999

 
8

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
4,396

 
$
3,162

 
$
289

 
$
3,046

 
$
4

 
$
4,183

 
$
9

Commercial real estate
6,679

 
5,003

 
278

 
5,054

 
11

 
6,530

 
9

Non-U.S. commercial
515

 
166

 
8

 
168

 
3

 
213

 

U.S. small business commercial (2)
612

 
590

 
223

 
616

 
5

 
999

 
8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30
 
 
 
 
 
 
 
2011
 
2010
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
 
 
$
638

 
$
1

 
$
582

 
$
1

Commercial real estate
 
 
 
 
 
 
1,913

 
3

 
1,724

 
3

Non-U.S. commercial
 
 
 
 
 
 
83

 

 
3

 

U.S. small business commercial (2)
 
 
 
 
 
 

 

 

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
 
 
$
2,543

 
$
7

 
$
3,799

 
$
21

Commercial real estate
 
 
 
 
 
 
3,505

 
14

 
5,154

 
18

Non-U.S. commercial
 
 
 
 
 
 
97

 
3

 
191

 

U.S. small business commercial (2)
 
 
 
 
 
 
713

 
18

 
1,052

 
26

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
 
 
$
3,181

 
$
8

 
$
4,381

 
$
22

Commercial real estate
 
 
 
 
 
 
5,418

 
17

 
6,878

 
21

Non-U.S. commercial
 
 
 
 
 
 
180

 
3

 
194

 

U.S. small business commercial (2)
 
 
 
 
 
 
713

 
18

 
1,052

 
26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2010
 
Year Ended December 31, 2010
 
 
 
 
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
968

 
$
441

 
n/a

 
$
547

 
$
3

 
 
 
 
Commercial real estate
2,655

 
1,771

 
n/a

 
1,736

 
8

 
 
 
 
Non-U.S. commercial
46

 
28

 
n/a

 
9

 

 
 
 
 
U.S. small business commercial (2)

 

 
n/a

 

 

 
 
 
 
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
3,891

 
$
3,193

 
$
336

 
$
3,389

 
$
36

 
 
 
 
Commercial real estate
5,682

 
4,103

 
208

 
4,813

 
29

 
 
 
 
Non-U.S. commercial
572

 
217

 
91

 
190

 

 
 
 
 
U.S. small business commercial (2)
935

 
892

 
445

 
1,028

 
34

 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
4,859

 
$
3,634

 
$
336

 
$
3,936

 
$
39

 
 
 
 
Commercial real estate
8,337

 
5,874

 
208

 
6,549

 
37

 
 
 
 
Non-U.S. commercial
618

 
245

 
91

 
199

 

 
 
 
 
U.S. small business commercial (2)
935

 
892

 
445

 
1,028

 
34

 
 
 
 
(1) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the ultimate collectability of principal is not uncertain.
(2) 
Includes U.S. small business commercial TDR loans and related allowance.
n/a = not applicable

The following tables present the September 30, 2011 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and nine months ended September 30, 2011, along with charge-offs that were recorded during the calendar quarter in which the modification occurred. As a result of the retrospective application of new accounting guidance on TDRs, the Corporation recorded $1.1 billion of commercial loan modifications as of September 30, 2011, of which $552 million were nonperforming TDRs. These newly identified TDRs did not have a significant impact on the Corporation's allowance for credit losses or provision expense. See Note 1 – Summary of Significant Accounting Principles for additional information.

Commercial
 
TDRs Entered into During the
Three Months Ended September 30, 2011
 
September 30, 2011
 
Three Months Ended September 30, 2011
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Net Charge-offs
U.S commercial
$
417

 
$
320

 
$
19

Commercial real estate
652

 
525

 
58

Non-U.S. commercial

 

 

U.S. small business commercial
14

 
14

 

Total
$
1,083

 
$
859

 
$
77

 
TDRs Entered into During the
Nine Months Ended September 30, 2011
 
September 30, 2011
 
Nine Months Ended September 30, 2011
U.S commercial
$
1,250

 
$
1,087

 
$
49

Commercial real estate
1,760

 
1,444

 
129

Non-U.S. commercial
49

 
49

 

U.S. small business commercial
53

 
55

 
11

Total
$
3,112

 
$
2,635

 
$
189


 
A commercial TDR is generally deemed to be in payment default when the loan is 90 or more days past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan losses. Loans that were in payment default during the three- and nine-month periods ended September 30, 2011 and that had been modified in a TDR during the period or the preceding 12 months had a carrying value of $132 million and $145 million for U.S. commercial, $611 million and $627 million for commercial real estate and $17 million and $58 million for U.S. small business commercial.
Purchased Credit-impaired Loans

PCI loans are acquired loans with evidence of credit quality deterioration since origination for which it is probable at purchase date that the Corporation will be unable to collect all contractually required payments. PCI loans are pooled based on similar characteristics and evaluated for impairment on a pool basis. The Corporation estimates impairment on its PCI loan portfolio in accordance with applicable accounting guidance on contingencies which involves estimating the expected cash flows of each pool using internal credit risk, interest rate and prepayment risk models. The key assumptions used in the models include the Corporation’s estimate of default rates, loss severity and prepayment speeds.

The table below presents the remaining unpaid principal balance and carrying amount, excluding the valuation allowance, for Countrywide consumer PCI loans at September 30, 2011, June 30, 2011 and December 31, 2010. The valuation allowance for Countrywide consumer PCI loans is presented together with the allowance for loan and lease losses. See Note 7 – Allowance for Credit Losses for additional information.

Beginning September 30, 2011, PCI loans that were acquired as part of the Merrill Lynch acquisition are excluded from the tables below as these loan balances and related accretable yield, nonaccretable difference and valuation allowance are insignificant.

(Dollars in millions)
September 30
2011
 
June 30
2011
 
December 31
2010
Unpaid principal balance
$
36,617

 
$
38,488

 
$
41,446

Carrying value excluding valuation allowance
32,648

 
33,416

 
34,834

Allowance for loan and lease losses
8,239

 
8,239

 
6,334



The table below shows activity for the accretable yield on Countrywide consumer PCI loans. The $839 million reclassification from nonaccretable difference for the nine months ended September 30, 2011 primarily reflects an increase in estimated interest payments due to estimated slower prepayment speeds.

(Dollars in millions)
Three Months Ended September 30, 2011
 
Nine Months Ended September 30, 2011
Accretable yield, beginning of period
$
5,567

 
$
5,481

Accretion
(305
)
 
(986
)
Disposals/transfers
(25
)
 
(90
)
Reclassifications from nonaccretable difference
7

 
839

Accretable yield, September 30, 2011
$
5,244

 
$
5,244



Loans Held-for-sale

The Corporation had LHFS of $23.1 billion and $35.1 billion at September 30, 2011 and December 31, 2010. Proceeds from sales, securitizations and paydowns of LHFS were $127.6 billion and $221.4 billion for the nine months ended September 30, 2011 and 2010. Proceeds used for originations and purchases of LHFS were $103.6 billion and $200.4 billion for the nine months ended September 30, 2011 and 2010. During the three months ended September 30, 2011, $8.1 billion of non-U.S. credit card loans related to the Canadian credit card portfolio were transferred to LHFS as a result of the announced sale of the Canadian consumer card business.