Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.4.0.6
Outstanding Loans and Leases
6 Months Ended
Jun. 30, 2012
Loans and Leases Receivable Disclosure [Abstract]  
Outstanding Loans and Leases
NOTE 5 – Outstanding Loans and Leases

The following tables present total outstanding loans and leases and an aging analysis at June 30, 2012 and December 31, 2011.

 
June 30, 2012
(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)
$
2,072

$
726

$
4,099

$
6,897

$
166,819

 
 
$
173,716

Home equity
290

154

521

965

63,141

 
 
64,106

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage
2,813

1,618

30,315

34,746

34,570

$
9,603

 
78,919

Home equity
674

422

1,662

2,758

39,508

11,639

 
53,905

Discontinued real estate (6)
51

20

303

374

736

8,949

 
10,059

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
760

594

1,594

2,948

91,343

 
 
94,291

Non-U.S. credit card
116

96

253

465

12,966

 
 
13,431

Direct/Indirect consumer (7)
568

255

655

1,478

81,686

 
 
83,164

Other consumer (8)
44

17

3

64

2,504

 
 
2,568

Total consumer loans
7,388

3,902

39,405

50,695

493,273

30,191

 
574,159

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
1,172

1,172

Total consumer
7,388

3,902

39,405

50,695

493,273

30,191

1,172

575,331

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
197

153

800

1,150

183,774

 
 
184,924

Commercial real estate (10)
138

119

1,345

1,602

34,933

 
 
36,535

Commercial lease financing
23

22

33

78

21,614

 
 
21,692

Non-U.S. commercial




53,850

 
 
53,850

U.S. small business commercial
138

111

244

493

12,301

 
 
12,794

Total commercial loans
496

405

2,422

3,323

306,472

 
 
309,795

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
7,189

7,189

Total commercial
496

405

2,422

3,323

306,472

 
7,189

316,984

Total loans and leases
$
7,884

$
4,307

$
41,827

$
54,018

$
799,745

$
30,191

$
8,361

$
892,315

Percentage of outstandings
0.88
%
0.48
%
4.69
%
6.05
%
89.63
%
3.38
%
0.94
%
 
(1) 
Home loans 30-59 days past due includes $2.0 billion of fully-insured loans and $543 million of nonperforming loans. Home loans 60-89 days past due includes $1.1 billion of fully-insured loans and $511 million of nonperforming loans.
(2) 
Home loans includes $22.3 billion of fully-insured loans.
(3) 
Home loans includes $3.8 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 $92 million.
(6) 
Total outstandings includes $9.0 billion of pay option loans and $1.1 billion of subprime loans. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $36.7 billion, consumer lending loans of $6.3 billion, U.S. securities-based lending margin loans of $25.7 billion, student loans of $5.4 billion, non-U.S. consumer loans of $7.8 billion and other consumer loans of $1.3 billion.
(8) 
Total outstandings includes consumer finance loans of $1.5 billion, other non-U.S. consumer loans of $908 million and consumer overdrafts of $127 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $172 million and discontinued real estate loans of $1.0 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $1.9 billion and non-U.S. commercial loans of $5.3 billion. For addition information, see Note 15 – Fair Value Measurements and Note 16 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $35.0 billion and non-U.S. commercial real estate loans of $1.5 billion.
 
December 31, 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)
$
2,151

$
751

$
3,017

$
5,919

$
172,418

 
 
$
178,337

Home equity
260

155

429

844

66,211

 
 
67,055

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage
3,195

2,174

32,167

37,536

36,451

$
9,966

 
83,953

Home equity
845

508

1,735

3,088

42,578

11,978

 
57,644

Discontinued real estate (6)
65

24

351

440

798

9,857

 
11,095

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
981

772

2,070

3,823

98,468

 
 
102,291

Non-U.S. credit card
148

120

342

610

13,808

 
 
14,418

Direct/Indirect consumer (7)
805

338

779

1,922

87,791

 
 
89,713

Other consumer (8)
55

21

17

93

2,595

 
 
2,688

Total consumer loans
8,505

4,863

40,907

54,275

521,118

31,801

 
607,194

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
2,190

2,190

Total consumer
8,505

4,863

40,907

54,275

521,118

31,801

2,190

609,384

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
352

166

866

1,384

178,564

 
 
179,948

Commercial real estate (10)
288

118

1,860

2,266

37,330

 
 
39,596

Commercial lease financing
78

15

22

115

21,874

 
 
21,989

Non-U.S. commercial
24



24

55,394

 
 
55,418

U.S. small business commercial
150

106

272

528

12,723

 
 
13,251

Total commercial loans
892

405

3,020

4,317

305,885

 
 
310,202

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
6,614

6,614

Total commercial
892

405

3,020

4,317

305,885

 
6,614

316,816

Total loans and leases
$
9,397

$
5,268

$
43,927

$
58,592

$
827,003

$
31,801

$
8,804

$
926,200

Percentage of outstandings
1.01
%
0.57
%
4.74
%
6.33
%
89.29
%
3.43
%
0.95
%
 
(1) 
Home loans 30-59 days past due includes $2.2 billion of fully-insured loans and $372 million of nonperforming loans. Home loans 60-89 days past due includes $1.4 billion of fully-insured loans and $398 million of nonperforming loans.
(2) 
Home loans includes $21.2 billion of fully-insured loans.
(3) 
Home loans includes $1.8 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 $85 million.
(6) 
Total outstandings includes $9.9 billion of pay option loans and $1.2 billion of subprime loans. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $43.0 billion, consumer lending loans of $8.0 billion, U.S. securities-based lending margin loans of $23.6 billion, student loans of $6.0 billion, non-U.S. consumer loans of $7.6 billion and other consumer loans of $1.5 billion.
(8) 
Total outstandings includes consumer finance loans of $1.7 billion, other non-U.S. consumer loans of $929 million and consumer overdrafts of $103 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $906 million and discontinued real estate loans of $1.3 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.2 billion and non-U.S. commercial loans of $4.4 billion. For additional information, see Note 15 – Fair Value Measurements and Note 16 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $37.8 billion and non-U.S. commercial real estate loans of $1.8 billion.

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 $633 million and $783 million at June 30, 2012 and December 31, 2011. The vehicles from which the Corporation purchases credit protection are VIEs. The Corporation does not have a variable interest in these vehicles, 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 June 30, 2012 and December 31, 2011, the Corporation had a receivable of $344 million and $359 million from these vehicles for reimbursement of losses, and principal of $20.6 billion and $23.9 billion of residential mortgage loans was 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 $26.4 billion and $24.4 billion at June 30, 2012 and December 31, 2011, 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. For additional information, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees.

Nonperforming Loans and Leases

During the first quarter of 2012, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual status for junior-lien consumer real estate loans. In accordance with this regulatory interagency guidance, the Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing, and as a result, the Corporation reclassified $1.9 billion of performing home equity loans to nonperforming as of March 31, 2012, and $1.8 billion was included in nonperforming loans at June 30, 2012. The regulatory interagency guidance had no impact on the Corporation's allowance for loan and lease losses or provision expense as the delinquency status of the underlying first-lien loans was already considered in the Corporation's reserving process.

The table below presents the Corporation’s nonperforming loans and leases including nonperforming troubled debt restructurings (TDRs) and loans accruing past due 90 days or more at June 30, 2012 and December 31, 2011. 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. See Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K for further information on the criteria for classification as nonperforming.

Credit Quality
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases (1)
 
Accruing Past Due 90 Days or More
(Dollars in millions)
June 30
2012
 
December 31
2011
 
June 30
2012
 
December 31
2011
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
2,767

 
$
2,414

 
$
1,793

 
$
883

Home equity
1,063

 
439

 

 

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
11,854

 
13,556

 
20,494

 
20,281

Home equity
3,144

 
2,014

 

 

Discontinued real estate
257

 
290

 

 

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

 
n/a

 
1,594

 
2,070

Non-U.S. credit card
n/a

 
n/a

 
253

 
342

Direct/Indirect consumer
35

 
40

 
627

 
746

Other consumer
1

 
15

 
2

 
2

Total consumer
19,121

 
18,768

 
24,763

 
24,324

Commercial
 
 
 
 
 
 
 
U.S. commercial
1,841

 
2,174

 
33

 
75

Commercial real estate
2,498

 
3,880

 
20

 
7

Commercial lease financing
39

 
26

 
16

 
14

Non-U.S. commercial
194

 
143

 

 

U.S. small business commercial
143

 
114

 
167

 
216

Total commercial
4,715

 
6,337

 
236

 
312

Total consumer and commercial
$
23,836

 
$
25,105

 
$
24,999

 
$
24,636

(1) 
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI portfolio prior to January 1, 2010 of $461 million and $477 million at June 30, 2012 and December 31, 2011.
(2) 
Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At June 30, 2012 and December 31, 2011, residential mortgage includes $18.1 billion and $17.0 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 $4.2 billion of loans on which interest is still accruing for both periods.
n/a = not applicable
Credit Quality Indicators

The Corporation monitors credit quality within its Home Loans, Credit Card and Other Consumer, and Commercial 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 2011 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. FICO scores measure 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. FICO scores are 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 the internal classifications of 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 following tables present certain credit quality indicators for the Corporation’s Home Loans, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at June 30, 2012 and December 31, 2011.

Home Loans - Credit Quality Indicators (1)
 
June 30, 2012
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Legacy Assets & Servicing Residential Mortgage (2)
Countrywide
Residential
Mortgage PCI
Core Portfolio
Home
Equity
(2)
Legacy Assets & Servicing Home
Equity
(2)
Countrywide
Home Equity PCI
Legacy Assets & Servicing
Discontinued
Real Estate
(2)
Countrywide
Discontinued
Real Estate
PCI
Refreshed LTV (3)
 
 
 
 
 
 
 
 
Less than 90 percent
$
77,521

$
18,372

$
3,518

$
42,395

$
14,992

$
2,561

$
805

$
5,245

Greater than 90 percent but less than 100 percent
10,544

5,199

1,406

6,948

4,367

1,086

104

1,089

Greater than 100 percent
16,420

21,266

4,679

14,763

22,907

7,992

201

2,615

Fully-insured loans (4)
69,231

24,479







Total home loans
$
173,716

$
69,316

$
9,603

$
64,106

$
42,266

$
11,639

$
1,110

$
8,949

 
 
 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
 
 
Less than 620
$
6,933

$
14,983

$
3,401

$
2,789

$
6,376

$
1,584

$
472

$
5,153

Greater than or equal to 620 and less than 680
8,694

6,403

1,406

4,608

6,342

1,858

165

1,316

Greater than or equal to 680 and less than 740
24,916

8,872

2,112

13,061

11,009

3,426

221

1,312

Greater than or equal to 740
63,942

14,579

2,684

43,648

18,539

4,771

252

1,168

Fully-insured loans (4)
69,231

24,479







Total home loans
$
173,716

$
69,316

$
9,603

$
64,106

$
42,266

$
11,639

$
1,110

$
8,949

(1) 
Excludes $1.2 billion of loans accounted for under the fair value option.
(2) 
Excludes Countrywide PCI loans.
(3) 
Refreshed LTV percentages for PCI loans are 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 - Credit Quality Indicators
 
June 30, 2012
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
6,463

 
$

 
$
2,442

 
$
734

Greater than or equal to 620 and less than 680
14,036

 

 
3,863

 
324

Greater than or equal to 680 and less than 740
37,032

 

 
10,424

 
246

Greater than or equal to 740
36,760

 

 
25,584

 
230

Other internal credit metrics (2, 3, 4)

 
13,431

 
40,851

 
1,034

Total credit card and other consumer
$
94,291

 
$
13,431

 
$
83,164

 
$
2,568

(1) 
95 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 include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $33.4 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $5.4 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At June 30, 2012, 96 percent of this portfolio was current or less than 30 days past due, two percent was 30-89 days past due and two percent was 90 days or more past due.

Commercial - Credit Quality Indicators (1)
 
June 30, 2012
(Dollars in millions)
U.S.
Commercial
 
Commercial
Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
176,221

 
$
30,065

 
$
20,552

 
$
52,432

 
$
2,096

Reservable criticized
8,703

 
6,470

 
1,140

 
1,418

 
621

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
456

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
595

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,599

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,525

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
4,902

Total commercial credit
$
184,924

 
$
36,535

 
$
21,692

 
$
53,850

 
$
12,794

(1) 
Excludes $7.2 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $411 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At June 30, 2012, 98 percent of the balances where internal credit metrics are used were current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics include delinquency status, application scores, geography or other factors.
Home Loans - Credit Quality Indicators (1)
 
December 31, 2011
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Legacy Assets & Servicing
Residential Mortgage
(2)
Countrywide
Residential
Mortgage PCI
Core Portfolio
Home
Equity
(2)
Legacy Assets & Servicing Home
Equity
(2)
Countrywide
Home Equity PCI
Legacy Assets & Servicing
Discontinued
Real Estate
(2)
Countrywide
Discontinued
Real Estate PCI
Refreshed LTV (3)
 
 
 
 
 
 
 
 
Less than 90 percent
$
80,032

$
20,450

$
3,821

$
46,646

$
17,354

$
2,253

$
895

$
5,953

Greater than 90 percent but less than 100 percent
11,838

5,847

1,468

6,988

4,995

1,077

122

1,191

Greater than 100 percent
17,673

22,630

4,677

13,421

23,317

8,648

221

2,713

Fully-insured loans (4)
68,794

25,060







Total home loans
$
178,337

$
73,987

$
9,966

$
67,055

$
45,666

$
11,978

$
1,238

$
9,857

 
 
 
 
 
 
 
 
 
Refreshed FICO score (5)
 
 
 
 
 
 
 
 
Less than 620
$
7,020

$
17,337

$
3,749

$
2,843

$
7,293

$
2,547

$
548

$
5,968

Greater than or equal to 620 and less than 680
9,331

6,537

1,396

4,704

6,866

2,163

175

1,318

Greater than or equal to 680 and less than 740
26,569

9,439

2,109

13,561

11,798

3,155

228

1,360

Greater than or equal to 740
66,623

15,614

2,712

45,947

19,709

4,113

287

1,211

Fully-insured loans (4)
68,794

25,060







Total home loans
$
178,337

$
73,987

$
9,966

$
67,055

$
45,666

$
11,978

$
1,238

$
9,857

(1) 
Excludes $2.2 billion of loans accounted for under the fair value option.
(2) 
Excludes Countrywide PCI loans.
(3) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value gross of the related valuation allowance.
(4) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.
(5) 
During the first quarter of 2012, refreshed home equity FICO metrics reflected an updated scoring model. Prior periods were adjusted to reflect these updates.

Credit Card and Other Consumer - Credit Quality Indicators
 
December 31, 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
$
8,172

 
$

 
$
3,325

 
$
802

Greater than or equal to 620 and less than 680
15,474

 

 
4,665

 
348

Greater than or equal to 680 and less than 740
39,525

 

 
12,351

 
262

Greater than or equal to 740
39,120

 

 
29,965

 
244

Other internal credit metrics (2, 3, 4)

 
14,418

 
39,407

 
1,032

Total credit card and other consumer
$
102,291

 
$
14,418

 
$
89,713

 
$
2,688

(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 include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $31.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $6.0 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2011, 96 percent of this portfolio was current or less than 30 days past due, two percent was 30-89 days past due and two percent was 90 days or more past due.

Commercial - Credit Quality Indicators (1)
 
December 31, 2011
(Dollars in millions)
U.S.
Commercial
 
Commercial Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
169,599

 
$
28,602

 
$
20,850

 
$
53,945

 
$
2,392

Reservable criticized
10,349

 
10,994

 
1,139

 
1,473

 
836

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
562

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
624

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,612

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,438

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
4,787

Total commercial credit
$
179,948

 
$
39,596

 
$
21,989

 
$
55,418

 
$
13,251

(1) 
Excludes $6.6 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $491 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2011, 97 percent of the balances where internal credit metrics are used were current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics 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, 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 TDR portfolio (the renegotiated credit card and other consumer TDR portfolio, collectively referred to as the renegotiated TDR portfolio). Loans whose contractual terms have been modified in a TDR are typically placed on nonaccrual status and reported as nonperforming until the loans have performed for an adequate period of time under the restructured agreement, generally six months. However, if a borrower demonstrates performance under the previous terms and the underwriting process shows capacity to continue to perform under the modified terms, a loan may remain on accrual status. A loan modified in a TDR that is on accrual status may also be removed from TDR status if it bore a market rate of interest at the time of modification. 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. Purchased credit-impaired (PCI) loans are excluded and reported separately on page 179.

Home Loans

Impaired home loans within the Home Loans portfolio segment consist entirely of TDRs. Excluding PCI loans, substantially all modifications of home loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of home loans are done in accordance with the government's Making Home Affordable Program (modifications under government programs) or the Corporation's proprietary programs (modifications under proprietary programs). 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. In the second quarter of 2012, the Corporation implemented a borrower assistance program that provides forgiveness of principal balances in connection with the global settlement agreement among the Corporation and certain of its affiliates and subsidiaries, together with the U.S. Department of Justice, the U.S. Department of Housing and Urban Development (HUD) and other federal agencies and 49 state Attorneys General concerning the terms of a global settlement resolving investigations into certain origination, servicing and foreclosure practices (Global Settlement Agreement).

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs, including the borrower assistance program. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.

In accordance with applicable accounting guidance, a home loan, excluding PCI loans which are reported separately, is not classified as impaired unless it is a TDR. Once such a loan has been designated as a TDR, it is then individually assessed for impairment. Home loan TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan’s original effective interest rate, as discussed in the paragraph below. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. 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, modifications of home loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease 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 loan and lease 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 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 June 30, 2012 and December 31, 2011, 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 $1.1 billion and $2.0 billion at June 30, 2012 and December 31, 2011.

The table below presents impaired loans in the Corporation’s Home Loans portfolio segment at June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011 and includes primarily loans managed by Legacy Assets & Servicing within Consumer Real Estate Services (CRES). 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
 
 
 
 
 
June 30, 2012
 
December 31, 2011
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
11,926

 
$
8,865

 
n/a

 
$
10,907

 
$
8,168

 
n/a

Home equity
 
 
 
 
1,780

 
486

 
n/a

 
1,747

 
479

 
n/a

Discontinued real estate
 
 
 
 
408

 
223

 
n/a

 
421

 
240

 
n/a

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
12,750

 
$
11,451

 
$
1,309

 
$
12,296

 
$
11,119

 
$
1,295

Home equity
 
 
 
 
1,437

 
1,168

 
553

 
1,551

 
1,297

 
622

Discontinued real estate
 
 
 
 
195

 
144

 
28

 
213

 
159

 
29

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
24,676

 
$
20,316

 
$
1,309

 
$
23,203

 
$
19,287

 
$
1,295

Home equity
 
 
 
 
3,217

 
1,654

 
553

 
3,298

 
1,776

 
622

Discontinued real estate
 
 
 
 
603

 
367

 
28

 
634

 
399

 
29

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2012
 
2011
 
2012
 
2011
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
8,669

 
$
74

 
$
5,427

 
$
62

 
$
8,570

 
$
147

 
$
5,527

 
$
116

Home equity
485

 
10

 
419

 
5

 
496

 
19

 
452

 
10

Discontinued real estate
224

 
2

 
216

 
2

 
228

 
4

 
222

 
4

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
11,326

 
$
106

 
$
9,828

 
$
77

 
$
11,174

 
$
204

 
$
8,790

 
$
147

Home equity
1,205

 
13

 
1,439

 
8

 
1,230

 
22

 
1,370

 
15

Discontinued real estate
148

 
2

 
181

 
2

 
150

 
4

 
175

 
3

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
19,995

 
$
180

 
$
15,255

 
$
139

 
$
19,744

 
$
351

 
$
14,317

 
$
263

Home equity
1,690

 
23

 
1,858

 
13

 
1,726

 
41

 
1,822

 
25

Discontinued real estate
372

 
4

 
397

 
4

 
378

 
8

 
397

 
7

(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 principal is considered collectible.
n/a = not applicable
The table below presents the June 30, 2012 and 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 six months ended June 30, 2012 and 2011, and net charge-offs that were recorded during the period in which the modification occurred. The following Home Loans tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. These TDRs are managed by Legacy Assets & Servicing within CRES.

Home Loans - TDRs Entered into During the Three Months Ended June 30, 2012 and 2011 (1)
 
June 30, 2012
 
Three Months Ended June 30, 2012
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
Residential mortgage
$
1,736

 
$
1,408

 
5.68
%
 
4.78
%
 
$
72

Home equity
139

 
82

 
4.33

 
3.57

 
29

Discontinued real estate
26

 
12

 
6.88

 
5.78

 
4

Total
$
1,901

 
$
1,502

 
5.60

 
4.71

 
$
105

 
 
 
 
 
 
 
 
 
 
 
June 30, 2011
 
Three Months Ended June 30, 2011
Residential mortgage
$
4,254

 
$
3,851

 
5.97
%
 
4.99
%
 
$
51

Home equity
280

 
169

 
6.60

 
4.91

 
43

Discontinued real estate
39

 
25

 
6.49

 
4.67

 
2

Total
$
4,573

 
$
4,045

 
6.01

 
4.99

 
$
96

 
 
 
 
 
 
 
 
 
 
Home Loans - TDRs Entered into During the Six Months Ended June 30, 2012 and 2011 (1)
 
June 30, 2012
 
Six Months Ended June 30, 2012
Residential mortgage
$
3,299

 
$
2,755

 
5.64
%
 
4.69
%
 
$
140

Home equity
333

 
169

 
4.85

 
3.60

 
93

Discontinued real estate
44

 
21

 
6.71

 
5.56

 
6

Total
$
3,676

 
$
2,945

 
5.59

 
4.61

 
$
239

 
 
 
 
 
 
 
 
 
 
 
June 30, 2011
 
Six Months Ended June 30, 2011
Residential mortgage
$
7,823

 
$
6,954

 
5.99
%
 
4.95
%
 
$
75

Home equity
660

 
391

 
6.53

 
4.71

 
71

Discontinued real estate
80

 
50

 
6.51

 
4.51

 
4

Total
$
8,563

 
$
7,395

 
6.04

 
4.93

 
$
150

(1)  
TDRs entered into during both the three and six months ended June 30, 2012 include residential mortgage modifications with principal forgiveness of $183 million and discontinued real estate modifications with principal forgiveness of $6 million.

The following table presents the June 30, 2012 and 2011 carrying value for home loans that were modified in a TDR during the three and six months ended June 30, 2012 and 2011 by type of modification.

Home Loans - Modification Programs
 
TDRs Entered into During the Three Months Ended June 30, 2012
(Dollars in millions)
Residential Mortgage
 
 Home Equity
 
 Discontinued Real Estate
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
 
 
Contractual interest rate reduction
$
15

 
$
19

 
$

 
$
34

Principal and/or interest forbearance
1

 
7

 

 
8

Other modifications (1)
2

 

 

 
2

Total modifications under government programs
18

 
26

 

 
44

 
 
 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
 
 
Contractual interest rate reduction
499

 
3

 
1

 
503

Capitalization of past due amounts
22

 

 

 
22

Principal and/or interest forbearance
103

 
2

 

 
105

Other modifications (1)
27

 
6

 
1

 
34

Total modifications under proprietary programs
651

 
11

 
2

 
664

Trial modifications
739

 
45

 
10

 
794

Total modifications
$
1,408

 
$
82

 
$
12

 
$
1,502

 
 
 
 
 
 
 
 
 
TDRs Entered into During the Three Months Ended June 30, 2011
Modifications under government programs
 
 
 
 
 
 
 
Contractual interest rate reduction
$
490

 
$
45

 
$
3

 
$
538

Principal and/or interest forbearance
67

 
16

 

 
83

Other modifications (1)
35

 
2

 

 
37

Total modifications under government programs
592

 
63

 
3

 
658

 
 
 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
 
 
Contractual interest rate reduction
1,418

 
39

 
5

 
1,462

Capitalization of past due amounts
234

 

 

 
234

Principal and/or interest forbearance
243

 
13

 
3

 
259

Other modifications (1)
90

 
9

 

 
99

Total modifications under proprietary programs
1,985

 
61

 
8

 
2,054

Trial modifications
1,274

 
45

 
14

 
1,333

Total modifications
$
3,851

 
$
169

 
$
25

 
$
4,045

(1)  
Includes other modifications such as term or payment extensions and repayment plans.
Home Loans - Modification Programs (continued)
 
TDRs Entered into During the Six Months Ended June 30, 2012
(Dollars in millions)
Residential Mortgage
 
 Home Equity
 
 Discontinued Real Estate
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
 
 
Contractual interest rate reduction
$
82

 
$
52

 
$

 
$
134

Principal and/or interest forbearance
13

 
17

 

 
30

Other modifications (1)
19

 
1

 

 
20

Total modifications under government programs
114

 
70

 

 
184

 
 
 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
 
 
Contractual interest rate reduction
928

 
12

 
1

 
941

Capitalization of past due amounts
40

 

 

 
40

Principal and/or interest forbearance
202

 
6

 

 
208

Other modifications (1)
76

 
9

 
1

 
86

Total modifications under proprietary programs
1,246

 
27

 
2

 
1,275

Trial modifications
1,395

 
72

 
19

 
1,486

Total modifications
$
2,755

 
$
169

 
$
21

 
$
2,945

 
 
 
 
 
 
 
 
 
TDRs Entered into During the Six Months Ended June 30, 2011
Modifications under government programs
 
 
 
 
 
 
 
Contractual interest rate reduction
$
736

 
$
160

 
$
7

 
$
903

Principal and/or interest forbearance
112

 
28

 
1

 
141

Other modifications (1)
59

 
4

 

 
63

Total modifications under government programs
907

 
192

 
8

 
1,107

 
 
 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
 
 
Contractual interest rate reduction
2,767

 
67

 
13

 
2,847

Capitalization of past due amounts
379

 

 
1

 
380

Principal and/or interest forbearance
460

 
29

 
5

 
494

Other modifications (1)
211

 
20

 
1

 
232

Total modifications under proprietary programs
3,817

 
116

 
20

 
3,953

Trial modifications 
2,230

 
83

 
22

 
2,335

Total modifications
$
6,954

 
$
391

 
$
50

 
$
7,395

(1)  
Includes other modifications such as term or payment extensions and repayment plans.


The table below presents the carrying value of loans that entered into payment default during the three and six months ended June 30, 2012 and 2011 and that were modified in a TDR during the 12 months preceding payment default. A payment default for home loan TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification. Payment default on trial modifications where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is 90 days or more past due three months after the offer to modify is made.

Home Loans - TDRs Entering Payment Default That Were Modified During the Preceding Twelve Months
 
Three Months Ended June 30, 2012
(Dollars in millions)
 Residential Mortgage
 
Home Equity
 
 Discontinued Real Estate
 
Total Carrying Value
Modifications under government programs
$
67

 
$
2

 
$
1

 
$
70

Modifications under proprietary programs
241

 
5

 
2

 
248

Trial modifications
181

 
6

 

 
187

Total modifications
$
489

 
$
13

 
$
3

 
$
505

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2011
Modifications under government programs
$
46

 
$

 
$

 
$
46

Modifications under proprietary programs
450

 
10

 
3

 
463

Trial modifications
12

 

 
1

 
13

Total modifications
$
508

 
$
10

 
$
4

 
$
522

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2012
Modifications under government programs
$
141

 
$
4

 
$
2

 
$
147

Modifications under proprietary programs
615

 
9

 
5

 
629

Trial modifications
290

 
9

 
1

 
300

Total modifications
$
1,046

 
$
22

 
$
8

 
$
1,076

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2011
Modifications under government programs
$
100

 
$

 
$
1

 
$
101

Modifications under proprietary programs
908

 
30

 
7

 
945

Trial modifications
18

 
1

 
1

 
20

Total modifications
$
1,026

 
$
31

 
$
9

 
$
1,066


Credit Card and Other Consumer

The Credit Card and Other Consumer portfolio segment includes impaired loans that have been modified as TDRs. 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 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 that 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, which incorporate the Corporation's historical payment default and loss experience on modified loans, 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 table below provides information on the Corporation's renegotiated TDR portfolio at June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011. The renegotiated TDR portfolio is considered impaired and had a related allowance as shown below.

Impaired Loans - Credit Card and Other Consumer - Renegotiated TDRs
 
 
 
 
 
June 30, 2012
 
December 31, 2011
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
3,883

 
$
3,905

 
$
1,068

 
$
5,272

 
$
5,305

 
$
1,570

Non-U.S. credit card
 
 
 
 
476

 
483

 
324

 
588

 
597

 
435

Direct/Indirect consumer
 
 
 
 
907

 
911

 
306

 
1,193

 
1,198

 
405

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2012
 
2011
 
2012
 
2011
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
4,400

 
$
69

 
$
7,637

 
$
115

 
$
4,710

 
$
146

 
$
8,100

 
$
242

Non-U.S. credit card
508

 
3

 
808

 
1

 
540

 
5

 
803

 
3

Direct/Indirect consumer
1,000

 
13

 
1,686

 
23

 
1,073

 
29

 
1,763

 
47

(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 principal is considered collectible.

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio at June 30, 2012 and December 31, 2011.

Credit Card and Other Consumer - Renegotiated TDRs by Program Type
 
Internal Programs
 
External Programs
 
Other
 
Total
 
Percent of Balances Current or
Less Than 30 Days Past Due
(Dollars in millions)
June 30
2012
December 31
2011
 
June 30
2012
December 31
2011
 
June 30
2012
December 31
2011
 
June 30
2012
December 31
2011
 
June 30
2012
December 31
2011
U.S. credit card
$
2,688

$
3,788

 
$
1,168

$
1,436

 
$
49

$
81

 
$
3,905

$
5,305

 
80.71
%
78.97
%
Non-U.S. credit card
190

218

 
87

113

 
206

266

 
483

597

 
54.70

54.02

Direct/Indirect consumer
587

784

 
311

392

 
13

22

 
911

1,198

 
81.73

80.01

Total renegotiated TDRs
$
3,465

$
4,790

 
$
1,566

$
1,941

 
$
268

$
369

 
$
5,299

$
7,100

 
78.52

77.05



At June 30, 2012 and December 31, 2011, the Corporation had a renegotiated TDR portfolio of $5.3 billion and $7.1 billion of which $4.2 billion was current or less than 30 days past due under the modified terms at June 30, 2012. 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.

The table below provides information on the Corporation’s renegotiated TDR portfolio including the unpaid principal balance and carrying value of loans that were modified in TDRs during the three and six months ended June 30, 2012 and 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 June 30, 2012 and 2011
 
June 30, 2012
 
Three Months Ended June 30, 2012
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value (1)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
U.S. credit card
$
123

 
$
127

 
17.61
%
 
6.30
%
 
$
1

Non-U.S. credit card
92

 
97

 
26.27

 
0.78

 
4

Direct/Indirect consumer
18

 
18

 
15.24

 
3.96

 

Total
$
233

 
$
242

 
20.91

 
3.91

 
$
5

 
 
 
 
 
 
 
 
 
 
 
June 30, 2011
 
Three Months Ended June 30, 2011
U.S. credit card
$
281

 
$
291

 
19.06
%
 
6.06
%
 
$
3

Non-U.S. credit card
181

 
189

 
26.49

 
0.66

 
8

Direct/Indirect consumer
66

 
67

 
15.57

 
5.62

 
1

Total
$
528

 
$
547

 
21.21

 
4.13

 
$
12

 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer - Renegotiated TDRs Entered into During the Six Months Ended June 30, 2012 and 2011
 
June 30, 2012
 
Six Months Ended June 30, 2012
U.S. credit card
$
264

 
$
268

 
17.94
%
 
6.34
%
 
$
8

Non-U.S. credit card
172

 
181

 
26.17

 
0.88

 
39

Direct/Indirect consumer
41

 
41

 
15.37

 
4.17

 
1

Total
$
477

 
$
490

 
20.75

 
4.15

 
$
48

 
 
 
 
 
 
 
 
 
 
 
June 30, 2011
 
Six Months Ended June 30, 2011
U.S. credit card
$
637

 
$
652

 
19.16
%
 
6.14
%
 
$
20

Non-U.S. credit card
294

 
307

 
26.62

 
0.68

 
53

Direct/Indirect consumer
158

 
161

 
15.63

 
5.63

 
4

Total
$
1,089

 
$
1,120

 
20.70

 
4.57

 
$
77

(1) 
Includes accrued interest and fees.

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during the three and six months ended June 30, 2012 and 2011.

Credit Card and Other Consumer - Renegotiated TDRs by Program Type
 
Renegotiated TDRs Entered into During the Three Months Ended June 30, 2012
(Dollars in millions)
Internal Programs
 
External Programs
 
Other
 
Total
U.S. credit card
$
57

 
$
70

 
$

 
$
127

Non-U.S. credit card
51

 
46

 

 
97

Direct/Indirect consumer
9

 
9

 

 
18

Total renegotiated TDRs
$
117

 
$
125

 
$

 
$
242

 
 
 
 
 
 
 
 
 
Renegotiated TDRs Entered into During the Three Months Ended June 30, 2011
U.S. credit card
$
172

 
$
117

 
$
2

 
$
291

Non-U.S. credit card
99

 
90

 

 
189

Direct/Indirect consumer
42

 
25

 

 
67

Total renegotiated TDRs
$
313

 
$
232

 
$
2

 
$
547

 
 
 
 
 
 
 
 
 
Renegotiated TDRs Entered into During the Six Months Ended June 30, 2012
U.S. credit card
$
127

 
$
141

 
$

 
$
268

Non-U.S. credit card
95

 
86

 

 
181

Direct/Indirect consumer
21

 
20

 

 
41

Total renegotiated TDRs
$
243

 
$
247

 
$

 
$
490

 
 
 
 
 
 
 
 
 
Renegotiated TDRs Entered into During the Six Months Ended June 30, 2011
U.S. credit card
$
379

 
$
271

 
$
2

 
$
652

Non-U.S. credit card
150

 
156

 
1

 
307

Direct/Indirect consumer
96

 
64

 
1

 
161

Total renegotiated TDRs
$
625

 
$
491

 
$
4

 
$
1,120



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. At June 30, 2012, the allowance for loan and lease losses on the Corporation's renegotiated portfolio was 32.04 percent of the carrying value of these loans. Loans that entered into payment default during the three and six months ended June 30, 2012 that had been modified in a TDR during the 12 months preceding payment default were $51 million and $133 million for U.S. credit card, $77 million and $159 million for non-U.S. credit card and $8 million and $24 million for direct/indirect consumer. Loans that entered into payment default during the three and six months ended June 30, 2011 and that had been modified in a TDR during the 12 months preceding payment default were $217 million and $600 million for U.S. credit card, $101 million and $202 million for non-U.S. credit card and $45 million and $122 million for direct/indirect consumer.

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 loan's 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. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.

At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows 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 already have been recorded in a previous period such that no charge-off is required at the time of modification. For information concerning modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.

At June 30, 2012 and December 31, 2011, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $433 million and $612 million at June 30, 2012 and December 31, 2011.

The table below presents impaired loans in the Corporation's Commercial loan portfolio segment at June 30, 2012 and December 31, 2011, and for the three and six months ended June 30, 2012 and 2011. 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
 
 
 
 
 
June 30, 2012
 
December 31, 2011
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,378

 
$
1,087

 
n/a

 
$
1,482

 
$
985

 
n/a

Commercial real estate
 
 
 
 
1,765

 
1,531

 
n/a

 
2,587

 
2,095

 
n/a

Non-U.S. commercial
 
 
 
 
148

 
148

 
n/a

 
216

 
101

 
n/a

U.S. small business commercial (1)
 
 
 
 

 

 
n/a

 

 

 
n/a

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
2,364

 
$
1,638

 
$
188

 
$
2,654

 
$
1,987

 
$
232

Commercial real estate
 
 
 
 
2,350

 
1,557

 
106

 
3,329

 
2,384

 
135

Non-U.S. commercial
 
 
 
 
416

 
61

 
12

 
308

 
58

 
6

U.S. small business commercial (1)
 
 
 
 
449

 
427

 
116

 
531

 
503

 
172

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
3,742

 
$
2,725

 
$
188

 
$
4,136

 
$
2,972

 
$
232

Commercial real estate
 
 
 
 
4,115

 
3,088

 
106

 
5,916

 
4,479

 
135

Non-U.S. commercial
 
 
 
 
564

 
209

 
12

 
524

 
159

 
6

U.S. small business commercial (1)
 
 
 
 
449

 
427

 
116

 
531

 
503

 
172

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2012
 
2011
 
2012
 
2011
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,086

 
$
9

 
$
534

 
$
1

 
$
1,061

 
$
17

 
$
503

 
$
1

Commercial real estate
1,691

 
4

 
1,895

 
1

 
1,832

 
8

 
1,854

 
2

Non-U.S. commercial
137

 

 
92

 

 
125

 

 
71

 

U.S. small business commercial (1)

 

 

 

 

 

 

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,805

 
$
7

 
$
2,463

 
$
2

 
$
1,854

 
$
18

 
$
2,692

 
$
3

Commercial real estate
1,789

 
4

 
3,491

 
2

 
2,027

 
10

 
3,709

 
4

Non-U.S. commercial
54

 
1

 
66

 

 
58

 
1

 
122

 

U.S. small business commercial (1)
437

 
3

 
707

 
6

 
455

 
7

 
762

 
13

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
2,891

 
$
16

 
$
2,997

 
$
3

 
$
2,915

 
$
35

 
$
3,195

 
$
4

Commercial real estate
3,480

 
8

 
5,386

 
3

 
3,859

 
18

 
5,563

 
6

Non-U.S. commercial
191

 
1

 
158

 

 
183

 
1

 
193

 

U.S. small business commercial (1)
437

 
3

 
707

 
6

 
455

 
7

 
762

 
13

(1) 
Includes U.S. small business commercial renegotiated TDR loans and related allowance.
(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 principal is considered collectible.
n/a = not applicable
The table below presents the June 30, 2012 and 2011 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and six months ended June 30, 2012 and 2011, along with charge-offs that were recorded during the calendar quarter in which the modification occurred.

Commercial - TDRs Entered into During the Three Months Ended June 30, 2012 and 2011
 
June 30, 2012
 
Three Months Ended June 30, 2012
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Net Charge-offs
U.S commercial
$
220

 
$
162

 
$
13

Commercial real estate
226

 
210

 

Non-U.S. commercial
66

 
66

 

U.S. small business commercial (1)
7

 
8

 

Total
$
519

 
$
446

 
$
13

 
 
 
 
 
 
 
June 30, 2011
 
Three Months Ended June 30, 2011
U.S commercial
$
517

 
$
515

 
$
1

Commercial real estate
668

 
589

 
12

Non-U.S. commercial
45

 
45

 

U.S. small business commercial (1)
18

 
21

 

Total
$
1,248

 
$
1,170

 
$
13

 
 
 
 
 
 
Commercial - TDRs Entered into During the Six Months Ended June 30, 2012 and 2011
 
June 30, 2012
 
Six Months Ended June 30, 2012
U.S commercial
$
558

 
$
496

 
$
15

Commercial real estate
486

 
401

 
4

Non-U.S. commercial
66

 
66

 

U.S. small business commercial (1)
16

 
17

 
1

Total
$
1,126

 
$
980

 
$
20

 
 
 
 
 
 
 
June 30, 2011
 
Six Months Ended June 30, 2011
U.S commercial
$
892

 
$
866

 
$
17

Commercial real estate
1,231

 
1,071

 
41

Non-U.S. commercial
52

 
51

 

U.S. small business commercial (1)
40

 
46

 
3

Total
$
2,215

 
$
2,034

 
$
61

(1) 
U.S. small business commercial TDRs are comprised of renegotiated small business card loans.

A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more 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. TDRs that were in payment default at June 30, 2012 and 2011 had a carrying value of $170 million and $27 million for U.S. commercial, $335 million and $268 million for commercial real estate and $12 million and $19 million for U.S. small business commercial.

Purchased Credit-impaired Loans

The table below shows activity for the accretable yield on Countrywide Financial Corporation (Countrywide) consumer PCI loans. Reclassifications from nonaccretable difference primarily result when there is a change in expected cash flows due to various factors, including changes in interest rates on variable-rate loans and prepayment assumptions. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows.

(Dollars in millions)
Three Months Ended June 30, 2012
Six Months Ended June 30, 2012
Accretable yield, beginning of period
$
4,872

$
4,990

Accretion
(258
)
(534
)
Disposals/transfers
(1
)
(25
)
Reclassifications from nonaccretable difference
220

402

Accretable yield, June 30, 2012
$
4,833

$
4,833



See Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2011 Annual Report on Form 10-K for further information on PCI loans and Note 6 – Allowance for Credit Losses for the carrying value and valuation allowance for Countrywide PCI loans.

Loans Held-for-sale

The Corporation had LHFS of $13.3 billion and $13.8 billion at June 30, 2012 and December 31, 2011. Proceeds from sales, securitizations and paydowns of LHFS were $23.4 billion and $99.0 billion for the six months ended June 30, 2012 and 2011. Amounts used for originations and purchases of LHFS were $23.5 billion and $80.4 billion for the six months ended June 30, 2012 and 2011.