LOANS RECEIVABLE, NET

Loans receivable, net at June 30, 2017 and December 31, 2016 are summarized as follows (dollars in millions):



	June 30,			December 31,
	2017			2016
One- to four-family	$	1,659		$	1,950
Home equity	1,287			1,556
Consumer	212			250
Total loans receivable	3,158			3,756
Unamortized premiums, net	13			16
Allowance for loan losses	(116		)	(221		)
Total loans receivable, net	$	3,055		$	3,551

During the three months ended June 30, 2017, the Company sold certain loans with a carrying value of $41 million for proceeds that approximated book value.

At June 30, 2017, the Company pledged $2.6 billion and $0.2 billion of loans as collateral to the FHLB and Federal Reserve Bank of Richmond, respectively. At December 31, 2016, the Company pledged $3.1 billion and $0.3 billion of loans as collateral to the FHLB and Federal Reserve Bank of Richmond, respectively.

The following table presents the total recorded investment in loans receivable and allowance for loan losses by loans that have been collectively evaluated for impairment and those that have been individually evaluated for impairment by loan class at June 30, 2017 and December 31, 2016 (dollars in millions):



	Recorded Investment				Allowance for Loan Losses
	June 30,		December 31,		June 30,		December 31,
	2017		2016		2017		2016
Collectively evaluated for impairment:
One- to four-family	$	1,445	$	1,717	$	22	$	38
Home equity	1,109		1,361		44		120
Consumer	214		253		5		5
Total collectively evaluated for impairment	2,768		3,331		71		163
Individually evaluated for impairment:
One- to four-family	225		246		7		7
Home equity	178		195		38		51
Total individually evaluated for impairment	403		441		45		58
Total	$	3,171	$	3,772	$	116	$	221

Credit Quality and Concentrations of Credit Risk

The Company tracks and reviews factors to predict and monitor credit risk in its mortgage loan portfolio on an ongoing basis. These factors include: loan type, estimated current LTV/CLTV ratios, delinquency history, borrowers’ current credit scores, housing prices, loan vintage and geographic location of the property. The Company believes LTV/CLTV ratios and credit scores are the key factors in determining future loan performance. The factors are updated on at least a quarterly basis. The Company tracks and reviews delinquency status to predict and monitor credit risk in the consumer loan portfolio on at least a quarterly basis.

Credit Quality

The following tables show the distribution of the Company’s mortgage loan portfolios by credit quality indicator at June 30, 2017 and December 31, 2016 (dollars in millions):



	One- to Four-Family						Home Equity
	June 30,			December 31,			June 30,			December 31,
Current LTV/CLTV⁽¹⁾	2017			2016			2017			2016
<=80%	$	1,135		$	1,308		$	592		$	686
80%-100%	334			413			349			414
100%-120%	99			143			214			274
>120%	91			86			132			182
Total mortgage loans receivable	$	1,659		$	1,950		$	1,287		$	1,556
Average estimated current LTV/CLTV ⁽²⁾	73		%	73		%	85		%	87		%
Average LTV/CLTV at loan origination ⁽³⁾	71		%	71		%	81		%	81		%

(1)

Current CLTV calculations for home equity loans are based on the maximum available line for HELOCs and outstanding principal balance for home equity installment loans. For home equity loans in the second lien position, the original balance of the first lien loan at origination date and updated valuations on the property underlying the loan are used to calculate CLTV. Current property value estimates are updated on a quarterly basis.


(2)	The average estimated current LTV/CLTV ratio reflects the outstanding balance at the balance sheet date and the maximum available line for HELOCs, divided by the estimated current value of the underlying property.


(3)	Average LTV/CLTV at loan origination calculations are based on LTV/CLTV at time of purchase for one- to four-family purchased loans and home equity installment loans and maximum available line for HELOCs



	One- to Four-Family				Home Equity
	June 30,		December 31,		June 30,		December 31,
Current FICO	2017		2016		2017		2016
>=720	$	941	$	1,121	$	639	$	778
719 - 700	153		179		127		156
699 - 680	115		153		109		141
679 - 660	109		121		92		117
659 - 620	141		154		125		149
<620	200		222		195		215
Total mortgage loans receivable	$	1,659	$	1,950	$	1,287	$	1,556

Concentrations of Credit Risk

The following table outlines when one- to four-family and HELOCs convert to amortizing by percentage of the one- to four-family portfolio and HELOC portfolios, respectively, at June 30, 2017:



Period of Conversion to Amortizing Loan	% of One- to Four-Family Portfolio	% of Home Equity Line of Credit Portfolio
Already amortizing	96%	99%
Q3 2017	4%	—%
Q4 2017 or later	—%	1%

The average age of our mortgage loans receivable was 11.3 and 10.8 years at June 30, 2017 and December 31, 2016, respectively. Approximately 35% and 36% of the Company’s mortgage loans receivable were concentrated in California at June 30, 2017 and December 31, 2016, respectively. No other state had concentrations of mortgage loans that represented 10% or more of the Company’s mortgage loans receivable at June 30, 2017 and December 31, 2016.

Delinquent Loans

The following table shows total loans receivable by delinquency category at June 30, 2017 and December 31, 2016 (dollars in millions):



	Current		30-89 Days Delinquent		90-179 Days Delinquent		180+ Days Delinquent		Total
June 30, 2017
One- to four-family	$	1,488	$	62	$	28	$	81	$	1,659
Home equity	1,192		37		18		40		1,287
Consumer	208		4		—		—		212
Total loans receivable	$	2,888	$	103	$	46	$	121	$	3,158
December 31, 2016
One- to four-family	$	1,774	$	67	$	23	$	86	$	1,950
Home equity	1,442		43		18		53		1,556
Consumer	245		4		1		—		250
Total loans receivable	$	3,461	$	114	$	42	$	139	$	3,756

One- to four-family loans are generally secured in a first lien position by real estate assets, reducing the potential loss when compared to an unsecured loan. Home equity loans are generally secured by real estate assets; however, the majority of these loans are secured in a second lien position, which substantially increases the potential loss when compared to a first lien position. The loss severity of our second lien home equity loans was approximately 85% for a trailing twelve-month period as of June 30, 2017.

Nonperforming Loans

The following table shows the comparative data for nonperforming loans at June 30, 2017 and December 31, 2016 (dollars in millions):



	June 30,		December 31,
	2017		2016
One- to four-family	$	205	$	215
Home equity	116		136
Consumer	—		1
Total nonperforming loans receivable	$	321	$	352

At June 30, 2017 and December 31, 2016, the Company held $29 million and $35 million, respectively, of real estate owned that were acquired through foreclosure or through a deed in lieu of foreclosure or similar legal agreement. The Company held $102 million and $112 million of loans for which formal foreclosure proceedings were in process at June 30, 2017 and December 31, 2016, respectively.

Allowance for Loan Losses

The following table provides a roll forward by loan portfolio of the allowance for loan losses for the three and six months ended June 30, 2017 and 2016 (dollars in millions):



	Three Months Ended June 30, 2017
	One- to Four-Family			Home Equity			Consumer			Total
Allowance for loan losses, beginning of period	$	46		$	162		$	5		$	213
Provision (benefit) for loan losses	(18		)	(81		)	—			(99		)
Charge-offs	—			(5		)	(1		)	(6		)
Recoveries	1			6			1			8
Net (charge-offs) recoveries	1			1			—			2
Allowance for loan losses, end of period	$	29		$	82		$	5		$	116

	Three Months Ended June 30, 2016
	One- to Four-Family			Home Equity			Consumer			Total
Allowance for loan losses, beginning of period	$	49		$	267		$	6		$	322
Provision (benefit) for loan losses	(8		)	(28		)	1			(35		)
Charge-offs	—			(4		)	(2		)	(6		)
Recoveries	1			10			1			12
Net (charge-offs) recoveries	1			6			(1		)	6
Allowance for loan losses, end of period	$	42		$	245		$	6		$	293

	Six Months Ended June 30, 2017
	One- to Four-Family			Home Equity			Consumer			Total
Allowance for loan losses, beginning of period	$	45		$	171		$	5		$	221
Provision (benefit) for loan losses	(18		)	(96		)	1			(113		)
Charge-offs	—			(5		)	(3		)	(8		)
Recoveries	2			12			2			16
Net (charge-offs) recoveries	2			7			(1		)	8
Allowance for loan losses, end of period	$	29		$	82		$	5		$	116



	Six Months Ended June 30, 2016
	One- to Four-Family			Home Equity			Consumer			Total
Allowance for loan losses, beginning of period	$	40		$	307		$	6		$	353
Provision (benefit) for loan losses	—			(70		)	1			(69		)
Charge-offs	(1		)	(9		)	(4		)	(14		)
Recoveries	3			17			3			23
Net (charge-offs) recoveries	2			8			(1		)	9
Allowance for loan losses, end of period	$	42		$	245		$	6		$	293

During the three months ended June 30, 2017, the Company refined the default assumptions in the quantitative allowance methodology based on the sustained outperformance of converted mortgage loans that had been amortizing for 12 months or longer. This refinement resulted in approximately $70 million of benefit to the provision for loan losses during the second quarter of 2017. In order to refine the default assumptions around the remaining population that had not yet started amortizing or that had not reached 12 months post conversion, the Company evaluated whether the credit quality and performance of these loans was consistent with the seasoned amortizing portfolio. The Company determined that FICO scores, LTV/CLTVs and delinquency rates were comparable to the seasoned portfolio, and therefore applied the refined default assumptions to this remaining population. The current period benefit also reflected recoveries in excess of prior estimates, including recoveries of previous charge-offs.

Impaired Loans—Troubled Debt Restructurings

The following table shows a summary of the Company’s recorded investment in TDRs that were on accrual and nonaccrual status, further disaggregated by delinquency status, in addition to the recorded investment in TDRs at June 30, 2017 and December 31, 2016 (dollars in millions):



			Nonaccrual TDRs
	Accrual TDRs⁽¹⁾		Current⁽²⁾		30-89 Days Delinquent		90-179 Days Delinquent		180+ Days Delinquent		Total Recorded Investment in TDRs⁽³⁾⁽⁴⁾
June 30, 2017
One- to four-family	$	88	$	80	$	15	$	9	$	33	$	225
Home equity	111		38		9		4		16		178
Total	$	199	$	118	$	24	$	13	$	49	$	403
December 31, 2016
One- to four-family	$	97	$	90	$	16	$	8	$	35	$	246
Home equity	119		41		10		4		21		195
Total	$	216	$	131	$	26	$	12	$	56	$	441


(1)	Represents loans modified as TDRs that are current and have made six or more consecutive payments.


(2)	Represents loans modified as TDRs that are current but have not yet made six consecutive payments, bankruptcy loans and certain junior lien TDRs that have a delinquent senior lien.


(3)	The unpaid principal balance in one- to four-family TDRs was $223 million and $243 million at June 30, 2017 and December 31, 2016, respectively. For home equity loans, the recorded investment in TDRs represents the unpaid principal balance.


(4)	Total recorded investment in TDRs at June 30, 2017 consisted of $295 million of loans modified as TDRs and $108 million of loans that have been charged off due to bankruptcy notification. Total recorded investment in TDRs at December 31, 2016 consisted of $316 million of loans modified as TDRs and $125 million of loans that have been charged off due to bankruptcy notification.

The recorded investment in loans modified as TDRs includes the charge-offs related to certain loans that were written down to estimated current value of the underlying property less estimated selling costs. These charge-offs were recorded on modified loans that were delinquent in excess of 180 days, in bankruptcy, or when certain characteristics of the loan, including CLTV, borrower's credit and type of modification, cast substantial doubt on the borrower's ability to repay the loan.

The following table shows the average recorded investment and interest income recognized both on a cash and accrual basis for the Company’s TDRs during the three and six months ended June 30, 2017 and 2016 (dollars in millions):



	Average Recorded Investment				Interest Income Recognized
	Three Months Ended June 30,				Three Months Ended June 30,
	2017		2016		2017		2016
One- to four-family	$	231	$	278	$	2	$	3
Home equity	184		206		4		4
Total	$	415	$	484	$	6	$	7

	Average Recorded Investment				Interest Income Recognized
	Six Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
One- to four-family	$	236	$	280	$	5	$	5
Home equity	188		206		8		8
Total	$	424	$	486	$	13	$	13

The following table shows detailed information related to the Company’s TDRs and specific valuation allowances at June 30, 2017 and December 31, 2016 (dollars in millions):



	June 30, 2017						December 31, 2016
	Recorded Investment in TDRs		Specific Valuation Allowance		Net Investment in TDRs		Recorded Investment in TDRs		Specific Valuation Allowance		Net Investment in TDRs
With a recorded allowance:
One- to four-family	$	57	$	7	$	50	$	61	$	7	$	54
Home equity	$	95	$	38	$	57	$	111	$	51	$	60
Without a recorded allowance:⁽¹⁾
One- to four-family	$	168	$	—	$	168	$	185	$	—	$	185
Home equity	$	83	$	—	$	83	$	84	$	—	$	84
Total:
One- to four-family	$	225	$	7	$	218	$	246	$	7	$	239
Home equity	$	178	$	38	$	140	$	195	$	51	$	144


(1)	Represents loans where the discounted cash flow analysis or collateral value is equal to or exceeds the recorded investment in the loan.

The following tables provide the number of loans and post-modification balances immediately after being modified by major class during the three and six months ended June 30, 2017 and 2016 (dollars in millions):



	Three Months Ended June 30, 2017
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	4	$	1	$	—	$	1	$	2
Home equity	53	2		1		1		4
Total	57	$	3	$	1	$	2	$	6

	Three Months Ended June 30, 2016
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	7	$	2	$	—	$	1	$	3
Home equity	164	3		2		6		11
Total	171	$	5	$	2	$	7	$	14

	Six Months Ended June 30, 2017
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	12	$	3	$	—	$	1	$	4
Home equity	214	5		1		9		15
Total	226	$	8	$	1	$	10	$	19



	Six Months Ended June 30, 2016
		Interest Rate Reduction
	Number of Loans	Re-age/ Extension/ Interest Capitalization		Other with Interest Rate Reduction		Other⁽¹⁾		Total
One- to four-family	21	$	6	$	—	$	2	$	8
Home equity	357	5		3		18		26
Total	378	$	11	$	3	$	20	$	34


(1)	Amounts represent loans whose terms were modified in a manner that did not result in an interest rate reduction, including re-aged loans, extensions, and loans with capitalized interest.