Credit Loss Reserves

The table below summarizes the changes in credit loss reserves for real estate secured receivables held for investment by product and the related receivable balance by product during the three and nine months ended September 30, 2016 and 2015. As previously discussed, in September 2016 we transferred the remainder of the receivables classified as held for investment to held for sale. As a result, our entire receivable portfolio is classified as held for sale at September 30, 2016 and no longer have any associated credit loss reserves. See Note 4, “Receivables Held for Sale,” for additional information.



	Real Estate Secured
	First Lien			Second Lien			Total
	(in millions)
Three Months Ended September 30, 2016:
Credit loss reserve rollforward:
Credit loss reserve balances at beginning of period	$	102		$	152		$	254
Provision for credit losses⁽¹⁾	75			497			572
Net charge-offs:
Charge-offs⁽¹⁾⁽²⁾	(178		)	(649		)	(827		)
Recoveries	1			—			1
Total net charge-offs	(177		)	(649		)	(826		)
Credit loss reserve balance at end of period	$	—		$	—		$	—
Nine Months Ended September 30, 2016:
Credit loss reserve rollforward:
Credit loss reserve balance at beginning of period	$	137		$	174		$	311
Provision for credit losses⁽¹⁾	107			514			621
Net charge-offs:
Charge-offs⁽¹⁾⁽²⁾	(247		)	(691		)	(938		)
Recoveries	3			3			6
Total net charge-offs	(244		)	(688		)	(932		)
Credit loss reserve balance at end of period	$	—		$	—		$	—
Three Months Ended September 30, 2015:
Credit loss reserve rollforward:
Credit loss reserve balances at beginning of period	$	200		$	208		$	408
Provision for credit losses⁽¹⁾	11			7			18
Net charge-offs:
Charge-offs⁽¹⁾⁽²⁾	(63		)	(27		)	(90		)
Recoveries	4			1			5
Total net charge-offs	(59		)	(26		)	(85		)
Credit loss reserve balance at end of period	$	152		$	189		$	341
Nine Months Ended September 30, 2015:
Credit loss reserve rollforward:
Credit loss reserve balance at beginning of period	$	1,898		$	319		$	2,217
Provision for credit losses⁽¹⁾	215			22			237
Net charge-offs:
Charge-offs⁽¹⁾⁽²⁾	(1,979		)	(156		)	(2,135		)
Recoveries	18			4			22
Total net charge-offs	(1,961		)	(152		)	(2,113		)
Credit loss reserve balance at end of period	$	152		$	189		$	341



	Real Estate Secured
	First Lien		Second Lien		Total
	(in millions)
Reserve components:
Collectively evaluated for impairment	$	45	$	43	$	88
Individually evaluated for impairment⁽³⁾	95		146		241
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	12		—		12
Total credit loss reserves	$	152	$	189	$	341
Receivables held for investment:
Collectively evaluated for impairment	$	6,713	$	1,273	$	7,986
Individually evaluated for impairment⁽³⁾	661		654		1,315
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	301		27		328
Total receivables held for investment	$	7,675	$	1,954	$	9,629

⁽¹⁾

The provision for credit losses and charge-offs for real estate secured receivables during the three and nine months ended September 30, 2016 include $557 million and $576 million, respectively, related to the lower of amortized cost or fair value adjustment attributable to credit factors for receivables transferred to held for sale. For the three and nine months ended September 30, 2015, the provision for credit losses and charge-offs included $12 million and $232 million, respectively, related to the lower of amortized cost or fair value adjustment attributable to credit factors for receivables transferred to held for sale. See Note 4, "Receivables Held for Sale," for additional information. During the nine months ended September 30, 2016, net charge-offs dollars were impacted by an out of period adjustment which decreased net charge-offs by $12 million in order to properly reflect charge-offs for receivables which received a partial forgiveness of principal as a result of an account modification in prior periods. The provision for credit losses for real estate secured receivables during the nine months ended September 30, 2015 was impacted by a release of approximately $19 million associated with a correction to our credit loss reserve calculation for a segment of our portfolio.

⁽²⁾

For collateral dependent receivables that are transferred to held for sale, existing credit loss reserves at the time of transfer are recognized as a charge-off. We transferred to held for sale certain real estate secured receivables during the three and nine months ended September 30, 2016 and 2015 and, accordingly, we recognized the existing credit loss reserves on these receivables as additional charge-off totaling $244 million and $268 million during the three and nine months ended September 30, 2016, compared with $24 million and $1,617 million during the three and nine months ended September 30, 2015, respectively.

⁽³⁾

These amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow impairment analysis is then applied to these groups of TDR Loans. The receivable balance above excludes TDR Loans held for investment that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $249 million at September 30, 2015. The reserve component above excludes credit loss reserves totaling $10 million at September 30, 2015 for TDR Loans held for investment that are carried at the lower of amortized cost or fair value of the collateral less cost to sell. These receivables and credit loss reserves are reflected within receivables and credit loss reserves carried at the lower of amortized cost or fair value of the collateral less cost to sell in the table above.