Receivables

6 Months Ended

Jun. 30, 2011

Receivables [Abstract]

Receivables

5.   Receivables

Receivables consisted of the following:

	June 30,			December 31,
	2011			2010
	(in millions)
Real estate secured:
First lien	$	40,672		$	43,859
Second lien		4,919			5,477
Total real estate secured		45,591			49,336
Credit card		9,212			9,897
Personal non-credit card		6,012			7,117
Commercial and other		26			33
Total receivables		60,841			66,383
HSBC acquisition purchase accounting fair value adjustments		41			43
Accrued finance income		1,408			1,521
Credit loss reserves		(5,325	)		(6,491	)
Unearned credit insurance premiums and claims reserves		(88	)		(123	)
Total receivables, net	$	56,877		$	61,333

HSBC acquisition purchase accounting fair value adjustments represent adjustments which have been “pushed down” to record our receivables at fair value at the date of acquisition by HSBC.

Net deferred origination fees for real estate secured and personal non-credit card receivables totaled $277 million and $304 million at June 30, 2011 and December 31, 2010, respectively. Annual fees for credit card receivables are netted with direct lending costs, deferred, and amortized on a straight-line basis over one year. Deferred annual fees for credit card receivables, net of related direct lending costs, totaled $142 million and $134 million at June 30, 2011 and December 31, 2010, respectively.

At June 30, 2011 and December 31, 2010, we had a net unamortized premium on our receivables of $202 million and $254 million, respectively. Unearned income on personal non-credit card receivables totaled $16 million and $30 million at June 30, 2011 and December 31, 2010, respectively.

Collateralized funding transactions  Secured financings issued under our current conduit credit facilities as well as secured financings previously issued under public trusts with a balance of $3.8 billion at June 30, 2011 are secured by $5.9 billion of closed-end real estate secured and credit card receivables. Secured financings issued under conduit credit facilities as well as secured financings previously issued under public trusts with a balance of $4.1 billion at December 31, 2010 were secured by $6.3 billion of closed-end real estate secured and credit card receivables.

Age Analysis of Past Due Receivables  The following tables summarize the past due status of our receivables at June 30, 2011 and December 31, 2010. The aging of past due amounts is determined based on the contractual delinquency status of payments made under the receivable. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification. Additionally, delinquency status is also impacted by payment percentage requirements which vary between servicing platforms.

	Days Past Due						Total				Total
June 30, 2011	1 – 29 days		30 – 89 days		90+ days		Past Due		Current		Receivables(1)
	(in millions)
Real estate secured:
First lien	$	6,759	$	4,110	$	5,353	$	16,222	$	24,450	$	40,672
Second lien		870		456		297		1,623		3,296		4,919
Total real estate secured		7,629		4,566		5,650		17,845		27,746		45,591
Credit card		428		288		274		990		8,222		9,212
Personal non-credit card		808		439		307		1,554		4,458		6,012
Commercial and other		-		-		-		-		26		26
Total receivables	$	8,865	$	5,293	$	6,231	$	20,389	$	40,452	$	60,841

	Days Past Due						Total				Total
December 31, 2010	1 – 29 days		30 – 89 days		90+ days		Past Due		Current		Receivables(1)
	(in millions)
Real estate secured:
First lien	$	7,024	$	4,909	$	5,977	$	17,910	$	25,949	$	43,859
Second lien		935		568		421		1,924		3,553		5,477
Total real estate secured		7,959		5,477		6,398		19,834		29,502		49,336
Credit card		473		363		437		1,273		8,624		9,897
Personal non-credit card		968		604		507		2,079		5,038		7,117
Commercial and other		-		-		-		-		33		33
Total receivables	$	9,400	$	6,444	$	7,342	$	23,186	$	43,197	$	66,383

⁽¹⁾ The receivable balances included in this table reflects the principal amount outstanding on the loan and various basis adjustments to the loan such as deferred fees and costs on originated loans, purchase accounting fair value adjustments and premiums or discounts on purchased loans. However, these basis adjustments on the loans are excluded in other presentations regarding delinquent account balances.

Nonperforming receivables Nonaccrual receivables (including receivables held for sale) and accruing receivables 90 or more days delinquent are summarized in the following table.

	June 30,			December 31,
	2011			2010
	(dollars are in millions)
Nonperforming receivables:
Credit card (accruing receivables 90 or more days delinquent)(1)	$	280		$	447
Nonaccrual receivable portfolios(2):
Real estate secured(3)		5,619			6,360
Personal non-credit card		320			530
Total nonperforming receivables		6,219			7,337
Real estate owned		588			962
Total nonperforming assets	$	6,807		$	8,299
Credit loss reserves as a percent of nonperforming receivables held for investment(4)		85.7	%		88.5	%

(1)	Credit card receivables continue to accrue interest after they become 90 or more days delinquent, consistent with industry practice.
(2)	Nonaccrual receivables reflect all loans which are 90 or more days contractually delinquent. Nonaccrual receivables do not include receivables which have made qualifying payments and have been re-aged and the contractual delinquency status reset to current as such activity, in our judgment, evidences continued payment probability. If a re-aged loan subsequently experiences payment default and becomes 90 or more days contractually delinquent, it will be reported as nonaccrual.
(3)	At both June 30, 2011 and December 31, 2010, nonaccrual real estate secured receivables include $4.1 billion of receivables that are carried at the lower of cost or net realizable value less cost to sell.
(4)	Ratio represents credit loss reserves divided by the corresponding outstanding balance of total nonperforming receivables. Nonperforming receivables include accruing loans contractually past due 90 days or more.

Interest income on nonaccrual receivables that would have been recorded if the nonaccrual receivables had been current in accordance with contractual terms during the period was approximately $429 million during the six months ended June 30, 2011 and approximately $472 million during the six months ended June 30, 2010. Interest income that was recorded on these nonaccrual loans was approximately $96 million during the six months ended June 30, 2011 and approximately $155 million during the six months ended June 30, 2010 of which portions have been written-off.

Troubled Debt Restructurings The following table presents information about our TDR Loans:

	June 30,		December 31,
	2011		2010
	(in millions)
TDR Loans(1)(2):
Real estate secured:
First lien	$	8,444	$	8,697
Second lien		581		647
Total real estate secured(3)(4)		9,025		9,344
Credit card		355		427
Personal non-credit card		615		704
Total TDR Loans	$	9,995	$	10,475

	June 30,		December 31,
	2011		2010
	(in millions)
Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	1,730	$	1,728
Second lien		218		258
Total real estate secured		1,948		1,986
Credit card		129		154
Personal non-credit card		330		395
Total credit loss reserves for TDR Loans(1)(5)	$	2,407	$	2,535

⁽¹⁾ TDR Loans are considered to be impaired loans regardless of accrual status.

⁽²⁾ The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans. The following table reflects the unpaid principal balance of TDR Loans:

	June 30,		December 31,
	2011		2010
	(in millions)
Real estate secured:
First lien	$	9,589	$	9,650
Second lien		636		709
Total real estate secured		10,225		10,359
Credit card		359		434
Personal non-credit card		616		705
Total TDR Loans	$	11,200	$	11,498

(3)	At June 30, 2011 and December 31, 2010, TDR Loans totaling $1.7 billion and $1.5 billion, respectively, are recorded at net realizable value less cost to sell and, therefore, generally do not have credit loss reserves associated with them.
(4)	The following table summarizes real estate secured TDR Loans for our Mortgage Services and Consumer Lending businesses:

	June 30,		December 31,
	2011		2010
	(in millions)
Mortgage Services	$	3,839	$	4,114
Consumer Lending		5,186		5,230
Total real estate secured	$	9,025	$	9,344

⁽⁵⁾ Included in credit loss reserves.

Additional information relating to TDR Loans is presented in the table below:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(in millions)
Average balance of TDR Loans:
Real estate secured:
First lien	$	8,493	$	8,999	$	8,547	$	8,890
Second lien		596		724		613		721
Total real estate secured		9,089		9,723		9,160		9,611
Credit card		373		478		391		478
Personal non-credit card		632		754		653		747
Total average balance of TDR Loans	$	10,094	$	10,955	$	10,204	$	10,836
Interest income recognized on TDR Loans:
Real estate secured:
First lien	$	103	$	105	$	200	$	209
Second lien		10		10		17		20
Total real estate secured		113		115		217		229
Credit card		7		14		16		28
Personal non-credit card		12		12		25		22
Total interest income recognized on TDR Loans	$	132	$	141	$	258	$	279

Consumer Receivable Credit Quality Indicators Credit quality indicators used for consumer receivables include a loan’s delinquency status, whether the loan is performing and whether the loan is considered a TDR Loan.

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total receivables and receivables held for sale (“delinquency ratio”) for our loan portfolio:

	June 30, 2011					December 31, 2010
	Dollars of		Delinquency			Dollars of		Delinquency
	Delinquency		Ratio			Delinquency		Ratio
	(dollars are in millions)
Real estate secured:
First lien	$	6,568		16.15	%	$	7,504		17.11	%
Second lien		478		9.71			667		12.18
Total real estate secured		7,046		15.45			8,171		16.56
Credit card		406		4.40			612		6.18
Personal non-credit card		489		8.14			779		10.94
Total	$	7,941		13.06	%	$	9,562		14.41	%

Nonperforming The status of our consumer receivable portfolio are summarized in the following table:

					Accruing Loans
					Contractually Past
	Performing		Nonaccrual		Due 90 days or
	Loans		Loans		More(1)		Total
	(in millions)
At June 30, 2011
Real estate secured	$	39,972	$	5,619	$	-	$	45,591
Credit cards		8,932		-		280		9,212
Personal non-credit card		5,692		320		-		6,012
Total	$	54,596	$	5,939	$	280	$	60,815
At December 31, 2010
Real estate secured	$	42,976	$	6,360	$	-	$	49,336
Credit cards		9,450		-		447		9,897
Personal non-credit card		6,587		530		-		7,117
Total	$	59,013	$	6,890	$	447	$	66,350

⁽¹⁾ Credit card receivables continue to accrue interest after they become 90 days or more delinquent, consistent with industry practice.

Troubled debt restructurings See discussion of TDR Loans above for further details on this credit quality indicator.

Concentrations of Credit Risk We have historically served non-conforming and non-prime consumers. Such customers are individuals who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit related actions. The majority of our secured receivables and receivables held for sale have high loan-to-value ratios. Our receivables and receivables held for sale portfolios include the following types of loans:

•  Interest-only loans – A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer’s financial position could affect their ability to repay the loan in the future when the principal payments are required.

•  ARM loans – A loan which allows the lender to adjust pricing on the loan in line with interest rate movements. A customer’s financial situation and the general interest rate environment at the time of the interest rate reset could affect the customer’s ability to repay or refinance the loan after adjustment.

•  Stated income loans – Loans underwritten based upon the loan applicant’s representation of annual income, which is not verified by receipt of supporting documentation.

The following table summarizes the outstanding balances of interest-only loans, ARM loans and stated income loans in our receivable portfolios at June 30, 2011 and December 31, 2010:

	June 30,		December 31,
	2011		2010
	(in billions)
Interest-only loans	$	1.1	$	1.3
ARM loans(1)(2)		6.6		7.5
Stated income loans		2.4		2.7

(1)	Receivable classification as ARM loans is based on the classification at the time of receivable origination and does not reflect any changes in the classification that may have occurred as a result of any loan modification.
(2)	We do not have any adjustable rate mortgages loans in our portfolio where the borrower is offered options on the amount of monthly payment they can make.

At June 30, 2011 and December 31, 2010, interest-only, ARM and stated income loans comprised 17 percent and 18 percent, respectively, of real estate secured receivables, including receivables held for sale.