Receivables

12 Months Ended

Dec. 31, 2011

Receivables, Credit Loss Reserves [Abstract]

Receivables

6.    Receivables

Receivables consisted of the following:

At December 31,	2011			2010
	(in millions)
Real estate secured:
First lien	$	38,235		$	43,859
Second lien		4,478			5,477
Total real estate secured		42,713			49,336
Personal non-credit card		5,196			7,117
Commercial and other		27			33
Total receivables		47,936			56,486
HSBC acquisition purchase accounting fair value adjustments		36			43
Accrued finance income		1,184			1,444
Credit loss reserve for owned receivables		(5,952	)		(5,512	)
Unearned credit insurance premiums and claims reserves		(76	)		(123	)
Total receivables, net	$	43,128		$	52,338

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 $254 million and $304 million at December 31, 2011 and 2010, respectively, and are included in the receivable balance.

Net unamortized premium on our receivables totaled $169 million and $254 million at December 31, 2011 and 2010, respectively. Unearned income on personal non-credit card receivables totaled $8 million and $30 million at December 31, 2011 and 2010, respectively, and is included in the receivable balance.

Collateralized funding transactions Secured financings previously issued under public trusts with a balance of $3.3 billion at December 31, 2011 are secured by $5.3 billion of closed-end real estate secured receivables. Secured financings previously issued under public trusts with a balance of $3.9 billion at December 31, 2010 were secured by $5.9 billion of closed-end real estate secured receivables.

Age Analysis of Past Due Receivables The following tables summarize the past due status of our receivables at December 31, 2011 and 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 Past Due				Total Receivables(1)
December 31, 2011	1 – 29 days		30 – 89 days		90+ days				Current
	(in millions)
Real estate secured:
First lien	$	5,828	$	4,028	$	6,248	$	16,104	$	22,131	$	38,235
Second lien		754		416		329		1,499		2,979		4,478
Total real estate secured (2)		6,582		4,444		6,577		17,603		25,110		42,713
Personal non-credit card		686		388		315		1,389		3,807		5,196
Commercial and other		-		-		-		-		27		27
Total receivables	$	7,268	$	4,832	$	6,892	$	18,992	$	28,944	$	47,936

	Days Past Due						Total Past Due				Total Receivables(1)
December 31, 2010	1 – 29 days		30 – 89 days		90+ days				Current
	(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 (2)		7,959		5,477		6,398		19,834		29,502		49,336
Personal non-credit card		968		604		507		2,079		5,038		7,117
Commercial and other		-		-		-		-		33		33
Total receivables	$	8,927	$	6,081	$	6,905	$	21,913	$	34,573	$	56,486

⁽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.

⁽²⁾  At December 31, 2011 and 2010, approximately 57 percent and 54 percent, respectively, of our real estate secured receivables have been either modified and/or re-aged.

Contractual maturities Contractual maturities of our receivables were as follows:

	2012		2013		2014		2015		2016		Thereafter		Total
	(in millions)
Real estate secured
First lien	$	111	$	37	$	72	$	89	$	135	$	37,791	$	38,235
Second lien		78		31		32		26		47		4,264		4,478
Total real estate secured		189		68		104		115		182		42,055		42,713
Personal non-credit card		186		108		65		47		69		4,721		5,196
Commercial and other		27		-		-		-		-		-		27
Total	$	402	$	176	$	169	$	162	$	251	$	46,776	$	47,936

As a substantial portion of consumer receivables, based on our experience, will be repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections.

The following table summarizes contractual maturities of receivables due after one year by repricing characteristic:

At December 31, 2011	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$	678	$	41,473
Receivables at floating or adjustable rates		80		5,303
Total	$	758	$	46,776

Nonperforming receivables Nonaccrual receivables are summarized in the following table.

At December 31,	2011			2010
	(dollars are in millions)
Nonaccrual receivable portfolios:
Real estate secured (1)	$	6,544		$	6,360
Personal non-credit card		330			530
Total nonperforming receivables		6,874			6,890
Real estate owned		299			962
Total nonperforming assets	$	7,173		$	7,852
Credit loss reserves as a percent of nonperforming receivables		86.6	%		80.0	%

⁽¹⁾  At December 31, 2011 and 2010, nonaccrual real estate secured receivables include $4.7 billion and $4.1 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value less cost to sell.

Nonaccrual consumer receivables for continuing operations reflect all receivables which are 90 or more days contractually delinquent and totaled $6.9 billion at both December 31, 2011 and 2010. Nonaccrual receivables do not include receivables which have made qualifying payments and have been re-aged and the contractual delinquency status reset to current. If a re-aged loan subsequently experiences payment default and becomes 90 or more days contractually delinquent, it will be reported as nonaccrual. 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 $1.2 billion during 2011 and approximately $1.3 billion during 2010. Interest income that was recorded on these nonaccrual loans was approximately $462 million during 2011 and approximately $625 million during 2010 of which portions have been written-off as a result of the process to record receivables greater than 180 days delinquent at net realizable value less cost to sell.

Troubled Debt Restructurings Troubled debt restructurings represent receivables for which the original contractual terms have been modified to provide for terms that are less than what we would be willing to accept for new receivables with comparable risk because of deterioration in the borrower’s financial status.

During the third quarter of 2011 we adopted a new Accounting Standards Update which provided additional guidance to determine whether a restructuring of a receivable meets the criteria to be considered a TDR Loan. Under this new guidance, we have determined that substantially all receivables modified as a result of a financial difficulty, regardless of whether the modification was permanent or temporary, including all modifications with trial periods, should be reported as TDR Loans. Additionally, we have determined that all re-ages, except first time early stage delinquency re-ages where the customer has not been granted a prior re-age or modification since the first quarter of 2007, should be considered TDR Loans. As required, the new guidance was applied retrospectively to restructurings occurring on or after January 1, 2011 and has resulted in the reporting of an additional $4.1 billion of real estate secured receivables and an additional $717 million of personal non-credit card receivables as TDR Loans during the third quarter of 2011 with credit loss reserves of $1.3 billion associated with these receivables at September 30, 2011. An incremental loan loss provision for these receivables using a discounted cash flow analysis of approximately $925 million was recorded during the third quarter of 2011. The TDR Loan balances and related credit loss reserves for consumer receivables reported as of December 31, 2010 use our previous definition of TDR Loans and as such, are not directly comparable to the current period balances. At December 31, 2011, $1.0 billion of first time early stage delinquency accounts which had been re-aged since January 1, 2011, were not reported as TDR Loans.

Modifications for real estate secured and personal non-credit card receivables may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal. A substantial amount of our modifications involve interest rate reductions which lower the amount of finance income we are contractually entitled to receive in future periods. By lowering the interest rate and making other changes to the loan terms, we believe we are able to increase the amount of cash flow that will ultimately be collected from the loan, given the borrower’s financial condition. Re-aging is an account management action that results in the resetting of the contractual delinquency status of an account to current. TDR Loans are reserved for based on the present value of expected future cash flows discounted at the loans’ original effective interest rate which generally results in a higher reserve requirement for these loans. Once a loan is classified as a TDR, it continues to be reported as such until it is paid off or charged-off.

The following table presents information about receivables which as a result of any account management action taken during 2011 became classified as TDR Loans. During the year ended December 31, 2011, substantially all of the actions reflect re-aging of past due accounts or loan modifications involving interest rate reductions.

Year Ended December 31,	2011
	(in millions)
Real estate secured:
First lien	$	6,145
Second lien		625
Total real estate secured		6,770
Personal non-credit card		1,058
Total	$	7,828

The following table presents information about our TDR Loans and the related credit loss reserves for TDR Loans:

At December 31,	2011		2010
	(in millions)
TDR Loans (1)(2):
Real estate secured:
First lien	$	13,186	$	8,697
Second lien		1,057		647
Total real estate secured (3)(4)		14,243		9,344
Personal non-credit card		1,341		704
Total TDR Loans	$	15,584	$	10,048

At December 31,	2011		2010
	(in millions)
Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	3,169	$	1,728
Second lien		534		258
Total real estate secured		3,703		1,986
Personal non-credit card		706		395
Total credit loss reserves for TDR Loans (5)	$	4,409	$	2,381

⁽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:

At December 31,	2011		2010
	(in millions)
Real estate secured:
First lien	$	14,813	$	9,650
Second lien		1,125		709
Total real estate secured		15,938		10,359
Personal non-credit card		1,341		705
Total TDR Loans	$	17,279	$	11,064

⁽³⁾  At December 31, 2011 and 2010, TDR Loans totaling $2.5 billion and $1.5 billion, respectively, are recorded at the lower of amortized cost or fair value less cost to sell.

⁽⁴⁾  The following table summarizes real estate secured TDR Loans for our Mortgage Services and Consumer Lending businesses:

At December 31,	2011		2010
	(in millions)
Mortgage Services	$	4,900	$	4,114
Consumer Lending		9,343		5,230
Total real estate secured	$	14,243	$	9,344

⁽⁵⁾  Included in credit loss reserves.

The following table discloses receivables which were classified as TDR Loans during the previous 12 months which became sixty days or greater contractually delinquent during 2011:

Year Ended December 31,	2011
Real estate secured:
First lien	$	1,941
Second lien		189
Total real estate secured		2,130
Personal non-credit card		418
Total	$	2,548

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

Year Ended December 31,	2011		2010		2009
	(in millions)
Average balance of TDR Loans (1):
Real estate secured (2)	$	12,351	$	9,534	$	5,743
Personal non-credit card		1,161		736		731
Total average balance of TDR Loans	$	13,512	$	10,270	$	6,474
Interest income recognized on TDR Loans
Real estate secured	$	652	$	446	$	323
Personal non-credit card		133		47		53
Total interest income recognized on TDR Loans	$	785	$	493	$	376

⁽¹⁾  The increase in the average balance of TDR Loans during 2011 reflects, in part, the higher levels of receivables considered to be TDR Loans as a result of the adoption of the new accounting guidance as discussed above. These averages assume the new guidelines were adopted January 1, 2011.

⁽²⁾  The following summarizes the average balance of real estate secured TDR Loans and interest income recognized on real estate secured TDR Loans split between first and second lien loans for the year ended December 31, 2010:

Year Ended December 31,	2011		2010
	(in millions)
Average balance of TDR Loans:
First lien	$	11,450	$	8,832
Second lien		901		702
Total average balance of TDR Loans	$	12,351	$	9,534
Interest income recognized on TDR Loans:
First lien	$	590	$	407
Second lien		62		39
Total interest income recognized on TDR Loans	$	652	$	446

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:

	December 31, 2011					December 31, 2010
	Dollars of Delinquency		Delinquency Ratio			Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Real estate secured:
First lien	$	7,605		19.89	%	$	7,504		17.11	%
Second lien		500		11.16			667		12.18
Total real estate secured		8,105		18.98			8,171		16.56
Personal non-credit card		486		9.35			779		10.94
Total	$	8,591		17.93	%	$	8,950		15.85	%

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

	Performing Loans		Nonaccrual Loans		Total
At December 31, 2011
Real estate secured (1)	$	36,169	$	6,544	$	42,713
Personal non-credit card		4,866		330		5,196
Total(2)	$	41,035	$	6,874	$	47,909
At December 31, 2010
Real estate secured (1)	$	42,976	$	6,360	$	49,336
Personal non-credit card		6,587		530		7,117
Total(2)	$	49,563	$	6,890	$	56,453

⁽¹⁾  At December 31, 2011 and 2010, nonperforming real estate secured receivables include $4.7 billion and $4.1 billion, respectively, of receivables that are carried at fair value less cost to sell.

⁽²⁾  At December 31, 2011 and 2010, nonperforming receivables for continuing operations include $2.9 billion and $1.9 billion, respectively, which are TDR Loans, some of which may also be carried at fair value less cost to sell.

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